Amy Rubenstein: Why Invest in Class C Apartment Buildings? This Real Estate Mogul Tells All....

In this episode of "The Gould Mine," Amy Rubenstein, CEO of Clear Investment Group, delves into her 20 years of experience in multifamily investing, particularly in class C properties. Amy’s unique blend of theater and real estate backgrounds has shaped her innovative approach to problem-solving in the industry. She shares her journey from a successful home flipper to focusing on multifamily investments, highlighting the potential and satisfaction of revitalizing Class C properties and providing quality housing.

Amy discusses her investment strategy, which involves stabilizing and selling properties within 2 to 4 years, and the differences between rehabbing single-family homes and multifamily properties. She advises on investing in stable submarkets outside of primary locations like New York City and California, emphasizing the need for calculated risks and awareness of market trends.

Throughout the episode, Amy underscores the importance of continuous learning, mentorship, and self-awareness in real estate. She also touches on the challenges of raising capital and the significance of building strong relationships for long-term success. This episode is packed with valuable insights for those interested in multifamily real estate investing, offering a rich perspective on achieving success in this dynamic field.

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Transcript

•  What's up goldminers. In today's episode. We welcome to the show Amy Rubenstein the CEO of clear Investment Group. A private Equity Fund that specializes in multifam investing Amy now has over two decades of multif family investing experience and she is a treasure Trove of knowledge. We really cover the Gambit when it comes to topics on today's episode. We start with Amy's background in theater and then we quickly shift into some of her investing strategies and why she has chosen to invest primarily in class C multif family. We also spend some time talking about firsttime Investors and the importance of building the right team and surrounding yourself with the right people at the start and finally we talk about the current market conditions what Amy and her group are doing to overcome the conditions and how you can overcome them as well lots of knowledge bombs being dropped in this episode so without further Ado everyone. Let's welcome to the show Amy Rubenstein Amy welcome to the gold mine thank you I'm happy to be here yeah well. You know I I know that we share like a very common background. So I don't know if you know this but like I have a theater background as well. And I was also a realtor so that's great. There's not that many of us I know like actor turned. Realtor turned real estate investor so how how does that happen because you must get that question a lot right because I know I do they're like how did that like how did you fall into all of that like actor. I was yes yeah yeah you know I think it's a um. I think because real estate is a relatively easy field to J into without a huge background in real estate uh for better for worse. Uh anyone can enter the game of Real Estate and I think that that sort of and then you can work the hours you want to work and I think that kind of that flexibility paired with a artist lifestyle is a good um. It's a good pair but it does use different parts of your brain. So uh I it is unusual. I don't often meet a ton of actors who how do you feel like that background has kind of influenced your approach. I think it makes me a better Problem Solver. I think it was a blessing and a curse that I came into um the industry without a ton of preconceived notions uh also with running a team. You know. I I haven't really worked for another large comp or any other company. I had lots of ads and ends jobs but never worked for a real estate company and so I didn't see how other people did it. And I think that has a lot of negatives too right. There's a lot of Reinventing the wheel but it also allows us to come at things with a fresh set of eyes to commit problems in creative ways. Enough to have any preconceived notions of this is how you do things so you know pluses and minuses yeah. No absolutely and and I I really that's an interesting take on it. Like it may makes you a better Problem Solver. I well you and I both know real estate is all about solving problems right like the the the the the bigger. The checks the larger the problems we solve right so it's interesting that you say that here's another question for you because there might be some agents listening to this podcast right now and there's been like there's like this weird thing where like it's like the like the dealer that doesn't like dip into their own stash sort of syndrome where like Realtors and Brokers don't often kind of make that leap into real estate investing. I don't know if you've noticed that as well. But I certainly have noticed it here in in my area where you know like a lot like a lot of the Realtors here in the area don't even own their own houses right so like how do you how do you um. How do you break that cycle to start investing in real estate exactly like especially like being in it right like a lot of a lot of Realtors don't even don't even start yeah. It's funny because I used to ask Brokers at all the time in the beginning of of my career people you know Brokers can make really great money and and and really large check sizes without a lot of um Financial Risk. They're risking their tide or efforts because you can get through a lot of deals that that fall through um. But you don't have to put up Capital to be a real estate broker other than ow the rent for your office and you know your your staff and such and that's not nothing but um it is a it is I think a less risky Pat Uh and you can broker through any market and so I think people get used to that um that income without having taking to take those risks and when you look at going into a real estate deal and putting in a large Chun of money it. Uh you know doing that the first couple times is is kind of hard to swallow. So I don't interesting that's yeah that's interesting so kind of walk me through the the path that you took cuz it. It's a it's definitely an interesting path. So you you're in in the theater and then one day you just say like I'm I'm going to start selling houses right so so and then eventually you start investing into multif family. Walk walk me through that Journey so I never um. I never bought and sold houses for other uh people. I never brokered other people's deals um the way that I started was uh very accidental. I ended up buying a home and having to sell it 6 months later and that wasn't the intention um I had had nothing to do with real estate before but but when I bought the house it was kind of a mess and I fixed it up and then when I sold it. I made money so I thought that's kind of interesting and so then having moved from there. I bought a condo and the same thing happened and it increased in value and I thought well. This is a whole lot easier to make money this way than all. The other odds and ends jobs that I had as an actor at that time. Waitressing I was substitute teaching. I worked in retail like all sorts of different jobs yeah and so I decided to learn a little bit about real estate. What what was it and how did it work and how could I keep doing this because I thought well if I could do this with a house in a condo. Maybe I could do this with a small apartment building and so I studied to get my broker's license um and I had a friend who was working in Investment Banking and he came across a um. A model that analyzed multif family deals apartment deals and shared it with me and I started playing around with it. Just analyzing deals that I would see um until it felt like I understood it and I found a deal that I thought was great and at that point I knew this much about real estate the teeny teeny pit and um I went out to a couple um friends and family members and said hey let I want to buy this this apartment building.
•  It's six Studios. It's all vacant it needs to be fixed up and um. It's in a great area and I think I can turn it around and and sell it and so I I I got a couple people to say yes and um did did you know everything kind. I get it all going and leased it up and um put it on the market and sold it probably about six months later and this wasn't because I was so smart. This was because the market was going up um and and there was value to add to it so you know. That is what I do now is. I only buy deals that have extreme value add to the value ad was. This was a vacant building that was that was sitting there. It need to be fixed up and leased and so that was the value ad but it was pushed forward and propelled by the fact that the market was Rising. Now. This was in 2003 that I bought my first building and that's how I got in real estate sold that one bought more sold. Those two bought four more and kept going so you mentioned that you do like a lot of value ad and and I know that like the majority of the properties that you buy are like primarily Class C come walk me through through is that correct mostly classic yeah so walk me like walk me through why that is like why why why have you chosen to focus on that asset uh like that specific class of of multi family. Yeah and I really love cclass assets or Workforce housing um for for many reasons. Uh I we I over the last 20 years I've dabbled in all sorts of of real estate and all different asset classes. But cclass is where I've really uh love would have really loved the most where I've really done the best um a few things that I really love about it. I take over properties that are having a lot of problems and I can turn them around pretty quickly and I love seeing that transformation. It's very very tangible. I can watch a property get cleaned up um in a pretty extreme way and you don't always get that with other asset classes with A's and B's um they're not always deteriorated enough for you get to see that list and with de class You Can't Always Get it to a better place and so I that's one of the reasons I really love cclass. It really you can really see and feel the differences uh I also really like the the renter base. These are um. These are people who are going to be lifelong renters. They're they're renters by necessity uh we're not competing with the home markets. We are trying to provide people with the best product possible somewhere where they can feel safe to live a place that they can feel proud of. We really love making our look great and feel great um so that people are loyal to us so that our tenants can see that that we care and that we put efforts in um in a different way uh you know when you're when you're a class a landlord. You're really focused a lot more on the the design side. The amenities the you know really high. Things are catering to um uh to a lot more uh disposable income and I just I don't have that that Vision I just I like to provide the basic needs in a really in a really um uh productive and beautiful way. It's just different and also you just the numbers and classy real estate. Um don't really compare to to class a real estate as far as cash flow you just get higher cash flow in in class seat. How do you balance the the the need for like short-term returns uh like how do you like how do you balance that between like okay. For example you've you're you're renovating. You know a Class C that that's going to take a lot of cash infusion right like that's going to take a large cash infusion to kind of get it up to speed. So how when you're like underwriting these deals how do you balance out the like. The initial cash infusion with like the turn aspect of it like what what are you looking at in terms of your underwriting model like what how do you balance. The the The Upfront cost versus like the long like the need for the return so like how are you looking at those yeah so it in the short term when we're looking at a project we during our new diligence period.
•  We're figuring out. What does this project need as far as a capital Fusion to get us to a place of stabilization and so for stabilization we're going to consider that to be um Market occupancy. So it's usually in the mid 90% range or whatever that particular Market is somewhere between you know 90 and 98% um. We're going to say. Rents are within a certain amount of Market rents uh when we look at Market rents in a in a submarket we're looking at like what are the average rents of our type of asset classs. We like to be right in that in that middle range and then we're looking to to make sure that we've taken care of all um deferred maintenance um and that the buildings are safe andh habitable um so that we don't have any code violations. Uh we beautified them a bit um so those are the things that we need to get to and so when we're analyzing building. We're saying how how much is that going to cost for us to get there and how long is that going to take and we're taking that upfront investment and putting in the deal basically as if you're adding it to the purchase price and then we're making sure that once we are stabilized that we're hitting a certain return so the short term is about infusing the property with the cash that it needs and the work that it needs to get there and then the long term is you know once you're there. What does that cash flow look like we happen to be short-term wers so we are really taking a project to stabilization. At that point we're usually out of the deal. We usually sell the deal at that point and that could take anywhere from a two to two to four well. Usually a stabilization for us is 12 to 36 months. So we're usually in Feld for two to four years um at that point. Then our plan a is that short-term plan we're going to get to stabilization and we are going to sell our plan B if we couldn't sell for some reason is that we're going to sit and have cash flow kind is that long-term plan we're just not long-term holders but if we were that would be the long-term plan as a sit now and reap the benefits of what you've just um the position. You just got met property into yeah absolutely so and that makes perfect sense so you typically have like less than a 5-year hold period you're looking at like a like a a rehab phase of like what 12 to 24 months depending on the project right and then a a stabilization period of like another two to four years and then we're selling usually in that like four to six year. Window usually um two to four but yes two to four like from from the time that you that you close on the property to the time that you sell it. It's usually a two to four year time period. Cor that's awesome okay got it so in other words. You are I me for lack of a better term. Like most of these multifamilies you're you're flipping right. So you're you're you're essentially like rehabing the property restabilizing it and then exiting correct yeah. So would you would you say that like for someone for example like for someone that has like a lot of experience flipping single family homes have you done many any single families Amy I did in in 20089 when the world started to change um. I was working out of in Los Angeles. Uh all of our deals were in Los Angeles at that time and the market really froze up for apartment buildings. So we weren't able to really buy or sell anything and we needed it and at the same time it it was a rough. It was a rough time for um for landlords or for lots of Industry. Uh but rents were really dropping and occupancy was really dropping at that time and so we needed a way to make sure that we could Infuse extra Capital into the property and the only thing that we could find to buy at that time was houset. There were a lot of closures at that time on houses and so what we started doing is. There was a bit of a loophole in in um LA County where you can add a 500 square foot addition without permits and so we were able to start adding um bedrooms and bathrooms to entry level homes and at that time people were struggling to buy foreclosure of homes if they wanted to live in them because lenders not lending unless the home was in perfect condition for new buyers and so we served as a middleman um in this point where we would buy houses that were foreclosed on that needed a fix up and then selling them off to entry level buyers and we did about 70 single family homes in 18 months so wow but that was really my only experience with home clipping got. It got it well. I mean that that's 70 houses right so that's quite a few. It was a lot so what what are the core differences like if if someone is is in you know in the single family space and they're thinking about making the leap into multif family. What are some of the the core differences that you experience between say rehabbing a single family to rehabbing an entire like apartment building yeah. So I stayed in that same world of SE class when we were doing the houses we wer renovating you know a luxury comp and so in that sense it was very similar we were trying to be very practical about what we were doing. If the lifespan of the kitchen cabinets were not completed we were going to um repair them upgrade them paint them as opposed to replace them um if they had seen their life. Then we would replace them but it's that same sort of idea of keeping what you can renovating what you can and replacing what needs to be replaced. We're not trying to hide. Anything or um or you know put a a askk and anything but we try to preserve any sort of value that does exist and then enhance that so in that sense it's very similar. The difference is what is your what is your exit strategy. It's your buyer pool that's very different so uh and that changes as you grow in size of of um. Whether it's a house a small apartment building a midsize apartment building a large apartment building but for houses. It's a housing sales are are very different than apartment building sales because you were selling to the person who's going to live there. So it's a very emotional decision so you want to do things to make the the home feel like someone um like someone is going to put their life investment into this and then their family there for a you know permanent period of time. That's very different than selling to. It's more like renting an apartment than selling to um an investor who is going to go rent. These apartments out to other people. So it's a it's a little bit less emotional when you get into apartment buildings. It's more about m whereas homes are are more emotion.
•  Driven. Yeah I I totally get that switching topics a little bit because you had mentioned the LA market and that kind of peaked my curiosity so which markets predominantly are you focused in right. Now so we look everywhere around the country. Uh we will really go wherever the deal is. We have a minimum size of 300 units for a submarket to enter new submarket so um. Because of that we're able to really Jump Around uh if we have that minimum that that minimum size that allows us to set up shop in any new submarket so um Florida Texas Louisiana Georgia New York Illinois Ohio Washington DC um we don't do we really haven't bought in California in 10 years um um it. It's just we tend to not buy any primary locations or primary cities. Um. We don't buy a lot in New York New York City or in California because it is so um. It's so focused the market so focused on appreciation natural appreciation yeah that the numbers don't make sense to me. You just can't see a lot of cash flow in those markets and so we don't. We tend to stay away from them. They don't make sense to anyway. Amy not just you well. You know I spent 10 years in that in that market and so yeah even then it didn't. It didn't make sense from a math standpoint but we were really biing into the appreciation side and at that point was quite a bit of speculation about what the market is going to do in that continued appreciation of that market and we never really cash flowed uh for owning those properties. For 10 years. In California we never really were cash flow people. We were always we were still at value and selling right but we would we would operate without cash flow and sell without cash flow and the next owner would take over without cash flow and that was just how California Market works. And if you're in it you can kind of see how to stay in that with soon as you get out of it. It's almost impossible to get yourself back into it because you're making you know you can make 10 to 12% cash flow anywhere outside of California. All of a sudden you want to go back to California not make anything it's very hard to to jump back back into that that yeah. That's I could I could definitely see that and you know. It's. It's an interesting thing right now because there are certain markets in California for example like San Francisco right so when I'm here in the bay. So when people ask me. Hey. Where's the best place to invest. I tell them I believe the best place to invest right. Now is San Francisco and I I wouldn't personally do it. But I think it's the best place to to to go because there's so much opportunity. There. The real estate is is super super cheap compared to where it was before but you're banking on something that may never happen which is the market turning back around correct correct right so yeah. No it's it's a lot of speculation and I agree with. There are so many deals to be had there. But you have to have you know you have to be will to uh have a business that is based off of speculation. It's it's um but that's not to say that people who buy there are going to be the ones who you know 10 years from now are are just rocking it. Um. I I tend to be a much more conservative investor and I don't like to invest in any Market. That's deteriorating or that's shown deterioration over the over. The last years I like to invest in things that um show a lot of stabilization over the last decade and um um and are just are are pretty flat. So it. It's not it's not for me. But I do I agree with you that I think there are great opportunities there. So when you talk about deterioration are you talking about like the overall like population are you talking about just like so when like kind of walk me through what you mean by deterioration of the markets so what factors the population um uh shrinking uh so they can rates going up got employers shrinking. So uh I don't like to count on anything that I cannot control. So when I look at all the variables of real estate. I want to make sure that we that every variable that we model for either we're modeling for us um for it to stay flat or slight deterioration or we can control the variable and then we can model for appreciation. But when a market is deteriorating if you were following the trajectory you're going down so you have to be counting on the trajectory trajectory to change and you don't have an influence on that right. That's where I w't invest just because I'm ultra conservative on on on where we do. It's not to say that it's not a good. You know there's lots of way to play this game yeah definitely and and and to each their own. And I think you know you kind of hit it on the head right because you you you mentioned it earlier. Whether you directly or didn't directly say this it's like earlier on you were playing in markets where you didn't necessarily cash flow and you took maybe greater risks but now and of like in in after like after the first decade or so now that you're kind of more established. You're less willing to take those kind of risks. Right. So do you think taking risks at the beginning of your investing career is necessary in order to succeed. Uh is it necessary. I think you can take I think you have to take some risks to make money right. But I think the more calculated that risk can be and the more controlled. It can be the better off. You are. So. It's an interesting question. You have to do that. It's certainly I would say we took some risks when we were younger that certainly um propelled us forward. So I would say lacking a little bit of wisdom and knowledge. Maybe helped me take those risks but would I recommend someone to have less wisdom and knowledge to take more rest. Probably not. I think that a little bit of luck behind that too then you know sure um. So I I do think my father always said said this to me uh when I was younger that opportunity passes in front of everybody and the question is whether you recognize it and then have the guts to go after it take those opport but that opportunity is slightly different than a risk. So it is um uh being will be you know being willing to step out on a Ledge and and put yourself out there and do things that are scary and and and different. But the more you can calculate your risk.
•  The better off you are yeah. I like that that makes makes perfect sense and and you know on that topic right because we're talking about like beginning your your investing Journey what what advice would you have to someone who's. Listening to this podcast that maybe is never like they're they're brand new into real estate. Investing you know what what would your singular like your your highest piece of advice be to that individual um. I wouldn't say read as much as you can learn as much as you can try to find a mentor who's bid through a little bit before you um identify what you don't know and make sure you're aware of that. If even if you can't sell for it make sure you're aware of what you don't know um. I think that's the big you know. This is the the biggest thing I come across new things every day and I have a massive learning curve every day so and there's no way for me to learn everything. But but that is the key is knowing here are the items I don't know of these items which are the important ones that I tackle right now um which are these which are the most important things that I try to figure out how to learn or go to someone who knows the answer for these things or um find someone who I trust to solve for some of these. These unknowns um and so I you know I do think that taking those those leaps and those um you know risks. Quote. Unquote or or calculated risks are important. You just want to do do that as much knowledge as you possibly can have yeah and the self-awareness component. I think is super crucial so that makes a lot of sense also something that I talk a lot about in real estate sales but haven't really discussed too too much with like Real Estate. Investors is like this idea of being able to cast your ego aside and really understand and come to terms with like what you bring to the table and maybe what your what skills or uh knowledge you're lacking and then finding someone to kind of like fill that void or like fill those gaps. So you talk about a mentor right and I think that's super critical right finding someone that can coach you but if you're not willing to basically cast your ego aside and admit that you don't know it all and and put yourself in a position like a vulnerable position to really like go to someone and be like hey. I don't know this this. This can you teach me can you show me so when you're like if you were talking to someone. That is just starting in their investing Journey where does someone go to find a mentor like how does that happen. So I I think that brokerage is an incredible way to learn about real estate. So I think that if you if you don't know anything about real estate and you want to get into it. I really think um learning about brokerage or um working in a brokerage or you know getting your agent license at being an agent for a little. Bit is amazing training grounds so that's one place to go get. It is from and I would say you know going to. One of the larger brokerages is is is best because they have really good training programs like Marcus michat is a related training program. Um CD you know these companies have great training programs for agents so that is one way to do it um. Uh another way is um to start joining some of these local associations going to some of these um local meetings where you're meeting other owners. I would say even as you're looking for a mentor when you watch other people when you're watching. Generally the market do one particular thing where everyone's following a trend that's not necessarily the way to go. By the time see the trend happening it's not. It might be over or might be just because everyone else is doing something doesn't mean. It's the way to do it. So um you know you often see uh markets get really really heated and then you're playing a game of hot potato and the last person that makes a move is the one that you know gets killed. So it's you just want to be careful of like really following the herd um.
•  But I I think generally being open like you said ego is a massive killer of success. You just see things if you're so focused on yourself and um and you're uh you don't have that humble way about you and so I would say definitely try to separate ego from everything that you do. It would help you find people to Mentor you. It helps you um well also everyone you do business with every day can be a mentor. You know I find mentors within the guy who runs the hbac company that we worked with because he's teaching me. Key things I need to look for in you know noing and air conditioning unit. I find mentors in my Bankers who are teaching me about what their views on interest rates are. I can find mentors in brokers who sell to me because they know a submarket better than I do um you know I learned from people who buy from me and people who I buy from I always try to keep incredible relationships with the people I do business with because I'm going to learn from them and I want repeat business. It's better for all of us. So I try to find everyone I interact with I want to learn something. That's a really good point you know and and that's something that a lot of people don't really talk about. They talk about the mentors directly in the space but like all of the vendors and the people that are that surround you right that that could also be your network and and you you make a really good point so that's that's interesting that you say that it's also other business owners that aren't even related to real estate. You know finding any smart people all businesses function with the same skeleton. It's just different lingo right. You can be running a real estate business or a fast food chain or a a corated cardboard company or whatever it is that you that that you know someone is running. They really have the same general problems once you get to of a certain size. If you're not a Onan show right. You have any employees at all and I think especially and this comes back to that idea of of transferring from one industry to another going from theater and to to real estate and coming with fresh ideas but when you get people from other industries that are giving you fresh ideas to apply to your own business and real estate that is also helpful that that makes a lot of sense let's talk about the structure real quick then of of clear investment groups. So what what is what does the structure look like right now for for you guys as far as our like staff or your staff and your team and everything like how do how is that structured yeah so uh. So we currently are are running a fund um so we have basically. It's a a large pool of money and we buy um different portfolios around the country with that with that um particular fund and then when we spend all that then we would start our next fund so the way that we're structured is we're based out of Chicago um. We have about 20 people in our Chicago office and those people are running the logistics of how how the core of the company works. So we're running our back office. Here our accounting you. We're we're um running brokerage out of here are are buying and selling. We're uh running our our construction management. Our asset management from here and then everything else is on a um property based so then we have our our regional managers or our area managers and our regional managers and then at the properties themselves. We have the head managers and then assistant managers leasing agents. Maintenance staff construction crew um janitorial staff and and so on and so forth so I would say each uh submarket has anywhere from well to 25 employees and then um and then and then the back office is all in Chicago gotcha. So how many funds have you kind of like gone through how many cycles of funds have you gone through yeah um for for a long time. We were buying our our properties deal by deal so we would raise each individual deal uh. Then we started doing it as Regional funds so we would outgroup of properties in certain areas um and then we move to a national to a National Fund um. So this is this is technically our first National Fund right now where we're blending uh submarkets together and we really wanted to do that to make sure that there was diversity in our in our portfolio for our investors because what we found over the last 20 years is our investors that made the most money were the ones that were invested all of our deals and we wanted to make sure we could give out that smooth that give that smooth out return to our investors um at at any you know whatever level they're they're coming in with us that they're getting the benefit of being invested in many deals. So you syndicating each deal like on a like on a one by you know you're syndicating each like a a one on Wow Tongue. Tied. There you were syndicating each deal one by one and then you moved to a fund model like a regional fund model and then you went you know full. Nationals do you wish like in hindsight and obviously like you know hindsight 2020 but like going back and like looking back at things. You wish you'd like done more of like a a National Fund model from the get-go um yes I in some ways yes I don't from the very very beginning. I don't think we could have learned how to do this on a national level. So I think we had to be local to really learn because we really had to understand what do we need to watch on a day-to-day basis um. So we had to be local. I think in the beginning to really understand this business after we understood it and we were buying once we were buying nationally I do think um that fund model is a better model um for uh as far as risk for reducing risk because there's all sorts of things that could throw one's submarket off um. Uh you know. We owned a a large portfolio in the panhandle of Florida. But we were constantly dodging hurricane and we were lucky and we we never had any issues.
•  But I felt like every week. It was like. Ameran was passing us to the left it was passing us to the right. It was just like a matter of time uh yeah. You know that that diversity of of geography would have been helpful. There um same thing with like during Co oh. We saw different markets respond differently on many levels as far as crime. The bigger cities got hit really really hard uh where our smaller tertiary City didn't get hit with crime like that um. But some of the smaller areas were a lot slower to come out with um with support with funding uh for tenants to have uh housing support during those times. So every submarket had its own problems during covid and I think having that um diversity would have smoothed out. Those those makes a lot of sense. So this more like a selfish question because we spend a lot of time on like asset management and and you know like how to pick the right market and renovating and classy all that we haven't talked about raising Capital um what what are what are your core. Capital raising strategies right now for Clear investment oh my God. It is so hard raising. Money is really really hard especially right. Now. It's funny because it's like the best time is to invest are the times when people are the most scared and I would say right. Now is one of the best times to invest and people are scared about the unknown what they don't know and so that's another reason because we also don't know a lot of things that's another reason why we have to be so conservative at so many of our variables that we're that we're forecasting but as much as we explain this out to investors. If someone is just scared of what's coming and they want to you know they want to have a strong cash position and you know they're not uh so willing to to go out and invest in new things. There's there's little you can do um. We find that to be the general feel of investors right now is. They are they um they're generally nervous and I think or they want to wait for a big crash to happen and I personally don't think that's coming. So we're already. We're in a down Market. Maybe it'll get worse. U maybe it'll stay flat. Maybe it'll will get better soon we don't that we don't know right but I don't for a crash coming um but how so how do you raise money. So you you know I guess. It starts small and and kind of grows um. We originally started with friends and family and then um more friends and family and then friends and family members of a friends and family members and then that started to scale out so that's I think those are the easiest routes is high individuals um when you start going. After larger pieces family offices institutional investors. They're looking for a lot of track record. A uh a lot of um uh even for us. We've got 20 years of a track record and we still you know have people wanting to see um many. Many many uh rounds of of different funds that are all fully audited um. So you know a lot of it. Like there. It doesn't the challenges don't don't end uh 20 years into it. We right now set out last last fall about of year ago. We set out to raise $75 million for our current fund. We're about 60 million raised in that and um and it's it's it's been tough. I would say yeah a lot of people want to sit and watch for a while so when you do put a lot of time and effort into invest servs or taking investor meetings and meeting with people. I would say try not to look at only this current investment that you're raising as the end goal but you're trying to build relationships and so often I see someone will sit and pass on a deal and then passing.
•  Another deal then pass another deal and after I show them three routs of good returns that they missed out on. Then they're more willing to come in at the fourth. So it just takes um you know do showing everybody. Here's what I have right now um. They come in or they don't come in you get a deal done. You move forward and then you go back and show those returns back to everybody and you start all over again and you keep doing that and just because someone says no today doesn't mean they're going to say no next month or the month after that or after that and they think keep you know just keep going at it. People's cash positions change people's um tolerance for risk changes uh people's appetite for different um asset classes change and uh you just keep going back and trying again and again again. We're coming up close to time right now but you had mentioned I I I have a couple final questions for you here. Amy the the first one being you had mentioned the the the market right now and the conditions and now being an optimal time to invest because of you know how you know shit's hit the fan right like everyone's kind of scared and everyone doesn't really know what to expect when you look at the market right now and you see the opportunity. What do you like what opportunities do you see right now and how long of a Time window do you believe that opportunity will be there for specifically like let's stick to to the multif family sector right so specifically multif family. What opportunities are you seeing right now and how long do you think that's going to last so. I we're seeing right now um that pricing for what we're buying is about 30% below where we saw 18 months ago. So yeah. There has been a steep decrease in pricing and that is very directly related to interest rates yep uh as interest rates rise. People get scared and and back away from buying and so sellers are forc to reduce pricing especially. If they have to sell. We focus on distressed sellers so when they have to sell and uh the buyer pool starts to disappear. That's when you start to see uh reduced pricing. Now. Uh interest rates today are not really that historically. High um they certainly are higher than they were uh 12 months ago. But they're not in a crazy place and I think if you underwrite for a higher interest rate then you could pay a higher interest rate super people say this all the time to me is well. How do you buy deals when the interest rates are so high well you. That's just a number you just use the higher numbers and now you understand what the deal looks like so just because interest rates are high doesn't mean that they're bad. It's just a number another number that has to change in your modeling. It's that's not a problem. It's just a number so that that's that's one thing but that creates opportunity because you don't have as much competition in the marketplace right. Now um. You also get some uh sellers who were hurt by interest rates. Rising so they were on a a adjustable rate and their rates grow and so they have to get out because that right now you could find deals because of that um. But I generally always think there are good deals out there to be happy in every Market. I'm not a person that likes to sit on the sidelines and wait because what are we waiting for that's a speculation we don't know. I don't like to try to time this Market I like to try to buy things based on what their value is irrespective of of what's going on in the outside Market. So with the you know there's lots of ways to look at deals where you can um. You can isolate them from what's going on in Marketplace to make sure you're buying a solid deal um so. But I you know I do think we're in a downturn. I don't know how long we'll be here in this downturn. Um I think that we probably have some more time I I I don't. I don't guess that interest rates are going to be slashed anytime soon uh which would cause you know some some wild you know buying spree for people. You know I don't see that happening. I also don't see interest rates. You know skyrocketing up anytime. Soon. I feel like we're going to hover within you know 100 to 200 basis points for quite a quite a long period of time um. But whether you know are we at the beginning of the downturn the middle of the downturn. The end of the downturn. Hey it's really hard to tell so it's important to just um try to keep finding deals that fundamentally work whether you're at the top of the market or the bottom of the market yeah and especially going into an election year. I mean I don't think that nothing really brings volatility to the table like an election year right. So I I I don't think that we're going to see any sort of like true stability in especially like the debt buckets for at least another 18 months or so because we're we're we're we're about 18 months away from all that being over you know and then there's the the the aftermath of the election because whatever whatever way it goes half. The people are pissed right um. You had mentioned the higher interest rates in underwriting the deal for where they're at today. And I think that's so true right because you're looking at a deal and it's like hey that it just needs to pencil at at at at the numbers that you're currently working with right. Like just because the the interest rates are. Higher doesn't mean that the deal can't make sense. It's just a it can't. It has to make sense with the current environment in mind and also with your strategy like correct me. If I'm wrong Amy but like with your strategy you're you're not buying and holding so those rates are really only affecting you and and you're looking at the rates too like well actually here's here's as I'm talking through this I'm actually realizing something. So H how do you factor into your model like how do you stress test your modeling in in the case that like four years from now when you go to sell it. The interest rates are higher than where they're at right now so what what parameters are you setting or like what kind of um stress tests are you implementing to make sure that like the deal still works for you if if the debt Market's kind of like go haywire and you're stuck in a position where you have to sell and the rates are are higher than where they're at right now and you might be going through that right now actually right so so what we look at is um. We want to make sure that the that we stress test our deals to go up quite a bit so like right now um you know we're underwriting interest rates at about 8%. But at stabilization we could hit a a break even return if interest rates went up to 15%. So we have a lot of room that doesn't mean the deal is doing great but it means we're not going to lose the deal if it goes up to 15%. Uh interest rates up to 15%. I mean I I can't I can't imine that happen but but but let's see that they did we want to make sure that we're looking at what our unlevered returns also are. So we want to look at the deal without any loan in it at all and we want to see that we can get a decent return if we have no loan. Now that means you got to raise money that to be able to have no loan. But our deals are usually returning around 7% if we didn't have a loan so that's pretty solid um. It means our deals are independent from um from interest rates. In many ways. We also want to make sure that we're when interest rates go up cap rates go up for for sales so if uh if an interest rate's going up a a seller wants to see a buyer wants to see that they can buy for a higher cap rate that's going to help them be able to afford the higher interest rates and so we model to sell at cab rates that are full 100 basis points over where we think we're going to sell them or where they are today so that we know that we have ring for the market to deteriorate yeah um and then we hold other any other appreciation. We Hold Steady as well to help us hedge so we're going to assume that market rents are not going to increase um. Market rent rates are not going to increase for the next 3 years and we assume that um uh that occupancy is not going to improve and we just try to look at each variable and say all right nothing's going to get better and it might get a little worse and we stress tests for things to get a lot worse. We're going to make great returns if things get a lot worse but that we're bu but that given things get a little bit worse that we're going to be great yeah that makes a lot of sense and so it sounds to me like you're you're looking at a couple. Different variables you're looking at the entry rate versus the exit rate and and you're you're testing to see like how high can the rates go and we still Break. Even you're looking at unlevered returns and then finally you're looking at the the cap rate. Adjustments as time goes on and making sure that you're you're good even if the the rate um fluctuates a little bit or the trade. Rate R fluctuates a little bit so that makes a lot of sense Amy in traditional gold F Gold Mine fashion. Why don't you leave us. Why don't you leave the audience with a final gold nugget. I would say this year our biggest focus is on uh is on our team and making sure that the team is functioning really really well and I think it's more important than ever to you know and as I as I as our company grows and and as I have more time to reflect on on what's going on I just realize that um the the teamwork um between all of our our staff is crucial and that you could have uh the same deal do very well or very poorly based on the staff and how they work together. The turnover of the staff um. The ownership that that staff feels towards the project and so so I would say just don't underestimate all the people that that you work with and um that it's you know it can be a oneman show in the very beginning. But a as it starts to grow. Every every player on that team is so so crucial and um can really make the difference of a good deal or a bad. One yeah. I love that that's um I think that's true across a myriad of Industries but probably not one that a lot of investors think about right because they come into this and they're. It's probably usually a solo play at first first and and but having that vision of the foresight to know that you got to build out a great team. I think is a great piece of advice so thank you so much Amy for stopping by yes and this was a lot of fun so thanks for thanks for coming and and uh hope to get get to do it again. Sometime soon thank you likewise all right. All right.