WS1902 Building Wealth Through Real Estate | JP Albano

In this episode, our guest host Jim Pfeifer speaks to  J.P. Albano, the CEO and co-founder of Significan  Lifestyle Communities, a multifamily operator. J.P. shares his journey from being a computer guy to becoming an active real estate investor. He explains how he discovered the power of passive income and why he chose to focus on apartments.
 

J.P. also discusses the importance of providing a positive living experience for tenants, which he refers to as "members," and how it can lead to both financial success and a meaningful impact on their lives. He emphasizes the need to prioritize the well-being of tenants and the value of creating a win-win-win situation for investors, operators, and members. J.P. also touches on the potential challenges of cost-cutting and the importance of effective communication with investors.
 

Finally, he shares his insights on the current multifamily market and the opportunities it presents for investors. Overall, this episode provides valuable insights into the world of multifamily investing and the importance of a tenant-centric approach.


To learn more about JP Albano and his real estate investment strategies, visit his website at jpalbano.com. You can also sign up for early access to his upcoming book, "So Rich You Can Quit." Don't miss out on valuable insights and opportunities in the real estate market!


Today’s guest host, Jim Pfeifer, is the Founder & CEO of Left Field Investors – a Community of like-minded individuals interested in creating financial freedom through passively investing in real assets that generate real cash flow. The Community works together to provide education, a network and deal flow for its members. For more information, you can visit www.leftfieldinves

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Transcript

JP Albano: As you start making some more money, you start paying more money in taxes. And I quickly realized, man, how do I stop paying so much in taxes? And it's a long story short, but basically I found real estate, I found investing. And what I really realized was that I wanted passive income. And so I found apartments, I found real estate and apartments for me just made all the world of sense. It just clicked.

Jim Pfeifer: Jim Pfeifer. And today our guest is J.P. Albano. He is the CEO and co-founder of Significant Lifestyle Communities, a multifamily operator. In this episode, J.P. and I talk about how passive income allows them to pursue other interests, how you can make money and have a positive impact on your tenants. He calls them members, which is great. Why it is important to find partners, why he makes the tenant member the first priority at his properties, and why cost cutting can often cost you more money than it saves. JP, welcome to the show. Let's start out with who you are and how did you get to where you are today?

JP Albano: Oh my god, Jim, thank you so much. I'm very thankful to be here. Yeah, so I was a computer guy. I was a help desk, the person you called when you had a computer problem many, many, many years ago. I became an engineer and then I was the guy that did like, I call them commando style deployment. So like, if you had a company and you wanted to upgrade your email servers, you'd call the company that worked for it. I was the guy that parachuted and they would do all the deployments and work through the night and all that stuff. Well, that got tired real quickly, right? And then I got into other tech jobs and I eventually get into tech sales, working as an account manager or account executive for selling big storage systems and technology systems for large companies. I did that for a number of years. I saw a lot of success in that. And then as you start making some more money, you start paying more money in taxes. And I quickly realized, man, how do I stop paying so much in taxes? And it's a long story short, but basically I found real estate. I found investing. And what I really realized was that I wanted passive income. And so I found apartments, I found real estate, and apartments for me just made all the world of sense. It just clicked. And I made the decision to go head first kind of into real estate. Originally as a past investor, and then I realized I love it more than sales. And so I became an active investor. And so today, my co-founder and I, we've co-founded a real estate investment firm. We have over 700 apartment units. We are vertically integrated, so we have our own in-house property management and construction management company. And we focus on buying older apartments, doing value-add uh, renovations in large complexes in the Southeast and growth markets. Um, so that's the very quick version of a long story.

Jim Pfeifer: No, that, that, that's great. I always, it's always interested me. Like, how did you find real estate? You said, you know, it was a tax thing led you to, Oh, I found real estate. And then you found passive income. I mean, we all have a similar journey, but I'm always interested. What was that?

JP Albano: What was the thing that clicked? It's funny. Uh, it's not, I made it sound shorter than what it actually was. There was a detour along the way. So, for me, it was like, okay, I didn't want to keep selling hard drives the rest of my life. Like, that was the impetus. I got to a point where I was like, 7 years, a 7 year itch into my job. I'm like, alright, what's the next thing? I feel like I learned everything I could. And so I'm like, well, I'm paying a lot of money taxes. I know if you're taxed when you're taxed with ordinary income, right? W-2 active income, like that's the highest rate, right? Potentially, depending on what you're making. If you're making money through capital gains, you're taxed at a much lower rate, max of 20% versus a max of 37%, depending on where you're at, right? So I'm like, all right, cool. Capital gains. How do I make capital gains? Well, I can be an investor, like in the stock market. So I took a course in like learning how to trade stocks and learn how to read candlestick charts and all that nonsense. Long story short, I spent a lot of time, wasted some money. I also got a lot of anxiety. You ever do day trading before? It's not fun. You're like, all right, market opens up, 9 o'clock, go. And then you trade things. And then you're up and down this emotional roller coaster, which, by the way, is not too much different from real estate. But anyway, It was very stressful, so I lost a bunch of money, but what it did for me is it made me realize what I was looking for was passive income. I wanted something to make money for me when I'm not doing it, so I can go take a pottery class if I wanted to take pottery on Wednesdays at 3 p.m. in the afternoon, right? And so I'm like, well, how do I do that? And then I remembered what kind of – it occurred to me like real estate. I'm like, all right, cool. Well, where in real estate, right? And then if you go down that path of trying to figure out where in real estate are you going to create all this passive income, you can be quickly overwhelmed with the sheer amount of options that you have. For me, in the beginning, there was fix and flip, wholesaling. Note investing was actually pretty interesting as a concept. By the way, that's like if you want to become the mortgage holder of a mortgage, like a bank, essentially, without any of the shortcomings. That was really cool, but I couldn't find any training on how to do that. So that kind of got dismissed. And then I found apartment investing by way of biggerpockets.com. The whole strategy is the BRR strategy, B-R-R, right? You buy a house, you rent it out, rehab it, rent it out, refinance, do it over again. I remember there was like a printout that I got, like a PDF, and it was like a picture of all these homes and like arrows connecting the homes, and you BRR your way. And at the end of the roadmap, right, the end of the rainbow here was an apartment complex. And I literally thought to myself, why don't I just learn how to buy the apartment complex? Why am I going to do all this stuff? And so that gave me a direction of like, all right, In a real estate apartments. Okay. Now, what? And then I found David Lindahl's book, uh, emerging markets. And as a data guy, as a nerd, whatever, like, I love that he broke down. Like, there's data science on how you can stack the odds in your favor as an investor to mitigate risk. Right? And so his approach was like, well, look at places where people are moving to. Look at population growth, look at job growth, look at these economic engines that are going to help make sure that you have people looking for a place to live in the place that you want to invest. And I remember reading that book literally from cover to cover, uh, in one session because I was so thirsty for the knowledge I was getting there. And that got me really excited about, about, uh, apartments.

Jim Pfeifer: That's great. That's a great circle of how, how you got there, right? Cause everyone's story is unique. Well, now you're, you're an apartment operator and I've heard you say that, that, you know, apartment investing is not a zero sum game. You can make money and have a meaningful impact on tenants. So talk about that as an operator, how do you accomplish that? And you know, both of those things, right? You're making money for investors and you're doing well for the tenants.

JP Albano: It's it's a, thank you for that. That's a really good question. I, I feel like I have, um, I don't want to say a unique experience. This came full circle for me. And I'll tell you, earlier this morning, I got a, my partner read an email that we got from a tenant that lives in one of our properties. The short version was she was homeless before living, moving there. She lived through the previous regime. They really neglected everyone lived there. Then we took it over and we've transformed the place and how she's expounded on like how much better it is living there. And the comment I made to Matt, my partner was like, it's so cool hearing these stories. Like, you know, you get into investing, you get into making money and like getting a rental or whatever else, but like. the impact, like who's on the other end is someone that lives there, right? A person, a family, whatever else. And like, it's so great being able to have that impact. So for us, to answer your question, for us, I had a detour, a good detour. I met a mentor of ours in 2019. It's a longer story. The short version of it is that he had a very unique way of looking at housing and people that lived there. And it was like, Bridging the gap of hospitality, right? Like a hotel service and apartments. That's the easiest fastest ways that I can explain it. And so in his communities, and we hired him and we've been incorporating his policies. Is that people live there? We don't call them renters. They're not tenants. They don't live in units or apartments. We kind of more humanize it and they are therefore called members, like member of a country club. But this isn't for, like, luxury housing, right? Their members, they pay a membership fee, not rent, although technically it still is rent. They signed a membership agreement, not a lease. They work with a mayor, not a property manager, right? And there's a community services team. They don't do maintenance. They provide service, right? And so, like. When you when you a prospective member that would come into our communities, they're immediately impacted by a different experience and interaction versus our competition, which you are renter and, you know, your rent is due on the 1st. And if you don't pay it, you know, you get out. Yes, you get out. But also, like, there isn't. the expectation that I have to deliver service and value for the people who live there. And we do that. And as a result, as a consequence, we're the most expensive apartment complex in the area. But people are happy to stay there because they're getting served in a way that they can't get anywhere else. And so back to your point here, when we find properties and transform them and make them better places to live, if you think about that, it really is a win-win-win for everyone involved. It's a win for the investors that help enable us to buy these undervalued properties that were in shambles before we took them over. We get to transform where people live and really make a huge improvement on the quality of life that people live there. So that goes into effect to society, right? Because people are happy. They feel safer. All that stuff goes back to us as the operators, because we're being rewarded for creating value and that. and then also for the investors as well. And so, like, that's how you make this win-win-win situation. And I wish I could take credit for creating it, but I didn't. I was inspired to be at the right place at the right time to meet my mentor of the time and really inspire us to make this shift, this hard shift into operating our communities the way that we operate.

Jim Pfeifer: And how has that affected the performance of the asset, right? I mean, we're, we're, we're investors, obviously, you know, I want to make money. I would, I'd love it if I could make money and also provide a comfortable place for people to live and satisfied tenants. But at the same time, you have to, you know, you have to serve your, your members, but you also have to serve your investors. So how does that trickle down or trickle up, you know, so that everyone's making money and you have happy members?

JP Albano: Yeah, I think for us, when we created our core values for our company, and it's a really important exercise for everyone to kind of do if you're getting whether it's yourself solo as an investor, or you're partnering up with people. And I recommend your partner because, man, this thing takes a village, right? And so. Coming up with our core values was part one. Part two was this idea of hierarchy of stakeholders, right? And who is most important? Who do we answer to? And, you know, we had to be able to have this not only for ourselves, but also to share with our employees at our property management company, because they need to know where we as the owners sit in the world. And in our world, guess who's number one? It's not the investor. It's the member, the people paying the rent. They are customer number one. If you think about that, it has to be that way because if you don't treat them well, they're not going to pay rent, or you're not going to find people that want to pay rent, or they're not going to be willing to pay a premium to live in the places that we operate. So we have to make the number one focus. It's not me, the boss. It's not the investor that's investing money. It can't be because if we are serving the investor, they're not paying the rents. They're paying us to buy the property, but they're not paying the rents. So for us, it's, it's, it's our, our, our renters that live there. Number 2, I think it's our staff. Um, then eventually comes the investors and then us as the operators themselves. So, like, we have to have that, that level of, of, um, you know, discernment between, you know, who we're serving. And then ultimately, at the end of the day, what does happen when we round-tripped our deals, completed our deals, it always works out or has historically worked out for our investors. We make this investment in the people that operate the properties, make the investment for the people that are paying rent to live there. And then over time, we've increased the value, we see the value, we cash out, and we're able to make everyone whole in that sense. So hopefully that answered your good question on that.

Jim Pfeifer: Yeah, it does. The next question, and this is kind of out of the scope of what an investor might care about, but I'm curious, when you sell the property, then what does the new management do? Do you try to find a buyer with the same philosophy or you just hope that the culture kind of continues?

JP Albano: Yeah, that's a hard one. What we find is there really isn't anyone that operates the same way that we do. There are a handful of organizations, of operators that we have run into in the small circle that is the real estate world that have similar ideology. They believe in the value of making sure that The renter is customer number one, and that's great. And they're all about, like, improving the quality of life because they get it. They understand that. But there's not many of them. So as a consequence, what happens, unfortunately, is when we sell these properties, you know, the new management that comes in, whether it's vertically integrated or they're working with a third party, they're going to have their own way of doing things. And that can go in either direction. You know, we've had Two properties actually we sold. Unfortunately, the new management that came in, they didn't care about the property the same way that we did. And we know it's very quick to see what happens with Google My Business, what kind of reviews people are leaving shortly thereafter. So we have not been in a situation where we sold a property, exited, and then have been retained or asked to kind of stay on. It's sort of in the hands of a new ownership.

Jim Pfeifer: Yeah, that's a tough one. I mean, you're doing great things, but it's hard to balance that for sure. So talk about, you know, when you buy a property and it's a heavy value add, why is just aggressively cost cutting not necessarily the best practice for the community and also for the investors?

JP Albano: Man, it's so funny. I feel like that right there is something that no one, no real estate guru talks about or they overlook it, like cutting expenses as if it's just like operates in a vacuum. It can't and it doesn't. There was a group that I was part of as a passive investor early on, and I didn't realize it because I didn't know any better. And when the shoe's in their foot, you kind of realize these things. But part of their strategy was, and it's also like good timing, right? They got into real estate when no matter what you did, everything was going up. Part of the strategy was cut everything on the expense side. And if you think about that, you can do that to a degree. But remember what I said early on about how, like, who's your number one customer? Who are you trying to serve? That's the people that live there. If you're cutting expenses that are. Influential in the quality of life there. Maybe it's the landscaping making sure that the place looks clean. Uh, or maybe it's the service technicians. Maybe like, you're like, you know what? I can't afford 2 or 3 service decks. Let's cut down to 1 and that poor 1 guy or girl has to run around and service. 150, 200 different apartment units, that's impossible for them to do by themselves. And so what's going to suffer as a consequence, the level of service. And so you went from a point where like, okay, I'm expected to pay my rent on the 1st of each month. But when I have a problem, when I call you to tell my toilets clogged, there's a cockroach in my apartment, right? You're going to tell me it's going to take a week for you to get there because there's no one to service me. That's going to piss me off, and I'm going to be really agitated, and I'm going to go into the real estate office on the first roll up my sleeves and start yelling about how no one's helping me when I have a problem, which is exactly what everyone else does. And what we try to stay ahead of and not doing because it helps us, number one, stand out, and number two, everyone's used to being treated like that. So when you don't do that, you stand out immediately in a good way. So, I don't think cutting costs without really taking into consideration what the implications are of that, it could be very, very short-sighted and very detrimental to the overall goal of what you're trying to do as a value-add investor.

Jim Pfeifer: Yeah, and it can certainly end up backfiring, right? As you said, if you have a bunch of angry tenants that are moving out, then your turnover is higher and now your costs are higher and you cut costs for no reason because now everything costs more. So it's like a cycle. So that's super interesting to me. In the current market, you know, rents are going down in places, barely staying the same in places. People have pro formas that, you know, have rent targets of aggressive growth or moderate growth. So how can you be confident that you'll achieve the rent targets that you have in the pro forma, you know, when you're buying properties in this type of uncertain market?

JP Albano: I think that after a certain point, My opinion is that performer goes out the window. Um, there has been, you know, I picked an interesting time to get into real estate, commercial real estate. It's like it was one, I got in in 20 be 2018, 2019. And it was literally one thing after the other one. I feel like getting through this allows you. me us to like, have a whole new sense of what normal is because normal for me has been crap show, right? That's been covid for many years, eviction moratoriums, interest, unprecedented interest rate hikes in just a short period of time. Um, so like what, you know, what is normal and like, normally what you would do is you have a performer, you take over property and then you start measuring everything to that, right? You know, each month and see if you're on track or off track. But how do you do that when you have rapid inflation, you know, your, your costs are five X, 10 X higher than 10 X. It's a bit extreme, 10%, you know, 20% higher than what you underwrote for, or your insurance goes up 50%, right. Or a hundred percent, you know, how do you adjust for that at certain point? It's like, it doesn't make any sense to hold on to this, this ideal that we had and you have to readjust. And that's what we've been, that's what we've been doing. It's what we communicate to our investors. And that's what we've been doing in our properties is like, okay, We hadn't ideas to be this. We didn't realize insurance was going to go up, you know, three X, uh, taxes went up even higher than we planned because for all the reasons, our write-offs went up because we couldn't evict anybody, like all this stuff. And so you just have to adjust. And that's what we we've done.

Jim Pfeifer: And what, what's the, uh, what's the importance of communicating that to your investors?

JP Albano: Uh, it's all about expectation setting. Um, and I think what I think what investors ultimately want to know is that. The people that are in charge of their money, right? The operator, the sponsors, syndicators. that they kind of have a sense of what they're doing, even if they're making it up as they go along, because that's what you have to do. You know, as an entrepreneur, as a business owner, your job, whether you realize it or not, or like it or not, is to solve problems. And you can have a business plan. It's like this, the Mike Tyson saying, everyone's got a plan until they get punched in the face. That's just the reality of business. And you know, what we're doing is we're operating a business. So we can have a plan. But ultimately, we have to adjust to how the world happens around us and being able to communicate that to investors, which I know I could have done a better job along the way. But this is part of the learning experience and learning and growing from that, just recognizing that, taking ownership of it, and then just saying, hey, look, I'm going to do better at doing this. I think that's all you can hope for, right? I mean, the alternative is you make things up where you

Jim Pfeifer: hide things you hold things from behind or you make it seem better than what it is that doesn't really get you it buys you a little bit of time but then it still puts you in a funky spot yeah what um what do you see the where do you see a multi-family market going in 2024 with you know interest rates hikes are paused and and there's a lot of speculation that interest rates are going down what do you see for the market in 2024 and how are you preparing for it so there's

JP Albano: One part is like what everyone wants to happen, right? I remember back in the beginning, 22, early 23, it was like survive to 24 was the saying. Did you, did you hear that for a bit, Jim?

Jim Pfeifer: So I've heard that and I've heard survive to 25. Yes. Yes.

JP Albano: It shifted along the way to become survive to 25 and that makes more rhymes better than 20. Um, but unfortunately it's like, ah, crap. I got to get through all 23 and then I got to get through 24 and then I got to 25. Okay. Well, as someone that, like, literally, we just closed refinance from our last floating rate loan on on Friday, the 29th, like, the last day of the year and to say that, like, you know, we are glad to be done with that is an understatement. I, for. 23 hit was like a bittersweet year. Like it was hard for us to do deals because rates were changing and all that stuff. But like, I still felt I was ceiling, seeing a lot, a lot of opportunity, a lot of deals. Uh, and I still, I think I know we were going to continue to see that we're going to see operators that have to get out from floating rate debt, uh, or they can't refinance or whatever, you know, things kind of get in the way. Um, there's opportunities for investors to come in and scoop up deals at a discount. You know, and unfortunately investors are gonna have to take a haircut. Uh, I believe we're going to still see that in 24. Whether or not interest rates are going to go up or down, I don't know. I'm frankly surprised that, or unsurprised, that the Fed announced, hey, guess what? Inflation's done. We're going to stop because maybe they were getting pressure from the White House. I don't know. I'm not the guy that has all the gold that makes all the rules. I feel like it's My opinion is it'll be a more stable year than it was 23. Cause tape 23 was, was really crazy to have all those interest rate things. Um, I still think there's buying opportunities. Uh, I still think there's a lot of operators on the sidelines or, you know, uh, investors in the sidelines waiting for things to shake out. And again, I I've seen deals where there's 20, 30% plus, uh, discounts on buying them, uh, than where they were a year ago. Right. So there is buying opportunity. And also too, like I had this funny sense, Jim is like. If everyone is waiting for like the moment, like the big buying opportunity. Um, I don't know if they realize like everyone else is waiting for that. And so when the deal comes up and everyone's in the sidelines with a dry powder and they're ready to jump on that thing, all they're doing is bidding up that deal back to where it was, you know, two, three months ago or a year ago. Right. So I'm a little hesitant. I'm believing that everyone's waiting for the buying opportunity of a lifetime to magically happen. They're going to time the markets. I don't know. That's, that's my, my ramble.

Jim Pfeifer: Yeah, well, it's always difficult and possible to time the market, so you just got to go deal by deal and find the ones that work for you. Yeah, man. Hey, this has been a fantastic conversation. If listeners are interested in learning more about what you do, what's the best way they can connect with you?

JP Albano: So they can check me out on jpalbano.com. I'm in the process of finishing up a book. It is tentatively titled So Rich You Can Quit. For those that are watching, here's the first copy of it. I'll be releasing that in Q1, Q2 of 24. So you can go to jpalbano.com forward slash podcast, and then you can sign up for access to the book before it comes out. But that's how you can check me out.

Jim Pfeifer: Awesome. We'll put that all in the show notes and thank you very much for being on the show. We appreciate it.

JP Albano: Jim, thank you for having me. And I love the questions here. This is great. Thank you so much.

Jim Pfeifer: Thank you. All right.

JP Albano: Cheers.

Jim Pfeifer: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.