WS1968 Transitioning From W2 Job To Real Estate Investor | Tucker Thompson

Are you curious about how to pivot from a conventional career path to making a mark in real estate investment? In a compelling episode of the Real Estate Syndication Show, Tucker Thompson from Sweet Bay Capital reveals his transformative journey. Moving from the structured world of investment banking to the dynamic field of real estate syndication, he outlines a strategic blueprint for leveraging steady income to fund real estate ambitions, illustrating the vital role of patience and strategic financial foresight in the process.

Tucker, along with his business partner Max Shelton, navigated from initial investments in student rentals to acquiring multifamily properties, shedding light on the critical need for financial and legal expertise. He shares their methodical approach to overcoming market challenges, enhancing investor networks through engagement and community building, and ensuring investments bring value to tenants. This episode serves as a guide for aspiring investors aiming to carve out a successful niche in the real estate investment landscape.


Valuable Takeaways  for Investors

1. Patience and Steady Income Leverage: Understanding the value of patience and utilizing a stable W-2 income can significantly benefit those starting in real estate investment.
2. Technical Expertise and Strategic Pivoting: Leveraging finance background for deal underwriting and transitioning focus to multifamily properties for value-add opportunities are crucial for growth.
3. Network Expansion and Value to Tenants: Building a strong investor base through networking and ensuring tenant satisfaction by investing in properties are essential strategies for success in real estate syndication.

For those interested in exploring more about Tucker Thompson and Sweet Bay Capital, we invite you to visit their website or connect with Tucker on LinkedIn.

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Transcript

Tucker Thompson: To those people that are listening that maybe are considering doing this and are still having their full-time jobs, that can be a real asset, having that steady W-2 income, because you can have unlimited patience compared to a lot of people that have already left that behind. And you really do have the flexibility to wait for the best opportunity to start with. So I would just really encourage you to to be patient and really wait for the right pitch because you have the luxury of doing that if you do still have a full-time job.

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, our guest is Tucker Thompson. Tucker is a founding partner at Sweet Bay Capital, beginning investing in real estate as a side project before completing his first syndication with his business partner in 2021. He has a background in investment banking at J.P. Morgan. And he's done a number of things in the investing world before stepping out on their own and starting their own investment firm, which they've had quite a bit of success at. Tucker's going to highlight over the last few years a number of projects that they've done, even just the process of starting to raise your own capital and even having a lot of success around that as well and how they've done that and the growth that they've experienced since that time. Tucker, welcome to the show. Honored to have you on, and looking forward to diving in and learning from you and the listeners learning from you as well. I know you have a background in investment banking, or JP Morgan. And then obviously now you've stepped out and doing your own thing. I want to talk about that just a little bit and that background. And, you know, you and your business partner are making it happen. You were just telling me a little bit about a few of the deals you all have closed recently. And I'm looking forward to hearing about some of those in a few minutes. But, you know, tell us a little bit about that background, maybe how that's helped you transition and maybe why you would and some of those things.

Tucker Thompson: Great. Thanks, Whitney, and really happy to be here. And thanks for taking the time to speak with me. Yeah, so you hit on it a little bit. My background initially was in investment banking. So starting out my career in finance, that wasn't real estate focused at that point, but started building the foundation of a really strong financial background, which the tools I developed there were really relevant for when I later moved into real estate. After J.P. Morgan, I joined a private equity fund in San Francisco, California, that was also not real estate focused. But there, two really important things happened. One, I continued to build that skill set of underwriting and investing in deals. And two, I met my business partner there, Max Shelton, who started right around the same time as I did. And we kind of quickly became friends there. And while we were there, we both started investing in real estate for ourselves on top of our day jobs. And that's really when we started building out that real estate side of the component that supplemented the previous financial and investing tools that we had developed in our previous experience in investment banking and private equity.

Whitney Sewell: Yeah, speak to maybe the skill sets that you and Mac have that have helped you in this industry as well as you've transitioned.

Tucker Thompson: Sure. I think there's probably a few different buckets that you can talk about. One is just the technical financial modeling, which we did a lot of in our previous careers. Those were for companies But you kind of develop the skill sets for how to underwrite it thoroughly and seeing how large financial institutions like a JP Morgan or we were at was called Griffin Investors, which was a multi-billion dollar private equity fund, how they underwrite deals and the types of granularity and meticulousness that they approach investments with, which we would try to emulate with Sweetbay Capital. And then on top of that, you're also learning about the legal side of things, which is very important. Obviously in real estate, debt is very important. Understanding how to negotiate with lenders, how to structure transactions so that you're taking on leverage to help minimize your equity checks, but also doing that in a way where your downside is protected and you're not overstretching and taking on more debt than you can handle. And then finally, also on the equity raising side, that's another big component in the private equity space. And so learning how to speak to investors, learning how to create presentations that answer all the questions that they want to see and help build their trust in you as a general partner. And I think those are all transferable skills that we weren't learning in the real estate context, but are still very relevant to what we're doing now. And then we just built our real estate experience through our personal investments that we started with while we were still working those jobs.

Whitney Sewell: Yeah, many transferable skills there, no doubt about it. Speak to how you all raised money for the first few deals, transitioning into this space as a business owner, right? How did you all go about that?

Tucker Thompson: Sure. The first deals that we started investing in for ourselves were these student rental houses in Columbia, South Carolina. So we were buying houses that were rented to University of South Carolina students in a purpose-built community that was entirely focused on University of South Carolina students. So there was a pool. and a fitness center and things like that. And we, each of the cottages in that community of about 200 houses were all owned by individuals. And so we started buying them for ourselves. After a couple of years, we had five of those between the two of us. And at that point we said, we know this market really well. We've developed a relationship with the broker that sells all these houses and he likes us and we're easy to work with. Maybe we should try to buy up a larger chunk of these houses and raise some money to do that. And we got the opportunity to buy a portfolio of them. So instead of buying one at a time, like we had been doing with their own money, we had the chance to buy 11. And with that, we really just kind of took a chance and felt like we knew the assets well enough and knew that they delivered the returns that we were looking for. So we put together a little presentation and send it out to our network. And we ended up raising much more money than we needed to. We really weren't sure what the response was going to be because we didn't have formal experience in real estate investing. We had experience in finance and investing, but not specifically related to real estate. And so we were a little nervous about it at first, but ended up being much, much easier than we thought. And we probably could have closed a much larger transaction for our first one than we did. And so after we kind of took that leap of faith, and after we closed that transaction and it started going well, and we realized that we were probably going to meet or exceed the returns we promised to our investors, it gave us more confidence to start looking at other opportunities and seeing where this could take us. And at that time, this is all still while we had full-time jobs, too. So we're kind of doing a little balancing act between managing the investment and looking at other ones, and also still having our day jobs.

Whitney Sewell: Yeah. Speak to the presentation that you all created. What were some key things that you all knew needed to be in that for your investors, especially reaching out the first time to that list?

Tucker Thompson: Sure. So there's the things about the property itself and then the investment themselves. And then there's also the things about Mack and I and the general partner. So we know we're highlighting our backgrounds as much as we can to convince people that they should trust us. And then also highlighting, and really this is most of the presentation, is highlighting the investment itself and the things that you're including in that. are not just the financial projections, which you need to include in the returns that the investors can have, but also a detailed understanding of the property itself and the market itself. So we had, because we had owned these properties for a while for ourselves, we had data from the property manager that we probably wouldn't have had if we were just looking at this for the first time. We had historical occupancy data, we had historical rent trends, that could kind of give us a firm grasp on the outlook for the property and help our investors get comfortable with it too. We knew a lot about what was going on with the school and what plan developments there were. For student rentals specifically, you know, you're thinking about enrollment trends and if the school is building a lot of new housing themselves that could compete with what you're offering. We knew a lot of that and so we were able to put all of that into the presentation. To kind of get people comfortable so it's it's property focus. It's market focused. It's back our background focused. And, um, just selling kind of like the business plan.

Whitney Sewell: Yeah. You know, what about this, um, the network of, you know, the list that you reached out to, was that just from your all's previous careers that you built friends or friends and family, or, you know, how did, because it's a big fear, right? Especially the first time you raise like people are exactly what you're talking about. You know, it's like, well, we don't know what we can raise. So, uh, you know, you don't know what your network, you know, really has.

Tucker Thompson: Right. So it's tricky because. You can ask people, hey, are you interested in doing something like this? And they might say yes, and they might say no. But you really don't know until you have a firm offering in front of them with a dotted line to sign their name on. But I mean, it was mostly friends and family, but I don't think there was actually a single family member in the first deal. I think it was just entirely former co-workers and bosses and a friend or two. It wasn't many investors because it was a small investment, but it also wasn't just groomsmen and dads and uncles either. So that kind of also gave us some confidence because we had former bosses that we had gained their trust and that they were willing to kind of to partner with us, which we thought was a really big encouraging sign. And then also, starting with something small can be helpful because in this case, like I was just saying earlier, you don't really know until you know. And starting small allowed us to see what the potential was. And so the next time around, when we did something bigger, we had more confidence that we could support the equity raise that we needed to complete. when we're bidding on it. And it also helps being able to say that confidently to brokers too, who have to kind of trust that you can deliver.

Whitney Sewell: For sure. Speak to how that's progressed as far as your, maybe even your confidence behind it, but your capital raising ability too, as now you all have done a few projects.

Tucker Thompson: Sure. So the first two deals were, were mainly just friends and family and coworkers and just our personal networks. Luckily, the first deal we did, and to take a step back for a second, the first deal we did, we closed in 2021. This was while we still had day jobs. Throughout 2022, we started looking for new opportunities because of that confidence that I just mentioned earlier, and that the first deal we did was going well, so we wanted to do another one. And so by the time we actually got the second one under contract and we're closing it, that ended up being February of 2023. So it was, it was a pretty big gap between the first one and the second one. But what that meant was that we were able to sell the first deal before we closed the second one, which allowed us to one, take those investors money that we were returning in 1031 them into the second one, and also have an exit on our track record as well. So the first deal we closed was in October 2021. And then we closed the second one in February 2021, 2023, sorry. And we sold that first one the month before and everyone rolled their proceeds over. So we had a big leg up because we had a significant chunk of the equity for the next transaction that was coming from the 1031 exchange from the first transaction. And we also had the benefit of being able to put on our track record that we had actually completed the deal full cycle. with really phenomenal returns, considering the interest rate increases that have happened over that time. We got to a nearly 2X in about 15 months. So we had that home run, and then we had the equity proceeds from that into our second deal, which the equity raise for that was substantially larger, probably a little under five times larger. So a lot of that was coming from the 1031 exchange, a lot of that, most of it was new money. And so having that track record and closing that second deal, moving up to the third one that we closed just a few months ago in December, by that time we had a bit more of a track record and we were able to actually bring in some smaller institutions that we had gotten connected with that could start writing larger individual checks than a bunch of from friends and family and stuff like that, which when you're trying to raise a couple million dollars, it can be really hard to do that if you're doing it $25,000 at a time. So it gets really important to try to find some of those larger investors that can take up a bigger chunk of your equity raise. Otherwise, you're doing a lot of phone calls and the math just gets really hard when you're trying to raise that much money, you know, $25,000, $50,000 at a time.

Whitney Sewell: For sure, for sure. So third deal closed in December of 23. Congratulations.

Tucker Thompson: Yes. So that was 90 units also in Virginia. The first deal originally was 11 units, 11 houses, and then we closed 41 units in February of 2023, and then jumped up to 90 units just a few months ago in December.

Whitney Sewell: Yeah, congratulations. That's awesome. Speak to the type of assets you all are, you know, these are and why you all are focused there.

Tucker Thompson: So the first one I mentioned was student rental housing. For a while, we tried to find other opportunities like that, but it's a pretty niche market and you have to cast a wide net geographically to get enough transaction volume for it to, for it to scale. And there's also some complexity with the fact that all of your tenants turn over every summer, and there's not a lot of time to go in and renovate units and improve the properties, which is what we found we need to do in order to generate the returns that we want. So we pivoted more towards traditional multifamily with the value-add component to it. The kind of down the fairway transaction that we're looking for now is 1980s and newer assets that maybe has an owner that bought it 10 or 15 years ago that hasn't invested a ton into the property over that time and it's kind of fallen behind the market in a way. Oftentimes you'll find owners that they don't need to push rents to the highest of what the market will support, because their cost basis is so low, their return on what they invested is so good, they just don't really need to focus on the property much. And so while it's returning strong cash flow to them, it still leaves a lot of opportunity for the next buyer to come in and improve it. And so we look for assets where we can come in and improve the curb appeal, we can fix the parking lot, we can update the signage, we can paint the exteriors, we can build a website, we can start marketing it better, we can start updating units, we can start installing dishwashers in the kitchens because that's a requirement now and a lot of the older product that we see don't have that. We can update all the appliances, the cabinets, the flooring, countertops, painting, just all those little things that previous owner was able to get by without doing But at the same time was leaving a lot of opportunity on the table. Those are the things that we look for now.

Whitney Sewell: Yeah. I, you know, speak to just the, um, maybe the progression you see in the future, like, are, are, are these going to continue to be the types of deals you're going to buy? You feel like that's, I don't know, the type of assets y'all are going to continue to focus on even, uh, you know, say the rest of 24 and

Tucker Thompson: We definitely are skewing towards newer vintage product. We do own a 1968 property now, which is fine, and it's been performing better than our expectations. But as those things age, you can expect your maintenance costs and your replacement reserves to grow maybe faster than a younger property would. And so as long as you're underwriting for that, it's fine. But for us, we're trying to move in towards a younger direction where we would be comfortable holding something for a longer period of time if we needed to. And it just gives us more flexibility to do that with a younger product where the plumbing is still in really good shape, for example, and you'll need to worry about replacing that at some point during your whole period. It is hard to find, you know, these opportunities, though. Most properties out there have had some sort of component of renovations to them. So it can take a lot of patience to wait for the right opportunity.

Whitney Sewell: I was going to ask what's been the key to finding these projects, because, man, it's been pretty slim over the last, you know, 18, 24 months.

Tucker Thompson: Well, we picked probably the hopefully the slowest So we both quit our full-time jobs at the end of 2022. And I hope that we pick the slowest year ever to start into this business, at least for the next 10 or 15 years. So it has required a great deal of patience, but I think that's just, you know, you can't compromise your standards. I feel very strongly that if you, you can start out with the best of intentions and the best underwriting, but If you wait three months, four months, five months, six months, and haven't closed anything, then I think it's a natural human instinct to start kind of eroding those standards that you set out for yourself six months ago. And I think that's when people start getting into trouble is they start saying to themselves, well, I really need to get a deal done. And then next thing you know, you're enamored with the next one that comes across. And you start spending more and more time in your model, trying to tweak assumptions to make it work. And then next thing you know, you've purchased a property that six months ago you wouldn't have purchased because it didn't meet your standards. And so how do you, the trick is how do you maintain those standards and to make sure you're being consistent about them? And that's where the patience comes in. And then the hard work is the persistence to keep turning over rocks and finding the ones that meet your box. As I said, we closed that deal, the 40-unit property in February, and we went until December of 2022 and 2023 until we closed the next one. So it was a long time. It was a grind. But I think we're very happy with it so far, and three months in, we're very happy with the performance. And we actually just got our second or most recent deal under contract right at the beginning of January. So it was a long grind to get there. But then, you know, next thing you know, you've closed one, you're under contract on the next and things can turn around quickly.

Whitney Sewell: So, yeah, I know the last couple of years kind of found a wrench in this. But over the last 10 years, as I've seen people get into this business, it usually takes a year or 18 months sometimes to find the first deal. And then the next one, sometimes they have under contract so quick right after that, you know, it's like, man, something happens.

Tucker Thompson: And to those people that are listening that maybe are considering doing this and are still having their full time jobs. And that can be a real asset, having that steady W2 income, because you can be you can you can have unlimited patience compared to a lot of people that have already left that behind. And you really do have the flexibility to wait for the best opportunity to start with. So I would just really encourage you to be patient and really wait for the right pitch because you have the luxury of doing that if you do still have a full-time job.

Whitney Sewell: For sure. No, that's, that's a great point, Tucker. You do, that does give you some flexibility that man, if you don't have that, you're going to be pressured into doing a deal. Right. But like you said, normally you wouldn't do, but you know, Tucker, what about, uh, any, uh, do you have any predictions for the real estate market or economy over the next six, 12 months? And, or, or just even what you think is going to happen and how that's affecting what you all are doing now pursuing, uh, you know, over the next little bit.

Tucker Thompson: The only thing that I'm really confident about in terms of predictions is that generally whatever the consensus is today probably will not happen. So if the consensus is for five rate cuts in the next 12 to 18 months, I have no idea what it's going to be, but history will tell you it'll probably be more or less than five. And I have no idea which direction that will go in. But if you look at historical trends, a lot of these things, the consensus is often wrong. And I'm not saying that to be a contrarian or to tell you that I know what's going to happen. But the takeaway from that for me is to just give yourself a margin of safety. And just be really thorough with your underwriting to make sure that you're not hinging on. Exactly whatever your prediction is to happen. Because it's it's rarely ever plays out exactly the way you expect or what most people expect to.

Whitney Sewell: For sure, nobody really knows, right? I know. But what we, you know, we look at the history, right? And we make our best guess, right? Yeah, that's how we determine, are we going to go buy something or not? But, you know, Tucker, what about, what's your, your all's best source for say meeting new investors right now, growing your investor base?

Tucker Thompson: Yeah, so there's a couple of things we're doing now to try to build our investor base and One, I think, is just also to start with what you already have, and that's to make sure that your existing investors are going to line up for your next deal and making sure that they're prepared and are ready for those to come. So we try to keep in consistent contact with our existing investor base Telling them 1, not only how their investments are doing, but to also how our pipeline is. What our expectations are for the next 3, 6 months or whatever. So, they can have a mental note to save some funds. Aside set some funds aside for our next offering. then also to leverage them for introductions to other people as well. And that takes time. You might have someone that is willing to put their own money into one of your offerings, but isn't willing to refer you to other people yet until they really start trusting you a lot more. So that can take time to do, but I think it can be very valuable. Just word of mouth, goes a long way, but sometimes those investors do kind of need a nudge from you to do that. So it does take some work on your behalf to try to make sure you're maximizing that. LinkedIn can be a good source just to try to start getting you and your group's name out there and kind of sourcing people that see what you're talking about and are interested in what What you're what you're doing, so I'd recommend people be active there. To the extent you can start trying to reach out to small funds of funds, or maybe even trying to find some family offices. They can be hard to get introductions to, but, you know, those are kind of can be some of the. the larger track riders that can really move the needle with your fundraising capacity. Brokers often actually know some of those groups too. So if you develop relationships with brokers, they might be willing to refer you to some equity groups as well. And then there's also equity brokers too that have a big network of these types of things as well. And yeah, you really just have to be creative and that's, That's just as important and takes just as much time as finding and underwriting deals themselves.

Whitney Sewell: Yeah, it does. It takes a ton of time. It's a full-time job for numerous people within our business anyway, just on the investor side, right? But what about, Tucker, your best advice for passive investors right now?

Tucker Thompson: So the best advice for passive investors is to really dig into the underlying financial projections that you're given when you're looking at a new offering, particularly if it's a new sponsor, just so you can make sure you're doing your proper due diligence. One thing you'll really want to try to understand is, are the assumptions in the forecast, Do they make sense to you? And do they make sense if you take a step back and ask yourself, um, like, is that how you would underwrite something? What I mean by that is what is the revenue growth in the out years compared to the cost growth is, are they, are they growing market revenue at 3% in year four and they're growing payroll and their payroll costs of 1% year four. Um, There's little things like that that can make deals that look on the margin look really attractive once that growth starts compounding over time. I'd also really pay attention to the capital structure that's being presented. I'd say right now, projects with assumable loans are very attractive because they should have very favorable interest rates. But you'll just want to make sure that there's still a lot of duration and term left on those loans. So a refinancing isn't required within like 12 months or something like that. And then also the exit cap rates also just honestly is always very important. And one way to think about that is just to think about what price per door the sponsor is saying they're going to exit at. And if you can get yourself If you can get your hands on some comparable transactions in that market, then you can try to see if it's, it's gonna be, it should be higher than most comps in the market because it's, you know, three to five years in the future and they're improving the property. But is it something that just completely, that seems completely crazy relative to where some properties are trading now just to try to check the exit cap rate. Another way to do that is also just to compare to the entry cap rate and make sure that- it's not. Decreasing too much- there might be a reason for that but that's also a way that. You know deals on the margin can be good to be made to look a lot better. And one of the things that we're doing now is that we're not. Again earlier said was gonna make predictions but- if eight if interest rates were going to change over the next three years. Does that exit cap rate. still makes sense in that context. So if debt today is at 6% and the deck that you're looking at investing in says the exit cap is at 5%, then there's got to be a really good story for that property to trade below the cost of debt in a couple of years when there's no upside left.

Whitney Sewell: Yeah, that's a great point. I'm glad you said that. I just want the listeners to think about that as they're looking at new opportunities to invest in. Tucker, what would you say is the number one thing that's contributed to your success?

Tucker Thompson: I think I hit on this earlier, but for Mac and I, it's really just the patience. I was doing this math earlier this week. We have screened, actually run numbers on about over 150 deals between the two of us in the last eight or nine months, that's excluding deals that we get that we don't bother even running the numbers on. And we've basically closed two and put three under contract. So if you think that we actually screen about half the deals we get sent and call it 300 deals over the last 12 months or so, when we've closed two or closed or put under contract three. So you're talking about like 1% or maybe even less. And so it does take a lot of work to filter through all those things. And that's the patience and the persistence.

Whitney Sewell: Definitely requires that. No doubt about it. How do you like to give back, Tucker?

Tucker Thompson: We do that mainly through how we operate our properties. We try to generate our returns by providing value to the renters. You know, there is like the low cost approach to selling a service cheaply, but in the lowest cost way possible for how to try to make your returns. You know, maybe that's like your Walmart or there's a way where you can charge a bit more, but try to provide good value and investing in the properties, not cutting corners on renovations, fixing maintenance requests when they happen, being really timely about closing out those tickets, being responsive to tenants, and fostering a good community that you would want to live in. When Mac and I go to our properties, we want to get out of our cars and be proud of the way it looks. it be a place that we would be open to living ourselves. So that's kind of the goal we have. And that's with all of our investments. And, um, I guess that's not really giving back through like a charity, but I think it's, it's, it's being, it's being fair and it's being considerate and it's doing things the right way. Um, which sometimes cost more, but I think plays out. most favorably in the long run. So that's how we think about it.

Whitney Sewell: Yeah, no, I appreciate that outlook for sure. Tucker, I couldn't agree more. We have more and more conversations about how we can care for our tenants in a better way. We own Lots of households, right? And there's a way to influence and help those people in a massive way that we have direct connection to. So I appreciate your outlook there. And Tucker, grateful for your time and willingness to share with us today and even going through a number of your projects and even moving from the, say, W2 investment position to entrepreneurial type role as well, as big of a step as that is. And just, you know, you and Mike going and making this happen and having the patience, persistence that's needed to close these deals, even raising the money for them when you don't know if it's going to happen or not, especially on the first one. So grateful again for your time. Thank you for that. How can the listeners get in touch with you and learn more about you?

Tucker Thompson: Listeners can check out our website, suitebay-capital.com or find us on LinkedIn. It's probably the best place as well. You can search SuiteBay Capital there and our name should come up. Those are probably the easiest ways to find us.

Whitney Sewell: 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.