MFREE 123 Full Episode with Tyler Lyons: What Does Disciplined Investing Actually Look Like?

In this episode of the Multifamily Real Estate Experiment Podcast, host Hutch interviews Tyler Lyons, the Chief Investment Officer at Asym Capital. Tyler shares his extensive background in corporate finance and how it shaped his approach to real estate investing. He emphasizes the importance of practice, precision, and persistence, while discussing his journey from a CPA in corporate America to raising over $35 million at Asym Capital. The discussion covers key factors in multifamily investing such as location, property bones, underwriting assumptions, and the art of asset management. Tyler also provides valuable advice for passive investors and outlines what distinguishes elite LP investors from others. Listeners will gain insights on how to navigate the multifamily market, the significance of rigorous asset management, and actionable steps to prepare for upcoming investment opportunities.

00:00 Introduction and Guest Overview

01:13 Tyler Lyons' Investment Philosophy

03:32 Tyler's Journey from Corporate Finance to Real Estate

06:36 The Importance of Repetition and Learning in Real Estate

08:51 Raising Capital and Working with Investors

12:35 Evaluating Deals and Stress Testing Assumptions

17:37 Asset Management and Property Management Insights

20:58 Positioning for Future Opportunities

22:38 Focus Round: Personal Insights and Tips

23:49 Conclusion and Contact Information

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Email me at:
hutch@hsquaredcapital.com

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Transcript

Track 1 0:00

Wah Gwan all you Multifamily enthusiast, welcome to another episode of the Multifamily Real Estate Experiment podcast. Today's guest is someone who sits in the intersection of capital raising underwriting, acquisition asset management and investor strategy. See, Tyler Lyons is the Chief Investment Officer at Asym Capital, a real estate owner operator, investor coach, with a deep background in corporate financing. Look, he oversees underwriting is a, he's a secret weapon over at Asym Capital. And he single handedly, or with his team raised over $35 million, before he joined Asym Capital. He served as a director of financial reporting for a publicly traded Fortune 1000 company, bringing institutional rigor into every investment decision. He's also both an active owner operator and a passive investor, which. Puts him in a position to speak to you through the passive investor lens as well. You know, also give him a rare, dual perspective. Most CIO don't really have. So Tyler, welcome to the episode today, brother. Thanks a ton, Hutch. Really appreciate the intro man, and it's great to see you. Really excited for the conversation today. So as am I, before we, unpacked all the underwriting risk and cycling, let me ask you this, what belief, principle or mental framework guides the way you make investment decision? Great question, and there's a quote from Tony Robbins that I really love, that I think is really important for people who are interested in the multifamily industry. it's meant a lot to me over the years and I've seen the importance of this quote, play out in my personal life and my professional life, Other people that I know that are really successful in the industry. That quote is basically, it's what you practice in private that you'll be rewarded for in public. And when it comes to the world of real estate investing, people get all excited about, doing deals and raising money. There's all these things, the Instagram snapshots, that sort of thing. But what people miss oftentimes is. The repetition and all the work that goes on in the background. To really be able to have success in this industry. Because when you look at something like multifamily investing. It's a very simple industry, but it's a very difficult industry. And the reason for that is because there's these very simple things that you have to do, but you have to do 'em over and over to really master 'em and get good at 'em. You look at something like underwriting, when I first started investing in real estate a decade ago, I underwrote 50 deals in my market before I, finally got one under contract. When you get that kind of repetition, by the time I bought one, I was able to walk through a property and calculate in my mind and know what the returns were gonna look like before I even sat down and opened a spreadsheet. So that quote is really important to me, and I think it really emphasizes. Just the nature of real estate and the fact that, you really gotta bite down on your mouth guard and get the repetitions to master these key skills in the world of real estate. That is some important information, man, because, you probably get this question quite often, right? When you talk to people and you are able to speak in great detail about the market, the project you're working on, or just re invest in, in real estate in general, you probably get a question like, did you go to school for this? How did you learn this? there's so much information. If we take the time to really get nuances with our learning in private, then whenever we come in public we can demonstrate, the knowledge we have learned in private. So that is freaking awesome, man. I wanna talk about your path on the way to where you are right now. Right. Your part is a little bit different, from a lot of real estate leaders, You came from corporate financing, fortune, 1000 financial reporting, to active operator, passive investor. Now the CIO of Asym Capital, can you walk us through how each phase shaped the lens that you look at investing through today? Yeah, absolutely. And I love having these conversations too, Hutch. It's always interesting to hear all the different backgrounds that people came from to come into real estate we host a podcast too, and I've interviewed a ton of people. It's a pretty small fraction of people who actually come from a real estate family or start their career in real estate and continue on. I'm one of those people who didn't start in real estate. I kind of fell into real estate or lucked my way into real estate, however you wanna say it. I got my degree in accounting. I got a CPA right outta college. Worked for a big four public accounting firm for many years started to climb the ladder there. Eventually left that role and started working for a large publicly traded manufacturing company, fortune 1000 company. Started climbing the ladder there, got promoted pretty early as a director of corporate finance Everything was going well, and I felt like I had a really good pathway to becoming a CFO for a publicly traded company at some point in time in my career. That's really what I was aiming at. But throughout that process, I grew in my career, and climbed the corporate ladder. I felt, a bit of sense of dissatisfaction with, that lifestyle. it wasn't necessarily the difficulty of the work, just something felt like it was missing. I got to work closely with our CFO and see what that lifestyle looks like and what it's all about. And I started, I kind of came to this realization, which is really difficult because at that point I had invested 15 years into my career. I was kind of coming to a realization of like, man, I just, I don't think that this is something that I want. I didn't know what it was that I wanted exactly, but I've learned over the years that you really gotta trust your gut. It was that gut intuition of just like how I was feeling. I don't think I want to aim for this anymore. So for me, it started this path of exploration. This would've been probably, 10 to 12 years ago, I went down a deep rabbit hole of listening to a lot of podcasts, reading a lot of books, really trying to explore what other opportunities might be out there for somebody like me with a finance skillset. I knew it was a valuable skillset. I knew there are a lot of different arenas where I could apply it. So I started exploring and eventually I stumbled into the world of real estate. I stumbled across BiggerPockets. And, you know, really was kind of wearing out their forum and all their free resources. I listened to the podcast religiously just to learn like the very basic blocking and tackling of what it means to buy a property, what it means to manage and run a property. And I bought my first property over a decade ago. It was a little duplex in my backyard in western Michigan. Renovated it and refinanced it and got it cash flowing and that thing started paying me while I was sleeping. There was literally no going back. Hutch. It's like it was over. It's like, okay, like I've gotta do this like a hundred more times. Like I've gotta do this again and again and again that's where my mindset was at. It caused a fundamental shift in my mindset, that first deal What we're taught by corporate America and Wall Street is that basically, you know, you save up money into a 401k, you sock all this money away for a future date. We're taught this method of accumulation for a future date of wealth creation when I bought that first rental property, it changed my mindset from accumulating to a future date. To buying cashflow assets to cover my living expenses It's like, let me buy cashflow to cover my living expenses. Then that can free me up to pursue passions, pursue different career paths, is a completely just paradigm shattering thing that I experienced when I bought that first investment property. From there, I just kept putting one foot in front of another. I bought a duplex, I bought a fourplex, I bought a couple single families. I started buying smaller, you know, I was buying a bunch of smaller residential properties. Like many people realized that's not the most scalable way to invest in real estate at a large scale. Found the world of syndications, started investing passively as an lp, once I saw people raising money and doing syndications, that was another light bulb moment of like, wow. With my institutional background, I think I can do this professionally. I think I can help people, who wanna have cash flow right now and don't wanna just sock all their money away for the future. How can I get involved in the industry? Start raising money, start doing syndications, and eventually I joined a firm called Asym Capital back in 2021. Many of the listeners might know my business partner, hunter Thompson. I joined, Asym Capital and I've been a partner with him there for, about four and a half years. And, we buy, own and operate multifamily properties in the Phoenix, MSA. We can talk about that as well, if you'd like. But that's a bit about my journey from, going from CPA to CIO. You know, it's been, it's been a lot of fun. There's been some ups and downs, but, I learned a ton along the way and it's been a ton of fun. Man, that explain your precision man, especially being a CPA, being good with the numbers, they explain your precision. You're not just evaluating deal, you are actually integrating financial control, reporting rigor, reporting psychology and a passive investor really get access, to your years and years of experience. Right? And I think that is pretty cool, you know, so. You've raised over $35 million and work with investors of all different type of background, right? To include Fortune 500 executive, tech professional, business owners and doctors, so on and so forth, right? Lemme ask you this man. What distinguishes Elite LPs Limited partner, who's consistently make great decision, right? From those investors who they get caught up in the shiny object syndromes. That's a really good question. it is one of those things that look like anything, like we talked about, practicing in private, getting reward in a public, like the repetition that it takes to get good at this stuff. Pass investing is no different, to become a good pass investor. You really need the repetition of looking at deals. A lot of people fall down when they find out about the world of syndications and investing passively. Oftentimes they have money, like they're ready to invest. They don't spend enough time educating themselves and really looking at a lot of deals to understand what a good deal actually looks like. If you get all excited about the world of syndications and invest in the first deal that you're pitched. You have no reference point for whether or not that's actually a good deal. So like anything, I think it requires practice and it requires time. If you're somebody who's approaching the syndication game for the first time, I would recommend spending six to 12 months, with education. Talking to people like you, Hutch, I know you raise a lot of money, you invest with different sponsors, folks like you in the industry who actually see a lot of deals. Can help speed up that learning process. Get out there, talk to sponsors. Look at a lot of deals and try to understand what a good deal looks like. When you talk to sponsors some things that more savvy and sophisticated, LPs are gonna look for, they're gonna look for alignment of interest. And what do I mean by alignment of interest? understanding a few different things, like what are the fees that the GP is charging to the LP investors? What's the waterfall structure and what does that look like? What's the preferred rate of return? What's the profit split between the GP and the LP investors? putting that story together of how the deal is structured. It's one of those things when you're new, it's gonna be difficult for you to know and ascertain whether or not there really is alignment of interest. But if you go through and look at 20, 30 different syndicated deals, now you're gonna be able to see like, okay, this guy charges a 5% acquisition fee. This guy charges a 2% acquisition fee. And this guy charges a 90 10 split. So most of his compensation is coming right at the get go when the deal is closed. But this guy's got a lower acquisition fee, and a, 70 30 profit split. So more of his compensation is coming in the form of the promoted interest. This guy really needs to perform in order to get paid to run this deal. That's just an example. But I think the general thing that I'd really encourage people do to become elite capital raisers, like, or, sorry, not capital raises, but LP investors, right? It comes down to education. There's no shortcut for having conversations with savvy people who are active in the industry. And looking at a lot of deals, that's what I recommend people do, Exactly. So, that is interesting, right? I've seen this as well, right? So the best lp, they don't chase the deals. They're looking for the, they chase the framework. They're looking for the entire package, Then to your point, alignment of interest. Let's go into yours, because you've raised over $35 million, and you've led on writing across multiple asset classes. I know you guys are now focusing in Phoenix. what are the first assumption you break, adjust, or pressure test to reveal whether a deal survives reality? That's a great question, Hutch. And it's important for all investors to think about this sort of stuff. Stress testing, pressure testing assumptions, that sort of thing. Let me touch on a couple of things first. there's some screening that happens before we even get to the sensitivity part of the analysis. When you look at real estate, there are a couple of things that we put a lot of emphasis on that are really important that might not necessarily show up in the numbers in the underwriting. The first thing we're gonna look for in a deal is location. Because location, you can't change it. If you buy a crappy piece of dirt, it's really tough to recover from that. Location is the first and the number one thing we look for. The deal we just closed two or three weeks ago, for example, it's a stone throwaway from, downtown Tempe in Arizona, a short bike ride to Arizona State University. It's just, it's irreplaceable dirt. Yeah. it's wonderful location. So location is the first thing that we look for. The next thing that we look for is what are the bones of the property? For example, if you have something that's all one bedrooms and studios. That's not gonna be nearly as good, especially if you're in a situation where the market starts to turn. One bedrooms and studios tend to not do very good in a struggling market because people start moving back in together to save money. You typically want more two bedroom units, if you get a higher mix of two bedroom units. It's important too, when you look at something like a two bedroom unit. Not all two bedroom units are created equal. If you have a 650 square foot, two bed, one bath, unit, that's not gonna be nearly as good as one that's 1000 square feet with two bedrooms and two full baths. A nice layout and an island in the kitchen. The location and the bones are the things that we look at most. Like something else that plays into like what the bones are, you know, the vintage of the property. We like to get into stuff that's eighties vintage or newer if possible. When you get into seventies vintage, you start to get into things like boilers and chillers which if I can buy great dirt, that's really well located. I'm willing to incur some vintage risk with buying older properties, but if I can help it like that comes into the bones conversation too. I'd prefer to buy something that doesn't have a boiler or a chiller, because when you have those centralized mechanical systems, they're more prone to break, and when they do, usually they service the whole property. All of a sudden, your entire property is without heating or cooling, and that's a big problem. It's because these older mechanical systems. They're expensive to fix. Sometimes it's hard to even get the parts, so you might be looking at several weeks of lead time to fix 'em. You have to bring in temporary air conditioning for your people. The costs start to explode when you get into these centralized boiler and chiller systems. So when we screen deals, those are the first things that we look at. If you don't buy correctly with respect to those elements of the deal, it's really tough to recover from it. So it's really important. In terms of, the stress testing element the, most sensitive assumptions in an underwriting model are your rent growth and your exit cap rate. If you're an LP and you're looking at deals, those are things you want to pay very close attention to. Right now, for example, from a rent growth perspective, we invest in Phoenix and a lot of Sunbelt markets take, your pick, Phoenix, Austin, Dallas. Everybody's seeing a lot of supply right now. Rent growth has been flat to negative for a couple of years now. The rent growth is really important. That's one that we sensitize rent growth, exit cap, interest rate. These are the things that we tinker with the most. Even expense ratio, we'll tinker with that a bit, but we've got enough of a portfolio where we've got a good sense for where the expenses should run. Generally speaking, expenses are more within our control than something like rent growth exit cap rate or interest rate these are outside our control, but those are all different things that we sensitize when we're underwriting a deal. And really trying to understand like, how bad would something need to go before we're like breaking even and losing money. You know, like those are the type of sensitivities that we perform. Yeah. That sensitivity analysis is crucial to understand, especially to your last point is what is the breaking point of this property? Like what is the minimum amount this property need, especially the controllables, right? Because then the uncontrollables you gotta put a lot of buffer into those right? Taxes and insurance where a lot of folks that we invest with. Have so many assets in one location that they're able to offset a lot of their insurance by the level of relationship they're able to create. So taxes and insurance are definitely two of the uncontrollables. However, the controllables, If you are using those to stress, test the property as much as possible. it gives us a better projection of the performance. You know, so you're not just underwriting deal man, you are underwriting operators, decision making, Honest, resilience and also operational discipline, right? So as a passive investor yourself as well, but you also work with fund managers, their ability to actually invest the capital that it commits. I wanna talk about this specifically about institutional grade operator, right? Based on your assessment and experience, what separate institutional grade operator from someone who should not be steward in investors capital? That's a great question. I would say one thing that I've noticed is. What it takes to be a really best in class operator. Yeah. It really boils down to the intensity of the asset management is really the most important part. Okay. And you know, when you look at people who manage multifamily, I see people who do an amazing job and use third party management. We're kind of in that club. Like I think we're really good asset managers. We use third party management. Okay. You see other groups who vertically integrate and have their own property management in-house. I see people do an awesome job either way, you know, vertically integrated and not vertically integrated. And really what it comes down to is, yeah, kind of that intensity of the asset management. Having systems in place, having KPIs, making sure that whoever's running the deal. You've got the ability to hold them accountable, right? So you're watching the KPIs and using those KPIs drive accountability with the people managing the deal for you, whether it's internal or a third party. When it comes to. Managing multifamily real estate, especially if you're using third party, multi third party managers. The squeaky wheel gets the grease as the old cliche goes. We're all over our property managers. we've got weekly meetings, we're all over the KPIs and I talk to our regional on a daily basis. It's like there's constantly stuff that we're working on. Rarely does, a week go by where it's okay, we talked. Our meetings are usually on Tuesday. We talk on Tuesday, and then we don't talk again until next Tuesday. It's really about being organized and systematic identifying the issues and having the ability to follow through and make sure those issues are tackled promptly. That's really what asset management boils down to in a nutshell. To give you a little more flavor around the way that we think about it, property management, it's a very difficult business. And it's a very low margin business too. So God bless the people who do property management. We need 'em, right? it's hard work they're a crucial part of making these deals run. Given that it is a tough lower margin business, we want to focus our effort on higher value added activities like acquisitions and raising money. When it comes to property management, we have really good competent third party property management partners in our market that we feel very comfortable with. At the same time it's rare that you find somebody who's like, Hey, I love my property management company. People always complain about property management companies, and it's because. It's a tough business the way we think about it is if we can get solid, competent third party property management, maybe we get like a 7 out of 10 from them in terms of the quality of the work and our satisfaction. But through our intensity of asset management and leadership and really being good at driving the ship and making sure they're doing what we want them to do, right? If we can get like an overall nine out 10 or 10 out of 10, that's kind of the way we think about it. You really explode the size of your organization. Now you've got HR headaches, you've got all these different things that pop up with respect to having that internal within your organization. So that's a model that we use. And not to say that we won't change in the future for us right now. It seems to be working pretty well, going that way. But, all that to say, vertically integrated or not, it really depends on the organization. Some people do it really well, some people don't. So it's really a matter of, the leadership of the organization and what they're looking for. Man, I got you, man. As we draw close to the end of this podcast, brother. Let's land this plane, given everything, you're tracking, credits, liquidity, vol, valuation, sellers distress, you know, lending terms, what should passive investor be doing right now to position themself for next major opportunities? So, for example, a next Asym Capital deal that may come online in 2026. Great question. I do feel like this is a great time in the market cycle to buy multifamily real estate. Okay. Whether you're a past investor or an owner and operator, I think it's a great point in the market cycle. If you are on the LP side and you're looking to position yourself. It's a great time to do some of the things we talked about earlier have conversations with people like Hutch. Have conversations with the operators you might wanna invest with. Start to build that trust. Start to get your due diligence questions out of the way. Educate yourself on the industry we've seen a significant decrease in valuations in multifamily real estate. The deal we bought a few weeks ago, we bought it for 185,000 a door. The deal across the street, similar vintage, sold for $300,000 a door. In May of 2022, we've seen transaction volume dipped 75% from peak to trough. Typically when you see transaction volume pull back that much, it indicates you're at a cyclical low from a valuation perspective. A lot of the data that we're tracking right now would say that now is a really good time. We might not be at the bottom yet, but if we're not at the bottom yet, like we're getting close. So we believe the next two to three years is a really prime time to invest in multi-family real estate. Educate yourself, build the relationships, and, put yourself in the position to be able to execute. That's cool, man. Those relationships are crucial, especially in this environment. Tyler, I want to go briefly in, in the focus round. It's like a lightning round. You probably heard it before, right? What do you do for fun? Oh man, I'm a pretty active guy. Workout, golf, ski, pickleball. I was a jock back in the day, so I love doing athletic things. Alright. What is one opportunity that was a game changer for you? Oh man. I would say Joining Asym Capital. That's a big turning point in my career. What would you say is your most important communication tip? Communication tip. Start a podcast. What is one thing you wish you understood earlier? that investing in real estate's a team sport. I spent too much time thinking I needed to do everything myself. So you and your family went all in on real estate to the point where you actually, move down to Phoenix. Let me ask you this, man, to What do you attribute your success? I've got a good work ethic. I'm persistent. I learned it from my dad growing up. I worked for my dad doing construction. I used to see how hard he worked. I think that just the way that I'm wired from that perspective, I got it from my dad. I think that's a big part of it. And I owe, a debt of gratitude to him for that. Okay. That's cool, man. If listeners wanna get in touch with you, what's the best way for them to do that? Best way to do that would be to, look me up on LinkedIn. I'm pretty active there. if you look up Tyler Lyons Real Estate, it should be easy to find me. I can share you a link Hutch, if you wanna include that in the show notes, but LinkedIn is the best way to stay in contact with me. Okay. Listeners, Thank you for spending time with us. I trust that you use this knowledge to elevate your underwriting, sharpen your operated selection, and also to position yourself to own more of America. Until next time, I'm Hutch Marine Investor Out.