[00:00:00] Kristen: Welcome to this week’s edition of Insider Secrets. The show that turns multifamily investing into reality. Each show we interview guests who are seasoned professionals, actively closing and managing real estate deals. Your host Mike Morawski has more than 30 years of multifamily, real estate investing and property management expense.

Mike is the founder of My Core Intentions. And he’s been involved in over $285 million of transactions. Focuses on helping you create short term cashflow and long-term wealth. Here’s your host, Mike.

Mike: Hey, good afternoon. And welcome to this Tuesday session of Insider Secrets and that’s brought to you by My Core Intentions. Before I introduce our guest today, let me take a quick minute for a commercial. My Core Intentions is designed to [00:01:00] deliver proven real estate strategies through personalized coaching to help facilitate a positive life change for our clients.

We do this by delivering proven strategies, podcasts like today with an expert. So I’d like to hear from you either by email or by a phone call about your practical plan and what your growth plan is and what your intention is for building your business. If you’re considering coaching or someone to help you draw out that plan, give us a call, go to our website and you can register for a free coaching session.

And how are your intentions? What are they, what are you looking to accomplish? Let me take a minute here and introduce our guests for today. Give you some things to think about in your own real estate investing career. But I’m joined today by my good friend and real estate investor from orange county, California, ForrestCorral. Forrest, and his family live outside of Irvine.

He’s a seasoned real estate investor with a [00:02:00] formula that really works. Forrest is going to talk to us today about strategy. And I think that’s really important. Something we all need to look at as investors is our strategy. Strategy around, your focus, your standards, what market conditions are.

Forrest, why don’t you say hi to our listeners and tell us in one word, what describes your investing strategy?

Forrest: Thanks Mike. I really appreciate that you have me today. It’s such a wonderful day that we all get to get up out of our beds and and I’m super thankful and I’m super thankful to be here.

I would say if you were to ask me what’s one word that would describe our strategy it’s commitment. Being committed doesn’t mean that you won’t fail or have setbacks, but being committed over time, illustrates that you will be successful. So that’s what I would say is commitment.

Mike: That staying in the game for the long haul. Over and over.

Forrest: Absolutely.

Mike: So Forrest, why don’t you do this? I think that’s great. And why don’t you tell us a little bit more about that commitment. Tell us about yourself, [00:03:00] your backstory, how’d you wind up in multifamily investing?

Forrest: That’s a good question. It’s a pretty much a miracle. I’ll say miracle several times, I was some poor kid from the wrong side of town in Los Angeles that was just encouraged to go to college, didn’t know what for. I felt as backwards I’d like to say, but it’s more of a miracle into accounting.

I did well enough in college, had a state school here in California to get hired to a large publicly traded or a large accounting firm that specialized in commercial real estate here in Newport beach. And didn’t really understand what I was getting into until I was there.

But all of the clients that I was working on that were publicly traded home builders. Publicly traded land developers, et cetera, et cetera. This division of Ernst and young specialized in commercial real estate. So most of my clients were all commercial real estate clients. And so it was at that time that I learned trial by fire, or just merely a war of attrition of working on [00:04:00] cashflows, looking at vertical and horizontal construction.

And then I was there for a couple of years and that got recruited away to work for a large brokerage firm, commercial real estate brokerage forum. And then eventually got hired away to work for a publicly traded home builder where I was lucky enough or blessed enough to acquire approximately 15,000 multifamily units over the country over eight years.

 I was there on contract basis, meaning I was there for a couple of months. And when that couple of months contract was up, they asked me to stay another month and then another month. And as the miracle goes, I ended up being one of the CFOs and did a lot of businesses.

Then I’d say in 2006, I left with a pile of money. I doubled down on this market. Probably obviously at the wrong time. Then by oh nine I probably was working out all of my deals, my multifamily deals that I had purchased in 2006 and 2007. But the one thing and then during I’d say, during [00:05:00] 2012 to 13 to 14, I probably acquired or helped acquire about 1700 residential homes throughout the United States. It was a unique space, a niche that we had probably too long to describe on this phone call or webinar.

But then in 2015, 16, I semi got the band back together or some of my competitors. And we formed our current partnership, which is since about 16, 17, we’ve bought about 2000 multifamily units all over the Southeast or what I would call the smile part of the country. Which is really where our target market is. It’s from all the way up from Seattle. If you can picture this in your mind from Seattle down to Vegas, Tucson, Phoenix many markets in the Texas area, Atlanta, all of Florida, almost except for Miami. Then all the way through the Carolinas, then all the way to the mid Atlantic.

So if you draw that draws smile on the continental United States, it would look like the Mona Lisa smile as well, we call it. And we’re vertically integrated. We self-manage all of our assets [00:06:00] which is a total of about 3,500. And we’re constantly looking for two things, constantly looking for deals and constantly looking for capital.

Mike: If any of our investors out there had any deals in any of those markets that you were looking at or had an interest in capital they could call you and see you and we’ll get your information at the end of the call.

Forrest: Certainly.

Mike: It sounds like you’ve had a long committed period of time in that market. And the thing that I find interesting in a lot of conversation with a lot of multi-family people today is, why should I go outside of my market? Why should I stay in my own market? And I think both you and myself in our investing strategy over the years has been, our market where we live might not make the most sense when we can go somewhere else and buy a product that we can buy for a less cost of capital and make more money on. So you want to talk about that a little bit?

Forrest: Sure. So I’ve been in this business, the multi-family business since I’d say the mid [00:07:00] to late nineties. And with the advent of technology, technology allows you to fire over the horizon. Meaning most of that the horizon bends every call it 50 miles the curvature of the earth.

It used to be in the old days, so I’ve heard that in the seventies and eighties you wanted to buy a property outside of your neighborhood. That was no further than a couple of hours from the nearest international airport. In the nineties, in the late nineties with the advent of the internet and into the two thousands, with the the increase in the technology, the property management software.

The internet, the ability to communicate via cell phones and iPads and et cetera, et cetera, it’s brought the fight, I would say, or the investment closer to your living room couch, so to speak, or your office. So what we do is we’re a very decentralized management company where we have our vertically integrated property management company. [00:08:00] Our business partners are in five different locations throughout California and north end south. We have all of our corporate property management corporate staff is in different states. We probably have about 80 to 90 employees that oversee our makeup, our property management vertical.

And to that point of not being in your market investing in your market, technology, I’ll land the plane this way. Technology allows you to fire over the horizon. It’s the force multiplier that gets you to where you need to be.

Mike: Yeah, it’s interesting. Everybody thought, oh, technology is going to make your life easier. And then we went through that period of time where it was confusing and now technology really helps to source deals, to look at deals, to do things from your couch at home where that you would normally have to get on an airplane to go do. So investing outside of your market generally becomes a little easier.

Forrest: Yeah. And just to make a point of that, a little hyperbole here it’s is I always tell my family that one day, your dad’s going to come out with a book that says how I bought a [00:09:00] billion dollars worth of commercial real estate or apartments in my underwear, on my couch. And it’s funny, but it’s also true. It’s certainly very much possible.

Mike: And it’s interesting, and everybody wants to work from their couch at home in their underwear.

Forrest: Nowadays, maybe not so much with everybody on top of each other, especially if you live in new York.

Mike: So we are in the middle of the Corona virus or coming to the end of it, hopefully at during this. But, remember that comment. Remember when you wanted the weekend to last forever.

Forrest: You want Mondays to come more than that.

Mike: So you said you own about 3,500 doors right now. Can you tell us what that portfolio looks like? Size of complexes and do you have management in place or what does that portfolio look like?

Forrest: Yeah, so that portfolio is. So I’ll start with our targets since I’m the chief investment officer, which is more just a fancy word of saying, I’m the guy that goes out and selects the widget and kicks the widget and visit the widget and then underwrites the widget so that my partners could look at it and we could round table on it and decide whether we’re gonna write an offer or not.[00:10:00]

And it’s a very highly fluid task meaning the widget comes in, I look and then we underwrite it. We have a couple analysts and then we caucus on it, so to speak. But the makeup of the current portfolio is all throughout the smile part of the country. As I mentioned earlier, we don’t buy anything apropos of our target box or our target acquisition box is that we don’t buy anything less than 150 units or less than $10 million in an empirical value.

I would say that if there’s two ways to get widgets or two multifamily assets there’s through the brokerage community or principal, the principal. And in either case, you need to establish a beachhead in a market. For instance, in Atlanta, I probably bought 4,000 units in Atlanta before the last markets.

This past market cycle run up. Probably have about eight assets in Atlanta or 1500 units. But early on, I’m going to answer your question here in a second, but early on, there’s already a [00:11:00] bunch of players in Atlanta, established players. So what you have to do to jump in or a parachute into a market is you wouldn’t have to buy an asset that you wouldn’t normally buy.

For instance, we bought a hundred on the south side of Atlanta, approximately 15 miles from downtown Atlanta, that was 138 units. And it was built in the mid seventies and which isn’t an asset that we’d normally buy, which is under the 150 units, which was built in the seventies or later, we wouldn’t normally buy that.

To jump into a market, sometimes you have to buy something that you wouldn’t normally buy just to establish your presence in that marketplace, which is the point that I’m really trying to make here is that nobody’s saying that we should buy stupid things or stupid widgets, but sometimes you need to bend your own tolerances to get into a market.

Mike: Yeah. So you need to stretch your own capacity. So when you talk about that though, if we talk about [00:12:00] product class, ABC, so what do you normally buy? What product class do you normally buy and what would be a stretch for you?

Forrest: We normally buy in a market that we have a concentration in, such in Atlanta. We’re only looking at assets that are over 150 units minimum that are eighties and newer. So eighties, nineties, two thousands.

Mike: Okay.

Forrest: We’re even looking at merchant build deals that were just built last year. In Atlanta, I would say in the San Antonio market, we’re doing the same thing. In the California market, we’re doing the same thing. But in other markets that we’d love to be in, let’s say like Raleigh, North Carolina, we buy a sixties vintage deal just to get into that market. It’s a top 20 market. A lot of players earn a lot of sophisticated money. A lot of folks, a lot of players in the $10 million and above space. So it’s a knife fight to actually get a deal.

Mike: Yep. So what’s interesting is you [00:13:00] talk about standards and you have these specific standards depending on the market that you’re going into. Product class, type of product, and I always encourage my clients and my coaching clients, that what you need to do is you need to have these written standards.

You need to know what you would buy in what market. So what’s interesting is that in Atlanta, you’re not going to buy a sixties product, but you’ll go to Raleigh and buy a sixties product.

Forrest: Correct.

Mike: The one thing that I’d like you to talk a little bit about is, I talk to my coaching clients a lot about sourcing deals and the best way to find deals.

And you talked about the difference between the brokerage community and finding deals through them or going direct to the owner. Where do you find not only your best deals, but the most, where can you find the greater ease of seller?

Forrest: It’s definitely, I would say, and I’ve bought both in the last three years, I’ve bought both, I bought anywhere from 50 million to [00:14:00] 25 million to 10 million to 1 million here in orange county. And I would say that the game, the multifamily game in primary markets, like in Atlanta, like a Vegas like a Phoenix, even like a Tucson, deals that are above $10 million and up are very competitive.

And all this is pre Corona, is very competitive. You’re dealing with smart people who have ostensibly a black credit. And by black credit card, I mean that you could buy anything you want with a deep capital bench. So I would say the greatest opportunity is south of $10 million and even more so south of $5 million, there’s less sophisticated competition.

And I don’t say, I don’t want to say dumb competition. I just want to say that or characterize it as competition that is less in tune with the marketplace. The stock market place of multifamily, meaning [00:15:00] that if you look at this the NASDAQ today, it goes up and down every second. That’s how the multifamily market is for an institutional buyer such as ourselves.

But at the million dollar range or the $5 million range, it’s less in tune. The analogy is that they would look at their stock portfolio like once a month when they get there. So they’re just less in tune with the ebbs and flows of the real marketplace. Doesn’t mean, I’m not saying that they couldn’t get into, and they’re just very nature. They’re less in tune because they’re focused on other things, if that makes sense.

Mike: So if you were going to go today and search for a owner that’s selling a property, not to reveal all your secrets unless you want to, but how would you go about doing that?

Forrest: Yeah, that’s a great question. And I have such a heart for the small investor because I was a small investor back in the early nineties early nineties, mid nineties before I was blessed with all these opportunities. I would say you have to look, [00:16:00] first of all, you have to ask yourself, do I want to fight a battle over the horizon?

Most of us will say, yes. So the next thing that I would do in the funnel of sussing out where you want to be is I would look in the top 20 markets and you could go, Michael Milken. The Milken Institute has a great research report and you could just Google it. Michael Milken real estate top 200 markets. Every market goes up or down every year based on two biggest things; incomes, and employment.

You don’t want to be in a market where you have negative employment or negative migration. I don’t know. I don’t want to pick a city cause I don’t want to put a cloud on any city, but let’s just say the Michigan’s of the world back in 2007 or eight relative to the orange county markets either, that historically have been strong.

So you want to be in a strong market. Plenty of data out there that’s not top secret. That you could just Google. But follow the smart money. Michael Milken Institute is a good one. There are a couple others that I would chase that are okay.

[00:17:00] So let’s say you pick a market like Nashville. So you’re in Nashville and you say, I could only tolerate deals that are between one and 5 million. I would definitely follow the smart money. You have plenty of operators. Multi-family operators are out there that are buying deals, renovating deals and moving rent.

From a value add standpoint, those are the guys that you want to draft off of. Okay. The smart guys, and you could pretty much go to any top brokerage, CBRE, Berkadia, any local brokerage as well, commercial brokerage. And you could ask them who are the biggest buyers in that marketplace.

This is all information that you can go dig up. And once you find the big money buying assets, then you want to draft off of them. It’s like a Walmart. A Walmart does a lot of investigation before they do a capital investment to build a Walmart. So that’s essentially what you’re doing.

If you had a donut shop, you might build, create a donut shop close to the Walmart cause [00:18:00] there’s traffic. So once you identify your target market and you find the big players that you want to draft off of, you want to now figure out get some sort of investigative software that allows you to farm that area, figuring out who the buyers are or who the owners are and how long they’ve owned it.

Another key thing is to figure out, determine what kind of debt they have on it. Is the debt coming due soon? Don’t forget this, if you learned one thing today, learn this, a lot of multi-family guys like to put fixed rate debt on there.

We don’t do that. Fixed rate debt equates to prepayment penalties. Okay. We’re not in any long gated, low interest rate environment, putting floating rate debt with a interest rate cap allows you the flexibility to get in and out of your deal after one year. Whereas fixed rate debt. I think I said that, right?

A floating rate debt allows you the [00:19:00] flexibility, fixed rate debt penalizes you. Fixed rate debt forces you to time the market. Okay. If you know anything about yield maintenance or defeasance, or I would wrap all that up into prepayment penalties, boy, we could throw a dart in a market and just hit a home run like a Nashville.

And after 2, 3, 4 or five years say, geez, I want to sell this because I’ve doubled my money, my asset value. But if you’ve got fixed rate debt on there and it’s that still some term on there, boy, when you calculate the yield maintenance or the pre-payment penalty, boy, you’re going to be a sore loser.

Mike: Yeah. So what’s interesting is you’re talking about debt and you’re talking about fixed rate versus floating. The one thing you said is timing the market. And I think a lot of investors sit on the sidelines because they say, I can’t time this market. I can’t figure it out. You’re going to invest in any market.

You’re not going to say because it’s higher because it’s low on that [00:20:00] investing. You’re going to invest in any market. And I think that’s where most investors need to get off the couch and get out there and do some investing. I would like you to talk about for a minute, as we’re on this conversation about capital is the difference between private capital and institutional capital, and what are you looking at for sources of capital out there today?

What do you see as availability and where the market’s going to go, especially over the next, 180 240 days?

Forrest: Let me first try to answer that question. I know I’ve got the answers. The difference between private capital and institutional capital other than the words is this.

If you have an believe me, I’ve done at least a billion dollars with Lehman brothers and other pension fund advisors. So I’ve had a lot of institutional equity experience when bad times. The good thing about institutional equity allows you to buy scale, Tim. [00:21:00] 5,000 plus million dollar deals.

And because they only want to chase large deals. However, the downside to institutional capital is two things. The reporting elements that you have to do on a monthly or quarterly basis, a pension fund will is like a proctology exam every month or every quarter from a reporting standpoint. And. You mismanaged the property or the cycle hits you and you’re overleveraged and and the lender is coming with their handout and wants you to rebalance the loan, the equity, the institutional equity.

They’re quick to fish. They’re quicker to cut bait on an asset because you got to understand that they own billions and billions of dollars. And your one little deal at 20 million. Is a drop in the bucket. So when they make a decision they will make a decision and you could get, yeah, totally wiped out your co-invest conversely, on on a [00:22:00] non-institutional non-institutional equity, they’re more tolerant with making those kinds of decisions in my experience.

Yeah. So that’s something that we want to look for is we want to look for that tolerance with our capital tonight, where we’re going to be able to, if something should arise or some situation come up, we’re going to be able to ride the storm

out. So to say, you want a partner, Mike, you want a partner not somebody that’s going to make a decision from their ivory tower.

And you’re just another.

The thing that you said a few minutes ago about to small investor, I feel a lot of times, somebody could be listening to this podcast right now and saying, oh my gosh, I’d never be able to buy 150 unit deal, much less 3000, but I remember when I first got in the multi-family business, I didn’t think I’d ever buy a 200 unit deal.

And then I bought one. And all of a sudden your whole paradigm shifts, but I want to talk to the small investor for a minute. Just the guy who says, you know what, I just want to buy a six unit or a 10 unit or a portfolio of 10 unit buildings. The [00:23:00] capital’s out there. The timing is.

Go ahead and build your portfolio that way. What advice would you give to the small guy? Today that might be the same or might be different than what you would give to a larger

investor? Yep. I’ve got it. Which is the same advice that I give my wife and my kids. Okay. I give to your phone.

Because, as I said earlier, I have a heart for the small investor, cause I was a small investor. At one point I used to own five, just five homes in a tertiary market here in tertiary mark, Los Angeles. I would say this, if you just got a little bit of money, you want to be, you want to be in a market that is a larger amount.

That’s close to home as close as possible, even if it is a plane ride and you want to buy, you want to follow the smart money. And I would say a lot of people have buy and hold or buy and flip. Okay. I want to, I will purpose to [00:24:00] give your folks that advice to say you buy and flip multifamily assets, small multifamily assets.

You can go into a market and buy a four unit, a six unit and go in there and you could buy somebody. You can buy a pro widget. That’s been owned for 5, 10, 15, 20 years. And then the rents are half of what they could be or some version of it. You could go in there and throw a lot of money at the insides and move the rents.

50, a hundred percent in summer.

So here’s, what’s interesting. You talked about buying a

four unit. I bought a two and a half. Believe it or not, you can talk on the rent, a thousand dollars a unit and sold within it sold within a year. I’m telling you that’s a business plan and I would encourage anybody.

That’s just got a little bit of money said to, one day it’s fine to buy a hundred, 200 units, but you want to hit [00:25:00] singles. And doubles. This is singles and doubles investing in multifamily.

Mike: Yeah. We always talk about, hitting the single to get up to bat every time and you hit a single, but once in a while you hit that triple or that home run you’ve done well.

Back to that small investor for a minute, even if you’re just buying four unit and five unit buildings, that’s a residential loan. That’s not even a commercial. So you can start your investing career. You can start to build a portfolio on that residential platform and graduate from there.

I always equate it to play in the game of monopoly. You want to buy a bunch of things, put them on park place and boardwalk, wherever the smart money is, turn around, sell them and put a hotel up there. So that’s what helps grow your portfolio? Listen, we’re coming to the end. Yep. And

Forrest: I want to take, it’s almost as easy as that.

Yeah,

Mike: I want to thank you for your time today. And we seem to have some technical stuff going on here with communication. But I want you to tell people how they can get [00:26:00] ahold of you for, if they have deals that they want to float your way or capital your way, how would somebody get ahold of you today?

Forrest: I’ll give you my email address and not my home address, but my email address is forest with two apps, F O R E S t@praxcap.com. That’s P R a X,

the.com.

Mike: Okay, great. Forrest, I want to thank you for your time today and really appreciate all your insight and your input. No doubt. I’ve always had a lot of respect for you and for your knowledge and know that you’re continuing to stay committed to the market and committed to your investment strategy.

And that’s the point that we tried to bring through to people today. And I hope they got a good grasp. A lot of good things talked about today. So thanks for your time and have a great day. And everybody out there we’ll talk to you.

Forrest: You too. [00:27:00] Take care.

Kristen: Thank you, Mike, and thank you for joining us for another great episode of Insider Secrets. As always, Insider Secrets is brought to you by My Core Intentions. Join us on social media and visit mycoreintentions.com where you can get expert coaching on all things, multifamily investing in property management.

We’re looking forward to having you back again next week for more Insider Secrets.