Insider Secrets Podcast Episode #23
Guest: John Cohen
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- Real Estate Investor Podcast Host The REI Experience.
- Owner @ The Lot Bank Co
- Founder and Owner @ Toro Real Estate Partners
- Owner @ Jc Property Group
- Commercial Real Estate Investment Sales @ Marcus & Millichap
- Licensed Real Estate Professional @ Platinum Properties
- Queens College, City University of New York 2010
- Queens College, City University of New York 2010
- Queens College
- Bachelor of Science (Economics) 2008 – 2009
- Mercy College 2006 – 2008
- Wheatley School 2005
[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 session of Insider Secrets brought to you by My Core Intentions. And I want to welcome you here today. I’m joined today by real estate investor, John Cohen from Jericho, New York. John, [00:01:00] you want to say hi to everybody real quick?
John: Hey everybody. Thank you everybody for listening. Mike, thanks for having me on.
Mike: Yeah, you bet. I’m glad you’re here and we’ll get to our interview with you here in a minute. One thing I want to talk to all my listeners about today is your intention. And what are you trying to accomplish personally and professionally in your real estate career and your real estate business? Whether you are an investor, whether you’re a property manager or some other ancillary professional in the industry. I think that I find a lot lately people’s lives tend to get a little bit out of balance. We run so fast in a certain direction, or we try to accomplish so many things that we tend to lose focus on what’s really important.
Hopefully, we’ll talk a little bit about this with our guest today and see how he keeps his life in balance. But if you’re looking for some direction, if you’re looking for some guidance, you know what, give My Core Intentions a call set, up free coaching session for yourself. Let’s see if we can help you discover your true why and help you get on track to build [00:02:00] your business a little bit more efficiently.
Today, we’re going to talk to John Cohen. John is with Toro real estate partners in Jericho New York, and John’s focuses the strategic direction of the company formulation and their investment strategy. Since 2010, he’s focused on deals where he can add tremendous value. Since starting in the real estate business, he’s been involved in over $500 million in various real estate transactions, including tax liens, rental, sales transactions, disposition and Manhattan vacant land and single family flips and multifamily add deals or value add deals.
John, that’s some impressive background and an impressive bio. What I’d like to do is I’d like you to talk a little bit more about that as we get started here, but right now here’s what I want you to do. In one word, would you describe to our listeners your personal and your [00:03:00] professional investing strategy and focus?
John: In one word. I would say value add.
Mike: Value add. You find in that’s most opportunity out there today, John?
John: I think it’s the way I look at it is to really benefit your investors, as well as yourself. You got to provide value, whether it’s from the deal perspective or anything. So when we’re looking at every deal, if we can’t add a tremendous amount of value to that opportunity, whether it’s from bringing the right bank in, whether it’s from bringing the right contractor, whether it’s bringing the right management team in, we’re probably not doing the deal because if we can’t bring in something, that’s going to turn it around, it’s probably not an opportunity.
In today’s world, those deals are a little bit harder to find. So you have to look a little bit deeper or try different things to deliver that value. But I think that the value add component not necessarily, going into a property bringing in 5,000 a door and renovating units with granite and stainless steel and that stuff.
That’s not what I’m talking about. I’m just talking about from a standpoint of when you’re looking at an opportunity, a [00:04:00] value add is something that you see that maybe nobody else does or something that you do that nobody might do like you, and that’s where you’re going to see your tremendous amount of opportunity, which in today’s world with, you know, with Corona and everything, opportunities are few and far between, so you really gotta make sure when you move forward with something, you can bring that piece to that, whatever it is that was missing.
Mike: Yeah. Interesting. And I think that’s a great concept because I think so many investors talk about value add, and how much money do I need to bring per unit to the deal. But it is more than that. And you touched on that, it could be management, it could be contractor, could be the type of funding.
So there are so many different aspects when you look at value add. Hey, John, can we do this? Can you talk a little bit about your backstory and how you wound up in the real estate business? I don’t think anybody has ever born into the real estate business. But how’d you wind up in the real estate business, maybe even a defining moment or something that happened in your life.
John: Yeah. So the defining moment for me actually, I was in finance prior [00:05:00] to real estate. I actually watched Facebook IPO and do really poorly on the IPO. When I saw that, I just saw people in the office and it looked like their worlds were ending. And I said, I don’t really want that to be me. I was only 22, 23 at the time give or take maybe 24 or whatever.
And I looked at that moment and I said, nah, that’s not going to be me when I’m 50, 60, 70, whatever it is. So I said, I need to do something that I can see, feel, and touch. And I could control more of it. When you buy a stock, you have very little control unless you buy an overwhelming majority of the company, which takes a lot of capital, whatever.
But the defining moment was that point in time where I said I got to do something else. And then prior to that, I had been buying some real estate on my own. And I just saw what it did for close family friends that basically they lived on rental income from whether it’d be a building, whether it be a multifamily property.
And I had witnessed that, I had seen it, I had read a ton about it, and I basically said, I can do that. And I could [00:06:00] control, obviously no one could control a pandemic, no one can control interest rates, but what you can control. You can underwrite and you can look for things in a deal that aren’t working and you could fix them. And if you fix them, you should be able to provide value to that situation. So that’s more or less that focus.
Mike: Yeah. Interesting. And so tell us a little bit about what the focus of Toro Real Estate is and what you guys do as a company?
John: So my main focus is, we’re buying multi-family property throughout the Midwest and the Southeast. Typically what we’ve historically been buying has been really heavy lifting, vacant properties, 200, 300 units, completely vacant really dilapidated beat up properties. Now in about 2018, those opportunities were coming a little bit harder to find. So we pivoted towards, obviously those that’s our bread and butter, some really messed up stuff.
Maybe the location’s a little bit rough, but it’s in the path of progress. And now, we are focused on deals. We’re not buying 50 deals a year, we’re buying three or [00:07:00] four maybe deals that we can get into provide a really good cash flow, really great location, and have some upside. That is our bread and butter.
And then we do it with a little bit different management style, we bring that harder value add property to the table. So when we look at these easier deals, it’s a lot easier to grasp, and it’s a lot easier to overcome, and the returns are a little bit less, but there’s less headaches involved with that.
But we like to go into properties that may be stable, or maybe a little bit older. And we like to do the stuff that might not return money to the bottom line because you’re doing a new roof. But what it will do is it will avoid maintenance problems in the future. So we’ll come and we’ll do the HVACs. We’ll do the roofs, we’ll do the electrical, do the plumbing, we’ll fix the stuff that people don’t like fixing because you can’t fix a roof and raise rents a hundred bucks. But by doing that, you’re gonna take a lot of the expenses off the table with ongoing maintenance issues. So that’s really one thing that we stress looking at any opportunity. And we look at all those very closely. So we know going in, [00:08:00] so we’re replacing 35 to 40% of the HVAC, it’s going to cost some money, but we’re not going to have issues over time. And that gives us long-term preservation of our assets, which allows us to cashflow a little bit better than letting the building pay for the maintenance as you go on.
Mike: Yeah, that’s interesting. I don’t know that I’ve really ever talked to anybody who’s buying completely vacant units. Like I think one of the worst deals I ever looked at was a 289 unit deal. And there were 199 that were occupied or livable. And so that was probably one of the worst I ever saw.
So if you’re finding deals that are completely vacant like that and picking those up, is there a rule of thumb that you’re looking at for price per door that you’re buying those at or how much you have to put into them per door?
John: No, that’s an excellent question. So what we like to look at our bread and butter is if you could take a deal that has an average rent between 500 and 700 and be able to make that [00:09:00] apartment B worth, or the market supports maybe an 800 to a thousand dollars rent. That’s basically every day we look at, you need to be able to move the needle at least 150 bucks, if not more. But on the vacant deals, we actually prefer them because the hardest part about buying a property where the average rent is 550 and the market may be 850 is that you can’t just go in there, renovate a unit and charge a $300 premium. Because the demographic of a tenant that pays 800 and a demographic of a tenant that pays 500, it’s not the same person. So does the person that pays 800 want to live with a property that may be a little bit beat up or may not be as clean or as safe or.
So what we prefer to do is, when we first take over that property, you have to slowly cycle tenants out and slowly cycle tenants in. So you can’t go from 500 to 800. It typically have to go from 500 to seven or 500 to 650, and then 650 to 800. So your first generation of your leases, [00:10:00] you don’t get that big pop.
So on a vacant deal, we prefer is you can set the threshold right out of the box. If your average rent is 800 and nobody’s living there, you can rent it 800 but you may have to just give a concession to get someone to move into a vacant building. So it’s actually easier for us to look at a deal where there’s nobody, because then you can factor in okay, the first unit will be ready in six months. That’s when we’ll start leasing. Our first tenant will move in month seven. Whereas when you’re looking at a deal at 98% occupied, and you’re trying to reinvent the wheel. You might have a mass Exodus, or you may underwrite to a 90% occupancy, but then when you start doing the work, you realize that it’s impossible to maintain 90 because I have to renovate 150 units and it’s a 200 unit property.
So it’s actually a little bit easier to underwrite on those deals. And there’s not a per door or that’s not necessarily the big one. The biggest thing for us is the market rent. We typically like to be completely renovated and not be the highest rent. That’s really what we look for. So if the market rents 800, we want [00:11:00] to be all in it an average rent of 750. So then if we do go look to sell, an owner could come in and say, wow, look at this. I don’t have to do a thing, it’s brand new and I can just raise rents 50 bucks on the renewal. So what’s more important to us is that we don’t want to be the most expensive property in the sub market where we are.
And the vacant stuff, if you have to do the plumbing and the elect, if you have to do all that, we know what it’s going to cost on a per dollar basis. Each market changes and whether there’s plumbing existing or not, or that’s going to move the needle between 20 and 50 a door.
But for the most part, it’s actually easier to underwrite vacant property for us than it would be to underwrite a 90% occupied property that you’re going to go in and go completely guns blazing because you’re going to have occupancy that you may or may not account for based on how quick the renovations take. Because if a tenant in the property knows his rent’s going up 300 bucks, he may just skip out on his rent. And there’s no way to know that on an occupied property. On vacant property, nobody’s leaving. Cause nobody’s living there.
Mike: Yeah. That makes a lot of sense. I like that piece [00:12:00] where you say, Hey, we’re going to buy this and we’re going to leave a little meat on the bone. That’s what I always call it.
Cause if I can leave that there for the next buyer, it tends to make that property trade a little bit quicker. And you are out of it a little bit faster than you typically would be. So like we know that properties and market classes are all like ABC and D what markets are you buying these properties in? What’s your typical market?
John: Yes, our typical market is probably a C ish. And then we could turn, see where we can make the property a C plus B minus, maybe a C plus to a B plus. The best deals we’ve done have been in C areas that we know are in the path of progress and can end up being B minus C pluses, but we don’t try and reinvent the wheel.
We’re not buying in A+ locations and A+ product. Now listen, I would love to buy a C property in an A location, I think everybody would. And yes we do if that opportunity comes across or get desks, we would do a backflip. Typically, a broker or someone, a seller will say it’s an A+ plus location, maybe it isn’t. We’re typically buying [00:13:00] workforce housing, not subsidize, no government programs, but not some of the properties have them when we buy them. But we look to get rid of them. For the most part it’s all very typical workforce CMV product.
Mike: So what’s interesting is that it sounds like your all market rate rent where you’re not doing affordable or tax deals or anything like that. So it’s that sweet spot that you have found that works well for you in Toro.
Mike: Now, do you do everything on your own or do you bring investors into your deals?
John: Yeah, so we have investors, we have about 450 active investors. It’s 450 the total investors right now in our deals, we have about 280. Some people just didn’t want to roll forward and some people just needed the liquidity for something else. But we speak to them frequently. A lot of our deals we are myself or very close family. We’ll be about 30 to 40% of the total equity. So we put our money where our mouth is in all our deals.
When we first started, the first three deals we bought was really just our own money. And then [00:14:00] basically we said, Hey, it’s working, the business plan works let’s branch out. So then we started bringing on investors and the investors range from super high end private equity shops to mom and pop, higher net worth guy. So we have the full gamut of individuals, but our deals are probably, I would say anywhere between 70 and 60% investor money and then a 30 to 40% of our own capital.
Mike: So are you doing any debt on these deals or are you doing all equity?
John: So that’s a good question. We’ve done both, we’ve bought deals all cash and refinanced out shortly. We do that. I would say we’ve done that over the last two years, more often than not where we bought a deal with all cash, our own cash. And then we will post-close syndicated where we’ll bring in investors and we’ll go get the debt. So we already own the deal. And we don’t mark it up. We don’t buy it at 80 cents on the dollar and then raise money at a hundred cents.
If we buy it for 5 million and it’s worth seven we’re raising whatever equity we need with whatever the bank’s going to give us. So the bank says, we’ll give you [00:15:00] four, we’ll raise a million. The bank says we’re going to give us three, we’ll raise two. So we’ve done that.
I actually liked that strategy a lot where we can go out and close because one there’s no time pressure whatsoever. So we give our investors investor docs and say, hey, here you go. Take your time. It is first come first serve, but there’s no prep. There’s no hard sell, gotta close in 60 days. We can pick and choose our banks.
We can pick and choose what we want to do. But then we’ve also done the traditional route where we’ll go out, get regular debt whether it’s bridge or agency, long-term stable financing just depends on the deal that we’re looking at, but we’ve done a little bit of a lot in regards to whether it’s an all cash bridge debt or just regular agency stable financing.
Mike: So what part of the country do you like most or, is there anywhere that you’re specifically glued to from a investment standpoint?
John: So we were really opportunistic early on. We were buying in growing markets. Now we’ve steered away from some tertiary areas just because realistically it’s a little bit of a pain to get there.
When we’re coming from New York to get to [00:16:00] Mobile, Alabama or Jackson, Mississippi. It’s a connecting flight. There’s no direct flights. We’ve tried to steer away from connecting flights because it’s a pain. But the areas that we’ve done really well, we love any coastal market, from Wilmington, North Carolina, now to Jacksonville, Florida. We own 800 units in Jacksonville and about 800 units in Columbus, Ohio. But for the most part, south of North Carolina, North of Florida, any of those areas we’ve owned and we’ve done really well in.
And then the Midwest we’ve owned it Cincinnati. We own in Columbus. We like those areas. They’re good. They’re more stable. There’s not as much ups and downs. But if we’re typically looking for really good population growth, really good job growth. Those are the two things that we focus on. But for the most part, we like to be within a two hour flight two and a half hour flight from New York is where our bread and butter is.
Mike: Okay. Interesting. I’ve always liked that Ohio valley market, from a syndication standpoint. It seemed like that good workforce housing and you could tend to keep your occupancy up a little bit higher which [00:17:00] always tend to work well.
Hey, two months ago, we might’ve thought that this COVID thing would be going away, but it seems like it’s here to stay for awhile. How is that affecting your business? How’s that affecting your environment? What pitfalls do you find right now in our current environment that’s hurting you or helping you from a standpoint of your investment strategy?
John: Yeah, that’s an excellent question. I think that’s what people are talking about nowadays. We are still active, we are offering on properties day in and day out. Maybe we’re being a little bit too conservative, but we are coming up short on new opportunities on current deals we own that were maybe we had a shorter horizon on, we’ve reached out to every investor.
We’re reaching out every day, every week, every month, and basically saying, Hey, listen guys, it’s not going to be a two-year deal. It’s not going to be a three-year deal that we’re probably going to have to hold it a little bit longer. From a buyer standpoint, we’re waiting for the tree to shake out the deals.
I think the market’s performed really well. So sellers still want high dollars and buyers don’t [00:18:00] really want to get there. So one thing that we’ve done is we’ve reached out to everybody. All our investors said, Hey, listen, the days of the 30 IRR and the 20 IRR, I’m not saying they’re gone. But you can’t underwrite to that stuff anymore.
We’re looking at a deal right now in central Florida, it’s the first deal that we’re actually on paper penciling out to 14 which is very low for what we’ve historically performed, it’s a great return. And we are just underwriting and we have our methods. Now we’re about three and a half million dollars off with the seller wants. So we’re probably not going to get the deal. But the way it’s changed. The way we look at things is, there’s 30 million people or 25 million people out of work right now, multi-family goes by job growth and jobs create opportunities for people to move, opportunities for people to live.
Without people working, you gotta be a little bit cautious. So I think 2020 and 2021 are going to be tough years from an acquisition standpoint. We are looking, but we’re just coming up short. [00:19:00] And then deals we’re owning, you’re rolling with the punches, right? You don’t know what today’s going to bring, our tenants paying, are they not paying? Is there an extra stimulus coming? From an investment strategy, we’re hanging tight. We’re really focused on what we want to buy. But at the same time, we understand that if the opportunity’s not there, we’re not going to fit a square peg in a round hole.
We’re sitting here in August and the two deals we closed this year were in contract prior to Corona. They actually went into contract at the end of last year and we closed them in the beginning of this year. Since this has happened, we have not got an accepted offer. And this is the first time in eight years that I could tell you that we’re sitting here at the end of August and on our Monday morning meeting today, we basically looked at each other, I said, what’s next? Are we buying the deal this year or not? And the consensus was, it’s going to be tough. We still got four months left, so we’ll see. But I can’t say that we have a deal that’s in the horizon that we’re closing. Other than that, we’re just hanging tight and see what happens.
Mike: So do you think that’s because of the market or are sellers more greedy today? Do they not want to get out of [00:20:00] the deal? What’s causing that to happen?
John: So I think it’s a couple of things. I think one from a standpoint, we know ourselves, we had a property we’ve owned for four years. Our July was actually our best ever income month that we’ve had. It was a property that we bought, we’ve owned it for four years. And we just had our best month ever 99% occupied. Basically there was like a $2,000 delinquency on a $200,000 rent roll. There was no delinquency, it was performing great.
And the property actually, we were selling it and it fell out of contract during Corona. The buyer basically said, no, he wanted a retrade. We said, no, there’s no pressure for us to sell. And I’m looking at that deal and I said, okay, if we’re performing this well now, why sell it? Let’s wait a year.
Let’s wait two years because there’s no reason to get rid of it. So I’m one of the spellers that says, I just had my best month ever, why would I sell it at a discount? Now on the buy side, I would look at that deal and say, there was stimuluses, there’s all these factors that point against it.
[00:21:00] And I don’t know if it’s going to maintain this performance. So I think sellers, if you gave them truth serum, they’d probably sell for less because they realized that there might be smoke and mirrors. But I think that they have to put on the persona whether there’s a broker involved or not, and they have to say, nah, we’re not going to give it away.
Now, I do think that people might’ve done some stupid things with debt where maybe they put more aggressive debt on a property with a shorter term loan. I think that those opportunities will be coming down the pike. I think in the next six months, there’ll be a lot more deals, quote, unquote deals.
But I think sellers just look at it from a standpoint of, let’s posture ourselves. Like the property is doing the best it possibly can. Let’s get offers and then we’ll see how the offers shake out. But, I don’t think there’s a reason to sell yet.
There’s no pain. There’s a lot of forbearances, there’s a lot of stimuluses, there’s a lot of things hanging out there that deter pain in which you know why someone would sell. Now, I do think older owners and older [00:22:00] people and longer term people in the business, they may sell stuff now because they realize I don’t want to do what a headache.
So that may be an opportunity. But for the most part, I think there’s a lot of people buying deals. I don’t think a lot of deals are transacting because there’s a really big bid ask spread. But for the most part, I think we still have a couple more months to go before you start seeing some deals. And that will start stirring up some business and more sellers will sell it and so on and so forth.
Mike: So here’s what’s interesting to me, right? We’re in an environment where everybody’s saying they’re out of work, there’s no jobs. In Chicago, there were 4,100 businesses that closed down, back in April with this Corona thing. 2100 of them said they’re not even going to reopen. And these are little bars and restaurants and flower shops and just a small little mom and pop businesses, right?
So you’ve got these people that make up workforce housing out of business, and that make an income and you’re having the best month you’ve ever had. What do you equate that to?
John: That’s the thing. That’s why [00:23:00] we are not buying stuff and I’m scratching my head when I see a deal get listed and there’s 50 offers on it. I just say, those are the Pima. I read something on the data that 60% of businesses or 60% of restaurants are probably they’re done. What I say is, okay, let’s just say it’s a 30% forget 60, let’s say it’s 20%. Let’s say there’s a hundred restaurants and 20% of them closed their doors completely.
Now all those people need to go find jobs at the 80% that’s left. And those 80% that are left, they’re going to pick the best of the best. So they may have an employee that wasn’t really doing a good job, and they may have a waiter or waitress that now left one of the other restaurants in this phenomenal.
They may get rid of their employee and bring on that person. So I think that really good workers will get jobs, people that want to work will get jobs. On all of our sites, we were providing our tenants with, Hey, Amazon’s hiring over here, you can go do this. We were telling them that yes, you might’ve lost your job as a whatever, but there are still opportunities to get employed.
And if you’re good at what you do, you [00:24:00] can get employed. So I think that’s inevitably people want clean, safe, comfortable places to live. We provide that. So I think that they value rent as, okay, I don’t want to be homeless with my family, so we’re going to pay our rent. We’re going to do whatever we have to.
Now we’ve worked payment plans out with people, so that’s not a problem. But it’s going to be interesting. That’s why I believe that’s where I believe there will be things in the future that may shake some trees loose and some deals fall because I don’t think everybody is doing the right thing.
And you’re right. If half the places have closed, how are those people going to pay? Where are they going to work? And that’s the thing that it’s not in balance right now. Maybe it was the extra government unemployment. Maybe people started saving for a rainy day, which I doubt, but that’s the thing to me that I scratch my head because there’s so many people that are not working.
I also think people don’t want to go back to work right now. So there’s so much that stacked up against the average tenant that it’s going to be interesting to see how it shakes out. And I think I can’t [00:25:00] justify the reason for why we had our best month ever at a working class property. It makes no sense economically and everything, but it’s happening. And that’s the thing why sellers, I think, are saying, I’m not selling yet.
Mike: So what are you doing different for your tenants today? Are you doing anything that is out of the box, different for you than what you would normally do? You said you’re working out payment plans with them, but and you had things on your website and maybe your Facebook communities and that saying, Hey, go get a job over here or Amazon’s hiring. What else are you doing differently that’s accommodating them that is maybe making you a little bit better landlord than the guy down the street?
John: So what we do, we take pride. I think when this first happened, we all put hand pencils down on acquisitions. How can we help? How can we fix things? Let’s talk to everybody. And so what we did is we did a really good outreach. I know, in some of our properties in Jacksonville, we’re a hundred percent occupied and doing really well.
And I know some of our comps that are 50, 60, 70% economically collected where [00:26:00] people just aren’t paying rent. I think we went above and beyond showing that we’re here to help. Yes, we have a mortgage, we have to make our payments. Thank God we have cash. And we’ve raised the proper amount of equity.
But we really just looked out for our tenants. We basically said, Hey guys, listen, we’re going to work with you. As long as we can evict, as long as you do what you’re supposed to do. Now, if you’re going to be a bad tenant, you’re a bad tenant and you’re gone. But for the most part, we saw that just really getting a good community environment, really showing that we’re still fixing the property.
We’re still doing the maintenance that we have to, we’re not just letting it go to shit for lack of a better term. And I think that was a Goodwill. I think that the tenants saw the Goodwill in us, stillrenovating through the downturn, we were still doing work and they said, okay, these guys aren’t going to let the property go in the opposite direction.
I think tenants respected that. And did we do anything like a magic? Do we have a magic thing that we did that nobody’s doing? No, I don’t think so. I think that we just really looked out for our residents, provided them with the help that they [00:27:00] needed, if they needed it. And we saw that it worked out really well.
We had really good months. Some months were not as good as what they were prior to Corona, but for the most part, we got people caught up and I think it was just caring and showing them that, yes, there’s a lot of going on now and we understand and we’ll work with you. But you got to work with us also, right?
You work with me, I work with you. If you try and do the wrong thing, we’re going to take whatever necessary action we have to. I think tenants like that. I think that was it just basically being there for them when they needed it.
Mike: So part of your model, it sounds was that you would hold a deal for maybe three years, four years, was that pretty much your track record?
Mike: So being today that you’re going to maybe hold a deal a little bit longer. Are you doing anything different to build a deeper, more solid foundation underneath your existing business and platform?
John: Yeah. One thing that we’ve looked at, not only our banks require them a little bit more and reserves and escrows and stuff like that, but we’ve looked at okay, raising a little bit more cash. I’d rather show an investor a 4% return and have [00:28:00] 20% excess cash in the bank, then show them an 8% return and cutting it down to the penny. So I think one thing that we’re looking at on all deals is a little bit of an extra reserve. And basically listen, I have no intentions of holding the money.
If we know that we’re in the clear, we distribute principal back. Now we’ve always done that. We’ll typically over raise 10%, but now we may bump that up a little bit just for a rainy day. The other thing is, we always typically go in and fix a lot of the heavy lifting stuff, your mechanicals, your roofs, your plumbing.
So we fix that stuff anyway, and we basically fix it so it lasts five, seven more years. So we don’t really have to make a major change there. The only thing that we’re looking at that we’re probably going to do a little bit different. We’re not going to try and reinvent the wheel, we’re not going in and putting granite and stainless steel and stuff like that.
We never did. We never have, we spoke about it on some sites, but for the most part, we’re typically just going to stick with the workforce stuff. And we’ve looked at, instead of getting $150 premium for spending five, can we get a hundred dollars premium for spending 25? So we’ve looked at stuff there and saying, okay, we don’t have to spend as much, we’re going to get a [00:29:00] better ROI on our investment and it’ll save us and we’ll have a better cash position.
Other than that, we really haven’t changed much, except for just understanding all of that and making decisions a little bit different than we may have made it before where, let’s drop occupancy to 80 and renovate. Now we may say scale it back, keep the occupancy in the high eighties, low nineties, and we’ll renovate a little bit slower.
So I think the only thing we’re looking at is maybe instead of trying to get through a plan in two years, maybe it takes three or four. You just take a little bit longer to do stuff so you can maintain good collections, good occupancy, so on and so forth, at least that we get to the other end of this. And so we see how the dust settles.
Mike: So if you had to predict, what do you think the other end looks like from a time frame standpoint?
John: I think that probably before we get back to normal, you’re probably somewhere in 2021 hopefully the earlier part, but my feeling is, I think normalcy will be back together, start of 2022. I think that with an election year this year, that’s going to also delay some [00:30:00] stuff, and then who even knows who gets elected, whoever wins, what they change that can prolong this. I think everyone’s working as fast as they can, but I think 2020 is tough. There’s four months left, what’s going to change.
There’s an election coming up here in the next couple of months, 2020 is what it is. I think that Corona goes away, I don’t think that’s here 2022, or maybe it is who knows. But I think that when people recall this event, I think we’re probably in 2022, when you can start buying stuff, unemployment, it’s going to take a long time to get a 10% unemployment to four again.
So I think if we’re getting back to four, we could be four or five years from now. But from a standpoint of more transactions, more velocity of deals, I think somewhere in 2021, people will start forgetting about what happened. But I think 2022 is when the foundation will step to go forward.
Mike: Yeah. Obviously we’re building a new floor somewhere and we just don’t know where that’s going to be at this point and what it’s going to look like tomorrow, moving [00:31:00] beyond it. Here’s what I do know though, we made it through 2001, we made it through 2008 and we’ll make it through this.
When we first got locked down in March, I thought, this is a few weeks, we’ll all be back. Everybody needs a little break, but who would’ve ever thought that it’d be this long. But here’s what I do, I equate this to 2008 and I say, who would have ever thought that the real estate market would have been affected 40% back then?
And especially the commercial market. I really thought that we were going to live through that but we didn’t and the world changed and a whole new floor got built. And I think that we’re going to see that again this time. So obviously the rules of the game are changing and the rules moving forward are changing for all of us.
And I think that and I’m sure that you would agree that as a syndicator, as a real estate professional, we really have to take a look at what tomorrow’s going to bring. And how do we prepare for that? You said a lot of good things, and I really liked some of the things you said, like over raised. If you’re syndicating deals, you [00:32:00] can’t just raise what you need anymore.
You have to over raise, you got to have money in reserve way beyond even what the bank is requiring.
Mike: Are there any other secrets or strategies that you would talk about right now saying, Hey, in the syndication business, we need to do this a little bit differently than we’ve done in the past?
John: I think the thing that I’ve been seeing a lot, you really have to understand who your investors are. You really have to understand if you have a partner who your partners are because in times of crisis, people do crazy things and people go into that with the intention. But if something changes, you really want to understand everything.
When you first start, I get it, you have to call everybody to raise money, to get a deal done and there’s nothing wrong with that. As you grow, or as you’re starting your business today, make sure you understand who all your investors are. And I’m not saying you need to know their social security numbers and their wife’s maiden name, that’s irrelevant. But you want to make sure that your investors are making an investment in a deal that they understand the deal [00:33:00] because if they don’t and three months from now, they lose their job and now they need their money back, it’s going to be very difficult.
So you just want to make sure from a syndication standpoint, you understand what everybody’s looking for, understand what your investors are looking for. And if you’re working with more than one partner or multiple partners, make sure everyone’s roles are clearly defined because if someone doesn’t do what they’re supposed to do and they want to blame someone else, if you have clearly defined outline rules, it’s a lot easier to get out of problems than if it’s just a handshake agreement and I’ll do the day to day, you do the Investor relations, whatever it is. You just want to make sure you have clear defined rules because if six people come together to do a deal, you want to make sure that those people know who their investors are, because it can get a little ugly.
You said 2008, financial crisis, you really didn’t get major problems with 2010 and then 2012 was that okay, I think we’re on the other end of this. So the last thing you want to be done is dive into a partnership as a syndicator with investors that don’t understand and partners that don’t want to work. Because if you want to go four years banging your head against the ground, that’s [00:34:00] what you try and avoid. So that would be my advice.
Mike: Yeah. And you pick your investors, you pick your partners cautiously these days. That’s for sure. So if you’re a new investor coming in the market today, and what I’d like you to do is a lot of my listeners on the podcast are our new investors are not real seasoned. What advice would you give a new investor today?
John: So the biggest piece of advice that I’ve given people, I even tell myself this. The first thing you gotta do when you wake up, you got to look in the mirror and you have to say, what are you looking to accomplish? You have to work backwards. If you want to buy a D class deal in a D area, and you’re ready to work, that’s fine. But understand the risk reward and you want to make sure you’re taking the risk that yields the reward that you’re looking for. Don’t think you’re going to buy a class A deal and make it 30% cash on cash day one.
It’s probably not going to happen. It may, but you gotta realize that with your returns being higher, there’s probably inevitably more risk associated with that deal. So new investors, there’s something to be [00:35:00] said about consistency. Yes, everybody wants a 20, 30, 40, 50% returns and five X, multiple.
But there’s something to be said about slow and steady wins the race. And in times like this, when there’s uncertainty and you don’t know, slow and steady wins the race. Real estate is not a sprint, it’s a marathon. So buy good deals, good locations and realize that you are lacing up your shoes to start a marathon. You are not running a hundred meter dash in real estate. It just typically doesn’t work that way.
Mike: Yeah. So be cautious and optimistic, be a realist as well, along with that. Hey, John, I really appreciate your time today. This has been great. It’s been very insightful. We talked about a lot more than I really thought that we would have talked about. So I appreciate that. And I know that my listeners did too, because this is a good learning curve for them today. But if people want to talk to you a little bit more, or they want to know about what you’re doing, how did they get in touch with you?
John: Best way to reach me. You can check out our website. It’s tororep.com there’s an investor questionnaire, you can fill that out, send us an email. Typically [00:36:00] within 24 to 48 hours, you’ll get either an email and or a call. The other way to reach me on my email address, it’s just John firstname.lastname@example.org. Typically I tell everybody, if you don’t ask, you don’t get. So if you want to pick my brain, if you shoot me an email, everybody has the time and day with enough advance notice that they can book 30 minutes. So don’t hesitate, reach out to me. Email through the website are the best ways.
I’m not the biggest social media, but if you do find me on one of them, you can shoot me a message, but I’m not the best at social media. So I would say email and the website and I appreciate anyone reaching out, everyone listening. And if anyone has any questions, don’t hesitate to reach out.
Mike: Nice, john, thank you very much. And I know my listeners appreciate you and I appreciate you. And look forward to talking to you again real soon. So thanks a lot. And everybody, we will talk to you next week. Have a great week and keep investing strong.
John: Thank you.
Kristen: Thank you, Mike, and thank you for joining us for another great episode of Insider Secrets. [00:37:00] 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.