Insider Secrets Podcast Season 2, Episode 26
Guest: Travis Watts
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Guest Bio:
Travis Watts is a proven leader in the real estate industry, where he has been investing since 2009 in multi-family, single-family and vacation rentals. He began investing with Ashcroft Capital several years ago and has taken part in more than 30% of the Ashcroft opportunities. After experiencing above-average communication, reporting, deal volume and performance, Travis expressed interest in joining the Ashcroft Investor Relations Team. Travis also has a background in traditional Wall Street investing and obtained a Series 7 and Series 63 license while working at a major brokerage firm with more than 400 billion in assets. He now dedicates his time to educating others in the world of investing and has made it his mission to share passive investment strategies in order to help others achieve and maintain wealth in real estate.
https://youtu.be/fNY6utyliR8
SHOWNOTES
Key Takeaways
Under promise, over deliver, do a little more than people expect of you.
Now is the time to position yourself in front of the next bull run.
Small incremental efforts, like making one more call or doing one more rep, can lead to significant long-term success.
The current market presents unique opportunities due to increased cap rates and decreased property valuations.
Travis’s journey from single-family investments to multifamily syndications highlights the benefits of scaling through syndications.
Standout Quotes
“The difference between mediocre and average and then maybe applying a little dose of self-discipline these days can really set you apart.” – Travis Watts
“It’s a cycle business, and what cycle are we in? Typical real estate cycles are four quadrants.” – Mike Morawski
“When a cap rate goes up, it’s a primary way that we value commercial real estate. The higher cap rates go, the lower potential valuations get.” – Travis Watts
“We’ve got the widest gap in U.S history between a new mortgage payment and apartment rents nationwide, more than a thousand dollars a month, differential.” – Travis Watts
Episode Timeline
[00:01] – Mike announces the upcoming Multifamily Summit
[00:03] – Introduction of Travis Watts from Ashcroft Capital
[00:06] – Travis’s investment journey from single-family homes to multifamily syndications
[00:11] – Discussion on the current real estate market cycle
[00:17] – Potential for wealth redistribution through real estate investing
[00:20] – Travis explains the varying conditions in different markets and the importance of staying informed with data
[00:25] – Mike emphasizes the importance of efficiency in operations
[00:33] – Closing remarks and the importance of diversification in real estate investing
Contact
Website: https://speakwithtravis.com/
TRANSCRIPT
Kristen: [00:00:00] Welcome to this edition of Insider Secrets, the weekly podcast that turns real estate investing goals into reality. Each show we interview guests who are seasoned real estate professionals, actively closing and managing real estate deals. Mike is the founder of My Core Intentions and would like to help you make your real estate investing dreams a reality.
Mike coaches you to buy investment real estate, creating short term cashflow and long term wealth. Your host and real estate coach, Mike Morawski, has more than 30 years of real estate investing and property management experience. Here’s your host, Mike.
Mike Morawski: Hey, what’s up, everybody. Welcome back. Good morning. So glad that you are here and if you’re joining us for the first time, welcome, and I would definitely thank the person that invited you. Make sure you have a cup of coffee in your hand and buckle up for this morning’s episode. Because I think, you’ll be blown away by my guest this [00:01:00] morning and his knowledge of the industry and the markets and where we’re at today and maybe even where we’re headed.
I want to remind you coming up here in October, October 17th and 18th is my fifth annual multifamily summit. This two day virtual event is a great platform for you to get your feet on the ground, to learn a little bit, maybe to take a first ride into the multifamily business and see where you’re going to go with your business.
This year, my stage is packed with 20 speakers and panelists talking about their journey and how they got in the business. I’m gonna have speakers on like Matt Faircloth, Veena Jetti, Neil, some big names in the industry that maybe you listen to, maybe you don’t, but you’ll get some really great insight.
We’re going to talk about everything on market cycles to underwriting to raising capital. I have a top [00:02:00] performing panel that’s going to be on, the four or five people on this panel have done well over a hundred thousand units in the last 10 years. So you’re going to be able to learn a lot. If you’re somebody who’s already in the business and you’re looking to scale up in the coming months, you’re definitely going to want to be there for a shot in the arm.
Because we’re in a changing cycle right now, and we are going to see a time in history when more millionaires are created. So are you going to put yourself in a position where you get the education and the knowledge and the shot in the arm to take the next action step to grow your business? So I hope to see you there.
Go to multifamily24.com get registered for the upcoming event. Hey, my guests this morning is Travis Watts. Travis is with Ashcroft Capital, and we’re going to talk about some interesting things this morning. So let me bring Travis in. Hey, buddy. Good to [00:03:00] see you again.
Travis Watts: Hey, Mike. Thrilled to be here. Thanks for the invite.
Mike Morawski: Yeah, you bet. I just want to say how great it was that you reached out, right? You’ve been on my podcast maybe three years ago and send an email out and said, Hey, it’s been a while. Let’s circle back. And I love that because you’re somebody that I’ve learned a lot from, from our last time together and continue to learn from you.
And I think you have some great insights that we can share with my audience today. And I’m actually very grateful for that. So thanks for reaching out.
Travis Watts: Yeah, you bet. Looking forward to it. There’s a couple of things real quick. One was, we did have a great conversation. There was so much more we could have covered the first time.
And number two was. What hasn’t changed in the last three years. So excited to dive into some of that.
Mike Morawski: Yeah, for sure. So listen, I always start with one question and I always like to know, I tell people I’m going to write a book on this and if I keep saying it enough, one of these days I’m going to do it. [00:04:00] But in one word, Travis, what best describes you personally and professionally?
Travis Watts: I would say disciplined. That’s something I’ve always prided myself on from a very early age. I think that’s what has set me apart in a lot of different ways and in numerous fields that I’ve worked in. Different career types, different jobs and what I do today.
Mike Morawski: Yeah, that’s awesome. And, where do you find in your life that you really have to tap into that? Because we can all say, oh, I’m disciplined, but, what happens to you or where do you find yourself where you say, I’m really going to tap into that right now?
Travis Watts: Yeah, to me, I think that the difference between mediocre and average and then maybe applying a little dose of self discipline these days can really set you apart. I’ve always felt that way even through school, it’s like just that extra five minutes that extra 10 minutes that extra, I’m not going to sleep past my alarm clock that one extra rep in gym, whatever it is, it’s just a little bit of dosage above [00:05:00] what people might expect.
And I love the philosophy. Joe Fairless, actually introduce this to me. But, under promise over deliver, do a little more than people expect of you. And I really resonate with that. It’s a big reason I joined him and his team and it’s what we strive to do. And it’s what I’ve always strived to do personally, professionally, and anything that I’ve been involved with.
Mike Morawski: That’s awesome. Yeah, I love that. Shout out to Joe too, because, I watch him and, a lot of accolades to him and what he’s done over the years with his podcast and Ashcroft Capital. But, the one thing that you said is one more rep in the gym, right?
That makes me think about Ed Mylett and his book, The Power of One More. And, the comment he makes in the book is that he can’t remember the last time he did 10 reps. It’s always one more.
Travis Watts: Yeah. It’s something that you really get it to me anyway. It’s something I really have gotten in the routine of doing when you think about just anything in your life, can you do just a tiny bit better than that. And if you just [00:06:00] strive for that daily in anything that you do, I think it compounds over time. That’s what I’ve seen and experienced. And so, something to think about.
Mike Morawski: Yeah. Hey, I know when I’m working with my coaching clients about raising capital and always tell them when it’s dinnertime or it’s lunchtime and you’re taking your break or you’re quitting for the day. Just make one more call. You don’t know what’ll happen if somebody answers the phone.
Travis Watts: A hundred percent.
Mike Morawski: Hey, Travis. It’s been three years, why don’t we get caught up a little bit, talk a little about your history and what you’re doing today and how you got to where you’re at today?
Travis Watts: Yeah, it’s been an interesting journey. I’ll make it short and brief. As far as my background, I got started in 2009 with residential, single family, real estate investing. So it started with a townhome and condos. Then it went into single family homes. I had roommates back when I was single, not married, no kid.
And, then it led to buy and holds and then that led to fix and flips. And then that led to vacation rentals. And all [00:07:00] the while I was a very busy W2 worker. I worked in oil and gas for a number of years and I was away from home most of that time. And I was doing 14 hour days, 98 hour work weeks, two weeks on one week off.
I did a 30 30 schedule in Saudi Arabia month on month off. And it was just really hard to self manage and to scale a single family portfolio with the logistics I was battling with that kind of W2 job. And so in 2015, I met a couple gentlemen who had been what they referred to as were full time LPs.
And they had been this for nearly 20 years at this point when I was meeting them. I didn’t know what an LP was. I didn’t know what a syndication was. I didn’t know I could invest in commercial real estate, but these guys opened the door in that window of opportunity for me to see that there was a different approach to investing.
And I could be a hands off investor in larger projects that other people manage. And so 2015 was a [00:08:00] very pivotable year for me. I took a totally different direction between 2015 and 2017 to offloading my single family portfolio and scaling in as a limited partner into syndications. And so I’ve invested with a lot of operators in the space, of course, with Joe Fairless and Ashcroft, they’ve been a big piece of my portfolio in history.
And then I wanted to come on board with Joe in 2019, just seeing that I love their deals, their markets and their transparency and how things were going. I wanted to help spread the word and spread the message to other people about what this stuff is. Because like I said, just a few years prior to that, I had no idea what an LP was or what a syndication meant.
And I just saw the need for so many working professionals, W2s in particular, Dr. Dennis, sales folks, business owners, et cetera. So that’s been part of my mission as director of investor relations, director of investor education, and now director of investor [00:09:00] development with Joe and Ashcroft.
And then, I just wound down my podcast series under the best ever platform. Did that for nearly five years as just a contribution back to others, just to share stories and insights and, what I’ve learned and what other people have shared with me. So that’s the history in a nutshell.
Mike Morawski: Yeah, that’s awesome. And, what’s your day look like today? So since shifting in your work process and the things you’re doing, what’s your day look like today?
Travis Watts: Yeah, I’m constantly trying to find that edge of what investors are looking to learn. A lot of things have been repeated a thousand times over. I’m trying to find that unique webinar topic that no one’s really talking about. I’m trying to dissect new current events for folks by writing a quarterly market insights report that pulls data from across the industry from 10 to 12 different sources so that investors can easily dissect where we’re at in this [00:10:00] market.
What’s really happening beneath the headlines and to save them potentially hours upon hours of their own research. And I make that report available for free on behalf of Ashcroft capital. And then I put my calendar link out there, Mike, to the world. And I talked to people, it’s a beautiful thing. I talked to people who are literally 18, 19, 20 years old.
People who are 80 years old, some that are accredited, some that are non accredited, some that are just getting started, very experienced. And so I’m here as a resource in the industry for people. Cause that’s something I never had early on besides the two mentors that I mentioned. And, just trying to help point people in the right direction.
I’m not a guru. I’m not a know it all. I don’t have a crystal ball on the forecast. So I’m just trying to make it simpler. And easier for LPs in this space. And more importantly, for people to understand what that even means in the first place to be a limited partner investor.
Mike Morawski: Yeah. Awesome. Talk about the report that you have and tell people how they [00:11:00] can get that.
Travis Watts: Yeah, so for the last two years, as we’ve entered into this market cycle that you alluded to at the beginning of this podcast, undoubtedly we’re in a phase four kind of recessionary capital market cycle right now. I felt like it was more important than ever to not just let investors be blown by the wind with all these scary headlines that just get bounced back and forth.
But to really go to the sources of the U.S. Census and CoStar and CBRE and Marcus and Millichap and Urban Land Institute and, many others. Yardi Matrix and all the rest. And just compile all the data into a 10 to 15 page report every single quarter and lay it out as a visual and with commentary as to what’s happening at this moment, what the forecast is, what happened last quarter and where we’re sitting right now in the moment.
So we’re about to release the Q3 report shortly and you can go to [00:12:00] ashcroftcapital. com and there’s a news section at the top and these are completely free to anyone and everyone. And they come out every three months. That’s just something I wanted. It’s my own initiative. I just felt like it was important to try to dissect that data because, I, among so many others get frustrated with trying to skim the headlines, and try to figure out what’s real and all the click bait out there and all the fake stuff. And that’s what it is. That’s where you can find it.
Mike Morawski: Yeah, that’s awesome. Hey, I want to circle back to a minute you alluded to the fact or maybe put a stake in the ground that we’re in phase four. But I just want to let listeners know what we’re talking about here.
And, I always say, Hey, there’s no geniuses in this business. It’s a cycle business, and what cycle are we in? But, typical real estate cycles are four quadrants. You’ve got the two cycles that go up, two cycles that come down and that depending on where you’re at in the market [00:13:00] cycle is dependent on the deal that you get, the profitability in that deal, what you can do with it.
And being that we’re in phase four, I would say, Holy cow, getting this business now, if you’re sitting on the sidelines, if you’re a private investor thinking about investing, now’s the time. Because I think we’re going into, and I want you to allude to or to talk about this, but I really believe we’re going into a time where there’s going to be a huge redistribution of wealth in this country that more millionaires will be created as a direct result of real estate investing.
And now is the time to position yourself in front of the next bull run. How would you respond to any of that?
Travis Watts: Yeah, couldn’t agree more, but let’s look at some specifics to what defines this. As you mentioned, the fourth quadrant here being recession, usually defined by increased vacancies, more [00:14:00] completions hitting the market. We’ve seen these come true and unfold. What’s unique about this market cycle shift is really, it’s a capital market cycle shift, meaning that the fundamentals of multifamily apartments are intact.
The demand is there largely and nationally and statistically speaking. Your occupancy and collected rents are still holding up very, very well. When the Fed stepped in to cool off the economy in early 2022 and started aggressively raising rates, mind you, nearly double what was forecasted in 2021, caught a lot of people off guard.
You can think about having a $80 million mortgage at 3 percent and now today, potentially having to exchange that at a 7 percent loan. That’s a big deal. It’s caused a lot of distress. This is not a great thing. In many instances for existing properties you may have in your portfolio, especially those bought at peak pricing of 21, [00:15:00] early 22.
But to your point, Mike, this is, with interest rates going up, so did cap rates go up that is. And when a cap rate goes up, a capitalization rate, it’s a primary way that we value commercial real estate. That’s not a good thing for valuations. The higher cap rates go, the lower potential valuations get.
And so now we’re topping out at that top cycle where we’re seeing some of the steepest discounts we’ve seen in over 15 years. And I’ll give you a practical example we’re closing a deal in Orlando. It’s our sixth Orlando deal and we’re buying a class A property built in 2021 at a five and a half percent cap rate.
If you go back to 2021 and if we could assume this property back then, which is not the case, but if it were fully stabilized and occupied and cash flowing back then, probably would have traded around a three cap. And so the difference in valuation could have been 130 million back [00:16:00] then to we’re purchasing it for 97 million today.
So we’re seeing some steep discounts. We’re buying below replacement costs. And you’re starting to see already this year in 24 huge institutions pile in more specifically Blackstone with 10 billion plus of multifamily acquisitions. You’re starting to see what JP Morgan’s got a billion dollar joint venture going on where they’re buying up multifamily.
Jeff Bezos is backing a residential real estate company. They’re buying up pools of single family homes. So it’s going to be a short lived window. The writing’s already on the wall. If you want to take data from the forward looking forecast of interest rates coming down and cap rates going back down again, that’s very bullish for valuations, not to mention that the National Multifamily Housing Council has suggested we need to build 4.3 million more apartment units between now and 2035 to keep up with [00:17:00] demand.
But builders have largely scaled out of the market. They’re not pulling new permits like we saw just a few years ago. Most markets are down roughly 40 to 50 percent. On new build, new construction, which further exacerbates this pain. It puts us further behind with a supply and demand imbalance as we look forward. The last thing I’ll mention, I know I’ve been a little long wind on this response, but I’m passionate about this stuff because people need to know we’ve got the widest gap in U.S history between a new mortgage payment and apartment rents nationwide, more than a thousand dollars a month, differential.
And that’s just the payment as we homeowners know, anybody listening, that’s the minimum you’re going to pay on your home. This doesn’t include things like HOA fees and inflated insurance costs and property tax and, rehabbing and refinishing homes and all the extra expense that goes along with it, despite having to be qualified and have down payments and blah, blah, blah, and so on.
It’s a [00:18:00] very interesting time. But again, the fundamentals have remained throughout this market cycle. Rents have remained relatively flat the last couple of years with multifamily, which is laying the groundwork for the next bull cycle in this sector. So I’m super excited about it. Seeing deals that again, I haven’t seen deals this good since I got in this space in 2015.
Anyone who hasn’t gotten in or anyone who’s on the sidelines thinking about dollar cost averaging or buying the dip, things to consider.
Mike Morawski: Yeah, a hundred percent. Hey, I want to ask a question. You said the Fed stepped in early 22. What part of the cycle do you think we’re in? Were we at the top? Were we still in the second phase? Or do you think we had gone into the third phase?
Travis Watts: So it’s debatable, number one. And when you look at data and markets, again, every market’s going to be different. There’s markets that were way over building just a few years ago. And markets that [00:19:00] relatively had no new construction happening.
And so some were in a hyper supply phase or about to enter it. Some were already in a recessionary phase. When you look at places like San Francisco or at the time, at least, New York city or something like that, which have now begin to rebound, at least in New York’s case. So markets, they ebb and flow, they come and go.
So that’s why I think it’s important to stay on top of this data and what’s trending. And, the headlines like to cover, of course, the negative because it gets more attention and more likes and more views and stuff like that. But if you really uncover it, you just have to recognize, like I said, every market’s different.
And, while there may be a lot of new inventory coming to market. That’s going to depend on where we’re talking about and how much absorption there is in these particular markets. You’ll read a headline over here that says the Sunbelt is cooling down and it’s no longer going to be the hot markets.
And this one says Sunbelt is going to lead the way the next 10 years and have the highest job growth and population growth. [00:20:00] That’s the frustration I’ve had over the last couple of years and more than that. And that’s why I’m writing that report for people so that you can decide. It’s not my opinion and what I think. It’s just showing you the data that you may or may not have access to.
Mike Morawski: So we can get that report again by going to ashcroftcapital.Com.
Travis Watts: And then there’s a news section at the top. And so there’s a lot of articles and stuff, but they usually highlight the quarterly reports there at the top. Pretty easy to find or you can go to speakwithtravis.Com and just email me and I’ll get it to you. The latest one.
Mike Morawski: Perfect. Hey, so I want to talk about revenue for a minute. So we know as apartment operators, owners that we have to drive revenue in order to increase value. Especially if you didn’t buy the property, or if you have some kind of negative debt on it. So other than raising rents, what kind of creative things have you done or can be done that an operator on the ownership side, the [00:21:00] sponsorship side can do to increase value or, add revenue to the property?
Travis Watts: This is a great point, Mike, because, from 2015 to early 2020 before the pandemic, and I say this I hope no one takes this the wrong way, but it was relatively easy to make money in this space. You could buy a property, you could renovate a few units, even if you didn’t finish renovating all of them and the market was going up and interest rates stayed relatively low.
You could probably sell at a profit and make a deal happen. We’ve now entered this phase of rising rates, lots of people using floating rate loans and rents being relatively flat. So to your point, we’re now in an operations environment. What are you doing or what can you do to have better retention on your properties among your residents and to drive further my growth.
And I’ll highlight one thing in particular that we’ve done over the last couple of years. And that’s our [00:22:00] trademarked procurement process that we’ve launched. It’s called Sure Home. And we buy materials now directly from the manufacturer, which is overseas. They’re shipping in large bulk. Usually an order replaced would be about $2 million, give or take.
We’re talking about materials like light fixtures and ceiling fans and door handles and cabinet pools and shower rods and common things that we use to do value add. The shipping crate will be delivered in Texas. It’ll be trucked to Dallas where we have warehouses laid out and we’re packaging individual ready to go kits for our apartments that we are buying.
So we’ve got enough inventory for about 2000 apartments that we anticipate buying in the next couple of years or so. And these kits cut our turnaround time down first of all to about 14 to 21 days per unit. Obviously, they don’t encompass everything that we have to do to turn a unit such as countertops or flooring or large bulky [00:23:00] appliances.
We source some things locally like that, but it’s the vast majority of our turn and our paint and tools and materials and screws and nails and hammers and all this kind of stuff. And then we’re a vertically integrated firm. We have our own construction management on site. We have our own property management on site.
So much better transparency there, we save about 30 percent on material costs to get right to the point of your question compared to what we were paying and what a lot of competitors are paying to turn units. And then not only that, but it’s custom designed for our communities. So there’s no other properties in the marketplace that have these types of finishes and products.
And why that’s important besides being unique and cool, I suppose is we’ll take a flush mount light, for example, that commonly will have two spots for a light bulb, mostly of which is sold separately, which is an added cost. So ours have an LED bulb and just one. So we cut down on how many bulbs we need and we’re eco [00:24:00] friendly with that.
But more importantly, if that light gets broken upon install or by a resident, we have the parts to repair them on site, such as the glass casing. We can simply knock the glass out of the light frame and slide a new piece in. And then that could cost as little as 50 cents to a dollar. We don’t have to go replace the entire light.
Now you may be thinking, who cares? $10, 20, 30. Yeah. We’ve acquired over 21, 000 units. So at scale, this is a huge cost savings for investors and something to think about. So those are just a couple examples of operational upside that can be implemented. I’m happy to share more examples, but that just came to mind.
Mike Morawski: Yeah, that’s awesome. And, I know that when you are buying at volume, you can drastically cut your material costs. I like what you said about packaging those products all together, getting them to the [00:25:00] property, because now your installers aren’t goofing around with trying to figure out what goes where and how it goes. Now it all comes in a package and they have everything that they need.
Travis Watts: It’s cut down on supply chain disruption, which unfolded during the onset of the pandemic and lasted nearly two years. So like I said, now we have inventory for 2000 units we haven’t even acquired and we’ve got a lot of inventory on site for things that may pop up. Yeah, there’s a lot of efficiency in there.
Mike Morawski: Yeah, that’s awesome. And I like what you said, efficiency because you have to be creating efficiency. Let me ask you this. What do you see coming in the nearing months, and talk about 6 months to 20 months out.
Travis Watts: Yeah. So the saying goes that the bull takes the stairs and the bear jumps out the window. Okay. And meaning that it could be 8 to 12 years to build up a bull market on average, historically speaking, and a couple years of a downturn on average, we’ve already been in this downturn now [00:26:00] over two years.
And I just alluded to Blackstone and these other institutions jumping in as well as syndicators, of course, and everybody else. But those are some of the big dollars being moved around. So I do think that a deal like I described earlier with our new A class acquisition are going to be Very short lived.
I think we’d be very lucky to find a second and even perhaps a third of this type of discounted opportunity before it starts rebounding and kicking back up again and rent growth is back and this kind of stuff. So if you look at the rent growth of residential from back to 1940 through today, you’re usually averaging, three to 5 percent rent growth.
So let’s not forget the last couple of years have been relatively zero as far as rent growth on a national average. So that’s abnormal. And to catch up with averages, we’re going to have to get moving sooner than later. And that’s not just some crystal ball prediction. Again, you got to look at some of this data from CBRE and star [00:27:00] and Marcus and Milichap and all this kind of stuff.
What I’m sharing is not really just not my opinion, it’s just based on these reports and data that I look at. So to answer your question, Mike, there are amazing opportunities happening right now. As we mentioned, developers not building at the pace that we need. We’re already millions of units behind.
We’re seeing, 20 to 30 percent discounts. We’re seeing some deals trade below replacement costs. Cap rates have reversed. This is just a short lived window. I can’t stress that enough. It’s one reason I really want to come back on your show because I wound down my best ever podcast in March of this year.
And I thought, I’m just going to take a break from podcasting for a year or two. And then I thought, wait a second, there’s never been a more critical time to talk to people about getting in the space than this year. I can’t just sit on the sidelines and do that. Again, appreciate you having me on the show. Those are some general thoughts to consider.
Mike Morawski: Yeah, for sure. And, how’s capital raising go in these days?
Travis Watts: It’s tough, man. It’s tough. That’s a great question, [00:28:00] and I’ll be as transparent as I can be.
Mike Morawski: Let me hold you up for a minute. So on one hand, you’re saying, this is the perfect time. I want people to understand this, right? On one point we’re saying this is the perfect time. And you and I both agree on that, that we’re heading into a cycle that’s going to be great. But yet on the other hand, you and I are both saying, it’s tough to raise capital today. Where’s the disconnect in that?
Travis Watts: The disconnect, Mike, is human psychology. And before I was in this syndication business and, I worked for one of the largest brokerage houses in the United States in the stocks, bonds, and mutual funds world. And you can see the same parallels when we talk about market cycles. Just imagine being a stockbroker or sales person and paper assets in 2009 and 10 said, Hey, what a great opportunity to get in.
And people say, screw you. That’s similar. Not quite as extreme, but that’s similar to today. It’s similar to the onset of the pandemic [00:29:00] and the spring and summer of 2020. Investor sentiment has been squandered. It’s been squandered because of the scary headlines, because of the election year, because of paused distributions, because of some foreclosures that have unfolded last year and a little bit this year.
A lot of people, it’s a natural instinct to say, hey, I’m done right now. I don’t know what’s going on. I’m going to sit on the sidelines and wait and see. But again, think about investing in stocks in 2009 and 10 and being a long term investor. Was that a good time to get in? Was March and April and May of 2020 a good time to buy the dip?
In hindsight it always is, in real time it’s always scary. I would say if I had to guess, and it’s totally my opinion and my guess and my own perspective, investment dollars are nearly 60 percent lower than we saw in, say, 2021. So it is significantly harder to raise capital for those reasons that I pointed out.
Mike Morawski: [00:30:00] Yeah, I know that you talked about your A class deal that you just got a discount on. Are you only looking for A class deals today? Or are you looking in other asset classes? And do you think that, and kind of a two parted question here, do you think that you can find the same discounts in other asset classes that you’re finding in the A class?
Travis Watts: So here’s the thing about A class, or class A, I should say. So this is our first class A acquisition because traditionally what we were doing is buying a 1980s, 1990s value add class B deal. And then bringing it to like a B plus or as good as it could possibly be to compete with newer product and then selling it.
But the opportunity, this is why we’re pursuing this one. A lot of operators and owners were buying in 21, this new product, think about virtually all new product over the last three years, four years for that matter, has been [00:31:00] class A, because to make the numbers work for investors, you have to be charging 2000 plus in rents to make a return on investment.
So a lot of people bought at peak pricing with low interest rates on adjustable loans, hoping the economy was just going to keep kicking along and up trending or at least stay relatively the same. Well, it didn’t. It all changed, right? And valuations came down and rates went up and they’ve been held up.
And so as this debt is maturing, a lot of folks are thinking, maybe we’re going to have to offload it because our projections just went out the window and what this thing could have been or could have been valued at or could have cash flowed at. That’s not going to happen now. The opportunity is that we’re seeing a lot of that class A trade because that’s what’s been hitting the market for years.
Now, will we see, or have we seen class B trade at similar discounts? We have, but most sellers are not wanting to sell right now if they don’t have [00:32:00] to. It’s just been a smaller pool to choose from. And the price differentials to us out of the deals that we’ve underwritten haven’t made as much sense because with a new property like we’re buying, you have virtually no deferred maintenance, you’re going to save on insurance because of the newer type of build on it.
We don’t have to turn the units. There’s still operational upside and things we can do, but it’s going to be a much lighter business model than buying a 400 unit where we have to literally gut everything and turn every single unit on the property. Now the second part of your question is, seeing similar discounts and other asset types and classes.
I kind of mentioned class B and C stuff for that matter, office and depending on location, some office is holding up great and fine and normal. It just depends on your tenant and who you’re renting to. Other offices traded 50, 60 percent down in some markets. So there are steeper discounts out there.
I’ve never actually invested in office space, but, potentially [00:33:00] that could be an opportunity if you find a good operator that specializes in it. Same with mobile home parks or self storage or industrial or anything else, you got to do your homework and due diligence, but, I’m a big fan of just diversifying and from a macro level, all commercial real estate is in this cycle shift. So it’s just going to depend on what your preference is on what you want to be invested in.
Mike Morawski: Yeah. Very awesome. Great answer. I appreciate that. Hey, I appreciate your insights today.
Travis Watts: Yeah, you bet.
Mike Morawski: It’s been great. I’m glad we had a chance to reconnect and as always, I’ve learned a lot. One question, kind of a followup here is, are you reading anything today that is encouraging or educational for you?
Travis Watts: Despite the massive amount of research I’m constantly doing to make reports and blogs and articles and newsletters and things like that, I’ve actually taken a step out of the self education, traditional reading space, which historically that’s virtually all I’ve been [00:34:00] reading over the last decade to doing more biographies and more history and trying to gain a bigger understanding of just the macro economics here and, market cycles and human psychology, as we kind of ebb and flow through these 20 year and 50 year cycles and stuff like that.
I think, it’s an interesting perspective. If you can have the skillset to be able to go super macro with things, but then also not stay there and go super micro and zoom in to an immediate opportunity or dealer market or specific niche. I think that can really help you out a lot in your broader understanding of what’s going on today. I don’t just encourage self education books, like I used to do.
Mike Morawski: Any final thoughts for a limited partner listening in today or a operator who’s sitting on the sidelines?
Travis Watts: Yeah, I think final thoughts would be that diversification. I vet and due diligence on everything I invest in. But at any given [00:35:00] time, you can look at my portfolio and there’s underperforming deals and there’s outperforming deals and there’s deals somewhere in the middle.
I don’t have the crystal ball, nor does nearly anybody out there. The Warren Buffett’s and George Soros and Carl Icahn’s, you just can’t know it all. So I’m a big fan of diversifying. The other big lesson I’ve learned over the last whatever decade or so of being an LP is that, you don’t just want to base an investment thesis or strategy over appreciation and appreciation only.
Because it comes and it goes. And when it’s there, it’s awesome. And when it’s gone, you have to expect that. So to pay more attention to passive income and more specifically debt structuring, as we’ve all learned over the last couple of years. There’s different types of debt you can put on properties and those who have had long term fixed rate that I’m invested with have had zero issues on the multifamily deals.
We’re still cash flowing and in fact increasing distributions as we speak and some of the floating [00:36:00] rate deals have had capital calls and paused distributions and other things. So just your due diligence and something to think about is more of a focus on passive income.
Mike Morawski: Awesome. Thanks for being here. I appreciate it.
Travis Watts: Thank you, Mike. Thanks everyone.
Mike Morawski: Good catching up with you. Tell people how they reach out and get ahold of you.
Travis Watts: Yeah, you can go to speakwithtravis.com. I’ve put my calendar out there, as I mentioned earlier to the world. I don’t care who you are, what you’re looking to learn. I’m happy to give you a 15, 20 minutes of my time, help in any way I can.
I do that as just a pro bono thing to give back to others. Cause I had a challenge finding people like that in the industry when I got started. Also on there is downloadable, financial trackers and the reports that I alluded to earlier, current offerings and opportunities with Ashcroft, all kinds of stuff. So looking forward to connecting. Thank you.
Mike Morawski: Thanks, Travis. Again, I appreciate it. Thanks, listeners for being here this week. Hey, remember, coming up in October is our fifth annual virtual Multifamily Summit.
You’re not going to want to miss this year’s event. There’s the link, [00:37:00] below. Click on multifamily24. com get registered, and we’ll see you there.
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. Wherever you hang out on social media, you will find Mike and My Core Intentions. Please like and follow us to get the most up to date real estate investing trends.
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