Accredited Investor? You are one or you aren't. Syndicate Investing talk with Adam Gower

We're thrilled to have Adam Gower ( @GowerCrowd ) on board for today's episode. Gower, the brains behind GowerCrowd.com, is no stranger to the world of syndicate and crowdfunding investing. Bringing a wealth of experience from his time managing a staggering $7 billion portfolio of non-performing loans at Colony Capital, he delves into the perplexing single-family home market in California. In a world of high-interest rates and market volatility, the Golden State continues to uphold its high prices, leaving homeowners afraid to sell.

Continuing the conversation, we pry into the varying strategies of the fix and flip investors as compared to the buy and hold investors. How are they leaving their imprints on the current housing market? Let's dissect the puzzling equation of low inventory and high prices. With the housing market seemingly frozen, according to Mohammed L Arian, we ponder the influence of the Fed's actions and the imminent shifts that could be triggered by investors deciding to make their exit.

Finally, we turn our focus to the opportunities that lie in real estate investment for accredited investors. What does it mean to be an accredited investor as per the SEC's standards and why understanding the market and having a clear investment thesis are paramount before jumping into the arena? We also expose the implications of financing on multifamily real estate, especially the assumptions nestled in the underwriting process that could potentially lead to cash flow problems and the downfall of property values. Gower passionately shares how this challenging scenario could pave the way for new opportunities and gives us a sneak peek into his upcoming book, 'Capital Calls and Rescue Capital'. An episode brimming with valuable insights and tips for everyone, from the real estate rookies to the seasoned investors.

Timestamps: 
(0:00:03) - Real Estate Podcast
(0:03:59) - Real Estate Investing and Capital Raising 
(0:08:59) - Home Prices and the Housing Market
(0:09:25) - Real Estate Inventory and Pricing Stability 
(0:17:04) - Airbnb Market for Single Family Homes 
(0:20:54) - Real Estate Investment Opportunities for Accredited Investors
(0:26:19) - Effective Multifamily Investing Strategies 
(0:34:30) - Overpayment and False Assumptions in Deals 

Website: https://gowercrowd.com/
Newsletter: https://gowercrowd.com/subscribe
LinkedIn: https://www.linkedin.com/in/gowercrowd/
Twitter: https://twitter.com/GowerCrowd
Youtube: https://www.youtube.com/gowercrowd

Real Estate, Syndicate Investing, Crowdfunding Investing, Single Family,  Housing Market, California, Fix and Flip Investors, Buy and Hold Investors, Low Inventory, High Prices, Interest Rates, Market Volatility, Accredited Investors, Investment Thesis, Multifamily Real Estate, Underwriting Process, Cash Flow, Funding Problems, Property Values, Opportunities, BRRRR, Market Crash, Marketing

Transcript

WEBVTT Kind: captions; Language: en

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<v Marcus>All right, welcome to this week's episode, mvp Real Estate Podcast, season three, episode 20, with Adam Gower.

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<v Dan>PhD.

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<v Marcus>PhD.

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<v Marcus>So what does Adam do?

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<v Dan>Syndicate investing, crowdfunding investing.

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<v Marcus>Which is exciting for any investor out there that's looking to grow, because at some point you're either going to hit your knowledge ceiling or your funding ceiling where you bring in.

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<v Marcus>If that's you being a JV on a deal which I'm sure Adam is going to get more into the weeds on, that one In syndicating is not something that we've done as a company.

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<v Marcus>So I'm actually excited to learn a little bit from Adam and what he brings to the table.

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<v Dan>He also talks about how to find or access discounted, distressed commercial real estate.

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<v Dan>So commercial real estate could be something else we lean into as well.

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<v Marcus>Yeah.

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<v Marcus>Yeah, I'm curious where commercial real estate goes.

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<v Marcus>Obviously, with the dip in the market right now, brick and mortar retailers are pulling out slowly.

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<v Marcus>I'm curious to see what happens with that one.

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<v Marcus>So we'll pick his brain with that one.

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<v Marcus>But instead of doing a long intro, let's just bring Adam in.

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<v Marcus>I like what you've got going on behind you.

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<v Marcus>It feels like you are in deep thought.

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<v Adam Gower>It seems like I'm doing.

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<v Adam Gower>Still, it seems like it gives the misimpression that I know what I'm doing.

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<v Dan>But most of us are doing in this world.

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<v Adam Gower>I really appreciate having me on the show today.

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<v Adam Gower>Thank you so much.

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<v Adam Gower>I also appreciate the flexibility of letting me ask you some questions.

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<v Adam Gower>I'm looking forward to it, especially with what it is that you're doing and what I know your audience is interested in.

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<v Adam Gower>So my name is Adam Gower, I am founder of Gower Crowdcom and I also host a YouTube show at youtubecom forward slash Gower Crowd.

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<v Adam Gower>What we do, our main business, is building marketing systems for large scale real estate general partners.

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<v Adam Gower>I'm going to use some really key terms.

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<v Adam Gower>I'll explain exactly what they mean, because the same general partner can also the term can also be sponsor, operator, developers, a million terms.

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<v Adam Gower>The legal term typically is general partner or managing member, et cetera, et cetera, but somebody who is out there as a professional real estate investor all the time, typically with a large team.

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<v Adam Gower>Our clients have typically no fewer than $100 million of assets.

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<v Adam Gower>They have assets under management and in total, they manage over $35 billion and have raised around $1 billion of equity using our system.

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<v Adam Gower>So that's our core business.

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<v Adam Gower>So they hire us to build marketing systems so they can raise equity capital from accredited investors.

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<v Adam Gower>However, what that means is that I see through my work just about every asset class that there is.

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<v Adam Gower>I will give you a quick background.

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<v Adam Gower>You said 30 seconds.

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<v Adam Gower>The first thing you're going to realize, guys, is that I'm not very good at keeping things short.

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<v Marcus>That's all right.

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<v Marcus>That's all right, you just have to forgive me a lot.

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<v Adam Gower>My background just and I'll try as best as I can to do it in 30 seconds.

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<v Adam Gower>I started pulling wires for an electrician in 1982 in Southern California, very quickly got involved in capital raising.

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<v Adam Gower>Our investor relations in charge of investor relations for a ground up multi-family developer in Southern California raised around $30 million in the 1980s, which in those days was a lot of money.

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<v Adam Gower>It's not so much today.

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<v Adam Gower>Then ended up in Japan Short story, I'm trying to keep it short.

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<v Adam Gower>Savings and loan crisis wiped out most real estate investors in the early 90s.

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<v Adam Gower>I ended up in Japan as Daichyo Todeshima Ryakushacho, which is Japanese, for president of division of universal studios.

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<v Adam Gower>I was in charge of all their real estate development in Asia Pacific.

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<v Adam Gower>When I came back, I started doing my own developments and in 2007 sold out and went into the global financial crisis with no legacy problem.

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<v Adam Gower>So I was brought into a major bank.

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<v Adam Gower>My job over there was to work on their non-performing loan portfolio or collateralized by real estate.

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<v Adam Gower>I transacted a little over a billion dollars while I was there, all individual loans that were collateralized by commercial real estate In those days.

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<v Adam Gower>I actually have never really touched single family home, because it's a whole different way on the distress side.

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<v Adam Gower>It's a whole different thing for closing on families, so I've never touched that.

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<v Adam Gower>Then I ended up at Colony Capital working on a $7 billion portfolio of non-performing loans that they had bought with the FDIC from failed banks.

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<v Adam Gower>Oh my goodness, it was fascinating.

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<v Adam Gower>So these days, as I said, I've kind of evolved into becoming an expert at raising capital, and so we build marketing systems, digital marketing systems for large scale sponsors, slash operators, slash general partners who want to raise money from accredited investors.

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<v Adam Gower>That is more than 30 seconds.

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<v Adam Gower>I managed to spend about 10.

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<v Marcus>You could never do that background in 30 seconds, so I'm impressed with how quick you got that in.

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<v Adam Gower>Well, you got to listen to it at 2X speed.

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<v Adam Gower>That's the only way.

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<v Adam Gower>Yeah, Right Now let's talk about single family homes.

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<v Adam Gower>Can we do that?

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<v Adam Gower>Absolutely.

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<v Adam Gower>All right so what's going on where you are.

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<v Adam Gower>I want to hear what's going on.

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<v Adam Gower>I'm in California, so I've got my finger on the pulse of what's going on in single family, and you've talked about wanting to get into multifamily, so you're going to have to ask me some questions about that.

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<v Adam Gower>But before you do, what's going on with the single family home market around where you are?

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<v Marcus>It is as close to a freeze as I've ever seen it.

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<v Marcus>People aren't wanting to sell.

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<v Marcus>I mean, everybody wants to buy.

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<v Marcus>But do you qualify for a loan?

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<v Marcus>That's a huge question mark.

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<v Marcus>With the interest rates being so high, prices are still through the roof.

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<v Adam Gower>Why do you think that is as interest rates have gone up.

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<v Adam Gower>What are you seeing?

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<v Adam Gower>I'm going to.

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<v Adam Gower>Obviously I have an opinion, you can tell I'm not the kind of person that doesn't have one.

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<v Adam Gower>But what are you seeing?

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<v Adam Gower>Why do you think people are not selling, if prices?

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<v Marcus>are still high Fear of the unknown.

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<v Marcus>I think they're fearing of the looming, of what could be coming and they're not trying to move.

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<v Marcus>Some of them are locked into really low interest rates and don't want to assume a new interest rate that's going to be almost double, maybe triple, what they're in.

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<v Marcus>So I think there's some hesitation of the future and they're in good rates right now, so they're trying to keep it going.

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<v Adam Gower>And what do you mean for a fear of the unknown?

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<v Marcus>Well, with the market heading where it's been heading, I don't know if they think a crash is looming which it could be, and they don't want to be stuck without their asset.

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<v Marcus>They could be on a 3% mortgage for the past however many years and they've got all this equity built up and they basically have the decision of do we sell our house and get our cash and get that equity out, or do we keep our home and try to weather the storm of what crash could be coming?

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<v Dan>I think that's a big thing here in the Midwest.

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<v Dan>But I also think that that's related to non-investors.

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<v Dan>I think it's like you're talking more with, like families.

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<v Dan>The investors are still out there trying to buy and that's why prices, I think, are still as high as they are.

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<v Dan>The market is as competitive as it is.

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<v Dan>On the investor side, I feel like there's a lot of people that will sell prices are inflated and I feel like the bigger investors are willing to pay that price as a hold cost.

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<v Marcus>So it's kind of cutting out the actual first time home buyers or the people that are buying and would live in it.

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<v Marcus>So wait a second.

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<v Marcus>So you've talked about a freeze and this actually is what.

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<v Adam Gower>I'm seeing here.

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<v Adam Gower>So just kind of drill down on what you're saying.

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<v Adam Gower>So you've talked about a freeze, are you?

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<v Adam Gower>So prices are holding steady?

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<v Adam Gower>Yes, but are they continuing to rise at significance amounts in the same way as they have been for the last few years?

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<v Adam Gower>Yes, so you're talking about a freeze.

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<v Adam Gower>It's been for the last few years.

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<v Marcus>No, no, I mean they rose obviously to the COVID years and they just haven't dropped.

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<v Marcus>Since then They've not dropped, right.

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<v Marcus>Yeah, they haven't dropped much.

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<v Marcus>I mean maybe you'll get some houses at asking price, which is crazy.

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<v Marcus>That's like a secondary option, because we were just looking at houses yesterday doing some analysis on some future prospects in homes are going 30 grand over asking price selling within 30 days.

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<v Marcus>So it was quick.

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<v Marcus>Prices were elevated, but right now they've stayed pretty consistent.

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<v Marcus>The one thing that's changed is the inventory is very low, right, so that'll help keep the prices of the homes up.

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<v Marcus>I just had a listing here.

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<v Marcus>Basically, if you wanted a house in that size, you have one house to choose from and that's it.

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<v Marcus>That's how much inventory is on the market.

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<v Adam Gower>Yeah and right.

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<v Adam Gower>So prices are holding steady.

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<v Adam Gower>They're not going up, but they're also not coming down, yeah, right.

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<v Adam Gower>So for now, you use the term investors to mean I'm just gonna ask that that means fix some flippers.

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<v Adam Gower>Somebody that buys, wants to improve a property and then sell it within a short period of time.

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<v Adam Gower>Is that correct?

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<v Adam Gower>They have no intention of living in it.

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<v Marcus>Yes, those are investors.

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<v Marcus>I mean, you could also do the buy and hold, which is kind of.

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<v Marcus>What I like to do is the buy and hold investing.

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<v Adam Gower>Right, and do you think that?

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<v Adam Gower>Where do you think pricing for homes is gonna go?

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<v Marcus>I want a crystal ball.

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<v Marcus>Can you tell me?

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<v Adam Gower>Well, I have a theory.

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<v Marcus>Things are going to crash and go downward.

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<v Marcus>Yeah, something's got to give.

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<v Marcus>Home prices has to go down, interest rates have to go down.

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<v Marcus>There needs to be some movement, because right now it's just at a deadlock.

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<v Adam Gower>Yeah, okay, so it's so it begs the question.

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<v Adam Gower>So here's a.

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<v Adam Gower>I had a conversation with a fellow called Charlie.

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<v Adam Gower>Nathanson is actually a professor at Northwestern University, or Northwest, I think, northwestern.

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<v Marcus>Chicago, that's Midwest area.

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<v Adam Gower>This was a.

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<v Adam Gower>This was a few years ago, and what Professor Nathanson had done was he conducted a study on home prices and and what drives home prices.

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<v Adam Gower>And what he discovered was that, during what as as prices move towards their peak for home prices around a per square foot basis the number of people engaged in the market, or the proportion of people who are fixed and flippers what you call investors increases dramatically.

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<v Adam Gower>They start to become a primary buyer of properties, and you can tell this by looking at how long people hold on hold on to the onto the home.

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<v Adam Gower>So the number of.

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<v Adam Gower>So it's the investors that start to dominate the market.

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<v Adam Gower>As pricing goes up.

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<v Adam Gower>As soon as investors come out of the market, volumes, the first thing, the first indication is volumes drop off a cliff, but prices continue to go up.

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<v Adam Gower>I'm trying to draw this with my finger.

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<v Adam Gower>I'm like if you're watching or listening to the visual continue to go up and then say it's like Wiley coyote yeah, this idea of Wiley coyote running at high speed and then suddenly dipping his toe beneath himself and realizing there's nothing beneath them, any falls.

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<v Adam Gower>That's what happens to pricing.

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<v Adam Gower>The first thing that happens is that investors come out of the market.

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<v Adam Gower>You see volume drop off, prices continue for a while and they plummet then alongside volume.

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<v Adam Gower>So that's exactly where we are, which means we are at peak pricing today, absolute peak pricing.

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<v Adam Gower>Which begs the question how would an investor possibly justify buying a home today?

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<v Adam Gower>If you have to make the assumption, in order to make money, that prices are going to continue going up, there cannot be an investor in this market.

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<v Adam Gower>Unless your underlying thesis is prices are going to go, I'm going to buy today and prices are going to be higher in a year's time.

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<v Adam Gower>If you cannot make that assumption, nothing will make sense today.

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<v Adam Gower>And as soon as investors come out of the market, suddenly the only people left in the market people that want to actually buy homes and live in them.

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<v Adam Gower>So we've got a 7% interest rate instead of 3%.

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<v Adam Gower>Is the first thing that you said, marcus, was, you know I now people don't even qualify.

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<v Adam Gower>So now that demand side of the equation has gone smaller, so it is inevitable that you're going to start seeing prices come down.

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<v Adam Gower>Yeah, and I think that that is.

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<v Adam Gower>That is exactly what's happening in the market today.

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<v Adam Gower>There's another component of particularly the single family home market that we've not talked about yet.

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<v Adam Gower>What is the market for?

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<v Adam Gower>By the way, I just want to put something into perspective.

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<v Adam Gower>Just fyi, 30 days, a fast deal, 30,000 over asking and 30 days it only takes 30 days to sell.

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<v Adam Gower>What is the typical strike price like for a three bedroom home?

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<v Marcus>I think our median sale price.

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<v Marcus>The last time I looked was around the 360 range.

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<v Marcus>Okay, now we have to equate California price to a.

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<v Adam Gower>I was going to say 360 is not enough of a down payment in California you need.

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<v Marcus>That's a shed in California.

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<v Adam Gower>I don't know if you can find anything for 360.

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<v Adam Gower>You can find mobile homes for 360.

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<v Marcus>Yeah seriously.

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<v Adam Gower>I mean to 250 to 400.

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<v Marcus>Is that some double wide, I think I think in Dan, if you can verify that, but I think the last number I read from the WRA here in Wisconsin was the medium home sale price was 360.

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<v Marcus>And I always wondered because obviously we do have the homes that are higher priced, but I'm wondering, with the interest rates going up, how that affected the buyers and what they could afford, because pre 8% interest rates you could afford a home of 400,000.

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<v Marcus>But now that they're, they're double what they were expecting.

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<v Marcus>That lowers your buying power and now they're buying at 300.

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<v Marcus>And there's only so many $300,000 homes out there that are actually on the market.

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<v Adam Gower>Well, that's exactly right and so actually.

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<v Adam Gower>So I don't know if you saw this piece by Mohammed L Arian, who's also.

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<v Adam Gower>I keep talking about professors, and I don't mean some to academic or cerebral, but he's quite a famous economist.

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<v Adam Gower>He's out of Oxford University in England and he also he used the exact same term that you did.

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<v Adam Gower>Was that?

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<v Adam Gower>What the Fed has done is actually frozen the housing market, because now you've got people who are locked into sub three interest rate mortgages and even if you want to downsize let's say you could, you know?

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<v Adam Gower>Suddenly an older couple, you find yourself over housed three, four bedroom home, your kids have moved on and you want to downsize and move in something that's more economical and is smaller, etc.

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<v Adam Gower>What you're finding is there's one demographic.

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<v Adam Gower>What you're finding is why would you sell something, basically get out of a sub 3% mortgage in order to buy a seven plus mortgage?

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<v Adam Gower>You're going to buy something.

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<v Adam Gower>Small is going to cost you more.

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<v Adam Gower>So it's frozen the supply side because sellers are people that can't afford to sell.

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<v Adam Gower>Forget the equity where you're going to live, right, you're going to buy something higher.

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<v Adam Gower>It's also frozen out buyers for exactly again, the reasons that you've said qualification and that they can't afford as much and first they qualify for much lower mortgages.

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<v Adam Gower>So it's frozen both sides of the market.

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<v Adam Gower>Now there's another side of the single family home market.

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<v Adam Gower>I'd be interested in hearing from you.

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<v Adam Gower>But what is the?

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<v Adam Gower>What is the Airbnb market like in in your eyes?

17:15.274 --> 17:17.456
<v Adam Gower>Are there a lot of homes that were purchased for rent?

17:18.320 --> 17:21.182
<v Marcus>There's a lot of municipalities that are trying to shut it down.

17:21.202 --> 17:39.421
<v Marcus>In my area specifically, we're a we're called Lake country, so people from Chicago, from the north, will come down and they kind of conjugate here in the summer and the municipalities around here put the kibosh on Airbnb's because of noise complaints and how long ago.

17:39.662 --> 17:40.423
<v Adam Gower>Is that happening?

17:40.463 --> 17:41.844
<v Adam Gower>Now, or is that something?

17:41.864 --> 17:43.887
<v Marcus>that's been since it became popular.

17:44.588 --> 18:00.342
<v Marcus>They they kind of turned that off and said we, because people had rent out their lake homes in the summer and then there was noise complaints and they didn't know the ordinary ordinance with lights and it just caused a lot of problems, I mean.

18:00.442 --> 18:01.484
<v Marcus>I mean, do people do it?

18:01.624 --> 18:07.574
<v Marcus>I'm sure, but if the city catches on you get a pretty hefty fine and that gets shut down pretty quickly.

18:08.320 --> 18:19.064
<v Marcus>There is some in Milwaukee, there's some out in Madison, so other other counties will allow it, but it's not as big as the.

18:19.164 --> 18:35.393
<v Adam Gower>The vacation spots, the California's, the Florida's, the Texas, yeah, yeah, so that's also a factor that some of the Airbnb homes that are not performing as expected or that were you know some of those are coming on to the market.

18:35.433 --> 18:37.895
<v Adam Gower>That's adding a little bit to supply, but not very much.

18:38.416 --> 18:41.927
<v Adam Gower>Yeah Right, so what else do you want to know about me?

18:43.320 --> 19:07.533
<v Marcus>I wanted to get into syndications because I feel like every, every investor, whether you're new or benefit for a few years you're going to hit a road where you're going to start doing some syndicated deals, either with another investor, or you're going to have to raise some capital or be a JV on a deal, and it seems like you've got a wealth of knowledge in that field.

19:09.177 --> 19:11.101
<v Marcus>So I kind of wanted to go on that.

19:11.161 --> 19:11.703
<v Marcus>Is that some?

19:11.883 --> 19:12.464
<v Marcus>Is that an area that?

19:12.484 --> 19:13.326
<v Adam Gower>you want to go to?

19:13.346 --> 19:14.248
<v Marcus>What would you like to know?

19:15.978 --> 19:17.160
<v Marcus>I mean, I want to start with.

19:17.460 --> 19:20.966
<v Marcus>I mean, specifically for us, we've never done any syndication.

19:21.106 --> 19:22.789
<v Marcus>We've always had our own self funding.

19:24.376 --> 19:28.302
<v Marcus>I mean we look into like subject to an owner financing kind of things.

19:28.743 --> 19:34.271
<v Marcus>But we've had a couple of guests on the podcast as well that talk about JV deals and syndicating.

19:35.477 --> 19:44.710
<v Marcus>Would you, where would you give someone like me and Dan, I guess advice into where to look if you're a new investor and you're trying to get into the syndication game?

19:46.137 --> 19:46.418
<v Adam Gower>What would?

19:46.438 --> 19:46.879
<v Marcus>you mean?

19:46.920 --> 19:47.421
<v Adam Gower>How do you mean?

19:47.461 --> 19:48.143
<v Adam Gower>Where to look?

19:49.796 --> 20:05.320
<v Dan>I mean as an example, like maybe I'm a little higher but say we had a million dollars and we wanted to invest in commercial, commercial property or like whether that's apartment units or commercial retail, where would we go about trying to place that money?

20:05.460 --> 20:17.140
<v Dan>And I think right now we are trying to stay within our home areas, but I think that's also limiting us, so I think that's taking away from certain opportunities.

20:17.981 --> 20:26.890
<v Dan>We have talked, like Marcus said, to other people on our podcast and then we've had conversations outside the podcast related to you know what are?

20:27.410 --> 20:29.172
<v Dan>What do we have to do to be accredited?

20:30.056 --> 20:30.817
<v Dan>What does that look like?

20:30.877 --> 20:43.702
<v Dan>Do you need to have you know, obviously the financials for us to know that we are legitimate opportunity to invest or place of capital, but where?

20:43.802 --> 20:45.266
<v Marcus>are we thinking about that correctly or?

20:45.656 --> 20:46.339
<v Marcus>Right okay, good.

20:48.538 --> 20:50.825
<v Adam Gower>Okay, so let me help you.

20:51.656 --> 20:51.857
<v Dan>Yes.

20:53.536 --> 20:53.816
<v Adam Gower>Okay.

20:53.897 --> 21:02.064
<v Adam Gower>So, first of all, that that is the only way to become accredited.

21:03.415 --> 21:25.788
<v Adam Gower>There's a few ways to do it, but the primary way of becoming accredited and the accredited investor standard which was set by the SEC in 1980, actually, or 1982, very early 80s is nothing more than a basically a wealth and income hurdle.

21:26.535 --> 21:31.847
<v Adam Gower>So, to be a, you either are accredited or you are not accredited.

21:32.535 --> 21:58.908
<v Adam Gower>And the way and to be accredited, you need to have had at least $200,000 of income for the last two years and a reasonable chance of making $200,000 this year, or $300,000 if you are married and filing jointly Right, or a million dollars of net worth, not including your primary residence.

21:59.576 --> 22:04.687
<v Adam Gower>So that's kind of the floor or the basic definition of being an accredited investor.

22:06.597 --> 22:19.101
<v Adam Gower>Now there are some ways of some qualifications and some other ways that you can become accredited, you know, through study, but those are not going to be avenues you want to pursue.

22:19.161 --> 22:24.068
<v Adam Gower>So they are basically wealth and income hurdles that you have to cover.

22:25.295 --> 22:29.907
<v Adam Gower>Secondly, the next question is well, let's do it this way.

22:30.375 --> 22:33.320
<v Adam Gower>So that's the accreditation you also talked about.

22:33.380 --> 22:39.349
<v Adam Gower>Dan talked about how to you know, if we had a million dollars, what kind of deal would we look at?

22:40.495 --> 22:48.615
<v Adam Gower>Well, here's the thing you cannot put the money ahead of the deal You've got.

22:48.635 --> 22:58.869
<v Adam Gower>What you need to do is to find opportunities that you consider to be worthy of investment, and then go out and find the money.

23:00.295 --> 23:02.117
<v Adam Gower>What you might do is start.

23:03.198 --> 23:06.242
<v Adam Gower>Start by you need a thesis.

23:06.302 --> 23:10.827
<v Adam Gower>You need to have an investment thesis like what are we going to be investing in what, what?

23:10.847 --> 23:12.990
<v Adam Gower>What are our strengths, what are our weaknesses?

23:14.295 --> 23:17.063
<v Adam Gower>If single family home flipping is your strength, should probably stick with it.

23:18.315 --> 23:27.189
<v Adam Gower>If you like the idea of scaling up, you can either scale up a single family home portfolio, or you could start looking at multi family.

23:28.295 --> 23:33.406
<v Adam Gower>If you do that, though, you are stepping into a very different world.

23:36.234 --> 23:46.098
<v Adam Gower>Yes, my advice to you would be to go on some of the crowdfunding websites or to find a multi-family sponsor somewhere, and this is you know.

23:46.138 --> 23:49.263
<v Adam Gower>Some of you know our clients do this, and there are plenty of them out there.

23:50.135 --> 23:55.396
<v Adam Gower>Don't do not be seduced by the get rich quick a kind of.

23:55.597 --> 24:04.942
<v Adam Gower>If you see anything that gives you the feeling that this is a quick way to getting where you want to go, run in the opposite direction.

24:05.315 --> 24:06.519
<v Adam Gower>That's the quickest that.

24:06.560 --> 24:09.620
<v Adam Gower>If you wanna see a quick, a quick solution.

24:10.061 --> 24:15.124
<v Adam Gower>Run quickly the other way, because they will send you down the path of failure.

24:15.605 --> 24:15.866
<v Marcus>Yeah.

24:16.435 --> 24:17.599
<v Adam Gower>So we're gonna highlight that part.

24:17.880 --> 24:20.060
<v Marcus>highlight that one, yes exactly.

24:20.595 --> 24:22.422
<v Adam Gower>So then, what you want to do is.

24:23.315 --> 24:36.803
<v Adam Gower>So what you wanna do is you wanna find people who are really pragmatic, those whose story you might not really want to listen to, and it's gonna be the story that says real estate is a long-term gain.

24:37.656 --> 24:50.716
<v Adam Gower>Our returns are and you might need to read between the lines lower than you see elsewhere, but we are set up to survive downturns, all right.

24:50.797 --> 24:55.902
<v Adam Gower>So those are the kind of sponsors you want to be looking at and then see how they do it.

24:55.975 --> 25:06.443
<v Adam Gower>Get on their webinars, q&a them, ask them all kinds you can ask them all kinds of questions right About what they're doing and how they're doing it.

25:06.635 --> 25:31.981
<v Adam Gower>Get into I mean, they will produce and present to you, as a prospective investor, a lot of information about how they've done market, the market study, how they've analyzed the rents in the area, and you can kind of use them as case studies to learn how to underwrite a project, a multifamily project.

25:32.135 --> 25:37.058
<v Adam Gower>So that would be a good way to educate yourself on what's involved.

25:38.702 --> 25:47.148
<v Adam Gower>Then, when you do find a deal that you want to work on, then what you also want to be doing.

25:47.355 --> 25:49.121
<v Adam Gower>So now you've got a theory right, a thesis.

25:49.181 --> 25:50.104
<v Adam Gower>Here's what we're gonna be doing.

25:50.275 --> 25:52.904
<v Adam Gower>We're gonna be looking at and pick a number.

25:53.095 --> 25:58.343
<v Adam Gower>Dan, you said you know, if you were fantasizing a million dollars, all right, so that's fine.

25:58.535 --> 26:00.122
<v Adam Gower>So let's say that is what you're looking at.

26:00.315 --> 26:02.623
<v Adam Gower>So you're looking at a million dollars of equity.

26:03.435 --> 26:07.796
<v Adam Gower>That would mean you could buy, call it, a $3 million property, right?

26:07.856 --> 26:16.306
<v Adam Gower>So that's in Wisconsin, with a $300,000 average, 350, 360 average purchase price for a home.

26:16.395 --> 26:18.483
<v Adam Gower>That's a decent size, multifamily, I would imagine.

26:18.595 --> 26:31.043
<v Adam Gower>I don't know what you can buy for $3 million, but you tell your you now start communicating with your network and you can do a newsletter or you can do it on your podcast, even just creator.

26:31.535 --> 26:38.207
<v Adam Gower>I mean, you guys are used to recording stuff, so get on a Zoom call, record yourselves explaining.

26:38.275 --> 26:46.862
<v Adam Gower>This is how we're figuring this out, this is what we're doing and this is how we're doing market study and this is how we do a rent study and this is what we're looking for.

26:46.935 --> 27:08.063
<v Adam Gower>And then you signal to your network of prospective investors that you are looking for multifamily properties between $3 and $5 million in size and this is what it's going to look like and these are the criteria that we're looking for, and you can add layers to that.

27:08.135 --> 27:10.344
<v Adam Gower>You do your research first, but you add layers to that.

27:10.395 --> 27:29.524
<v Adam Gower>You can say we want to see, you know, density, population density I don't know population density employment within certain number of minutes, certain age of property, and we want to be seeing average rents at a certain level below market.

27:29.675 --> 27:36.665
<v Adam Gower>We want to be able to see comps of a certain type justify increasing rents, et cetera, et cetera.

27:36.715 --> 27:41.463
<v Adam Gower>And then you've also got to have a plan in place how you're going to be upgrading the unit.

27:41.615 --> 27:44.444
<v Adam Gower>So start doing your research, figure out what does it cost.

27:44.995 --> 27:47.003
<v Adam Gower>Talk here's a great thing you should do.

27:47.215 --> 27:51.982
<v Adam Gower>Actually, this is actually this is what I do Whenever I start looking at a new market.

27:53.295 --> 28:03.801
<v Adam Gower>You want to be talking to other experts in the area and learning from them, but nobody is going to take your call if you just say, hey, listen, can I pick your brain?

28:04.075 --> 28:05.159
<v Adam Gower>Nobody wants to do that.

28:05.661 --> 28:05.962
<v Adam Gower>Why?

28:06.435 --> 28:07.661
<v Adam Gower>Because everyone's busy.

28:08.478 --> 28:10.184
<v Adam Gower>You want to talk to general contractors.

28:10.255 --> 28:12.623
<v Adam Gower>What does it cost to renovate a unit?

28:13.255 --> 28:14.541
<v Adam Gower>Yeah, that'll give you five minutes.

28:14.635 --> 28:15.880
<v Adam Gower>That'll give you one number of that.

28:15.900 --> 28:16.202
<v Adam Gower>Be off.

28:16.295 --> 28:17.199
<v Adam Gower>They're not interested.

28:17.795 --> 28:26.637
<v Adam Gower>But the best thing that you could possibly do is to find a deal, even if it's not, even if it's one you're never going to buy this is.

28:26.677 --> 28:39.257
<v Adam Gower>Don't tell anybody except every one is listening on this, youtube and the NSA, whoever else is tuned into what we're talking about Find a deal that you have absolutely no chance of buying, it doesn't really matter.

28:40.335 --> 28:41.480
<v Adam Gower>Put it into escrow.

28:43.307 --> 28:48.577
<v Adam Gower>Well, or you don't want to do that, because then you burn your reputation with brokers.

28:49.845 --> 28:51.208
<v Adam Gower>But get it teed up.

28:51.909 --> 29:03.989
<v Adam Gower>Start talking to the broker and then call general contractors plumbers, electricians hard, I don't know what other trades you need there over there, right, but you know your main trades.

29:05.212 --> 29:18.613
<v Adam Gower>Maybe call an architect or a designer of some sort, go and look at all the properties in the neighborhood and see which are getting the best rents and go and do a rent survey.

29:18.745 --> 29:20.772
<v Adam Gower>Okay, how have they upgraded their unit?

29:20.792 --> 29:24.872
<v Adam Gower>They'll tell you right, the property manager will tell you we upgraded this unit.

29:24.912 --> 29:29.450
<v Adam Gower>The rent is however much it is now, and you can ask them what was it before?

29:29.470 --> 29:31.255
<v Adam Gower>Right, how much are you getting in the other units?

29:31.405 --> 29:35.610
<v Adam Gower>And they'll tell you and then ask all of those trades.

29:36.392 --> 29:40.392
<v Adam Gower>Tell them that we're looking at this property here at the corner of walk and crosswalk.

29:40.645 --> 29:57.175
<v Adam Gower>Can you, will you meet me over there and give me an idea of what is involved upgrading the plumbing or upgrading the electrical or doing the countertops or switching out or the flooring and get numbers and start plugging those real numbers in.

29:57.325 --> 30:08.457
<v Adam Gower>Now what's also going to happen is they will give you real numbers that you can actually take to the bank, as it were, and start plugging those numbers into your pro forma.

30:08.645 --> 30:17.813
<v Adam Gower>You got to build a spreadsheet and then, as you start seeing deals, suddenly one of those deals that you look at you're going to have to look at 100 deals before you find one that works.

30:18.685 --> 30:20.813
<v Adam Gower>One of them suddenly will make sense.

30:20.965 --> 30:21.888
<v Adam Gower>You'll have all the numbers.

30:21.928 --> 30:23.633
<v Adam Gower>You'll know exactly what the numbers are.

30:24.685 --> 30:25.670
<v Adam Gower>One of them will make sense.

30:25.845 --> 30:53.231
<v Adam Gower>And if you do this, if you communicate with your network of prospective investors along the way and you share with them your story of how you do this, they will be ready to invest with you when you find the right deal, because you will have taught them how you're identifying a good opportunity as you learn it, and then they'll know yes, I agree, I know exactly what he's looking for.

30:53.325 --> 30:54.910
<v Adam Gower>He's found one that works, or I'm in.

30:55.392 --> 30:57.629
<v Adam Gower>Yeah, that's why I would do it.

30:58.251 --> 31:00.248
<v Marcus>That's good and I like how you did.

31:00.408 --> 31:01.573
<v Marcus>You pointed out the obvious.

31:02.105 --> 31:10.057
<v Marcus>It's going to be very hard to get a call back from people if you just pick up the phone call and say I want to have lunch or meet up for coffee and all that stuff.

31:10.225 --> 31:11.229
<v Adam Gower>No one wants to do that.

31:11.750 --> 31:20.974
<v Marcus>It's difficult and that's why and I know in the earlier shows I talked if you have the ability to work for somebody for free and bring them value, it'll be.

31:21.175 --> 31:22.578
<v Marcus>It'll go miles for you.

31:23.045 --> 31:26.194
<v Adam Gower>Well, yeah, and the point I'm making is you want to work for somebody for free?

31:26.234 --> 31:28.545
<v Marcus>Right, just bring them value.

31:28.605 --> 31:30.767
<v Adam Gower>Bring them something of value, and they will also.

31:30.807 --> 31:35.918
<v Adam Gower>And then the other thing is that when you get the plumber over there you can say to me hey, listen, do you know any good electricians?

31:36.039 --> 31:39.449
<v Adam Gower>Or the foundation guy or a roofer who can you recommend?

31:39.605 --> 31:42.534
<v Adam Gower>Then you call the roof and you say look so and so suggested.

31:43.125 --> 31:47.372
<v Adam Gower>And then you can ask them have you worked on any upgrades on other apartments around the neighborhood?

31:47.452 --> 31:48.774
<v Adam Gower>Yes, well, what did you do?

31:49.174 --> 31:50.176
<v Adam Gower>What else did they do?

31:50.236 --> 31:51.198
<v Adam Gower>Who can I talk to?

31:51.218 --> 31:52.520
<v Adam Gower>Do you know who the designer was?

31:53.106 --> 31:55.174
<v Adam Gower>Go to the local building inside.

31:55.194 --> 32:09.050
<v Adam Gower>I don't know what it's called, but the local building and safety department Just permits and any kind of work done on any property in most jurisdictions across countries, publicly available, public.

32:10.285 --> 32:21.191
<v Adam Gower>So you go to the BS, you go down to the local building and safety counter and if there's an apartment building that's been upgraded recently, say, can I have the file on this apartment building?

32:21.492 --> 32:21.693
<v Dan>Yeah.

32:22.245 --> 32:26.395
<v Adam Gower>Pull it out and see who the designer was, see who the plumber was, see who the electrician was.

32:27.365 --> 32:29.535
<v Adam Gower>I'll call but don't say can I have lunch?

32:30.037 --> 32:32.909
<v Adam Gower>Say I'm looking at this deal at the corner of Walk and Crosswalk.

32:32.929 --> 32:34.112
<v Adam Gower>Will you meet me over there?

32:34.614 --> 32:34.754
<v Marcus>Yeah.

32:35.465 --> 32:35.886
<v Adam Gower>I want to walk around.

32:35.907 --> 32:36.769
<v Adam Gower>I want to get a bid from you.

32:36.790 --> 32:37.933
<v Adam Gower>We're trying to put an offer in.

32:38.626 --> 32:42.848
<v Adam Gower>Okay, now they'll come over and you don't want to waste their time on this deal and the next deal and the next.

32:43.725 --> 32:50.553
<v Adam Gower>The first time you do it, you're going to get all the information you need about pricing, oh, and you can also ask them what are trends the pricing going up.

32:52.285 --> 33:03.373
<v Adam Gower>Also, don't forget with your subs what's your lead time, because it's no good if your contractors are saying, yeah, we can do this for less than anybody else, but we can't get out here for six months.

33:04.325 --> 33:05.268
<v Adam Gower>You don't want to do that.

33:05.569 --> 33:07.295
<v Adam Gower>You want to be sure that they're available.

33:07.485 --> 33:12.634
<v Adam Gower>So you might not be doing a low bid deal, you might be doing a middle bid or even a high bid deal.

33:12.805 --> 33:14.654
<v Adam Gower>It doesn't matter if you can get people out.

33:14.674 --> 33:15.900
<v Adam Gower>Then turn a unit quickly.

33:16.543 --> 33:21.512
<v Adam Gower>Underwrite the difference in your spreadsheet as you try and figure out if a deal's going to work.

33:22.113 --> 33:22.393
<v Marcus>Yeah, okay.

33:24.088 --> 33:26.603
<v Marcus>Interesting, I mean people are probably going to have to rewind that one.

33:26.715 --> 33:30.785
<v Marcus>I'm going to have to rewind that one to recap all of the steps and things we should do.

33:31.755 --> 33:34.864
<v Marcus>But there were a couple of things that caught me and I wanted to ask you questions on them.

33:35.855 --> 33:41.983
<v Marcus>One you were saying obviously don't put the money before the deal and you are the man that's in commercial real estate.

33:42.756 --> 33:49.200
<v Marcus>And before this, show me and Dan were talking about how brick and mortar stores are pulling out and going backwards.

33:49.655 --> 33:50.838
<v Marcus>This space is retreating.

33:51.500 --> 33:59.069
<v Marcus>Where do you see just personally with you and that could be within, like the California market, when are those opportunities in the commercial space for you?

33:59.150 --> 33:59.572
<v Marcus>And that what?

33:59.592 --> 34:02.115
<v Marcus>you're looking at without giving away your secret sauce.

34:02.295 --> 34:04.260
<v Adam Gower>Oh no, I don't mind sharing all my secrets.

34:04.360 --> 34:07.067
<v Adam Gower>It's totally fine, I'm an open book, Right?

34:07.475 --> 34:09.379
<v Adam Gower>So opportunities are.

34:10.180 --> 34:11.463
<v Adam Gower>So in the commercial space.

34:12.785 --> 34:23.867
<v Adam Gower>This is what's happening in commercial as particularly in multifamily Well, not particularly across all asset classes Multifamily has got this reputation for being a recession resilient.

34:24.457 --> 34:25.181
<v Adam Gower>It really isn't.

34:25.455 --> 34:28.003
<v Adam Gower>If you get it wrong, you're going to lose your deal.

34:28.575 --> 34:29.680
<v Dan>So this is what's happening.

34:30.295 --> 34:51.844
<v Adam Gower>A lot of larger scale multifamily deals apartment buildings across the country over the last three years or so were financed using increasingly, we're financed using decoupling Increasing standards of qualification.

34:51.975 --> 35:07.423
<v Adam Gower>In other words, it became easier and easier and easier for sponsors or for investors to get debt to borrow to buy bigger and bigger deals, so it became easier for them to do that.

35:07.555 --> 35:24.482
<v Adam Gower>The standards that the lenders were imposing were getting laxer and laxer, and so what that did was it enabled people to make deals pencil at much higher prices than actually their true worth was.

35:25.715 --> 35:27.561
<v Adam Gower>So what that means is they overpaid.

35:28.915 --> 35:38.638
<v Adam Gower>They overpaid and the assumptions that they built into their underwriting, which is exactly what I've been telling you how to do the assumptions that they built in.

35:40.461 --> 35:51.103
<v Adam Gower>That included rank growth assumptions over the next few years, insurance rate assumptions over the next few years that's another line item you absolutely need to bottle out.

35:51.595 --> 35:54.904
<v Adam Gower>Make sure you know how much insurance is and assume that it's going to go up.

35:55.835 --> 35:58.283
<v Adam Gower>How much are taxes on the property?

35:58.835 --> 36:00.100
<v Adam Gower>How much are interest rates?

36:00.435 --> 36:09.543
<v Adam Gower>All of these assumptions that were built into these overpriced acquisitions over the last few years have proven wrong.

36:10.635 --> 36:11.938
<v Adam Gower>So now what's happened?

36:12.058 --> 36:26.729
<v Adam Gower>Is that a lot of the and I will tell you this is probably up to 90% of all multifamily deals purchased in the last three years now have cash flow problems.

36:27.675 --> 36:37.684
<v Adam Gower>The amount of cash coming off net operating income, basically driven by rents, is not enough to cover the amount of debt on those properties.

36:38.796 --> 36:44.227
<v Adam Gower>And so all this stuff behind you that you see here on the whiteboard, this is what's happening.

36:45.075 --> 36:48.204
<v Adam Gower>This is what I call the real estate syndication vortex.

36:49.015 --> 37:07.539
<v Adam Gower>This is where both sponsors, general partners and their investors, their limited partner investors, are getting sucked into situations they would rather not be in, where they need more capital than they had expected when they did the deal in order to not lose the deal to foreclosure.

37:08.095 --> 37:09.701
<v Adam Gower>So what does that mean for guys like you?

37:10.236 --> 37:19.126
<v Adam Gower>Well, what that means for guys like you is that a lot of properties are going to be coming back on the market at extremely distressed levels.

37:19.275 --> 37:32.668
<v Adam Gower>So the pricing just like we started talking about anticipating housing to crash, pricing for multifamily, for apartment buildings, is also going to come down very, very significantly.

37:33.055 --> 37:40.020
<v Adam Gower>I think Morgan Stanley was projecting 30% or so, I forget exactly how much, but that doesn't seem unrealistic.

37:40.795 --> 37:44.044
<v Adam Gower>Significant declines in values, meaning opportunities for you.

37:45.136 --> 37:47.441
<v Marcus>Did Morgan Stanley put out a timeline on that one?

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<v Adam Gower>Yeah, I just put it out in my newsletter, I think projecting over the well during this downturn.

37:57.062 --> 38:00.360
<v Adam Gower>But within the next year most of the defaults are going to.

38:00.621 --> 38:01.905
<v Adam Gower>They're starting to kick in now.

38:03.098 --> 38:14.704
<v Adam Gower>I think it's going to be like Q2 of next year the big wave is going to start in, yeah, the beginning of next year, because most of the bridge lending that was done started in the beginning of 2021.

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<v Adam Gower>So once that kicked in, they're now on two or three year terms.

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<v Adam Gower>All their rate caps are starting to expire.

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<v Adam Gower>So that's what you're seeing is going to start hitting the market and then, as soon as those deals come to market at depressed prices and values, either through foreclosures or foresales or for whatever reason, those values now start to reset comparable values, so comps start to reset and as comps start to reset, we start to move more rapidly towards bottom.

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<v Marcus>What's the difference.

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<v Marcus>It might be interesting, which is a scary thing and I think people are going to.

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<v Marcus>I think there's gonna be a lot of panic around it.

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<v Marcus>I think people within real estate understand it's coming.

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<v Marcus>I think other people are gonna kind of panic cause we've just been on this peak and now we're going to go to the valley and it's not gonna be pretty.

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<v Marcus>No, that's right, but it always happens so we are, we're just it's always cyclical, which is very cool.

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<v Adam Gower>So, guys.

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<v Adam Gower>So unfortunately I've got a bit of a hard stock coming up.

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<v Dan>That's all right.

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<v Adam Gower>I can't believe how long we've been talking.

39:31.875 --> 39:33.080
<v Adam Gower>It's gone by so quickly.

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<v Adam Gower>It's really a pleasure talking to you, but so, if you don't mind, do you mind if I pitch something briefly?

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<v Marcus>I was just gonna say, if we're gonna cut it off, please tell us how people can get a hold of you.

39:45.735 --> 39:49.002
<v Marcus>All right, so You've got some literature, I'm sure I do.

39:50.197 --> 39:50.778
<v Adam Gower>So I am.

39:50.818 --> 40:07.506
<v Adam Gower>So this whole rocket science thing behind you is actually a presentation that I made to an exclusive group of investors, and nobody's seen that presentation except for them yet.

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<v Adam Gower>So what I've done is I've actually written a book.

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<v Adam Gower>I think I'm gonna call it Capital Calls and Rescue Capital.

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<v Marcus>Okay.

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<v Adam Gower>It's gonna come out, hopefully by the end of next week.

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<v Adam Gower>I'm just wrapping it up now.

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<v Adam Gower>It comes with some free training, which is this whole presentation here and a bunch of other stuff.

40:27.415 --> 40:28.018
<v Adam Gower>It's really cool.

40:29.015 --> 40:34.099
<v Adam Gower>It's only $7 book and if you don't like it, let me know and I'll send you your money back.

40:34.395 --> 40:40.906
<v Adam Gower>All right, so it's like satisfaction guarantee and you'll be able to access it and me at gowakroudcom.

40:41.135 --> 40:48.241
<v Adam Gower>So that's my last name, G-O-W-E-R, gowakroudcom and subscribe.

40:48.302 --> 40:49.205
<v Adam Gower>I have a newsletter.

40:49.215 --> 40:50.280
<v Adam Gower>It goes out every Wednesday.

40:52.015 --> 40:52.457
<v Adam Gower>It's free.

40:52.658 --> 40:59.403
<v Adam Gower>You can always unsubscribe, but we cover all these topics that we've been talking about today and updates on what's going on in the industry.

40:59.755 --> 41:01.040
<v Adam Gower>So that's gowakroudcom.

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<v Marcus>I'm subscribing right now, so All right well you got two subscribers because I'm gonna subscribe after the show.

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<v Marcus>You're gonna get three book purchases, because I'll buy one for me, dan, and then our other owner, val All right, so we'll get those as soon as that gets out as well, because I would be happy and very happy to read all of your literature that you've got going out on that newsletter, because I know your wealth of knowledge just from the 45 minutes that we spent on this call.

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<v Marcus>So, thank you, I appreciate the time you gave us to share that.

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<v Marcus>We'll make sure to put all of your contact information into the show notes, lovely.

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<v Dan>Hold on.

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<v Dan>These are those.

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<v Dan>I don't.

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<v Dan>I feel like we're cutting you off.

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<v Dan>Was there something else you wanted to get to?

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<v Dan>Because I know you got to the newsletter part, but there's no.

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<v Adam Gower>No, thank you.

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<v Adam Gower>That's really good.

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<v Adam Gower>It's really gracious of you.

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<v Adam Gower>But no, we're good, I think, just sign up for the newsletter.

41:53.379 --> 41:54.253
<v Adam Gower>I mean, it's really we.

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<v Adam Gower>Just we send something out every Wednesday.

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<v Adam Gower>There's usually some educational stuff in there.

41:59.375 --> 42:01.370
<v Adam Gower>There's a million words of content on the website.

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<v Adam Gower>There's a little search bar so you can search keywords, and there's a lot of stuff.

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<v Adam Gower>95% of what I put out is there's no cost to it.

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<v Adam Gower>There's just some premium stuff that it, you know, cost a little bit, not like a book for cyber.

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<v Adam Gower>Yeah.

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<v Adam Gower>But most of it is.

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<v Marcus>I'm looking forward to that book.

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<v Marcus>That'd be great.

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<v Marcus>And then also we'll tie in your YouTube channel to the show notes as well, so people can click on that and go to there.

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<v Adam Gower>All right cool.

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<v Adam Gower>Thank you so much.

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<v Marcus>Thank you very much for your time.

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<v Marcus>I appreciate it.

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<v Marcus>Enjoy the warm weather out in California.

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<v Adam Gower>We're sending you a cold over here.

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<v Adam Gower>It's a real pleasure meeting you.

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<v Adam Gower>Thanks so much for hosting me today.

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<v Adam Gower>I documents on this].