Ron: Well, hello everybody. Welcome to another issue of The Mentor Podcast.
This is Ron LeGrand and I have Tim Bratz on the phone here today, and he’s got a very interesting subject to discuss. In fact, you should listen if you want to make real big money in real estate because literally this guy has come from nothing to doing well over 2,500 doors and apartments. I’m going to let him tell you his story.
Hi Tim..
Tim: Ron, I’m excited to be here. Thanks for having me!
Ron:Well, I think the first thing we ought to do is tell them who you are and what you have accomplished, which is nothing short of amazing. So, then they’ll have an idea who they’re listening to here.
Tim:Well, I appreciate you having me here, appreciate all the content and all the value provided over the years, and I’m really excited to be on your podcast. So, high level on me. I’m a normal guy from a blue-collar town outside of Cleveland, Ohio. When I was going through school and going through college, the market was going gangbusters, this was 2003-2007. And, when I graduated, people asked me what I wanted to do, and I said “I want to make money.”
So, I got involved in real estate. Everybody making money back then was in real estate. So, I moved out to New York City because at the time my brother was living out there. I got a job as a commercial real estate agent brokering retail office space, and I remember the first deal I brokered, it was about four hundred square feet, so not very big size. It has a couple bedrooms and we signed a lease with a tenant for $10,000 per month with a 4% annual increase and a twelve-year lease term. Yeah, only in New York!
Hey, I’m doing the math on this thing Ron. I’m like, I’m on the wrong side of the coin. I need to be owning real estate. I realize this guy’s making almost 2 million dollars over the next 12 years for doing something at one point in time. So, the idea of residual income and passive income and that mailbox money really got me excited, and I decided I wanted to become an investor.
So, I spent a lot of time, going through that analysis paralysis space and trying to learn everything before I did anything. Eventually, I realized in order for me to learn how to swim, I had to jump in the water.
I moved down to Charleston, South Carolina, a little bit north where you’re at. By this time, it was 2009. I bought my first house. The market had already crashed, and it was a run from real estate. I’d never done a big deal before and I didn’t have any money, but I was pretty resourceful. A lot of people say “Hey, I can’t get involved in real estate because I don’t have the time and all the money.”
I don’t have all the resources, but I heard Tony Robbins say once that “you know resourcefulness is the ultimate resource,” and I believe that in a big way. So, if you’re resourceful, you will find the money. You’ll find the time and you’ll find the knowledge. I called up my credit card company and asked them to increase my credit limit on my credit card. They give me a limit of $15,000, and I found the cheapest house on the MLS and bought it on my credit card. I did all the work to it and flipped it in 70 days, making about 13-14 thousand dollars.
Ron: Boy does that sound familiar, Tim – I can’t say how many houses I bought on credit cards way back.
Tim:It was one of those things where I didn’t know what I was doing. I was a punk 23-year-old kid, and it was the worst housing market in 80 years. Somehow, I just made money doing this, so I did it again and again. You get involved in different transactions. I got involved in wholesaling. I really liked that and then eventually I met people who had money, but maybe didn’t have the time or the bandwidth or the education on how to invest in real estate, so we decided to start partnering up. They would bring the money. I would do the work and we carved up the deal however we saw fit.
It got me that start, holding a few properties, and then I’d refinance them out. I got in the turnkey space, started a management company, and it just kind of compounded. I knew real estate would work.
I didn’t know what the avenue I wanted focus on was, but eventually I bought an apartment building about seven years ago and just really like the scalability of it. It was easier to finance. It was easier to operate. I can go and do due diligence on one building. That’s 20 units versus going around at 20 different houses and checking out 20 roofs.
Now, I’m looking at one roof versus many, so there’s more scale to it. I can negotiate with one seller versus 20 sellers and things like that. So, it met my long-term goals. I know a lot of people make money in different capacities in real estate and sure, I love them all.
Ron:Sure.
Tim: It’s just that for me, and what I what my ambitions were, apartment buildings just seemed to be it. So, I got rid of everything else and drew lines in the sand.
Ron: Alright, stop. Take a breath before you faint on me. So, your first apartment building was in 2009 and it was 20 units, right?
Tim:My first investment property was in 2009 and was a little duplex in a tough neighborhood. I bought my first apartment, an 8 unit in 2012.
Ron:All right. So, I want our listeners to hear the time frame, the short time frame here that’s gone by… where you were and where you are right now. So, then you bought eight units in 2012, then you bought 20 units in…
Tim:I bought about eight units and then about another eight unit. There were a couple guys I kind of partnered up with, and I was essentially married to these guys. I wasn’t doing any other business other than what I was doing with them.
We built up a portfolio of around, I don’t know about 150 units, and then life just happened and the partnerships fell apart. Expectations matter, and they’re all different in people’s minds. Right? And so that partnership ended up going south and we ended up liquidating everything in 2015-2016.
I’d been in real estate for over a decade and was trying to figure it out and get my feet together or getting my footing in the first five, six, seven years, and I got pretty good at it the past three to four years. When I liquidated all those properties with those guys, I had enough knowledge. My biggest building at that time was probably 30 units and I said “Hey, you know I don’t have the weight on my shoulders anymore.” I could spread my wings, let me go and see if I can get some bigger. So, I bought 84 units as soon as I got out of that partnership. That was in the end of 2015, and I bought about 84 units.
At the end of 2016, I bought another 194 units. Then in 2017 I think I only bought about 80 units. Maybe a couple more than that. I probably bought about 100 units in 2017. So I’m at 500-600 units at that time. Then in early 2018. I just kind of you know, the momentum really caught the snowball effect really set in and at that time I picked up from almost all about 800-900 units in 2018
Ron:Wow!
Tim:And then this year so far I picked up another 1000 and I have another 600 closing in two weeks.
Ron:And this year in the middle of 2019, you picked up another thousand already.
Tim: Oh, yeah, so I’ll be at around 4,000 units by the end of the year.
Ron:No kidding, man. That is nothing short of amazing. All right. Well our listeners however are sitting there thinking to themselves
Worse for him. Well, no, it’s going to work for me. I Don’t know. I don’t have a big financial statement and I don’t know that I can go borrow all that money and But I don’t have you know hundreds of thousands of dollars to put up or down payments and that sort of thing So let’s get to the meat here, sir. Tell me how you went about Amassing the capital to get all of the units and how do you buy them today?
Tim:Great question, so
There’s a lot of people overcomplicate commercial real estate I don’t think it needs to be as complicated as we build up in our heads. It’s just some different lingo so different verbiage Um, it’s actually easier to do bigger deals and it is the smaller deals.
Ron:I know, of course you say that and I know that you know that but
I’m listening to listen. I haven’t bought any bigger deals yet. I’m only about half buying it but it is true because Money’s chasing deals and more money you can use of their so the more interested they are in your deal So it’s really that simple in.
Tim: Mmm-hmm. And all I’ve done is I’ve taken my residential business model and I’ve duplicated it in apartment So just like most people have to go in buy a house and fix it up and flip it may be all in for 65% of stabilized value. I do the same thing. The only difference is a few more zeros, right?
So I’m buying and I’m all into an apartment building that’s worth 10 million dollars For about 6.5 million and it’s usually because I have the force appreciation, right?
I have to put in the sweat equity.
Ron: Yyou’re buying apartments then that need turned around, rehabbed usually and are and rented and that’s what you call stabilized when you get them to that point
Tim:Correct.
Ron
You’re buying them down just like we buy ugly houses, and you’re creating your own value. Okay?
Tim
Yep
Ron
How do you get a 200 unit apartment complex financed you buying it at 65% of value? That’s great. That’s not all that hard. How you gonna get the money to make this happen? Because that’s what that’s what we want to hear
Tim
great question
so the financing usually, like so I go get financing for 80% of the purchase and renovation costs. So, 80% of the total cost comes from a bank…
Ron:
Slow down, So you’re going to get financing for the 65% percent of the purchase price, and let’s say another.. I Don’t know 15% above that to rehab the property, and some holding cost along the way
so you won’t have any cash flow while you’re doing all of this or probably not enough. So you borrow enough money to cover the interim cash flow and everything else you need and then some correct?
Tim:
Correct
Ron:
Well below the stabilized value
Tim:
Correct. So right that’s just part of the cost, you know. The part like the interest reserve and whatever the debt service is going to cost it is its added into the cost of the total deal, so you got roofs so you got fixtures you got flooring and you got debt service, you know, so you can calculate that in. So, and then what I do is I go and raise private money for the 20% down which everybody expects you to do in commercial real estate.
Ron:
Alright, so if you arrive at a number based on your due diligence, and your research before you close. You got a number now you know what the number is you’re borrowing against which is still in your case no more than 80% of the after repaired value as we use in the house business, and that’s even plugging in a vacancy factor. That doesn’t mean it has to be 100% occupied what percent are using 90 percent?
Tim:
Yeah, you usually come between 90 to 94 percent occupancy.
Ron:
Yes, and you have to add a reserve in there The lenders won’t even gave you the money which is on what 2-3% or so your case.
Tim:
Yeah.
Ron:
So, the goal is divided properties so that a loan of 80% of the stabilized value is enough to cover all of that so you have plenty of money to get the job done. Not a problem is the lender won’t loan you 80% of the stabilized value. They’ll only loan you 80 percent, So you have to come up with.. but they won’t loan you 80 percent without you putting skin in the game. So they want you to put 20% down and then they loan you the rest my own target?
Tim:
Yeah, so let’s put an example of numbers together.
Ron:
Alright, lets do it.
Tim:
All right, so let’s say I have a building that’s going to be worth 10 million dollars. It’s very predictable what the building is going to be worth. Because its based on the income approach. So it’s actually all they care about is how much money is a property, receiving in gross income what are all the expenses, and then what’s the net income? It’s always a multiple of that and that will differentiate depending on which community or city that you’re buying in.
Ron:
And the NMR cap rate, right?
Tim:
Right, okay so on an example of that, if the building’s going to be worth ten million dollars, I need to be all into it for 6.5 million. Then let’s say it needs a million dollars’ worth of work and there’s holding cost some other stuff. You know all in you know, I’m buying it for four and a half million bucks. And I’m then putting some work in. Okay, so that’s just the cost of the project, six point five million. Now, how do I get the money? The bank will give me 80 percent of the cost. So, they’ll give me a little over five million dollars for a building that I’m all into for six point five million dollars. Then I go and raise about 1.5 million bucks from Private lenders, and it is assumed, and it is totally okay, and you know if people actually promote it to go and raise money from private lenders don’t have to use any of your own money in these deals. I measure all private lenders money. In fact a normal standard operating procedure in in commercial real estate.
Ron:
That’s called equity capital, and the bankers bring up the debt capital. Now, who goes and applies for this big loan?
Tim:
So that Was one of the things that I didn’t realize. So now I get the loans right because I have a balance sheet. I didn’t realize that there were people called sponsors out there who would cosign and get the loan. So essentially you need somebody who has a net worth equal to the loan amount and Liquidity equal to ten percent of the loan amount. That’s about what the terms are today in today’s lending environment so on a six point five-million-dollar All-in deal that the loan amount is around five million bucks right around eighty percent. That means you have to have somebody who has a net worth equal to five million dollars and about five hundred thousand liquid ten percent of that and um, and so, you know,
Ron:
So they don’t put any money into the deal?
Tim:
Sometimes they do sometimes they don’t know they don’t have to.
Ron:
But if they do then now they’re one of these equity investors as well?
Tim:
Exactly.
Ron:
right so they get a piece for signing, another piece for investing, correct?
Tim:
Exactly, correct.
Ron:
Can you tell us what these people get for signing on the note?
Tim:
Yes, so there’s different types of syndications out there. There’s some where the money that the equity investors get 70-85% of the deal and the operators only get 10-20% of the deal. I don’t think that’s congruent with how much work needs to go into these things. Especially in today’s markets where money is easy and deals are hard, right? Okay, but then there’s the unseen then there’s the opposite side of the spectrum when like I know some guys who just borrowed debt, and then they pay their investors a fixed, you know 10% or 12% of their money and then when they refinance or when they sell they cash out that investor that and the investor doesn’t get any equity in the deal It’s kind of written up where they’re an equity investor. But as soon as they get a certain return they’re cashed out and they don’t keep any equity long term. I’m kind of a hybrid of those two different models. So, what I do is we pay a fixed return to our investors while the money’s in play, usually it takes me about 12 to 18 months to stabilize and refinance. I don’t sell anything; I hold these for long-term legacy wealth-building.
Ron:
We’re coming back to in a minute. Let me get this first, one is repairs. How does your ur signer get paid, a percent?
Tim:
So yes, so they get a percentage of the deal and in my deals, it’s usually around 20 percent of the deal.
Ron:
Okay, and Your equity investors get a rate of return. Do they own any part of the deal?
Tim:
Correct, So they’ll get they’ll get a fixed return of about ten percent while the money’s in play. Then when we refinance, they get all their money back and they keep about 20% equity in the deal forever, So now they have 20% of any refinance proceeds 20% of any cash flow 20% of any future sales proceeds.
Ron:
Well, I don’t imagine you have trouble getting investors with that generous offer
Tim:
Nope. No
Ron:
It’s a rip off if you ask me.
Tim:
Yeah, we raise 7 million dollars for deals closing this month.
Ron:
Yeah, okay, but you got a little track record, So let’s be fair I am thinking like this is my first point on in fact, what would you suggest that people do if it is their first one?
Tim:
I find somebody locally or somebody or even nationally like a sponsor can be anywhere and
then I would go to your private money lenders that are already lending you money on residential flips or
anybody that you’re already doing business with. And show them a little bit different model. You know what I have noticed is that the same way that a lot of Real estate investors active operators like us, they go through this transitional phase, and this progression in their life span, right? So, they start out brokering like I did then they get the wholesaling and they get into flipping then they get into like
Turnkey, or maybe some small single-family rentals, and then small multi, and then get into the larger mall time. They go through this this progression. I found that that hard money lenders do the same thing. They’re tired of transactional stuff. They want to build long term wealth. So instead of making
15% other money they’re willing to take 10% because now you’re giving them some equity, and the deal that they can really build up some wealth with and it works really well. I’ve written a lot of money from that…
Ron:
Let me put my 2 cents here, you shouldn’t even be looking at these kind of projects unless you’re trained on what the heck you’re even looking for because you haven’t know how to put a deal together or you’re just going to frankly just kill perfectly good lenders and so forth that you’ll work with by bringing them crap deals that anybody could see in a moment’s notice that’s trained.
So starts with what is a deal? How to put that together so you can present it, and then if I were them, I would latch on to somebody that’s already doing this, and somehow be part of that. Maybe be the person looking for the deals for them or whatever to get the experience to go through this process which you know it doesn’t take that long to get through. Maybe a year or two but by the time you come out, now you have the tools in your head to get the job done, right? Because if you present crap you’re just going to alienate a bunch of folks. It could make you very wealthy. Speaking of that, you have promised to do a three-hour simulcast for us coming up here sometime in a not too distant future.
So guys be on the lookout for the simulcast with Tim, and this is what it’s going to be all about.
It’s three hours and it’s according to this real-time. You know, it’s he him sitting in a room would be set beside him prodding him, literally going digging deep into this stuff. Because we talk about a lot of stuff that’s got to be explained like, you know, how do you determine the value of that property going forward? And how do you determine what you can borrow after you get stabilized and that kind of stuff so. Make note. Look for Tim’s email from us. We’re getting there as soon as we can probably in the next couple of months. Second of it, you are actually committed to come to my commercial boot camp at the end of this year, aren’t you?
Tim:
We’re doing it!
Ron:
All right you and I’ll talk about that later, but I got to give you some time on this subject, and I think it’s um, it’s at October the 21st I think you’ll be there so. Anyway guys look for that way. I’m doing I do a commercial boot camp. Hey, Tim is a specialist. I’m a generalist. I like to do all kinds of commercial stuff so I’m going to let him have the apartment business portion of that and, we’ll dig deep in that while we’re there. Plus, you’re going to speak at our summit next year, aren’t you sir?
Tim:
I’ll be there buddy.
Ron:
Yeah, okay, so I kind of stumbled on the Tim by accident. But now that I got him, we’re going to utilize the crap out of him, and pick his brain. Okay, so Tim, all right… now we got this thing bought now the whole Endgame here, and actually your exit strategies are only to, either sell it or, refinance and keep it right?
Tim:
Right
Ron:
And you don’t want to kill the golden geese? So you get it stabilized, you get the math as good as you’re going to get it, you get the net operating income up as high as you can get it, and then you go to refinance it and, what for what loan-to-value ratio. Can you get on the then current value?
Tim:
Yes, a great question. The reason I’m all in for
65% of the loan-to-value is because typically my loans when I refinance it go between 70-80% loan to value, so on this example that we’ve been talking about lets them all in for 6.5 million and it’s worth 10 million, the bank, which is actually an agency loan, is who I get so I get Non-recourse debt through a Fannie Mae Freddie Mac Type of a lender.
Ron:
Okay what is non-recourse, Tim?
Tim:
Yeah. It means they’re not personally guaranteeing the loan. I know there’s some bad boys carve-outs.
Ron:
Nobody guarantees a loan, how can that be?
Tim:
Because it’s based on the property itself. The only recourse against the loan is taking the property back now if you lie cheat or steal then, yeah, they can come after you personally. But as long as it’s outside of your hands of why the loan went bad, you know. Let’s say the major economic player in the town moved out and not even see drop. You can’t cover the loan; the bank will take back that property and
not coming after you personally so Yeah, as you increase your net income. Then your net worth you’re trying to decrease your ongoing liabilities, and your risks, and that’s one way to do it itself.
Ron:
Let me make a point here, can I? When you go after that loan now, it’s you that’s going after the loan. You have no more partners in the deal you have well, except the equity partners that are hanging around, they still have a piece in it. But you do have a loan that you’re pulling cash out of because that is one of the points, you’re paying off all the debt. You’re paying off everybody that’s getting out of the deal and it’s non-recourse, which means it will never show on your credit report It’ll never on your financial statement because it is not your loan. They’re making the money to the LLC and you’re not liable for it. Guys. I want you to think about that for a minute… No matter what happens. They’re not coming after you to collect that debt, they’re going to get the apartment complex. If something were to go haywire, like it did in many places in 2008. So, Tim are you looking at a probably on a year and a half two years before you up their refinance?
Tim:
Yeah it on average. We’re probably right around 15 to 18 months. And so at that time we’ll go and get a new loan at 75 percent loan to value, so they’ll give us seven and a half million dollars with that. We pay off the five million dollar acquisition loan. We pay back at one point five million dollars in private money
we borrowed and there’s still a million dollars of refinance proceeds which are non-taxable and then I carved those up amongst all the owners including the equity investors and then we hang on to this thing for the next ten years and Because we have an easily a 10-year loan term in place what I don’t want is five years from now the loan to come due and You know, we didn’t pay down enough principle on it. It hasn’t appreciated to enough that we’re at the peak right now
We all know that what happens with the economic uncertainty and political uncertainty and all those things. So I want at least ten years.
The reason because of that is because if you look at 2006 you bought the peak of the last cycle even going through the Great Recession. By 2016 you were able to pay down enough principal and the property was able to appreciate enough where he still had options at that time when the loan comes due so that yeah, that’s why we do it at least a 10 to 12 year loan term and they uh, and then we hang on to it, Man.
Ron:
You haven’t gone after the 221 HUD loans?
Tim:
No, no I have not. Those are those are the new constructions the 40-year ones, right?
Ron:
Oh, no, they got new construction, they got refinance and they got built and they 93% of the value.
Tim:
Yeah, so on a lot of those there’s a lot of paperwork. There’s a lot of a lot of I have HUD properties that are subsidized through HUD um, I have one actually but it’s a lot of work and I was a little bit faster.
Ron:
No sir, it’s a lot of work for somebody. Not you. He should hire a consultant, it’s a craft. And it has nothing tenants. You know that it’s just HUD planting. So anyway, will do does that when we spend more time with these folks listen
If you guys want something free today, first of all, I’m gonna say it again. Watch out for the simulcast
It’s coming up shortly will be
$99 and frankly if that bothers you don’t get known the simulcast
Because the information is going to be on there is going to be incredible for you from a real player
By the way, I didn’t ask you
What how much how much what’s the value of all the properties use it alone by the end of this year do you think?
Tim:
So right now my current portfolio with the properties I’m closing on in about two weeks will be about two hundred sixty million dollars
by the end of the year, I’ll probably be
325 million someone that ballpark.
Ron:
And the debt goes down every month?
Tim:
It does, and they put money in my pocket every month. Yup
Ron:
Yeah, and we haven’t even talked about that thing called depreciation. Have we? Wipes out your income taxes, which would be a bonus.
Tim:
Yes, it is.
Ron:
Well, I hope you enjoyed this conversation with Tim, this guy has got a lot to teach us and man, what an amazing story
Listen, I’m going to have Tim live at our Great American real estate Summit in 2020 in Vegas it is March 31st through April 4th if you would like some more information on that great event which will include a lot of absolutely Fantastic quality trainers as well as a lot of cool fun things that are going on and over a hundred thousand dollars’ worth of cash and prizes being given away, and more importantly a giant deal-a-thon where we actually do deals for students while they arrive. Go to RES2020.com that’s RES, Real Estate Summit 2020, and check it out for yourself, and get registered before we raise the price on it which we’re about to do and, I hope to see you there and I hope you enjoyed our conversation with Tim today.
That’s all for this edition of the mentor podcast to connect with Ron and learn how you can attain financial freedom as well as up to date strategies to grow and protect your wealth based on today’s discussion go to http://www.TheMentorPodcast.com
Thanks for the insights