Acquiring Property - Things to Look For and What You Should Know

hey everybody it's ken mcelroy i'm here with bobby boll hey bobby hey ken so everybody wants to know like what's the secret sauce at mc companies how are we finding deals well you've now met bobby ball bobby works for us in acquisition so his job is to fly all over the place underwrite deals present them to ross and i and and figure out whether or not they're going to produce returns so welcome to the show hey okay so bobby let's talk a little bit about you know generally what does an acquisition person do so uh for those of you who haven't known i've known bobby for gosh how long 20 years at least 20 years so it's not something that we just hired haphazardly and when we put an ad out this is a relationship that we've had for a long long time and bobby has been in the business a long long time so maybe we should start bobby with you know just kind of your background you know how you kind of came into this crazy business and then we can talk about how what an acquisition person does yeah sure um so my background my dad was an investment banker and is in real estate was in real estate worked for a private uh real estate firm uh the largest private real estate firm out in new mexico they owned over 200 properties in 35 states so i learned about real estate early on so you came up in the business so i came up in the business and then um i was able to uh get a job with cb richard ellis cbre uh out of college and um thankfully and luckily i was able to get into their shop um and learn the business there it's so if you guys don't know this is like the they're the top top broker in the world they have the best training programs and so uh for all for those of you who are young this is a great program if you can get a job with cia cbre even today it's it's worth it yes exactly or um any other large brokerage house investment firm to show you the ropes and um so i was fortunate enough to get in there and then learn the business um made a ton of contacts and was in brokerage basically real estate brokerage for over 20 years commercial brokerage commercial yeah and then you kind of focus on multi-family right and focus primarily on multi-family apartments and that's how i met you yeah yeah i was on i was on his list i was one of the contacts so this is a you know you should ever sell so i know but you're always calling me like you know like for those of you this is a hard business right it's not easy and if you're afraid of dialing um it's probably not for you because if you think that deals are going to come to you you're not going to make any money in it right it's a smart business yes it is it's extremely difficult it's a relationship business it's lots of lunches breakfast dinners beers glasses of wines sporting events of you know whatever golf time it's about timing yeah it's it's about all that stuff and then if they say i might sell they might call you even then they might call you because you know as you know we have multiple people calling us all the time or there's a brother of a brother or uncle or aunt that that helps people it's a difficult business a lot of people look at the commissions you know because they're big commissions uh you know a transaction that we do it might be a hundred to three hundred thousand dollars for one commission right and and so there can be far and few between and if you're lucky enough to have multiple ones going at the same time you can do really really well but there's years and years and years of training research and and relationship building all behind it all right right yeah analysis and analysis yeah most importantly right yeah yeah yeah if you're not providing value to somebody that you're picking up the phone for they're not going to call you back right and so luckily bobby decided to make that move you know he decided to go from being a broker from cold calling all of these folks to being our acquisition guy right yeah and so we were really happy about that because all he's done well you just can't you move from texas right from houston yeah from houston texas back to arizona was from arizona but has incredible experience i don't even know how to wrap this up but you've probably got what hundreds of thousands of units that you've looked at and toured and bought and sold right right easily right not as many as you so anyway we're happy to have him here and um but bobby is one of the primary reasons why we keep our momentum going as right now he's looking for land looking for value-add deals looking for apartment deals looking for real estate deals that makes sense and so uh bob let's talk about like for for people that might not know like what is what is your what was it what would a typical acquisition person do so my my primary role is is looking at the bones of the real estate the location you know what's the story and you know what's what's the play can we add value um i'm also wanting to know the transitory transportation corridors uh the the new road alignments uh for example you know the southeast valley and in phoenix there's so much growth happening you know all the way down to queen creek or uh understanding where the jobs are the employment centers um you know it's staying on staying abreast staying on top of every market right right so knowing the trades knowing that so yeah so as deals come up like let's say there's a like well let's just talk about the deal you just flew down and looked at uh we just looked at a deal in dallas texas it was a um same owner this this is why i got excited same owner for 16 years 18 18 years 200 to 300 units in dallas which we like and they hadn't done a lot of work on the inside and the outside so same owner same management company same this rents below market like the perfect property so it might take months to find something like that we might find one a month we might find 10. you know it just depends as as as bobby's looking so so what are some of the things that we did you know obviously those of all the right things that you know in something that we want to look at but when bobby went down there flew down there met with the broker met with uh some of our team that's we already have properties in dallas you know you we got to be more excited right so that's what's called good bones which you know what you mean what which it means it was built in the 80s 85 right in 85 it was two two stories had a nice clubhouse but dated and and so it had a great possibility so like uh think about it like if you're looking at a home that had what we call that functional obsolescence where you walk in and it's kind of funky cut up floor plans maybe it's old you know in our case we don't want properties that have like a two pipe system you know like a boilers uh where we're supplying the heating and and the water for the whole project or flat roofs or things like that you start to see these things and so this had all the right things on the bone side but on the value-add side that's where we got the most excited right right but and by the way we didn't get this deal but i'll tell you how the possibility we lost out to someone that um that just had more units than us that's based in dallas in dallas and there were how many offers 37 37 offers on one project we got down to best and final for how many was that again five so yes there were five people on a phone call with the seller you had to fill out a questionnaire and then from there you have to basically put your best foot forward yep right do yeah and hopefully hopefully come out on top yeah and we took second yeah it was too exciting right right the we lost to the tiebreaker uh so we actually had the same price but they went with a guy that that had more units in dallas this is the typical process we spent a bunch of money getting to that point bobby obviously time and we figured out that we really wanted to buy this deal but there was a top-line number that we didn't want to go over right right and there was a there's a certain amount of value added so when we talk about value-add uh trying to remember the exact price we offered so it was like it was 25 26 million okay so we're offered 26 million for the property but i knew that it was like a seven to nine million dollar value ad right so i was going to take the property or we were you know up into the 34 to 36 million dollar value range so so when i was looking at the property it was 26 million and ross and i go like okay because you're gonna put easily seven eight million bucks into the project with the down payment and the capital work and maybe even a little bit more and so what we're trying to solve for is how do we get that money back how do we get the investor money back right and so that's a traditional value add but in this particular case we didn't get the deal but this is what a good acquisition person does they bring deals like that the gets the management company get excited it gets the sponsor excited it gets our investors excited because you can show on paper this is how you can take something that's undervalued today put some money into it and grow the value right exactly yeah so that's essentially what a good acquisition person does the other part of it too is looking for these deals that this particular owner was out of colorado and he had owned the asset for 18 years so and he hadn't done anything to the property right so it was i mean it was right down the fairway middle of the fairway um that's that's what i'm looking for yeah like and and he had a capital gains issue so he was going to 1031 exchanges funds into something else we were going to help him with that and then we've got properties in dallas so economies of scale we know the market and so that's what we're looking for right right so that is a true that's how you really find deals and that's how you create value for your investors so let's talk about one of the things that you look for is a good location so let's talk about you know why that's so important because i've i've bought in plenty of properties in small sub markets that are reliant let's say on on one big employer or or maybe it's um the military or or or maybe it's heavily retail or heavily tourism or even kind of behind something so when you look for a property and and one of the things is is a really really good location uh why is that so important so number one uh drive-by exposure you know visibility uh on major arterial streets or if it's next to for example this property was right next to super target um it's just north of i-20 so right in the middle of all the action uh in this corridor um there's no more available land to be built on um so it's going to be less supply competing with us oh very important things these are subtle things but big yeah in the middle of schools there was a school just to the north being repositioned or uh uh you know refreshed and um university texas san antonio was up the street as well so higher learnings there and jobs uh right in the middle of all the retail shopping uh the malls right so guys as you as you're looking for a good location what he's basically saying is it's in the middle of everything right and and so when renters are trying to rent they're making those considerations literally they're saying how far is it for me to drive to the grocery store how far is it for this how far is it for you know to go get a coffee somewhere if it's close to a school uh or even in a good school district parents will make decisions around that absolutely right absolutely yeah and so that's all part of the good location so what i see a lot of times the mistakes people make is they go to the edge of town because it's cheaper right this happens all the time they're like oh you know we can get a better deal out there well yeah there's a reason you know there's it's not nobody wants to drive an hour to go to stuff and so as you get further and further out these properties become harder and harder and harder to manage harder to cash flow and harder to generate value and one one point on that too was we saw this couple years ago when gas prices were really high a lot of people didn't want to drive that far and spend a lot of money on gas and the commuting times were up so now gas prices are lower and uh and now during covid people are working from home so you know they're not necessarily having you know renters aren't necessarily having to work at at an office anymore so they're more looking for um you know rental property that is that meets all their needs right right which is something that you guys should be thinking about at all times i mean essentially this is about the renter right i mean i always tell people i say real estate exists for people yeah not the other way around rent value yeah period what do i get from yeah what do i get for my money is this a good location is it clean is it safe is it good is it well managed amenities can i use the amenities you know or save on my gym membership yeah all that stuff is something that you need to consider so let's talk about value ads you know that number that gets thrown around a lot you know people like oh yeah you got any value ads you got any value ads you know it means so much to different people um what are some things that people could be looking at like low hanging fruit on you know to to create a value add well number one is taking out some cabinets and opening up the unit um i like that play i also like redoing the countertops uh the fixtures the lighting the flooring new appliances and then also the exterior of the building the landscaping parking safety uh lighting and um i would just say yeah and service you know the management yes yeah that's one one thing that we provide well is service so right one one of the things that we used to do just to make it super easy and simple for people is we would say okay it has washer and dryer connections so if a if a unit has a washer and dryer connection that's expensive so all you got to do is buy a 550 set you know washer dryer put it in a unit and now those people don't have to go down on the laundry mat and you can charge 50 to 75 more so literally it has less than a one year payback so for a five or six hundred dollar expense you get a one year payback so that's how we think of everything as we start to do work in an apartment community whatever it might be putting in garages putting in carports putting in pet areas all those kinds of things always have to relate back to rent how do i pay for this right so the same thing on a value ad like we've all heard the stories like i see this all the time where you know you're like oh my god they spent way too much in this kitchen right you've seen that i've seen that there's a point where you can spend too little and there's a point when you can spend too much and we're not be able to get into that here but the truth is it can be a massive difference you could spend two three thousand dollars per unit more than you need and not be able to get another set in rent so there's some basic things that you need to be careful of but there's some basic things that you have to do in order to get that kind of payback so so when we're looking at a true value add we're looking at the whole picture we might have 10 categories 12 categories 15 things that we're doing including putting in security gates including upgrading the fitness facility including we put pet facilities we put pet uh areas in every single one of our apartments every single time it's just a thing we do and that's part of what we're looking at when we're acquiring two right all those things add value as people come in and they have pets and they do that's a big deal for people so you have to be looking at those kinds of things as you're investing right and you know we go we can go back to this deal in dallas that we missed out on but you know the opportunity to add 140 units with washers and dryers you know that was a big part of it and then keep keep the laundry center uh going for the um for the rest of the residents right yeah exactly also increasing the size of the fitness center because the fitness center was just basically a room off to the side of the leasing center so it was just a bunch of gym equipment you know put into this room and that was it right and those are all marketing opportunities and real opportunities because people especially now they'll if they can give up their gym membership and many people are right now and be able to work out somewhere locally and still be able to use the gym equipment as part of their rent those are things that people really make decisions around right so let's talk about the physical property and the condition of the property is there anything that jumps out at you that would make you pass on a property because i know you've been through thousands of them sure uh well probably number one is is the roofs i have i look at the roofs look at the catwalks if there's catwalks um along the property you know cracks in the stucco foundations and the foundations um but you know the landscaping just by looking at the physical appearance you can tell if a building's been maintained or not also look at the um the interiors of the units you know if there's uh you know a lot of patch work that's been done on the ceilings yes um the other value add too is the popcorn uh ceilings pop questions the old ceilings yes creepy remember those um but uh you know i i just i look at i look at everything about the building and then um the porches or the balconies um the railings the stairs structural this is a lot of structural and then the parking lot is a big one um texas it's different it's concrete there um guys by the way this stuff adds up yeah it's like it's very expensive like like like if you have to redo a parking lot you're talking about a couple hundred grand depending on the size of stuff we're buying you know and then the roofs are two three hundred thousand right and then the paint job is 150 200 000 depending on the size and then you know it's just click click click click click and here's the thing those things don't make more rent they they just have to be done so you could spend millions of dollars on the outside and not get it back in rent because the renter just says we just want to save clean place and so you have to spend that money and so that's that's when kind of the tide starts to turn when you have all this exterior capital improvement right yeah and another one is the monument signage you know i look at the signage you know and and the marketing window you know what's the property look like from the street uh it's very important um so and you know going back to this deal in dallas i wanted to fix some of the you know basically that marketing window um because the sign you couldn't really see when you're coming up to it you didn't know what it was so yeah they fly right by the name of the property and these people fly right by you bet they do and the cars are just traveling you have to have them look flags monument signs bull bandit signs good landscaping great entrances you guys know you've driven by places and you go oh my god what is that it's a big resort or it's a big this or it's a big that and you know you need to have a grand statement yeah and if you miss it then you know you got to do it you go to the next one back around yeah right go to the competitor yeah so right yeah i know there's been a few things that that you know we've passed on i remember specifically we had a property that had expansive soil so what it's like it's not quicksand but it's pretty darn close where literally the the foundations had been poured and they were cracking and so you can imagine this is these are this is major major work if you have to get into that another one is old galvanized plumbing you know galvanized plumbing on the inside rusts from the inside you can't see it and eventually it starts to break especially when you plug in copper to it and you get what's called electrolysis and it starts having these pinhole leaks and the poly piping poly piping is another one another one that i yeah that's that's another that's another big one and also some of the old sprinklers you know overhead sprinklers you know they had some defective i think they're called omegas if i remember right and so there's all these things asbestos paint lead paint um asbestos in flooring uh we've had all this stuff mold we've had radon we've had all these things and these are things that can be very expensive to to me to you know remediate um and and and fix another area the common area is the the swimming pool the pool area that's a big one that's expensive oh i've had crack pools you know uh pools pools break i mean i'm in the bbq grills and underground piping underground gas lines you know all that kind of stuff and you guys can start as you start to tour properties you start to see it like if like if you're driving a property and you see big patches in the middle of the parking lot all over the place somebody's somebody's digging down and fixing stuff that's a that's an issue that you might see all over these are real things that happen all over the place and it it drives me nuts like whoever i'm with is they go they go out of their minds and it's like do you ever stop looking because i'm always looking right it doesn't really matter it could be a retail center a commercial center office building but i might it's the same stuff that happens at all these places absolutely right right yeah hey bobby thanks man i appreciate your insight on this and so for those of you that are on the premium site bobby and i are going to jump over there and we're going to talk about you know how to underwrite buildings how to really look at the numbers and how to determine whether or not we want to buy or not buy

Channel: Ken McElroy

Views: 48,023

Keywords: Rich Dad, Entrepreneurship, Investing, Personal Development, Get Wealthy, Earn Wealth, Ken McElroy, Entrepreneur, Rich Dad Advisor, Success, Business, Self-Help, Coaching, Real Estate, Real Estate Entrepreneur, Real Estate Investing, Freedom, Lifestyle Business, Hustle

Id: XlOFA6ivuLk

Length: 24min 32sec (1472 seconds)

Published: Wed Dec 16 2020