Moves in the Midwest Multifamily Market | The Crexi Podcast

[Music] foreign welcome and thank you all for joining us for this week's episode of the krexy podcast and Insider's look at all things commercial real estate I'm your host Giannis Papadakis and today we are thrilled to be sitting with Garrett Gatton commercial realtor at heartsock Realty a bit about our guest Garrett was thrust into the world of real estate investing by joining a commercial brokerage specializing in helping the investment Community after seeing the massive wealth building opportunity buying and holding real estate brought Garrett and his team began acquiring single-family multi-family and mobile home parks additionally Garrett and his co-host Seth simonilo launched the re invest podcast which brings weekly content to show others how they can maximize their life through the power of real estate investing Garrett welcome to the podcast hey thank you having for having us here today I'm excited I just covered a little bit about your background but I'd love to briefly learn more about your career path and how you got started on the real estate path yeah you know it's it's funny uh to my shame I was like radar was never on the horizon I didn't come from like a business background um my parents had public service jobs uh you know very much kind of entrenched in that side of things so uh I kind of stumbled across real estate I was in between jobs and I sought out my now broker at the time I had known him from a different capacity uh we had done some non-profit work together and uh I said hey I'm looking for a job what makes a good real estate agent and he ran off a couple things that checked the box so uh I jumped on not really knowing what real estate was and uh I quickly found out how powerful it really was now when you first got started um can you talk a little bit about some mentors maybe you had along the way and maybe some early lessons when you got your start yeah so prior to real estate I was I did some fundraising for a non-profit organization that worked with youth and in the that capacity for my job I had to get in touch with a lot of business owners and through interactive business owners it kind of forced me to come from their perspective and their lens and that really exposed me to business and and all things real estate so then when I stepped into this capacity I had learned some some lessons from them about um just how to operate a business how to deal with people uh that really when you boil business down it doesn't matter what industry you're in it's it's all about people and then my broker Jeff dalmage uh when I started he was a huge Mentor for me um because he was actually an investor before he bought Hartsock Realty and so that gave him that investment background and it was shocking to me how many real estate agents and Brokers help people buy and sell real estate all the time but never do it for themselves so he cast that vision for me of hey I can actually create wealth and income streams for myself and and help other people do it as well so he was very formative for me um he was kind of Grassroots grown when he bought the brokerage it was an REO company so we handled primarily foreclosures and he was uh I think he was in the top five in the state of Ohio in terms of commercial brokers uh by transaction volume because of how many how houses he moved his first year so he got a ton of reps in really fast and that just gave him a ton of experience then to be able to pass on and he was an open book for me too so you know that was super helpful I mean he probably expedited my real estate career by about three to four years so yeah wow and it's valuable having somebody that you know is not only experienced but they themselves gone through the process quickly you know really kind of accelerates your ability to kind of learn and Jump Right In um any early lessons that you feel like you took away either you know positively or negatively you know that it's either something that maybe a favorite mistake that was made or you know anything that course corrected you or kind of informed how you wanted to move forward in your career yeah yeah it's funny I remember I would sit in front of my computer for a solid six months of being in real estate and I would be like I have no idea what I'm doing and my co my co-worker Dave he told me one day honestly one of the best pieces of advice that that I got early on in my career is he said listen you gotta fake it till you make it and it's probably people have mixed feelings about that kind of advice right we're not talking about pulling the wool over somebody's eyes you know and portraying yourself as somebody that you're not but um I had to interact with very sophisticated business owners and investors early on when I started my job and I I was still learning the lingo I feel like I was building a plane in the air and really the only way that you can learn how to do something is to get in and do it so I just I would what's a BPO okay well I'll go do a BPO you know and uh let's go on a pre-listing appointment and let's talk about the market with somebody and and you know my tool that was so limited back then but still um stepping out there outside of my comfort zone for the first two years really it took me uh to feel a sense of being comfortable in those conversations and settings um but yeah fake it till you make it and I just had to get in there and get reps and that's really the best way to learn so yeah um can you talk a little bit about some fundamental tenets to your work ethic uh that you maintained today yeah so I think it's funny like for the reinvest podcast we interview people weekly uh that are successful in the real estate investing kind of industry the whole the whole scope of it and I think it's really popular to come across people that are just work horses and they burn the candle from both ends non-stop you know kind of Steve Jobs Elon Musk mentality of like I'm always working I'm always there um what motivates me is really not the task in accomplishment I kind of had to learn about myself that what motivates me as people so one of the things that drives me forward in our business whether it's reinvest with our podcast and some of the Investments that we do or it's the real estate commercial side helping our clients with Investments um it's it's people it's people counting on me to provide a service and it's building a reputation especially in a small community um it's just it's easy to be very transactional and as a real estate agent and there's a lot of experiences and words that come to mind when you say that you're a real estate agent with people some have had very negative experiences and some have very positive experiences so you know we try really hard to build a reputation that's going to last in our community for a long time so people drive me um and one of my one of the big things you talk about tenants uh that I kind of offer my business on is just being a lifelong learner um you know real estate is such a vast industry and it's there's all different types of asset classes and there's uh different problems that you're always encountering and essentially we get paid to solve people's problems so there's always new problems you're always learning something new so by being a lifelong learner um I'm okay with telling somebody that I don't know an answer to a question they might have but I'll go find that answer and you know I can put that on my tool belt moving forward so um yeah just being humble um being aggressive and and being willing to to do some leg work and find an answer for somebody um and then just being honest that you might not know it um but yeah pointing back to what you do know so do you have any you know habits or daily practices that become essential to your career I uh I love to read uh I'm notorious for starting a lot of books and not finishing them so I have probably four or five books that I'm in the process of reading right now um but personal development is huge it really is because for me um I'm a real estate agent I'm an investor but I'm also a husband and a father um I'm a friend you know I'm involved in my community and so when I grow individually all of those roles that I have and facilitate improve as well so like right now I'm reading Atomic habits you know because I'm by Nature somebody that uh I drift right I started a new idea and sticking with it's difficult so that kind of helps anchor me uh into building consistency So reading has been huge I'm also I love to ask questions so you know in my business I Network a lot with people and I just try and listen you know I try and glean from their experiences um that I can learn from so definitely asking questions and listening to people is huge um and then just from a health standpoint trying to improve my health uh exercise consistently and all of that just you know funnels into the mindset that you have when you approach your business so those are probably the big three nice um what else you're reading I'm curious so uh from you know the atomic habits more is the mindset I just started a nutrition book it's called like the science of nutrition um and then from a spirituality perspective I'm reading a book called All of God uh which kind of helps more of a spirit level so I try and hit something that addresses you know each part of who we are uh from a growth standpoint and then um I'm trying to think of a business book that I'm working through right now um oh traction working through traction right now which is like Rich Dad Poor Dad traction I mean that's on everybody's business Library so nice Switching gears a little bit uh let's get a little bit into your Market of specialty you work primarily in Northwestern and Ohio what sets your Market apart from other midwest regions so yeah so Northwest Ohio Lima specifically I think the big thing that we have to offer is high cash flow and low barrier to entry so we talk with investors all the time uh and and you'd be surprised at how many eyes are looking to the Midwest right now when it comes to real estate investment I know we'll talk I think later in the show about what types of investors are coming into our area but I mean and I don't want to overstate this to say that you could throw a dart and invest in something that's got a cash flow might be an overstatement because there is definitely skill and strategy involved with that but um you can buy a lot in in Lima be it multi-family or just single family residential real estate and it can cash flow on an income investment basis and the low barrier to entry is the fact that our price per unit is very cost effective compared to other parts of the country and you know coming from California uh can you tell a little bit about what the what's the weather like for a an owner in uh in that market right is it pretty favorable for landlords or is there a ton of tenant protections there that make it difficult to operate if let's say you know you do run into some snaf foods or Road bumps along the way yeah you probably could not find uh another state more opposite than California when it comes to landlord tenant laws um it is very much in favor of the landlord which makes our Market very attractive for people so um I've been in a couple of masterminds and inevitably in any of those conversations one of the criteria that investors look for in terms of where they're going to invest you know at a at a national level is landlord tenant laws and how friendly they are to landlords so in our area uh in our area but more in our state it's very favorable I mean 30-day evictions um yeah mobile homes get a little bit different but that's going to be anywhere um so yeah it's very attractive for people that way when it comes to maintaining control over your investment and then what does the current investor activity look like what kind of capital is entering the space now yeah so that's actually been really interesting um I'm gonna say over the last three to five years we have seen an uptick in investment from out of the state uh primarily from the east coast and the West Coast and we've seen this uh this Cascade kind of event or phenomena where as returns get squeezed in tier one markets those investors look to chase that yield somewhere else and so then they go typically to like more of a tier two Market which then drives and compresses those rates in that market and those tier two investors end up looking at more tertiary markets so we've seen people from California from New York from larger metros Even in our state like Columbus looking into places like lima that aren't maybe quite as Consolidated as some of these larger areas where there's a lot of private equity and a lot of REITs chasing some of the bigger Investments um so yeah it's it's I wouldn't say it's private equity in our area but it's a lot of private investors who you know their capital is going to go a lot further in our Market than it does where they are from maybe originally and especially with the appreciation and home prices and just real estate in general a lot of those guys are cashing out or refinancing in the last three years and taking that and and deploying it in an area like ours and they look at our returns and they just kind of scratch their head uh comparatively to what what's normal to them right so you know in our area people are they can get 10 15 cash on cash return on the right investment and maybe you're used to investing in New York uh kind of that Metro there just for the sake of tax you know advantages so um yeah it's been very attractive to people who are used to compressed returns what opportunities in your Market offer a competitive Advantage compared to others of comparable size so you know again kind of in that five-year window Lima's rental market had been historically depressed and I'm gonna this is not like a Quantified number uh but more just observationally so our property management company oversees like 300 plus units in our area um and then obviously we're connected from a real estate perspective on the market side and in the last five years I'm going to say that rents have probably grown by about 60 percent from where they were and proportionally you know the cost per unit hasn't grown 60 so the rental market is stronger than it's ever been in Lima um and that's that's a huge advantage that we have over some other areas that have already been at a certain at that rate if that makes sense right as you work in multi-family specifically what does the pulse look like in that Arena can you say that again it's a little quiet there as you work in multi-family specifically what does the pulse look like in that Arena now so that's probably the the one challenge to Lima is the multi-family stock that we have in terms of how many units are available uh is relatively low it's lower than it should be so on one hand that creates demand because there's a constraint on Supply there just hasn't been a lot of of building so you know going back historically in the 70s Lima uh was very depressed some of the fall off the railroad industry uh created some Fallout and those voids that were created really hadn't been filled with new construction um we have a couple of investors uh locally that are building some townhouse multi-family but I mean honestly I couldn't tell you the last time there was a brand new multi-family property that I can I can think of one that's about a hundred units and um so the supply is is relatively small in Lima there's a lot of single-family portfolios so people do a lot of duplexes quad plexes eight unit Brick Town Homes single-family rentals and aggregate those into a portfolio in Lima that's pretty common we actually uh have a single family uh rental portfolio on our auction platform now uh well by the time the series it may have already been sold by at the time of recording we actually have one of those on our auction platform currently so I am a bit familiar that uh in you know not just some lima but in other markets as well in Ohio that you do see a good amount of single family rental portfolios um you know bundled together as opposed to multi-family deals themselves um this kind of leads into the next question what are you seeing in terms of shifts in you know demographics there uh is there a greater demand for multi-family properties because of the demographic shift what are you seeing on the ground yeah I mean admittedly Lima is not going to be like a high growth uh population area um I would definitely say that we've stabilized um some of the exciting things in our area that are going on that you just probably wouldn't know if you're not from the area is um from a demographic standpoint the economic basis we have two major health network systems we have a Refinery that stimulates a lot of of economic kind of subsidiary companies that feed off of that as well and then a huge manufacturing base um one of the the trends though that we've seen probably kind of encouraged by kovid was a lot of people who had graduated from Lima and left and had maybe you know gone out of the area in search of another job or to go into some a place that has more amenities to live in we saw a recapture of some of that demographic so I mean I was working with homeowners that were relocating into the area to be around family to come back from college uh because of covid um wanting to maybe leave the Metro the Metropolitan uh environment that they were in and whether it's commuting or remote work Lima had a low cost of living compared to what they were used to so there was a lot of factors I think within that that we saw some people it wasn't like there was droves of people but I definitely saw a noticeable trend of of you know either through social media seeing people come back into the area or working with clients directly the other thing too is our one of our health network systems started a graduate medical program so that's been drawing in doctors and Resident students that are going to relocate into the area and then the last thing is our Economic Development groups have done a really great job of attracting manufacturers into the area to create new job growth and with us being along I-75 the I-75 Corridor is has quickly become a place that a lot of developers have set their sights on with the Advent of of more distribution needs and warehousing space so us being located along that Corridor has been very beneficial for our area excellent um curious what's your overall outlook for the Northern Ohio market heading into the second half of 2023 and beyond that yeah I um one of the it's kind of the our greatest strength is probably our greatest weakness so people look at the Midwest and historically it's not been super flashy super sexy when it comes to appreciation growth in some of the areas that uh like comparatively to other parts in the country however I think the big strength there is we don't hit the highs and we don't hit the lows the same as other we're not as quite as exposed to other major areas in the country so to answer your question heading into the second quarter here um and even the third quarter I think a lot of the price Readjustment uh that we've seen I think a lot of it's happened and I don't foresee a ton of adjustment further moving forward so that's helpful for investor sentiment because they can kind of wrap their head around maybe what the new returns are going to look like there's still a discrepancy and this is everywhere between kind of seller expectation and and the cost of money for buyers getting into the market so I think that Gap has to close a little bit uh but in our area I don't feel like we're 15 you know like we're due another 15 price correction right I mean just uh on the cash on cash you were talking about earlier it seems to me that you know there's still a good amount of padding there where you know currently where interest rates are you can still finance a deal and it pencils it makes sense you know in your neck of the woods whereas you know looking at markets like California like you know Miami or New York you know that same type of financing may just not pencil now with those low returns yeah I I would agree with that and the other thing I would probably maybe add to that is in our region because a lot of the deals tend to be a smaller price point um I would say the financing strategy is different than in other areas so we were seeing you know we would go to conferences like the best ever conference this last year that was in Salt Lake City and we were talking to a lot of investors about Bridge debt and how that was a fundamental component to how they were financing and sourcing deals in our area most people aren't using Bridge debt to finance a deal they're just going to go to a regional or local bank and get you know a 20 25 year term and amortized loan on a property just a straight commercial loan that's going to be a 5'5 arm and that's a very stable Financial product um if you're in the space where you have to use Bridge debt to make a deal work that's where people are getting in trouble right now across the country because of how variable it is and you don't have the same exit or the same I guess surety of that financing so I think the stability and of how people are financing deals is going to be helpful um I still see Banks and we've got commercial lenders that we work with actively to help our clients purchase stuff we're not I mean all the local banks that I'm talking to they're not saying hey we're not lending uh you know their dscr might be like 1.3 now instead of 1.25 and but they're still communicating hey we want to underwrite deals nice what's the biggest piece of advice you'd give potential investors or even your peers working in this market and why say it's easy to listen uh to podcasts predominantly maybe news headlines and kind of walk away with like this fear-mongering sense of impending doom um that can creep in and I think you just got to be careful what you're listening to uh before you draw a conclusion I would encourage people to not just look at one side uh of what you're hearing but to kind of look at the whole and what I mean by that is people are making money in every real estate market right whether it's a seller's market or a buyer's market there's always a way to make money in real estate you just got to figure out what side of the equation to be on and I still think in our area it's an appropriate time to buy um I think you have to know what your new underwriting assumptions are but once you kind of readjust and recalculate all that keep buying keep investing don't sit on the sidelines um be wise about it and then the last thing I would say right now is is cash flow is huge so you know I still have investors that are buying land or vacant commercial uh assets that are essentially a dead asset right now that's not what I would be buying I mean you want something that's going to cash flow and service the mortgage and you can stress test if there's a fluctuation or dip in rents and the beautiful thing about like multi-family or even residential real estate is not all of your eggs are in one basket so if you have a single tenant retail establishment or commercial property you know you may feel a sense of security with that lease in place because they're a business owner and that affords you more rights as the landlord but at the end of the day if somebody files bankruptcy I mean what's a hundred percent of zero like uh there's always going to demand for for residential real estate so right buy cash flow and and keep getting in the market nice well given your specialized background and expertise I'm sure our listeners would be curious about your answers to a few rapid fire questions words of advice you ready I'm ready let's go all right so if you were given 50 million dollars today and had to invest it immediately what would your go-to asset type and location be and why yeah so it's embarrassing probably how often I think about this question um the other night I was put in my 18 month that my 18 month old child down and I was laying in front of her crib while she's falling asleep and I was like what would I do with like a hundred million dollars you know and how would I invest that into real estate so I think this is kind of what I've boiled it down to um and I might answer your question a little differently than than what you had posed it but um I'm still bullish on multi-family I still think that there's good demand there I think the the pool of what is a good deal has lessened um but I think that there's still good deals out there to purchase so I would probably diversify into multi-family in Midwest markets in the southeast um and then I would also uh place probably about 20 percent of that maybe not quite 20 five to ten percent of it in um just like passive Investments syndications where I wouldn't have to touch it um and then the I would take about a third of it and put it into alternative commercial real estate so I know it's been a big buzzword like mobile home park Self Storage um for a reason I think it's been that way but again it funnels into recessionary resistant cash flow commercial real estate assets so um multi-family in the Southeast Midwest self storage and mobile home parks all right next one's not a trick question uh favorite tool or software you use on the job yeah so obviously correct seat I was gonna um so I thought about this one I think honestly one of the biggest tools that we use on a daily basis whether it's as an investor or have my realtor hat on my broker Adam um is a really good underwriting template so are we talking about that are we talking Excel model yes it yeah I nerd out on Excel I buy admittedly I'm not the guy that builds it uh but I am the guy that uses it and appreciates the hours that somebody spent putting these custom equations in these different boxes so I know that right now I've got a multi-family U which I what's that I was gonna say you know AI can uh can build those out for you I was just watching something yesterday somebody that was a uh Analyst at a huge investment firm spent half his career building those Excel spreadsheets with you know all those formulas and now uh there's AI protocols that can do it in seconds wow that is um that is awesome and also super discouraging for the guy that spent hours of time on that right oh well and that's the thing is that's going to be so disruptive like you understand why people are blowing the website like maybe we should rethink the societal implications and ramifications of AI because it's like it's like the possibilities are endless I mean we've used AI a little bit even to take our podcast transcripts and like take the audio version and transcribe them into a transcript and that's like 101 level stuff um I think it was my buddy I think Seth actually he told me that somebody gave like a thousand dollars to Ai and they were like hey go invest this money and you know like make it five thousand dollars and it went into the internet and started buying stuff and executed a whole strategy so it freaks me out uh for sure but it does not surprise me that somebody's creating underwriting templates with it but for sure that's one of the biggest tools we use um if it's helping somebody evaluate a property for purchase or even listing it we kind of look at it Through The Eyes of a buyer uh to price it you know like anybody would so that we can coach our clients into what a realistic range is going to be and who the end user and the highest and best use for that real estate is going to be and then obviously too when we're evaluating Investments for ourselves and our investors uh we use that so A good underwriting tool nice and then what is the most common misconception about your job or industry yeah Zillow has done a great job of making everybody think they're a real estate expert um everybody thinks that zestimate is Gospel I know that's the residential side but the mindset kind of creeps into the commercial side as well right um we deal with a lot of admittedly very Savvy and capable owner operators in real estate and they're used to getting stuff done they're used to making deals happen they're not adverse to the legal side of structure and real estate deals Investments creative Finance so you have to bring your A game into those conversations with people to win their business um every once in a while you run into somebody who thinks that they can do it better than you and it could be a variety of factors I'm going to say nine times out of ten hiring a qualified real estate professional is going to in the end benefit you greatly then trying to sell or dispose of a property on your own so I think the biggest misconception is that people think they can navigate the nuances of commercial real estate and it is a very wide world and a very deep pool to kind of to play in so um find a good real estate professional it'll be worth your while awesome yeah I mean going towards the people that are already engaged in the space successful in the space seems to yield the best results when it comes to wanting to jump in or learn so great words of advice there and speaking of words of advice any parting words you'd like to share with our audience before we wrap up yeah I would say number one real estate's one of the best ways to build wealth and maximize your life um I think as I've gotten into real estate when I first got into real estate I thought real estate investing was the complete package and solution now you get around people who have successful businesses who invest in the market who use life insurance policies as a vehicle to invest in different things there's a lot of strategies out there I still think real estate is going to be my kind of the bulk of my portfolio but I would say yeah just look for a whole strategy you know don't get pigeonholed into one thing because that's what you know there's a lot of really awesome ways to diversify and make money and build wealth so yeah excellent well thank you so much for joining joining us and sharing your insights I know you're really busy and we appreciate you taking the time to uh to sit with us and share with our audience uh where can people find you if they want to get in touch email social media of course the podcast yeah so um you can reach out to Seth and I directly we're on social media we're LinkedIn we're on Facebook we're on Instagram um my email is really easy it's garrett.gaton gmail.com and uh says seth.simanillo gmail.com feel free to shoot us an email if you've got questions we do have the reinvest podcast so look us up uh we're on all the major platforms Spotify iTunes um yeah and we do weekly episodes like this to show people and expose them to the different strategies within real estate so yeah excellent well thank you and thanks to everyone who tuned in today if you enjoyed this episode do not miss the next one visit go.craxy.com forward slash podcast and sign up to get the next episode delivered directly into your inbox of course you can also subscribe to the cruxy podcast on your favorite podcast app and check out our YouTube channel for videos of each episode thanks take care and we'll see you next time [Music]

Channel: Crexi

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Id: Whi2OArVFTE

Length: 35min 22sec (2122 seconds)

Published: Wed Jul 26 2023