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Partners in Life and Partners in Business with Arleen Garza
Episode 37831st July 2022 • Real Estate Investing with the REI Mastermind Network • REI Mastermind Network | Real Estate Investing
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As a Principal and Co-founder of REEP Equity, which she co-founded in 2012, Arleen Garza serves as the primary decision maker on acquisitions and company growth strategy. In 2017, she co-founded a real estate management company that currently manages properties in San Antonio and Houston. Her goal is to maximize investor returns by sourcing acquisitions in target markets that allow value add and management improvements that will increase profits and generate appreciation for the properties under the REEP ownership umbrella.

Connect with Arleen Garza: https://reepequity.com/

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"You can invest 10,000 hours and become an expert or learn from those who have already made that investment." - Jack

Transcripts

::

Welcome to the REI Mastermind Network where host Jack Hoss gathers amazing stories from leaders in real estate investing.

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In each episode, our guests will tell you what they're doing that works what they've tried that failed, and best of all, you'll learn actionable steps to take your real estate investing.

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To the next level now, here's Jack with another value packed episode.

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We have Arlene Garza with us here.

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Today with REEP Equity

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you probably should check it out.

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I did talk to Jacob not too long ago with reap equity and I'll make sure to have that link in the show notes as well, but it's always great to have the better half associated with this partnership on the call as well, so I really appreciate your time here, Arlene, but head over to.

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Reapequity.com for some more information about what Arlene and Jacob do.

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But thanks for your time being here today, Arlene.

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You're welcome, Jack.

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I'm so happy that.

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I was able to.

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Be on your program and appreciate it.

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So, you know we were talking about vertical alignment with Jacob, and it was really kind of interesting how that some of that discussion so, but what you just mentioned before I hit record was something that really interests me.

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You, you and Jacob kind of took different paths to get to the to the same place.

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Here, and you've spent 20 years in corporate America.

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Yeah, tell me a little bit about that transition.

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Be happy true so.

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Jack, I have a degree in finance and a school out in the western part of Texas where I graduated from.

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I was recruited by a bank, a large bank at the time, and so I moved to Dallas and started in the banking industry.

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I initially started as a lender.

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With through credit training program and then I managed an international private banking department at the young age of 23 years old. So that was a wonderful experience.

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And then that was the time when the banks that savings and loan crisis occurred.

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I don't know if you remember that, but the bank I was working for basically failed.

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And so, as I looked at the acquiring bank, which is now JP Morgan Chase, it's evolved to that entity.

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But at the time.

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As a different bank I noticed that they were from Ohio, and they weren't a big international bank and that was what I was doing.

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Was international banking.

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So, I went to the bank president, and I said I wanna do branch banking.

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That's when Branch banking was first starting.

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Where you didn't.

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Have to go to one location, but you could go to multiple locations across the city.

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So, I went through a program to learn how.

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To manage banks.

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I did that for a while and as part of that process.

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Uh, my clientele at the bank at the 1st.

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Bank I managed.

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Was, uh, a combination of blue-collar workers, a large Hispanic base, and then the other half was a very affluent group out of Highland Park in Dallas so that the, but the bank happened to be located kind of right at an intersection where it attracted both groups.

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So, I started.

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Spending some time on Spanish language radio programs and TV programs to educate the Hispanic community on banking services.

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Everything from budgeting to.

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How to establish credit etc.

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And from that I was hired by another bank which is now Bank of America to create their first Hispanic marketing program and then I launched it nationwide and so did that for a bit and then came back and managed a Texas New Mexico, Oklahoma marketing.

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After that my kids were small and so I decided I wanted a position where I didn't travel all the time.

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So, I took a national role in human resource.

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And so, all of that I share all of that because I've been able to use every bit of that experience in our real estate business.

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Here's an example.

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I created our first employee menu for our company and that was.

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Based on the.

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Experience that I had working in corporate America.

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Now the decision-making process is very different than an entrepreneur would have because you've got layers of management above you below you that you know require input for decisions.

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Jacob was very different.

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He had his own business which he started at a very young age right after we were married and so his mindset coming into the business was that of an entrepreneur, someone who was basically.

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Making all the.

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Decisions in the company, so you know when you start working together and we've now been married.

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31 years, but when you start working together, it's a whole different phenomenon and not unlike a partnership.

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That you might.

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Create with somebody else in the real estate industry that is not yours.

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There are some things that you.

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Have to learn to.

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Do and together and so it's been a really great experience for us and but a lot of learning and challenges.

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Along the way.

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Sure, so with your financial background is that one of your primary roles with your current company.

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Yes, very good question. So initially Jacob and I did everything up. We started with a 24 unit.

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That we bought in.

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He managed the rehab and the maintenance side of it, and I did the leasing and the.

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Accounting and the.

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Loan side of the property and we went through a period of about three years or so.

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We're acquiring mainly smaller properties.

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While we were both kind of doing everything and I went through a, uh.

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Training course strategic coach in part.

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Killer and one of the assignments was.

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To really take.

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A look at your day.

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Break out everything you did in a day into categories.

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Things that you love to do and you're good at.

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Things that you're good at.

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You don't necessarily like to do and then things that you hate to do, and so going through that process.

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Really made me realize that I love the acquisition side of our business.

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I have a lending background so I can deal very well with.

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Lenders and I'm a numbers person and so the analysis and underwriting and all of that is related to acquiring properties.

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Was really what I.

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Loved to do.

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So, I came back, and I said, Jacob, I've got some ideas, let's.

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Go, you know?

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Have dinner and I want to discuss what I learned at my coaching session and as we talked about it.

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I said this is what I would love to do.

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I said, how would you feel about the operation side of the business, and you over got heading that up he said Oh my gosh that's perfect 'cause I ran a business with hundred employees so it's perfect.

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It's what I'd love to do.

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So that was a.

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Major turning point for.

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Plus, because I was able to focus on the acquisition side of the business and he was able to focus on the operation side of our business, and we've been able to grow exponentially because we have divided and conquered and focused on individual things that.

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Are our strengths.

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Yeah, you just mentioned your strengths.

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There seems to be a specialization there as you were now working with your with your husband.

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Did you anything that surprised you when you?

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When you joined.

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Well, again, I think it was the main thing was he was always the person in charge at his other business, right?

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And and I wanted to respect that and do respect that today, but we needed to be on the same page on decisions and my thinking just like anybody else might be a little different than yours, Jack.

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Or you know the next person that you speak to.

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So, it was learning to work too with each other on determining how do we make decisions to.

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Gather up so that if there are things that fall into my side of the world, I'm kind of on the lead on that.

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If he has some things that fall into the management company side.

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Of what we do.

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He's in charge of that, but.

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We keep each other.

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Posted on the important things, not the minutiae not.

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The everyday but.

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The key things that we both need to be aware of, and we consult with each other on those big decisions that need to be made.

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So, it's been great.

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It's been a nice evolution for us.

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And and I find that as I talked to other, you know, deal sponsors or syndicators.

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Everybody is partnering.

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Today is what I see for the most part, right?

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And these things apply.

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Whether it's your spouse or it's another partner.

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It just happens that I go to the same home.

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At the end of the day with my partner, but other folks you know that are partnering together.

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I think it.

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It made me realize that and what I advise people is find out what your unique skills are.

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Have that conversation when you're looking to partner with someone about water theirs.

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Skills what did they bring to the table?

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And then that will give you an idea of how you can work together without both stepping on each other's toes.

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Yeah, there there's an old saying that when you start a partnership you have to have an uncomfortable conversation, or it will lead to an uncomfortable conversation.

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It sounds like in your situation you are comfortable enough and you probably because of your corporate life.

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Probably we're aware of that.

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You know, in this scenario, talk a little bit about what.

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You did in preparation.

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Did you write some roles down like before you even kicked off this partnership with your husband?

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We actually just honestly jumped into it, uhm?

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Not completely without knowing anything, we educated ourselves through the apartment association and I encourage people that are starting out in this business and your own apartment complexes.

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Check out your.

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Local apartment association.

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There's a wealth of information.

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There's a wealth of classes for your teams.

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And for yourself, that will help you grow, and so that was one of the things that we did, was we educated ourselves first.

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Before we bought.

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Anything and then in:

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Our 10th year in business.

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We launched and but we launched it not.

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Completely defining our.

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Roles you look back and you go.

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Wow, what would it have looked like if we've done this before?

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But I do.

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Encourage people knowing what I know now.

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To do that?

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Sit down and.

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Really look at what your skills are.

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What are the things you love?

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To do what are the things that you just prefer to find somebody else to do, whether it's.

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A partner or somebody you hire?

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Understand what that looks like.

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Before you get into any partnership.

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Sure, no.

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That that makes a ton of sense.

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So going back to your corporate world and now you're going jumping into entrepreneurship.

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What kind of did you have to go through?

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Any kind of mindset shift associated with that jump, or what?

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How did that look like?

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Yeah, very good question.

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Uhm, you do have a mind shift.

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I think when you're in the corporate world it's easy to get comfortable because you're in a role and you get promoted.

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And maybe you move into a different role, but it's typically kind of in the same line of work, and so it's comfortable, right?

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And I think.

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A lot of times it's getting uncomfortable that makes you go.

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Ooh, I'm not sure if I'm ready for that, and in fact, when Jacob said I want to buy multifamily properties.

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I said, well, hold on a minute because I need to get comfortable with what that is.

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I think an entrepreneur jumps into things.

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May be a little faster than the background I have, and some folks may have from the corporate world where you're analyzing things.

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Your decisions kind of come over a longer period and a defined process.

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Versus entrepreneurs.

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I mean they got to make a decision today for the business they don't have, you know, a week to go analyze and discuss with the committee.

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They have to make a decision and so I think to me that's what I've seen is kind of the biggest mine.

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Shift is making a decision based on as much information as you can gather but make it sooner.

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Rather than later.

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Sure, well it sounds like you know, since you're you handle a lot of the financial aspects of this and and I know that through Jacob you also do some syndications what?

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What were some of the hurdles and things you learned through that process?

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At the syndication process.

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Yeah, yeah, I.

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I think it's learning to define what.

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What you want to do, not just for yourself, but for investors.

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For us, the investor comes first.

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I mean honestly, everything we do is with the investor in mind.

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And so, when we when we buy a property, we want to underwrite conservatively, because we want to sleep at night.

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That's what we told the investor.

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We're going to do.

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We're going to able to deliver on, so that's been a big thing for me.

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Is understanding who are the players?

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We've got investors.

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And we've got, you know, our team that we that works for us, those.

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Are two key.

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Groups that we are very accountable to and feel very responsible for.

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So, I would say that those are some things that that people should consider is who are the key people that you want to.

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Be the hero to.

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Or to help.

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Uhm, we have.

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You know, different investors and.

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That I think.

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One of the.

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Most heartwarming things for me was to be at.

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A real estate.

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Meeting and to have an investor come.

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To me and say.

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Thank you so much I.

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Don't know if you realize, but I put.

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My daughter through college.

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With the money that I made from my investments.

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With you guys.

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That's real life, right?

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That's why people do what they do in terms of real estate.

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And so, we always look at our investors and say, how can we?

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Serve them better.

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We look at our team and we say how can we serve them better?

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Because ultimately our team holds all of our paychecks in their in their hands.

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You know we?

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Have almost 100 employees on site.

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They're there every day taking care of our.

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Residents, the happy residents, the not so happy residents.

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Everything in between.

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It's about giving them the best customer experience that.

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We can get them.

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Yeah, it's.

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It's amazing.

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I mean to be a property manager to the level that you're talking about it.

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It kind of takes a rare breed to deal with everything that comes at you.

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ot up at now. We've got about:

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We've owned:

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But if you.

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Take that number of times 2.5 people. Yep, that's a lot of people that are in our communities that we help every day, and we want to give them the best place to live that we can. It might not be a Class A luxury.

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You know how?

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Arise, but it's a good solid community where.

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We fix what?

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Goes wrong and we take care of what they need, and you know, we make sure that we do our job to put the right people at that property.

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Right earlier you said you try to.

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You keep every all of the decisions at the investor is, uh, your core belief in what you're taking care of.

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So, you can.

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Sleep well at night.

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Tell me about a time that.

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You weren't able to sleep.

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Well, you know when you have something like a fire up that happens at a property and you know you've you immediately start thinking was everybody OK?

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You don't want there to be any, you know.

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Bad news to come out of.

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It you can fix.

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The building you can restore it, but you can't bring people back.

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So, our question is always when you get that phone call and it goes to the President of our management company, but she always keeps us informed, you know, is everybody OK?

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OK, that answer is good and then next it's how do we bring that that unit or that building back online as?

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Fast as we can.

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And so that we can start, you know, generating income from those units as quickly as possible.

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So, in that decision we're thinking about the investor.

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How do we give them their return?

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How do?

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We not miss a.

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Step on that giving them their return and we just had a fire, probably a month.

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And a half ago.

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Uh, within a day everything was buttoned up.

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All the reports were done.

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We had already submitted our claim to the insurance company.

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We had moved people to another unit on the property that were affected.

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It was 8 units affected, so it wasn't that many people, but we were able to get.

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Them into a new home.

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Within a day, and that's moving pretty fast, but that's because our team knows that that's super important.

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At the same time.

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Filing that claim we have what's called business interruption.

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Insurance, so if there's an interruption in your income stream because of the casualty, like a fire, the insurance company will pay you that rent out while those units are being restored, so getting that done quickly means we're able to bring that money in the door to make sure our investors get their distributions.

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So, over the past 10 years, running a business now there's likely there's bound to be a mistake made somewhere along the lines.

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What was one of the biggest mistakes you've made and and what did you learn?

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Well, I think.

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For us it was buying a property.

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With a chiller system, and I say that with.

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You'll have to you.

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A lot of risk.

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You'll have to forgive me what's a chiller system?

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OK, so a chiller system is a in a traditional unit.

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You've got central heating air, right?

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It all runs through air ducts etc.

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Well in a chiller.

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It is a four pipe or 6 pipe system where water runs through the pipes and they're either heat.

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That water is heated or cooled by either a cooling tower which cools the water, or a big, huge you know furnace.

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Basically, that heats that water that water.

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Runs through those pipes under the building over and into the unit.

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So, when the resident, when the when temperature changes somebody.

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Goes to that.

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Unit and switches it from cold to hot or hot to cold depending on what's going on.

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So, we knew that the cooling tower was new when we inspected it, but we had never underwritten a property with a chiller system, so you in essence, at that property.

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Are the electric.

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Company because the none of the properties were in none of the units were individually metered, meaning the whole property was built in one big bill and we had to.

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Divide it out.

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You also are the water company because the property is billed for all that water that's used, and it's not only water to.

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Bathe and cook.

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And all of that, it's the water that's heating your system.

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So, what happens with water over time is you get leaks in pipes.

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And if those pipes are under your.

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Building it's not just sewer pipes.

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These are water pipes that are just designed to heat the system.

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Then you end up with leaks over time and when the water pipes leak into the unit, then you've got a lot of water damage around where that system operates, so.

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So, the expense was higher.

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Homme for running that property.

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But there was one of those things we had no idea going into it.

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Our mentor did not really give us any advice on how to underwrite a property with a chiller any differently.

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Your capture rate on your rug utility billing?

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The utility billing, we give to the residents you're going to have a lower capture rate because when people move out, not only do they not pay you the rent, they don't pay you water and electricity and so it was a learning experience on how to how to underwrite how we should have underwritten that property.

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Now nobody lost any money.

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The investors got distribute.

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Questions, but it was a big learning experience for us in that you really have to look at those factors when you're underwriting a property.

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And this was our first.

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You know, over 30-unit property.

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That we bought so.

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Again, the story ended up fine, but when you go to sleep at night, you know when you don't sleep.

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Tonight, 'cause you're wondering what expense is coming tomorrow from?

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This system what?

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Do we?

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We can't anticipate it.

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We don't.

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Know what it's going to be?

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It almost sounds like you broke your own rule there.

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You mentioned you like to have a good understanding before you get into something.

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Well, again if.

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You don't understand a chiller system and how it works.

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I will tell everyone.

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Don't stay away from.

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A property because it has a chiller system.

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Just understand how to underwrite it differently and we were relying on our mentor to tell us, but they had never owned a property with a chiller.

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So, you know more homework needed there and I will just tell you.

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Don't let it scare you into buying properties or not because you don't.

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You don't not take action because of that, just find resources.

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Uhm, or you can get that information that you need to.

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Make a better decision.

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So, you know I'd be curious as to the financial decisions behind this, it sounds like that you had.

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You had hired property managers up into a certain point.

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What was the financial discussion or decision to bring property management in house?

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The question, yeah, we operated the 1st 500 units or so ourselves and then we got a different meant.

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Or and when we had a conversation, multiple conversations with him, he said, tell me about your business. And so, when we described our business, he said, well, you're probably not going to be able to grow as fast as you might want to because you're so involved in the day-to-day. And we weren't big enough to have layers below us.

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ired, and so at that point in:

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So, we did that and then in:

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Scale to be.

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Able to hire people underneath you HR, you know, accounting a regional.

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ra. And so that's in March of:

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Else and have had our own management company.

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The second go round of since then and you know the difference has been incredible because for us, we know what's happening in our properties every day.

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We're not waiting 30 days to get a report from a company about how our property is doing.

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We know it.

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What it's doing every day and that.

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Again, allows me to sleep at night.

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Well, I mean I I've it's no secret I bring up the fact all the time is that when you have a third-party property manager, your interests frankly aren't really aligned.

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I mean it.

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And it's when you start to manage them yourself.

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That's kind of when you realize how far apart you actually can be.

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That's exactly right.

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I mean, I think you know there are little nuances and little things that pop up.

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Yeah, I remember when we were under third party, I again being the numbers person I would dig through the general Ledger report that we received in a lot of detail, and I was sending.

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Emails to the management company.

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Hey, who is this guy that you charged?

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Me payroll for.

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I've never heard of him being.

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On our property.

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Oh, I'm so sorry.

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He belonged to a.

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Different property you were incorrectly billed for him and then there was another situation where I said.

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I see a.

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A bill for you knows $:

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The proper.

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Great and again, it was.

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Oh, I'm so sorry.

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That should have been built to a different property, so I think having that relationship and being a good asset manager, which just means managing the management company is super critical when you're working with third party and there's a lot of great third-party companies out there.

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But you're right.

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You are the only one that knows exactly what you want to get out of that property, and it's up to you as being the asset manager to communicate that and stay on top of it.

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With that management company.

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So, remind me again, did you and your husband did you start with like single-family homes and then graduate to the multi family?

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No, we.

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We dove right into multi family. We neither one of us had done single family. But yeah, Jacob's background was that he had a property management software company, so he had seen the back end of what property?

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Managers and owners were doing from his software and so he was familiar with what all of that looked like, and so that's what motivated him.

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He said, gosh, these guys are making great money.

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These properties are doing very well.

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I want to own some of these and so that's that.

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Was kind of part of the.

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Decision to jump into multifamily and and we bypassed single family just because of his Jacobs experience.

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So, with your experience being in the banking industry and financial, is there anything?

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Thing that well, it, it probably hasn't surprised you much regarding the underwriting, but to arm some of the people that are listening to this, what do you think are some of the things that they should be aware of before going through a multifamily?

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Getting that type of funding?

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Sure, what I would say is please get a mentor or partner or someone that has experienced because.

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If you're buying a.

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Single family home. Maybe you have 10,000 at risk, right? But if you're buying multifamily, you've got multiple millions at risk of your.

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Money and invest.

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For money, so I would say please get a mentor, find somebody.

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There's a lot of great people out there or partner with somebody with experience.

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If you don't have any experience, in fact, our very first loan on our 24 unit.

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We had a.

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Great balance sheet, but we didn't qualify because we didn't have experience.

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So, we found somebody.

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With experience to go along with us as a Copartner and we did well by him, we had a 370% return on that first property, so he did well. But along the way.

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He provided guidance.

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For us, how to underwrite it?

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How to look at the expense side of it.

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How far to take your rents.

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How to look at what the rest of the market was doing.

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All of that data goes into your underwriting, and it's all super critical.

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So really, and there's a lot of great podcasts to yours.

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Being one of them, that gives you a lot of information.

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Gather that information before you jump into a multifamily.

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Deal and and I.

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Will just say I encourage.

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Everybody don't be afraid of it because we are personally it's changed our lives by investing in multifamily, both actively and passively, and they just get educated or get a mentor or find somebody who who's already done it before.

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They have a track.

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Record and align your stuff with them.

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Yeah, you know.

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I think it's always interesting people jumping right into multifamily and I've run into quite a few people doing that.

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It almost seems though that a lot of people will.

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It's like we're playing monopoly.

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We start off with the single family.

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Problems and then we trade up and then eventually the multifamily is almost aspirational and I'm just running into more and more people who just jumped right into multifamily.

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And frankly, when you get into multifamily, you find that getting that underwriting done or taking down a 12 Plex sometimes.

::

Is just as easy as the single-family home.

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I agree you know we own the smallest 24 units and our biggest to date has been 344 units.

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It takes just as much work to underwrite.

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Get the loan, get the investors, etc.

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For a small deal as it does for a bigger deal.

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So, scale is important if you want to grow in this.

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Business, but take it at your pace and take it at the pace that you're comfortable with. You know. Are you going to as a newbie, be able to compete with somebody on a you know $50 million deal right out of the gate? Maybe, maybe not. It just depends on who you're partnered with. But you most definitely could look at.

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The five or, you know, $10 million deal not much easier, so I'd just say be aware of what you're capable of doing and what you're comfortable with in terms of how much you're taking on.

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Yeah, I.

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I can't echo that enough either.

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Is the fact that you find a good mentor in some way to.

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Find somebody to.

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Lean on that that actually already has the knowledge and.

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Experience that that goes a long way.

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I agree and and again.

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But you are responsible for people money when you do a syndication, right?

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I mean yes.

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You spell out the risks and the rewards, but ultimately, it's your reputation you're building, and you want that reputation to stay solid for the next deal and the deal after that.

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I say, we're salesman, we're.

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You know, selling the broker that we're the best buyer.

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We're selling the lender that we're a good borrower.

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We're selling investors that we can manage that property well, and so all the way around.

::

You're a salesperson that you need to.

::

Be a self-person with knowledge.

::

Knowledge that you bring to the table.

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Yeah, no, I completely agree.

::

This has been a great conversation just to remind everybody, head over to reap equity common, that's our.

::

REEPEquity.com make sure to have that link in the show notes, Arlene.

::

This has been a great conversation in chat before I let you go.

::

Is there a question or a topic you wished I would have asked you here today?

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Oh gosh, uhm.

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I think the question would be is.

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How do you balance?

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Life, you know?

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As a.

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Syndicators or real estate investor.

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Uhm, because I do think.

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Especially sometimes women we take on a lot.

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And and and I.

::

Will tell you that that's part of the goal in this game.

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It's to be able to hire a team or a partner to work with, or you can still have balance in your life.

::

Yeah, OK, and so well with all of that, how do you?

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How do you keep it all balanced because you know, like you said, with especially as an entrepreneur, I bet you it.

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It's hard for both of you to.

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Not take everything upon yourself.

::

I know you're hiring.

::

You got quite a few people that work for you today, but it still has to be hard to let some of that go.

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Oh gosh, and I'm the worst at it sometimes.

::

I think Jacob is a much better delegator than I am, but because again.

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Just if it involves.

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A lender, I want to be copied on it.

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And honestly, we've got a great team.

::

So, here's an example.

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I used to.

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You know, do any what's called reclassing of expenses.

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Just into the right buckets, whether it's a capital expense.

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Or ongoing.

::

Expense and the President of our management company said, you know?

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I can do that, I've been.

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Doing it for 20 years.

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Let me take that and I said OK, she took it and I just never thought about it again and that would take me.

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I don't know three or four hours a month.

::

Doing that, we know when the.

::

Reports where the financials were produced, so that's just an example of.

::

Some things, and I've gotten back.

::

Here I now look at things of is it an activity that's going to produce income for anybody for an investor or for me?

::

And if it's not, then I can give that to somebody else.

::

Is it an activity where the risk is so high that if I don't make that decision something?

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Bad could happen.

::

Then that's how I look.

::

With those, if somebody else can make that decision, then I give it to him, so it's taken me time, but I've now evolved where I've empowered people on my team to take on a lot of the activity.

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These so that I can then focus on.

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The strategic growth of our company.

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Yeah, you know.

::

And then we get into this.

::

You know real estate investing or any other.

::

You know if you even want to say a side hustle of some kind to generate a little bit more money or generate a secure our retirement in hopes to earn our freedom to give us back or more time.

::

But in the end.

::

A lot of us will just essentially create more work for ourselves.

::

I agreed, I think.

::

That's where really, you know, we are very big about quarterly looking at where are we going?

::

You know, revising and and redirecting our teams so that we are using our resources in the best way, but you're exactly right.

::

I mean, the goal is financial.

::

Freedom and freedom in general.

::

You know not just the money side of it, 'cause the money side brings lots of good things.

::

But if you don't have time to go, enjoy them.

::

What's the point?

::

So, we've done.

::

A better job.

::

Of working through that, but initially.

::

You know it.

::

Was a take.

::

Take the work home everybody and now we've got a team, so it's it really helps to build.

::

Some people around you so.

::

Well, this was a great conversation again. It's reepequity.com I'll make sure to have that in the show notes and I hope you'll consider coming back again sometime I. This was a great conf.

::

I would love to do Jack.

::

You let me know when you're ready and and I'd be happy to hop on and discuss whatever else people are wanting to hear about.

::

Well, thanks, we'll talk to you soon.

::

OK, thank you.

::

If you learned at least one actionable step to incorporate into your real estate investing.

::

If so, please consider returning some of that value by leaving a positive review, subscribing to our YouTube channel, or joining our growing network on Facebook and Twitter.

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You can find links to all of our social media accounts.

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In the show notes, see you next time.