Artwork for podcast Real Estate Investing with the REI Mastermind Network
The Benefits of a Vertically Integrated Company with Jacob Garza
Episode 37217th July 2022 • Real Estate Investing with the REI Mastermind Network • REI Mastermind Network | Real Estate Investing
00:00:00 00:25:27

Share Episode

Shownotes

As a co-founder of REEP Equity, Jacob Garza focuses on developing and overseeing REEP’s growth strategy and takes a hands-on approach to manage the firm’s capital expenditures projects. His goal is to execute our value-add business plans and ultimately realize our investments to generate attractive risk-adjusted returns for our investors. Jacob directly oversees asset management in addition to fostering and maintaining relationships with key industry leaders.

Prior to REEP Equity, Jacob was the founder of Property Automation Software, the #1 selling property management software program for small to mid-sized property management companies. The company had 21,000 customers in 9 countries and managed more than 3.9 million units. Jacob sold it as the sole shareholder in 2007.

We chat about:

  • Why invest in multifamily
  • What should you look for in a sponsor
  • Cost segregation and the tax benefits of investing in multifamily
  • The benefits of a vertically integrated company vs. one who uses 3rd party management
  • The differences in bridge loads vs agency loans

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

LIKE • SHARE • JOIN • REVIEW

SUPPORT THE SHOW!

"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.

::

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.

::

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

::

We have Jacob Garza on the call here today.

::

Jacob, I really appreciate your time and I'm just going to direct everybody to your website because you got really a fleshed-out website.

::

There's a lot of content there, so head over to reap Rep equity.com and make sure to have that link in the show notes, but Jacob.

::

We're going to spend a little time with multifamily and then probably a little property management here today.

::

Well Jack, thank you for having me on.

::

I certainly appreciate it.

::

And you're right, we're going to dive right into.

::

Multifamily investing and property management because we do both at our group.

::

Yeah, so that's one of the big, interesting things I I'm probably just going to dive right into that, you know, I and and I know that we're kind of pressed for time here today.

::

So, we're gonna kind of forego like how you got into real estate investing and and some of the background, because frankly, I think you probably have shared that story, uh?

::

Over, but you really have an integration here regarding your acquisition and you're dealing with multifamily and and you're doing property management everything.

::

So, I find that a really interesting approach.

::

What made you decide to integrate all of your businesses like that.

::

Yeah, so 10 years ago when we.

::

First started, I'm kind of a.

::

rt of moved to San Antonio in:

::

Generated, you know how to control expenses?

::

And just get just gotta get to know what I like to call the ultimate end user experience onwards.

::

Who pays you the money?

::

You look at.

::

Look at any kind of product that's out there or rather at Starbucks.

::

All the big guys or gals.

::

They really understand their customers so that that's what that's what led us to start our own management company and just get granular with what's out there so that that's why we did it.

::

So, you really focus on that tailored experience with your residence.

::

Is that fair to say?

::

Oh, absolutely, and here's the here.

::

If your users have to go at this point, the one thing I want.

::

Them to know.

::

Is if you take care of your tenants.

::

They will pay the gardening landscaping.

::

They'll pay the make readies, and they'll pay the mortgage.

::

And I know that's oversimplified.

::

It said a lot, but that's the absolute truth.

::

If you focus on them and make sure that they have a home and be responsive.

::

And we talk.

::

About how do you capitalize a project where I think a lot of entrepreneurs or inexperience syndicators come in with having lots of projects well enough and it just goes downhill very quickly when you get behind enough properly.

::

But I mean, if you do that Jack, you know you're going to have a property.

::

It's just.

::

Have above the rest that's out there, and if things start to tighten up, yeah, you may go from 8 to 12%.

::

Return down to 5 to 7, but you're not going to lose your shirt.

::

And when the economy comes back on an all-economy cycle.

::

You'll be standing proud and tall and so on the rest.

::

Of your assets.

::

So, when you.

::

Say you know that user experience, right you.

::

Know the I hate.

::

I'm kind of surprised that I'm focused so much on this aspect of it, but you really have a good point.

::

You even brought up Apple.

::

For example, you know they're able to charge a premium for their devices, typically because of the experience people receive there.

::

Is that kind of in?

::

A nutshell what you're suggesting.

::

Absolutely, and the experience starts with on the move in and I can't tell you how many times people move in in the in.

::

The and it's the small things that matter, you know, and and if you want to drive your resident experience, you have to train your people.

::

And these looks make ready guys.

::

Don't make 12 bucks an hour, OK?

::

They just don't.

::

They're crashman a lot of them, and I.

::

Know it sounds.

::

Impossible, but when they're fixing things and paying detailed and touch up paint, it's the attitudes that matter.

::

gh, yeah, your payroll is not:

::

Out the window.

::

It's much higher than that.

::

You will.

::

You will see an amazing transformation on your resident retention and how people talk about your property and bring in their cousins and their uncles.

::

And that's who you want.

::

You really want a community that's their and.

::

That's where it starts and just continues to manifest.

::

So, the experience goes much more than just the move ends.

::

And oh, I'm so happy and make maintenance that that's another one.

::

You know, people stay for maintenance.

::

They lease for the leasing agent, but they're going to stay.

::

They've got good maintenance.

::

So, you know one of the aspects that you specialize in is when you when you purchase a property, you're looking for properties that you can do that value add.

::

I understand that part of your business but is what you're suggesting here today is that that user experience is the biggest value.

::

Add that you.

::

It's a huge component.

::

I mean, you have to go in and do the big stuff if you.

::

If it's a big capital project, right?

::

Uhm, new paint would say new playground transformed the.

::

The amenities if you would go in and and put a playground so those big value adds are they're easy to do or something.

::

It's not hard to mess up a paint job, but when you go in and address the make ready for the first time a lot of time just done by an outside company and they're pretty professional and know what to do.

::

But when you know when you start turning your rent roll, it's your maintenance staff and you and your make ready staff that really starts to have a huge impact on that user experience.

::

And it's also the people inside the office and how they how they interact with the staff and any.

::

Kind of notices to give to the staff and after-hours events that that all, that's all that's really big too, that that really helps create the whole experience of these users.

::

Sure, so with all that being said, let's give our listeners a couple action items.

::

What are some of those low hanging fruits that you've you found that make a huge difference for the experience for your resident?

::

Yeah, the first one is just get your residents, get the inside staff and your managed people to just engage in the residence and if they say they're going to do something they have to do it.

::

I mean, it's just you know you.

::

Have to be extremely responsive, that's the that's the first thing you're going to notice when we take over.

::

Properties these a lot of times.

::

The staff members just aren't engaged, and I don't know if that's they don't care or I'm not gonna say I don't care.

::

I'm not gonna say maybe they're not trained well, maybe there is still expectation isn't.

::

There, but to me that's the.

::

That's the biggest thing you can do is.

::

Is have your teams empowered to make these decisions.

::

They have to have a budget to go fix stuff.

::

You can't micromanage them, so that's the first thing someone who's listening that they can.

::

They can make a huge difference in their in their residence attitude towards the property.

::

Yeah, I find it interesting when you say that and point it out, it sounds so obvious.

::

But it actually is quite common, isn't it that under promise or over promise under deliver in a lot of aspects, especially when you're probably taking over some of these multi family.

::

Yeah, and you can you.

::

You'll be able to tell pretty quickly when you take over a property and.

::

It all boils.

::

Down to the culture, and if they're not given a budget, and if they're being micromanaged, you're just not going to build a company that is accountable.

::

You're going to build one that manages by, you know, fear, or.

::

Or other type of mode, it's just it's just not healthy for the.

::

For the culture there's no recognition and that just keep tends to domino downhill and it and and unfortunately, I see it, it happens in our in our business despite the fact I think we have one.

::

A nicer, more professional business.

::

Is that you know out there, and certainly one that gives opportunity for anyone in property management that can be imported one day, and they can make it all the way up to Lincoln or Camden, which they're documented.

::

Success stories like that, so, so it's a great business, and that's very rewarding.

::

And it's a.

::

Very good.

::

It's a feel-good business when you able to take over property and come back even 30 days later.

::

Six months later and just and just see the residents, how?

::

Happy they are.

::

And everything just kind of takes over.

::

Itself at that point.

::

Right?

::

I mean so you mentioned early in this conversation that it even boils down to their moving experience.

::

Right?

::

What are you doing differently there that people should take note?

::

First thing that needs to happen is the property manager.

::

The maintenance help to be a tune of people who aren't living in the in the residence.

::

We all have skips, and that's the thing.

::

That's another thing, if they're not engaged, you know you'll have an apartment unit.

::

It just goes South on you and refrigerator stinks and just Roach infested, and it just creates all kinds of problems so.

::

First thing to do is identify these units and trash them out quickly.

::

Or if the move out happens.

::

You know it's inspected within 24 hours and the checklist and parts are ordered in that property is just getting back online.

::

You know these properties; the units they like to say they die after about 8 months.

::

You just had.

::

This this awful feeling inside of a unit just not being cared for by being loved nobody.

::

Living in it.

::

And it they, they will, and they'll just take on a whole different feel.

::

And and that affects other residents.

::

So that's the first thing is, is get these vacant units.

::

Uh, made ready again.

::

One of one of the things I like to look for is vacant, not made ready and again.

::

That's you know 10 days Max.

::

And then these units need to be turned into being made ready and and they need to be having someone living habitable in them.

::

Sure, so that that's a big.

::

Key thing there is and and it's kind of understandable like some properties or some owners.

::

They, uh, when uh when a resident moves out for the.

::

For some situations that expenditure can be pretty large.

::

No question and unit inspections are very important.

::

I mean when you go in and do the filter change or courtesy battery smoke battery changes the maintenance team or the eyes and the ears and that's something.

::

When my wife and I started this business 10 years ago, we realized the staff is super important.

::

And you know Jack 10 years.

::

Five years ago, you could buy a property and go to sleep for two years.

::

Wake up and sell it.

::

For you know almost you know half of what it was worth when you bought it or double, I should say.

::

And you know, as prices have continued to skyrocket, you know cap rates are suppressed considerably.

::

It's about the management company.

::

It's the decade of the management company.

::

You have to be a solid operator to cash all these properties and and is very competitive.

::

To hire staff on properties so.

::

You have an advantage when you have, and you know build a culture and you have owners that care.

::

And like I said, well capitalized properties.

::

That's a big one.

::

It can make a real difference.

::

Yeah, so what tools do?

::

You use or leverage then in order for.

::

Your boots on the ground to be able to communicate what's going on with the individual units so that you can take whatever and act.

::

Action that needs to happen.

::

Well, I wish I could take credit for this, but when we got to about, I don't know 300 units.

::

t third party to we got about:

::

And that's when you can have enough scale to hire staff. So that's kind of lesson #2 you wanna start your own management company?

::

sier to start it at, you know:

::

Or hire someone higher than a regional manager or director level, because at that point you're probably going to have you know six or eight properties.

::

operty is run by someone with:

::

In Houston and six here in San Antonio, and she does a fantastic job of marshalling our troops.

::

And making sure the docs all get connected.

::

If you would from what our vision is as buyers to the business plan over here as operators, and that just really makes a type my you know, good circle up into disposition.

::

Do we sell it to resell it?

::

Yeah, I notice that you have all of your properties in Texas there is there.

::

Is there a reason for that?

::

Yeah, couple things.

::

First and foremost, Texas is just a great place for jobs.

::

It's very business friendly.

::

We have job growth because the current jobs are here are continuing to grow and when you have that people move here and that continues to have a lot of demand.

::

If you have a lot of demand and little supply, you're going to make.

::

You know you're going to make more money on your part.

::

Reason you know we're operators first and foremost, then weren't you know, or investors?

::

And and that sounds backwards.

::

The fiduciary is the investor.

::

I get that, but to make the to get the investor the return it is the operator that's just.

::

That's my take.

::

So yeah, yeah I.

::

Think I forgot the question here when I was kind of rambled here.

::

Oh yeah, I was just wondering why you focused so heavily on Texas, but.

::

Yeah, so.

::

That that's the.

::

Economic fundamentals of investments are here.

::

OK, the second one is I.

::

I think, the mistake some people make is they'll go out and buy a property and and and Atlanta, which is nothing wrong with that.

::

It's another state like.

::

Tennessee, another.

::

Great state.

::

The You know Arizona Phoenix there.

::

That's a great place also.

::

Florida parts of Florida and they don't build any scale.

::

You know to get to know the market in Tennessee and about one property and then you go off and buy one in Atlanta and buy one by one in in Orlando, for example, you're trying to figure out.

::

Two different markets and three different broker groups, or three different. You know it just it just takes a while my business, this business one-on-one to me. If you can focus on particular.

::

OK, and get some scale you're going to get the deals that come to you.

::

The broker is going to clients is my book.

::

My seller just asked me to buy top, pick the top five buyers and you know what? Your number 5 and you're probably comparing the people who've been there 20-30 years, but you know you bought 3 properties here. The recent I've known you people know you.

::

They say you do what you do and so you can get to five and six and eight and 12 properties pretty quickly.

::

So that's why we focus here in San Antonio.

::

First, we've gone full cycle on five properties and the eight properties, so it just made sense for us to build our portfolio here in San Antonio.

::

Then we went to Houston three years ago, and now we're starting to build a lot of scale there.

::

And and here we're still in San Antonio.

::

Quite a bit, so that's.

::

Why we do it?

::

No, I think that's especially important.

::

I hear a lot of people talking about, you know, doing exactly what you suggested earlier.

::

They're buying properties throughout the.

::

lly when you're talking about:

::

I wanted to remind everybody to find your website again, which is reepequity.com. I'll make sure to have that link in the show notes, but you make sure to put our EP equity.com when you do that.

::

ting is that you mentioned uh:

::

But to be Frank, and I'm going to be pretty blunt about this for the most part, every time I've had a third-party management company handling any of my rental properties.

::

It seems like there's a bit of a confrontation that occurs that our interests aren't aligned usually, and I would.

::

I would think that that would be a big benefit of what you're talking about.

::

Yeah, you bring up an excellent point and you have to have your business.

::

Uhm philosophy.

::

Your business goals align your word escapes me here, but they're intangibles, right?

::

They have nothing to do about nothing to do about the track record.

::

They have everything to do with the culture or how they communicate with people, how they, how they treat other people, and you'll find that out, you know.

::

Over lunch with the with the right property management companies and.

::

And that is that is absolutely the case, is to get someone who thinks like you have the same values as you.

::

The core values and that that's sometimes hard to find.

::

How important is it when you were talking about your value, your business values and and a few other things?

::

Did you find it important to write those things down?

::

Make sure that it's easily communicated.

::

Or is it something that you've just kind of baked into?

::

Everybody that works there?

::

No, we have those values and them.

::

Are part of.

::

Our culture, and they're extremely important and this is the momentum side as well too.

::

We were probably 110 employees now. When you consider the people our equity group, the people at our corporate.

::

Office for their property management and all the site teams and the President of REIT management.

::

That's our management company.

::

She's done a very good job of creating a culture on the site and at our corporate office that.

::

That lends very well to attracting people.

::

If you would without even asking them.

::

You know birds of a feather flock together.

::

It's the truth, and now we're starting to get to a point where people conceal in an interview.

::

If this, if they think we're silly, or we think we're too serious or not.

::

It's not for me either.

::

Don't watch me too much or the flip side, which is wow.

::

I really want to work here.

::

I've heard about.

::

Sweet, you know, I know.

::

I've known Kevin for a while, or own Jill for a while and I really want to come to work for you guys and those people, just you can just show right up in an interview and then it becomes just can.

::

Can they do?

::

It well, most likely, yeah, it's reset you can do the job.

::

The hard part is finding the right the right person.

::

With the black culture.

::

lked about you've accumulated:

::

You probably doing this now through syndication and and based on what people I've been hearing here today, is the best place to learn about what you do regarding your syndications is through your website.

::

As well.

::

Well, there's a couple things to that which you're right. We bought our first we bought a 24 unit UH-28 unit and 88 Unit 150 unit. My wife did it all by us.

::

And we realized, you know, at some point you need.

::

You need to indicate if you're gonna grow because you're out of money.

::

If you have $50 million and right now, we've raised $98 million of our money and other people money, that's all to buy. We have 400 million in assets now. If you add them up.

::

What they're worth so?

::

And what was your question again, Jack and I'm rambling.

::

Yeah no, I was just wondering about this, your syndication and if people would like to get involved in some way how would they do?

::

OK, so they can go to our website certainly and they have some terms that we have in our blog, and we talk about what we do, and I think that's one thing I if I were them I would.

::

I would join a mentor group.

::

That's what we did.

::

We joined a couple of them just to see them.

::

Ended up with one.

::

We probably tried three and and they're all out there and to me a couple of things.

::

There's, I don't think there's any question they're successful people in our business that have never joined a mentor group and they've done very well.

::

I've always believed that, uh, a good mentor or education group.

::

Uh, can flatten the learning curve and can help you make have you saved you from big mistakes and everybody out there.

::

If you've got more time and more money, you're going to go faster, but you have to hit all the wrongs.

::

You can't skip them all you know.

::

So, time and money help you get through them faster, but it we've been in this 10 years and.

::

I can tell you we're much different than we were five years ago.

::

We're much different than we were two years ago.

::

We really weren't that much different the 1st.

::

Five years it just it just it just takes it.

::

Just takes time, you know, but then it really starts.

::

The momentum really starts to kick in, so this is not a get rich quick scheme.

::

Nothing is, but you know what?

::

I love real estate Jack that it's horizontal, everybody understands it.

::

It's not technology that's very vertical and.

::

Nobody knows what they're doing, and it's just.

::

It's just hard to get everybody to understand your business and it's something everybody needs, right?

::

Everybody needs to live in a house.

::

You need to eat and live in a house.

::

So that I would recommend.

::

To the group your listeners just to find someone.

::

Who has their best interests at heart and can teach them?

::

And we've been asked, can you mentor me?

::

Can you coach me?

::

That's the most flattering thing my wife and I can hear what the reality is.

::

We're just not good teachers and we don't.

::

Our times, you know, just don't have time either, so they're best off with somebody.

::

Who does it?

::

Professionally and you know also buys properties and there is a.

::

Lot in this space.

::

Yeah, I know that I can't agree with you.

::

More on that.

::

You might as well learn from somebody who's already been there.

::

And, uh, I really appreciate your time today.

::

There were quite a few things to unpack in today's show, and you gave quite a few great tidbits there.

::

You know, and and I know we're kind of bumping at the top of the hour here, but before I let you go.

::

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

::

Let's see, yeah, there's I'm gonna I gotta have one Jack well.

::

And if you come to a blank, that that's perfectly fine as well.

::

Yeah, I, I guess I'll call it I'll.

::

Call it a blank today.

::

No, that last tidbit alone was a great addition to the show I and and I can't thank you enough I hope you'll consider coming back on the show sometime where we can kind of dive a little deeper.

::

'cause there's.

::

I'm sure that there's a ton of unpacking we could do just.

::

Around mindset.

::

years up to:

::

There is a lot of information there that I'm sure that that people could learn from.

::

Absolutely, Jack.

::

I'd love to come back on and share our story, and if it can help your listeners, that would be that would be great.

::

'cause we're, you know, it's amazing.

::

We're still getting help today.

::

We just move the decimal point over.

::

We still get help, we get mentored.

::

We look up to people and it it's all it all.

::

It's just.

::

One big circle.

::

So absolutely love to come.

::

Well, I appreciate it well. Again, head over to reepequity.com. I'll make sure to have that link in the show notes.

::

But we'll see you next time.

::

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.

::

You can find links to all of our social media accounts in the show notes. See you next time.