In our latest podcast, our host Attorney Kim Lisa Taylor interviewed David about how mindset is THE most important thing you need to successfully raise capital. And of course, Kim also took the opportunity to pick David's brain on what he thinks is happening in the multi-family marketplace and what are his thoughts on how to get prepared for what's coming next.
Episode at a glance:
In our latest podcast, our host Attorney Kim Lisa Taylor interviewed David about how mindset is THE most important thing you need to successfully raise capital. And of course, Kim also took the opportunity to pick David's brain on what he thinks is happening in the multi-family marketplace and what are his thoughts on how to get prepared for what's coming next.
Episode at a glance:
Edited Transcript: ‘What Makes Mindset So Important for Capital Raisers?’
With special guest David Lindahl
Originally broadcast Aug. 24, 2023
Kim Lisa Taylor:
Hey, everybody. Welcome to Syndication Attorneys' free monthly podcast where we talk about topics of interest to real estate syndicators with the opportunity for live questions and answers at the end of the call. I am attorney Kim Lisa Taylor.
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Today our topic is, “What Makes Mindset So Important for Capital Raisers?” We are talking to David Lindahl. I've been in some really intensive sessions with him this year. He started a new program where it was a lot about mindset. I was blown away by the stuff that I was learning. I had no idea how important it was for people to get their mindset straight before they started raising capital. So that's what we're going to talk to Dave a little bit about today, but we're also going to ask him some questions about what he thinks is happening in the market and stuff like that. So Dave, tell us a little bit about your company and your background, what you do and how you got into this.
David Lindahl:
Well, I started investing in real estate way back in 1996, multifamily properties. I wasn't interested in single-family properties, but I used single-family properties for down payments for multifamily properties when I ran out of credit card money. That's how I actually get started. The short version is, from there, it took me nine months to do my first deal, and after I did the first one, within three months, I had three more. Within six, I had nine. And within the first year, I had 11.
Within three years, I had almost 40 deals in the city called Brockton, Mass. I created a cookie-cutter method to buy them. I was a broke landscaper at the time. I had done a six-year stint in a rock and roll band. I was lead vocals, so I had a few brain cells left when I decided to leave. Those were the ones that told me to leave the band, and I did. I went from a landscaper to rehabbing houses and then I started buying them, but with credit card money.
So when I ran out of credit card money, I learned how to flip. So I was flipping property so I could buy more multifamily properties. It was basically because of an interview with a guy by the name of Harry Helmsley from New York City who started with nothing, started buying multifamily property, small ones, and then ended up owning the Empire State Building. It was during that interview with Biography that the biographer said, "Harry, what is it about multifamily properties that gets you going?"
And Harry said — and this was the game changer for me — Harry said, "I always liked the idea that a group of people would pool their money together… and they would pay for the maintenance that needs to be done. So we didn't have to swing hammers or take out trash. They would pay for management companies to take care of the tenants, take their phone calls, and collect the rents so I didn't have to. And they would pay for all of those expenses plus themselves through the cash flow … the cash flow would cover the expenses, and I would have extra money at the end of the month that I could go out and either put into a savings account, do more deals with, or just go out and have fun with."
I thought, "Man, if that's really true, if that really happens, then I want in." And if I could do it with no money — because I had none — I want in, too. And I found out it was true. Nine thousand units later, I found out it was true.
I started with the small ones … It took me nine months to do my first deal because it was a mindset thing. I was so afraid. I didn't think I could do it. I didn't think I was worthy. I did the first deal, got the system done. The whole system wasn't done on the first deal, but at least I went to the process and I had the confidence that, "Yeah, I can do this. I have to do the first one."
I would only do three- to six-unit deals. My market started to change. I did that for the first three years. Wouldn't buy anything bigger because, again, I was afraid to....
During this time, I'm continuously learning, continuously learning, and I learn about market cycles. And I learned that what goes up must come down, the fact that every city is in its own different market cycle, they don't all go in the same cycle throughout the country. So while mine was going up, I realized I had to either get into cash or go into another market where the cycle was down. And I didn't want to go into cash because now I'm having fun. For the first time in my life, I have money, and I want to just be expanding on this. For the first time in my life, I was really successful at something, too. So I just want to keep doing it and to keep doing it.
So I learned about job growth. I learned to follow job growth. Montgomery, Ala., had just started building a Kia plant, bringing in 5,000 new jobs. There was a multiplier effect of three, which meant another 15,000 jobs were going to be coming in as ancillary jobs. So now there's 20,000 new jobs coming into this market that had a barrier to entry, the barrier to entry being the floodplains. Can't build in the floodplains there. So supply is going to remain the same, demand's going to go up. So that market took off.
So my first emerging market was Montgomery, Ala. I bought a 40-unit there, an 80-unit there. And then I went up to Huntsville and bought 400 units there, 350 units, called The Vineyards in Jackson, Miss . And then I just started working my way around the country. So at one time we were in 18 different markets with over 9,000-plus units. So that's how it all got started.
Kim Lisa Taylor:
And don't you have a finance background, also?
David Lindahl:
Yeah, so I went to Northeastern University. I also went to the Harvard OPM program so I'm a Harvard alumni as well. But I went to Northeastern University for finance. But the interesting thing about that is the fact that I was in a rock and roll band when I was in high school. So we were playing all the frat houses and sororities. I just showed up for school enough in order to graduate. But it was the fact that I took finance. My life was so unruly that you either had to do economics or accounting as the cohort for that. And I knew nothing about economics. I just didn't understand it. So I thought, “I'll do accounting.” Well, I do not have an accountant's brain, and I hated it the first month I was there so I told them I wanted out. They said, "Well, you’ve got to finish this semester and then we can put you in economics."
And economics, I love, because my life was so unruly, and so it was just out there. There was no order in it. So economics showed me that if this happens, there are probabilities that this, this, or this would happen and if this happens … So I started to understand how to create order out of chaos. So I gravitated to economics so much to the point that I had a double major when I finally graduated. My advisor — I want to make sure I was going to graduate — and he's like, "Oh yeah, you’ve got your double major, you're going to be fine." I was like, "No, no, no, I'm a finance major." He said, "Oh, why'd you take all these economics classes?" "Because I liked them. Because it was straightening out my life." So anyways, I went back. So when I started learning about market cycles, real estate market cycles, I started thinking about my textbooks back at Northeastern. So I dug them back out and started reading through them, and that's how I started understanding job growth.
Kim Lisa Taylor:
That's fantastic. I think that background has done you so well in just the books that you've written and being able to understand these emerging markets and how come it's so critical for people to be able to figure out where they should be buying and what they should be buying. …
David Lindahl:
Yeah. The interesting thing about that , too, through the years ... I've got another book coming out. It's not quite ready, it's going to come out probably late fall. It's called “Multifamily Moneyball.” So in that book, what I did is I took the five key strategies of wealth creation through multifamily investing, and I show people not only what they are, but also how to stack them so you can create even faster wealth. I call it extreme wealth in a very short period of time. One of them is not just investing in emerging markets, but investing in the right emerging markets. Because now, at any given time, there's between 15 and 20 emerging markets happening in the United States. So you can make a lot of money getting into an emerging market and investing there, but if you get into the right emerging market, you can make two or three times the money that you would've made in a good emerging market. So yeah, that's where all that information, education, and my experience all come into play.
Kim Lisa Taylor:
That's fantastic. So let's talk about mindset a little bit. I know you've kind of touched on it, but you've got this new program that really just delves deep into mindset. Why do you think that's such a critical thing for capital raisers?
David Lindahl:
Well, first of all, in my life, it was critical for me because I was in that rock and roll band for six years. I lived a crazy life. When you're partying all the time and hung over for five out of seven days, you tend to create this negative attitude. When I left the band, I still had the same party mindset.... Now I wanted to start businesses. And I started businesses; I started a landscaping company, and then from the landscaping company in the wintertime, they asked me to clean out houses. One of my friends was a local real estate broker and he asked me to clean out a house for a bank. While we were cleaning out that house, somebody got foreclosed upon, left all their stuff behind, and we were cleaning it out. There was this tape set called “Lead the Field” from Earl Nightingale. And it was cassettes, this is how long ago it was.
I thought, "That looks interesting," so I started listening to it in my truck and I was like, "Hmm." So I started doing what he said to do, and things started to change. And I was like, "Hmm." So I get Tony Robbins, he just came up with the book, “Awaken the Giant Within.” I read that, started doing what it said, my life started to change. It's like, "Wow, this stuff works." So I got “The Magic of Thinking Big,” “Raise the Bar,” all these different books. Still do it, still feeding my mind because it's a lifelong journey, the battle with the mindset. There's this great book called “Super Brain” written by Deepak Chopra and a professor from Harvard. It really explains why your brain is wired to the negative. It defaults to the negative when anything comes in. So what you've got to do is you've got to reset that default. You can set it to the positive, but it's really a hard thing to do.
The first thing you've got to do is you've got to recognize the fact when these things are coming in, that default is there. And then from the recognition is the neutralization. You've got to neutralize that thought by thinking its opposite. And that's really difficult a lot of times, depending on how negative you are. And then from there, you've got to take the next step and actually have something come out of your mouth that's either neutral or positive. So that whole process right there, it probably takes people two to three months to get to the point where the things that are coming in, they recognize immediately. You know you've reached it when you're about to say something about something, maybe something that somebody said or just a comment about something that happened during your day, and it's about to come out negative, and you grab it and you throw it back in there and either say, "I don't need to say that," or you spin it. When that starts happening, then you're winning the game, but it's a constant battle.
Kim Lisa Taylor:
Wow.
David Lindahl:
Yeah. So that's the first trend. That's what I explain to people all the time. So this is when I realized that most people, everybody could use some mindset stuff. But when I first started teaching way back in 2002, now I'm about 10 years into the business, and I've got almost a thousand units, things are going pretty well, and I'm teaching the system that got me there. And people are successful, but not as many people are successful as I thought they would be after the first year and a half. I'm thinking, "Why is that?" So I start calling people and saying, "How are you doing? Are you doing deals?" And I'd hear all these different answers, and what I realized is that people had to go through the same process that I went through, the majority of them, not everybody. But the majority of it was they had to reset their mindset.
When I started teaching people how to reset their mindset in year three, all of a sudden the success of our students just started taking off. So I thought, "Wow, I'm the guinea pig for my own process." First of all, I was so afraid to do the first deal, but after I did the first deal, everything opened up and I did a lot more very quickly.
And we see that on a regular basis with our students. The first deal is the hardest. But once you get that first deal done, it's like you take off.
And it's the same thing with mindset. I've been teaching now for 21 plus years, teaching the same foundational system. Yes, during different market cycles, the techniques change, but it's the same foundational system.
So why is it that someone takes it, goes out there, and kills it, and they're a millionaire now three to five years after they do the system, and other people, they don't even do their first deal? And I figured it out. It's mindset. It's the mindset. It's getting over yourself. First, it's understanding that you have limiting beliefs, and then starting to recognize them, and then starting to overcome them through certain strategies.
There's this other big thing out there, it's called victim mindset. A lot of people have it and they don't even realize it. Victim mindset is, things are happening to me. I don't know why things go wrong all the time. I don't know why I can't do this, but it's not my fault. It's either other people's faults, other circumstances faults. The person that has the deepest rooted victim mindset doesn't even know they have it. They feel like they're cursed and they can't figure out why.
And if anybody, what I just said, that statement, you feel like you're cursed, there's this great book out there called “The Mountain is You.” At one point in my life, I thought I was cursed. I was like, "I'm self-sabotaging myself." Even as I was becoming more and more successful investing in real estate, I was still self-sabotaging myself. I get into a deal that I knew I shouldn't get into or didn't know that I shouldn't get into, but there were warning signs about how this deal could go wrong, and one or two of them would hit. I was like, "Damn, I saw that. Why did I do this deal? I'm self-sabotaging myself." So I started going deeper into mindset to protect myself and also to share it with other people as well. So yeah, that book, “The Mountain is You,” is an awesome book.
Kim Lisa Taylor:
Well, in the coursework that we did over the last year, I've seen the people that started in your program just evolve. And I am sure you saw that too, is that people started, they were fearful, they didn't really think that they could do it. They were kind of in that fear mindset. And then as each of the classes evolved, I saw people just getting more and more confident, starting to do deals and starting to really just come out of their shell. So this stuff works, right?
David Lindahl:
When you start winning the battle of the mind, that's what happiness is all about.
Kim Lisa Taylor:
Right. Okay, so let's talk a little bit about the current market because I know everybody is really curious and we all love to hear from those that are in the trenches. What do you think is going to happen and what do you think is happening right now? I saw an article in GlobeSt, and it was just from last week, August 15th, saying that commercial mortgages are down 52.2% since August of last year, rates are expected to rise to six to 8%, and commercial properties have dropped by 25%. Is this good news for syndicators?
David Lindahl:
It's good news, but it's not unusual during a market reset, which we're in right now, it's 2023. We had the last market reset in 2009 after the financial crisis of 2008. The one before that was 2002 after the IT crisis of 2001. This is what happens during the reset year. Sellers still think they can get the inflated prices. They don't want to sell lower. There are some sellers that can actually hang on, they don't need to sell. The ones that do need to sell will eventually end up selling. But for even a larger loss than they would've taken, or not a loss, but maybe some will sell at a loss, but maybe less capital than they would've gotten had they sold at the turn. So that shakeout starts happening.
And then also, there's always the group of people — 2001, 2008, 2021, '22, that bought at the wrong time. Most of these are investors that started, this is their first cycle. Maybe they started in 2018, 2019, 2020. They did a few deals and they made a ton of money, which is awesome. And if they were using the right conservative formulas to do that deal, even better. If they stuck to those formulas as they're doing more and more deals, then that's really good. But the problem is, when it's your first cycle, you typically don't stick to the conservative formulas because you start to make money, more money than you ever made in your entire life, things are going good. You want to make more money, you want to do more deals. You want to feel that adrenaline of the acquisition fees coming in, the cashflow coming in. So you start to get away from the model a little bit.
You start thinking, "Yeah, I can make this work. I can make that work. It doesn't quite fit what we call the ‘trinity.’ It doesn't quite fit our model, but yeah, I know it could make it work." And the worst thing that happens is, it does work, because the market corrects the mistakes. in an up market, especially near the peak, those mistakes are corrected because of the accelerated appreciation. And then all of a sudden, the bottom gets kicked out. I like to call it “the naked man is exposed,” always exposed at low tide. Right? Because that's what happens. When you're now not disciplined, you're not buying properly. And the market has this crash, like what just happened with the interest rates. And then people were buying those bridge loan deals, they were financing with that. That was like the guillotine just waiting over their head. If the market goes the wrong way, you're screwed. Unfortunately, that's what happened.
So those are the people now where there's the opportunity. When you said that the mortgages are way down, they are way down. And that's typical for a market like this because sellers aren't cooperating. The ones that have to sell will sell, but we'll see this. It's normal, so it's good because we're going to see the backside of this in two, maybe three, four, six months. And then it's like, put on your sneakers, lace them up, and let's get ready to run.
Kim Lisa Taylor:
Well, before we delve a little bit deeper into that, you mentioned the “trinity.” We can't do an interview with Dave Lindahl without asking about “Dave's Holy Trinity.” So can you just refresh everybody's mind on what that is?
David Lindahl:
Yeah. So when you're first starting out, I always preach to be a conservative investor because that's how I was taught. So the trinity is, when the three of the ratios line up, then it's a buy. So the ratios are the capitalization rate of eight plus. So you want your capitalization rate to come in at eight, over eight. Your cash on cash return is 12 plus, and then your debt coverage ratio is 1.6 plus. This came about because I realized that those were the deals that I was getting my best returns on, when they met those ratios when I first started out and I was analyzing my stuff. I also realized that if a deal didn't go right, I would see how I get into it. And it was usually because those ratios were off a bit. So when you're a conservative investor, you can do that deal and get 25% of the cashflow, the profits, and 100% of the acquisition fee by bringing in investors to that deal.
So that's why when we start out, that's what we teach, momentum play deals, and we teach you to be conservative. Now, after you do a few deals and you start building your real estate, you learn about value-add and you actually execute a value-add or two, then you can start playing with the trinity because you understand how the game is played. But until then, do two, three deals, do it with the trinity, you'll win on those deals, you'll have all the confidence, and then you stay within the model, just playing with it just a little bit because you understand value-adds.
Kim Lisa Taylor:
Okay.
David Lindahl:
The problem most people have is, they play with it a little bit as they start becoming successful. And then they become more successful, the market corrects their mistakes, and then they just blow it out. They'll tell me that the trinity doesn't work anymore. It's like, "Oh, no, the trinity works. But if you're doing deals that are way out of the trinity, you can't do any deals unless they're in the trinity." My response is always look at your relationships.... Some markets, there's not as many deals in the trinity, the backside of the markets. At the beginning of the upsides, then there's a lot of deals there, but there's always deals that meet that trinity or very close, and it's your relationships that will get them to you.
Kim Lisa Taylor:
Well, so with the Holy Trinity, if you're doing a value-add, you still have to achieve the Holy Trinity. It's just that maybe there's going to be…
David Lindahl:
Yeah, you want to get to it within six to eight months. So that's the whole idea with a value-add. It's like, "Okay, so I'm buying it for below cash on cash return, but I'm going to be able to increase my rents because I'm going to be improving the units by X amount now and that will come in by this date."
Kim Lisa Taylor:
Right. Okay, that makes a lot of sense. So you said that there's some opportunities coming. Where do you see that materializing?
David Lindahl:
The opportunities are coming. First of all, there's a wall of debt that's not being paid. So those properties are going to be coming out to the marketplace. So you're either going to get them beforehand, prior to them going to the bank, and you can potentially negotiate that with the bank on the takeout. You can get them from the bank buying the notes, and then afterward, it's usually best, I find, to wait until they come back on the market after the banks get them, if you can't get them before. It's always best to get them before and negotiate a take-down with the bank before the bank actually takes it over. And then if not that, then get it on the backside.... Well, you had referenced an article. I think there's 90 billion of debt coming into the marketplace.
Kim Lisa Taylor:
Yeah, 90 billion is estimated right now. And they expect that if the federal funds rate increases to 5.5 to 6%, that that's going to double.
David Lindahl:
Yeah. I mean, as investors, those are the market conditions that we wait for. It's unfortunate that people are in that position, but it's just a typical business cycle. So you take advantage of the cycle when it comes.
Here's the typical way people get into these problems: First of all, in this cycle, a lot of it is due to bridge financing. Bridge financing is typically buying a deal for below 85% occupancy. If you buy for below 85% occupancy, which is considered equilibrium by Freddie Mac and Fannie Mae, then they won't finance the debt. Freddie Mac and Fannie Mae are always the cheapest debt, which means you can buy more property, you can spend more and win the deal if you get this cheaper debt.
So for the first time since I could ever really remember, bridge financing — which is if the property has a little hair on it, needs a little work, you'll get bridge financing first until you can get up to 85% occupancy, and then you switch it over to Freddie Mac, Fannie Mae — it's always a point or two higher than Freddie Mac, Fannie Mae, in terms of percentage, and there's always one or two points that you have to pay as well. So that dropped below Freddie Mac, Fannie Mae. So the deals that people couldn't get to pencil out with Freddie and Fannie, they get the pencil out with bridge. But the big problem with bridges is, there's a lot of added risk because that debt is due in typically two to four years. And if interest rates go up or if you don't hit your value-add, then you don't have the money to refinance that debt. You'll have to come out of pocket.
So that's the game of Russian roulette that people were playing with. Unfortunately, what happened was interest rates doubled. So these loans that are coming due this year, next year, they're not going to be able to refinance because there's another thing that happens. It's almost like the perfect storm to get people in trouble, is that the rent, people who are expecting these rent increases to meet their goals, their pro formas, their NOIs, and then with the increase in the interest rates, we saw rents drop as well. When the market dropped, the rents dropped. So those pro formas not only weren't happening, rents were actually dropping below market as well. So there was a double whammy happening. Interest rates go up, rents go down. NOI, net operating income, goes down. So therefore, that property doesn't qualify to be refinanced the majority of the time.
Kim Lisa Taylor:
Even if they bring in additional money?
David Lindahl:
They can bring in additional capital, yes. So that's the thing. So in order to save the property, you bring in additional capital. And it's usually a big hit, it's a big number. Depending on the size of the deal, it could be 300,000 to three million. I saw a deal out there at 48 million, and the bank would only lend 24 for it. And actually, Mark Shula got that deal, one of our clients. You were at the first Insiders Club, right? Or the second one. Mark talked about that deal, how they were able to fund that deal, working with the bank, working with the owner. But yeah, there was a huge haircut off of that deal.
Kim Lisa Taylor:
Right. Well, yeah, I've heard of some of these deals too, where people are, they're refinancing from bridge, and the lenders saying, "You're going to have to bring a million or $2 million to the table." And we've actually been able to help some of our clients structure deals like that because if your documents or your investors will allow you to do it, then the banks will actually allow you to bring in a pref equity piece that doesn't have any voting rights, doesn't have any ownership interest, but they get basically mezzanine debt, but they're coming in as a separate class within the LLC. And with that structure, then the lenders will allow you to bring them in without having them sign on the loan. They can come in for two, three years while you need the extra cash, finish your capital improvements or whatever, get those rents back up until the property's operating well enough that you can buy them out.
David Lindahl:
Hold on, don't leave that thought. Because I'm not in trouble with any of my deals, fortunately, I'm not familiar with that, but I'm interested in it.
Kim Lisa Taylor:
Yeah.
David Lindahl:
So is that private equity companies coming in or is it individual?
Kim Lisa Taylor:
Actually, they can create their own. The way that we write our docs is, we have some language in the docs that say that people are able to bring in a superior class if needed to salvage the property. First, they usually go do a capital call to their investors. They're only usually able to raise maybe quarter to a third of the money that they really need, and then they have the ability to go out and to bring in a preferred class that just gets maybe a fixed return, but maybe high, it might be 10 or 15%. But they're getting paid before the equity investors are getting paid with the idea that after three to five years, you're going to refinance and cash them out again.
David Lindahl:
So is benefit for this new capital coming in the fact that they're getting a higher return than the common shares?
Kim Lisa Taylor:
And they get paid first before any of the other investors. So they're right after the bank. The lenders have actually suggested that in some cases, "Hey, why don't you bring in this pref equity piece?" And the trick here is that for the pref equity piece, not to have any takeover rights or ownership interests because if they have either of those things, then they also have to sign on the debt. And that can be a complicating factor down the road if you want to try to cash them out.
David Lindahl:
Good point. So there would need to be a lot of upside in that property for someone to come in on the white horse?
Kim Lisa Taylor:
Well, that and then they might be sucking up all your cashflow for a while that you're not having anything to your equity investors until you can get them out. But in the meantime, you're not losing the property to foreclosure.
David Lindahl:
You're not losing anybody's capital.
Kim Lisa Taylor:
Right. You're not losing them. Eventually the prices will come back, the interest rates will change, and eventually it should work itself out, but...
David Lindahl:
It's interesting because I've been teaching for so long that a lot of my clients have actually gone out and started teaching themselves. Some of them got stuck in, they were 218, 219, 220 investors, and they did really well. They're out there teaching other people how to do it, but now they're in trouble because they fell into the same trap of a first market cycle investor where they made a bunch of money and their mistakes were corrected to get away from the trinity. And now they're calling me and saying, "Hey, how can I get out of this? I've got one or two properties thatjust aren't performing, and I don't want to lose anybody's capital. How do I get out of this?" So now I have a potential answer. Thank you.
Kim Lisa Taylor:
Yeah, well, it could be money from your own investors because maybe you have some investors that are like, "Well, I don't want to put more equity in the deal, but sure, I'll take 15% or 12% interest for two or three years on a fixed return," and they're willing to even put up the more money for it. Or you could bring in an outside source of funds. So there are people that are contemplating doing rescue funds where they're creating fund of funds or something like that, specifically for that deal or for this purpose so that they can go out, rescue some of these properties that are in trouble. It's just you got to teach your current investors, "You're just going to have to sit tight and hang on for a while. There might not be a lot of cashflow to share with you, but in the meantime, we're not losing your money. We're not losing the property."
David Lindahl:
Better than the alternative. Yep.
Kim Lisa Taylor:
Yeah. So there is hope, but it does require some planning. And it also might require your investors' approval because if you don't have our documents, you've had them written by somebody else, they probably don't have the provisions our docs do where we've allowed people to bring that in if they need it. And you might have to go to your investors and get their permission, but if they're smart, they'll agree to it.
David Lindahl:
Yeah. One of the things I learned — because I was a first cycle of investor as well and I bought some properties that I shouldn't have at the top of the market — but one of the things that saved me was my documentation, the great documentation that said I was in control of everything regardless. I was able to make decisions without having to go and ask other people. And the decisions were the right decision. I was always looking out for the best interest of the investors. But some investors, they just don't see anything beyond that. You know what I mean?
Kim Lisa Taylor:
Yeah. Yeah. They think they're on a sinking ship and they don't want to do anything to help bail it out. But if you can... It's education, right? You might have to go do a presentation to your investors, "Hey, here's the situation we're in. Here's how we got here. Here's where we can see our way out. Here's our options." And then let them decide, because an educated investor is a lot more likely to look at it logically and say, "Okay, this makes sense." Whereas if you just kind of say, "Hey, we're going to do a capital call, y'all need to put up this much more money," you're not likely to get a very good result.
David Lindahl:
By the way, while we're on this particular subject, the one thing I learned being investing since 1996 is, if a property's in trouble, you got to over-communicate. Because most people, what they would do is they stop communicating because they don't want to talk about what's going on with the property. But that is when you over-communicate. You over-communicate, and then when you get in a situation like this where you have to have a call like that and say, "Hey, this is where we're at. These are the solutions. Let's all talk about this and get it together," the investors are right there with you because they know what's going on with the property. You probably had calls before that discussion about, "All right, this is what I think we should do about it. Let's hear from other people. What do you think?" And that way you still come out okay from it.
Because at the bottom line, real estate is risk. People go into investments, they assume that they're going to go okay, but not all of them do. I mean, that's why it's real estate. That's why in all the private placement memorandums, it says you can lose some or all of your money. I remember the first time I got one, it wasn't from you because I started with somebody else a long time ago. They gave me the first PPM, and I was like, "Wait a minute. I can't give this to my investors. Every page says they're going to lose all their money." He says, "Yeah, well, if you don't say that, then if they do, then you lose all your money too." I was like, "Oh, okay."
Kim Lisa Taylor:
Hey, I should have done this in the beginning. And sorry, Krisha, this was an oversight. I wanted to introduce Krisha Young, our co-host on the show today. Krisha is a new staff member for Syndication Attorneys. We're super excited to have her. She has got many, many talents that we're going to be tapping into, but she's going to help start co-hosting our podcasts. And also, you'll be probably talking to her if you're calling our office and need to talk about legal services. So Krisha, welcome to the firm and welcome to our podcast. We're super happy and excited that you're here.
Krisha Young:
Oh, thank you so much. This is such an awesome conversation. And just what you were talking about, looping back to mindset, that fear of confrontation, being afraid to face the challenges or speak about the challenges, that's a mindset issue. That's a fear of confrontation. So I think it's awesome that you are really focusing on mindset because it is that foundation piece when it comes to doing anything in business, I think, that makes or breaks something and can make, if it goes awry, a little bit more smooth because we are having those conversations. We're not afraid to have those conversations and work to some sort of solution as opposed to hiding and pretending nothing's wrong, nothing to see here. So I just wanted to loop in on that. Thank you so much for having me.
Kim Lisa Taylor:
Yeah, thanks, Krisha. Well, Dave, kind of back to your point about overcommunicating, I heard you say that when I went to the first Multifamily Millions Bootcamp with you. I remember you saying, "Hey, if you have a problem at the property and you don't tell anybody about it, it's your problem. If you tell everybody about it, it becomes everybody's problem." And that stuck in my mind. I had some clients a few years later that ended up in a situation where there was an insurance claim at a property, and the insurance adjuster, they ended up undervaluing the claim by 90%. So it created a situation where they had to sue the insurance company to try to get them to perform. And of course, that dragged on for a couple of years. In the meantime, some buildings were down, they couldn't be rented, they couldn't make their mortgage payments. They ended up losing the property to foreclosure.
My advice to those syndicators was, step up your communications. Don't do once a quarter, do once a month. If a lot of things are happening, maybe even talk to everybody once a week. Yeah, that property ended up getting lost, the investors did lose their money, but nobody got sued because they all knew that the syndicators were doing everything they could to try to salvage the property. They were doing their best. They were taking every step they could possibly take. They were listening to the investors as far as any advice they might give. And all of that played into just everybody feeling like, okay, not all of these investments are great. Most of them are good, but some of them fail. This just happened to be one of them, but they didn't blame anybody for it. So I've seen that.
David Lindahl:
Definitely works.
Kim Lisa Taylor:
Yeah, I have. And I've seen the other side of that too. I saw one where somebody started putting their own money into a deal. The management started putting their own money into a deal until they got to a point where they said, "We just can't do it anymore," but they weren't communicating with the investors. So at that point, they accepted an offer, but the investors were caught short. So the investors were all of a sudden up in arms like, "What's going on? Who gave you the authority to put all that money into the deal? Why didn't we know there was a problem?" Had that person been communicating all along with their investors, then it would've been a different outcome because the investors would've understood, "Hey, our choices are, we can put in more money or we can sell the property, maybe take a little bit of a loss." They could have made that decision, but because that decision was taken away from them, they were upset.
David Lindahl:
Mm-hmm.
Kim Lisa Taylor:
So, a lot of stuff, all the good stuff. All right, so where do you think we are right now with sellers adjusting their prices? We're starting to see some of them do it, but there's still some out there that are holding out. Is that what you're seeing?
David Lindahl:
Yeah. Deals are starting to pop. I think sellers are still waiting. Deals are way down. I remember Vanessa talking at the last Insiders Club, and she's like... And she's been a really smart investor. All the deals that she did during the height are still performing really well. This is the deal. If you're a value-add investor, if you buy based on being able to increase the value to the market, not overprojecting where the market will be, then typically you do well. Those are the ones that are okay during this particular part of the cycle. But, she was doing a deal a month and she hasn't done a deal in six months because they're just not out there right now. But they are starting to pop through distress because people need to sell.
People will stop doing the repairs first, so they can make the investor distributions. And then when they realize that some repairs do need to be made or the rents aren't coming in, then they start making the investor distributions. When they stop doing the investor distributions, the capital expenses still continue to rise in. Or some of them absolutely need to get done, but they don't have the funds for it. So now they do a capital call to the investors, then you get a small percentage, usually that will give money. Either the sponsor has to put up the money, or the next step it's going back to the bank.
Kim Lisa Taylor:
Yeah.
David Lindahl:
Because they're trying to make their mortgage payments. And then they'll get to a point where they can't make a mortgage payment. So those are the deals that are out there right now.
Kim Lisa Taylor:
Are we seeing the banks have any flexibility at all on modifying terms or are they just-…
David Lindahl:
Yeah. Yeah. So you can go to a bank because the banks don't want them on their balance sheet either, and they understand what's happening. It all depends on what's on the balance sheet of the bank right now, how many loans that are either in default or close to default, and that will determine how much they're willing to negotiate on a particular deal. But if you can get it before it goes back to the bank, negotiate with the bank, like a short sale type of a thing. Short sale, that's how I got into this business. My first real big deal was a short sale down in Texarkana, Texas. The mortgage was 4.2 million and I bought it back from the bank for 2.2, actually from the owner, but the bank had to agree to it for 2.2. So those are starting to come back.
Kim Lisa Taylor:
All right. So yeah, I think the message there is don't forget to talk to your lender. If the loan's in trouble, say, "Hey, what can we do? Can we modify this? Can we bring in some more money? What's going to satisfy you and your investors to make sure that we can ride this out? Because we can see the other side." And you might have to do a little presentation to your lender even and show them what you're doing and how you're projecting that you're going to get through this.
David Lindahl:
Oh, absolutely. You've got to create a presentation or else... It's not going to happen with a phone call.
Kim Lisa Taylor:
Yeah, same with your capital calls. If you have to do a capital call, you should be doing a presentation and a little PowerPoint to your investors just explaining, laying out the situation. Something you can send to them, they can mull it over on their own and make their decisions. Those are things that we can help do as well.
All right, good. So I want to just remind everybody, if you have any questions, please either type your question in the Q&A or raise your hand. We're going to go to questions and answers in a little bit. But Dave, what else do you think people should know right now? What haven't we covered?
David Lindahl:
Well, if you haven't started investing, these are the times to set your foundations. Get your team in place, decide which market you're going to invest in. Get your team in place, get communication up. There may not be a lot of deals in the market now, but there are going to be. So if you start later to build your teams and your resources, then you're not going to be the guy that they're going to go to first. So it's going to be a lot harder then. So now's the time. Now's the time to establish a foundation.
Kim Lisa Taylor:
And your investor database, because you need to be educating your prospective investors on what is happening in the market right now. And that at some point we're going to come out of this, there's going to be some investment opportunities. These are how they're going to work, but they're going to move fast. If you want to be part of it, then let's get a relationship in place right now so you understand what we're doing and then we can start communicating these deals to you. So get your investor database in place. Just because people might not invest with you today doesn't mean they're not going to invest with you six or 12 months from now. Okay, great. Well, let's talk about some of your upcoming events. There's a lot going on.
David Lindahl:
Yeah.
Kim Lisa Taylor:
You've got Ultimate Partnering. Tell us about that.
David Lindahl:
Ultimate Partnering in San Diego this year. We have Ed Mylett as our keynote speaker. Probably 75% of the people there are alumni. So people from way back in 2002 when we first started teaching all the way to... We got new people that come in. It is the first event they come and see us at. But it's all about networking. It's all about finding private money in the room. It's about finding partnerships in the room. It's about the deals that are available in the room and the education from the stage. So we teach and we network, teach and network. It's so much fun. Kim, you've been to, I don't know, probably every one of them since 2006 when you first came to us.
Kim Lisa Taylor:
Yeah.
David Lindahl:
But, it is a room where people just open up their arms for new people coming in. It's like everybody's part of the community, everybody wants to help each other do well, and it's probably one of the most uplifting environments. It's the event I look forward to every year. I can't wait for it.
Kim Lisa Taylor:
How can people find out about that and sign up for it?
David Lindahl:
They can go to ultimatepartnering.com, ultimatepartnering.com, you'll see the signup sheet.
Kim Lisa Taylor:
All right. And then Private Money Bootcamp. This is an event that I co-teach with Bob Bowman. Some of you might know Bob Bowman. But we've been teaching it together for a long time for RE Mentor. So there's one of those coming up. I think the next one is October 20th. Is that the right date on that?
David Lindahl:
I think it's the first weekend in October, I think. I have to double check myself. I know it's in October. So that's all about how to raise private money. So Bob teaches what to say, who to say it to and when to say it, which is the thing that most people fear. And then Kim talks about how to put it all together and keep it legal. So it's a great combination and people love that event.
Kim Lisa Taylor:
Yeah. And we always have a good time doing it too. We love getting close to the students there and really getting to know everybody. And then we've talked a little bit about your Insiders Club. Let's tell people what that's about.
David Lindahl:
Insiders Club is, I created this group, it's a network. It's not a mastermind, but it's a network. It's filled with the three different types of investors. I call them the doers, which are the people that haven't done a deal yet, but they're going to. That's why I call them doers. We've got the rainmakers, people that own between three and a thousand units, and they're learning how to put all their systems in place so they can get over a thousand because that's their next goal. The doer is, their goal is to get one deal. The rainmakers, they want to get to a thousand. And then the magnets are over a thousand. They're all about business building.
During the three days that we're together, we go through all the different aspects of what to do to get yourself starting out. We usually have members present about... The magnets will present to the doers, how they started out. And then we'll get into systems. We'll do a lot of mindset, as you know. Because it doesn't matter where you are in those three steps, it's all about mindset to get to the next step and to keep yourself going. And we have guest speakers come in. Actually, Ed Mylett came in and spoke to that group. Kim speaks at different times what was going on in legal field, but it's very diverse in terms of topic. But more importantly, you expand your network very, very quickly. And we have a lot of fun.
Kim Lisa Taylor:
Yeah, that was funny. And it was a good time too. The other thing that I've always say to people is, they always ask me, "Who are the different real estate trainers out there? And when I talk about RE Mentor, I like to say RE Mentor has a curriculum. By the time you go through all the coursework that RE Mentor has, it's like you've got an associate's degree in real estate investing and multifamily in particular. So it's unique in the market, I think. That way, is that you guys really go, you have your Multifamily Millions Bootcamp. If you haven't been to that, you need to go. That tells you what to buy, what not to buy, where to buy, how to determine the emerging markets, things like that. I was just blown away by the amount of information that was provided at that event when I went back in 2007. So then you go to the Private Money Bootcamp, but then you have some other coursework. Can you tell us about that?
David Lindahl:
Yeah, so this was all an evolution. Way back in 2002, I was the only one that was teaching how to invest in multifamily properties. So I taught Multifamily Millions Bootcamp. So then as people started going out and doing deals, they're like, "Dave, can you teach us how to raise the money?" I was like, "Okay." So I created Raising the Money Bootcamp. But we went to people doing deals and they're operating. So it's like, "Dave, how do we operate these deals? Can you teach us how to do be an operator?" So we created Managing the Manager. And then we were teaching people how to do deals and do big deals, but yet they didn't qualify.
And by the time we got there, about seven or eight years in, we realized that a lot of our people had been very, very successful. And in order to qualify to do the bigger deals starting out, you need a sponsor. So we just got our alumni students and said, "Hey, how would you like to sponsor deals? We're going to have an event. We're going to bring people in, they get to meet you. Your benefit is you'll get to do deals. And their benefit is they'll have sponsors." So we created the sponsorship event.
And then we created the immersion event because people want to go out and they want to see the numbers, really dive deep into them and understand them. Then they want to go out and touch the properties that you just analyzed. So we created immersion. It's like, "Here are the numbers and here are the properties, touch and feel them." And then third day is how to build your team. So yeah, it's really been one thing playing. It was the needs. It's the needs of the client base. Downstairs, you've been here downstairs, when you walk in, it's 12,000-square-foot building, there's a sign that says, "We are not successful until our clients are successful." And we're always thinking about what do they need? What are the challenges in today's marketplace? What can we create to get them into those challenges so they can do more and more profitable deals?
Kim Lisa Taylor:
Right. Absolutely. And I've seen that work. I will tell you that there are more clients of ours that have gone on and done many, many deals coming out of your program than any other.
David Lindahl:
I've got this great testimonial from... And we got a great mentorship program too, coaching program. So since I just did that whole pitch, I might as well tell people where they can go if they want more information. So you can call the office 781-878-7114, 781-878-7114. You can talk to Rob Reposa, or you could go online and you could email Rob Reposa. It's R-E-P-O-S-A, robreposa@rementor.com. So what was I just about to talk about before I did that? Sorry.
Kim Lisa Taylor:
Some of your programs, how to find out about them. RE Mentor, also. The website, if you go…
David Lindahl:
Rementor.com. Yeah. It's kind of scattered right now. We're putting it back together.
Kim Lisa Taylor:
Okay, okay. All right. But you can reach out to their office, reach out to RE Mentor, talk to their people. It's well worth the investment. I think I've just seen people that have gone through coaching program. I mean, all of our clients that have done multiple deals have come with a coach for their first two, three deals, and they're the ones that have gone on and done many, many more deals. Ot
David Lindahl:
Accountability. Accountability gets in there. What I was going to mention is this testimonial I play. So there's this woman, I think you know her out of Texas. She's a management company. Kathy Fontana. Do you know her?
Kim Lisa Taylor:
Mm-hmm.
David Lindahl:
So she comes to one of my preview events way back in 2009 or 2010, and that's when I was teaching back then. She stands up and she says, "I want to say something." There's a lot of crazy people in the world. I learned a long time ago, is you just don't let anybody talk. I learned in New York City when I did an event there and they started saying all this crazy stuff from the crowd when I'm letting them talk. So I was like, something inside of me said, "All right, let her talk."
So she said, "I want to say something." I said like, "Okay, come on up." She said, "I just want to say that I'm a manager here in the Dallas-Fort Worth area. And those people he had up on there on that wall, they're all my clients." She said, "I've got about 12 to 18 of his clients, and I manage their properties and they're doing really, really well. And I want to know how they doing it. So I came to the the class myself.” So she came to the class, she went through all the mentorship and everything, and now I've got a testimonial that I did two years ago. She talks about the 5,000 units that she now owns. She taught her son how to do it through my systems and he owns his own jet. So I mean, if people say, "Does that system really work?" And I say, "That system works if you work. If you work the system, the system will work." Simple as that.
Kim Lisa Taylor:
Well, this isn't a get-rich-quick scheme. It's do a lot of hard work and get rich over time scheme.
David Lindahl:
Right.
Kim Lisa Taylor:
Yeah, but also it's not just about you, it's also about helping your family and friends achieve their financial dreams. And you've got to keep that in mind because it's not just about you, it's about them. If you're kind of always keeping that focus, you're going to have the right mindset to be able to stay in it long term and make sure that their interests are met. So that's super important, think about your investors.
All right, well, we have a shy crowd today. We haven't had anybody ask any questions. Krisha, do you have anything you'd like to add to anything we said today?
Krisha Young:
Not at the moment. Just this is amazing information. Amazing, beautiful information. Thank you, David and Kim. You guys are so brilliant. A wealth of knowledge here. I love how enthusiastic you are, but it's like how much you value being of service. That's really what's coming across to me here, is just like, it's not just about the money. That part of it is great and it's fun and it's there if you want it, but it's really about it being a passion and being of service.
David Lindahl:
This is what I figured out. If you focus on your investors and you focus on your tenants and the banker—the two most important people in the deal — then everything else takes care of itself.
Krisha Young:
Yeah. I agree with that. From a security standpoint, when you're dealing with passive investor money, you have to put their interest before your own. You have a fiduciary responsibility to do that. So always be thinking about them before you and what's best for your investors, and you're probably going to make the right decisions.
David Lindahl:
I remember one time, I walked up, I was living in the one-bedroom apartment when I started investing in multifamily properties. And my sister Tammy, who you know joined my company, she was like... We were in the living room with two desks. That was the company. But she was taking care of all the admin work. I remember I walked up one day up the stairs to the second floor where the apartment was and I hear her screaming at somebody. I mean, she's screaming at them.
So she hangs up the phone. I was like, "Who is that?" She said, "Oh, that was Mrs. So-and-So from Washington Street over in Brockton." And I was like, "Well, what happened?" And she said, "Oh, we don't live above the rent," or something like that. I said, "Why did you talk to her like that? Was she rude to you?" She said, "Oh no, she was supposed to do this, and she..." I was like, "Listen, that woman and every one of our tenants are our gold." I said, "They pay for our properties, they're our cashflow." I said, "Don't you treat them like that. Treat them like the gold that they are. And if you can't, then I can't have you work here anymore." And that's been our mindset ever since.
Kim Lisa Taylor:
Yeah, you have to put them first. Put them first. So, all right, Dave, thank you so much. As always, we're always blown away by the information that you share with our audience. Super excited to see everybody at Ultimate Partnering. We're going to be there as sponsors. Also, looking forward to seeing anybody that hasn't been to the Private Money Bootcamp. It's three days of learning and immersing yourself in securities compliance and deal structures. But hey, I try to do it in a fun way, but also learning the practical side of it from Bob, how he got into this business, how he talks to investors, how he meets people. All that is just critically important to learn as you try to put all of this stuff together. You've got to build an investor database. That's what we're here to help you do. Dave's here to help you figure out what properties to buy, what not to buy, and how to put the deals together. So with both of us, you got a winning team and you're going to be able to do this business.
So Dave, thanks so much. Krisha, thank you so much for joining. We will look forward to seeing everybody at UP.
David Lindahl:
Take care, everybody.
Kim Lisa Taylor:
Thank you.
Krisha Young:
Thank you, David. Thanks, Kim.
Kim Lisa Taylor:
Bye-Bye.