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In this podcast, we had the privilege of having Gary Lipsky, a true real estate entrepreneur with an impressive focus on Multifamily Syndications. Gary has an outstanding track record, having successfully acquired over 3000 units with a total value exceeding $250 million.
As the host of the Real Estate Investor Podcast, Gary is passionate about educating fellow investors by interviewing real estate experts and providing valuable insights into the real estate landscape. Gary’s commitment to knowledge sharing doesn’t stop there—he has spoken at numerous conferences, inspiring and educating countless individuals in the real estate domain.
In our conversation, Gary delved into the critical realm of asset management, emphasizing its pivotal role in real estate investments. He stressed the importance of a robust asset management strategy in maximizing the potential of acquired properties.
He also highlighted the significance of meticulous planning, proactive maintenance, and strategic value-add initiatives to enhance property value and overall returns. His insights shed light on how effective asset management can turn a good investment into a great one, showcasing the power of optimizing operations and making informed decisions to create a successful real estate portfolio.
In This Episode
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Gary’s entrepreneurial ventures and diverse experiences
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His real estate journey in acquiring 3000+ units with a total value of $250MM
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Current market perspective and data-based decision making
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His expert insights in asset management
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The importance of planning and having control in the real estate industry
Welcome to another episode on Wealth Strategy Secrets. Our next guest is Gary Lipsky. Gary’s a 20-year real estate entrepreneur and focuses on the multi-family syndication business, he’s acquired over 250 million in assets and he’s also the host of the real estate investor podcast.
One of the things I find interesting about Gary is his forte around asset management. So today we’re going to break down what asset management around multi-family, and how can you optimize this to strong returns for the investor, and wait till the end until you hear all of his insights about how he breaks that down, how he can optimize and win.
Gary, welcome to the show.
Dave, thanks for having me. I appreciate it.
You bet. I’ve been looking forward to the conversation, Gary, and for folks who aren’t familiar with you, can you tell us a bit about your background, how you got into real estate investing and asset management, and all the things you’re doing today?
Absolutely. I have been an entrepreneur my whole life. I own a restaurant delivery service in college, outside of college where I co-produced three low-budget independent films. I started a company where we did after-school, outdoor ed, and leadership development programs. And we worked with 90 schools daily, 9,000 students daily. So I had like nine, I looked at it as 90 properties throughout Southern California.
I sold that business at the end of 2016 and got into real estate full-time at that time. I had been investing a little bit. I had a single-family home, and I did a lot of research on neighborhoods for my own family, like where to live and schools and whatnot. So I didn’t realize at the time I was, I was educating myself on real estate until I got into it full-time time and I knew I wanted to use my creative side, which I use in all of my businesses, particularly in the film business and my, my business side of things. Real estate was a good fit for me by using both sides of my brain.
For sure. And was there something driving you towards real estate with that, you, you saw?
Absolutely. It was the ability to control my destiny and not rely on others. Like I can take over a property, and force the appreciation. It doesn’t matter where the markets are at any particular time. If I’m adding value, that’s still like creating a lot of value that I can extract. So I always wanted to be in control of my destiny. And in the film business, I didn’t have that destiny. I didn’t know if I was writing a script I’d keep rewriting it and rewriting it and didn’t know if it was good or not. And even if it was good, I had to rely on other people to want to invest in the movie, to make the movie, to release it, and ultimately get paid for that. So there was a lot out of my control.
And maybe I’m a little bit of a control freak, but I wanted to be able to, provide for my family and control my destiny without having all these other outside factors to manipulate what I’m able to do or not do.
I find it so interesting how people have grown. I mean that’s such a creative, how you make one choice in life that leads to something else and drives it. But there’s some last straw or some people are either, frustrated or excited, to take on an opportunity. But, but I liked that. That means that hits home around, having more control over your financial future.
Sadly, most folks are outsourcing their financial future to someone on Wall Street, Who says, Hey, I’ll take care of this. Real estate investing in alternative assets is different where you completely have control and create more predictability in your life, which means, that’s how you’re going to be able to scale more. So that’s pretty cool. Did you develop a particular investment thesis? You know, once you got into the multifamily side and things that you were chasing?
Well, for multifamily, we knew there was a tremendous housing shortage and everyone needed a roof over their head. So, that spoke to me, and you can lay out, you can look at the T12 or you can even recreate a T12 if an owner doesn’t even have those numbers and you’ve got economies of scale. So you can, to some degree, nothing goes perfectly, but you can estimate where the numbers will be. And certainly, we’ve always been our numbers, but you can lay them out comfortably. There’s enough history. There’s enough information. You do this enough that it will tell a story of where you could bring it to.
And you can look at a property and know exactly what needs to happen to help bring it up to that, that quality. So I feel it’s one of the best risk investments that you can make out there. No one’s making a tweet, and your property goes down 30%, 50% overnight. There are a lot of facts there are opportunities in a good market and a bad market. No matter what, there’s always opportunity out there and that’s what I love about real estate.
And so for folks, if you didn’t catch that T12 means the trailing 12 months of financials. And you bring out another good point, especially, since we have a lot of entrepreneurs in the audience, And if you think about it investing in multifamily, essentially, you’re buying a business, And we can buy businesses whether they be franchises, a tech business, Amazon e-commerce business, there’s so many different businesses.
And I find that there are lots of variables in most businesses. But if you get into, multifamily, like you say, you have a trailing 12 months, you can look exactly at the financials. There are no hidden surprises. You know what everything is doing and how it’s performing. And then you can say, okay, how can I then, optimize this?
Absolutely. So there’s a property we have on the contract right now. When we looked at the T12know knew that they have one extra employee on staff, which we don’t need. We know that, of course of all of our other properties. That saves us 50,000. Then they had an insurance claim because their insurance bill was way too high when lookedook at other properties.
So we found out they had a claim a few years ago. So they’re paying $55,000 more than we’ll be paying. Plus the water bill was more than two times higher than what we currently pay at our other properties as well.
So we knew that they didn’t have any low-flow toilets. They didn’t have aerators on their faucets and showers. So what that does is, their toilet has 3.5 gallons per flush. And if we installed a low-flow toilet, that’s 0.8 gallons per flush. So massive difference. And so when you take these things and divide it by the cap rate, we’re adding millions of dollars of value from day one, as soon as we take over that property.
So if we had that property under contract for 34 and a half million, we’re paying maybe 30 million now for that property because we know that we’re adding millions of dollars of value from taking it over by looking at the numbers and doing a little bit of research. So that’s what I love that it’s a lot less complicated than buying these other businesses. Like you said, each property is a business and we have a team onsite that runs it.
I have a regional manager and then we ask them to manage the heck out of that deal. That business execution maximizes the net operating income so that when ultimately we sell, we get top dollar for our investors.
And do you guys have a particular sweet spot of properties that you’re going after certain markets, certain class demographics that you’ve narrowed it down to?
Absolutely. There are riches in the niches, ever heard that saying? So we focus on a few markets so we can be experts in those markets. We can’t do the shotgun approach. We’d rather have built great broker relationships, and have thousands of data points by underwriting a ton of deals in a couple of markets. And for us, we’ve done all of our deals in Arizona so far, Phoenix and Tucson. We’ve been looking in Albuquerque and Vegas and the suburbs of Denver for a year and a half.
Accumulating data points. But I’m based in Land A, and I’ve got some of my staff in Phoenix. We can’t be experts everywhere. We can’t be, there are plenty of markets I like in the Southeast, but that’s too far for us to be consistent. So I can fly into Arizona, take a 6 a.m. flight, visit all of my properties, and tour five new ones. If I’m looking at deals, have lunch with a broker, maybe a drink, and have strong relationships. So when something comes about, I know right away if it’s a good deal or if it’s not, because we’ve been honed in on that market.
And we also focus on value-wide multifamily. So we’re looking for deals that have workforce housing, it’s you, not that class A super nice property, there’s a lack of workforce housing. They make new buildings for that top buyer or top renter, but they don’t make new stuff for the workforce housing person out there. So, we fix it up, we provide nice value for them, and they’re proud to live in our properties.
Makes sense. And I know there’s a lot of pros and cons to some, workforce housing, You know, what would you say? I mean, some people on the downside, People talk about that as like, okay, it’s a tenant that could be particularly, potentially rougher on the properties. So you’ve got maybe more maintenance charges, things like that. Also, they have a lower income. So if they lose their job or something, it’s not like they have savings to keep the rent going. So how do you approach that?
Absolutely. So in the past, we’ve had some rougher properties, C class that we’re trying to bring up to a C plus. So you’re going to you’re going to have a little bit more delinquency. It’s going to be a little bit rougher on the staff too, because they have to deal with some issues. So you’re going to have more turnover. But we’ve moved into like, if I could bring a C plus to a B, or B minus to a B, like the B is where I want to be basically because it’s a little higher income level.
You know, they might have more savings Like you said, if we hit rough times and a way down to a B class, is a good space. You might have fewer issues, and less damage if someone leaves. So we like to be in that space. So maybe it’s a C-plus property and a B neighborhood can buy at a discount and bring it up to where it should be.
And Gary, what’s your take on the market right It’s it’s been a super interesting year in the industry, primarily driven by the interest rates. So, what are you guys seeing, have you been able to, see that, is the gap between buyer and seller starting to close? Are we getting any certainty with interest rates and being able to do underwriting to put together deals that are making sense now?
So I would consider myself a little bit more optimistic than most others. So, the deal we have on the contract now is like, is we’ll close, It’ll be a year between our last deal. And so the buy-sell sell gap was real because we, we hadn’t been, finding something we’ve been putting offers in, but our gap was a few million on stuff. So, I do feel like it’s a great time to buy. I know people are worried about interest rates, but You know, we’ll probably have another 25 bits, a rate hike in, maybe it’s November, maybe October. But that’ll probably be it. We’re looking at, going into an election year. The Fed has so much debt. They need a refinance. They’ll have to print money. They’ll have to lower rates. There’s a lot of different things that need to happen.
And most likely something will break by then, and they’re going to have to make a switch. And I think the Fed is scared to say, hey, this will be our last, hype because then excitement will happen. And the markets will take off and there’ll be this frenzy, cause there’s trillions of dollars sitting on the sidelines. So they have to be very, very careful about what they say. But I, I feel like this is a good opportunity to buy, we’re seeing things 20, 25% discount.
There’s not a lot on the market. Like I’m not a seller right now. I’m a buyer. I don’t want to sell any of my stuff until a couple of years from now when things get rolling. But I think there’s a good opportunity ahead. You’re going to see some distress deals, not a tsunami-like people are talking about, but people are having a hard time covering their debt service. And some of those loans are coming due. So there’ll be an opportunity.
The office space may, well, there’ll be a ripple effect because a lot of those loans are coming due too over the next, few years. And there might be some banks that go under because they’ve had so many office space loans that they’re going to be hurting. So interesting times, but if you’re an investor, make sure you’re investing with someone who understands the market under underwrites conservatively. I know everyone says that, but to find out what their cash reserves are as a company, and their net worth to help if they can cover a capital call because when I talk to a lot of investors, they’re frustrated that they’ve invested in a bunch of deals and they’ve got the GPS, you don’t have the liquidity to help cover some of these things.
That’s a great point. It’s one of the things we look for in operators as well as having a strong personal balance sheet as well. As long as that as well as the reputation risk maintaining your reputation and not having a capital call, I think is critical.
And what do you think, Gary, as well? I mean, some of a lot of the deals that we’re looking at, I mean, it’s pretty interesting because we’re going deep in terms of the underwriting the analysis and we’re having a hard time finding deals that are like good that we want to bring to investors.
We’re seeing much more of an increase in deal flow this quarter. So lots of deals out there. And even if there are some discounts, I still think we’re overpaying for some of these things. The thing that’s getting me as well is that the cost of these rate caps is huge, And I think a lot of investors don’t realize this. And that goes directly out of the equity that’s raised that can’t go into, value add.
On this current deal, I think we have like 20 different models on all the different loans that, we could have picked, you know? And so we look at our business plan and what’s the best fit. So, finding the right loan is hard. Things you’re getting less leverage, and higher rates if you need a rate cap. So it is difficult to find a good deal. It’s a range out there. So I go back to my current deal. It’s under 135,000 a door we have a comp that’s a C minus property that was almost 150 and the broker also sent us a deal that was 175 a door and both of those other properties were like junk compared to what we had.
So it all depends on what the seller is, you know if they need the money to maybe they need the liquidity or they’re, they’re underwater, like, what’s their motivation is to find those, those deals, because there are some good deals out there. But, like you said, there are a lot of dogs out there as well. And so you’ve got to wait through it, do your homework, and underwriting a ton of deals will give you those data points to know what is a good deal and what is a bad deal.
Right, for sure. Gary, I know your forte is around asset management and we haven’t delved too deeply into asset management on this show. So I think this is going to be a great opportunity for LPs to understand asset management. So let’s break it down for folks, And talk at a high level once you take over, a new acquisition of a property, what are the typical, asset management activities that go on?
So an asset manager manages the manager. So whether you have in-house property management or outside property management, they don’t own the property. So you’ve got to manage them and set expectations high from the beginning. They need to know where the bullseye is as far as we tell them we’re going to secret shop the property, meaning we’re going to call about rent, we might do surprise visits and not catch them doing something bad, but we want to catch them doing something good.
We’re going to go through the financials with a fine tooth comb because we want to understand the financials and there are times when people make mistakes. An accountant can manage 10, or 15 properties and allocate a charge to a property, to the wrong property by mistake. They’re not trying to do something wrong, but we’ve caught that before. Expensive mistakes.
We’re also the asset manager who manages the execution of the business plan. So if you’re going to renovate 50 units in two years, you want to make sure you’re on track. You’ve got to manage that CapEx tracker. As an asset manager, you also have to communicate to the investors what’s going on, what’s going right, and what’s going wrong. And if there’s what’s going wrong, What’s the plan B and plan C to fix that situation? No investor expects everything to go perfectly. That life doesn’t happen that way. But you’ve got to have a plan. And if something is a struggle, then double down on that communication. So maybe it’s your report once a month, but if something, maybe you had a bad insurance claim or something, then you got to communicate two, three times a month and let them know what’s going on, at least from the very beginning. So that’s important. And if you do that, your investors will keep coming back each time.
No investors expects everything to go perfectly, life doesn’t happen that way but you gotta have a plan and if something is a struggle, then double down on the communication.
A good asset manager could make a bad deal good and a good deal great by getting a few extra points in occupancy out of your deal, which can mean 50,000, or 100,000 a year, and then you divide it by the cap rate. And now you’re talking it could mean millions of dollars to the investor at the end of time when you sell your deal. So It’s important to have good asset management because that goes a long, long way. And I know people are starting to talk about it for the last six months. But if you have good asset management on a deal, that’s a game changer.
For sure. And what do you think about vertical integration versus having it outsourced, What are your thoughts on that?
So I’m a contrarian. I know a lot of people want to have it in-house. So my old business, like I was talking about, had 700 employees and probably about 700 independent contractors and it was an HR nightmare. I don’t want to do that. I want to run a business and find good properties and asset manage the heck out of it. So I use third-party property management.
So in Tucson, I have a company that has been doing this for 35-plus years. They’re only in Tucson. They know that market. They’ve been doing it forever.
So I can rely on their expertise in that market. And if I don’t want to stay in that market, I can move to another market and find another property management company. So I’d rather be lean and mean and not be vertically integrated. They’re not perfect. If I had my own company, they’re not going to be perfect either, but I can figure out the gaps of what they may be lacking and try to fill them in as well. And it allows me to be more nimble and focus on what we do best as well.
Good point. And can you give a couple of examples of some, asset management strategies that are, core to what you’re doing and differentiate you guys?
So one of the things that we do is the property management sends us a report. It’s like 18 pages. Some of the pages are sideways. So it’s a PDF. It’s hard to track. So we have a Google tracker, at no cost. Everyone on our team can see it. We have a tab, for CapEx, so we can track everything. We have a lease tracker, so we can track all the new leases. We have a task tracker. So, anyone that’s assigned a task to do it, who’s assigned to it? What is the task? When should it be done? And so we can go back and each week see it right there for everyone to remember.
And then each week we have our set of KPIs for the property. So I can go back two years, three years, whenever I want to see where we stood at any one point for delinquency, for occupancy. And it gives us all this data right there on one sheet. I don’t have to flip it sideways or whatnot. And it, provides us with a ton of data, the whole team, so we can save time and make good decisions based on that information.
And any examples of some, ah-has or insights you’ve gotten from this data that you’ve been able to, optimize?
Obviously for leasing, you need to break down every type of unit. We’re not looking at it as a whole. So, we could see that, maybe certain types of units haven’t been rented in a long time. So we can lower that price a little bit. But for the other ones that are filled up, we can raise the price, to 10, 20 as much as we can until we start seeing, some vacancy in there.
So I think those things like tracking and breaking down all the data is, are important. And then comparing it to your other properties will give you some aha moments. Maybe one property is at 90% occupied and another property is at 95. So what are those, what are those factors? Is it the property manager? Is it the location? Is it the pricing? And so it gives you a lot of information to make better decisions.
Those are some good insights. And I think not enough operators out there are focusing on asset management. You know, I mean, you could throw a dart probably in multifamily in the past decade. And we are so many winners based on the market. But now, having that strong asset management is critical to optimizing the asset delivering on the pro forma that’s promised to investors.
So appreciate that approach. I think that makes sense. And Gary, from a personal perspective, if you could give one piece of advice to our listeners about how they could accelerate their wealth trajectory, what would it be?
Having that strong asset management is really critical to optimizing the asset, delivering on the pro forma right that’s promised to investors.
I think having a plan because people will spend a lot of time planning a vacation. But when it comes to looking over their net worth and where they’re investing in money. I’m shocked by the lack of tracking of people’s investments and to know if it’s getting the returns they expected or not. And if there’s not, then you need to make a change.
So I think having that consistent checking in on every quarter basically on your investments to see what’s performing and what’s not is super important because you want to accelerate your investments and have your money earn money for you versus sitting in a bank, making 4% if that and investing in great risk added opportunities.
There’s so much to be said for running any business and being an investor is like running a business, You’re the CFO of your economy. So managing the data to be able to make informed decisions about, whatever it is, cash flow, growth, tax efficiency, things that you’re looking at, but absolutely data points are critical. So concur with you there.
Gary, appreciate you coming on the show today and sharing your wisdom with folks. I think that’s been helpful to unpack asset management and how you can optimize these assets and some information about the market. If people would like to connect with you or learn more about what you guys are up to, what is the best place?
Go to breakofdaycapital.com. You’ve got all of our social media channels. You can book a call. You can see what deals we have. We have passive investing resources up there as well. So that’s the best place. It’s got a ton of information.
Awesome. Thanks so much for coming on, Jig Gary. Appreciate it. You bet.
I appreciate it, Dave. Thanks.