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Darin Batchelder is a General Partner with vast experience investing in over 1,282 multifamily units across three states – TX, AZ & SC and developing a 200-unit RV park. As a Limited partner, he has investments spanning 35 properties populated by 9105 multifamily units and 100000+ square feet of retail space.
Darin has been a business owner of TZK Capital since 2007. TZK Capital is focused on trading high credit quality performing real estate loan portfolios between banks to include residential, multifamily, and commercial real estate loans.
Darin, an experienced investor, recommends aligning your finances with individuals you recognize and value. He explains how leveraging time & money through tax-efficient investments can grow a successful portfolio. Darin then shared his knowledge on RV parks which offer millennials more affordable homeownership capabilities due to current market restraints while simultaneously providing the opportunity for renters out there looking for something new.
Reflecting back to the trials of Covid, Darin showcases how his cashflow was able to remain positive and keep him afloat during such uncertain times. By viewing this period through rose-tinted glasses he has also identified why multifamily assets are a strong performing investment in any recession – providing an invaluable lifeline for many investors.
This episode with Darin Batchelder is not to be missed – gain expert insight into investing the smart way!
In This Episode
- Darin’s journey and how this industry started for him.
- Darin’s approach to 2023 with the expectation of a recession
- How Multifamily investments are a problem solving business.
- Darin’s RV Park assets and how it is performing.
- One piece of advice from Darin to expedite wealth.
Welcome to today’s show on Wealth Strategy Secrets. Today, we are joined by Darin Batchelder. Darin has a diverse background as a GP in over 1,200 multifamily units, and 200 RV units, and is also an LP in over 35 properties.
He’s gone full cycle as a GP on several multifamily properties. Darin has also been in the whole loan trading business for the past 20 years, responsible for trading more than $4 billion in loan sales. He has been the business owner of TZK Capital since 2007, which focuses on trading high-credit-quality performing real estate loan portfolios between banks, including residential, multifamily, and commercial real estate loans. Darin also achieved CPA status with PricewaterhouseCoopers and holds a BS in accounting from the University of Rhode Island. Darin, welcome to the show.
Dave, I appreciate you having me on. This is going to be fun. I’m looking forward to it.
You bet. Always great to connect and enjoy the discussion. Let’s start by having you tell the audience a bit about your journey. How did things begin for you in the space?
Like a lot of people, I was kind of groomed in the “get good grades, go to a good college, get good grades, get a good job, climb the corporate ladder” mindset. And I was hungry, man. I started as a CPA with PricewaterhouseCoopers, and in every job I had, I was always trying to be the best, get the raise, and get the recognition. But it wasn’t until I got a job in 2002 that things started to change.
I did CPA work, international audits for PepsiCo, worked in software sales, and then began trading large loan portfolios in 2002 for a large bank, ABN AMRO. I was on their mortgage capital markets trading desk in South Florida, trading large loan portfolios ranging from $5 million to over $100 million. That changed my mindset in terms of institutional loan trading. I had a lot of bank presidents and chief lending officers tell me that they loved multifamily loans because they performed very well in their portfolios, both in good times and bad. The way they explained it was that everyone needs to live somewhere. When times are tough, people cut back on entertainment, but they’ll still pay for food and shelter.
That’s how I got into multifamily, but it took me a long time. I kept playing the corporate game, putting money aside, and investing in the stock market. Finally, at 52, I decided around age 47 that I was going to start buying real estate.
That’s awesome. Did you have a particular “lightbulb moment” that got you out of the passive seat and into action?
A few things. One of them was hearing that 90% of millionaires are created through real estate. I had heard that over and over, but I just didn’t do anything about it. In addition to that, I heard someone speak one time, and they were talking about the lighting people and the audiovisual crew working at these big conferences for motivational speakers and so-called “gurus.” Someone mentioned how these people hear the message day in and day out, but they don’t act on it because they’re there for their job.
I thought to myself, “You know what? I’ve been hearing for years that multifamily is a strong asset class, but I haven’t done anything about it. It’s time to take action.” So, I went out, and despite being scared, I bought a duplex. From there, I started scaling up. I went from a duplex to 76 units, and now I’ve invested in over 9,000 units.
Wow, that’s awesome. It’s interesting—everyone has their own story about how they got into it. What was that “last straw” moment that drove you to take action? Sometimes it’s fear, sometimes it’s ambition, but it’s always interesting to hear.
What I’ve learned since transitioning into real estate, both as an LP and a GP, is that number one, I wish I had started much earlier. There are massive wealth-building opportunities in the multifamily space. But beyond that, it’s really about expanding your mindset. You can’t even imagine where you’ll be in one, two, three, or five years until you take that first step.
When I made my first investment, that was all I could think about. But then, new doors opened, new relationships were formed, and opportunities arose that I couldn’t have predicted. When I bought that first duplex, I had no idea that I would start a podcast, invest in over 9,000 units, be both an LP and GP, write a book, or even be on YouTube. None of that was in the plan. But what I’ve learned is that it’s not just about you and your family—it’s about impacting so many more people, and that’s fantastic.
Agree with that, Darin. And I know we share the same ethos: creating impact for others and moving away from the volatility of Wall Street. It’s also about control, right? Because in the Wall Street model, all you do is wake up each morning and hope the markets are going up.
That’s all you can do, unlike with hard assets. And as you mentioned, especially as we’re recording this and moving into 2023, there’s a potential recession looming, if we’re not already in one. But as part of Maslow’s hierarchy, people need food, they need shelter. They’re going to cut back on a lot of things, but they’ll still need a place to live. There’s risk in every asset class. But how are you thinking about approaching 2023 with your current assets and potential new ones?
When I first got into this space, I asked a lot of syndicators what I should expect during a recession. People told me, “You’ll probably see the bottom 20% of tenants in A-class properties move down to B-class, and the bottom 20% of B-class tenants move down to C-class.” I kept that in mind. Then, COVID happened, and that was something nobody could have planned for.
Being in the business of managing assets—cash-flowing assets—while seeing on TV that people were being told not to pay rent, I was thinking, “Holy cow! How are we going to pay the mortgage if everyone stops paying rent?”
But what I found was that every month, we were still cash flow positive. Sure, we had tenants who were slow to pay, and some were gaming the system and not paying. But there were also tenants who, understandably, were negatively impacted by COVID and didn’t have the cash to pay. The majority, however, were focused on paying for food and shelter. They prioritized paying their rent.
We were cash flow positive all the way through. I couldn’t believe how well it performed. I thought to myself, “Even if a recession comes if we can make it through COVID, we can make it through anything.”
There’s an interesting statistic that I think a lot of people haven’t heard before. But in 2008, during the downturn, the default rate on multifamily was less than 1%. So, it drives home the point we’re making. People just need a place to live. Even in difficult times, you’re going to cut back on going to restaurants, travel, maybe taking a vacation, and things like that. But unless you’re going to move back in with your parents into their basement, there aren’t that many options.
To your point, I was at a conference once, and someone from Fannie Mae was there. They showed a graph, and traditionally, over many years, their 90-day delinquency rate was about 25 basis points. Fannie and Freddie are the largest lenders in the multifamily space, so they have more data than anyone on how these assets perform during both upcycles and downcycles. Then, during the 2008 recession, the 90-day delinquency went up, but it was still less than 1%. I thought, “Wow.”
When I tell people about risk mitigation, I say, “Look, the lead syndicator is going to underwrite the deal. The property management company is going to underwrite it. The broker will underwrite it, maybe using some inflated numbers. But the lender has to approve it.” And I tell my investors, “If the lender approves the LTV (loan-to-value) ratio, especially if it’s the agencies and they have all that data nationally, it’s just another checkmark. This is a strong-performing asset because they are looking at the performance of the asset, not just you as the borrower.”
Yes. Such a great point, and you’ve got great insight coming from that lending space to be able to look at things from that perspective. But, yeah, it’s further validation. The bank is as conservative as you get so that strengthens the case.
In addition to the default rate we mentioned, another key factor is that I know you’ve had assets in markets with high job growth, high population growth, and diverse industries. These factors help these markets outpace the norm in the U.S. That adds further protection.
Absolutely. If you’re in a growth market—again, taking COVID as an example—we were in the DFW market. I live in the DFW area, and Texas is a very strong growth state. As I mentioned, you couldn’t evict people, but some tenants would skip out in the middle of the night—maybe they were eight months delinquent and decided to go live with family. Well, we had a line of people wanting to move in, so we stayed full. That’s what happens in a growth market with population growth, new jobs, and new income coming in. It’s competition for apartments. But if you’re in a market where the population is leaving, filling that space can be much harder.
Exactly. What’s your perspective on Class A, B, and C properties during a recession? What are you focusing on?
Good question. Over the last two to three years, a lot of syndicators have been trading up. They’ve gone from B and C value-add to B-plus and A value-add. What I’ve learned is that the people in B and especially C properties typically spend about one-third of their income on housing. In A properties, it’s usually about one-sixth. So, there’s a lot more cushion for people in A properties to afford their rent. Additionally, they tend to have more savings, while people in C properties are often living paycheck to paycheck.
That being said, it depends on the type of recession we’re facing. I think it depends because recessions impact different people in different ways. COVID hurt C-class properties, retail, restaurants, and blue-collar jobs like bus drivers. But if we experience a recession where high-paying jobs are impacted, it could be very different. People who can no longer afford the A-class rents might have to move down to B-class properties. It depends on which industries and jobs are being affected by the layoffs.
That’s a great point. What are your thoughts on the debt markets right now? It’s going to be tricky for some people with loans coming due in 2023. A lot of people have hit their rate caps.
But debt is eating into a lot of profits right now. We’re seeing rising interest rates, and what’s happening in several deals I’m involved in is that lenders are requiring much higher interest rate cap reserves. For example, if you had a 3-11 loan with a two-year cap on floating rate debt, after a couple of years, you typically need to buy a new cap, and you have to put money into reserves a year in advance.
Some people are seeing their interest expenses plus their escrow reserves increase by not just 10 or 20%, but by as much as three times—going from $30,000 to $90,000 a month. So, you need to have excess cash flow to handle that. This could create problems for certain properties if they don’t have that extra cushion.
Now, just like with tenants and their job stability in a recession, the lender’s characteristics are crucial. In my experience, banks don’t want to own the asset—they don’t want to maintain it or pay for it. They don’t want a delinquent asset on their books. Banks are going to be much more likely to work with syndicators to create a workout plan or an extension.
On the bridge loan side, though, it depends on the lender. Some bridge lenders have a reputation for lending to own, meaning they’re looking for syndicators to mess up so they can take over the property. Those who have worked with those lenders could be in trouble. Other bridge lenders, however, might have a big debt fund and may not want to write down an asset. So, they’ll try to figure out a way to push things down the road. It’s going to be situational.
Yep, makes sense. Where do you see the opportunities lying for next year?
I’m a big believer in multifamily for the long term. It’s not really about getting in and getting out. I wish I had a crystal ball, though. The bond market is so huge, and while you can look at forward curves, they’re not always accurate.
For example, you could buy property today, where everything pencils out with a higher debt instrument, and then a recession hits. The Fed lowers rates, and suddenly you can refinance into lower debt. At that point, things might look good. On the other hand, if inflation continues to run, it could impact rent growth versus cap rates going up, which could negatively affect property valuations.
What I’d say is that multifamily is still a great long-term asset. However, I’m a big believer in giving yourself flexibility by having a longer-term rate structure on the loan. This way, you can ride out periods of market volatility. As you said, every investment has risk, and almost every investment is cyclical. Real estate will have its cycles, but the key is whether the cash flow is strong enough to continue covering mortgage payments until you get to the other side.
Absolutely. One of the key strategies of ultra-wealthy family offices is investing for 25-year blocks of time. It’s a very long-term horizon, which spans multiple market cycles. It forces you to focus on your goals, priorities, and how you’re investing, as well as the fundamentals of a particular asset class.
Unfortunately, in today’s world, we’re so caught up in reactionary thinking—especially with the media sensationalizing things like the “sky is falling.” Investing can be very emotional, and people often want to make moves when they see something happen. But it can be beneficial not to sell the asset during those times.
We’re typically in these investments for 5 years, so I always try to remind investors to look at it from a 5-year perspective, and not worry about the weekly or monthly fluctuations.
The ultra-wealthy think long term, their wide range of long term investments enable them to become key market holders.
That’s a great point. Think about COVID, for example. In those two weeks, the stock market tanked. I’m sure some people got scared and sold, but then the market rebounded for the next year and a half. 2022 has been tough, but 2021 was a great year.
These multifamily syndications are illiquid, so they’re built for long-term holding. You can’t get out, like you said. These are typically five-year deals, and sometimes you can get out earlier, maybe at three years, or it could be a one-year hold. But if they had liquidity during COVID, they would have gotten out and sold because they were scared, driven by emotions. Then, a year later, they could have sold for a dramatic profit.
And they all benefited. But, you know, there were probably times when they thought, “Oh man, I wish I wasn’t in this.” But they couldn’t see it. It’s not like a stock where you can see the price drop from $100 to $40. With real estate, you don’t see the valuation on a day-to-day basis, so it’s easier to ride out the wave.
Right. You know valuations have gone down, but you don’t know by how much.
Exactly, it’s such a great example, and it’s so relevant. It’s all fresh in our minds as we come off of that experience. And we learn the most from times of difficulty and failure, like what we experienced during the pandemic. That lesson should stay at the forefront of our minds.
Absolutely. One of my partners on my first syndication, Raj Gupta in Chicago, I don’t know if you know him, but he told me, “Hey, Darin, this business is all about problem-solving.” I just thought it was, you know, real estate’s real estate—location, location, location, right? That’s what everyone says.
There really are a lot of different things people can do. I was talking to another syndicator recently, and we were discussing how interest rates have gone up. They had a floating rate loan, and their cap was starting to show major increases. So, they called their lender and asked, “Is there anything we can do?”
There was inherent value in the cap they had, so the lender said, “Look, if you extend your cap for another year and increase the cap rate, we can lower that reserve.” And they were able to reduce their monthly reserve by 50%.
Wow. That’s awesome. That’s huge. That’s problem-solving. They could have just sat on their hands, but instead, they went out and found a solution.
Exactly. That’s what makes them real estate entrepreneurs, right? And as an entrepreneur, that’s so well said. It’s all about creating value and solving problems. There are always challenges, whether it’s market conditions, property management issues, or supply chain disruptions. You’ve got to be scrappy and make things work.
Absolutely. And that’s why it’s so important to do business with people you know, like, and trust. Look, I’m a passive investor in a lot of deals, as well as a GP in several. And while I don’t know the day-to-day battles the lead GPs are fighting, I do know I’m investing with good people who will fight those battles and come up with solutions. I used to say in the Marine Corps, you don’t know someone until you get into combat. That’s when you see their true colors.
I can only imagine. Thank you for your service. I’ve never been in combat, but I can imagine it brings out the real person.
There are a lot of parallels. You’re running a business, managing multimillion-dollar assets. There’s a lot at stake, and we need to be good stewards of capital for our investors. What are you going to do? How far are you willing to go to solve problems, be creative, and make things happen?
Exactly. Investing with people you know, like, and trust is key. But it’s also important to partner with people who have experience. Part of our due diligence is diving deep into the managing principals’ backgrounds. What have they been through? Some people haven’t even been through a full cycle yet, especially those who are newer to the game. We also look for that entrepreneurial drive—what are they going to do to make things happen? And how strong is their balance sheet to make things right for everyone involved?
All those are great factors. I would add that people’s networks are also important. So, if someone is trying to solve a problem and can’t do it in-house, do they have a strong network? Can they reach out to other syndicators who will pick up the phone and offer advice? For example, one syndicator might share, “I had the same issue on this property—here’s how I handled it.” In just five minutes, that syndicator could have a solution. But if they’re too arrogant or too siloed to ask for help or seek advice from others who have been through similar situations, they might take the wrong approach.
Darin, do you have a particular wealth strategy you’re following right now personally?
I would say no, not a specific strategy.
How about in terms of your portfolio allocation? Do you follow any guidelines or parameters?
I’m more about what’s working for me right now. I was brought up with the idea that you get good grades, go to college, land a good job, and put away 10–20% for a big nest egg. And it grew, but not as much as I thought it would over the years. So when I started pulling money out of the stock market and investing in real estate, I saw the power of leverage—using other people’s money, time, and resources, like property management companies to manage the assets.
Then there’s the leverage of loans—the profits go to the equity owners, not the lenders—and the tax efficiency that comes with real estate. For example, in my other business, I used to pay significant amounts to the government, but now, as a full-time real estate professional, I have depreciation that covers the income from my other business. That was a huge multiplier. So, while I don’t have a set strategy or allocation, real estate investments have produced wealth growth much faster than just putting money into the stock market.
It comes down to two main things: capital preservation and growth. The more wealth you accumulate, the more focused you become on preserving your capital. Then, it’s also about growing your assets—diversifying to multiply your wealth. Our strategy focuses on both of these things, looking at the big picture of protecting and growing wealth.
It includes asset protection layers, the right infrastructure, and even having a capital warehouse in place, such as an infinite banking policy. When all of these elements come together, it creates exponential results and performs well in both recessionary and growth markets. The key is to reduce the risks—whether from market volatility, geopolitical issues, or other factors.
Use the power of leverage to grow your investments portfolio.
What you offer is great, because most people, including myself, tend to focus on one area. For me, it’s multifamily syndication—real estate syndication, specifically multifamily. We also have an RV park, but you’re looking at a much broader set of options, which is important. Most financial advisers, however, would likely just push you into the stock market because that’s how they’re compensated. Tell us more about the RV park. I know you have 200 units—how has it been performing, and what are your thoughts about the future?
We just closed on the RV park, so we’ll have to see how it performs over time. Here’s why I got interested in it, though: My wife and I bought an RV in April 2022, and we started traveling around. I enjoyed it for several reasons—it’s social, it allows me to access places I wouldn’t have visited otherwise, and it gives me a new perspective.
As I traveled, I started thinking more about how residential real estate is becoming unaffordable. With interest rates going up, people are struggling to buy new homes. Multifamily has become very expensive, too—renting a 1- or 2-bedroom apartment can cost $1,400 in some places, or even $2,200 in high-cost areas.
During the pandemic, a lot of RVs were sold, and now people need places to park them. Two main demographics are interested in RV parks. Millennials, who don’t necessarily want to buy homes, want the flexibility to move around. And baby boomers, who are downsizing, might sell their mansions and instead buy an RV to travel across the country.
They need places to park those RVs. You also have contract workers—construction workers, traveling nurses, and other project-based workers—who may need temporary housing for 3–9 months and don’t want to commit to a year-long lease.
RV parks provide an alternative for many different types of people. It’s a lower-cost option where they can travel with their RV and their belongings. They don’t have to sign a year-long lease; they can go month to month.
From an ownership perspective, I like it for several reasons. One, as I mentioned, it offers another rental opportunity at a lower cost. Two, with multifamily properties, the unit structure is already set. You might have 20% of the units as 3-bedrooms, 20% as 1-bedrooms, and 60% as 2-bedrooms, and you can’t change that.
I’ve seen some properties where all of a sudden, everyone wants a 1-bedroom, and we’re full. We have plenty of 2-bedrooms, but nobody wants them. Or, everyone wants a 3-bedroom, and we don’t have any left—they’re full. With an RV park, however, you’re working with the land and the cement pads.
You can have a mix of daily, weekly, and monthly rentals on the same pads. The daily rate is higher than the weekly rate, which is higher than the monthly rate. This allows you to adjust that allocation on the fly. For example, if you’re initially allocating 80% to monthly rentals, but then notice you’re getting a lot of weekly rentals, you can shift the allocation to 70% or even 60% for higher margins. Plus, you can raise rates immediately, unlike multifamily properties, where you have to wait for a lease to end.
Just like with self-storage, you can buy a self-storage facility and raise the rent by $5 across all units immediately. The same applies to RV parks—if the market rate increases, you don’t have to wait. You can raise rents by $5 or $10 across the board. In an inflationary environment, this flexibility is key to staying ahead of inflation. From a depreciation standpoint, are you able to depreciate much on the park?
You won’t get as much depreciation as you would with a multifamily property, especially when considering bonus depreciation. Bonus depreciation applies to things with shorter lifespans, like appliances, carpeting, flooring, etc. But with an RV park, most of the value is in the land and the more permanent cement pads. There are some amenity buildings like offices, showers, and bathrooms, but you won’t get the same depreciation benefits as you would with a multifamily property or a mobile home park.
Makes sense. I know you still get some depreciation on mobile home parks, but not as much as with multifamily properties.
Exactly.
Darin, if you could give just one piece of advice to listeners about how they could accelerate their wealth, whether that’s through real estate or anything you’ve learned, what would it be?
Buy real estate—buy cash-flowing properties. It has to cash flow. Some people will buy a single-family house, but if the rent doesn’t cover your mortgage, insurance, property taxes, and other expenses, then it’s not a cash-flowing property. Buy a cash-flowing investment property, and it’s amazing. It will provide you with cash flow and appreciation while you sleep.
Excellent. Darin, I appreciate you coming on the show today. It’s always great connecting with you, and I know the audience is going to enjoy the discussion and learn a lot. If people want to connect with you and learn more, what’s the best way to do so?
The best place is our website: darinbatchelder.com.
Awesome. Thanks again, Darin. I appreciate it.
Absolutely. Thanks for having me on, brother.
You bet.