Do you want to know the secret to success in real estate? If you're looking to grow and scale your real estate investing business, then listen to this podcast episode where Arleen discusses why communication is key to success in real estate! You'll be able to hear from someone who's had great success but also understands that it takes hard work along with good communication skills. It's not easy but if you follow these tips then there's no reason why you can't succeed too!

Arleen Garza is an award-winning real estate investor and syndicator and alongside Jacob, her husband and business partner. She is a founder of the company, REEP Equity. Since founding the business in 2012, they've purchased 16 multifamily properties.

The only way for Arleen and her husband Jacob to grow their company successfully is through effective communication with each other, their business partners, their employees, investors, vendor partners – everyone! That's how they've been able to grow their company over the last 9 years into 2,500 units worth $250 million dollars under management today! So make sure you're communicating well with those around you!

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Table of Contents:

• Where To Listen To The Podcast
• A Great Believer That Communication Is Key to Success
• How to Determine Your Market Deals?
• Communication Is Key to Success for Arleen & Jacob
• Creating an Effective Business Plan
• The Foundation of Arleen's Principle: Communication Is Key to Success
• How to Reach Arleen Garza

A Great Believer That Communication Is Key to Success

Darin: Arleen Garza lives in San Antonio, Texas with her husband and business partner Jacob. They've purchased 16 multifamily properties and manage over 2,500 units valued at over $250 million. Arleen held several senior executive banking positions prior to starting the company REEP Equity. She is not slowing down one bit. In fact, they have a goal of reaching over $1 billion in assets under management.

Arleen: Happy to be here. I applaud you for your efforts to keep investors educated about multifamily investing. Thank you for your efforts.

Darin: Well, I appreciate that. Just a little bit on how I know Arleen. I had Arleen's husband, Jacob Garza a few episodes ago, episode 43. I really wanted to have Arleen come on separately. They are a husband-wife couple that is focused on sponsoring these large multifamily deals. But they both come at it from a different background. They both focus on different sides of the business. So, with that, again, thank you for coming to the show. Can you just start by sharing with the listeners how many properties and how many units you guys are invested in?

Arleen: Great. Well, to date, we have purchased and sponsored 16 multifamily properties that we've acquired. Currently, we have 11 properties under our management. 2,500 units, and about 250 million or so in assets under management. I say under management because we also have a management company in-house. So, we're vertically integrated.

Darin: That's fantastic. You guys have been killing it. I'm very thankful to be an investor in one of your deals. It was my first, of any kind, of exit strategy.

From Banking to Real Estate

Darin: Being able to get approximately 40% back of my investment. Obviously, today with COVID reserves, part of it is held back for a year, but fantastic to be able to reduce the debt service by over 50% and just crazy. I'm very thankful for the way you guys manage not only my money but all the investors' money and for coming on.

So, just to start out with, you guys have different backgrounds. Can you share your background? I believe you come from the banking space. Share a little bit about that with the listeners.

Arleen: Sure. Be happy to. So, I have a degree in finance. One of the logical places you start with the finance degree is in banking. So, I spent 20 years with large multinational banks. I started out on the credit side as a lender and managed an international private banking portfolio at the ripe old age of 24 years old.

So, that was an experience, but it really came about because I am fully bilingual. The gentleman who had managed the department moved back to Spain, and so I asked for the opportunity to interview. I had a very great experience working with high-net-worth individuals that live outside of the country.

As part of that, that was in the era when the banks failed. I don't know if you remember that period of time. But after that happened, I went to the president of the bank because all of my trips had to be approved by him since I was traveling internationally. Did you know the bank that's coming in to buy us? Which was Bank One at the time, doesn't have a lot of international on their books? So, I'm thinking I might need to do something a little different.

Communication Is Key to Success and Opportunities

Arleen: A retail branch banking had just been initiated. So, I asked to be part of that, and so within a month or so, I was managing my first banking center. Then through that, I started a focus on the Hispanic market in the Dallas area. I was doing a radio show in Spanish on financial topics.

It really brought in quite a bit of a focus on the marketing side. I was recruited by Bank of America to launch their Hispanic marketing program. So I took that nationwide and then decided that I wanted to dip my toe in the HR world. I managed an HR team nationwide.

So, I say all of that because every bit of that experience has come in handy in our multifamily business. I've used every bit of that from creating our own employee manual. Of course, I had it reviewed by an attorney, but doing that, looking at the marketing side of the business, et cetera. So, it's been a very, very good experience, and I'm thankful to Bank of America for allowing me all those experiences.

Darin: That's fantastic. I didn't realize you had been a part of all that. So, let me ask you a few of those follow-up questions based on your background. Having done international travel and developed relationships, it sounds like people in Spain were your focus.

Arleen: Primarily Latin America. There were some European, but most of it was Latin America.

Darin: So, you've done 16 multifamily deals. Have you had any international investors in any of those deals?

Arleen: I have, but they're folks that all reside in the US and this becomes their primary location. They're from another country but have been, I guess, become part of the US economy more than anything.

Communication Is Key to Success in Dealing With International Investors

Arleen: I know there are a lot of investor groups with foreign investors. We haven't quite made it through the whole tax differences between the US and foreign countries, but we've got a really good CPA. An international CPA that can advise us when we get to that point.

Darin: That's great. I mean, because if you can tap into those international markets, you're going after different investors that other syndicators aren't talking to, and so that's a plus. It gives them the ability to get some of their money out of their country and into the US. I have not worked with any international investors, but through talking to our attorney, I had acquired what would be involved with that. You guys probably are aware of this too. They said that one of the easiest ways is if they form a US LLC and then fund that LLC and that LLC becomes the investor. Is that the same thing you've heard?

Arleen: Yes. That's what I've heard. We're located or based out of San Antonio, and so there's close proximity to Mexico and Latin America. So, we've had individuals contact us that are interested. We've just been fortunate to be oversubscribed on our deals so far, but that is an avenue we want to explore further.

Darin: That's fantastic. You also said that all those different avenues played into, helped you in your business. So, some syndicators choose to rely on finding a deal, raising money for the deal, asset managing the deal. Others start taking on more responsibilities, and you guys chose to do that once you got over 1,000 units. You actually brought property management in-house. So, that's where you get a lot of employees when you have all the employees at all the different properties.

Advantages of Having HR-Related Experiences

Darin: Having that HR experience I imagine was a big plus.

Arleen: It definitely has been. We've got about 70 employees in total. About 15 of those are at the corporate level and the rest are on site. We found that it's been a really fun thing to establish our own culture among our employee base and our team members. It's been rewarding. We had a project that we took on to develop a screening interview for our leasing agent that would give us some really good insight as to what their customer service skills are, and what their sales abilities are.

As part of that process, our consultant asked our own employees to describe the culture in the company and what they enjoy about it. It's very rewarding to hear that they enjoy the company, that they feel very valued and respected. So, that's a big piece of it.

Darin: When I talked to Jacob, he said that you manage acquisitions and deal flow. So, you know what? That's such a big piece of finding the deal. Everybody is like, especially in today's market, it's so competitive. Talk about your process. Where do you get deal flow from? You're getting it from brokers. And you're also working with other syndicators. So, how do you weed through all of that and determine which deals to go after?

Arleen: That's a really good question because it is a very competitive market today. What I learned early on was that those relationships that you build early on matter. So, as part of our San Antonio growth, we bought more properties in San Antonio, and then Houston is our secondary market from a buying standpoint, not secondary in terms of focus, but more of size.

How to Determine Your Market Deals?

Arleen: In talking to the San Antonio brokers, I focus on the big brokerage houses, the ones that do multifamily. Although you can find a lot of great off-market deals, I find that it starts with how you perform on the marketed deals. Early on, we worked with all of those folks in CBRE, JLL, NorthMarq, Berkadia, Newmark Knight Frank, so all of the big ones. I established those relationships early on and what I was very clear with them about is what we were looking for. Communication is key to success.

One of the things that we don't buy is properties with chillers as an example. So, we've developed our criteria, and our criteria are typically like between 150+ units. We like to be in a high-growth submarket with lots of jobs as most people do, but we start our process with the crime map.

We have a portfolio analyst on our acquisitions team and her job is once we identify a property that seems to fit the overall parameters she runs the crime story on it. This is to make sure that there isn't something detrimental for a couple of reasons. One, to gain the best renters in a particular market. You got to think about what they are looking for. If there's crime, they're not going to want their family or themselves in that market. That's one of the first key things.

The second piece is when the lender has evaluated a property, they pull their own crime data. If there's been crime in the market, your loan to value may be shaved a little or they may get skittish about lending on that particular property.

The Process Flow

Arleen: In today's environment, bridge debt lenders are much more active and those guys will also be scrutinizing the location of the property. I used to say you can put lipstick on that pig all day long, but if it's in the wrong location, you're going to be limited in your ability to deliver your business plan.

Darin: I think you're the first person that really focused on that crime piece early on in the process. Investors always want to know what's the crime in the area, but it seems to be something that's focused on a little bit later in the process. So, you guys hit it up early on. Now, when deals come in, they're coming in through the major brokers both marketed and non-marketed deals. Are they coming into you and Jacob first or are they going to your analyst first, and they analyze, and just bring up the top quality ones to your attention?

Arleen: Sure. They typically come in through me or Jacob and he will always forward on to me. We learned early on that we have unique abilities. The way to scale this is for each of us to focus on our unique abilities and with my lending background and finance background, acquisitions fit, and he's run a property management software company, so the operations side was a really good fit for him. So, when he gets them, he shoots them over to me.

I've done a good job of introducing our acquisitions manager and our portfolio analyst to the brokers. So, some things may trickle into them, but if they do, they generally copy me as I understand that we're the investment committee, Jacob and I, in terms of making the final decision, but we've exposed them.

The San Antonio and Houston Market

Arleen: Because ultimately, you want to be able to give them the latitude to do the groundwork on acquisitions, and then we come in and do the final touches.

Darin: Fantastic. It's been probably a year since I've been out hunting myself. When I was out going after deals, it was competitive then and it was probably, I would say 15 offers. Maybe five to seven people going in to best and final. Last week, I was talking to somebody and they said that now, some of the deals are getting 40+ offers and having 20+ people in the best and final round. Are you seeing that? That's crazy.

Arleen: Well, I will say that Dallas-Fort Worth is probably the most competitive market in the Texas triangle. That's Dallas, Houston, San Antonio, and everything in between. Dallas-Fort Worth and Austin, are the two I would say most competitive markets, and that's what I'm hearing also.

We have not bid on anything in Dallas yet. It's a market we're very interested in, but I'll tell you about our experience in San Antonio and Houston. It's also been very competitive. So, in San Antonio, we have not bought a property or added a property since late 2019. We focused on some in Houston.

Houston, what I'm finding is there's a lot more inventory, a lot more deals trade. San Antonio, you're looking at about 700 multifamily property deals. Houston, it's four times that number. So, you talked about how I built relationships with brokers. Well, when we decided to go into the Houston market, I had our San Antonio broker connections send an email to their counterparts in Houston making an introduction for us, and then I went to the market, and met with them personally, and toured some properties, et cetera.

Communication Is Key to Success When Building Reputation

Arleen: What we're finding is that there are, even in Houston and San Antonio, you've got 10+ in best and final. So, the prices are getting driven up.

Darin: Yes. Everybody wants to win, so everybody's pushing the envelope.

Arleen: I always ask, "Will there be multiple best and finals?" because you'll get the initial best and final round. Then they always ask if you could do any better, right? So, you leave gas in the tank for the first round. And you leave gas in the tank for the second round of best and final, but what we do is we set our top number. We just don't go above it because if you go above it, then you're just really asking to buy a deal that may not make financial sense.

We set our top number and we start somewhere lower than that, giving ourselves room to go up in best and final. Then leave a little more room in case there's a secondary round beyond the initial best and final. So, it's competitive, but I think the big thing for us has been our ability to win deals. We closed a deal in December in Houston for a 95-asset at a really good cost basis. It's because of our reputation as being good buyers, and I would say to anybody listening, that's what you want.

You want to be with a sponsor that has that reputation of being a good buyer, and if you're a sponsor wanting to be a sponsor, gain that reputation.

What that means is you do what you say you're going to do. So, we have not ever contracted any deal that we didn't close. Now, that's not to say that there weren't challenges.

Your Negotiation Skills Matter

Arleen: I mean, you will have at least one hair on every deal that you have to work through. But it's being able to negotiate, and being able to compromise on some things that won't impact your transaction. Making sure that at the end of the day, you get to the closing table without causing a lot of stress to the seller.

Darin: That makes sense. The other thing that I'm hearing from more and more syndicators is that the agencies are requiring a sponsor that has three-plus years of experience to be on the deal. So, it's making it more and more difficult for new people to go after deals on their own. Now, I've felt for a long time that if you want to play in the large scale multifamily space, you have to partner with somebody that already has the experience, but it sounds like the agencies are pushing that as well.

Arleen: Yes. I think the agencies are getting a little stricter in their requirements. Let's go back to 2020 and look at COVID. Without an experienced sponsor, that might have been a really tough period to get through in many respects, and I'll just share some examples.

For us, having a management company was a massive, massive advantage. We had put everybody online for payments in 2019. And we put everybody online for applications. We didn't physically have to be in the office to take care of those two things, but what we did need was to be able to still provide good service to residents. So, our team was trained on how to still handle work orders, service requests from residents in a very safe way.

During the Pandemic, Communication Is Key to Success

Arleen: Our concern was for our team, but we also wanted to make sure that residents didn't feel abandoned in that environment where everything was closing down. What that netted for us was a 10% increase in NOI across the portfolio and a growth in occupancy across the portfolio, but it was because we really were focused on the end-user, which is the resident.

What else happened? Well, collections declined across the board, even your best operator saw a 2% to 3% decline in collections. We started that process early. So, as soon as we became aware of it, as soon as we started to hear about eviction moratoriums, we started that conversation with our residents and said, "Okay. What's your situation? If you're experiencing a job loss or a decline in hours, we want to know about it." We probably filled out 175 assistance applications for our residents ourselves.

We filled them out, delivered them to the resident, explained it to them, and then submitted it on their behalf because we knew people were having hard times. We wanted to be able to help them also and show them that we cared about them for more than just the rent money. So, it really became a really good thing. We did a food drive. Then we had one of our assistant managers tell us that they had some residents coming in that said, "Look, I'll pay you your rent, but I'm not sure how I'm going to feed my family this month."

Jacob and I went and bought groceries and our corporate team bagged groceries and we delivered them to the properties, and they delivered them to the residents that needed them. So, again, it's that focus on the true end-user, which is the resident, that made the difference.

Do Stress Tests

Arleen: I say all that because if you were not experienced or you didn't have a third-party management company that could provide that background, there was a period of time where even we were a little nervous about what is this all going to mean to us. So, we ran some reports to make sure that we had enough reserves to last us for six to 12 months in terms of mortgage payments if we were to need them.

We also knew what the occupancy could decline to if it needed to and still be able to break even. So, we did all of those stress tests to make sure that we could sleep at night, and that our investors, because every two weeks to three weeks, we were sending them an update because they were concerned.

So, that's where the experience comes into play. I would say if you're new to this and you want to be a syndicator, by all means, go for it. It's a fantastic space to be in, but partner up with somebody that has three years or so experience, that has been through some of these situations that can respond in the appropriate manner.

Darin: That's huge how you guys reacted to that situation. My partner on my first syndication, Raj Gupta, who you know, when I got involved, similar to what you said, he said it a little differently. He's like "Darin, what you're going to find is that real estate is all about problem-solving. You will have problems that will come up and just learning how to manage through those problems is a big differentiating factor of whether people stay in the business or not." So, you're saying the same thing.

Communication Is Key to Success for Arleen & Jacob

Arleen: Very well said, I agree with Raj. It is problem-solving and critical thinking. You have to think on your feet every day.

Darin: Right. So, I'm going to turn the tables a little bit. You and Jacob are working together, husband-spouse growing a company. You were in two different businesses. You were in banking, he was in IT. Every spouse doesn't work out as well working together day-to-day. So, talk about that transition.

Arleen: I will say that in all honesty, the initial part of the transition was a challenge. I come from a corporate background where we were trained to handle things in a certain way, and there's a process. He's a true serial entrepreneur. He was used to very much stating, building his team, and letting it all work through him. So, we really, initially, were overlapping. We overlapped so much it was crazy. I would bring something to the table and he would look at it and we'd discuss, and we'd look at it again, and we just felt like we were not wasting time, but we were using time inefficiently.

So, I actually went through the strategic coach program. I would go to Chicago. One of the things they had us do was to go through and write down everything that you do in a day or in a week. Then they had you really point out which of those things did you believe you were really good at. Which ones did you love, and which ones did you hate. So, from that, you were able to look at what were your strengths and where were your not-so-strong elements of what you like to do. I came back from that trip and told Jacob, "Let's have a strategy session for a couple of hours."

Divide and Conquer

Arleen: I walked him through that process and I said, "I love the numbers. And I love talking to the lenders. I've been a lender. I love talking to the brokers." and he really enjoyed the operations side. So, that's when we decided to divide and conquer.

Before that, we were overlapping. We were both trying to make a decision coming from two different perspectives. So, I'm happy to say we made it through that process in one piece or together.

Darin: Exactly. Well, you showed how to do it, too. You shared that, "Look, it wasn't easy" but you had to figure out a way through it, and now you guys have figured out your niches within the same company.

Arleen: I agree. It really is about communication, communication is key to success, because if I had chosen to remain silent and just take those learnings from the strategic coach and said, "Oh, well, we'll get them in another year." Again, we were not as efficient as we could have been, and I feel like now it's nice. He does ask my opinion on things, and I will always share new acquisitions with him, but we can move forward with things without waiting for somebody else to review something. So, it's made it a really good thing.

I'd say whether you're partnering with a spouse or your partnering with another partner, it's a relationship. It's like a marriage. It's a business marriage. So, have those conversations early. Try to understand what are people's fortes, what are the things that they love to do versus what is the other person's, and you'll find that there are usually two different skillsets and you can leverage those skillsets very well if you have that conversation on the front end.

When Delegating, Communication Is Key to Success

Darin: That's huge. Strategic coach program.

Arleen: It’s Dan Sullivan, yes.

Darin: It's funny that this was brought up. Just a few weeks ago, I had somebody on the show, Erin Hudson. I don't know if you know her, but she's actually in San Antonio now, too. She's originally from Southern Cal, but she swore by this book, Who Not How, and Dan Sullivan co-wrote it with another author. It talks about, look, you don't have to learn how to do everything. Find another person that wants to do that and who's really good at it. That's what you guys did as a couple is you figured out which pieces that you love, which pieces he loves, and then you hired employees to do other stuff that they love to do.

Arleen: That's a real thing. Who Not How is a great one. There's also another one called The Self-Managing Company. It is all about delegating what it is that you really shouldn't be working on because you can hire the team to do it. When we first started out, people always asked me, "Well, who was your first employee?" Accounting. We hired an accountant because that is a very tedious and important piece to have in the company.

So, we hired an accountant and then we hired an HR person. Why? Because the numbers and, two, the people, they're big pieces of any business, but, in particular, multifamily. And so I agree. It's the Who Not How. We've built the team over time and as I said, we've got 15 in the corporate office and another 55 or so on-site. It's a business. When you're looking at what kind of multifamily business you want, build an org chart.

Delegation Helps You Focus on Important Things

Arleen: You may not have names to put into some of those boxes. But understand that over time you want to fill those boxes because once you fill those, then you give yourself more time to focus on, in my case, finding deals.

I have an acquisitions manager that does the first pass of the underwriting, and then we will sit down together and we'll review it and fine-tune it. As you know, underwriting takes a long time to the walkthrough. We added a portfolio analyst whose job is to look at the crime map, look at the market studies and gather all the information. The rents and the income side of your underwriting are the most important, not to say that expenses aren't, but you can manage expenses in a different way. Your third-party management companies are already going to have their set of expense parameters. We have our own for our management company. The lender actually uses ours because they can look at our whole portfolio.

They look at our portfolio and they know our run rate. We submit that to them on the front end so they understand our expense profile. On the income side, if you get those wrong, you're not going to hit your numbers. You're not going to meet your business plan. That's a key piece of it. So, we spend a lot of time on that, but I have team members that do the first pass of it, but I review everything. I want to make sure that if we put something in front of our investor group, that it makes financial sense and for us, because we invest in every deal that we do, and I feel like if it's good enough for me, then I'm comfortable sharing that with other investors.

How to Get Comfortable With Rents

Darin: For the listeners' benefit, talk just a little bit more about that on the rent side. In order to get comfortable with the rents, you need to look at other properties in the area to see who's getting what kind of rent now and what can we do with this property if we bring some excess rehab money to it. Talk a little bit about how you guys look at that.

Arleen: So, what we start with is our market study. Our asset manager is receiving market study data weekly from our properties. There's a template. Every week, all of that information is sent in and he's reviewing that.

Darin: What exactly is included in that market study? You have property A. How many properties in San Antonio do you have?

Arleen: We've got eight in San Antonio.

Darin: Eight properties. So, they're spread out, and then each of those property managers on a weekly basis sends in a market study into corporate?

Arleen: Correct. What they're capturing are occupancies in their submarket. They're capturing rents. They're capturing concessions so that we have a full picture of what is the offering in that market. How much are they able to get in that market? Understand that there's the second piece to that, which is you have your non-renovated units and you have renovated units. We want to understand both and what's the delta between the two.

The other piece we're capturing is what are single-family rentals in that submarket because the single-family rentals are typically going to be your top into the market, but if people can get into a single-family rental, they're probably going to prefer that over an apartment if they're apples to apples.

Darin: If it's close.

Arleen: Yes, close.

When Collaborating, Communication Is Key to Success

Arleen: We take a look at all of that data, and then we subscribe to CoStar and Smart data. So, what that allows us to do is have a checkpoint. The managers are sending it in. Our portfolio analyst will do some spot calling, and we'll also check that the market survey data that we received from the properties is accurate. So, we have all those three ways to do it, and then when we're looking at an acquisition, we personally go shop the competitors.

We look at what the renovated units look like, what they are getting, are they offering any concessions. In other words, are they pricing them too high so they're having to give back some of that for the people that are moving in? So, all of that data goes into our underwriting, and we're also looking at, as I said, CoStar has projections.

Now, I will say that CoStar is probably the most conservative dataset out there. They own apartments.com, and so they're gathering the data from all their apartments, but if you compare them to Smart data and other sources, they tend to be the most conservative. That gives you some guidelines when you're looking at your rents. CoStar is providing one thing. Smart data is providing another, and there are other sources. So, we like to get a comparison to make sure that they're all in the same general ballpark.

Darin: Well, that's another benefit of being, one, a syndicator for nine or 10 years owning, having purchased 16 deals, currently managing 2,500 units with 11 properties. You get all that data. When you're a first-time syndicator, you don't have all that data. You're looking at the property.

Creating an Effective Business Plan

Darin: You're trying to create a business plan. Then you're going and shopping the properties close by, but you may not have CoStar, you may not have Smart data, and you don't have the market studies from all the other properties like you have. That's definitely an edge for people that get more and more experience in the business that they have, one, developed further relationships to give them deals. Secondly, they share data with other syndicators and with brokers and lenders, and then you have access to more data to make decisions.

Arleen: Correct. The brokers will all send out their market reports. Some of them are down to the submarket. So, we always like to look or shop in whether San Antonio, Houston, Dallas. We pull those submarket reports to see where rents are trending. The submarket, for example, in San Antonio maybe northwest, where a particular property is. We look at the northwest submarket, compare it to the San Antonio market overall to determine if it is a better submarket.

So, all of that data, and the brokers have all that available on their websites or they periodically will send those to you if you're already on their email list. So, I would recommend that you try to get on every email list for the big brokerage houses that you can for two reasons. One, you're going to see all the deals coming across and, two, you're going to see all the data related to the market.

Darin: That's huge. One of the things that Jacob said was you have to go through all the steps.

If you're a new person, you have to go through all the steps.

Communication Is Key to Success When Creating a Buy-in Strategy

Darin: When I talk to people and people ask, I'm a guest on their shows, and they're like, "What's the hardest part?" I'm like, "Every part was hard the first time you do it." and your mind changes, right?

When you first look at a certain deal, it might not look like a good deal to you because you don't want to live there. But then six months later, after chasing a bunch of deals that deal may look really attractive because you've changed your mindset from looking at it from, "Hey, I wouldn't want to live there," to "Hey, there's opportunity there. If we rehab this, we could really bring this up to the submarket standards here."

Arleen: I agree. COVID did teach us a little bit about the different asset classes. The A’s were hit with a lot of concessions. You had folks that could no longer afford an A-class property rent, and so they went down to a B-class. B-class held up really pretty well. It maintained a good vacancy, had some rent growth, and then you had your C-class. C-class typically had the best rent growth, except what we saw in COVID was that delinquency was much higher in general at the C properties.

So, that helped reinforce our buying strategy. We are focused on B-class properties, not to say we wouldn't buy an A if the metrics are right or a C if the metrics are right, but we have our parameters. So, what we learned is that B-class still is a very good sweet spot to be in.

Darin: That's a great point. Let's go back to when you mentioned communication, and communication, we talked about you and Jacob as a couple, but let's talk about partners.

Communication Is Key to Success in Partnering up

Darin: You talked about communicating upfront as much as you can and get things out in front. I know that when I went to Raj, his first question was, "What are your expectations of your responsibilities versus mine?" So I think that's a great approach. I have a lot of people that reach out to me on Instagram. They're trying to get into their first deal and they're like, "How do you structure the partnership and what percentage of the GP should I get and they get?"

I'm like, "It depends on the value you're bringing to the table, and the value that the other partners bring to the table, and what responsibilities that you want to take on versus the other person. You want to build it so it's a win-win for both." So, what's your take on establishing? Now, you're doing that a bit with going into Houston. I've seen you partner with a couple of different syndication teams. So, what's your approach to that?

Arleen: As you said, initially, it was Jacob and me, and it's much easier because we know each other's strengths. We know what each one of us will bring to the table, but in working with a new team and other co-sponsors, that was our first question to them: "What can you bring to the partnership? What is it that you want to do? What is it that you want to learn?"

I'm going to look at it right now from the standpoint of maybe a newer co-sponsor coming in. They need to be very forthright in what is their net worth, liquidity, and background. Come to the table with a bio and resume so that somebody can really understand who you are, what can you bring to the partnership.

Knowing Who's Involved

Arleen: I would say from that perspective, they should also ask the question, "What am I going to be exposed to? Am I going to be allowed to be part of the lender discussions or to see the lender term sheets? Am I going to have any of the dialogue with the broker or is that all going to go through the primary sponsor?"

That's part of what you said in terms of expectations. What are your expectations coming into a partnership? From the lead sponsor standpoint, there is reputation, right? Who is going to make the decisions? If you have a newer co-sponsor, they don't necessarily have the experience to weigh in on the big decisions, and I think your investor group is going to want to understand how are decisions going to be made in the partnership. Because if you have five or six people weighing in on something, you're going to have five or six potentially different perspectives.

So, understanding who's going to be involved in asset management is critical because that's day-to-day. That is, as we do, getting the market surveys, talking to the regionals, understanding what they're seeing in the market, and then running those numbers. I mean, we know every week how many leases are coming up in the next week, in the next two weeks, in the next month. What is the plan to renew those folks and the ones that we don't want to renew, what is our approach to get new folks in the door? So, it's always watching the occupancy, always watching the income trends. Are renewal rents going up? Or are they staying flat? In COVID, for a couple of months there, we kept them flat because our goal was to keep people at the properties.

Show What Values You Can Bring to the Table

Arleen: We didn't want to be trying to bring in new residents when nobody was going anywhere. Nobody was looking. They were still poking around on the computer looking, but they weren't willing to move because they'll expose themself to movers. They'll expose themself to a lot of things. So, the whole goal of it is to really understand when you're partnering, "What do I bring to the table, to the partnership, and then what does everybody else bring and then, ultimately, who's going to run the property? Who's going to do the asset management, and how are the big decisions going to be made?"

One of the biggest ones is the exit. When we buy a property, we have multiple exit strategies, right? We can refinance or do a cashout supplemental or we can sell it. Well, because rates dropped for three of our properties, the best option was not to sell but to refinance it, return investor capital, and still continue to operate it because we knew they were good assets that would hold up for a long time without needing a big capital injection, but just as easily, we could have sold them.

What we presented to investors was the numbers for both options, and we let them be part of the decision in what makes the most financial sense. So, those are things where somebody's going to have to take the lead on those communications with investors. That's the other piece. Who's going to do that? Is it coming from the person doing the asset management? Is there somebody better that's doing investor relations and communication? So, all those pieces, again, put them all on an org chart. Put all those activities on a chart. Who's going to do which pieces of it in the partnership?

Be Straightforward As Communication Is Key to Success

Darin: I really like your comment about being upfront right away. And I think that some new people in the business want to, I don't know, they want to fake it till you make it or whatever you want to say. They want to try to gloss over some of their weaknesses, but what I've found dealing with multifamily syndicators is that look, everybody has value to provide, right? I mean, if you're a new person, you have value to provide, but you have to be upfront about what that value opportunity is.

Look, I've met some people that, "Look, I just sold a business, and I'm really liquid. I've got a million, a million and a half that I need to put to work." Well, that's going to be attractive to a syndicator to be able to take a big chunk of the equity raise, but somebody else is like, "Look, I don't have a lot of money. I'm a young guy, but I got a lot of hustle." Well, be upfront about it.

Some syndicators are going to say, "You know what? I'm not looking for somebody with that skillset. Somebody else is going to say, "That's awesome. I don't want to be the guy running out and chasing every deal." You have to partner up with the right people. The earlier you have that conversation, and you align with the right people, the better off both you and your partner will be.

Arleen: I agree. I think in addition to looking at the skills that everybody brings to the table, what are the values? That one is probably bigger. In our case, the investor and the resident come first, right? Our decisions, on the refinances, just as an example, the sponsored comp was zero to us. That was not our consideration.

Always Consider What's Best For the Investors

Arleen: Our consideration is what is the best for our investors, and so that was the decision that was made, but you have to understand what's the culture created in that partnership, and what are the values. I think those are questions that have to be asked upfront.

If there was a need for a cash call, are you willing to put your percentage of your sponsor comp into the property versus doing a cash call? So, understanding the liquidity and the strength of everybody on that sponsorship team. The lender is looking at it, but I think sometimes the partnership doesn't look at it. I don't know if it's you don't want to ask those questions or sensitive or whatever, but you should, and when push comes to shove, what are you willing to do to keep the property moving forward? Those are big, big questions.

Darin: Big questions and you said something else that, look, listeners, if you are not in this space and you're getting in this space, just know that people are going to ask you about your financial situation.

I know a lot of other industries you're in, a lot of people hide, not necessarily hide, but I don't know why, but we're raised not to talk about money with our neighbors and our friends. It's just something. We might talk about the car or the house we bought, but we're not going to talk about what our net worth is and our liquidity, but in this world of high unit multifamily, it's a necessity because the lenders are going to ask that question. So, the syndicator is going to come at you right away because they need to know. Hey, Arleen, I'm going to switch it up on you again.

The Foundation of Arleen's Principle: Communication Is Key to Success

Darin: Where did you grow up? How did you grow up?

Arleen: I grew up in West Texas, a little town called Kermit like the frog, but it was named way before the frog was ever invented.

Darin: How many people, population?

Arleen: Well, it would fluctuate between 3,000 and 6,000.

Darin: That is small.

Arleen: Yes. It depended on whether oil was booming or not. So, West Texas in the Permian Basin, so oil and gas were the primary industry. My father was in oil field construction. He and my mom had 10 kids.

Darin: 10 kids? Where do you fit in?

Arleen: I'm fourth from the top, the oldest girl. I have seven brothers and two sisters. So, it was a great place to grow up. It was one of those towns where you didn't lock your door at night because there was no reason to, and if you were doing something you shouldn't do, the neighbor told your parents before your parents even found out. At school, my father and mother both realized that education was a huge piece of our future. All 10 of us went to college on scholarships.

A lot of it was because we knew that the resources just weren't there to send 10 of us to college. So, we had to do our part and get good grades and get scholarships so that it would help our parents. So, all 10 of us went to college with quite a few entrepreneurs. I think some of that comes from the creativity of just being in that environment, in that household. When it was report card day and dad got home from work, we lined up in age order and you showed your report card to dad.

Growing Up With a Healthy Competition Environment

Arleen: You did not want to hear, "Do you think you can do better?" You knew that there was that kind of spirit of competition, but we helped each other also. We had varying ages, so we sat around the kitchen table and the older one helped the younger one with Algebra or whatever it was that we were learning, but it was a great environment. We still have a blast every time we have a family get-together. There are so many of us. Now, I think there are 35 of us just immediate family. It was a lot of fun growing up, but we also learned the value of money and the value of education very early on.

Darin: That's huge. Then you were in the corporate world for a long time. Growing up, did you ever think to yourself like, "I'm going to be an entrepreneur." or "I'm going to start my own business." or did that only really come into your mind after you and Jacob got together and he has more of that entrepreneurial go out there and take a shot?

Arleen: Well, it's interesting because my dad started a small construction company because, again, it was oil and gas, so there were booms and busts. So, he had a small construction company in our hometown that made additions and carports and things for the folks in our community. So, I watched him start that, and he had an eighth-grade education. He taught himself how to read blueprints. He moved up the ranks at his companies, but it was all through sheer determination. So, that was always in the back of my mind, but when you go into the corporate world, you get so involved in what's happening there and, "How do I move up in this environment?"

Communication Is Key to Success and It Starts Within the Family

Arleen: When Jacob started his business, he came home one day and said, "I'm going to start a software company. What do you think?" I thought, "Okay," because to me, I knew we could be fine on my income and we looked at all the numbers and the data, and I said, "Sure." but it was through watching him. He would come home in the evenings and he would talk about what happened at work, and what happened with the company. He'd ask for advice, and our kids at dinner heard all of that.

I would say to all parents out there, your kids are listening even if they don't act they're listening. So, it was a really good experience for them also to really think outside of the box and I can be an entrepreneur. I can do something on my own. So, now, our daughter works with us. She's our portfolio analyst. She worked for a company in Florida, a bigger multifamily company, so she got some experience there. Our son is getting his degree in real estate finance and development.

For us, we see this now as a legacy business. We want them to become involved with the business. We want them to learn it, and they also worked with us when they were in high school. They worked on property, leasing, or maintenance. So, they understand the mechanics of what goes on at the properties.

Darin: That's awesome. Something you said about your dad and it is part of you. He taught himself. He taught himself certain things, and I think that look if you're a listener and you're looking to get into real estate investing, multifamily investing or you're looking to start your own business, any of the above.

Real Estate Is a People Business

Darin: Go out on your own, you're not going to have it all covered before you start. So, you're going to have to actually step over the line, take a chance, and then a lot of it you'll learn along the way. Yes, everyone says the first step, get educated. Read books. Listen to podcasts. Talk to other people who have done it. Join a mentorship group, but with all of that, you're still going to learn a lot along the way, and whether you knew it or not at that time, your dad showed you that.

Arleen: He really did. To have him come home and layout on the kitchen table the projects he was working on, the things he was bidding on, at the time you don't realize it, but it comes back to you later. My sister has a large construction company in Dallas. She's doing work on DART projects and the DFW Airport projects, and she didn't have a construction background, but I think sometimes it's the necessity that's created when you don't have a lot. You learn to get creative and you become a sponge and learn everything you can so that you can move forward.

Even today, I think my most favorite thing is to look up articles on what's happening in the lending environment or what's happening in the multifamily space, or what's happening with consumers in general. I think it's a never-ending process of educating yourself and learning from others. I ask a lot of questions from brokers.

Darin: I don't doubt that.

Arleen: From brokers, from anybody that comes across. I want to understand who they are and what it is that they do, and how that relates in any possible way to what we do. It's a people business.

The Next Big Stretch

Arleen:  Multifamily is people all the way around from your team to the residents in your communities. It is people. Ask a lot of questions. Everybody, you come across, ask them, "What is it that you find most intriguing or most challenging in what you're doing?" You can always learn something from everybody.

Darin: That's huge, listeners. Look, this is Arleen Garza who has 2,500 units. You don't stop. When I interviewed her husband Jacob, he said, look, they're talking to people that have 4,000, 5,000, 10,000 units trying to learn from them. It doesn't stop. You help the person below, figure out how to get to where you were years ago and you're looking above to other people to try to help you get to where they are. So, that's huge.

What's the next big stretch goal for you guys? The other thing I wanted to mention to you, I mentioned this to Jacob, as I get these real estate publications Texas-related and they break it out by the market, and every now and then they'll have a little box that shows top multifamily owners in San Antonio and you guys are always up near the top of the list. So, I'm like, "I know them. They're awesome." I'm so excited whenever I see that, but what's the next big stretch goal because you guys have accomplished so much already?

Arleen: Well, our next goal was to hit 3,000, which I think we'll hit probably in the next six to nine months. So, that's exciting. Then the next one is obviously five, and then 10. I think if we can hit 10,000 units in the next five to six years, our big goal is to have a billion dollars in assets under management in the next five years.

A Hobby Writer Who Believes That Communication Is Key to Success

Darin: That's awesome. I love it when people have these huge massive goals. Even if you don't hit it, you end up at 950. That's pretty good.

Arleen: Correct. If you don't set it high enough, you won't get there. You've got to set it high enough that you can have something to reach for.

Darin: That's huge. Arleen, what do you like to do for fun outside of work?

Arleen: I love to write.

Darin: Like articles or poems or what?

Arleen: Well, I've actually written a novel. A fiction novel, which I got the goal to get wrapped up and send to publishers before the end of the year. It's a novel set in West Texas where I grew up. I've actually been to New York a few years back and met with agents, and there's interest based on the topic. So, I just have to finish it, but I'm having so much fun buying properties. I just have to allocate some time to finish the novel.

Darin: I know people that write books, but they're writing books in their niche. It's a business edition, but to write a novel, just because you love to do it, and you haven't been an author, so it's all-new, and it's scary and exciting at the same time. So, I applaud you. That's awesome. That's something I didn't know about you, for sure.

Arleen: Thank you. I always think about J. K. Rowling who wrote the Harry Potter series. She was rejected 100 times before somebody took her novel. So, I tell myself, "Okay. Put it out there."

Never Give Up

Darin: Yes. So, I've gone to this entrepreneurial conference out in San Diego called Secret Knock, and it's put on by a gentleman by the name of Greg Reid. I went back to a follow-up a few months after the conference and it was a smaller subset of the group at his house. He brought us all up to his second floor and he pulled out this basket, and it was full of envelopes and he dumped the basket upside down and these envelopes went everywhere. We're like, "What is he doing?" He's like, "Those are all my rejection letters on my first book."

Now, he's written, I don't know, 20-30 books, but I don't know the exact number. I'm throwing that out, but the point of that is he was rejected, and rejected, and rejected, and he didn't quit, and he got the first one done, and then after the first one, the second, and third, and fourth, and fifth got so much easier.

Arleen: Yes. I think that's a very big message, whether it's multifamily or writing a book. You just don't give up. You just keep going at it, and you try to learn something every time you approach it. So, the writing is very new, very different, but I did take a short little course on how to develop your outline, your character, your plot. So, again, I educated myself, and we'll see. My goal is by the end of the year and now I've said it out in public, so I've got to finish it.

The Garzas

Darin: Exactly. So, where do people reach you if they want to reach out and get to know you a little better? What's the best way for them to contact you?

Arleen: Awesome. Two ways. My personal email is arleen@arleengarza.com or you can reach us through invest@reepequity.com. Our investor relations coordinator Rebecca Derby will most likely reach out if you contact me that way, and she'll set up a phone call so that we can get to know each other better.

Darin: That's fantastic. Listeners, I want you to know when I got involved in this space, these guys were one of the first people I wanted to get involved with. I've been very happy with the way they manage the deal, the way they communicate the deal, and they are just very classy in how they approach everything. They had a conference down in San Antonio where we got to go visit the properties and do a bus tour and they brought people in from Fannie Mae and all these other people to speak to the investors. I haven't seen any other syndicators do something to that scale before.

In addition, just a few weeks ago, I got a big basket in my house, and it was the Garzas. When I invested in their deal, I got a little thank you gift. They just do the little things, and if they do that for the investor, you just have to believe they're doing that for the tenants also and for their employees. So, I just think they're a class act. Get to know both Arleen and Jacob. I hope you enjoyed that one, and until next week, signing off. Thanks,

How to Reach Arleen Garza

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