Listen to hear David Lagat discuss how he focuses on opportunistic and distressed multifamily properties. He's been rewarded handsomely for his efforts! His first multifamily deal resulted in a $1 million profit in 13 months. David is relationship-focused in his dealings with sellers, brokers, bankers, and his employees within his property management company. He has a service mindset and makes business decisions with the needs of his employees top of mind. This guy has learned the wealth-building game and he wants to share his knowledge with others!

Table of Contents:

• Where To Listen To The Podcast
• A Guy Who Leveraged From His Own Capital
• Gems You Find in Distressed Multifamily Properties
• Going Above and Beyond
• Distressed Multifamily Properties Team Is Extending
• The Power of Positive Envisioning
• Distressed Multifamily Properties Needs Wise Buyers
• The Next Big Stretch for Distressed Multifamily Properties
• Advice to Jumpstart Into Distressed Multifamily Properties
• How to Reach David Lagat

A Guy Who Leveraged From His Own Capital

Darin: David Lagat grew up in Kenya and he came to college in the U.S. at TCU in Fort Worth. He started his career as an accountant with J.P. Morgan and he started to invest in single-family back in 2001. He built up a portfolio of 60 to 70 residential homes and then in 2008, he started to scale up in multifamily. David has purchased over 4,000 units and he did this mainly by leveraging his own capital and 1031 exchanges.

It's just in the last year that he's started to partner with others and started to do a few syndications. He places a tremendous focus on building and leading his employees within his property management company, and they have rewarded him with fantastic performance on his properties and tremendous loyalty.

How I know David is kind of an interesting story. I went to the title company that helped close my first syndication deal, had a networking event, like a happy hour type of networking event. So I went to that and I just happened to get some hors d’oeuvres and sat down at the table and I sat right next to David and we just started chatting.

I had no idea who David was or what he has done in his past and I remember asking him, "So, how many properties do you own?" And he told me the amount of units and I was like, "Whoa!", the next question I asked him was, "Did you syndicate all those deals?" And he said no, so I was like, "I just sat next to a guy that has a ton of experience and not even through syndication."

4,800 Units With Little Syndication

Darin: We watched each other through social media and I reached out to him with a direct message on Instagram to try to get together for coffee. He came back to me and said, "Hey Darin, I see that you play golf. Why don't we play some golf?" And so we did. We got out there and we played 18 holes of golf, and we went back and forth. We had a competition and it came down to the last hole, and then we stayed and we had dinner together and we just really enjoyed each other's company.

Then afterward, we talked about seeing how we could do a deal together. So, here we are today and this is David's first podcast. I'm extremely honored that he has come on because he has a ton of information to share and just a wealth of knowledge. So, with that, I'm going to go to David. David, if you just start the high level, how many properties, how many units do you own, have you owned? Just a high level.

David: Since 2011 we've owned about 30 apartment communities, totaling about 4,800 units.

Darin: That's crazy. And of those 4,800 units, you just started doing syndication like the last deal or two. So, most of that was either you alone or you with like one partner, is that correct?

David: Yes. We did about 4,000 units with no syndication.

Darin: And was that with you and another partner or was that predominantly just yourself?

David: Predominantly myself and my team.

Using Capital in Distressed Multifamily Properties

Darin: One of the challenges that most people run into as they try to scale is capital, right? Your capital runs out and, correct me if I'm wrong, but you leveraged 1031 exchanges if I remember our conversations correctly.

David: Yes, that's the biggest thing that I started with one and on the way, we grew with to sell and then 1031 exchange, sell one, buy two. With the run-up in values, we were able to sell one property and maybe buy two, leverage. And, also use some things that some people don't think are possible. Believe it or not, I've had owner-financed a 200 unit apartment complex.

David: I've had a couple of them. Sometimes I've had 700 units financed. Owner financed.

Darin: 700 units, owner financed?

David: Yes. So with that, all I had to do is sell one complex, have all that equity, come up with the down payment and then stabilize it and refinance it at the venue or sell half of them.

Darin: So, how do you source a deal like that? So let's just talk about that 700 units, how do you source that? Because there are other buyers out there that would like to purchase that, why did they go with you?

David: I think it's a relationship. With those 700 units, it wasn't just 700 units, it was a seller that we had bought 1,500 units prior years.

They got comfortable with us and over time, they know the properties were not finance-able or even I can get the best terms if I went direct through the lender. They were able to give me the terms that we negotiated and made the deal work for them, creating a win-win situation for them and for our team.

Success Breeds Success

Darin: Did you approach them or did they approach you on that?

David: What's funny is I bought a property in Fort Worth and they reached out to me because they were trying to sell a property that was close to the property I had just acquired and asked me if I needed to buy a property next to it. I've known them for the longest time and finally, I was able to meet with them, have coffee, and then I bought the property in Fort Worth. Then later the next one, and the next one, and before you know, I bought about 2,000 units from them.

Darin: That's crazy. That shows you the power of relationships. And those deals, which is almost, I don't want to say it's unheard of because there are a lot of off-market deals, but there's a lot of people that are chasing multifamily deals in the fully marketed space. Where there's a ton of competition going through, call for offers and best and final and having to win out. And here you ended up building a relationship such that they trusted you and for that, you were pretty much the only player in the discussion. You just worked through the negotiations.

David: Well, success breeds success, right? You do one, it works out everybody's happy, they open more opportunities. With DFW being so hot, all the real estate programs around everybody has to get into an apartments, so you've got to differentiate yourself. I think that's what I try to do is to get something where there won't be a lot of competition. So try to be creative either go to tertiary markets, that was one way that I was able to acquire the units where some people are not doing that.

Life Before Distressed Multifamily Properties

Darin: So let's go back to your first deal, what were you doing? What was your career prior to getting into multifamily?

David: Actually, I worked in banking, I was an accountant at JP Morgan right straight out of college and then started buying single-family homes and duplexes here in the DFW Metroplex back in 2001. Then build that to almost 60, 70 single-family homes that was in 2001.

Darin: That's a lot of single families to be managing.

David: Yes. And then at some point in 2007, I left the bank. Out of those 70 units maybe I had 30, 40 of them free and clear.

That's right before 2008. 2008 hit, I left the banking industry and I was like I'm going to start playing golf and retire. That lasted about 60 days. Went back and tried to go back to Bank of America. I enjoyed my independence so I decided I didn't want to work.

Darin: Going back to the corporate thing was tough.

David: Yes, it was very hard. So I went back and figured what if I put all that energy into trying to build, buy more properties, and all that stuff. So 2008 hit, and there was another buying opportunity so I started leveraging the single-family homes and started buying multifamily.

Gems You Find in a Distressed Multifamily Properties

Darin: Talk about the first multifamily deal because that's a big shift and you have to have the confidence to make that shift. How did you do that in your own way?

David: My first multifamily property was a 72 unit property on receivership in Fort Worth. It was 10% occupied. I guess that's why it was in receivership, right? But the way I got that deal is you ask "how did you get into the deal? You have never bought any apartments."

I think I was looking at LoopNet in 2011 just trying to figure out what else I was going to do. And I ran into that apartment complex, called the broker. I met him at the property and he showed me that he had that and he had two others that were also in foreclosure. This was in 2011. After talking to him for a while I asked him, I think it was listed for 695,000 at the time, the property was. I didn't know cap rates. All I knew was hey if I bought this property what's the worst that can happen?

I asked the broker, "What can I offer on this property to get the deal?", he told me, "You need to come in around 675 to be in the best and final." so I was like "Okay, that's that's my offer." Wrote up an LOI, sent it to him. Two weeks later he called me and said, "You’re in best and final. What's your best final?" Well, during those two weeks I went to the city, talked to everybody and they never bought a property and everybody was like you need to run. Don't buy that property.

Distressed Multifamily Properties Means Finding Ways

Darin: So, you went to seek advice and the advice came back, run.

David: So now I'm freaking out. I call the broker when he calls me and says, "Best and final." I was like, "Mr. Broker, my best and final is 475."

Darin: You dropped it?

David: I dropped it because basically, I'm saying I want out. He's like, "David when they say best and final they mean you need to go up on your price."

Darin: That's great. I haven't heard that story before, but that's awesome. So tell us what happened.

David: I was like, "That's my best price." So, he wrote it down and he's like, "Okay." A week later he called me and said, "David, you've got the deal."

I was like, "Todd I don't know if you understand this, I don't want the deal. He was like, "David, you told me 475. There's nobody here. You're 25,000 is gone, it's non-refundable now." I was like, "Okay Todd, I don't have the money." So I talked to him and while we're talking he was like, "Okay, I need you to run to such and such a bank. Tell them your story. Tell them about your 30 single-family homes and see if they can help you."

So I drove to the bank, it was a bank out in Frisco. Drove out there, met the bank president and told him my story. The bank president was like, "I'm not going to touch that apartment complex, but I'll tell you what I'll do. I'll take about six or seven of your single-family homes that were free and clear. I'll give you cash so you can pay cash for that apartment complex, but I'm not going to touch the apartment complex for obvious reasons. It was 10% occupied."

From 10% to 90%

Darin: So, the bank bought your single-family homes?

David: No, they just put a loan on it. Remember, I had 30 that were free and clear.

Darin: So, you basically cash out using the collateral on the single-family homes?

David: Yes. So they gave me enough cash to pay cash for that apartment complex because it was only 10%.

Darin: You talked earlier about win-win, that was the win-win. The bank was like, "Look, I like the collateral on the single-family. You got all this untapped equity. Why don't we give you an attractive loan on that and then you go run with that deal and best of luck to you."

David: Yes. So I bought the deal and I took that cash, was able to pay cash and there was a little bit leftover, do some rehab. But lo and behold, I went and toured the property. The other option for me to move forward as I went to talk to the property manager at the site. So I asked her that worked for the bank, she was the manager of the property. I asked her, "What is it going to take for you to stay on and manage this property?" She told me if you give me a $1 raise, I'll stay on." I was like, "How about two? How about $3?" She said, "Done." So, we ended up buying the deal. Within I believe six or nine months, we were 90% occupied.

Darin: 90% after six to nine months?

David: Yes, but then you got to remember, the bank wasn't really leasing them. Some of the properties needed carpet clean and maybe cosmetic work, do carpet cleaning, and all that stuff. Of course, we did some CAPEX and all that stuff.

How Distressed Multifamily Properties Transformed in 13 Months

Darin: I'm assuming if it was 10% occupied that it was in a pretty tough area, too.

David: It was. It's tough. But what I looked at is I was looking at the worst-case scenario, right? For what I'm paying $475,000 I could demolish the damn thing and still I get land that was worth that.

I just looked at the worst-case scenario, what was my breakeven point on that one? I just needed to have maybe 35% occupied assume I had gotten a loan to breakeven.

Darin: So you get it to 90% plus in six to nine months. How long did you own the property before you ended up selling?

David: Total 13 months. So, I brought it to market in the 12th month, put it out there, had about seven offers a little bit 1.4, 1.5 million, and came closer to 2 million. But, the 1.4 million was cash. There was one for 1.7, but it needed financing. But guess which one I took?

Darin: Give me the cash.

David: You got it right. I took the cash, they closed in 20 days.

Darin: You went from 475,000 you basically almost made a million dollars in cash, in a year.

David: Exactly. In 13 months.

Darin: In 13 months, that's crazy. Did you put that million dollars into a 1031?

David: From that, I had been doing 1031 exchanges on my single-family home so I called Rattikin, a tile company here. And I put the money there and I'll tell you later why I went with Rattikin. Anyway, I put the funds there and got on a plane, flew out to Michigan, go to some island out Michigan to vacation my kids trying to think. Every 10 minutes I'm looking at it, did it really happen?

How Distressed Multifamily Properties Works in a 1031 Exchange

Darin: You're like pinching yourself. Is this real? I've only been in real estate for three years and I haven't had that pinching moment yet, but I've talked to a lot of people that have and I have so many conversations in my own mind of how long do you have to work in a W2 job to sock away 10 or 15 or 20% to have it grow into that? There's nothing like it. I applaud you, hats off to you.

David: I did that, put in a 1031 exchange, you got 45 days to remember? Here I'm on a plane on vacation out somewhere in Michigan, Western Michigan and I get a call from the 1031 exchange and said "Hey, you've got 15 days have you identified properties?" Well, I forgot that I needed to identify. Well, I knew, but I was still enjoying this excitement. So, I flew back to Texas and I'm here calling brokers left and right.

All of a sudden I see a property, another property going into foreclosure on the courthouse steps, closer to DFW Airport. I got one million and I looked up the property, it's 192 units. I ended up buying that 1031 exchange, paid cash with that and a few single-family homes bought 100. So, basically exchange from 72 units went from 72 units to 192 units. Much better tenant profile, better location. Then just kind of grew like that. Sold that one and did 1031 exchange into three other apartment complexes.

Going Above and Beyond

Darin: On both those deals do you think the fact that you had cash and you didn't have to finance the deal, do you think that helped you win those two deals?

David: It helped but I think also having the information and being able to talk to people and coming with something on the table. I would rather have not used some cash. If I had, we could put together the funds. It's just that's what was in front of me, I used what I had at the time.

Darin: You mentioned the woman that was working for the bank. She asked for $1 and you and you said how about two or three. I've heard that from a few entrepreneurs in the real estate space where you could have just said "okay, I'll do one" But, you went above that and I'm imagining that that created loyalty with her.

Darin: How long did she stay with you?

David: She is still with me today. That's how we started property management. Because not only do we get her, she brought three, four maintenance people and she ended up building the team. We started with that and with her she brought a maintenance guy and then once we bought the other property, she brought somebody else. And that's how we were able to build management from that.

Darin: That's 2008 and we're in 2020. So 12 years ago, that decision to pay her $1 or two more an hour really, that may not be the only reason why she stayed, obviously you've treated her well along the way and given her more opportunity and whatnot.

Loyalty Is King in Running Distressed Multifamily Properties

Darin: That's a big step for her to say, "I'm working for a guy who cares about me." And you weren't even looking to build a property management company but because you had such core loyalty. I remember you said, "You know what? I was going to sell this deal and I had the employees and I wanted to find a way for them to move someplace else."

David: That's one thing about these employees, they become like a really close part family. So, when I sell something, they're also part of the equation, right? Okay, if I'm going to sell this property, where am I going to place them? Because they've been with me for the longest time, not only am I responsible for them but for their families as well. So, a lot of that we do is multifamily, but it's a lot more than that.

Darin: Not everybody looks at things like that. Just so you know, some people are pure business, pure numbers people, and they're hiring a third party property management and that's kind of on them. But you have a heart for and I've heard you tell me this several times, you have a heart for all the people that work for you and that you guys are all one big team and you feel a responsibility to them.

David: I think it's that you feel like you're giving back, right? I don't look at them as employees, I look at them as kind of partners because they're the ones that make things happen.

Darin: That's so true. The people that are leasing up the units and the maintenance people that are around every day fixing the units, they're the ones that are interacting with the tenants and helping to build the community.

Using Fear as a Motivation to Manage Distressed Multifamily Properties

Darin: That's smart and a long term outlook approach versus just looking at short term gains. Now, those deals were different from a lot of the syndicators I talk to. Most are doing agency financing, the deals are 90-95% occupied at acquisition. They're going to do some value add, but those two deals were hairier.

David: I like hairier deals because that's where you get that pop. You get something that you don't have to add any value to. All the value is sucked out of it. I like something that's got some hair on it, clean up that hair, and hopefully the value triples or doubles.

Darin: You started that way, but you were scared of that $475,000 deal.

David: To say I was scared is an understatement. I didn't sleep for a month.

Darin: You didn't sleep for a month and then you turned it around and made a million dollars cash.

David: The plan wasn't to do that though, but it just so happened things fell in place and everything else.

Darin: But you were scared but you still took action.

David: Yes, I used fear as a motivation to act.

Darin: There's a lot of people out there that are scared, I get scared of things all the time. How do you push past that fear? How do you still take action? You just said that you use it as motivation, I haven't heard that before.

David: You go in and if you use the fear, as I don't want to fail. So you go in there and every single day you get up, you want to do something to advance what you're trying to do. Every day I look at it, I was like "did I move an inch closer to what I'm trying to get at?"

Embracing Risks in a Distressed Multifamily Properties

Darin: That makes sense. You didn't choose to go after a hairy deal to start with, but that's what found you and that's where your experience came. Then, you've had good returns so now you’re still trying to look for them.

David: The single-family homes pay my bills. You got 30 I give five to the bank, I still have 25 that were cash flowing. With that, I'm able to pay the bills and take care of other things. It's like, I'm going to take this money, $475,000-$500,000 and take risks with this calculated risk. Do I think I'll lose? No. I'm going to go at it. This thing is going to grow so big or it's not going to grow. I was always looking for, "how do I double this?" And the only way to do that is to get a situation when you can provide a solution. The bigger the problem, the bigger the pay at the end. Because then you don't have all that competition. That will knock out a lot of competition.

Darin: Absolutely for several reasons. One, it's scary. Two, the financing is completely different. You're either having to pay cash or having to get a bank loan or a bridge loan.

David: That's what I've liked is getting those banking relationships. Having a bank that I've worked with locally and a couple of banks working with the local banks. I love it more than and a lot of people say agency. I like working with the bank because I'm going to shake the hands of the president of the bank, tell them your story. If they buy your story, they're going to finance five-six of your deals and it becomes a relationship thing. I play golf with my bankers, we hang out, we go shooting.

Distressed Multifamily Properties Team Is Extending

Darin: Has the bank ever given you a referral that has turned into a deal?

David: Yes.

Darin: That's another relationship that you've leveraged and it helped pay dividends. Not only did it give you comfort that you had the relationship, but it also, at some point, built a level of trust and credibility that they pass somebody else on to you which is awesome. And that is different than the agencies too because the agencies are cheap money and it's long term fixed rate money and it's non recourse money. So those are all attractive things about the agencies, but typically you're dealing with a broker or you're dealing with another counter-party and you're not dealing with the agency's direct. You're not meeting with the bank president, they're just providing the financing.

Last time we played golf you mentioned to me, "Darin, we built up this property management company and we've always just kept it internal to manage our existing portfolio. But now we're considering working with some third party both on the property management side and also on the rehab, the CAPEX side." Can you talk about one, how large have you grown the property management company too, and two what are you trying to achieve and in what markets.

David: Well, first of all, we are in Texas and the neighboring states. We're in Oklahoma, New Mexico, Santa Fe, New Mexico, Albuquerque, New Mexico, Alabama, Louisiana, and most of the Texas market.

Darin: How large have you grown the property management? How many employees have you grown to?

David: We started with one employee, we have about 75 right now.

Aligned Interests

Darin: You're talking about doing external third-party property management and also work on the rehab CAPEX, can you talk about that?

David: Yes. All of this I did say we started buying properties in DFW in 2001 And then apartments from 2011 To date. Over this period of time, we have employees that have been with us for a very long time. So when we do sell these properties in DFW, you've got employees that you have to place them somewhere. All along we've been managing our own properties as you might have known. So with that, you have these employees where like you mentioned earlier, these people have worked with us for the longest time so to keep them employed I figured I get third party property management. So I can place them, get them.

I feel like I've created value in the sense as far as how we manage our properties and I feel like these employees are able to turn properties around. With that, bringing in the third-party was one way of creating an opportunity for the employees and extending also on my side, growing and helping other property owners. Because we have that ownership mentality when we manage these properties and I think that's what some of these other syndicators or property owners like the idea that somebody comes on board that also owns properties. So I feel like the interests are aligned.

Finding Opportunities for Employees in Distressed Multifamily Properties

Darin: Absolutely. Have you started to work on a third party or is it just a new initiative?

David: It's a new initiative. We have taken a few properties right now, this year that we started, but it's something that we're building. We would like to own and operate, that's really what our daily thing is, but we've managed some properties for friends, close friends, and the people that we know.

Darin: That's great. The first thing you said in your reasoning was not, "Hey, I wanted to open up third-party property management because I want to scale it to size and grow it and then sell it and make a ton of money." That just wasn't what you said. You said, the first thing that came to mind was "I want to find places to put my employees when we sell a property.

If we have another third party, we might be able to place them there. Secondly, I want to help other property owners. Because I have confidence in my team, my team has been able to develop relationships with the tenants and execute on the business plan and turn properties around. If we could take that expertise and bring that to another property owner, while we're providing value to them and look them that's another way of giving back." And yes, you're going to make money from that, but it's just a different approach and a different thought process. It's coming from a serving attitude and I think that's awesome.

David: Yes, we have extended services to where we also do construction in house. That's extra services we provide to these properties third party or owner manage so we do construction and we do management.

Ingredients to Creating Loyalty

Darin: When we're playing golf, I asked you about the rehab construction. I'm like, "So give me some examples, are you pretty much on par with everybody else?" I don't know if you remember that conversation, but you were like, "Darin, I get a number of bids and we're always lower." So, talk about that piece a little bit.

David: I think just because we don't have a lot of overhead. So, for our construction maybe we'll get there as we grow, we are still small. So, I think that other companies do the same kind of work, same people doing the work, it's just that we don't have a lot of overhead so our bids are a lot lower.

I think that becomes attractive when you're trying to improve that NOI and trying to get so far with the CAPEX budget.

Darin: Do you think that also plays into creating loyalty with the employees? There are not eight layers of management that it's pretty flat and people are able to access each other and leverage off of each other.

David: Yes, I told my employees my job is to go out there and find opportunities for you guys, bring it home and you guys have to execute with my leadership. But I go out there, network, play golf, do whatever I need to do. But I'm out there looking for opportunities with the confidence that my team will execute.

The Power of Positive Envisioning

Darin: Going back to your childhood, where did you grow up? Brothers, sisters, kind of rich, poor, middle class.

David: I was born and raised in Kenya. My parents are farmers to this day. My family has since moved here, not all of them but the majority of them have to the States. I grew up herding cows.

Darin: Did you really?

David: Yes, I still have cows today.

Darin: You have cows today on the property that you own here in the US?

David: Yes. I grew up herding cows and sheep and goats and all that stuff, that's what I did while going to school. And after that, I went to high school in Africa and then came to the States to go to college. The plan was to go back and get a bigger farm, get more cows. That didn't work out.

Darin: So, where'd you come to school in the US?

David: I went to TCU in Fort Worth.

Darin: What did you study?

David: Accounting and finance.

Darin: And then you graduated and joined JP Morgan?

David: Yes. Graduated, went to my first job as an accountant at JP Morgan.

Darin: When you were a child at some point can you envision in your mind "I'm going to be successful." If you did think that, what did that vision look like to you?

David: I think I always thought I'm going to be successful, but my success was totally different than today. That keeps evolving, right? So when you're out there you think, "Hey, I'm going to have so many acres of land so many cows and that'll be it." Where I'm from wealth is, actually was or maybe it still is based on how many cows you have.

Abundance Mentality in Distressed Multifamily Properties

Darin: The Monopoly game in Kenya is not houses and hotels, it's the number of cows you have.

David: I just converted it now to multifamily units.

Darin: So you had the vision early as a child, "I want to be a big owner of cows and herding." And that was wealth, a success factor in Kenya and then you came to the US. You didn't do that, you started getting into real estate, but you still had the same mentality.

David: I've always had that mentality of abundance. I always think there's so much for everybody if you look hard enough.

Darin: You're not the first person that I've interviewed that came from overseas. I'm assuming when you came here to go to college you didn't come with a ton of money. You came to study college and find a career and whatnot.

People coming from outside the country coming here and then figuring out a way to build massive wealth. Then, we have people here in the US that feel like they just want it all given to them and they don't go after it and they let fear stop them from taking action.

David: I thought about that a lot, I think the majority of it is when you're coming from outside and not having a lot of opportunities and you come here and you see opportunities everywhere it's like "okay, which one do I start?" I remember coming over here and I was like "okay, what do I want to do? Do I want to be a car salesman? Do I want to own a dealership?" I didn't know about properties until later. I'll tell you this story. You asked me earlier, how did I decide to buy even properties, the first property.

Taking Advice and Acting Upon It

David: I was looking for a house right straight out of college, looking for a place to buy. You graduate college, get a job, get your first car, buy your first house, go to suburbs and buy a little three bedrooms, two bath house and all that. I was looking around and I met this old guy who had been a broker in Alecto for 45 years. He told me "If you want to be somebody in America you want to buy an investment property."

Don't buy your house first. That got in, I started reading. I didn't even buy books, I went to the library and started reading about how to buy an investment property. About three months later, he comes back to me and says, "I got a fourplex for you. Don't buy your residence first." I didn't care if I was getting a deal, I just went with what the guy told me. I was working at JP Morgan at the time he showed me how to buy my first fourplex. Moved into one unit. It wasn't fancy, but it worked out. I ended up selling that and that's how I was able to get about 30-40,000 and that's what I started my investing with.

Darin: Here's what you did. One, you came in a good fortune that you bumped into somebody, you developed a relationship with somebody that was older, wiser, and he imparted wisdom on you. You listened and you took action. There's a lot of people that are younger that don't want to listen to the people that are 10-30 years older. You took the advice and you shifted your mentality from buying a single-family to live into buying an investment property and you went and researched it and started reading books.

Carpe Diem

Darin: I wonder if part of it is the education system and environment that you guys are grown up in versus our children here in the US. I know that as I grew up and I see it today it's the same thing, the education system is grooming you to get good grades, so you can get into a good college, get into a good company and climb the corporate ladder. That's what most kids are groomed to think as they go through the school. It's only if the parents or other relatives, mentors, or coaches provide a different viewpoint that it could change. But people come in from outside the US they don't necessarily have that same 12 years of brainwashing. How does that play into what you're thinking?

David: I think we come over here, we say we're here for a reason and a season so it creates that sense of urgency. I didn't know I was going to stay here, I just thought I'm going to study, get my degree and then I'm going to do something else. But when I ended up staying in the US, I knew investing or having these opportunities even when I looked at the same thing when I was buying these apartments for $10,000 a unit.

I don't know if that's not going to last so you create that sense of urgency and try to do as much as you can with the little you have. Overtime, that grows. I think if you don't do well in college, there are other opportunities and that might create some complacency. Where I'm from, if you don't do well in something, then you don't get another opportunity. So you better make the most out of it, be it in real estate or in school.

Sacrifices Work in Distressed Multifamily Properties

Darin: Tell me your perspective on this. I think opportunities are all over the place, they're everywhere. But, as an individual you have to be looking for them, right?

If you're not looking for them, you will not see them. Just like when you buy a car, you buy that car and all of a sudden now when you're driving, you see that same make and model driving on the road wherever you go, but before you didn't see it. But now your mind is kind of focused on it. I believe that opportunities in life whether it be career changes or whether it be real estate opportunities, you have to be eyes open.

So, talk about some of the sacrifices that you've had to go through along the way.

David: Well, building a business takes time, it takes time away from family. Sometimes working a full-time job and trying to acquire properties that would mean you go to work from 8-5, get home around seven, and underwrite deals all night or until 10. Go to bed and go back to work the next day. That takes away time from family. The dinners, you miss dinner time with family. Sometimes I've had to miss kids' events. So, that's one of the things that I think I kind of sacrificed at the beginning. And sometimes you look back and you're like, okay, was it worth it? But, when I look at it, hopefully, it's not for very long.

You take five years and I think David, one of the financial advisors said, "Sacrifice five years of your life so you can live the rest of your life like no one else." So, I think, you do that and things work out and I do believe that I did sacrifice time with family.

Hard Work Is Success Waiting to Happen

David: At the beginning, we talked about buying that fourplex instead of going to buy a single-family residence. I felt it was a sacrifice because I had to live with my tenants by that fourplex, I didn't go by the first brand new car and get on a payment plan and go buy a car that could afford it. $5,000 and pay cash for it instead of pay 30,000 at the time and get on a financing plan and I felt I took that money and invested.

Darin: You said a number of different things there. I think that people in the beginning when they hear the story about you, they just hear, "Oh, he bought a $475,000 and he made a million dollars." An overnight success.

Most people that I've talked to, it's not that. Yes, they have the big wins, but there were sacrifices that came along the way that built up to that. One, you met this guy you took action, you started reading about investment properties and you started focusing on it. Then you went out and started taking action and doing it, but at night you're underwriting deals when other people are watching Netflix. There are people that reach out to me on Instagram, and some of them are go-getters and are going to be successful. Some of them just hear the success stories and they want the quick hit. You have to be willing to develop and grow.

David: Investing is a long game for sure. And, as long as you're making your goals and know nothing is free, you'll sacrifice something. Hopefully, it's not something detrimental to your family or to, but each and everyone that I've talked to that has done something with any business they have sacrificed something.

Distressed Multifamily Properties Needs Wise Buyers

Darin: Most of the people and the discussion I've had is surrounding multifamily and the bulk of what you own is multifamily. But, you did tell me at one point in time that you bought a hotel or a motel in New Mexico and I was like "why did you do that?" How that came about and why you pulled the trigger.

David: I'm an opportunistic buyer. So the way the hotel came to me as we had bought a portfolio of 1,500 units in New Mexico. We have sold about 800 units. Some of those 800 units that we sold, about 120 of them are next to this hotel. We did so well with those 120 units when we sold them and so when this hotel came up, it had a lot of exit strategies on it. One of the exit strategies was the zoning was to be changed to either converted to multifamily or assisted living.

I didn't look at the hotel and say I want to get into the hospitality industry, I was looking at it as a potential conversion to multifamily because of the room sizes and everything. It's got the suites, kitchenette, and all that stuff. So that's really why we got into it, it was just to convert them to apartments, but since then it's kind of evolved a little bit. It's still in the works.

Darin: It came to you at a very attractive price.

David: Very attractive price and that we couldn't pass on.

Venturing to Syndications

Darin: In the last year, you have partnered with a few people and done a few syndication deals where in the past it was all buying for your own portfolio and it was you and your team. Why did you decide to partner on a couple of syndication deals and what's your outlook on that going forward?

David: It goes back to my original plan. If I go back to 2001, when I first started doing this wasn't to grow big. My original plan when I started buying properties was to buy 10 single-family homes, pay them off, hopefully, each rent for $1,000 and now I got $10,000 cash flow. But over time it's grown, bought 4,000-5,000 units now you've got your plans to change. The reason why I started partnering here locally is we want to scale and build up a bigger footprint in DFW for our team and just to help scale. I'm smart enough to know that I don't know everything even though I've done this many units.

Darin: You're a smart guy, you have a lot of experience. I'm very fortunate that I sat down next to you that day at that networking event.

David: What I found out is everybody has their own unique abilities. I've been wanting to partner but every time somebody has to bring something on the table that complements what you have.

I think one of the guys that I partner with is good with capital raising, underwriting, and the other partner is good with building businesses and processes. Then I bring to the table the operations of the management and also having the construction in the house helps with putting all that together. It was what brought us together and I think it was the reason why we decided to partner.

The Next Big Stretch for Distressed Multifamily Properties

Darin: You found other partners that each brought unique capabilities and strengths to the deal. When did you start investing? Single-family back in 2001 so 19 years you've been investing and then 2008 on in multifamily. But you're still learning.

David: Yes. And like you said earlier, I've never syndicated so these guys, they've done syndications, they have done all things nine yards, right? So it was something that they can bring to the table that I haven't done, and they also have their own relationships that are different from mine. So, it's kind of bringing in all that for the betterment of all.

Darin: So, out of all those years and all that wealth building, you still hadn't syndicated a deal and then you learned that through partnering with these guys. And, who knows which direction you'll go in going forward, but with that said what's the big stretch goal for David Lagat?

David: I guess everybody would say, " I want to have 10,000 units, 20,000 units, or whatever it is." I look at opportunities right in front of me and take it. It seems like as long as you're playing in the field there's always going to be opportunities. What you do with them I hope that I'm prepared and have all the capabilities, all the structures in place to take advantage of it.

Darin: How do you look at 2020 versus potentially what could be coming in 2021 and beyond? Do you foresee that this is a V shape recovery, we're kind of just going to go back to normal, or do you foresee there being a hiccup down the road and you're preparing yourself to take advantage of those opportunities that may come along?

Always Prepare for Opportunities

David: The way I look at it is we've had a very long run from 2008-2010 till now. You always want to be preparing for an opportunity. The way I've set up my business, I'm always preparing for the next day. So, either building up your cash. So the way I look at it, whether it's a V-shaped, U shaped whatever you call it there's always going to be opportunities.

If it's a U shape or a bigger buying opportunity I want to be ready for it. So, that's why we're doing all this partnership, that's when we'll be preparing for the next opportunity. Having the construction company in house, preparing for a buying opportunity, making sure I have the right people, the right team. That's one way we're preparing for a buying opportunity. But all that plays the role of, "Hey, we want to be here and we want to be here for a long time." So with that, we still have to buy an opportunity or not, we still prepare for an opportunity that might or might not come.

Darin: Yes. So you didn't say this, but I'm kind of reading between the lines as you're looking at every opportunistic opportunity that comes your way. And if it's not good enough, you're going to pass.

If something comes your way next week, you're going to jump on it. You're not going to just sit back and say, "I'm not doing something for six months."

You may not do anything for six months, but you're going to look at everything, and hey, if it's a good enough deal you're going to jump on it. That may happen next week, or that may happen next month, or that may happen in 2021. You just don't know.

Advice to Jumpstart Into Distressed Multifamily Properties

Darin: There are some people that are listening that they don't want to be the front guy going out and finding the deal and underwriting the deal and getting into real estate right away. Maybe they do down the road, but maybe their first step is, "Hey, I've always invested in the stock market and I want to learn how to invest passively." What's your advice to somebody that falls into that bucket?

David: One thing that I could say is, first of all, study. Make sure you definitely know what you want. Study the market, decide on your investment plan. What do you want to buy? Do you want to be in multifamily, self-storage, single-family, whatever it is? Network, get people that have done well in that industry. And find a way to create value to them and then maybe partner with them.

So, I would think that some people, I had some people that I've reached out to and actually I like that they're offering to help. Can we help with this? I have this skill, I can help you with that or do that. And in that sense, if they bring a deal I'd probably be inclined to do a deal with them. So I think finding either a mentor, studying up on what you want to do, and just jump in headfirst is what I would say.

Darin: I think that's all great advice. One, find a mentor if you can. Two, educate yourself. You could do that with reading books and listening to podcasts. Three, you need a network. This is a relationship business, you need to get out there and meet people and hear stories from people. And then the last thing you said was to take action.

Leap of Faith

Darin: From all the interviews I've done, there's always some fear especially in that first deal and you have to be able to push past that fear to actually make a leap forward even though it's scary.

David: Yes, I think if you learn more about that whatever you're trying to do, that fear kind of subsides a little bit. It's not going to go away, but I think having enough knowledge going in will alleviate a lot of that fear. It's not going to go away. I've had some investors that I started within 2001, they thought the market was high then. Today, they haven't bought a deal. Friends that I went to college with. They're like, "Okay, you're paying too much for that fourplex." Guess what? They didn't buy, they haven't bought it today. They might have bought the home you know residence but they didn't buy investment because every year they something, there's a reason why they can get in there's some sort of a fear that's holding them back.

Darin: That's such a great point. There are so many things in our mind that we can justify why we shouldn't take action. And, if you look year after year after year, there are some people that just could never jump off the board. David if somebody listening wants to get in touch with you, what's the best way for people to reach out to you?

David: Through my email: David@bellasrealtygroup.com.

Darin: I really appreciate you coming on the show. You have a unique experience and you're just a good guy and it's evident in how you built your team. The loyalty that you've built and your outlook on how you grow your portfolio and your team.

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