Today we have Tariq Sattar on the show! Are you looking for a way to become financially independent? Tariq Sattar is a multifamily syndicator, investor, and coach with years of experience in the industry. He knows what it takes to achieve success and has helped countless others do the same. Follow his lead and you can be on your way to financial independence too. Listen and learn!

Table of Contents:

• Where To Listen To The Podcast
• How to Become Financially Independent Through Multifamily Investing
• Pari Passu
• How Properties Are Affected by Increasing Interest Rates
• What to Do When You Run Into Deal Problems
• Your Due Diligence on How to Become Financially Independent
• How to Reach Tariq Sattar

How to Become Financially Independent Through Multifamily Investing

Darin: Tariq Sattar is invested in 55 syndications and over 16,000 units. He started with single family and then scaled into multifamily. When he first started, he asked about the returns. "Is it real?" He found out by doing, that it is absolutely real.

So just a little bit on how we know each other. Tariq and I met a number of years ago when I joined a multifamily mentorship in the Dallas area, the Brad Sumrok Group. He was actually one of the leaders so to watch out for. So when I got involved, I was watching what he was up to. It's been a little while since we reconnected. So I'm interested to hear everything that he's got going on. Can you share with the listeners a little bit about how many properties and how many units you're invested in?

Tariq: So, have been quite active both on the GP sponsorship side, as well as on the LP passive investor side. On the GP side, we have acquired or syndicated about 20 properties over the last several years and 13 of those have gone full cycle, 14th is under contract scheduled to close here in the next couple of weeks. That is on the sponsorship side. On the passive investment side, I'm invested in at this point 55 different syndications for a total between LP and GP investments about 16,000 units.

Darin: That's crazy, my friend. And you're still talking to us. You should be on some yacht somewhere with a satellite phone.

Tariq: What I love is just talking to people about how real this is. I came from a single family background and had a whole portfolio of about 55 single family homes.

Educating People How to Become Financially Independent

Tariq: When I switched over into multifamily, it took me a couple of years to really validate that this is real. Once that happened, I just got out of that portfolio and transitioned everything over into multifamily. I continue to talk to anyone that has any interest in real estate about the benefits of multifamily and how real this is. And in addition to all the other benefits, the tax benefits that you have within the multifamily space. That's why I'm here with you today as well.

Darin: That's fantastic. You brought up the exact question that I had when I got involved. "Is it real?" And I think that there's a lot of people that still have that skepticism. I had it to begin with and you had it. There's really no way to get past it than at some point taking action. Then when you see it come back you're like, "Holy cow, this is real."

It started for me. I went and started a bunch of Starbucks meetings with sponsors and ask them that same question. "Is it real?" And then when you start seeing it, it's like look at the smile on your face. You are a happy man.

Tariq: The reality is that a vast majority of us, and I was in the same category when I started looking for multifamily opportunities. There was no one in my circle, friends, professionals that had been active in that space.

Talk to People Who Have Years of Exposure to Multifamily

Tariq: You will have a lot of people in your sphere that would have some experience in the single family space. But a very limited experience and typically at a very small scale. Those are the people that we as humans just bounce ideas off of. People that we have in our social circle that we feel comfortable with, that we talk to on an ongoing basis.

You talk to them about this and you listen to their feedback. But they have no background, no experience in it. And that is what holds a lot of people back. When you are looking at it as someone that is exploring this as an opportunity, you have to talk to people that have been active in this space for a number of years. Not just talk to someone that has a handful of units and may have done a couple of flips. So that is not the right audience to go talk to and get feedback from.

As you said, I did the same thing. I talked to a lot of the sponsors that were active in the space and just got their feedback. Started investing in the space and took me a couple of years just to confirm that this is very real. Then from that point on, I've just been focused on it. I had a goal to have a certain amount of capital deployed in this space. And I should be getting there here in the next few months.

Darin: That's huge. I completely agree with you. How do people connect if they don't have somebody in their sphere that has that experience? And how do they go searching for that?

How to Network With People in Multifamily Sphere

Tariq: I'll tell you what I did when myself and my business partner Iven. We were working together in the single family space. Both of us are here in Oklahoma. When we decided to explore commercial opportunities, we looked at the various commercial avenues. The hospitality industry, office space, retail space, industrial space, storage space. A lot of those and narrowed it down really to multifamily and self-storage are the two spaces that we wanted to really hone in on. We started looking at how do we learn more about it. We attended a couple of meetings in Dallas and ended up joining. This is where we met Brad Sumrok and his group.

But we looked at a couple of others at that time as well and joined Brad's group. I continue to be part of that group, continue to be a coach in that group now for a number of years. That's where a bulk of my investments come through. Now, if there is not someone in your immediate sphere that might have been successful in the space, explore. There are plenty of meetups in this space. But take the time to really understand who the leaders in that group are and what their background is. How long have they been involved in it? How active they are in this space and how much capital they have deployed themselves in this space.

Darin: And what's been their experience, right? Granted, it's been a hot, hot real estate market both multifamily and residential. But it is crazy returns and the tax efficiency that multifamily provides based on the leverage.

There Are Many Resources on How to Become Financially Independent

Darin: Leverage of the loan, leverage of pooling of people coming together to buy a larger asset than they can buy on their own. And then the tax efficiency is just massive.

So the other options are podcasts, books, you mentioned meetup groups. There's an app you could just download on your phone, Meetup. Just put it in apartment investing or multifamily investing and then going to conferences. It's amazing when you get in a room with a bunch of people that it's almost commonplace. Like, "Oh, I've invested in a hundred unit, a 200 unit, I've got five 200 unit deals." And you're like, "Holy cow." When you first get exposed to it, you're like, "I didn't even realize that there were all these people that did this." It's amazing.

Tariq: That's absolutely right. When I entered the space, the term multifamily was new to me. I did not know there were non-recourse loans available in this space. Fannie Mae, Freddie Mac, there are non-recourse loans. There are bridge loans that are non-recourse that you can take in this space, which you don't know. Then on the syndication side, I would have never in my wildest dreams thought that I would be able to go raise tens of millions of dollars for these very large acquisitions. But we have been doing it consistently. And now that we have had more than a dozen of these acquisitions that have gone full circle and we have a good track record.

Investors Want to See Track Records

Tariq: We have now very good traction with private equity groups. We have done several deals now with the private equity groups where they have put in anywhere between 50% to 90% of the total equity that is needed for an acquisition.

Darin: That's great. Did they come looking for you or did you go looking for them?

Tariq: We had been talking to private equity groups for a number of years, but a vast majority of them really want to see some real track record. So we had conversations, dialogue on an ongoing basis, had had a lot of meetings, but it really started coming together and we really started to get some term sheets last year. It was really started in '21 when we had had six, seven of our transactions gone full cycle at that point.

They had real data to see and to assess, to evaluate how the performance was on those dispositions and then several others subsequent to that, and that really kicked it off. But the discussions were ongoing and we had good discussions. As I said, we did not start getting real term sheets from them until last year.

Darin: And are the private equity firms, are they coming in as pref equity where in the capital stack, they're getting paid first after the lender, after the loan, before the, say high net worth individual equity is paid back?

Tariq: So we have done it both ways. We have a hard pref, where after the debt is paid, we have to pay certain return, pref return, preferred return to the private equity group on a monthly basis.

Pari Passu

Tariq: And there is a reserve fund that was established at close. If there is not enough cash flow from the property, which there wasn't expected to be in the first several months, then that shortfall is made up from that reserve fund that was set up and escrow that was set up in the beginning.

And then we have other arrangements, agreements with private equity groups where it is more of a joint venture. All the limited partners, including the private equity group and the syndicated equity are pari passu they're on equal footing. So the lender has the priority of course. But after the lender then the individual investor and the private equity are pari passu, they're on equal footing and they both get paid at the same time.

The one thing I will point out though that in any of these deals that we have done with private equity groups, the compensation for the GPs or the general partners or the sponsors is more backend loaded. Although there is compensation to the GPs, but there still is a preferred return, which is a soft preferred return.

So we pay as much cash flow as there is and the rest of it gets accrued. The rest of the return gets accrued and would typically get paid when there is a capital event. When there is a refinancing or a disposition of the asset, then that preferred return, whatever it is, seven, eight, nine percent on an annual basis, whatever that is, that is going to be the investors that are going to be made whole for that first. Then the GPs or the sponsors get to participate in any of the cash flow subsequent to that.

How to Become Financially Independent While Having a Sense of Joy

Tariq: But as part of that priority or preference to the investors and the private equity groups, what we do have on the flip side of that is that we have, just saying, picking a couple of numbers for discussion purposes. That if we have 14% IRR target, we have an 80/20 split up until that 14% IRR is hit for all of the investors.

And then that split changes to let's say 70/30, 70 going to the limited partners or the investors and now the GPs get 30% and that is maybe up to a 16 or a 17% IRR. If you are able to deliver an even higher IRR on the backend, then that 16 or 17% hurdle, then that split may change to a 60/40 split with 60 going to the LPs or the investors. So we have those kinds of waterfall structures in place where we have a soft pref for a hard pref to a private equity group.

Darin: That makes sense. And it's common with folks that build up the track record to have that type of waterfall feature. So I don't know this for sure, but based on your success and the fact that you're still doing this and you're still doing podcasts and you're still coaching, you must get a sense of joy from getting other people involved.

Tariq: Absolutely. I used to be in the corporate world and was in management consulting, was in crisis management, turnaround management. Travel the world, doing that work. But for some period of time, I was doing 100% travel. We always talk about the possibility of having some way to get out of that "rat race." Very difficult to do it.

How to Become Financially Independent Takes Years of Work

Tariq: It is doable and any opportunity, any experiences that I can share with anyone that may want to consider it, that's what I'd love to do. But one thing I always point out at the outset is that it is not a short term road, it is not a get-rich-quick scheme. It will take time. It has taken me a decade to get to where I am in the real estate space now.

In my case, I started out focused on real estate full-time. I had already left the corporate world and was doing consulting on my own, doing some stock market investments, and just went into real estate. But it has taken me a decade to get to where I am today.

So it's not something that's going to yield results in the first week or month or year. It is a multi-year process and a lot would depend on how much capital you have at your disposal to start out with. That over time, it grows, multiplies and you're able to redeploy it. And that is how I have been able to grow the portfolio that I'm invested in now almost over a decade.

The other thing that a lot of people don't necessarily realize is that they have an opportunity to invest in this space through their IRAs and through their 401K accounts. What we see, a lot of people may not have a large amount of cash in their savings accounts. But typically, if you have been working in the corporate world for a number of years, you may have a pretty significant amount in your 401K or your IRA and you have the opportunity to invest in this space through those accounts as well.

Maximize Your Untapped Equity

Tariq: And we on an ongoing basis probably get about a 25 to 30% of our investment dollars from limited partners, from investors, from retirement account.

Darin: I think that's huge. I didn't know that either until I got involved. When you get involved, people start telling you what your options are. And so I've invested in deals through my retirement, I set up a solo 401k and I've also done it after tax and I'm in LP and GP. The other third area I think that's an important area that people don't really tap into as much is their home equity.

I think people are told just to sock 10, 20% into the stock market and pay down your house. Well that's one asset that could be appreciating and it's done very well since COVID. But if you have a lot of untapped equity, you could take some of that, put it into other real estate transactions that return significantly more. You've got the arbitrage and then you've got two assets that are appreciating at the same time.

Tariq: Absolutely. That is so very true. And some of the people that I talk to that are exploring the multifamily space, they may have several homes, investment homes that they are considering. They are not sure about the opportunity, they're considering if they want to go down the path of selling those homes. But oftentimes, as you said, they have the ability to take home equity loans on the lines of credits against those assets and use those funds.

There Are Tax Benefits From Real Estate Investing

Tariq: And as you said, the returns in this space are typically well into double digits. Well into teams on an analyzed basis and definitely much, much higher than the interest that one would be paying on our home equity line of credit. So we have that arbitrage and then of course the assets are appreciating and we get the opportunity.

The tax benefits are just simply huge in this space. Especially for someone like me where I do this on a full-time basis. I am able to file taxes claiming a real estate professional designation and that in itself allows me to offset not just all the income, the gains that I have from the passive investments or the real estate investments. It also allows me to offset my wife's income. She's a physician and has decent income from there.

So that gets offset because of my ability to file taxes as a real estate professional. Her income, 1099 and W2 income gets offset against the passive losses, depreciation losses that I get allocated based on the investments in the multifamily space that I do.

Darin: That's huge. If you are a full-time real estate professional, there's significant tax benefits. It's something to consider if your spouse is a highly paid W2 employee. That if the other spouse decides to become designated as a full-time real estate professional, the tax benefits help both of you. It's the combined.

So I've seen huge benefits by having maybe one spouse that wasn't involved in business, they were getting paid. All of their financial income was coming from one spouse and then the other one became a full-time real estate professional and then as a couple. They saved tremendous amount in taxes. So that's huge.

Continuously Educate Yourself on How to Become Financially Independent

Darin: Hey, talk about when you started getting involved. You were thinking about yourself, Iven, your family. But I would imagine you weren't even thinking about becoming a coach, teaching others, being on podcasts, getting other people involved, helping build the wealth of other people. You don't even realize it until later on that I've got all this wealth of knowledge I have to share with people.

Tariq: Absolutely. And that is so very true that as I said, and you went through the same thing, I went through that same experience. That it takes some time to realize how real the returns in this space are, how good the returns can be. And it's not difficult. It's a process that is going to take time.

Darin: But it's not difficult, but it's scary at first because it's an unknown, right?

Tariq: Absolutely. That is absolutely the fear of the unknown is why people go talk to their close circle of friends and family. And as I said earlier, a vast majority of instances, none of them have the experience, but you listen to them and they sort of validate your fear and you never take that first step. But do the research, educate yourself, podcasts.

Having been doing it now for a decade, I still listen to podcasts. There are several that are great and you always are able to pick up. I don't know everything. This is just an ongoing process. The market dynamics change. We are going through a phase where the interest rates are rising quite rapidly. So the impact that has.

How Properties Are Affected by Increasing Interest Rates

Darin: So talk about that. How is that impacting some of your properties? The increase in interest rates.

Tariq: Right. So if you have floating rate debt on any of your property…

Darin: Do you have any floating rate debt on any of your deals?

Tariq: Yes, we have two properties that have floating rate debt and both of them have rate caps. In both instances, the rate caps are in the money currently and are paying on a monthly basis. So the benefit of the rate cap is, and it is something that has been required by the lender for some years now. That if the interest rate moves beyond a certain point, then that rate cap kicks in and it is sort of an insurance policy where your debt burden for that property gets capped at a certain point.

But there is pain that there is added expense that you have as that interest rate goes up. And that delta between where you started out at the interest rate and where the interest rate cap kicks in for that delta. We have a property where the interest payment has gone up from about 65,000 a month to almost double, 120 a month.

Darin: Yes, it's pretty crazy. And some of the deals and even with the cap, the cost of the cap used to be significantly lower than it is today. The cost of the cap today is significantly higher, makes the deal harder to pencil. But in addition to that, and I don't know your experience, well it sounds like you're in a lot of deals, so I would imagine that you have this too.

Taking a Different Recourse Depending on Opportunity

Darin: But I have a few deals that the payment went up significantly because the lender is now requiring an escrow for interest cap reserve to pay. When the interest cap expires, they're going to have to buy another cap. And because that cost has gone up, that reserve that the lender is requiring has gone up significantly.

Tariq: And that is very true. I see that all the time in instances that monthly cost has gone up six, eight, 10 times what's being put into escrow previously. And now that the interest rates continue to go up, it is all based on the pricing of the cap today. Although you may be buying that cap a year, two years, three years out when if you look at the forward curve, the interest rates are expected to start coming down. But the escrow amount that you need to put up is based on where that cap is priced today.

So that is true, that is happening in a lot of the floating rate debt cases. And that is why we are going through a period now where a lot of the deals that are being done are done with fixed rate debt. We did an acquisition, we closed on one about three months ago in Kansas City. And although there is non-recourse debt that is available, we in multiple instances have taken on recourse, full recourse, or partial recourse debt depending on what the opportunity is.

And in this particular instance, we have, I think it's a 19 million loan from a local bank. A partial recourse, but it is for a five-year term, I think it's three years of interest only. But at a 4.99% fixed with a step-down, a 3%, 2%, 1% step-down in the first three years.

Floating Rate Debt

Tariq: So we have done that ourselves as there is so much volatility in the interest rate market to try to take some of that volatility and risk out of the equation and go to a fixed rate debt so that exposure is not there.

But as I said, we do have a couple of deals in our portfolio that are floating rate debt. We have rate caps and we have the rate cap reserves requirements, escrow requirements that you touched on earlier. And those are definitely properties where we are not making any distributions currently because of the squeeze on the cash flow.

Darin: I don't know that investors that aren't very familiar in the space that they all understand that it's going into an escrow. Because it could be where, like you mentioned, a year, two years, three years down the road based on the forward curve maybe interest rates are lower, maybe cap prices are lower. Then they can actually release some of those funds from the reserve or reduce any additional money that's going to be going into the reserve. So it's not like that payment has necessarily been paid out and it's additional expense today, but it's a reserve.

And I think some people just see that amount go from X to X times five and they're like, "Holy cow, that's a huge expense increase." And it is a big hit to the cashflow and it could be a big expense, but it may not be.

Tariq: Right. In a lot of instances, we have rate caps that are going to come up for renewal or expiration 18, 24 months out.

2023 Expectations

Tariq: We don't have anything coming up within the next year, but in 2023 when the interest rates are still expected to be higher, and if you are in need of buying a rate cap, then you are likely to pay a lot. And the benefit is that you would have escrow that amount. It is not a sudden hit that you're going to get.

But as the market sentiment changes and fed reverses course, which is expected to happen at some point in 2023, and interest rate start to trend down, the volatility comes down, the pricing comes back to a more realistic level, then you're going to have extra funds in that escrow. You may get to a point where you may even be selling the asset before you need to buy another rate cap.

Darin: All of the escrow would be released in that case.

Tariq: Exactly. All of that is going to come back to you. We closed on our disposition just last week and we have done a first distribution to our limited partners just end of last week. But we expect more than half a million in escrow reserve funds to come back from the lender this week. And that is going to go back to the investors as well as a second distribution.

Darin: That's huge. I wasn't even thinking about that. But yes, if you sell it before you have to buy that new cap, all of that reserve is going to come back. I'm putting you a little bit on the spot here.

A Success Story on How to Become Financially Independent

Darin: But I'm hoping that there's a success story that's going to come out of this. But think about, you've been doing this for a while, an investor who was skeptical, who came in as a passive investor with you guys maybe a number of years ago and how he or she has come back and thanked you for helping grow their wealth.

Tariq: Multiple times.

Darin: All right, so pick one story and obviously don't use names, but just kind of explain that story. How they got involved and what happened.

Tariq: This would be several years ago, my business partner Iven and I are both in Oklahoma. Initially we had several assets in Oklahoma. All of those are sold at this point. We had six of them. We had two in Little Rock and in one of those assets, rather older asset, a '70s asset in pretty bad shape, pretty large asset, 200 plus units that we purchased at a very favorable price. It was not a big equity raise.

Before we sent it out to a larger pool of our investors, we had reached out to a handful, select few friends, family of course and others that had been repeat investors with us. But connected through a referral with someone, a local physician that had not invested in this space at all before. And that was the first one that he invested in with us. That turned out to be a very, very successful investment.

Darin: What does that mean? Very successful investment?

170% Returns in Two and a Half Years

Tariq: We had when we went in, the expectation was that we would double, it would be 100% return over a five-year hold. It ended up being, I think in that case about 170% return over a two-and-a-half-year hold.

Darin: I mean, that's what you're saying, you find out it's real. You just don't see that in the stock market. I mean, somebody invested a hundred thousand dollars and in two and a half years, they got back their hundred thousand plus another 170.

Tariq: Right. And those are some of the outstanding ones. But on average, if you are able to, which is very real in this space, if you are able to get high teens or 20 plus percent annualized returns in this space, where else are you going to get it? And this is backed by a real asset. Aas long as these are sponsors that have experienced that you have vetted that you have really researched and understood their background, their experiences, what kind of track record they have, what kind of issues they have run into, which markets they have been in.

Having done all of that, if you are deploying your capital with some of these more reputable groups or sponsors, the returns can be significant. So going back to that physician that did that one investment, but he has been in every single one of our investments. Ever since then.

Darin: After that he's like, "I'm in."

How to Become Financially Independent in the Midst of COVID

Tariq: And bottom line is that we have discussions every now and then that he understands that was an outlier. All he is looking for is that as long as the returns get into double digits, that's all he is looking for. Anything north of 10%. But as you said earlier, the market has been very good. The tailwinds have been very strong in this space for a number of years.

Right now we are experiencing some resistance just because of the capital markets, the interest rate environment that we are in. But realize the ground reality of affordability gap, the supply and demand imbalance, all of that has a huge impact on the rent growth and demand of these apartments for the working-class families. So as that picture improves on the interest rate environment, the amount of capital that is sitting on the sidelines in this volatile market is going to come right back. So that's going to happen.

A lot of these private equity groups have pulled back for now. But as some stability comes back, as the outlook becomes clearer, they're all going to come back into this market, and that interest, that pricing, the cap rate reduction is going to come right back.

Darin: And the other thing is priority. So we had a hiccup during COVID, right? Everybody was scared, people aren't going to pay their rent. And I remember, I owned property and I was like, "Oh my gosh, people are not going to pay the rent." But every month, we were cashflow positive. It was crazy .

Expectations vs. Reality

Darin: That was something that you could not plan for. You could not plan for an epidemic like that, but people are going to pay for food and then shelter in tough times.

Tariq: Absolutely. There's no question about it. COVID was an unknown, no one had really had the experience with it. And that is why ourselves, including a lot of other sponsorships, GPs just held the cash back. Stopped paying any distributions for a number of times for a number of months, because you wanted to have the cushion to weather the storm. You really did not know the expectation at one point was in the beginning that 20, 30, 40% of the residents might not pay rent. That never happened.

And on the backside of that, over the last year, the demand for these properties has continued to go up. What has that done is just driven rent growth in some of the markets that we focus on, which have strong underlying fundamentals, which have strong population growth, employment growth, employer growth. All of those underlying fundamentals are there, there has been double-digit rent growth year over year.

And that is not what was expected. Rent growth is slowing down because of the economy slowing down, because of the interest rates going up, because of the inflation. But the growth is still there. Rents are not dropping, they're still going up, albeit at a slower pace.

Darin: And there's still a big gap between rental prices and home prices.

Tariq: That affordability gap is huge. And if you look at the data on what the median household income needs to be to purchase a home, a medium-priced home in the US.

What to Do When You Run Into Deal Problems

Tariq: It has crossed a hundred thousand mark. It is I think 121,000 or so the last I checked, which was about a few weeks ago. So that affordability gap, if you are not at that income level on average, you're not able to afford a single family home. So you are then forced to rent. That freezes the demand.

Darin: So you're involved in a lot of deals and I don't know, both as a LP and as a GP, have you run into any deals where maybe it was undercapitalized? They ran into some problems either on your own deals or as an LP? Have you had that situation, and how did they resolve it?

Tariq: We have had that situation both as a GP and as an LP. And I think the most important thing when you are in that kind of a situation is to have a very open channel of communication with your investors. Make sure you keep them updated on what the ground reality is, what is going on. We have not had a capital call in any of our investments.

As a GP, I have not been in any investment as a passive that has had a capital call at this point. Although I'll say that based on what is going on in the market currently, I do expect that a handful of my passive investments will have a capital call here in the next six to 12 months. How large that capital call is, we don't know yet.

The Key Thing to Look at When Investing

Tariq: There have been instances in our case where we are the sponsors where we have had need of additional capital at the property. We as a GP team, in every single instance where that has been needed. We have made a loan to that entity, to that LLC for a certain amount of time until we go through that period. Then that gets paid back when the cashflow becomes stronger or there is a capital event and there is money to be distributed.

So as I said, we have had issues, the GP team has always, every single time stepped in and made a loan to the entity, to the asset.

And that is when someone, myself, when I look at the options, opportunities to invest as a passive investor, or anyone else who might be looking at opportunities to invest as a passive investor, a key thing to look at is the strength of the balance sheet of the GPs. How much net worth and liquidity do they have to be able to provide support when and if there might be a need. So those are important things.

And as I said, we have had those situations and we have stepped in and made a loan and have gotten paid back when there was enough cash flow or there was a capital event down the road.

Darin: That makes sense. Can you define what a capital call is?

Tariq: Well, a capital call is that, for instance, I make an investment in one of these acquisitions of let's say a hundred thousand dollars. And the first couple of years are going very well. There's ongoing distribution, monthly, quarterly, whatever the schedule of those distributions is.

A Capital Call

Tariq: But then there is some unforeseen circumstance. Some event where the cash flow at the property is, or the reserves that are there at the properties in the properties, bank accounts are not sufficient to satisfy that need. Some event might have happened, a fire, a flood where you may need some capital on an interim basis until you go through an insurance claim. Or there may not be insurance coverage for that event or what we talked about earlier, the interest rate movement that has happened so fast, so strong resulting in significant increase in the debt burden or significant increase in the escrow amount that needs to be put up.

So all of that might result in several months of negative cash flow at the property and draining all of the reserves. Then when you get to that point, there is a need of additional capital at the property. If the sponsorship team is not able to put up that capital, then a call goes out to all the investors to put up additional capital, hence called the capital call.

So it may be, if you need to put up 10% or 20% of your initial investment as additional capital to be able to maintain your pro rata, ownership that you had. Now if you are not able to do that, then you are looking at a slight dilution of your ownership interest. That is what a capital call is and how that works out.

Darin: Now that doesn't happen in the stock market, your stock price just goes from a hundred to 75 or to 50. But that can happen where you could get a capital call.

A Black Mark on How to Become Financially Independent

Darin: But there is also kind of the black mark that is part of the saving. It's always a possibility on any investment that you could have a capital call which you may end up having to put more money into the deal. Or there could be a dilution if you don't have it. But sponsors, they know that limited partners are going to talk and so sponsors do not want to have a capital call.

Tariq: Absolutely. That's why, as I said earlier, there has been more than one instance where we have made loans to the property, the entity ourselves. We have been very open in communication to our investors on an ongoing basis. We send out reports with narrative of the ground reality on a monthly basis. And we are very clear in that there is a shortfall at the property and the distributions are not happening. But there's need for additional capital, then we are making a loan to the property and which will get paid back when the property is healthy and there is sufficient cash flow or there is a capital event. And you're right though, that could be a black mark.

But I think the key thing is to have an open channel of communication to the investors. So they know the ground reality, the situation at the property and why it is where it is and what we as sponsors, as asset managers are doing to fix it. So having that communication is key.

I have invested in a lot of deals as a passive. As I said earlier, I have not had a capital call in any one of them. But I've had a handful that have not come anywhere close to the returns that were marketed when I went in.

What Happens When You Miss the Bus on How to Become Financially Independent

Tariq: But the reality is that this is a set of assumptions that go into that underwriting, the proformas, the budgets, and circumstances change. As they change, the reality is that every single proforma that has been put together is always wrong because the reality is going to be different. So just being aware of that and knowing what kind of assumptions have gone into the underwriting, how conservative or aggressive those assumptions are. Who your sponsorship team is, how strong they are, what kind of track record they have, what kind of balance sheet, net worth, liquidity, how strong they are.

Those are key things that if you do that research upfront, that diligence upfront, and the likelihood of having an unfavorable impact on your investment or a negative outcome gets minimized significantly.

Darin: Sure. Talk about any learning lessons. The listeners are a mix of passive investors and also syndicators looking to scale. So the learning lessons could be either from a passive investor standpoint on a property or from a operator standpoint.

Tariq: Just from an investment standpoint, what I find a lot of times is initially people are really reluctant to invest. But once they get comfortable, whether it is by having done their research or having joined a group or working with a mentor, then that switch flips. It is like, "I got to deploy the money now." Then the mentality becomes, if I don't put money in this deal, I'm going to miss the opportunity."

And I always give the analogy that these opportunities are like buses. You miss this one, there is another one, 10 minutes behind it.

Your Due Diligence on How to Become Financially Independent

Tariq: Do not rush into an opportunity with the fear that you're going to miss it. Got to do your diligence. If I'm making an investment, it's my hard-earned money that I am giving to someone to invest on my behalf. I'm the one that is going to have the most concern about your own money.

So I need to do the diligence, I need to vet the sponsors, I need to validate the assumptions, feel comfortable with the underwriting. And having done all that, I need to feel comfortable with the market, with the property itself, with the market it is in, with the demographic that the property is in. Then make the decision to invest or not to invest, but not jump into that decision. If others are investing, they must have done their diligence, I'm going to put money into it. Don't do that. No one else is going to care for your money more than yourself.

So take the time, take the time to do that diligence, to do those checks, do that homework before you make the decision. As an LP, to make an investment or as a GP to buy an asset, to put an offer in on an asset. Now the sentiment is changing, but over the last several years, there was always some non-refundable earnest money that we as sponsors are putting up upfront. So even though it could be a very competitive market out there, but take the time to do the diligence before making a decision.

The Goal: Educate People on How to Become Financially Independent

Darin: That's great advice. And I think you have more time now than it was before. I mean, some deals in the last few years, man, a deal will come out and in a day it's filled. So if you waited, even if you wanted to, you couldn't get back in. But hey, you're involved in 55 syndications, 16,000 units. What's the next big stretch goal for you? Where do you go from here?

Tariq: Anthem Capital, the company that Iven, my business partner, and myself started, we continue to grow that. We are doing a lot of charity through that as well at this point. But that organization, that setup continues to grow. We have staff, more staff now that we have ever had in the past that is full-time with our organization.

Darin: How many employees?

Tariq: Six at this point that are working for us. And then as you know, on each one of the assets, there are several employees that are paid by the asset. But they're indirect employees essentially working for our assets. We have those, but we have half a dozen employees. There's a lot of focus on education, a lot of focus on getting people to learn about this space and feeling comfortable about investing in this space.

The key goal is to continue to grow that database of investors that we have. And I myself had a goal of getting to certain amount of deployed capital, which as I said, I should be there here in the next '23. I'm going to get there.

Darin: Is that faster than you expected?

Finding Out How to Become Financially Independent Is a Leap of Faith

Tariq: Yes, it is. It's definitely faster than I expected, and that has a lot to do with the strength of the market in the recent years. Where a lot of the deals going in, the expectation was the underwriting and the assumption was that the hold period would be at least five years. But we have taken more than a dozen deals full cycled. And the average hold period has been between three and a half, four years. There have been deals that have gone full cycle in two, two and a half years just because of the tailwinds and the strong growth that has been experienced.

Darin: Completely, but at the same time, I want to give you credit because look, I know some of your deals. I've seen some of your deals when they came out and you don't know that it's going to be massive tailwinds. Every deal that you get into, you're taking some risk getting into the deal at that particular time. And it happened to be a good time for the next three years. But you didn't know that at the time, right? You still took action.

Tariq: Yes, it is still a leap of faith. At some point, you have to get into it, you got to take that first step. And with reference to real estate, you don't wait to get into real estate. You get into real estate and then wait. But you got to get comfortable with the space. And it took me a long time to get started in real estate. My wife had been pushing me for the longest time. I wish I had listened to her sooner.

A Personal Satisfaction

Tariq: But once I did a lot of studying, research, education, met with people that had been doing it successfully and did the single family side of it. But getting into multifamily, plenty of people that had done it had been successful at it. I didn't want to reinvent the wheel. I went and joined a group that was ready, willing, able to support me, educate me through that process. And I continue to be part of that group and continue to support and educate others.

I continue to be a coach within Brad's group and have ongoing conversations with a lot of people that are coming in and are not sure what to do and how to go about doing it. So just a lot of personal satisfaction that I get out of doing that for people that are very uncertain about the space. But give them comfort from the experience that I have had that a lot of the others have had around us.

Darin: I love it. Personal satisfaction. Look, there's a piece of it that is financial and wealth building and there's a huge collaborative piece of helping the next guy come up and then people above you helping you to scale. So I've never seen any industry, I've been involved in a lot of different industries, that is so collaborative as the multifamily investing world. Hey, what do you like to do for fun outside of work?

Tariq: Hunting.

Darin: What type of hunting? Do you have land?

Enjoy Life While Working on How to Become Financially Independent

Tariq: Well, I do not own land. I have hunted a lot here in the US. I lived in the northeast and hunted in New York, New Jersey. But I live in Oklahoma now. Hunted at a couple of landowners whose land I hunt on. But having these investments, having the cash flow, that has afforded me the opportunity to go hunt in Africa.

Darin: Oh, you went? How many times?

Tariq: I have. I've taken four trips and I am scheduled to go on a fifth one in June of '23.

Darin: The fact that you've done four and you're planning on doing another one, I'm assuming that you enjoy it.

Tariq: Absolutely. My passion. Love to travel and hunting has been a passion of mine. Thinking back to when I started out. When I was in third, fourth grade, my dad used to take me duck shooting with him. And so the hunting bug has been with me ever since and had never thought, had always sort of dreamt about, fascinated about going for big game hunting in Africa. And have done that multiple times. Took my family on a safari trip to South Africa, Zimbabwe, Botswana in 2019 and has been one of the most memorable vacations that we have had.

Darin: That's huge. I think that's an important part. I mean, I talk to a lot of people that they get more properties, more doors, but you also have to live your life. You need to be able to enjoy some of the fruits. And so I love the fact that you're able to do something that you didn't ever think you could.

Anthem Capital Partners

Tariq: Absolutely. And we as a family love to travel and explore new places and we continue to do that. I'm planning a family trip with a couple of those families to Australia and New Zealand for next year as well.

Darin: There was a guy I interviewed, he's killed it, and he said he likes being the supplier of fun. So there's people in his world that just don't make as much money and he is like, "You know what? I'll just rent the vacation house and have four families come." And so he's the supplier of fun. So that's awesome. I appreciate you getting together with us. If people want to reach out to you, what's the best way for them to do that? Learn more about you.

Tariq: Anthem Capital Partners is the name of our company that Iven and I set up in the multifamily space. You can go on that site, there is a book that we have on the site as well. A PDF that is more or less our experience is what Iven and I went through from single family to multifamily to where we are today. Quick read, 90 minutes under two hours, you can go through it, gives you insight into our experiences. It's a free download.

You Need to Get Started

Tariq: You can buy it on Amazon if you want, but it's a free download from our website. And you can just download it there. You can connect with us through our website. Our contact information is there. Also, feel free to send me an email at tariq@anthemcp.com.

I always make myself available to people that have questions about the space, that are uncertain about the space. I'm very ready, willing, able to share my experiences. I always tell people that if I can do it, there's nothing secret about this space. You can do it better, you can do it quicker, but you got to get started.

Darin: Tariq, I really appreciate you coming on and I can vouch for that. I mean, this guy, he does, he loves to help people. I've stopped a number of times in different locations and have asked for advice and he's always open and willing to do so. So definitely reach out to him and his partner. And listeners until next week, signing off.

How to Reach Tariq Sattar

• Website
• Email: tariq@anthemcp.com