Today we have Ed Sittler on the show! Do you want to learn more about the importance of demographics for multifamily success? Learn what it takes to succeed as a real estate investor from Ed Sittler, who traded being a paralegal in California and went ‘all-in’ on multifamily investing. Hear his story of how he 'burned the boats' and created success.

In this episode you will learn;

• why demographics are so important for multifamily investing
• why having an accountability partner is a key to success
• and why picking partners with complimentary skill sets creates such a strong team

Table of Contents:

• Where To Listen To The Podcast
• Learning About the Importance of Demographics for Multifamily
• Taking the Burn-The-Ship Approach
• Lessons on the Importance of Demographics for Multifamily
• Knowing the Importance of Demographics for Multifamily by Talking to Other People
• Where to Prioritize Allocating Money in Investments
• The Importance of Demographics for Multifamily in Staying Up to Date
• The Advantage of Knowing the Importance of Demographics for Multifamily
• How To Reach Ed Sittler

Learning About the Importance of Demographics for Multifamily

Darin: Ed Sittler lives in DFW, but it wasn't always that way. He was working as a paralegal in California when he started to invest in real estate and he developed a relationship with his business partner. One step after another and he found himself quitting his job and moving to Dallas to build a career as a full-time multifamily real estate investor. He's learned many lessons along the way, but his biggest lesson learned is the importance of demographics.

So a little bit on how we know each other. We both are part of the same multifamily mentorship group, the Brad Sumrok group in the Dallas market and I don't know, but we've probably started somewhere similar. I started in the group in December 2017 and I got to imagine you came in shortly after that year.

Ed: Yes, about six months after, I think.

Darin: About six months after.

Ed: Yes, about June or so, 2018.

Darin: Yes, so fantastic. So with that, can you share with the listeners a little bit on how many properties and how many units you're invested in?

Ed: Sure. So I've been a GP on seven properties in total. One of those sold last year, so six are currently in operation. That comes to about, if you include the all-time total, that's 1,400 plus units and it'd be about 1,300 some as of the current ones.

Darin: Fantastic. And do you invest as a limited partner as well?

Knowing the Importance of Demographics for Multifamily Helps You Make Favorable Deals

Ed: Yes, I do. It's six or seven deals that I've invested in as an LP on the unit count, I'd have to go check, but that's probably a similar number.

Darin: That's all right, but that just shows you June of 2018 and as a general partner you did seven properties and you've already had one that's gone full cycle. It's amazing in such a short period of time.

Ed: Yes, I mean obviously I think you and I kind of everybody who started around that time, it was a pretty good time to get into it. I mean really anytime in the last 10 years probably.

Darin: Right. We definitely had wind at our back for sure.

Ed: And obviously now we're kind of hitting some headwinds for the first time for most of us, which we’ll probably talk about more.

Darin: Exactly.

Ed: But all these deals were just trading every two or three years for a while just because you could get your returns and get out and everybody's happy.

Darin: That's crazy. So can you share a little bit about your background and why did you even get into multifamily?

Ed: Yes, so my sort of career, really the only career I had before this was as a paralegal. So it was maybe a typical story where after college I really had no idea what I wanted to do. Kind of bummed around, had random jobs here and there, and eventually decided I need some kind of stable job. I wasn't even thinking about a career necessarily, just I needed a stable job just to make money, move on.

Darin: Survive.

Ed: Yes, survive.

Darin: And be independent. Where were you living?

Making The First Investment Deal

Ed: So I'm originally from New York City, Brooklyn. I went to college at a small school in Iowa randomly enough. So after college, I bounced around. I actually spent some time in Texas, went back to New York for a while, and then ended up in San Francisco for about eight years before I came back out to Texas to get into real estate.

So yes, I ended up falling into the paralegal thing and it is just one of those things where it's kind of like the more experience you get in a certain field, the easier it is to get those jobs. And that's kind of the path of least resistance at that point. So that's what I was doing for probably about 10 years at that point.

Darin: So San Francisco, not a cheap place to live. So Perry Zheng, your partner, had him on the show, episode 137 and how did you two connect?

Ed: Yes, so we met in San Francisco. It was kind of around the time when I think we were both just getting interested in real estate. I think Perry had maybe bought one condo in San Francisco. I had just bought a duplex in Oakland with a friend of mine. So those were our first sort of investment properties, I guess you could say.

Darin: How'd you guys meet?

Ed: I bought a couple of turnkey single families before that, but nothing significant. So yes, we actually met from BiggerPockets just on the forums as I recall. I think we were both posting in some thread about Bay Area because we were both trying to make it in Bay Area at that point.

The Importance of Demographics for Multifamily for Finding the Right Deals

Ed: And we connected there, ended up meeting up in person, kind of hit it off and we just kept meeting every week, basically. Every weekend we would meet up and just talk about what we were trying to do. We never got anything more going on in San Francisco, needless to say. But Perry ended up moving to Seattle. He was working at Lyft at that time, so they moved him to Seattle and then we ended up buying a few single families in Seattle actually. So those were our first deals as a partnership and we wanted to get into multifamily at the time.

But again, the Seattle market was so crazy, we were just sure kind of bumping our heads against the wall. It felt like we really weren't getting much momentum out there because it was just, the prices were crazy, it was so hard to get into multifamily in that market. So that's when around 2018 we kind of came across the Sumrok group, which is of course where we met as well. And there's a lot of those mentorship programs out there. I don't honestly remember, I think Perry maybe had heard about the Sumrok group and kind of brought it up to me.

And it was one of those things where at first I thought it sounded like a scam or whatever and I was like, "Ah, this sounds stupid. I'm not going to do that." But I think a few more months of banging our heads against the wall and then I was desperate enough to try anything. So we went to an event in Dallas, a Sumrok event. Totally changed my mind and my whole perspective on what we were doing and what we should be doing.

Taking the Burn-The-Ship Approach

Ed: So we joined up after that event and I then moved. So I was still in San Francisco at that point and probably about two months after we joined the group, I quit my job. I was still a paralegal out there.

Darin: Did you get your first syndication deal awarded to you before you quit your job?

Ed: No, unfortunately.

Darin: You definitely burned the ships.

Ed: Unfortunately not before. Yes, it would've been nicer that way. Yes, I kind of took the burn-the-ships approach. So yes, quit my job, and moved out to Dallas and it took a full year actually before we got our first deal. So it was not, in retrospect, maybe the most prudent way to go about it, but I was single and no kids. Obviously, it's different if you have family and everything, but for me it's only risking my own well-being at that point. So I decided I was willing to take the risk. Yes, it was a tough first year for sure, just grinding away, but it paid off, obviously, in the end. So I think it was the right move in retrospect.

Darin: Absolutely. So a few things in your story so far is one, I think a lot of people grapple with, how do I find a partner? Especially when they're getting started, what value do I have? Especially if they don't have a lot of money, they're thinking, well, what can I really do? How can I actually provide value? Who's going to want to partner with me? All these negative thoughts versus thinking positively as to what you can provide value to. So would love to have you expand on that a little bit more.

Success Doesn’t Happen Overnight

Darin: And then actually after that, you spent a freaking year going after it. And people in the beginning, you say you're a GP in seven properties and people are like, "Holy cow, that's 1,400 units. Holy cow, how do you do that?" They’d think that it's an overnight success, but you had to grind for a year to get that first one. So kind of talk through that. And I also think that even though you guys only did a few single families, I think getting any kind of deal done together solidifies the partnership and also gives you the confidence to keep going bigger. One thing kind of builds off itself.

Ed: Yes, for sure. I guess, so on the kind of partnership question, I was definitely just really fortunate to meet someone like Perry sort of really happenstance in a way, just off of some BiggerPockets forums. It's not even like I was really out there trying to find partners or mentors at that point. I was really just trying to figure it out.

Darin: So help me understand, you're both on BiggerPockets, what are you saying to each other? Are you saying, "I'm looking for a partner?" Are you saying, "Hey, I see that you're looking to buy stuff and I'm looking to buy stuff and we're both in the same market. Let's just get together and exchange ideas." What was that discussion like?

Ed: Yes, pretty much kind of that latter example. I think it specifically sort of kicked off, it was because I just bought that Oakland duplex with a friend of mine as an investment property. And so we were kind of trying to figure out how to make that work at the time.

Building the Foundation of a Partnership

Ed: So we were doing a sort of part house hacking, renting part, we Airbnb'ed part. So it was like every tactic we could think of to actually cash flow in the Bay Area, which is not easy, but it was working. We actually managed to get some positive cash flow by doing those different things. So I think that's where it first started I think I was maybe posting or commenting on that specific property and then Perry may have seen that and reached out.

And then, it was really just, I think we were both just trying to find our way and we were both in a similar situation in terms of our experience and what we were trying to do. But in that first period we weren't really getting deals together. Like I mentioned it wasn't until Perry moved to Seattle but we kind of built the foundation just by meeting up regularly, that's really important.

I mean, you can't really build a partnership just on one phone call, one meeting. It does take time, I think. So that was just kind of key I think, in building the foundation.

And then once we actually started finding some small deals in Seattle, we felt comfortable with each other at that point. We trusted each other and knew that we were on the same page. And like you say, I mean even just buying some single families together, the size of the deal is not even really the biggest thing in terms of the relationship building, I don't think. I mean, 'cause you're doing the same amount of work usually.

Go Out and Meet New People

Darin: Not in terms of a relationship. But in the beginning, those first deals were, for me, my first deal was a duplex and that was probably my scariest deal. You're doing something you haven't done before and then all of a sudden it's a matter of how can I go bigger and then how can I learn this and how can I partner with this person? But if you don't do that first one, you don't get that, adding on to each other.

But one of the things that you didn't give yourself necessarily the credit for, which I think is really important, is that whether it's going to a meetup group or it's posting on BiggerPockets or it's going to a conference. You have to get out there and actually tell people what you're doing and what you want to do. If you don't do that, if you just stay at home, it's not going to come knocking at your door. So you guys didn't necessarily know where it was going to end up. You don't know, but you go, you talk to people, you try to learn and then all of a sudden one thing leads to another and you guys are partners.

Ed: Yes, that's true for sure. I mean, you got to get out there, get to meet people, go to events, all that stuff. Nothing's going to happen just kind of sitting at home, for sure. That's a key.

Lessons on the Importance of Demographics for Multifamily

Darin: But I think that people think like real estate is just about having the money to buy it and that's part of either having the money or knowing how to raise the money. But whatever you're deficient at, there's somebody else out there that knows how to do that piece. So it's a matter of getting out and talking to people. And that's where some people, don't realize that, they just give up before they go out there and give it a chance. All right, so that's my little pep talk on getting people out there. You've owned seven properties as a GP, what are some of the learning lessons you've learned?

Ed: Yes, I mean obviously that could just go on and on pretty much forever.

Darin: Pick one and then we'll go from there.

Ed: The biggest lessons. Probably definitely one of the biggest ones, at least for me personally, is just the importance of demographics and location. Because I think when I first started out I was, obviously everybody knows location is key in real estate, but I think when I was starting out I was more of the mindset of, well. I moved to Dallas.

The whole reason for moving to Dallas is because it's known as a really strong market, good demographics, population growth, job growth. Just all this stuff that we look for in a strong market. So I think I was kind of in the mindset, well Dallas is Dallas, so therefore anything in Dallas should be a good market.

Darin: It doesn't matter what sub-market within Dallas, it's just like, "Hey, it's part of DFW."

Boots on the Ground Person

Ed: Yes, DFW, it's great, you can't go wrong. But DFW is a huge place, I mean massive. I mean there's 100s of sub-markets within DFW. So I think definitely one of my key learning points early on was that especially when you're in a larger market like a DFW. And you really have to know the sub-markets and even beyond just looking at kind of data, you can look at a CoStar report or Yardi or whatever and you can see the median income. You can look up crime rates. And those are obviously key too, of course.

But there's also the qualitative side of it and your two sub-markets that each have a median income of 45,000 can be very different in terms of how they perform. So that was definitely a big thing, especially because I came here to be the boots-on-the-ground person essentially in my deals. And so if you're going to be the boots on the ground person, I think that's a really key part of it is you have to actually go to all these neighborhoods. You have to visit not just the property you're looking at, but the comps and talk to the managers and really get a feel for it.

Because I think people say this a lot, but I think this whole business is part science. There's the data part of it, the numbers part of it, but there's kind of the art side of it too. I think the qualitative side where that's really, you only get that by spending time and putting time in.

The Importance of Demographics for Multifamily When Looking For Potential Acquisition

Darin: So let's talk about the comps piece. So what do you do? How do you go about checking out the competitive properties in the area?

Ed: Yes, so I guess by now I have kind of a standard process that I'll usually do when I'm looking at a deal potential for acquisition. So usually when I go on the property tour with the broker, it doesn't have to be at the same time, but it's just more convenient because you're already out there. So normally when I do the tour of the actual subject property, then either before or after that I'll spend at least a couple of hours just going around to all what I consider the comps.

I'll probably beforehand come up with a list of what I view as the best comps in that area and it can be a different radius depending on location. It's a really dense area. Maybe you just go a one-mile radius.

Darin: So you drive up into one of them. And what are you looking for? Do you go inside? Do you talk to the leasing manager? What's that conversation like?

Ed: Definitely. I always just go to the leasing office. I know people have different ways of doing it. Some people will kind of pretend to be a tenant, they'll kind of be like the secret shop method. I tried that at first and it just didn't work for me. Because, well especially for one thing, depending on the type of properties you're going to, it may be quite obvious that you're not really looking to live there. Depending on the type of property and the normal demographic they get. I actually got called out I think once or twice.

Take the Honest Approach When Looking for Deals

Darin: You did?

Ed: It was like, "You're not actually trying to live here."

Darin: Yes, they know.

Ed: Yes and I don't like the whole subterfuge of it. That's not kind of my thing.

Darin: So what do you do?

Ed: Pretty quickly I just decide to take the honest approach. So yes, I just tell them, "Hey, I'm looking at buying a deal in the area and wanted to come to talk to you guys and see what you're doing." Usually, people are super open about sharing information. So obviously I always want to get what their rents are, what amenities they have, what things they might be charging for, and then talk to them too about that general area. Do you get a lot of crime? What kind of problems do you usually have? Just those kinds of qualitative questions.

Darin: I think that you get so much information in those conversations. And I remember the first time doing it, I was nervous. What am I going to say? But I take your approach as well. I walk in and I just say, "Hey, I'm part of an investor group and I'm looking at properties in the area and just want to see if I could get a feel for what you guys are renting units for." And a lot of times I ask a few questions and then I just shut up. And then the leasing manager, more times than not just shares so much information, "Oh, this is the best property, this area's awesome. I don't even have to do any marketing."

Knowing the Importance of Demographics for Multifamily by Talking to Other People

Darin: All of a sudden all these things I even ask and I'm like, "Ooh, this is making it even better." If they're like, "Yes, everyone's complaining that their car's getting broken into." Well, that's when you learn something that way as well.

But that is such an important piece. And the funny part is, I don't know if you've got this feeling or not, but I think some of these leasing managers, they're happy to have somebody to talk to about their business. They're used to the same old people coming in wanting to ask about rent, go do a tour of the unit. And all of a sudden you got somebody in there that's a business guy that's asking them different questions, they'll spend a lot of time, spend 10-15 minutes with you.

Ed: Yes. I mean it's great. I think there's no replacement for that. All the data is still not going to give you some of those kinds of titbits that you just need to talk to the people that are kind of there every day.

Darin: Yes, it's huge. I remember I was shopping comp one time and the person, a lot of times knows what property you're looking at.

Ed: Cause they heard or whatever.

Darin: Right, so I say, "I'm looking at properties in the area." And then they're like, "Are you looking at this one?" They know the one that's for sale, right? And so they're like, I had one person that was like, "I'd let my daughter live there. That's in a really good part of town." And I'm like, those are those things that you couldn't even ask. They just tell you that. That's fantastic. So I think that part is so important to see.

The Importance of Demographics for Multifamily When Determining the Value of a Property

Darin: And then you can match up, right? I'm sure you do this, you match up, okay, what were the rents that they're telling me? And you match that up to the CoStar report that you already looked at and make sure that it's real.

Ed: Yes, well that's another good point the data itself may not actually be correct or up to date.

Darin: Yes, because originally you looked at a CoStar report to do your underwriting and you saw these comp properties, and the CoStar's showing you, "Oh. Well, this property that you're looking at is $200 under the market." But by going out and visiting the comps, you could actually walk away and be like, "Yes, this is real."

Ed: All right. And you get an understanding of, well, why is this property able to charge more? What are they doing differently, right? And apply that to maybe your business plan, what you're looking to do.

Darin: Yes. And I think the people that are not in this world, not in the value-add multifamily space, I think they think that you're guessing, that you're trying to push the market. "Oh, I'm just going to fix up the units and then raise rents to a certain point." But when you go do the comps, you already know that they're getting that down the road. You just know that they're getting it because their interiors are nicer or the exterior looks nicer. And if I do that over here, we should be able to do it. So it's not like it's a guess.

Taking Investments to the Next Level

Ed: Yes, exactly. I mean that's part of it for me since I'm the one who's usually doing most of the underwriting and the acquisition side of things. It's always just trying to dial in everything as precisely as possible based on comps. And the same goes for expenses and everything else.

Darin: So we're both part of a mentorship group. Tell me if you felt this way, when I would go on a bus tour and we go visit a property and there's somebody in the group that was selling the property and there's somebody else that's buying the property. When I was first in the group, I'm like, "The one that's buying the property is a sucker. They're buying it at the height. The other guy and all their investors are making out like a killing, why would they do that? And everybody's applauding him."

And it wasn't until afterward that I realized that they're bringing fresh capital so they can take it to the next level where the original group, maybe they're out of capital. They already did their business plan and they can't move the property to the next level. Did you feel that way in the beginning?

Ed: Yes, I definitely had that same question where it's like, "Well, they already made all the money, so what's in it for these new guys?" Yes, I remember, I think one of the first deals, it might have even been the first bus tour after I joined the group. There was a property in Fort Worth on the tour and it was that situation where it was a Sumrok person selling it to another Sumrok group.

Know the True Potential of Your Investment

Ed: And then that one, actually, it's been three times now. Then that second group sold it to a third Sumrok group. I don't know if I know of any others that were three in a row within the group. But I mean it was a good example of there was still a lot of meat on the bone like we say. Each time it's sold because when you're buying, if it's the '60s, '70s type property, which is what a lot of us start out with when we're syndicating if it's kind of classic.

Darin: Why don't we start out there?

Ed: Yes, exactly.

Darin: Why don't we start out there and then people graduate up into the '80s and '90s and 2000s.

Ed: Ideally maybe, one day. But I mean, because there's easier to get when you're starting. It's like it's cheaper, the price per door is less.

Darin: The senior guys have graduated on to other properties.

Ed: And if you're trying to get more doors for the money, obviously you're getting it more on a lower class. So if you're buying '60s or '70s property and if you're the first one in and it hasn't been renovated for, some guys owned it for 20 years and hasn't touched it, it's going to be rough. I mean, it's going to need a lot of money to get it up to any kind of decent condition. And so I think the typical trajectory for those deals is for the first few years, it takes the first owner a few years and maybe a couple million just to get it from trash to presentable.

Where to Prioritize Allocating Money in Investments

Ed: Maybe they don't even do the interiors. Maybe the first guy just does a lot of deferred maintenance and some exterior stuff and then okay, they're out of money, but they've improved it a lot. They've increased the value, they can get a good return now. So they sell it now, maybe the next guy comes in, it's like, all right, well, the first guy did the deferred maintenance and some exterior stuff. Now I'm going to really focus on unit upgrades.

So they kind of put a lot of money into that, but maybe they only get up to a third of the units or half the units and by that time they've increased the value enough and they can get a good return. So at some point, yes, I guess you do eventually hit the point where it's like, all right, there's literally nothing else we can do here. But it takes a few cycles normally on those older deals. And I think that's why it can often work. It can make sense for each buyer, even though the previous buyer might be making a great return on it.

Darin: Absolutely. I think that's a good point. Now what's your view in terms of where to spend money first, exterior, office, interiors? What's the kind of pecking order?

Ed: Yes, I don't know if it's the conventional wisdom, maybe it is that you usually would do the curb appeal type stuff first. I think I generally subscribe to that process.

Darin: So why is that?

People Judge the Book by Its Cover

Ed: Well, I think you're just not going to get people in the door if it's just unappealing from the outside. Somebody's driving by, they're going to have no interest in even checking it out. If you have no signage and your landscaping is crap.

Darin: It doesn't matter how nice it is on the inside, if it doesn't look good on the outside, they're not even going to stop.

Ed: Right. And even if they have a tour schedule, they might just bail once they see the outside. Because they're just like, well, I mean they're not even taking care of the basic stuff. Yes, I think that definitely is kind of priority number one is obviously major deferred maintenance and then the big kind of curb appeal stuff. Obviously having good signage, good branding, good landscaping, paint if it needs a new paint scheme, all that kind of stuff.

Darin: So the flip side of that is that you're driving by and you're like, "Holy cow, they're putting a lot of money into that. That looks nice now. I want to go check out what they're doing."

Ed: Exactly. I mean especially it's there's the reputation also. So if you're buying a property that hasn't really had much work done to it in a long time and it has really bad reviews maybe online and all that kind of thing. Doing just a whole rebranding I think is really important. That's not always the case. Maybe it's already got a good reputation and you can just kind of ride that.

Make a Great First Impression

Ed: But I mean definitely a couple of the properties we've bought, we really had to do the rebranding right away. Because it just had terrible reviews and everything online about it was just, it looked really bad and you're just never going to get people in there with that kind of reputation. So that's definitely a big one it's visual but then also tying the marketing in with your online marketing and everything else.

Darin: So I've seen pictures before and after of some of your office. The office in some of your properties, and the transformation is amazing. So talk about why would you put money into the office rather than into say the units.

Ed: Yes, definitely office is one that I always like to do unless it was just recently done and looks great. But if it's kind of an older shabby office, I think it ties into why we're doing all that curb appeal. So the first step is the curb appeal, that's what they see first. But then what they see second is the office because that's where they're going directly. And so if you have a great curb appeal, but a crap office, then again it's like they're going to be like, "Well, they're putting lipstick on a pig. They're not really improving this place."

Darin: It's a first impression when they walk in is it gives them a feeling of these guys are putting money into it, they're trying to create something nice. This list looks nice. If the unit I go look at is comparable to this, then this could be a place I want to be.

Everything Affects Everything Else

Darin: Another person had told me and I didn't realize this, I didn't think about it, but that a lot of the buying decisions are made by women. So if it's a couple that is going to rent, even if the guy is the one that's doing most of the talking, they get back in their car and the woman's like, "That was a junky office. No, I'm not living there." And if she's not happy, he's not going to pull the trigger.

Ed: Yes, I've heard the exact same thing. So I think that must be right because I've definitely heard that from multiple managers and people that are the ones dealing with the tenants and yes, like you say. I think a lot of times the women might care a little bit more about the design and the feel of something like the office than a guy who might not particularly pay as much attention to those things.

And I think another sort of ancillary benefit of having just a really nice office is that's where your staff works. And if somebody going to work every day in a shabby, crappy office, how motivated are they going to be? How happy of an employee are they going to be?

Darin: That's a great point. I mean, do they feel professional? Do they feel like they're in a really good environment? And it probably rubs off on how they treat the tenants. If it's a really nice, professional place, then they're probably treating the tenants that way.

Ed: Yes, I think it's all kind of a chain. I think everything affects everything else.

The Importance of Demographics for Multifamily in Staying Up to Date

Darin: So we're in a weird time. We talked in the beginning that we're kind of hitting some headwinds. We've got higher interest rates, and we've got inflation. Now as we record this, we've had a few banks go under and there's question marks on whether they'll be contagion or whether that's it. So I know some syndicators that are like, "I'm on the sidelines, I'm just beefing up my cash and my liquidity and I'm waiting for the trouble deals to come my way. I've got other people that are like, "Look, I'm not trying to time the market and I'm just going to continue to buy going through." Where do you stand?

Ed: Yes, I mean I'm probably sort of in the middle. I haven't been making offers lately, I'll say that. So we bought our last deal about six months ago and I haven't made any offers since then. But I wouldn't necessarily say I'm just kind of waiting on the sidelines. I mean, I am looking at deals, I'm all underwrite anything that looks interesting I'll underwrite it, I'll run the numbers.

The problem is where it pencils out for me is usually well below what the whisper is or what the seller's looking for. So hence why I don't want to just throw out a bunch of lowball offers. That's not really how I like to operate. So I feel like if I can't make a competitive offer, I'm not going to. But yes, I mean I'm always talking to brokers and trying to stay up to date on what's out there, looking at the deals.

Making Decisions Base on Data

Ed: So I guess my approach right now is if a deal pencils at the number that works for my underwriting, then I'll go for it. I'm not going to hold back for other reasons. But I think just a combination of the market shifts that we've seen. And I probably am underwriting more conservatively in some ways than maybe I was a year ago. We know expenses have gone crazy. Insurance has been a big one. Rent growth is a big question.

We had insane rent growth for a couple of years and now it's actually declining in most markets, at least over the last few months. It's like, "Well, how do you underwrite future rent growth?" These are big and just a percent here, a percent there can really make or break the underwriting. So in general, I'm definitely being a little more conservative on my assumptions, and for better or worse, that means a lot of stuff doesn't pencil out right now.

Darin: Right, which is pretty consistent with what I hear from other syndicators and also brokers. There's a disconnect between where people want to sell them, where people want to buy, but that gap from what I'm hearing is narrowing. So it's getting closer. What about the types of loans that you've put on the deals? Do you have any bridge loans that are floating-rate loans? And that's a big deal in today's market and trying to figure out how do you manage the increased debt service. And then also if it's an agency loan that requires you to start escrowing for future rate cap, how do you manage that cash flow hit?

Knowing the Importance of Demographics for Multifamily Can Lessen Your Problems in Real Estate

Ed: Yes, I mean those are definitely the big challenges right now. Yes, I do have a few bridge loans. I also have a floating-rate agency loan, so I'm dealing with all those situations right now.

Darin: All those situations. So do you have any good solutions that you can share with people?

Ed: Refi if you can to fix rate. On the agency floating rate, that one we bought in December 2020. So that's the oldest of my current deals aside from the one we sold. So that one's obviously had the most time to build that NOI and it's on pretty solid footing financially. And so that one, we are right now looking or we actually already submitted the application for a refi, so that we're just looking to move to Freddie floater. We're just looking to refi into a fixed rate. And like you mentioned, it's all about those in the rate cap reserves on the floating rate. So our reserves are literally 100 K a month on that property.

Darin: It's crazy. I'm an LP in some deals where all of a sudden you're paying 30,000 a month and then next month you're paying 75,000 a month. And I'm in this world so I understand it and I can talk to the syndicators about it, but there's some LPs that don't really understand. They're like, "How can you go from 30,000 to 75,000?" And I think there's certain LPs that think that once that payment is made, that's gone money. But it's actually an escrow that is going just like property taxes and insurance. And if the cost of rate caps goes down over the next six months, then those reserves will come back, but there's no guarantee that it will happen.

Finding the Right Time to Make Deals

Ed: Yes. And obviously on that deal, as an example, if you were really strongly of the opinion that rates are about to plummet, maybe it's not a good idea to refi right now. And certainly the partners, we all have discussed all the different scenarios and should we really refi now? Should we wait? Everybody thinks rates are going to drop so it's tricky.

Right now it's for sure the trickiest time since that I've been doing this, not that I've been doing it for all that long. But really I think for anybody who's been doing this for the last 10 years since the last crisis, it's probably the most difficult period right now. And not a whole lot of people have been through this situation before so I think we're kind of all trying to figure it out together.

But so for that particular priority, we just decided, you know what? We're going to go ahead and at least submit the application. Start the process then if rates just start plummeting and our rate cap gets super cheap, maybe we'll decide to not do the refi and just stick with the loan. But we at least want to be in a position to pull the trigger on the refi if we need to. So that's starting the process there.

The bridge loan deals are a little bit newer. So most of those are unfortunately, I think our oldest bridge loan is 18 months. So it's getting to the point where maybe we're close to being able to get a cash-neutral refi at least. But on that one, we actually just decided to list it to sell.

Do What You Do Gotta Do to Survive

Ed: We decided that the refi options, it's not great. The best case is still not really great right now because of interest rates. And we decide, it looks like if we can sell for the price we want, which the broker thinks we can get, it's not going to be a home run by any means, but it'll be a good return. We get liquidity, our investors get liquidity. And to me, that's kind of the most important thing right now. If you can get some kind of return and get liquidity and be prepared for the next round of what I think is probably a lot of good deals coming down the line, I'll take that outcome. I think most of the time.

Darin: Yes, absolutely. I'm in a lot of deals, I'm like, I just don't see that many things turning this year. If I was in your deal and all of a sudden you return my money, I'm like, "All right, that's cool." So I think there's probably a lot of people out there that feel that way.

Ed: I mean, we'll see. Obviously, these days when you list something for sale, it's certainly no guarantee that you'll actually end up selling it. But if not, again, we'll pivot to the refi strategy. And I think at least it's like everybody keeps saying survive to 25, right? I forget where I heard it first, but it's definitely been popularized at this point I think.

Darin: I've definitely heard it.

Ed: Do what you do got to do to survive, I think right now.

The Advantage of Knowing the Importance of Demographics for Multifamily

Darin: Exactly. So I think there is trouble in the multifamily markets from bridge and this time could be different. But I remember when COVID happened, everybody was like, "Holy cow! People are not going to pay their rent. How are we going to pay the mortgage?" And then all of a sudden, nine months later, it was a completely different world. Interest rates were lower and cap rate compression and valuations were up. And I guess the hope for everybody is that there's some saving grace that's going to come in here and save the day for people, where office, neither one of us are in office.

Ed: Definitely glad I didn't go into office.

Darin: I just don't know how they get saved. I think that there's a place for office in new areas that are being built up here in the Dallas market off the Tollway through Frisco and up through Prosper and up. I think is going to be a good office market. And I invested in a deal in Atlanta that was an office conversion. So they bought an old office building and they're converting it to multifamily and I don't know how successful it's going to be. But that was one of the reasons why I invested in it was 'cause I think there's probably going to be more of that repurposing of office buildings.

Ed: Yes, I mean that's something I've been reading a lot about just as a potential strategy. I think the thing with office and granted, I'm no expert on office, I've never done it myself. But it seems like from what I hear is that office, it's really kind of what you were talking about.

The Importance of Demographics for Multifamily on Determining the Market Demands

Ed: The brand new class A office in really high growth areas that's probably going to do okay. Because there is still demand for the really nice office space in these high employment centers. But it's that older stuff like the B and C class office, nobody wants that and it's not like multifamily where there's always demand for B and C. Because it's literally that's the price point that people can afford. They can't afford class A, they got to go to B and C. But obviously, I think there's not that demand there for the lower-class stuff.

Darin: The question mark is going to be like, how efficiently can you repurpose it? Can you make money on buying at a low per square foot and then have to dump in all this rehab money to reconfigure it? And time will tell whether that's successful or not. But I definitely think that's an opportunity that could play well for people in the future. So where do you go from here? Like what's the next big stretch goal for you?

Ed: Yes, I mean it's actually something I've been thinking about a lot recently. I think because when you get to a certain size, certain number of deals, especially if my role is really the operations and the acquisitions and operations it's really time-consuming. It's like a job, it's work, you got to deal with a bunch of stuff every day on every property usually. Because I'm not necessarily the only asset manager on every deal, but I am one of the primary asset managers on all of my deals and it's a lot of time. And when you've got about six deals that I deal with now.

Reaching the Turning Point

Darin: This must be a quiet time. You know, K1’s like.

Ed: Yes, this is the easiest time of year.

Darin: Nice and easy like you're just coasting, right?

Ed: Yes, I could literally check how many emails I had just about K1s today. Yes, probably more than 10 just on that. So I mean it's just dealing with all that stuff. And obviously Perry, he's kind of my primary partner, but each deal also has different partners depending on the deal as well. Some were mainly to help raise capital, some were to help out with asset management or various things.

So it's not necessarily the most efficient way to do things when you have different partners on different deals, different people responsible for different aspects. And so something that I've been thinking more about lately is how to really streamline going forward and really build more processes. Maybe even look into vertical integration at some point, bringing management in-house and hiring real staff, professional staff that deals with those things.

So I think that would be the next kind of logical step at this point where I'm kind of at the size and experience level where if I really want to go to that next level. It's becoming really like a real business. I mean, even though I've been doing this full-time for over four years now, I kind of still view myself as an amateur in some ways because I don't have employees. I don't have a real company that's structured in such a way that it allows for real growth to happen. So that's really like a turning point.

Walk at Your Own Pace

Darin: Which is okay, right? Because I mean, look, there's some people that think, "Holy cow, I could never buy a 100 unit deal." And you were buying single family deals and then you buy 100. Now you're thinking like, "Well, how do I streamline processes and make the company more efficient so that I could take it to the next level?" And where you're at is where I hear a lot of syndicators start talking about that.

Getting over 1,000 units is where people start saying, "Should I bring property management in-house or should I continue to use third party?" So it's kind of the natural process of things that you're going through and then you do one thing after the other and then all of a sudden you look back and you're like, "Holy cow, how did I do all that?"

Ed: Yes, it's true. I mean, it is sort of a natural progression I think. And I don't know necessarily how most people plan or how far most people think ahead when they first get started in this industry or really I guess any new industry or venture, whatever. But I mean, when I started, I didn't have really long-term goals, to be honest. For better or worse, my actual goal was just to make enough money to not have to get another job. So that first year that I was here scrounging for the first deal, all I cared about was just I'm burning money. I need to make enough money that I can survive and I really don't want to get a job again.

A Journey of Continual Learning and Pushing Yourself

Darin: Again, I think it's natural and most people, the listeners that are not in this world that are trying to get their first deal, that's what they're thinking about. They're thinking about building their own wealth and then all of a sudden, you get seven deals under the table. And then I have to imagine there's people in your network that are like, "Ed, how did you do it, dude? Help me. I want to do that." And you give them some advice, some of them take it, some of them don't and now you're looking to actually grow the company. It's a different world.

Ed: Yes. I think it's a total mindset change from when I first started. I was just looking at what's the next deal or what's the first deal. There's just, all I need is to get to that first deal and not even thinking any steps beyond that. And then, like you said, as you grow and learn and progress, your mindset kind of expands and you get access to people that are many levels beyond where you are.

Darin: I think that's key. When you talk about mindset, you see other people that are two, three, four, five levels ahead of you. Then you're like, you see the example, it helps you expand your mindset, "Okay, well, how do I get there?" And it's that journey of continual learning and pushing yourself. But I think it'd be much harder if you didn't see it from other people if you weren't surrounded by other people that were successful.

What Ed Do Outside Work

Darin: You're doing it on an island, it makes it more difficult. But when you see all these people doing it, it feels like everybody's doing it, but it's just our world. Right?

Ed: Yes. I think that's one of the big advantages of joining a group like we did, not to show for any particular group. I think there's probably lots of good ones out there. But just some kind of group that has people that are doing what you want to be doing. And it has different levels. If you're in a group where everybody's just got a few single families and you want to do multifamily or go bigger, that's not probably going to be the most helpful environment. But I think we were fortunate to be in a group where there are people that are exponentially levels above even where I am right now. And so it's like there's always somebody else you can learn from in that kind of environment.

Darin: So what do you like to do for fun outside of work?

Ed: I'm trying to remember fun and not work.

Darin: Come on, my man. You got to put some of that in there. You're making a good coin. You got to be able to enjoy your life a little bit.

Ed: Well, yes, actually one of my main hobbies that I'm kind of just getting back into, COVID had thrown everything out of whack was jiu-jitsu actually. So obviously that was something that we couldn't really do when COVID hit. But that was always one of my favorite things, just to blow off steam and it's a lot of fun.

Make Time for Yourself

Darin: How often do you do that?

Ed: I mean, ideally I try to do three times a week. Four would kind of be my target, but I'm happy if I can get to three.

Darin: And are you doing that now?

Ed: Yes, I've started up again recently. It's embarrassing how bad of shape I'm in right now, but just after not doing it for a while.

Darin: You know what? You got to eventually block out the time to do it, right?

Ed: Yes, you just got to make time.

Darin: We're all busy and we all have to block out some time for friends, family, fun, and health.

Ed: Yes, exactly. I am trying to make more effort actually to prioritize some of those things. Because sometimes it feels like you just get so kind of swallowed up in the work and then it's months later and you're like, "Wait a minute, did I even see any friends last month? Did we go out the last month?" So yes, I think that is important.

Darin: Awesome. So hey, if people want to reach out to you, what's the best way for them to do that?

Ed: Yes, so I don't even have a real website which I probably should get around to at some point. But there's my email, which is just sittlerc@gmail.com. And then I have the substitute for a website, my bio and everything is on Cash Flow Marketplace. That's actually my partner Perry's website that he probably talked about. So it's kind of a marketplace for syndicators and people put their profiles on there.

Knowing the Importance of Demographics for Multifamily Is a Must for Operation

Ed: So that would be Cash Flow Marketplace, I think slash profiles slash ed sittler, you probably just search the name on there, I should probably figure it out.

Darin: That's great. You got 1,400 units, you don't even have a website to draw people. So people just found out about Ed and Perry and they want to invest with you guys.

Ed: Well, yes, I mean, I think it's partly the equity raising is not really what I focus on. So I'm specifically really more of the operations and the boots-on-the-ground stuff. So Perry's definitely between the two of us more of the equity raiser because he had such a good network of tech people. That was his whole background. I didn't really have a good network to start with necessarily and I just never felt drawn to that side of it. So I just decided, hey, I'm going to focus on the parts that I feel like I'm good at.

Darin: Yes, hey, it worked. I mean, everyone says to find a partner where you can complement one another rather than have the same skill set. So that's great.

Ed: Exactly.

Darin: Well, Ed, I appreciate you coming on and sharing your story. Listeners, I hope that he enjoyed that one. If you want to, he gave his email address and he also gave a place to find him on Cash Flow Marketplace. What I'd say is it's a perfect story of look, if you believe in yourself and you grind it out and you follow what other people have done, it's definitely possible to do. You just can't quit. You got to decide and be persistent at continuing to get out there. So until next week, signing off.

How To Reach Ed Sittler

• Email: sittlerc@gmail.com