On this inspiring journey told on The Darin Batchelder Real Estate Investing Show, Jonathan Nichols recounts how he transitioned from being an aerospace engineer to a successful real estate investor. Inspired as a child by the movie Apollo 13, Nichols found himself drawn to the complexities of aerospace engineering, earning a master's degree in the discipline while working. However, dissatisfaction with the corporate world led him to the dynamic world of real estate investing.
Jonathan Nichols shares valuable lessons from his active investment practice, emphasizing the importance of understanding your strengths, choosing complementary team members in the multifamily space, and paying attention to deal details. He also gives advice to passive investors to scrutinize the sponsor team's roles, track record, and responsibilities.
Additionally, Nichols discusses his venture into the industry with his spouse and their journey from house hacking to multifamily properties. The well-aligned investing philosophy and risk tolerance make their partnership work successfully.
- 00:02:01 Leaving aerospace engineering, finding challenges in real estate investment.
- 00:06:31 First deal as lead sponsors on syndication. Familiar market, brought off-market by broker. New property, value add through professional management.
- 00:10:05 Property manager is crucial for successful student housing.
- 00:15:06 Income is crucial in determining risk. Students without income are at high risk without a co-signer. However, luxury housing attracts financially stable parents.
- 00:16:20 Apogee invests in Texas and Oklahoma markets. Tulsa has strong growth and income metrics. Buying properties in Tulsa offers cash flow advantages.
- 00:21:42 Rent growth is 2% in good areas, 1.5% in less attractive area; force appreciation is more important than rent growth.
- 00:25:59 Short-term rental venture with successful results.
- 00:32:28 Long-term lease from individual meets the requirement. Two approaches: buy property or rent to a short-term operator. Sticky issue with lender and income guarantee.
- 00:35:15 Key lessons for active and passive investors.
- 00:39:18 Advice for new investors: Build skills and value for future success.
- 00:41:59 Couple invests in real estate together.
- 00:45:24 Scaling units, buying meaningful deals, good reputation.
Episode Table of Contents
- The Inspiring Journey from Aerospace Engineering to Real Estate Investing
- Working with a Spouse in an Inspiring Journey to Real Estate Investing
- Importance of Organizational Skills and Planning for Turnovers
- Targeting Higher Income Markets Towards an Inspiring Journey
- Approach to Short-Term Rentals
- Targeting Distressed Deals
The Inspiring Journey from Aerospace Engineering to Real Estate Investing
Jonathan Nichols shares his journey from being an aerospace engineer to becoming a real estate investor. His passion for aerospace engineering started at a young age when he watched the movie Apollo 13. He was fascinated by the complexity and meaningfulness of the work. He worked hard, pursued a master's degree, and enjoyed his career. But eventually felt pigeonholed and bored in the corporate world.
Jonathan and his wife decided to explore real estate as a hobby and started investing in residential short-term rental properties. They gradually transitioned into multifamily properties, starting with house hacking. Jonathan's background in aerospace engineering provided him with cognitive skills, logical reasoning, and the ability to handle stress, which he now applies in his role as an investor. He appreciates the challenge and sense of fulfillment that real estate investing offers. It allows him to constantly learn and make decisions in a dynamic industry.
Overall, Jonathan's transition from an aerospace engineer to a real estate investor was driven by his desire for a new challenge and a more meaningful and fulfilling career path.
Top Lesson Learned in Real Estate Investing: "If you're a new investor looking to get into the multifamily space, one of the best things you can do is understand your skill sets and your value that you can bring to a team." — Jonathan Nichols
Applying Logical Reasoning to an Inspiring Journey
Nichols, drawing from his background as an aerospace engineer, highlights the importance of applying logical reasoning to real estate investing. He explains that the cognitive skills and logical reasoning abilities he developed during his engineering career have proven to be incredibly beneficial in his role as a real estate investor. These skills have allowed him to navigate the complexities of the multifamily space and make informed decisions with confidence. He advises investors to recognize their own skill sets and surround themselves with a strong team to accelerate their success.
In addition, Nichols emphasizes the significance of attention to detail in the multifamily industry. He underscores the importance of thoroughly understanding all aspects and documents involved in deals to avoid costly mistakes. By paying attention to the fine print and conducting comprehensive due diligence, investors can mitigate risks and set themselves up for success.
Furthermore, Nichols advises passive investors to conduct thorough research on sponsorship teams before investing in their deals. Understanding the track record and experience of the sponsorship team is crucial for evaluating the potential profitability and reliability of an investment opportunity. By thoroughly vetting the sponsors, passive investors can make well-informed decisions and align themselves with trustworthy partners.
Working with a Spouse in an Inspiring Journey to Real Estate Investing
Jonathan Nichols and his spouse, who have been married for six years, decided to invest in real estate together as a shared hobby. They eventually left their respective jobs to work together full-time in syndication and investing. In their partnership, Nichols takes on the role of the visionary, while his spouse serves as the Chief Operating Officer (COO). By leveraging their strengths and complementary skills, they have built a successful working dynamic.
The couple shares a similar investing philosophy and risk tolerance, which has been instrumental in their collaboration. They have aligned goals and a shared vision for their real estate business. This has allowed them to make joint decisions and work towards their objectives as a team.
As they transition into the next phase of their lives and consider starting a family, Nichols acknowledges that there may be changes in their work dynamic. They will need to balance their roles as business partners and parents. They need to adapt their strategies to accommodate their new priorities. Despite the potential adjustments, they remain committed to their partnership and are confident in their ability to navigate these changes successfully.
Finding the Right Property Manager
When it comes to managing student housing, one of the key factors to consider is finding the right property manager. Jonathan Nichols suggests that aligning the property manager with the property's specific location, size, and payroll is crucial. Different property management companies specialize in different types of properties. It's important to find one that has experience and systems in place for managing student housing effectively. Since turnovers can be a significant challenge in student housing, having a property manager who is well-organized and can handle multiple turnovers in a short period of time is essential. The property manager should have a planned schedule for turns. He must conduct thorough walkthroughs of units, and know what needs to be done ahead of time. By finding a property manager with these qualities, investors can ensure that their student housing property is properly managed.
The Key to Success in Student Housing: "The first and most important thing is your property manager."— Jonathan Nichols
Reducing Student Population and Prioritizing Lease Renewals
One strategy mentioned by Jonathan Nichols to address the challenge of turnovers in student housing is to reduce the student population slightly. This can help spread out the turnover period and make it more manageable. Additionally, prioritizing lease renewals with current students is another important aspect of student housing management. By offering fair renewal rates and asking for renewal commitments early on, landlords can encourage students to stay for another year. This helps to reduce the number of turnovers and vacancy time. The goal is to have a high number of lease renewals, which provides stability and continuity for the property.
Importance of Organizational Skills and Planning for Turnovers
Given the nature of student housing, where turnovers often occur all at once before the new school year, having a property manager with excellent organizational skills is critical. The property manager should have a detailed plan and schedule for turnovers. Ensuring that units are thoroughly inspected and necessary repairs or updates are completed before new tenants move in. With multiple turnovers happening within a short period, efficient organization and planning are key to minimizing vacancy time and ensuring a smooth transition between tenants. It is the property manager's responsibility to ensure that the turnover process is seamless and well-coordinated.
By finding the right property manager, reducing student population, prioritizing lease renewals, and having effective organization and planning for turnovers, investors can successfully navigate the challenges of managing student housing properties.
Key Tip for Passive Investors: "Really know the sponsorship team that you're investing with. Like, what is each person's role? What is their responsibility, what is their track record?"— Jonathan Nichols
Targeting Higher Income Markets Towards an Inspiring Journey
Jonathan Nichols initially targeted real estate properties in the Dallas market with a median household income of around $30,000 to $40,000. However, he received an opportunity with a higher median household income of $60,000, which he considered a great prospect. This higher income potential in Oklahoma excited Nichols, as it meant that residents had a significant amount they could allocate towards rent. By targeting higher-income markets, investors can tap into a tenant demographic that can afford higher rents, potentially leading to better cash flow and returns.
Considering Forced Appreciation Opportunities
Nichols emphasizes the importance of considering the opportunity for forced appreciation in a property, rather than solely focusing on the initial cap rate. Forced appreciation refers to the value increase that can be achieved through various strategies. Such as improving the property, implementing professional management, and pushing rents to market rates. Nichols shares his success story of a syndication deal in College Station, where they were able to implement professional management and increase rents, resulting in significant value appreciation. By carefully evaluating the potential for forced appreciation in a property, investors can maximize their returns and create value for their investors.
Rental Growth and Forced Appreciation: "Probably the most important thing in addition to just underwriting the rent growth correctly is looking at what is the opportunity to force appreciation on the property, right?"— Jonathan Nichols
Approach to Short-Term Rentals
Jonathan Nichols discusses the approach his company, Apogee, takes towards short-term rentals in multifamily properties. Apogee focuses on long-term leases from single individuals on the rent roll, rather than engaging in short-term rentals. According to Nichols, this approach provides more stability and reliability of income, especially during uncertain times like the COVID-19 pandemic.
Initially, Nichols and his wife invested in residential properties that they turned into short-term rentals in Arlington, Texas. The city of Arlington, with its attractions like Cowboys Stadium and the University of Texas at Arlington, appealed to business travelers and tourists, making it an ideal location for short-term rentals. However, Nichols chose to shift their focus to long-term leases with single tenants, as they found it to be a more sustainable and secure income strategy for their multifamily properties.
By opting for long-term leases, Apogee avoids the challenges and uncertainties associated with short-term rentals. It allows them to have a steady stream of income and reduces the need for constant turnover and management of short-term guests. This strategy aligns with their goal of creating a sustainable and profitable multifamily portfolio.
Targeting Distressed Deals
Jonathan Nichols and his company have set their sights on scaling their business by acquiring distressed deals in the multifamily market. They are focused on properties that have issues with management, require renovations, or are experiencing lender distress. By targeting these types of deals, Nichols believes they can create value and potentially raise the value of the multifamily properties through forced appreciation. They are particularly interested in projects with long-term fixed-rate debt, which provides stability and reduces the risk of dealing with bridge loans.
Building a Reputation and an Inspiring Journey
One of the key priorities for Nichols and his company is building a strong reputation in the real estate industry. They understand that a good reputation is vital for attracting investors and securing future deals. By focusing on buying deals that make sense and prioritizing the needs of their investors, they aim to establish trust and confidence in their business practices. Nichols also highlights the importance of maintaining a good relationship with investors as this will enable smoother capital-raising efforts in the future. Ultimately, their goal is to establish a solid reputation for professionalism, integrity, and delivering results in the multifamily market.
Targeting the DFW Market
As part of their growth strategy, Nichols and his company are targeting the Dallas-Fort Worth (DFW) market. Despite the challenges of breaking into a competitive market, they see this as an opportune time to build their reputation in the city. They are specifically interested in B-class deals, which generally offer newer and nicer properties compared to older C-class properties. By focusing on the DFW market and selecting properties that align with their investment criteria, they aim to achieve sustainable growth and create long-term value for their investors. Additionally, they are keeping a close eye on market metrics such as job growth, population growth, and income. These can inform their investment decisions in the area.
The Future of Jonathan's Inspiring Journey in Real Estate Investing
Moving forward, Jonathan Nichols is focused on scaling and expanding his business. He plans to acquire more properties in both Texas and Oklahoma. Leveraging his skills and experience to continue growing his real estate portfolio. Nichols emphasizes the importance of selecting the right markets for different investment strategies. He believes that Oklahoma offers excellent opportunities for cash flow properties. While Texas is better suited for properties that have potential for appreciation. By carefully selecting deals, building strong partnerships, and maintaining a solid reputation, Nichols and his team are positioned for continued success in the multifamily investing world.
Lessons and Inspiration from Jonathan's Inspiring Journey
Jonathan Nichols' journey from aerospace engineer to real estate investor serves as an inspiration to others in the industry. His story underscores the value of leveraging one's skills and seeking out partnerships to achieve success. Nichols also highlights the importance of continuous learning and attention to detail in the real estate business. He emphasizes the need for passive investors to thoroughly research and evaluate sponsorship teams before committing to a deal. Overall, Nichols' experiences and insights provide valuable guidance for aspiring investors navigating the multifamily market.