Are you looking to invest in institutional properties?
David is invested in 27 deals and over 5,000 multifamily units, 3,500 as an LP and 1,500 as a GP. He skipped single family and went right into multifamily. He started with B/C value add deals and now is focused on high-quality institutional properties. David is a big believer in having the right mindset to go big and is focused on building the right team! He continues to push the boundaries of what's possible for investors like you!
If this sounds like something that interests you then listen in to hear how David did it!
Table of Contents:
- Where To Listen To The Podcast
- The Skillset to Manage and Scale Institutional Properties
- Investing in Knowledge Acquisition
- Accredited Investors Are Investing in Institutional Properties
- Why You Should Invest in Institutional Properties
- The Biggest Barrier in Real Estate Investing
- How to Reach Viacheslav Davidenko
The Skillset to Manage and Scale Institutional Properties
Darin: Viacheslav Davidenko lives in the Austin area, is married, and has four children. He is Russian and has an extensive entrepreneurial background. David grew his wealth management business to be one of the largest wealth management companies in Russia. He then took that skillset, raising and managing other people's money, and leveraged that to propel him to success in multifamily real estate investing. This guy is always trying to push boundaries and get uncomfortable when setting his goals for the future.
First of all, I just want to share a little bit on how I know David. We are both part of the same multifamily mentorship group, and David's been killing it. Since I joined the group over three and a half years ago, I've seen him scale up, and he's been killing it. In fact, one of the first syndication deals I was very close to was a deal that he was selling. I ended up coming a runner up on that deal, but we almost worked together on that one. I'm going to ask David to pronounce his name because he's Russian. His first name is something that I don't even want to take a chance at.
David: My first name is Viacheslav. When I moved to the US five and a half years ago, I realized that almost no one could remember or pronounce it. That is why I just shortened my last name and instead of being Viacheslav Davidenko, I became David.
Creating Wealth From Institutional Properties
Darin: Can you share a little bit with the listeners about what you were doing before? You came to the US five and a half years ago from Russia. My understanding is that you were in the wealth management background in some capacity.
David: I was in almost a dozen different businesses. All my life, I'm an entrepreneur. I started almost a dozen different businesses, projects in high tech, IT, education, and consulting. I've spent eight years being in wealth management, we have created from scratch. At the time, the biggest wealth management company in Russia in 2007-2008, we were managing almost six billion US dollars for our private wealthy clients. It's huge because the Russian market is something like almost one hundred times smaller than the US market. So six billion for Russia, it's half a trillion for the US.
I personally managed almost half a billion US dollars for 35 wealthy private Russian clients. It’s maybe the greatest time in my life in terms of being involved in a great business, to talk to smart and successful people, to manage their money until the financial crisis happens. It was really great.
Darin: I read a lot of books, I listen to other podcasts. You hear over and over again, "Surround yourself with people that are above you and learn from them," and you did that by managing all these wealthy clients. You got to learn from that and build confidence. Then when you came to the US, you took that and leveraged it. Why did you get involved with real estate?
A Tony Robbins Event
David: When we’ve decided to move to the US, I realized that I should try to use some skills and experience that I brought with me. What are those skills and what was that experience? It was related to raising and managing other people's money. At the time, I met my future mentor at the Tony Robbins event. I discovered that this guy is doing multifamily investments education.
I've realized, "Wow! Multifamily, it's a great place to be because I could raise the money. I could invest this money, I could manage this money. It means that I could use my skills, I could use my knowledge." Being in a new market environment, it really helped me a lot.
Darin: You said a few things there. One, you came to the US. You wanted to leverage the skills that you already had rather than completely start from scratch. Two, you invested in going to a Tony Robbins event. A lot of people are skeptical of going to events and masterminds and learning from other people. But you went there and I'm sure you got more out of it than this. One of the outcomes was you met your future mentor, Brad Sumrok. He is the mentor for both of us in the multifamily world. It puts you on a completely different path that you wouldn't have had, had you not invested in yourself and went to that conference.
David: Moreover, at that time, Tony Robbins taught me to go outside of my comfort zone, be focused, and do massive action. What I want to share that I'm not proud of is, at that time during my first Tony Robbins event, I didn't become a fire walker.
Institutional Properties Are Built Outside Your Comfort Zone
David: I've decided, "No way. I don't need it. It's too much." But when I was done with Tony Robbins' event I realized, "Wow! I’ve missed so much. I wasn't brave enough, I didn't go outside of my comfort zone, I need to visit this event again." So immediately, I paid for my ticket. I was waiting. Really, I wasn't walking the fire during the next event. I was running it back and forth because I've decided, "If you could do it, you could do everything," and I did it.
Darin: Good for you. When did you go back to do the fire walk?
David: It was the same year. First time was in March and the second time was in November.
Darin: Some other listeners will like this, too, but I like Tony Robbins. I've read one of his books, but there's a piece that he's very flamboyant. There's a little bit of a skeptical piece of me like, "Am I going to be jumping up and down and clapping?" So I have not gone to one of his events. I've talked to a lot of people that have gone. I want to say not 100% because there's a few people that felt like, "It was a little bit off." But a high percentage of people really take their mental state to a completely different level.
David: Yes, absolutely. Let's say it was my second meeting with Tony Robbins. The third one, I was with my wife and the next one I invited my eldest daughter. So four times I was at his events, two times being alone, one time with my wife. One more with my eldest daughter because I just decided they need to know it.
The Mindset Game
Darin: I'm not trying to skip out on your wife's opinion, but you daughter, how old is she? What was her perspective after attending?
David: She's 32 years old, and she really needed it because she moved to the US as well. She moved to the US because she became a University of California Los Angeles student. She’s a graduate of UCLA. She just didn't know what to do, where to go, she didn't feel comfortable enough, brave enough to apply for any job. To talk to her future colleagues, boss, and she needed to go outside of her comfort zone as well. For her, it was exactly the same.
Darin: You talk about getting out of your comfort zone and she wasn't brave enough. Now we're talking about the real estate world, and this is all mindset stuff. It's like, "Can I do it?" There's a lot of people that want to invest in real estate and they get scared.
David: What's interesting about me is that before investing in multifamily, I never invested in a single family here in the US. I just skipped it. This focus, this massive action, this way of doing business while you are outside of your comfort zone, it helped me to realize, "Why should I invest in single family? Why not try something bigger even though you are very uncomfortable, in order to become more comfortable, to learn something, to build relationships, and to get those skills? " I began investing as a passive investor, as an LP in multifamily. So I've invested in five or six properties asking questions, analyzing, and deriving.
Darin: I'm sure you asked a lot of questions.
Investing in Knowledge Acquisition
David: Yes, you should be asking a lot of questions. It makes your general partners, sponsors really uncomfortable, "Why is this guy asking so much?" You need to know a lot in order to become a multifamily investor, multifamily sponsor yourself. It just helped me learn from my mentor, learning from other more experienced sponsors, investing my own money to become a sponsor, general partner myself.
This is the way I began investing as a general partner. That is why as of today I'm in 27 multifamily properties, 17 of them as a limited partner, passive investor, and everything else as a general partner, as a syndicator. All in all, it's close to 5,000 multifamily units. Yesterday, we were awarded my next deal as well. But this is a separate topic to talk about how my approach, how my career in multifamily investments was changing. Let me know then we will be ready to talk about it.
Darin: You are a shining example of somebody that learned how to scale. So the deal that I mentioned right in the beginning that I was going after was your first full cycle deal. How many units was that?
David: It was 68 units. You couldn't believe it. We bought it for just 2.5 million. It was something like 37,000 per door. You couldn't imagine that there are properties existing that are 37,000 per door. It was my very first deal as a general partner, as a sponsor, and it was my first full cycle as well. We bought this property and made really great unit upgrades. We upgraded all the exterior, sold it, and delivered to our passive investors 40% plus as their annualized return. It was a real success.
Institutional Properties Going in Full Cycle
David: Right now, I have four of our properties under contract. We are selling them. I hope that by the end of the year, I will have five multifamily properties that went through the full cycle. In any case if you decide to ask me, "David, what are the returns right now for such deals?" I should say that for the best deals it could even be 40% plus annualized. But for the worst ones, it could be just 10% to 12% annualized. Not all the deals there's such a huge great success, it could be 12, it could be 20, it could be 40. This is a real business, and you need to understand it.
As a passive investor, as a general partner yourself, last week I got the money from other experienced sponsors. I invested with them five years ago. They more than doubled my money in 28 months. Anyway, my last deal with them brought me just 8% annualized. As a passive investor, you should be prepared. It's not a guarantee of doubling your money in three years, in five years. This is a great business, a great way of investing your money. It could be a huge success or it could just be the return of your money with some profit.
Darin: That's a very good point to share. I've heard other sponsors who said, when their first deals were home runs, your reputation is great. But then, your investors expect that on every deal that you put out. The reality is that some deals are home runs and some deals are singles and doubles. You also brought up that you're under contract on a new deal. Can you share a little bit about what that deal looks like?
Building Institutional Properties Is a Team Sport
David: Let me begin with my approach, how it changed during those five years. So five years ago, I began investing in older and smaller properties. It was '60s or '70s construction, 40, 50, 60 units. We were moving as a team because multifamily is a team sport, you couldn't do it yourself. You should always be partnering with someone else, it could be just the two of you and it could be six, seven of you. We’re moving in the direction of closing bigger, 91, 150, 270, 316, 351 units, and newer properties as well, 1980s, 2000 something.
The last deal that we closed in August, was 351 units built in 2020. My current deal and I could share some numbers because it's a 506(c) deal. It means that accredited investors only, that my current deal is 330 units. 2020 construction again, one of three biggest builders, developers in this country. What's great about this property, it's located in the master-planned community.
One of the results, the immediate household income for one mile radius in that area is higher than $120,000 per household. What does it give you? You could ask me, "David, why have you decided to move in the direction of the bigger and newer properties?" There are many reasons. One of the reasons is I've graduated from Chicago University where I got my MBA.
I just knew I've realized that I prefer to be involved in the institutional type business. It means bigger properties, newer properties, it means using institutional investors' money. And it means working with institutional class property management companies. At the same time, while buying newer properties, we are targeting those investors who understand that there is one way to invest your money.
Investing From C Class to Institutional Properties
David: You invest in older C class properties value-add. If you are lucky and you have not a lot of deferred maintenance, it means that you enjoy your cash-on-cash distributions, you enjoy your capital gains, but if you are unlucky how it has happened to one of my properties, deferred maintenance just will be eating all of your cash flow. As I’ve mentioned, I’m an all time passive investor in 17 properties. If you ask me, "David, how do they perform?" Some of them are making distributions in the range 8% to 10% annualized on a monthly basis.
But half of those properties, they're making no distributions at all, zero. What they have experienced on one side is COVID-related. We have discovered that newer and better properties still have very low delinquency. Our tenants pay. We stay 95%-97% occupied. Properties perform really well, but those C class and older properties, it wasn't the case for them. Delinquency could easily be 10%, 15%. Occupancy could drop to 90%. Many tenants just stay and don't pay.
This is a different business model. I'm not saying that it's better or worse, but it's different. While we are targeting these newer properties, what does it mean? For C class properties, for your tenants, their income to rent ratio is each on average three to one. Let's say if they pay 10,000 annually for their rent, it means that they're making 30,000-35,000. This is their income, but for our newer properties, almost always it's six or higher to one. Let's imagine that your tenant pays the same 10,000 rent annually, but this tenant makes 60,000, 70,000, 80,000 per year. They're much more comfortable with you improving your property, making it operationally more efficient.
From Private Properties to Institutional Properties
David: Some time later, upgrade it, improve it, and as a result, it increases your rent as well. This is the way our business has changed from older and smaller properties to newer and bigger ones. The type of investors we're immigrating from private investors to institutional ones as well.
Darin: Before COVID happened, I had conversations with lots of sponsors. We knew what was coming to the backend of the economic cycle. There would be some kind of slow down. I was like, "What happens with these multifamily deals in that case?" People kept saying that the A properties were probably going to get hit the most because you go into a downturn. People can't afford rent as much and so the bottom 20% of the A tenants are going to move down to B properties. Then the bottom 20% of B properties are going to move to C, but in COVID, that didn't happen.
David: What's interesting, let's say this is what my eldest daughter experienced. She lives nearby from me in A class apartment and they did nothing with her unit, no improvements, zero. She paid before renewal 1,400 and her new rent is 1,700.
Darin: Wow! So it's $300 and they didn't even do anything.
David: Nothing. 20% increase. The reason is quite simple. So many of those tenants work remotely. They didn't lose their job. They're fine.
Darin: That's a huge point. The other thing that I've heard from a lot of syndicators is a lot of people are trying to trade up. Some are starting to get into new construction as well.
Accredited Investors Are Investing in Institutional Properties
Darin: When I ask people why we are doing it, a lot of them say, "The cost basis of these B, C properties have gotten so expensive. It's not that much more to get an A class or to do a new build, new construction deal. Then you don't have the maintenance headaches of deferred maintenance." So everything that you're saying makes a lot of sense. We mentioned the new deal, but you didn't mention the name of it. The reason why David can talk about this deal is he's under contract on it.
He and his team will start raising capital for it because it's a 506(c). It's only available for accredited investors. When that's the case, you can actually talk about it, post it on social media and do whatever you want to. But only accredited investors are able to invest in this deal. So talk about that deal a little bit more. At the end of this episode, we will share how to get in touch with David.
David: The name of the property is Broadstone Sienna. It's located in Houston in a master-planned community, in a really great area. We are buying it from the developer. We, meaning, our team of people who work with me on those properties. If you ask about our business plan, "David, how are you going to perform to improve this property?"
Business plans for those new construction properties, they are quite different from the older ones. If we are talking about the '60s-'70s, it's primarily about upgrading your units, flooring, countertops, fixtures, painting, and so on. You just invest 6,000 to 8,000 per unit and get your rents increased.
How Institutional Properties Differ From New Properties
David: For newer properties, it works differently because it's talking about bulk Wifi. It's about reserved parking lots, covered parking lots or it's about different ways of delivering Amazon boxes to your door. It is about saving water but not for installing better toilets, but rather for installing individual water meters to every unit. As a result, you have the same $100 to $150 per door, your collections increase.
But you're doing it with tenants who are not paying everything that they have in order to live in those apartments. They are paying 30% of their income. You're doing it for those tenants who are willing to pay for additional services. Much easier. In terms of the performance, it's almost the same as it is for C or B class apartments.
At the same time, in five to seven years, those properties should be a perfect example of property for the next buyer because it's time to begin upgrading those units. It's there already. Five or seven years later with this approach, begin to upgrade the units, begin to upgrade the amenities. Every five to seven years, regardless of the property age, it needs some upgrades, it needs some improvements.
Darin: That makes sense. I didn't know that ratio. Ratio is very important to understand on the B/C, and I know because I'm involved in multiple. They always say that 30%-35% rent to income ratio, so that's one-third. If you're going into A class and it's one-sixth.
David: It's very important as well that I never heard about someone talking about ethics because we are talking about business. Let's upgrade, let's improve, let's increase our rent.
Keeping It Clean and Fair
David: What about your tenants? Could they afford it? Are they comfortable with it? Okay, let's retenant it. But from an ethical point of view, I myself feel much better improving property. Even increasing rents while working with those people who could easily afford it. This is another side of our business. How comfortable are you?
Darin: Right, and then part of it is the viewpoint. I don't take that necessarily view. Say there's 10 properties in the area and this one property really needs an upgrade. There are going to be some tenants that can't afford it. They're going to go look for another property that is cheaper and is more dilapidated, and they're willing to do that.
There's other tenants that are thankful for those changes and are willing to pay up. Then there's other tenants that just move in and the retenanting process. They're excited that they have a property that they can be proud of for the money that they can afford to pay.
David: Let's say that I believe in so-called karma and that is why at least I'm trying to do my best in order to keep my karma clean, perfect, in a good shape. If my business helps me or directs me in a way that my karma will be better, I prefer to take it into consideration as well.
Darin: I completely get it and everybody has their feelings on it. The tenant in an A property that comes up for renewal and has to pay $300 more a month. He doesn't get any additional value from their perspective. I know I've had people that have rented in A class properties.
The Safe Side of Investing in Institutional Properties
Darin: They're like, "My renewal just went up crazy. I don't want to pay for it, but I don't know where else to go." That karma thing could apply in both scenarios. I don't know if you even bring any of them forward or not, but you came from Russia. You were in wealth management, you had 35 very high net worth, private investors, that you worked with. Do any of your international clients invest in the US in your multifamily deals?
David: No. I'm not touching foreign money just to be on the safest side. I know from my former colleagues, I know from my friends that some of those people are willing. They want to invest abroad including the US, but I never used it.
Darin: You chose not to.
David: No, just to be on the safe side because you never know what could happen. Maybe at the end you could discover that this money was poisoned or something else. I have responsibility for all of my investors. In order to save their money, in order to make good returns for them, I should do my best to mitigate all the potential risks. It's about related risks, that is why we never used them.
Darin: Some people in South Florida want to do it with wealthy people that are in South America. I've talked to some attorneys and they said, "Well, in that case, they would typically have to set up. The easiest way is to set up a US LLC." They'll fund that LLC and then the US LLC is the investor in the syndication. I have not had experience with that either. It sounds like you made a conscious decision not to bring in foreign capital.
How Do You Build a Team
David: By the way, an important part that we haven't touched yet is that multifamily is a team sport. If you ask me, "David, how do you build your team?" I always try to find partners who have complementary skill sets. If one partner is great in raising money, another partner is great at asset management. Someone else should have some skills in marketing, in investor relations, and so on and so forth.
While building your team, please pay special attention to what everyone brings to the table. In a best case scenario, it should be a well-rounded team of people who are able to successfully handle this business.
Darin: That's a great point, bringing on partners that have complementary skill sets. You mentioned that your mindset and your moral compass have to play into it as well. So you find somebody that has a complementary skillset. You also need to know that you guys are on the same page in terms of how you run your business. The way you look at life in general, how you treat people, all those factors have to play in as well.
David: I've heard it from many of my colleagues as well, "I like the deal, I like the property. But I’ll never partner with those guys because we have different morality. I couldn't do business with them." It happens.
Darin: I've heard the same thing. These deals can be on the short end, two or three years, but they could be five, six, seven years. You want to know who you're doing business with both on the GP side and on the LP side, too. I know your deals, this guy is so funny.
When to Be Choosy With Your Investments
Darin: Most of his deals, he puts them out there and they're funded so fast. It's incredible how fast they get funded. When that happens, you can be choosy about the passive investors that you invest with, too. If some of them don't have the same mindset as you, then maybe the next deal they're just not on your list. Have you ever seen that happen?
Darin: What was your childhood like? Brothers, sisters? You said you were an entrepreneur and started 12 businesses. Russia didn't really have the reputation of being an entrepreneurial playground.
David: Yes, it's quite simple. Russian people are very entrepreneurial, but one of the main differences here in the US is, you could do your business as an entrepreneur. In Russia, you're doing the same in spite of. It means, you're constantly fighting with some obstacles that prevent you from growing your business, from making it successful. We don't have liquidity in order to sell your business.
Here in the US, you could sell almost anything. A guy lost his job one year ago and he began this landscaping business for his neighbors. He was doing it for one year. Now, he got his job back and he sold his business with just 13 clients. Very small business, new business, not successful, not scalable. Anyway, he sold it. In Russia, it's just impossible. There is no liquidity.
You could sell almost nothing in terms of having an exit for your business. It's the same with the government or let's talk about Taxes. You could ask me, "David, what were your reasons in order to invest in multifamily?"
Why You Should Invest in Institutional Properties
David: A lot of reasons, but one of them is, if you invest in multifamily, you have a lot of tax advantages. You have these bonus depreciation, you could invest just again and again and again and pay no taxes from your cash distributions.
In Russia, even though our taxes are lower than here in the US, on average at the end you really pay more. It's impossible. Then I discovered that here in the US, I could invest in multifamily and to really pay no taxes. I couldn't believe it. How could it be possible? It's impossible. It couldn't happen, but it happens.
Darin: Here in the US, there's a lot of people that don't understand that they can take advantage of tax advantages. W-2 employees, they're just used to paying their share of income taxes.
David: Yes, and a lot of other things, let's say doing my business in Russia. I had a bomb in my office. I had bodyguards, I had visits from the local gangsters who wanted me to pay them. Doing business there is quite different in terms of risk. Risk is 10 times higher. Anyway, this is the reality. Maybe this is one of the reasons why Russian guys are so entrepreneurial because I have a lot of friends here.
Moreover, one of my investors, he's a co-founder of the public US company. He's originally from Russia as well. More than 20 years ago, he established an IT company here in the US, grew it, made it public, and became a really wealthy person. It's mentality, it's culture. As soon as you move yourself to a more friendly business environment, let's do business together. Let's do it.
When Being an Entrepreneur Was Illegal
Darin: How old were you when you knew that you were going to be successful and you were going to be an entrepreneur?
David: You could be 15, you could be 17.
Darin: How old were you?
David: I was 24.
Darin: You didn't start out that way as a 10-year-old or 12-year-old.
David: No. You don't know it. In Russia, being an entrepreneur until 1989 was illegal. You would go to jail if you buy something for $1 in one place and sell for $1.20 at another place. It had a name, it’s speculation. According to our laws until 1989, for how much you bought something, you should sell it for the same price. You can’t make a profit. It was absolutely illegal. Then in 1989, perestroika began. People were shocked, "Now I could buy anything and sell it for a higher price and make a profit."
Darin: I didn't realize that. A long time ago, it's probably 25-30 years ago. I was working for PepsiCo and I was traveling around the world. One of the places I went to was Russia. This was probably pretty early on in terms of the entrepreneurial new mindset. I went to a flea market type of place, and I saw two different sides. It had young people that were stopping me, "Are you interested in this watch?" "How much?" Doing the haggle and all that.
Then I talked to somebody in an older generation and the price is the price. They’re like, "No. I won't take a dollar less. The price is the price." It was two different mindsets of people. Some people were like, "I could take it in a little bit less margin and still make a profit. I'm going to do it," but that's interesting, that 1989.
You Are Who You Surround Yourself With
Darin: You started with the Tony Robbins thing. Talk a little bit about mindset and getting out to conferences and networking. Learning from other people that are ahead of you, trying to improve yourself everyday, and getting better, and how that impacts you.
David: Tony Robbins just changed my mind. He changed everything. It's one more thing from him that you are the average of six people closest to you. So try to do your best in order to be surrounded by the best. For the first time, I discovered it. I felt it, but I didn't realize it at that time. It has happened to me at Chicago School of Business, we were in a group of six. Before we met for the first time for our assignment, I thought, "I'm the smartest one, I'm the best one."
When we began working, I just realized, "Wow! I'm the most stupid one. I understand nothing. They're such great guys." Moreover, as a result of the assignment, we should have something done from all six of us. We needed to agree. So we learned the art of compromise. At that time, I got this feeling, but I just didn't realize, "What is this? How does it work?"
Only after visiting Tony Robbins' event I've decided, "Yes. Let's do my best all the time being surrounded by the best people who are smarter than you are, who are more successful than you are." You will always feel uncomfortable, "They're smarter, they're more successful. Why am I so bad, why am I so poor?"
Building and Growing Newer Properties
Darin: Let's imagine. "I'm so poor I only have five million while this guy has 100 million." Okay. "I have 100 million. I'm so poor, this guy has one billion," and so on.
Be surrounded with the best. In this way, you're always developing, growing, changing. This is one of the reasons why I was growing my portfolio, building bigger and newer properties and changing my team as well.
Trying to surround myself with the better ones, at the same time, I'm very respectful to my very first partner in multifamily. He's a great guy. We have seven deals together and I hope that sometimes we will have even more. But, anyway, I'm trying to change, to grow, to develop. That is why I'm trying to work with other guys as well.
Darin: When you're getting your first deal, a 68-unit deal, your mindset is somewhere. People have asked me, "What was the scariest step in the beginning?" It's like, "Every step was scary in the beginning, but now I look back at all those steps. I'm like, 'I'm not scared of those steps anymore." For you, you had that. You got uncomfortable, you got the deal done. Then you went through a full cycle and you scaled.
David: When we decided to buy this property that we closed in January this year, it was 30 million plus, purchase price. Last year, I was absolutely uncomfortable. I was crazy. How could we close it, how could we raise the money, but we did it. Then I realized, "Okay. Let's target 50 million plus." The same happened. Now, I have 70 million plus. Let's do it.
From Disaster to Success
David: It doesn't mean that you will always be successful, to close it, to celebrate it. Sometimes you could even have a disaster. But as one mentor taught us, it's not a disaster. It's just a lesson. Very expensive, but in a way, this is a lesson that you learned and next time you will be more successful. As one of my friends likes to say, if you had a mistake, even if you had a disaster, it just means that you are one step closer to your next success.
Darin: Thinking bigger, having bigger goals, it challenges you, it makes you more uncomfortable. I don't know about you, but for me, that uncomfortableness, that challenge is what energizes me. If I do the same thing over and over again, I get bored. I know I could do it and just do this transaction, but when you push the boundaries, that's when all of a sudden your juices get flowing in and creativity comes in.
I had a guest that said he was starting small, so he had a duplex. Then he said, "Next year I'm going to do four units. Then next year, I'm going to do eight units, the next year I'm going to do 16." When he got to eight units, he all of a sudden had somebody or thought of going bigger, whatever the case may be. I don't know what motivated it, but he said he changed his goal from eight units to 800 units. Once he did that, I said, "Where did you end up?" He said 454 units.
The Biggest Barrier in Real Estate Investing
Just start at something much bigger. Even if you will not succeed, anyway, you will learn, grow, develop, and you will be great. What about your feelings? You will be proud of yourself.
Darin: That's probably the biggest barrier not only in real estate investing, but starting a business. Doing anything big is in between your mind, in between your ears, believing that you can do it, and then taking action. That is probably the hardest thing for people, it’s actually believing that they can do it. My advice is to push yourself and then when you achieve that, now you know you're at that level. You can push the boundary someplace else. If you let that stop you from trying, you're never going to progress.
So, what's the next big stretch goal for you then? You're up to 5,000 units. What's the split between LP and GP on that? Probably 2,000-3,000?
David: It's 1,500 as a general partner and 3,500 as a limited partner. What's next? I still want to be a limited partner. So I still plan to invest at least three, four properties every year as a limited partner for a very simple reason. To learn from others, to see what they do with their properties, what they implement, and how they improve. At the same time, my plans have changed.
I've decided to become more aggressive in terms of growing my institutional quality portfolio as well. In a best case scenario, five years from now, I hope to have 20 to 25 multifamily properties in my portfolio. All of them are not older than five years. It means that in 2025, my oldest property should be 2020 construction, everything else newer, bigger size, 300 units plus.
Exclusive Institutional Properties and Investors
David: Almost exclusively, institutional class of investors, vendors, service providers because it should be a scalable, well-managed business. Their operational efficiency is your strongest point.
I've realized that so many of my colleagues don't pay enough attention to the ways they market their properties. That is why I want to build this system that should make my conversion rate from potential tenant to the real tenant, to the real move-in. Maybe one of the highest in the whole industry because losing your potential tenants because you don't follow up on time, because you don't make personalized offers.
You're not selling your property in the best way possible. This is one of the ways you could dramatically increase your profit. Just imagine that you increase your conversion rate by 100% twice. You almost always ask me two of my properties. Believe it or not, last year, they constantly stayed 100% occupied, and we increased our rent six times. It wasn't $300. No. They didn't double. We were making it in small increments, but we were doing it. Why? Because everything worked almost perfectly, but these are A class properties, for sure.
Darin: There was another deal that you were involved with. I live about 45 minutes north of Dallas in a town called Prosper. I'm in a community that has a crystal lagoon. It's amazing. You go to this thing and it just seems like you're on vacation. You and your partners ended up getting involved in a deal that is going to have a massive crystal lagoon.
Master Developers of Institutional Properties
Darin: Talk about that because there's a trend there. These master developers, it was always a golf course before. But when I sit at the lagoon I'm like, "The entire family is going to enjoy this amenity. It takes up way less space in a master community. You don't have all this big watering and maintenance issues, you don't have all these tons of employees."
David: The idea was quite interesting. We have chosen the fastest growing city in the US with the population 50,000 plus, Leander. For many years it was the fastest growing city. Bought some land there and decided, "Let's build mixed used and new construction, multifamily, hotels, restaurants, retail, office. Then put a crystal lagoon at the center of the whole development project."
So we got all the permits from the city. We got 22 million US dollars in financial incentives from the city. In the end, we have realized that the project became too complicated, too many moving parts. Hotels are different businesses. Restaurants are a different business. Offices, different businesses. Multifamily, crystal lagoon itself, we have decided that we are not ready yet. So the whole project was sold to other guys.
It was sold already, but what's great is that our investors, depending on their shares’ class, they got 20% or 30% annualized. We have sold this project not only because we have found that it's too complicated, professionally we are not ready, we are not experienced enough. At the same time, I've decided this is a perfect time to show to my investors that I could deliver my promises. I could give them the profit that was anticipated at the time they accepted those higher risks related to the mix used and new development.
Making the Investors Happy
David: So I got some knowledge. I learned a lot, we made our investors happy. As the project founders, we're very happy as well because it's like Grant Cardone something, making 10x of your initial investment into the project.
Darin: I didn't realize that you guys had sold it, but that's just another example of taking action. It was a project that was really big and you didn't know everything prior to that. Then you continued to go down that path and at some point, you determined, "I could still get my investors a really good return."
David: Yes, and it becomes just too risky for them. Just imagine that your multifamily business is very successful, but everything related to street retail or hotels, it's a disaster. But you're responsible for someone else's money.
Darin: What do you like to do outside of work?
David: Just my family. I have four kids. By the way, my eldest one is 32 years old. My youngest one is just two years old.
Darin: That's a big gap.
David: Yes. Every morning, seven days per week, it begins with me taking the youngest one from her bed, going to the kitchen. Preparing breakfast for her, feeding her. This is the best part of my life, spending time with my kids, with my wife, with my youngest one. I just missed it with my three other kids. It never happened with them feeding them every morning, taking them from the bed every morning. I'm enjoying it.
Be Comfortable With Being Uncomfortable
Darin: How do people reach out to you if they want to get a hold of you? What's the best way?
David: You could visit our website. It's sunrisecapitalgroup.com, or you could send me an email, just two letters from victory day, email@example.com.
Darin: David, I really appreciate you coming on the show. There was just so much there for people to learn from. Mindset is a big thing, Tony Robbins, and going to that, pushing yourself and getting uncomfortable. If you don't do that, it's hard to have these big quantum leaps in your life, and you did that.
David: It doesn’t have to be Tony Robbins. It could be your wife or your parents, it doesn't matter. Just someone who could help open your eyes. I'm learning a lot from my eldest daughter after that Tony Robbins' event because she's reading a lot. She learns a lot. She's getting her third degree. We are talking every day and she says, "Dad, think about this. Do this." You just need to find those people who could help you to grow. Thank you so much, Darin, for inviting me to your podcast.
Darin: You are a shining example of what can happen, so I appreciate you coming on. Listeners, I hope you enjoyed that one. Until next week, signing off.