![Establishing A Multifamily Acquisition Fund With Ivan Barratt [Ep. 039] cover](https://darinbatchelder.com/wp-content/uploads/2021/03/EP39-FeaturedImage_af1a06778558245ed8c50d547aa0ea8a_2000.jpg)
Listen to Ivan Barratt describe the benefits of establishing a multifamily acquisition fund. This guy has been in real estate since graduating college. He's an action guy and learns by doing! He's created a company with over 100 employees, over $400 million in assets under management, and 'get this' raised over $100 million in private equity. And it all started with a duplex!
Table of Contents:
- Where To Listen To The Podcast
- From Mowing Lawns to Multifamily Acquisition
- From Zero Investment Properties to Multimillion Multifamily Acquisition
- Significant Advantages for Investors of Multifamily Acquisition
- Pouring Your Heart Out About Entrepreneurship Vulnerabilities
- The Number One Source of Investors
- Learning How to Be a Multifamily Acquisition Magnate
- Do Hard and Uncomfortable Things
- How to Reach Ivan Barratt
From Mowing Lawns to Multifamily Acquisition
Darin: Ivan Barratt lives in the Indianapolis area with his wife and three children. He grew up learning hard work at the early age of seven by mowing lawns. He’s always known he wanted to be an entrepreneur. This guy even dreamed of owning 1,000 plus duplexes when he was a kid. He's very proud of the company they have grown from the ground up.
He created a family culture and is extremely focused on their employees. This is a guy that doesn't stop pushing himself. In fact, he's planning on doing a 36-hour 30-mile hike coming up in August. This is a guy you want to learn from.
Just to start out, Ivan, how many properties, how many units are you invested in?
Ivan: We bought a few, sold a few last year. Right now we stand at about 4,000 units. That’s equal to almost 140 million in AUM or assets under management across 13-14 apartment communities.
Darin: This is actually our first time getting together. I was introduced to Ivan through my business partner on my first syndication deal, Raj Gupta out of Chicago. Raj came to me and said, "Hey, you should really have Ivan on the show. He's got a ton of experience, he’s very conversational, and has a lot of value to offer your listeners."
Your background was extremely interesting. You talked about 4000 units, 140 million in assets under management. You’ve raised over 100 million in capital.
People who want to get into the space, or did their first deal, or looking to do their first, they get so nervous about how to raise capital, how to scale it from there. Can you talk about that?
Raising Your First Millions
Ivan: We passed that 100 million in equity raised mark in 2020, and total assets were about 440 million.
Darin: In terms of raising capital, in the beginning, it can be scary. Was it scary for you? How did you end upscaling?
Ivan: It's very scary, it was for me. I would get that pit in my stomach, and I'd be extremely nervous. I'll never forget raising my first million for a 112 unit apartment deal. I knew it was a deal, didn't know how I was going to get the million. My wife will tell you, I was so freaking stressed out about getting this money raised. I developed this rash around my eyes, an irritation just from the level of stress.
In those days, I wasn't as good at dealing with stress as I am now. Even before that, I started off small. I house-hacked a duplex out of college. I've been in real estate my whole career and got really serious about buying more multifamily back in 2010. Buying a big deal was very scary. In 2010 I realized that I've been looking on LoopNet, what would make this a deal?
And underwriting deals, how am I going to get a big deal done? Through a series of events, it occurred to me that now it's 2010. A year or two has gone by and I haven't done anything. That's when it finally dawned on me, a saying that my dad would always tell me. I had a bunch of these that he would tell me. As a kid you'd roll your eyes. Dad, I know, you've told me that 1,000 times, please. I'm here to tell you it sinks in.
The Journey to 10,000 Units
Ivan: Finally, I realized this one thing that he would repeat over to me all the time. The journey of 10,000 miles starts with the next step. At that time, I had a duplex. It just dawned on me, stop looking at the big deals, Ivan. The journey to 10,000 units starts with the next two, go get another duplex done. That's when I learned about using hard money and performing a BRRR play on assets.
It wasn't even called BRRR yet, buy, renovate, rent, refinance, repeat. They hadn't even coined the term yet. But I was just studying these various classes and seminars on how to do this. I said, "I'm just going to go get a little deal out, then I'll go try to get another one."
So, this process of slow compounding, doing the little things every day that build up over time, and become unstoppable. It’s really what I started focusing on. Not only in business, but also in my relationships, my personal life, and how I look at fitness. The more I apply that mentality, the more success I have. It worked for raising capital as well.
And so, in the beginning days, I would take out just anybody I could for coffee or lunch. Now you can do it over Zoom, it's a little bit easier, just to tell them what I was up to. Not to try and pitch them on a deal or get their money, but just to practice, to work on my repetition. Just say, "Hey, you're successful, you are in my network, I'd love to just get in front of you."
From Good to Great
Ivan: "Kick me out 15 minutes later if you need to, but I'd just love to run you by what I'm doing. Do me a favor, poke some holes in it or tell me what you think." I would just work on doing that even just a couple times a week. Now, of course, I wanted to do more. But if I could just get two a week, that's over 100 meetings a year. I've applied that to so many things.
It's in the book, The Good to Great, it's that great flywheel in the beginning. It takes a lot to get it moving. But if you apply every day, a little bit of force to it, eventually it starts working on its own. The beginning is all about the grind, all about hard work. But I really want to drive that point home, it's a daily repetition.
You're not going to go to the gym every Saturday and get anywhere on your fitness goals. You got to do your pushups or pull-ups, do it more often than once a week. Carve out some time daily on tasks that you need to do. Eat That Frog is another great book.
Get that stuff done early in the day. Over time the fear starts going away. That's how I was able to buy a few more properties. That's how I started my management company with just a few units and grew that and I've used just that simple law of success effectively.
Darin: Take action. You have to get that first deal, and it doesn't matter how big it is. Whatever you're going after, get that first one then go after the next one. Start building some momentum.
From Zero Investment Properties to Multimillion Multifamily Acquisition
Darin: This is another thing I want listeners to understand. We all started with zero investment properties. If you're out there looking to get your first, everybody else started that way too. Figure out a way, find other people that have done it, and then mimic their success.
Ivan: If you're like some of us that have been doing this a while, 2008 comes around. I ended up starting with less than zero when I started doing this.
Darin: What do you mean you started out with less than zero?
Ivan: The great financial crisis was the greatest gift of my career. For the first eight years of my real estate career I got out of IU University. I got the shiny degree that says I have a BS in something. Turns out, it's probably a pretty good acronym for it in finance, in real estate finance, and law, and development. Then I got in early with the developer, a great mentor. But '08 comes along and you see the other side of the real estate cycle, it’s a very humbling experience. I don't want to go too far back or too long on this, I don't want to take up too much time.
Darin: No, you know what, I'm actually interested in that because right now we're still very much in a seller's market. A very attractive real estate market, multifamily. At some point that will turn. Some people including myself have not been through a big down cycle in the real estate market as an investor. I have been from my other business where I trade loan portfolios between banks. I've seen that from that side but not from the real estate side. So share what happened in 2008.
Doing Real Estate the Wrong Way
Ivan: Long story short, I ended up being a few 100 grand in debt. I've got negative cash flow monthly because of all these development deals I was in, early in my career. I had a girlfriend I was trying to convince to marry me. All of a sudden I'm upside down.
Darin: Did she?
Ivan: She did, yes. Happily married most of the time. That's another grade on my report card I have to work pretty hard at. We are married with three little kids, which makes life interesting. At that time, all of a sudden, all these deals go poof, and the whole world changes. I realized that I've been doing real estate the wrong way.
I had become infatuated with development. The flipping, the buy, sell, buy, sell, for more money, hopefully. For a speculative model, which is not why I originally got into real estate in the first place, it was for cash flow. I also observed very interesting things happening with these multifamily companies.
They all got bigger and stronger and were able to find more opportunities. Mainly because they had a long-term fixed-rate, guaranteed debt by the federal government. When the bank came calling on all sorts of other commercial real estate called notes, forced sales, took back commercial assets.
Multifamily acquisition wasn't the case. That just helped me develop my investment thesis on being more of a value investor when it comes to real estate. Number one rule of value investing, don't lose money. Rule number two, remember rule number one.
So, it really honed in and focused me on wanting to only buy large existing apartment communities. Where we could add value, and use that kind of debt to take a lot of risk off the table.
Maturity Risk
Ivan: For us, it's all about risk management first. Then how do we create value? How do we deliver returns?
Darin: It sounds like you are a big proponent of long-term fixed-rate debt. I'm assuming with the agencies, they're the largest lenders in the multifamily space. I've been asked by a lot of people, especially people in my network that don't really focus on multifamily. They’re interested in investing in these types of deals.
Like, "Hey, Darin, what do you see is the biggest risk in these deals?" For me, I come at it from owning a loan trading business. I saw in the Great Recession who got hurt on the loan side. It was people that had multifamily or commercial real estate loans. Where the loan came due in a really tough economy.
Ivan: Yes. We can call it maturity risk.
Darin: Exactly, the maturity risk. I am also a big proponent of having a long-term structure. One of the questions that came out last year, is the long-term fixed rate. I've talked to a lot of syndicators that have talked over the last year, a lot of syndicators are stuck. Maybe they got into a long-term agency deal, 10, 12 year fixed rate loan, and plus or minus 5%.
Then all of a sudden interest rates drop dramatically, and they've got yield maintenance as a prepayment penalty. It's a seller's market, and they could actually sell for a really nice profit for them and for their investors. But they're stuck because the prepayment penalty is in the seven figures. Over the last year, there have been a lot more people that have started to talk.
Multifamily Acquisition Is Game of Probabilities
Darin: Syndicators start talking about, "Hey, look, we don't want to have that maturity risk. But Freddie has this Freddie floater. We could get a 10-year term, so the loan doesn't come due for 10 years. But the loan is a floating rate loan, and we'll buy a cap on it. A lot of people have moved in that direction.
Ivan: The Freddie floater is a great idea to look at. For a long time, the floating rate was probably a bad idea. It's easy to look at hindsight. As an investor, as a fund manager, and a steward of others' capital, it's my job to do my best to try and predict what's going to happen. I have to make bets, and it's all a game of probabilities. I've always looked at the prepayment penalty as our cost of insurance.
Our hedge against capital market freeze, maturity risk, or rates going the other direction. Mixing in a Freddie floater is definitely something to take a look at. If you can still get the 10-year term, you've got the rate cap, and it fits your capital stack, you can make it work. It's definitely something to look at. No question.
Darin: The difference in having that type of loan is that after a year, the prepayment penalty is 1%. If you have yield maintenance, you can end up having a seven-figure prepayment penalty. That could eat up a lot of the profits in the deal. But who knows what the crystal ball is for the future? If rates jump up dramatically, and there's inflation, then it may not be the best bet.
Every Deal Is a Syndicated Deal
Darin: We just don't know. Those are things that I hear in the market, things that I hear syndicators talk about. You've mentioned that you are about to launch a second fund. Most of the syndicators I know have done their deals. Every deal is syndicated deal specific, so you get a deal under contract.
In the next four to six weeks, you raise the money and close in 60 days. Every deal is raised separately. I've done one deal where I've been passive in a fund. It was a blind fund where I invested before the syndicator had identified the assets.
Ivan: For syndicators out there, the first rule of fund raising is don't call it a blind fund. It's called discretionary. The hardest thing to pull off is our first fund. It's difficult to convert people from single asset raises to a fund structure. It is not an easy path. It's not cheap. I'm talking to the syndicators in the audience.
Once you've got a long enough track record of performance and a large enough network, even though it's hard work to get it accomplished, especially your first one, it's worth it as a business. You can make it a win-win. The win for me as the syndicator is my capital raise efforts become more efficient. I can continue to raise capital from high net worth individuals and families. I can increase my fundraising runway.
If I'm going after a $40 million deal, I've got to race to 10, 12 million bucks. I don't have four to six weeks to do it, I can increase that runway. It's a fund, which you'll need if you're doing those larger deals in order to win them.
Significant Advantages for Investors of Multifamily Acquisition
Ivan: Then for the investor, there are also some significant advantages. You get diversification. You're no longer in a single asset. Our first fund ended up being 1423 units across six assets.
Whether you're in that fund for 25, 50 grand, or a million, or two million, you are diversified across all those assets. You as the investor no longer have to wonder which of those deals is going to be BAM’s home run, or third base hit.
We play Moneyball, like most of us out there. We're aiming for first or second, not take too much risk. But every now and then we crack one out of the park. The investor doesn't miss out on that, doesn't have to worry about cherry-picking my deals. They're participating across the portfolio. Enables us to pay monthly cash flow more consistently and with more confidence right out of the gate.
On the backend, there's a chance of getting a little bit of premium by selling our portfolio to a bigger fish. There’s a lot of big fish out in the ocean. But by selling that portfolio to a larger buyer. Just like you're going to get a better multiple on sale if you're selling 10 Chipotles versus just one.
A very similar concept there. So all those things combined for our investors reduce risk and increase the overall probability of a higher return. That's how you get those alpha returns to your investors. Can't stress it's not an easy road to get there, especially fund number one. Takes a lot of hand holding, a lot of education. But operationally, if you've got the track record, the bandwidth, and the internal team to accomplish that, it's worth the work.
Winning the Investors’ Trust
Darin: It wasn't easy getting the first indication. You had to push past the fear to get there. A lot of syndicators push past that fear to get the first syndication then they've done six, seven, 10 syndications. When I ask them, why not start a fund? I can tell they're scared. “What if I come out with a fund, and I can't raise the money?”
It's like going back to that first step when they were just getting going. It's something that you have to push through, and it's a risk. Another thing, timing-wise where a fund makes sense in today's world and when you said discretionary versus blind. That’s interesting.
Ivan: That's where the trust comes in. You have to get your investors to understand they're not betting on the deal as much as they're betting on me, the syndicator. Here's our track record, here's what we've done. By the way, my track record is my number one most important asset.
If I screw that up, I screw up the whole thing. You have to have this leap of faith. That as an operator, a fund manager, I'm still only going to do good deals. I'm not going to lower my acquisition criteria just to get some more deals done. Get that point across to your investor and really build that trust.
It's a much easier bridge to cross if you've already got a lot of investors who trust you. If you can accomplish that, then you're going to have success. Otherwise, if you can't build that trust, nobody's going to give you discretionary funds. That's for sure.
Catching the Flying Daggers
Darin: That makes sense. Think about the COVID environment. Last March, when the market tanked, it was going down for two weeks. If you tried to raise money from people in that two-week time period, it would most likely be very difficult.
Everybody's watching the TV every day, everybody's fearful. They’re grabbing on to what they have and they don't want to lose it. The market turned around quickly, the stock market has been off to the races ever since.
Ivan: It's been tough.
Darin: Many recessions in the past weren’t a two-week time period. It’s a year or more of the knife falling and then catching the knife. We didn't see that this time, at least not yet. One thing that's conceptually attractive about the fund is being able to raise capital when times are good. If all of a sudden there is another drop, you already have the funds to go. You can take advantage of it in a down market.
Ivan: We had the best year ever at BAM, we have higher occupancy here in Indianapolis. Higher demand, one to one and a half percent bad debt on our fund. The target rental properties that we buy or target rent range stayed out of the cities. We bought B+, A- assets in the suburbs that were still growing. The bet really paid off for COVID. Now, this is all in the rearview mirror.
In March 2020, my partner and I were like, "Get the CFO, we need to model what this looks like at 70% rent collected." We knew it was breakeven when we bought it, but let's remodel it, 70%, 80%, 90% collected. I’m really thankful that we didn't have to call in any capital in March.
What Does It Take to Get a Deal
Ivan: Now, we did this because everybody got scared. This could be '08 2.0. Believe me, just because people have committed the capital and signed doesn't mean they're going to send it to you. What are you going to do? You're going to go after your LPs if they don't send the capital? No. My partner, we've got this deal off-market. Nobody else is even freaking looking at it because of what's just happened.
We have to put down half a million hard-earnest money to get this deal. Look at each other like, "All right, we're making a bet. It's not going to be as bad as everybody thinks it's going to be here in the Midwest, here in our market. The Fed is going to turn up the printing presses and liquefy the market." We had a pretty good hunch that the Fed would do this, we study the Federal Reserve.
I watch everything they do. They've literally gone on record saying, "We don't want 2008 to happen again." I'm paraphrasing, of course, but 2008 they didn't act quick enough. The good thing about being in our business is what keeps you and me up at night is the same thing. What keeps up the Federal Reserve at night is the deflation that could set in a collapse, like Coronavirus.
They've said, "Hey, we're going to drop money from a helicopter before we're going to let deflation set in." Once you get in this deflationary death spiral, it's the depression all over again. We would rather have inflation by printing money than letting everything deflate. So, we made this bet, we put down the money, and it worked out really well.
Have a Strong Conviction in Your Multifamily Acquisition
Darin: I'm sure much better than you even thought. It's been crazy how quickly everything came back.
Ivan: When you're putting your own hard money up to win a deal and to put it under contract, you really have to have strong convictions on your investment thesis.
Darin: You guys were investing in B+ A- assets. A lot of people that I know were in the B/C space, value add space. The B’s and the A’s seem to have done just fine. But the C assets seem to be the ones that have been most impacted through COVID. Having the focus that you had really helped you along the way as well.
Ivan: We figured out a way to buy a little bit nicer assets, a little bit newer to minimize risk. Achieve the same types of returns that syndicators were getting on C+/B- properties through other ways of adding value. It's still a value add game out there for a syndicator, for a real estate investor.
Otherwise, you're just going to get a small coupon off the deal. The real pop is creating that value, and then some sort of capital event. Then for us we want to sell it, harvest it, and do it again. That's how we've been able to buy nicer properties and still get those upper teens low 20s IRRs.
Darin: Talk about the value that you guys look at for B+,/A-. It's a little bit more obvious in the C’s and the B’s. Those older assets, paint the property, renovate the interior. I'm putting you on the spot, my man. You got to share some of your sweet sauce.
Pouring Your Heart Out About Entrepreneurship Vulnerabilities
Ivan: We're getting into some of the secret sauce here. It's like we were talking about before the show. I'll pour my heart out about entrepreneurship and the mistakes I've made and be vulnerable. But don't ask about my markets. I'll give you some high-level stuff here if you promise just to keep it between you and me.
It's still a combination of making physical improvements. We've found some very effective ways of reducing operating costs. It really comes down to people, the people on your team. We're vertically integrated as a management company. So we can control a lot of lines on the P&L. We're still that third magic piece beyond physical improvements, and operational efficiencies, and finding the right people.
The third thing is markets that are still growing. That's not easy to find, but the laws of the market are simple. It's sort of the difference between hard and complicated. It is hard to do, but it's not really all that complicated.
Darin: In terms of looking at markets, population growth, income growth, landlord-friendly.
Ivan: We know we can find markets that are still growing. People are moving to those markets. They've got good schools. It's an advantage when you can find assets below replacement costs to where you can renovate rents. To still be under new construction, which is sort of the holy grail.
Because then, nobody could come in, build more supply, and crunch your rents. You do it in such a way that more supply coming to the market lifts your rents. You're taking another measure of risk off the table. Then just to tie that all in a bow, some of those physical improvements, operational efficiencies.
Renters Always Have a Cap
Ivan: Being really diligent on the markets we select down to the block enables us to reach those value add like returns on a far newer property. We'd like to typically 2000 built property plus or minus a few years.
Darin: I was looking for you to give me something, and you did with the replacement costs. You're looking at something in the 2000s. But you want to buy something that if somebody's going to build down the street brand new, their cost to build it per unit is going to be higher than us. We know we can keep our rents below them.
Yet they're going to have the newest finish out, but renters always have some kind of cap in terms of what they can afford on a monthly basis. So, if you can keep below them, then you can still increase the value, and then be below the competition.
Ivan: Every dollar you add to the bottom line annually is multiplied anywhere from 17 to $20 on the sale. Not only is that raising rents, that's also reducing costs. If you can find a way to still operate well, execute well, and reduce costs at the same time. There's value there as well. Just that's a little tougher to figure out.
We've been working on it now for over 10 years as a management company, we've got it nailed down pretty well for what we're doing. Harder to achieve with third-party property management. There are probably some solutions out there. It just takes some digging to figure it out. It's not going to be rocket science, and everybody's going to figure it out eventually. Like they did with billing back utilities.
Staying at the Front End
Ivan: But it's my job for my investors to stay at the front end of some of those trends. And to not tell everybody about the secret sauce.
Darin: So, you guys decided to grow a company, and become vertically integrated. Describe what that means for BAM.
Ivan: We're over 100 employees. Everything from the grounds tech, the maintenance techs, supervisor, leasing agent, management agents, at all our properties, then up to regional. Here at corporate, we're about 25 people. Asset management on the investor side, accounting, all the marketing is run through corporate.
As well as my leadership team now, which is five executives that report to my business partner, and president, COO of the operating company. We started off very small, and we managed for other people more product than we managed for ourselves.
Then a couple years ago, we started turning that ratio around and started firing clients in order of those we liked the least. Whereas today, we only manage properties that my partner and I have a GP interest in. We only want to deploy our assets and our bandwidth where we have a piece of the upside. Or share in the upside.
Darin: You brought all of the property management in-house?
Ivan: We started it from scratch.
Darin: Some other outfits that I've talked to have included their being vertically integrated if they're going overseas. Buying all the supplies overseas, and for all the rehab, they’re bringing the materials back. Are you doing anything like that? Or they're starting a finance company or an insurance arm to expand that vertically integrated company. Have you looked at any of those areas?
The Business of Buying and Adding Value in Multifamily Acquisition
Ivan: I'll respond to the construction first. Even though we're buying A- and B+ properties, we still haven't put any granite in any of our deals. There's no ROI on it. It's a sexy thing to say in your offering memorandum that you're buying direct shipping overseas. It’s not as sexy as it used to be.
My brother's an entrepreneur in the UK and containers full of steel from China used to be 1,800 bucks. Today, they're four grand. That sort of table stakes has gone away. But we're able to get some really good pricing power from our size through our vendors.
Because of our property management company, we know where we can get our ROI. So we don't just go around throwing in granite and stainless steel willy nilly. We typically put more money in the amenities, and we get a better ROI out of it for our investors.
As far as starting an insurance company or a finance company I don't see us ever doing that. It starts getting into a little bit more of a conflict of interest there. I'm sure some guys can execute it well. But we're just trying to do one thing very well, which is the business of buying, adding value. Harvesting, rinsing, and repeating in the multifamily space.
We're a private equity firm with a really strong management team all the way up and down the food chain. That's what we have to stay focused on. I've seen guys start landscaping companies, insurance, finance. I think you're stepping over dollars to pick up dimes in a lot of those cases.
Darin: You mentioned that you had over 400 investors. Where have you found most of your investors?
The Number One Source of Investors
Ivan: We advertise, we generally solicit. We're a 506(c). I've got more people on my biz dev team. The number one source of investors is existing investors. Some things don't change. Darin, if you treat investors well, you do what you say you're going to do.
You deliver bad news quicker than you deliver good news. And you take care of them and you put them first, lo and behold, they're going to tell a few friends. A lot of our equity has come from just continued growth of that network.
Darin: One person tells another person.
Ivan: My dad built the whole business that way. Referral, word of mouth is still, especially in the beginning. As you're getting going as a syndicator, that's going to be your highest conversion rate of new investors. They're going to be the ones that say, "Oh, hey, Darin, trusts you. You've made him some money. I trust you now too."
Darin: Not only if they have the capital, they'll come in and come into your second or third deal. They'll also tell their friends, their family, their colleagues, etc. I had one syndicator telling me that they actually tracked one of their investors, I'm sure they told more people than this. Nine other investors came and invested in their deals based on the recommendation of this one person. So, making that one person happy brought nine other people that invested.
Ivan: You never know where a referral is going to come from. This goes back to working on your network diligently, every day. As an entrepreneur who just happens to be in the apartment syndication space, I've got stories where I had a realtor invest 50 grand with me.
Why They Don’t Come Back for a Repeat Investment
Ivan: The guy has never come back for a repeat investment. I've barely ever talked to the guy since. But he referred me to one of my largest investors who's with me now for several millions of dollars.
Darin: With social media, there are people who will like and comment, and will support you. There are other people who don't say, boo. They're watching and then all of a sudden they may come out of the woodwork a year or two later. Say, "Hey, I've been watching and now I want in."
Ivan: Tons of stories as somebody that's been on my slow drip list for years. My largest investor, it was a three year conversation before he participated. Three years, just pleasantly staying in front of them and not stalking him. You never know. They may just be busy. It doesn't mean they're not interested in you. Timing has a lot to do with this whole thing. I try to stress this a lot to entrepreneurs in any market out there, trying to raise capital in any sort of business.
There is so much more wealth in your network that you're not tapping. Either because you're not paying attention or because you're afraid. You should always be running a list of who have I not talked to?
I use a CRM. It started off as a spreadsheet. Now it's a lot fancier. Even a piece of paper is better than nothing. A list of people that you haven't talked to in a while that should know what you're doing. There's so much more money there than people think.
Darin: There's a big difference between asking people for money and presenting an opportunity that's going to make them money.
The Piece of the Business That Gets People Scared
Ivan: We don't pitch anybody, tell them the story. I learned this one-day long time ago just listening to a podcast where Jeff Bezos was on. What he said has always stuck with me.
He said, "Listen, if I can be as an entrepreneur 100% transparent with the investor, then the investor can self select if I'm a good fit for their portfolio." Taking that approach to it like, "Hey, listen, Darin, I'd love to have you, but I don't need your money." I'd love to have you if it's a fit. If not, no big deal. It's a much better approach to developing relationships than pitching people.
Darin: That piece of the business gets a lot of people scared, and some people that are trying to break in for the first time. Maybe you could talk about your first deal or as you were growing it. They're like, "I want to start talking to people like my relatives and friends and colleagues, but I haven't done a deal yet. How am I going to build credibility?"
I'm like, "Well, build it off your team." You're talking to them, they like you, but they don't know if you can execute. You say, "Look, I'm partnering with this guy who has done 10 deals. This is his track record. We're going to use this property management company. They manage over 20,000 units. We're going to use these attorneys. That's all they do." Now all of a sudden those relationships start saying, "Oh, you've thought through this a little bit more."
Two Great Ways to Start Closing Multifamily Acquisition
Ivan: Two things, that's a great way to start. Another would just be to take it to PowerPoint and do a really simple business plan. This is what I'm looking for. I was just talking to a young kid this week about that. A kid I like very much. He's got a lot of stuff put together. He's out there, and he's decided through my help a little bit that he's going to focus on a 8 or 16 unit deal next.
He is not going to worry about the big deal. He's just going to go try and get his track record going. For everybody, of course, it's going to be different. My one word of caution, if you're going to go and take the partner route. Darin, you lucked out, you got Raj Gupta as a partner.
Go out. I'm sure it wasn't just a fluke. But if you're a syndicator, and you're going to take the partner co GP route, be an LP. Look at it as an LP would and make sure you really dig deep on who you're partnering with. Just because they're willing to take you on as a partner doesn't mean that's a good idea. If they need your money, that could be a red flag. Not saying it is.
Dive deep into who you're partnering with. Because when you go out to raise capital, you're putting your own reputation on the line.
Mine's taken 20 years to build, I could screw it up in five minutes without hardly trying. That's just my one word of caution. I'm sure you can talk more about that. I mean, Raj is a great guy to partner with. I love his brain.
Leveraging on Experience
Darin: He's like my board of directors all wrapped in one, I got very fortunate. Other syndicators or new people come to me and say, "Hey, you want to partner?" I'm like, "Look, if I'm going to bring capital from other people that trust me, I'm working with people that I know, like and trust."
Because they're leveraging my experience with them. Like you said, if they invest in a deal because I brought them to the table, and it doesn't go well. They're not going to put it back on. Of course, they're not going to invest with that sponsor, but they're really going to put the onus on me.
Darin: That's extremely important. Let's go back to where did you grow up? Did you have brothers and sisters? Rich, poor.
Ivan: Oldest of three. Very upper-end middle-class lifestyle, great parents. It's funny that they separated after the kids all flew the nest, but they're still good friends to this day. My dad is an attorney. Mom's an interior designer. Both marched to the beat of their own drum, and so did we as kids.
I was just thinking about this, this morning, because it usually comes up. My first job was mowing properties at age seven for my dad on his rental properties, mowing the yard. I like to joke back then. You could make your seven-year-old son and a six-year-old brother mow the lawn and not get arrested for it. My first real job at 10 was a paperboy. I was so freaking sick of mowing yards, I was telling my dad, "I hate this and I don't want to do this anymore."
Learning How to Be a Multifamily Acquisition Magnate
Ivan: He's like, "Go get a real job then." I'm like, "Fine." I was mowing our house, and this guy came up. He's like, "Hey, kid, how old are you?" I'm like, "10." He's like, "You want a paper out?" "Sure." I literally got a paper route that day and told my dad I quit. At the time he acted all sad and disappointed, but looking back I'm like, "You're diabolical, man."
Darin: You learned hard work, and you learned a little bit about being an entrepreneur early in your lifetime.
Ivan: It also motivated me to go to college so I wouldn't have to do manual labor my whole life. But my dad handed me Rich Dad, Poor Dad right when it came out. He was a huge fan of that book, and he realized himself that he was in the S quadrant.
Darin: How old were you when you read it?
Ivan: This was 1996 right about when I graduated high school going to college. It dawned on him that he was smack dab in the S quadrant. He had sold all his duplexes when they increased in value and got out of real estate. Wish he hadn't. He was never really able to get out of that S quadrant because at the end of the day he was an attorney, a highly paid one.
But if you ever stopped practicing law the dollars stop rolling in. That was an eye-opener. After graduating college I thought I was going to go straight into law school. Because that’s a way to get into real estate development. It was to come out with a legal degree.
The Advice That Tipped the Scales
Ivan: I'll never forget my attorney father said, "Don't go to law school, son. Be a great entrepreneur and hire attorneys."
Darin: It’s awesome that he gave you that advice. The combination of reading the book and your father's advice tipped the scales to have you move into the entrepreneur space.
Ivan: Always wanted to be an entrepreneur, own big apartment deals. I screwed it up plenty early on trying to figure out how to best approach it. Until really 2006 was an amazing year in development. Selling deals for these developers that I was working for getting a piece of the action. 2008 comes along, resets my whole world, ends up being the single biggest gift of my career.
I went back to the basics. My brother is in private equity. He's like, "What are you going to do?" This is my younger, smarter, but not quite as good-looking brother. We bounce stuff off each other all the time. I started studying some of these private equity companies with in-house management. That's how BAM was born.
I decided that if I could figure out this management thing I can build a machine of recurring revenue on a monthly basis. Grow that faster than just buying real estate. Real estate takes a lot of money, and it's slow. But if I can figure that out then I should have a pretty good shot at being successful at this whole thing. I never knew how hard it was going to be. I'd come to the realization that people would be a big learning curve for me, it was going to make real estate seem easy. I was going to get hit in the mouth a lot.
Building an Amazing Culture in Multifamily Acquisition
Ivan: I went into it knowing that has helped me get through it. Today, I'm like a proud dad. I've got this great company, these great leaders who have helped me build an amazing culture within property management. It was not easy to do.
We're a little bit weird. We work hard, we play hard, we show a lot of love to the BAM fam, which are our employees. They deserve so much more credit these days than I do for the execution of the business plan. It's really fun to watch them execute, grow leaders underneath them.
Hold our core values high as we hire more people. It gets me a little misty, and it puts a smile on my face when I start to think about it. I get to spend a lot more time doing things that I can add value to versus being in the operational grind.
Darin: You took a concept, you took an idea, and then you grew it. Now there are 100 families earning their income based on that. As a kid, was there ever a time where you thought to yourself like, "Man, I'm going to be successful." What did that look like if you did?
Ivan: I always wanted to be rich, to be really wealthy, to be financially free. Do big things.
Darin: How old were you?
Ivan: When you're nine years old, I'm thinking I'm going to own 1,000 duplexes just because you don't have the perspective yet. You sort of have this expectation like I'm going to be rich. Then you get a little bit older and you get in high school. You realize, oh, not everybody thinks this way.
How to Deal With Self Doubts in Pursuing Multifamily Acquisition
Darin: A little bit older, there are times there where you start wondering, do I have what it takes? You have to deal sometimes, at least I did, with some self-doubt. Some mindset problems wondering if you really can do this. That's a whole another thing that you've got to slowly compound over time.
Rod Khleif, great teacher, Tony Robbins of multifamily in my opinion. I like what he says about mindset. That, "I can't guarantee if you've got the right mindset that you're going to be successful. But if you don't have that mindset, I can guarantee you won't be successful." The other thing about my dad is he always had the tape course of Tony Robbins and Earl Nightingale.
Darin: Your father being an attorney was into all the self-development.
Ivan: I was really lucky, he had all that stuff, Zig Ziglar.
Darin: A lot of the times that's not the case. You grow up with a doctor or a lawyer. They may be pushing that onto their kids as well. It's nice to hear that you had that influence from your dad.
Ivan: He’s really good at a lot of things. He would let us fail. He'd let us make mistakes, get some bruises and bumps and breaks, both physically and mentally. He was really good at understanding that, that was part of the process. I feel very blessed, getting off into such a solid footing so early. At that time, I'd roll my eyes at all of it, and none of it made sense. I hated listening to it in the car. He would make us listen to this stuff in the car. My mom even hated it.
Motivating the Next Generation of Entrepreneurs
Ivan: I find myself doing the same thing to my kids. It's something motivating. Maybe you're not listening to it with me consciously, but your subconscious is here on this side. It will make sense one day.
Darin: I can relate, I think it was Christmas dinner, and we're sitting there. We went around the table, good thing, bad thing, what has gone on. Then I asked a business-related question. Both my kids were like, "Dad, no talking about stuff like that right now." I'm like, "I'm just trying to help you." They're like, "I don't care, I don't want to hear that from you." So funny.
Ivan: My seven-year-old. He's nine now, but he was about seven. He said, "Dad, do I get all your money when you die?" I said, "No, son, I'm going to give you something better." He's like, "What's that?" I was like, "I'm going to teach you how to make as much as you need." Of course, he didn't want to hear it at the time. He's like, "Can I just have the money?" But I told him, "One day, you're going to thank me for this, and it's going to be way down the road, but you'll see."
Darin: There's so much truth to that because even for us, and look, you've accomplished so much. But you would agree that when you set those goals and you keep upping the ante, the journey is where the juices are. Trying to do something you haven't done before, going after something that you're not sure of. That's where the excitement and just being alive gets you going. What's the next big stretch goal for you? You've accomplished so much already.
Do Hard and Uncomfortable Things
Ivan: One thing I can't recommend enough for entrepreneurs is to find ways to do hard things. Things that get you uncomfortable in business, in life. For me, Spartan racing. I'm doing an event called 29029 this year. At least, it's going to be the hardest thing I've ever done. I've done a few Spartan races. 29029 is a different sort of punishment.
29029, I'm doing Utah. You got 36 hours to hike up basically a ski run, which is a couple miles up and a couple 1000 feet of elevation gain. You've got 36 hours to do it 13 times which is the equivalent elevation gain to Everest, which is 29,029 feet. If I complete it, which I plan to. It's not a question of if but just how long it's going to take me. It'll be about a 30-mile hike and 29,029 feet of elevation gain.
Darin: You gondola down then you hike back up.
Ivan: I'm not ready for a descend of that kind. If I tried to walk down or descend, that would probably kill me. It gets a little addicting. Start small, I did a Spartan sprint a few years ago, but do something hard. Plus, it's a great example for your family and kids. This week, as a matter of fact, we'll start our two-day annual mission, vision for our new company.
So, this year we formally split BAM Management, BAM Capital, and BAM Construction under the BAM companies. BAM capital, our investor stewardship side, has its own mission, its own core values, its own team, its own P&L. That's almost like being back up in a startup mode for me.
It Takes Teamwork to Succeed in Multifamily Acquisition
Darin: Key hires, getting the team organized, systems in place as a separate organism from the property management side. It was all under one roof. Physically, we still are because it takes teamwork to make this all go. We’re just at a point where BAM Capital has become so big. There are so many investors and families that we're responsible for.
We went through EOS a couple of years ago with the company. That helped crystallize how I wanted to see the companies grow as separate companies. Each with its own mission, its own vision, its own core values. On the management side, it's the BAM fam. It's working hard and playing hard and being a little bit quirky as we go.
Ivan: A lot of that overlaps with BAM Capital. Also, BAM Capital, the investor comes first versus BAM Management where our employees come first. They come before the residents. That's part of our core values. We want the residents to have a great experience. But it's about how we grow a family within the company no matter how large it gets.
We developed this culture where people want to work here. We don't want to be the chop shop heavy turnover management company where it's a revolving door of people. We’d want the best in the apartment business knocking down our door. It only makes sense to separate that as well as the capital side. It’s really growing into its own financial services company for its clients. Two very different missions there.
Darin: What do you do for fun outside of work?
Ivan: I'm pretty obsessed with what's going on in the world. From stock markets, macroeconomic forces, central bank policy. I love looking at the economics.
A Fascinating Time to Be Alive
Darin: You and Raj must have great conversations then.
Ivan: We usually take different sides of an argument, and just debate it as friends. But that's a lot. It's a fascinating time to be alive. There's a lot of changes. There is a book out there called The Fourth Turning, which is a book on the cycles of history. It looks like we're probably in this big fourth turning event in society. Where some old institutions will die off and new ones will sprout in their place.
There's this whole worldwide pandemic. All these things are affecting our generations, our policies, our institutions, the people that are in charge, the leadership. The folks that are sunsetting, the folks that are coming up, love all that stuff. I try to train pretty hard every day so that I don't get crushed too bad when it's time to race.
Darin: When is that race? I'm curious. I want to hear how that turned out.
Ivan: 29029 is in August. It was supposed to be August of 2020, but it got deferred a year thanks to COVID. I got a few Spartan races sprinkled in for extra punishment. I've got three little kids that I'm trying to make into human beings, so making memories with them and my wife. Travels are pretty big on our list.
Marching to the Beat of Your Own Drums
Darin: What ages are the kids?
Ivan: I'm at nine, seven, and five. Boy, girl, boy. All three are spirited heathens that march to the beat of their own drum. We can't contain them or can't stop them, we can only help to contain them. That's the saying I butchered there.
Darin: You are prepped to raise them to be individuals and go after what they're looking for later on in life.
Ivan: I hope so. We're not raising any corporate wage slaves over here, Darin.
Darin: If listeners want to get a hold of you what's the best way for them to reach out to you?
Ivan: Pretty easy to find me because of the spelling of my last name B-A-R-R-A-T-T, first name Ivan. We got the new website down here, bamcapgroup.com. Google Ivan Barratt, you can find me or 317-762-2625.
Darin: Ivan, I really appreciate you coming on the show. I look forward to meeting you in person at an event at some point. Listeners, I hope you enjoyed that one. Until next week, signing off.
