Listen to hear how Zach Haptonstall leaves his corporate job as a television news anchor and sports reporter to become a general partner in five multifamily assets valued at over $48 million. Zach lives and invests in the Phoenix area. Zach has always been a high achiever and has become a leader in the Phoenix area for multifamily investing. He's achieved all of this in his twenties. He's a go getter and Zach is just getting started!
Table of Contents:
- With Highest Praise
- Commencing a Lucrative Career Path
- Going Down With Multifamily Assets Syndication
- People Will Respect the Hunger
- The Case of Multifamily Assets Syndication
- Proving the Concept by Going Full Circle
- What Success Look Like
- Why Not Me
- How New Guys Enter Into Large Scale Multifamily Assets
- How to Reach Zach Haptonstall
With Highest Praise
Darin: A little background on Zach Haptonstall before we start. Zach has always been self-motivated. He graduated college summa cum laude. It means with highest praise. I recall him telling me he made straight A’s. He became a live television news anchor, and sports reporter, which sounds pretty cool to many of us. But at the end of the day, it's a corporate job, and he's working to make other people wealthy.
Zach then takes charge of his life, educates himself, and goes after large scale multifamily assets. He's a general partner in five properties in the Phoenix area with a total asset value of over $48 million. He's done all of this, and he's still in his 20s. Just imagine what Zach can achieve in the next five, or 10 years.
I have so many people reach out to me that are younger looking to get into a large scale multifamily assets business. Zach is in his 20s. He's figured out a way to do it.
Zach: Thanks so much, Darrin, I really appreciate it. I know we met a couple of years ago at a conference, and we've become pretty good friends at that time. Thanks for having me on, man. I really appreciate it.
Darin: You're a leader, especially, for the young guys. But even myself, I'm a 50-year old, and I'm having to chase you as well. So, I appreciate you coming on the show. We're going to get into more details on the multifamily assets side.
From a Football Player to an Undersized Offensive Tackle
Darin: Just a high-level recap of what you've done so far on the multifamily assets side. You're at five properties and like 420 units, is that where it stands today?
Zach: That's correct. We've acquired five assets, and 420 units, which was about 48 million of multifamily assets purchased.
Darin: That's in what time period? Like two or three years?
Zach: We closed on the first deal, actually, it was February of last year, 2019. In about 15, 16 months, we did those five assets actually. We closed on the first one in February of '19, and the last one we closed in March of 2020.
In 13 months as far as acquiring them, I spent over 10 months of making no money. Grinding it out, trying to figure out multifamily assets before getting the first deal under contract. That first deal took four months just to close. Then we caught momentum after that.
Darin: That's amazing. Before we get into the multifamily assets space, what was your career path prior to that?
Zach: I was born and raised here in Phoenix. Originally I wanted to be a football player. I had a football scholarship to a school in Colorado. Then I wasn't good enough to go to the NFL, Darin, so, I came back.
Darin: What position?
Zach: Believe it or not, I was an offensive tackle. In high school I was 220. I was an undersized offensive tackle, I was all-state, and all that. All the other all-state guys went D1, I went D2, I was too small. I got up to 280. Believe it or not.
From a Sports Player to a Sports Reporter
Darin: If you see a picture of Zach you will be as shocked as I am that he was an offensive tackle. You don't weigh 280 pounds now.
Zach: I'm about 220 right now, I'm back to a comfortable weight. I decided that wasn't for me, kept getting injured, and I was like, "Oh, this is no fun." So, I wanted to be a sports reporter. I went to Walter Cronkite School of Journalism at Arizona State, and I got a journalism degree. And I was a live news anchor on Arizona PBS for a short time and a sports reporter.
I hosted a show on Fox Sports network, Arizona on TV, which was pretty cool. Then I quickly realized Darin, that you work crazy hours. You don't make very much money. It's very political. It's not what I thought I was going to get into.
Darin: That's crazy because first of all, I didn't know that that was your background, that you were a sports host. For a lot of men, that's a dream job to be broadcasting sports. But once you got into it you realized there was a small minority of people that really made it to the top who really made any serious money.
Zach: 100%, you have to be like prime time, an evening news anchor in LA, New York, Chicago to make real big money. Even the top guys in Phoenix were making like 120K. It's not what you would think. When you're a fan it's different as when it becomes a job, it wasn't fun.
I was like, "I don't want to do this." I had a bunch of school debt, I was like, "I need to make money." So, I graduated.
From a Sports Reporter to a Hospice Marketer
Zach: I decided not to pursue journalism, did not go that route, I was 21. At the time, I was delivering medical equipment nights and weekends while I was going to school to pay for it.
My boss was like, "Hey, you can make pretty good money on healthcare marketing." So, my goal was just work a year or two in healthcare, try to make money, pay off my debt, and figure it out. Of all things, I got a job as a hospice marketer. I don't know if you're familiar with hospice care.
Basically, this is a service that it's covered, it's free for people through their Medicare, and it's a mobile service. It's nursing and caregiving who sees patients with terminal illnesses at private homes, assisted living, wherever they may live. My job was to wake up in the morning, drive all around Phoenix, and just walk in, cold calling to hospitals, doctor's offices, assisted living, et cetera. Build relationships with physicians, social workers, nurses. When they had somebody who needed hospice care, they call me. I'm the first person to reach out to the family and educate them on the resources. If they would like that care, get them signed up.
It sounds weird, and I know it sounds grim. But it's an extremely lucrative, and competitive private business industry where these are all private companies. Phoenix is the number one market in the country for hospice care. Florida is second. It's just like you would think it's sunny.
Basically, you're signing people up, and essentially, the federal government is reimbursing you. I was blessed to do very well at a young age, I connected well with that.
Commencing a Lucrative Career Path
Zach: In all humility, I was probably the top marketer in the entire Valley here. I come from like a lower-middle-class family, so, my parents never had a lot of money.
By the time I was 23, I was making six figures. I was making more money than both my parents combined, I bought a house when I was 24. Started my MBA, went to night school, got my MBA, and I paid for that cash. By the time I was 24, I had an MBA. I had no debt, I had a house, I was very blessed. By the time I was 25, I was making over 200K a year.
I started out as a marketer, I became the director of marketing and was managing a team. Then I became a co-owner in the company. I got to the point where I was just feeling burnt out, I didn't know what the next challenge was. I was like "dominating" this little space that I had, making pretty good money. But I was getting taxed heavily on commissions.
There's always a lot of pressure. I was just like, "I'm not happy doing this." So, I found out the company was going to sell, and this was the beginning of 2018. January 2018, I said, "Screw it, I don't want to do this anymore." I resigned, I sold my equity to these guys. This was just a sister company.
I don't want to make light of it, but I really only made about 250K or so, which is not bad. But in the grand scheme, you're not going to retire off that. I didn't know what I was going to do.
How Do I Create a Passive Income
Zach: I decided I want to find a way to create freedom of my time, and create passive income. I did not have any kids, I don't have any kids yet. Grace and I plan to have many kids. But we were in a fortunate position where I said, "I'm going to live off savings for the next 12 months. I'm going to figure out how to do that somehow through real estate."
Darin: You're 25 years old, first of all, that was incredibly impressive. It's obvious that you're a go-getter. Even before you got involved in real estate. But at 25, I'm just going to be real, there's not a lot of people that are thinking to themselves, "How do I create passive income?" So, how did you even get that mindset? Were you reading different books?
Zach: I was like, "Okay, I want to keep moving forward." And I was dominating getting good bonuses. But in sales it's like, "What have you done for me lately?” It was like a never ending cycle. I truly did feel like I was in a rat race even at a young age. Some people might laugh, they're like, "Yo, you're 25, 26." But I wanted to go to the next level.
I wanted to figure out how to get there. And I realized I couldn't do that. It was December of 2017, it was a Christmas party at Grace, who was then my girlfriend, now my fiance. At her family's Christmas party, I met this guy. I was like, "What do you do?" He owned mobile home parks here in Phoenix.
How Zach Got Fully Immersed in Multifamily Assets
Zach: I started talking to this guy, I had gotten my real estate license a couple years prior, but I had never used it. So, I knew nothing about real estate. That was literally all I knew that I had that license, and I never used it. He's like, "You should read Rich Dad Poor Dad." So, as the cliche story goes, I read Rich Dad Poor Dad. It sparked a little bit.
I was like, "I could just buy mobile home parks, and screw this healthcare thing. Like I can just have money coming to me, and I don't have to always be hustling. It'll free up my time to pursue other things." That's when the light went on. The next month I resigned, and I sold the equity. I had no plan at all, but I was like, "I'm going to go buy mobile home parks."
Darin: That's awesome that you ended up, one, you were looking for something, you were searching for something.
Zach: I just didn't know what I wanted to do, but I wasn't happy.
Darin: Then, you found somebody at a party that sounded like he was a successful guy, asked him what he did. All of a sudden it sparked a trigger to try to go after something else, and you did this.
There are steps you got to do. You have to go searching for it first, and then somehow get educated and you did just that. That's fantastic. Why didn't you do mobile home parks then? Because you ended up doing multifamily.
Zach: I didn't know anything about real estate, mind you. This is all new to me. I don't have a rich uncle or anybody who's in the industry.
Discovering the Wonders of Syndication
Zach: I just knew this one guy and I was picking his brain. He told me to start reading books. I read Ken McElroy, ABCs of Property Management, ABCs of Real Estate Investing. And I started consuming all the books I could.
I started listening to podcasts like yours, to try to learn more about it. I cold-called over 90 mobile home park owners in the Phoenix Metro. I created a little system where I would go on public record and see which entity owned it. Then I bought a subscription to one of these data-mining company. This is all legal by the way. It penetrates the corporate veil, and it finds the phone number.
I created a spreadsheet. I just started cold calling all these park owners to see if they want to sell. Out of a little over 90 of them, I think six of them answered. All of them except one said, "Leave me alone." They're all in California. One guy was going to sell on a seller carry. I thought it was a good deal, and I got analysis paralysis for two or three weeks, I was terrified.
Then somebody else got it. I spent the first three months, just focused on mobile home parks, trying to learn about real estate, property management, et cetera. I started to realize that the mobile home parks are just as overpriced as the multifamily assets.
And I was only thinking my money at that time. I was thinking, "I'm going to use this money." I had like 260K roughly to just deploy, and I was going to go all in. Just manage something myself, and figure it out. But then I started to learn about syndication.
Associating Syndication and Multifamily
Zach: I can't remember if it was through a podcast or what, but the lights clicked for me when I associated syndication and multifamily. Because I came from healthcare. I had a network of physicians and healthcare business owners who also hated their lives like I used to because they have no time.
A lot of money, but they have families and stuff. I was like, "Well, maybe, they'll be interested in investing with me if I can make this appeal to them." Apartments are a lot more attractive asset class than mobile home parks.
Obviously, mobile home parks have a very negative connotation. People outside of real estate don't understand that it can be a positive thing. They don't think it's good.
Darin: You mentioned syndication, and obviously, I'm familiar with that term. Probably a lot of the listeners are also familiar. But there are also listeners just like you were, a year or two ago who are just trying to learn about real estate and that word can be intimidating, syndication. So, what does that really mean?
Zach: It sounds like a mafia term or something. I can't remember where I learned it, but it was through a podcast or something. The way I explain syndication is it's similar to crowdfunding. It's where I find a deal, and I'll put some of my own money in the deal.
But I need to partner with several investors who will invest their money into the deal. They're all going to own a pro-rata percentage of that deal. Pro-rata to what they invest, but they're going to be silent or passive. I as the "syndicator" or sponsor am active, and responsible for sourcing the deal.
Going Down With Multifamily Assets Syndication
Zach: Acquiring it, raising the capital, and then just executing the business plan. We can talk about that too. Basically, I'm active, and I get sweat equity, if you will, in the deal for doing all that. That was appealing to me, Darin, because I learned about leverage. I learned about leverage with not only alone but making my money go further by gaining sweat equity in a larger asset.
Darin: Completely makes sense, and I would sum it up. Syndication is a bunch of people coming together, pulling their money to buy a larger asset they could buy on their own. That's what you figured out.
You said you could actually buy a larger asset, and make more money by doing that. So, now, you decide you want to go down multifamily assets syndication. Is that when you ended up joining the same mentorship group that we're a part of? How did you get involved with that?
Zach: I was doing like the shiny object syndrome. Because I was learning about real estate, and I was like, "Oh, mobile home parks, multifamily, self-storage." It's easy to jump all around, but I told myself, "You need to choose one." They're all really hard to get into. It's easy when you're trying to get into this.
You're like, "Well, that's too hard, or that's overpriced, that's competitive. I'll just try to find the next easier. What's the next thing?" But you have to find an asset class in a market that you truly believe in. You have to grind it out. I started to realize, "Okay, I don't want to be going out of state.
Phoenix Is a Good Multifamily Assets Market
Zach: Especially, for the first deal. Phoenix is a good multifamily assets market. I believe in multifamily assets. I need to set my sights on that. This was at least about three or four months before I ever met you, and joined that mentorship group. I had decided I'm all out multifamily assets syndication. I was like, "Okay. well, I can read all these books, all these podcasts all I want.”
But if I don't actually get out there, and start building a team, I'm not going to get anywhere. It was terrifying for me. I was like a sales guy. I'm used to walking into hospitals, which was scary too, and just talking to doctors. This was terrifying because these are big numbers. They're big buildings. I felt like I didn't belong. What I realized, I need to build a team.
So, what I did, I remember I got this from Ken McElroy, ABCs of Real Estate Investing. I looked up what are called AMOs, Accredited Management Organizations on irem.org. This is a website that shows you accredited property management companies. What I did is I went on there, and I found five property manager companies in Phoenix that are accredited. I reached out to them, I looked up their websites, I called them, emailed them.
And I had to fake it until I make it because you want people to take you seriously. So, I said, "Hey, I'm Zach, I have a healthcare background. I have several physicians who want to invest. We're looking to partner with a property management company, we're going to scale up." Et cetera. I was trying to appeal to them to partner so that they would actually care.
Learning the Language of Real Estate
Zach: I set up these five meetings. This is going to sound overkill, but I created 10 pages of double-spaced questions for property management companies that vet accounting processes, operational processes. What's your communication like? Et cetera. I learned this all from reading books and stuff. Some of it sounds probably nerdy now if I were to talk to a property manager company.
Darin: It sounds like you're very thorough and detail-oriented.
Zach: My biggest fear was coming across as a rookie, which you can't fear because you have to get in somewhere. But it is important to try to sound credible and learn the language so that people will take you seriously, and spend the time. What I did, Darin, I met with these companies, I vetted all these people.
Then I asked them at the end, I said, "Hey, do you know any lenders in the market who are good? Do you know any brokers, do you know any attorneys?" Every single meeting I had with those property management companies, they all referred me to lenders, brokers, attorneys, et cetera.
That's what I did. Then I started to meet with them. I started to meet the lenders, and ask them for referrals, et cetera. This was terrifying, again, I was shaking, but you just fake it until you make it.
Darin: You were scared, but the first meeting with one of the property management companies was probably scarier than the second one. Then the third one. And the first meeting with the lender was more scary than the second one. Because you start to learn what questions they're going to ask you back. You're sizing them up, but they're also sizing you up.
Don’t Be Afraid to Fail
Darin: So, you learn from that experience. Each time you do it, you get more and more confident.
Zach: You start to learn what to expect and you realize these are just people. It's just a different industry. There's different language. I just need to become comfortable, and feel like I belong in this industry. That's what people need to do. They have to get out there, and don't be afraid to fail because the worst thing is you look stupid, and who cares?
You're not going to see these people. They don't matter. So, I did that. Then I was referred to a guy, one of the property management companies. "Look, we only do 100 plus units. I'll refer you to a guy who does sub 50 units." I said, "Okay, well, maybe that makes more sense."
I meet with this guy for an hour. He had a property management company, and we ended the meeting. An hour later, he calls me, and he says, "Hey, I like what you're doing." He's like, "What I didn't tell you is, yeah, I own this property management company, but I'm also an investor myself. I buy smaller deals. How would you like to partner with me?
You find the deal and raise some capital, and I'll manage it, and lend my expertise." So, this guy, Tom. And just like that, it was like a miracle for me. I was so excited because I'm like, "Now, I have a guy who believes in me, so to speak, and who wants to partner." This is before I ever joined the mentorship program. I was bouncing everything off this guy, Tom.
People Will Respect the Hunger
Zach: Ultimately, I ended up partnering with him for the first deal along with our fellow mentorees in that deal. It just goes to show you, you just have to network and get out there. If you're hungry, people will respect that and appreciate that.
Darin: I completely agree and I have so many people that I've talked to that reached out to me on Instagram. They almost talk themselves out of whether they're worthy enough, and have value to add to somebody else. Here you are, you're 20 something, obviously, a go-getter. You've got some capital. It's not like you didn't have any capital at all. You had some capital.
Zach: To that point, I literally brought a proof of funds bank statement with me to all the broker meetings, just to show people I'm for real. You don't have to do that but that was my edge. I thought.
Darin: Some people have the capital, some people don't, but play up to your strengths. Then try to find partners that can marry up with you. Some people think to themselves, "Well, why would an experienced person want to work with me?"
This guy, Tom, what was the value that you brought to him? You could go out and raise capital. Help him get more deals than he can get on his own. It was a win-win scenario.
Zach: That's exactly right. What value can you bring to him? It's like, "Oh, I got this young guy who's going to go out, and meet with all these brokers." Maybe he doesn't want to do that. I told him, I've got a network of people, I don't actually know if I can raise money, but I'll try.
The Motivation Behind a Self Established Meetup Group
Zach: I told him that too, I said, "I've never done it, but I think that I can do it, and I've got money." It's like, "Whatever you need me to do, I'll do." People respect that if you can appeal to them.
Darin: Maybe I'm wrong. I would imagine you probably talked a little bit about your success in the healthcare field. You had a lot of relationships in that field whether it be with physicians or owners of these different establishments. That was appealing. You didn't know for sure that they were going to invest with you. But talking about your potential network, your contacts, and your network, it can be powerful.
Zach: You have to sell people on you, and your value.
Darin: Another thing I heard that you did in the Phoenix market was that you started up your own meetup group. Help me understand, one, what was the motivation for setting up that meetup group? Two, what were some of the challenges with getting that thing established?
Zach: Grace and I, we had looked at different meetups. When I first started, I joined my local.
Darin: Single family.
Zach: It was terrible. It's a joke, no offense to those guys, but it's not what you want. You know what I mean? I would go to different meetups, and they were crap. They were not organized. There was no quality people. A lot of the times, the host didn't even show up to them.
It was just like, "Man, where do you go to even find people who are doing this?" It just makes you doubt your ability to enter the industry even more.
Bringing People Together
Zach: You think that these apartment investors are rich people in ivory towers that don't talk to common folk. So, it was twofold. We wanted to have an organized meetup where we could really provide value. And we wanted to educate people, and bring people together.
So, we really wanted to bring together professionals. It came from truly an organic point where our intentions were truly organic. Whereas if we can provide value, and bring real estate professionals together then maybe the residual effect will be that we'll develop relationships with brokers, potential investors, and different professionals. That was the biggest thing and that was terrifying too, by the way. You don't know who's going to show up, and you don't want to look stupid or waste people's time.
There's a lot of doubt that goes into it, but we just did it. We didn't know what we were doing. There was no template, there was no book or podcast. I was just thinking. I was like, "Well, if I can just get … " This was after we had done our first deal. I think there's power in that. Once you do that first deal, it was like getting a monkey off my back.
It's like, "Now, I'm in the club." Now I belong, and I'm an actual real estate investor. That's big because most people haven't done a deal. So, that gave me a lot of confidence to start a meetup. You feel like you can at least share your experience of going through the process of the first acquisition. That could provide value.
What I did is, I didn't want to do a case study or anything like that. I wanted to have an open forum where people could actually ask questions.
Getting Past the First Step
Zach: I invited our lender on the first deal. I invited the owner of our property management company, our insurance broker, and our transactional attorney. Fortunately, they all said, "Yeah, I'll do it."
We had them all up there in the front of the room. So we had 20 to 30 people show up to that first one which is a testament to Grace and all her marketing prowess. We just did an open mic where I had a bunch of questions that I had pre-written down. I emailed the respective questions to each person ahead of time. They knew what to expect. They didn't feel uncomfortable.
It was like you and I are doing right now, Darin. I was just set up there in front of people, and ask them the questions, and ask them to elaborate. Then the crowd can raise their hands, and that was a format. We started that in April of 2019, we had like a little over 20 people.
And we just kept doing it every month, we just kept getting different speakers. We got more prolific or well-known speakers to fly in, which was cool. We've done some different formats. We did an event. In December, we had Rod Khleif fly in, and we had over 120 people, which was really cool.
Darin: If you think about that first one that you had, obviously, there was a lot of fear, is anybody going to show up? But 20 or 30 people showed up, and if you think about it, it's really a win-win for everybody? So, these 20 or 30 people, they don't really know what to expect. Now they have a lender that talks to them.
The Difference Between a Tenant in Common and Syndication
Darin: They have a broker that talks to them, they have an insurance guy that talks to them. Most likely, if they were very interested in multifamily assets, they learned something that night. Now the win-win for all those partners that you brought in.
If somebody in the audience all of a sudden decides to go invest in a multifamily assets deal, they're going to remember that lender. They may call them to do the loan on the deal. So, it's a win-win.
Zach: Which has happened. These guys have gotten a lot of referrals. I've referred so many people to our attorney.
Darin: It goes both ways. You keep on making referrals. You never know when they're going to say, "Hey, you need to talk to Zach." Maybe it's a business partner, or maybe it's a seller looking to sell something off market. You just never know. That's fantastic that you've grown that. That first deal, how was that structured? Was that a syndication, or was that structured differently?
Zach Haptonstall: It was a tenant in common.
Darin: A lot of people call that a TIC. A tenant in common. Explain to the listeners what's the difference between a tenant in common and a syndication?
Zach: A syndication is when you accept somebody's money who is passive in a deal, they do not play an active role, that is legally security. You are now subject to the regulations of the Security and Exchange Commission, the SEC. In order to have a security, it's a ton of paperwork, very complex. What the SEC allows you to do is file for exemptions to do a syndication.
The Case of Multifamily Assets Syndication
Zach: In the case of multifamily assets syndication, the most common exemption, which allows you to do this, and not have to file as a security is called Regulation D506. There's B and C.
The difference is with a syndication, let's just say it's you and I, Darin and we're partnering, we're going to have passive investors that we are raising capital from. The passive, they are signing legal documentations, essentially, saying that they're going to be completely passive, hands-off. They have no decision-making. You and I are going to run the show, and we're going to make the decisions.
Whereas in a tenant in common, there are no passive investors. Every member of the deal in a tenant in common is legally active. The primary difference is that the tenant in common, you have everybody in the deal as active partners. Let's just say we do a tenant in common, let's just say a million dollar equity check is what we need.
You bring in 900K of your own cash, and I bring 100K. You're going to own 90% of the deal, and I'm going to own 10% of the deal. But we have to have unanimous voting on everything regardless of how much we own. So, it's a little bit different structure. When you're doing a tenant in common, we could do it where it's just the two of us.
Each of us can be considered a tenant in common. For asset protection purposes, you don't want to buy it in your own name. You want to create like Darin LLC. Your Darin LLC will be one tenant in common, that's a TIC. That's one IC LLC.
Active Versus Non-Active Passive Investors
Zach: I'll create mine, Zach LLC, TIC LLC. Now you have these two TIC LLCs, and they're tenants in common. Both of those LLCs, the managers of the LLCs have to unanimously vote on all decisions. So, there's different legal paperwork as compared to a syndication.
Darin: Active versus non-active, with the passive investors, if it fits well for somebody that doesn't really want to go out and search for the deal, doesn't want to manage the deal, but they have excess cash, they want to put it to work, they like the idea of being involved in real estate, they don't want all their money in the stock market. So, they invest as a passive investor in the type of deal versus the TIC.
Everybody that's part of that plays an active role. If there are three partners, two of them want to sell, one doesn't want to sell five years down the road then it's very difficult. You have to have unanimous vote where that's not the case on the syndication side. So, you did the first deal as a tenant in common. After that was your second deal structured the same way, or did you do a syndication?
Zach: We did the first deal, we did a tenant in common. Our next deal was actually a portfolio of two deals that we were buying at the same time. There was a 59 unit and a 76 unit. We actually did both to answer your question.
The next deal, it was one escrow, two deals, but two separate loans. On the 59 unit, we did a tenant in common, the 76 unit, we did a syndication. We combined both strategies, and it actually underwrote better that way.
What Was the Lay of the Land
Zach: It actually benefited us to have the tenant in common experience because the seller was more likely to sell both assets to somebody. He was willing to sell them one-off, but he wanted to sell them both. We made both pencil because we just applied the best strategy to each deal that we thought. So, we had a syndication and a tenant in common.
Darin: And you had a separate loan on both properties?
Zach: Two separate loans.
Darin: Did they both close at the same time?
Zach: They did, they both closed at the same time. It was one escrow, one purchase contract for two deals, but two separate loans, which was complicated. It's a lot of loan paperwork. At the end they're knocking all that stuff out.
Darin: On the syndication piece, where did most of your passive investors come from? Were they friends and family, were they people from your meetup group, were they people from your mentorship group? What was the lay of the land?
How did that differ from what you expected? You had your network in your head, you had an idea for certain people. I'm sure you had some faces in the back of your head that these guys are definitely going to invest. What was the reality?
Zach: It's funny because when you listen to the podcast, a lot of people will say friends and family. You need to start with them, et cetera. Then I joined this mentorship program, but the mentorship program is based in Texas. We hardly had any investors invest in a Phoenix deal, surprisingly.
Arizona Is a Good Market for Multifamily Assets
Zach: We did not have a lot of equity. And we don't get a lot of equity from the mentorship program. I think it's just because it's Texas-based. They're not as interested, or don't understand, or don't feel comfortable with Phoenix.
Darin: Correct me if I'm wrong. When you started doing deals in Arizona, you guys may not have been the first one in the group to do an Arizona deal but you were still at the forefront. In my knowledge of that, over time, there's been more talk about Arizona being a good market for multifamily assets. I don't know if you saw on later deals a little bit more participation, but I would imagine, no?
Zach: We did not, we saw less actually. To give you an idea, this is not the deal we're talking about.
Darin: Just pick a deal, feel for the investors.
Zach: We did a $6 million raise, and 700K came from the group. Most of it was from a coach in the group. Without him, there would have been almost no money from the mentorship group. But to answer your earlier question, Darin. I got most of my money from people that I had met within the previous year at events and stuff. It was crazy.
It was not mostly friends and family. What I've learned is that a lot of friends and family don't feel comfortable investing because they don't want to cross those lines. This is just me. I don't feel as comfortable asking them either. It's just like they know Zach the healthcare guy, not Zach the real estate guy.
Proving the Concept by Going Full Circle
Zach: It was a lot of the people that I had met at events, and meetups and things like that in the previous 12 months or so that ended up investing. I only had one physician invest as well. So, I personally raised 965K for that first deal, which was a blessing because I didn't expect that. But it was really just grinding.
It was a grind to get to that point because it was not quick. A lot of followup. I've had repeat investors. For us, we have not yet gone full cycle on a deal. Meaning that we've purchased it, executed the business plan, and sold it.
We probably would have by now, because we had a full price offer on our first deal. But then COVID hit. My point is, once you go full cycle, that's when you can prove the concept. You can really start to raise more capital because investors see the track record. For that first one, it was just a culmination of a bunch of people I had met. Not necessarily friends and family, and not necessarily that mentorship group.
Darin: That's very interesting. Probably one of the challenges of being in your 20s too, for listeners, is people in their 20s, typically, don't have a ton of capital. You had a lot more capital than most people in their 20s. You're looking at people in their 30s, 40s, 50s, 60s to actually invest in the deal.
How does a 20 something provide the credibility?
A number of different ways to do that is, one, you were very successful in your career prior to that. That's one way to leverage it. Two is to leverage all the partners. You mentioned his name was Tom.
Do Not Go to the Personal Network
Darin: Your first partner, he was an experienced guy talking about other people that are involved in the deal. And then have looked at the deal, and have blessed the deal. That helps provide the credibility. My wife said on our first syndication deal, "Do not go to the personal network."
Zach: There you go.
Darin: I was like, "Why?"
Zach: You're going to lose their money.
Darin: She was like, "Well, what if it doesn't work?" I told her, "Look, I'm not wired that way." The way I'm wired is, "Hey, we're putting our money in it. Everything I put my mind to I find a way to be successful." Not that there's not going to be hiccups along the way but you just have to work through them. I was convinced of the deal. I'm like, "Why am I not going to present that to friends and family?"
But the interesting part of that was there were certain people that I thought for sure would invest. When I approached them, wealthy people, they're like, "Hey man, Darin, I'm sorry but I just bought this other company. Or we just had to put a big capital infusion into one of my companies." Like the timing was just off.
Zach: Used as excuses. They probably had a bunch of cash and they want to make sure you prove yourself first.
Darin: That very well could be it. Like, "All right, well, you know what? I like Darin, but let me see if he succeeds in this one. Then we'll come back on the second one." But then there was one person in particular. I'm like, "I'm not going to even text this person."
Present the Opportunity in Multifamily Assets
Darin: I finally did, and that person said, "Let's meet up for coffee. Let me understand this. I don't understand it, but let me understand it." And then afterwards was like, "Thank you so much for bringing that opportunity to me."
Zach: You never know.
Darin: As a syndicator or fundraising for capital like this, you could self-judge other people. This person would be interested, and this person wouldn't, but you could guess wrong. So, present the opportunity. If they're not interested, you just move on to the next one.
Zach: You said it very well, that you can't think of it as asking people for money. You don't want to seem desperate. You are presenting an opportunity to them, and if they want to invest, great. If they don't, internally, you can think, "Okay, it's your loss." You don't want asking for money.
To your point too, as you're trying to get into it, you talk to different people. You want to try to get like a rough idea, an abstract idea of a soft commit list.
You're like, "Okay, I've talked to this person, this person, this person, they said they would do it." Then like you said, when the time comes, a lot of those people bail. They don't actually do it. You just never know. It's a lot harder than you would think.
Darin: I'm going to flip the switch a little bit, and just go back. You mentioned your childhood briefly that you didn't grow up with a lot of money. Just fill us in a little bit about you said you were raised in Phoenix. Not wealthy, rich, poor, middle class, what was your upbringing like? Give us a little feel for that.
The Inspiration Influenced by Growing in the Middle Class
Zach: I was born in Phoenix, and then a few months after I was born, we moved to Colorado Springs. That's where my dad's side of the family is from. I lived there. We moved back to Phoenix until I was six or seven. Everything I pretty much remember was Phoenix. I lived in Colorado for a little bit. My dad was like a painter, my mom worked in HR. We were not poor.
I don't want to be dramatic. We were just lower middle class. I was in elementary school, I can remember my parents always seem like money was hard to come by. And I can remember them filing for bankruptcy. I can remember bankruptcy talk again in high school, I think twice they had filed for bankruptcy.
Darin: Did that influence you?
Zach: It influenced me in the sense that I was always ambitious. I remember at a young age I liked to play Monopoly a lot. And I liked the idea of making money, building stuff, and selling. When I graduated high school, I was so motivated to go and get my degree. Because you're just trained in order to get a good job and make good money. And so, in college, I got a 4.0.
I graduated with a 4.0, I did not get a B in four years. Over 50 classes, I got all A’s, and it's because I wanted to push myself. I was motivated to make money because I didn't want to have to ever feel like I was left without. So I basically, grew up in Phoenix. I played a lot of sports, I was always into sports, and then played high school football. Did well with that.
What Success Look Like
Darin: As a child, was there any time that you can think of, like you can actually picture yourself, "I'm going to be successful." What did that look like? And what did success look like to you at that early childhood age that had that inner core drive for you going forward?
Zach: I don't really think about it, but you asking that just brought back memory. Maybe this was from movies. I would always think of myself as an adult when I was a kid as like wearing a suit. Standing at the top level of a skyscraper at New York City, something like that. I would imagine myself the top story looking out.
Darin: As a kid, I don't know why Fortune Magazine, but I always thought of myself as I'm going to be on Fortune Magazine some day. What that means? I don't know. I'm always interested to talk to people about that question. Whether it's going into business for yourself or getting a 4.0, or getting into real estate. Or doing something you haven't done before, it first starts with a decision, and drive. You had that drive early on, you knew you wanted something different. Though you weren't really sure what it was, you were going searching for it.
Zach: You have to have that fire. I remember when I quit football it was a really tough decision. Because in football, you're just trained to be mentally tough, and not make excuses. You play through pain, and you play through injuries, and you just grind. When I quit, I had a lot of guilt because I felt like I was quitting prematurely.
Walk the Walk, Not Talk the Talk
Zach: I told myself, "I'm not going to get a B the rest of school. I'm not going to get any B’s." That's what motivated me. I was very introverted as a kid, I was very insecure, introverted naturally.
Darin: You're telling me you were a tackle, which you don't look like an offensive tackle. Then you say you were introverted, and you are incredibly outgoing every time I see you.
Zach: I was very introverted all throughout high school. Very quiet, like the hard worker, quiet type of kid. I wanted to prove it, walk the walk, not talk the talk. When I was going to journalism school, applying to be in a program, and be on TV was the most terrifying thing. Being on live TV. Every time we would go live because it's broadcasting to millions of households.
Granted probably nobody watched it, but still it's Arizona PBS. My palms would get all sweaty every time, and I was terrified. But you learn how to fake it until you make it. You learn how to not show nervousness, and push through it. And it just gave me more confidence.
After that I go into marketing, which was really not my natural thing. That gave me more confidence. I just kept pushing my comfort zone. My goal is continue to strive for fear. That's part of the meetup too. People have asked me lately, "Why do you do the meetup?" I was like, "Honestly, we're trying to just make it bigger. I'm trying to do scary stuff because it gives you more confidence later on."
How Do You Push Yourself When You’re Afraid
Darin: That's a perfect segue. I want to talk about fear. That fear stops so many people from getting into real estate. You did a lot of different things that you had to fight through the fear, you did football. Then you went into school, and then you were in different career paths. You decided to change, and go after real estate. Then you had to call brokers and lenders, and all these people are much older than you are.
There's a lot of fear in all those different steps. Then you had to raise money. How do you get through the fear, how do you push yourself when you're afraid? You said a lot of times during this conversation, "I was scared. There was fear. In broadcasting I was going to be on TV, my hands were sweating." How did you push past that fear?
Zach: It can paralyze you, and stress you out, and you just have to get to the point. For real estate, I had "burned my ships" behind me. Like they say in Think and Grow Rich. I had quit the job, I was making no money, I couldn't go back to it. So, I couldn't just quit and bail. There were a lot of days where I did want to quit. I just didn't do anything productive that day. I was just nervous or whatever.
You get to the point where you're just like, "Well, screw it. I have nothing to lose." So, you have to just learn that you're not really failing unless you don't try. You cannot be afraid to fail, you have to put yourself out there, and it's just getting through it. There's a lot of things you can do.
Develop a Relentless Warrior Mindset
Zach: It's just deep breaths, through your nose, and exhale slowly through your mouth. People don't notice that. In real estate, what I tell people is you have to develop a relentless warrior mindset. You don't care what other people think, and you don't care what they say.
And that includes your own family, maybe your parents, your loved ones. A lot of people told me I couldn't do it. They'd like, "What are you doing? Like you just quit 200K a year. You haven't made money in 10 months, and you're burning through savings."
And you have to get to the point where you're like, "Screw it. I don't care what you say." You don't have to be rude or malicious, but you say, "Screw you, and screw you." In your mind. It's okay to have a chip on your shoulder, and use that to motivate you, and prove people wrong.
You can do that in a humble, respectful way. But you have to put yourself at that point where it's good to take on adversity. You have to put yourself out there, and not be afraid to fail. And you can't worry about what people think because it really doesn't matter anyways.
Darin: So much good advice there. You said one thing that reminded me of something that happened with me. I was in a training program for institutional trading, there were six or eight of us in that. One of the girls came from a different division of the bank that I was working for.
She said to me, "Darin, what are you going to do if this doesn't work out?" Like you, I had taken a big, not a pay cut, but my guarantee pay went down significantly.
Why Not Me
Darin: But the opportunity was significantly better. I said to her, "I just don't think that way." I'm thinking, "What do I have to do to make it work? I see the guys, I've met the guys that are on the trading desk, and I know what they make. Why not me?"
That's what I think that so many people have to put in their head "Why not me?" Instead of, "I can't do it, or there's all these challenges." You had that mindset that, "Yeah. I might be scared, but look, I'm hungry, man. I'm going to figure this thing out."
Zach: You have to get into the mindset that you have nothing to lose. Even let's say you fail and you lose all your money, it doesn't mean you can't restart. It's like, where are you going to fall to? If you fall, you're going to fall to where you just were. And if you weren't happy where you were, then what does it matter?
I knew I could go back into hospice and go make money if I lost my money. But I would hate doing that. I'd rather be broke, and try to survive pursuing a bigger dream with more upside in my passion. Than be comfortable doing something I am not happy knowing that I'm not fulfilling my true potential.
Darin: You're only in your 20s. Look, I just turned 50, and I know a lot of people that get caught up. They start working, they get the raise, they get the bonuses. What do they do? They buy a nicer car, they buy the house to get married. All of a sudden they're a slave to their mortgage, and their car payments, they're not happy.
The Difference Between Good Debt and Bad Debt
Darin: They're successful because they're climbing the corporate ladder per se, but they're not happy. When they look at alternatives, they feel like they're trapped because they can't go backwards. Where you took savings, put it aside. I would imagine you probably lived your life pretty frugally at that stage.
Zach: One good point I forgot to mention when I was 18, I read Dave Ramsey's book, Total Money Makeover. It just trained my mind to kill debt and live frugally. It’s a good mindset when you're trying to kill debt. I don’t think Dave Ramsey is a good strategy when you're trying to build wealth when you're debt free. But it gave me the good mindset.
Darin: The difference between good debt and bad debt, bad debt being you're buying stuff for your personal and it's not going to make you any money versus good debt on cash flowing properties that are going to produce excess cash for you, that's different that you're able to leverage that. What do you do outside of business? What are your passions outside of business?
Zach: I'm pretty boring, Darin.
Darin: You're 100% business all day long.
Zach: I work out every morning, I do like home workouts, like Monday through Friday. Then I go to the gym like Saturday, Sunday, Monday night. I try to spend quality time with Grace.
Darin: So, Grace is your fiance. When are you guys getting married by the way?
Zach: In October.
Darin: I didn't even know the answer, and I may have put you on the spot there.
Zach: We're ready, we're good to go. It's all lined up.
Darin: Fantastic. I've seen your posts on social media, you travel some, don't you?
How to Be Successful in Large Scale Multifamily Assets
Zach: We have traveled a little bit. I don't really like to travel that much, Grace does. We went to Europe a couple of years ago for three weeks. Drove me crazy. It was too long. I'm all about routines, I'm very habitual and routine, and things like that. We went to Hawaii for her birthday last year. We'll travel when we can. I left hospice, went to real estate.
Then it was just getting slow, I was getting bored, honestly. I was going crazy.
Once I learned how to do the real estate, and the infrastructure was built out, I had my partners in place. We were very cohesive. A couple of months go by, we just can't find a deal. I don't have anything to do. So, I had a noncompete that had run out from my previous hospice.
I had a good opportunity to become a president and owner of a hospice organization. And I actually started that in October of 2019. I’m full-time hospice and real estate. I have the time. It's nice because now I have a high salary. I have more liquidity.
Now, I actually have more fun doing both. I'm just time blocking my time, and I'm flexible. We've got 75 employees. I'm in the office in the morning, in the field, and we make it happen. So, I'm going 100 miles an hour, but I really like it. I like to keep it structured.
Darin: That's awesome. So, for the younger investors, say 20s, early 30s investors. What's your advice to becoming successful in large scale multifamily assets as a young person?
Zach: There's a lot of things. I think the biggest thing is you have to overcome the fear.
Focus on the First Deal
Zach: You have to truly believe that you can do it. There's nothing special about me. You don't have to quit your job in order to do it. But you can't waste time. If you have a full-time job, you need to learn about this stuff by listening to podcasts like yours, Darin. Reading books, and meeting with people, and going to events.
Stop watching Netflix, and stop getting on Facebook. To cut out all that time, and use it as productive time. You have to start to educate yourself. It'll give you confidence to speak the lingo and make you feel like you belong. Then, you'll start to gain confidence.
Like, "Okay, I understand how it works. I see other guys doing it, I met this guy, he can do it." Then, you need to identify what type of value can you bring to a team? Because you have to partner with people, even if you're very smart. You have a lot of money, it doesn't matter, you still need partners. What is your passion? And what are you most proficient at? What are you weak at?
Try to find complementary partners who have strong work ethic, who you get along with. Who are committed, who have complementary skillsets. You have to gain the confidence, gain the knowledge. It's not rocket science either. You can learn how this stuff works. These are not complex businesses.
You just need to understand it, gain the confidence, and then find the business partners. Then just focus on the first deal. It does not need to be 100 units. Even if it's five units, 10 units, just do the first deal. You'll get a lot of confidence, and you'll feel like you're in the club.
How New Guys Enter Into Large Scale Multifamily Assets
Zach: Then you can find other people to partner with. I just talked to a guy today. He reached out to me, and he has over 500 units here in Phoenix. He's asking me now if he can partner with us to bring 15 to 20 million for institutional capital. To syndicate it. We just need to find the deal, and he'll bring institutional capital.
It's because we've proved the concept. It started with a 36 unit deal that we all put our own money into. You just need to gain confidence, find the right business partners, because then you have your infrastructure down. I don't need to spend all this time like I did initially to find deals because we know what we need to do. We have systems in place.
Darin: A lot of that was educating yourself, and building relationships with partners. In today's market, if you're a new guy, and you want to get into larger scale multifamily. You have to partner with somebody that has already done it. The other piece of that is at some point, there's always another podcast.
There's always another book. There's always another deal you can underwrite. At some point, you got to pull the trigger, and take action. You talked about early on in this discussion that you saw this mobile home park. It actually was a good deal, but you just couldn't get over putting an offer on it. You just were scared.
At some point, even though you were scared, you actually took action and went after that first multifamily assets deal. Those are the two components I think that anybody needs to have.
When You Get to the Next Step, You’ll Figure Out the Next Step
Zach: One, get educated, but at some point, you could always get more educated. At some point, you gain a certain level of knowledge. You just got to take action. That can be scary, but you got to do it.
You will gain the confidence as you go. It's like the analogy. If you're going to drive from California to New York in the middle of the night, you can't see the road in front of you. You can only see X amount of feet in front of you.
But when you get to the next step, you'll figure out the next step, and so on and so forth. So, just calling that mobile home park owner, Darin, I was terrified. I was going to hyperventilate just calling him. He's like, "Already sold." Then I quickly hang up. I'm like, "I feel confident. I called him at least."
Darin: Now, if you were to call a mobile home park owner now, you would not feel the same way.
Zach: No. I'd feel calm. I would probably try to smooth talk him.
Darin: It's just because you've done it.
Zach: It's like anything, and you have to do it. Sending the first offer, the first LOI was so scary. We weren't even close. So, they say, "Oh, you're not even close." Well then, you're like, "Okay, well, now I sent one at least. At least I feel good we sent an offer. We're for real." So, it's just anything.
Darin: If there's anybody listening that has interest in becoming a passive investor, has never done it before. Doesn't know how to go about it, how do they get involved?
Go Out There and Network With People
Zach: With passive investors, you have to be careful because you want to identify sponsors who are experienced. Now, in the days of social media, it's like everybody's on a podcast is an instant expert. They look like they're really prolific, but maybe their deal's not performing. So, joining a mentorship group is extremely valuable.
I mentioned to you that we have not raised a lot of equity. But I don't regret it at all. I dropped 30K to join a mentorship group. And I met almost all my business partners through there. It's really just helped accelerate my path. Going to meetups, joining a mentorship group. You need to get in contact with people who are doing deals, and experienced sponsors, just start to pick their brain.
If you just want to be passive, you don't need to feel intimidated or dumb by not knowing about it. The sponsors should be selling it to you. They're the ones trying to make it appealing to you. You can feel free to question people. So you just need to get out there, and to network with people. You're not going to find deals Googling, because you can't. It's illegal for these 506(b)s, you can't market them.
Join a mentorship program, go to meetup events, get out there, and network. Get on phone calls, and just start to ask people. "How does this work? What's the minimum investment?" Things like that. If you can identify other passive investors, then you need to ask them as well.
Darin: Great advice. When you go on those conferences, to those meetups, you meet other syndicators. You exchange business cards, you'll get on their investor database. When they have another opportunity, they'll present you with the opportunity.
The Value of Joining Meetup Groups
Darin: You do not have to invest, but at least you'll be able to participate in a webinar if you want to. I would encourage you to do that. You'll start educating yourself on how these deals are put together, and how the sponsors answer questions. How do they present the deal?
What's their business plan? Then typically, at the end of a webinar, there'll be a lot of Q&A. You'll hear some of the other questions, and you'll learn from that.
Once you participate in a number of those, you start to feel like, "Hey, this is a person I think I might want to do business with. This is a person I think I might want to do business with. I want to get to know them better." Then you set up a phone call. If you're local, you get together at a Starbucks for coffee and get to know them better. You want to know who you're doing business with.
With that, so this guy is a go-getter. He's in the Phoenix market. If you want to invest in Phoenix, you have to look him up. You have to go to his meetup group because he's got a ton of value. And you will meet other syndicators.
You will meet other passive investors, you'll also meet lenders, and insurance people, and brokers. All kinds of different people that he brings to add value to everybody that comes to these meetups.
Get in Touch With Zach
Darin: Zach, how do people reach out to you if they want to get in touch with you?
Zach: You can email me at Zach@zhmultifamily.com. We can set up a call. You can go to our website, zhmultifamily.com. There's a little contact us, little blurb you can fill out, we'll reach out to you. Or feel free to text me, and I'll get back to you in two or three days, and we can set up a call.
My cell phone is (602) 859-5458. You can text me, say, "Hey, I listened to you on Darin's podcast, I want to jump on a call." And I'm happy to get on a call, and share value however I can.
Darin: Zach, I really appreciate you being on. Next time I'm in Phoenix, I will definitely be looking you up, for sure. I look forward to seeing you again here in Dallas at some point. You just never know. Hopefully, we partner on a deal at some point.
Zach: You never know. Thanks for having me in the show, man. I really appreciate it.
Darin: Absolutely. Listeners, I hope you enjoyed that one. Look, you young people, 20s, 30s, I wish I had started this 20, 30 years ago. Zach just showed you how you can do it. I hope you enjoyed that one, until next week. Signing off.