Today we have Greg Butcher on the show! Are you a veteran or in real estate investing and looking to take it up a notch? Take your real estate asset management game up with Greg Butcher. With 18 years of active duty military service, he's seen the wealth-building power of real estate first-hand. His current portfolio is greater than 1,000 doors! Learn from his extensive experience and insights into tracking KPI's to optimize returns. Plus, pick up some expert advice on focusing on M3/C3 for better outcomes. Check out this episode on the Top 6 Real Estate Asset Management KPI’s with Greg Butcher to level up your investment strategy today!
Table of Contents:
- Where To Listen To The Podcast
- Take Your Real Estate Asset Management Game Up With Greg Butcher
- Starting the Real Estate Asset Management Journey
- How to Get Involved in Real Estate Asset Management
- The M3C3 Real Estate Asset Management Principles
- Difficult vs Easy Real Estate Asset Investments
- Identify Your Ideal Real Estate Asset Management Investment
- Identify Your Own Real Estate Asset Management KPIs With Greg Butcher
- How To Reach Greg Butcher
Take Your Real Estate Asset Management Game Up With Greg Butcher
Darin: Greg Butcher spent 18 plus years in active duty. He learned the power of real estate investing while in the service and has scaled up into larger multifamily properties. He now not only built a sizable portfolio for he and his family, but he also coaches others how to do the same.
So a little bit on how we know each other. Greg and I both started out as part of the same multifamily mentorship group. Greg lives in California, I'm in Dallas, but we met through this similar group and he's been off to the races doing great things and I'm looking forward to hearing what he's been up to. So with that, Greg, can you share with the listeners how many properties and how many units you're invested in?
Greg: Right now, I have seven active properties as a GP with a little over a thousand doors and one more property I've invested in strictly passively, about roughly 150 doors. Before this, I've had an additional GP property that's gone full cycle. It's 120 doors and three other LP investments that also went full cycle. Total of about 450 doors or something like that.
Darin: That's awesome. It's great that you got the experience of both full cycle and existing deals. So before we get going, one, I want to thank you for your service because I know you were in the service. So maybe you can share a little bit about your background before getting into real estate investing.
From Combat Engineering Officer to Real Estate Investor
Greg: I grew up in Oklahoma and went to University of Oklahoma. Boomer Sooner. I have to say that, especially because I know there's a lot of Texas listeners here too. No, that's a good rivalry. It's all good fun. They're both great schools. I went through ROTC while I was in college and got my commission in the Marine Corps when I graduated and was on active duty for about 18 and a half years before I took a slightly earlier retirement in 2015. So I was a combat engineering officer, served all over the world, both coast, California, North Carolina, Virginia. I was in Germany twice. I spent a year in Pakistan, as well as deployments in Afghanistan, Iraq, and around the Mediterraneans and places like that.
I'd have to answer that by saying we have a bias for taking action. We get things done. We're not going to just sit around and make excuses and actually not produce any kind of results. We're going to make stuff happen. So I'd say that's the absolute biggest thing, definitely a common denominator.
Darin: We'll get into how you got into real estate investing. But that definitely parlays into getting into real estate investment because there's fear of pulling the trigger. Taking action and doing things that you haven't done before is something that you got to be able to do. That's interesting. Now, did you start investing in real estate while you were still in the service?
Starting the Real Estate Asset Management Journey
Greg: Actually, yes. So I started around 2005-2006 timeframe. So in 2002, I got orders to Bakersfield, California, which is the first time I ever lived in California, and people went, "Bakersfield? What?" I was there running a reserve unit for three years. That was the first time I ever bought a house for myself. A few months before that, about nine months before that, I had just gotten back from a six-month deployment at sea on a Navy ship in the Mediterranean. I saved up some money while I was on that deployment. When I got to Bakersfield, I had a whopping $4,000 in the bank.
I'd never had that much money in the bank before. I was like, "Well, I feel like I'm throwing my money away in rent, and I could be building something for myself." Right then at the time, prices of real estate just kept on going up. So I felt, "Well, maybe I can buy something," and thanks to the VA home loan and that $4,000 I've saved up, I was able to. VA home loan will finance 100%.
It absolutely will up to appraised value. So we had appraised. I bought a house for I think it was $92,000 in 2002. During that tour, someone gave me the book, “Rich Dad Poor Dad,” which opened my eyes. So I certainly was not raised thinking about entrepreneurism. I had the usual guidance from my parents to go to college so I could get a good job. I took a slightly different route going into the Marine Corps. But “Rich Dad Poor Dad” really opened my eyes and made me start thinking about other possibilities.
Accumulation of Real Estate Assets
Greg: It gave me this idea that when I had permanent change of station orders to move somewhere else. I would buy a house to live in, then turn it into a rental. And I had to move again and buy another house and just keep on accumulating houses that way.
I started doing that, but I needed seed money to start off. That $4,000 wasn't going to cut it. In 2005 when I left there, I sold that Bakersfield house. If you remember what the price of real estate was doing back in those years, especially in California, I did pretty well. I sold that $92,000 house for $229,000. Then I was like, "Man, I love real estate. I can learn more about this. I need more some of this."
Darin: That's crazy for a serviceman. That's, what? $137,000. How are you going to save that much money? So that's something that you're doing. You owned an asset and then all of a sudden it appreciated.
Greg: That was more than a year's worth of my salary at the time.
Darin: You sell that house. Now, you've got a lot more than 4,000, and you go to your next station. What happens then?
Greg: I went to the Quantico, Virginia for school for a year and bought a house in Fredericksburg, Virginia that I lived in. Then I got orders after that school back down to Camp Lejeune North Carolina and bought a house there and started renting out the one in Virginia. So I had these two houses. From there, I was deployed for a year to Pakistan, came back and after two years there, I got orders to Germany in 2008. So I moved to Germany and I rented out that house there in North Carolina.
Learning the First Big Lesson
Greg: I had these two houses and I figured that while I was in Europe, I was going to have to put new acquisitions on hold. I didn't see how I could possibly do it while I was in Europe and having to travel down to Africa a lot while I was there and stuff. Plus, I just wanted to spend my spare time traveling and seeing everything I could in Europe.
I moved there again in 2008. I seem to remember something significant happened in the financial market around 2008. So suddenly, I learned there's this thing called a real estate cycle. I bought two houses at the peak and they were both upside down. That was also where I learned my first big lesson about what to do with real estate during a recession, during negative economic times. As long as you don't have to sell, just don't sell. If you sell, you've lost money. That's when you lock in on loss. If you can cash flow and there's nothing in your loan that forces you to sell, just hold onto it and wait.
Darin: So let me ask you, were both homes cash flowing? Was the rent covering all the costs or were you out of pocket?
Greg: One of them was cash flowing a tiny bit and the other one was slightly negative, but it wasn't a big deal. So it was basically a wash and I still got tax benefits at the end of the day through depreciation. So they weren't great purchases. I called them my learning properties. They were close enough to being zero cash flow kind of thing where just I had them at that point. There's nothing else I could do, so I held onto them.
Loans and House Purchases
Darin: So of those three, which house purchase was the scariest?
Greg: Probably the one in Virginia because it was the highest price, 286,000, which for a 29, 30-year-old captain of the Marines was a little bit scary. I didn't want to put all of that nest egg that I've got from selling my Bakersfield house down. I did an 80% LTV loan and then a 10% second loan. It was 90% total leverage there. When it went underwater, it went underwater. I say it was negative cash or relatively neutral cash flow. But honestly, I just continued paying down that second mortgage until that was paid off as quickly as I could. I was sinking more money into it.
Darin: I'm not familiar with VA loans. You did a 80, 10, 10, but would you have been able to do a 100% loan on that Virginia property too or no?
Greg: It's so long ago, I don't remember exactly why I didn't. I think it was because I knew it was only there for a year. And I think it was about the length of time I would've had to have lived in it to have qualified for that.
Darin: The VA loan has a requirement. You have to live in it for a period of time as well?
Greg: I'm no expert on the VA home loan right now. I know some people that are, but I'm not positive. The rules have changed in the last 15, 20 years also.
Waiting for the Right Time to Sell
Darin: I would say, anybody that's in the service in any capacity, if you can get 100% loan, focus on cash flow. If the deal cash flows, it doesn't matter if all of a sudden you bought it at the wrong time. You just hold onto it and it cash flows. So all the rent money is covering all of your expenses and you just hold on.
Greg: Exactly, and at the same time, you're paying down your mortgage balance too. So you're gaining equity there.
Darin: Awesome. All right. So that's single family. You get into that in single family and you're doing that for, what, 10 years from 2005 through 2015 when you came out the service?
Greg: Yes. I held on to those properties until 2020, and 2022 is when I sold the Virginia property, so just about six or eight months ago. I finally sold both of them and made a profit on both of them. So I just held onto them until it made sense to sell, and it finally did. When I came back from Germany in 2010, I was in California then, first time in the San Diego area, and I started trying to figure out how to get back into real estate. Took me a little bit of time, but I wanted to get back into it. I was trying to figure out how to make it scalable. I just couldn't figure it out, especially with California prices, which were a lot smaller back then, but they were still a lot to me at the time.
Multifamily and Syndications With Brad Sumrok
Greg: After I went to Afghanistan and came back, I went to an REI expo in Anaheim. In the meantime, I tried a long-distance flip. Some people who claimed to know the market in Indianapolis didn't know quite as well as they said. They did because it was the wrong side of the street and we ended up losing about 10 grand on it. I was at this REI expo and that's when I met Brad Sumrok in November of 2013. It was his first year having his own program and he taught for 45 minutes about multifamily and syndications. It was like the clouds parted, the light shown down from the heavens. I knew this was the way.
Darin: Why did you think it was the way?
Greg: Because it was scalable. It was so much more infinitely scalable than what any way I'd found to do single family homes. I saw the profit potential in it, especially as both on the passive investor and on the active investor sponsor side of things, but particularly, of course, on the sponsor side of things, and that was the direction I wanted to go.
Darin: Would you have felt or been looking for the opportunity to scale if you hadn't bought that first house in California?
Greg: I would like to think I would've found real estate at some point. That was definitely a springboard for me just due to how profitable it was.
Darin: I think that I've talked to and interviewed so many different people. What I see is, and it's not for everybody. But most people, they start out that first deal is one of the scariest deals that they do. Whether it's a single family house or a duplex or they go right into multifamily.
It’s All About You and How to Build Your Wealth
Darin: It's because they're doing something they haven't done before. Most people say that they, and I'm included in this, I bought a duplex to start out with and I couldn't even see the next step until I did that first step.
Once I did the first step, then I went looking for something bigger. In your story, it's similar. You bought the single family, you had fantastic success on that first one. Then you had some challenges on the second two. You went looking for something that was scalable and you ended up finding that, but had you not done those first deals, those first single families, you probably wouldn't be looking for that scalable deal.
That's what I tell people is that in the beginning. It's all about you and how to build your wealth and how to try to grow and then how to scale. Then the third piece, which you're heavily involved in now, which I want to get to also is then turning around and helping other people do it.
Greg: I think part of it too was I didn't realize it when I got into my military career, but I was in a career with a very short shelf life and I never thought about that when I was 22 or anything like that. It's very unusual to stay in the military past 20 years. It's certainly possible, but it wears on you too in a lot of different ways. The constant orders, the deployments, it all adds up, and there were some family reasons why I chose to get out when I did.
Doing Real Estate Asset Management Full-Time
Greg: I loved what I did in the Marine Corps. It was truly my calling, but it was also a hell of a lot of work. So part of why I wanted to find scale in real estate was so that I could do that full-time after I retired from active duty. Real estate, do real estate full-time after I retired from active duty, but I needed to scale up the income I could get from that enough to make that worthwhile. So that's why I was trying to find scale. That's truly the reason.
Darin: So you were looking to replace what you were earning as a military officer.
Greg: Or at least a portion of it because after I retired, I started drawing the retirement benefits immediately. So I didn't have to make up the entire salary, but a good chunk of it, absolutely.
Darin: Everybody comes to real estate at a different level, different age, different financial balance sheet. So talk about how do people navigate that? A young guy that comes in may not have much money, but they've got the hustle factor, and then somebody that is more senior, they may have money, but they're not wanting to hustle as much.
So how do these people all get involved? I know that you're involved with coaching now, so maybe share a little bit about what you're doing there. Then I get questions, and I'm sure you get the same like, "What value do I have to offer?"
How to Get Involved in Real Estate Asset Management
Greg: The biggest thing and the biggest advice is network with as many people as you can. Find out what they need. Find ways to help them get what they need and be honest about what your assets and strengths are, too. The hard part you're hitting on here is identifying what those are in the first place. On the multifamily side, there's so many different pieces that you need to find a property to build a general partnership team. It definitely helps to have boots on the ground.
It's not 100% necessary, but it definitely helps to have boots on the ground, someone who can get there easily during the ownership period, but also just for property tours, meeting with a broker and all that kind of stuff during the acquisition phase. You need to have people who have the net worth and liquidity for the loan, but it doesn't have to be you. There's other things you can do if you don't have that.
There needs to be someone who understands construction, and construction management, and working with contractors, and comparing bids and scopes of work to manage that piece of things. There needs to be someone who is familiar with financials and financial management so they can understand the financial aspect of things. It might be the same person or it might be a different person to be the tax matters professional working with the CPA for tax returns and k1’s and things like that. You need to have someone who is the asset manager, at least one person who's working with a property management company, assuming you're talking about a property that's big enough for third party property management to make the asset perform because that's one of the most important things today.
Tell People What You’re Looking For
Greg: It sounds like I just named about eight different people. But usually, it's a combination of a smaller group of people. By the way, the big thing I forgot, which is more important now than it was when I started in 2015, is raising equity, being able to raise capital to buy the property in the first place.
Darin: You hit on all the major aspects of the deal. To your point, you could end up partnering with two or three people and one person takes two or three of those roles under their belt. I think when you talk about network, network, network, what I found, which is unique I think in the real estate world versus other industries that I've been a part of, is that in that networking, people get to the heart of the discussion pretty darn quick.
You need to really think about tell people what you're looking for. What are you looking for in a partner and what value can you bring? Just be authentic and real about it. If it's your first deal and maybe you need a lot of the pieces of the puzzle filled in, well, maybe you get a smaller piece of the deal from a GP perspective, but you get the experience of working with all these other parties.
I had somebody on my show that said that he was meeting with a bank president and he told him, "Hey, I'm looking for a property this size," so on. The next week a broker that this guy had never talked to called him and said, "Hey, I've got this property," and he ended up buying it. Well, if he had never told the bank president what he was looking for, that conversation never would've taken place.
If You Don’t Ask, the Answer’s Going to Be No
Darin: You have to be willing to tell people, and you are going to get no’s, right? It's not personal. You say you're looking for this type of person, they're like, "Oh, I already got that covered," and it's like speed dating and then all of a sudden you're onto the next person. Just let it roll off your back. You're trying to figure out something that works for both parties.
Greg: It reminds me of a story from my military career, actually, is when I was applying for the early retirement program, this message just came out saying that my specialty was no longer going to be eligible for it after December 31st and this was December 15th. So I called up or emailed my monitor, the guy that controls our career and sends us orders and said, "Hey, what's the deal? If I apply for this now, it says December 31st. I don't want to be blackballed if I'm known as the guy who applied for it didn't get it and I'm still serving for a couple more years," and he said, "Hey, if you don't ask the question, the answer's going to be no."
So in this way asking, I'd say, like you said, if you don't put yourself out there, you're never going to have those opportunities pop up and they don't pop up all the time, but you're limiting yourself for the possibility of it happening if you don't put yourself out there. So you absolutely have to do that.
Put Yourself Out There and Take Action
Darin: What do you mean by put yourself out there?
Greg: When you're networking, you tell people what it is that you're looking for and what you can do to help out a team. The example there of that banker who connected someone with the broker who had a deal for them that fit their deal profile. That never would've happened if he hadn't communicated openly with that banker about what he's looking for.
Darin: Another story, I ended up going to a conference and I was a speaker at a conference and all of a sudden, I bumped into somebody I knew and they were like, "Hey, Darin. I've got this deal. Do you want to partner on it?" Had I not gone to that conference, out of sight out of mind, it's not like anything personal, but he wouldn't have thought of to call me.
Then we ended up doing a deal together, but things also build off of each other just like you bought the single family house and then you figured out, "Okay. Well, I'm going to do another one, and then how do I scale?" and you got into multifamily. Even as simple as going to your first networking meeting, that can be scary. You don't know anybody. What are you going to say? Are you going to feel dumb? You just got to get over it, you got to go. Maybe the first time you go and you just listen, and then the second time you start telling people what you need, what you're looking for or what questions you have, but you got to do it. You really have to do it.
Believe That You Can Achieve Your Goal
Greg: Growth begins outside our comfort zone. You have to get comfortable making yourself uncomfortable and just go do the thing that you're scared to do or uncomfortable doing. On the other side of that, you'll realize that there's nothing to be scared about in the first place at all.
Darin: We have that fear in our head. But when you get to these events, my experience is that other people, they want to meet people also and they want to learn. It's about learning and it's about meeting other people and seeing if you can help each other. This is also my experience is people that are successful want to help the next guy.
Darin: Before we hit record, you said it's just the way you are. Now, you're coaching, right? You're helping other people. So talk about the group that you're part of and what you're doing. I think that's huge is letting other people know that they can do it.
Greg: So I always answer questions and try to help out newer investors and everything, but my friends, they have an educational program of their own now, Vertical Street Ventures Academy. So they asked me to come on as a coach for them. It's not a whole lot of time. It was actually right as I had left my W-2 job for good and started to do this the full time. I said, "Yes, I can afford 10, 12 hours a month to do this, and that way I can help out people who are getting started like I was back in the day too." So I've been doing that for about a year now and it's a fantastic program, and there's fantastic people in the program, and just really, really thoroughly enjoy helping people get their start.
Be With People Who Have Done It
Darin: What about belief? Like you said, people from the military have a bias for taking action. I believe also the person needs to believe that they can achieve what they're going after.
Greg: I went from my last transaction, real estate transaction being a single family house to investing passively in apartments, to my first general partner transaction being 120 units. If you told me that two or three years before, I would've said you're out of your mind.
It was the mindset that, "Hey, you don't need to start small. You don't have to start small." In fact, the smaller properties are often some of the most problematic ones. It is all about belief. So having the belief in these educational programs is just as important as the technical aspects of real estate transactions.
Darin: People have a sixth sense of, "Does this guy think he can do it?" Are you confident in yourself? That's a big piece of it. Now, if you're a listener and you don't have confidence in yourself, it's not like it can't be learned, okay? Part of that is getting around other people that have done it. I know that when I surrounded myself with other people, I was like, "These are smart people, but they're smart, but if they can do it, I can do it."
Darin: The funny part is you said sometimes the larger deals are easier. I had a syndicator on who's done, I don't know, probably 3,000, 4,000, 5,000 units, and it was a female and she said, "You know what, Darin? I was trying to refinance my house, and it was a lot harder than obtaining financing on a 250-unit multifamily complex." That's crazy to think about.
Greg: I can totally see it happening too.
Knowledge Without Action Is Worthless
Darin: People think the opposite until they're in the world. They're like, "250 units or 100 units, I can't get my head around that." That's where, you align yourself with people that have already done that. They coach you along, they're part of your team.
Greg: That's why you go to networking events, conferences, join a mentoring program. Those things help you with that belief. Being around people who are already doing what you're doing shows you that you can do it, too.
Darin: People out there are like, "These mentorship programs, these educational programs, these seminars, they just want my money." I look at it as a give-and-take. Whoever's putting it on is making money. It's a business venture. They're sharing their knowledge, and it's up to you to grab that knowledge then apply it and take action.
If you go there and just listen, you do nothing, yes, they made money off you. You're out of money and you have the knowledge, but you're not doing anything to make it profitable. You have to take action. It could shrink the timeframe of success dramatically. Go and find people that have done what you want to do and learn from them. What may have taken you three or four or five years, maybe you could do in a year.
Greg: Knowledge without action is worthless, and action without knowledge is reckless.
Darin: That's a great way to put it. I know that you’re also focused on real estate asset management. So asset management comes in. There's so much talk about how you buy a deal, how you close a deal, and how do you raise money for a deal. Then once you close, now you've got a property and you have to actually manage it.
The M3C3 Real Estate Asset Management Principles
Greg: When I got started in 2015, got my first GP property in 2016, we were still in a cap rate compression environment. Prices are going up and that glosses over mistakes. You never know whether the equity growth is due to good real estate asset management or just due to the trend rising. I look back on my first property that I was a GP on. I have to laugh at the things that I didn't know and the team, we didn't know at the time to even be tracking.
Right now, things are the opposite. The prices are going the other direction right now. The two biggest things that can make a difference between whether a property succeeds or fails is the debt that you place on the property and the real estate asset management. So real estate asset management is exceedingly important right now. That can really make a business plan succeed or fail right now.
I have just a little set of principles. It's a little mnemonic. I call it the M3C3 real estate asset management principles. That stands for Manager, Meetings, Measure, Cash, Construction, and Community. The first M is Manager. The whole point of that is that your property manager is your most important partner in the business. People will also say that your lender is the most important partner. That's well and true too because they provide the majority of the money for the deal. However, they don't get involved in real estate asset management. So as far as on the real estate asset management side, your property manager is your most important partner.
Working With Real Estate Asset Managers
Darin: Let me ask you on that piece to differentiate between the onsite leasing manager and, say, the regional.
Greg: So I'm talking about the whole company as a whole is your most important partner, and both the onsite and the regional are key parts of that. So part of it is don't give conflicting guidance. So you want to give your site manager instructions or guidance that you're not also letting your regional know about because they have their own chain of command within their company too. The whole company is your partner from the regional to the site manager, to the maintenance guy, also perhaps construction management staff, some of the other departments, their accounting department. So you're partnered with the whole company.
Part of what goes along with that is to trust but verify. Inspect what you expect and different things about evaluating a property management company and have backups ready too because sometimes you do have to change property management company. I had to do that once last year. It takes time to make it happen. If you realize that you need to change, that isn't the time to go ahead and start and just be looking for a new property management company. You need to have a shortlist ready in any market that you have properties at.
Darin: I agree with that. I've had some properties where the regional is really strong and they're the person I communicate with the most, and I've had properties where the regional wasn't that strong, but the onsite person was fantastic. I know maybe their not the biggest fan of me at times because I'm going to go to the person that's going to get the job done.
Finding the Right Team for Real Estate Asset Management
Darin: So the regional always wants you to go through the regional, but sometimes you can change out property management companies and sometimes you can just ask for a change of staff. So the property management company may be a good company, but maybe they have the wrong regional for you or maybe they have the wrong onsite manager for you and your property.
So that is also an option and a decision point that you can make as the general partnership team is, "Hey, we're going to keep the property management company, but we need to swap somebody out."
Greg: That's very true. It is so much personality dependent. The company, it matters. The overhead support that they can provide matters, absolutely, but the majority of it depends on who that regional and that site manager are and their confidence and willingness to work with owners.
Darin: It could be something like as simple as the onsite manager they brought on a new person. They think they're good person, but they have the experience of A properties and this is a C property. Maybe it's in a Spanish-speaking area and this person doesn't speak Spanish. Well, they're trying to train up that person, but you're responsible for the asset management on your deal, and so you need to make sure that you have the right people in place.
Real Estate Asset Management Meetings
Darin: I stopped you on the first of the M3. So Manager then Meetings.
Greg: Meetings. That's hold organized meetings. A meeting shouldn't be an hour, hour and a half long where you're looking through the reports for the first time. They should be sending you your weekly reports before the meeting and look over them before the meeting and identify the few hot topics that needs to be discussed during the meeting. So respecting everyone's time because going back to the real estate asset management company, that regional manager probably has seven or eight properties that they oversee and they're having these similar meetings for these other properties also. You need to respect everyone's time.
Back in the day when prices were lower and loan-to-value was higher, we didn't have to raise as much equity, so we might have two or three GPs, and now these days, we might see some properties where we have eight or nine GPs. Give the property management company one to two at most points of contact to work with. The GP team should be funneling everything through those one or two points of contact for real estate asset management. It shouldn't be something where there's a Zoom meeting and eight or nine people are on there representing the managers and giving their own opinions and everything back and forth. You got to focus the team.
Darin: That's important. The other thing I would say is, and you hit on it, is look, there's a lot of different things that you can bring up in that meeting. Look, when you go visit your property, there's a lot of things that you can point out that are issues.
Measure What You Want to Manage
Darin: These people, they're trying to help you succeed, the property management company. If you give them a laundry list of 15 things and 12 of them are low value and top three are stuff you really want them to focus on, just focus on those three. Let the others slide for a while, then when the time comes when those three hot topics are addressed, then get to the next stuff, but you want to focus on giving directive and focus to the real estate asset management company without having this long, long, long, long laundry list.
Greg: You mentioned about taking notes from a site inspection or a physical meeting. Part of this is also taking organized notes from the meetings, whether they're online meetings or phone calls or they're onsite. Take organized notes that assign responsibility to any action items to certain individuals. Make it clear who is expected to follow up on what so there's no ambiguity there. Then just hold people accountable. Be supportive, but hold accountable at the same time.
The third M is Measure, and that is to measure what you want to manage. That's about looking at the right key performance indicators, KPIs, for your business all for your property. Your business might have KPIs also, but as far as looking at a particular property, there are a number of different KPIs you should be looking at throughout.
Having a Real Estate Asset Management KPI Checklist
Greg: So there's a bunch of KPIs that I look at in a few different categories. The categories I look at are roughly about current occupancy, resident activity, and leasing status. That's about what current physical occupancy is, the number of move-ins, move-outs, new leases signed, notice given, skips, evictions and process, all that, and what current leased occupancy is, pre-leased occupancy, then your financial collections, delinquency, and evictions, and then leasing traffic, leasing and marketing, then leasing or renewal offers and lease trade out growth, work orders, and then unit turns and renovations.
I actually have a checklist that I've developed that I'll make available to your audience here at the end of the podcast, where as I was learning about real estate asset management, I saw a number of different KPIs, but I was never sure what to look at on a weekly, monthly, quarterly basis, et cetera. So I ended up building that myself. This KPI checklist I have is a recommendation of what to look at weekly, monthly, quarterly, and annually.
Now, that's not hard and fast rules. Every property has its own KPIs that you might want to focus on. You might not be looking at absolutely everything that's in this checklist, so you have to decide what's important based on the particular property and the property's business plan.
Darin: It's nice to have a resource. I want to see the KPI checklist so you can look through, "Am I missing something? Where do I want to focus?" That's important.
Greg: Everyone looks at the first one I mentioned, occupancy, resident activity, and leasing status. That's a no-brainer.
Track Real Estate Asset Management Data Reports
Greg: That first property I mentioned where I laugh because we weren't doing things quite right back then, we were looking at that, of course. Everyone looks at that, but how many people are looking at their leasing traffic and marketing, what their marketing spend is, what lead sources are providing the most bang for their buck, the most leads right now. So breaking it down into the cost per lead, the cost per lease signed, where they're actually paying or are you spending your money effectively.
Darin: Where are the people coming from and who of those groups are actually signing leases. We want to spend our money where we're successful, right? So maybe you readjust your marketing budget to do more of that because that's providing results. That makes sense.
Greg: Looking at your leasing prices, your renewal prices. We don't ever want our site managers to be sending out renewal offers without us having reviewed what the renewal offer is going to be first and the reasons why. Are we going straight to market or are we discounting a little bit from market? How much of an increase is this for that resident? Is this resident someone we want to keep or someone we don't mind losing? Then looking at your associated lease trade out growth. That was something we never looked at on that first property I talked about, but right now, in some of the markets I'm in, Phoenix, Tucson, Denver, the organic rent growth has slowed way down or stopped, but we're still getting really strong lease trade out growth in renewal growth, and is up to even 18% on our Denver property.
Difficult vs Easy Real Estate Asset Investments
Greg: So when you hear the doom and gloom about what's going on with rent growth slowing down, stuff like that, there still can be a lot of room for growth in terms of burning off loss to lease.
Darin: If you're new to this industry, what Greg's talking about is, "Okay. Well, maybe the market rent for two bedroom is 1500, but there's somebody that has a current lease of 1150, and so there's $350 difference. That's the loss to lease between what your current lease is and what the market is." Well, maybe they, on the renewal, bring them up to 1350. Well, 200 on 1150 is still a really good increase in rent. So maybe that top-line market rent isn't growing, but there's still a lot of room elsewhere.
So talk about hard versus easy, and that I know is simplification, but as a passive investor, is it easy or hard to get involved? As an active investor, is it easy or hard to get a deal and do a deal?
Greg: Well, as a passive investor, I'd say it's certainly a lot easier to get involved and do a deal. It's really just a matter of networking with and finding the active investors, the GPs and sponsors that you know and getting on their lists and then figuring out if there's people that you are confident investing with them, looking at their track record, looking at who they're partnered with, looking at their processes, looking at their investor communications. That's a big one for me personally. When I was first starting off, I invested passively in some deals where the sponsors were poor communicating.
Large-Scale and Small-Scale Real Estate Deals
Greg: They gave weekly or, I'm sorry, monthly reports, but it was nothing more than a sentence or two and income expenses and a why, and that was it along with the financials. So there was no story along with it. So we always try to over communicate vice under communicate because someone can always ignore it if it's more than they want to look at, but they can't pull information out that we don't provide them.
Darin: So let's stay on the LP side. So on the LP side, a few things. One, you had three deals LP go full cycle. Were the returns strong?
Greg: Two of them no, one of them yes. So one of them was a mistake I wish I hadn't gotten into. The reason why is because of size. It was too small to have been a syndication. So it was 18 units. It was in the Dallas Fort Worth area. This goes back to how larger deals can be easier than small deals. The quality of property management you get for a 100-unit deal is better than the property management you can get for an 18-unit deal. The contractor you have come in doing your unit renovations and stuff might in this case was not what we expected, was not what the sponsors expected.
So the smaller number of units, you're concentrating your risks. So one unit goes vacant and now already, it's a big hit on your occupancy. In this case, we had a unit where the tenant declared bankruptcy, which is easy to evict in Texas if you have to for nonpayment, but when they declared bankruptcy in the unit, then that's a whole different set of rules.
Dealing With Risks in Real Estate Asset Management
Greg: So they ended up living there for about six months rent-free before we could get them out. Then there was another unit that became uninhabitable due to a black mold that formed from a leak under the slab. So all of a sudden we had two to three units that were down or had this bankruptcy and that was a huge hit to our total income.
Darin: Three units on 18 versus three units on 120 makes a big difference.
Greg: So at the end of the day, we still didn't lose money in the deal. We made money but just didn't make a lot of money. They held onto it for about two years and then they sold it at the first opportunity they had that made sense because they realized, "Hey, if we can give everyone their money back, it's a little bit of return, everyone would be happy." So I think we made 15% return on that with no distributions ever.
The deal I did before that was a 150-ish unit deal in the Oklahoma City area. I think the sponsor just didn't know that neighborhood quite as well. It was probably a little bit more challenging neighborhood. So it wasn't bad, but they didn't meet the five-year projection of 102%, 103% total return. It was 60-ish percent total return. Hey, that's a lot better than I can do with the stock market. So the one that did, we held onto it for six years. It was a long one. They took out a supplemental loan after about two years and paid everyone back the majority of their original investment.
Making Money With Passive Real Estate Asset Investments
Greg: So I think it was like, I don't know, 75% or so of our original investment we got paid back, and then we still held onto it for about four more years after that. It was making distributions most of the time. It became cashflow challenged later on in the ownership period. That's when we were like, "Hey, let's just sell this darn thing," but we were still benefiting from the equity growth. So it sold finally right at the beginning of 2022. Thank goodness it did then before prices started being adjusted for the interest rate hikes. So all told, I think, two and a half x’d our money. I'll definitely take that.
Darin: So a few things on that, staying on the passive side, is that, one, even though you had two deals that didn't meet expectations, you still made money. So capital preservation still occurred. You put your money in those deals. There were challenges. It ends up being the same thing that you talked about earlier with the single family. Look, with real estate, you don't have a loss until you sell. So if you don't have to sell, just hold on and wait for a better time.
So in terms of passive investments, I like what you said about communication, and I personally pulled a bunch of money out of stock market and I invested passively in a lot of different deals. Part of the reason for that was I wanted to invest with a bunch of different syndicators to see the communication style because I wanted to develop my own. Then there's some people that I'll probably reinvest with and there's others that I probably won't.
Identify Your Ideal Real Estate Asset Management Investment
Darin: What's weird is there's some people that probably gave me a really good return that I won't reinvest with just because I like doing business with other people, which is silly, I guess. You could say, "Well, if this person brought in a good return, you should go." You have the choice of who you want to do business with.
So I tell people, and I want to get your take on it from an LP perspective, I think most people will say, "Find out who you want to invest with." I say, first, look at what markets you want to be in. Do you want be in Arizona? In Dallas? Or do you want to be in Carolinas or Florida? Then once you know the market you want to be in, then find syndicators in that market that you know, like, and trust, and that can take some time.
Get on their email list. Look at their deals that they're coming out with. Sign up for their webinars. You don't have to invest, but you can learn from that. Then when you pull the trigger, it is easy from the sense that all you have to do as a passive investor is wire the money. You have to sign some documents and then wire the money and then that's the extent of the work, but if you're like any of us, there's a lot of emotion that goes into, especially that first deal, "Who am I going to give my $50,000 or $75,000 or $100,000 to?" So talk a little bit about that and then we'll get into the GP side.
Know Your Partners
Greg: I certainly agree with everything you just said. That the example you gave where some folks that gave you great returns but you wouldn't invest with them for one reason or another, I don't think that's silly at all. That's just natural. That's what happens. You need to invest with someone who is going to make you comfortable also, as well as who's providing the returns.
So that goes back to my statement earlier in my story about the sponsors that I invested with that didn't communicate very clearly. I wouldn't invest with those, again, with one exception, and the exception is the guy who had the Oklahoma City when they did 60% return. That was a long time ago now. I think he's changed a lot. He has a new business partner and they're focusing on a different type of different segment in the market right now, different markets. I think everything that I've seen from him is I think I'd be very comfortable investing with him now. So that's definitely something for consideration.
Darin: Look, there's some people that they learn from it and there's some people that they don't. That's the beauty about syndication versus buying stocks. If you buy Amazon, you can't call up the top execs and get a monthly report. You get the SEC reports, but with syndications, you get to choose who you're going to do business with and then you get their communication every month and then you get to decide whether you want to continue to do business with them afterwards.
Find the Right People
Darin: All right. So I say it is functionally easy to be a passive, but it's still emotionally hard to part with your money for that first time, but you had positive experiences. I've had a number of deals that have gone full cycle, and I think I've doubled my money on almost every one of them. That to me is huge. I wasn't getting those returns in stock market. So all right, now, get into the GP side. Hard or easy?
Greg: It's definitely more hard than it is on the LP side, but it can certainly be done. So it's a matter of persistence and sticking with it and doing all these things you have to be persistent. It doesn't just pop up in your lap. You have to be actively out there looking for it and form that team. Form a team with some people who balance what we talked about earlier. Figure out what it is you bring to the table. Find the right people to balance that out so you can form a team that has the capacity to go out and find source deals, underwrite them, get them under contract, and close the deals.
Darin: So you're in a multifamily mentorship group. What's the name of it again?
Greg: It's Vertical Street Ventures Academy.
Darin: We met in another multifamily group, the Brad Sumrok Group. You join a multifamily mentorship group, whether it's Vertical Street or Sumrok or another one. Are you guaranteed to get a deal?
Persistence Is Key
Greg: I don't know of any program where you're guaranteed to get a deal. I have heard recently that some program was going to guarantee for a higher price point and you'd get into something within a year or something like that. I don't know, I haven't seen that personally. Again, it comes back to your persistence. You have to work it, you have to work the program. You have to put in the time and effort to make it work for you.
I saw a lot of people who got educated, participated in mentorship group, and then walked away a few years later frustrated because they never got a deal. I'd just say, you know what? You have to keep on going. Ed Mylett has this book, The Power of One More. You have to put in one more time, one more time. How many times does it take? I don't know, one more. You never know the next one is going to be the one that actually gets you there. So you absolutely have to do that.
Darin: No matter what group you join, if you join a group, you're investing in yourself. I love the word you use, persistence. I believe that it gives you the opportunity and the knowledge to shrink that timeframe dramatically, but you still got to do the work. You still got to go out there and meet the contacts, you still got to build your team. And you still got to go out and underwrite the deals. If you're not willing to do that, if all you're looking to do is write a check, then I don't know of a group that's going to hand you a deal. So I'd say save your money if that's what your expectation is.
Identify Your Own Real Estate Asset Management KPIs With Greg Butcher
Greg: If that's all they want to do is write a check and don't want to do a lot more than that, then perhaps the passive investing track is better for them.
Darin: So now, you're focused on who do you want to do business with, you provide them the capital, and then they go out. In my experience, I've doubled my money and I wasn't doing anything. There's a lot of other stuff I would love to talk to you about, but we're coming toward the end here. If people want to reach out to you, what's the best way for them to do that?
Greg: Well, the best way I'd say is if anyone who's interested in that KPI or report checklist that I have, then they can find that online. It's a short url, bit.ly/kpichecklist. If they do that and download that asset, they'll get a link to be able to reach out and schedule a meeting with me also.
Darin: Do you also have a website people can learn more about you on?
Greg: I do. So my company is called BluSky Equity Partners and they can find that at blusky-equity.com. There's no E in Blu, but if they put the E in there anyway, it'll still redirect to the right site.
Darin: All right. Awesome. Hey, you've done so much now. What's the stretch goal for you?
Greg: So I'm looking at a couple different things. Right now, I'm focusing on improving the size of my equity raise when I get into deals. I am looking at getting into some multifamily deals this year, but I'm being very selective on which ones I get into.
What’s the Next Stretch Goal for Greg Butcher?
Greg: I'm also looking at potentially expanding into self-storage at the same time, certainly not abandoning multifamily, but I like the idea of self-storage. They're both probably the two most recession-resistant asset classes out there. Even during a recession, people have to have places to put their stuff. You're also taking some of the emotion that's present in multifamily out of the equation with self-storage because it's not someone's home.
So it doesn't have that same emotion as, "I'm providing people's homes and if they can't pay, then what do they do?" and the prospect of eviction with self-storage, you don't have to mess with all that stuff. If they don't pay, you give them notice and overlock their lock and after 30 days or so, whatever the timeline is, then you cut the lock off and auction their stuff off the storage and release.
Darin: It's interesting. If you understand one business model, multifamily or self-storage, you understand the other. I've had people that have been in industrial that said they like multifamily in an inflationary environment because the leases adjust every year, where industrial, you have built-in rent bumps. Well, self-storage is even better. You buy a property and then bump the rent on all of them by $5 if the market can stand it, right?
Greg: That loss to lease you talked about earlier with apartments isn't there because you don't have 12-month leases, for example. It's just month to month. So you can bump everyone's rent if you need to, if it's appropriate.
Darin: Right, based on supply and demand. So that's huge. Well, Greg, I appreciate you coming on the show. Listeners, I hope that you enjoyed that one. Until next week, signing off.