Are you looking to invest in multifamily real estate? Learn from Bryan Amos, an expert in the field, how to complete real estate due diligence on potential investments. He offers tips on what red flags to look for and how to inspect a property properly. This information is essential for anyone looking to invest in this type of real estate. After listening to this episode, you’ll be able to confidently inspect any potential investment property and make an informed decision about whether or not it’s right for you. Investing in multifamily real estate can be a great way to grow your portfolio – so don’t miss out on this valuable information. Listen and learn!

Table of Contents:

• Where To Listen To The Podcast
• Helping Investors Exercise Real Estate Due Diligence
• The Cost of Not Having Real Estate Due Diligence
• When You Have Zero Knowledge of Real Estate Due Diligence
• Questions Investors Have to Ask
• What to Evaluate When Doing Real Estate Due Diligence
• How to Reach Bryan Amos

Helping Investors Exercise Real Estate Due Diligence

Darin: Bryan Amos lives in the Fort Worth area with his family. He's performed due diligence on over 80,000 multifamily units. He loves the multifamily asset class and helping investors understand the current physical condition of a property. How that will have an impact on capital expenditures going forward.

Just a little bit on how Bryan and I know each other. Bryan, when I first got my first syndication deal, one of the things I was scared of was I'm not an engineer. I was like, how do I know that I'm buying a property that doesn't have a bunch of issues structurally or otherwise? Thankfully I joined the Brad Sumrok group. Both of us are part of that group. I met a lot of other syndicators and they're like, "Just hire Bryan." So I did and he helped out in a tremendous way.

I'm very interested in this conversation and I think the listeners are going to benefit tremendously from it. With that, can you share how many properties and units you're invested in? You're on the due diligence side, share a little bit about your background there as well.

Bryan: Been doing due diligence for 13 years. We've assessed over 80,000 units and several hundred properties and all range from D class to A plus. I've transitioned over the last few years to also be an apartment investor and that's how we've met.

Recommendations From Syndicators

Bryan: We are in the same investing group. Currently, I'm a general partner in three properties, 832 units. So two larger properties, 300 plus units, and then a 160-unit property in Irving. We just closed earlier this year.

Darin: As I alluded to earlier, I hired your firm, which is called The Omni Group. I did that based on recommendations from other syndicators. Because I was like, "I don't know if there are foundation issues or plumbing issues or whatever." They're like, "Don't worry. Just call Bryan." And so I called you and hired your company. Explain a little bit to the listeners what you guys do when you come on the property and when.

Bryan: We approach it a little bit differently than what you may expect. If you have experience as a home inspector, you're selling a house or you're buying a house and you get a home inspector. We're that for apartments only for the investor. That's an important distinction. For example, when you get your home inspection, it goes to the buyer. It's the buyer. In the case of multifamily, the lender is the one who authorizes and engages the inspection company usually. It's on the lender's side, the lender's looking to protect themselves.

I saw a gap there where we would get this property condition assessment from the lender and it wasn't from the investor's perspective. So I created this with another investor who had a property management company. They had a due diligence checklist of all the things that you needed. Me, from the construction side, at that time I'd been a general contractor for six or seven years and this was back in 2009. We put this together for the investor. As you said, you hired me.

Your Property Advocate

Bryan: I'm your advocate to make sure that there are no big problems on the property and then sketch out the initial cost for the first year on those major categories. Your interests are my focus. If you get it from the lender, the lender's trying to protect themselves. That's where we came up with these major categories that we would cover for due diligence.

Darin: What are those major categories?

Bryan: I think this is an important distinction for your listeners. That if you get a lender's PCA report it's by engineers, for engineers. They may break it up into different categories. As an investor and someone who's renovated properties, we based it on who's going to actually do the work. Now some of these are obvious. The roofer does the roofing. Foundation company does foundation. But when you get to interiors, who does the flooring, who does the cabinets, and who does the exterior? Maybe the carpenter or the metalwork. The way those are divided up in the PCA is a little bit unclear who does the work.

We make sure we have one party responsible for the exterior and interior repairs. So two major categories. Of course, you have your roof, your foundation, your plumbing, the sewer line side, and the domestic hot water side. You have your sewage and then your potable, your domestic hot water that's used for your showers and inside the units. Then you have parking lot and termites. Now termites are usually not a deal breaker but it's always required by the lender so it's something we check. HVAC and then electrical. Those are your major categories.

A Real Estate Due Diligence Guy

Bryan: We also throw in exterior lighting. It's never a deal breaker but usually the electricians out there, they're checking the panels. They check the lighting as well.

Darin: Listeners think about this, if you're going after your first deal like I was when I hired Bryan, you get a deal under contract. Then maybe you're not a due diligence guy like myself. I had no idea how comprehensive this was going to be. If I had to do it alone I would've had to call the plumber. Basically, I hire Bryan's company, and then I show up for due diligence. He has brought all those different skill sets and different companies that specialize. He's got an electrical company there, a foundation company, and an AC company. They're going and looking at all the facets, then they report to Bryan and Bryan summarizes it to me as the investor. That was such a breath of fresh air.

In addition to that, Bryan's walking me around the property pointing out, "You see this? Depending on how long you're looking to hold it, you may want to do this, or you may not want to do this." He's providing value and giving guidance. Now you're the ultimate decision maker on how you're going to spend the rehab money. But he's got the experience reviewing over 80,000 units, so why would you not listen to this guy? I was very thankful.

Bryan: Appreciate that Darin. Point out, I'm not necessarily the expert. My business model is I'm a coordinator of experts. I've learned a few things about electrical and a few things about plumbing over the years.

Professional Opinion

Bryan: I have some training and some different study that we've done. But I'm never going to beat a plumber who's been around for 30 years or a master electrician who that's what they do day in, day out. We contract with these companies to give their professional opinion and actual bids for that work. So a little bit different than what a lender will do.

A lender usually has one representative, one person that comes out. This guy or gal will review the property for an hour or two and walk a sample number of units. Then he gives you a summary based on the tables that they have to do pricing. So totally different getting an actual bid from a contractor. We provide all that coordination for the investor.

Darin: That's huge from a number of different aspects. One, from the investor's standpoint. I can take action from one of the quotes that are included in your report immediately after purchasing the property, but I'm not required to. You're bringing all these experts on and they're providing quotes for doing the work. If I have another general contractor that I want to use, I can use that general contractor for one or multiple, or all the pieces. Even if I don't use the vendors that Bryan brings, it's another bid that I can compare to another GC that I might be working with. So it's invaluable.

Bryan: Sometimes they ask, "Do we have to use this contractor or this sub?" No. This is supposed to be a real-world accurate proposal for you to use. Again, we're on your side.

Investors’ Advocate

Bryan: We're the investor's advocate and give them the resources so that they can make quality decisions based on their business plan, not based on some lender's criteria. These are deferred maintenance, you have to do these certain things. We want to give you the big picture and then the control is in your hands to make those decisions.

Darin: That's huge because, at the beginning as the investor, you're putting together the rehab budget and having somebody that is on your side like Bryan to be able to say where should I be spending the money? Because that's a big part of being a syndicator and being the lead on a deal. It’s knowing where to put the money and where you're going to get the most value from. But there are certain things that you can't get away from. If the plumbing clogs up, you have to fix it. Knowing that upfront and budgeting for that is crucial.

Bryan: Different ages of property affect your business plan. For example, I currently own a 1960s property that has cast iron sewer lines.

Darin: I'm so glad you're talking about cast iron sewer lines. I wanted to know about that because I've got a property like that too. It's just a nightmare.

Bryan: The problem with cast iron is they were designed to last about 50 years. Unfortunately, I was born in the early '70s and I'm approaching 50 so anything in the '60s is over that. It just shows some deterioration, kind of like me. All my joints don't work the same as they did when I was younger. Well, these cast iron pipes and the maintenance guys and different plumbers over time, roto-rooter those lines.

The Cost of Not Having Real Estate Due Diligence

Bryan: They hydro jet them and they start to deteriorate, they start to rust and flake. Over time, you have these weak spots and the sewer lines break. It wasn't until the 1980s that they switched to PVC, and those lines lasted longer. Anything in the '70s and '80s, you have a high likelihood that you have cast iron pipes. This particular property that I own, 1960, it's performing tremendously. But it's something that we have to budget for. We did some initial repairs and we know that that's an ongoing cost that we must account for this older property.

Darin: You could still buy these properties but you have to be able to budget for the repairs and maintenance. If you don't budget for it, it's going to eat into the cash flow you thought was going to investors. On the cast iron pipes, I'm going to ask you a few questions here because I want to learn. I've seen some cast iron pipes at one of the properties I'm involved with that literally crack. They're not repairable. There are just cracks all the way down the pipe.

The guidance from the plumbers is that they've got to cut that piece of the pipe out, put PVC up and latch that onto a good part of the cast iron pipe. One is that a good approach. It's very costly to replace the entire cast iron with PVC. Then an investor actually brought it up to me. I've never heard this before so I don't know if this is just a commercial or if it's real but there was something called cast iron pipe lining repair.

Cast Iron Pipe Versus PVC

Darin: They basically go in and then put PVC inside the cast iron pipe versus having to cut the wall out. Then they cut the pipe and replace it with PVC. That's a lot, but I'm interested in that detail.

Bryan: Let's start back where you first started. The pipe does literally disintegrate and has cracks. There's nothing to patch that crack. You do have to cut it out and your next clean piece of pipe is where you have to attach to. Now I'm most familiar with making that repair with PVC. That is a recommended repair. Especially if you're going vertically, that's something where you typically use PVC for your sewer lines. The big difference between how a maintenance guy would do this repair versus a plumber who's doing it the right way is how they do those connections.

Darin: The connection between the PVC and where it latches on.

Bryan: To the old cast iron. So the cast iron, you found a good section, how are you making that connection? What you don't want is six months from now, that shifts and you end up with another area that blocks the flow. You have a backup in just a couple of months. That is very common to have quick plumbing repairs done by maintenance. They dig down. It's a rubber gasket fitting. You want to make sure that it's properly connected. That the pieces meet and that they have a secure fitting to connect that line and that doesn't shift.

Darin: What would be a secure fitting?

Bryan: It’s not just a bracket that you get from Home Depot. You make sure that you have a complete fitting on both sides of the line and that it doesn't move.

Up-and-Down Movement

Bryan: You're trying to avoid this up-and-down movement when the two lines meet. Because we're in north Texas, which is unusual for some people, but our soil moves. It shifts over time. We have clay soil with, high content of clay. It's elastic. So you do your plumbing repair and over time you get a lot of rain or it doesn't rain and that soil will move and it'll break those repairs. You have to be able to take this up-and-down movement that we have in north Texas.

Darin: You guys go in and do due diligence ahead of time. The first thing you see is, this property has cast iron pipes. It's evident and you can see that. Now you're doing the scoping of the lines. It sounds like what happens a lot of times is the scoping of the lines is the major lines that are going from the main sewer line into the buildings.

But it's not going to snake all the way up through each apartment. So the main lines might look all right and all of a sudden you buy it. Then you have cast iron pipes that are bursting on the second floor and then it's seeping down to the first floor. Now you're having to make repairs for two different apartment units. How do you know that in due diligence? Is there a way?

Bryan: Between the walls and the vertical lines, you really can't scope those lines. What we're trying to get, we're scoping lines that are most probable to fail. Those lines under the building are the ones that are most susceptible to ground movement, wearing out, and deterioration over time. The cast iron in the walls tends to last longer.

Real Estate Due Diligence Is Looking For What Can Turn Into Major Problems

Bryan: It’s not that they don't ever deteriorate but they last longer. We're looking for the major items that we know might be a problem. There has been a couple of deals where we scope and find mud and dirt, which means the line is broken or just filled with roots. That means the lines are cracked and roots can penetrate in there.

There have been a couple of deals where we had to cancel and say really we don't recommend going forward. The sewer lines are so bad, definitely a potential deal breaker. Now you did mention the liner and that's a new product that's come out. I don't have personal experience with how well that lasts. We typically do PVC repairs when we're replacing any of the cast iron pipes. But it's something that might be an option particularly as these properties continue to age, looking for other alternatives that might be cost-effective.

Darin: For the listeners, if you're looking for your first property, you want to see if it's got cast iron pipes for the sewage or it's got PVC. If it has cast iron, it doesn't mean that the deal doesn't work. It just means that you have to pay close attention to the due diligence process when they scope. Also, how much money you're going to allocate to plumbing issues?

Bryan: Some of this, depends on who's owned this prior. Some of these properties may be older but they were institutional investors. They've replaced almost 90% of the cast iron. That's a surprise.

Red Flags and Their Huge Impact

Bryan: Sometimes you have a 1970 property that was owned by an institutional investor in the '90s. They changed all the cast iron to PVC and you don't know that until you scope it.

Darin: That that's a great surprise. Talk about some of the other red flags. Business people are focused so much on making returns for the investors and paying the right price for the property. But then a huge impact could be repairs and maintenance. What are some of the other red flags that you look for when you're doing due diligence?

Bryan: Let's do two, top and bottom. The first thing is the roof. If you don't have a secure envelope for your property, water penetration, and rain is going to get in, the weather. The quality roof is really paramount. It's really important. That's why we bring out a roofer. We bring out someone to check those items. Even before you bring out any expert, maybe you drive by the property or you're reading the OM, the offering memorandum. If they have a newer roof, they're going to advertise it. It's going to be in the OM. So it's going to be, "We replaced the roof two years ago."

Darin: If there's no mention then it's probably older.

Bryan: Then it's the least eight to 10 years old or older but nobody knows. That's usually when you might have a problem and you might need to budget for some repairs. The roof is something where yes, take a look at it. But get someone out there prior to purchasing the property of course. That's key. The other thing is the foundation. We cover all of Texas so it's pretty common to have foundation problems in Texas.

Foundation Movement

Bryan: You have different investors from New York or Florida or California and this is completely new to them. Here, we have a great market, and a lot of jobs, but we have some physical characteristics that are a little bit unusual. We have foundation movement. Particularly these older properties tend to move even more because the concrete wasn't as highly rated.

Your PSI rating and your pounds per square inch are lower. It breaks easier, and it moves. That's something that you're going to have to account for some number for the foundation. We typically find most properties can have $30,000 to $50,000 in foundation repair and that's normal. So that's not a deal breaker. That's the normal course of business. Where you have a problem when it's over a hundred thousand or a few hundred thousand in foundation repairs. You'll see cracks in the walls, you'll see some of this distress so that definitely can be a deal breaker.

Darin: I was going to ask for the person that doesn't know foundation issues if they're doing a drive-by or they're just walking by the property. Are there telltale signs that the property has foundation issues?

Bryan: If you're brick construction, you'll see the stair step cracks in the mortar joints of the brick and you'll see gaps around windows. Maybe you do a property tour and you're looking in the units, you'll see cracks around the windows and the doors. That's pretty common. It can be as bad as where you find the roof. It's actually caused damage because the foundation moved so much. One city, in particular, Irving, is doing phenomenally, job-wise and it's a great place.

When You Have Zero Knowledge of Real Estate Due Diligence

Bryan: I own a property in Irving. But it also has one of the worst foundation soils for apartments. So that's a trade-off.

Darin: It's interesting that you said that it's common and it's par for the course in Texas. I grew up in Connecticut and I don't know anything really, due diligence wise other than talking to people like yourself. But on the east coast, I remember, if somebody said anything about foundation issues it was like steer clear. That's a problem property and don't even touch it. But I've invested in some properties as an LP where there were foundation issues. The sponsors went and allocated enough money, fixed those foundation issues before they painted the property and whatnot and it turned out great.

Bryan: Because I do get out-of-state investors and particularly the lender, the lender freaks out. The lenders are from New York and they've never heard of foundation problems. What's the deal with the foundation? They want to make sure you have an engineering report and all these surveys. All different levels where they can make sure that they're confident in your plan. But really this is normal. It's par of the course in north Texas and Texas in general. The key is, do you have a budget allocated for it and can you stabilize the foundation enough over your hold period?

The reality is that some may not tell you if they're in the foundation business. Unfortunately, I've had one old engineer tell me. I used to do single family homes before I did multifamily. From the early 2000s to 2009, we did single family homes.

General Contracting

Bryan: We flipped houses. I'm cutting my teeth on general contracting and learning this business. I had an engineer who we were trying to make sure everything was right with the house. And I said, "Can you give me a guarantee?" He said, "Well yes." "Okay, well give me the guarantee on this work." "I'll guarantee you it's going to move."

So I deflated. But over the years I've realized that he's exactly right. It will move over time. You can stabilize it. It makes it better. But it continues to move with the weather that we have, excessive dryness or a lot of moisture. It will just move over time.

Darin: That reminds me of the CEO of a software company. I was at a CFO conference and somebody said to him while he was speaking. He was complaining about their maintenance fees. The CEO was like, "Isn't this a great business? I charge you for the software and then I charge you to maintain it." That guy just responded similarly. He's like, "I can guarantee it's got to move at some point." We hit on the two biggies. Roof, foundation. We talked about plumbing. So we got electrical, AC, and safety issues. What's your take on those areas?

Bryan: Let's talk about electrical because I see things changing in that area. Now, when you have older properties, anything from the 1960s, mid-'60s, and '65 to '73, you have aluminum wiring. This is my 13th year, going on 14 probably in December. But we used to be able to just do what they call pig tailing aluminum to copper. That's the older school method of this mitigation.

AlumiConn Versus Copalum

Bryan: If you hear aluminum wiring, particularly for residential, you're a little bit nervous. Like the foundation, is this going to be a problem? Well if it's properly handled at the switches and plugs, it's really not an issue. It's not that aluminum in all its forms is bad. Commercial buildings and new apartment constructions currently use aluminum wire for their main feeder lines. The large gauge aluminum is fine.

It was when they tried to use it for residential applications and they used a small gauge and the wire would break and be not durable as copper. One of the problems with aluminum, when it breaks or becomes bent, it tends to not conduct electricity. So you have a little bit of spark where you have that bend. They did eventually improve that quality of aluminum in the '70s, but everyone was so like aluminum's bad. We don't want it. It's really that 1965 to 1973, you need to do some mitigation is what they call it.

To cut to the chase, lenders are requiring AlumiConn or a competing method, Copalum, which is a way to transfer electricity from aluminum to copper. AlumiConn is a connector that you have a copper line and an aluminum line and there's no heat transfer. That's the preferred method.

Now just a play on words is Copalum. That's a crimping method where they make that connection between aluminum and copper. You want that transition to not have any heat transfer. Some other methods according to some studies allow that. I say this because lenders are being more strict on what they have for insurance requirements that they're going to carry on their policy.

Older Methods No Longer Allowed With Real Estate Due Diligence

Bryan: They want to make sure this is done the way that they specify. Because I would say just three, four years ago that they would allow some of these older methods that they don't allow now.

Darin: Gotcha. I always heard exactly that. Like the copper cast iron pipes. From an electrical standpoint as a business guy, look to see if they have aluminum. If they have aluminum, see if it's already been pigtailed. I don't even know what that looks like, but I would ask people, is it pig tailed? Somebody that knows would tell me one way or the other.

Bryan: Well just to give a visual for your listeners. A pigtail is like a corkscrew, like a pig's tail. You wind like a corkscrew, copper and aluminum where they're twisted together. Then you have a wire nut on top. That's pig tailing.

Darin: You're just doing it at the connections?

Bryan: At the connections with your switches and your plugs. Because you have aluminum in the walls and then your switch is going to be a copper switch.

Darin: Now you're saying that they're requiring AlumiConn or Copalum.

Bryan: Of course, that's more expensive.

Darin: How much is it to pigtail and how much is it to add this AlumiConn?

Bryan: You previously could pigtail for $15 a connection. Now it's $25 to $30 a connection. Every time I check it's a little bit more expensive with the way pricing is going up these days.

Darin: What are the lenders saying for the properties that have already been mitigated by pig tailing?

Safety Issues Covered By Real Estate Due Diligence

Darin: I understand if it's an aluminum property and they say, "We're not going to agree to pigtail, you got to use this method." But if it's already been pigtailed as it grandfathered in, or do you have to switch it out?

Bryan: Not at all. This is very important to realize. They consider this a life safety issue and those items are not grandfathered. Just because it was done and it was done correctly according to the code and the city doesn't have a problem with it. We're finding that you're going to have to upgrade how it was done. Now get this. I have one of my older properties. It's a Fannie loan, so it's a long-term debt, which is good these days.

But they've come back. I'm not the only one. I've asked around some other investors. Fannie is reevaluating some of these older properties that are actually performing well. If you're doing well, you get on their hit list and they redo their property condition assessment. They bring out their experts and they're having you upgrade. Particularly on the electrical.

We have a property that has been pigtailed. The other thing is COALR. You might hear copper and aluminum, those are devices that we used to use. We're having to change those out to AlumiConn and there's no new purchase. This is just Fannie coming back. It’s requiring you to upgrade these things that were okay when we first bought the property.

Darin: That's not even on the change of ownership. That's like, okay, existing ownership. You've got a 10-year loan with these guys. They come out in year three or four and they're like, "By the way, you got to spend this much money."

Capital Reserves

Bryan: This is a couple hundred thousand dollar hit that we weren't necessarily expecting. That's why it's good to have capital reserves in your operating plan.

Darin: It's also another good reason to have a guy like you on the team. Because look, if somebody just went and bought a property and had no idea that that was a potential issue. Then they hired a GC that said, let's just pigtail it, they're putting themselves at risk that all that money could go down the drain. They may have to redo everything.

Bryan: I want to touch on another electrical item that's very similar, the federal pacific electric panels. Federal pacific panels. From the '70s and '80s, they massed produced these electrical panels. They're very popular in apartments. They're also called Stab-Lok. This is confusion sometimes on whether it is Stab-Lok or it is federal. No. It's like your Honda Accord. Honda is the manufacturer and Accord is your model of car. Federal Pacific Electric is the manufacturer of these panels. Stab-Lok was a very popular model that they used in many apartments.

We used to be able to do a load test to test those breakers, whether they would trip or not. They don't allow that anymore. Maybe we were able to do a percentage as well. But now they're reevaluating these properties. In fact this year in 2022, none of those have been accepted to not be replaced. I used to be maybe a couple of years ago, 50/50, and maybe six, seven years ago, I had a good chance of them completely passing them. That's something for the new investor to realize.

Questions Investors Have to Ask

Bryan: Some of these properties have changed hands and they've been approved by Fannie over the years and now they're not. They're like, "Well, we have a loan." I've even seen this on assuming a loan. They've assumed the loan and as part of the PCA process of seeing where the property's at, they require you to change out these panels. It's definitely something that is changing with the insurance and lenders that we work with.

Darin: What's the cost to change out these panels?

Bryan: That's where the sticker shock really hits you. They run about a thousand dollars per panel. That's per unit. These are the panels that are located inside the units.

Darin: There's a lot of investors that are business people. They used to flip homes, they're doctors, lawyers, and engineers. These are the questions you have to ask. You have to have somebody on your team that knows what they're talking about. Are there foundation issues or roofing issues? On the electrical side, what kind of wiring are they using? What kind of panels or electrical panels are on the property? It’s interesting to me that not only on the purchase, the lender inspection on the purchase, but even two, three, four, years down the road. The lender could come back and say, "You know what? You need to upgrade this."

Bryan: I've heard this from a DUS lender, a direct lender to Fannie. Fannie as a whole is looking to shore up their portfolio to improve the quality of its holdings. When we have some of these capital market issues and the economy, in general, is under a stress test, they're stressing their properties.

Real Estate Due Diligence Ensures Good Quality Properties

Bryan: They want to make sure that they have good-quality properties. Of those that don't pass, they want them to sell or refinance into other types of debt. So they're looking to improve their portfolio.

Darin: Can Fannie require you to refi out to another lender?

Bryan: No. But they'll make it onerous where you want to. Because here's the process. They will require you to put up capital reserves that they will hold in an escrow account. If you cannot produce the money to put into that escrow account, because I deal with all types of investors and some are under-capitalized, I would say. Some have a lot of resources. You want to make sure that when you partner with someone, the general partner because that's who is responsible, either has the resources to do that. To put in the capital, they're going to hold that in escrow. If you can't do that, we've seen some deals where they go to the market to avoid having to do these repairs.

Darin: I'm assuming that's part of the lender docs that were signed at purchase. There's little writing in there that allows them to increase the reserves based on repairs that they deem important.

Bryan: So you talk about investors coming from other areas. They maybe know finance and do not know due diligence. Well, this is something for me as an investor, I didn't know the intricacies of lending and capital markets. These lender contracts absolutely have a lot of fine print. You find out later that they can pretty much do what they want. Now we've learned some of those are negotiable that we didn't negotiate at first. But really the lender controls the deal.

A Company That Offers Real Estate Due Diligence Work

Bryan: You want to make sure that they're happy throughout your hold period.

Darin: Thank you so much for sharing all those issues. When I was walking with you, I was so naive. I remember we were walking past and there was dripping coming out of some pipes on the outside and I don't remember what the issue was. It was an overflow or whatever. I don't know if it was for ACs or for the hot water heater. But it was great to have somebody that knew exactly what that was.

You just got a budget for this or you got to do this and you have no problems. Let's switch over from the maintenance side. You still do all this due diligence work, your company, but you also have gotten involved with buying properties. And you have three large properties for 832 units. One, why did you make that decision to actually become an owner? Two, what are some of the learning lessons from being on the other side of the table?

Bryan: I always wanted to be an apartment investor. Before I was able to do it and had the capacity to do it. Part of the reason why I went into due diligence and moved particularly into apartments specifically, I don't do any residential. I mentioned we used to flip houses. We weren't very good at flipping, we were more of a slow back bend. So we typically did higher-end houses and they took a little bit more time. But when I knew that I wanted to invest in apartments, that's when I switched my due diligence and GC business to only focus on apartments, just to be around those investors.

Comparative Market Analysis

Bryan: It took some time for me, frankly, to build up the capital to be able to have something to invest in apartments. But that was always the goal. Once you've done single family and you realize that they're valued on just a comparative market analysis. You see the power of the cap rate and the value is based on a multiple of your income.

Darin: You have control. There's forced appreciation. Where you could have two properties right next to each other, and if you're managing your property really well. A valuation can continue to increase. The one right next door may be poorly managed and NOI doesn't go anywhere. That one's going to stay the same valuation even though they may look comparative.

Bryan: That's really why I wanted to always, for the last 20 years, be an apartment investor. I have been able to do that for the last four or five years and will continue to do that.

You talk about some of the lessons learned. One is how vital operations are. It's not just getting the deal, it's then asset managing and the property management company. It is so important.

Darin: Everybody says that going forward that's going to be more and more important.

Bryan: I get the benefit of being on the sidelines at the beginning and at the end of some of these deals. A lot of investors had tremendous success. But I see behind the scenes they did it by the skin of their teeth, by the seat of their pants. As far as they didn't know anything but they were successful. I just don't think that's going to be the case over the next several years in this economy.

A Great Investment Vehicle

Bryan: There's still money to be made in apartments. It's a great investment vehicle, but you're going to have to really have a good team put together. This is a good part to interject where I'm a numbers guy. I have a degree in engineering from Baylor, and I did that for a few years. Then I went into real estate and found what I really love.

I'm always numbers based. But as I become more experienced as an apartment investor and try to grow my business, putting those teams together is really critical. How well do you work with a property management company? If there are problems in the property management company, it's because they haven't put together a team effectively. What's your ongoing training? How do you bring in new people?

Right now we have a shortage of good-quality candidates for managers and maintenance. What's your intake? I have the same issue with my due diligence business. How do you put together a team and how do you keep them motivated? I'm finding that these soft skills of leadership development, team building, and emotional intelligence have greater value than I ever thought. I was more numbers focused previously. That's a big lesson that I've learned over the last few years.

Darin: Everybody says that multifamily is a team sport and there are just so many people that are involved. If you're not good with people and building a team, then partner with somebody that is. Or if you're the guy who's really good at finding deals and building relationships with brokers, partner with an underwriter that's going to underwrite all the deals. You don't have to be all things.

Real Estate Due Diligence Includes Relationship With Third-Party Companies

Darin: Figure out where you're good and where you can add value and then find other team members. Some of those team members could be partners, and some of those team members are investors that are going to invest in the deal. As you were saying, some of those team members are third-party companies that you're going to work with.

Bryan: You're building a relationship. It's not just transactional, it's not just one time and you're done. You can work with these companies over the years, the same as you do with a preferred lender and preferred partners.

Darin: That's what they want and that's what you want. The vendors would much prefer to talk to you about five different properties in one phone call than talk to five different people about five different properties. You mentioned something about some giveaways that you wanted to do. Do you want to share with the listeners how they can get some of those giveaways?

Bryan: You talked about how when I walked with a property with you that it was so beneficial to point out things. This is one way, and this is another, depending on your business plan. I can't do that with everyone. I've done a couple of trainings. Just a couple of short video training to show the investor how to drive by a property and start putting together that renovation budget.

Before you have gone down the path and you've hired someone like me for due diligence, that's already down the pathway. Remember the days of hard money? That's still around and now you want to make sure that your property's in good shape so that you can get to the finish line with the lender.

What to Evaluate When Doing Real Estate Due Diligence

Bryan: I have the training for how to do a drive-by, what to look for, and what to evaluate. And then also a subsequent training. Additional training for how to do a property tour. You're touring with a broker, you're seeing the property, what are you looking at? So a couple of training I like to give away. I use Community. You can text me at Community. Once you give me permission to send you that link, I'll send you the training.

Darin: What's the Community? Do they just text this number?

Bryan: It's my text number. That's 214-833-6450. Text “podcast”, and I'll be sure to get the training out to you.

Darin: I was just talking to a new investor. She's trying to become an active investor. She was asking me, "Will you go on some property tours with me?" I was like, "I'm sorry, but no. I'm just too busy and I can't do it for everybody." There's fear. I can tell that she's afraid. I was afraid the first time. Going, "What do you say to the broker? What is the broker going to ask you? You don't want to look dumb." I'm like, "At the end of the day, you're going to get better each time you do it. But if you don't do it, you're not going to get any better." But I wish I had this resource I could have pointed her to give her a little bit more confidence so that's great. Thank you for sharing that with people.

Bryan: One tip I'll give on a property tour that I've learned is to go with a buddy. Go with someone.

Two Different Roles a Real Estate Due Diligence Advocate Plays

Bryan: As the investor, you really have to sell the broker that you're a good person. You have the wherewithal, you have the team, and you have the capacity to buy the property. Part of your job is convincing the broker during the property tour. The other part is evaluating the property. That's two different roles. If you can have a buddy just take some notes on what they're seeing while someone has the conversation with the broker. You can get the most out of that property tour.

Darin: That's a great point. That's exactly what I've told other people. When going on a property tour, there are a lot of different things that are happening. One, you're seeing whether it's a property that you want to invest more time in and try to win. But it's also you're evaluating the broker and do I want to do business with this guy and he's evaluating you? Is this person capable of closing or am I going to put him at the back of the list?

You've done so much. I'm so thankful that there is this resource. This is another advantage of joining a multifamily mentorship group or a mastermind or going to free meetups. If your goal is to buy apartment buildings, get around other apartment owners. They're the ones that were like, "You got to hire Bryan." Then you learn that you got to hire this legal firm. You need to hire this property management company. So you learn from other people. You have to get out there and do that. What's your next big stretch goal?

Expanding the Real Estate Due Diligence Business

Bryan: I've been in due diligence for a long time and I've stayed in the Texas market. I want to expand.

Darin: You're going to go outside of Texas?

Bryan: That's really my goal. As you mentioned, I have a business coach, I have masterminds that I'm part of. They're like, "Why are you staying so small? Why are you staying in Texas?" So I want to expand in the sunbelt where I want to potentially invest in apartments and be able to service those clients. Really, I want to grow the due diligence and then take that excess capital and invest in apartments, in what I know and love. That's my next thing. We're first expanding to Florida. That's really on my target list. We have family in Florida too.

Darin: Just saying it is a risk. You get into this world and you get around so many people that just keep pushing themselves. They keep pushing the envelope in terms of what they can accomplish. When you see that, it motivates you to do the same. But when we talk about growth, doing stuff that you haven't done before is where that growth is. It can be scary, but it's also when you look back, you're like, "Oh cool, I did that." So you don't necessarily know how you're going to accomplish it. You just know you want to grow your business in the sunbelt. Now you got to figure out how to do it cost-effectively.

Bryan: That's my next big stretch goal.

Darin: We've got first-time investors, and we've got syndicators looking to scale. Maybe they've bought in Texas and maybe they've actually used you in Texas.

Doing Business in Sunbelt

Darin: They don't even know that you have an interest in doing business outside. What would you define as the Sunbelt? Florida, Georgia, and Carolinas.

Bryan: Nashville still though. Carolinas.

Darin: So if you're going to be in those markets, what would be your requirement?

Bryan: If it's snowing right now, we probably don't go there. We're approaching Thanksgiving this time of year.

Darin: Are you looking to move into those markets with somebody you've already done business with? Or if somebody's listening to this and they have not done business with you, should they call you?

Bryan: It's really the size of the transaction that makes it possible.

Darin: What size?

Bryan: If you're looking at anything over 200 units, it makes sense for me and my team to potentially go out there. If it's a 12-unit complex, 30 units, I really can't. How our business model is set up is we're paying these trades to come out there and provide a service. That's why you're not obligated because sometimes you do it for free, but they're waiting there for you to do the job.

Darin: Here in any of the submarkets in the major metropolitan Texas markets, you know who the trades are that want to work in Irving or Fort Worth, or Dallas. But if you go to Jacksonville, you've got to build relationships with the different subs in those markets. You need to have a big enough investment to make that worthwhile.

Bryan: Absolutely. After doing this for a few years, we know what to look for in a sub. But it’s reaching out and creating those relationships so we can put together teams as we have in Texas in other states.

Leisure and Family

Darin: I wish you much success on that front. What about for fun outside of work, what do you like to do?

Bryan: We actually just came back from Branson, Missouri. I love to travel with family. We did a couple of weeks there. I know you're traveling all over the country. Similarly, we love doing that. We love to travel, and be in new places, but with family. So we actually homeschool our kids.

Darin: How many kids do you have?

Bryan: We got three kids.

Darin: What ages?

Bryan: Eight, 11, and 12. 12 year old's about to be 13. I'm going to have my first teenager here in a couple of months. Unbelievable.

Darin: Homeschool. That's tough, that's a big commitment.

Bryan: My wife is a superhero. I admit it. The way we want to take care, we want to be responsible for our income. So I have my own business, and I choose my own investments. I want to be responsible for our own education as well, to make sure they get a quality well-rounded education. We do school on the road when we travel. It allows us to have the flexibility to do that that most can't do.

Darin: Thank you for giving that text message of 214-833-6450. Is there a website or someplace else that listeners can go to learn about your company and a little bit more about you?

Bryan: Go to theomnigroup.com. That's where we're located.

Darin: Thank you for working on our deal, for helping, coaching, and advising me. Listeners, if you've got properties and you don't have somebody like Bryan on your team, that's a big mistake. Definitely look him up and get to know him, his group, and his team members. Until next week, signing off.

How to Reach Bryan Amos

• Website
• Text "Podcast" to receive free training materials: 214-833-6450