![How To Invest In Tangible Assets With Dr. Tudor Francu [EP092] cover](https://darinbatchelder.com/wp-content/uploads/2022/03/EP92-FeaturedImage_126252171a20822fe90e085b5f555ed9_2000.png)
You don't have to be a doctor to invest in multifamily apartment communities! Dr. Tudor Francu has been investing in real estate for over 18 years. He started with single family and scaled into multifamily and he's here to teach you how to do it too. You want to own tangible assets that will preserve your capital while providing you with a steady stream of income. What could be better than owning a multifamily property? It's one of the smartest investments you can make. Listen and learn how to invest in tangible assets!
Table of Contents:
- Where To Listen To The Podcast
- The Key to Success
- Tangible Assets Helps You Become Financially Free
- Accomplish More by Earning Money From Tangible Assets
- You Can Burn Yourself
- A Big Thing People Need to Realize
- Build a Cushion for Your Tangible Assets
- How to Reach Dr. Tudor Francu
The Key to Success
Darin: Dr. Tudor Francu lives in Annapolis, Maryland with his family. He started by investing in single family and then scaled up into multifamily. He attributes the key to his success to associating yourself with the right people and having the mindset to go after your maximum potential in life.
Tudor and myself are both part of the same multifamily mentorship group, Brad Sumrok group, out of Dallas. We haven't met in person, but we have had phone conversations. I’m interested in understanding how a doctor gets involved, how he's getting other people involved. We're all going to learn a lot from him today. So with that, can you start by just sharing how many properties and how many units you're invested in?
Tudor: I have a total of 3,700 units at this point, about 370 as a GP and the rest as an LP.
Darin: When did you join the group?
Tudor: It's about almost a year right now.
Darin: Did you do all of these investments in one year?
Tudor: Yes.
Darin: You are like, when you decide to go after something, you go after it.
Tudor: Yes, it tends to be my pattern historically.
Darin: You’re the second doctor I've had on the show. Are you a practicing doctor?
Tudor: Yes.
Darin: In what field?
Tudor: I'm an anesthesiologist.
Darin: Why real estate? Why multifamily?
Tudor: Why not? It's a great field to be in. I've always been interested in this field. It became a hobby initially, then it became a business. I started with single family homes about 18, 20 years ago and built up a portfolio slowly but surely. I’ve realized with years that besides getting older, I'm getting busier.
It Became Harder to Manage Tangible Assets
Darin: It's all in our mind.
Tudor: It became harder to manage those properties year by year. I thought about any solution to scale up from that level. It seems that multifamily was the right thing to do. I didn't necessarily know how to do it. But I dove into this field about a year ago at this level. It's been going really well so far. My previous deals were close to multifamily, but not really considered a multifamily building of seven units and another one of six units. Then I got a taste of how it is to be at this level.
Darin: It's strange because before surrounding yourself with a group of like-minded people that are going after these 100 unit, 200 unit, 500 unit type properties, going from a single family to six or seven units, like to a lot of people, that's a big jump.
Tudor: It's six times.
Darin: The thought of, wow maybe someday I can owe 10 units, but then you surround yourself with all these other people and you see that they do it. Then you're like, if they can do it, I can do it.
Tudor: I think this is the key to this whole business. The people you know, the people you surround yourself with and most people know that you're basically an average of the five people you're with around you. It's very important for the group you belong to and the mindset of those people. That's why, when I first met Brad Sumrok, I realized that he already built this network and this kind of group.
If You Want Tangible Assets, Go 100%
Tudor: I tried to find more information about the group initially, but I was not really sure. I remember he was joking with me that you're going to regret the year later that you didn't do it on time. And I was like, yes, but I'm still looking. Once I started in this group, I just went a hundred percent.
Darin: So you met him a year prior and you let a year lapse where you didn't take action. The way I look at it is I'm 51 now. I got involved four years ago, at 47. I'll talk to people that are in their twenties and thirties. I'm like, I wish I had started investing in real estate 20, 30 years ago, but I'm glad that I do it now. We can't go backwards, but at least we’re doing it.
Tudor: It's not a matter of competing with anybody, you compete with yourself. I don't see myself going in a race with anybody else. It's just a race against my possibilities, my potential, how far can I get? It's just a single lane that I have that I'm competing against myself basically.
Darin: You're competing against yourself and you talked about your possibilities and your potential. Why are you doing it?
Tudor: It's a very easy way if you focus and you get educated about the subject to become financially free. That's a first step to have whatever you want to accomplish in your life, money is not the goal. Money is just a way to get to that and I don't make money as my goal ever.
A Number of Tangible Assets Versus a Net Worth Number
Darin: I just want to have some basically a step ladder that I'm working through in my life. So far it's been a great journey. I started in communist Romania and I came here when I was 28, starting from scratch. Here I am a couple of decades later talking to you about multifamily.
Darin: Many people I talked to are trying to get either a number of units or a net worth number. I love that it's just pushing yourself to reach your full potential. One thing I love about this business is that it forces you to not only help yourself but help other people along the way. The syndication business, you have other investors that come alongside you. You help grow the wealth of not only your family, but all the investors involved as well. That to me is a way of giving back.
Tudor: This relates to the fact that there's so much you can do by yourself in your life. Of course, you can give a hundred percent to what you're doing. But in terms of accomplishments, the team works much better than an individual. It's great when you have a great team of people to leverage each one's potential and qualities and get to a bigger goal. That's what the multifamily business is about.
You partner basically with a couple of other good syndicators and like-minded people that can help achieve a goal for a bunch of other investors. I started in this business as being a passive investor initially just to get my feet in the water. Saw how groups are working and tried to meet as many people as I could.
When the Stars Align
Tudor: After that, I don't know if it was luck or it was me. I'm not sure but the stars aligned somehow. I was invited by a great group that we all know with Ajai, Tom and Mike Hardage in my first deal. I'm very grateful for that. That was my first initiative in becoming a general partner in the deal. I learned a lot from them, and I continue to learn a lot from them. It's been continuing again to get your education in multifamily with this group.
Darin: You're also in a unique position. I know a lot of people in our group and in the space that come from either the single family space that wanted to scale. That's similar to your story or two that are engineers. There's a lot of engineers in this business, but I don't see many doctors. So I think that you are in a very unique position where you can be a voice.
With anything in life, people like to have some commonality, to have something, a connection. And with you being a doctor, you being able to know what they went through to become a doctor and what they do on a day-to-day basis, they could trust you to help educate them. Is that one of your goals or missions or anything like that?
Tudor: Yes, it's a great point you made. The fact that I belong to a certain professional community creates a certain bond with a lot of people in that field. I certainly want to be an example for the medical field being able to be more entrepreneurial, get more financial education for people like me in this field.
Tangible Assets Helps You Become Financially Free
Tudor: What I notice over the years is that most of the medical practitioners are very focused on their practice. They try to get better, they educate themselves in medicine, but it's hard to find time. I would say to think outside of the box. I'm trying to spread those words to people like me. Let them know that there is another way out there rather than just being a great doctor, but work till you retire. Certainly, it's a passion of mine. I always want to practice medicine. I'm still going to do it, but not at the level that I can basically become financially free from medicine. It's hard these days to do that.
I feel like multifamily can be a great solution for people like me, not only passively investing. If you don't want to have an active role, but also become actively involved in this. Start educating yourself. It doesn't take long compared to what we've been through to get to be a doctor in medical school. There is a degree also in multifamily that you can get by educating yourself for a year or two or three. Get much better financial results.
Darin: What do you think is the biggest, like the number one benefit to a doctor, let's say, just start like a passive investment. What's the number one bonus or factor to diversify out of what they're currently investing in?
Tudor: The fact that you own an asset. Most people forget that investments are usually seen as gambling. You either put money in your stock market and randomly pick up mutual funds or stocks or bonds or whatever you want.
The Best Ways to Own Tangible Assets
Tudor: But you have no control over that. Market goes up and down completely independent of your control and any other. Keeping money in the bank will probably get you a negative return at this point to the inflation that's out there. Investing in real estate is probably one of the best ways to own tangible assets. Create a cash flow out of it and still get some capital gains at the end of the sales process.
Even if something goes wrong and you don't get as much money as you project it in cash flow, you still have tangible assets. You still can ride that wave until you can sell it or improve it. The mindset right there has to change in the medical community. Look at investments as an opportunity to have control and own something with your money.
Darin: A few things based on what you said. One, there's not just doctors, but a lot of people and I was guilty of this. I made great money and just put money aside into the stock market and thought that's what I'm supposed to do. It wasn't until I met other real estate investors and they put me onto different books that I read. Then you realize that, no, you have to work hard to become a doctor or whatever profession you're in, but you earn that money.
You have to take control of that money, to have ownership, to have control over that and know where you're putting it. I’d just take a percentage and put it aside and hope that the stock market was going to take off. Like you said, own tangible assets.
Owning Tangible Assets Is a Great Way to Park Money
Darin: Wealthy people talk about capital preservation. Once you have that money, you don't want to lose that money. Owning tangible assets is a great way to park that money. There's a low probability that you're going to lose the capital that you put into it.
Tudor: One of the other most important advantages in this field or medical profession is that you also get a tax benefit out of that investment. It is referring to the kind of income level that in general medical professionals are getting. It's important to think of that aspect too because taxes are our biggest expense in life.
Darin: Nobody wants to deal with it but it's true.
Tudor: It's the second thing you can't avoid other than death. You have to think that way. This field provides a great opportunity for people, even passively investing. I'm not talking about general partners, just limited partners. To get a benefit from that depreciation percentage on the asset that they're buying and offset some of their income that way and saving taxes.
Darin: Let's talk about that. Somebody invests a hundred thousand dollars and there's a forecasted distribution. Talk about what the marketplace is, in terms of multifamily investments. What can somebody potentially consider to be their return on each year from distributions? How does that tax benefit help?
Tudor: In general, the simplest way to get involved in this is to get together with a syndication group. Participate in a raise for one of the assets and invest anywhere. A minimum amount could be anywhere from $25,000 to a hundred thousand dollars.
Tangible Assets Sales Process
Tudor: Invest in that property for anywhere from 3 to 5 years, get a cash flow of 8 to 10%. Also, get some capital gains at the end of the asset sale process of anywhere from 1.8 to two times your investment. Not only that, but the tax advantages that come annually from the depreciation of the tangible assets or the property that you bought can offset your initial investment.
For example, if you put a hundred thousand dollars in the first year, let's say depreciation is close to a hundred thousand. You can potentially offset that investment in taxes and take advantage of that depreciation. I'm not a CPA. I don't want to give advice to people like that, but there's certainly ways that you can talk to your tax strategist and plan that ahead. That's something that is in your control. You don't get any tax benefit from other investments.
Darin: Some people can take advantage of the entire depreciation if you're a full-time real estate professional. Some people can't, but the distribution that they get is passive income. So you can take that depreciation against any passive income you have. If you have other rental properties, I'm sure you have doctors that are invested in other single families.
Tudor: Yes.
Darin: They have other rental income and so they could take that loss and apply that to any income and offset that income. That's a huge tax advantage. If they don't have any other passive income at a minimum, they can have it cover the distributions. You mentioned eight to 10% in this market. So competitive, I hear a lot say 7 to 8%, but let's just use 8%.
Apples to Apples
Darin: If you are able to take that depreciation and cover and not pay tax on that, then you're really comparing that to probably a 10% return versus when you're apples to apples. They may have stocks that are providing dividends of 5%, but they have to pay taxes on it. Now it's a 3% return and here you've got a 10% return. Those are different things that people don't fully understand until they get involved. It's fantastic to have a doctor out there because sometimes these conversations happen in the hospital, while you're working with people.
Tudor: You have to realize that in the medical community, trust is a big component. Sometimes you work with the same people over and over every time and every day. So you create a bond with them. The fact that you talk about these things creates some excitement for people around. I love to educate people on this.
Maybe, I was fortunate enough in my past to have some exposure to the financial world initially. I educated myself also when I came to the United States. I’ve had two or three years where I worked in a financial field before I start doing my residency. I always had this thing in the back of my mind that I can do something better than what I'm doing.
It comes down to your own goals, to your own line and lane in life. You compete with yourself and you get better day by day. That's what I wanted to do. I wanted to become more financially free and not have the stress of day-to-day operation or month-to-month paycheck.
Accomplish More by Earning Money From Tangible Assets
I'm sure it's not an issue for the medical professionals at this point. But it's a matter of how many things you can accomplish by earning that money. If you can take some tax advantages from that, that's great. Or if you can own a property with that, that's awesome. If you can get a better cashflow monthly, that's excellent. Why not? Otherwise I can go and play the lottery and pray that I'll win. It's basically the same with the stock market.
There are people who got rich from the stock market, I'm not disputing that. But it's a different alternative for people that work hard for their money to have something secure over the years.
Darin: You don't have to take everything out in diversification. People talk about diversification all the time, but if you only know the market. Real estate, it sounds complex to get involved with it. You said it earlier, doctors are focused on their practice, they're learning. They don't want to spend a ton of time trying to learn this other thing.
That's where you come in, where you actually can say you know what? To start out to do it passively it doesn't take a ton of time. You mentioned the partners that you're in that deal with. I was a KP on a deal with Tom. My wife and I invested a hundred thousand dollars three years ago. Last year it went full cycle, we got a hundred thousand back plus another a hundred thousand. We didn't do anything after we wired the money, we were passive. Tom and his partner, Jack, managed the deal. I was like, this is a completely different world.
A Very Important Thing in This Business
Tudor: That's one thing that is very important in this business, the people you associate yourself with. Going to the meetings, going to the sessions, going to the networking events, it's very important. You get to form some relationships and get to know that person better. Then you start choosing between different groups based on their results and their personalities. That's a big component of where you invest your money in, but you have to start somewhere.
All of us started with the first home or with the first apartment building, you have to take that first step. You can’t be like paralyzed in fear because you don't know what's going to happen. At some point you have to take a risk. Most of the time you can go really wrong because it's an asset. Again, it's not gambling, it's tangible assets that you're going to own.
Most people in the medical field are afraid. Some people say, "Let me start with just buying a single family home, rent it out, and see how that rental property goes." They work a lot, they have to manage by themselves. Then they deal with tenants, with toilets, with all these issues. They're afraid, but the amount of work that they put in, it's maybe the same. Maybe it’s less even to participate in a syndication deal like that. The step from one single family home to 10 units or a hundred units is the same amount of work, is the same amount of time. Why not scale up?
Darin: It's mindset. You have to be introduced to somebody. It could be one person or many people that educate you on that.
Why You Should Invest in Tangible Assets
Darin: A lot of these doctors, they're not listening to podcasts and reading books. They're reading medical journals on how to further their practice. I applaud them. That's who I want to see when I go to the hospital, somebody who is focused a hundred percent on their patients' healthcare.
But if you can be that bridge to them to show them that I wish I had known about this a long time ago. The one thing that's weird about this business is that you actually have to get an invite to participate in one of these deals. You have to be on somebody's email distribution. When they get a deal, you get an email saying, "We've got a deal, do you want to invest? Yes or no."
Tudor: Yes, and you have to have a prior relationship with them too. It's a very strict SEC-regulated business.
Darin: If you don't have that, then you don't ever even get asked to the table.
Tudor: That's where networking starts to become important. The time that you have to network with people other than the medical field. I always tell my colleagues and my friends in this profession, you still have weekends, right? If you practice the whole week, you still have weekends. You want to spend half of that weekend, maybe networking with people once a month.
Come to a seminar, start educating yourself, start meeting people that are in the same business. That way, you get to participate with like-minded people in something in common in a team as a passive investor. You have to start somewhere. My first deals were passive investing.
Why Become a Passive Investor of Tangible Assets
Darin: Did you learn from being a passive investor?
Tudor: I learned a lot. My first deals as a passive investor, not only that I wanted to invest some money to get some returns, but primarily I was looking for groups that can teach me. They're transparent in their processes that I can learn from, such as sending monthly statements and newsletters and letting people know how things are done. That's what I wanted to accomplish. Not necessarily to double my money, that's going to come later.
I primarily wanted to get educated in this. Then little by little, you find yourself in a position where you become comfortable with certain things. You say, what else can be done? How much higher can I go with this? Slowly you find yourself in a position that people look at you as being interested like I was with the first group I participated with. You become one of their teammates and you continue to learn and you learn your whole life like this.
Everybody's learning, including Brad. He's very humble and is always looking to improve himself, to coach himself with other people better than him. But again, it's all about our own lane. We don't compete with it. I'm not competing with Brad, I'm not competing with you, I'm not competing with anybody else. It's just my own potential. I love to share my experience with other people in my field and also learn from people that are better than me. One thing that I noticed and I loved about this business initially, is that people are very willing to share.
You Can Burn Yourself
Tudor: People are willing to share their experiences, their network, their tips in terms of how deals are made, what to look for, what to be careful with. You can burn yourself also. But again, it's a burning sensation that makes you improve. You go one step at a time, but people are willing to share tips like that. They hold your hand and say, if you don't know how to do this, let me show you. Let me send you a link, let me share a contact, which is a great thing. I haven't experienced this in single family homes, honestly.
Darin: I haven't experienced it in any other industry other than this. Talk about what that means, that you can burn yourself.
Tudor: There are some deals where you don't know how to do things and I certainly was in that position at some point last year. I was in a position where I didn't know how to do things, I didn't know how to get out of a situation in multifamily and I asked for help. It's interesting how the network was there for me. I got coaches to help me from this group. I’ve had other people advise me on what their perspective is and how to get out of that situation.
Overall, it was a great learning experience for me. There was one deal that I couldn't close. We did everything well, and it was completely out of our control to close the deal. It was nothing bad that happened. It’s just a great opportunity for me to see how much I can learn from this and how much I can improve for the next deal I make.
Your Network Is Your Net Worth
Tudor: I'm grateful this happened really early in my multifamily career because you get humble. You put your head down and you say, I'm not there yet. I still have to work on things I have to learn, and I have to educate myself better.
Darin: Is there anything that you can share for the listeners that they may want to watch out for? Things that they can learn from, from that experience.
Tudor: The one thing that I can share is the people you associate with are very important. Who you network with, who the people around you are, their level of expertise, and the way they handle difficult situations. Everything is good when things are going well. But when things are not going well, you see people's real faces. You discover how people deal with stress and with difficult situations.
I didn't have that kind of disappointment, my team was great. It was somebody else that I didn't have control about. In the lending field, basically didn't do the right thing. There's always a possibility there that you might do everything right, and things might still not work out.
Darin: While you were saying that I was starting to think of doctors being in the operating room. You mentioned difficult situations, like all of a sudden something happens that is not expected. There are some seasoned doctors that are calm and cool and collected, and they managed their way out of that issue. Even if maybe somebody junior was initially doing the work, and then there's other doctors that may freak out.
Things May Not Go Your Way
Darin: Who do you want to associate yourself with, who do you want to learn from? You want to learn from the one that is cool, calm and collected in those difficult situations.
Tudor: I've had those situations in my medical life many times. The only thing that you realize is that you can do your best every time. Things might not go your way and that's okay. That's okay because you learn from it and you become better next time.
Darin: Another example on the network is COVID. When COVID happened, I was very thankful that I was part of a group. All of a sudden, Brad was like, "We're going to have weekly calls." All these people came on and what are you doing? If you owned an apartment complex and you were a one-man ship, you wouldn't have all that feedback. It's not that you have to take all that advice. You can hear 10 different things, then, that one resonates with me. It's nice to have that.
I also think about networking. Networking is about partners. You talked about Tom, Ajai and Mike Hardage. It's also about attracting investors, but it's also networking with other syndicators. You may learn something that somebody did on a property that you could deploy on your property. Or all of a sudden you have a fire on yours and you never had a fire on a property. This other guy had that issue, you call up, and this is how he handled it. There's a lot of different advantages of networking and growing that community.
What the Investors of Tangible Assets Are Looking For
Tudor: Another thing that I learned from last year’s journey was that you have to assume something will go wrong somewhere. You have to be prepared for it. It's not a matter of if something will go wrong, it’s when it’s going to happen. The point is that you are you prepared to deal with it. Do you have a solution in place, do you have a plan B to deal with it? That's what the investor is looking for.
I am not looking as a passive investor for things to go perfectly. I'm looking for a team that has solutions to things that are not going well. That's what it's all about. This is a typical principle of life. We're all having issues in our life day by day. They are unpredictable. They're not under our control. It's a matter of how you see them, how you react to them and how prepared you are mentally to deal with these things.
That's how my mind frame is right now going into multifamily deals. I want to get some experiences under my belt to be able to deal with situations that I don't have control over. It's just a matter of time that will happen, it's just a matter of how I react to them.
Darin: My business partner on my first deal, syndication deal Raj Gupta out of Chicago said to me, this business is all about solving problems. Like you said, you're going to have some. Now I want to differentiate between the LPs and the GPs. With limited partners, you're investing capital. Once you wire the funds, you don't have to worry about it.
What an LP of Tangible Assets Wants to See
Darin: Your money is still part of that investment, but you are not part of having to create that solution. But when you're invested in a bunch of LP deals, as an LP, I love to see transparency from the general partnership group. "Look, here's the good, the bad, and the ugly." If somebody says that there's the ugly, I want to know the leaders of the ship. Have an action plan, that they're taking action, that they have a potential solution. It may not work and they might have to pivot again. But I don't want to get an email saying everything's falling apart and that's the end of it. I want to know that I'm with competent leaders.
Tudor: Another aspect is people that are available. I'm a GP in a couple of deals but I want to make sure I'm available for my investors. I don't do Calendly, I don't do appointments, and I have my phone number everywhere. You just pick up the call and call me and ask me questions if you are one of my investors. That's what the whole thing is about, besides the monthly financials, the monthly newsletters, and how the properties are doing.
There are people out there that are concerned about how they don't wait for that monthly newsletter or financials. They want to see in two weeks, what happened to the property and how things are going. You have to be available for them. It's a big thing for me to have investors be able to access me at any time, because I'm their only point of control, only point of contact in that deal.
A Big Thing People Need to Realize
Tudor: The deals are states away from me. I have investments in Texas that I can't just fly instantaneously there.
Darin: You're in Maryland?
Tudor: Right. But I know I have a GP that I can call at any time and ask. On my deals, I have investors that I know they can call me at any time and ask about the deal. This is a big thing that people need to realize. Networking is a big part, but the people you network with and relationships that you create count a lot.
Darin: I hear from you that it's just a passion point. It's just part of your makeup that you want to be accessible and you want to be available. You want to be an educator and you want to be the go-between and make people feel safe and secure.
Tudor: It's a matter of trust also. When people will trust you with their money in your deal, you need to give back that trust.
Darin: That's huge and that will pay dividends. It doesn't happen like a snap of your finger because these deals take a lot of times, 3, 4, 5 years to go full cycle. But I've interviewed a lot of syndicators. When I've asked, how did you grow your investor base, more times than not, I've heard, do right by your investors on the first deal. Then they tell their friends and their mother and their father and their aunt and their uncle. You get these referrals and then it starts to snowball each deal afterwards. You don't have an immediate return for picking up the phone every time an investor calls.
On Top of Things
Darin: Three years down the road, when they're looking, you have your next deal and they're looking to invest. They're like, this guy is on top of things. I trust him and he provided great returns. So that's huge. What markets are you focused on?
Tudor: I'm focused mainly in the Sunbelt states, Texas, Arizona, Alabama, Colorado, Georgia, and Florida.
Darin: Why?
Tudor: Historically in the past few years, the population growth happened in those states mainly. Statistically, it's proven that a lot of people are moving down. It created this influx of income and jobs and opportunities in those states for different reasons, either low state taxes or better property taxes or job opportunities.
Darin: Why is that important for these types of investments to have population growth, income growth, job growth?
Tudor: Mainly population growth would create an influx of income for those people. That creates better opportunities for rent increases in the multifamily field, combined with the fact that currently the building process is not keeping up with the demand. The amount of people that are moving down there is much higher than whatever the builders can do at this point.
It's going to take a while for them to catch up with this massive demographic change in those states. That's why the multifamily investments in those states are primarily better than others compared to the east or west coast. The potential is much higher in those states, in the Sunbelt.
Darin: I think of the same thing. You've got an apartment building. If somebody moves out and you're in an area demographic where the population is actually leaving, it may be much more difficult to find a new tenant.
Single Family Versus Multifamily
Darin: If you're in a market where people just keep moving in, you need to live somewhere. All of a sudden, one person moves out and there's three or four or five people looking to move in. Having that competition, that influx of people, and migration growth is huge.
Tudor: That's a big difference in comparing the multifamily with single family businesses. Think about this, you have a situation where your tenant moves out. You have a 100% vacancy for that place from a single family home. If one tenant moves out in a 200 unit department building, it's not really a big deal. It's a matter of scaling up the process.
Most people don't realize that it's so hard to deal with vacancies in single family homes. Because you have to completely prepare that place for a new tenant and invest money that you probably take from your profits. In a multifamily situation, that aspect is very easily dealt with because 1, 2, 3 apartment buildings, apartment units, a vacant unit in a 200 apartment building, it's a very small percentage. You can deal with it in a month or two.
Darin: A few things I would add to that is one, say you had somebody who is renting their single family house for two or three years, and then they move out. You got to find a guy to do all the handy work to fix that up. On the 200 unit complex, there's a guy on property. That's what he does, anytime there's a problem, he's the maintenance guy that goes and fixes it.
The Cost of Maintaining Tangible Assets
Darin: There's already staff that when somebody moves out, they're going to clean out the unit. They're going to get it ready for the next person. That's continually happening, you don't have to go searching for that guy.
Tudor: Don't forget about the cost of doing that. A property management company in a single family business costs you 8, 10, maybe 12% commission. You can deal with good property management in the multifamily for 3, 4% with someone on site all the time. That's a huge difference.
Darin: You were doing single families for a long time, so you might correct me on this. I think that people who are just getting into single family, I've heard people talk about, I can understand, well, it’s 12 months. The rent is, let's just say a thousand dollars or $2,000, times 12 less my expenses, that's my profit. Then the loan, that's my profit property taxes. But they don't typically build in the vacancy where on the big 200 unit, all these deals, all these business plans are building in 10% vacancy. It's already in there. If you do better than that, then that's just going to add to your profit. What do you say about that?
Tudor: This was an important aspect for me when I joined the group that we're in. The fact that the guidelines for underwriting are very conservative. That appealed to me in a market where we don't know what interest rates are going right now. It was an important factor when you underwrite a deal to look at the worst-case scenario or close to the worst-case scenario, rather than the best-case scenario.
Build a Cushion for Your Tangible Assets
Tudor: Because you can just tell your investors, "Yes, I'm going to give you this and that." At the end of the year, you don't perform. I'd rather over-deliver and over-perform than say things that I cannot do. That's an important aspect. As you say, you build in a higher vacancy rate than you expect. You deal with cap rates that are higher than you expect. Then you build that cushion in there for you to ride the waves if something goes wrong over time.
Darin: That's a difficult one because you and I know that in a competitive market, it's very difficult to win deals. It's the balance of providing some cushion. But when you're underwriting deals, which for listeners that don't have an underwritten deals, it just means you're pulling data from a bunch of different documents. You're putting it in a spreadsheet to determine what the returns will be on the property. There's a lot of decision points and if you take the conservative route on every decision point, every deal is going to look bad.
Tudor: You're not going to get a deal.
Darin: What I've seen people do is they learn from the people that are winning deals. Like, where are you pushing the envelope? Where do you have the cushion and where are you being more aggressive than other people that helps you win the deal?
Tudor: Statistically, it's hard for everything to go wrong at the same time. Your economic vacancy, your interest rates, your whatever cap rates, and the deal goes nowhere.
Darin: Then somebody else buys it and they make money. You're like, how did that happen?
Risk Composure
Tudor: Actually, you are ready to offer a certain price per door for a deal. Then somebody zooms in the other lane, and passes you with a 10, 20% higher price. You wonder, how does that work for you? I don't understand this, but it's a matter of risk composure. You say, I'm going to be able to deal with the vacancy, but I'm not going to be able to deal with the cap rate.
Darin: When you first get into the business and you want to be a GP, I would advise, if you're going after a deal, you know that is another part of the network. If you know the other person that won the deal and you're on their investor database, get on their webinar. See their business plan.
You could even call them, they'll probably tell you what and then you learn, okay, I didn't build in that. Whatever the case may be. You think about it and you're like, they'll probably be able to do that. Well, I just missed that opportunity because I didn't think of that. That's how we learn.
Tudor: There are people out there that are very good at this way of teaching. The way you take risks in underwriting, especially in our group, because you average the risk of what people do. You take your own approach to them and say, I'm comfortable doing this in the underwriting, but I'm not comfortable doing that. It's a matter of experience of how you think of what the business plan is. In the end, if the deal works, fine, if you're not comfortable with the deal, you let it pass. You move on and you find another one that works.
It’s All About People
Darin: One last thing that you can think of that you want to share with listeners? It can be about yourself or what they should be thinking about in terms of getting into the business or scaling up.
Tudor: In this life, it's all about people. It's all about the relationships you create, the trust you have in people and people have in you, the way you ethically behave with them. Everything is going to come out of those relationships. It's not how much money you make, it's not what you know, it's who you know.
Darin: When people ask me, how do you pick markets and deals? I said, first, pick what market you want to be in then go find syndicators in that market. Focus on the people who you connect with. After who you want to with, then look at the deals that they come out with. If you're just chasing the deal percentage, the return percentage, there's some syndicators you may not click with. They may be putting out a deal that is really aggressive. Definitely focus on the people. What's your next big stretch goal? I know that you're not focused on money. You're focused on your possibilities and where you can go, but do you have a stretch goal?
Tudor: This year, I want to do probably another two or three deals.
Darin: As GP?
Tudor: As a general partner, if everything goes well. If not, I'll work towards that goal as much as I can. It's all about balance in life. I want to live a balanced life between my profession, my real estate investing journey, and hobbies that I have, and people I know.
Don’t Focus on the Money That Tangible Assets Can Bring
Tudor: I like to spend time with my family, enjoy the good times, and travel a little bit more after COVID. Just balance your life, at the end, it's the memories we have. That's all we’re going to have.
Darin: That's a fantastic way to look at things. I don't know what it is, but there is something about dealing with people that don't need the money or don't focus on the money. It attracts other people because if somebody just needs it so much, it scares people. If I give my money to that person, it may be gone, so I like that about you. I like that about your philosophy. What do you like to do outside of work for fun, besides multifamily and being a doctor?
Tudor: I'm pretty good at ballroom dancing. I go to a couple of competitions a year.
Darin: With your wife?
Tudor: With my partner yes, and my girlfriend. I enjoy that a lot. It's a very good stress relief.
Darin: You're going to get a lot of guys in trouble. My wife would love it if I knew how to do that and I don't.
Tudor: It's a learning skill. It's about the time you spend and if you love it or not, otherwise, I like to bike. I like to travel, to learn about wine, and I got myself educated in that field too. I’ve passed a couple of certifications in that field. I have a little bee farm too, I have some homemade honey, so to speak, every year.
Real Estate Lessons From the Honey Bee
Darin: The bee farm, I'm going to give a plug to these guys. Do you know Jake and Gino? They're also in the multifamily world. They wrote a book called "Honey Bee" and you can read it in a day or two. It's an easy read. For the listeners, if you've never invested in real estate and you want a really easy book that's not complex, that's a great book to start with. It's about a guy that has a honeybee farm. There are learning lessons about real estate through that, but wine, I'm happy to be somebody that will taste wine with you.
Tudor: I would be happy to.
Darin: How would listeners reach out to you? What's the best way for them to get to know you better?
Tudor: The simpler way probably would be my email. It's stellarmultifamily@gmail.com. I'm on social media too, and I’m easy to find. Just reach out for advice or partnerships or anything that we can do that’s fun.
Darin: I appreciate you coming on the show and I am looking forward to talking one, two, or three years down the road, and learning how many doctors that you were able to pull into the fold. You are in a unique position and I actually wrote down duty, part of it is just that you like to share. You're in a unique position that people need to be able to diversify and you're a guy they can trust. Listeners, I hope that you enjoyed that one until next week. Signing off.
