Denise is a CPA who discovered the tax advantages of real estate investing from her clients and has been investing in real estate for the past decade. Denise knows that real estate is one of the best investments you can make and she loves to teach others how to get involved. She’s invested in many different types of real estate assets including office, commercial, single family, and multifamily. Currently her main focus is on multifamily. Listen and learn!

Table of Contents:

• Where To Listen To The Podcast
• Learning Tax Advantages of Investing in Real Estate From Clients
• Velocity Returns
• Sphere of Influence
• Don’t Invest if You’re Uncomfortable
• Deciding Which Teams You’re Going to Work With
• The Perks of Doing Your Own Research
• How to Reach Denise Piazza

Learning Tax Advantages of Investing in Real Estate From Clients

Darin: Denise Piazza lives in Pennsylvania with her family. She learned the tax benefits of investing in real estate from her clients. Since then, she's been off to the races investing, and teaching others how to invest.

Just a little bit on how we know each other. We actually met because we were co-sponsors on a deal in South Carolina. We both had a relationship with the lead sponsors, which were Arn Cenedella and Reed Goossens. When we went into town for due diligence, Denise was there and she actually brought one of her investors with her.

We got to tour the properties and check it out and do due diligence. And also, I don't know about Denise, but for me, it was my first time in Greenville. So just getting a feel for the area and a sense for the area and what was going on and all the growth that was happening in that market was important for me to see as well. With that, Denise, can you share with the listeners how many properties and how many units you're invested in?

Denise: Sure. Thanks for the intro. And yes, just to touch on the Greenville area a little bit in our experience, I thought it was great. It's so important when you're doing deals and you're purchasing properties to get a feel for the area. I think we all had a great time. We got to walk around downtown and get check out the fantastic restaurants. I'd actually been going to Greenville for the past 10 years on an offer because a good friend of mine lives there. But anyway, yes, just great, great experience, so thanks for bringing that up.

From Being a CPA to Real Estate General Partner

Darin: You know what's funny is you know what Arn, we kept talking about how great Greenville is. He lives there. And I ended up getting an Uber from the airport to the hotel, and it was a guy from Boston. He just moved to Greenville two years ago and I didn't say boo. I didn't ask him any questions, nothing. I got in the car and all he did was start telling me how great Greenville is. When I saw Arn, I said,"You set me up. You sent that Uber driver to me, didn't you?" Because he was just loving it. And so, that was a great start to the whole weekend.

Denise: Yes, there's nothing, not to love. There's new stuff going on. Every time I visit, I hadn't been there in a year or so. It's just unbelievable to see all the progress and how much fun, truthfully, the area is when it comes down to it.

But a bit about my background. I am a CPA. I'm a general partner in close to about 900 units of multifamily. I have over a decade of both passive and active real estate investing experience. So when I first started passively investing, I did all different types of asset classes. We have an office building. It's fully occupied, as I always feel the need to say, post-COVID.

Darin: Right. Everyone is like, "Oh, you must be hurting on that one,"

Denise: Yes, everyone is like, "Oh, gosh." yes, yes, so I always, I immediately go to that. We've invested in a lot of triple nets, some commercial retail properties, multifamily. We have a single family. And so, my husband and I, we've both been investing for a while.

Tax Advantages of Investing in Real Estate Is a Good Reason to Get Started

Denise: We have a strong network of other real estate investors. We wanted to just test out all different asset classes and see what met our investing needs. More recently, I've been focused a lot on multifamily and the general partnerships and the active experiences mostly on the multifamily side.

Darin: A lot of the people I bring on are focused on multifamily. You've been involved in a lot of different asset classes. Why are you choosing to focus more of your attention on multifamily going forward?

Denise: Truthfully, when we first started investing, I think that I just said to myself, I know I want to be in real estate. I want to have real estate as a portion of my portfolio because of the tax benefits. Being an accountant, being a CPA in the finance world, there's a lot of focus on the tax benefits. And I didn't at that time, years ago, really spend as much time focusing on what are my own personal investing goals. Outside of just getting the tax benefits associated with real estate, am I focused on the velocity of my money? How quickly my money turns over in an investment or am I focused more on cash flow?

I think we didn't take the right step truthfully when we first started investing. And just sitting down and figuring out what we wanted to be the end game associated with some of those investments. The horizon and how that fit into our long-term investing strategy. But now, and I mean, I still have a lot of those investments and they're cash flowing great, and they are very profitable.

Tax Advantages of Investing in Real Estate Makes Money Constantly Work for You

Denise: It's just now, multifamily at this point in time where I'm at in my investing career, that's what meets the goals of where I want to go with my long-term wealth-building strategy. And a lot of the folks that are in our investor network, it's the same concept. And as you know, Darin, you still get the cash flow benefits as well. Maybe not as strong as some of the other asset classes. But the appreciation and the velocity of your returns is really what attracts me to multifamily.

Darin: What do you mean by velocity? I mean, I know, but for the listener's benefit.

Denise: A lot of the projects that folks like you and I work on, the time hold horizon might be about five years. I think a lot of us project our purchases, our acquisitions on a five-year basis. And within that timeframe, you're adding value to a property if you're buying a value-add property or if you're doing a development deal, you're actually constructing the property and you're doing a lease-up program. Basically within that timeframe, you are adding value to that property, but you're also generating a strong overall return on an annual basis.

And then you utilize those returns to basically accelerate your wealth building and the overall returns on multifamily properties. And the horizon of that you're holding the asset, you're actually getting your money back quicker than you would be with a lot of other asset classes.

If it's me, I want to get back my capital as quickly as possible, so that I can redeploy that elsewhere. I want my money to be constantly working for me and always cognizant as to what's going on in the market because obviously real estate is a very sound strong asset class.

Velocity Returns

Denise: Multifamily, people always need a place to live, but there's different things happening within different markets. There's different even asset classes within multifamily. So I think for myself and for my investor base, we want our capital back as quickly as possible. So that we can roll that, tax deferred, asset into a new property and redeploy our capital there. That's what I mean by the velocity returns.

Darin: I completely agree there. And I would say that if you look at either a development deal or buying an existing cash flowing multifamily deal, in both instances, the group is looking to improve that property. If it's development, they're buying land and then they're improving it by actually developing a property on top of it. If you're buying a value-add existing property, then you may be repainting the exterior or renovating the interiors or putting in new amenities.

But a lot of that rehab, a lot of that CapEx happens in that first year. And then it takes some time to cycle through and increase the rents over a year or two or three years. But in year 4, 5, 6, 7, there's diminishing returns because you don't have the capital anymore to continue to improve it at the same rate that you were that first year or two.

So, I think that that's why you get those outsized returns in the beginning. And then if you can get your capital out and then put it into another deal that, that has those huge returns, that's where you get that velocity of money. Talk about being a CPA and having a finance background and getting into this space. You mentioned that you did it because of the tax advantages of investing in real estate.

A Common Denominator Across High-Net-Worth Clients

Darin: But I know that I've had conversations with you both down in South Carolina and offline that you had a lot of wealthy clients that you were doing tax work for and financial work for, and you saw the benefits of it. Then you started to invest as well and saw the benefits. So explain to the listeners why you started to invest more and more into real estate.

Denise: When I first started as a CPA back in my public accounting days.

Darin: Which firm?

Denise: It's a local firm. It was called Cogen Sklar. It's regional-based in the Northeast area, based out of Pennsylvania.

Darin: I started with PriceWaterhouse a long time ago when I was in school.

Denise: Did you? This firm was great for my needs, in that I could do both audit and tax work. But a lot of my tax clients that I got to work on were a lot of real estate individuals who held real estate or real estate-based companies. And one thing that I noticed is that a common denominator across many of my high-net-worth clients was investments in real estate and real estate holdings. So with that, I knew that that was something that I needed to get exposure to and to have within my investment portfolio.

And over that time, at that particular time, when I was first started, I did not have the level of liquidity that I needed to get involved. But once we did, that's something that I knew would be within my portfolio. So I had a lot of clients and folks just within our network. Don't hold this against me, Darin, but my husband is a CPA as well.

The Wealthy Understands the Tax Advantages of Investing in Real Estate

Darin: Anyway, that doesn't always happen. You might have one and the other one is completely different.

Denise: Right. We basically say that our children have no chance of being cool, whatsoever.

Darin: That's great.

Denise: I feel for them. But yes, so between the two of us, we had a lot of folks that we were able to tap into and to gain from their experience, developers. All types of people with all different types of holdings. We learned from those experiences and then we started to get involved as well. We have a strong investor base. And I think the differences too, with some of the folks that are our investor base is a lot of times people get skeptical about investing in real estate. It's just something that they were never educated on. They might put a lot of money into their 401K and the traditional market.

I do both of those as well. And personally, I never deter people from investing in everything and keeping yourself as diversified as possible. But I think the difference in our investor base is a lot of them already know and are very aware of the benefits associated with investing in real estate and have been doing so for a period of time. And so, it eliminates maybe a step or two in that there's a little bit more familiarity with these asset classes.

Now, with that being said, I still educate. We still try to educate everyone that we work with. Because you might have invested in real estate before, but it might have been different asset classes.

Find Out What the Wealthy People Do

Denise: You might not know about things such as opportunity zones or cost segregation studies or timing your capital gains with your capital losses, things of that nature. We still try to provide a lot of education and really continue to do so for our investor base. So that they can just be aware of everything that's available and that's out there.

Darin: That's huge. One, I applaud you. Because look, there's a lot of people that are around wealthy people and don't take the time to figure out like, "What did you do?" And then, "What did you do and how can I get involved?"

I'll share a story. I had a guy who his dad, I was friends with. His son was going to college and he was working for, I don't know, Cutco Knives or something. And the father set up all these appointments for him to go in and the son do the pitch. The son came in and pitched us and I don't know, we bought one knife or multiple knives or whatever it was. But at the end I said, "You missed something. Your dad has gotten you in the door with all these people and a lot of them are business owners and successful people and different industries, go for the sale. But also, ask what they did. Learn from each one of them."

I think that's important, learning from other people that have already done what you want to do and then take an action. So, I applaud you for that. There's a lot of CPAs in this world that will just do the tax return and gripe about the fact that these wealthy people are getting these tax benefits. But then they don't go and take action to do the same.

Sphere of Influence

Denise: I like to think of it as your sphere of influence. In every aspect of what you do, every career you have, every opportunity you have, every investment group you work with, take a look around and always try to gather from what other people did successfully to get in the position that they're in. Sometimes, it might be a little bit intimidating, especially when you're right out of school. But basically, I find that people love to talk about the things that they did that they were successful in.

And oftentimes, there was also a number of things that they did that might have created some failures and some lessons learned from that. So, I think one of the greatest things that you can do in any job that you have or as I said, any in group that you're within, I know I do some masterminds. I'm an angel investor, so I'm in angel investing groups. One of the most important thing to me is to take every situation like you're in a sphere of influence by people. There's always so much to gather from other people's experiences.

Darin: That's huge. I love it. The other thing you said was that there's people out there that are skeptical of real estate, and I was one of them. One, I probably have another business that trades loans between banks, residential, multifamily, and commercial. For years and years and years, I had presidents of banks and chief lending officers telling me how much they loved multifamily. How great of an asset class that was in their portfolio, how it performed so well in up markets and down markets.

The Power of Good Communication

Darin: Yet, I didn't get involved until four or five years ago and I was nervous getting involved. I think that that's a huge advantage that you have that your investor base, a lot of them have familiarity with real estate. Because I know for me, when I bought my first duplex, I was scared to death, just scared to lose, and I had the capital. Then my first syndication, I was scared and now, I'm not scared. But it's because I've done a lot of them and so, the first time doing anything is scary.

Denise: Absolutely. I had quite a few incidents where we were very fortunate in that we had a lot of good over the years experiences passively investing in assets.

Darin: How do you define good? That could be different for a lot of different people.

Denise: I totally agree. So, communication was clear. I felt as though I was in the loop as to what was going on with the asset and how we were executed. How the team was performing versus their projections and how they were executing their business plan. I think that the returns were aligned with what was initially expected or exceeded those expectations.

But we also have had some experiences that were not so good in which I was able to gather a lot about different scenarios. Working with different folks and different groups and took a lot away from those scenarios. One story that I have is that one of our investments was in a very large property and the team itself had a lot of experience.

Questions You Need to Ask to Gain the Tax Advantages of Investing in Real Estate

Denise: They had a strong track record. But what they didn't have was a track record of a very heavy value add where basically you're completely repositioning this property with a lot of construction work, a lot of renovation work, interior, exterior, property had some significant issues prior to takeover. You see a track record, you see that the team has done a lot of activity in the past. But nothing jumps out at you to see that they might not have ever performed this big of a renovation. And most of their properties were very light value ads where they only had to come in and maybe change some countertops or replace some flooring or things of that nature.

They did not do such a great job of executing their business plan. I didn't know to look at things like, "Well, how's your construction budget? Do you have contingencies? In your previous properties, how much renovation work did you do? How much did you spend? What was your actual spend versus what your budgeted spend was? And what was your timeframes? Did you meet those timeframes?" All those types of questions that you might have.

There's a lot of upside when you have a heavy-value add project like that. However, there's also more risk involved. So, you really want to make sure that the team that you're working with has the right level of experience in that asset class and in that type of acquisition.

Darin: Those are great questions. Listeners, write those questions down. Those are great questions. Hey, what are some of the questions that investors ask you when you're presenting a deal to them? What are some of their main concerns?

Investors’ Main Concerns

Denise: I'd say a lot of folks want to understand the whole time period. They want to make sure that their money is not going to be tied up for a significant amount of time and they won't be able to access it. A lot of folks ask a lot of questions about returns and the financial metrics. I'd say not a lot of folks ask questions about the market itself. Because how strong a market is really can mitigate your risk associated with that property itself or the fund or whatever you're investing in.

If it's an area that has those characteristics that we'd all like to see of population growth, job growth, employment, industry diversity, things of that nature, the properties are in good school districts. That greatly mitigates your risks. We present those aspects of our property, but not a lot of folks dig in or ask a lot of questions about that. I think that's an area that investors should ask a little bit more about. As well as just information about the team itself.

I think a lot of people ask me a lot of questions about, again, financial metrics and returns and what that's going to look like. But you should also try to know a lot more about the team and their track record and their strong suits as well as the markets that you're investing in.

Darin: I agree. And being in the market that's landlord friendly, that if somebody is nonpaying, you could actually have them evicted if they're not, rather than have them stay there for 6, 9, 12 months.

Denise: That's right.

How Do You Know If It’s a Good Deal

Darin: Now, how do you answer this? You get an investor that says,"How do I know it's a good deal?" I'm like, look, when you talk about financial metrics, I get a lot of deals that come through my email box. I'm sure you do, too. And the financial metrics are pretty similar on most deals. It's 6 to 8% cash flow, double your money over three to five years. How do you know which deals are good deals and which deals are not? And some people get caught up in the,"Hey, this one says 150% return and this one says 100%, maybe I should do the 150%." How do you answer that piece?

Denise: I think when it comes down to it, I think you have to look at the way that the property and the investment, the leverage is structured. Especially in today's environment with interest rates being where they are. I like to see deals with a lower loan-to-value than what we have been seeing in the past couple of years. So, that greatly mitigates your risk when a deal has a lower loan-to-value ratio. Right now, we're seeing 60 to 65%, somewhere in that ballpark.

I think a lot of inexperienced investors overlook the debt component to these deals. Because that's really where things can get hairy and can increase your risk. You also want to take a look at some of the key assumptions that the folks that the team involved have. And some of those key assumptions are,"What's their interest rate? Is it fixed? Is it floating? If it's floating, do you have sufficient interest reserves? Do you have an interest rate cap? How do they project out rent growth in that particular market?

Make Sure You’re in a Good Market to Maximize the Tax Advantages of Investing in Real Estate

Denise: And does it seem like it's a reasonable assumption?" Right now, we're coming off of years where we've had record sky-high rent growth. But looking out into the future, the prudent thing to do is still to expect that 2 to 3% rent growth. Because if you end up exceeding it, then all it is gravy on top of your already projected strength of your returns.

And look at the change in valuation of the property as well. Did they buy the property for $300,000 a door and they're selling it for $600,000 a door? Something as simple as that. All the investors might not have what we call the cap rate predictions that might be in a particular sub-market. We pay a lot of money for resources and systems to get access to that type of data. But there's a reasonability test that you can do in looking at how much the operating income and the valuation of the property changes and the projections.

Darin: Those are all great areas to focus on. I would start with what you talked about before is start with the market. Make sure you're in a good market because if you're in a market where everybody is moving out of. And then you have a deal that has a lot of growth assumptions, there's probably some questions that come up. Secondly is the people. You talked about that before, having an experienced team. And then when you get into the deal, all those questions that you just talked about. I agree. I think that the debt component is a piece that a lot of people overlook and it's a very important component.

Don’t Invest If You’re Uncomfortable

Darin: And it's a difficult one. Granted, it's a difficult one for the syndicator to solve. Because look, in the last two, three years, there were a lot of syndicators that were kicking themselves because they had fixed rate debt with yield maintenance, prepayment penalty. When rates went down, their yield maintenance prepayment penalty shot through the roof. And so, they felt like they couldn't sell, even though the valuation of the property was great. Most of that profit would go to the lender for the prepayment penalty.

So then, a lot of people started shifting to floating and now, rates went from 3% to 6 or 7%. It's a difficult one to manage, for sure. But that's something that you should be looking at and understand the risk associated with it.

What about friends and family versus other people that you've met through angel investing groups or real estate investors or meetups or whatever? Some people are afraid, especially early on, to introduce these types of deals to friends and family. What's your take on that?

Denise: I think I never want anyone to invest with me or with a group that I'm associated with if they don't feel comfortable. I think in that case, the importance and the responsibility goes back to me to educate people as to,"Here are the facts." There's risk associated with every investment, including your other holdings. Your 401K plan. Everything that you have in the market. You should be educating yourself. I like to think that I want people to learn from my path and maybe don't jump into every different asset class right off the get-go.

It’s Your Due Diligence to Expose People to the Tax Advantages of Investing in Real Estate

Denise: And just know that real estate is great for tax benefits. You really want to, like I said, take your time to understand your investment goals, understand what you want from this property and educate. Educate yourself and educate your network.

Darin: Do you present it to them as an opportunity?

Denise: Yes, I do. yes, I mean, because really the reality is I think of it as it's an opportunity. We have a wide investor base. If it's something that they're not interested in, I'm never offended and feel free to just pass it along and ignore it. But I wish that I was exposed to more of the types of opportunities that I'm invested in now at an earlier age. I invested only with certain people that I knew, and I think that's important. You do want to trust that individual, but I didn't have access to some of these offerings and some of these other markets. Because the reality is some of these markets and these opportunities are not local to me.

In the Northeast, in a lot of the assets that I invest in are in Sunbelt markets. South Carolina, we talked a lot about. I like a lot of markets in South Carolina. Texas, Florida, North Carolina, and a few others as well. But you want to basically give people the same exposure that you're getting access to.

I wouldn't expose them to something that I didn't feel comfortable with. And again, it's on me, if they are interested, to make sure that they feel comfortable. That they're feeling like they know enough about it and that they have done some due diligence.

An Opportunity to Discover the Tax Advantages of Investing in Real Estate

Darin: I think that's great and I agree wholeheartedly, it's an opportunity. And I didn't have access, you used that word access. I didn't have access until four or five years ago. So, if you think about the medical field, if you had a cure to something, would you only present it to people that weren't in your friend and family network? No. You would talk about it to everybody that you cared about.

That's the approach that I take as well is that,"Look, I'm in investing in these deals and any deal I'm involved with, I feel strongly that it's a good deal." And why wouldn't I share it with friends and family. But there are some people that are afraid because the deal could go bad. And you mentioned it before, every investment has risk.

Denise: That's right.

Darin: The deal could go bad and a friend or family could lose. But a friend or family could also win big.

Denise: That's right.

Darin: And they're getting to leverage on the experience and the knowledge base that you have. You said you've been investing for 10 plus years or? So, 10 plus years knowledge, and they're getting to leverage that. That's huge.

Denise: And a lot of folks, truthfully, within my friends and family base are interested. They just don't know where to begin. I mean, that's everybody's problem. People that are interested. There's so many different options out there in terms of asset classes and areas. Markets like we talked about, so where do you begin?

Darin: What do you tell them?

Everybody Starts With Their First Investment

Denise: I like to think that' I'm at a place where I have access to the tools, the software, the AI that you need to figure out what are the good markets to be in. And the other thing, as I said, to consider is what do you want your investment goals to be? Or what are your investment goals and how do those asset classes align with your investment goals?

If it's more cash flow, we do things like ATM machine funds. Things of that nature that's more focused on a high-cash flowing asset. But a lot of the folks that I end up investing with, they want more of the upside as well. So, this multifamily, I like to think, that's been my area of focus more recently because you get the best of both worlds.

Darin: We didn't use the term, but part of it is mindset. Everybody starts with their first investment. Everybody does. You had to buy a single family house. You saw the benefit of your investors and your clients. And then you got into it. For me, four or five years ago, I was like,"You know what? Everybody keeps talking about multifamily and I'm finally going to buy something." And I was scared and I did it, and then one thing then leads to another. Then you increase your experience and you get more access to different deals and all of a sudden you start getting more exposure. But it starts with making that first decision and being willing to take a risk. How has your mindset expanded over these 10 years?

The Three-Pillar Investment Mindset You Need to Earn Tax Advantages of Investing in Real Estate

Darin: Think back to when you bought your first deal and now, you're bringing people into syndications.

Denise: I'd say I come at it every deal now with a three-pillar investment mindset. Those pillars are the team, the market, and the investment itself.

We have very strong criteria that we want those investment opportunities to meet for each of our properties, our offerings. And we will not stray from those investment criteria. It's just we had different experiences, and as I said, most were great, some not so great. And that has given me the confidence, we talked about mindset, to come up with those criteria that I feel very strongly about. So, I think it's been a lot of growth over that timeframe.

I also think one thing that I like to think I'm pretty good at doing is I like to think that, in all of my experience working with different people over the years, is I try to take topics that are a little bit more complicated and more out of the everyday realm that people are used to hearing about and talking about. And I like to make it very simple.

I like being able to just take these concepts and really just get it to the point where anybody can understand the value associated with these types of investments.

Darin: So let me pick a few words that could be intimidating in our world and give us the simple, syndication.

Denise: Pooling investors money together to purchase a property.

Darin: Awesome. Private equity.

From Intimidating to Simple

Denise: Just basically the funds that you need from the outside of debt, so from your investors, to purchase a deal.

Darin: Yes, and it's different than buying stocks. That's public markets and a private market, it's private equity, it's just investing in deals that are not in the stock market.

Denise: Right.

Darin: They're private. And these are private transactions. Capital stack. That's one that sounds so complicated.

Denise: Yes. It does sound very complicated. That's just basically the means, the funds that you are utilizing to purchase a property and to acquire it. And it's usually composed of debt and equity. The private equity that you're raising.

Darin: The simplified version is the loan, and then the equity from different high-net-worth individuals that are pooling their money in a syndication. It's as simple as that, but some of these words will scare people off. I think that's important that you're able to take those words and make it simplified.

Denise: Yes, and these are very intelligent people, business owners. People that are very smart, but they don't hear those terms on a day-in and day-out basis. That's just the nature of what they do. They have their heads down and they're trying to focus on growth of their business and their family, their friends, things of that nature. It's more just about, it's intimidating, but it's also just something that they don't hear about often. And so even if they do have a sense for what it is, it's reminding them, giving them their refresher, and making it simple because it's not rocket science.

Deciding Which Teams You’re Going to Work With

Darin: Simple and use the word comfortable a lot. In order for somebody to invest $50,000,$75,000,$100,000,$200,000. Even if they're pooling it into a $30 or $40 million deal, it's a lot of money, and you have to get comfortable. You have to understand. You have to have somebody that's walking you through the process. And you sound like you're very good at what you do.

Hey, so let's talk about teams. You focus on capital raising side and bringing other people your network to deals. And I'm sure you're involved in strategy and other components of that as well. You mentioned your three pillars, the team, market, and the investment itself. So, the team, how do you, one, build relationships with these teams and decide which teams you're going to work with and which teams you're not?

Denise: I have to get to know them on a personal level. And I have to feel to the point where I know, like and trust the individuals on the team. I also try to invest with them prior to doing maybe a joint venture with them and working with them to know a couple of the things that we discussed previously. Like their communication habits. How they keep their investors informed. How they perform on their properties, so being able to see somebody's track record live is just a lot even better than just seeing something on a piece of paper. And getting to know them on a personal level. And one thing that I try to figure out when you're partnering with anybody, I think the one thing is you figure out how they're going to treat investors should things not happen according to plan.

Talk to Other Investors

Denise: So, have they had an incident in the past where something has not gone to plan. Where they didn't meet projections necessarily, but they came close. Did they take some of their own fees or money from what they benefited from the deal and give it back to their investors, so that they could meet the projections that they had? How do you treat people when it comes down to issues or anything that might arise in any of these situations?

I think knowing that from themselves, and then somehow if you can verify it, talk to investors. And I think that's other investors, I think that's something that gets so overlooked. I don't know if in your experience you see that as well. But just talk to other investors. Even if it's their best investor. I mean, if they've been investing with them for a while, chances are something will have happened because no project goes perfectly from start to end. As you said, it takes a year typically to stabilize these properties. So, it's a long process and a lot of experiences happen and just get to know how that person behaved when they were doing so.

Darin: I would say, and I don't know if you agree with this, but I would say there's two camps of passive investors. There are passive investors that classify almost as professional passive investors. They're at all the meetups and go to the conferences and they talk amongst themselves. And "How's your deal doing? How's your deal doing?" And they talk about the different sponsors and the returns and the communication and all that.

Invest With People You Know, Like, and Trust

Darin: And then there's other individuals that have their head down in a different world. They may be high net-worth individual that has their own business, or they're a sales executive for an industry. And they just want to take their money and park it someplace else, get a good return, but work with somebody that they know, like and trust. But they may not have access to all the other investors to get that information.

Denise: Yes. That's a big advantage that we have. People like you and I, too, we go to a lot of conferences, we have a large network within this world. And so, we get the benefit of that and the benefit of talking to those types of people.

Darin: Tell me. We hear that those terms,"know, like and trust," over and over and over again. And I've been a lead syndicator on a deal where I was running it. I was the asset manager. I was doing everything. And I've also partnered with other lead sponsors, and I want to know in your experience, well, have you been a lead syndicator or if you partnered on every deal?

Denise: Mostly, partnered.

Darin: So, I wanted to understand there's, I think, a different level of "know, like and trust." If the passive investor is investing with you and they know that you're not managing the deal. Versus if they knew,"You know what? Denise is going to be there every week." They're trusting that you've spent the time to develop the relationship with this team.

Investors Need a Sense of Comfort

Darin: And I think that when having that one step further removed makes it even more difficult to build that "know, like, and trust." Because they're trusting not only that you know what you're doing, but that you have vetted the team that is putting the deal together.

Denise: Yes, agreed. And the other sense of comfort that they can get is that as sponsors, we are also partly responsible for asset management. I'm sure you are as well. I'm on the weekly asset management calls for every asset that I've partnered on. There's not one where I don't know exactly what's going on every point in time.

And the only way that I can gain that level of comfort and the partners that I work with, they start meetings with,"Here's what our KPIs are for this property. Here's where we are. Here's what's going on. And here's where we are in terms of renovation." So, at a minimum, should something not be going according to plan, we're in the know and we can communicate that to our investors.

Darin: Fantastic. I want to say guilty, but I'm not. And I do it by design. I don't want to do that, so I want to partner with people that I feel strongly that can manage that piece. Because just on a personal front, I don't want to have to do the asset management every week. Yet, I do review the reports and then if there's a deal that's going sideways, then I insert myself back into the deal. Well, we talked about it when we talked about mindset, but talk about fear. Do you see that there's some people that get educated but just can't step off?

Helping People Who Are Over the Ledge to Dive Into the Tax Advantages of Investing in Real Estate

Darin: How do you help them? How do you help people that you know that they want to do it and you educate them, but at a certain point, and you can't guarantee.

Denise: No.

Darin: Every deal has a proforma. It's a forecasted return. You can't guarantee it. So, how do you help somebody get over the ledge?

Denise: I'd say you try to figure out what's keeping them from diving in? What's the concerns and attack the concerns. But at the end of the day, I want people in my deals who feel comfortable. So, I will gladly go over with them anything that makes them feel uncomfortable about this transaction. But some people, it's just against their nature, and that's fine. Absolutely. And then there's people that I've had that have not invested in the first two deals that maybe I did.

But then another deal comes along and they're like,"Oh, I know it seems like everything's gone great. And now, I think I'm ready. I wanted to wait and see a little bit. I wanted to educate myself a little bit more. And here's what I was hung up on, but now, I talked to so-and-so, and I feel better about that." But at the end of the day, all you can do is ask them what their hang-ups are and then provide some feedback. But at the end of the day, I want people to feel as empowered as they can.

And I never want anyone to do anything that makes them feel uncomfortable. Because again, if you're doing a development deal, if you're doing a value-add deal, there's going to be some time before things look like everything's perfect and it's all done. And your NOIs increase.

Not Every Deal Goes in a Straight Line

Darin: Not every deal goes in a straight line.

Denise: Exactly.

Darin: Based on what they're planning on doing sometimes.

Denise: Exactly.

Darin: Yes. Sometimes, there's hiccups along the way and there's pivots, so it doesn't always happen in a straight line. But I like what you said about with the investors,"Here's what I'm hung up on." And then,"You know what? Maybe now the timing is not right and maybe this deal isn't right, but let me help you understand. Let me help educate you in that area." So, that maybe a month from now or three months from now, or six months from now, or two years from now, you can feel comfortable. And that word comfortable is something, again, that you bring up over and over and over again.

But I think that, I don't know, maybe I'm off on this, but I wasn't totally comfortable the first time I passively invested. I had done everything that people tell you to do. I'd gotten educated, I joined a multifamily mentorship group. I've met people. I vetted the sponsors and I met them. I talked to their investors. But wiring that money for the first time is still scary, so I wasn't 100% comfortable. So I think that there's a point that, look, if it's your goal that you want to do this, that's the thing. I guess when you decide that "I want to passively invest in X number of deals, so I can get this type of return," then you have to take action at some point.

Denise: And I think we talked about private equity and private deals. For me, I totally agree with you. I don't always go in and I'm like,"Okay, everything is 100% great."

The Perks of Doing Your Own Research

Denise: "It's perfect. It's guaranteed." No, that's not reality. But what I like about this asset class along with the tax benefits is that it's something that I feel like I have more control over. I did my own due diligence. I did some research. I'm not just putting money into a certain company where I have no control.

There's a lot of turmoil in terms of the market right now. There's also a lot of just changes in industry that's constantly that are taking place. So I think that with this type of asset, at least I feel as though I'm having a little bit more say over my funds and how they're going to work for me. And again, I think it's great to diversify. Even myself, I do not have everything in real estate, nor do I want to.

I think if you feel comfortable, figure out the investing in real estate. Figure out the amount, the percentage of your portfolio that you want to put into real estate and then go from there. And then I think, as I said, the one thing that I think is different than how people view their other investments is you actually have the ability to do more upfront as opposed to just putting it into a financial advisor and then putting your funds and putting in an allocation for you and how you want it done.

Darin: Completely agree. And I'll share an example from a passive side. I wasn't even a general partner in this deal, but I was a passive investor. And I knew the sponsors and I read the investment deck and everything.

It’s a Great Time to Purchase Properties and Earn the Tax Advantages of Investing in Real Estate

Darin: And their rent bumps, I looked at them and they looked reasonable, but I wanted to do a little bit more due diligence. I'm in Dallas, I drove down to Houston, and I went and visited the properties surrounding it and asked what their rents were and what they were getting for rent bumps today versus last year.

And I took that data and then I looked at the business plan. I was like,"Oh, my gosh, this is so achievable." Because all these other properties were 95% occupied and they were getting those rental bumps. The whole submarket was moving up in rent. And so, it made it a lot more real because it wasn't just numbers on a paper. It was actual reality of not just our property that I'd be investing in, but the surrounding properties as well.

Denise: I love it. I love when my investors do things like that and go and digging and investigating. I want everybody to feel comfortable and feel that they know that this is a good opportunity.

Darin: That's awesome. I love it, I love it. So where do you go from here? What's your next big stretch goal? What's 2023 and beyond look like for Ms. Denise?

Denise: I'd like to get some good opportunities, as I think we've all been hearing a lot about. With the market debt market being where it is, where interest rates are, I think it's a great time to purchase properties. Still obviously have to be cautious in all of your assumptions.

Interest Rates Will Continue to Increase

Denise: I'd like to see acquisitions at that lower loan-to-value that we talked about. Because the reality is the rates are pretty high right now. There is a pretty fast velocity to which they were raised. I think they'll continue to be high, my own personal opinion, for the next year or so.

But then by the time you're done, by the time you purchase and then execute your business plan, it'd be a good time in the next year or two to be able to refinance the property when your income is higher. And your odds are that your rate is going to be lower than where it's at today. So, I think it's a great time to buy, so I'm putting my head down and looking for those opportunities for my investor community. And hope to do another four acquisitions in 2023.

Darin: Four, awesome. I want to get your take on this. I had somebody on, and they brought up something that I hadn't really thought about. But you said with the market going in, the debt markets having difficulty, and with rising interest rates and whatnot, that we may see more deals that are purchased 100% equity. And that surprised me at first because they said,"Well, the equity's cheaper than the debt." And I'm like,"Well, equity is typically is always more expensive because when you add in both components."

But then when they explained it,"Well, hey, if they were to take a pref and it's accrued and it's not paid out, well, you're saving the cash flow versus paying a 6% or 7% interest rate on the debt." And then if, I mean, there's no guarantee that rates are going to go down.

Know Your Investors’ Expectations

Darin: But if rates do go down, we have recession, rates go down or we're in a recession then rates go down, whatever the case may be. Then at that time when if markets stabilize and the debt, then you refi and get the lower debt. And then pay out investors based on doing that refi. That to me is interesting.

Denise: I think it's interesting. I just still can't wrap my head around how realistic it is.

Darin: Smaller deal?

Denise: Smaller deals.

Darin: It's a lot of capital you would have to raise. I mean, some of these deals have been 30, 40, 50 million deals. How are you going to raise $30,$40,$50 million? But on smaller deals, that could be an option where you take down the whole deal and you just wait for the interest rate markets.

Denise: I think it's knowing, too, what your investor expectations are in terms of their return rates, too. I mean, I think when it comes down to it, you have to be aligned with that and with where treasury yields are right now, I think it's important to know what your investors are expecting.

What Denise Loves to Do for Fun

Denise: And I think that can certainly play into that scenario. But if you can make it happen, great. I think, like you said, especially for some smaller deals that'd be nice to gobble up a few with all equity and not have to worry about the interest rate risk.

Darin: What do you like to do for fun outside of work? You probably jump out of planes or something.

Denise: No, we are big beachgoers. We have a beach house that I consider to be my happy place.

Darin: Nice. Where?

Denise: It's in Avalon, New Jersey, so we spend a lot of time there in the summer. Then even try to get down there in the fall when it's still pretty beautiful out in the spring. In the winter, we're pretty heads down in this household. But our escape is our little getaways to our beach house.

Darin: Avalon. My wife's, one of her good friends, had a house in Avalon and we spent a week there. This was probably going back, I don't know, maybe seven, 10 years back. But it was cool a little area. And we had an awesome time and just seems like that was the thing to do for a lot of people was to have their getaway, so I get it.

Denise: Absolutely. yes. And then in the winter, I'll just live vicariously through you, through your pictures on Instagram and your travels. I'm fine with that. I love looking at your adventures. It looks like you guys are having a great time, so yes.

Darin: Well, RV life has been good so far, but who knows, maybe it's a year, maybe it's three years. Who knows?

One Street Capital Multifamily

Denise: You never know.

Darin: At least, we took action. We're doing it. And we're seeing some places that we haven't been to before. Hey, where can people reach you if they want to get to know you better?

Denise: My website is onestreetcapital.com. And then they can also send me an email at Denise@onestreetcapital.com.

Darin: So she's in Pennsylvania, if you're in the Northeast, and I talk to a lot of people that are more in Texas and the Sunbelt. And look, if you're in the Northeast and you want a resource, please, you got to go meet this girl. Do you have a meetup or anything like that?

Denise: I do. We have a meetup that we do. It's in Wayne, Pennsylvania, so we meet typically once a month. I've been doing a couple of virtual ones as well, but we typically meet at a restaurant in Wayne. And my meetup group is called One Street Capital, so One Street Capital Multifamily.

Darin: Where do they find that?

Denise: On meetup.com. Or you can also just get in touch with me and I can add you to our group. And you can feel free to reach out and we can meet hopefully in the near future. I hope you and I get to meet in our Greenville area again sometime soon. I'm looking forward to going back.

Darin: And I hope that we could work on another deal together. I'm like,"Okay, well, she's going to get four acquisitions." I hope I'm involved with least one of them. Listeners, I hope they enjoyed that one. Until next week. Signing off.

How to Reach Denise Piazza

• Website