Are you looking to invest in multifamily real estate? Nic shows us anybody can be successful in multifamily real estate if they are focused and determined. Nic was a physical therapist. He tried competing in the multifamily space in Dallas Ft Worth and after some failed attempts he pivoted to a tertiary market. He and his business partner are now the second largest apartment owners in the tertiary market of Abilene Texas. Nic is now invested in almost 900 units as a general partner and 800 units as a limited partner.
Listen in and learn how someone with no prior real estate experience found a way to build a completely new career path!
Table of Contents:
- Where To Listen To The Podcast
- 1,700 Units in the Tertiary Market
- Can You Succeed in the Tertiary Market?
- A Mentorship Group Can Help You Make It in the Tertiary Market
- Why Rents in the Tertiary Market Are Different From the DFW Area
- How to 10x Your Net Worth in the Tertiary Market
- Nicety Can Get You Farther in the Tertiary Market
- Real Estate Is a Relationship Business
- How to Reach Nic Espanet
1,700 Units in the Tertiary Market
Darin: Nic Espanet lives in the Fort Worth area with his family. He was a physical therapist looking for a way to invest for his family's future and retirement fund. Nic attended a free meetup and the guy sitting next to him later became his business partner. He's now invested in close to 1,700 multifamily units and has become a full-time real estate investor.
Nic and I are both part of the same multifamily mentorship group and I was introduced to Nic early on when I joined the group. He's been killing it. He has been doing tons of deals. He's very involved. Nic, how many properties and how many units are you currently invested in?
Nic: We just closed my last two deals in September. We closed two deals 10 days apart which is exciting. At one point we thought they were going to close on the same day so that was number five and number six. That brought my total units up to 889 units that I've co-sponsored. Then my wife and I also passively invested in another 800 units. So we’re around 1,700 total units if you count our GP and LP positions.
Darin: I know Brad Abbott. Is he a partner on all your deals?
Nic: He's a partner on five of the six. We started working together early on. Just a great guy to work with, trustworthy and solid. So I foresee pretty much all the deals. I came in to be more of the experience and not extremely involved in it. I’m just there as a mentor for some newer investors.
Finding the Right Partner
Darin: Talk about partnership. How did you meet Brad and how did you know that he was the right one to partner with? Did you decide to partner before you got your first deal? What went into that?
Nic: I met him at a local meetup in Arlington or Hurst. Somewhere in the mid-cities. I happened to sit next to him and we just started talking. He was probably six or nine months ahead of me in the program, going through the training. We just started underwriting deals together. I would liken him to a study buddy or a workout partner.
After our kids would go to bed around nine or 9:30, we would get on the phone and sometimes sit and talk for two or three hours. Not necessarily talk but we were underwriting. We didn't have Zoom back then to share screens continuously. There's a program, Join.me. You could do like 15 minute or smaller increments of doing a shared screen so we would work.
I felt like we were in a cubicle but 30 miles apart from each other underwriting deals. Something would come up and we'd be like, "Oh, let's look at this. Let's do a Join.me real quick and look at it." We'd pick the same deal and underwrite it. Then we’d come together and see what we did differently or what we did the same.
We did that for several months and Brad was starting to make offers. I just said, "Hey, I don't want any part of it. I want to go on tour with you." After he made a couple of offers, the first one we had an agreement that I was going to get 10%. A small part to be part of it.
A Lot of Moving Parts to Deal With in the Tertiary Market
Nic: As we went further, we made more offers and felt like we were equally skilled. That time, we decided to equally split our sponsorship portions. Working through that, lots of late nights on the phones, just got to where we could tell we both worked well together.
I highly encourage anybody that's putting a sponsorship group together that you get to know the person. You're going to be married to them for five or more years possibly. Possibly have to make tough decisions. These properties have a lot of moving parts. Most likely, there will be a challenge or two, and you want to know how that person's going to respond.
Are they going to get overly stressed and not do well? Or are they going to just say, "Hey, all right, we got a problem here, an issue. Let's see what the solution is and work through it." It's important to not only find somebody that your pieces fit together well as syndicators job-wise but also that your personalities fit together well.
Darin: You said a number of different things that listeners should pay attention to. One is the workout buddy thing. If anybody has had a workout buddy, you know there are days that you don't want to go to the gym. But your workout buddy is going to be there and you don't want to let that person down. It helps the accountability side of the equation.
When you first start underwriting and you're trying to go after your first deal, it's hard to keep doing the work. Maybe the numbers aren't coming out. But if you have somebody else that you're working with that you're accountable to, that's huge.
The Perks of Having an Accountability Buddy
Nic: For sure, because it does. It took me a little less than two years to get my first deal closed. There are times when you start getting frustrated. Is it ever going to pencil out? We talked about where we met through our real estate group. Having a mentorship group or a group of other people that are pursuing the same thing is good.
We would get together for networking events with people that have had success, that really helped charge my batteries. Going out to have dinner or a beer or something with some guys or girls that have already had success and they're sharing things that work for them, I felt like that just charged my batteries back up. And working with Brad too.
Darin: Surrounding yourself with other people makes you feel like, if they can do it, you can do it. If you just talk about it with friends and family who have never done it before, they may discourage you from spending time doing it. When you start seeing all the success that everybody else is having, it gives you that extra motivation.
Another thing you said about having a partner was you would underwrite the deal, and he would underwrite the deal. Then you would come together and most likely they weren't exactly the same. It forces you to talk about the differences. Then you have to either explain and get the other person to agree that the way you're approaching it makes sense or you know what, I think I need to modify this to be more like what you've got.
Nic: It helps you learn.
Can You Succeed in the Tertiary Market?
Darin: People ask about the mentorship group. Can you do it without it? I'm like, "Absolutely. You can do it without being in a mentorship group. But I believe you will do it much faster and you will learn much faster if you surround yourself with other people that are doing this thing and can point you in the direction."
Nic: You have other people that are successful at it. That's going to encourage you. I have found within our group, and even when we go to meetups, people within the multifamily world have an abundance mindset. 99.9% of them who want it, they'll tell you what they've done that helped them. They help you along and give you pointers.
Within our mentorship group, the value in that is tremendous because you can do it by yourself but the mistakes you'll make could cost you. You're looking at several zeros on these. My first property was $3.7 million which is small on the scale of multifamily, but it's still $3.7 million.
Darin: That's a sizable investment.
Nic: At that time, we took a million and a half of other people's money that I definitely don't want to lose. So I want to have all the tools in my pocket or in my tool bag that can help me. If something comes up that I haven't seen or not familiar with, I can call one of the coaches within the group. Or just one of the other syndicators that maybe I've heard talked about that. I’ll call them and go, "We're having this issue. Have you ever seen it?"
The Value of Having a Mentor
Nic: We found another experienced partner that came along with us on the loan. He took a pretty sizable cut of the first deal. But he was there if we had a phone call and we had a question or something. We could get him on the phone usually within a few hours or so, usually quicker. There's rarely anything that needs to be resolved immediately but he was there to guide us. He had had five properties at that time before we partnered up with him. So having that mentor is invaluable.
Darin: Leveraging other people and you mentioned networking and meetup groups. You met your business partner by going to a meetup group. I'm sure you learned something from being at the meetup group but you got your business partner that you've done five deals with. The large-scale multifamily which we predominantly play in 60 units and up, it's not something that most people do alone. You've got to go out there and network.
Go to meetup groups, go to conferences, meet other people. Some people you're going to click with, some people you're not. And some people are in the same situation as you. Some people are more advanced and you can learn from them. Then six months down the road, there's people that have less experience than you and you could help them.
That comes to the abundance mindset. I don't know if you remember this, but I was new to the group so I don't know how long you'd been there. I'd been doing this for, I don't know, three and a half years. I saw you at one of the conferences and you were like, "Hey, how's it going? Where are you at?"
The Beauty of Having an Abundance Mindset
Darin: I'm like, "You know what, I'm looking at this one deal." You were like, "Oh, I looked at that deal too. I'm not pursuing it but I would love for you to win it. I'd love for somebody to win it that I know. If there's any help I can give you, reach out." It floored me. It's different having other people that you had no skin in the game. You weren't going to make any money off of that, yet you offered your advice and your counsel. That's the abundance mindset.
Nic: I've experienced that. I was treated that way early on. It's been about five and a half years since I've been in the group, the same thing where people would say, "Hey, give me a call." Like I said back then we didn't have Zoom so, "We can talk through a deal if you have a deal and you want me to give you some pointers." That's helped me. I've had multiple people extend that offer to me so I wanted to repay it. I started having success and enjoyed helping.
Part of it too, when you're helping other people you're going to learn. Just like Brad Abbott and I being study partners. If I'm coming in to help someone through a deal, they may come up with a question that I'm not familiar with. It's going to make me dig or find out something about it or see a different way to look at it. There's not one straight line to get to the goal. There are different angles that people can take and you can help one another out on that.
The Deals in the Tertiary Market Are Pretty Competitive
Darin: Would you say that deals are pretty competitive?
Nic: For sure.
Darin: You lose more deals than you win but that can be a learning process too. You may end up knowing the buying group that won. If you're on their investor database, you could end up reviewing their business plan and their underwriting and be like, how did they approach this deal? What did I miss that they didn't, that they were able to get there? You can learn that way as well.
Nic: Most people, once they've closed and got it locked in, they would be willing to share with you. If you didn't pick it up on the webinar they would. When you approached them and said, "Hey, what did you guys do to get to this point?" Most people would really enjoy educating you and helping you out. That surprised me.
I come from a middle-class background. Kiyosaki talks about where you think of everybody as being cutthroat, that's in business and wealthy, and it's been the complete opposite. The abundance mindset is just overwhelming and everybody is trying to help. You said that you're going to lose more than you win. If you're winning more than you're losing, you need to consider you may be overpaying because it's a tough market.
And if you're winning every deal you might double-check that, and that's the great thing about being in a mentorship program. We have checks and balances where other people review the deal for you because I want another set of eyes. I want somebody to pick it apart before. My last deal was in the $30 million range and I don't want to make an offer on something like that.
The Confidence to Go Forward to the Tertiary Market
Nic: I trust my underwriting. But if I've got my partners to look at it, and a couple of other people within the group looking at it, it gives some comfort to go forward. You've had other knowledgeable people review the deal also.
Darin: You see other deals that are trading in that sub-market. So you get comfort from that and you take all that information and it gives you comfort. I remember the first offer I put in, the first LOI. Told my wife and she was like, "Are you excited?" I'm like, "What if they accept it? I don't know if I'm right." And I didn't.
I didn't win that deal. Somebody outbid me and that gave me kind of comfort as to where we were trading at that time. Then with more experience you get more comfortable. You want to win the deal because if you're second or you're last it doesn't matter.
Nic: Then you get your first deal accepted and you're like uh oh, what have I bitten off here? It's exciting. That's why I encourage you to start not super small. Or newer people start with a more manageable raise. My first raise was a million and a half. That's something too that being in a mentorship group is beneficial.
We have between 600 to 800 people within our group. They understand multifamily and they know the language. It's easier for them to invest because they've been educated in it. You have a large pool of people that want to invest in multifamily. That's another benefit of being in a mentorship program because there's usually other investors within it.
A Mentorship Group Can Help You Make It in the Tertiary Market
Darin: The mentorship group for the listener's perspective that we're both involved in is the Brad Sumrok group. It's based in Dallas. Both Nic and I are based in the DFW area, but there are members across the country. We've benefited tremendously by sharing and leveraging from one another. I've been in a bunch of different industries and I had the same experience as you. Are people really sharing? There are a couple of reasons for it.
One is, people legitimately want to help one another because somebody else helped them and they're giving back. Second, there are typically the more experienced people. They graduate up to larger deals so they're not even competing with the people that are asking them for advice. They're not even looking at those deals anyway so they're not looking at them as competition. Down the road, they may partner together. You never know.
Talk about tertiary markets. When I got involved, I had brokers. I was trying to get a deal done in the DFW area. A lot of brokers were saying, "Hey, come out to this two hours outside of Dallas and come out here." There's less competition in those markets, perhaps less buyers at any given time. But you guys have focused on some tertiary markets, so talk about your experience there.
Nic: Brad and I were looking in DFW and even Houston a little bit, but just kept getting beaten. So we put our heads together. The Blue Oceans book was out around that time. It talks about the red oceans where the sharks are feeding and there's blood.
A Promising Tertiary Market Outside the Meaty Areas
Nic: The premise is there's still some good fishing or good eating for the other fish just outside of the meaty areas. So let's stay in Texas where there's good job growth and good population growth but let's look at some of the secondary markets.
So we started looking at Abilene, Lubbock, Amarillo, San Angelo, Longview, Tyler. We were trying. Our first rule was a population of 100,000, then look to see if they had positive job growth and positive population growth. Now, we didn't underwrite the way we would a deal in DFW. We used industry data. On the first deal, we used annual rent growth. At the time we were using 2% in Dallas.
We use either one and a quarter or 1.5. Our economic vacancy was around 11%, maybe 12% at stabilized. Because you don't have the income, we're not going to be able to push the $100 rent bump. So we're doing $25 to $50 rent bumps for some of the upgrades and our reversion cap rate. On the first property, we used an 8.0. At that time, most stuff in Dallas was probably using a six for a similar property.
Even on the last two that we bought in Abilene, we used a 7.75, 7.5, a much more conservative sales cap rate. It’s a reversion of what we're going to sell the property at. Then we've recently started talking to a broker. He's at least telling us, we haven't got the BOVs but these deals may be trading in the low fives. So we're looking at a pretty significant cap rate compression on what we underwrote at, which is exciting to see. See where we may be able to list them at..
Less Aggressive Terms Within the Tertiary Market
Nic: This is pretty standard everywhere now but in DFW, you needed six-figure day one, non-refundable earnest money. We had it but it would have made us pretty thin. So we started looking at Abilene. On our first deal, we had 15K nonrefundable day one and that was it. We've gone a little higher as the market's gotten a little hotter but at the time, your terms are literally less aggressive after a secondary market.
You can look in any state that has positive job growth and positive population growth. We know somebody that's bought in a town of 30,000 people but it has three big economic drivers. It's not just one thing. We ended up buying our first four properties in Abilene. It has a large medical presence, it has four universities. So a big education component.
Then it also has Dyess Air Force which sometimes makes you nervous about a military installation. One the Air Force doesn't deploy it like ground troops too. That gave us some comfort. As we were going, Dyess Air Force was awarded the B2, the new bomber that all the military's go to. It was awarded two of the three components. Like that maintenance and the training.
I don't remember what the third one was but Dyess got two of those. They started putting in a lot of infrastructure for it. So the likelihood that Dyess is going to be closed is slim. You never know what the government might decide to do. Another comforting thing, we try to stay away from oil and gas dependent towns. Abilene has very little oil and gas dependence. Out of the top 30 largest employers, none of them are in the oil and gas industry.
Getting Into the Tertiary Market Can Turn You Into a Bigger Fish
Nic: 31 was a fabrication company and they did other things but they did do some structures for oil and gas. They actually have two wind turbine companies that were in the top 30. It had stuff to do with wind turbines. If anybody's driven an hour or two hours west of DFW, there's thousands of windmills out there. So there's lots of wind energy. It's a medical hub for 13 counties.
As you get in west Texas you'll have these little population centers. There's a bunch of counties that are very low populated. There may be a doctor there but if they need a CT scan or some type of expensive test, Abilene has all the equipment and specialized doctors that come in and do that. So Abilene serves a very large medical population.
Darin: I would imagine that once you bought your first deal, then your second deal, and then your third deal that when you get into these tertiary markets, all of a sudden you start becoming a bigger fish in a smaller pond.
Nic: We are the second largest owner in Abilene.
Darin: You wouldn't be able to do that in Dallas or Fort Worth.
Nic: No, I joke we bought our first deal in Houston. I said now our goal is to be the second-largest owner in Houston. Granted, you have to be a big player to get there but we can definitely make a little dent of some sort.
Darin: It's going to take you a lot longer to get to the second. That's another way to do it.
Why Rents in the Tertiary Market Are Different From the DFW Area
Darin: I told the brokers when they came to me with that, "Look, I'm going to do a year in DFW. Kicking, fighting, and scratching, trying to get my first deal. If I don't, then I'll consider looking at these other submarkets." I know that you guys have done very well and I know other people that have gone to other tertiary markets and did very well.
You changed your underwriting accordingly. So you know that you're not going to get as many buyers. You're not going to be able to push. You talked about not pushing rents, $100 to $150. You're doing $25, $50 rent bumps. I'm guessing that the upgrades are not as major as people are doing in the DFW area.
Nic: We usually do platinum, a few test units. If we can get a hundred plus on it, then we'll do a couple more. Then we have them, at least we get the first 12 months rent once somebody comes in. Then we test them like that, instead of coming in and doing every unit that becomes available as a platinum. But it's two-toned paint, resurfaced, usually black appliances.
On those platinums, we'll try stainless steel appliances just to see if that helps. But even our manager at the time said, "People aren't going to pay more for stainless steel." I was like, "Let's just do one and see what happens. We can move it around." Wood looks like vinyl floors. We try to do it throughout just because it lasts so much longer.
An Entirely Opposite World Meets in the Middle
Nic: Sometimes your second floors can have cracks and stuff so we'll put carpet in that situation. With carpet, you have to replace it at least every one to two turns. The wood that looks like vinyl, unless somebody's just really rough on it, it lasts so much longer.
Darin: I've focused on the vinyl for aesthetic reasons, it looks nicer and easier to maintain. What did you do before you got into real estate? How did you even get into real estate?
Nic: The complete opposite end of the world, I was in healthcare. I got my masters degree in physical therapy in 1996 and I got into multifamily. Then I bought two single family houses that we lived in. Personal residence. They weren't even investment properties. But I tried for quite some time to understand the stock market. I wanted to have a better understanding of where my retirement was going.
I'd start reading a book and I'd glaze over, just had no interest. My wife and I started pursuing single family, trying to get educated in that world. We had the paralysis by analysis just overlooking and then we decided we were going to make a move. My oldest daughter had leukemia when she was two. She's doing great now, she's 16. That puts us on hold for many years.
Dave Ramsey isn't for everybody but it was perfect timing for us. We’ve paid off everything except our house. We had a little bit left on the house and the whole snowball thing that Dave Ramsey does. Then our daughter was diagnosed with leukemia. It's two and a half years of treatments, fairly expensive even with insurance. But we just said you know what? We'll just keep living.
Venturing Into Real Estate Requires Commitment
Nic: We’ve been prepared by our two years of going debt-free and living the beans and rice lifestyle. We just decided that we're going to keep doing this. So we made it through her two and a half years of treatment without incurring any more debt. We were able to pay that, and so it prepped us. In that time too we got our house paid off. We came out of that with zero debt and had the house paid off. You mentioned Brad Sumrok. We went to his R2R in March of 2016, his Rat Race to Retirement. I was like, this is what we need to do.
I hopped in at first thinking I was just going to passively invest. Continued to work as a physical therapist, and I enjoyed doing it. But the more I got into it, I'm like, I can do this. So I decided to start pursuing the sponsorship side. It was probably September, October of '16 that I jumped full force in it, then closed my first deal in February of '18. A year and a half from when I decided to go full into it.
Darin: I've met people from all different industries. There are real estate investors that were single family, then they've gone multifamily. Doctors, lawyers, engineers, physical therapists, Tom Lafferty, the fire chief, just all walks of life. You've got to light a fire on you. It's got to resonate with you and then once it does, you just have to go full tilt and be committed.
Nic: I'm really an introverted person most of my life but I get around talking about real estate. My wife is very extroverted.
The Real Estate Is a Hands-on Job
Nic: When it's time to go home from church or from a party, I'm like, "We don’tneed to stay 20 minutes after and visit with everybody." But if we go to a real estate event and she's like, "When are we going?" It's completely flipped. I enjoy talking about it, I enjoy reading about it. Just sitting there listening to podcasts and growing my understanding of what to do, learning and teaching others also.
Darin: Why do you think that you feel that way?
Nic: I just think it’s something I enjoy doing. I enjoy the hands-on versus the stock market where I don't really see what we're doing. I’m not hands-on. I am not out fixing toilets or things but I can see the property. Numbers and science have always come relatively easy for me. I can look at the analyzer and analyze deals all day long. It's just something that I enjoy.
Looking back, maybe having that introvertedness and being a physical therapist, because you are sitting there talking with people as they're doing their treatments, maybe it wasn't the best fit. When I was graduating high school I had seen that it was one of the most sought-after jobs. Like, "Alright, I guess that's what I'll do."
There wasn't much thought put into it. Now that I have more wisdom 30 years later after getting out of high school I probably would have gone a different route. But the Lord has us on the path he has us on so who knows what would have happened if I would have done real estate right out of school. So it's where we are.
How Much Money You Can Earn From the Tertiary Market
Darin: A huge majority of people end up in a career just because they were pushed in that direction. First, it's like what do I major in? You just major in something and then all of a sudden the companies are coming for interviews and you put a resume out. Then you get a job and you're like, okay, I got a job. All of a sudden, you get a raise and you buy a nicer car. The next thing you know you're four or five years in. To change careers is a risk and you have to get back pay.
So yes, that's not very unusual to just all of a sudden end up someplace. A lot of people end up there. I really enjoy this also. But there's one thing you didn't say that I don't know if it plays in for you but it definitely plays in for me. I'm seeing the amount of money that people are making and I'm like, I can't believe this. Why did I not know about this earlier?
That part of it is that I know when I got into real estate, the first thing I did is I bought a new construction duplex. My mindset was like, I'm just going to start small. Anyways, a $300,000 investment. My wife and I put in 50 grand and got a loan for the rest. It was scary because you think of it as a $300,000 investment. You could lose $300,000. But it really isn't like that. If real estate goes down it doesn't go down to zero. It goes down and then it comes back up, it goes cyclical.
How to 10x Your Net Worth in the Tertiary Market
Darin: It's amazing how many people don't understand how they can get involved. Whether it's passively where they let somebody like you find the deal, they invest in your deal and you get a great return or they learn how to do it actively. But real estate is just crazy with the amount of wealth generation that you can earn.
Nic: That's what triggered me to go from the passive. From thinking I'm just going to have my retirement investments in there, to seeing I can make tremendously more. You can make a lot from the passive side. But if you're a sponsor, you're getting your sponsor cut so that's what triggered me to move into that. In five and a half years, I've come close to almost 10X-ing my net worth.
Now, I didn't start very big. I just redid my personal financial statement last week. I'm not quite at 10X but getting very close, and that’s in the last two years. The first two or three years, you're scrapping, trying to get going. Getting two deals in the month of September really helped on that and then we closed one in December of 2020. So that's three deals in the last 10 months. I have another one set to close later this year. It will even jump a little more at that time.
Darin: Grant Cardone has that book 10X. He has the 10X Conference. There's a lot of hype around 10X. But this is a real person that we're talking to that has a real-life example. That's what happened to me. When I joined, the first thing I did was set up a bunch of Starbucks meetings with sponsors that were doing deals.
Can You Really Make Money in Real Estate?
Darin: How'd you do it? Is this real? Are people really making money? I met so many people that were like, "My net worth was 500,000 now it's five million." It would take a long time to put 10%, 20% away into the stock market and just have it grow to that level.
Nic: I don't know if you could do it in a lifetime unless you picked something just right that really appreciated.
Darin: That's part of the reason why we do these podcasts. It is to let people know that you can do it, but it's not easy. It's not like you get involved, you join the group and then all of a sudden somebody comes knocking on your door and hands you a deal.
Nic: I spent hours and hours practicing and then pursuing and even now quite a bit. It's like you had talked about earlier. Now that I have more deals and I'm doing the asset management side it makes it more challenging to underwrite and find the deals. That's where we'll work with less experienced people if they'll do the underwriting side.
Kind of like what Brad and I did with a guy we partnered with on the first deal. We said, "We'll do the underwriting. We'll give you a pretty significant chunk of the deal if you'll come in and be our sponsor."
The brokers want to see somebody experienced on the deal. It helps you win the deal and it helps your balance sheet too from the experience side and the net worth side. Having that now to help others, it helps them get a step up too. But as you do it, it's a significant amount of time.
Paying It Forward
Nic: Brad and I would probably work sometimes from 9 p.m. till 11 or midnight several nights a week, just talking. My wife would joke that we had a bromance. She jokes, "I think I've talked to Brad more than I've talked to you."
It's fun because our families have now become friends. He has three daughters about the same age as my three daughters, so it's great. We're taking a trip together the first week in November. We've rented a cabin in Broken Bow. We're going to take the whole family up there and celebrate some of our successes.
Darin: With your experience and knowledge, you ended up becoming a coach within the mentorship group. Why did you decide to do that? What are some of the learning lessons from being a coach?
Nic: One of my main drivers was, I was already offering to help people. I'm like, I've already walked along that path, helping people out. I'd like to get more involved with it and give back to the program too. We do get paid a little bit but not a ton for the coaching. But to help the program that's moved me, done so much for me and my family and my networth.
A lot of mindset stuff too. Getting out of that middle class mindset and knowing how the wealthy think about things. What actions to take and how to be more positive in life. I wanted to give back within the group too and help support that. It's been a great experience, I enjoy coaching. I work with all the newer students coming in for about the first 60 to 90 days. Sometimes less, depending on what their background is.
Helping People Start Up
Nic: I'll start out and get most if not all the new students up to speed when they move on to their more permanent coach. It's been great coming in with all these newer people. I feel like I'm helping them set their trajectory. They're going to launch like an arrow that needs to go somewhere. We're helping them get their aim.
They're not going to hit the target while they're with me but we're just getting them dialed in and almost holding their hand if they need it. If they don't, we're giving them the space they need but to be there and answer questions and try to have a call. At least the first 30 days every two weeks.
Three calls in the first 30 days and then spread it out from there depending on what they have going on at their pace. I try to follow up with them. If I haven't heard from somebody in a few weeks I just send an email. Just, "Hey, how is everything going? Don't lose your momentum for this program. Let's get you back on track."
Darin: I don't know if this is true and I'll ask you if you have the same experience. When you go to these conferences, I see a lot of new people sign up. Then over the next year, I see some of them get deals done, while I see a lot of them not get deals done.
What I try to tell people when I'm having coffee with them or they reach out to me and have a conversation is, "Look, in my experience, there’s the 80/20 rule. Look back into your life and into your experiences."
The People Who Will Be Successful in the Tertiary Market
Darin: "If you’re the type that rises up and figures it out to the top 20%, whatever industry you're in, you're probably going to be successful. You're going to get all the tools that you need. But there's a quality of fight, kick, scratch, be committed, never say die type of attitude that you have to have. If you're somebody that's looking to write a big check and just have something handed to you, save your money."
You coach all these people. What are the characteristics of the people that you see become successful and those that falter away?
Nic: It's those that aren't afraid to fail that'll jump in there, you have to have grit. You lose more than you win. I try to encourage people to go look, when you miss a deal take that as a learning opportunity. Sharpen your knife, learn from it and know what to do on the next deal.
Talk to the broker. The brokers would appreciate you saying, "I don't want to know what the other guys did to win it. But can you give me a couple of pieces of advice that maybe, on the next deal, I might try and that can help strengthen my offer on the next deal?" Then the broker knows you're bought in. You're wanting to grow and do better on the next deal.
It's just having grit, and it's hard to see in the first 30 days, 60 days of knowing someone. But it's the ones that are going to get in there and engage. Take advantage. Brad's program has 18 training modules. You can't watch one or two and expect to start making offers, you need to go through the process of watching all of them.
Watch and Learn
Nic: When I went through the training modules, I had maybe three or four legal pads. If I write something down, it helps me retain it. Some of them, I watched twice. I can probably read Brad's dialog through most of the training modules because there's so much meat in there, content, that I'm writing everything down.
It was good. Especially early on when I'm like, I know he said something in one of these and I can go back through my notes. When I would pause, I'd try to do an hour, an hour and a half at the max just because you need a little break. I would write where I stopped, in 38 minutes and 17 seconds or whatever. That was nice. I didn't expect it but it was nice when I came back and was looking at something.
If I didn't really quite understand what I wrote or I couldn't read my writing, I could see, oh, that was around the 36 minute mark. I could hop and just jump ahead and re-watch what he had said. People that will put the time in to do the steps. Brad has set up a successful program and a lot of people have followed it.
People that try to reinvent the wheel or shortcut it, it's not going to work. I encourage everybody to go through the program. It's going to take a while because those videos are an hour and a half to two hours each. If you're really going to get a deep understanding of them, you need to take your time listening to them and watching them, and then practice. Practice deals and not expect your first one to be a grand slam.
Nicety Can Get You Farther in the Tertiary Market
Darin: Setting the expectation. I love the advice that you gave. Talk to the brokers. That is simple, little advice but somebody new to the industry may think, "Oh, I put my offer in. I didn't win the deal. I'm just going to scurry on away. Like I wasn't close. I don't want to bother the broker." There's so much wisdom in that advice that if you go back and say, "Hey, what did I miss? The guy who won the deal, how did he look at the deal? How did he underwrite the deal?"
It does a number of things. One, it teaches you. Maybe you missed something that you can use on your next deal. But it also lets the broker know, this person wants to learn. This person isn't going anywhere, this person is somebody that is going to be around. It implants a memory and a feeling different than if you just scurried away.
Nic: I like to approach it, hat in hand but in a nice way. Don't come in demanding. Some people get pushy and yet, you can be off-putting. But if you come in nice and say, "Hey, I just love to learn. Can you help me understand what we could have done to make a better offer on this?"
I hear stories of some guys just being rude to brokers. That's never going to help you because these brokers are the gatekeepers to the seller and to the deal. Even if you have a strong deal but you've been a jerk and you may have the strongest offer. I won't say they would but there's a chance they're not going to present you in a positive light to the seller.
How to Get an Unfair Advantage in the Tertiary Market
Nic: Or if your deal is even with somebody else's and somebody else has been friendly. He has built that relationship, the broker's going to put that guy's offer in a better light. It's not fair but it's the reality.
Darin: I've heard some syndicators that have thousands of units and they're like, this is not a fair business. I get the phone call first for an off-market deal and I get the last phone call on a marketed deal. That's not fair. But another way that I look at that is like, how do I get myself in the position where I'm the one that's getting the unfair advantage?
Everybody has to pay their dues, so you gotta fight, kick, and scratch. Talk about scaling. A lot of people talk about the first deal, how hard it is to get the first deal and it is. But then, you get one deal. Now, all of a sudden, you have six deals and over almost 900 units. So how did it play out after getting the first deal in terms of scaling?
Nic: You have credibility after that first deal. That's why I encourage new students and people wanting to get involved to say don't plan on buying a 200 unit deal right out of the gate. Start smaller. One, the brokers that are working on the smaller deals, I've learned this since or maybe even in the secondary markets.
Usually, some of the newer brokers, newer to the career, they're going to give you more attention. The guys that have been doing this for 5, 10, 15 years have those experienced guys that they've already been working with.
Be Competitive but Friendly
Nic: They're going to learn, one, they know those guys can close deals. Two, they have that relationship and they can talk to them and reach out to them. As a newer syndicator, that's where the smaller maybe secondary market deals work. You start building that relationship with that newer broker. In 10 years, he's going to be selling 200 units, some of the newer, nicer class of stuff.
Start at a level where you're competitive and be friendly with the brokers. They are the gatekeepers. Don't think they're your servant. Not often, but I hear of guys being rude to them. I'm like, you're just shooting yourself in the foot. Anytime that I ask them for financials or something, just always try to be friendly. It's not my character. I'm not being fake. But be friendly to the guys and chat with them and then scale.
So once you get that first one, be it a 60 unit or like mine which was a hundred units. At the time, we paid 37,000 a door and stuff in DFW at that point was probably going 50 to 60, maybe 70,000. But it got my foot in the door. I'm not making a lot of money off that. We had the more experienced partner come in and he took half the deal.
Brad and I got the other half of a 10% sponsor fee so I'm only getting two and a half percent of the deal. It didn't change my wealth trajectory at that moment but it stair stepped me up. We bought a second deal in Abilene and then a third and a fourth. Two of them are from the same broker. It's just showing that you can close.
How to Close Another Tertiary Market Deal
Darin: They have a positive experience with you, then they come back and give you another deal.
Nic: They know that you can close now. They know that you weren't a pain in the rear. Don't retrade. You may get into a deal and find out there's something that you didn't detect on your walkthroughs. Unless it's really going to blow your deal up, it's just going to move your numbers a little bit. Now I will bring it up to the broker but we're not going to come in and retrade a deal.
In one of our deals, the roofs were in worse shape than we thought. But we were able to move our rehab stuff around where we're going to replace all the roofs on them. For a second we’re like, we're going to have to go back and ask for a discount, a concession on this. I was like, I don't want to retrade on the broker.
We told the broker we found it and felt he made us believe the roofs were three stories. We couldn't really see on top of them until we got out there with the roofers. Doing due diligence, the roofs were all newer than what they were. So we did have a talk with them. It’s like, we're not going to retrade this but we know.
I would suspect that he appreciated that because he spoke for us. He put us in there as the buyer and he doesn't want us to come in and retrade even if it's on a very large deal. A couple hundred thousand dollars, but it's still money. We ended up eating it. In the long run, it's going to help with the relationship.
Real Estate Is a Relationship Business
Nic: It didn't affect our returns much at all. They were still very close to the original. It came back and our insurance was less. We had some other things that settled out in different ways than we'd originally underwritten. So the overall returns didn't change at all. Actually, they improved over time because we had savings as we went through it.
Darin: I've heard that over and over again. Do what you say you're going to do. Don't retrade, don't nitpick and try to change the price after you're in contract. But new people may look at that as, why wouldn't you? It's short-sighted because this is a relationship business and these deals are extremely competitive. You're going to end up having four or five buyer groups that are very close in price.
The broker is going to remember that you are a pain to deal with. He's not going to advise his seller to sell to you. Yes, you may have negotiated a $50,000, a $100,000 concession, but you're going to have a much harder time on the next deal. You might have to overpay by two or three or 400,000 to win the next deal because the broker has that knowledge. The broker community is small.
Nic: I was about to say that same thing. Even if they're not working, sometimes those guys get together at industry gatherings and they talk.
Darin: Yes. "Hey, I saw you did a deal with Nic. How is he to work with?"
Nic: They'll call and check reference types of things too. So you want to keep your reputation.
How the Right Amount of Fear Helps You Win Tertiary Market Deals
Darin: If you think that, alright, I'm going to a different broker group. I'm not going to be exposed. It's not true. They talk to each other. They're trying to protect their commission. They don't want to get egg on their face with the seller to have any problems. They want it to be as smooth as possible. So the easier you make their job, the more business they're going to want to throw your way. Talk about fear. Were you scared in the first deal?
Nic: I was nervous. Even in the last deal, I have that bit of buyer's remorse. It's gotten less because we've underwritten it and we've had other people look at it. This last deal I committed on day one was $100,000. There were three of us that did that. Then we had to put in other money. By the end I had close to between 150, 175 tied up money.
Is this going to work out? You go through all these doubts. That's part of being within a group where you have some positive stuff. A little bit of fear helps you. It does me, it motivates me to go. But coming back to the first one, I was extremely nervous. Did we do this right? Is it going to workout like we thought?
The comfort of being within an investment group where we've had coaches review it. Other students review it, a partner or two reviews it, gives you some comfort that it’s going to work out right. Especially when you're looking at buying a multimillion-dollar business and running it. It comes back to fear of changing.
Fear Is Real
Nic: I was in my mid-40s when I switched from therapy to real estate, so that was very unnerving. But I was blessed that I was in a contract position so I could shift over slowly. Other than through the mentorship program, I was not trained to do real estate or Excel. Some of it is self-taught but a lot of it comes from the mentorship program.
Darin: I think that fear is real. It hits you on all different levels. Even your first passive investment, 50K or 75K or 100K into a deal, like am I picking the right deal? Am I picking the right sponsors? Or am I picking the right market? Is the timing right? All these questions can come up and at the end of the day, none of us has a complete crystal ball. None of us has 100% information.
What I've seen with people that have been very successful is that even though they have fear they still take action. That differentiates people from success and sitting on the sidelines.
Nic: And preparing yourself to take that action, not believing in luck. Luck is when preparation meets opportunity so you prepare yourself. Then you overcome that fear and then take action. If you're not having a little bit of fear, I would question if you are making foolish decisions. But it's nice to be concerned and you want to pay attention to it. It keeps me watching deals.
I still look at every deal multiple times a week just to see where occupancy and delinquency and collections are. There are certain numbers that I want to see to give me an idea of how the property's doing.
Building Relationships With Brokers and Investors
Darin: You own close to 1,700 units, almost 900 units as a GP. Where do you go from here? What's the next big stretch goal?
Nic: We were looking in Houston more. Continuing that, maybe start moving into the more B plus assets. But the C assets have done nice. I'm not saying I'm going to run away from those but also coming in. Being more of the passive syndicator to the point where you come in and not be as involved in the asset management side. To be a mentor or just be there on the GP team and help out a little, but not take as active of a role and have somebody that's newer possibly do that.
We’re getting to the point now where we're getting close to being able to hire somebody. Be it a VA or some type of asset manager where we hire somebody to do it. It's still a lot of work if you're in there doing the asset management side. This is not a get rich, put money in, get wealthy and kick your feet up and have an umbrella drink at the pool.
You're still having to do quite a bit of work, either raising capital or doing the asset management side. But I'd like to start trying to outsource or hire some of those things. To focus more on making relationships with investors and relationships with brokers and finding deals.
Darin: You're in a good position as a coach to be exposed to a lot of those new people. You get to know how they underwrite. Which ones you would maybe want to partner with and ones that are fully committed.
Earning While Helping
Darin: You know who will do a good job and you're perfectly aligned to be the experienced guy. But three, four, five years ago, you didn't have the track record, you didn't have the resume. You couldn't be that guy and now you can.
You're able to help the next guy. But you're going to be compensated because you're going to get a piece of the GP. You’re going to lend your resume and your balance sheet and off to the races.
What do you like to do outside of work? This guy decided to go on a health kick and he lost a ton of weight. Share with people what you did.
Nic: More of a shotgun approach but one, started eating keto 90% of the time. I'm not 100% with it. Actually, I was one of the few people during COVID that did lose weight just because we didn't have the networking events to go out. I'm not one to drink at home and if I'm at home, I eat a lot better. But one thing that Darin was really hitting on is, my wife and I have a cold plunge. We now have a horse trough but we actually ordered a true cold plunge.
It's taking eight weeks to get it. We have one coming. It's like a hot tub but it's cold and goes down to 42 degrees. But our goal is to get in 50-degree water for 20 minutes as many days a week as we can.
Darin: And you lost how many pounds?
Nic: Probably from my heaviest, 45, 50. I put a little on the last couple of weeks but I'm starting back being a little more serious with my dining and exercise.
The Cold Plunge
Nic: I went from doing more long-distance running to doing a high-intensity interval which is great. A good workout is 12, 15, maybe 20 minutes at the most. It's really hard. Rest for a time period. It’s great because it's rare to find 12 minutes to do some exercising. But in a cold plunge too, I think that helps.
Especially that I'm 51 now, definitely the joints are a little more achy after some of this stuff. But I'll come home from a workout in the morning and climb in the cold plunge and stick it out. First 30 seconds you're like, oh, this stinks but you get this relaxation as you're in there. We start it at 70 degrees and work our way down, we acclimate our body to it. I almost have an adrenaline rush afterwards, I miss it if I don't do it each day.
Darin: You formed a positive habit. In addition to the health side, what else do you like to do outside of work?
Nic: I used to mountain bike but I do like to hunt. I dove hunt and deer hunt so that's more fall and winter. Then I have three daughters that are in school and play different sports and I’m involved with that. They're in middle school and high school so that's taking up a big block of our time now.
Darin: I remember those days. We would have to divide and conquer on the weekends. If somebody wants to reach out to you, what's the best way for them to do that?
Nic: My website is thrivemultifamily.com or my email is email@example.com.
Darin: I really appreciate you sharing and you've been a good friend, good resource, good guy altogether. I appreciate you for coming on.