Today we have Iven Vian on the show! What do you want in life? Iven Vian, a 20-year veteran as a military pilot shares his journey on transitioning from the air to land, securing financial freedom through real estate investing, and building wealth in both good and tough economic conditions. Discover how he was able to successfully transition and make it big by thinking BIG!
In this episode you will learn;
- Iven's story on how he got started
- how he found his business partner
- the importance of asset management, especially in challenging economic conditions
- how belief and mindset is so critical in thinking big
Table of Contents:
- Where To Listen To The Podcast
- Iven Vian’s First Real Estate Experience
- What Do You Want in Real Estate Deals
- What Do You Want to Do With the Cards That Have Been Dealt To You
- As an Asset Manager, What Do You Want
- What Do You Want in Project Management
- What Do You Want to Do to Make a Difference
- Keeping Up With the Effects of Inflation
- What Do You Want as a Passive Investor
- A Long-Game Mindset
- How To Reach Iven Vian
Iven Vian’s First Real Estate Experience
Darin: Iven Vian lives in Oklahoma. He is a 20-year veteran in the military. He was looking for a better way to build wealth for his family and he found it in multifamily real estate investing. So a little bit on how we know each other. We're both part of the same multifamily mentorship group, the Brad Sumrok group based in Dallas, and I had Iven's partner Tariq Satar on the show, episode 133.
And interested to hear Iven's take on what they've been up to and the split on roles because each party brings a different role to an organization. So with that, can you share a little bit on how many properties and how many units you're currently invested in?
Iven: Absolutely. So for me personally, see on the active side, GP side, about a thousand doors on the passive side, I want to say around 2,500 doors.
Darin: Yes, so that's a lot, man. You've been active. So maybe a little info on your background and how you got into the whole real estate game.
Iven: Absolutely. So my background, 20-year Air Force Vet, spent 20 years flying the B-1 Bomber.
Darin: Thank you for your service.
Iven: Appreciate it. Thank you. So yes, I got involved in real estate because it first started off with a bad investment when I was in college they preached the mutual fund thing and they said, hey, you know, you got to invest in mutual funds. So I took this $21,000 loan that I was getting for like 4%. I was going to put it in the stock market, make 10% return and keep the difference. Well that $21,000 investment went to zero overnight, literally.
What Do You Want to Do in Your Hard Earned Money
Darin: Did it really, went to zero?
Iven: Man, that's 2001, everything just tanked that was the timeframe. Everything just tanked. And I was disheartened like a dagger to the heart and I said, listen, I did everything you guys told me and now this is the result I get. And it was a loan. So I was stuck with a $440 monthly payment on a $35,000 annual salary as a second lieutenant paying off that loan. So every month it just hurt me a little bit more and more and more. And I said, there's got to be a better way to put your hard-earned money to work for you.
That's when I started getting interested in real estate and I said, oh, this is what I want to do. And word got out and we got relocated, my family and I to Abilene, Texas. And then I was staying with my mother-in-law for a little bit and she said, hey, there's this lady down the street going through a divorce looking to sell her house. You should go down, and see what you can do. And honestly, I didn't put much thought to it. I dropped everything I was doing, walked out the door, went down, knocked on her door.
Long story short, I bought that house for $33,000 and rented it for about $850. And after it was all said and done, I was collecting about $300 a month in passive income, which is a lot better than that $21,000 investment I did many years before that. I was like, there is something to this real estate game. And that's when I got my first taste of this game and it scaled all the way up from there starting at that point.
What Do You Want When Starting a New Career
Darin: It's crazy. You started by saying that you're a GP in a thousand units, you're an LP in 2,500, but it all started with buying a $33,000 house.
Iven: $33,000 house. It's quite a ride. And I remember I did some reflection here a little while ago and $33,000 house in 2008, 2021, I bought a $33 million apartment in Salt Lake City. And so it's been quite a ride and definitely looked forward to keep doing this.
Darin: That's crazy, that's what I tell people is like, look, at some point everybody had their first investment. If you get into the game, it can be intimidating sometimes when you're just trying to get in and you hear people have a thousand doors, 2000 doors, 3000 doors. But everybody started with their first. So your background was a vet, you got into that $33,000 single family house and then you never looked back? You were all in real estate from that point on?
Iven: I literally was. I really wanted just to be an entrepreneur and listen, being in the military was a great experience, great career, got to do a lot of cool things. But there's a lot of downsides too. You're a salary-paid worker, they work your tail off. Actually, the more you work as a salary-paid worker, the less your hourly rate is if you do the math. And I was like, I got to find a better way to convert my time into money. And I learned about this real estate game.
What Do You Want in Your Career
Iven: And so this is a takeaway here. Is I had to make a career decision, do I want to keep pursuing this military career and shoot for the shoot for stars and maybe someday if I'm lucky to be a colonel or general? Or do I want to maybe stay a mid-level kind of guy, use that extra time, go over here and pursue a real estate game?
And then I decided obviously the real estate game and never looked back and I just kept going and going and going. But there's a lot of ups and downs, like anything, any cycle, any market, a lot of challenges you experience. Right after that $33,000 deal, I went into the whole $80,000 in debt on my second deal.
Darin: Come on. Did you really?
Iven: I did.
Darin: It wasn't all roses.
Iven: No, come on now.
Darin: Come on. That's what most people preach.
Iven: Not me. I don't preach that. I'll be real about it. I went into debt.
Darin: How did that happen?
Iven: Crazy story. So I got the real estate bug and my wife when I bought the first house pregnant with our first child. Child's born, we're at the hospital. We rushed out the door to go to the hospital. So she said, hey, I need you to go back home and get the bag. So I had to go back home to get the bag.
Darin: The bag's been packed for a while waiting.
Iven: So I'm back home to get the bag. I'm stepping out the front door and I looked to the left, I was like, oh yes, there's this abandoned home next to me with this plywood up all over the windows.
What Do You Want in Real Estate Deals
Iven: What's going on there? And I was like, I have a few more minutes. Don't do this first-time dads, trust me. Don't do this, but I have a few more minutes. I said, let me see if I can figure out who this guy is that owns this thing. I got on the tax roll real quick, realized he lived down the street and I was like, I'm going to go to his house. Then I went down to his house, knocked on his door, this big burly man, walked to the front door with his shirt off.
He's like, can I help you? What do you want? I was like, dude, I'm looking at your house, looking to buy. He is like, step inside. We go up these stairs to his attic, there's like one light in the attic and he's basically showing me on the desk how much he owes to get out of that deal. I said, I'll buy it just like that. It was dumb. I said, I'll buy it. I didn't understand comps. Got lucky in the first one. I didn't understand comps, I didn't do rental stuff, I didn't do any of that stuff.
I just said I'll buy it. I'll find a way to buy it. I bought it. And then long story short, I over-rehabbed it, took it down the studs, brought it back up. To get through the rehab project I ran out of money. I had asked mom for help, I filled up my credit cards and now I'm stuck with $80,000 bill to pay off as a captain. I learned a lot of lessons, learned about the power of mentorship. Find someone who's been there, done that.
Don’t Reinvent the Wheel
Iven: Don't reinvent the wheel, just do what they do step by step and you'll most likely succeed yourself. I learned about how it's good to bring in other advisory people into your team, get their prospectus. It's obviously learning about due diligence. How it's so important to do due diligence and these skills that I learned at that point in time or any of the skills you can apply to any type of business really.
So I spent a lot of time basically analyzing all the mistakes I made. And it was very frustrating because 2008, 2009, everything crashed. And I remember to this day living in Abilene, Texas, I was listening to Lifestyles Unlimited radio show with Del Walmsley and he was like, yes, I'm buying these apartments for 30,000 a door. I was like 15,000 a door. And I was like, got to be kidding me man. I was like, but I have no money. Get in the game.
But listen, it caused me to regroup, reset and refocus. And I licked up my wounds and I said, listen, I'm going to start over and got a job in Oklahoma City. And that's when everything changed. I had some money in my pocket, went out and started buying some homes, ran out of money, got my broker's license to sell some homes to make extra money. That's when I met my partner, Tariq. That was a great experience. I ended up selling about 99 houses in two years as an investor realtor.
What Do You Want to Do When Things Are Not Working Out
Iven: On my lunch breaks, I was peeling off in these little homes around the base. It was a great rental market at the time, still selling for around 40,000 bucks a pop. Tariq bought about 45 of those 99. And that's when I got to know Tariq really well. To sell 45 houses, you have to literally see him every day and you're showing him about 600 houses over that course of time of two years. And that's when we started talking about multifamily. And I remember in 2016 it was like these deals aren't working out anymore.
Darin: The single family homes weren't working.
Iven: Single family deals. I was like, Tariq, we need to go down to Dallas and learn about this multifamily stuff. There's this guy named Brad Sumrok putting on a two-day event, let's go check it out. He said, oh, let's go. And so we went down to two-day event and sat through that thing and he looked at me and I looked at him. After sitting through that two-day event, we signed up for the course and never looked back since. And so fast-forward now, I mean a lot of things happen in there. But basically, that's when we started Anthem Capital. We've done about 3000 doors. We've bought 19 deals. We sold 14, we raised around 90 million, and realized about a 27% average analyzed return.
Darin: That was a lot right there, man.
Iven: It's where we are today.
Darin: That's a lot. And when you went in the hole, you didn't put your tail between your legs and go the other way. Why didn't you do that? A lot of people are going to give up.
The Bulldog Mentality
Iven: Like anything else, even right now, you got to have a bulldog mentality. Imagine a ball around a tether ball and that bulldog wants to bite on that ball and don't let go. And I just set my sights and I just knew what I wanted. And a lot of that was, here I am in the military and a lot of it just understanding the power of having goals in life. I remember being a little kid and staring out these pictures on the walls saying, someday I want to be a pilot.
And fast-forward, I remember being 35 and I was looking around in the air and I was like, oh my God, I'm here. I'm a pilot. I made it. And I was like, well now what? And I was like, well I want to do multifamily and listen. Honestly, I didn't have the belief, I didn't have the mindset to believe in myself. I really didn't think I was capable. And so I took the single family route. I was going to this Lifestyle Unlimited meetings. I would listen to other two-day events and I was like, that's what those rich guys do.
And I didn't see myself as a rich guy, so to speak. So I had to go on some personal development journeys myself to get my mindset right myself, in order to be able to be effective in this space. I'm glad because I've been able to grow as a result. And so that's part of that. And I think a lot of it has to come to just knowing your why.
What Do You Want to Do With the Cards That Have Been Dealt To You
Iven: And a lot of my influence from entrepreneur world is honestly just looking at my mom and her background. My mom, bless her heart mean she grew up in the aftermath of the Korean War, didn't have an opportunity to get a formal education. She barely graduated, was allowed to graduate the eighth grade. She always wanted to be a business person. Businesswoman herself.
Darin: Was she in the US or was she in Korea?
Iven: She came here to the US, my dad was in the army and met my mom over there and brought her back and she came to the US and worked really hard. She's a very good worker and she just always wanted have her own business. And when she was in her 40s, she bought a grocery store called The Neighborhood Market in Kaiser, Oregon. I saw her take that store from shambles to turn it into a beautiful diamond over the course of 27 years of operating that store.
And not only make an impact in my life, impact on our family's life, but impact in the surrounding community. And that to me was a lot of my inspiration, I believe. I think subconsciously has just always been there growing up as a kid. Can you imagine being a kid mopping the floors and counting the cans and counting the inventory. And then seeing your mom at the cash register machine every night counting how much money she made. I still remember it's 900 some bucks a day was a good day.
What Do You Want to Achieve
Darin: Well she was also a huge role model for you. I mean she taught you hard work, she taught you about doing your own thing. Look, I don't know what she ended up doing with her grocery store. But if you own a business or you own real estate or you own an asset, you can sell it at an appreciated value at some point. You can't do that if you're a worker. If you work as an employee somewhere, the minute you leave your income goes away. You don't have anything to sell.
Iven: That's it.
Darin: So what does she do? Does she still have that store?
Iven: She operated that store for 27 years and eventually retired in 2018.
Darin: Did she sell the store?
Iven: Sold the business, and speaking of real estate investment, kept the building and took back a lease.
Darin: Nice. So you taught her a little lesson there. No, that's fantastic. A few things that you said is, you knew what you wanted and bulldog mentality. You had goals. That I think is key for anybody that I've interviewed that's been successful is that they're determined. They can visualize where they want to go and they're determined to get there. It's the people that they don't even know.
There's so many people in this world that they don't even know what they want. They know they want something different. But they don't know what it is and they're not willing to take the time to actually think about it and then document it and then take action to go after it.
What Do You Want in a Partnership
Darin: So I applaud you for doing that. There's a lot of people that may have taken a chance and when they hit that second one and you were 80 in the hole may have gone the other way.
Iven: Absolutely. That experience taught me that. And literally, if you know what you want and you show up every day to play ball, give it all you got, you can literally become. It's not cliche, it's real. You can literally do anything you want.
Darin: But another thing that you said I liked is that there's ups and downs because sometimes you know what you want. But it doesn't all happen in a straight line, nice smooth sailing. There are days where you may not want to do what you need to do. You know you need to do it, but you don't necessarily want to.
Iven: A hundred percent. And listen, we all go through challenges. I'm going through challenges now. That's life that's real. But the challenges I'm facing today are, I'd rather take these than the challenges I had to deal with in military, working 16-hour days and being gone for six months at a time.
Iven: I'm doing okay.
Darin: Absolutely. So hey, share the different roles that you and Tariq play. You gave a little background on how you guys came about to get to know each other and how you partnered up. But in the company, in your company, Anthem Capital, what are the different roles and what do you play?
Finding the Perfect Partner
Iven: Absolutely. So it happened naturally. Tariq took on the acquisition piece when he first got started. Why? Because I had a job, and this is a takeaway for people who have jobs, partner with the right people that compliment your skillset, and then created some division of duties. And it was a natural fit for Tariq to take on the acquisition piece where he is working with the lawyers, brokers, lenders, et cetera, to get these deals across the finish line.
Darin: So let me jump in there a little bit too. And I don't know the answer to this, but it sounds like, did Tariq have more capital to bring to deals also?
Darin: So that's something that's important for listeners to understand is that, look, there are people out there that want to hustle but they don't have the capital. And then there's other people that, and I'm not saying Tariq was this guy. But there are other people that they have the experience and they have the capital but they want somebody else to go do the hustle. So there is an opportunity for everybody, but you have to get out there and tell people your skillset, the value you bring, and try to find somebody that compliments that.
Iven: Yes, that's it. That's exactly it. And honestly, that was another God-send moment. It was like, man, the perfect partner. And so we still work together acquisition side, but again, if I'm flying in my airplane, I can't be talking to people.
As an Asset Manager, What Do You Want
Iven: So that's where he filled in the gaps. So we get the deals across the finish line, then that's when I stepped in. I used my military experience and background in the flying world, you always start with the end goal, which is a target. And you work backwards and you develop a plan to hit that target. That's how I approach the multifamily asset management arena. And that's my primary role as an asset manager, I oversee the operations where I'm making sure these properties are moving forward to hit the target.
Now what is that target? Primarily is in order to meet or exceed our projected investor returns that we advertise to our investors. Everything else comes after that. So we have to manage the asset, manage the team, manage the cash on all these other functions in order to make sure we meet or exceed the projected investor returns. So that's my primary role in this company. We have since expanded out and found other people to come under and implement a lot of things that we have learned over the years and allowed us to be able to continue to expand and grow.
Darin: Oh that's huge. The role of acquisitions and investor relations and bringing in investors into deals with front-facing role may have been the more sexy role in the past. But everybody that I've talked to says the next five, ten years are all about asset management, all about operations.
The Challenge an Asset Manager Faces
Iven: A hundred percent. And that's where I've been camping out since day one. What I've been preaching since day one, our time to get our chance. Because it's like, yes, whatever, I'm going to go buy a deal over here, it's going to go up and value. I'm like, you sure? Come on now. But yes, exactly. This is where it's at. We face headwinds now.
Darin: So talk about some of the challenges on the asset management side and how you guys overcome some of those challenges.
Iven: The first challenge is, so COVID created this labor shortage scenario as well as material shortage scenario. We're used to underwriting deals, say four to 5K per unit for rehab for interior units. That easily doubled or almost two and a half times went greater. So my per unit cost went four to five up to 10, 12, 15 per unit on some unit floor plans. And that squeezes out the underwriting model. So that's one. Secondly, you don't have enough people to operate these properties.
How are you going to be able to rehab them? And I'll share some examples how we were able to get it done. And when you're underwriting these deals back in 2021, the market started cooking up and we were using historical numbers honestly. When we should have been looking at what the impact of COVID was going to have on future costs. As smart as we all are, we still missed that, honestly. And so we underwrite to a certain number, say 8K per door, ended up being 12K per door.
Innovation Will Help You Rise Up to the Occasion
Iven: Now you have a gap. Now you have to reallocate your rehab plan or reallocate the buckets within your rehab plan and still find a way to get the job done. Then we go into these major municipalities like Salt Lake City where it's a booming market, it's growing. So guess what? There's even more competition for good labor. So that labor cost goes up even more. And you may get someone on-site, but they're going to go over here and make 10 bucks more an hour.
Why would they mess around with your property when they can go work for a huge development company and make even more? And so I had to go through some iterations of construction companies. I'm having to figure out how to deal with rising material costs and timing issues where you have cabinets taking three months, countertops taking three four months, windows taking six months. If you remember in the beginning of COVID, during COVID. And those timelines have come in.
And so you really had to really refine your skill sets here and your processes, I should say, to get everything to sync up. For example, we would do a 90-day renewal notice and we want the answers to come in 60 days prior to the end of the lease. That 60-day window then gives us enough time to project the materials that we need to go out and get if we didn't have them on supply already. So we have enough lead time to get them on-site to not create any bottlenecking or stop gaps in overall operation.
Darin: So that's in the case of somebody that's coming due in a classic unit that you plan to renovate.
The Blueprint of Getting Things Done
Iven: Correct. And so we have enough advanced notice to build in enough lead time to order the materials. Now on the labor side, now don't go ask me for this number here. But what I was able to finally figure out and how to do, which this is now my blueprint. What I'm sticking to is I have this friend who's Ukrainian and he's tied to a lot of the refugee efforts that was going on in Ukraine at the time. And he said, listen, I can help you.
I have people coming from Ukraine, the US governments allow them to come into the country fast track. These are hardworking good workers. They will come and live on your property and work sun up to sun down. And really it's longer because it was winter wasn't as light as long. So seven to seven for example. So these workers came on site, I had about seven workers. They're not being distracted with any other project. You know how you got GCs?
They come and do a little bit here and they go over here and do and then it slows down, it creates friction. They came onto my property and all they do is focus on my property, my productivity two X, all my costs decreased by 15% and I was able to deliver say 10 to 12 full rehabs per month. One unit per month, no units per month for a little bit there fired those contractors and my productivity just went up through the roof. I was able to get my rehab project done in about two and a half months.
What Do You Want in Project Management
Iven: And it was from a September to December timeframe after going through that, some of those challenges at the beginning.
And so moving forward, that's the plan and we also brought in an in-house construction manager and that was absolutely key. You got to have someone there. Any area, you buy a property, make sure someone is there to crack the whip and oversee the operation, ensure quality control. Down to the minutia level of all the line items on that invoice were per what the estimate was in the beginning that they didn't sneak in some additional charges.
That level of detail and oversight you need in order to tightly manage these budgets and these projects given the very narrow window that we have today. So a lot of the keys to success moving forward is understanding those costs, managing those numbers tightly. But execution is so important. We don't talk about this execution piece, how you're actually going to rehab 10 units. Who on your team is qualified or experience to be able to see that plan follow through? I think it's so easy to put numbers on a piece of paper, but thinking through what that looks like, that's a whole other level of conversation you need to have.
Darin: Because on the multifamily side, you have an onsite leasing person, you have onsite maintenance. But the maintenance personnel, they're there to fix stuff that's happening with the tenants. They could do some of the work on the turns, but they're not going to do a full rehab. So who are you going to get to do that and how are you going to make that an efficient process?
What Do You Want From Your Manpower
Iven: Bingo. Exactly right. And you don't want maintenance doing full rehabs. It boggs down the system. You got to be looking at your work orders and your work orders directly tied to your retention and your renewal rates.
Darin: The satisfaction of the existing project.
Iven: Exactly. And another anecdotal story in this Salt Lake City project, we had maintenance labor challenges. No one wanted to be a maintenance worker on a property management company. I had one guy there and he left for an electrical company making 10 bucks more an hour. I'm like, makes sense. That's the labor market. We cannot offer those types of labor rates in our budgets on these class C assets. I think we all would agree to that. If there's a magic formula, or a way to get around that, please let me know. I haven't figured it out.
Darin: And finding maintenance people that have the skillsets, can they fix ACs? There's so many maintenance guys that will come in, but then all of a sudden they can't do a lot of the work. They have to learn it.
Iven: And you still have to outsource it. Exactly. You're not efficiently using your manpower. But so our work orders went from 5, 7, 10, 50, 60, 70. It got ugly. It got ugly for a little bit there. But what we did is we found two maintenance guys. And a lot of it is you got to know about workload and not bogging down your people and overloading them and creating this internal friction in the morale weakens and they just leave.
The Importance of Retention in Real Estate
Iven: They don't show up the next day because they hate working there. You have to manage that. But what we did is we brought all the make readys and full rentals all under our construction team so that the maintenance guys can just focus on those small work orders. And that worked like a charm. We went from 70 down to seven in two and a half months and knocked them all out. And that allowed us to be able to continue to bring up our occupancy as a result and maintain our occupancy because of the retention that took place.
Darin: Yes, retention is so important because if somebody leaves then you have to spend money to turn that unit. Whether it's a rehabbed unit and you have to clean it and maybe repaint it and maybe resurface countertops. In addition, that tenant is not going to go tell their brother, their sister, their mother, their aunt, their uncle, their friend to come live there if they're planing on leaving. So it has a double-edged sword. You really got to take care of the existing tenants and make it a community that they want to live in.
Iven: A hundred percent. Exactly. And that's that touchy-feely side of this business it's hard to underwrite, but you know, got to address those things. You have to build a community of people and build a culture of people and that's where asset manager comes in. I hate the word manager who's really above that is a different tier. You're really a leader of people. You're in charge of this program, this project, and people are looking up to you for direction.
What Do You Want to Do to Make a Difference
Iven: So you have to be having that awareness and that perspective, that mindset going into these projects, and I'll touch on this a little bit on community. So I really believe in creating community and we preach this, we go to onsite meetings, we talk about on our weekly calls, et cetera. So that's very important. But going back to my mom's story, how my mom not only made a difference in her store, but I saw how she was able to use her store to make a difference in the surrounding community.
And that inspired me and gave me the idea how now we can take on some of that responsibility, self-induced rather. But I want to find a way to use my local apartments to make a difference in the surrounding community. So we started our own foundation called Anthem Impact Foundation. Anthem Impact Foundation, what that does, that identifies key star tenants who are already making a difference in the surrounding community by them volunteering around the community.
And then we go to those nonprofit organizations they are already volunteering at and we make a donation to that nonprofit organization to further their cause. But what that does, it creates a ripple effect in the community. And what you find is when you invest in the surrounding community, then that community then in turn invests back in you and your community and your property. And what you're trying to build wherever you are.
Darin: So give an example, how do they contribute back? I have an idea, but I want to hear how it's played out.
Going Above and Beyond
Iven: It's not direct, it's indirect. And so we had a gentleman, he's a chef and he would have local sushi-making courses and classes on-site. He would also go and volunteer at the Utah Food Bank. And so we wanted to recognize that and we donated to Utah Food Bank. But then the Utah Food Bank then has people on our property who need food and are hungry. So like Thanksgiving time they would come and donate food back to our property.
Darin: No, that's fantastic. I've heard other apartment owners that will partner with local charities to maybe bring school supplies for kids and backpacks. That sort of thing. That's really going above and beyond just providing a clean and fun place to live.
Iven: Yes. Our property management company has a program called Urban Village Program and that's exactly what that does. They focus on the community onsite level, doing the things you just explain in as well as giving financial classes and other types of self-help classes, that type of thing.
Darin: So let's switch gears a little bit now we've got a lot of stuff going on right now with the economy, with the apartment world, everything. So let's start with just, hey, all these recession discussions if you've turned on any news. It's like we're either in a recession or big recession's coming or maybe there'll be a soft landing, but maybe there won't. How do apartments in your mind react in recessionary times?
How Does Recession Affect Real Estate
Iven: So the apartments in recessionary time, first of all, inflationary time, great place to be because your cash in the bank isn't earning any money. You want to put an apartment when you have an appreciating asset in which as the revenues go up, rent bumps go continue to happen. Your revenues go up, the value of your cash investment goes up over time. So that happens. And then recessionary times, listen, maybe the rent bumps slow down, but you have to look at the macroeconomics, microeconomics, any of these submarkets.
And you have to one, look at the supply and demand imbalance. There's always going to be a demand for multifamily living, especially in workforce housing. People need a place to live. Secondly, you have the affordability gap. It costs a lot of money to get into these single family houses from a down payment perspective. Additionally, you have a rise in interest rate, so the debt is even higher. So you can't borrow as much. You can't live in as big of a house. So what you have is these people need a place to live again.
They stay in your properties. So you have even increased demand. And then from a construction standpoint, we've under supplied the market for many years and it started back in the crash and we haven't been able to keep up. And now even with the COVID challenges, that created some more friction in the process. Then even now hearing these stories of developers trying to get permits and the backlog you have in the planning commission department and all these municipalities has created even more friction.
The Best Asset Class to Own During Recession
Iven: So it's going to be even fewer properties that can be built over time to meet the demand. So that inherently creates another increase in value of these properties. And so from a recessionary standpoint, multifamily is one of the best asset classes you would want to invest in overall.
Darin: Yes, I haven't been in, you've been in it a lot longer than I have. I got in 2017. But when I think about it, and people have asked me that question, I'm like, I think that if we go into recession, say, the big tech companies are laying people off now. If I'm living in California and I get laid off, I'm going to be like, well, where can I find another job? And if it's on par in another market that is more affordable, I'm most likely going to move there.
We've already seen California people and companies have been moving to Texas and Arizona and other growth markets. But I think that that would continue in a recession that people are like, all right, I'm in a high-cost market. I just lost my job, I got to save money and I got to get another job. So that could help multifamily in growth markets. I don't know how it plays out for multifamily in non-growth markets. But that's something that I think about is that it could have continued population and job and income growth in those markets.
Keeping Up With the Effects of Inflation
Darin: So the other thing you mentioned was inflation. And if there is inflation, last year they were saying what 8%, 9% inflation. People are like, well if I have a hundred thousand dollars and I put it in the bank and next year I have a hundred thousand dollars, I still have a hundred thousand dollars. But if you could only buy $92,000 worth of goods, that's the part that people don't really get.
Because it's inflation, it eats away at your purchasing power, but the dollars in the bank are still the same. So people feel like a sense of comfort that they've still got that and they haven't put it at risk. But what you really want to try to do is be in an investment that is going to return you more than an inflation rate. So the return is going to be above and beyond what inflation is.
So what Iven was talking about is, all right if there's wage inflation, he already talked about it having challenges, finding labor to do the work at the properties. If there's wage inflation, then people have more money. So in theory they should be open to paying more for rent. And so that top line rent grows over time. But if you've locked in fixed financing, then your debt service is fixed. So the profitability will continue to increase.
Iven: Absolutely. And expenses do increase in an inflationary environment as well of course. But the sure aggregate amount of the revenue increases a lot more than the aggregate amount of expenses.
Darin: Yes. And what would you say is typical back of the envelope? Back of the envelope, I would say income is a hundred percent expenses, 50%.
Rates and Debt
Iven: It's about a hundred. Right now it used to run 40%. It's creeping up to 50 percentile range.
Darin: Right. So if your total expenses are 50% and your revenue is a hundred percent and then the revenue, if they both grow at the same percentage, your profitability should increase.
Iven: Right. You're still profitable in theory. And it is other than you have to watch out the debt piece and manage that debt piece. And you have to make sure you fix that interest rate or find a way to mitigate your downside risk in a rising interest rate environment.
Darin: All right. So you brought up a tough one.
Iven: Let's do it.
Darin: Rates and debt. There are a bunch of people that are in floating-rate debt. And so the Fed just got done with their record seven interest rate increases last year went up crazy from a quarter percent to a half percent to a range of about 4 and a quarter to four and a half in one year. And so people that own apartments are getting hurt not only on the fact that they're floating rate debt is going up.
And the even bigger impact that I'm hearing from syndicators now is the fact that lenders are starting to require them to reserve for future interest rate caps. I'm in a lot of deals as a passive and as a GP, and I'm sure you've seen it's not like it's a 10 or 20% increase. Your monthly payment to the lender could go from three, four times, five times what you were paying before because now they're wanting you to escrow or a future interest rate cap.
Understand the Details of What Is Going On
Iven: Correct escrow for a future interest rate cap. They're looking at the forward curve. Depending on where your renewal happens. The lender most likely required 12 to 15 months prior to the renewal for you to start escrowing for that upcoming renewal based upon what they see the rates, the curve where it's at that moment in time, 12 to 15 minutes months prior. But high level these renewals costs 800 to million dollars and you're looking around 60 to 100K per month escrow that you're going to have to put away. That's the challenge.
And so a lot of sponsors are looking at refi options, exit options, recap options, and that has created of course friction in the market. And all I can say is understand the details even if you're passive. Understand the details of what is going on, make sure you understand yourself, what your all-in rate was going in. What your strike percentage is and when the renewal cap is, and see if the sponsor is thinking through ways to mitigate those crunch points that are going to occur in the system.
Because I mean 100K extra on top of your debt service, obviously you're in a negative cashflow environment. And then if you don't understand the runway available, meaning what is in your capital reserves, it could get ugly in a hurry. So I mean that's the reality and it's unfortunate. And again, the smartest people, no one saw that the Fed was going to, maybe they're probably out there. But the consensus was at the time it wasn't going to go up as rapidly as we experienced.
What Do You Want to Do During Inflation
Darin: And so some of the points you just brought up, one is looking at, okay, how much cash does the property have to pay the additional escrow? And then another thing to consider is that these are escrows, they're not actual interest payments. So if the property has the runway worth of cash, then six months or a year from now, escrow caps may be priced completely different. And then those reserves may be over-reserved and be able to be released. But there's no guarantee that that's going to be the case.
Iven: Exactly. You're planning on the worst-case scenario and of course, that's what any lender would do. But one other key piece here is to understand if you have an existing cap and you have time left on your cap, say a year, you can sell that cap. You can sell it, it has value, understand what that value is, and play that into the overall capital stack, the recap, or whatever play you're going to exercise. But understand what that value is.
And so typically for a year so far, if you have a year to go, I mean last look, maybe around 800 to a million is the value of the cap that I saw. So at the time of this recording. So understand that piece and that will play out into the overall equation and what the fix is going to be.
Darin: Yes, I've had somebody that has said that because they're required to put so much in there to escrow, to your point, they had value in the existing cap that they had and what they did was go back to the lender and extended the existing cap.
What Do You Want as a Passive Investor
Darin: They went from a lower cap to a higher cap, but they extended it out for another year or two. And in that regard then they didn't have to put up as much in the reserves, in the escrows. So that's another option as well. But that's a big cash crunch that was unexpected that a lot of syndicators are working through right now. Anybody that has floating rate debt and has an interest rate cap, they're trying to figure that out and how do we make this work?
The property could have been performing fantastic otherwise. And then this curve ball comes in and just like you said, it's not always a straight line up. There's different challenges to work through and this is one of them in today's market.
Iven: Yes, absolutely. And I can understand the challenge of being removed from an investment as a passive investor and the type of perspective that would create. I respect that because at the end of the day, you're a passive investor. Why do you need to be in the weeds and understand all these inter workings of the things going on that I've been talking about?
However, I would just emphasize maybe have some time set aside to absorb some of this information. Hopefully, your sponsor's doing a good job communicating what is going on. What the course of action is going to be so that you can just understand and know what is going in on our side and what we're going through at this point in time. That way you can understand what the course of action is to help you out overall and be part of that process, that solution process overall.
How to Build an Investor Database
Darin: Yes, look, it's confusing. I'm in the industry and all of a sudden you get an email saying, hey, we're stopping distributions and our payments to the lender are going from 20K to 70K. You're like, what? How the heck can that happen? And so I understand it, because I'm in the industry, but if I'm a passive and I'm not in the industry and I just parked money in there, I'm like, holy cow, I don't understand how your payment can go three times, four times.
So that's the point is to try to understand what is going on. Hey, talk about how you attract passive investors. You do it word of mouth. Do you do it from meetup groups? Do you do it from online? How do you build that investor database?
Iven: Great question. Building relationships is a way of life. And these days we could build relationships not only physical means, digital means. So I'm smashing the gas pedal in every avenue I can take to build relationships, effectively and efficiently. And that may not mean mass, I may mean a level where I can have meaningful and powerful relationships as well.
And we have team members on our staff and our team to help with that process. But to answer the question, all the digital means I'm on this podcast as a way for me to get our message out. Having starting our own podcast, we have plenty of social media marketing that is going on. Tomorrow night I'm hosting a meetup downtown in Oklahoma City.
What Do You Want to Express
Iven: I feel like a, what do you call it? I'm a rockstar in a different city in a different month. Now it's like I'm on the circuit and I always say to the person, I'll see you on the circuit. Because you're going to find them in the next event. And so you go to those conferences. Ideally, if you get on stage, get your name called to be on stage is one way to do it.
But then come to find out you have to pay to play on those stages too, which they don't share with you. But I'm not paying to play. I'll build my own stage eventually. So that's a lot of how it works. But then there's that organic method. And the other thing that I respect is, which I do my best, honestly, I do my best to make sure that this happens, is to take care of home base is how you grow. And take care of the ones you have and the partners you have today.
Again, I don't always get it right. I do my best. We're always improving the investor experience. We're working on trying to improve the end-to-end investor experience to make it seamless and frictionless as possible. What does that look like? I have a backend support team so that we don't have any email that goes uncovered unanswered. Any action that needs to happen and we can get it resolved quickly on a K1 issue or tax issue or whatever issue it may be. Things like that.
There Is No Better Marketing Than Word of Mouth
Iven: You can show care and concern for people's investments in your deals and that shows your investors, you're investing in your support staff to support them. I think that's how you grow as well. And no better marketing than the word of mouth. You can take care of home base then they'll take care of you eventually over time.
Darin: Absolutely I've talked to countless syndicators that have talked about how when they've been successful on one deal. And the next deal, they come back and then they bring one or two other people and then it continues to snowball like that. But doing all those other avenues that you're doing, like you said, you're running around that show sometimes. I don't know if your experience is this way, but sometimes what I've found is you're planting different seeds and you're trying to help educate other different people.
And it may take a number of times and somebody may come to you that you didn't even know was paying attention and was like, hey Iven, man, I've seen you. You're on social media and I've seen you having these meetups and I think I'm ready now. And I've been watching for the last couple of years and now I'm ready. And you don't even realize that that's going on.
Iven: A hundred percent. Yes, exactly. And listen, don't judge your street credibility by how many social media likes you got. They're there in the passing and people come out of the woodwork. Especially when a deal hits the streets and you have a smoking deal and that's when reward comes.
A Long-Game Mindset
Iven: So this is really to encourage those myself that are going through this phase of trying to build out their social media platform, build out their investor database. Double down on your backend support systems . It all pays off over time. And I think as long as you have a long-game mindset, a relationship should be long-game.
Darin: This is definitely a long-game mindset. It takes a while to build.
Iven: Invest in people and over time and building relationships and people I can trust. And that trust piece takes time. It does pay off. And I've had many times people call me out of the blue and they're like, yes, I've been watching on social media. Really? Oh, okay. I've seen you. I had a call today with someone. Yes, I've been seeing you for the past year and it was one call, but it was rewarding.
Darin: And they may not have liked or commented on one post ever. You had no idea that that person was even paying attention.
Iven: There you go. Exactly.
Darin: So in any event, hey, what do you like to do outside of work for fun?
Iven: Yes, that's a great question.
Darin: Come on now you got a family.
Iven: I love a lot of things.
Darin: How many kids?
Iven: I love food. I love good food, I love crafty farm-to-table kind of stuff, and I love crafty cocktail drinks. I love going to places and understanding the culture and history. What goes into the food that you eat?
What Do You Want to Do for Fun
Iven: We went on a family trip to Spain. It was one of my dreams to take my family to Spain once I retired and last summer we went to Spain and listen. We hired guys to unpack the history behind each of these little villages and towns we went in. And it played over into the food that we ate. It was just an incredible experience. We went to running the bulls.
Darin: What ages?
Iven: Oh. They were 14, 9 , and 6 at the time. Honestly, I was so heads down in business, I didn't even know you had to have special clothes. My wife did some research and realized you got to have a white shirt and red scarf and you got to show up in to this event. And I thought you'd just show up and look at bulls.
Well, I take my boys to this Pamplona, where the running of the bulls is. And the bus drives us from the hotel to downtown and we get off the bus and it's thousands and thousands and thousands of people. And there's like these huge rave party going on, people flying around and everyone's drunk having a good time.
An Awesome Experience
Iven: I was like, oh my God, what did I get myself into with my kids? It was like, yep, parenting foul right here. But we were here already. You know what? It was awesome. My boys embraced it. We didn't run in the bulls.
Darin: You did or didn't?
Iven: Did not. They were too young. I think they're still too young. My oldest maybe next year can do it. But we rented a balcony.
Darin: Watched them come through.
Iven: Look down over the balcony. And it's crazy, you get up first thing about crack of dawn and you got to be at the balcony 7:00 in the morning and it's all this hype and then it's over in 45 seconds. You're like, what?
Darin: It's like the Kentucky Derby.
Iven: Yes. I was like, that's it? Okay. But man, I love to travel and I love the outdoors. I grew up in Oregon and my dad used to take me out fishing.
Darin: I didn't know that.
Darin: I don't know why, but I thought you were always in Oklahoma.
Iven: I grew up in Oregon. I grew up in the woods. Out fishing and camping and with middle-of-nowhere experiences as a kid.
Real Estate Hunters
Iven: So I still got a lot of that in my blood. It's a little tough out here in Oklahoma with fewer trees and brown water versus blue water, but we still find a way to make it happen.
Darin: Well Tariq is a big hunt hunter. I don't know if you're into hunting too, if you guys go together.
Iven: He got me into it.
Darin: He got you into it?
Iven: Oh my god, I'm so hooked and it's like one of my passions now. And he took me to South Africa on an amazing, incredible hunting experience.
Darin: Holy cow, you went with him? He told me about going to South Africa.
Iven: It was amazing. Just to be out in the wild and see nature in and of itself was just an amazing treat. We had an amazing time.
Darin: That's awesome. So if somebody wants to reach out to you, what's the best way for them to do that?
Iven: Absolutely. Reach us at unlockwealthpotential.com.
Darin: Well, I appreciate you coming on the show. Listeners, you heard that unlockwealthpotential.com. Look these guys up, good guys and they're doing big things and highly encourage you look them up and go from there. So I hope you enjoyed that one. Till next week. Signing off.