Ep 15: REI MBA - Multifamily Investor: How He Bought a 176-Unit Apartment Building
On this episode, Rodney Thompson joins us for an interview where we provides some knowledge and perspective as a syndicator who purchases apartment buildings. You will want to hear Rodney's story on how he overcame a huge obstacle in order to close on the 176-unit apartment building.
Rodney is the founder and principle of Solaris Capital Management, LLC. Rodney has been in single-family housing and moved into multifamily after discovering the scalability of multifamily. Rodney has been in the IT industry for 30 years. In the last 20 years, Rodney has been in IT system administration, design, and data security. He has been responsible for multi-city networks and project management, overseeing design and implementation, setting budgets, and maintaining the project costs within the budget. Rodney has a B.S. in Technical Business Management from DeVry University and graduated Summa Cum Laude. He has been married to his wife Pattie for 35 years and has six awesome kids.
You can reach Rodney through his website at: https://solariscm.com/
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Interview Transcripts
Tejas Gosai: Hello, ladies and gentlemen. Welcome back to your favorite real estate podcast. It's Real Estate Investor MBA. Check out our website where on Google Podcast, iTunes, Spotify, iHeartRadio all over, and we have a ton of support from the community here in the Lehigh Valley. And what's awesome is Jeremy has been getting some great guests. And today we have Rodney here. So welcome to the program. Jeremy take it off.
Jeremy Moyer: Absolutely. So I'm excited to announce our guest today as Tejas mentioned, Rodney Thompson is with us. Rodney is with Solaris Capital Management. Rodney started out and single family housing rentals and moved into multifamily after discovering the scalability of multifamily and currently has a 176 units under management. Rodney has been in the IT industry for 30 years. In the last 20 years Rodney has been IT administration, design and data security. He's been responsible for a multi-city networks and project management, overseeing design and implementation, setting budgets and maintaining project costs within the budget. Rodney has a Bachelor's in Science and Technical Business and Management from Devry University. He's married to his wife Patty for 35 years and has six awesome kids. Rodney, thank you so much for joining us today. Can you just tell the listeners a little bit more about yourself and how you got started in real estate?
Rodney Thompson: Absolutely. We have been wanting to get into real estate for years and it was always one of those things like you say you're going to wait till you have enough money. And my wife really wanted to be in Self Storage. And Self Storage is an awesome asset class. And the thing that we were seeing is that we did not know how we would come up with the down payment, and so we put it off and we put it off. And we were talking to a friend of mine at where I work, which is Winona State University. And at that point we had some single-family houses, and I was really looking to do the BRRRR method. A lot of people have heard that with Bigger Pockets. And that was kind of our...that was going to be our strategy. And I got to listening to Bigger Pockets and a few other podcasts and discovered multi family. And multi-family with the scalability and the the forced appreciation just made tons of sense. And so I started going after multifamily properties, and I also knew that I needed to get coaching if I wanted to move at a faster pace. I needed...I knew I need some coaching and so I started seeking out some coaching. Joined a coaching program and everybody that I had spoke to and a lot of places you hear its it takes about a year to get your first deal and I wanted to be a bit more ambitious than that. And so I set a goal of six months to get my first deal and that's what I did. I made it in six months. We had our first deal. We didn't close in six months, but I had it nailed down and the closing was set for a few months after that. And it involved getting up very early in the morning because it was the only time that I had. It was the time that I can claim for myself, was to get up early in the morning and work on Brokers, analyze deals. And I could do about a half a day's work before I even went to work, at my W2. And so that was that was our journey so far. And now that I have a deal under my belt and I say now it's been a while since we closed on that deal and then of course everybody knows the Corona hit and that really put the brakes on a lot of stuff. And but you know, we can talk about that. You guys know about how it seemed like it was going to really screw up the market and a lot of people pulled out. A lot of people quit investing money, but we didn't see anything happen with pricing. Pricing of the multifamily properties didn't really take at hit. And so then it turned into really a funding game.
Tejas Gosai: That's a great story and it's awesome to hear how you know, you got to be where you are now. You mentioned coaching and things like that. So when you say that, do you mean like Bankers, Financial Advisors, or what....how did you get the knowledge?
Rodney Thompson: Well, I got the knowledge a way a lot of people do. You do the Rich Dad Poor Dad route. The books, lots of podcasts. I just sucked in as many podcasts as I could. It was nice because I have about a 30 minute ride every morning and every night to and from work. So it was easy.... it was easy to listen to a lot of podcasts. That kind of leads me to real estate at least syndication, as a whole. I have met so many different people in syndication whether it's with a group or whether it's in LinkedIn contacts, which is how Jeremy and I met or any of the other means of networking. And this is a unique business because not too many businesses are such that. Everybody has a very abundant mindset. They're not...they're not out for just themselves. And if you need help or suggestion, everybody is willing to lend a hand and that is the one thing that just really has confirmed why I should be in this business.
Jeremy Moyer: Absolutely. I definitely can appreciate what you're saying. And you know, it definitely takes a team to get across the Finish Line some of these deals right, all the different work that's involved. You know, and that's kind of going in a direction I want to take the interview here. This 176 units, I believe you mentioned before we started, it was one property that consists of all these. I really want to know...I bet the listeners want to know, like how did you find it? Was it Off-Market? Was it with a Broker? Was it listed? What did you buy it for? Is there a value-add component or rehab that you had to do? How long did it take? Refinance? Just some of the numbers just so we can kind of get an idea.
Rodney Thompson: Yeah. The the property was listed through a Broker, and I got an email in my mailbox just like everybody else did. It wasn't an off-market deal. In fact, another guy in our group had looked at this property and thought that it wouldn't pencil. And when I got to it and it actually worked out and then that guy actually ended up working with us on the deal, the guy that originally looked at it and... We paid $11.4 million for it. And after... This I will tell you. If you are going to purchase a property, find one that's going to give you the most grief because the next one is going to be easy compared to that one. This property..... Now, when I say give you the most grief, you know I've talked to people that have had.... 'Oh, wow. I didn't realize I was gonna have to replace that'. And I really didn't have any "gotchas" on this one. The biggest thing on this one. It was a $3.4 million dollar raise and it was an REO. And that means that it was with a Bank. It was a Foreclosure. It was with Fannie and the previous owners, I think got in over their head. And they just return the keys. So it was a friendly surrender. But the thing is that it was at....it had to be disposed of in 2019. And there were no extensions. Normally when you buy a property you build some extensions into your contract so that if you have a hard time closing or you're not really quite meeting your deadlines you can get an extension. But there was no extensions with this. So we were a 'hard close' and that made things really interesting, because it was the end of the year. Our group had probably 10 deals going on the same time and boy I tell you what. If I had to do anything over again, I would not close at the end of the year. People are not in the frame of mind. It's the holidays, and they have their...their brain is somewhere else. And so raising Capital was a challenge. It was a big Challenge. And we got down to two weeks before closing. We were still $1.2 million dollars shy of closing. We did not have enough money to close. Yeah. It was a nail biter. And when you have, when you have the SEC attorney and your mortgage broker chomping at the bit and biting their nails, you know that you're down to the wire. But we...everybody get on the phones and we were actually able to raise some capital; well the capital we needed to close the deal. And got it closed. And this is where this is where you get that kind of deal really does good because if it makes you work together as a team.... And I don't know about you guys, but for me performing under pressure always seems to be better because there's a big light, there's a big fire lit under your butt right and having the reputation in the industry of being able to close a deal is huge, because if you ever, you know, don't close the deal, Brokers don't want to deal with you. You just going to get a bad reputation for not being able to close a deal. And can you ever live that down? Probably so....but...
Tejas Gosai: I'm in the real estate World. Yep all the time. It's crazy. I will admit though, a lot of people that we have worked with that have haven't on a deal, it's great that we don't treat them poorly because they really do eventually close a deal. If you just stick with people like that want to get into this business, they find it, you know, one way, shape or form if you can really work with. I have to ask you something though because I think you glanced over something. When you said SEC, does that mean you guys had like a private placement memorandum or some type of vehicle that did this investment?
Rodney Thompson: Yeah, it was a 506 B deal. So that's the SEC's section that displays; that describes private placement memorandums. And so for your listeners’ benefit, 506(b) you can't advertise. And 506(c), you can advertise and, but you have to have accredited third-party verified investors in the in the 506(c). 506(b), they can self-certify and you can have to 35 non-accredited or sophisticated investors. And it's I don't know, you know, I always kind of thought of a couple of different ways. You know, it's like wow it would just be great advertise right? Just put on Facebook and run with it. Put a billboard up...whatever you want to do. But at the same time. You know, I'm not accredited which means I couldn't invest in my own deal if I wanted to. And 506(b), you know, you can get like one of the guys with us on the deal. He did "sub-syndication". And he had done a lot of single family stuff on his own before and he knew that all his investors were more in the 25k area and since our minimum investment will 75k, he just did sub-syndication and got a bunch of his people together and raised a $150k and then they went in on that as a single share. So there's creative used to do it. But yeah, that's the way, that's the route that we took.
Jeremy Moyer: That's awesome. That makes sense Rodney. You know, I can appreciate the capital raise and the SEC. I know Tejas...they have, they are raising money right now in an Evergreen.... I think it's a Reg...is it a Reg D Fund?
Tejas Gosai: Yeah, Lehigh Valley Private Equity Fund. It's a Regulation D Fund. You know, we can advertise. We haven't started. We're starting now. But yes, sorry..Go ahead Jeremy. Thanks for that.
Jeremy Moyer: So I wanted to kind of pick your brain Rodney on these conversations for deals right now with investors with everything with COVID and you know. I know some conversations I've had with investors on different...on different deals, and just different situations. Is there...some are a little squeamish or some are little gung-ho on the marketplace, and I just want to get your opinion and your perspective on the type of conversations with any current deals that you're looking at with investors. You know, if you're trying to raise any funds for anything. Are you presenting things differently? Just some insight there.
Rodney Thompson: You know, some of the deals that started when the whole COVID thing took off. I have to be honest with you. I mean and I'm not trying to be unfair or mock anybody but I did have to kind of laugh a little bit with whole COVID resistant property. But I'm not doing anything different as far as my presentation. I think that the attitude that, and you guys probably know this too. You're not trying to sell somebody something. You're presenting them with an opportunity. And will you know possibly have to explain how things work? Sure. But you're not selling cars. You're presenting an opportunity for somebody to invest in. And most people that are looking for an investment...they know that they're wanting to invest. Do you run across people that kick tires? Yeah, I do. But really the only challenge that we've had, is there lending restrictions as far as reserves? But the value add components that is there on the deal, I think is still as strong. Now do you...I think that being conservative and dialing back on on maybe where you would have, let's say 7 to 8% increase the first couple of years and then level off at a 2% per year is a bit aggressive right now. Where is that would be a little on the conservative side before COVID? I think it's....I think it's aggressive. There are a lot of people that are underwriting for zero rent growth...zero organic growth. I haven't seen that all that much because our property is really doing well. We...our collections or up. All of our renovated units that are coming online are coming on at the expected increase in rent and people are gladly renting them. And so I'm not seeing a lot of the horrific expectations that were originally predicted when this whole thing started, which is good.
Jeremy Moyer: That's great. I agree, we're seeing similar things across our portfolios. What market, are you in...I forgot that ask?
Rodney Thompson: Montgomery, Alabama. And we're also...we're looking across the southeast...Little Rock, Arkansas, Tulsa, Oklahoma City, Jackson, Mississippi and Atlanta, Georgia, and there's lots of deals. I have lots of deals come across my desk, but do all of them meet our criteria and pencil out? No, they don't and that's normal in any environment. I think it's a little more challenging because right now a lot of the owners have seen that collections are staying high and they're holding their prices high and there are people out there paying those prices. I don't think it's necessarily good business at this point. So we're really holding off and trying to be conservative and looking for the deal that has lots of room.
Jeremy Moyer: Makes sense. So I have a...I think I'm going to start asking this. I thought of this question right before we started. I think I'm going to start incorporating this in all of the different interviews going forward, but what's, Rodney, what would you consider like your superpower? You know that you are, when it comes to investing, like what are you just Top-Level at that you feel you bring a lot of value into like any type of partnerships?
Rodney Thompson: I think it's Relationships. I don't really know a stranger and I like talking to people. I can analyze deal and I know what to look for. It's not something that I like to do. Spreadsheets are very tedious to me. And I don't know if it's I have a short attention span or if it's just that administrative work. I suck at it. Well, let me rephrase it. I suck at it because I don't think doing it but I'm good at it. In other words, I can sit down at a deal that's done and over look, look over the analyzer and... Like I had somebody send me one here a couple weeks ago and I think I sent him back 13 to 15 questions about the property based strictly on the analyzer. I haven't even seen the OM or anything, but I can see in his underwriting there were things that brought up questions. And that comes from doing a boatload of analyzing. And I think that if you're going to talk...be talking to an investor about a deal you need to understand the underwriting, and it may not be the thing that you do, it may not be your superpower, it may not be what you're good at, but you need to know it. And if you don't know it, I don't see how you can present a deal properly because you have to know it's a good deal. You have to know that the numbers are coming in and why they're coming in and if they are a particular way, why they're that particular way, and be able to explain that to the investor. Just saying that it's a great deal; put your money in. That doesn't work. Well if it did that would be awesome. But it doesn't. But yeah, I guess that would be my superpower. I think they're important. This is a relationship business. It's a team sport , like you said before and it's a relationship business. If you don't have the relationship, you know, people don't, people don't buy, they don't invest based on that the apartment building is the right color. There are numbers that present themselves and those speak for themselves, but I would have to say that if you presented a deal to somebody, and that somebody, and it was a 'smoking deal', but that somebody didn't like you, they're not going to fork over their cash. They're just not. And I think that relationship building is very critical in this business.
Tejas Gosai: Rodney, we're at 25 minutes and then you know, we get yelled at for having too long of a show. We could talk to you all day.
Rodney Thompson: It depends on how awesome of a guest you have, right?
Tejas Gosai: It does...it does but like we got to have you back on because you know, it's a big thing here like things that... One thing I want to take away from this interview is you said, we're not...you know we're not selling cars. We're not like...I mean, this is real estate right? Like this is, from somebody who went to law school, you know, when you own the real estate, you own it down to the core of the Earth, and you have air space. Like this is God's work is what I think it is. And the relationship part, is the best part like hands down. I think you're actually, Jeremy correct me, the first person that we've had on that, you know, somehow you guys reached out to each other and you know, it's really awesome that this could happen so with that you know, this is a great program. We love what we do here, please support us and Jeremy, you can do the outro.
Jeremy Moyer: Yeah, absolutely. So in closing Rodney, like how can people get a hold of you social media, email?
Rodney Thompson: Social media.... I am on Facebook, but I can tell you I just going to copy what I put on LinkedIn over to Facebook. I know that sounds trite but I don't spend a lot of time on Facebook and maybe I'm, maybe I'm in error in not doing that. But I am on LinkedIn quite a bit. You can find me on LinkedIn. You can see me an email which is... I have my address, my email address in my LinkedIn profile and my phone number if you want to call me. And then you can get to me through my website, which is Solariscm.com. Can you spell that? Yes, it's S-O-L-A-R-I-S-C (as in Cat or Capital) and M (as in Management). So Solaris Capital Management... SolarisCM. It's just like Polaris the you know, the snowmobiles and ATVs and I think there's a star right that's called Polaris. But it's Solaris which means "of the sun", actually. So "solariscm.com". That was probably more than you were asking for.
Tejas Gosai: That's great. You're thorough!
Rodney Thompson: Yes. Exactly. Well you guys, I really appreciate the invitation to come on your show, and I would like to return the favor sometime. And yeah, let's talk again.
Tejas Gosai: You are excellent. This is Real Estate Investor MBA. Check us out at RealEstateInvestorMBA.com. And Jeremy, can you talk about... I don't know all the places we are syndicating now and where we are but let's do the outro?
Yeah, so we.... come check us out on iTunes. I think it's Stitcher, Spotify, Google Podcast, TuneIN and iHeartRadio. We post often on our Facebook page, also on our LinkedIn page. We're pretty active. So come check us out. If you like what we're doing, give us a good...5-star review. Let us reach out to more people. So again Rodney...appreciate it. Thank you so much.
Rodney Thompson: Absolutely. Have a great day gentlemen.
Tejas Gosai: Thanks. We'll talk to you soon.
