Aug 20, 2018
About Jordan:
Jordan Madewell is an experienced builder that is into not only multifamily, but also commercial retail. He also has aspirations of getting into self-storage and building his portfolio. In this episode, he will tell us how he and his business partner started closing deals in 2016, and how he plans to complete his goal of 100 units. He will also tell us about his other real estate ventures, building vs buying, and offer some good advice for all real estate entrepreneurs.
Contact him:
www.madewellinvestments.com
Automated Transcripts:
Hey, thanks for having me today.
Yeah, great! Maybe you can give us a brief introduction before we get going here.
Well, I am in Lubbock, Texas and I'm a fairly new real estate investor, been doing it for three years. I'm trying to replace my day job income over time and we have done that for single family, duplexes and we have started an investment fund that buys commercial net lease real estate. We have a small 23-unit for a multifamily apartment complex and so we kind of have a couple of different asset classes. And we own a construction company and so we do fix-and-flips and fix-and-holds and my day job also supports the real estate business too. So that's kind of us in a nutshell.
Nice. So now maybe you could tell, tell us a little bit about how you got started, like what made that decision to actually kick this thing off?
Nice. It's interesting that you're working on so many different businesses at the same time. So, how did you get started?
Well, we got started when we moved out of our house that we were currently living in. My wife and I, kept it as a rental and then moved into another one and that kind of got the bug, the itch going, if you will. About six months later, we ended up buying another property and we joke that on the way home from that house that we closed on, the second house, that we thought, man, for all the work and effort and time and energy that went into this little single family, we could be doing much bigger projects for the same effort and so, that's what started my education and research and talking to different people and learning about multi-family and commercial real estate in general. Within a year we had purchased our 23 unit apartment complex.
Wow. Now would you say that that was a very scary type of scenario or like how did you find it? How did you decide that that was the right deal for you? -------> OK, so, how was your transition into multifamily, how did you decide that was the right deal for you?
It was in a town that I had grown up in and it's next to a small university, so I knew the property really well, so I guess it was kind of a little inside track, but I knew the construction, I knew the year, I knew what the rents were, I knew what that market could support, and when we offered on the project, we got it for a pretty good deal. So all that stuff was not overall concerns or news. A little nerve-racking trying to offer and go under contract on a deal before I had raised the money, but I ended up partnering with a couple of guys that have thousands of units under their belt. And they obviously have a lot of credibility, a lot of track record and a lot of, a lot larger investor database. And so they helped us secure that deal.
So did that feel actually need to get any type of renovation or anything else like that or that was just basically a turnkey type of deal? ----> Nice. Tell us what happened after you got that, your first multifamily deal. Did it need any type of renovation or anything else like that or that was just basically a turnkey type of deal?
It was fairly turnkey. There are some minor, just cosmetic things here and there, you know, re-striping the parking lot, cleaning up the landscaping... switching out some lighting. I wouldn't call it a rehab but we did do a little bit of a what we call just put some lipstick on it.
Nice, good, good, good. Now maybe tell us a little bit about your most complex deal, like something that's kind of hairy and just a little rough and, and what did you do with that one?
Probably our most difficult deal is the one I'm currently working on and it's a small development where we bought some land and we're going through developing the land and bringing utilities to it and really taking all the way from engineering all the way through to construction and more purchase. We're building a six-unit multifamily townhome on it from the ground up and then we'll lease it up after that. And so that's been by far the most tedious and difficult because it's a lot of cash up front. We have to pay and it'll be a year before we see any return on that. And a lot of meetings, a lot of city council stuff. So that one's been difficult but it'll pay off in the long run. It's just a lot of heartburn and headache in the meantime.
I can imagine. Now with that money you mentioned, is that your own cash, investor funds or is that a mix of both?
That's our own cash on that deal. My partner and I probably have over 50 grand in that account or towards that project already and we'll probably still got some more to go before we actually start breaking ground, so it's not huge by the scope of project was, but when you're trying to just do it individually, it's pretty big.
Oh yeah, absolutely.
So it sounds like that the more complicated components of this project are permitting of the land, the utilities, like mainly just laying out all the construction that goes along with it or actually, I'm sorry, before even lay out to construction, it's all the mechanicals, everything else, setting all that up, right?
Yeah, if you're not in the construction business it can be a pretty hairy deal because even though I'm in it, it's still quite involved. We have to order an environmental study and we have to order what is called a GO report, which basically determines what the soil is made out of and if that will support, a concrete slab, they had to have different kind of engineers, design, electrical, the plumbing, the HPAC. We had to have structural engineers design the concrete poured and set up how to have those guys also designed the framing package that will support a continuous roof and then you have to go in and input our own utilities and tie those into the municipality, their Utility lines. And so you're basically literally starting from scratch. Even if you're in construction, it's still involved a lot. It's even more difficult.
Wow. Okay. What considerations do you take when you're building out a deal then? Like how do you decide where to do it and what's your typical exit strategy then? I know you said you're not gonna make any money until this thing. Actually, it's up and running. When do you exit if you do at all? --------> That's definitely a lot of work. How did you decide to take on this particular project and what, what is your exit strategy?
So, this deal made a lot of sense because, my partner on it has a small number of complex, about 80 units, just across the street and it stays 100 percent full with a waiting list all year long. And so he knows the market, it's two blocks away from my neighborhood school. It backs up to a major thoroughfare in that community. It's in Dallas, Fort Worth, by the way. And so that checked a lot of our boxes, the rents really support in that neighborhood and then the market and so we'll be over there, whip this up, make some money on it. That said, we're really well positioned and if somebody wants to come down and the purchase order all the units from us and that's typically a more traditional route for real estate developer is to basically build it, lease it up, put it up for sale and we intend to do something similar, but if we need to keep it for a couple, three years in the interim, we'll still enjoy positive cash flow.
Sure, sure, sure. Now I know you're in, you're in Texas, so I imagine that mark is going to be unfair for a little while anyway. I would think so easily at some point.
Seems like a lot of jobs are moving to Texas. The market and the economy stays strong here. And then obviously Dallas, Fort Worth is the like epicenter of emerging multifamily investor and multifamily acquisitions.
Yeah, absolutely. And given they have such a tight market out there, I mean, are you finding other multifamily investors are looking to build rather than buy, are they approaching you for that or have you been hearing any mumblings about that? Seeing that you're in this space?
We've had a little bit of inquiry about it. And I would say that'll probably continue, for me at least on a smaller scale, I would say that'd be 50 units and under. But what I've really seen a lot of us guys doing is that they have started to look past the Dallas, Fort Worth market into your secondary, tertiary markets. So like the town I live in, it's called Lubbock. It's five hours to the west of Dallas, Fort Worth. It's still a good market. It's got over 300,000 people. It's got a good strong university, Texas Tech University, and so we see guys, especially the bigger guys looking outside of this kind of tier one markets into the smaller communities, trying to find a little bit higher cap rates, or little bit more deals. Need some value added, Something that can come in and boost your rents too. So we've just noticed a lot more competition in our hometown and because of that they've kind of given up on the big city and kind of moving into ours for to try to find better prices.
Yeah, now, I do recall the opening of the podcast. You had mentioned that you're, you're trying to work your way to freedom, so to speak. Tell us a little bit about your plan. So right now you're currently constructing and you're buying multifamily. What, what is your goal with business as we go forward here?
I'm trying to build a real estate business on the side to compliment my construction company. And we've got kind of a more or less a three to five-year goal to replace our day job income and probably won't use that money after that I'll probably just use that as a bigger shovel to continue to build more assets or require more assets. And so that's kind of our phase one goal is just trying to kind of get to that mark and that way we know if we need the money, great; If we don't need the money then you know, every six months or so, then we'll having another good chunk of money to throw in another project. So that's all about our first goal and then we know if we can hit the first goal then we can get that doubled in about three to five years. It's more of a snowball created.
Yes. Do you envision staying in that local area, then, since you know the space, or do you think you might be attacking other markets?
Well, We have a commercial investment fund. We have purchased dollar stores, it's our main target and we've purchased in Oklahoma, several markets in Texas and we even have one that we're offering on and probably going to go on in Louisiana right now, so we'll continue to move out into probably the states touching Texas and in Texas continuing as long as the deals make sense and we feel good about the real estate and the town too, we'll consider it.
Interesting. So these are all dollar stores?
Right this minute, all of them. Then we've actually closed on a family dollars and we have gone under contract on Family Dollar and they were looking at dollar generals and Dollar Trees, so that lease makes a lot of sense to us. It's very stable. It has a rent box every once in a while, but we also liked that they pay the insurance, they pay the property taxes, they get us some repair and maintenance allowance, so it's a very turnkey investment for somebody who just didn't have a lot of time to put in with it or know a lot about real estate. It's pretty stable and pretty easy to get into.
[noise] Well, not to mention too, I think that you're also protected in some regard given that many of these larger items are easily available on say Amazon or Walmart.com or whatever. Whatever e-commerce retailers out there, things typically sold at the dollar store, family dollar are not as accessible I would imagine. Right. So you're always going to have that customer base there. Right?
It's very much a convenience deal. They've got warranted grocery over the last few years, so they're going to be longer than a convenient drive to your big box store and so people love does just run in there and get their Milk and Bread and paper plates and soft drinks or whatever, but you know, they typically try to look for locations that are far away from like your Walmart or Publix or whatever. And then they look at markets that can support it but are too small for competition and so they really have insulated themselves well with that and because they've built so many in the last several years, they've increased their corporate margins with having a bigger distribution channel so it does insulate itself just by the sheer number of dollar stores out there.
Wow. That is quite a revelation. [delete:] I that is A. I mean we're, we're focused primarily on multifamily, but from a commercial standpoint that makes for a very compelling case, it sounds like a really good opportunity. Yeah. Excellent.
We just try to buy stores that tend to be newer because you can buy a lot of the older stores and get them really affordably. We want to bond a little bit narrower so it limits our exposure to them not wanting to renew that lease and also limits the potential for repair and maintenance of headaches and there were stores are going to give us a longer life on the lease. So, we have a better strategy for some reason we do decide to get out ourselves, we know that we'll have a buyer because there are several years left on it. It needs to run out, so we felt like that hedges are risks really well and we're trying to buy at a seven and a half cap rate or higher, which still allows our limited investors to make really 8 to 10 percent depending on how we purchase it, a year on their money.
Now, is the financing on that the same as with a multifamily or do you find that it's a little more money because it's a retail or what?
We're typically buying between $800,000 and $1.2 million is on typical purchase price on these stores and currently, we're getting 5 to 10-year contracts with our life-long and 25-year amortizations. So they're pretty good lines. We do have the opportunity to roll those into Seen Via and get those of course. We haven't done those yet, but that will be available to us as we kind of build the portfolio a little bit larger. We typically put 25 percent down, typically getting about a five percent give or take on the interest rate.
Wow. Excellent. That's great.
So we're trying to kind of create a model that we can kind of rinse and repeat or it's, you know, the more stores we get in it makes our kind of our investment as a whole, more stable. Because one store does really well and they extend the lease and it's great. And one store, by the off-chance it doesn't make it. We're headed from people lose money, or having a catch-call. So just kind of hedged or we downsize in a good way.
I'm just wondering, are you, are you considering other alternative investments besides our sort of like say storage units or anything along those lines? ------
In this, we are typically looking for a publicly traded corporate guarantee. And so, this fund, specifically catalog with something the future self-storage. Probably a smaller strip center, maybe some lie office, maybe like a medical clinic. Those types of projects I think make a lot of sense and we'll probably consider those. And this one we tried to kind of keep the investments as live as possible so we'll kind of continue to buy those here. But going forward, I think as we get more comfortable with different kinds of commercial leases we'll definitely be looking at different opportunities.
Nice, good. [noise] I think it seems to be a regular progression for many multifamily investors is that after a while they'll start expanding their sites and some of them do retail. But what I find is most of them are moving into that, the self-storage space from what I've understood here is that self-storage typically lags right behind multifamily in terms of growth, you know, so I think that's part of the reason why that many of these guys gravitate towards that.
[echo] We've looked at a lot of self-storage. And then also if you can find people to operate it, mobile home parks, good returns as well. And it's the same concept. It's low maintenance. A lot of them are automatically drafted for the payments every month. The upkeep, this is very minimal. Occupancies are typically released. They don't typically have a lot of fluctuate. If they do, they fill up just as quickly as they turn over. So I think, I think you're right, I think self-storage is a really good asset class and I think if multifamily continues to heat up, I think people will start looking at that more and more.
What are some of the biggest mistakes you see other entrepreneurs making when it comes to, let's say multifamily?
I think a lot of people don't have a good team in place and they just try to do it on their own. I'll be first to admit, you know, similar support around me instead of partners we have on our deals are a while. We've had some pretty good success so far and so I don't, I just don't believe in trying to reinvent the wheel yourself. Surrounding yourself with a good team and people who've done it before. It's going to slow your mistakes, it's going to speed up your learning curve, it's going to allow you to do more deals.
That's actually a very good point. So you did mention that before the call, I believe, that you've partnered up with someone who currently has well over a thousand units and some other deals. How do you find those sorts of people? How do you find those sorts of mentors and get in front of them and basically sell them on what you're trying to do?
I think it's important to be involved in your local real estate clubs. Probably that's a big way. Several multifamily investing groups across the country and regionally. Obviously, we're here in Texas, so there's two or three in the Dallas and Houston markets that are really popular here. Kind of like kind of turnkey. You join their program. They teach you the basics. They give you an education that they provide networking opportunities to put you with those experts and folks that are a little bit more advanced, but they have those all over the country. Real estate guys is kind of one of the big ones that's nationwide. That's kinda how I started mine. As I started going to some of these networking events and just meeting people. And once you did that, come across natural opportunities, people you hit it off with, you know, that's what I would do on that side. And then, you know, finding a good attorney and finding a good insurance, finding a real estate broker, who will help you find the deals or help you send some new stuff.
and good CPA and tax advisors and those types of stuff because I'm a contractor I don't necessarily need one. Finding a good contractor, or an engineer to help you with these types of projects, making sure you're not missing something that will cost you a lot of money, that's important. Then also you just have to start coming up with the database of people that might want to participate if you're trying to raise money as a syndicator obviously you have to go through the proper SEC compliant channels and fill out all the paperwork. That's kind of, the team that I try to surround myself with mature, more larger deals and I think it makes it easier for the banks to lend us money when they see it. And we have our act together and organize and have a game plan and we've dealt with before, but they offer. That's kind of why we've been able to do as much as we were doing.
Well, you touched on these partnerships and how does it correlate with capital raising. Do you find that many of these partners also help you in terms of actually funding the deals? Are they helping just helping you raise the money you need to close?
We have a belief that we should have some of our own physical dollars and every deal that way, the very least we're aligned with our investors and we just feel like if you can't eat your own cooking, why would anybody. If you don't think the deal is good enough, why don't you put your money in? The deal is, yeah, when I give advice to guys, I tell them on their first couple of deals, you need to have raised twice the amount of money you need on paper because invariably you'll have people back out or get cold feet or not be able to do it. And so you want to have enough resources to go get the money when the time comes so you don't end up having a back end on closing, or lose earnest money or money that some hard stuff you've already spent on attorneys and inspections.
But yeah, a lot of those guys will already have databases of people that they can send an email blast out to pick up the following call and you know, the more you do that, the more people will reach out to you and just, hey, the next deal. Yeah, I want to know about it. Okay, well we've got to sit down and talk about it and show you what the real opportunity is, what the debt risks are. I mean, you know, it's not just that kind of drive, you kind of develop a track record after people see you've been doing it for a couple of years, especially when you know their friends or their family checks in the mail every quarter or every month or however you set it up. And so you just kind of develop, you know, credibility when they were just done one or two of them. It's just a kind of altogether. So we'll put money in the deal personally, some of our friends and family. Then after that, we ended up raising money from other investors.
[noise] Now, what resources are you actually using when you're talking to people and make them want to stop and just say, Hey, what did you say? I need to write that down. Like what were you finding your resources to really study and keep track of what's going on in the market?
When I first started learning I listened to as many podcasts as I could find, I watched youtube. Bigger pockets podcast is a big one. I've read a book called the ABCs of apartment investing. It's a rich dad book and it was really good. Another book was called the complete guide to buying and selling apartment complexes by Steve Burgess, that was really good. And then I just took my ignorance as my enemy. I would listen to podcasts. I, for the guy had to say, I would shoot that guy an email and ask for a phone call or I would just pick up the phone or call if they left their phone number and just kind of pick your brain, why don't you come up with a list of questions based on that Podcast or just quiz them and try to understand why they went to deals the way they did or why I liked this specific deal or whatever.
I just try to learn that way and then we continue to learn about markets. There's some simple stuff. When we go into a market, we look at, the demographics. We're looking household incomes in the neighborhood or in the part of town we're looking at. We tried to pull a crime report when it's applicable. We try to kind of interview the broker, especially if we've done some business with them in the past. They kind of know what we're looking for. We try to talk to the bank and say, hey, especially if it's like Fannie Mae and Freddie Mac and said, hey, are you all comfortable in this submarket you're comfortable lending here. Are there any reservations you would have? Sometimes the different mortgage brokers or real estate brokers and looked at these deals in the past and they'll, they'll come and say, hey look, be careful for this or this is a great one. You need to look at this one. So we try to get as much data as we can in addition to the offering memorandum and rent roll that we get and PNL for each apartment complex or lease the deal we're looking at and try to really feel comfortable with the town we're investing in, the people we're renting to with.
I've also found is that some of these municipalities, they vary their taxes, I mean, you can literally go one town over and pay 30 percent more in taxes. It's the sort of things, those little touches that if you don't watch out for that, it could really hurt a deal tremendously.
We've probably missed out on a lot of deals because we're a little more conservative and we always underwrite our deals with the tax increase is shown in the expenses. We always put a line item for repairs and maintenance. And we always underwrite with depending on the deal a 7 to 12 percent depending on how we feel about the market, so we try to make it work and make the deal make sense with several things not going our way and then if we can have things go our way.
It sounds like you're also doing this over and above the standard 50 percent expense, you're taking into account a far greater hit just in case things go south in a hurry. So it sounds like.
That basic 50 percent rule is a good rule of thumb. Like that's just a rule that kind of lets you decide if you want to take a closer look at a property. I don't feel like it's nearly enough information to make a decision on or not.
Yes. Yes, absolutely. Absolutely. You know, maybe you can tell us about your morning ritual, how do you start off the day, because I truly believe that it takes a great deal of discipline to do what we do and it all starts with how you begin your day.
Well, you're gonna laugh at me. I have four children, six and under, so my day starts a in between one and 6:00 AM. Getting up halfway through the night to now, easily. You know, I get up and get my oldest, she's a kindergartener, get her ready for school and get her out the door. And then it just depends on the part of the wakes up. Some of my days are very set in stone. Some of our commercial contracts we have to give some reporting. So I have days that I know I'm going to be in the office. So once I dropped my daughter off at school, I usually kind of check our morning, do morning rounds and check jobs that we have going on that are inside my town. once I get to the office and kind of make sure there are no fires put out. Then I usually try to give myself a little bit of time to look at any deals that have come across the email or that I got calls on.
I will tell you I'm a big goal setting guy. And so I wrote, I've got a daily planner and I haven't done really well with this lately, but from probably the last seven or eight months, I wrote the same seven or eight goals down every day or every other day. It was at least three times a week and it was anything from spiritual goals to financial goals, to real estate investing goals, to just making sure I spend quality time with my wife and children, making sure I have enough time to pray and spend time with God, making sure that I'm getting the kind of business. make sure our construction company succeeds. Anyway. I wrote these goals down at least three times a week over and over and over, page after page, after page, after page, and I think that that does something to your subconscious. I think that does something to how you look at things, the Lens you're looking at, it makes you more focused and I really do believe in it. It's not what I would call your traditional goal setting, but it keeps it on the forefront of your mind.
Absolutely. No, I'm a big believer in that. I have a daily one. I do the same thing every day, every day at least once a day, and that's actually something right out of Napoleon Hill and Grant Cardone talks about in his 10x rule.
I have my 10x planner. every day at 10:00 AM. I have a reminder that goes off on my iphone. That Kinda reminds me of my top two or three. And so just top of mind presence, I think is incredibly important.
Yes, absolutely. I think it's just what you said. It reinforces your subconscious to really keep an eye out for those opportunities. And, it's through that repetition that really enforces those goals. Yeah. I'm a big believer in that. And this part of that, again, goes back into the whole discipline in, I really need this plan around this, this business.
Well, you, you have to be intentional about your life. Our lives are too busy now too. It's too easy to just let life happen and go home and watch TV and just relax. Don't get me wrong, I still do that. But if I don't become intentional about pushing towards these sayings, I won't do it. I just, you know, whether I'm a disciplined individual or not, I'm going to inherently do what's easy. And so I've got to put these things in place. So I push towards my goals.
Now, would you say that that is probably the personality trait to be successful in real estate?
I think it's a big factor. I don't know if I could give you one overarching personality that makes a difference. But I think goal setting is major. I think the problem you'd asked me about kind of where I get my resources. I think there's a really big problem in real estate investing and real estate investors is, there's an inherent thought that you have to keep learning and there's something else I got to know or something else I don't know how to do or what is and I think at some point you're going to know enough, you just need to act and I think a lot of people in our, industry or our circles, they kind of miss that because they get paralysis of analysis or they just are too scared to pull the trigger. And I don't mean to just be. I'm not saying you should just be flipping careless and reckless and just go for it. You should be smart and how you're doing your deals are going after them, but at some point, you know enough you need to act on what you're looking at. And so I think, I think the ability to command and just do it is a, is half the battle because you're gonna you're not gonna learn some things unless you go through them.
That leads me to my next question about aspiring. What advice do you have for aspiring investors?
Well, I would say, yeah, find those that have done what you want to do and I do this all in all aspects of my life or I've tried to. I mean I'll try to find spiritual people in my church that I want to be like spiritually and I go quiz them, I go ask, I'll take them to coffee. I find guys that are doing what I want to do in the construction industry and they're just ahead of me and I will pick their brain and take them to watch. I found guys in the real estate investing world and they're killing it and they're knocking down deals left and right and pick their brains and shoot them emails and text them. I call them and I learn from them. And then once I kind of feel like I've gotten what I need to do or we may say that's it, now go do it. Now It's back on me. I've got to go do it if I'm going to do. And so I think there is definitely a little bit of learning, but then you have to do that. The cool part is, is once you're done and once you've acted, now you can take that back to the all those same people. Okay, this is what I did. And they'll go, oh, you shouldn't have done that, or oh, that was great. Now do it this way the next time. And so you have something to learn.
Moral of the story is to take action. It's study, and then take action. Yeah, absolutely. So, so what's exciting you right now?
I'm excited about just kind of what we have built with this commercial real estate fund. I think that's opened a lot of doors. It's gotten people excited about doing deals and it's allowed us to kind of make a name for yourself in that space. I'm excited about my construction company as we continue to pivot to doing more fix and flips or buying land and building single family and duplexes on. Overall we're busy and it's hectic, but it's, we're in a good place and so I think I'm going to continue to try to find. I would really like to find one or two more multifamily deals this year that we're going to really push to try to at least close on two or three more of our dollar store fund deals this year. So I think just trying to close in on that replace in my day job income I think is a big deal.
And for me it is. That's one of my kind of overarching goals. So I feel like we've spent the last two and a half years laying a foundation and now we're able to really kind of see some of that. Yes. Excellent. So now, how are people able to reach you? Oh yeah, feel free to reach me. I've started to a website that kind of gives you a little bit of Info about me. It's called www.madewellinvestments.com. They're more than welcome to email me at jordanmadewell at gmail.com. It's my first and last name.