This is an LFI episode and LFI is now part of PassivePockets.
I’m excited to have Sam Wilson with us. He is the Founder of Bricken Investment Group, a syndicator specializing in Class B and C multifamily apartments primarily in the Southeast. He is also the host of the How to Scale Commercial Real Estate Podcast. Sam, welcome to the show.
Jim, thanks for having me.
The first thing we do here is we want to get a sense of who you are and your financial journey from passive investing to syndication. If you could give us a couple of minutes, tell us where you started and how you got to where you are.
We will keep this strictly on the passive conversation side and even to clarify on the apartment complex things, I will give a little color on that as well. First of all, I have done a lot of BNC apartments, boat and RV storage. We are focusing on RV parks and RV in boat storage. It’s something we are taking a left turn out of multifamily apartments on the active side.
On the passive side, how did I got involved was I had some money on the sidelines and started going to conferences. That’s how I started deploying money into passive investments. That’s the short of it but I was already in real estate. I had done a bunch of stuff on the active side and the single-family space doing fix and flips, rentals, long-term holds and stuff like that. I had a lot more opportunities to passively investing commercial real estate. That’s how I took that leap.
You started by going to conferences. How did you even know to go to these conferences? How did you find passive investing? Sometimes it’s a natural journey from being an active investor but what was the thing that made you think, “I want to switch,” and not do the active small stuff that you were doing? I assume that the flips are mostly singles or doubles. How did you get to, “There’s this passive thing. That’s what I want to do?”
I was never looking for it. At the time, I did not know anything about it. I had been in real estate for several years and never heard of this idea of passive investing, which is pretty hysterical if you think about it. I don’t remember how I picked the conference but it was a conference where I said, “We are going to go to that. It sounds like some big names are going to it.” That is where I started forming friendships and figuring out what people were doing, what asset classes were even available to passively invest in. That’s how I started building those relationships and sponsors. It took me a year before I ever invested passively with any of those operators.
The key was having breakfast and lunch, talking about their deals, hearing where they are going, getting market sentiments and hearing about the asset classes they are investing in. There was stuff that was intriguing to me and that was not. Office buildings were never very intriguing to me. It was boring. The idea of a self-storage portfolio across the United States is fun. I like that idea and it fit my personality as much as it did my investment thesis. That’s how I started.
You talked about forming relationships. That’s key in this industry and people are always so helpful, which is a nice thing. With these relationships, you had to vet these sponsors and it took a year before you invested. Are you still passive investing? If so, how did you vet sponsors at the beginning and how do you vet them now, if there’s a difference?
There’s a huge difference. I did a very poor job in the beginning. I was a newbie. I did not understand what I was getting into. This is a game where you are betting on the jockey, not the horse. What I mean by that is the team is the most important part of the whole equation. There are three things in order of importance when you are vetting passive investing. First is the deal sponsor. Know the team. You want to spend 80% of your time getting to know the team. The second, maybe the remaining 5% more of that which takes up to 85% would be vetting the market they are in. You want to know what market they are in. You are going to spend a little bit of time getting to know the market. Once the metrics make sense, that’s not a hard part of the task.
Passive investing is a game where you’re betting on the jockey, not the horse. This means that the team is the most important part of the equation.
With the remaining 15%, you spend vetting the deal itself that that team is presenting. I did none of those things well, in the beginning. I did not know what to look for and what to ask. I had met some guys and we spend a lot of time talking. I listened to them and said, “These guys are a heck of a lot smarter than me. They are doing cool things and I want to be part of it.”
I bet foolishly but luckily on the right jockey. How that has changed is I want to know, like and trust the sponsorship team. There are probably 100 questions if anybody wants a copy of it that I have, that I could potentially ask a deal sponsor. I did a background check if there is anything funny I would find in your background. Maybe there is and maybe somebody has an honest explanation for why that is or maybe they don’t. That’s one sampling of some of the things I would want to know.
I would want to know how many deals they have exited. They have not necessarily had to exit a deal. Maybe even also inside of that is, “Are you hitting the projections? Show me the projections that you had out in your offering memorandum before the deal went live and then show me what they are doing.” Those are things I want to know. If you are consistently hitting your projections, that means you are doing something right. If you are not either you made a mistake, which is going to happen in this business.
Nobody’s perfect. Nobody’s going to always hit their projections but reasons. This is what we missed. Here’s why we missed it. Maybe there was something catastrophic that happened that was outside of everyone’s control. There are 1 million things that can go and 1 million things that can go wrong in this business. Those are some of the things I look at when I’m talking to a new sponsor. I’m sitting on some capital.
Even as we are talking about this where I’m going, “I have not deployed it yet because I have not found a way.” Also as the market shifts, I am strategically moving both passive inactive investments out of the multifamily space because I see it as very frothy. I could be completely wrong. There are lots of people that argue, “There are huge tailwinds there.” For me, maybe I want to diversify out of that a little bit into some other things.
You put 80% of your evaluation on the sponsor. I got a couple of questions related to that. One, I agree with it. Why so much time you spend on the sponsor? Part two of that question is how do you find sponsors? What’s the process?
It’s the same for me still. There are two ways for me. One is I run a daily real estate podcast. I get a personal front seat to interviewing people like yourself all the time like, “Who’s coming on the show?” I get that personal vibe even from them out of the gate where it says, “Do I want to invest with you further?” You can do the same thing.
If you are reading this show, you can go out and read as many episodes as you want and I would recommend it because then you are going to go, “I like what this person said, what they were thinking and their investment thesis,” or maybe you don’t like it. Maybe you are like, “That person is just doing stuff. I don’t want to put my money in on that.”
Why 80% on the sponsor?
It’s because a good sponsor can take a bad deal and turn it into an okay deal. If something goes wrong, they are going to have the tools, resources, industry, knowledge and contacts to go out and say, “How do we write this deal?” They are going to have the fortitude to stick it out and the experience to know how. You take that conversely. If something is going wrong, you need the right person to operate the deal.
We always say, “You can take A sponsorship team with a C deal and it works out okay or you can take a C sponsorship team with an A deal and they will run it into the ground.” If they don’t have the experience to run and operate even something that’s going well, they can overlook all the basic things that need to be done, everything from investor communications to operational efficiencies, expense and cutting. Whatever it is, suddenly they can turn it into a big bloated project and run that right into the ground. That’s why I spend the most time on the sponsor themselves because I want to know that when things go wrong, they are going to have the tools and resources to handle it and make it work.
When you look at a multifamily deal or similar, are you also vetting the property manager and making sure that they are a fit. Do you let the sponsor figure that out and you are fine with whatever property manager they select?
Property management is another one. They are the second part of that 80% equation. If it’s a multifamily property, you got to know the property manager. We had to let a property management company go on a deal that I’m an active general partner in. I can tell you that even though we vetted the property manager properly, they run 20,000 some odd units.
They are not small but we got them into a low-income housing tax credit property. This was their first and we did not take that into account. I’m telling you all the mistakes I made. You are going to make mistakes in real estate and realize where you are listing Low-Income Housing Tax Credit is LIHTC. They were not running the LITHC project the way it needs to be run.
They were not getting the state forms in and reimbursements did on time. The unit turns were slow and it was like, “That was crushing us.” Yes, we made a mistake in bringing on a property management company that was not LITHC well-versed. We have since removed them and put in a new property manager in that company. It’s a night and day difference. One hundred percent evaluate the property manager, make sure they are a good fit for the property type that’s being run.
Similarly, if I have a LITHC or somebody that’s in the low-income housing space for a property management company, I don’t want them running a Class A asset. They are not used to making sure that the girls are clean, that the pool decks are well-scrubbed and the pool is sparkling clear. They are not even used to having pools in their properties. Landscaping is not up to date. Maybe in the past, it has not mattered that much because it’s a low-income housing property and no one cares if it’s got fresh mulch every three months.
If I’m a passive investor like most of our audiences, the question then becomes, “How do we ask the right question to the sponsor to be able to understand if they are using the right property manager?” If I was a passive investor in the deal that you are talking about, the side question is, “What question could I have asked that would have pointed me to, ‘Maybe you did not select the right property manager for this deal.’”
We spent a lot of time talking about the property management team and their expertise but we overlooked the fact that they were not well versed in LITHC. This was our first LITHC property as well. Telling you problems or mistakes that we have made, luckily, in the end, this only went on for three months and we said, “We are out.” We are switching gears fast and we have.
We know that we still made our distributions on time. We still hit our returns to our investors. It’s still there. It was not optimized. How to do that? I’m not sure how to answer exactly but I would go back to ask them, “Is your property management company well-versed in the type of asset that you guys are buying? I don’t care if you guys have worked together for years and you know each other but if it’s the wrong asset and they have never managed it, it’s probably not a good fit.”
It’s not whether you’re going to make mistakes; it’s what you do when you make them.
I like it when I’m talking to a sponsor who’s made a mistake is willing to admit it and then talk about the solution. If you are not then that’s a bigger problem. When you are evaluating the sponsor, part of it is if they make a mistake in selecting the property manager, are they going to be able to pivot quickly enough and in three months, get out of that property manager and pick the right one. That mistake is one of those things where you made a mistake and you turned it into a strength.
We are proud to say that we have never missed our distributions that everything is going as planned but having the right team there, we said, “We are out. We are cutting bait and moving on. It’s going to be painful. Let’s go. We are going to find the right property management team. It’s been for a while and it’s a night and day difference.” I always say that in any business or life in general, if you are going to make mistakes, it’s what you do when you make them.
The only way you learn is by making mistakes. I don’t learn a whole lot from my successes. I’m glad to have them but I learned a lot more from my failures. You are less into multifamily. Is that because there are additional risks for the value add sector of multifamily? What are the risks to value add if there are any?
We have seen an enormous compression of cap rates. If your audience is reading this, they say, “What does that mean?” That means that your revenue to purchase price keeps getting smaller. That spread. We say, “If you are buying on a 5% cap then you must spend $1 million and get $50,000 a year in net operating income.” That’s 5% of the purchase price. It’s the easiest way I know how to explain it and maybe you can explain it clearly but that keeps getting smaller. We have seen it go from $70,000 or $50,000. We are at 4.5% caps or even seeing stuff trade in the 3%, which is mind-boggling to think that you would pay $1 million to have $30,000 to $40,000 in net operating income.
I see risk on that front. There’s certainly seems to be no waning demand for multifamily housing. We have also seen an absurd run in rent prices. Rents are up in a direction that we have never seen before. Is that bad or good? I don’t know but I wonder if it’s sustainable. The third thing is there are opportunities out there. However, finding those opportunities becomes more and more difficult every day.
Not that there’s no opportunity. I don’t want to say that because anybody that says, “Opportunity did not look and hard enough,” but I also find that there’s no reason to duke it out with twenty other people bidding on the same project when there are easier and greener pastures elsewhere with better fundamentals attached to them and maybe not so much this frothy go buy multifamily craze we are in.
I do not like the cap rate because it’s so confusing. It goes opposite the direction you think it is but that explanation where you get $50,000 of income for $1 million of capital outlay is the best explanation of cap rates I have heard. I get it. The multifamily is competitive. There are a lot of reasons why maybe go a different direction. Talk about what are other asset classes that you would consider. After you tell me a few asset classes, I want to dive into RV parks and boat storage. Are there other asset classes you are looking at as well?
On the active side, no. We can get into that but for the first part of your question, self-storage is feeling the same pain that multifamily and even mobile home parks feel, which is another wild thing. I love the idea of a mobile home park. It’s one of the last remaining affordable housing solutions we have. We have seen those cap rates compress even more and more. For those of you reading, the lower the cap rates go, that means the more you have to pay for that level of return.
You get less income for your $1 million. Instead of $50,000 for your $1 million, you are getting $40,000 or $30,000 for a $1 million. That’s what compressing cap rates is. I’m not going to stop talking about that example because it’s a good one and a great way to explain it.
I have seen mobile home parks and multifamily keeps going down. I want to look for places. Even if you are a single-family investor, investing in a single-family fund or even building the rent, I’m seeing those costs of construction and purchase skyrocket. I bought something years ago and then I sold it for one and a half times what I paid for it. This was a single-family legacy but I don’t even know how this is penciling out for the buyer. They are holding it for an investment property. I did the math. I’m like, “There’s not even $100 a month maybe here that you are getting out of this by the time you pay all this stuff down.”
Those are some of the places where I see opportunity. Self-storage still has an opportunity. Those cap rates are not as compressed, maybe as everything else is but it’s heading there. The institutional money that’s flowing into that space is crazy. That’s what brings me to the boat, RV storage and RV parks and why those cap rates have not compressed.
Going back to the $1 million analogy, you spend $1 million on an average, you are going to get about $87,500 a year annually in net operating income for that $1 million outlay. That’s strong. That’s 8.75%. I can outlay the same amount of capital and get maybe twice the return that I could in a mobile home park or an apartment community. We can get into all the reasons why I feel like there are lots of runway in that asset class if you would like.
What is the asset class? I’m thinking RV parks are those campgrounds. The boat and RV storage are similar to self-storage but during the pandemic, there was a huge run-up in people buying motor homes. A couple of things I would like to hear is your overview of it but I would think, “Is the cap rates sustainable?” Many people bought but with the pandemic, if we ever get through this and it starts dying down, are people still going to be using their motor homes? Talk about the asset class as a whole. It’s interesting to me.
That’s a crazy stat. It’s like, “That’s not every park but that’s an average nationally.” First off, the RV park asset class can be considered campground-ish but it’s not necessarily where you are popping up your tents. It’s not in the campground sense of that. It’s generally vacation travelers and/or long-term RV parks.
There’s quite a slew of long-term RV parks around the country. It’s the poor man’s second vacation home. They parked their RV and may never even move it. They pay twelve months’ rent on the property. You are getting rent 12 months like you would lot rent on a mobile home park but they are only there 4 to 6 months of the year at most. Lastly, you get a better tenant because they are not there all the time.
As it is their second vacation home, they take better care of the property. They are a better class of tenants. They pay more for it and are not there very often. It’s like, “This makes a lot of sense.” It’s easier to maintain and run maybe than say a mobile home park. That’s a long-term RV park but a lot of these even longer-term RV parks also have a short-term component to them as well, whereas you will have somebody traveling across the country, a family. I’m an RV owner as well. I have stayed at plenty of RV parks where you are riding across the country and you are like, “We need a place to stay tonight. Where are we going to stay?” Google Maps, RV park. I found an RV park. You book a slot and you pay $50 a night. Plugin and then you move on to the next day. That’s the RV park as a whole.
Why is that compelling? It’s because we had a 33% increase in RV deliveries in 2020 over 2019. We had a 43.5% increase, 2021 over 2020. 2020’s deliveries were 350,000 new RVs. In 2021, we had 600,000 new RVs delivered. We are on track for the same amount of deliveries in 2022. That’s 1.2 million new RVs in the United States in a 24 calendar month window. Where are those going to go? Is it sustainable? Yes because we have seen a fundamental shift in the way that the middle-class family can travel, have a good time as a family and get out without dealing with hotels, airplanes and things like that.
We have seen a shift on that front because the demographics have shifted. It used to be that it was 60-plus. Your grandparents are out in their RV touring the country because that’s what they want to do and their dream retirement is to go to all the national parks to have a good time. The largest RV group ownership is 35 to 55. I fall right in that window of the largest group of people that own RVs and that’s people with families.
I got three small kids. I’m traveling in an RV. We have seen a fundamental shift in the age group that owns them and also the families that travel with them. Is it sustainable? I don’t know but there’s enough compelling movement into the space to say, “You got 5 to 10 good years ahead of us in this industry where there’s going to be runway and demand for it.”
Another question you had for me was, “Is this a sustainable run? Where does this end? Do we have a major correction? All of a sudden we go, ‘Nobody is buying RVs. Nobody is doing anything with them. Where does it go?’” I don’t know where this takes us years out. I do think that we have seen the demographic ownership shift and it’s going to be something that people are going to continue to use for a long time.
The Smoky Mountains is an area that we are looking at heavily. It was the most visited national park in the United States. It’s a great place for RV park ownership. Families are going there. It’s inexpensive overall. Once you get there, there are some headwinds to the RV park and the RV ownership as a whole that some risks are involved with it.
People will continue to look for more economical ways to take the family out and have a good time without completely breaking the bank.
In the sense that what happens if fuel prices go to $6 a gallon. People are not driving their RVs across the country that get sometimes gallons in 1 mile. It feels like fuel inefficiency. That’s a headwind to it. Those are some things you have got to think about but I do think in the short run, we are going to have a nice asset class to hold on to and run. The American family is not getting richer.
Disposable incomes are not going up and people are going to continue to look for more economical ways to take the family out, have a good time without completely breaking the bank. Outside of owning the RV, it’s not that expensive to travel in a seven-day stay. Whereas if you go at a seven-day stay at a short-term rental in Smokey Mountains, that’s several thousand dollars at least. There are some good tailwinds there for the industry as well.
I have a couple of questions. One is, what is the average park size? What are you looking at there? We went on a motor home trip during the pandemic. We stayed at this one place that is exactly what you are talking about. It had maybe twenty spots for a couple of night campers where you come in and go and reserve. It had maybe 50 or 100 spots for the long-term people.
Where you park your motor home and build a deck, they had permanent structures built around it. Can you talk about the park size that you are going after? Do you have to buy more than one park? Is one park a good enough investment to make some money? The second question is are they building new parks?
They are building new parks. That is interesting in the sense that unlike mobile home parks, which are hard to get permitted unless you are out in no man’s land rural county, which I don’t want to own an RV park. I don’t want to own an RV park or mobile home park in rural or the middle of nowhere but aside from that, they are permitting new RV parks because a lot of these go as high-class facilities.
Some RVs trade $1 million-plus for a nice 40-foot Class A diesel pusher RV is like, “You could spend an enormous amount of money.” It’s such high-class RV parks and so they are getting permitted. I looked at an opportunity down in Carolina and there’s brand new development. It’s not something I’m jumping into yet. It was more for entertainment.
I was looking at it like, “That’s curious. How’s that working out?” They are permitting those for us. On the stuff we are looking to acquire, it’s going to be in the $5 million to $10 million range. You can certainly get outside of that. You get into Mountain West or somewhere that’s a nice RV park or a Class A RV park. Those things are going to trade $20 million to $30 million at a time for the right size of the park. The size or price of the park is not going to be necessarily based on the number of spaces that are in it. It changes. It depends on what you are buying and where, depends on how many spaces you are going to get out of it but for us, there’s ample opportunity in that $5 million to $10 million range.
The ones you are looking at, do they have permanent structures? Is there a pool? Are there bathrooms? How much of this is camping and parking your motor home in a small community of other people parking their motor homes and you are not necessarily building the fire outside but you might be going to the community pool? Are there differences there?
Yes. The ones that I’m interested in are going to be the ones that go into the community pool, where people come and want to stay like, “We leave our RVs here. We are here for the whole summer.” I want the destination RV park where people go to this same park more than I want the, “Fastened down Interstate 70 through Columbus.” That’s where I see more opportunities because people want to go there. You are going to get a premium for those locations. It goes back to what interests me more than even necessarily like, “This is always the best business but it’s both in this case.”
I’m a passive investor. Let’s say you have a motor home or RV park and you present it to me. What am I looking at? I have no idea how to evaluate that. If you are a passive investor, what questions am I asking? Assume I have already vetted you as the sponsor but as far as the deal, how do I know if I’m looking at a deal that’s going to make me money or not?
First off, you are going to look at operations like how has it been operated? The other cool thing about this industry, much like the mobile home park space is that there is institutional capital. In any asset class, it’s usual capital but it’s still largely mom-and-pop owned. What I mean by that is it’s a fragmented industry, which is why your cap rates are also higher because mom-and-pop don’t typically optimize their portfolios the way that an institutional buyer would.
The questions I would have would be operations. These are more operationally complex because you do have that mix of long-term tenants. You also have that creating a community component and then that short-term person like you and me riding in for the weekend and we are going to be up for two days.
Complications with that become, “How are they booking? How are they getting settled in their space?” When they show up, you need somebody out there that shows them like, “You are in B13, not C13,” even if their app says whatever it is. You can easily have somebody wandering in a campground or RV park at 10:00 at night shining their headlights in everybody’s rig because they are looking for their space. “That’s annoying. Who’s the newbie? Get him out of here.”
Operations are one of the reasons that also we have higher cap rates in it. If you are not prepared to operationally handle that or have operational experience, it can be a harder learning curve. That’s something, even for us, as we venture into this space. I am proactively aligning myself with other partners that have already operated and owned RV parks.
I had a call with somebody where I said, “I’m headlong into this space but I need an operations partner that already has experience. I have not owned an RV park yet but I can bring capital to it and I understand the space. I need people to know more about it than I do.” Having an operations partner that understands the mechanics of it because the mobile home park is even more moving pieces.
One of the things that you would probably want to understand is who’s operating it. A lot of those groups where retirees will come in. I’m sure you have seen the Campground Hosts. They will come in and stay for the summer. That’s one of your operations partners like, “Who are your boots on the ground? How are they making sure things are being run? Do you have front office staff? What do the operations look like?” That would be one of the first things I would ask.
Anything else that a passive investor should ask other than operations when they are evaluating a deal?
“Why are people staying there? What’s the mix of long-term to short-term? What is the rent? What is your value add play?” When you do have to have a value add strategy in these parks, it could have been poorly managed. We are looking at one. It’s not optimized because that’s mom-and-pop owned and they bought it several years ago.
They are tired. They did not put the systems in place. What’s your plan? How are you going to increase the value of this? Why are people coming there? Going back from the 85% and 15%, tell me about the market. Maybe that number changes slightly because, in this business, the market is important. We are looking at a deal that it gets one million-plus visitors a year to this one reservoir, which is a staggering number.
Why are people coming there? I want to know those things and what the demand generator is. Does that drop off if we have a recession? On a reservoir, people don’t like to fish and go stay in their RVs. That probably does not go away regardless of what the economic situation is. People like to fish. Getting to know those things is something else and getting a firm understanding of who the clientele is that’s staying there and why is another big part of that equation.
If you’re not prepared to handle things operationally, you will have a harder learning curve.
Give me a couple of minutes on the RV storage and boat storage because that’s different than the RV parks. Talk to me about that. What’s the opportunity there? I always think that you park it into a self-storage facility and you are done. There’s something else going on.
The price of RVs is going up as is with anything, especially in anything with wheels, if the values are skyrocketing, even for used stuff outside of that. In the new stuff, it means it’s all that much more expensive. People are spending a lot of money on these vehicles. They need a place to park and store them generally prefer covered parking.
You can park them out in the middle of a gravel lot if you want but most people are going to want to put that into a 40-foot covered bay. That’s all their own where they can pull it in, put them on a trickle charger if they want if they have a boat or maybe even plugin and make sure their battery stays charged for their RV. Whatever it is, people are going to want to cover those.
Especially when you get up in the multiple six-figure rigs, people don’t want to park that out in the middle of nowhere, exposed to the elements. Maybe that works in places like Florida but even then, I bet it’s even more of a demand because when you get to those retirement states like that, you wind up with people driving much nicer rigs.
The same demand generator that makes the RV park valuable, means people also don’t have a place to put them. What city allows you to park it on the street? What local neighborhood homeowner’s association lets you park it in your driveway. Very few. Can you go take an RV and stick it in your driveway? You got to find a place to put it. I keep using this example.
There was a brand new facility built an hour and a half outside of Memphis, halfway between Memphis and a lake or reservoir. It’s a rich reservoir where a lot of people go between Memphis and here or there. It’s an hour and a half outside of the city. Middle of nowhere, North Mississippi, 250 units covered RV parking, it was full in four months from the time they built it. They are full and got a waiting list. It’s like, “This is insane.”
It goes back to the fact that we are having so many of these being delivered that people don’t have a place to put them. Everywhere I have checked for RV storage is full. The other thing is they have gotten bigger. Your legacy storage does not work. Your Class A used to be your Class C RV which might have been 20-feet or 22-feet a few years ago. Class C is bumped up like, “You can have a 28-foot Class C RV.” They keep getting longer and bigger, which means you need more places to store them. Your legacy storage is like, “I got a 30-foot storage unit. It no longer works for a lot of RVs.” You need to have a new supply coming online to handle that.
This has been super interesting. The last question I always ask is what’s a favorite podcast that you listen to? Give me 1 or 2 other podcasts that you like listening to.
Out of 450 some odd episodes, I have listened to one of my own to go back and make sure. The last thing you want to hear is yourself on audio. I enjoy Hunter Thompson’s podcast. I will be honest and that’s a shameless plug for his, The Cashflow Connections Podcast. He brings on a lot of intriguing guests that have some dissenting views from one guest to the next. He does a great job of pulling out their information, not necessarily arguing over the points that are being made but letting the information ride and then letting you as the listener go, “Does that make sense? Is this guest completely off their rocker?” He’s had a few of those and they are fun to listen to.
If people want to get in touch with you, what’s the best way they can do that?
Call or text me at (901) 500-6191. That’s my cell phone. That’s the best and fastest way to get ahold of me. I do have some free investor resources there on our website. If you are a passive investor, I will put together a guide called How To Vet A Deal In Under 10 Minutes. When I first started, I spent an inordinate amount of time trying to vet deals that I had no business participating in.
I have put a guide together. We will help you set up your large criteria as a filter and go, “This deal passes. I should investigate further,” or in ten minutes, you will figure out if this should be in or out. That will help you. Go to BrickenInvestmentGroup.com/checklist and you can download that checklist for free.
Sam, I appreciate you being on the show. People won’t notice but there’s a little break in the middle where the power went out and Sam went, filled up his generator and came right back to the show. You went above and beyond to continue. I appreciate that.
Thank you, Jim. I appreciate you having me on.
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That was a fun conversation with Sam. It was interesting because, in the middle of it, he cut out. The power went out but I did not realize that he’s been without power for eight days. He has had a generator and that’s how he was powering his house and doing the episode. The generator ran out of gas so I waited five minutes and he hopped right back on. That was interesting. I appreciated him keeping going and doing it even though he did not have any power.
One of the things that struck me is he started like me where he was doing a poor job of vetting sponsors at the start. He did not know what he was doing and learned from experience. That’s what we all do but we can also use a community to shortcut some of those mistakes so we don’t all have to make them.
He looks at a deal on what’s the most important part, which is 80% sponsor, 5% market and 15% deal. I don’t know that I have broken it down to specific percentages but I don’t disagree with any of that. Sponsor is the most critical thing. It was interesting when he talked about it with the property manager, making sure it matches the asset.
If you have property management, always done Class A. If you buy something Class C and you hire that property manager, they are not going to know how to work with that type of clientele. It goes the other way too. If they are used to Class C, they are not going to be wanting to do or be as effective at Class A.
He made a mistake on one of his deals. I love that he admitted it and owned it. He knew he was talking to podcasts with new people who probably have not heard of him and he said, “I made a mistake.” The best part is he fixed it. In three months, they realized, “This was not the right property manager.” They changed property managers, found one that would fit and did not miss a beat.
A lot of asset managers and syndicators would go longer than three months. They would try to pigeonhole that a property manager and make them fit in. It would be something that they are not good at but I love the way that he said, “Wrong property manager. Let’s move on and cut our losses.” It ended up there were not any losses.
Finally, the cap rate conversation. I always get confused by cap rates. They don’t make sense to me a lot of times. They are compressing and that’s bad. You want to sell low and buy high. That does not make sense to me all the time. What he said was at a 5% cap rate, you are getting $50,000 of income for $1 million of investment.
Saying it that way, I love it. That is an easy way to think of it. If the cap rates are going down and it’s 3%, you are only getting $30,000 for a $1 million investment. That makes sense to me. I love that analogy. I’m always interested in new asset classes. RV parks, RV storage and boat storage are new to me. I will be keeping track of those and following along with Sam, as he goes along his journey. That’s it for this episode. We will see you next time. Thanks for hanging out with us. If you are interested in becoming a member, you can find us on the worldwide web at www.LeftFieldInvestors.com or you can send me an email at Jim@LeftFieldInvestors.com.
Important Links
- Bricken Investment Group
- The Cashflow Connections Podcast
- How to Scale Commercial Real Estate Podcast
- BrickenInvestmentGroup.com/checklist
- www.LeftFieldInvestors.com
- Jim@LeftFieldInvestors.com
About Sam Wilson
Sam is an active investor in self storage, parking, multi-family apartments, RV parks, single family homes and host of the How to Scale Commercial Real Estate podcast. Sam holds his bachelor’s degree in business finance from the University of Memphis and holds his real estate license in Tennessee. In addition to his years of real estate experience, he also has a diverse background in business ownership and management. Sam’s current focus is presenting nationwide investment opportunities for his personal and his investors’ portfolios.
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