Speakers:  Neal Bawa and Larry Goins

Larry:  Hey, everybody! Welcome to the Brain Pick-A-Pro Show, live from Lake Wylie, South Carolina, and all the way on the other coast, in the Bay Area of California, one of my favorite places, I love this place, is Neal Bawa. What’s going on, buddy?

Neal:  Hey, how are you, Larry? Glad to be on the show.

Larry:  I am doing awesome. Thank you so much for being on. I really, really appreciate it.

Now, a lot of you guys know, one of the things that I’ve been talking about a little bit and getting into is multifamily. Neal, he is the man, the legend, and the myth. I mean, this guy, he owns 1,000-plus units.

You liked that, didn’t you? [Laughs]

Neal:  Wow, that was great! I’ve never been called that. I’m going to write that down. [Laughs]

Larry:  [Laughs] There you go!

He’s got a huge 1,000-plus unit, multifamily portfolio valued at over $100 million and it covers seven different states, right? He speaks at multifamily conventions, expos, IRA events, all over the country. He’s got a couple thousand students that have attended his multifamily events, so he teaches this stuff as well and I’m just really, really excited to have him on.

He’s the co-founder, guys, of the largest multifamily investing Meetup in the Bay Area in California. You have like over 3,000 members, right, Neal?

Neal:  About 3,600, yes. It’s a big metro, so they just keep coming. Our goal was to get to 500, but it just kept growing.

Larry:  That’s huge and that’s a Meetup Group. Now, is all of it online or do you have live meetings?

Neal:  We do 30 meetings a year. There are 24—well, 36 meetings a year. 24 meetings are live, that are in a physical place, and there are 12 meetings a year, once a month, that are webinars. So, a total of 36 meetings, plus assorted mixers that we post for local Meetup Groups that are our partners. So, altogether about 50 events.

Larry:  That’s awesome. So, why don’t you start out and tell our listeners just a little bit about who is Neal Bawa?

Neal:  Sure. Well, I’m not the typical guy that comes on your show. I’m not real estate royalty. I didn’t start in real estate. I don’t have a broker’s license. I haven’t flipped 100 homes. I’m a technologist. So, I’ve had a successful 16-year-long technology career and while I was doing that, the business that I was involved in was cash-flowing like crazy and I was using that money and I was investing it passively for myself. So, I was investing the money.

And I knew that I wanted to sell my company. I was a minority partner. The majority partner was in his late sixties, he wanted to sell and retire and buy a big, fancy ranch, so we talked about, okay, we’re going to exit over the next five, six, seven years. We have to build it up to this dollar number. We knew it would take five or six years. It wasn’t a dot com, it was a technology business, but it was a brick-and-mortar business.

Larry:  Right.

Neal:  And so, we had the vision, we knew we were going to exit, and he said, “I’m going to retire, and I want to invest with you in whatever the hell you want to do next.” I said, “Well, Paul, we’ve been building properties for our business, right?” I got into real estate backwards because I started with large commercial and then went to single family. Because for my business, I had to buy and build campuses from scratch.

Larry:  Right.

Neal:  With the help of some mentors, some retired general contractors, some GCs that helped me. I was able to learn the art of taking a shell, 30,000-square-foot shell and build it into a full office/classroom sort of set up. It was an educational business. I was building classrooms, I was bathroom courts, I was building offices and cubicle areas. I learned a lot about real estate from a construction perspective, but I didn’t own anything except for my primary home, so this was kind of backwards.

I did that from 2003 to 2008, always found the single family rental market to not make sense from a mathematical perspective. I’m a math guy, a statistics guy. But then in 2008 the market crashed and then I looked at the numbers and every property made sense.

In a frenzy, I bought 10 properties all in the same city, Madero, California, 20 miles north of Fresno. Bought those properties, rented them out, still own them, never bothered to sell them, great properties. They were all built in 2005.

And then I went to Chicago and bought 10 five-plexes in my wife’s name and those worked out really well, but then I ran out of loans. So, my question was, okay, it’s 2009, I’m running out of loans. I still have money from my business. What do I invest in next? What the heck happens when people run out of loans, right?

I looked at portfolio loans, but they were fairly expensive, so I came across multifamily. I came across multifamily syndication and I realized that people like me, that want to passively invest, they put $50,000, 100,000, 250,000 chunks in “syndications,” which is a mechanism of gathering money and buying a $20 or 30  million property.

Larry:  Right.

Neal:  And I fell in love with that and since then, my journey into multifamily started first passively and then more and more actively.

Larry:  That’s awesome. That is great. Now you have over 1,000 units over 7 different states.

Neal:  Yes. It’s been fun gathering this portfolio. 70% of them are multifamily. 30% are student housing. One-third are new construction properties, two-thirds are existing properties that we bought and rehabbed. Value is somewhere around $110 million at this point and about 206 active investors are invested through me. Obviously, I invest in my own properties, but there’s about 206 investors, I’d say about 150 accredited and the rest are non-accredited sophisticated investors that invest with me.

It’s been really nice to kind of build that up and not do it in a hurry. It’s taken a lot for us to build up the portfolio. Again, been a great journey and really, a lot of it is demographics-based, a lot of it is data-based. I could talk about demographics and data and why I consider multifamily to be the place to go over the next 10 years. I could talk about that all day.

Larry:  Well, you know what? That is awesome. I’m glad you told me that you’re a technologist and you are a statistics guy. You love math.

Neal:  I do.

Larry:  I want to jump into that in a few minutes and make sure we talk about that but can you kind of give our listeners an overview because so many people start with residential. They’re talking about buying a single family, they want to wholesale it and make 10 grand, or they want to do a fix and flip and make 50 grand. Give us kind of a run-down from start to finish about a multifamily deal.

I know a lot of people are thinking, “Oh my gosh, there’s no way I could buy a 100-unit complex because I have no money or no credit or whatever.” But there’s a lot of people out there that are doing it. I mean, I know you had money to start with, you know, after you sold your business and all that, but there’s a lot of people that are doing multifamily that maybe they don’t have the greatest of credit or they’re not an accredited investor.

Tell us kind of a run-down, you know, an overview from start to finish, how a multifamily deal is put together.

Neal:  Sure. I actually teach a webinar on my website, MultifamilyU.com, that goes into it over an hour, but here’s a five-minute snapshot.

Here’s the good news:

1) You don’t need to be an accredited investor to buy multifamily.

2) You don’t need a down payment to guy a multifamily. A number of my students invest 0 dollars in the apartment complexes that they’re buying. Most of the time they’re raising money from other people, or OPM—other people’s money—is being raised to buy these properties.

3) You can have bad credit, even a bankruptcy. You can have bad credit, even a bankruptcy and still buy properties. My partner, John Mark Landau [phonetic], awesome guy, has been in real estate for about three-and-a-half decades before we partnered, he has a bankruptcy. It shows up every single time we buy a property. We’ve never been turned down for a loan because of him. He’s signed on every single loan beside me because in multifamily, they’re not looking at your credit, Larry, they’re looking at the property. The property is the collateral.

If you have the right plan for the property, you have the right backers for the property, and you’ve got 25% equity, you can actually have bad credit. They’ll still check your credit, they’ll still ask you about your credit, but I have not seen that become an issue. I have not seen that prevent one of my students from buying a property that they put into contract.

That’s the good news.

Now, on the bad news side:  The market is very competitive. It’s just as competitive as single family, so you’ve got to be quick, you’ve got to be nimble. You’ve got to have a property package together.

What I teach my students is, because today you have to close on a property in 75 days, you don’t have a lot of time to raise money. Let’s say you’re buying a property and it’s $2 million so you’re raising half a million dollars from other people to close on that property, plus maybe $100,000 for your fees. Remember, you want to make fees when you’re being a multifamily syndicator. At least 3% up front, so on a $2 million property, you’re going to get paid $60,000 on close. Well, you’ve got to raise that $60,000 as well.

The key thing to do, and I tell my students this, is to have a beautiful, five or six-page template. This template shows a property that you bid on in the past and maybe you didn’t win, right? But it shows all of the numbers. It shows your plan. It shows how much are you going to spend on rehab. How long is it going to take? You know, what is your plan for this property? How much will the rents go up when you rehab? Let’s say you put in $6,000 a unit. Are you going to get $150 pop monthly? Are you going to get $125 pop?

Rule of thumb for multifamily is:  Spend $6,000 on rehabbing a unit, raise rents by $150, double investor money in 5 years.

Once again:  Spend $6,000 a unit in rehab, raise rents by $150 a unit, and double your investor money in 5 years.

Now, the math doesn’t seem to make sense, but if you want to know how it makes sense, understand the magic of cap rates. Multifamily is all about something known as cap rates. It’s a number that everyone in the industry knows and understands and cap rates vary depending on how old the building is and where it is.

Here in the San Francisco Bay Area, cap rates are under 4. What that means is:  For every $1 that you create in new net operating income—1 buck—when you sell you will make 25 times that. That’s what 4 means. It’s 100 divided by 4 equals 25. That’s awesome.

If I install low usage, low-water-usage toilets and those toilets save me $10,000 a year in water bills, when I sell the property, if it’s in the San Francisco Bay Area, I’ll make $10,000 multiplied by 25. That’s a staggering dollar number, right? That’s a huge amount of money that I’m going to make. That’s $250,000 by just installing toilets. The toilets themselves are probably not going to cost me more than $50,000. So, the return on investment is very high because of cap rates.

Now, I don’t invest in the San Francisco Bay Area, but even in other markets these days, a typical cap rate is 6.5, 6.6, so you’re getting a 15x multiple. Generate 1 new dollar and get a 15x multiple on it when you sell.

The magic of cap rates is what allows us to raise rents by just $150 a month on a $6,000 rehab and double investor money in 5 years.

Pretty much anyone that follows that methodology is going to double or, you know, better than double investors’ money. If you look on my website, our past projects about 30%-plus annualized returns.

Larry:  That’s sweet. That is awesome. That’s awesome.

You have to do a lot of work up front to analyze those properties because not every deal is like that. I mean, there’s a lot of deals out there that are all ready, they don’t need $6,000 worth of work. They may not even need $2,000 worth of work. What type of properties are you looking for and explain like A, B, C, D, and what type of properties you’re looking for and what those are called?

Neal:  Absolutely. I’m looking for properties that are eligible for true value add. These properties are either Bs and Cs. I look for properties that were built between 1970 and 1995. Older than that, too much breakage, too much maintenance. Younger than that, they don’t need the rehab at this point. I’m not going to get that $150 rent pop with a newer building. I’m probably going to get less. My opportunities, those 25 years, 1970 to 1995, and I’m looking for a property that was not rehabbed at all since it was built, or it was rehabbed in the ‘80s. A lot of properties that might have been built in 1969 was rehabbed in 1987. That’s still okay, because it was rehabbed in 1987, it still looks its age because almost 30 years or a little over 30 years have passed since then, so it’s now due for a new cosmetic rehab.

Now, what I don’t do are extensive rehabs. My rehab—and the property that I’m looking for is a $6,000 rehab and that’s just purely cosmetics. If it’s got carpet, I rip that out ad replace that with laminate. If it’s got older cabinets, either I’m going to resurface them or I’m going to rip them out and replace them.

I might, depending upon the area, replace white or cream appliances with either black appliances or in certain cases, with steel appliances or steel/black mix. Steel/black mix is a lot cheaper than just steal.

Countertops, I want to resurface the countertop, or I want to rebuild the countertops. In a few properties, I might go with granite, but most of the time, I’m just going to go with countertops that are newer and nicer looking and that really adds up to $6,000. A few other cosmetic things, I want faucets that are brushed nickel and I want backsplashes that are colorful. So, nice backsplashes in the kitchen. Really, almost all of the money is eye candy and almost all of it goes into the kitchens or the bathrooms.

The only other area that we’re touching is paint, so just a fresh coat of paint. That’s 6,000 and my rehab is not about—you know how with single family, every home is different, right? Because they’re all different, some need lighting, some need walls to be knocked down. I don’t want to knock anything down. I don’t want to knock down a single wall. My rehab is cookie cutter because if I’m buying a 100 or 200-unit property or if you’re buying a 20-unit property, you want to have one rehab specification and you want to have internal staff that just rotates from property to property to property, from unit to unit to unit and knock it out very quickly. One to two-week rehabs. Very quick, very fast, that’s the magic.

Larry:  Cookie cutter, right?

Neal:  It’s all about being cookie cutter. We do not want to express ourselves with multifamily. We do not want to go all out and build stuff that is different from everybody else. Multifamily is not about being different, it is about being efficient. This is a mathematical problem. It is not an expression of art.

Larry:  That’s awesome. That’s great. Now, you mentioned—now, you’re in the Bay Area, but you mentioned that you don’t buy in the Bay Area. I know there’s a lot of A properties out there and the cap rates are so low and it’s hard to force value because like you said, the value is based on the net income.

Neal:  Right.

Larry:  So what areas do you recommend?

Neal:  That varies every year. What I do is once in a year, I switch my areas and I have a fan following—not as large as yours—but I have a fan following of 3-4,000 people that are following me around as I switch areas. For 2018—and each year, on my website I do a webinar called Real Estate Trends 2018. If you go there, it’s a 60-minute rundown of every market in the U.S. and all the things that at this point are positively or negatively affecting real estate, whether that’s single family or multifamily. This webinar is agnostic. It has nothing to do with whether you want to buy single family or multifamily.

What it does is, it all leads to the last 15 minutes, where I show you the best markets, in my opinion, in three buckets. There’s a fix-and-flip bucket, there’s the price appreciation bucket, and there’s the rent appreciation bucket.

Now, very often people might think, well, if the prices are appreciating, the rents will also appreciate, and the answer is:  Not really. Very often prices will appreciate for three or four or five years until the market has appreciated so much that people can’t afford to buy anymore and that’s when rents appreciate.

So, rents usually are lagging prices. It’s very important to want to share that because you could go into a market thinking that you’re going to get huge rent increases and you don’t because single family prices are extremely increasing, but still affordable.

Larry:  Right.

Neal:  I do those three buckets so that people really understand which market to buy for what. The Bay Area, unquestionably the best flip market in the U.S. If you could go back and look at my presentation, you’re going to see 20 cities in the U.S. that are good for flips. Number one in the list, San Jose, California, San Francisco, California.

But the Bay Area is a terrible market, absolutely terrible market today for rental growth and a slightly less terrible market for appreciation. We’re still seeing strong appreciation in the Bay Area, but the rents have hit that ceiling where poor people, right? Middle class, blue collar worker people, just cannot afford anymore. So, that ceiling has been hit and rents are flat in the Bay Area.4

Those three buckets allow me to look at different areas. If you’re flipping and you’re not in the San Francisco Bay Area, Denver is a great place to flip in. Seattle is a terrific place to flip in. Those are kind of on our side of the pond. Miami is a great place to flip in if you’re on the other side. There’s tremendous demand. Flips are really based on how quickly do properties disappear from the market. You want to go into a place where there’s multiple bids within the first 24 hours. That’s a great place to flip in because your cash is in use for a small amount of time.

Larry:  Right.

Neal:  Single family appreciation is different. Sacramento had great appreciation. Las Vegas is phenomenal, Orlando is phenomenal. Those are great markets. Usually appreciation markets are the ones that recover last from last time’s bust because they didn’t start new construction until 2016, so you’re not competing with a lot of new inventory coming into the marketplace, so there’s a lot of room for price appreciation. We’re see amazing price appreciation in Vegas. We’re seeing amazing, absolutely mind-blowing price appreciation in Orlando and Tampa, those kinds of areas, great appreciation.

Rental markets are the ones that have already appreciated, so they’re the markets that went crazy over the last four years. Sacramento is a phenomenal rental market today but it’s not appreciating as fast as it was in 2016 or 2017. But now the rents are catching up because people can’t afford to buy.

Those three buckets are huge and in my markets, I’m looking in Utah, which has been our top state in the U.S. for the last three years, so I’m looking in Ogden, Utah. I’m looking in Provo, Utah. I’m looking in Salt Lake City. Those are great markets to look at.

For people that are on the other side of the pond, I recommend Grand Rapids, Michigan is a tremendous market, you’ll get price and rent appreciation.

The two North Carolina markets, Raleigh, Durham, Charlotte, these are tremendous markets. Right now, you get both rent appreciation and price appreciation for buy-and-hold people. Also, Raleigh-Durham is a flip market as well, so it’s the trifecta. You get rent increase, price increase, and flip abilities in those kinds of markets. Orlando is a great market to flip in.

There’s those kinds of markets, but they change every year and it’s really, really hard for me to have to rebuild my network each year. It’s the hardest thing that I do, but then it allows me to really pick the top markets in the U.S. every year. And I pay for data sources, which I want to tell your viewers about, I pay for Housing Alerts, which is Ken Wade’s website.

Larry:  Right.

Neal:  I pay for Local Market Monitor, which is Ingo Winzer’s website. Ingo actually does a webinar for me every three months.

These are two data websites that they tell you the best and worst markets in the U.S.

Then I pay for Neighborhood Scout, which basically within a market, let’s say like Salt Lake City, it ranks all of the neighborhoods. There’s great neighborhoods in great cities. Like Orlando is a phenomenal city to buy in, but it has some truly awful neighborhoods. I wouldn’t buy stuff for free in those neighborhoods. And so, Neighborhood Scout gives me that information, not just on a zip code level, but even smaller than that, like 1/10 of a zip code level. That’s data-driven access.

On the multifamily side and the big multifamily side, we pay 20-plus thousand dollars a year for CoStar, which is all of these tools combined but it also has data from Apartment.com. CoStar owns Apartment.com, and also LoopNet. CoStar owns LoopNet. It basically aggregates all of that data and gives us a dashboard about every area and every property as far as rent growth, price growth, cap rates, those sorts of things.

Yeah, I’m a true geek and I love talking about it.

Larry:  [Laughs] That’s awesome, man. You’ve got this thing down to a science. I love it. I love it. You know what the best thing about it is, is when somebody is going to do a deal with somebody like you or get into multifamily or invest their money in a syndication, you want somebody that knows their numbers. You know, if they’re just kind of throwing out, “Well, we might go over here or might go into Southeast or we might go into Midwest,” but you’ve got it dialed in to very specific things and that’s important, especially when you’re investing other people’s money.

Neal:  I think so and I think that here’s a universal lie that I see on documents all the time. There are cities in the U.S. that are doing really, really poorly. I can make them look really good on five minutes on a Power Point. So, cities that are doing awful are cities like St. Louis. No growth, population decline, really very little price appreciation. But every city in the U.S. has something good going on.

You go and look at an offering memorandum for St. Louis and you see, oh, St. Louis is doing all these great things. You think it’s an amazing market, but there’s always something good going on that you can put on a piece of paper.

What I tell my students is this:  Not for your investors, but for you, because you can’t make money if your investors don’t make money, right? Because you’re making a piece of what they make. If they make zero, you make a piece of zero. The key metrics that you always have to be looking at is—and you must know them, you must be able to say them about all of your markets immediately—is what is the rent growth in a particular area? What is the population growth in a particular area? What is the income growth? And what is the housing price growth? You need to know these four numbers for any market that you’re involved in. You need to be able to have a discussion with your investors because until then, you’re just making it up. Right?

But the moment you have these conversations with every single investor, you will be forced to keep track of it and you will be able to see when your market starts to dip and decline because even the population growth is going to dip, or the prices are going to slow down, or the rent growth is going to slow down. And then you know that it’s time for you to move on to the next market.

In every single conversation, I ask my students to talk about these four metrics because as I said, you can make any city look good. But the moment you start talking about these four metrics, you can say stuff like, “Orlando is many times better than St. Louis.” Orlando is four times better than St. Louis because the numbers are very stark for St. Louis and the numbers are awesome for Orlando.

Larry:  That’s great. And the numbers don’t lie.

Neal:  They absolutely don’t lie. I think that obviously there are investors who like the hype, they like the emotion-driven investing. They’re not with me. They’re not with me and I don’t think they’d like me because I’m very unflashy. I lay stuff out in a very structured manner. I say, “I’m investing because of these four or five reasons and this is how I believe I’m going to exit.” And if they require the flash, then they’ve got plenty of other choices.

Larry:  And that’s why you have a thousand-plus doors and over $100 million value portfolio, right? [Laughs]

Neal:  There are investors that like the fact that I’m not flashy. They like the fact that I’m tied to numbers. They also like the fact that I provide education to them all the time. I’m teaching webinars every week of the year. If you go to MultifamilyU.com/Larry, I set that page up for your group because I knew that you’ve got a new group of people, so I put all of my webinars in there and those webinars, there’s no pitch. I pitch nothing at all in my webinars. They’re about educating people, just like you’re doing these podcasts.

Larry:  Right.

Neal:  And if people would like to join me either as investors or partners or students, they’re welcome to. But it is all about providing high-quality, data-driven education and that’s what I like.

By the way, my previous business was also an education business. That’s really where I get the core concepts, right? It’s about training people to be successful and then they make a decision. Should they do it themselves or should they do it with you? That’s the only decision I ask people to make when they’re attending my events.

Larry:  That’s great. Now, you’ve talked about some of the great markets out there and I’m assuming that that includes like the secondary markets right outside of those, like right outside of Orlando, part of the U.S.A.

Neal:  Yes, absolutely.

Larry:  What are some areas that you think are probably the worse metro areas for 2018?

Neal:  Oh, boy. Worst is really, really hard. Worst is very, very hard. I don’t pay much attention to the worst, but in general, I fear markets that are losing population.

Larry:  Right.

Neal:  I want people to use a tool called City-Data.com. The first thing that you should be doing is looking at population trends because think about it this way:  You might run in and say, “Oh, there’s this property there, it’s a 15-cap property and it is in,” let me give one of the ones that I like to bash, you know, cities that I like to bash. Ohio is very interesting because one of my favorites cities, Columbus, is in Ohio, and I tell my students that’s a good city to invest in.

But there’s also a city called Dayton, Ohio. That’s a city that I like to bash a little bit because there’s all these turnkey providers doing 15-cap properties in Dayton. They hype up all the great things that are happening in Dayton. They forget to mention the fact that Dayton loses 10% of its population every decade.

This is a city like Detroit. Detroit used to have a million-and-a-half people back in the late ‘50s. Now it’s 400,000. If you just go to Google and type in “Detroit population,” a graph comes up from Google and I can tell you, the graph looks just like this:  It’s just one straight continuous downward line for the last four-and-a-half decades.

The question you have to ask yourself is:  Who cares whether you’re buying a 15-cap property? You have to think about how am I going to sell a property when 10 years from now I’m ready to sell and there’s a heck of a lot less people that live in the city.

Larry:  Wow.

Neal:  The first thing I want people to look at is population and there’s a lot of states that are loosing population to other states. In general, America is moving from colder states to warmer states. Texas gains a lot of population, so does Georgia. Florida gains a tremendous amount of population. I’m not saying that there aren’t opportunities in the cold states. St. Paul/Minneapolis, very, very cold but it is a very robust city and that metro is growing. Grand Rapids, Michigan is growing.

But when you look at the State of Michigan, you look at the State of Illinois, you look at Ohio, these are states losing population. My focus is not so much on cities, my focus is you need to educate yourself on the impact of population on job growth, rent growth, and on house price grown. If you’re going into a city that is losing population, you need to be very careful because what you’re doing is you’re going to Las Vegas and you’re gambling. That’s what you’re doing. That’s not real estate investment.

Larry:  Wow. That’s really good. I really appreciate you sharing some of those tools that you use, like City-Data.com and Housing Alerts. I know Ken Wade very well. That guy is a genius when it comes to that stuff.

Neal:  Absolute genius, right?

Larry:  Yeah.

Neal:  I mean, Stanford grad, absolute genius.

Larry:  Exactly. Exactly. Yeah, that’s awesome.

Now, Neal, where are you finding these properties? I know it takes a lot of time to analyze a multifamily deal. It’s not just like looking at a single family house and figuring out what is the ARV and what are the amount of repairs and then—boom—you got your offer amount. You have to spend a lot of time analyzing each multifamily deal, right?

Neal:  Correct. And it is many levels more complex than the standard ARV-based calculation. Students often will send me a property that they’ve underwritten so the process of analyzing in multifamily is called underwriting. And they basically think that for some reason I will know more than them and they send it to me and they say, “Neal, could you spend five minutes looking at this property?” I have a very standard answer that I want to give everybody. There is absolutely no magic in multifamily when it comes to underwriting. People like me, in 5 minutes or 50 minutes cannot improve anyone’s chances. All I’m doing is giving you a gut-feel answer that’s likely to be nonsensical and really honestly bullshit.

What is necessary for multifamily is four to eight hours of underwriting. There’s a process that you follow. You do an analysis, you do an analysis of the property, an analysis of the neighborhoods, an analysis of how fast the rents are rising, and what is the delta, the price difference between rehab units and non-rehab old style units. Because the whole point of multifamily is, you want to rehab units. There is no money in multifamily if you’re not going to rehab. There are no properties in 2018 that you can just buy and hold and make 8 or 9% cash flow. If they exist, I don’t know of them. They may be in dangerous markets like Dayton, Ohio. You might be able to see some of these great places.

But in good markets, the only option of making multifamily work is just like single family,  you got to do that rehab piece. But remember, it’s a cosmetic only, $6,000-per-unit rehab. It’s not like single family.

There is no way to do it shorter. On my website there is a one-hour webinar that actually walks you through step by step the underwriting process because this is a question that I get constantly from people. How do I underwrite a property for multifamily and what are the things I need to know about? What are the gotchas? What are the top 10 mistakes I’m going to make?

So, I took all that and stuck it into a one-hour event and it’s recorded on my website. Take a look at that. I can tell you my events are very interesting, but that one is horribly boring, but also horribly important. It is necessary for you to learn how to do that. I tell people, if you are the kind of person that doesn’t want to spend four hours doing underwriting, just partner with somebody who does.

For every guy that wants to do everything else except underwriting, there’s one guy who just loves living the spreadsheet. That’s a guy who in another life would be a programmer and be sitting in cubicle and programming all day. You go find that dude and he’s going to do all of your underwriting and you can still buy multifamily.

Larry:  There you go. That’s great. That is great. Just give us a quick rundown as far as—I know you don’t four to five hours on every single deal.

Neal:  No.

Larry:  What’s the first thing you look at and say, if it passes this, then I’ll go to the next thing, and then what’s the next thing you look at, if it passes this, then I’ll go to the next thing.

Neal:  Look for rent growths in that particular zip code. Now, in my case, obviously, I pay for the software and I gave you a list. But you can just go to City-Data.com, type in the zip code of the particular property, and look to make sure that rents are going up.

There’s another place to look at rents going up. You can type in the name of the city, space, home prices, space, Zillow. Let’s say it’s Dayton, Ohio. You type in  “Dayton Ohio home prices Zillow.” Now, Zillow will give you a list of home prices in that market, which is important to look at, but for multifamily less important. Scroll down on the page and near the bottom you will see a graph that’s showing rent increases. The first thing I want to see is consistent 2-1/2 to 3-1/2% annual rent increases. Consistent. Not the last year, but at least two or three years of rent growth.

We’ve been in a huge rent growth cycle, so ideally, you want to see five years of consistent rent growth. Markets like Provo, Utah, Orlando, Salt Lake City, have had consistent rent growths, like San Jose.

That consistency is awesome. When I see a consistent upward graph, I’m very interested.  If I see the last two or three years, I’ll still underwrite the property. If I’m seeing growth that is ziggy-zaggy, in this market, that’s a red flag and so I probably will pass on that property and save myself a few hours.

Larry:  Right. That’s good. So, after you look at the city and you analyze that, and you see some rent growth, what’s the next step?

Neal:  As a next step, I start looking at comps in the marketplace. What I do is, I look at Craigslist. I’m looking at—I’m trying to find units that match this property, because how did I find this property? A broker listed it. I have an offering memorandum and that offering memorandum shows me the size of the property, the level of the rehab, and I’m trying to match up properties that are on Craigslist, on Apartments.com, on Rent.com that match it.

I want to see, is this property at the average rent for its marketplace? Sometimes if I find it a little bit below, even $25 below, I’m very interested. Ooh, that’s 25 bucks. 25 bucks in multifamily is a lot of money. It’s a huge amount of money. I want to see that delta.

If it’s at market, I’m still interested, then I start looking at, okay, are there rehabbed units in this marketplace? Is anybody rehabbing? I don’t want to be the first guy in a zip code to have a rehab unit. I have no examples of the success to show to my investors. I need to show them rehab comps. I want to go into a market where there’s already rehab units and I look at that new rehab and I go, yeah, that’s going to cost me another five or six grand over this one and let me look at the rents.  My units are 710, his rents are 840. He’s 130 bucks up. Okay, 130 is not too bad, but ideally, I want to see $150 pop there.

So, I keep looking. And if I’m finding that there’s a track record of rehab units that are available for rent at that marketplace and the rent pops are 130, 140, 125, 150, then I’m beginning to get interested. Now I’m like, okay, this is going to go into the underwriting pile, not into the trashcan 

That is giving me the idea and I’m only looking at that zip code. It’s very important that I’m not looking at the city level at this point in time. I’m looking down at the neighborhood in the immediate area and there are so many tools. Path Mapper is a great one. I go to Path Mapper, I plug in an address and now I can draw a circle around it and say, I just want to look at stuff that’s within a half-mile radius of this. I never cross the freeway. If I’m on one side of the freeway, my circle is actually kind of an odd-looking shaped circle because it might go like circle and then along the freeway it’s just a line, because I don’t want to cross freeways, because that’s a different neighborhood, right?

Larry:  Right.

Neal:  So, by looking at that, Path Mapper tells me the units that are available for rent and whether they match mine or not. Those are some of the things that make me say yes or no.

Then remember, 1970 to 1995, the broker’s offering memorandum should say stuff like, “Hasn’t been rehabbed recently.” If it says, “2016 rehab,” it’s done. I’m not touching it. I can’t make my investors 20%.

Larry:  They’ve already pushed it up.

Neal:  Somebody else can make 5-6% sitting on it, but I’m using other people’s money, so that’s not for me. There’s a number of things I can do to dump properties in the first kind of 35, 40 minutes and then after that, it takes 2 or 3 hours before we can say, well, this is interesting, or this is not interesting.

Larry:  Right.

Neal:  We also wanted to plug in that zip code into Housing Alerts and Local Market Monitor and see what their predictions of future rent growth are. There are zip codes that are huge rent growths. Right now, St. George, Utah, has the highest projected rent growth in America.

Larry:  Wow!

Neal:  That’s an amazing market.

Larry:  I love that city. That’s a beautiful area. A beautiful area.

Neal:  Amazing area, freestanding metro, land around it, can keep growing for a long, long time.

Larry:  That’s great. That is great. Man, this has been awesome. I just love this. I love everything about this.

What would you say to somebody that, “Hey, I want to do multifamily. I’m interested in getting started,” what would you say to somebody that is like serious about this and they want to take some action? What can they do to get started, to learn more?

Neal:  The best way to get started is to go to MultifamilyU.com/Larry or /webinars, and watch those webinars. First, you’ve got to understand how multifamily is different. Remember, our world is completely different. The lender is not looking at your credit, the lender is looking at the property. They’re underwriting the property. Loans are based on property.

You have to first understand our world and figure out if you want to live in it. So, that’s the first thing. Spend two hours, watch the webinars, understand the multifamily world and understand the benefits and the downsides of it. I cover downsides extensively in my events.

If you want to proceed beyond that, consider signing up for my bootcamp. I used to—when I started learning, I would pay thousands of dollars to bootcamps and they would turn out to be just sales pitch. You go in there and they were trying to sell some $30,000 product. I promised myself, Larry, that I would  one day create a multifamily bootcamp that had no sales pitch.

For less than 1,000 bucks, you will learn astonishing amounts about multifamily and then I’ll put you into a Facebook private ecosystem where you can find lenders, you can find partners, you can find property managers, and that ecosystem is powerful and it’s real.

If you’re interested, come to my bootcamp. It is a bootcamp that doesn’t run in any physical place. It is an e-bootcamp.

Larry:  That’s great.

Neal:  It runs in the evening. Students take it from all over the U.S. In fact, last weekend, I had 25 students from D.C./ Virginia area.

It doesn’t matter where in the U.S. you are. It’s in the evenings over two weeks. Over two weeks you’re going to learn about the wonderful world of multifamily. Everything from how to—the best cities in the U.S., the best neighborhoods in the U.S., how to analyze properties, how to pick property managers, how to build relationships with brokers, and most importantly, how to raise money from other people.

Larry:  That’s great.

Neal:  All of that in two weeks without one second of sales pitch on anything beyond bootcamp.

Larry:  That’s great. Now, if a person happens to miss one, maybe they have an appointment or something, is there a replay they can go back and watch?

Neal:  Yes. And that is why I teach it as an e-bootcamp. Here’s, in my mind, you know, I’ve been in traditional degree-graduate education for two decades, so I can tell you this:  Let’s say you’re the best instructor in the entire universe, not even in the world. Even then, 60% of what you teach them will be gone in the next 60 days. What I like about the fact is I’m recording every event. But just recording is not enough because you’re not going to go back and look at 12 hours of recording, nobody ever does that.

Larry:  Right.

Neal:  But what I do is I give them a 30-day action plan and I tell them, at this stage, when you reach this point and you need to do due diligence, well, you’re not going to remember stuff that I taught you two months ago, so go back, click on video number 7, fast forward to minute number 9, and watch between minute number 9 and minute number 61.

Larry:  Wow!

Neal:  When you’re done with minute number 61, stop. Now you know everything that you need to know about due diligence. Go do due diligence on your brand new property that you put in contract.

By index linking all of that stuff that I teach to the action plan, people can go and watch snippets when they need them and to me, that brings a lot more value than instructor-like class that you go to for a weekend. Because yeah, you walk away from the class knowing so much, but then you forget most of it.

The e-learning events, the real value is in being able to connect the action plan and go back and watch a little bit of it when you need it. Some people get, you know, properties under contract in 30 days. I have students that take a year. What are they going to remember? But once they are in contract, they hit the 30-day action plan, now instantly they have me talking to them about that particular item. Maybe it’s due diligence, maybe it’s about financial due diligence. Maybe it’s about finding a property manager. They know exactly where to go to get that information.

Larry:  That’s huge. That is huge. You know, I am a firm believer in education and I not only teach this stuff, but I also am always learning myself. As you know, we just had a conversation, I just got back from a weekend event last weekend. I paid $5,000 to go to the **** [0:42:16.3], for just three days.

So, sign me up for your e-bootcamp. [Laughs] I’m in! I’ll be on your next one.

Neal:  Sounds good.

Larry:  Do you have any parting words for our students, Neal?

Neal:  Yes. I think this is a time when you need to watch for what’s happening in the marketplace. I teach a webinar that’s about how the financial markets right now are affecting warping the real estate market. Real estate, if it was left alone to itself, we would’ve had a nice real estate downturn already about two years ago. But real estate is not in charge. Who is in charge? The Federal Reserve of the United States. The bankers are in charge.

Larry:  Right.

Neal:  You need to educate yourself on how the financial system is affecting real estate.

Now, so far, in the last six years, the entire impact of what the Federal Reserve has been doing has been positive. So, that’s good news for you, right?

Larry:  Right.

Neal:  But if going forward that impact is negative, you need to learn about multifamily, but you also need to learn about interest rate hikes and their impact on cap rates. You need to know what the yield curve is and why you should be afraid when the yield curve starts to flatten in a certain area.

Understanding macroeconomics today is actually very important because macroeconomics is affecting real estate in a very direct and obvious fashion. When you start out, this stuff doesn’t make any sense. But trust me, once you read four or five articles, you’re going to start reading the tea leaves and you’re going to be ahead of everybody else in real estate. You’re going to know when an area starts to turn because you understand the macroeconomics.

Larry:  You know what, Neal? I just got to tell you, we haven’t known each other that long, but every time I ask that question, do you have any parting words, it’s usually like, “Stop talking about it and start doing. Take action.” “If it’s to be, it’s up to me.” But man, you go into detail. You really are a statistical guy, a math guy, an analytical guy, and I can see now why you’re so successful. It’s not hype, you’re just laid back, it is what it is and if the numbers don’t work, just move on, right?

Neal:  Absolutely move on. Absolutely move on. Come to the bootcamp and you’ll learn about 12 hours of tips and tricks similar to this and an action plan that will actually get you there.

My success is not your review after the bootcamp. Your reviews don’t matter. My success is you buying property that makes your investors money.

Larry:  There you go.

Neal:  Everything I do is focused towards moving you in that direction.

Larry:  That is great. We haven’t even talked about the raising money part of it, which is a big deal. The financing part of it, the cashing out, the syndication part of it, we haven’t even got into that.

Neal:  That’s next month’s webinar.

Larry:  There you go!

Neal:  Our podcast, there you go.

Larry:  That’s great. That’s great.

Well, man, I really appreciate you being on. Thank you so much. It’s been great. I love it and I’m going to be on the e–bootcamp. I’ll see you there.

Neal:  Sounds good. Thank you, Larry. You have a good one.

Larry:  Awesome. Thanks a lot, everybody. You, too. Bye.

[End of Audio]

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