Ep #1,029 - MFRS - How This Engineer 10Xed His Income With Real Estate

[00:00:03] So you know that apartment building or complex you drive by every day? Someone owns it. And it's probably someone on this podcast. Multifamily Rockstars. Join the growing numbers of real estate entrepreneurs who have made the jump to buying multifamily properties for lifetime cash flow. Multifamily Rockstars. Using OPM for an OMG ROI. Now, here are your hosts, Rod Khleif and Mark Nagy.

[00:00:28] Welcome back to Multifamily Rockstars. So as you guys know, these are the episodes where we kind of do a deep dive into our guest deals and, you know, give you some practical and actionable items for getting started and doing your first deal, especially if you're brand new to multifamily. And I've got my co-host Mark Nagy with me here as usual. Hey, Mark.

[00:00:46] What's going on, Rod? We get to hang out next weekend in person. Finally, it's been a while.

[00:00:50] That's right. That's right. That's right. It's coming. We've got our Orlando bootcamp coming up. And it's gonna be a lot of fun.

[00:00:57] A lot of warriors there, like who we're interviewing today and certainly a lot of brand new people as well. So it's gonna be incredible networking, incredible event.

[00:01:08] Everybody always leaves juiced coming out of their skin after one of these events. It's the only live one I do each year.

[00:01:14] So today, we've got Warrior Barron, and I'm not going to attempt to pronounce his last name. I can just tell you it's complicated and I'm pretty good with vocabulary.

[00:01:22] So I'm just leaving it alone. But Barron's from Turkey. I was just in Turkey, by the way.

[00:01:28] And I need, yeah, I need to remember the name of the place I was at. I'll look it up while we're talking.

[00:01:34] But yeah, I stopped there on a cruise just a couple of weeks ago. But anyway, welcome to the show, my friend.

[00:01:42] Oh, thank you, Rod. Thank you, Mark. Thanks for hosting me.

[00:01:46] Absolutely. So why don't you take a minute and give us a little background on you, you know, a little bit of your story, if you don't mind.

[00:01:54] Sure, absolutely. So I'm originally Turkish, and I came to US 23 years ago.

[00:02:00] And my background is in engineering. I used to work in car manufacturing.

[00:02:06] And back in 2014, I started my own small retail businesses and opened locations in Myrtle Beach, South Carolina,

[00:02:16] Pigeon Forge, Tennessee, and Panama City Beach, Florida.

[00:02:19] And then I had three kids, and it was too much traveling.

[00:02:24] And I scaled back to Pigeon Forge and settled down in Knoxville, Tennessee.

[00:02:32] And I started my real estate journey about five years ago.

[00:02:36] And it has been an awesome journey since then.

[00:02:40] How did you get started? What sort of properties did you get into single?

[00:02:44] Did you jump right into multifamily? What did that journey look like a little bit?

[00:02:47] Actually, mine was a little different.

[00:02:49] So I had been looking for warehouse spaces for my retail operations and e-commerce business.

[00:02:55] And I couldn't find any warehouse spaces.

[00:02:58] So I bought a mixed commercial property.

[00:03:00] And it was a blessing at the end of the day because there's a daycare office and apartment.

[00:03:05] They pretty much cover more than the mortgage payments.

[00:03:09] And the warehouse came free with it.

[00:03:10] And then I really kind of like it.

[00:03:13] And I dig into it a little bit and then start to invest on multifamily.

[00:03:18] Very nice.

[00:03:19] Well, I know that you just closed on, what is it, a 12 unit in Knoxville?

[00:03:26] Correct.

[00:03:27] Why don't you tell us about that deal, starting with how you found it?

[00:03:32] Absolutely.

[00:03:32] So if I roll back a little bit, I have a buddy in New York.

[00:03:37] He works in one of the investment banking as a vice president.

[00:03:41] And he has a single family portfolio.

[00:03:43] And he has been keeping asking me about multifamily all the time.

[00:03:47] I said, buddy, you need to join the ROTS program.

[00:03:50] So we joined together.

[00:03:52] And it has been an awesome journey.

[00:03:55] And after we joined the program, he did his little bit training.

[00:04:02] And after nine months, we closed our first deal.

[00:04:06] Fantastic.

[00:04:07] Fantastic.

[00:04:08] Don, I guess you found out about me at a boot camp as well, just like we've got coming up in a couple of weeks.

[00:04:15] Oh, that's correct.

[00:04:16] I mean, like I had another mentorship before, but I came to your boot camp and I like your style.

[00:04:23] I mean, you are very down to earth guy.

[00:04:25] And there were a lot of students and they were reacting and there were a lot of partnerships forming.

[00:04:31] And I liked it.

[00:04:33] So right at the spot, I said, I need to join this program.

[00:04:37] Thank you.

[00:04:37] Thank you.

[00:04:38] So tell us about this deal.

[00:04:40] So where did you find it?

[00:04:43] And describe it a little bit, if you would.

[00:04:46] Sure.

[00:04:46] So it was on Craxi.

[00:04:49] Craxi?

[00:04:50] Yes, correct.

[00:04:52] And I'm also a commercial broker.

[00:04:54] So if there's a deal I find in MLS or Craxi or LoopNet, anything on markets, I try to look at the deal same day and make the offer same day.

[00:05:05] I don't lose time.

[00:05:06] I don't submit letter of intent.

[00:05:09] I don't waste my time.

[00:05:10] I don't waste other parties' time.

[00:05:12] So I look at this property.

[00:05:14] It was, I made an offer same day.

[00:05:18] And one week they called me back.

[00:05:20] They said, hey, we can work it out.

[00:05:24] So it was a nice property, but the closing was a little bumpy.

[00:05:31] How so?

[00:05:32] Okay.

[00:05:33] Well, talk about why it was a nice property first.

[00:05:35] And then let's talk about the speed bumps.

[00:05:37] Sure.

[00:05:38] First of all, if I roll back one of the reasons I buy multifamily also for the tax advantages, we do cost segregation, which is the accelerated depreciation.

[00:05:54] And this property was fitting on our buy box criteria.

[00:05:59] We usually do, I usually buy things by myself or as a JV deals.

[00:06:03] And this was small enough.

[00:06:05] There were not too many hands in cookie jars.

[00:06:08] And the property was only eight minutes from Knoxville downtown and also five minutes from University of Tennessee.

[00:06:16] And it was fitting all my buy box criteria.

[00:06:19] And we made the offer and they accepted.

[00:06:23] And it was pretty good closing.

[00:06:27] Okay.

[00:06:29] Well, talk about, so how, what sort of financing did you get?

[00:06:33] And, and, and, and again, if I missed it, did you say that you're just doing this one by yourself or you did it as a JV or how did you, how, what about the liquid capital, the equity brought into the deal?

[00:06:44] How'd that, how'd that happen?

[00:06:45] So financing and equity.

[00:06:47] Yes, sure.

[00:06:48] So we bought it as two partners.

[00:06:51] The body of mine, we joined the program together.

[00:06:53] Okay.

[00:06:54] But previously I purchased seven other properties and they were the ones I did all by myself.

[00:07:01] And last couple of years I've been using straight credit unions.

[00:07:07] I mean, they are kind of like semi-government to me to deal with them.

[00:07:12] Their term sheet is very standard.

[00:07:14] So, and if they are not very difficult to work with them and their financing is very good.

[00:07:22] So I got 80% LTV and our interest rate was 675.

[00:07:31] Okay.

[00:07:32] And we closed in 40 days.

[00:07:35] Wow.

[00:07:36] That's quick.

[00:07:36] Okay.

[00:07:37] All right.

[00:07:38] So, so what's, what speed bumps happened at closing?

[00:07:43] Oh, man.

[00:07:44] Now my hair shows up.

[00:07:46] By the way, by the way, this is a question that I ask my panelists at my boot camps every time I say, talk, tell me about a time you had a seminar, you had a, you had your, your nose bloodied.

[00:07:56] And because there's so many, I mean, this, you know, and they're like, where do I start?

[00:08:00] You know, I've got a whole menu of those, but so, so this is always good to, always good to bring up, you know, some, cause everybody thinks it's just a smooth coasting thing.

[00:08:08] No, you're going to have things happen.

[00:08:10] So anyway, with that pre-frame, what happened?

[00:08:13] Absolutely.

[00:08:13] So what happened is like, you know, when you do the title company, you expect they do all your prorations and everything with the security deposit and everything.

[00:08:24] Taxes, insurance, yeah, all that.

[00:08:26] Taxes, insurance, all that.

[00:08:27] And we were driving to title company to closing day and, and my partner said, Hey man, what happened to security deposit?

[00:08:35] I said, I'm sure the title company prorated.

[00:08:37] We called them.

[00:08:38] They said, Oh no, we did not because they are doing 1031.

[00:08:42] And everything has to be in 1031.

[00:08:47] The funds needs to pass through and they cannot do the security deposit proration.

[00:08:54] So they, we were closing their office at 3 PM.

[00:09:01] They called them and they said, they told us we need to call the property management company and we need to go there, pick up the funds from them.

[00:09:08] And I said, we are one hour away from the property management company.

[00:09:12] And by the time it was 5 PM, Friday nights.

[00:09:15] And we are going back and forward, back and forward.

[00:09:18] And they said, you do, don't you trust us?

[00:09:21] I said, man, this is not a trust.

[00:09:23] This is doing the right thing the right way.

[00:09:25] And so what happened is, I gave my, our LLC bank information.

[00:09:31] They supposed to wire it, the property management company, their property management company.

[00:09:37] They tried to ACH it and they screwed up.

[00:09:41] And it took about three weeks to get our security deposit.

[00:09:45] And we were not sure because that was the holiday weekend and we couldn't reach the seller, the other property management company.

[00:09:53] I mean, title company was very helpful, but we were up in the air if you were able to get close to $15,000 funds.

[00:10:01] Wow. Wow. Well, that's no fun, but at least you got it.

[00:10:06] What are your plans for this asset?

[00:10:08] What are the existing rents and where do you plan to take it?

[00:10:12] Sure. So it's a mixture of one bedrooms and two bedrooms.

[00:10:17] And one bedrooms rented $900 and the market rent is around $1,200.

[00:10:22] And two bedrooms, they rented for $1,100 and market rent is $1,600.

[00:10:27] So we have an average $300 to $400 rent bump.

[00:10:32] And there are a couple problem tenants and we would like to weed them out.

[00:10:38] But we are super careful because, you know, this is the very slow time of the year.

[00:10:45] And so we slowly, we are going to change the tenant base.

[00:10:51] We just would like to have a safe, secure place for the tenants.

[00:10:54] And the upgrades, we are going to do basic upgrades, paints, flooring and changing to curb repeal.

[00:11:02] Do you know how big your CapEx budget is for this as a property, roughly?

[00:11:07] Our CapEx budget for end of this year, it's going to be around $60,000.

[00:11:12] That's the number we gave the cost seg guys because they are doing the cost seg right now.

[00:11:16] We want to do our cost segregation before everyone else because, you know, people are waiting to end of the year.

[00:11:23] And we had a couple experience before it's just, you know, too many cost segs done at the schedule at the same time.

[00:11:30] So after a new year, we are not sure because normally we usually get LTC from credit unions.

[00:11:39] We couldn't get this one.

[00:11:41] And because we want to...

[00:11:42] Okay, that means loan to cost.

[00:11:43] That means loan to cost, guys.

[00:11:44] Okay, keep going.

[00:11:45] Yep.

[00:11:46] Yeah.

[00:11:46] So it's going to be coming out of pocket.

[00:11:49] And, you know, right now, rents are nationwide is stagnated.

[00:11:55] Some markets are dropping and Knoxville is still holding up.

[00:11:58] And it's one of the nice markets because we have still rent growth.

[00:12:03] I think around 3%.

[00:12:04] But the number of applications drop.

[00:12:09] And we just want to be super careful.

[00:12:11] And we also want to wait to election and how things go.

[00:12:16] Yeah.

[00:12:17] Yeah.

[00:12:17] Well, that's up in the air.

[00:12:19] Hang on one second.

[00:12:20] I want to just clarify a couple of things that you guys talked about.

[00:12:23] So, guys, if you don't know what CapEx means, that's the amount of money you're going to spend fixing the place up.

[00:12:27] It stands for capital expenditures.

[00:12:30] So they're not expense items that you expense on the spot.

[00:12:33] They're things that you capitalize, you know, putting in new roofs, paint, you know, more extensive type repairs to improve the value of the property.

[00:12:42] So that's CapEx.

[00:12:43] Cost segregation is a tax strategy where you accelerate the depreciation.

[00:12:48] And, you know, typical 20-year straight line depreciation takes 20 years.

[00:12:52] Well, with a cost segregation, you speed that up by taking each individual component.

[00:12:58] And an engineer looks at it and comes up with its remaining life.

[00:13:01] And so you're massively accelerating your first year's depreciation.

[00:13:05] And we've also still got 60% bonus depreciation.

[00:13:08] So, you know, all of those things make it very attractive to do a cost sake.

[00:13:13] Anyway, Mark, did you have another question you were about to ask?

[00:13:16] No, I was just going to say, you know, 60K for CapEx on a 12 unit.

[00:13:20] It's only 5K a unit to get $300 to $400 rent bumps for 5K a unit.

[00:13:24] I could see why it's a fantastic deal for you there.

[00:13:28] Now, I know you mentioned, Barron, that you've done, you know, some stuff by yourself and some JVs.

[00:13:33] So those might be smaller sorts of deals.

[00:13:35] What's your management style buying these smaller deals?

[00:13:39] Do you do it yourself?

[00:13:40] Do you have a property management team, a virtual assistant?

[00:13:43] How do you manage these different smaller properties that you bought?

[00:13:47] It's an excellent question.

[00:13:49] So since I quit my engineering job, I try to 10X everything I do.

[00:13:56] So like I quit 2014 and we are in 2024.

[00:14:02] And my, you know, net income per year, it's 10 times what I was making as an engineer now.

[00:14:08] Wow.

[00:14:09] So I would like to accelerate this and using the velocity of money and to 10X in five years.

[00:14:17] In order to do that, I tried to set up a system, which I did on my other businesses, the traction system.

[00:14:25] On my retail and e-commerce business.

[00:14:28] It's actually called, it's called the Entrepreneur's Operating System.

[00:14:31] And it's in the book Traction, just to give some precision to it, by a guy named Gino Wickman.

[00:14:36] Sorry to interrupt you, buddy.

[00:14:37] You are perfectly fine.

[00:14:39] So the thing I like about this concept that I need to be nobody because I'm sometimes, you know, like we set a feeling by ourselves, you know, like versus your team is doing much more creative things to do or setting up more different goals.

[00:15:01] So I would like to do the same thing with my real estate business.

[00:15:04] And so right now I have a team.

[00:15:06] All my real estate, we manage them with a team.

[00:15:09] I have a project manager.

[00:15:11] He's kind of project manager slash asset manager.

[00:15:15] And I think also as an advice with other investors, I think there are a lot of people are leaving money on table on the asset management side of it.

[00:15:25] It can be hired out.

[00:15:27] And so I want to implement EOS system on my real estate business.

[00:15:33] And eventually down the road, I would like to be nobody.

[00:15:40] Love it.

[00:15:41] Love it.

[00:15:41] So let me ask you this.

[00:15:42] You know, I know you started out in someone else's program.

[00:15:48] He's actually, one of them is actually a friend of mine, but we won't name names.

[00:15:52] But, you know, there are a lot of people who listen to this show that haven't taken action yet.

[00:15:56] They know they need to go do something.

[00:15:59] What suggestions would you have for someone that wants to start out in real estate or just getting started out in real estate?

[00:16:04] Any thoughts on that question?

[00:16:07] So first of all, if I put myself in my shoes in 25 years ago, today's days, I would start as a young person, not to have too much money.

[00:16:18] I would start as a house hacking.

[00:16:20] And then I would spend as much as time, money and efforts on training.

[00:16:27] And the return of investment on programs like yours is unbelievable because any single you make, it's much more higher than the cost of this training anyway.

[00:16:41] So it is so, and also the other thing, I mean, it's, you always talk about the bootcamps.

[00:16:49] It's, there are a lot of mindset part of it too, because you are pulling the trigger for millions of dollars or like whatever the property you are taking.

[00:16:58] So you need to be mentally and educationally ready to pull the trigger.

[00:17:03] Yeah.

[00:17:04] Oh, that's good advice.

[00:17:05] Has your experience of the warrior program been to your satisfaction?

[00:17:10] Absolutely.

[00:17:11] As a matter of fact, I was in a real estate conference and there were five warriors there.

[00:17:18] So we get together.

[00:17:20] Nice.

[00:17:21] Nice.

[00:17:21] Yeah, we've got, I don't know, I think close to 1700 around the country.

[00:17:25] Although, in fact, all over the world.

[00:17:26] I've got other people in Turkey, by the way.

[00:17:28] Listen, if you're interested in applying to the warrior program, text the word CRUSH to 72345.

[00:17:34] My warrior zone somewhere between 210 and 220,000 units, we believe at this point.

[00:17:40] We can't even keep track anymore.

[00:17:41] Probably more.

[00:17:42] Yeah, probably.

[00:17:43] I've been, you know, I've only been teaching, what, a little over six years, not even quite seven years yet.

[00:17:50] So something I'm very, very proud of.

[00:17:51] But again, text the word CRUSH to 72345.

[00:17:55] And we'd love to help you crush it in this business as well.

[00:18:00] So...

[00:18:00] There's one more thing, Rod.

[00:18:01] I would like to add.

[00:18:02] So the guy on the previous coaching program, he was a fantastic guy, just like you.

[00:18:10] And anytime I had a deal, I gave him a call and ran through the numbers.

[00:18:14] And when I joined your program and my phone rang.

[00:18:16] We were in dinner table.

[00:18:18] It said, Rod Culli.

[00:18:19] I said, man, why is he calling me?

[00:18:21] And you called me, I think, to join the program and a couple encouragements of yours.

[00:18:26] And they were very encouraging to hear somebody running the coaching program call you personally.

[00:18:34] Yeah, every warrior has my cell phone.

[00:18:37] And, you know, nobody abuses it.

[00:18:38] But if they've got something, even if I'm out of the country, they're able to reach me.

[00:18:41] I talk to warriors every day.

[00:18:43] But, well, thank you for that.

[00:18:44] I appreciate that.

[00:18:45] Rod, one more thing.

[00:18:46] Every single book you mail, I read it.

[00:18:48] And actually, we went to Italy with my wife.

[00:18:52] And on our way, we read the five languages of love with my wife.

[00:18:56] It was a fantastic book.

[00:18:58] And I'm expecting more books.

[00:19:00] And they stopped coming.

[00:19:01] Well, you know, I will say this, okay?

[00:19:05] I charge a fraction of what anybody else charges anymore.

[00:19:08] And I've never raised my pricing.

[00:19:11] And, you know, there's a limit to how many books I can send at this point.

[00:19:15] But, yeah.

[00:19:17] But, you know, the five love languages, I will tell you guys, if you're listening, you haven't read that book.

[00:19:21] I've given away thousands of copies of that book.

[00:19:23] And I actually interviewed the author on the show, which was a real treat because he doesn't do a lot of interviews.

[00:19:26] He's in his 80s.

[00:19:28] But, yeah, if you love anybody, you need to read that book.

[00:19:33] You know, I've got another question here.

[00:19:36] As you were going through your real estate journey, you know, from just getting started, even pre-war, it doesn't matter at what stage in time you answer this question.

[00:19:45] But did you have any epiphanies?

[00:19:48] You know, you were an engineer, you know, and you retired from engineering, which is not a low-paying position.

[00:19:54] Did you have any aha moments or epiphanies that you could share?

[00:19:59] Absolutely.

[00:20:00] So it was more like a mindset because what happened is, you know, what you don't know, you don't know.

[00:20:08] And there are a lot of things we don't discover because we don't know things.

[00:20:13] So the way I see real estate, it's like a gigantic book.

[00:20:17] And everybody starts from different chapters.

[00:20:20] Maybe some people start from the beginning.

[00:20:22] Some people start from second or first or fifth chapter because at the end of the day, also, I need to advise to other investors, you know, this is a business.

[00:20:31] And if you do not have a business experience, you need to get the education.

[00:20:38] Otherwise, you are going to fail miserably.

[00:20:40] That's the fact.

[00:20:42] So since I had some business experience, it helped me a lot.

[00:20:46] So I started maybe not from the beginning, maybe chapter one.

[00:20:50] So that's the thing I would recommend to recommend.

[00:20:54] And to me, real estate was a fantastic tool to shift my mind because it gives you more freedom to think.

[00:21:03] Yeah.

[00:21:04] Interesting.

[00:21:04] Yeah.

[00:21:05] So what's your mindset moving forward here, Baron?

[00:21:07] I know you've done the 12 units, some smaller ones.

[00:21:10] I know, obviously, people like Rod do these big syndications.

[00:21:14] Do you have any desire to move into bigger deals and do syndications, things like that?

[00:21:20] Or do you just prefer to stay in the smaller space?

[00:21:23] And that's what you're good at and what you like.

[00:21:24] What's your goal moving forward here in multifamily?

[00:21:28] Absolutely.

[00:21:29] I would like to go to bigger deals, doing syndications.

[00:21:31] But I would like to do it as a, you know, not out of, you know, must do, but as a burning desire.

[00:21:38] And I see a lot of, you know, capital raisers call them.

[00:21:42] And they just try to sell things.

[00:21:46] I don't want to be a seller.

[00:21:47] I want to be a magnet.

[00:21:48] And it takes time and it takes accountability and it takes some deals to do.

[00:21:56] So I would like to make it organic.

[00:21:58] But as I said, using the velocity of money, velocity of partnership.

[00:22:03] Yeah, the velocity of money is a very powerful thing for sure.

[00:22:07] Yeah.

[00:22:08] I wanted to share real quick.

[00:22:09] You mentioned being a magnet.

[00:22:11] That's actually exactly what happened to me.

[00:22:13] I have never raised money except for one deal recently that I did.

[00:22:17] And it was only because I had people reaching out to me saying, hey, Mark, we've seen you do real estate.

[00:22:24] We've seen your success, all these sorts of things.

[00:22:26] How can we get into deals with you?

[00:22:27] And a deal came across and that's why I went out and raised money.

[00:22:30] It wasn't something that I did.

[00:22:31] And it sounds like you kind of have the same mindset, right?

[00:22:34] Get people to come to you instead of, you know, doing something where you have to go out and force the issue to try and raise money on a deal that you have.

[00:22:41] Correct?

[00:22:42] Absolutely.

[00:22:43] And also, you know, I don't want to create myself another job.

[00:22:46] I mean, there are a lot of capital raisers.

[00:22:48] They are on phone call all day long.

[00:22:50] This is to me another W-2.

[00:22:52] I don't need it.

[00:22:53] Yeah.

[00:22:53] I love it.

[00:22:54] I love it.

[00:22:54] Look at life through a lifestyle filter.

[00:22:57] That's so important.

[00:22:59] Well, listen, are you okay with listeners reaching out to you if they'd like to do that?

[00:23:03] Absolutely.

[00:23:04] I will be delighted.

[00:23:06] Okay.

[00:23:06] I know you've got baraninvestmentgroup.com.

[00:23:10] Is that correct?

[00:23:10] B-A-R-A-N investmentgroup.com.

[00:23:12] That's the website?

[00:23:14] Fantastic.

[00:23:15] Perfect.

[00:23:16] Perfect.

[00:23:16] Perfect.

[00:23:17] Mark, did you have anything else to add?

[00:23:19] Yeah, but before we end on that topic, for people that do want to reach out to you, how would you describe yourself, Baron?

[00:23:25] Because you mentioned you're an engineer.

[00:23:26] You've done a lot of deals yourself.

[00:23:28] How would you describe your personality and your kind of superpower?

[00:23:33] So maybe people listening that reach out, they might say, oh, I relate to that.

[00:23:36] Or I'm like Baran.

[00:23:38] How would you describe yourself?

[00:23:40] Good idea.

[00:23:41] Absolutely.

[00:23:42] Absolutely.

[00:23:42] So as a superpower, so I know my market very well, which is East Tennessee and mainly in Knoxville.

[00:23:50] And also, you know, on the real estate side, if anybody wants to reach out and ask about the journey as an investor or as a Warriors program, I will be happy to give my two cents on it.

[00:24:06] Awesome.

[00:24:07] Love it.

[00:24:08] It was a pleasure to see you, Baron.

[00:24:10] And I appreciate you coming on the show, my friend.

[00:24:15] Good to see you.

[00:24:15] My pleasure.

[00:24:16] You too.

[00:24:16] All right.

[00:24:19] Thank you for watching Multifamily Rockstars.

[00:24:22] If you loved the show, please subscribe and leave us a five-star review.