How To Scale Your Real Estate Portfolio While Working A Full-Time Job

Play This Episode

4 Votes

Rich Neuharth is a full-time air traffic controller at some of the busiest airports in the world and an experienced real estate investor and partner at Aviana Capital Group Currently a GP at 600 units and continuously growing rich he joins us today to discuss how to strategically form and leverage partnerships to scale your business He also opens up about lessons he learned the hard way during his career and offers valuable insights on relationship building and mitigating risks 00 01 – 05 33 Finding Balance as an Air Traffic Controller and RE Investor Get to know Rich With good partnerships he s able to manage his time and focus on what matters They found success in single-family before transitioning to bigger assets There s a higher level of professionalism that comes with larger numbers 05 34 – 10 33 Partnering Up Well Building a network is valuable to accelerate the business It s important to be strategic when deciding who to team up with Know the people in the deal and ask a lot of questions to vet the potential partner or sponsor 10 34 – 20 59 Staying Competitive in the Market Rich and his team do traditional and direct dealings with brokers Touring has helped them find off-market deals Be calculating and don t rush into getting deals done Stop relying on equity sources and foster relationships Rich reflects on a time where their equity pulled out last minute Eliminating risks associated with 1031 exchanges Make sure you ve got at least two X of what you need to raise ready to go at any time Look for the opportunities in a down market 21 00 – 22 10 Closing Segment Reach out to Rich Links Below Final Words Tweetable Quotes To be 100 honest I wouldn t do a deal with anybody that I didn t go out to have lunch with regularly – Rich Neuharth Maybe it costs me 600 700 bucks for a plane ticket but I get a full day of touring properties photos and social media content and catching up with them – Rich Neuharth There are better deals to be had There s more cash flow to be had I think more investors should be placing more money in the market right now than 6 months to 18 months ago when everything was at the top – Rich Neuharth —————————————————————————– Connect with Rich through AvianaCapGroup com or email him at rich avianaco com Resources Mentioned Multiple Streams of Income by Robert Allen Mastering The Market Cycle by Howard Marks Connect with me I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns Facebook LinkedIn Like subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts or whatever platform you listen on Thank you for tuning in Email me sam brickeninvestmentgroup com Want to read the full show notes of the episode Check it out below 00 00 00 Rich Neuharth We are not relying on just any equity sources anymore whether that s funds or traditional capital raisers we need to have a relationship with those people or have a relationship of a relationship that has worked with those people cause it s tough to have your equity pull out last minute It s pretty devastating and nobody likes it 00 00 33 Sam Wilson Rich Neuharth is an air force veteran that s been investing in real estate since 2010 He s currently a general partner in 600 plus units and growing rich Welcome to the show 00 00 42 Rich Neuharth Thanks Sam Glad to be here 00 00 44 Sam Wilson Hey man the pleasure s mine Rich there are three questions I ask every guest who comes on the show in 90 seconds or less can you tell me where did you start Where are you now And how did you get there 00 00 53 Rich Neuharth Started in Las Vegas Nevada just after the downturn 2008 I started there by reading a lot of books Right now we are only in multifamily space So we d raise funds manage funds run sponsorship teams for only multifamily So we re out of single family No flips no rentals no nothing like that 00 01 18 Sam Wilson Man that s awesome Where are you based out of right now Are you still buying in Las Vegas Are you buying somewhere else 00 01 26 Rich Neuharth Nope we buy in Texas and Georgia I m based out of Denton Texas just North of Dallas and Fort Worth 00 01 32 Sam Wilson Gotcha Gotcha Based out of Denton Texas and you re buying in Denton That s really cool Now let me get this straight You are still full-time employed and still also pursuing real estate in any spare time Is that right 00 01 45 Rich Neuharth Absolutely I tell people I got two full-time jobs 00 01 48 Sam Wilson Oh gosh Yeah man I was talking to somebody earlier today and the conversation went something along the lines of you work for yourself now which is great but it doesn t mean you work less It probably means you work more And they re like yeah The only difference is that I get to choose when I do it So I was like yeah that s you know probably a fair point What do you do for a full-time career 00 02 08 Rich Neuharth I m an air traffic controller 00 02 09 Sam Wilson Air traffic controller okay So you work in the same shift every week or is it all over the place on your shift schedule 00 02 15 Rich Neuharth I work a different schedule every day six days a week 00 02 18 Sam Wilson Holy smokes Okay So you re working a different schedule If you re listening to this and wondering if you can scale your portfolio if you can grow rich is your guide and mentor cause he is working a different schedule at six days a week every single week He has no idea what his schedule s going to be And yet he s still finding a way to acquire multifamily assets Tell us what has been one strategy that you have used in order to continue the momentum Cause I can t imagine you wake up every day feeling bright-eyed and bushy-tailed ready to go out and acquire real estate 00 02 50 Rich Neuharth Nope I would say good partnerships So I ve got a business partner and then my wife helps me as well managing time just putting the important things first every day 00 03 00 Sam Wilson Got it man That s really cool So you started in Las Vegas now you re buying in the Texas markets Tell me how did you make that strategy How did you make that transition And then when did you finally decide to go into bigger assets 00 03 14 Rich Neuharth Yeah so we started buying rental properties back in 2010 basically is when we bought our first piece of real estate Sounded like a great idea I wanted to I was reading a couple of books on how to create streams of income And I just read this book is called Multiple Streams of Income and had like 10 or 12 ways I just picked a couple of them and gave em a shot With rentals I just fell in love with I ve always been interested in how people buy real estate and bought a couple of the no-money-down properties They don t always actually turn out that way by the way I ve had pretty good successes in the single-family game but we ve also taken our licks as well And then 2018 we decided it was time to make a shift and partnered with people that were better and stronger than us in certain areas and bring our skillset of property management and deal sourcing capital raising to the game and play with bigger numbers 00 04 08 Sam Wilson Right What is so 2018 you guys made that leap What has been the most surprising thing that I think or that you would say you ve discovered since making that transition to bigger assets 00 04 22 Rich Neuharth Oh the most surprising thing is how much more fun it is Dealing with the level of professionalism that we get when we build out a really great team from your sponsors to your lenders your brokers your insurance professionals just everything is high caliber And it s super awesome to see a project come together like of these sizes you know 20 30 50 million deals come together Sometimes I would say relatively flawless You know compared to what it could be Not that any deal is easy but a lot of great people that we surround ourselves with 00 04 59 Sam Wilson Man that s no different than I would imagine what you find in the air traffic control side of things I mean there is a lot of coordinated effort with a lot of people doing a lot of different things in order to get a plane from you know gate to gate or from part you know from hub to hub whatever it is you re doing There s a lot of people doing a lot of different tasks in there in order to make that happen It seems like you ve gone from one one really well-choreographed dance to another you know with the same level of professionalism 00 05 30 Rich Neuharth Yeah That s a good way to look at it I never thought of it like that 00 05 33 Sam Wilson Yeah absolutely That s really cool I love it So you guys in 2018 you started taking down bigger assets You said one of the things that you ve done is really partner up well what does that mean to you 00 05 43 Rich Neuharth So partner up well is not every your project requires the same team If you re doing a 50-unit project maybe it s only one or two people If you re doing a 50 million deal maybe it s seven or eight you know everybody would like to have three or four people on a 50 million deal but it s not always that s not how you start It was a lot of time building our network finding the people that we could bring value to you know some people like the yield play just buy it let a cash flow type deal other people like a value add And so really being that super connector for people is invaluable 00 06 19 Sam Wilson Super connector 00 06 20 Rich Neuharth Yeah So when we started we joined a couple of different masterminds found some great people kind of accelerated our network that way But then after that we find that we were meeting people outside of masterminds And so if I got somebody in Atlanta and they re looking for a deal well I ve got somebody else that I know that is sourcing deals You know the sponsorship team the network liquidity and we can arrange that and get more deals done with people And it s done 00 06 45 Sam Wilson How have you strategically decided what or who I should say who to partner up with on projects and who not to partner up with 00 06 56 Rich Neuharth Yeah I would say that we learned the lesson the hard way in a couple of instances The first group that we partnered up with great guys a lot of strong communication organizational skills They had a lot of success and it was in a tertiary market oddly enough And then our second deal was kind of it was a referral and we didn t really ask the questions which I think vetting your sponsor is something that s insanely important that a lot of people overlook right now but they just didn t click very well with us So we re you know in this field for five or six years and not that we don t get along or we re butting heads or anything it s just different styles of management and control 00 07 39 Sam Wilson That s a tough place to be because these are like you said five to seven-year projected deals where you re partnered up for that period of time and you know or until that asset is sold What are some things that you feel like you would ve asked or done differently maybe on the front end when you said you especially when you said vet the partner a little bit better what would you have done differently 00 08 04 Rich Neuharth I would ve spent a lot more time asking just honestly more detailed questions getting to know somebody truly like not just partnering up with somebody because they have a deal or because they have you know a skill that I don t have They could have something but I don t have em be absolutely great at it But then you put us together and it s like oil and water You just don t want that So I would ask questions background how many deals you ve done To be 100 honest I wouldn t do a deal with anybody that I didn t go out to have lunch with regularly Or you know I m not talking to on a monthly basis or something like In my opinion it should be a pretty good friendship You should be able to ask the candid questions and you know a lot of people I see rush to just do a deal and I think it creates a lot of bad vibes amongst partnerships and properties too 00 08 58 Sam Wilson Is there a way from a passive investor s perspective to spot that 00 09 04 Rich Neuharth A bad partnership I would say same thing would kind of apply to the passive investor side You really need to know who the sponsor like who s actually running the deal So in some of these syndications maybe there s let s say seven or eight partners you have your lead sponsor you know the person you go to Let s say it s me and you have a relationship with me but you don t know who s beyond me all the time Right But I would say it s really about relationship building is what it comes down to You need to know the people in the deal who all is there It seems like a lot of times there are a couple of key figures in each deal but you don t always see the whole team or the whole picture from the passive investment side And I think it is really important 00 09 51 Sam Wilson Yeah for sure Yeah and I think you ve answered it to a certain extent which is you know cause I have a relationship with you but I may not necessarily know who the lead sponsor is if it s not you in particular And I m just curious if there s a quick way to identify a potential problem or poorly vetted sponsorship team in advance as a passive investor I ve got some ideas on it but I just didn t know if maybe there was other things that would come to mind as you say that Cause again you know like you said there s not you re not in deals right now where you re like Hey there s bad blood There s bad it s just not what it could be So just just really curious you know from the passive investor side but either way you ve answered that question So I appreciate you taking the time to kind of mull that over Certainly appreciate it What s one thing you guys are doing right now moving forward I mean you re buying you said in the DFW market right or in the Texas markets as a whole 00 10 42 Rich Neuharth Yeah So we do buy in DFW and then Georgia is another major market of ours 00 10 46 Sam Wilson Got it What are you doing to be competitive in today s market 00 10 52 Rich Neuharth Well I would say we got a couple of different aspects We do the traditional direct to you know dealing with our brokers building relationships go golf travel visit tour lots of properties Touring properties gives us probably the most solid looks at off-market deals Because when you let s say I travel from DFW to Atlanta I go tour our property Well the broker most of them if they re good brokers they re like well you flew all the way out here let s go check out you know I m working on a listing agreement over here and over here and let s talk about this operator and this operator We found so many off-market deals just by traveling So maybe it costs me 600 700 bucks for a plane ticket but I walk away and I get a full day of touring properties and photos and social media content and catching up with em so huge right there We do run a couple of direct-to-seller campaigns as well 00 11 45 Sam Wilson That s something that yeah for those that want to ride a desk and pick up the phone and make deals happen I remember gosh this has been several years ago I was at a meetup here in Memphis and this young guy you know walked up and he said man I just started six months ago and he was wholesaling houses right and was just blowing the doors off And I m like no pun intended Maybe there s a pun intended but I said dude what are you doing And he goes man he goes I find absentee owner properties And again I m not advocating for this necessarily in the show but I guess just shows you what the hustle does to your point of actually going out and spend traveling and going and seeing he goes like I go to absentee owner properties I find the owners wherever they live and he goes I go knock on their doors goes I knock on the front door of the person that owns that rental property I won t mail em I don t call him I knock on their door and he goes dude I am moving properties as fast as I could I mean he goes it s just unbelievable pace Where everybody else is still staying in the room going gosh how do I get my first deal done I m like genius Of course like just do what everybody else isn t And I think that s what your point is spend the 700 bucks go out spend the day you go see every property in town that you could possibly visit So I think that s really really cool I love that That s a great way to stay competitive What s a risk that you might see in the market or risk that you see other people taking right now that you guys are actively avoiding 00 13 06 Rich Neuharth I would say rushing to get deals done I still see a lot of that I think there s still some overpaying in the market considering how everything has kind of been you know low leverage high-interest rates sellers still want a premium even though it may not necessarily be there in value So we have been there tried that and we ve moved on So we re very calculated when we submit our LOIs and what our pricing is And I would say that we are not relying on just any equity sources anymore whether that s funds or traditional capital raisers we need to have a relationship with those people or have a relationship of a relationship that has worked with those people cause it s tough to have your equity pull out last minute It s pretty devastating and nobody likes it 00 13 55 Sam Wilson No and it sounds like there might have been a situation in which your equity did pull out last minute Is that what I m hearing 00 14 03 Rich Neuharth Yeah So we were almost to the closing table down in Corpus Christi earlier this month a couple of late sixties properties We had all the equity lined up Everything was good to go until about two weeks before closing And then we had a couple of significant players back out and change their commitment last minute 00 14 22 Sam Wilson Wow What happened 00 14 25 Rich Neuharth What it boiled down to was a little bit of pref equity and a large fund And a 1031 exchange decided that the market was softening and they didn t want to be in Corpus Christi anymore and they wanted to do business somewhere else 00 14 41 Sam Wilson Wow What could you have done either differently or what will you do differently in the future to ensure that doesn t happen again 00 14 50 Rich Neuharth We ve talked about a couple of different things With 1031 exchanges there s been a lot of movement you know we ve seen it on a couple of different projects not ours but maybe people that we know where that 1031 is committed I d say a good chunk of money You know like you already won half a million or so to bring a 1031 on and sometimes but doing maybe a non-refundable deposit because we ve seen a 1031 commit and then they ll jump ship to another deal if it s an option for them sometimes So we ve looked at doing that 00 15 23 Sam Wilson How do you get a 1031 depending on where they are in the process How do you get them to put down a deposit and or commit hard money earlier in the deal 00 15 34 Rich Neuharth We re just upfront about it So one story from really good friends of ours they had a really large 1031 I think it was like 3 million It was basically going to cover the full raise And then they kind of rearranged their equity around this check cause they were like great we don t have to do any raising We don t have to do anything We just go straight to the closing table And then when it came time to actually transfer the money to 1031 said no I had another deal that I had identified and I m going to move my money over there Yeah so obviously it puts em in a bad place They had time they got it done but nobody wants to be in that position 00 16 06 Sam Wilson No And I wonder if there s a you know because I just wonder about the complexity of this and I m just talking out loud here cause I don t know but if you have a 1031 exchange and let s say there s you know 3 million bucks coming in is there a way to get the intermediary whoever s holding that 1031 money assuming that it s already there if they ve already sold their other property is there a way to get a deposit on that Like Hey you know you re going to put 10 down now and then the other 90 when it s time to close or whatever it is I mean at that point like to your point that s real money at that point that s 300 000 at that point And you re kind of putting your money where your mouth is but that s a serious risk and one I ve not actually heard of is you know a large check I mean obviously you heard of people pulling out of deals but you know that presents a new wrinkle in the mix When it s the right time to close were you guys able to get that property that they pulled out of closed 00 16 57 Rich Neuharth Ours in Corpus Christi No Unfortunately we lost that deal The sellers didn t want to agree to an extension or you know we just couldn t hash out the terms So we decided to part ways and move on to the next one 00 17 09 Sam Wilson Wow Wow Okay man Rich thanks for taking the time to share That s a painful story for anybody listening to this that doesn t understand I mean cause it s so much work that goes into getting a deal that far along I mean you guys are you re a lot of money and and and a lot more time in by the time you re two weeks to close I mean you re at the finish line at that point 00 17 30 Rich Neuharth Yep 00 17 31 Sam Wilson Then to have your equity pull out that s brutal So man thanks for taking the time to share that I mean other than getting your deposit on that was there any other action items steps that you would take next time if you re presented with a similar scenario 00 17 44 Rich Neuharth I would say for anybody out there just starting or maybe newer and they re you know lead position taken down a project make sure you ve got at least two X of what you need to raise ready to go at any time Maybe even more than that honestly especially right now with you know 65 to 70 leverage being pretty common throughout the US Things are going to change The market s going to change We know interest rates are going to keep going up at least for the time being So you got to be able to adjust especially one to two-week period before close 00 18 15 Sam Wilson Is there a communication cause I ve often wondered or thought about this is that oh gosh I m going to talk about a book now I can t remember the title of but basically he said that if you go through history you ll find that investors invest especially passive investors like stock market okay I put money and forget about it they tend to invest at the completely wrong times in the cycle Of course everybody s terrified So they start pulling out money at the bottom and then they start pumping it at the top And he and he gives some really compelling data over like 70-year periods as to why this happens I ve often thought as a deal sponsor like one of our jobs is to not just advocate for what we re doing but also to educate our investors so that when it becomes time when everybody all of a sudden starts going oh my gosh I m terrified You know the sky is falling Everybody run It s like no actually right now it s probably the best time to be getting in Is there anything that you can think of Cause as you said the investor sentiment is changing Is there anything you guys are doing proactively to make sure you stay in front of investors and make sure you not just project confidence but give reasons as to why what it is that you re doing currently makes sense 00 19 24 Rich Neuharth Yeah So great that you brought that up I was just having a conversation I think this last week we were in Vegas for a conference and I was talking about somebody there Warren Buffet talks about it all the time Like when people are fearful you know go after it like that type of thing And that s exactly what s happening right now is everything is softening And people are like oh my gosh the market is crashing The market s crashing Let s not invest But we are we re on the opposite side of that We see properties coming available You know maybe their bridge note is being called due and they can t refi out of it or they can t sell it right now Those are opportunities to be had The cap rates coming down a little bit they re not completely just washing away by any means but there are better deals to be had There s more cash flow to be had So yeah great that you brought that up I think more investors should be placing more money in the market right now than 6 months to 18 months ago when everything was at the top It s crazy 00 20 25 Sam Wilson It really is and finding and finding the right way to convey that message I think is a challenge But I think it s something that we as deal sponsors again assuming that you believe in what you re selling cause if you don t believe in it obviously don t do it But you know as deal sponsors it s something that we need to be you know actively sharing that The book I was thinking of was Mastering The Market Cycle by Howard Marks a great book It s a great book and give some real insight as to the psychology of the common investor and it s kind of eye-opening But anyway look that up if you if you re so inclined Rich thank you for taking the time to come on the show today and tell us you know what you guys are working on You ve shared some painful lessons here today with us I know you guys have had awesome success in what you re doing but also at the same time you know you ve taken some licks and you were willing to share those with us So thanks for doing that And hopefully you can save some of our investors the same heartache that I think you know all too well So again thanks for doing that Appreciate it If our listeners want to get in touch with you and learn more about you what is the best way to do that 00 21 26 Rich Neuharth Yeah the best way is through our website It is avianacapgroup com A V I A N A C A P group com You can also send me a direct email if you d like it s rich avianaco com 00 21 41 Sam Wilson Fantastic Rich thank you so much for your time today Certainly appreciate it 00 21 45 Rich Neuharth Thanks Sam Click here to visit this podcast episode