Jonathon Twombly started his career as a litigation attorney. He loved the exciting work and working on big cases in New York, when he first started out. As his career progressed it became much less exciting and appeared to have much less potential, than he first thought. Sure he was making great money, but it came at a huge sacrifice because of all the work he had to do. He also was not building anything substantial financially. Circumstances helped push Jonathon out of law and he decided real estate was what he really wanted to do. After some massive failures, Jonathon has bought over 400 rental units in about 3 years. We talk about all of it on this episode of the Invest Four More Real Estate Podcast.
Why did Jonathon grow tired of being a litigation attorney?
After Jonathon received his law degree, he went to work immediately as a litigation attorney in New York City. Jonathon loved the excitement and working on big cases right out of law school. Over the years, the job became less exciting as the job became more about paperwork than practicing law. He also realized that his ultimate goal of making partner, was not as appealing as he thought it would be. To be a successful attorney you have to work long hours and sacrifice a lot. When he started to see what it was like to be a partner, he realized they worked even harder and sacrificed even more. Did he really want to spend his entire life working?
Jonathon decided he needed a career change. He decided real estate was what he wanted to be involved in, but could not get a job working with large real estate investment firms. He was told it was almost impossible for experienced real estate executives to get a job, let alone someone with a law background and no real estate experience. Instead of give up, he decided he would make his own job.
How did Jonathon crash and burn in his first real estate investing attempts?
Jonathon found a real estate investor who was looking for a partner. Thanks to Jonathon’s work on Wall Street, he had many connections who were willing to invest with Jonathon, if he could find great real estate deals. Jonathon and his partner went to work looking for large multifamily properties in Texas and Louisiana. They found a couple of properties that would work, and got both properties under contract. They had a mix of private financing and bank financing lined up. However, when it came down to finalizing the loans, the bank backed out. This left Jonathon and his partner out thousands of dollars in due diligence costs. They also had to back out of the other deal, because the same bank was financing that property as well.
Jonathon had been working in the real estate business for about a year with nothing to show for it, except lost money. He did not give up. He decided he would figure out investing in multifamily properties himself. He moved locations to the South East.
How did Jonathon buy so many units so quickly?
Jonathon had learned a lot working with his partner, even if he didn’t make any money. When he started looking at properties in the South East part of the country he immediately felt better about the numbers and investment. It took him some time to break into the multifamily investing world. Many brokers and investors will take someone serious until they have bought multifamily properties. Jonathon was able to buy and finance a 102 unit building for his first investment property! In the last couple of years, he has bought more buildings that total 404 units!
What has Jonathon learned in his multifamily investing journey?
Jonathon has a lot of advice for those looking to invest in multifamily properties.
- Don’t be afraid to start small. He thinks he could have gotten started faster had he bought some smaller buildings first and built a track record before trying to buy the large buildings.
- Choose locations wisely. Real estate is all about location. While some areas may have great numbers, the local economy and other factors can greatly affect the returns.
- You have to network like crazy. Many of Jonathon’s deals have been off-market properties that were not listed. He only knew about the deals because he was constantly networking in the multifamily investing world.
- You have to act fast. He bought one property without ever seeing it in person. He knew it was an awesome deal and it would be gone before he could see it. He made an offer site unseen and it has been one of his best performing properties.
How to contact Jonathon
Jonathon has started his own blog about investing in multifamily properties. Themortarblog.com, is where you can find Jonathon and get a free eBook on how to get brokers to take you seriously.
If you liked this episode, be sure to leave us a review!
The podcast is really starting to take off! Thank you all who listen and reach out to me. If you know of anyone who might be an interesting guest send me an email:[email protected]. If you enjoy the show, be sure to leave a review on iTunes!
[0:00:58.0] MF: Hi everyone, Mark Ferguson with Invest Four More. Welcome to another episode of the Invest Four More real estate podcast. I have a really interesting guest on today’s show, really excited. Jonathan Twombly with two bridges asset management is joining us. He started out as an attorney on Wall Street, turned to real estate, became an investor and his company now has over 400 units. I’m really interested to talk to Jonathan, wee how he got to that point, where he’s investing and yeah, just pick his brain. So Jonathan, thank you so much for being on the show, how are you?
[0:01:38.6] JT: I’m Great Mark, thank you so much for having me, it’s a great pleasure.
[0:01:42.7] MF: Yup, I really appreciate it, I love talking to people who had different careers or started out in different place and made their way to real estate. You sound like you have a very interesting story. I’m curious, did you go into law straight out of college or how did you get started becoming an attorney on Wall Street?
[0:01:58.9] JT: Yeah, so actually I didn’t go straight to law school. After college I went to Japan, I was intending to be there for a year but I wound up being there for three years and came back and went to law school after that.
[0:02:12.4] MF: Very cool. What drew you to Japan? Was it just a break, a big exploration or were you trying to find something else there?
[0:02:18.3] JT: I’m sorry, I missed the question, what was it?
[0:02:20.5] MF: When you went to Japan, was it just to explore, take a break or were you looking for something specific there for work? What was your goal?
[0:02:29.3] JT: There were a couple of things. When I was in college, it was really at the height of the Japanese bubble and a lot of people thought that getting in on Japan somehow was the way to get rich. Including the woman I was dating at that time and I guess during our sophomore and junior year, something in college, she went to Japan for the summer and I really missed her.
This was back before email and stuff, we’re like writing letters to each other by hand and every once in a while she’d call me and it would cost like a $100, it was nuts. She was saying stuff like, “I don’t know what you’re going to do but I’m coming back to Japan after we graduate.” And I started thinking, “I really don’t want to go straight to any kind of school, I’ve kind of had enough of school for a while. So why don’t I go to Japan with her?”
And started studying Japanese and of course right after that we broke up but I just was interested enough that I kept on studying and then when I graduated it was 1991 and we were in the middle of the recession and I thought, “Well hey, why don’t I go to Japan and work on my Japanese, that will hopefully help me somehow in my career?” And that’s how I wound up there.
[0:03:41.9] MF: Very cool. Was it anything like you thought it would be there? Was it completely different?
[0:03:46.6] JT: I was very lucky because I had very little in a way of expectations as to what Japan would be like. I wasn’t one of those guys who was like super interested in Japan or was into manga or was into Samurai or anything. Really, it was weird because I knew some language but I didn’t really know anything about Japan at all. That actually turned out to be a good thing because I didn’t have any kind of preconceived ideas about what to expect and I just went there with a really open mind and had a really good time.
[0:04:17.5] MF: Very cool. So after Japan you came back to the US and that’s when you went back to law school?
[0:04:22.8] JT: So yeah, at that point I actually applied to a law school from Japan and came back here in ’94 and went to law school here in New York and I didn’t take any breaks after that.
[0:04:37.8] MF: Cool, and then after law school, did you go straight into working as an attorney and what was your specialization as an attorney?
[0:04:45.9] JT: Yeah, so I went into law school assuming I was going to do something related to Japan some kind of like international transactional practice and what happened was once I got to law school, I actually really liked it my first year, which is apparently very unusual and I sort of realized from that if I liked law school that much, I really should go into litigation which is really what they teach you how to do in law school.
They don’t really teach you how to do transactional work. So I decided to go into litigation and after law school I went to work for big firm here in the city doing commercial litigations so I was, you know, basically spent a number of years representing fortune 100 companies, fighting with other big companies over big piles of money.
[0:05:38.2] MF: Very cool. Well I imagine that was pretty exciting and pretty stressful at the same time.
[0:05:42.3] JT: It was exciting at first, I was quite lucky, I missed out on a lot of the typical first year associate, standing at the copy machine kind of stuff that you hear about. I was working one on one with a couple of very senior partners and we were running in and out of court together, getting injunctions and that was really, really fun.
After the first year, some of that stuff I missed out on caught up with me and then it was the reviewing endless boxes of documents from back in the day when they were still boxes of paper documents that you had to review as opposed to everything be on a computer. It was really fun at first, it sort of slowly got to being more and more of a grind after that.
[0:06:26.1] MF: Not quite as glamorous as it might sound from the outside?
[0:06:30.2] JT: It was not glamorous at all, I’ll tell you that. There were a lot of very late nights and a lot of working on weekends and months where I didn’t have a single day off and that sort of stuff and that really gets to you after a while.
[0:06:44.1] MF: Oh yeah, I bet. And I imagine that is why you started to move over towards real estate or some other type of business and investment in your career?
[0:06:52.9] JT: Yeah, exactly, I mean I spent a long time doing litigation, tried a number of times to get out of it, even just walked off the job without any plan more than once and I couldn’t really figure out what to do and I was very fortunate in that I was good at what I did and I had a good reputation and was always easy for me to find another job when I went back to it. But I wasn’t particularly happy.
Particularly the longer I went in the field and once I really understood how small the window to make partner was and also that life on the other side as a partner really wasn’t any better than it was as an associate, they just paid you more but you also have a lot more responsibility to bring in business and it was just as stressful.
I really started feeling like I needed to look for a better way to live my life and I also really didn’t like the fact that I was a service provider, I was trading time for money, I wasn’t building any kind of residual stream of income, I wasn’t building any kind of asset with all this work I was doing, I was just like a hamster on a wheel, spinning, spinning, spinning, spinning, spinning, and making great money but it wasn’t leading to anything, it was just, I could have spun that way until the day I dropped dead and I really started thinking about what else could I be doing with myself than this?
[0:08:15.8] MF: Right, that makes sense. I think it sounds very familiar to many people in the corporate world too where it’s just, you work and work like crazy to try and get a few spots that really pay off. Like CEO or CFO and then once you get to that point, it’s not any better, you almost have to work harder. It’s not the light at the end of the tunnel, sometimes isn’t quite as bright as it might seem to be.
[0:08:39.5] JT: Yeah, there’s no security in it either as I found out the hard way. You can be really great at what you do and work very hard and at the end of the day it doesn’t really matter if the work isn’t there, if the company doesn’t do a good job of bringing in business, because I found for instance as an associate, you’re not there to get business. You’re there to grind out the work and build the hours and if the firm is not getting the business then you’re kind of screwed if the work runs out.
That actually happened to me in 2011. I had a couple of years after the great recession started where I really didn’t have very much to do and the firm that I was with at the time kept me on because they like my work, they valued me as employee but at the end of the day, they can’t pay you if you’re not making money for the firm. So they let me go on 2011.
[0:09:34.7] MF: Right, and that happens all the time. Not just because companies don’t have work but because newer younger people often are cheaper than the more experienced people as well.
[0:09:45.5] JT: That’s definitely true.
[0:09:47.8] MF: So how did you get interested in real estate and real estate investing?
[0:09:53.8] JT: So it’s — I kind of arrived by around about path. I guess once I started getting a little bit disenchanted with my legal career and looking around for other things, I really became attracted to some kind of investing, some kind of finance career. I had some very good friends who were very successful in the security and investment world, running funds and stuff who said to me, “Look, you’ve got the right temperament to be an investor, you should look into that.”
And so I started looking into it, the problem was for me timing, this was I guess just before 2008 hit and then immediately after that. I was kind of exploring jobs and finance and people were telling me, “Look Jonathan, you’re 35 years old, you’ve been a lawyer all this time, under the best of circumstances you’d be looking at jobs where some guy who is younger than you is going to be hiring you and nobody’s going to want to hire you if they’re going to have a hard time telling you that you got to stay late and work for them.
If you’ve got a family and you’re senior to them — they want people who are easy to boss around, they’re looking for that 25 year old and that’s in the best of times. Now, there are thousands of guys out in the street who just lost their jobs with really great resumes and you’re a career changer. You really ought to spend your time looking elsewhere.”
So I gave up on the institutional finance idea.I started thinking about real estate. And real estate had been something I’d always been interested in ever since I was a kid, but I never really thought I could do it as a career. I started looking into it after I gave up on the finance idea and started spending time, because I had a lot of down time at work, I was spending time online underwriting properties and trying to find property.
New York City is obviously prohibitively expensive and things didn’t really make sense to buy but I was looking at stuff online like upstate New York in Albany and other places like that. Even looked at a few deals in Hudson River Valley, just kind of trying to figure it all out. I decided sort of around 2010 that I really wanted to do this as a career somehow. Again, I started — because of my background at a big law firm, naturally my mind sort of gravitated towards going to work for some institution.
I had friends who worked for some of the big real estate companies and I started talking to them. I started hearing the same kind of story that I was hearing when I was interested in finance a couple of years before which was, “Look, at your age, with your background, in this city, it’s going to be really tough for you to break in.”
And it actually got to the point where one of my friends just sat me down over coffee and said, “Look, this isn’t going to happen. Jonathan, I hate to be the bearer of bad news but I got to level with you, it’s not going to happen for you with your background.” and he said to me, “The only way it’s going to happen,” — what’s that?
[0:12:57.6] MF: I was going to say, obviously that’s not a very fun thing to hear trying to change careers.
[0:13:02.2] JT: Yeah, exactly. I was really desperate to get out of law at this point, it was pretty miserable. This friend of mine Richard said, “I can really only think of one, circumstance in which you’re going to be able to break in to this field, which is that if you meet somebody who takes a liking to you and they’ve got a small shop, someone might say to you hey, why don’t you become my partner?”
And I thought, “That doesn’t sound all that likely since I don’t really have any background in this.” As luck would have it, I’ve been doing a lot of networking in the field and I had met someone a few weeks before who was starting her own multifamily investment business and she called me up and asked me if I would meet her for coffee and when I did, she said, “Hey look, how would you like to be my partner?” I said, “Well, this is interesting I just had this conversation a couple of weeks ago so let me think about it.”
I went to consult with a couple of friends about what they thought and they both said to me, “Well look, let me meet this person and if I like her I will give you guys money to invest.” Here I was with the offer to become partner and two people offering to invest with me. So I thought, “Okay, maybe I ought to say yes to this thing and see what happens.” This was just around the time like I said where I lost my job, I was still actually on severance when all this was going on so I kind of exited my law firm job into this real estate startup.
[0:14:36.1] MF: Wow, that’s really cool. Kind of funny how everything works out sometimes like that. I’m curious, had that person already started to invest in multifamily or was she starting from scratch a new company?
[0:14:49.7] JT: So the company she was starting was from scratch but she actually did have a background. She and her husband owned five or 600 units of multifamily down in Louisiana and Texas. She had actually been through a whole repositioning herself that her husband had said, “Here, you run this so you can learn how to do this.” After she got finished doing that, she had decided she wanted to do this as a business not just as a family investment thing.
Her husband was not interested in taking it to — they were fairly comfortable the way they were. He didn’t have any interest in taking this any further other than just investing their own money. So she was out looking for people to join up with her to do this. That was when we connected.
[0:15:38.1] MF: Wow, that’s great. So when you started working with her, obviously I’m sure she is very happy that you had people who would invest money with you, that’s always nice to have with a partner. How long did it take you guys before you bought your first properties and what was that process like?
[0:15:54.2] JT: We actually never closed on anything together. What happened was, so this is now 2011, it took us a good six to eight months before we actually found a deal that we wanted to do. I think we might have put in a couple of offers on some other stuff and I think we probably were never really in range to get them.
We came across this deal that we’ve actually seen once before when we saw it the first time, the price just made no sense but the deal came back to us at a much lowered price and we thought, “Okay, this makes sense now.” Put in an offer, got it accepted and within a couple of months we had an accepted offer again with the same seller. So we were actually doing two deals at one time sort of right out of the bat.
Because we had the two investors lined up, it was essentially one deal for each of the investors and on the first one which is in a place called Houma, Louisiana which is down in the Bayou in Louisiana and it’s an oil country down there. We sort of had everything lined up to go, we were — had the lender lined up, we had the equity lined up, we had a cosigner lined up, the management company.
Kind of had all the ducks in a row, ready to go and the bank was just about to sign off on the loan and they sent their junior underwriter there and they backed out at the last minute, which was just a terrible, terrible blow.
[0:17:24.4] MF: Did they say why they backed out? What the reason was?
[0:17:27.3] JT: Yeah, so they called us up and they said, “Okay, we’re backing out of the deal,” and we said, “Why?” And they said, “We’re going to send — well we’ll send you the report.” I was asking, “Was this the engineer, was this,” — “No, no, this has nothing to do, this isn’t the engineer, this is our under writer,” and so, we got the report and the report was full of stuff like “the breeze ways are dirty and we found a golf ball that had come through a window in a down unit”.
Crazy, insignificant stuff like that. The big one was, “Well we found that there were 10 down units,” we knew that. That’s why we’re buying a deal, That was the value add here. You knew that too, we’ve underwritten all of this. It turned out that the whole thing, I don’t know whether they were feeling anxious about their relationship.
This was going to be like a Fannie Mae loan, they were feeling anxious with about their relationship with Fannie Mae or what the story was 2012 wasn’t a great lending environment either but the bank just backed out and all of this was contextual. We just wound up with — here we were, ready to close the deal, everything lined up. We didn’t have enough time to get another lender at this point.
We also weren’t interested in spending like another $15,000 just to have another lender to look at it when someone had just backed out. So we wound up terminating the deal and had to eat all of the costs of the deal that we put in, legal fees and due diligence costs and all sorts of stuff, it was really just a horrible experience. Then, what happened was, I think — so we had this other deal that was still live and it was the same lender. When we went and did our due diligence, we found some stuff that we didn’t like.
Looking back at it now, it wouldn’t have been enough for me to terminate the deal now knowing what I know now but at the time, I think because we were so skittish coming out of this experience with the lender that we terminated that deal ourselves just so we can get our deposits back. And again we had to eat all of the legal fees and the other expenses that were associated with getting us to the point where we were.
So here we were, now this is sort of the end of 2012, we’ve spent 18 months looking for deals, months and months of due diligence on these two deals and now we’re back at square one plus out of pocket, thousands of dollars each.
[0:19:55.4] MF: That’s a fun experience.
[0:19:56.8] JT: Yeah.
[0:19:58.6] MF: Well obviously it’s worked out okay because we have over 400 units now. So how did you end up buying that first property? It sounds like it might not have been with his first partner?
[0:20:07.9] JT: Yeah, so what happened was at that point, we decided that we should just go our separate ways, we got along fine, it wasn’t acrimonious at all but we definitely — going through the experience, I think it exposed some philosophical differences, which could have become an issue if we had stayed together long term. It’s just sort of different ways of approaching things and we decided, “You know, this is kind of a good breaking point for us to go our separate ways.”
We wrapped things up, divided up the assets such as they were and I think I got a filing cabinet and a desk out of the deal. I went back to square one. Pretty soon thereafter, I was talking with one of those friends of mine who was going to invest with us, I said to him, “Hey look, I think I might have to go back to practicing law at this point.” He said, “No, no, don’t be so hasty. Why don’t you and I become partners, you run the business, I’ll just be silent in the background and you can start going and looking for deals.”
That’s what I did, I formed two bridges. I started looking for deals in the southeast instead of in Louisiana and Texas. I had been very attracted to the southeast for a number of reasons but the big ones were that just the demographics were great in terms of population growth and it’s much closer to New York City than Louisiana and Texas.
In terms of being able to manage property at distance, the south east was really attractive. I had been down in Charleston, South Carolina looking to try to establish some relationships down there. I went out, I started asking around — I had a number of friends in the area and just started asking my friends if they had friends who were in commercial real estate, specifically brokers. A number of friends came back to me with some names and people that they knew, not just someone they heard of but folks that were in their network and I started talking with those folks and seeing if anybody was interested in working with me.
And I wound up meeting really great guy named Tyler Flesh who had been — he wasn’t really a broker, he was actually a really multifamily acquisitions guy. Had been in the business for a couple of decades but he was now out in his own, doing some development work and doing some advisory work and consulting work and we connected through mutual friends down in Charleston. And once started two bridges, I signed up Tyler to be my rep down there. So he and I started looking for deals in the beginning of 2013 after I formed the business.
[0:22:45.5] MF: Very cool. Is that where your first property was? Was it down there in Charleston?
[0:22:50.3] JT: Yeah, I’m sorry that this has been such a long round about story about how I got my first deal. So what happened was, we were down there banging our heads, trying to find deals, driving all over South Carolina as a new groove. Even though Tyler had great connections with the brokerage community down there, as a new group and an unproven investor, we sell tough, trying to find deals.
And finally Tyler called in a favor from one of his partners, basically one of these like his partner had a longtime friend, whose daughter was a broker and so we got personal introduction to her, she was out in Greenville, South Carolina which is out in the western part of the state and with the benefit of that personal introduction, we drove out there to meet her and just got lucky, we sat down in her office, we kind of went through what we were looking for.
She said, “Well look, I just got this deal that came in the door yesterday. Nobody has seen it yet, why don’t you guys go take a look.” So we drove out, see the property, it was 102 units, 1970’s product and the minute we drove in we both knew that this was a good property. Tyler obviously had years of experience looking at this stuff and I know from my experience in Louisiana, this property just looked a whole lot better than the stuff that I had been seeing before.
So I came back to New York, we looked at the numbers, made an offer and fortunately the broker was able to convince the seller to take our offer and not put it on the market and we were in business.
[0:24:25.1] MF: Nice. How did you finance that? Was that a mix of bank and private financing like you tried to do on the first ones?
[0:24:31.9] JT: Yeah, we had, you know the two investors who were originally with me was still with me, we had the equity lined up for the deal. This time we did CMBS debt because we weren’t qualified to do agency debt yet so we just hadn’t been in business long enough. We did CMBS and we were able to take it down that way.
[0:24:52.1] MF: Very cool, and for those of us who don’t know what is CMBS debt?
[0:24:55.1] JT: So CMBS is commercial mortgage backed securities. If you remember back in the financial place is what got us in so much trouble was that regular MBS debt, the mortgage backed securities were packaging a bad mortgages together to try to make them into good securities and that’s how the world blew up.
This is commercial mortgage back securities which means that what they do is they take your mortgage, they package it up with a bunch of other mortgages and then they sell the package to investors who are looking for — it’s usually pretty low return but a very stable, steady, and secure security. It’s mostly banks that they don’t add stuff.
[0:25:35.3] MF: Right.
[0:25:35.9] JT: Best result you get, there’s a lot of hoops you have to jump through but you can get very good interest rates and you can lock in long term fixed rate interest that’s why they’re attractive.
[0:25:46.1] MF: Very cool, nice. So you have your first property under your belt, how long did it take you to buy the second one. ‘Cause obviously you’re up over 400 now, it happened pretty quickly I assume.
[0:25:57.1] JT: Yeah, once we got that first deal. Here we are talking like two years burned in the first partnership, almost another year burned looking for deals after I started two bridges, just trying to break in to this area. After that, things started happening much faster. Once you close a deal in this area, then you get established, everybody finds out who you are.
The brokers all find out who you are and obviously the brokers that you’ve closed the deal with, trust you and want to work with you more. So the same broker started bringing us more deals right away. The second deal we bought was also in the upstate in South Carolina. It was a deal that the brokers called me up one day and said, “Look, we’ve got this, it’s off market, it’s only going to get shown through a couple of people if you want to make an offer on it, you got to make an offer on it.” It was crazy, I had like a day or something.
I couldn’t possibly get down there, so I wound up actually getting on the phone with my management company, we all got together on Google street view and we looked at the Google street view and put together an offer based on the numbers that we had and what we saw in Google street view. We were fortunate enough to have the best offer on that deal and we were able to take that one down too.
[0:27:15.8] MF: Nice, that’s a little stressful.
[0:27:18.9] JT: Yeah, it was a little stressful and the funny thing was that when we looked at the deal, I think that the Google Street view photos were out of date. The property looked a lot rougher than it was. So we wound up building all of this cap X into the deal that might not have done otherwise. As it turns out with that cap X, we were really able to do a nice job, kind of just upgrading the property a little bit and that property’s been just a spectacular performer for us. So just really happy with it.
The funny thing is at the time, I was just ready to lose it because I thought we were over paying for the property and I just was really anxious about it, I didn’t know if we were going to be able to make the preferred return and the whole thing just, I was so nervous about it and it turned out to be just this spectacular property which has beat our underwriting…
[0:28:06.5] MF: That’s awesome.
[0:28:07.1] JT: …more than we can imagine.
[0:28:09.8] MF: That’s awesome. Google street view has helped you get a better deal because it’s in condition.
[0:28:15.2] JT: In a way, yeah.
[0:28:18.3] MF: Have you continued to buy in South Carolina, are you branching out a little bit into other areas of the country?
[0:28:24.8] JT: We’ve continued to buy in that same market. We really like the upstate market in South Carolina, it’s the manufacturing belt. It lies right between Charlotte and Atlanta so there’s a lot going on there these days, there’s an inland port that opened 2013. There’s a lot of manufacturing moving in there.
There’s an enormous BMW plan right there and that’s caused a lot of suppliers to move into the area. So it’s a market that will really bullish on for the long term. We will continue to buy there but we do definitely plan on expanding outward from there throughout the south east, that’s really where our expertise lies, that’s our bread and butter that area. So yeah, the answer is yes, we’ll continue to buy there.
[0:29:12.3] MF: Very cool. I have rental properties in Colorado and have always invested here but I’m looking to buy in Florida myself because our market has just gone bonkers price wise. It just seems like, if there’s such a different market place down there with, and like you said, population growth is huge and prices are low and so it’s very interesting to me.
[0:29:34.4] JT: Yeah, the south east is — obviously there’s been a certain amount of price inflation over the last few years as you had everywhere else. But it just hasn’t been the same as you see in the major markets and that’s what’s kept it attractive to us.
But even if you look at say Charleston, Charleston’s has had a lot of the price inflation that you see elsewhere. We try to avoid that by investing — we stay away from the really hot markets because we’re looking for more value.
[0:30:06.3] MF: Right, that makes complete sense to me. Are you looking to buy more and more right now or what’s your main focus right now with your company?
[0:30:15.9] JT: Right now my main focus is we’re going to push to really increase our investor base. So we take a little bit of a step back from actively pursuing deals and really spending more time on getting to know the investment community and telling them what we’re capable of doing with the view towards raising a fund, to continue to do more of this. We’ve proved out our concept of what these properties in the south east could do.
As I said before, the demographic story is pretty compelling and unique, certainly compared to the more traditionally sort of — the markets where investors have typically gone up until now, which has been your big six gateway cities. But I think that we can make a compelling case that if you’re really looking for, certainly for cash flow and long term upside because of the population growth then markets like the south is the really the place to be.
So that’s our thesis for the fund that we’re trying to raise and we’re out now talking to investors about participating in that.
[0:31:21.1] MF: Very cool. So are you looking for big investors or any investors, was that process look like?
[0:31:28.0] JT: We’re really talking to larger institutional investors at the moment. So that’ kind of where the focus is.
[0:31:35.5] MF: Okay, that makes sense. So you’ve had quite a story. It did not just come easy to you to get over 400 units that’s for sure.
[0:31:45.7] JT: Yeah, go ahead I’m sorry.
[0:31:46.7] MF: I was just going to say, there’s a lot of people who want to get in to multifamily investing and buy big properties like this. I mean do you have any advice for them, what they can expect going through this process? Obviously it’s not a fast process to get started.
[0:32:01.8] JT: This is not a fast process at all and I would actually say, “Don’t try to do what I’ve done.” The reason I did it this way is because I actually didn’t know any better. Sometimes that can help you. Your ambitions might get set higher by default if that’s all you know and that’s kind of what happened to me because of my first partner. This is just the kind of property that she was going after because it was what she already owned with her husband and that’s kind of where her mind was.
I had really thought at the time when I started out that I was going to be looking for duplexes and quads and stuff and build up from there. So I leap frogged over that process just because I connected with my first partner and that’s what she was doing. But I think it’s, to be honest, very tough to pull this off, there are other people who do it and I’m not saying, if you’ve got the ambition, got the money lined up that you shouldn’t. But raising a couple of million dollars for a deal is not an easy thing to do, especially if you have no track record.
And if I had to do it all over again, I would really look to smaller deals. Maybe the deals that’s sort of the 10 to 20 size to get started, you definitely run into issues if you don’t have the requisite net worth to pull off the big deals because you’ll need to have, in combination with your partners, you need to have the net worth equal to the size of the loan that you’re trying to get. If you don’t have that, then you got to get people to cosign with you and you’ve got to give away part of the deal. Sometimes it’s a big part of the deal and you just kind of dilute your own upside by doing that.
So really if I had to do it all over again, I would try to stay within what my own net worth could support or maybe one other partner and then you’re talking about much smaller capital raises, they’re easier to do with friends and family and you can get that track record that you need to them then build bigger. I mean this is definitely a business where the patient application of effort over time will repay you.
But you got to really be patient and you have to be prepared for it to take a long time, not just to find deals but also for your track record to accumulate to the point where you can get investors. So I was fortunate in that I had people who I’d known for a very long time who had the means to invest with me and get me started. I know not everybody has that and I wouldn’t want anybody to take that as the only way to get into this business. There are lots of ways to get into this business, and starting smaller is a great way to do it.
[0:34:45.0] MF: Yeah, you said something earlier too that I’ve heard from Michael Blank and some other multifamily investors who I’ve interviewed and that some of these brokers won’t take you serious if you’ve never done a deal as well. So I imagine if you’ve done a smaller deal, maybe not a huge deal but a 10, 20 unit then they’re like, “Okay well at least I know you’ve bought something you’re not just a tire kicker trying to buy these properties with no money,” and I imagine that helps a lot too.
[0:35:10.6] JT: Absolutely. I mean this was what we were running up against in both of my partnerships when they first started which is that nobody knew who we were and we hadn’t closed a deal before and it is very difficult to get brokers to pay attention to if you haven’t done deals before. So you’ve got to kind of figure out the place in the market where you can break through that. You may be able to do that with some smaller deals.
Certainly if they’re smaller, multifamily deals that are still considered residential where you could potentially live in them yourself, you can always pretend that you’re going to live there and brokers will deal with you as a homeowner buyer. But yeah, absolutely getting a deal done for the purposes of getting the brokers to take you seriously. It’s not just the brokers either, it’s the lenders, and nobody wants to be on your first deal.
[0:36:01.5] MF: Right.
[0:36:03.5] JT: You got to figure out a way to get those deals done and smaller maybe the way to do it.
[0:36:08.9] MF: That’s great. I know you’ve got to run here pretty soon. I think those are all the questions I had for you. I really learned a lot. If someone has any questions for you or they’re interested in your company, what’s the best way to reach out to you or to find out more about you?
[0:36:22.9] JT: I have been blogging, my own real estate blog where you can hear a lot of this stories or read a lot of this stories. Read my advice about how to break into the business and what you do once you break in. That is called Themortarblog.com and it just happens we were talking about getting brokers to take it seriously, right now I have a free give away on my website which is a guide to getting brokers to take you seriously.
So if anybody wants to go and download that, that’s free, it just contains some of my advice and experience over how to present yourself in the best light to get brokers to take you seriously even if you’ve never done a deal before. Feel free to go download that.
[0:37:10.4] MF: That’s funny and we did not talk about that beforehand, that was pure coincidence, so that’s funny.
[0:37:15.7] JT: Yeah, thank you for letting me do a shameless plug.
[0:37:17.5] MF: Right, no problem.
[0:37:18.8] JT: Yeah, that’s the way you can find me, it’s the Mortar Blog yeah.
[0:37:21.9] MF: Okay great. Well Jonathan, thank you so much for being on the show, you’ve had a very interesting journey that took a little while to get there but it sounds like things are going great for you now. And I imagine you’re much happier now than being a lawyer as well.
[0:37:34.9] JT: Yeah, absolutely. I mean I’ll be perfectly honest and say that I still haven’t replaced my salary from my law days, but I am a hundred times happier than I was in those days. So I get up, I look forward to — Sunday night, I’m ready to go to work on Monday morning, I’m rearing to go every day and it’s terrific. I get to talk to great people like you which is the best part about it.
[0:37:55.5] MF: It’s an awesome business to be in and I know what you mean about looking forward to work. It’s not a grind, it’s a lot of fun. Well Jonathan, thank you so much for being on, good luck to you and yeah, please keep in touch.
[0:38:07.3] JT: I will do, absolutely. Thank you so much for having me on, this has been a great — I’ve had a great time talking.
[0:38:11.4] MF: Great to hear. All right, well we’ll talk to you soon.
[0:38:15.0] JT: Thank you so much Mark.