Fast Foundations
Syndication Strikeout: I decided to actively pursue passive income (ironic, right?) in September 2018, when the ADPI Founding Five released the Military Real Estate Investing Academy, Rapid Deploy, and #StartTheSpark programs. As a 2011 minted Robert Kyosaki/Rich Dad Poor Dad truther, I KNEW that this was what I wanted to do, but the call to action was delivered by ADPI. These new offerings were a direct line to the education I was looking for to get moving!
Throughout a 7-week work trip, I plowed through the MREIA. I woke up early to squeeze in a 30-minute course, recap and digest it over lunch, then try to push for a second lesson in the evening – MREIA two-a-days. Would I recommend force-feeding yourself like that? No. Am I glad I did it? ABSOLUTELY!
My situation required MASSIVE action, and this was how I was going to stake my claim to financial freedom. There were books, websites, and other publications that were consumed before the course and all along the way, but ADPI’s MREIA was truly my trigger.
In 2013, I became an accidental landlord in the most cookie-cutter way – I purchased a 3 bedroom 2 bath home in Pensacola, FL with my VA Loan. Then, one of the big bad VA-loan providers that crush unsuspecting servicemembers crushed me with fees. Lesson learned.
My monthly PITI payment was roughly $900, and my two roommates were collectively paying me $800. That $100 cashflow was going towards the monthly utilities, which I kept in my name. I wasn’t making any money while I was living there, but I was stoked about my living expenses being essentially subsidized by my friends. I was hooked! Whenever I moved out about a year later, I placed a third tenant, hired a property management company at 10% per month, raised the rent to $1200, and I was on my way! This property has since appreciated significantly and I’m brainstorming ways to put that added value to work.
After I returned from my work trip, I presented my begrudgingly hesitant wife, Molly, with my findings. At this point, I realized that we learned differently and I would have to build a pitch deck for her! So be it.
I built a presentation with the pros and cons of placing our hard-earned money in a turn-key rental property with a down payment. I showed her the systems and processes that were in place to protect and provide a cash-flowing rental property. Molly was open to the information and understood the concept of cash flow, but in hindsight, I think that was her way of testing my knowledge. She knew I had the knowledge, but she wanted me to be able to present it in the form of a non-hostile argument – a PowerPoint Presentation! I obliged and she gave me the green light to find the right property.
Enter Bridge TurnKey.
After analyzing the listings posted on #StartTheSpark, I found a Bridge Turnkey property that fit our mold. It was a Kansas City 3 bedroom, 1 bath listed for $89,950, with anticipated market rent at $925. No brainer, right? We had the cash for a down payment, so I went with USAA for a rental loan and closed on the Bridge turnkey property in February. Overseas Investment #1 –CHECK.
Multifamily Mayhem
At this point, the gears were spinning fast. I began the Miracle Morning program. I began to meditate and self-reflect. I wanted MORE of this whole cash-flow-through-real-estate-investing thing. My commute podcasts transitioned from Fantasy Football to multifamily real estate information from the professionals. Over the next few months, I realized that single-family homes were a great option for some side-hustle cash flow, but if I wanted to take MASSIVE ACTION, I would have to cut my teeth in the multifamily world. A new challenge, a new target, and a new mission. With combinations of books and free educational programs from Rod Khleif, Michael Blank, David Lindahl, and many other household names (on top of the ADPI
Mastermind group formerly known a Rapid Deploy), my educational foundation was being set. I was bound for my first multifamily acquisition!
There’s a line from one of the ADPI podcasts that has stuck with me: “Education and action are like your left foot and right foot.” You have the walk the path to financial freedom with both feet!
I poured over Facebook groups and LoopNet to find real estate entrepreneurs, brokers, insurance agents, contractors – anyone that had a successful role in someone else’s multifamily experience. I learned that how you’re perceived through your conversation is HIGHLY important, so you have to practice those conversations with knowledgeable individuals.
I certainly wasn’t planning on finding a LoopNet property worth pursuing, but I did. I found an 18-unit property in Kansas City, MO because it was a market in which I was familiar. This property was one of five within a 4-mile radius in historic Northeast Kansas City that was being sold by a Denver-based commercial real estate developer, who also had a property management company. These were essentially turnkey multifamily properties! I reached out to the listing broker (great guy) and opened a dialogue to learn more about the property and the current owner. The broker was extremely responsive and receptive to my interest. I stated up front that this would be my first multifamily acquisition and he was completely open to me
asking him questions along the way. I understand that it’s not typical or very common to develop a mentor-mentee relationship from opposite sides of the negotiating table, but it worked for us!
I targeted their smallest listing – a pair of side by side six-plexes, amounting to a fully occupied 12-unit property for $625K. As soon as I asked about it, the broker said that it was already under contract. Oof. Did I miss that opportunity because I moved too slow? Maybe. I took a few days to research and run the numbers on their 18-unit listing. The broker was very open with providing financial information without me presenting an offer. The numbers looked great! The cash flow and returns were exactly in line with what I hoped to find, so I submitted a Letter of Intent. After one counter, we agreed on a purchase price. I’m doing this! What am I doing?
“Congrats! That’s great news! Are you going to be JVing or syndicating?” was one of the first responses I received and I couldn’t answer it! How had I not thought of my acquisition plan before making an offer?! After some reactive planning, I decided that I would be syndicating this deal and offering an investment opportunity to my passive investor bank, which had not yet been established.
At this point, its early June. I was listening to a Rod Khleif podcast on the way to work and he was interviewing a Syndication Attorney. I liked what I heard and I felt that our goals were in line, so what did I do next? I called the guy that I just heard on the radio. A few days of conversation, a wire transfer later, and BOOM! I have an SEC attorney on retainer! One key position on the syndication team is set! As we started to negotiate on the Purchase and Sale Agreement, I began the hunt for investors.
Susan Lassiter-Lyon’s book was mentioned in an ADPI podcast, so I bought it and read it. I HIGHLY recommend it for anyone interested in raising private money. The concept of having different “buckets” really helped me target potential investors to strike up a conversation.
I used a known template to create my deal package to pitch to potential investors. I started with co-workers, then moved on to family and friends. Living overseas makes finding investors tough, but it’s not impossible! I work with veterans and retirees, and older individuals usually have more money. Easy math, easy target. Then I reached out to my parents but they were expanding their franchise at the time, so there were competing financial interests. They may not be available this time, but they’re interested! I then moved on to my friends, peers, and my parents’ friends and peers! Armed with confidence, baseline knowledge, and a deal package that I was extremely proud of, I received verbal commitments for about $250,000 in private capital! My target raise for the 18-unit acquisition was $350,000, so I was well on my way.
One of the biggest shortfalls of this whole process was going under contract. I was so incredibly happy to be able to tell people “Yep, I’m under contract to purchase an 18-unit property in Kansas City” and see the googly eyes that accompany their responses like “Wow, you’re doing that from overseas?”, or “That’s great! I wish I could do that!”. It felt amazing to be riding the high of a victory, but that high pushed me off course because I didn’t realize how much work was left to do. I wired the Earnest Money Deposit out of my personal account to finalize the contract and start the 30-day Due Diligence process. I combed through the mountain of files, verifying lease agreements and amounts, the Trailing-12 statement, insurance records, and tax records. I was truly getting a good look at the operation of the property and it was exactly what I was hoping to find!
Then I realized: Wait. Who’s going to finance this property? Even if I can raise enough for a 25% down payment, who will give me the rest? One of the hardest things to do as a new multifamily investor is to find a lender that will give you (sole) competitive and realistic terms on long-term financing. Most will require a certain level of experience, some real estate transactions, or a certain value of net wealth corresponding to the loan amount. This is the reality of starting on your own. If
you’re a newbie and want to be the frontman on a deal, expect to have some lenders tell you “No”, or offer terms that don’t make sense for your property’s business model. Unfortunately, I didn’t learn this lesson until WAY late in the game – a week after my Earnest Money Deposit was cleared.
Lending Lessons
In mid-July, the Two-Minute Warning sounded, and I was down by two
possessions. I still didn’t have the capital raised to cover the down payment and closing costs and I still didn’t have lending secured. This was crunch time. I was about 100 times removed from my comfort zone, but this was a challenge that I was accepting. There was still a chance, but time was running out!
I went into the BiggerPockets network and searched for Kansas City-based investors and small banks. Emailing and cold calling out of desperation is humbling and it’s extremely difficult to mask the desperation in your tone. Luckily, I kept my game face on and had great conversations with investors and lenders that presented valid lending options. Touchdown! All I had left to do was recover the onside kick, drive down the field, and kick a field goal!
Enter Hurricane Barry.
In late July, about three weeks from our closing date, Hurricane Barry tumbled over where most of my hometown investors live. One of my biggest “fish” visited one of his currently vacant rental properties to be welcomed by 9” of water in the house…and he didn’t have flood insurance. He was not going to be able to participate, and now I had to raise about $250,000 in less than three weeks.
Over the next week, I reached out to every person in my phone book and
Facebook friends list about this “opportunity”, which was now only a few days away. I scoured for options and resources. I reflected and I prayed. I am NOT one to give up! But, giving up and strategically retreating to regroup are not the same thing.
On July 20th, I contacted my attorney to let him know that I would not be able to execute the Purchase and Sale Agreement. I was unable to raise the capital to close and the contract would be broken. Earnest Money Deposit, gone. Attorney retainer, gone. Money paid for the inspection, gone. That’s why they call it “risk capital”, right? Fortunately, we’re financially stable enough to absorb those losses, but that doesn’t make it an easier pill to swallow.
When one door closes
About a week later, one of my Kansas City investor contacts emailed me and asked, “How’s that deal going?” He wasn’t investing or partnering with me on the acquisition, but he was genuinely interested in my progress. I told him EVERYTHING. We revisited every decision and milestone over the past few months and he helped me to digest and process it. About three days after that, he emailed me with an opportunity: He and his team were under contract to purchase a 37-unit property in Kansas City and he offered me a General Partnership opportunity if I could bring some of my investors on board.
As of the second week in August, I have about $300,000 from my investor network committed to the acquisition of the 37-unit property and have been offered a General Partner position to manage Investor Relations. The other members are a Broker/Agent, a Family Office fund manager, and a very experienced multi-asset manager. I now have a seat at their table because I took action. In spite of sustaining heavy losses, I showed grit and honesty. As a result, I gained an investor network, an experienced team, and mentors that are my partners and educators.
This deal will close in early September and then the next story begins!
Lessons Learned
1. Talk to people. They’ll talk back! If people don’t know you’re hustling in real estate, then they can’t partner with you on deals.
2. Gather information on a property or deal that you believe to be valid, and create a sample deal package. You don’t need to acquire it, but you can use the information you gather to present to potential investors. “If I had an investment opportunity that looked like this, would you be interested in participating?”
3. When you accomplish a goal or check a big box, celebrate! Then come back to reality and get to work on the next goal. Riding that high from personal success is great, but don’t let it keep you from continuing to move forward.
4. You don’t have to be the “front-man” on your first deal. The buzzword is to build a team but realize that joining a team is also an option. Discover what you can contribute and market yourself!
5. If you are your barrier to entry, get out of your own way. Be brave. Be bold. Be humble.
Mitchell Fuselier is currently an Active Duty Navy Supply Officer, stationed in Sicily, Italy, with his wife, two dogs, a cat, and BABY-ON-THE-WAY. His investing career truly began overseas, and it is his mission to create passive income streams over the next 15 years to sustain his love for travel and cultural experience, and permanently move back to Europe!
