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Global Investors Podcast
GI51: From Fix & Flips to Over $200 Million in Multifamily Real Estate with Jacob Blackett
June 10, 2020
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Jacob began his real estate career in 2010 as a sophomore at the University of Nevada, Reno, when he bought and sold his first two residential “fix and flip” properties in Southern California. Since he made the move to the Midwest in 2012, he has deployed over $50 million into income-producing real estate.

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Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast. I’m your host Charles Carillo. Today we have Jacob Blackett. Jacob began his real estate career in 2010 as a sophomore in college and lost $70,000 in this first two flips. He later moved from California, the Midwest, and went on to perfect his fix and flip business and began to purchase income-producing real estate. He founded Holdfolio, a real estate investing platform, and completed 18 syndications across over 1100 units. So thank you so much for being on the show, Jacob.

Jacob:
Yeah. Thanks a lot. Charles hearing, hearing that come from your mouth, my first experience with fix and flip real estate is just it was a tough one to overcome, but luckily stuck with it and have no regrets.

Charles:
So how did you explain how you got involved in real estate investing?

Jacob:
So I was, it was back in college, so this was 2009. I was a freshman in college studying finance and entrepreneurship. And I saw an infomercial late one night about fix and flips. I’m making millions flipping homes and it was, it was a fix and flip guru doing education, and they were offering a free seminar and I called in and registered for the free senators. I think it was like the next night. And so in the meantime, I had taken a look at my course offerings and realized there was no real estate, anything, in the course offerings. And so, so that intrigued me to learn why, I didn’t know anyone who made money in real estate. Not, not even growing up, no one in my family did. I didn’t even have an agent that I knew. And so it was just completely new territory for me. So I went to that seminar of course for the most part, it was just enough to get you interested and intrigued and then sell you the weekend. And then, so I put that on a credit card. I think it was nine 95 and started learning about fix and flips and, and jumped right in. And so, like you mentioned, first two deals, basically what happened is I was put in this environment of a seminar and learning a lot, a lot of good things, definitely. But at the end of the day, I had kind of some false confidence in terms of just because you do a construction budget and you say you’re going to spend 30 grand. And just because the realtor says, Hey, if, if you do that renovation, it’ll be worth 250 grand from the, from the outside, just because you put this spreadsheet together and, and do 70% ARV and, and figure out how much money you’re going to make doesn’t mean it’ll happen. So there’s still a lot of risk in that. So I learned in that firsthand construction crew issues, budget, overruns I was paying hard money interests. And then when it came time to list the properties for sale, they weren’t selling for what the realtor had promised upfront. And so it was just all these different factors working against me. And so, yeah, I think I kind of buttoned-down the hat, buckle, buckle down. The hatches learned some more. I, that money I lost was my grandma’s 70 grand. And so I, when I graduated, I wanted to figure out a way to pay her back soon. And so I could go get, basically get my CPA and go chase up a financial kind of institution, ladder, make good money and eventually pay it back. Or I knew that people were making money in real estate. And I knew it could be profitable in the short term. And so I doubled down and I was able to pay her back within 12 months after graduating.

Charles:
Wow, awesome. So what was the deciding factor to transition you into income-producing property from the fix and flip that you were doing?

Jacob:
That’s a good question. It came down to a transactional business, right? So I had got my fix and flip-up operation and wholesaling properties up to a place where I was doing five to 15 deals a month. And what I realized is that I was making a lot of good money, number one, which was my initial onset goal. But it was also very transactional. It was always what’s next. So after, after every purchase and after every sale, it was always a question of what’s next. And so I kind of was looking at and started holding some properties in my own personal portfolio and realize that the beauty of putting that upfront work in, and then getting that recurring monthly income stream from the rental. And so that’s where I just envisioned a big portfolio. That would be, that would be paying out six or more of a recurring net income. And I thought, what could possibly be better?

Charles:
Yeah, no, that’s for sure. There’s a, I mean, there’s ways of scaling those transactional businesses, but it’s so much easier to scale a rental portfolio. Just because obviously the main thing is that there’s passive income. There it’s much easier to scale. I feel a passive income-generating business versus a transactional business, and you’re not waking up every Monday and figuring out what, what’s going on this week and how am I making money. So,

Jacob:
Yeah. Yeah. You know, the additional risk of making 30 grand on that flip, every flip you do, it’s not, you don’t have those profit margins in the bag. Some come out, some come out thin, some come out healthy, but you rent the property for a thousand dollars. You sign a lease 12 month lease next month, a thousand dollars is coming in, you know? And so there’s more certainty.

Charles:
Yeah, for sure. It’s, it’s, it’s a much more predictable cash flow stream versus a fix and flip where you have no idea. I mean, if people are holding flips before this recent crisis, COVID, which we’ll talk about more later, but I mean, who knows where they are now at that property, I guarantee you, they’re not getting what they’re ARV after repair value was that the realtor told them beforehand, but tell us about Holdfolio. So how do you work with investors through that platform that you started?

Jacob:
So what happened is I started holding rental properties, myself, building up my own portfolio, realized that there were a lot of people looking to purchase rental properties and realized that if I had, if I just created partnerships with these people looking to invest in and purchase rental properties, then together we could build economies of scale. We could have bigger holdings. And so hold folio set out to create partnerships to profit from income-producing real estate. So it was focused on buying holds. We initially focused on single-family homes. And so we, I would go out and purchase 10 single-family homes and then basically sell 70% ownership in them to recoup my capital. And then, so I would keep 30% ownership. Investors would have 70% ownership. I would do everything from a management perspective and send quarterly dividends. And that was the business model. And so that eventually once I got about 150 single family holds I realized that it was, it was a bit crazy running around town to whole these different single-family homes. It was profitable. We still own some single-family homes that were, that we’d been transitioning and getting rid of. But once I started, once I got my ear turned towards multifamily and started learning about multifamily kind of bigger apartment complexes really realized that for our mission, in terms of investing in income, producing real estate multifamily, what was going to be a good, good option for us.

Charles:
Yeah, for sure. I mean, that’s a quite the business set to manage where it’s great that you have that kind of syndicator setup where you have the 70, 30, which I kind of see how you transition that to multifamily, but it must be easier when you’re switching to larger multifamily versus coming back from driving around your whole area. They’re managing every property, a hundred different properties that are different roofs under different insurance policies, all that.

Jacob:
Yeah. I describe it as a breath of fresh air when we purchased our first large apartment complex.

Charles:
So what is your main role at Holdfolio? Are you are sourcing deals, are you underwriting? Are you doing, are you doing everything or,

Jacob:
Yeah. So really I’m at the end of the day, I’m responsible for making sure we have profitable business model going forward. I do a lot of asset management. I have a partner Vanessa who oversees all of the operations, so she focuses more on the property management aspect of it. And so I’m really looking for new opportunities in the form of acquisitions, making sure our current holdings are performing from an asset management perspective and keeping relationships with our investors.

Charles:
And what is your criteria for purchasing properties? I know you guys are over, I think six States now, is that correct?

Jacob:
Yeah. We’re in Indiana, Ohio, Kentucky, Texas, Florida, and South Carolina. Yeah. So six. And so we started in Indianapolis and we just kind of moved out from there within a three-hour drive. And then we’ve also got into some different markets. Really our focus is the Midwest and Southeast. And so when it comes to criteria for properties, we’re looking at those in those areas. It includes the Texas market. We like Apres with at least 80 units to really ensure the scale at that property level to afford onsite management and maintenance team. And then we like value add components central AC. So we had, we had owned some properties in the past that didn’t have central AC and we found that it was a bit of a limiting factor for us as we kind of push the value in terms of the tenant class that we could attract. We liked blue-collar or better. So we have a pretty wide range in terms of some, some kind of C class blue-collar assets, older vintage to all the way it’s to a class newer built in our portfolio low crime, right. A big, big determiner on the criteria. And then from a macroeconomic standpoint, every, every market that we’re in, every city Metro that we invest in, we look for some key drivers. So job growth, population growth and unemployment rate that is at, or below national rate and then a diverse economy. So, you know, what’s, what’s behind that economy is something that happened that I was going to impact a huge part of our tenant base. So having those diversity component to,

Charles:
Yeah, the 15 or 20% max in one business or in one industry, something like that is kind of that perfect, that perfect limit so that you kind of spread out your tenant base over different, especially what’s happening right now. So, but so how does your deal flow come? Is it, is it mainly all through brokers? Are you guys doing any direct? I mean, obviously you came from wholesale and so you did a lot direct to owner stuff, but currently right now, are you guys doing a lot of brokers relationships?

Jacob:
Yeah. So what we did is actually transitioned for the most part, our single family home acquisition model to multifamily. And so I think historically multifamily acquisitions are very broker driven. And I think more recently, newer you’re getting more deals or the ability to create deals with the owner directly. And so we do everything from, from mailers. We do a lot of cold calling, so we’ll get the owner details and, and just do cold calls and procure relationships. One of our seven apartment complexes that we own came from a broker relationship. So six of those seven were direct owner and that’s, that’s a lot of work and it takes time from the first time we contact an owner. It may be, it may be one of our most recent deals, It was over two years before we actually purchased that property. But when we first contacted them, they weren’t interested in selling. We asked their permission to follow up every other month. Just, it could be as simple as you answering the phone saying, Hey, still not interested in me saying, thanks have a good day. But we kept that, kept that in touch. And then eventually they on one of the causes, I think, you know, what, what would you pay? And so it out, okay.

Charles:
Yeah. I know that game. We’re doing direct mailing to a 13 counties in Florida and you’ll call people and you want to buy like their 30 unit building. Like, no, no, no, but I’m selling this duplex. And I’m like, well, I don’t want this duplex. I’ll call you. Can I call you back in 60 days? What, I mean, it’s the same thing where you’re just in the CRM, just like putting them in and doing that followup. But I mean, that’s where evolve. That’s where you’re getting a lot of people that have just started, or that haven’t been around for a while. They’d probably stop after just sending out the mail or they might not even pick up their phone. And it’s really the money’s in that followup. And that’s really, I mean, pretty much anything with sales, but I mean, anywhere down the road, when you’re six months plus, and you’re in there, you pretty much, even if you’re talking to them for 30 seconds, you already have a relationship with them, even if it’s two minutes, every two months. So it’s interesting how that works. They’ll probably call you back first or drop your text or email saying, you know, if you had something even that’s not there, right. Like I have a different property. We didn’t talk about, I want to sell that. So,

Jacob:
Absolutely.

Charles:
What are some of the red flags you see when you’re underwriting something that sticks out? Something that you don’t like or something that you have to dig into deeper?

Jacob:
Yeah, so we have a due diligence checklist. I think anyone purchasing multifamily assets has a checklist, right? So there’s a ton of things, but I think what comes to mind is when you’re getting different answers from the onsite staff versus the management versus the owner. So basically any opportunity that we have as we’re underwriting a property, if owner tells us the one-bedroom, the S the one bedrooms onsite are currently marketed for five 95, we’re gonna, we’re gonna corroborate that as much as possible. See what it’s actually marketing for. See what asked the onsite leasing. If you know, anything in terms of, if we ask the owner, is there any, is there any recurring, deferred maintenance that you’re having to deal with, like sewer backups or, or leaks or something? And they say, Oh, no, everything’s fine. So, right. So we’re going to ask the property manager, is it, is there any like recurring issues and Rick, this question, then we’re going to ask the maintenance person the same question. We’re going to ask the tenants the same question. And so red flags would be if, if things are coming out of, you know, differently Lease is not matching the rent roll. So doing a good lease audit, we had one property where it was all over the board in terms of what the rent roll said versus what the lease has said. And we actually had to, we actually had to hold up the transaction and do a full lease audit.

Charles:
Can you, and can you explain what the lease audit is? Sorry.

Jacob:
Yeah. So when you’re going under contract and you’re in your due diligence stage, you should be requesting all copies of all the leases. So we have someone sit down and look at those leases and the terms, mostly this, this is going to be start date and date security, deposit rent. Other charges is the attendance or anything else. So we’re gonna, we’re gonna dissect all the leases and what they say, and then we’re going to compare it to the rent, roll that the, that the owner’s giving us. And so it’s common for something to be out of place here and there, but when you really start seeing a lot of discrepancies that’s a huge red flag. And so what we did is actually had on that, on that transaction, we had every single tenant resign their lease and certify their terms. So I think outside of that, you’ll add during due diligence, you’ll see some things that a high turnover is a red flag. It could be due to poor management or, or just poor poor conditions. But it could also be because of the area or because of something you can’t fix, like parking, right? So if, if tenants are just getting fed up because they can’t find a parking spot that’s, that’s a serious red flag consideration that anytime you can’t control factor is, is it’s pretty serious. So,

Charles:
Yeah, that’s, and that’s definitely a recurring theme on older properties. Especially properties built as being in Florida. I mean, properties, we look at considered Florida old, you know, 60 seventies when there was, these were second homes or these were single automobile homes, properties, all units, and now it’s, you’ve got to, you can’t fit two cars in it. So it’s like they have to figure out all these different ways of trying to manage that plus visit, you know, residents plus visitors plus, and it’s one, one surefire way of making your tenants mad is not having art easily, you know, so, Right. So what is your other companies syndication pro and a, is that focused towards general partners or, you know, on operators, or is it more focused toward limited partners as well?

Jacob:
So syndication pros, a technology company what I’ve always done withhold a folio, starting back in 2013, 2014 is always looking for ways to leverage technology, to create automation, save time, and create a better experience for my investors and for my team as I raise money and manage investors. So syndication pro came out and was born from my experience as a syndicating many deals. And it gives my colleagues and other sponsors the ability to manage their investors their investment process online and really their syndication business online. So it’s everything from when a leader prospect might register with you, interested in investing giving them a clean dashboard institutional feel to actually placing investments. And then getting distributions updates, everything. There’s a lot of automated emails that go through that maxi nail capabilities, but basically it’s a suite for anyone who raises money to just take advantage of what technology we have today in terms of automating, saving time and delivering a better experience to investors.

Charles:
So, so taking that a step further, I know you guys are managing over a thousand units. What other systems software do you guys have in place to make that streamline?

Jacob:
We take a pretty hands-on approach. So we actually manage our properties directly, fully vertically integrated. So the backbone of that is going to be property management, right. And within that property management company, we have systems in place through close.io from a leasing perspective. So any, any units that we have available, all of our prospects are going through close.io. They have some really good systems in terms of followups and calls, and really automating that whole experience from a tenant prospect perspective. So, that kind of gets built in our leasing agents use closed at IO to manage those prospects. And, I think that gives us a pretty good competitive advantage from that perspective. We use Zapier for a lot of automation. It’s, it’s a great in-between and, and really, it’s amazing for getting things, anything from, if you receive a certain email, put these details into a spreadsheet, or if you have a, if you have a new prospect, then add them to close.io, or if you know, all these different things that just automate systems and daily practices.

Charles:
Yeah. There are definitely time, time-saving methods that really take your whole process and really streamline it. But so what, like, with your, with your online, what do you guys use for your online rental management? Is that, that closed.io or is that a different platform?

Jacob:
We’ve used property management or our site we’ve used property where far property management. And so we’ve used them since 2012 and they’ve done a good job. It’s pretty, pretty robust. It does take a while to learn all the ins and outs. But we’ve been really happy with it.

Charles:
So how are you guys just changing to the question that probably everybody’s going through right now at this point, us filming this in April is how’s your for, from dealing with COVID and you know, I imagine we don’t really know the extent of what’s going to happen, but so far halfway through.

Jacob:
Yeah. Well, what we could possibly do is I have a Google document that our operations manager put together within this document, it talks about all of our personnel management changes things like property and amenity changes, resident management combating the potential decrease in collections and drop in occupancies. And then I also have in this document, all of my communications with my investors. So from March 17th, when things were getting pretty crazy, the initial email out, and then, and then kind of general followups in regards to that. So potentially we could put the link to this document. So it’s available for your listeners. But from a high level, it’s making sure that residents and staff are safe. So we very early on got some mass, lots of cleaning agents. We upped dart, we closed down some of the common area amenities where lots of traffic are. We increased our sanitization. So where maybe we’re in through the common areas once a week, or now in, through with three or four times a week, as much as possible. We went a hundred percent virtual on, on leasing. So we got our leasing agents out into the units. We did video walkthroughs. So you have kind of these virtual walkthroughs that are like 3d and, and you can kind of walk through them, but we actually put a person in the video and walks through and talk about the unit and the area. And then, so, you know, lots of changes and, and like I said, and happy to make all that available.

Charles:
Yeah. Those seem like going to virtual is really what everything’s going now, not just for rentals, but for anything sales and for any kind of, any part of the whole rental sales process, their thing too, is like what you’re saying about the cleaning. That’s something that we’ve implemented to going through elevators mainly, and all these different Gates stores twice a day. They’re going through and just doing that. And then I’ve obviously more thorough, weekly cleanings are now coming to be daily almost now. So yeah, I mean, it’s something that has to be done to keep, like you said, the residents and the staff safe, but so what do you think are some of the main factors that contribute to your success as a real estate investor?

Jacob:
Oh, man. It’s, I always struggle with self-reflection sometimes, you know, like people say, what are your strengths and what are your weaknesses? Oh man, I don’t know. But I would say in all reality, I think every time I’m faced with a challenge I, I stay persistent. And so don’t back down easily. When there’s problems stay solution focused rather than, rather than getting kind of wound up in the actual problem and what’s wrong and what the issue is kind of definitely understand what’s going on, but really you should be thinking what the solution is. So I think that’s really helped, especially owning properties and, and, and doing raises and, and everything across the board. Always, always staying solution based on the thinking. And then just across the board, I’ve always been pretty fanatic about figuring out ways to automate and leverage technology, to create systems that that if we could take, if we could take and spend five hours instead of 20 hours on this same thing. So like literally any time I do something more than once that’s a trigger that should be a trigger. Should I be doing this the same way? Right. And so I think that’s important to always contemplate how do I have these things that I keep doing? I keep coming onto my plate. How do I make them better? How do I save time? How do I automate potentially?

Charles:
Yeah. That’s definitely the mindset you want to have when you’re, when you’re scaling a business what come mistakes do you see new investors make when you speak to them?

Jacob:
So I think I can relate to this. So as a new investor, back in 2009 and I think as I talk to new investors and I think people potentially don’t get other experienced operators or investors involved as much as they should. So to give you an example, if for those first couple of fix and flips, if I had identified someone who was doing fix and flips and actively, and instead of just going out and purchasing these two deals by myself and just kind of owning it and doing it, if I had instead figured out a way that maybe I could bring the deal to this individual, and maybe I could put some money in the deal, maybe there’s something I all set could do help with the construction manager with basically just leverage people who are doing what you want to do and who are successful at doing what you want to do to, to offset your risk of doing it. And so if it means making less money on your first few deals, who cares because you’ll learn an exponential amount, more, you’ll offset your risk of making mistakes. And so I think that’s really powerful.

Charles:
Yeah, that’s great. You know, harnessing the power or the experience of other people so that it brings you along and it’s not only making money on what you’re bringing in, what you’re doing, but also you’re learning it from literally from the inside. And you have that kind of downside risk stop because you’re working with someone that’s already done what we’re trying to do in this situation. So that’s, that’s great, I haven’t heard that before. That’s an awesome, that’s an awesome fact. So how can people learn more about you Jacob and your business?

Jacob:
So both of my businesses are online. Holdfolio.com/syndicationpro.com/. And if anyone wants to get in touch with me, you can email me directly. So on those sites, my emails are on them, but [email protected] or at syndicationpro.com just reach out personally, I’m more than happy to you know, take those inquiries.

Charles:
Okay, perfect. Yeah, I’ll put all those links in the show notes, and I want to thank you for being on the show and looking forward to connecting with you in the near future.

Jacob:
Thanks a lot, Charles.

Charles:
Thanks, Jacob.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30-minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Thank you for listening to the Global Investors Podcast. If you’d like to show, be sure to subscribe on iTunes or Google play to get new weekly episodes. For more resources and to receive our newsletter, please visit global investor podcast.com and don’t forget to join us next week for another episode.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of harborside partners incorporated exclusively.

Links and Contact Information Mentioned In The Episode:

About Jacob Blackett

Jacob began his real estate career in 2010 as a sophomore at the University of Nevada, Reno, when he bought and sold his first two residential “fix and flip” properties in Southern California. Since he made the move to the Midwest in 2012, he has deployed over $50 million into income-producing real estate. Jacob founded Holdfolio, a real estate investing platform, on the basis of creating partnerships to profit from income-producing real estate. Holdfolio currently owns and manages 1,136 units across the midwest and southeast United States. Jacob also founded SyndicationPro, a real estate software company that gives sponsors a fully integrated platform to raise capital and manage their investors online. Outside of business, Jacob enjoys staying active, volunteering as a Big Brother, and education as a hobby.

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