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Global Investors Podcast
GI59: Managing CapEx Projects While Scaling Your Real Estate Business with Jorge Abreu
August 5, 2020
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Managing CapEx Projects While Scaling Your Real Estate Business with Jorge Abreu

Jorge Abreu has been investing in Real Estate for over 14 years now. He started in Single-Family and small Multifamily properties. He has wholesaled over 200+ Properties, Fixed & Flipped over 100+ properties, and developed several new construction projects, over $8M in ground up. For the past 3 years, he has been solely focused on large Multifamily properties.

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Transcript:

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 Carrillo. Today we have Jorge Abreu. He has been investing in real estate for 14 years; wholesaling over 200 properties and flipping over 100 properties while developing nearly $10 million in ground up construction. He is a passive investor on over 1,400 doors and an active investor on over 1,700 doors with another 850 under contract. So thank you so much for being on the show today, Jorge.

Jorge:
Thank you for having me Charles.

Charles:
So you’ve been involved in real estate in a number of different parts of it, I should say. And can you expand on your background prior to starting your current business?

Jorge:
Yeah, so you know, this all kind of started when I was going to school university and I’m studying to be an electrical engineer at some point. I realized that I didn’t really want to be an engineer and that I wanted to create a good amount of wealth in my lifetime. So I started reading up and, and looking at the individuals that had been successful as far as wealth creation and a lot of that led back to real estate. So, you know, once I, I saw that that’s when I became passionate about real estate investing, I first started with single family, did a couple of deals, felt confident that I can keep that going. So then I quit. So I guess I missed, you know, AF after I got my degree, I did end up getting a job as an engineer, but once I did a couple deals in real estate, I ended up quitting. My W2 started doing real estate full time really kind of gravitated towards the fix and flips. We did do quite a bit of wholesales at the same time, but to scale the fix and flips, I decided to open a construction company. And then that helped with scaling as far as our capacity, we were doing maybe 40 to 50 flips a year, and I felt pretty tapped at that point. And maybe about three years ago is when I, when I kind of looked back and I looked at everything I created as far as the real estate investing the construction company. And I felt like I still had not gotten that generational type wealth that I wanted to, to start from the beginning. And that’s what kind of led me more towards multifamily. I had some clients on the construction company that were multifamily syndicators and they opened my eyes to that world. You know, the fact that you can syndicate a multifamily acquisition which before I knew that, you know, it, it just was beyond me how someone can buy 200, 300 units. And then that’s when I decided to put all my focus towards multifamily. And that’s what I’ve been doing for the past three years.

Charles:
Nice. Yeah, it’s definitely, that was the biggest issue I had when flipping houses was the, getting the control, the contractors and everything managing that whole portion of it. It was easy to find money. It was easy to like get deal flow coming in, but it was, I mean, the management of that’s why, I mean, if I was going to take that next step, the construction would have to be at, because it was like, that was every time you got a project, then you had to go and find it. And it’s never the same people hundred percent, you know what I mean? So it was like you’re really starting your own business where there’s not really wealth in not really generating wealth, like you are with the multifamily. So

Jorge:
Yeah, it’s very transactional, which is what I was trying to get away from. Yeah.

Charles:
So in the last three years, you guys have skills your business to about 1700 doors. How did you, how have you been able to do that so quickly?

Jorge:
You know, from the start I went into it more of, I was going to build a business and not just, you know, how much can I handle? I had done that in the past and, you know, there’s only so much one individual can do and how far they can go by themselves. So I kind of, I built it as, as a, as a business I put in the, I added pieces as I went along. And that’s really what gave me the we’re about to scale.

Charles:
How is your business currently structured? I know you, you have three other people with you, is that correct? That our partners in your syndication business, how are the different roles handle, the acquisitions asset management and investor management?

Jorge:
Yeah, so we have one, one individual Gianna coach, which focuses mainly on acquisitions. And then we have Carrie who mainly focuses on marketing and raising capital. Then everybody Walla who is more of the operations and the day to day kind of stuff. And then myself, I kind of oversee it all and just make sure we’re going in the right direction. And that’s kind of the way we have it split up right now. You know, we continue to, we added a VA during this whole covert crisis. We to add a VA on there, they’ve taken a lot of the burden of the marketing aspect. And, and yeah, that’s how we have it split right now. What systems do you guys have in place that go along with your team to help you in the scaling process? So we try to automate as much as we can. We try to use you know, software, as far as CRM. Everything we do is through our CRM, whether it’s the acquisition side of things everything’s tracked through our CRM, the raising capital, you know, same thing. Our investor relations is also tracked in there as well as we have a specific investor portal. And then we’re constantly building SOP standard operating procedures for every aspect of the business. You know, that, that takes pretty tedious. But we’ve decided to take the time and do that because, you know, as we continue to scale it’s necessary, do you mind giving us like a couple examples of some of your years SLPs? For sure. So, I mean you know, let’s start from the beginning, you know, acquisitions. So when it comes to our acquisitions, we have a step-by-step of, from the criteria we’re looking for the, the areas we want to be in as far as what do we do next, you know, okay, so we’ve pinpointed this area, we know our criteria. Now we reach out to all the brokers in that area. We take all the data from CoStar and we reach out to all the owners in that area that, that meet that criteria. Then we put them through our CRM, through our followup procedures and we constantly are in front of them. Then, you know, once we find a deal and we, and it goes through our underwriting, you know, what’s next. So everything’s just laid out step by step so that we don’t miss anything.

Charles:
Yeah. So the whole process is documented. How has your underwriting changed with what’s going on now with COVID because you guys have 850 units, which is, which is a huge number of doors under contract now. So however you change your acquisitions adjusted it for this.

Jorge:
Yeah. We pretty much through, through way our performer from before now you know, it’s still difficult to do a performance. Pretty much the stance we’ve taken is if we’re going to be purchasing something right now, there needs, the seller needs to have a reason of why they need to sell a good reason so that we know that we can get the price at a discount. So, you know, we’re looking for, let’s say before, COVID in this, it w properties were selling for 60,000 a unit. Well, you know, now we’re looking for 10 to 20% discount. And that’s, you know, depends on the area. You know, some areas are hit harder than others. I don’t have a true math that we’re using on this quite yet, but then I will tell you that any numbers we’re putting in our performance, we were not using we’re getting exact numbers. We’re not using any rule of thumbs. We’ve, we’ve pretty much thrown those out. And, you know, we’re, we’re getting tax, we’re going to the, the tax experts and getting what the taxes should be insurance, same thing, you know, we’re reaching out to our agent getting a good idea what the insurance should be, et cetera for every line item.

Charles:
Now when you’re going in, you’re checking off all these line items with the new acquisitions. Similar to what I mean when I’m looking at properties now, it’s if we’re reviewing something, I would always keep in the back of my mind, like a pre COVID pricing and then kind of what we’re going to take it for at this price, kind of in seeing what that discount is that you’re taking for. I mean, there is increased risk and uncertainty, which obviously is going to lower the price or should lower the price in most markets. Now, when you’re, when you’re doing all your numbers and you guys have your construction company, is your construction company taking care of all the cap ex expenditures that you’re doing with those properties. So the interior renovations, you know, roofing the whole nine yards, is that all taken care of by you guys in house?

Jorge:
Yes, absolutely. I mean, that’s, I’m using our construction companies. What gives us the confidence of going in and knowing that we’re going to get it done for a certain amount. You know, we’ve been doing this for a long time, same thing. We’ve got a lot of systems in place in that company. So when it comes time for due diligence, you know, I pretty much hand it over to my team. And they get us the estimate down to, to the tee of what it’s going to cost for everything

Charles:
And for properties, you know, with COVID or without COVID, what is your investment strategy, your criteria for new properties that you’re looking at that they have to fit so many different boxes before you’ll even put them into underwriting or review them or something like this, or put them into your CRM, as you say.

Jorge:
Yeah. usually we’re looking at, it’s gotta be a hundred plus units. If it’s a new market, we usually want to try to get closer to 400 units if we can. And if that’s, you know, multiple acquisitions happening at the same time or close to then as far as the actual property, we are looking for pre like, you know, we’ve kind of bumped us up a little bit, but maybe 1995 built our ideal property would be, you know, B class property in a C area would be ideal. But for the most part, we have C properties. Then we take them to C plus once we’re done. Yeah, I’m not sure, you know, there’s a lot more criteria that goes into the note, of course.

Charles:
Yeah. Just like the main, your main things, which you, which you answered and then like the markets cause every, every syndicator has a different rule of thumb that they’re using when looking at a property because they have, you know, the experience in larger or smaller and some markets don’t have such an inventory of larger projects. So you’re like you were saying, putting together a portfolio, sometimes that’s where you’re left to get to a certain unit number. You’re constructing a portfolio kind of, and you guys, you guys took down like 12 or 1300 units in a deal last year. And I imagine was that all, was that imagine there was a portfolio of different properties.

Charles:
Yeah. It was a portfolio with the same seller five different properties. And that was all, was that an on market or off market deal?

Jorge:
It was on market.

Charles:
Wow. Yeah. That’s awesome.

Jorge:
What competition was less.

Charles:
Cause you guys had like a, what was the raise on something like that?

Jorge:
I believe the reason that one was a 20, 22 million.

Charles:
Jeez. Yeah. That’s a, that’s a lot of money to raise and that’s a lot of money to have to be accountable for when during the whole process of the business plan, usually are you guys, these are five to seven years. I would imagine is what you’re usually putting for a, hold on, something like this. I mean, obviously my change now, but pre COVID, is that what your plan was.

Jorge:
Yeah pre-COVID or returns are all based off of five-year performance? You know, now we are changing things a little bit. We are looking a little bit more into two HUD financing which then turns it more into a, not really a 10 year hold. Cause I mean, you can, your prepay starts getting less as you get closer to those 10 years. But yeah,

Charles:
Yeah. It also takes like six months plus doesn’t it to get approved for a HUD loan on some multi-families.

Jorge:
Correct. But I mean, just like me do bridge to agency, you can do a bridge bridge to hood.

Charles:
Okay. Yeah. I’ve heard about that before and we’re looking at it for one property. It’s just every time you look at it, there’s so many more restrictions to it. So you have to make sure, you know, all the investors are on board. Cause it’s only like two, I think it’s two distributions a year you’re allowed to make. So if you’re making quarterly a lot of stuff, you’ve got to cover with your investors before you start. But I mean, the rates are, you can’t beat any of the rates that they have.

Jorge:
No. Yeah. The terms are ridiculous for sure.

Charles:
So what do you, what do you see for the next 24 months in multifamily? Saying COVID with COVID with everything else that’s going on, where do you see you’d be at the end of this year, next year?

Jorge:
Yeah. So a lot of unknowns obviously with COVID, but you know, I’m still pretty bullish on multifamily. I see some opportunities coming, you know I believe there’s going to be some groups that run into issues and need to get rid of some properties. So at the same time, I do see possibly in the two year Mark or getting close to that two year Mark multi-family coming back stronger than it was pre COVID. You know, I do think when everybody kind of looks back at this and they look at how multifamily fared compared to other investments, other real estate sectors they’re gonna realize that multifamily fair really well. And then money’s going to flow more into multifamily than than it was before. So you know, overall I think we’re going to, it’s going to do pretty well.

Charles:
Yeah, no, we haven’t in Florida, we have pretty much a similar unemployment between Texas and Florida where we were in April, which was, I think like in the high twelves and for our units, I mean, where we were in some of them, C, C plus, B minus I mean we were collecting more in Maine and we weren’t April faster earlier in the month, which was crazy cause we had no idea. I mean, like I imagine like most operators or property owners at all that rental, you know, idea, we didn’t ever thought it was gonna be fair this well. So it’s just kind of, it’s, it’s kind of a main appeal pay their rent. That’s what we totally always add into the business. So for sure. So yeah. Sorry, what were you saying?

Jorge:
No, go ahead. Go ahead.

Charles:
No, I just like to know, I mean, so we met before the conference, we met several times before to conferences and you talked to a lot of new investors and I always like to see from seasoned investors, what they see are common mistakes that new or even existing investors make that you might see over and over again.

Jorge:
You know, I see, I see them paying too much or maybe not so much right now, but at least before COVID-19 I did see investors, what I, what I thought was paying too much for a property. I not enough being done during due diligence. And maybe some of that happens, both of those things, you know, not enough they’re done during due diligence and, and paying too much because they get kind of antsy to get that first deal. And you know, I think it’s very important to, to not do that obviously, but I guess make sure you don’t need the money, I guess is what I’m trying to say. You know, if you’re going to go into this because you don’t want money to pressure you to make a bad decision and then that bad decision needs to, you’re not getting the returns that you said you were going to get to your investors and that’s just somewhere you don’t want to be, you know, that spiral. And then under, under capitalizing the deal, you know, make sure that kind of goes back to probably due diligence and you know, there’s other things that you want to make sure you take into account. You’re gonna want to make sure you have a healthy operating account. So make sure you raise enough on the front end.

Charles:
Yeah. I think the reserves are a main thing that people always miss and when I’m ever talking or someone messaged me or emails me about a deal and they’re trying to get in the down payment as every last penny. And I mean, that’s where you’re turn the problems because something’s going to happen. It always does. Doesn’t matter how large the property is. There’s gonna be something that you’ll need those reserves for, you know, too many HVACs goes out, something happens here, something there’s a flood. So it’s just, that’s one thing that I see as well as the reserves. So I totally agree with you on that. The, the other thing too, is that when for, for your, for your success, what do you think are the main factors that have contributed to your success as growing your business so fast? And then also in the construction and also in the syndication part?

Jorge:
So I think one is, and this probably goes for starting any business, but being resilient and just never quitting. You know, I’ve been through a bunch of roller coasters with all my businesses and a lot of people quit right before they’re there, you know, and it’s, it’s it’s sad, but it happens. So, and then the other, the other thing is focusing, you know, there there’s a lot of noise out there. There’s a lot of opportunities that get brought to me on, sorry, I got Alexa coming on, but you know, a lot of opportunities thrown my way. Oh wow. Cause I said the name, so that’s a first. Unplug. It went off feels so focus, you know, focus, conquer that one thing that you want to conquer once you’ve got good systems in place, once you’ve got it running, then focus a little more time somewhere else, if you want to you, I’m not opposed to having different streams of income, you know, that’s, that’s definitely a good thing, but don’t try to do it all at the same time.

Charles:
Yeah. I agree too. And then also with how your business is run, which is a great, a great example that they’re complimentary. So it’s something where building your construction business helps your syndication business and then vice versa. And then the other thing too, is like you were saying, mistakes, people make where they’re, it’s great telling someone that you’re a full time syndicator, but then that passive investor likes that you’re full time in it. But it’s also another, I think red flag in the sense, if you don’t have another income stream because you know, you don’t want, you don’t want to be investing with someone that’s just trying to generate fees. And obviously for syndicators, the fees are generated, purchasing, selling it or refinancing it and there’s money made during the process. But that’s when that, you know, that’s when that money’s made. So it’s a good chunk of it’s made. So it’s something where you kind of want to make sure that the person you’re investing with has, is dead set on this. And when I see groups that are taking down lots of deals, that’s great. When I see that are a little seasoned ones that are taking down fewer deals then you’re like, wow. I mean, like, you know, you look into the deals more. You’re like, well, they have a different whole different vetting process where, you know, it’s, if they take on a bad deal, it hurts them more than if they took down a good deal. So it’s kind of it’s just a whole different mindset of what you’re dealing, but it’s also all the investors to help whatever it’s comfortable for them. So it’s pretty interesting how it works.

Jorge:
I agree.

Charles:
So Jorge, you have a few different books and how can people learn more about you and your businesses?

Jorge:
Yeah. if you go to our website, which is Elevatecig.com we’ve got a free ebook on there about investing in multifamily and the benefits. And then if they want to send me an email Jorge J O R G E @Elevatecig.com. I can send some, some more free content, you know, I’ve got a due diligence checklist and some other helpful documents and they can also check out the construction website, my construction website JNTConstruct.com.

Charles:
Okay, great. Yeah. So what I’ll do is I’ll put all those links in the bottom, in the podcast notes and then also in the YouTube notes and thanks a lot for being on today, Jorge.

Jorge:
Thank you, Charles. That was great.

Charles:
Yes. Thank you. Talk to you soon.

Jorge:
Alright, bye.

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 Jorge Abreu

Jorge Abreu has been investing in Real Estate for over 14 years now. He started in Single-Family and small Multifamily properties. He has wholesaled over 200+ Properties, Fixed & Flipped over 100+ properties, and developed several new construction projects, over $8M in ground up. For the past 3 years, he has been solely focused on large Multifamily properties. He is currently an Active & Passive Full-Time Multifamily Real Estate Investor. He has 1,720 Doors on the GP side & over 1,400+ doors on the LP side. He currently, has another 850 Doors under contract on the GP side as well. He is the CEO of Elevate Commercial Investment Group. He also owns a construction company, JNT Construction, that focuses on helping Multifamily Investors with their full renovations. He is based out of Dallas & currently owns properties throughout Texas & Oklahoma but open to other areas as well. Strong points are Locating Deals, Due Diligence, Executing CapEx & Raising Equity. His goal is to reach 10,000 doors by the end of 2021 by creating strategic partnerships & implementing the proper systems in place for scalability. He is focused on continuing to grow my network and locate more Co-GP Partners, Passive Investors, and also clients for his construction company. He is always looking forward to adding value and helping others reach their goals.

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