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Global Investors Podcast
GI74: Acquiring Over 500 Multifamily Units with Joseph Gozlan
November 18, 2020
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Joseph is a multifamily investments specialist leading group acquisitions of over $30M in real estate and providing asset management services to a portfolio of 505 units and growing.

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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 Carillo. Today we have Joseph Gozlan. Joseph is a former lieutenant in the Israeli Defense Forces and in 2015 Joseph began his multifamily journey and has since acquired six multifamily properties and has been serving as the asset manager for all six communities, worth over $30 million with 505 units. So thank you so much for being on the show, Joseph,

Joseph:
Thanks for having me, Charles.

Charles:
So what was your background prior to starting to invest in real estate?

Joseph:
So I have a background in software. I have 17 years career in software development and software management, and I got to higher level roles with corporations like JCPenny and GameStop and so on, but I’ve always had this passion for real estate. It started all the way back when I was still a student and like everybody else, I read rich dad, poor dad. Right. That’s how it all started. And then when we moved to the States, you know, seven kind of everything blew up around us. It was the best time to kind of, we realized it was the best time. Both me and my wife got licensed and as real estate agents in Texas, and then we kind of started doing a little single and a duplex here and there until we realized somewhere around 2015, like you said, we realized that’s not the way to go. And we wanted to graduate to commercial real estate. And that’s how we got started at multi-family.

Charles:
So you guys are still brokers right now. Is that correct? That’s part of your business?

Joseph:
Yes.

Charles:
Okay, awesome. Awesome. So why did you choose real estate as your investment vehicle then? You said there was a lot of money in it and everything like that. When did you make the decision or make the turn the corner and become an investor versus just the broker?

Joseph:
Yeah, so actually we were brokers because we were investors, not the other way around. So we wanted to invest, we were new in this country within know the rules, the laws that the procedures. So we said, okay, let’s get licensed, we’ll get access to the MLS for back then. There was no Zillow and realtor.com was updating like two days later and so on. So we had access to the MLS. So that’s why we actually get licensed because we wanted to invest not the other way around. And I’m an engineer in training. My mind is wired like an engineer. So when I came to realize that, okay, my engineering career is getting along nicely and I’m going to have some extra income to invest. Then I went to town researching, but I, I looked at everything from stock market, commodities, oil and gas, golden, silver, you name it. I looked for trading. I looked at everything and real estate was the one that made the most sense to me.

Charles:
So what was your first real estate investment? What happened? What went right? What went wrong?

Joseph:
So the first one was actually like an accidental investment, right? So we were a young couple that was back home in Israel and back home. It’s very common for young couples that get married to buy an apartment or condo or something like that. And Israel is very urban think like Brooklyn, New York, like kind of an environment. Right? So a lot of block buildings. So we were living in a one bedroom apartment that was about 500 square foot, just the two of us. And then we bought something that we kind of planned forward and it was like four bedroom apartment. That was a lot bigger. And then that was after we read rich dad, poor dad, it’s kinda like, okay, do we move into this and make it a liability when it’s just the two of us? We don’t have any kids yet. Right. Or do we stay in that small apartment? We’re renting stay below our means and lease the apartment app. And we chose to do that. And you know, when you start doing that and you realize that, okay, we paid the mortgage, we paid taxes, we paid everything else and there’s still something left in your hand. It’s gone. Okay. There’s something into that real estate there. Right. So that’s how we got started. But when we moved to the States, you know, seven and realized that, you know, everything is going up around us. And like people think that out-of-state investing is hard. Right. trying to do that remotely, when we didn’t really have back in Israel, you don’t have property management that is as established as it is here. Right. You don’t have people that will take care of everything for you for a certain percentage like we have here in the States. So it was a lot harder managing that way. So we basically sold that asset over there, brought the money to the States and started investing in the States.

Charles:
When I speak to investors in Israel, then first thing I usually hear is that it’s very difficult to cashflow on certain real estate investments. Is that just a little side note? I mean, how does that, I mean, how does that work?

Joseph:
So, like I said, Israel is a very tight urban environment. So it’s going to be really tough for you to cashflow in Miami or cashflow in New York city or cashflow in LA or Seattle. Right. So think those markets that’s Israel pretty much right. High demand, low inventory. Israel is about this big compared to in the States, right. So-So, it’s super tiny. There’s not a lot of land, so is super condensed and very expensive.

Charles:
Right. So it’s like in those, in those high demand primary markets that we have in United States, that’s what you can compare it to.

Joseph:
Exactly. And you, you on put on top of that, the mentality. So over here in the States, people are comfortable with renting, right. It doesn’t matter what age they are back in Israel, there is that mentality that psychology of you got to own your own place. And I don’t know, I don’t want to get into what the roots of all this then it’s just is. Right. so that’s why there’s a higher preference for purchase, which means there’s a lot less rental properties.

Charles:
Okay. No, that makes perfect sense. I just, it gives us a great background on on your strategy and what is your current strategy for you and your firm right now? EPG or EBG for what you like targeting? What is your criteria?

Joseph:
Yeah. So we’re now in a phase where we focus on multi-family we’ve done the singles. We walk that path. There is some sort of a fallacy in the single family cashflow because you cash for one month, two months, three months, six months a year two, and then you have a big ticket item, right? You either have a tenant move out and you gotta renovate the property or you have a water heater or a roof or a fence or anything like that. And my trigger was back in 2015. Like I had one property that I had to dump about $45,000 in a span of six months. So that was one of the reasons where we started researching commercial real estate. I knew I want to stay in real estate. Right. But I looked at all the other kinds of real estate. And multi-family made the most sense because if you have a property with a hundred units, you can have 10 of them vacant and you still pay mortgage and you still have revenue and you still pay all the salaries and you do everything. It doesn’t impact as much because it’s only 10% vacancy. But if you have a duplex and what’s one side is empty. Yeah. 50% vacancy. Right. So that’s why multi-family made more sense to us. And then we brought a property on our own, a very small one on our own kind of get the hang of it, then brought a few investors into the loop and bought 102 unit. And then from there, it rolled into everything we have right now, our portfolio is a little bit over 500 units.

Charles:
Nice. Yeah. It’s very difficult to have the consistent income with the single family homes, unless you have, you know, dozens and dozens and dozens of them, but it’s much easier. Like you said, acquiring your a hundred unit apartment complex or even if there are smaller apartment complexes where you can, like you said, you know, you can have 10% of the people not, they’re not paying and still be able to cashflow and cover debt service and your property manager and everybody else. Exactly. So has your acquisition criteria and changed at all during COVID?

Joseph:
No. COVID was a was a curveball, right? Nobody saw that coming. Our challenge in COVID is less with the resident and more with Congress people and, and, you know, the, the knee jerk decision that they do. And I’ve you know I have a beef with, with the cares act, right? I think that caused more damage to the country’s economy than anything else. Right. Then the virus could have ever done. The small businesses were hurt dramatically in this, in this entire pandemic thing. And the fact that they give $600 extra for unemployment caused the fact that the employees that were on the lower end of the wages, which is what the small business owner is dependent on, would make a lot more money to sit in and help. So I think that caused a lot more damage to the economy than anything else. But the real estate side of things haven’t been affected really. Yes, we had a bunch of residents that we couldn’t IVIG, but the ones that cared about who they are about their credit score, but their, their living space were communicated with us. They were talking to us, we were working with them. We were put in payment arrangement. We gathered the list of assistance organization. And a lot of our residents got the assistance. It might’ve came a month or two later down the road, but as long as we knew they were applying and they worked with us and we give them all the information they need to apply. We eventually got the money back. Right. but there are some residents that, you know, took advantage and we have that in all the classes of multi-family. We’ve seen that all the way from C to a you tell someone on the news that they don’t have to pay rent. And that’s what they hear. They don’t hear that they will have to pay it up the end. They don’t hear that they will get evicted and they’ll have an eviction on the record. At some point they just here, you don’t have to pay rent. So, so you have those that take advantage of the situation and, and all that. But we’ve already evicted. Most of those when the cares act was out, it wasn’t that much right out of our 500 and something maybe five that we had to evict. Right. So it wasn’t that big of an impact.

Charles:
Yeah. We’ve seen the same thing. We haven’t seen many people abusing it, as you always think the negative of people, when you hear about it, you’re like, Oh my God, this is going to be devastating to our business, to our investors, to everything. And you know, the only thing I really get worried myself is when you don’t have the communication, right. And you don’t have the communication with them. And that goes, people, you know, with people that are owning your money of whatever it is, once they kind of disappear, that’s when you know there’s going to be trouble. If you have someone that’s calling you fine, let’s work something out, let’s change it to weekly. Let’s whatever it is, it’s going to work for you. Where, you know, because the whole thing is, well with the cares act is then they say all this stuff and they say, Oh, well, the tenant still owes the money in, you know, I mean, it’s, you’re just never going to get that. So it’s not even a thing and I’m not going to wait for someone in my property to get the money back. Like we’ll just cut ties and it’s gone. And but yeah, yeah, no,

Joseph:
Just realistically, you know, if you have a C class environment, a property, then doesn’t ever be able to catch up on a five, $6,000 debt that just won’t happen. I had a conversation just keeping the same thing about the COVID impact with one of our brokerage client, he’s buying a commercial property right now. And he asked you, what do you think is going to be the impact? A lot of people are talking about massive foreclosure waves coming in because of all of the forbearance. I don’t see that happen, right? Because all the forbearance basically means is that people didn’t pay their mortgages for a few months. Right. So if you Wells Fargo and you say, like, let’s say you have a hundred thousand of those mortgages are on the forbearance right now. And now things start to normalize and people get their jobs back. And the world’s starting to open again, you have two options, you can get your litigation team working and your REO team working and the logistics team working to and, and take over and deal with the paperwork and then list them and sell those. Or you can go to that homeowner say, Hey, look, mr. Homeowner, you didn’t pay six months worth of mortgage. That’s, let’s say $7,000. We’ll just going to drop it into your principal and we’ll move forward together. Realistically, that’s going to be a much easier way for them to do that, which will allow a lot of people to keep their homes in place. And I don’t see big waves of foreclosures coming in the near future.

Charles:
Yeah. Tack it onto the end. I think they might have you. They’re going to have you catch up on your escrow principal taxes and stuff like that. But they it’s easy just to attack it to the end and they can work that out. And obviously it’s not as bad as every time you keep on hearing any bill opening up are gain their jobs back. So I don’t see too much of an issue. The other thing too is I don’t keep, he’ll keep on telling me. And I keep on hearing that there’s going to be a huge disruption with multi-family. And I feel that the only pullback we’re going to see is on small multi-family where people might be refinancing or people that don’t have the long-term debt. Maybe they took something out that only had a five-year term or something shorter. And they bought it a few years ago and it hasn’t their property hasn’t stabilized, or they, their bounce sheet. Isn’t looking as good, their income statement. Isn’t looking as good as it was when they purchased it. So when going back for refinancing, they might have to take money out of their pocket, but for the larger assets, I feel, you know, anything with Fannie or Freddie Mac agency debt. I don’t think you’re going to have too much of a, too much of a too much of an issue there. I don’t think it’s going to be a huge,

Joseph:
I don’t even see an issue with a small one. We’re in the process of refinancing a 44 unit right now. Yes. It was painful to go through quite a few lenders to, to find the right one, but we’re getting 75% LTV. So I don’t, I don’t see that impact. Then it’s a secondary market, right. So it’s not even a major market. So I, I don’t see, really don’t see that even in 2008 and you got to a point, a lender would give you a loan. You wouldn’t be happy with it, but you would still get a loan and then just make sure you don’t have a prepayment penalty, whether you’re two and you can refinance again. So

Charles:
I’m saying for like smaller properties, it was more like a, like five to 10 unit properties, like the very small commercial multifamily kind of stuff. That’s where you have to deal with commercial, have to deal with the commercial bank. You can’t go to agency lender. That’s where I’m going to see it.

Joseph:
It was actually at a commercial bank. That’s what I was told

Charles:
Was okay, nice.

Joseph:
Because Fred is actually panicking more right now than the commercial banks we’ve talked to Freddy. And there was stuck somewhere at the 65% LTV. Wow. But here’s my experience with the small properties versus the big properties. If you have a tenured property and you’re at 70% occupancy, right. It only means you gotta turn three units, right. At least three units, how hard can it be? Right. So restabilize in a smaller property is a lot easier than restabilize in a 300 unit property. Right. It’s going to be faster. It’s going to be cheaper and you can turn around to a lender and say, Hey, look stabilize.

Charles:
Right? No, for sure. Yeah, no, I, I just, I don’t see there’s, everything is so competitive right now and it hasn’t changed. I think some, some people took off a couple of months when COVID started, because I didn’t know what was going to happen, but it was like the 90 days of COVID I call it. And after that people were started buying again we, you know, we, we saw what was happening with our properties we already had, and we’re using that as the kind of bearing, you know, what I mean of where we were. And we really just like you, I mean, we didn’t really see too much of an issue. So but with you being a you know, as an analytical person, what systems have you put in place to make it more efficient and to manage over 500 units?

Joseph:
So we have a property management software it’s called resume. It’s one of the popular one out there. Eh, but all those tools out there, it doesn’t have to feel working with resume or RealPage or try to, or anyone or any, one of the big ones. They all have a ton of capabilities. What I learned is that our onsite teams don’t leverage even half of the capabilities. So what I’ve found is it’s less about the tool. It’s a lot more about the training and helping them figure out how to find things easier, how to do things faster, how to work smarter rather than harder. So leverage the tools that you have is it’s going to be a lot easier. And then of course you got to keep tight control over expenses. You’ve got to ask the questions, right? So we have a process for collections, but if you don’t stay on top of it, well, did you do this? Did you do that? What’s going on here? Why is that resident hasn’t paid? Right. And so on, then there’s just so much going on, on these properties on any given day that they, they they’ll drop the ball. So part of we also have a property management companies and that’s pretty recent from this year. We started just before COVID great timing. Right. and then I hired our VP of property management and she sits on them. Right. And she makes sure everybody’s doing their job and we have a process and they follow the process. So it’s less about the tools and more about the processes and the up. That’s what I learned in this thing.

Charles:
Okay. Awesome. Yeah. No, that makes perfect sense. So you were, you’re a broker you’re asset management, property manager. What mistakes do you commonly see other real estate investors make?

Joseph:
Okay. I’ll give you two. That goes both ways. Right? So on the one side people get stuck on a number. I’m looking for a cap rate, I’m looking for occupancy, I’m looking for cash and cash. I’m looking for a number and whatever number you’re going to pick. I can show you seven examples of how that number would be great, but everything else will be bad. Right. So the, the best example I like to give is the cap rate everybody’s looking for. I want this cap rate. I want that cap rate. Well, if I give you a skyscraper downtown Manhattan for a million dollars, they’re going to buy it. Absolutely. Oh yeah, for sure. Absolutely. Right. Give me two. Well, it’s making you still buying it.

Charles:
Yeah, for sure.

Joseph:
But it’s zero cap rate, right? So context is more important than getting hung up on just one number. So, so that’s one of the major mistakes I’ve seen investors do is don’t realize that when they get hung up on a single number eight, they can have a mistake and B they can miss a lot of good opportunities. The, the other side of things is investors only focus on whatever comes out in cashflow, but sometimes there’s other benefits of owning real estate. Like somebody pays down the equity, right? If you buy stocks, nobody’s paying down equity. Right? Right. There’s a lot of tax benefits to real estate. If you’re a real estate professional, then they are 10 times more right. Than everything else. But even if you’re not a real estate professional, you still, all that income that you get, if you have the right CPA would be practically tax free, as opposed to your ordinary income, right. If you’re a high net you know, an engineer or a doctor or a lawyer or whatever, you’ll be making a good money, you’ll be paying 40% of your salary and taxes. So and then I always get asked, well, why shouldn’t I invest in stocks, right. Apple or whatever. And I tell them, look, stocks have a really, really good potential, right? If you look at the stock market, look at Apple, Apple just quadrupled their value in the last four years. Right. but two really, really bad things happen. If you want to get your money back, right? So if you bought your Apple stock and it went for X and last for you, it’s good for you, but that’s on paper. That’s not real money. If you want to see real money, you’re going to have to sell your stocks. And two things to really bad things happen. When you sell stocks one, you no longer have an asset, right. And there’s no way you can buy another Apple for the price you paid four years ago. Right? So that’s one bad thing. The other thing is two minutes after you sell that profit those thoughts, uncle Sam comes knocking, and he wants a chunk of it. Right? So I don’t like stocks for that reason, because when you look at the real estate side of things that you, you buy a property four or five years down the road, you’ve, you’ve gained equity in it. The market went up. When did the tenant pay the equity down? You go and refi, you get in a loan, a loan is a non-taxable event. So two great things happen when you refi a property. Right. You get your money out, but you still have an asset and you don’t pay taxes.

Charles:
Yeah. It’s, it’s, I feel it’s the best investment as well when you’re commercial multi-family. So it’s definitely true. What do you think are the main factors that have contributed to your success, Joseph?

Joseph:
So a lot of it is timing, right? So when we got started here in this country, it was 2007 and eight. So it was the bottom, but I want to take a little bit of credit. Right. And realizing that when everything is around us in flame, that’s the best time of our lifetime to invest. But I know a lot of people that had money back then that I told them, you should be coming in, investing with us. And they were so scared and sat on the side of the sideline and regret it, tilted it. Yeah. And I always say there’s only two kinds of investors that survive 2008, the ones that made the kill it and the ones that wish they invested more. So I think that was a lot of it. And the other thing is just being conservative in their underwriting and making sure that I cover all my bases that I, especially in multi-family right. You want to know where your break even point is? Is it at 10% vacancy? Is that a 30% vacancies at 50% vacancy? What is that point where I can still pay the mortgage? I can still pay the salaries. I can still pay the bills and keep the property, right. So if you’re going to a market and the market is, let’s say 93, 95% occupancy, and your break even point is at 90, you can get in trouble real fast. And you know, that’s just, you don’t know what’s going to happen, right. A new property can be built half a mile away. And in the first year they’re going to do a, lease up a specialist. That’s going to hurt your occupancy, but it’s a little bump on the road, right. It’s going to come right back up in a year when they stopped doing those specials. Right. But if your breakeven point is within three points away from where the market is, you’re going to be in trouble. So, so conservative underwriting is also something that help us navigate through ups and downs.

Charles:
What do you like to see for a breakeven? Let’s just say, for example, maybe it’s not when you’re taking over the property, but let’s say after you initially have stabilized it w what are you looking for? Something around 80%?

Joseph:
Well, that, that highly depends on the market, right? So if you’re, let’s say uptown Dallas where it’s super hot, right. Or Austin, the hot areas of Austin. If the market is at 98, 99, 97, right. I’m not going to underwrite it for 70% because I’m just never going to be able to buy a property. But if the market is at 89, 90, 91, I will underwrite it for 70. So I’ll be, I’ll have that margin. So it really depends on what the market is. On the average, in the last few years, what is my risk tolerance at the time? What is my investor’s risk tolerance? Because different investor profile could determine a different underwriting. Right. so, so that’s really where the answer to that one is depends, but we went all the way down to 70 and seven of ours. .

Charles:
Yeah, No, that makes perfect sense. Because some investors want to have the cash flow. Some of them want the big payday don’t care about getting the quarterly or monthly distribution. And some of them want a little bit of each and everybody has a different investment philosophy, a philosophy, and everybody’s in a different place in their wealth plan to some preserving and some are still building. So you know, that’s, that makes perfect sense. It’s a great answer. I mean, we like the same thing. We’ve we underwrite if we’re underwriting something that normally is in the low nineties, mid nineties, we might be looking for low eighties or high seventies. And it gives you that spread just in case of a COVID or something, or the next thing that’s like a COVID, let’s say it comes around, you have enough enough wiggle room there where everybody’s getting paid. And you know, you’re still, you’re, you’re, the property is still cashflow.

Joseph:
Yeah. And that’s really where it’s kinda like a lot of properties got impacted by COVID. Right. And we’ve heard some people say, ah, well, I had another idea that was supposed to be recession proof. We’re not in a recession, we’re in a pandemic. It’s a whole different world, but in a recession, I can still have people that don’t think and bring people that can pay right now. We couldn’t evict anybody. Right. So, and we just didn’t have the income, but that doesn’t mean you don’t pay the hot water bill. Right. And you don’t pay the water and you don’t pay the electricity. They gotta pay all these as well. I do a landscaper doesn’t care that it’s COVID.

Charles:
Yeah, no, for sure. I see that same thing. Because people, that’s the mistake I see people make as well is they’re comparing COVID to 2008 to early nineties to interest rates in the early eighties. And it’s completely night and day. It doesn’t matter. Every, every, every recession is going to be different. There’s different. You know, there’s different points that have made that there’s different criteria that made it that problem and why there was a recession wiser pull back there. So it’s very, I think it’s not accurate to, to compare them, like you said, so, yeah. So how can our listeners learn more about you and your company, Joseph?

Joseph:
Yeah. So EBGacquisitions.com. That’s our acquisition group Eureka business group.com. That’s our brokerage. But really all you have to do is Google my name and you can find all of the connections to everything I’m on every social media possible. I’m always open to talk to investors foreign or domestic. That’s not a problem. I’m easy to find.

Charles:
Okay. That sounds great. Well, thank you so much for being on today. I’ll put all the links to Joseph and his companies in the show notes. And thank you so much for being on today, Joseph, and looking forward to connecting with you in the future.

Joseph:
Awesome. Thank you for having me.

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 Joseph Gozlan

Joseph is a multifamily investments specialist leading group acquisitions of over $30MM in real estate and providing asset management services to a portfolio of 505 units and growing.

Joseph is a former lieutenant in the Israeli Defense Forces (IDF) with over 17 years of leadership experience in the software industry.  Joseph has a B.S. in Information Systems Engineering.

Joseph began his real estate investing back in Israel in 2005, and in 2007 when they relocated to Plano, Texas, Joseph & his wife started their US real estate investment journey with the purchase of a duplex.

In 2015 Joseph began his multifamily journey and has since acquired six multifamily properties and has been serving as the asset manager for all six communities. His unique ability to bring a 360-degree perspective as an owner, operator and commercial real estate broker is a contributing factor in the success of his companies, EBG Acquisitions and Eureka Business Group.

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