Working Capital The Real Estate Podcast

Real Estate Deal Analysis with Jake and Gino’s Secret Weapon Mike Taravella|EP28

Nov 18, 2020

In This Episode

Mike Taravella is a CPA, and he graduated from Michigan State University in 2014 with a Master of Science in Accounting. He has worked 5 years professionally in accounting. He started at Ernst & Young in public accounting and then transitioned into Detroit’s startup community at Rock Ventures.

He began his real estate investing career in 2016 by owning and self-managing investments in Michigan. He also took an interest in real estate development before joining Rand Partners in 2019. Mike is currently an associate that is responsible for underwriting deals, investor relations, and asset management.

In this episode, Mike shares his love for numbers, analysis, single and multifamily deals.  We discuss Ratio Utility Billing Systems (RUBS), Internal Rate of Return (IRR), property management and investment philosophy.

Resources and Links:

https://randcre.com/

Jake and Gino episode with Mike

Connect with Mike

 

Transcript

Jesse (1s):

Welcome to the Working Capital The Real Estate Podcast. My name is Jesse Fragale. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fun, join me and lets build that Portfolio one square foot at a time. All right, ladies and gentlemen, you’re listening to Working Capital The Real Estate Podcast. Our special guest today is Mike Taravella. Mike is an asset manager for Rand Partners in is responsible for overseeing over 100 million assets under management Mike is actively pursuing new opportunities within the market and developing relationships with his investor base. In addition to all that, Mike has a CPA and was a CPA before joining Rand Partners in, Mike worked for five years professionally in Accounting.

Jesse (49s):

His experience ranges from working with Ernst and young to working with Daniel Gilbert startup community at Rock Ventures Mike Taravella how’s it going,

Mike (58s):

You know, live in a dream day by day, super excited to be on Jessie and you know, talking about all of the different development’s on the pot. And before we hit record it’s, you know, just moving and shaking and making stuff happen. So super excited to be on here.

Jesse (1m 13s):

Well, like you said, ah, before the show we’re going to run and gun shoot from the hip a bit today, the reason I wanted to have you on Mike is a, a, you know, we’d like to talk about the numbers and get in to some of the detail of these investments and you are the numbers guys. So why not for our listeners that you know, that have been living under a rock and haven’t heard your name before. Why don’t you give a little bit of a background of what you do and real estate and how you’ve got to the place you were at with our friends Jake and Gino and Rand Partners

Mike (1m 40s):

Yes, absolutely. So the way from the beginning, I was told to do it. I love numbers, love math. I decided, or even my family was like do account and you love this. And as you love numbers, it’s a safe route. Do it. My family worked for Chrysler, the car manufacturer, or were teachers. So Accounting was the safest jobs you can get right away. My high school teacher has called me a sellout for doing a Accounting and then just going through, going through college, it was just figuring out the language of business. And I wouldn’t trade that knowledge for anything because that’s how you read financials. That’s how you navigate, especially the real estate and valuations.

Mike (2m 21s):

So I did both. We went through college and realizing I started at a screen printing company and realize entrepreneurial. That was my bad. And now even talked to my professor and then last week of college. So when I go, are you going to say, am I going to like public accounting or accounting? And she goes, no, you’re going to hate it. You absolutely going to hate it. And I was like, she is messing with me. Right. And then sure enough, they would just, you know, I realized that I had the entrepreneurial mindset. So he worked with her and the, and young and you know, it was an amazing experience just to see the financials, how to audit it, how to prove stuff, really dive in to the numbers for various large corporations and auditing it, proving it out. But then from there, I’ve got to the reverse side and seeing, working with Dan Gilbert and helping a start up.

Mike (3m 5s):

So going from super corporate, everyone knows their numbers to the other side of, I started a business yesterday. Like I helped launch a, a, a a hundred thieves, which is in the e-sports team, a, they had two people working out at a house in California who didn’t know that, you know, the financial aspect. So seeing both sides and help growing businesses was what I love. But I realized more importantly, Dan Gilbert, seeing the real estate side of things in buying real estate, buying in Detroit, helping a So. I realized I’d bought a single two single families, but I realized I wasn’t listening to the vice. I was telling you to start ups to do go bigger scale, grow their businesses. And I wasn’t doing that, looking at my real estate investing.

Mike (3m 46s):

So I studied a, you know, late nights Podcast reading or writing blogs, doing pot, like doing podcasts like yours, just to network and gain knowledge. And then I joined Rand Partners in June of 2019. Jake Cynthiana, Gino Barbara we’re on the investing side of the Jake and Gino team. And so now were you a hundred million assets under management? We’re at 16, about 6,800 units or so throughout a Kentucky in Tennessee. And this is looking to take over the world one apartment complex after the next

Jesse (4m 21s):

That’s great. And for anybody that wants to hear Jake and Gino story, I mean, you can go pretty much anywhere on the internet, but we did have them, ah, I think about wow. 15 episodes go. So I don’t know exactly which one, but you can definitely check that out. So I wanted to talk about Rand Partners but before we do it during that career, so your working at Ernst young, and you’re working with this startup, at what point do you start actually purchasing or investing in your own real estate? How did that process start?

Mike (4m 49s):

And so it w it took me about a year. So I was switching jobs from Ernst and young to Rock Ventures with Dan Gilbert. And it took me by like eight months to buy the first rental property I’m just studying. I mean, we picked six different, like city’s in the area because there was like all 15 or 20 minute drive in. And just every Saturday, 8:00 AM get out, see brokers, check properties, underwrite, you know, just go through the gamut. And then we pulled the trigger and then the kicker was a, after I got, I told my mom, mom and close it on my first house, she balled her eyes because she said that was going to lose all my money. So I was like, perfect, perfect, exactly what I wanted to hear them mom, but we actually just sold the property this year.

Mike (5m 35s):

So we, we, you know, did really well on it. I was super excited, but it is the education piece. And, and I’m not saying, educate know everything, cause you can’t know everything. You’ve got to eventually do it. But once you feel comfortable, you feel good. Ironically, the more you study and practice, you kind of just have to take the leap of faith because you know, the story and the property and stuff like that. So once you know what, you know, just take the leap of faith, pull the trigger and do it. And then that experience will help you scale zero to one’s. The hardest one to two is easier. Two to three is even easier. So just head first into the pool and execute.

Jesse (6m 12s):

Yes. So you didn’t get caught up in the, the paralysis by analysis on that first one. So for our listeners, we love to kind of dive into the, the Deal at a little bit. What did that deal look like in terms of the stuff you love the numbers?

Mike (6m 25s):

Yeah. So that was just a single family, but so I dunno if you want me to go on to those type of numbers or do you want me to go more than the Multifamily kind of that first deal? Yeah.

Jesse (6m 34s):

Yeah. You know what, which whichever you prefer, maybe the Multifamily might add a little bit more color and have a few more details.

Mike (6m 41s):

Yeah. In that story, it was, it was probably at the first month and Rand, Partners in, we found this Deal in Lexington. I know it was a 143 units, about 9.7, 5 million. We got it off market. And the biggest thing, not numbers related it’s the broker’s is constantly networked with brokers and do property tours. That’s how we got this deal. We saw three awful deals and we had no chance we are going to buy. I’m just not really rough, not our cup of tea. And then because we did those, we got this off market. Hmm. So for this type of property, we had felt, well, it, it was in Lexington, Kentucky, which is the biggest thing that we loved about it is not only as off market, there’s all these horse farms that surround the market.

Mike (7m 24s):

So restricted supply, increased demand. It’s never going to be your top five fastest growing, but we know it’s gonna never go away. We felt we could increase the rents. I think they’re in the high sevens. Then we can bump the averages to eight. But more importantly for us is that we felt we could increase other income. The owner didn’t do pet fees application. It was very minuscule on what they can do. So I know bumping rents is always a part in everyone’s business plan, but that other income. So instead of charging security deposits, we do move in fees, application fees, pet fees, they’re, RUBS the utility’s that we build it back to the resident’s. They weren’t executing items.

Mike (8m 4s):

So they had had probably a couple thousand and we’ve executed. We had the property over a year and I’ve had them about 10 grand and at least 10 to 13 grand a month on other income. But generally we like to C as if you can implement RUBS generally our other income is like 13% of the 10 to 13% of our total income. So that’s like one big of a number that I see investors, you know, can increase the upside on. But that, that for that property, it was super helpful.

Jesse (8m 36s):

So, you know what, I don’t think we’ve actually gone into much depth before about RUBS. So Ratio Utility billing system. If I have that, right. Maybe you could just explain to listeners what that is, because I’m actually constantly amazed that we use it all the time, the people that do invest, and then there’s so many people that they just don’t ask. And you know, if you go a few years in you’re like, what the hell are you RUBS

Mike (8m 58s):

Yeah, I I’m glad you said the acronym. Cause I forgot what it was. Kind of messed it up. So, so thinking of it as like, Oh, you have one in hot water, you’re the one hot water or you know, the system, right? So every, instead of individually metered the water bill, there’s one bill that goes to the property and you, as the owner would have to pay for it. Well, with rubs, you can allocate per month per unit, how much that they were getting built back. You can’t charge more than the actual bill. So you have to be, you know, we charge 80 to 90% depending on how we have seen it, but you know, you could use it for a water and electric. So it was just thinking of it as like, if they are not individually made her, can I build it out to the resident for us?

Mike (9m 43s):

It’s, it’s important to make sure in your market, you can you do that and look at rules and laws behind it because every market is entirely different. And even the asset class in the BC space, as you get closer to the AEs, its usually just lumped in are individually metered. But it’s just important if you’re comparing apples to apples on what you can charge for it. So it’s a powerful tool when it comes to helping the valuations for our properties. Yeah.

Jesse (10m 8s):

Yeah. It’s interesting that you say depending on the area, I know province by province or state by state it’s it depends the way I’ve always like to think about it is just being from the commercial world is the triple net lease where we pretty much pro-rata and charge back every single penny that we get an additional rent and some form of another. So let’s so we jumped to that Multifamily and you said, what was that? 9 million roughly 9.7. Five? Yeah. Okay. So 9.75 So now actually let’s do it. The contrast with it, with that first single family, what was the, ah, what was the price of that? And just in comparison to that multi-family you did with Ren.

Mike (10m 45s):

So I know, so it’s actually funny too, is just even thinking about the difference. And so this was the first thing that bothered me there. 68, it was 60 $200,000 and in the suburb of Detroit. Wow. Yeah. So yeah, for those of a, you know, I’m not, I definitely don’t want to say like, Oh Hey from 60 grand house to a 143. It takes a lot of time. I was definitely doing the 10:00 PM to 2:00 AM shifts a you can’t in single family, you can try to do everything and probably do well, but you’ll hate your life versus the Multifamily. It is a team Jake, Gino all of our property in may.

Mike (11m 25s):

We’re vertically integrated our property management team. So it’s definitely not the story of, I did everything look how awesome I am the team behind me. And I was a piece of the team with my numbers, making sure we can get out the financials going through the village. And so I think that that’s the biggest of the evolution of the single family space is yes, you can go very far by yourself, but leaps and bounds. I wouldn’t have been able to do that. Deal for probably another 10 or 15, 20 years the food. I probably didn’t even do it even that far ahead by myself. So it was a different game or a different team in, it takes a lot of, I don’t want to say it different skill set because it, it just tweeks. But yeah, when we sold that single family house this past year for a hundred K so yeah, it was a good, good addition, but you know, you got to take leaps and bounds in skills and I was just dedicated to the craft and it took me probably a year and a half and studying, networking, eat, sleep, breathe this stuff at 10:00 PM to 2:00 AM shift for a long time.

Mike (12m 27s):

So it, it, it takes time to get it, but by far it was so worth it for me to do it.

Jesse (12m 32s):

Yeah. That’s great. So on that, Deal on the Multifamily deal. What was the CPA hat, the hat you wore the most in that particular investment and inter I know we may, I think it was about a month and a half. We spoke about limited partners and sponsors for deals and a deal like that. How many people would be involved from the investor point of view? And I would guess that the a sponsor’s were Jake and Gino, or maybe there was a few a co GPS.

Mike (12m 59s):

Yeah. There’s the, a, our team GP on it. So we had probably a three, probably a four to five GPS being newer to the team. Obviously I got a little percentage, which I was grateful for. So it was just so new, but they had, I wore, it was like the hat, the asset, and then like the CPA of drying up the budgets, making sure that our T twelves map and you know, the leases. So, but also too, just seeing if I was getting difficult to tell you I’ve talked to the investors because I’ve not raised money. And so it was just seeing that side of things, Jake and Gino, I have an extensive network. We were about a, a, a hundred active investors that were always looking to expand to more, but they’ve had, you know, two other syndications prior We people are ready to deploy capital and a So, but from them on, I mean, now its, you know, acid, well, you know, sitting at R Elton’s or every week when the property manager’s making sure that things are going well, I guess that it’s an evolution step by step, but yeah.

Mike (13m 59s):

And that side, it was just, you know, drying up the budget’s making sure our underwriting was Chris making sure our risks were Okay cause even to the numbers can be great. Yeah. But you can be in a terrible area, you know? So then that’s why the numbers work. So you have to take a step back, look around and say, Hey, does this deal make sense? What are the biggest risk for the deal? And it, it was just kinda being that devil’s advocate of where he got from Ray dally of just taking all of the perspectives and seeing what we can do with it. And we’re at a risk of loss.

Jesse (14m 28s):

Yeah. It is so important. And just the given the fact that your background is as a CPA when you do look at underwriting property, you know, lets talk a little bit about what you’re looking for from a cash on cash perspective and how you analyze that property, whether its over a five-year horizon, a tenure present, maybe you could get a little color on that on your method. If that was a 1%.

Mike (14m 52s):

So I was look at the Deal of like, what am I going to do with it? Right. So we’re looking at age. So the newer of the property is probably we wanna hold it longer. We’ve cutting our teeth on a lot of 1960s, an older build. So we’re not trying to hold those forever. So we, we, we take really taken it to that age. We also take into like, you know, locate. So what are the Rand funnel is as we look at the markets, a market property financials, and its important to IME investor to check a box off that way, because you can buy a, you know, have a great property and financials, you can check things, you can update rent. But if that market is losing people and that sub-market is a scary place to be, I wouldn’t want to invest there.

Mike (15m 36s):

So just making sure that the property in the sub market or a market in some market are good property wise. We look in 1970s and newer ideally eighties, but you know, in that market dependent, perfect. We were looking for, what is that? Is it a perfect world at a perfect world? Pinched Ruth’s cause the flat roofs where you just know are, are more expensive. So a no Pacifical and the aluminum, you know, making sure that the electrical is updated because we’ve had instances where I have had to replace that and that’s how you can blow your budget very quickly. So just that those properties, when it comes to the numbers, we were looking to make sure it cashflows day one, I have to, at least I see a lot of deals where it can get really, really tight even in the interest only period.

Mike (16m 23s):

But we were looking to kind of cashflow average eight to 10, you know, cash on cash. But it just, you know, I R IRR, it was 15 and 20 were generally looking for, but

Jesse (16m 37s):

Sorry, sorry to interrupt. Is the, this is something I’m always asking investors when they are coming up with their IRR number. They are Internal Rate of Return are you using a 5-year a seven year or a 10 year horizon? Because it would a lot of listeners, they hear that number and they don’t realize that you have to estimate some reversion, some end price to, to kind of make the calculation, right?

Mike (16m 57s):

Yep. Yep. So we, we generally look at it at five, but I’ll look at it at five to seven and 10 when we tried to be longer-term holders. M just because when you were growing a property management company alongside it, we’re generally looking at a refinance or a sale. Generally we lean closer to the refinancing, but everything, you know, markets specific and everything like that, depending on what you know it is. And that’s why every, every deal is so different. But with that reversion cap, like you said, with that estimated and price, it’s important as an investor active or passive, we had Bruce Peterson on our podcasts and for every year to hold it at 15 to 20 basis points higher from your going in cap rate to your exit.

Mike (17m 44s):

Because if you see the cap rates go net down, you’re saying that the market will just go you to the promised land. Yeah. So its important to as an investor, no matter how a new or old is he making sure that cap Rate cause the properties get older and there’s more risk associated with it. So that’s a big piece that every investor shouldn’t be aware of.

Jesse (18m 4s):

Yeah. That reversion number. I always remember, you know, real estate finance and you know, coming up with a reversion numbers is a little bit like throwing a dart because you know, we don’t know the market in five years. We didn’t know the market in seven years, but I had a professor that said something that I will always love. Somebody said, well, how can we make all those estimates? And he said, well we’ll what would you do? Well, I wanna assume he was like, well you have made an assumption right there. If you assume there’s no growth that you’ve made an assumption of no growth. So I think that the end of the day, any financial models going to have some sort of an estimation, you mentioned something there that I wanted to talk a little bit about and how this property management aspect that I know you guys integrate.

Jesse (18m 45s):

We talked with Jake and Gino about this, how you integrate property management with the investment team. Because a lot of people, they just hire a third property management. How has that process been of building a property management company? Basically a alongside of being an intern.

Mike (19m 1s):

Yeah. I take, I give it all the credit to the Jake Cynthiana in this one, I’ve at least, you know, being a part of the team help. But when you It cause he had to overcome the item mentality, I think we all do because we realize I can do it. I can do everything. And then you realize its 2:00 AM your strength and cost. And you’re like, well where am I? And this is having to do it at all. So it is just realizing it to scale and to take control over assets. That that’s the biggest piece because with our property management, we do stuff that we see here does so many investors go all of this third part of your property management. It was okay. Or if they don’t do it How I want to Or they don’t, they are not executing in how we want to be executing.

Mike (19m 44s):

So Jake built out a 50 plus person team now, a to manage this and grow it. So obviously we are this past year and a half, we have been going through budgets and kind of treating it like shark tank and like, Hey, these are, this is your business. As the property manager, you need to know the numbers and they were implemented and net promoter scores, which is a two question survey on a scale of zero to 10, how likely would you refer our property in virtual leasing? So the ability to quickly change and execute it at a very high level Jake has built a culture and that’s why we’ve continued to learn and grow.

Mike (20m 25s):

But you know, there’s other people operator’s that, you know, you’re not profitable property management. Isn’t, you know how you get rich, it’s how you get headaches and you know, it’s stressful nights cause you are answering those calls in the beginning. But when you build a culture like Jake and Gino and the team has, it’s amazing how everyone comes together. No matter if it’s a Knoxville, Lexington or Louisville, how we all come together and have that high bar, this is what the Rand way is a so yeah, we’re just continuing to evolve and grow and tackle on together. It takes a little bit, I mean it takes a little bit longer because you have to make sure your, a higher rate, but you have in an Return you have the control, the ability to grow and have those roots forever in those markets.

Mike (21m 11s):

So it’s definitely be slower, but you get better stories when you own the property management company, because just every day, for sure it was a baby aligator in a unit or if this happens. So I always be from the property management. Yeah.

Jesse (21m 26s):

I am not gonna lie. It has always slightly terrified me the idea of, of doing property management as well as owning the buildings. Because even being the owner and hearing property management stories, it’s, you know, it’s something that I think most people are probably initially we will shy away from. So that’s pretty incredible now in terms of the property management, how it, ya know, now that you’re at a point where it’s scaled up at the beginning, it must of been difficult in terms of hiring people. Cause you know, even like you said, zero to one is the hardest part zero to one full-time employees. Sometimes you’re like, do I need a full time employee? I just needed a paralegal for this one thing where I just need a, a, you know, somebody to get this person in this particular unit.

Jesse (22m 10s):

So what was that like the first, you know, the first couple of properties of building a property management company.

Mike (22m 16s):

I think working with a lot of startups too, it can relate to this is you never, you know, it’s terrifying to higher the first person, but I think it was just picturing that growth paining the growth of it. Here’s what we’re building and that’s how you get people behind you and grow. So obviously it’s just, there’s a lot, you know, a lot of, you know, going ins and outs and hiring your weaknesses. Right. I, I can argue that everyone in the listening to this podcast can go on Upwork and hire a virtual assistant in their life will be infinitely easier, but it’s the ability to hire the right person, make sure that they’re doing it. And you think its like another job, but really you’re just amplifying your greatness. So it’s making sure you’re covering your weaknesses with people around you.

Mike (22m 59s):

So I’m sure, you know, Jake and his team is not easy, you know, especially when you’re doing everything, but you got to take that step back and like Ray Dalio says build, look at the machine objectives because you’re owning the outcome’s. So think of it in that as like a, you know, a job or a hobby, paying someone you’re investing in the machine to ramp it up, to grow and build success in any line of business or whether it’s accounting or real estate, whatever your life is. I mean, I I’m trying to get my girlfriend to get R a VA so we can integrate our groceries in Siddhartha, two of us, we don’t have to do it. So it just amplifying your greatness every single day and building that machine.

Mike (23m 41s):

Yeah. That’s the stuff that I love doing it is building those Systems

Jesse (23m 44s):

For sure. And so on the virtual assistant Pointe, you know, we’re so fortunate just to live in the places that we do that a virtual assistant is relatively cheap for us, especially if they’re overseas. And I remember even that one, I was hiring my first virtual assistant. It was like, ah, I’m going to spend all this money. And I don’t really even know it. He or she was going to do. And now that I have one, I can’t imagine not having one just because it, like you said, it amplifies so much of what I do and, and then other things become scalable. Oh, you know what I can have, I can have them do this or I need this done by then.

Mike (24m 12s):

And it was 24 hours on a day to sew when you’re sleeping. There was another team member of passing the torch. None of that. Like it’s just a, it’s just such a good investment that I couldn’t, I couldn’t imagine even. And I learned this from working with our teams in eye, they were, or, you know, we have teams in Indian in the field of just working on our side as a team members. And it’s just making sure that you give clear instructions, there’s tools like loom zoom, you can record it, showing you doing it. It just makes it so much easier. So a, like you said, it just amplifies your greatness every day, right?

Jesse (24m 48s):

Oh yeah, for sure. So before we get off the topic of property management, you were the numbers guy. So I have to ask when your estimating or underwriting a property, what do you put for that line out of my property management?

Mike (25m 0s):

Ah, so a property manager or a lead generally for our property’s we do. So we were looking at a a hundred plus units and how his team, we have the management structure and the 3% M, but it is for all other investors. What I say is, you know, if its less than 20 units on the right to 10% property management fee, it might be higher. It’s usually eight to 10, but they might, you know, with our contract services or anything North of like 20 to 50, you might, or anything around 50, you might have to kind of that market dependent of its it’s it’s a lower management fee, but then your paying payroll and other office related stuff. So just market specific. But the best thing I can tell you as if you’re looking at third party, I’m not saying to start a property management company tomorrow, but if you’re still in that third party phase, get a ton of quotes for not just property management, property managers who do and work on the asset class.

Mike (25m 55s):

If you have, because we have seen property management groups had like a really nice asset, but they buy the property. Management is good at section eight. So they let section eight housing and there, which is for us for evaluation, you know, if that’s the lower rent and I’m not against section eight is just not our cup of tea. So then it’s more of a red flag. So it just making sure you’re getting the right team members in place to make sure that machine is running. And then, so if you have to have a asset, you got to have an A-plus property management to be able to see classic asset. You don’t want the client with property managers. So got a stack stack the deck with the right team members.

Jesse (26m 33s):

No, that makes a lot of sense. And you just mentioned payroll, you know what, at what point do you start looking at having a full time employee? Is it a hundred plus units or is that kind of the sweet spot? I’d

Mike (26m 44s):

Say probably 75, but yeah, 100 is, I mean we looked at, it depends too. So like if you have a really rich rent, like, so we looked at a property that was 50 units, but rents were $1,400. So if the rent can support a full time person, we can recommend it. But generally in the markets were in, in, in the BC Multifamily I would say about 75 to a hundred, at least one full time person. It makes sense just so that consistency within the community, but even to this is where if you get 75, we were looking at a property that is 10 minutes away from our property in Lexington that we talked about. It’s not a 100 units, but it incrementally, it could be a, an easy lift by having just one additional team member.

Mike (27m 32s):

And now we get a couple like 50 to 75 more units. So think of it when you’re at Akras, you know, acquiring assets, like a puzzle piece of like, Oh, are economies of scale, got even bigger, even though it was at 25 unit, it can still continue to add a file on your pipeline and continue that presence in that city.

Jesse (27m 52s):

Yeah, for sure. So I just want to move on to something that comes up quite a bit with, with listeners and just people I talk to that are either scaling up the real estate or breaking in. And that’s the markets, there are so many markets right now where the returns are so tight, the cap rates are so low. And what’s your advice to people that are trying to break in for instance, or like I said, trying to scale up and they were just having a hard time finding cap rates that are even above four or 5% in some markets. Where do you recommend to, to those investors?

Mike (28m 24s):

So someone breaking in, I say under a everything. So it might not make sense to you, but you’ll find stuff in the underwriting that, Oh, I didn’t know this was an expense. I didn’t know this is here. Like in Nashville, there is a Or in Tennessee, there was a franchise, an excise tax. So you have to pay on your products, you know, a percentage of your profits, a versus in Kentucky that doesn’t exist. So, and there might be different, you know, registration costs. So if your starting off under right, everything in the city is you wanna be in because then when that Deal does come, you know, what’s a, Deal I’m not saying that you have to buy Deal. I mean, we call the 130 last quarter, I call the 136 brokers.

Mike (29m 7s):

Ah, we submitted probably 20 L Ally’s and, and that’s a lower number because we had so many criteria on the front end that we said no, too. And the only deal he got was because someone messaged us on our Jake and Gino website. I know. So yeah. So of all of that work, yeah. I got one deal and that was Matt ’cause of any of that works. You can call

Jesse (29m 28s):

It a percentage, a return on your effort.

Mike (29m 31s):

Yeah, exactly. And that’s including for a city like you going to Huntsville, Alabama Nashville. It’s a lot of work. So when you’re starting off and this is how out of the market, you can just underwrite and know your going to be cutting your teeth for a long time. If you’re a scaling up, I would recommend just, you know, similar to that, keep underwriting, but also, you know, keep underwriting, continue to network with brokers, take them out. But also if you’re at that point where you want to get that property manager, you might want to pull the trigger. I start building the scorecard or investing in a way we had Petra or coaching or attractions have a phenomenal book where it structures out everything, you learn your Systems during COVID. We started doing collection reports and did leave a virtual leasing.

Mike (30m 14s):

So even if you’re not buying something or acquiring something, look internally of what has been my pain point of operations and how do I fix that piece? So, you know, you’re, you can always be improving every single day.

Jesse (30m 29s):

Yeah, for sure. No, that’s a, that’s a great advice in terms of the relationships that you do structure with brokers, you know, I’m in the industry. So sometimes I just, I just assume that people know how to engage and talk to brokers. And I know that’s not the case and sometimes it can be daunting for people that have never established those relationships. And we can come off a little brash sometimes. So maybe you can talk a little bit about the, the established relationships that you’ve created with brokers and how you got those relationships started.

Mike (30m 59s):

So its consistency over everything. And you might know, as an investor is starting off or you might not have the, you know, a hundred investors or even five investors. Right. But you just want to learn and grow. So continue to be yourself, but you know, leveraged the lingo. I mean, there are so many podcasts Resources et cetera, that you should understand where are you are in that market and just understand it, right. So I’m not saying call Jesse and I’d be like, I wanted to buy 13 Capps because a book 10 years ago and told me that there are 13 caps, but to be like, Hey, what’s going on in the market? Would have you been seeing, I am looking for this to provide parameters because Jessica, it can be like, Oh, do you want Multifamily?

Mike (31m 41s):

But like what kind of there’s ABC, there is more like, there’s an infinite, but given them something to look at. And then I, I have a system called the sauna. It’s free. It’s amazing. I love this tool. And it tells me every three weeks to call Jess and be like, Hey, Jesse what’s going on with her? What have you been seeing? What’s new? And so every three weeks, once I do it and I add notes and talk to Jesse every three weeks, just to make sure I’m keeping them up, ’cause when Jesse gets a deal. I want him to think of me before he listed out of the market. Or even if it doesn’t have to say, I might have a day or two to peek at it. So I’m that much faster. Then the next person, the objective is to be on top of mine.

Mike (32m 21s):

And so whatever it means, you got to do it, whether you knew whether you have it and mean, I mean, even in our markets like PE you know, that there’s always new markets that we’re peaking into. So it was just, you got to just continue to build a report. It takes time and its the first call. It isn’t going to be, Oh, I’ve got a deal. It’s be, you know, Hey what, what value could you bring to Jesse and make his life a little bit easier? And it’s so whatever, you know, it’s just whatever you have to be able to prove you can close, but it takes a long time to do that. And it’s probably not gonna be the first call. It’s going to be an a, a hundred called the 10th call. And I think every sales book says it takes seven connections to hit a sales.

Mike (33m 4s):

So, but it’s, I mean, we were playing a long game. We plan on doing real estate for 30 years. Right. So it’s, it’s not like its gonna happen overnight.

Jesse (33m 13s):

Yeah. Well I think that’s a, your absolutely right. When you say that it’s more like a sales thing. I think people don’t view it that way. And even as an investor, like I’m a broker in commercial, in an office, but as an investor in Multifamily, I’m looking at other brokers and other areas as people that I’m trying to close and I’m trying to constantly be touching through email through calls. Like you said, taking them out, going on tours. I just wanna make sure I have a note for that. So you said, was that a CRM system? The sauna

Mike (33m 43s):

It’s a pro project management system.

Jesse (33m 46s):

I got it. So that will kind of give him an initial email and it will be able to send us a follow up in a few weeks’ is that, how

Mike (33m 53s):

Is that? It’s just like a reminder. So I used it to like, I’ll check my task for the day and they’ll be like so called Jesse colleagues broker’s so it’s more of it because we use it for like our accounting or asset management rhythms looking at deals. So a monday.com is another one I know it’s paid. And then for people like that, but for CRM is we use active campaign, but I personally liked kind of the M not as a canned stuff, especially when it does the broker report. Cause you can see if it’s active campaign. Right? So the last thing we want to be like a deer Jesse I haven’t seen it in a while. We’d love to catch up. Like I just liked to keep her, you know, Real and I always like to call it in an email culture. The last thing you wanna do is answer one more email about dear Jesse how’s the market like you get, we have a five minute call it.

Mike (34m 41s):

That would be way more impactful than just another email that you have to respond to.

Jesse (34m 46s):

Yeah, I think that’s so right. And I can’t remember the Podcast I was listening to it, but even today he mentioned that I think it’s art, Sobchak the heart of the sale. And he was saying that even today, when we have zoom in all of these video media, sometimes a call is, is just even more intimate. ’cause you’re at home. You’re not pretending to be on a screen. Totally. You know, ready for everybody to look at you. Maybe your just on your couch, lying down and just pick up the phone or you’re in the office. And you were just, there’s almost that a little bit extra bit of relaxation than just being right in front of a screen

Mike (35m 17s):

Because you get to leave that as you can call to talk to Jesse. Right. And it’s a one on one piece versus like a deer attention, everyone on the zoom, that’s kind of half listening, half yelling at their dog and half yelling at their kid. It’s like, Hey, I got to get out of the house and got to talk to your desk. You got to talk to Mike and I got to have five minutes a piece. Yeah. And in this crazy world we’re in. Absolutely.

Jesse (35m 38s):

So we’re coming close to the end of time here, but I did want to just carve out a little bit of time to talk about how your team and yourself is looking at leverage and debt right now, given the historic, we keep saying this year after year after year or the historic lows of interest rates, you know, what’s a, what’s the philosophy for the team.

Mike (35m 56s):

Yeah. So a lot of our deals, it’s kind of, we have a very good banking relationship or the local community bank. Ah, so if its a Harrier deal, we will use them because we’ll do 80% loan to cost a lot. But generally we are trying, we’re looking for agency debt we’re I underwrite two 75 loan to value for a lot of our stuff and it qualifies for agency’s. So, you know, at least a million dollar loan amount a month. And generally what were doing is we’re doing 75 loan to value because if it works at 75, it’ll definitely work at 80 or a nap the other way around. So it’s important to kind of be conservative there.

Mike (36m 39s):

But generally to do is we’ll look at a lot shorter IO period and the underwriting versus actual because if we get more I interest only, then we don’t have to pay a principal for that much longer, which means I can pay our investors more. They’re happy. We’re happy will look like geniuses. When all we did it really did is we just didn’t change the interest only period. I mean, will it change it fluctuate. It will change it for zero interest only versus like realistically three or four. But you know, we’re we believe in just being 75 LTV, there’s a lot of private equity out their as well options, but we generally just kinda keep it simple. So if we find the LTV ten-year term prolly underwriting for like a three to five interest rate, but a realistic we can to get that lower.

Mike (37m 22s):

And probably two to three years I Oh, but we can probably get more on that. So it’s kind of like the, the boilerplate template when it’s hairy or deals like we’ve bought a 48 unit is half occupied. Jacob, do you know, we have such a good rapport with a community bank. We averaged getting a loan to costs on that 80 or 80% loan to cost. And we had had a full a hundred thousand dollar renovation budget. So it takes a long time to get from that those terms. Right. But it’s important to get is just like what Jesse and everyone else continue to build those relationships, build rapport and that banking relationship super strong. It was just getting those deposits in there.

Mike (38m 2s):

And we have a Well Coleman of Rand Capital who’s our eternal mortgage broker is the best when it comes to finances because everything’s changing. He is on top of it. So don’t, don’t try to own the financing yourself because you’re not looking at every day versus Will’s like our professional who was seeing in everyday eat, sleep, breathing what Fannie and Freddie or doing and everything else. So when a highly recommend getting that team member of your team staff, right?

Jesse (38m 29s):

Yeah. It seems like the theme of a, of real estate in general. And when your scaling, as having that team built out, having the expert’s in the right areas. All right. Mike I wanna do a couple rapid fire is for you here. As we close out, you, you tell me when you’re ready to go. I I’m ready. Okay. So it doesn’t have to be real estate, but just something that impacted you. Favorite book.

Mike (38m 53s):

So I Ray Dalio principal’s is bad, but I’m not gonna say rich dad, poor dad. Cause I feel like everyone else says it. Yes. I’m going to say Rate value principles because it just phenomenal, very successful. He has his life principles work principles and it really makes you think of what you want to do in life. So it was just a phenomenal,

Jesse (39m 13s):

That’s great. That’s actually the first time I’ve heard that on the podcast and that is a, a, a, I remember downloading the PDF years ago. Okay. So it was a monster book. Yeah. Its a huge, yeah. Yeah. I remember being like maybe I shouldn’t have printed this. Okay. So a number to hear, I think I had a feeling have the answer, but ah, some of the earlier that your mentors that helped you get where you are today in real estate.

Mike (39m 41s):

So I’m going to say two of them, professor Isabel weighing, I’m going to send you to this podcast because she is the one who told me I would hate Accounting and it made me, you know, gave me that hope of I’ll find my career path and be successful. John Kasmin was a mentor of mine who helped me to jump down to Multifamily met them on bigger pockets, got a call. He went to his first events and just changing my life. And then now obviously Jake Cynthiana and you know, Barbara, not only as investors, but just, you know, as a father figures and stuff like that, they’ve been super helpful in just helping grow in real estate, but also the family and everything else. We’ve just been tremendous resource all, all for people that has been amazing.

Jesse (40m 22s):

Okay. What is something that, you know now today in your real estate investing career that you wish you knew when you’re first getting started?

Mike (40m 30s):

The story, the story of the deal like I was, I was afraid of the investors would nitpick in spreadsheet, but Really Oren Klaff was a tremendous resource and just kind of an art of the sail and like pitching, if you were getting into the weeds, have numbers, you’ve got, you’ve made a really wrong term. People at the macro story have the deal Hey this is a good market. This is a good submarket. This is a good property. Here’s how we’re updating the financials investors. Aren’t going to dive into a 300 page spreadsheet, even working with Dan Gilbert. He wants a one page. I have one page, I’m going to make a decision on this page. And it was pretty surreal to see, especially with my accounting background, but every line I don’t, you got one Paige to make an impact.

Mike (41m 15s):

So showcase what I need to know and I’ll make a decision and based on kind of how it checks the boxes.

Jesse (41m 20s):

Yeah. And I think Oren Klaff, that’s a pitch anything. Right? Well, which is a, which is also a great book. And I th I would suspect it is a little bit more difficult for analytic types to, you know, say, no, no, there is a, there there is more detail and then none, no, we just need that one Bristol board and a great story. And it’s amazing how much of that works over some of the minutia

Mike (41m 41s):

It’s Yeah absolutely blew my mind to be completely honest. So the CPA background and presenting a page, even the investors, they are, it’s the story. Right? Does it sound good? Obviously, you’re going to do they trust you in your due diligence? So don’t be malicious, but if it checks all the boxes on the market, so the market property in financials. Good to go.

Jesse (42m 5s):

Yeah, for sure. All right. Last one. And as the listeners know my personal favorite, first car make and model.

Mike (42m 11s):

Okay. So being from Michigan, you have to buy American. So it was a, and mine was controversial because my family is Chrysler and I got a Ford. So I got an Oh nine Ford fusion. I was spoiled a being an only child. So my mom got me a new car. I’m a senior in high school, an Oh nine, four and a fusion. I miss that car more than anything because it still works. I got the price of it right now and I’m very unhappy with it. So when I had to put them in the pilot casts for my family, but Oh, nine Ford fusion, my buddy got it, got the transfixed and it’s working much better than ever. And I’m in my car in Tennessee where it’s 40 degrees and my heat, I just went out. So, you know,

Jesse (42m 50s):

It’s a very subversive, you go in for it. I thought we were going to say Superette or something, but then I guess that’s one of the American. So Mike, if people want to hear more about a rant about, you know, your Podcast we’re working on, I had them or tell them to head to toe.

Mike (43m 6s):

Yeah. Rand partners.com is, or a website, a reach out to me Mike t@randsiri.com. M Mike Tarbell on LinkedIn, whatever, you know, social media, but those are kind of the three biggest ways. And I’m happy to help serve whether you’re starting off, whether it be active or passive, I’m happy to help serve you and anyone in the real estate and real estate journey.

Jesse (43m 30s):

My guest today has been Mike Taravella Mike, thanks so much for coming on, work in Capital

Mike (43m 34s):

Jesse, thank you so much for having me on and had a blast and you know, let’s go and take over the world.

Jesse (43m 48s):

Thank you for listening to the work and Capital podcast. My goal is to help individuals break into real estate investing as well as educate experienced investors. If you enjoyed the show, please share it with a friend, subscribe and give us a rating on iTunes. It really helps us. If you have any questions or want to learn more, or like me to cover a specific topic on the show, please reach out to me via instagram@jforgalsorheadtowwwdotjessefragale.com. My name is Jessica Fragale and we’ll see you back here for the next episode or the Working Capital The Real Estate Podcast.