Welcome to The Accelerated Investor Podcast with Josh Cantwell, if you love entrepreneurship and investing in real estate then you are in the right place. Josh is the CEO of Freeland Ventures Real Estate Private Equity and has personally invested in well over 500 properties all across the country. He’s also made hundreds of private lender loans and owns over 1,000 units of apartments. Josh is an expert at raising private money for deals and he prides himself on never having had a boss in his entire adult life. Josh and his team also mentor investors and entrepreneurs from all over the world. He doesn’t dream about doing deals, he actually does them and so do his listeners and students. Now sit back, listen, learn, and accelerate your business, your life, and your investing with The Accelerated Investor Podcast.

So, hey, guys, welcome back to Accelerated Investor, so excited to be with all of you. Live and recording for all of our people on YouTube and inside of our podcast and inside of our Facebook group on Facebook, all Accelerated Investor brands and assets. What I wanted to do today was give you a live look at some of the things that I’m working on right now, including underwriting and cap ex and raising capital for our deals and give you some insights and some tips for your own business. So let me start with this. We got a lead about 10 days ago on one hundred and fourteen units. Down in the Summit County area, Summit County is Akron, and then Stark County is Canton, Ohio. That includes North Canton, Massillon, all the areas of Akron and Canton. 

And one hundred and fourteen unit that we got brought to us actually by a student, by one of you. I’m not going to say his name because I don’t want to spoil the deal. But he was on this page on Accelerated Investor, listening to the podcast, watching our YouTube videos and got a lead on 114 unit. It’s an off-market deal. Nobody knows about it. And the seller wants somewhere in the range of five million dollars. Our potential partner made an offer of four point six million and said, hey, Josh, I probably can’t qualify to do this deal on my own. I don’t know if I can raise the capital. I don’t know if I can sponsor the loan. Can you partner with me? And I said, well, let’s take a look at it. 

So the first thing we started to look at was we got typically when we look at a deal, we just did two things. We need the last two years, financials. Which includes all the income and all the expenses, and we need the rentroll. And that’s it, that’s all I need to underwrite a deal to get started. What I found was that there were four separate buildings and the average rents are about five hundred eighty-six dollars average rent per unit, OK. Some of these are like C plus class areas. Some of these are in B, B minus areas, but five hundred eighty-six dollars, average rent per unit. It sounds very low. So I’m immediately thinking, OK, I’m interested. So what I typically do when I underwrite a deal is very, very quick and simple and easy. So you guys can write this down. This is a great tip for looking at multi-family apartments. 

Once we have the rent roll and we have the financials, we simply multiply that out. Five hundred eighty-six dollars times, one hundred- and fourteen-units times 12 months, and we get the total annual gross income, that annual gross income ends up at around eight hundred thousand dollars a year. OK. Then I simply take that and multiply that times a 50 percent expense ratio. To see what the net operating income is. And then I divide that into the asking price, so we take eight hundred thousand and take a 50 percent expense ratio, that’s four hundred thousand of net operating income. And then divide four hundred thousand divided by five million, which is their asking price, and then immediately gives me a cap rate, OK, in this case around eight percent. So four hundred thousand divided by five million is a percentage. So I’m thinking, OK, eight percent cap rate. 

So if I bought it for five million at the asking price and based on my very quick underwriting, which is going to be close, it’s not going to be done on, but it’s going to be close. That’s an eight percent cap rate at my purchase. And I like to see that. I like to see something that’s got at least an eight cap when I buy it. OK, again, very rough numbers. Then my rule of thumb is I’m almost always going to just assume that the property needs five thousand dollars per unit in improvements. That’s just my rule of thumb. Five thousand a unit. It might be seven thousand. It might be three thousand. So five thousand is a very good rule of thumb to assume what it needs per unit. So I immediately put in five thousand a unit time. One hundred and fourteen units. That’s five hundred and seventy thousand of capex. 

Then we typically charge our deals the three percent acquisition fee or three percent asset management fee. So we add that, then we add in our lender fees. Lender fees are typically about two to two and a half percent. So if I use two and a half percent of the purchase price, OK, that’s it’s about one hundred thousand dollars. So I very quickly can add up my all in no purchase price plus cowpox, plus my acquisition fee plus my soft costs, and I’m Olin for that number. So five million plus five hundred and seventy thousand for CapEx plus one hundred fifty thousand for my acquisition fee plus one hundred thousand dollars for my soft costs. And I know what I’m going to pay for that deal somewhere around five point eight million. OK, so when I look at that, I can do that now in less than five minutes. OK, so that’s how I get started. Then I simply look at can I go to a couple of different places? I go to apartments, dotcom. We have a subscription to Costar. Costar is sort of the, as my grandma would say, the Cadillac version of underwriting software where we can go in and see the comps for rent apartments.com is owned by COSTAR and so we can look and see we can run comps and see what our other properties are renting out for on apartments. Dotcom, that’s free and it’s cheap and it’s easy. 

And I looked at that and I saw the average rent in this market is around 750. 750 per month per unit. OK, now these one hundred and fourteen units have all different square footages. There’s some of these buildings have a thousand square feet. Some are nine hundred. Some are six hundred eighty square feet. Some are eight hundred forty square feet. So I take an average of seven fifty blended across all the units. OK, blended across all the units because some of the some of them aresmaller and some of them are a little bit bigger. So based on that 750 now multiply that times are total number of units, one hundred and fourteen times 12 months. Now, my new gross potential rent is a million. Twenty-five thousand million. Twenty-five thousand. Now, again, if I just take that and multiply that times a 50 percent expense ratio for my vacancy and my expenses, now I’ve got a half a million dollars of net operating income. 

OK, half a million dollars of NOI. So. With my original look at the underwriting was eight hundred dollars in terms of 50 percent expenditure. Four hundred thousand of NOI. Now bumping up the rent. I’m at five hundred thousand of NOI. If I simply divide that by my cap rates, OK, so if I were to take half a million dollars and divide by my cap rate, let’s say my cap rate is a six and a half cap, that’s what my lender thinks I can get when I stabilize the building. Stabilize the building and I’m going to refinance, I’m going to try to cash out all my investors six and a half cap, I’m just going to take five hundred thousand divided by point zero six five. And that’s going to give me a new valuation of seven point seven million. So all in four, five point eight million now going to be worth seven point seven million. So now my gears are turning because there’s about two million dollars here of potential profit or equity. 

OK, so very quickly, I’m able to underwrite that deal, so that’s all the underwriting I need to do right now. So what we’re going to do is on Monday, we’re actually going to go lock. When we go walk units, we usually like to walk about three to five units. We’d like to see like a really nice unit, sort of a mediocre unit and then a really crappy unit. We’d like to walk at least three units. Now, this portfolio is made up of four separate buildings. So we want to walk one or two units in each building, OK, one or two units in each building. That way we get a flavor for what the building, how big the units are and what the condition is for all the units. OK, so Monday we’ll see if the thing pencils out. What we want to do is we want to try to get that purchase price down. 

So maybe instead of five million, maybe we pay four point six million. We want to firm up when we’re on site, want to firm up our CapEx. Do we need to spend five thousand dollars a unit on capital improvements? And then we also want to get really firm on what we can charge for rent if we do improve the units, what can we charge for rent? Are, you know that all commercial buildings? They’re all valued based off of your gross operating income and then your net operating income is really the number that really matters. But how much gross can you push? Minus about a 50 percent expense ratio, at least your net operating income. So if we can push our purchase price down, if we can push the CapEx down, if we can also that will be our basis will be lower than if possibly if our cap rate could go down for maybe six and a half to six and a quarter. That actually makes our value bigger. Maybe we can push the rents a little bit a little bit higher. 

OK, because, you know, there’s basically four separate buildings here. One of the buildings, all the units are a thousand square feet. So those are bigger. So we should be able to charge more for rent than the second largest building, second largest unit size. Those are almost eight hundred fifty square feet. So, again, maybe we can charge more if we build those out, so maybe we can push our income up. So those are some of the things that we’re looking at. So next week we’re going to go walk these 114 units. And we’re also walking a twenty-five-unit, same thing. And this one, we have no financials. We have at this point, I have nothing I, I have no financials from the seller. I have no rent roll. But the broker is trying to bring us deals and build a relationship with us because the broker knows that we can close. So the brokers like, hey, it’s just a little twenty five unit, but it’s right in the middle of all of your other assets that you own. So why don’t you take a look at it and the only information he gives us is he says, hey, you know, it’s probably going to trade, it’s going to sell for between forty to forty-five thousand a unit. OK, so again, I can quickly underwrite that as all the information I need. 

And what I mean is I can quickly underwrite it by simply saying at forty or forty-five a unit, let’s say forty thousand a unit times twenty-five, that’s a million dollars, it’s a million-dollar purchase price. OK, now what I’m thinking is OK, let me just take a look at this area and this is in the Heights area of Cleveland, Cleveland Heights, Shaker Heights, Mayfield Heights. Not going to give you the exact area because I don’t have it under contract yet, but in the Heights area and. And I immediately penciled out, I said, well, you know, I can I can find the unit size because I can go to apartments dot com or I can go to coast are. And I find that they’re primarily one bed, one bath. Twenty-three of the units there are only five hundred and fifteen square feet. So kind of small. So I’m thinking if I could charge seven hundred dollars a month, OK, which is around a dollar, thirty five a square foot. I think it’s 700. Same thing in my head. 

Seven hundred dollars times, twenty-five units multiply that times 12, I get two hundred and ten thousand of gross operating income. Just multiply that times 50 percent to get my net operating income, my net operating income is going to be around one hundred thousand dollars. OK. And if I can get my NOI at around one hundred, hundred and five thousand. Now, again, divide by my cap raise. My cap rate is six and a half cap. All right. That puts the value five a million dollars of net operating income, you could do this with your calculator, get your calculator out as you listen to this, regardless of what platform you’re listening to this on, you can go in and say, OK, one hundred and five thousand divided by point zero, six five. And the lender is going to value this building at one point six one five million. 

So, again, I’m looking for yield here, I’m looking for spread, I’m looking for just like on a residential deal, can I buy it for X, improve it and make it worth Y, make it worth more. So if I can buy for a million and then I can improve it, doing some capital improvements, can I make it worth more? And the answer is yes, I can make it worth one point six, one point six, five million. OK, so that’s great. So now I’m looking at, again, same thing with this deal, some of my rules of thumb, if I buy for forty thousand a door, if I put five thousand a door into it, now I’m into it for one hundred twenty-five thousand dollars of capital improvements, three percent acquisition fee, two and a half percent to my lender. I’m all into this thing for about one point two to one point three million is going to be worth one point six million. It’s just a little deal. That’s what I would consider a tiny apartment. Small deal. OK, but look at the profit centers here. If I charged three percent acquisition fee, that’s 30 grand. If I can refinance it and make up, let’s say, one hundred thousand dollars of cash, cash out, reify proceeds, that’s one hundred thousand dollars tax free. 

It’s going to cash flow about three thousand dollars a month of net free cash flow. After all of my expenses are paid and include all of my debt service and I’ve got about four hundred thousand dollars of equity. OK. There’s a lot of people that I know that you know, that would love to have an extra three thousand dollars a month of free cash flow, just a little deal is not a lot of work. So that’s what we’re working on there as well. 

We also have one hundred and sixty unit that we’re touring next week, then this past week I spent I spent the week in covid quarantine. We had a covid exposure. One of our family members actually tested positive. So my whole family stayed in for the past week. So I’ve been just underwriting deals like a crazy man, recording videos because I can’t go anywhere. I actually tested negative, but still quarantining just to be safe. And soso we have a two hundred twenty unit under contract and I couldn’t go. So my team went and walked about half the units. They walked about one hundred and twenty of the units. And primarily when we walk units we’re looking again, we’re looking for leaks. We’re looking for if each unit is a full turn, a half turn or no turn. OK, again, a full turn is about seventy-five hundred bucks a half turn is about thirty-five hundred bucks. And no turn means we’re not going to touch it. Well, my team walked it. They said, look, there’s just a lot of carpet there. The units are in good condition. There’s just a lot of carpet there. So we want to think about replacing all the carpet with LVP flooring, maybe replace all the trim in the baseboards, painting all the cabinets, putting new hardware on the cabinets and then looking for some remnant granite countertops. 

So we did that. I’m going to go walk. I’ll be out of quarantine next week and I’m going to go walk the other one hundred or so units and we’ll cross that off our due diligence checklist. In the meantime, I’m spending a lot of time looking through all the due diligence at my house. I’ve got papers printed off everywhere, looking through their gross income, looking at all their expenses, looking at all the leases, looking and making sure that their deposits match up with their bank deposits so that the leases match up with the bank deposits, the bank deposits match up with their financial statements and their financial statements match up with their tax returns. 

Sounds like a lot of work sort of is, but it’s a 12-million-dollar deal that we’re buying, OK, and going to be worth a lot more than that when we’re done with it. Also this week, my team is working with a seller. We have a fifty-four unit under contract and we’re buying that based on an as completed basis, meaning the seller, the seller got an unbelievable deal on it and the seller got it under contract and bought it. Got a great deal on it. Seller seems like a nice guy. Met him a couple of times. We’re buying it from him at about double the price he paid. So we’re just making sure that when we buy it, he’s making sure all the units are turned. So new flooring, painting the cabinets, new hardware, countertops, new appliances, updated bathroom vanities, toilets, flooring in the bathrooms, showers, surrounds, updated electrical, making sure that all the windows and windowsills are updated. 

So we’re buying that property and we expect it to be pretty much in turnkey condition because there’s fifty-four units, but thirty of the units are vacant. They’re being updated. The other twenty units we’re going to have to inherit and we’re going to have to update. And all of those need a lot of work. You know, those are full terms. They’re going to need about seven thousand dollars each. So seven thousand times twenty units. It’s one hundred and forty thousand bucks. OK, so we’re also going to inherit the cleaning up the outside the parking lot, the driveway, the some of the windows, landscaping needs updated and the siding. So we just expect when the property is handed over to us that we get those thirty four units as completed. 

And we’re going to take care of the rest. Also got a 50 to unit that we’re buying again and as completed situation. So what we’re doing with that one is we’ve got our private placement back from our securities attorney. We got the subscription agreement, the operating agreement. We’re collecting up all the paperwork, getting all that signed by all the passive investors. We raise about a million, million one for that. And we’re getting all the paperwork and all the wire transfers and some. Jen Pennington, my director of operations and our offering manager, is working with all of our passive investors. We’ve already raised all the money. We know. We just got to get it all wired in. Also, this past week, we spent a lot of time giving our investors updates, so this is really important, whether you’re a residential investor, whether you’re a commercial investor, apartments, whatever you do, we take great pride in making sure that we give our investors a really solid quarterly update in PowerPoint format with a video with before and after photos. 

So every quarter we pay out our investors their quarterly return or their quarterly preferred return. And in addition, we provide investor updates, so whether it’s our fund, whether it’s for our apartments, we like to give them an update with video of us just talking to them about what’s going on with the property before and after photos, telling them, hey, in order for us to achieve stabilization. You know, our goal is to run these units out for, let’s say, eight hundred a month and we are leasing them out and we’re actually achieving eight hundred a month, or maybe we’re achieving more, maybe we’re achieving less. But whatever we are doing, we want to be transparent. OK. Also this past week, we got eight new private investor leads that registered on our investor portal. A lot of them are coming from Facebook. A lot of them are coming from social media. We’re also getting leads. 

Did a great podcast with Justin Donald, my friend Justin. He has a great podcast and a great book called Life Style Investor. Check out the book. Definitely buy it. It’s already New York Times best seller. Also the podcast we recorded, I am actually podcast episode. It’s the fourth one that got released. So, you know, when iTunes, the newest one you release is episode number one and then they work backwards in like descending order. So we were the fourth podcast released, but now we’re like episode number thirteen because we keep getting pushed down every time he records a new podcast. So check that out. Lifestyle investor with. And Donald, I think you’ll love it. And for our podcast, you’re going to see a lot of updates, podcast, YouTube, Facebook groups, check those out, FreelandVentures.com/podcast, FreeLandVentures.com/YouTube, FreelandVentures.com/FBgroup. 

Those are all free materials. And you can join our group and join the community and share in this journey. We’re on this journey to retire early with multifamily and apartments and with forever passive income. That’s what we’re going that’s what we’re doing going forward. Couple more updates for you guys. We have an 80 unit that we bought in October. We’ve got 13 units that were turning around here in February. We should have seven of those units completely renovated. New LVP flooring, new trim, new blinds, new fixtures, new finishes, new cabinets, new countertops, new hardware, new appliances, new toilets, new flooring, new vanity’s, new mirrors, new medicine cabinets in the bathrooms, spending about seven, seven to eight thousand a unit. And we’re going to have seven of those units that are going to be rent ready here in February. Our plan on that building is to turn 40 of the 80 units. So that’s super exciting to make sure that we get all that done and finished here in February. And our goal is to turn 40 units by the end of the second quarter, by the end of June. 

That way we can work towards stabilization and then refinance and refinance our investors out of that deal within 18 months. We’re also currently interviewing for a leasing agent. So one of the things that you’re going to have to have for each property is a property manager. When you own hundreds or thousands of units, it makes sense to have a full-time leasing agent. So we’re working with our friend Scott, who owns a human resources company, and Scott is actually interviewing for a full time leasing agent. Hopefully, we’ll have that person on board it. And also, we’re also looking for maintenance techs to help us with turning units and with doing maintenance improvements at each unit. You know, the heat goes out, somebody gets locked out of their unit, somebody burn something. It’s usually heat and leaks. 

These are the two most common maintenance issues that we get when you in apartments. You should expect that those be your two most common buy. Heat’s not working or my air conditioning is not working in the summer and I have a leak. Those are the two most common that we get. So we’re actually working with a temp agency to bring us contractors and laborers because there’s a lot of turnover in that space. And so just we’re going to have a temp agency continue to bring us. People also our current maintenance guy, we don’t know what the heck happened, he was in one of the units this past week and he said that he felt some burning on his calf and he thought he spilled. He thought he spilled something on his jeans, are on his work pants, and it burned a hole in his work pants. He ended up at the hospital with third degree burns. 

And the hospital’s like you didn’t like. You didn’t spill anything. There was nothing like that. We could tell that he really has third degree burns, like burned through his skin almost down to the bone. And he doesn’t know how it happened. None of us do. So, you know, I can’t explain it. But we told him, hey, look, take a couple of days off, come back on Monday because we don’t want you getting further injured on the job. He wanted to come back to work the next day and he wanted to. Let me come back to work and just get back to work, you just want to take a day off, I don’t want to lose any income. So I said, dude, like, relax, just take a few days off and we’ll figure it out next week. So that’s pretty crazy. 

Also, we have a duplex that we renovated on Raleigh Avenue. This is down in Cleveland, down in the Tremont, Ohio City area. It’s right around the corner from the Christmas Story House. So if you’re a fan of the Christmas story, the movie with Ralphie that was filmed in Cleveland back in the 70s, and that house is world famous, if you if you at all like Christmas and like the Christmas Story movie was filmed in Cleveland, I used to own a house and live down around the street from it. We have a duplex that we bought. We’re all in for purchase. And renovations were all in for hundred and thirteen thousand. And our realtor is actually going to sell it. And he said, you know, he said he would like to sell it for one eighty-nine nine. So that’s pretty cool. Should make about fifty thousand bucks on that deal. Also, we decided to go ahead and sell all of our single-family rentals. Anything that’s really under 15 units we’re going to sell. So we’ve got some duplexes. We’ve got a five plex, we’ve got a bunch of singles. The market’s hot things are really inventory is really low. 

Matter of fact, my partner, Tyler Bromet, his girlfriend is a realtor. She listed a property in Lakewood, Ohio. For one hundred ninety-nine thousand, a duplex. And there were, guys listen, there were ninety-eight showings scheduled in four days, ninety-eight. She listed it on Thursday between Thursday and Sunday, 98 showings, full price offer, actually two hundred twenty-five thousand two hundred twenty-five thousand, all cash at another offer for two hundred thirty-five thousand with financing. And she didn’t even get through all the showings, so the market for single family is hot. We’re going to list and sell all of our single-family properties. 

Finally, I’m going to tell you a quick story about raising capital so I get introduced to a new potential investor. The guy sold a manufacturing company for millions and millions of dollars, and I’m really happy for him. I met the guy on a cell phone. This is my typical process when I meet somebody new who’s interested in raising and investing with us, possibly do a cell phone call first. Do a Zoom call second. On that Zoom call, I only keep it to about 15 minutes. And we only I only really like to talk about personal stories, what’s going on personally, I like to get to know them on a personal level, OK? I don’t share any deals. I don’t talk about profits. I don’t talk about how much money they can make. I don’t talk about our deal structure because what I found is the slower I go. The more I build a personal relationship with somebody. The more money they invest, the more they trust us and the more often they invest. So when you have somebody that you think might be a private investor. My advice to you is to go as slow as possible. Have a cell phone call, we two weeks have a zoom call, ask a lot of questions. Wait two weeks, have another zoom call, then show them an old deal. Show them an old deal, a passive deal, a deal that you did in the past and how it worked out. 

And then right about the fourth meeting or fifth meeting, you built that prior existing relationship. And at that point then then share your upcoming opportunity, share your upcoming deal. So it’s been a wild week on top of that, my entire team, Ramie, my my director of AV and our social media managers, our marketing team, everybody’s rebranding everything that we do focus on Accelerated Investor and retiring early with multifamily apartments. So everything is going to change. We’re still the Accelerated Investor brand. We love that brand. So that’s going to stay the same. But you’re going to start to see more marketing and more mentioning more talking about retire early with multi-family apartments, because that’s all we’re focused on is really building that portfolio. 

Last piece of advice I want to give you guys before I go is look, on average. We make about thirteen hundred and fifty dollars per year per unit that we own. So my suggestion to you is whatever lifestyle you want, whatever. Passive income that you want to receive if you are an active operator of multifamily apartments. Just take whatever the income is that you want to get whatever passive income that you want to get, divide that by one thousand three hundred and fifty dollars. And that will tell you how many units you need to buy. Stabilize. Refinance and own in order to achieve true dependance and true forever passive income. OK, so again, do the quick math if you want to make a half a million dollars a year, five hundred thousand dollars a year, take five hundred thousand divided by one thousand three hundred fifty, and that tells you that you need to own three hundred and seventy units. 

370 units of multifamily and apartments, and that’s going to provide for you a half a million dollars of net free cash flow after expenses after debt service in perpetuity for the rest of your life, half a million bucks a year. So that becomes the new goal. Right, that becomes a new goal for me, that’s all that matters anymore is forever passive income with apartments. And so I just want to say thanks guys. Thanks so much for being with me today, whether you’re in our Facebook group, because we’re feeding this live in our Facebook group. Thank you so much for being on. You’re listening to this recording and our podcast or on our YouTube channel. Thank you so much. If you’re interested in and investing passively in one of our deals, go to FreelandVentures.com/passive to learn more about our offerings. And if you’re interested in learning more about how you can, you can be mentored by me through our one-on-one coaching programs. Go to JoshCantwellCoaching.com. As always, if you enjoyed the episode, you learn some things that are helping you be a bigger, better investor. Leave us a rating and a review in iTunes or on YouTube. Thank you so much, guys, for being here. We’ll talk to you soon. Take care. 

You’ve been listening to Josh Cantwell and the Accelerated Investor Podcast. Leave a comment on our iTunes channel and let us know what you want to learn next, or who you’d like Josh to interview. While you’re there, give us some five-star rating and make sure to subscribe so you can be the first to hear newepisodes. Follow Josh Cantwell and his companies, the Strategic Real Estate Coach and Freeland Ventures on all social media platforms now and stay up todate on new training and investment opportunities to start your journey towardthe lifestyle you’ve always dreamed of. Apply for coaching at JoshCantwellCoaching.com.