Patrick Grimes on The 8 Criteria That Multifamily Properties Must Have Before You Buy – EP 308

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Today, I’m talking to Patrick Grimes. He’s the CEO of Invest on Main Street and a general partner in over 3,000 units with a focus on the Midwest, the Southeast, and Texas.

He has over $300 million in assets under management and is continuing to build his portfolio, bringing in more passive investors, and finding new ways to win in a down economy. If you want to find out how he’s doing it, you’re going to love this interview.

Among the many things we discussed, Patrick shares eight specific criteria that any multifamily asset you’re considering buying MUST fulfill. I have to say, Patrick’s knowledge level is phenomenal, and I highly recommend that you don’t just write it down, but make sure that any investment property that you buy meets these requirements–I know I am!

Lastly, if you’d like to work with Patrick (or get a free copy of his book), all you need to do is set up a call with him at InvestOnMainStreet.com. Have a quick conversation about your goals and what you’re doing, and he’ll ship you a free, signed copy of Persistence, Pivots and Game Changers, Turning Challenges Into Opportunities.

Key Takeaways with Patrick Grimes

  • How Patrick is getting deals in markets where people are often overpaying.
  • Where Patrick sees distress in the market–and where he thinks deal flow is going to come from.
  • The eight criteria that you need to check off before you purchase a multifamily property.
  • Why Patrick believes in using vertically integrated property management, even though it costs more.
  • What Patrick learned from the Great Recession–and how he re-entered the world of real estate after losing nearly everything.

Patrick Grimes Tweetables

“If you're going to set up shop in a business, it needs to be somewhere where the government likes you. There's very little we call legislative risk. It's landlord friendly and they have good tax laws not only for you but they're friendly to businesses.” – Patrick Grimes

“You want to find population, job, and income growth but you want to find all of those in a diversified employment base. And then when you add the landlord-friendly component to it, that means you'll be able to maintain revenue.” – Patrick Grimes

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Josh Cantwell: So, hey there, guys. Welcome back. This is Josh, host of Accelerated Real Estate Investor. And I have a treat for you today. I have to tell you that, you know, no disrespect to all of my other guests because a lot of them are really dynamic and really good. This interview today I have for you is one of my favorites. My guest today is a fellow named Patrick Grimes. He’s the CEO and general partner in over 3,000 units. His company is called InvestOnMainStreet.com. They invest in the Southeast as well as some markets in the Midwest and specifically in Texas. And you are going to learn on this show some amazing, amazing things. But in particular, you’re going to learn eight specific criteria that Patrick feels is the absolute must-have criteria to buy multifamily in today’s market. The rest of the show is amazing but I’m going to tell you that one part, the eight specific criteria that you need when you’re buying a multifamily asset in this market, I’m going to tell you that that part of this show is phenomenal. It’s one of my favorites. It’s about a 3 to 5-minute segment of this show that I would put on replay, I would listen to it over and over, I would write it down, and I would make sure that all of my investments in today’s market meet this criteria. You’re going to love it. This is a fantastic interview today with Patrick. Here we go.

 

[INTERVIEW]

 

Josh Cantwell: So, hey, Patrick, listen, so excited to have you on Accelerated Real Estate Investor. Thanks for carving out some time.

 

Patrick Grimes: Josh, I’m excited about it. What a cool show. And I feel like I’ve kind of come full circle to be on your show and to be out there and getting my name out there. I appreciate the opportunity.

 

Josh Cantwell: Yeah. Now, a lot of guys use podcasts and social marketing and things like that to build a portfolio. You guys have built a massive portfolio and you’re finally getting your message out. So, we’re excited to share that message with our audience. And as our audience gets to know you today, Patrick, what I’d love for you to start with is just to tell our audience something that you’re working on right now, that you’re excited about. You obviously have your book, New York Times bestseller. I know you have a deal that you’re working on right now. So, just tell us a little bit about what today or next week or next month looks like. What are you working on that gets you going?

 

Patrick Grimes: Yeah. Well, Invest on Main Street, we’re killing it. We’ve got 300 million in management. We have 3,000 multifamily units across the Southeast and Texas. And so, we’re working on that portfolio. We’re building that portfolio. We’re bringing on more passive investors. We’re doing it in a way which allows for us to win in a down economy. And we’ll talk about my story a little bit, but I actually lost a lot in the ‘07 downturn. And so, I’ve been fortifying my deals, waiting for an opportunity to start getting some discounts, and we’re seeing that now. I actually think our company right now is experiencing multiple discounts consecutively on deals before we take them down. And if this window’s not going to last forever, where we can snatch those up? Happy to bring whatever investors are out there that want to start enjoying those returns. And that’s what we’re working on is trying to bring on more individuals to partner with.

 

Josh Cantwell: I love it. So, when you say multiple discounts, right, we’re talking about re-trade price difference through the due diligence process. Explain that. Like, give us a real example of what that’s like because a lot of people are like, “Oh my God, you’re actually re-trading a deal. You’re getting a discount. What is that?” Because people are so used to overpaying, over-list with big honest money deposits, the market’s shifting. Give us a little bit more context around that.

 

Patrick Grimes: Well, finding deals has always been brutal for an organization like myself. Working with our partners, we underwrite 200 to 300 deals before we find one. Underwrite means locate, find, and analyze and project. And it’s always been tough because we’re extremely low leverage, which means high down payments, right? We raise a bunch of capital for improvements. So, it’s hard to get those to provide returns that are attractive and still be high cash flowing enough to weather a storm. And so, when I say multiple debt, I mean, I got up at 5:30 a.m. or 4:30 a.m. for a webinar to record at 5:30 a.m. this morning. So, my partners are on the East Coast and we’re all flying around the properties this week so we did a recording. And what we’re talking about is we went into this investment that we’re kicking off the raise for right now with over 2 million from the asking price. It was a pocket listing from a broker or off-market deal. Well, we went under almost 3 million below where he was looking for. And we just let that ship sail. And you know what? It came right back to us. But when it came back to us, we looked at it again and we said, “No. We’re not going to go forward unless we get another over 2 million discount.”

 

So, we’re walking into the door here to this property. It’s a 300-unit property in San Antonio. And then when we arrived, we realized that the distressed operator was distressed because there was a unit that had burned down shortly after he owned it and he wasn’t properly insured and didn’t have the reserves. You add the forced physical vacancy to that plus delinquency during COVID, and he got distressed. So, the discount is buying not only below market but also immediately we’re going to finish this building and lease-up 16 units which had not been producing income, fix the delinquencies immediately. It’s incredible the upside on some of these value-add deals we’re finding. And normally it would be much harder to get those discounts because in a seller’s market, it’s much harder to re-trade or negotiate.

 

Josh Cantwell: And, Patrick, how do you feel like brokers and the players in this business are responding to that? Because everybody’s learning almost on a daily basis about valuation change, right? Things are changing. Buyers are adjusting price. Deals aren’t as competitive necessarily with so many offers upfront with their offers but they’re coming back because those buyers can’t close. So, because you and I have so much experience in this and just curious to hear for my own selfish reasons, power brokers responding now to these price discounts, re-trades. Are they open to it? Are they realizing? Obviously, these guys want to transact. They want to make a commission. How are they responding?

 

Patrick Grimes: So, prior to, say, COVID, re-trade was kind of a bad word, right? Nobody wanted to re-trade. Once you submitted LOI or PSA and you did your due diligence, you were kind of on the hook and sellers where they wouldn’t make. And you would have to kind of drop out before you went hard earnest in. But nowadays, at the true heart of brokers, in my opinion, is they’re really transactional. They just want volume. They want volume transaction. But in order for them to do that, it’s relationships, relationships of the seller and relationships with the buyer. If they falter and choose the wrong buyer for the seller and steer the seller in the wrong direction once, maybe that seller will give him another shot, sometimes twice, that seller’s moving on. And that’s a problem because that seller usually represents a lot of business. So, normally, they’re coming to really strong players that have decades experience and a track record of closing and then have large reserves and the ability to take properties down quickly. They’re coming to us because they know we’re going to close. They know we’re not going to piss off their buyer. We’re not going to re-trade.

 

But in this economy, ultimately, they just need volume. And when the volume, the transactional volume is dropping, they’re having to step up to the plate a lot and help us out with the owners and be like, “Hey, look, we’ve got to make this deal happen.” And so, we’ve been playing hardball. “Hey, this is what we can do but the sellers are much more…” “I get it. It’s happening everywhere. Let’s figure this out. Nobody walk away from the table.” And we get through it. And you know we’ve come to that you can show exactly how the numbers work out which exactly what we identified and what will allow us to move forward. And we have not lost any reputation over doing that this time. Usually, we start out low, they’re starting out low, and then trading down from there is a really awesome place to be. I only think that’s going to last another three to six months while we’re kind of in this inflection period where there’s some fear in the market. But we’re already seeing interest rates. Inflation’s already started to taper. The Fed’s doing a good job. I think we’re in a good spot right now to get some great deals as long as everybody stays scared. So, stay scared, everybody.

 

Josh Cantwell: Yeah. No doubt. I love it. So, the interesting thing is I had a conversation with my lender broker the other day and we were talking about the ten-year treasury, right? And so, ten-year treasury jumped up to like 3.4. Obviously, interest rates jumped up in the middle fives and now ten-year treasury is back down. We’re having a conversation about it. He said, “Look, bad news for the US economy. Good news for us.” In an economy, because people in a time of fear, they’re going to run to safety. Safety is U.S. government treasuries. So, that’s why the rate goes down because there’s a lot of demand. When that happens, our cost of money goes down. Typically, cap rates will come down, values will go up, right? So, you have to just be in this inflectionary period like Patrick said. You have to be smart and you still have to make sure that you’re a long-term investor. Patrick, I feel like the people that are going to have trouble where there’s going to be some opportunity to buy that’s going to happen in the next two to four years are those guys that did high leverage, bridge loans, SOFR rates, and that stuff is going to change. The rate’s going to float if the rate goes up.

 

But also, those people who thought they had this, you know, the dopamine rush of buying the asset, not really giving into it to manage the asset. So, where do you think as you project over the next maybe one to two or three or four years, is that where you’re seeing the distress also? Is that where you’re accounting and where do you think some more deal flow is going to come from?

 

Patrick Grimes: I mean, you said a lot of it. I mean, you packed up a lot of really great stuff and I resonate with all that. And I’ll probably try if I can remember all of it. Well, first of all, the fix and flipper single family or fix and flipper multifamily, they’re still fix and flippers if they’re short-term thinkers, right, and multifamily. And that is the last place you want to be in. Not all operators are created equal. Not a lot of them have been through a downturn. I think you want to ask me about that in a minute. And they don’t understand how the economic models can change and how the demand can shift and how things can break down. And so, you’ve got to be very long term. And we’re either buying interest rate caps with long extensions or we’re getting fixed interest rates. We’re getting large down payments which allow us to cash flow below a 70% breakeven occupancy. And the downturn hasn’t dropped that low and workforce housing being C-class multifamily. So, you’ve got to build and raise six months’ worth in reserves and million dollars and put it in the bank for a rainy day just in case.

 

You’ve got to fortify these so that they’re long-term focused and short-term valuation fluctuations aren’t so worrisome to us. And that’s the point. We’re not short-termers or long-timers. We’re fortifying these guys’ strong cash flow. I think you said was about the fundamentals of multifamily are very, very strong. I mean, nationally, we’re at some record occupancies right now. I mean, what is that? Well, first, in a macro sense, we’re becoming a renter nation. They’re wanting to rent more and more. There is a huge underserving of housing in the country. And we’re buying in the emerging markets where people are moving to, jobs are created, income is growing. And especially in those areas where we just did a deal in Austin, where we have 180 people moving to town today and they’re only bringing on 100 units a day for them to live in. And that’s single-family and multi. But if you’re in affordable housing, those B and C class, a 20 to 40-year-old, they can’t build new ones to compete with you. So, if you buy in those areas, there’s a competitive moat between all the new construction that’ll come up and in a downturn, they’ll move into our lower-cost housing unit.

 

So, the reality is I agree 100% with this. As long as you fortified it with the right kind of foundational debt product long-term, you’ve got the right kind of asset in the right market and the right workforce housing type of setup, it’s going to be hard to go wrong. And if you consider income-generating real estate to be a great inflation hedge, I mean, our revenues are our rents and that’s going up with inflation. Well, sure, expenses do too but our expenses are only half our revenue. So, oftentimes our returns go north. So, people like fearing, putting their money in their bank account. Well, they’re losing 8% to 10% right now. They’ve curbed it a little bit, whereas our investors are enjoying those increases. We just had a, I mean, San Antonio just had a 15% rent increase this year. And we’ve had this under contract for a while now and we’re enjoying that. Investors haven’t even invested yet but once they invest, they’ll bought into an asset which is already appreciating while they sleep and while they slept the last couple of months. Whereas if you’ve just had your funds just sitting in a bank account, it’s going to be a Saturday.

 

Josh Cantwell: Yeah. It’s going to be. Absolutely. It does point that more and more of our investors I’m having conversations with, Patrick, is not just, “How much return I can make? What’s my pref return? What’s my equity position? What’s my IRR? What’s my annualized return?” More and more I’m having the conversation of, “Well, where else can you go to get a six or an eight pref or even some cases a 10 pref but just call it six or eight and just keep up?” And a lot of people are like, “Well, I don’t know. Like, the bank is not paying much. Cryptos gotten crushed. Where else are you going to go to get any kind of yield and cash flow return on investment that could just keep up?” And then your equity position is your, you know, it’s kind of the icing on top of the cake. That’s more of the conversation that we’re having lately. I’m sure you guys are having those same kind of conversations.

 

Patrick Grimes: All the time. And right now, it’s the year of the operators. You said it’s the strong operators that know how to buy a value-add, something that’s distressed or under market that knows how to get in there, that knows how to tell the difference between, hey, how do we increase the value of this to the market and then raise those rents? That’s the only way you can cash flow to those numbers. You can’t just buy an A-class property that doesn’t need any work. You’re going to be cash flowing in 2% or 3%, right? Maybe 4%. But if you buy a low leverage safe asset that an operator that knows how to get in there, do the work of renovating the units, bring the rents up $200, $300 to the nearby comparables, and can find those needles in a haystack. We’re returning on some of our assets 4% in year one, 6% in year two, 7% to 8% in year three. In addition to that, we’re doing refinances of half to three-quarters of their capital back out in that third year because we’ve created that value. And so, by doing that, it’s all tax-deferred and you get not only the returns that they’re looking for, but you get it at a depreciating asset where Uncle Sam doesn’t come knocking at your door.

 

So, it really is the year of that operator that knows how to find those deals and can operate those deals. And you mentioned before something about, well, the operators that we’ve seen they had a 19% bad debt and the asset we just took down in Houston. The guy was terrible. He just bought it and forgot the tenants are living there. Part of our ethos and our mission is actually to not only provide great returns for our investors but an improved living experience, cleaner and safer place to live for our residents. So, it was as thick as a ream of paper that we printed of just unanswered maintenance requests. And this guy, 19% of the people chose not to pay him. And that’s what we’re bringing down, right? You’ve got to stay focused. We’re a service industry. It can be a win-win for everybody. And it takes that operator with the skill to create that environment for the residents to be happy enough and be service-oriented to the residents for them to pay you when they can choose not to through what might be a recession, right?

 

Josh Cantwell: Right. Patrick, do you guys self-manage or use third party? And regardless of whether you use self or use third party, what do you do to asset manage the property manager to make sure that you’re not having any kind of delinquency like that, that evictions are filed on time? To me, this is operation. This is being a good operator. So, what are some things that are really important to you or that you would pass back to our audience that they need to be doing to be really good at operations and asset management, regardless of whether they’re self-managing, property management, or outsourcing? What are some things you do that are kind of that nitty gritty, dirty stuff that makes it work?

 

Patrick Grimes: There’s a lot, right? I mean, you kind of open up a big can of worms. What makes it work? As soon as we get into a property like pretty much the immediate thing we do is we notify our residents that we have new leadership in town. We ask them to republish any unanswered maintenance requests, and we publish a schedule for how we’re going to fix those and a timeline for it. Because oftentimes there’s pest issues, there’s leak issues, there’s things that we’ve uncovered doing due diligence, there’s mold issues, those kinds of things that we need to get through. We also make it very clear right upfront that we’re going to be fixing the amenities and we want it to be safer. So, we immediately put up security cameras and we fix the fencing. And part of that is making sure we’re controlling access to the right kind of people and the right kind of visitors to a property and trying to figure out which ones are all night long moving in and out and things are figuring out which tenants are the right. And so, once you start seeing us requalify tenants based on income, credit, and references as they come in and start to do unit inspections, you can quickly see who are the problem makers, who are the individuals we need to start getting out once tenants start seeing that you are actually doing 24-hour responses to maintenance requests, and then you’re immediately following up.

 

And that’s not expensive. Those are very inexpensive callers to immediately follow up to see did they resolve the issue so you’ve reduced response times and followed up. That’s challenging. And I’d say probably the hardest part about operations is that you have what are traditionally lower-income jobs controlling the happiness and livelihood of your residents. That’s your maintenance and leasing and all that. But they’re also controlling a multimillion-dollar business. So, we’ve actually increased the payroll. And you ask me if we’re vertically integrated. I used to be a big third-party management guy kind of prior to COVID, although probably two-thirds of our portfolio is vertically integrated. But when we went through COVID and we had control, our reporting structure all the way down to the door where we could knock on the doors, we can inquire what’s going on, we can help them fill out the applications. And there was none of this pointing of whose job it is, and they didn’t have a profit center between you and your revenue generator.

 

Property manager, I think that’s when it became really important to have the vertically integrated property management because then we had that control. It’s not profitable for an equity firm or private equity firm to run property managers. It’s a huge hassle and a long journey and a thankless job, and one of the reasons I moved out to single family. But it serves the residents better because you can build a service-oriented community. It serves the investors better because you have greater control, especially in a potential downturn or a shaky area where delinquencies are a little more common.

 

Josh Cantwell: Fantastic feedback. I mean, there’s a thousand. We could take this call down a thousand different…

 

Patrick Grimes: Yeah.

 

Josh Cantwell: Some of the things you mentioned, amenities, safer, fencing, security, increasing the payroll, paying a little bit better, the reporting all the way down. One of my favorite things to do is to secret shop my property, to show up unannounced to everybody, residents, staff, construction guys, property management. Just show up and start walking into buildings and just see what you see. And then course correct if something’s off. It’s also very satisfying when you walk into your buildings and the hallways are clean. It smells nice. The cleanings are done properly. There’s people moving in and out. The common spaces are done. The public spaces are good, the amenities are being used, and you’re walking through this asset thinking, “Oh, God, this is amazing. I own this $20 million, $30 million asset and nobody knows me any different than just the resident. And I’m seeing what I would want to see if I was a resident.” Right? That’s really critical.

 

Patrick Grimes: 100%. Yeah. You know, it’s interesting you say that because I’m actually speaking at a $1 billion boardroom in Mexico with some mastermind. And so, I’m flying from Orange County there but I found a flight that has a six-hour layover in Dallas. And so, I’m going to fly there and I’m going to Uber around to different properties to do exactly what you just said. And then I’m going to fly and arrive late night. But that is 100% exactly what you need to do.

 

Josh Cantwell: Yeah, absolutely. I love it. Patrick, you mentioned we talked about recession. We talked about inflation. We talked about you mentioned low leverage many times. I’m just curious if we could go back to that a little bit and talk about your money-making strategy and kind of be a little bit more specific about some of the bullets that you think is kind of an ideal deal to buy in today’s market. Okay. B, C class, you mentioned so add that to the list. Low leverage, recruit more money. You mentioned that. So, what are some of those things? Let’s just go revisit that real quick. If you were buying an asset or coaching somebody or masterminding with somebody to buy the right asset in today’s market, what do you think are those characteristics that it’s got to have?

 

Patrick Grimes: Yeah. And this is a great topic because unpacking this leads me back to my original story of how I rode down the ‘07 downturn, ‘08 downturn in residential pre-development because I learned a lot through that process and that has stuck with me. I’ve always thought that the very next year was going to be the end and the end and the end of the bubble, right? I’ve always had that in the back. In fact, every single one of our deck says this was underwritten with forecasts similar to what happened in ’08, ‘09, ‘10 versus ‘11 through ‘15. So, essentially there’s kind of a couple of things, right? You need to be buying in the right markets. And if you’re going to set up shop in a business, it needs to be somewhere where the government likes you. There’s very little we call legislative risk, right? It’s landlord friendly and they have good tax laws not only for you but they’re friendly to businesses because ultimately we’re housing America and businesses are going to pay the people that pay you. So, you need to have businesses which are diversified, right, recession-resilient businesses.

 

And so, we always look for not a one-hit-wonder like a mining town or a Detroit or a Vegas that are highly leveraged in one particular vertical. We look for ones that are a balance of high-tech, health care, financial services, education, those where there’s a balance with heavily weighted in recession resilience, right? So, you want to find population, job, and income growth but you want to find all of those in a diversified employment base. And then when you add the landlord-friendly component to it, that means you’ll be able to maintain revenue. It’s stable, right? You can evict people if you need to. They’ll allow you permit to make the improvements you need. You’ll actually be able to execute on your business plan. So, why in California would I set up shop here when every single thing I just said is untrue? And so, obviously, I’m investing in the Southeastern states and Texas, maybe a little bit and a couple of Midwest locations. But within those cities, you want to make sure you’re on the expansion curve, which is what we talked about, not the hyper supply or recession or recovery, but the expansion curve. And within those markets, you got to find where the path of progress is.

 

And that path of progress is kind of my word for where are the assets which need improvement. Because again, I don’t buy high-end A-class stuff because the AA prime downtown new construction, it’s the most expensive cost structure to build. It’s built on the codes of today and there’s a huge gap between their price per door and ours, which means we can renovate to look like those and have those amenities, but we can charge way lower rents. So, you see in a class A side when during recessions they get hit fastest. People are choosing to live there because only a few of these existing construction, 20 to 50-year-old buildings that we can find that are lower cost. So, we get compression. Now, you don’t want to be in D class during a recession either, because especially in an inflationary environment and when their disposable income is just hair thin, that’s going to have the quickest impact on your rent. So, we’re in like B to B+ repositioning or improving to be more like B or B assets, right? Or sometimes in the right neighborhood where a B asset where we can really compete with the As. And so, that’s where we’re at.

 

And as long as you can find an area where you see some new developments, you see some big box retails, some new commercial stuff coming up, and you see comparables in those multifamily buildings which are much higher, say, 200 to 300, and you can find that ugly house, that ugly apartment building that somebody’s been sitting on for 5 to 15 years, they’ve just been riding it out, they need renovations, we can get it either pocket listing or off-market, that’s what we do. And we buy it and we just execute on those plans.

 

Josh Cantwell: Love it, love it, love it, love it. That three-minute description, Patrick, is one of the best I’ve heard…

 

Patrick Grimes: Oh, great.

 

Josh Cantwell: …in a long time. I’ve done 470 shows. Legit. Legit right there. So, my audience, hit rewind and then go listen to that 3 to 5 minutes again. That was fantastic, Patrick. Let’s talk about real quick. Now, you have this model you just described but you haven’t always been there. You talked about the ’08, ‘09 crash. You invested through that, learned a lot of lessons from it. My audience loves to hear the starts, right, the story of how people get going, because some of our audience is exactly there right now. They’re just getting started. So, what did your start look like? You said you were in resi. You pivoted over to commercial apartments. How did you get started? What were some of the early challenges?

 

Patrick Grimes: Well, at the end, I’m going to offer a copy of this book where I really get into the dirty nitty gritty, which is I think what you’re looking at the juicy stuff, because I actually got a master’s or a bachelor’s degree in engineering, machine design. And so, I’m a little bit of a data analytical nut, right? I love it. Machine design, automation, robotics, I’m a huge geek. And I stepped through to that my whole life. I’m still a geek today. So, like the first automation house that I worked for, the owner of the company and I had gotten real close to him and we had done some really cool projects. And I do work with solar cells and rockets and Tesla and like really neat stuff, right? And a lot of medical device too. COVID, so many test kits was really big. So, I did this and I’m full-time real estate now but my heart is still a little bit of an engineer. So, this guy said, “Look, I get it. You love it. I do, too. But high tech stocks, your 401(k), your IRA, none of that is going to get you, in those volatile industry, it’s going to get you to where you want to be with your family and your future. As soon as you can and as much as you can, invest in real estate.” And I was like, “All right. I’m going to do it.”

 

And that guy still invests with me today, by the way, which is really awesome. He’s one of my good friends and I call him out in the book. But so, then I look for the highest returning deal I can find. I didn’t pay attention to track record of the sponsor but I went for more speculative, right? I went for residential pre-development and I personally guarantee the loans and recourse states, mainly, which I didn’t really have a full understanding but I was buying property to then future build on it, develop and build on it, and that was the intention. Well, then that was actually borderline ’06, ‘07 and then ’08, ’09, ‘10 happened and everything crashed. And so, that’s when I learned the difference between speculating and investing and calculated risk, a risk-adjusted return, meaning a great return for the level of risk. I learned what fully recourse was and how that meant they could come after you. And I learned what bankruptcy was which I was able to avoid by the foreclosure and negotiating debt forgiveness through the lender meant that the government 1099’d me for the forgiveness and I had to pay income taxes in the following year on that forgiveness.

 

And so, I came crawling out of that just burnt, bruised, and beat, just painful. There you go. There’s the nitty gritty. And then I went and got my master’s in engineering and a master’s in business administration and I was off to the races again doing well with the voice in the back of my head, “You got to get back in real estate. You got to get in,” because obviously I was just putting money in stocks. I had watched my stocks fall apart, too, at the same time. It wasn’t just housing. That was the biggest episode of fraud in this country’s history. Not a real estate bubble. It was a regulatory fraud problem in the financial infrastructure of our country.

 

Josh Cantwell: Assets and all those adjustable rate mortgages giving a lot to no income, no asset, people with no jobs, and you still rate them through Standard and Poor’s, Moody’s, Dun & Bradstreet, S&P+ package, commercial mortgage-backed security. That’s fraud. That’s exactly what Patrick is talking about. So, that’s fraud to the nth degree and people bought it because it was still labeled as AAA rated. The ultimate fraud right there. Those mortgages don’t get sold. They don’t get created unless they can be rated AAA and they were. And it was completely fraudulent. Everybody knew it. So, at least we found out after the fact. People that were rating it knew it. So, you decide to go back to school, get the degree, but you’ve still got this bird chirping in the back of your mind and it’s saying, “Get back in real estate, get back in real estate.” But you were going to do it differently this time, right? So, this is where I want to ask you, Patrick, about advice. I know what’s in the book. So, first of all, tell us about the book. Where can they find it? What’s the name and what are some pieces of advice now that you have these 3,000 units, this massive portfolio? You’ve been through the tough times of the ’07, ‘08 crash. What’s in the book? What are they going to learn when they read it and what kind of advice comes out of it?

 

Patrick Grimes: Yeah. So, the book is called Persistence, Pivots and Game Changers, Turning Challenges and Opportunities. And I’m on here wearing a wig. Just kidding. I had hair not too long ago. It was my wife’s idea to shave it out. Now, I’m not allowed to shave the beard, though, because the hair is gone. You know, we’ve got some really cool people. Russell Gray from the Real Estate Guy, Phil Collen, lead guitarist of Def Leppard, some NFL, NBA entrepreneurs, coaches, and players. And I wrote a chapter. Every story in here is just totally life changing. And I really believe in the content. Where can they get it? I actually am offering a free copy. If they want to go to our website, set up a call. I’d love to meet people, talk about what your goal is, what you’re doing, and I’ll ship you a free signed copy of it if you’d like. Otherwise, it’s on Amazon and it didn’t make an Amazon number one bestseller, so I’ll see you on that one. So, to your point, I mean, the advice that I would give is actually what I did after that was I was like, “Okay. I’m going to do this real estate game and I’m going to do a single family.”

 

All my own money, I’m going to do all the jobs myself and then I realized that it was working. I was buying in recession-resilient markets in Houston. Actually, that leveled off in the downturn and went up again. And I was buying distressed, renovating, refining out my capital, and then holding. I was a hold investor. And every single time I did one, it was a ton of work. And I was signing on loans, which meant it was my first time as recourse again but it was measurable, right? It was an income-producing asset on day one. I was just making a measurable improvement, so much lower risk. Also, it was a little higher risk in that somebody could trip and fall on the property. And I was buying an umbrella policy and I was trying to get them LLCs but in LLCs, they either call your loan due because you sold it or you have a crazy interest rate. But I write in Forbes and I have a couple of articles in Forbes on asset protection. You can go look “Patrick Grimes Forbes Asset Protection and Multifamily.” You can read about all these details. So, my advice to people is it wasn’t until I realized that it was a ton of work and I was trading time with my family, friends, and hobbies to do a very grueling, slow-paced single-family after single-family, and that I can trade these up for larger multifamily deals.

 

And when you get above 80, you get onsite property managers and you’re not chasing yourself or chasing property manager. And when you start scaling higher, you can have asset managers with decades-long experience, acquisitions guys with relationships to get better deals that can analyze hundreds of deals. And you can partner up with far more sophisticated guys in a much lower asset if you invest in a syndication. There’s no financial risk other than what you’ve invested into it. There’s no legal risk because you’re shielded in a securities offering if you’re an LLC. And so, what happened was I started trusting in others that were very sophisticated and incredibly sharp and experienced with a track record and partnering with them. And then I became an operator on the syndication side, and now I work with passive investors that can then go enjoy their lives and we’ll get them better tax-advantaged and better returns and in better markets. And that’s essentially my advice is, if I told myself something, I would have said, “Trust in others earlier on, trust but verify,” than I was trying to just grind it out and do it all myself.

 

Josh Cantwell: That’s fantastic stuff. Patrick, listen, this is one of my, no disrespect to my other guests, but that’s one of my favorite interviews I’ve done in a while because you’re obviously speaking just right from your heart and right from your experience. It comes out in the way you talk. And so, I just want to say basically thank you for just being on today, carving out some time, being authentic, just using all this experience to share with our audience who will absolutely love this interview. So, again, InvestOnMainStreet.com. That’s where you can get the book. That’s where you can engage with Patrick. That’s where you can do a one-on-one session with him, invest passively with him if that’s a fit for you and for him. Do all that on his website, InvestOnMainStreet.com. Patrick, listen, man, fantastic interview. Thanks for carving out some time for us today.

 

Patrick Grimes: Happy to be here. Thanks again, Josh.

 

[CLOSING]

 

Josh Cantwell: So, there you have it, guys. Listen, I told you at the beginning during the intro you would love this interview with Patrick. I thoroughly enjoyed it. I took a tremendous amount of notes. And so, again, if you want to make sure that you never miss another episode of Accelerated Real Estate Investor, make sure you press that subscribe button right now. Make sure you leave us a rating and a review. I would certainly hope with that content with that interview, that you would leave us a five-star rating because that was about as good as it gets. And so, for sure, make sure that you leave us a rating and a review right now, Spotify, YouTube, iTunes. Do it. Also, man, if you’re looking to continue to build your portfolio, I’m looking to continue to meet amazing operators, amazing private equity guys, amazing asset managers and construction guys. We do it through our mastermind. It’s called the Forever Passive Income Mastermind, and you can apply to be a member of that mastermind at JoshCantwellCoaching.com. Thank you so much for joining us today and we’ll see you next time. Take care.

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