The Fastest Way To Build A Six Or Even… Seven Figure Real Estate EMPIRE!
Stewart Beal has been an entrepreneur since he was 13 years old. When he was 19, he already had a 6-figure exit from a landscaping business. At which point, Stewart founded Beal Properties, LLC and has since founded 20 other companies in the real estate and construction industry.
Stewart isn’t just a serial entrepreneur–he’s a very relatable guy who happens to manage 500 units of residential, multifamily, and commercial real estate. Across seven large syndications, he’s raised over $135 million and is a 20% owner in over 6,000 units in the Greater Ann Arbor area of Michigan.
He’s a founding member of Watermark Partners, which manages a set of real estate funds that have deployed more than $100 million in equity. And now, Beal Capital has just launched its second fund to raise $10 million and purchase $35 million in real estate.
In our conversation today, you’ll get an in-depth breakdown of his fund structure, discover his strategies for acquiring deals, you’ll learn why hiring real property managers is so important, and much more. You’re going to love this interview.
Key Takeaways with Stewart Beal
- Why Stewart focuses on off-market deals on class B and class C real estate in tertiary markets.
- How Stewart uses his new company, Beal Capital, to raise funds and create opportunities for outside investors.
- The five strategies Stewart uses to get his foot in the door with off-market deals.
- The lessons he learned during Michigan’s seven-year foreclosure crisis.
- How cash flowing assets like real estate can help you stay above water during market downturns, and why flipping properties and building new construction can be problematic.
- Why Stewart recommends investing in multifamily real estate units that are at least 5 units in a hot market.
- How to block out the negatives and use your platform as a property owner to give back to your communities.
Stewart Beal Tweetables
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Josh Cantwell: Hey, there. It’s Josh. Welcome back to Accelerated Investor. I’ve got a great interview for you today with Stewart Beal. This is fun. I had a great time interviewing him on a number of different subjects. Stewart is a serial entrepreneur who currently manages 500 units of residential and multifamily and commercial real estate. He’s also done seven large syndications and has raised over $135 million for those syndications and is a 20% owner in over 6,000 units. But you’re also going to find that Stewart is very relatable, very much a down-home, like a guy, a buddy, like next door. So, you’re really going to love this interview.
He focuses now, really in his backyard within an hour of his office in his home, which is in the Greater Ann Arbor, Michigan area. So, he invests in Toledo, Detroit, Monroe, Dundee, and Ypsilanti, Michigan. He is a Michigan fan, which I am not. But we did get along during this interview, and he has structured a fund that we’re going to talk about. So, here’s what you’re going to learn in today’s episode. Number one, you’re going to hear about Stewart’s fund structure. They’re raising $10 million to buy $35 million worth of a multifamily real estate. You’re going to hear why he specifically focused on 20 to 100-unit properties in tertiary markets, specifically C class and B minus class assets, and why that’s been a big moneymaker for him. You’re also going to find, number two, the five strategies that Stewart uses to acquire off-market multifamily and commercial apartments. That’s a really good part of this interview as the five strategies to acquire deals. You’re also going to hear the story, number three, about how he started a landscaping business when he was 13 years old and sold it when he was 19 years old for $250,000. That’s what launched his investing career. Number four, why you should invest? Stewart explains why you should invest and start with a five to ten-unit multifamily property. And I think this is really good advice. You’re going to like that piece. And finally, we’re going to discuss why property management can’t be a side hustle, why you need to hire professional property management, and not do it as a mom and pop, right? Don’t do property management, hire professional property management. You’re going to love this interview on Accelerated Investor with Stewart Beal. Here we go.
Josh Cantwell: So, hey, Stewart, listen, thanks so much for joining me today on Accelerated Investor. How are things going today?
Stewart Beal: Oh, having a great day.
Josh Cantwell: Nice, nice. So, listen, Stewart, so happy to have you on because you’ve done a ton of stuff, I mean, managing 500 properties, seven huge syndications, 6,000 units, but it’s a start of a new year, 2022. So, tell us a little bit about what you’re working on right now, like as we record this, and what are you expecting your 2022 year to look like?
Stewart Beal: Yeah, okay, great. So, we launched Beal Fund 2 at BealCapital.com on January 1st, and we’re raising $10 million to invest and about $35 million worth of real estate within a one-hour drive of my house. I live in Ypsilanti, Michigan, which is next to Ann Arbor. So, while a one-hour drive seems small, it actually spans over 100 cities, and so, there are plenty of opportunities. And today, I spent the morning evaluating an appraisal for a 20-unit in a very small city called Brooklyn, Michigan that we’re buying for $1.4 million, and it appraised well. And so, we are to close on January 31st, and investors can invest in that deal today through the fund, but that’s the primary thing I’m working on in 2022.
And then, the secondary thing equally important is I run a property management business. If you buy a property anywhere in the state of Michigan, you can hire us and we’ll manage it. We have experience in managing anywhere from single-family homes to the largest property we managed until it was sold was a 468-unit apartment complex. So, we run the gamut between those sized properties and different sized properties have different strategies, and we’re very good at developing a per property strategy for your investment. And so, we’re expanding that business as well.
Josh Cantwell: I love it. I love it. So, when you talk about Beal Capital, help me break that down a little bit. You’ve done a lot of syndications, raised a lot of money, $130 million in the past, this new venture. So, it sounds like you’re sourcing properties for your own portfolio, buying those within $35 million within an hour, the $10 million you’re going to raise in the fund, help me understand the structure. How does that deal get closed? And what does that look like?
Stewart Beal: Yeah, okay, great. So, Beal Capital is new. This is our second fund. I have done six other real estate syndications through a different group where I was a partner. Now, I’m doing it by myself. And so, Beal Capital’s new. This is our second fund, though. We did one last year. And we have three staff members and we have a director of acquisitions, we have a director of asset management, and then we have myself, and then we have an office assistant. And we analyze every deal across our desk of a certain size. And so, at the size of our fund, raising $10 million and investing in $35 million, we’re looking for midsize to large apartment complexes. So, anywhere from the 20-unit, which will be the smallest deal that we do in the fund up to we bid on a 102-unit last week. So, anywhere from 20 to 102 units, something like that is what we’re targeting.
And we go after class C or class B in tertiary markets. So, we’re not going to downtown Ann Arbor, we’re not going to downtown Cleveland, not downtown Detroit, but we are buying properties in cities like Monroe, Michigan, Dundee, Michigan, Brooklyn, Michigan, Ypsilanti, Michigan. They have strong employment centers. They might have a university, but they’re not that hot market, and that allows us more control of the deal, more control of the selling process because we’re not competing against 15 people, like we’re doing on some of those things. So, I invested in a real estate syndication myself based out of the Carolinas, and there were 27 bidders on a property that they actually bought. So, what does that mean when you beat out 27 other people for a property? Well, that means you paid a very high price. So, yeah, we try to avoid that at Beal Capital by doing off-market deals in secondary or tertiary markets.
So, the 20-unit is an off-market deal. The way that came to us is I held a real estate event that a broker attended, and the broker was very inspired about what we were doing. And he said, Stewart, I’m going to go find you a deal. And I don’t know how this happened, but just seven days later or eight days later, something, he presents this deal and we go check it out and we discover that it’s exactly what we’re looking for. It’s in a small town close to our office, and the owner has personally babied this property under his ownership for 20 years. So, it has brand-new boilers, brand-new hot water tanks. The units are very nice. And so, it’s 100% occupied, but the rents are low. And so, there’s some value-add strategy that will do there.
Josh Cantwell: Got it. So, the fund structure to the investors limited partners actually invest in the fund and then the fund owns equity in this deal, like is the 20-unit going to be bought in its own LLC, like a special purpose LLC? And then the fund is going to own a certain percentage of the equity of that deal. So, the fund investors are going to own chunks of all these other deals that you own. Is that the structure? Do I have that right?
Stewart Beal: Yeah. So, this is a new fund. So, there are no properties in it yet, but it’s designed as a blind pool. So, if you invest today, you won’t know what properties you’re going to own, but you’re going to know that you’re going to own class C to class B midsized apartment buildings within an hour of Ann Arbor, Ypsilanti, Michigan.
Josh Cantwell: You’re basically hiring a manager like you to manage the fund, your parking 500 grand, whatever it is in the fund.
Stewart Beal: That’s correct.
Josh Cantwell: With intention of knowing the strategy, but not necessarily the specific deals, because the deals you’re going to vet those out over the next 12 months and probably look them down. Okay, got it.
Stewart Beal: Right. And so, Beal Capital sponsors the fund. The fund is called Beal Fund 1 LP out of Delaware. And then underneath that fund will be the LLCs that hold the individual properties. And so, this property is 207 Water in Brooklyn, so it’s going to be 207 Water LLC. And you invest in the fund, and then we put your money to work on the individual properties as we buy them.
Josh Cantwell: Love it.
Stewart Beal: And so, 12 months from now, you will own 207 Water in Brooklyn, Michigan, and you’ll also own seven, eight, nine, ten different properties depending on the size.
Josh Cantwell: You set that up, Stewart, as a close-ended. So, by the end of 2022, you’ll close that out just it is.
Stewart Beal: Yes.
Josh Cantwell: Is it easier that way?
Stewart Beal: Yes, we never wanted to cross three years, but we do allow it to cross into a second year. So, if we either fail to close the properties or fail to raise the money in 2022, we’ll finish it off in early 2023.
Josh Cantwell: Got it. Love it. That’s fantastic stuff. So, the money-making strategy of buying it, putting the money in the fund, what kind of additional credibility do you think that builds for you when you’re the buyer and you can tell investors or you can tell the seller, “Hey, I’ve got this fund, and the fund already has X amount of cash in it.” So, we’re very qualified. We’re very credible. We can, of course, qualify for loans as well, but did you set up the fund specifically so that you had kind of the capital before the deal and use that as a competitive advantage?
Stewart Beal: Yeah, so the fund is based on my 20 years of experience in real estate. I’ve personally completed over 500 transactions over the last 20 years, ranging in size from I bought single-family. The largest property I bought was a 468-unit. I bought about 10 to 15 apartment complexes of 200 units and more through our syndication. So, investors recognized me as someone who has the experience to do what we’re doing. And also, I have the lending experience, the insurance experience, the property management experience to do it. So, while this fund would just be six, seven, eight, nine, ten properties, depending on the size, it’s based on a career, 20 years in the making. And so, again, an investor would say, “Why would I invest in you? You don’t even know what properties you’re going to buy yet.” I would give them a long list of properties I bought in the past and say that the properties we’re going to buy with your investment are quite similar to what we’ve done in the past.
Josh Cantwell: Yeah. Do you think that gives you a competitive advantage in a very competitive market right now? I realize you said you’re in Michigan, and it’s not as competitive maybe as Houston or Dallas Fort Worth or Tampa or Arizona, but the world right now is very competitive because there’s so much stimulus, there’s so much money in the economy. And obviously, a lot of eyeballs have gone toward multifamily. Multifamily did really well in COVID. It’s kind of a darling asset, so there just seems to be a lot of competition there. Do you think having a fund that’s already pre-populated with cash and being able to tell sellers and brokers, “Hey, I’ve got this fund. We’ve got the cash,” do you think that gives you a competitive advantage? Or do you feel like, hey, Matt, everybody seems to have money these days? We’re kind of in a big pool of a lot of qualified buyers.
Stewart Beal: Yeah, so I’ve worked with a long list of different sellers. I do best with the 70-year-old man who has managed the property for 30 years himself, and his kids have moved to the coasts and the south, and they express no interest in continuing to manage the property. And since they have managed themselves for 30 years, they can’t bear to hire a property manager either, that’s not even a thought. And they want to retire. And so, they are very receptive to my off-market strategies to build a relationship with them and to sell to me. That’s how the 20-unit in Brooklyn came together. And then the last property in our first fund was a 24-unit Romulus, right next to the Detroit Metro Airport. Same thing, I sat in the 70-year-old man’s garage for an hour and a half negotiating the purchase price.
And so, that’s who I do my best work with, and they don’t ask me if I have the money. That’s never been asked, and I’ve done it 100 times. I think I just come off as trustworthy, and they just trust that I do. Now, I do also buy from very sophisticated sellers, and they ask for proof of the money. And we have what’s called proof of funds, letters that we have our bank banker write, and he just writes a quick letter saying, Stewart Beal has this money in the bank accounts that he controls. And then we present that to the sophisticated sellers, and that gives them comfort as well.
I’ve also sold properties myself, and over half the time that I’ve gone to sell a class C property, it hasn’t sold on the first go-around because the seller was not qualified. And despite our efforts to qualify them, there are so many people out here trying to buy properties right now, and so many are not qualified that it’s a risk, and so, you raise a valid point. So, when I’ve gone to sell, I’ve had trouble sometimes. When I go to buy, I bring my best foot forward and use my experience and our resources and our investors, which are really important to convince the seller to sell to us.
Josh Cantwell: Got it. How do you get your foot in the door? Is there any special secret sauce that you get your foot in the door with off-market deals? And the reason why I ask is you is I’ve got great relationships with some massive brokers. There are big brokers, and a lot of big markets, the Newmark’s, the CBREs, the Draper & Kramer, the Marcus & Millichap guys, all that kind of stuff, they’ve gotten so sophisticated at marketing, selling, building relationships with sellers that I think a lot of multifamily investors have just said, “Hey, I’m just going to rely on the brokers to bring me deals.” We do both. We buy both on market and off market with brokers and without. Is there any secret sauce or silver bullets that you use to find these deals before the brokers build the relationship?
Stewart Beal: Yeah. So, we use five strategies to acquire real estate. The first one is social media marketing and networking. So, if you follow me on social media, I post a couple of times a day about real estate-related matters. You’ll quickly realize, wow, he must be getting some pretty good leads based off that social media. And it’s true, more than one lead per day comes into my Facebook Messenger or LinkedIn direct message from a seller. Now, of course, a lot of them are not helpful. You need to read through them and find out what you’re looking for, but the first strategy we use is social media that brings in a lot of off-market leads.
The second thing we do is we write letters. Now, if you read a real estate book or you join a real estate Facebook group, you’ll hear about letters all the time. We write letters that have a high rate of success because they’re very targeted. I’ll go to a property, I’ll tour it, and then I’ll write a letter saying I want to buy the property and also tell them about their property at the same time. So, they know that like…
Josh Cantwell: You describe it actually in the letter?
Stewart Beal: Yeah, exactly.
Josh Cantwell: Super personal. That’s awesome. I’ve never heard somebody say that before.
Stewart Beal: Yeah. So, they know that I’ve been to the property and actually, know what I’m talking about. And a lot of times they don’t manage the property. And so, sometimes I’m like, “Hey, I noticed this huge crack in the wall,” and they don’t even know the crack exists and they connect with it. But most of the time, it’s like a friendly thing. It’s not like, hey, your property is rundown. So, this is what I like about your property and that I think increases the return on those letters a lot. And it’s funny. I posted on Facebook a few weeks back that I got a call three days after I put the letter in the mail on a property on Michigan Avenue in Ypsilanti. It’s a trucking facility, and the trucking facility for years has been super bustling and super busy. And I drove by, not a single truck to be seen. It’s a very attractive property near a property I own. So, I dropped the letter in the mail to the owner of the trucking facility, saying, “Hey, I noticed your trucking facility is closed. If you’re interested in selling, call me.” And he called me three business days after I put the letter in the mail. So, letters work.
And then the third strategy is brokers. We work with brokers very closely, and brokers bring us the deal before they even sign the agreement. They say that got this deal coming, and here’s what it is. So, that’s good. And then number four is we buy straight on market deals. No problem. I’m not afraid of competition. I prefer not to have it, but I’m not afraid of it. And what we do is we, in addition to making an offer on the property, will often put a story with our offer. Maybe we’ll put together a PowerPoint presentation, something that, if a guy is looking at five offers, gives us a little something extra to look at. Yeah, so those are the strategies we use right now.
Josh Cantwell: Yeah, I love it. That’s great stuff, man. The fund structure, some of these strategies to acquire deals are great. Stewart, let’s back up a little bit to your start. You have a lot of success now, you’ve raised a lot of money, property manager of 500 doors, 6,000 units, seven big syndications. It probably always wasn’t that way, right? Didn’t have the reputation that you have now. You started from somewhere. So, tell us a little about that. What was it like 19 years ago when you first got going? What were some of the early challenges that you faced? And how did you overcome those?
Stewart Beal: Yeah, so I started when I was 13, just mowing my neighbor’s lawns. Then when I was 16, I got a car and I expanded the business for my neighborhood. It was called Burns Park Lawn Care and Landscaping, which was the neighborhood I grew up in Burns Park in Ann Arbor. And then when I was 19, I actually sold that business for $250,000. And it was $50,000 down, and $1,482 a month for 10 years was the deal that I structured. And those are approximate numbers. So, what I got is I got $50,000 in my bank account and $1,482 coming per month. And what that allowed me to do is not have to get a job. Doing something I didn’t want to do, I could do what I wanted to do, which was invest in real estate. And I did.
The first deal I ever did was a five-unit on Eastern Michigan University campus because I was going to Eastern Michigan and I needed a place to live and I did what I call a glorified house hack. I bought a five-unit that had four occupied units and one vacant unit. And so, I moved into that vacant unit and I was the landlord of this five-unit property. And the challenges were immense, they were comical. Twenty years later, they were scary, they were exciting. But the first story I tell of my property management career is I live in apartment 4, and apartment 2 below me said that there was a dog barking in apartment 1. And I said there couldn’t be a dog barking in apartment 1. The woman who lives in apartment 1, she’s on vacation for a month. She told me that she would pay me the rent when she got back from vacation. There couldn’t be a dog in her apartment.
And so, they said, okay, and we must be not understanding where this barking is coming from. Maybe it’s in apartment 3 or whatever. But then a week later, they were like, “Stewart, no, there’s definitely a dog in apartment 1.” I said there can’t possibly be a dog in apartment 1 because she’s on vacation for a month. They’re like, “No, it’s definitely there. You got to check it out.” So, it was a different entrance. So, I went around the property to a different entrance. I walked into the hallway, and the door was going pap, pap, pap, pap, pap, pap, pap. I’m like, oh my God, there’s a dog in there. So, I keyed in, and the resident had dumped a 50-pound bag of dog food on her living room floor and left her kitchen water on, so the dog could hop up on the counter and lap the water. And I went on vacation for a month.
Josh Cantwell: Holy shoot. Really?
Stewart Beal: Yeah. And so, there was more dog poop on the floor than carpeting, and the food was all over. And yeah, so that was my first on-the-job landlording experience. Well, she got back and never paid, ran again. And so, that was my first eviction as well.
Josh Cantwell: Yeah, oh my, because you want a vacation, like when you get home, she’s already got it. No, she’s not going to pay. She’s going to just take the dog and leave.
Stewart Beal: Well, so…
Josh Cantwell: She left behind. Oh my gosh.
Stewart Beal: Yeah. So, I took the dog to the Humane Society because I couldn’t get a hold of her. And so, when she got back, I let her know that she could pick up her dog at the Humane Society. She could explain her story to them. But then she never paid rent ever again, and she was delinquent before she went on vacation.
Josh Cantwell: Where did she get money for a vacation?
Stewart Beal: Yeah. I mean, if you’re in property management long enough, you’ll realize that people use their money for what they want to use it for. So, yeah, I’ve got 100 stories like that, but that was my first experience as a landlord, and I learned a lot managing this five-unit, and it gave me confidence a year later to go buy a 30-unit. And I didn’t have 100% of the capital necessary to buy this 30-unit. So, that was my first time taking on an investor. And then I just bought a property a year until the foreclosure crisis. And then in the foreclosure crisis, I bought a property a month. So, I bought 50 properties through the foreclosure crisis, one property a month.
Josh Cantwell: How did you manage that, Stewart? I’m curious during the crisis because we were investing in the crisis as well, it was not in commercial real estate at that time. We were doing a ton of wholesaling actually and a lot of short sales. So, we weren’t owning many properties, but it was really tough to navigate. I mean, Cleveland, Detroit, I mean, probably, the whole country, but as you know, like Arizona, Florida, California, Michigan were the four or five of the worst states as far as the number of foreclosures, property decline, as far as pricing goes, those types of things. What did you do to make it through that and succeed? You started buying more properties, not less, but also, property values probably became very tough to compound and find out what are these things really worth. So, help us understand how you navigated that couple of years.
Stewart Beal: Yeah, so people forget, and in the state of Michigan, the foreclosure crisis lasted seven years, really, okay. So, it started in 2008, and things were going down, down, down, down, down until 2011. Only in 2012 did things start making sense again, and then it really lasted until 2015, where prices were finally making sense, traditional metrics like construction cost, some other things like that. So, in 2008, what happened is I lived in a very small city. It has a university called Eastern Michigan University, but it’s a population of only 20,000.
Josh Cantwell: I’m familiar because when I was in high school, I played basketball at Padua Franciscan.
Stewart Beal: Okay.
Josh Cantwell: There was a little dude from the city, his name was Earl Boykins.
Stewart Beal: Yes, exactly.
Josh Cantwell: We were in Eastern Michigan. And Earl and I were in the same class. So, I played against Earl in high school for four years. Freshman year, when he walked into the gym, he couldn’t have been more than 75 or 80 pounds, had his socks pulled up to his knees, and we were like, “Who is this little dude?” Well, he just ripped us up. We ended up beating him both times as a freshman. Then he played varsity. Then he played at Eastern Michigan, was an unbelievable college player. And then he played in the NBA. And I still see Earl in Cleveland once in a while. I actually go to church sometimes down at the cathedral where I was married, and Earl would go to church there.
And I remember when I was a senior, Earl just killed us like 38 points. I mean, this dude was, what, 5’5”, maybe 5 feet 5, 38 points in one game and 42 points in another. I think they went to the State Final Four. He was unbelievable, and at one point, had the NBA record for scoring the most points in a single overtime. I think it was 15 points in a single overtime. He went to Eastern Michigan. So, Earl Boykins is still in my athletic nightmares from EM. So, anyway, yeah, I digress, but no, that– so what did you do then with understanding, like navigating this seven-year process, especially, like you said, those first four years or five years where nothing made sense?
Stewart Beal: Yeah. So, what happened was, and the reason I was saying, its land is a small town. Three landlords lost 75 properties to the banks in 2008. They signed up for adjustable-rate mortgages in the craze of 2006 and they reset in 2008 as the foreclosure crisis hit. And Eastern Michigan University suffered immensely in the foreclosure crisis because Eastern Michigan is what they call a commuter school, and the people that did live on campus, their parents only lived half an hour away or 45 minutes away. So, when their parents said, “Hey, I’m losing my job, or my income is being slashed, I can’t support your college endeavors, like, how do we cut budget here?” The students moved home, right?
So, they continued to go to Eastern, but they pulled out of these apartments. So, in 2008, these landlords were saying, okay, my rate is going from 4% to 12% or whatever crazy thing they agreed to, plus the rents going down because we don’t have people to rent to, the students are pulling out. And they lost 75 properties to the banks. So, the banks put 20, 30 properties on the market all at the same time. And I really appeared to be the only person who had cash at the time, and it was winter, and the properties were foreclosed, and they were badly winterized. So, the banks started boarding them up, and there were no tenants. And so, what we did is my aunt, who is a real estate agent, I empowered her to make an offer on any property that hit the MLS the same day that it hit the MLS. And I told her to offer half of what the bank wanted. So, the bank would put on the market a property that used to be worth 150, they would ask 75, I would offer 32.5, and they would very often accept my offer.
Josh Cantwell: Sure.
Stewart Beal: And the reason they would accept those offers is because the people considering the offers were looking at a list of a thousand properties that weren’t selling. And then when they got an offer in their inbox, they’re like, oh, wow, I can get this one. I can get this one off my book. So, they would accept my offer. And so, I bought basically a property a month, starting in 2008 for 36 to 40 months. And what we did is we bought the property with cash, we fixed it up with cash, and then we did a cash-out refinance to keep the money rolling. So, to buy those 50 properties in the foreclosure crisis, I really only used about $100,000. To buy 50 properties, we would just keep it rolling. And it worked really well for about three years, and then as we got into the fourth and fifth year, the appraisals started coming back even worse than ever before. And so, my strategy fell apart at that point. The money got trapped in the properties that I had bought. And so, that’s why I actually started working with investors and doing certifications for the first time is because my personal capital is tied back into the properties that I bought in the foreclosure crisis, but the deals were still pretty good, remember, because the foreclosure crisis was still going on and on and on. So, that’s why I started with…
Josh Cantwell: You were able to operate through that because you were, I imagine, investing for cash flow. You’re buying these properties to rent them out, fix them up, rent them. You did the cash-out refi when you could as long as you could, and then they’re cash flowing. So, even if we’re talking about, well, right now, like the market seems like it’s overheated, are we headed for a recession? The answer is yes, the market is overheated, and we’re headed for a recession at some point. It’s going to come. So, the question is, can you still make money in that market? The answer is if you invest for cash flow and the property is cash flowing, it’s like owning a bond and a bond throws off a certain coupon and you make money off of buying a bond. Will the value of the bond can go up and down on any day, any year, any month, but the cash flow that the bond throws off is always there, you only lose money if you sell the bond at a discount. You’ll only lose money in real estate if you sell at the wrong time. If you have what we call a recapitalization event or a forced event, a lot of times it can happen through those arm loans that Stewart described or some sort of balloon that can happen with bridge loans and different types of exotic loans that can get you in trouble.
So, as long as you’re giving yourself enough of a horizon to stabilize the buildings and refi, and you keep a very low loan to value, you can make it through these things because the coupon, i.e., the cash flow, will allow you to weather any storm. And if the values are going up, I imagine now, Stewart, if you have those assets today, you could sell those for a fortune compared to what you bought them for because now, again, the market is better, so the value of that house, i.e., the bond is worth more and more and more. At some point that won’t be the case. The market will adjust. Every market’s cyclical, the market will flatten out and go back down at some point. But again, I think the lesson I just took away from what Stewart said is, for example, the cash flow case study of being able to operate in a really tough environment from 2008 to 2012 but do it because he’s investing for cash flow. Stewart, it makes sense, like, do I have that right?
Stewart Beal: Yeah. So, the first property ever bought in 2002 was worth $262,000, and the rent on the property on the day I bought it was about $3,200. And the property was worth about $340,000. Five years later, in 2007, the rent was maybe $3,500, $3,600 a month. And then in 2008, 2009, 2010, it dropped all the way from $340,000 down to about $100,000 in the depths of the foreclosure crisis. So, when I say $100,000, I mean, you could have bought a similar property for $100,000. So, that’s why I’m saying that. And then, so in 2010, it’s worth $100,000. And then today, 12 years later, it’s worth probably $395,000. So, it went from $262,000 all the way down to $100,000 all the way up to $395,000, but the rent stayed almost the same the whole time.
Josh Cantwell: Oh wow.
Stewart Beal: Like it started at $3,200, went up to $3,500. Maybe it went down to $3,000. Maybe now, it’s $3,800. But based on comps and based on what these properties are trading for, it went from $262,000 down to $100,000 up to $395,000 today, basically.
Josh Cantwell: Yeah, that’s exactly the bond description that I just gave. And look, I mean, the worst case with multifamily in the last crisis of ‘08, which again was a debt crisis, the banks held all the debt. The debt was against certain assets. The asset values went down. So, now, the banks are overleveraged on the debt. The next crisis that we have is not going to be a debt crisis. It’s actually going to be a currency crisis. In a currency crisis, you actually want to get out of the currency and get into hard assets. So, we’re going to have a crisis, but it’s going to be a different type of crisis. In a debt crisis of 2008 through 2012, actually, it started in 2007, really through 2010, 2011. A debt crisis, you don’t want to own the asset, you want to move to cash, okay. That’s what people, if they had the foresight, that’s what they would have done,
In this next crisis, you want to get out of cash because the cash keeps getting devalued. Every time our stupid-ass government passes another stimulus law, it gets devalued, devalued, devalued. When there’s a currency crisis, it’s not about making money and losing money, in my opinion. I’m going down the rabbit hole here, so I’m going to stop in a second. But when there’s a currency crisis, everybody loses. It’s a matter of who can lose the least, okay. Remember that, my audience, when it happens, remember I said it, it’s a matter of who loses the least, and the people who lose the least are the people that are going to be in hard assets that cash flow.
So, you have two different types of crisis here, 2008, which Stewart just described. You have a new one that is looming, that eventually will happen. Two different things, two different types of crises, but either way, if you own cash flowing assets, you can easily make it through the crisis. If you’re flipping or wholesaling or building new construction, you’re in deep doo-doo, deep, deep crud. So, those are some lessons that we take away. Stewart, as we kind of round through here, head for home, what other advice would you give our audience? Or if you were mentoring someone yourself going into 2022, what kind of things are you doing? Or what kind of advice would you pass along to help people succeed and do well in this market?
Stewart Beal: Yeah. So, right now, the market is very hot. The people that are listening to this podcast are very interested in investing in real estate. There’s an extreme interest in investing in real estate. If you’re on social media, if you follow the news, everyone wants to be a real estate investor. And so, that means that there’s a lot of the folks chasing the same deals. And so, what I advise new investors is to do a five-unit, six-unit, seven-unit deal. The reason I advise people to do that is because let’s say, there’s a Facebook group called the Metro Detroit Facebook Group. There are 10,000 members in there. They’re all talking about investing in real estate. Well, most of those investors, let’s say, 9,500 of them are qualified to do a deal of four units and less. They’re doing a 30-year fixed mortgage. They don’t have multifamily experience.
And so, all of those people are chasing the same four units and less, but if you’re investing in a five-unit, you need a commercial loan, you need a totally different type of underwriting from a bank, and that will exclude 90% of the competition. And that bears out, I wanted to buy a single-family home for my mother-in-law in Ypsilanti and I wanted to pay about $150,000 and I lost multiple bidding wars of 20 different people bidding. But then I wanted to buy a five-unit where the price was not significantly different. It was about $200,000 or $250,000, and I was only one of two or three people bidding.
Josh Cantwell: That’s great advice.
Stewart Beal: Yeah. So, that’s the first piece of advice. And then the second piece of advice is the paralysis analysis. If you’re a new investor and you’re analyzing, you’re putting it in the tools, you’re putting in the markets, but you never take that step, the saying is the best time to invest in real estate is right now because that’s the power of real estate. The sooner you invest, the longer you’ll own the asset, the longer it will appreciate, the longer it will depreciate, the longer you’ll need cash flow, so you need to do a deal. And so, I talked to a lot of people, hey, Stewart, I want to invest in real estate, or I’m a real estate investor and I say, “Tell me about your first deal.” And they say, “Well, I haven’t done the first deal yet. I’ve been analyzing it for nine months or a year or 18 months,” and I say, “Oh, you got to get in.” And they say, “Well, the prices are too high right now.” And I say, “Well, yeah, analyze five and pick the best one and do that deal.” I’m not saying buy every deal or buy that one deal, what I’m saying is, do some analysis, weigh them against each other, and then get in the market and do the deal.
Josh Cantwell: Got it.
Stewart Beal: That’s another piece of advice. And then the third thing is property management. So, property management can grind down the most positive, happy-go-lucky person on the face of the planet. It can ruin your life, I mean, honestly. So, people call me and say, hey, I want to start a property management company, or I want to invest in real estate and I want to be the property manager. And I say, “Do you like your life?” They’re like, “Well, yeah, of course, I like my life.” I’m like, “Okay, do you want significant changes in your life?” They say, “No, I don’t want significant changes in my life. I like my life. I like how it is.” I say, “Well, you can’t be a property manager then and you can’t invest in real estate where you’re going to be the property manager because that changes everything.”
And I’m not talking about buying a single-family house. Obviously, buying a single-family house and being the property manager is one thing, but once you’re investing in apartments, even the nicest apartments, you’re going to be dealing with bedbugs, you’re going to be dealing with vandalism, you’re going to be dealing with murders. Your tenants are going to pass away from old age or drug use. You’re going to be dealing with the police. You’re going to be dealing with very complicated maintenance problems. Like the other day, I had to dig 16 feet down to replace a sewer. And so, you need to be prepared, once you buy the property, who’s going to actually do this work? And that’s why at Beal Properties, we have had success signing up clients to hire us to manage 500 properties over the last couple of years is because doing the deal and buying the real estate, it’s one thing, but who’s going to manage it is my question.
Josh Cantwell: Yeah. So, let me ask you one final question, Stewart, is why do you do property management when we both know how difficult it is, right? Because you just advise people pretty much not to do it, but you’re good at it and you’re doing 500 units. So why the dichotomy between the advice and what you’re actually doing, like help me understand the gap there?
Stewart Beal: Yeah. So, you need to treat property management the way police officers treat their job or surgeons treat their job. You can’t go do heart transplants all day and then come home and bring that with you in your house. The same thing with a police officer, a police officer deals with 21 negative things all day. They have to have a mindset that that’s their job, that’s their work, and they’re not going to bring that home to their family. I mean, because if you do, how are you going to be nice to your wife and your kids if you bring in all that baggage on your shoulders into your house? So, the way I learned to do it, and it took me many years to do it, I mean, I was so worried about that dog I told you about. I actually cried about that dog because that’s the natural human thing to do. And I was very worried about the woman, like, “Oh, my god, is she going to lose her dog if I take this to Humane Society?” You know all of that.
So, it took me many years to learn it, but you just need to have a robotic mentality. Rent’s due on the first, it’s not due on the second, it’s due on the first. No, you cannot play the music that loud, says that in your lease, and just have a robotic job approach to the property management. And that way, it mutes the negative things and allows the positive things to flow up. So, yesterday, we rented 11 apartments to 36 Afghanistan refugees. They couldn’t find housing in Washtenaw County. They got together with this wonderful organization we work with and they came and they said, “This is what we want to do.” And so, we put that really positive property management story together this week. And so, that allows us to feel really positive about what we do. What kind of muting out the negatives, so to speak.
Josh Cantwell: Got it. That’s fantastic, fantastic advice. I love the stories as well as far as being able to kind of compare. I’ve got a buddy of mine, a close friend of mine. I just talked to him this morning. He’s an investor with me and he’s a police officer and he works at Metro Hospital, which is the county hospital, right? So, this is where the good people go, but also, this is where the gangs go when someone gets stabbed and shot. And he’s got to be able to leave that at work when he comes home. And your analogy of property matters is very much the same. I’ve had people die, I’ve had people have heart attacks, I’ve had people get shot on site. I had my own work van that my maintenance guy was in. This is not related to property management, but there was a random shooting on the freeway. And both of his nephews, who he should not have had my van on a Saturday, moving his personal effects for his nephews, but he did. And the van got shot up on the freeway, and both of his nephews got hit by bullets and ended up, right? So, Stewart’s point of stuff just happens, and you’ve got to be able to separate, okay, if you’re going to be in property management, make that your profession. Don’t do it as a side hustle because the side hustle is not fun.
So, Stewart, listen, I’ve had an absolute blast interviewing you today, reminiscing about the 2008 crisis and how you managed it. It was fantastic. Earl Boykins brings back some nightmares for me. So, I appreciate that, and lots of great advice here. So, I’m sure our group, our listeners will want to connect with you on your website or social media, possibly become an investor with you, partner with you. Where can they connect with you online?
Stewart Beal: Yeah, so it’s GoBeal.com, G-O-B-E-A-L.com is our property management website, and then our investor website is BealCapital.com. And then, I’m Stewart Beal, you can find me on Facebook or LinkedIn. And I’m very active on those platforms, and you can send me a direct message on either one of those platforms, and I’ll get back to you shortly. And I like doing calls with investors. So, if you just have questions about real estate or want to be an investor either way or if you are investing on your own, you just need advice, I’d gladly give you half an hour of my time. And so, reach out, and I’ll be glad to help with whatever you’re working on.
Josh Cantwell: Fantastic stuff, Stewart. Listen, thanks so much for joining me today on Accelerated Investor. I had a blast.
Stewart Beal: Thank you.
Josh Cantwell: Alright, guys, well, listen, I hope you enjoyed that interview with Stewart. I had a blast doing it. Stewart and I have some really fond memories of 2008, 2009, 2010 crash, as well as memories or nightmares of Earl Boykins, which you guys heard about. Listen, I learned a lot from Stewart and I took a lot of notes. And listen, guys, if you’re looking to plug into guys like Stewart, like my other guests, and be a part of a multifamily mastermind coaching program, partnering program, it’s a shameless plug, but I’ll tell you that we have over 40 members in or Forever Passive Income Mastermind. This ecosystem that I’ve built is made up of property managers, owner-operators, active investors, acquisition specialists, insurance guys, lenders, and passive investors. I personally run the group. I personally do the coaching. The masterminding is phenomenal, and we partner on a lot of deals.
So, if you’re looking to kind of plug into an ecosystem and an organization that already exists, that’s operating at a very high level, you can apply to be a member of the Forever Passive Income Coaching Mastermind and Partnering, you can apply at JoshCantwellCoaching.com. Okay, check that out. You’ll be able to meet more members just like Stewart, and a lot of the other members we’ve had on the podcast are in the group. And I think you get a lot out of rubbing elbows, rubbing shoulders with those kind of folks.
Alright. So, thanks so much for being here. If you feel compelled, please open up your phone, leave us a rating and a review. Let us know how this interview went and send us any kind of questions that you have so we can answer them on the next podcast. We’ll talk to you next time. Take care.