Real Estate Riches Radio
This show teaches you how to build wealth by investing in multi-family homes/apartment buildings
Host: Trey Stone
Trey Stone has owned over $300 million dollars’ worth of apartment complexes in greater Houston, served as the 2014 President of Houston Apartment Association, & has been investing in apartment buildings for the last 20 years.
Trey’s Company is called “Real Estate Riches.” To learn more about his company, listen to other episodes, find out how to view one of his properties, or learn about investing with him, visit the website at www.realestateriches.com or email him at firstname.lastname@example.org
What Sets Real Estate Riches Apart from Other Real Estate Gurus
Bobby’s Question- “What does Trey do different from other Real Estate Gurus?”
Trey has taught and lectured at the National Apartment Association, The Texas Apartment Association, and the Houston Apartment Association. He’s served on independent rental owner committees for those local, state, and national association meetings and feels pretty well-connected but hasn’t met anyone doing exactly what he’s doing.
Trey’s Findings: Types of people in Real Estate Investing
Problems with these Options:
Why Trey is Different:
Trey produces radio shows telling people how to invest in apartments, teaching some of the numbers, and offering an opportunity to invest with him directly. Trey happens to be someone who has an established track record, has references, & testimonials from investors but who actually teaches about it on radio shows for free and offers people a direct opening into deals with him. They can then refer other people they know and so forth and so on.
The people who listen to Trey’s show, aren’t just learning in hypotheticals. The difference is- he’s the guy teaching and the guy offering the opportunity to invest with him. He’s taken many people into an apartment complex as a business partner and he has had people who have invested who originally got a hold of him through the radio, or website, or from a referral- and have done really well. They’ve made millions of dollars in these deals. If someone has an interest right now and wants to get started they can.
It’s simple, achievable, and Trey practices what he preaches. That is what makes him different. To Trey, that’s what feels unique and that’s what sets him apart.
Trey’s Entrance to Real Estate Investing
Trey lucked out and got into a deal with someone that had a little bit of a track record (Not a long one in real-estate but a long one in business). The investor had an apartment complex, Trey was his mortgage broker, and it was very successful. As they got to know each other through that it allowed him to invest alongside him in a deal. It was very hands on. Now other people are doing that with Trey. They hear him on the radio and come out to a meeting and wind up investing in a deal with him.
Trey’s Investment Strategy: Apartment Complexes
Flipping houses doesn’t create the type of wealth that adding value in apartment complexes can create. It’s not really on the same scale. Those properties are valued based on the comparable sales. Apartment complexes are valued on the income that they produce.
Depending on what part of the country and what asset class you can have anywhere from a 3% cap rate to a 10% cap rate. If you’re going to have a 5% cap rate to value your operating income, for every additional dollar you add on that operating income, it’s worth $20 more. You’re dividing by 5 when you take the net operating income, divide it by the cap rate, and that equals the market value on a certified appraisal. That formula is what your lender or banker is going to use to determine the value the property, being conservative and taking into account all the income, the expenses, the location, the pros and cons of that property.
When you are working with a 20x multiplier, you add $500,000 dollars in value and you get a 10 million dollar increase in value from that additional cash flow, the level of wealth generation is way beyond what you can do when you’re limited to just comparable sales evaluation which is how they measure houses.
If you get into income producing property that’s valued that way, make it more valuable, and add millions of dollars per transaction, then you’re able to make a lot more wealth and at the same time do it with someone who knows what they’re doing, they have a track record.
Real Estate Investing with Trey Stone: Who would benefit, who wouldn’t
“Under promise and over deliver should be what a lead investor tries to do.” Trey Stone
When is a good time to invest? Is now during Covid-19 the best time?
History: 2008 Recession
We haven’t seen an event like this to create a recession in about 10 years. In 2008, there was a reset button on values. You saw stuff trading at a fraction of the price. You also saw people lose confidence in what they thought was the American dream. The American dream isn’t gone but it has changed. People stopped seeing their homes as something that’s always going to be an asset because a lot of people lost their homes when they became worth less than what they owed on those properties. They were in adjustable rate loans that they didn’t have the qualifications for. There were a lot of predatory lending practices at that time, people were buying based on their rate going into the deal but they had adjustable rates with massive increases. The assumption was “well you can always refinance later”... some people knew better and some didn’t but that collapsed the market. It led to a reset and we’ve been in a rally, bull market from 2010 until 2020, increasing upward market, especially in Houston as far as property values.
Now for the first time we’re seeing prices come back down. Based on fear, the virus, oil and gas layoffs, social unrest, and uncertainty. The fear creates opportunity. It’s not the way we want to see market prices come down and buying opportunities emerge but the fact remains that no matter what the cause, when you have a big downturn in the market, those are when the biggest transfers of wealth in the history of the world take place
When you have a situation where people have a complete lack of confidence about when we’re going to come out of this, that creates uncertainty and fear. That fear does breed opportunity in the form of lower prices because people are not going to be investing in these properties as aggressively and more importantly, they’re not able to access debt in the capital market at the same degree of leverage as they were able to before this occurred.
For example, Troy did a refinance recently- previously, Trey had been offered a loan for $39,000,000 before Covid-19 and this loan ended up at $27,500,000. The loan amount dropped by about 11 million dollars and that’s a pretty big impact that’s directly attributable to Covid-19 and the impact of the oil and gas market. In this case it still allowed Trey to pull some cash out to make some investments but at a big variance from what could have been done 6 months earlier.
Human Behavior: Fear and Greed
Fear and greed drives those vast majority of investors and that’s what you don’t want to do. Common sense is not common practice
When/When NOT to Sell and Invest
Why to Buy During Times Like These
The bank is going to look at the property first and see what amount of income can be produced to make these payments and then they’re going to look at the investor as the sponsor, look at their track record and experience and determine what they can lend. For the first time in about a decade even people with experience cant access the level of leverage that they were before so that’s forcing people who overpaid for deals to wind up selling them for a big discount to avoid losing them in foreclosure.
While it’s unfortunate, this is when you need to act because those times never last. The last like this was from 2010-2014 then prices got high again. Here we are 6-7 years later and there’s another opportunity in the market to correct. The last event was 10 years ago but it took 3-4 years to raise to the point where there was not enough opportunity to continue raising equity because the prices already rebounded and sooner or later they were going to correct and go the other way. Trey thinks this will be 1-2 years not 3-4 years.. he thinks it will rebound as the vaccine becomes available to everyone and that will turn it around. We don’t have time to sit back and see what’s going to happen.
Resources Referenced in this Episode:
Robert Kiyosaki, author of Rich Dad Poor Dad: This was a transformative and valuable book for Trey so it’s on his reading list. (For a copy of Trey’s reading list, feel free to email him!)
LINK TO EPISODE ABOUT CAP RATES- Trey said “we have other shows that explain what that math is”
KSEV, The Voice Radio Station: Listen to Real Estate Riches live shows at 5pm on Saturdays or Thursday at 1pm
Real Estate Riches: more information about Trey, his shows, and his work
Welcome back to our show, Real Estate Riches Radio. Glad to have you all tuning back in. If you haven’t heard the show before, this is the show that teaches you how to build wealth by investing in apartment buildings or multi-family as some people call it. And I talk about this because it’s what I’ve been doing for the past 20 years, I’ve owned over 300 million dollars’ worth of apartment complexes in greater Houston, I’ve served as the 2014 President of the Houston Apartment Association, and my company is Real Estate Riches and we’re here with Real Estate Riches radio. If you want to learn more about our show, get to some other episodes, find out how to come out and see one of my properties or learn about investing in a deal with me, just go to my website www.realestateriches.com or shoot me an email email@example.com
So today we’re gunna talk about you know how to separate what we do from other people and my co-host today on the show helped me come up with that idea so, Bobby, welcome back to the show.
B: Thanks so much, Trey, as always looking forward to learning a lot today
T: Well, great. So I guess uh to start things off, we were talking before the show kind of a pre-production meeting and you were asking me a few leading questions and I thought, ya know, this is a show, not just a conversation
B: That’s the way it happens
T: (OVERLAPPING)- Let’s make a show out of that and you were asking me basically what do I do that’s different from some of the other real estate gurus because you were googling some other people that
B: (OVERLAPPING)- Sure
T: that are in my same space, and trying to make some of those comparisons and I said,” Ya know, I’m sure there’s somebody out there that’s doing exactly what I’m doing,” but I know a lot of people in the business, I’ve taught and lectured at the National Apartment Association, The Texas Apartment Association, and the Houston Apartment Association and I’ve been on those independent rental owner committees for those local, state, and national association meetings and ya know- pretty well-connected with everybody there and I haven’t met anybody doing exactly what I’m doing but I’m not sure to kind of your point when you were asking me about it that everybody would necessarily know that just from casually tuning in or maybe listening to one of the other shows about investing in real estate or going to one of the websites. SO, to try to be specific about it uh when I found, when I got involved in my first foray into real estate investing was that there were lots of people out there who wrote books, I mean obviously the one I talk about the most on the show is Robert Kyosaki with Rich Dad, Poor Dad
B: (OVERLAPPING)- Yeah, yeah
T: Which was a really transformative
B: (OVERLAPPING) Great book!
T: and valuable book, it’s on my reading list, shameless plug if you want to get a copy of the reading list for free listeners feel free to shoot me an email Trey@realestateriches.com and I’ll shoot you over that reading list, it’s got my notes on why I liked the various books on that list and so you can kind of pick and choose what might appeal to you.
But what I felt like was a little bit uh unique is that as I got involved in that I didn’t see people doing what I’m doing now, which is where “hey, I’m on the radio, I’m telling you about, how to invest in apartments,
B: (OVERLAPPING)- Yeah
T: I’m getting into some of the numbers which we’ve done on some of the other episodes, um and then at the same time if somebody wants to get involved with one, I don’t say “well great, come out to my group and network and meet a lot of other people,
B: (OVERLAPPING)- Yeah
T: And there will be people there that are doing deals, and maybe you’ll like them, and maybe they’ll be good and maybe it will be a good deal.”
B: (OVERLAPPING)- That’s a lot of maybes
T: It’s a lot of maybes. I mean it beats no maybes so I was happy to find that when I got started uh it’s still some form of access but it’s difficult because you don’t know if that’s going to go anywhere and you don’t know if you’re gunna choose the right person. Is this person really going to be someone that’s actually an expert or someone who’s just presenting themselves that way? When you deal with folks like myself, I’m certainly not the only person who’s ever been president of the apartment association but when you deal with people that have been in roles like that, leadership positions at the national, state, and local level, most of them are executives with big management companies and not owners.
B: (OVERLAPPING)- Okay
T: And the owners that you do talk to- most that are in that role have no interest in doing radio shows or seminars or websites, they don’t want partners
B: (OVERLAPPING) Yeah, yeah
T: Ya know, one of the guys I’m thinking of that’s been a little bit of a mentor to me uh I don’t think he intented to be, it just worked out that way
B: (OVERLAPPING) Okay
T: Uh ya know to give you an idea, I mean I’ve done pretty well um and I’m well on my way through the 8 figures in net worth and all that good stuff but yet I’m pretty sure his car and watch collection is probably got more value than my net worth
B: Okay, [laughter]
T: So, Some of these people just
B: (OVERLAPPING) That seems like quite a bit
T: Yeah, some of these people they just don’t necessarily have a need uh to do what I’m doing because they’re not looking for partners uh or like I said a lot of them are people that are out there sort of presenting themselves as being experts
B: (OVERLAPPING) Yeah
T: But, they haven’t really done any deals themselves, they haven’t put deals together, and turned them around and they don’t’ really know how to do it. They just kind of talk about doing it.
T: So you have those that are “hey come out to my group and meet somebody else who will do it”, who knows if they’re any good, you have people that know what they’re doing, been doing it a long time, and have no interest in telling you.
B: Yeah, sure why would they
T: Because they own their own stuff, they don’t want a partner
T: And then you have people who talk al ot about it but who haven’t actually ever really executed that and done that, maybe some rent houses
T: Maybe they wrote somebody a check sometime for an apartment but they haven’t actually gone out and made the real estate work um because it’s not something that just happens by magic fairy dust when you get one of these deals, boom here’s a multi-million dollar gain
T: Um and so the people that listen to my show, the difference is, I’m the guy. There’s nobody else.
B: (OVERLAPPING) That’s true [Laughter]
T: I do have a business partner, Chad, that meets with investors although they usually meet with me too because I wanna know my partners if we’re in a deal together but not only have I been the one to teach these classes at the local, state, and national level for the apartment association but then in addition to that I’ve actually taken many partners and I’ll probably have somebody listening to the show today that winds up contacting me and winds up being in a deal with me
B: (OVERLAPPING)- Yeah
T: Where I’ll take you directly into an apartment complex with me, as my business partner, and I’ve had people as you’ve heard, Bobby, on the show
T: Who have invested with me and been a partner who have originally got a hold of me through the radio or through my website or through a referral and then they’ve done very well. And made millions of dollars ya know in these deals. So to me, I feel like that’s a little bit unique. I feel like it shouldn’t be. I feel like that’s…
B: You know that’s true
T: Right? Like that should be the norm.
B: That should be the norm this is the way it ought to be
T: (OVERLAPPING) This is how to invest in real estate or what everybody does
T: But, they really don’t I mean there’s a lot of people that do some form of ya know advertising uh for people that want to invest that maybe flip houses or something uh I have a former employee that’s done that recently and uh that’s fine but that’s not gunna create the type of wealth that ya know adding value in apartment complexes can create. It’s not really on the same scale.
T: UH those properties are valued based on the comparable sales
T: SO, you’re limited to the value of the surrounding properties, surrounding houses that are similar, with apartment complexes they’re valued on the income that they produce
T: And so as you grow and build that net operating income uh if they’re valued at, depending on what part of the country, what asset class, anywhere from a 3% cap rate to a 10% cap rate which I won’t go into for this show we’ve had other shows about how that math works but the point is that you’re gunna have let’s say you take middle of the road like a 5% cap rate to value that income it means that for every additional dollar you add of net operating income it’s worth $20 more
T: Because you’re dividing by 5 when you take the net operating income divided by cap rate equals the market value on a certified appraisal that is what your lender, your banker is gunna use to say this is how we value the property, being conservative and taking into account all the income, the expenses, the location, and the pros and cons of that property ya know when you are working with sort of a 20x multiplier, right with a 5% cap rate
B: (OVERLAPPING) Yeah
T: What you can do when you add a half a million dollars a year in value uh and then you get let’s say a 10 million dollar increase in vale from that uh from that additional cash flow that’s obviously something that’s way beyond, the level of wealth generation there is way beyond what you can do when you’re limited to just the comparable sales evaluation
T: Which is how they do houses
T: So I say, get into an income producing property that’s valued that way and make it more valuable and add millions of dollars per transaction uh and then you’re able to make a lot more wealth uh and at the same time do it with someone who knows what they’re doing, they have a track record, and I so happen to be one who has that track record, who has those references, has those testimonials, from investors. And I actually teach about it on radio for free as well as bring people directly into the deals with me who then can refer other people they know and so forth and so on. So if someone has an interest and they’re hearing right now going “welp that’s all I needed, I want to get started” and I actually had a guy email me today saying that
T: You’ve been in a deal with me years ago
B: That’s right, you mentioned that
T: Saying, that I heard you’re back on the radio, I heard you on KSEV um ya know put me down for this amount and it was, it was nice just o kind of have him send that, I said “well that’s nice but I can’t just do that, we’re gunna have to get together”
T: “We’re gunna have to talk about the deal that I’m buying right now.” Of course I’m sure he’ll wind up being in the deal
T: But uh I don’t just have someone blindly come in ya know not knowing what property we’re buying and all the information about it. Um so we’ll be meeting next week and going over that and it’s just hat simple. And I just wish when I got in, that it could be that simple as opposed to what I actually found which was people who in my opinion basically posers that were doing a lot of books and tapes and seminars but don’t actually do this for a living, they’re not really real estate investors for a living, they’re seminar people for a living.
B: And they don’t get the results you get.
T: Right. And they don’t actually know how to do it because they haven’t actually done it. To me, why do you want to not practice what you preach. Right? Then you have other people who I’ve seen that have done it, could have been great at it or have been great at it, but they’re just at a stage in their career where they don’t want partners anymore and good for them. Nothing wrong with that. But still, not giving an entrance if I’m a new investor that wants to invest as a partner with somebody that knows what they’re doing when that person’s like “yeah yeah I’ve done all that but I’m not doing it anymore, but hey come out to my group and you’ll find somebody who does” Right?
T: That’s not really what I was looking for.
T: And so it was tough. And I lucked out, I found a guy who was able to let me go into a deal with him that had a little bit of a track record, not a very long one in real-estate but a long one in business. But he did have an apartment complex, I was his mortgage broker, I used to own a mortgage company and it had been very successful. And so he allowed me as we got to know each other through that it allowed me to invest alongside him in a deal. And learn things, very hands on, his name is Emery and you’ve probably heard me talk about him on the show.
B: Yes, I have
T: And now other people are doing that same thing with me, they hear me on the radio and they come out to one of my meetings or what have you and wind up investing in a deal with me. And that’s it, there’s nothing more to it. I don’t need you to buy books and tapes and seminars from me.
T: or ya know join my master’s class for $100,00 and go to a weekend in Palm Beach or whatever it is. Seriously, people
B: Sure, no, you’re right
T: People say this tuff
T: And people pay for this stuff
T: Which I think is a little nuts, um, but anyway and then you don’t even get into a deal with the guy half of the time.
T: Uh it’s like now you’re qualified to go out there and figure it out all by yourself. Well.. [pause] Okay.
T: But there’s a big gap right,
B: (OVERLAPPING) Yeah definitely
T: from these classes to someone buying a multi-million-dollar property. Whereas partners who I’ve had and Paul who was on the show recently
T: is a good example of that. And he’s done multiple investments with me
T: And then he’d gone out and he just did a deal this last year with some of the proceeds he made from the deal that he was in with me that we sold last summer
T: And then now he owns that property is doing well with it so it’s very simple and it’s very achievable and I practice what I preach. And so as sad as it is to say, that is what makes me different.
B: Yeah, it’s just not the norm, not it’s not
T: Yeah. So when we come back from the break we’ll go into more along these lines and who would benefit, who wouldn’t, when’s a good time to do it, uh ya know all that good stuff so thank you so much for tuning in and come right back for the rest of this episode of Real Estate Riches Radio. Uh again, my name is Trey Stone.
T: Welcome back to the next segment here of Real Estate Riches Radio, I’m your host Trey Stone, my co-host here with me today in the studio, Bobby Duncan, Bobby welcome.
B: Thanks so much, Trey, having a great time.
T: Good. So we were talking before the break a little bit for those of you who uh weren’t with us before the break there about really what’s different from what I do uh versus a lot of the other real estate gurus
T: That do radio shows or uh podcasts or have various websites, book, tapes, seminars, programs, etc. Um so I won’t re-hash that
T: Because we covered all that before the break. Uh but for those that missed it and have more interest in learning about that or were just following up after the show today, love to hear from you. My email is firstname.lastname@example.org you can also just go to my website, realestateriches.com and click on contact us or request a free copy of our reading list, I’ll be happy to help you there and then you can also call 800-661-TREY, 800-661-8739. So the second thing that we kind of talked about as we were planning the show today, Bobby
T: And you were kind of just asking me some questions not knowing it was gunna lead into
B: [Laughter] A show
T: A show topic today. Was what’s different about it, you were researching me and other people online and trying to make comparisons and give you some comments and you talked about okay what’s different, we covered that, you also mentioned who would benefit
T: From one of these deals, ya know who wouldn’t, what does your customer kind of look and sound like, etc. Um not sure what prompted you to ask that but..
T: That’s, that’s what you basically mentioned, did I get that about right?
B: Too many years in the business, that’s what prompted me to ask that question.
T: [Laughter] Lots of different radio shows and different topics
B: Yeah. Um, absolutely I mean we’ve got, we want to kind of get an idea, and it’s a simple marketing exercise but we want to get an idea of like uh who can you help, who’s your typical customer that you benefit, and it’s not right for everybody and we’re not here in a sort of one-size-fits all kind of a deal. Uh there are some specifics about uh the kind of person for whom this would work and perhaps the kind of person for whom it would not.
T: Sure. And I actually think that who it would NOT be a good fit for..
T: Is maybe more interesting questions.
B: Yeah. Okay.
T: Just because of the fact that when I hear about people talk about real estate education and in general all kinds of different self help programs and you know wealth building seminars, books, etc. it does feel like most people’s answer is “I can help everybody.”
T: That my customer is everybody.
B: Can’t be true.
T: unless of course they’re saying “you’re one of these people that doesn’t mind being broke” as if, there’s like some big line of people who don’t want to be successful, Right?
T: That are going “man I don’t wanna be successful”
B: Everybody who doesn’t like being broke get on the right, if you do like it get on the left.
T: Right, yeah. You love poverty, let me give you a peak. Ya know, that’s not real and so what happens though is that’s the kind of qualifiers that some of these captain obvious type programs
T: Seem to put out there and so I’m gunna be a little bit more..
T: Yeah, a little more real and a little more constricted I guess than that because I don’t want to waste anybody’s time
T: My time is valuable, ya know my listener’s time is valuable, so for people that wind up investing in a deal with me, first of all we have to go through a qualification process, and ya know spend a little time together, they need to get a sense by visiting my properties of what these deals look and quite literally smell like, ya know walk around the property that’s one of the first things I do with someone who contacts me from the show wanting to invest is just get them out there and make sure they know what B &C class apartments are like in Houston Texas. Um and if they’re from out of town, sometimes we can do some of that virtually but at some point I want them to get out there and see the real estate.
T: In addition to that, uh I have people who maybe have been in deals with me in the past so maybe they don’t need to get as much information but if they’re brand new um then I’m a lot more skeptical and want to know what other experience they’ve had.
T: So, Some of who I can help will depend on that. I’ve had investors from, actually this past week, one of my old partners who contacted me from California ya know he’s been in deals before with me and with other people, has his own properties, he’s a sophisticated and suitable investor.
T: He’s an accredited investor which basically means people who are worth over 1 million dollars or make $200,000 a year or with their spouse they make $300,000 a year – you don’t have to be accredited to be in one of my deals
T: but for people who are it makes it easier in the sense that there’s no limitations on how much they can invest necessarily other than their own personal risk tolerance and I don’t have to worry like this gentleman I won’t say his last name without his permission but his first name is Chris. I don’t have to worry with Chris that he doesn’t know what he’s getting into.
T: Uh, because he’s been in deals with me with other lead investors, been in his own deals he’s an accredited investor on top of that. So if he says, “Ya know, Trey, I don’t need come back to Houston right now to see more of your B,C deals that I’ve been in with you before
T: And with other people out here. Like I get it, send me the numbers and let’s get on with it.”
T: Uh and that’s fine. But someone who’s never been in a real estate deal before in their life who also doesn’t want to look at the real estate, for me that’s a red flag.
B: I would say so. If somebody’s ready to buy in without looking first that is..
T: Yeah, sorry to be like a stick in the mud
T: But to me, if you’re going to put hundreds of thousands in something you might want to come look at it.
T: Um, the minimum that people can invest ya know it ranges. Uh anywhere from $50,000 as a minimum to I had a deal one time where I capitalized it very quickly with a few high net worth people uh it was a great opportunity and the minimum was $500,000 for that particular deal.
T: I’ve also had deals where it was just one other investor with me in the deal and they’ve put up $7million or $10million
T: In an individual transaction with me. So, it just sort of depends on the structure of the deal. But on average, most people, I’ve looked through our numbers and our various customers, and I would say ya know it ranges but the average is somewhere around $300,000.
T: Ya know, a lot of people in their first deal that might do 50 or 100 or 200,000 because they don’t want to do their full amount. Other people are going, “Are you kidding me, $50,000 is a crazy amount of money, that’s the most I could possibly do” And if that’s above that deal’s minimum, and if they’re qualified and suitable for the investment and they don’t seem like they’re nuts or anything
B: (OVERLAPPING) [Laughter] Okay
T: When we get together… and I’ve seen that too by the way.
B: That’s a whole show right there.
T: Yeah, and that’s a whole other deal and it’s good humor stories I’ve got for you there.
T: But ya know they seem like a reasonable person, they’re trying to build some wealth, they’re starting smaller, that’s where I started.
T: I get it, that’s fine. And they come into a deal with me maybe as low as $50,000. But who I cannot help is the person who says “Ya know, I don’t want you to tell me anything about the deal, I don’t want to go through your 200 page private placement memorandum with every way that yes I can make money but also every way I could possibly lose money…
T: … in the deal, I don’t care, I don’t want to know.” Well then you’re irresponsible or nuts or something and I don’t want to partner with you.
T: I mean when I bring people in these deals with me, they’re now in a relationship with me, maybe a business relationship but they’re in a relationship with me for the life of the deal. That could be 6 months but that could be 12 years.
T: Ya know it depends on what our plan is for that property and whether we really want to sell it or just access our equity by refinancing and taking cash out that way and still hold that property uh and continue to earn income. I’ve got a property right now that I’ve owned 14 years.
B: No kidding
T: Yeah, it’s a $50 million asset. Um I bought it for about $30 million so it’s been a great deal for me. Um, I don’t have any partners in that particular deal. But the point that I’m making is that it really ranges based on that plan, I’ve got to make sure that I’m on the same page with the person that’s getting in, see if they’re gunna get along with the other partners in the deal as well, and I’ve gotta make sure they understand what they’re buying into.
T: Somebody who says, “well, I’m saving up, and I’m looking to invest in an educational program to help me invest in real estate and make a lot of money um and I’ve saved about 1500 bucks so far.” That’s great, and I’m happy that they’re making that start because I was there, I remember buying my first rent house when I was in college and scraping the money together, I didn’t get any money from my parents, or anything like that ya know
T: It was a, it was a challenge, I think I made $5.50 an hour at my job.
T: Where ya know I was a bouncer at a club.
T: So, I’m going to business school at UT Austin, and I’m working at a club which I thought was going to be really cool, a know there would be girls there and all kinds of stuff
T: Actually, you’d be amazed at how much you don’t enjoy going out anymore after you’ve been going there every night for work.
B: Yeah I understand, I spent some time in that world myself.
T: Um, so anyway that was how I first got started in real estate. That was how I wound up in my first rent house. And I’ve been there. So I’m not saying there’s anything wrong with that, we’ve all gotta start somewhere, I commend anybody for just dedicating themselves to “I want to save some money, I want to do some investing or pay down debt” that’s great. But if they’re at that point, I can’t help them. That’s not somebody who’s going to be a good fit for my program. I don’t buy houses. I don’t buy stocks. I don’t buy bonds. I buy apartment complexes.
T: Usually, pretty large ones, I buy them with a group of people that can meet at least that $50,000 minimum although as I said, the average is a little over $300,000 per family.
T: And I’ve been with people who have done as I said up to $10 million at a time in a single transaction
T: Yeah so that’s the range from $50,000 to $10 million is a pretty big range.
B: That’s a pretty broad spectrum yeah
T: But even at $50,000 level that’s just something that a large percentage of the listeners on my radio might go “you know what then I’ve enjoyed the information but, Trey what you’re saying is, I can’t invest.” And yes, that’s exactly right. This is not one-size-fits-all, I can help everybody, it’s not a get rich quick type of deal.
B: No, that’s true
T: If their expectation is, “well, I’m gunna put up $100,00 with you, and I’m gunna get back $1 million from you, ya know 10x my investment which would be a 1000% return, a year later.” You might think, “oh Trey’s just exaggerating to be funny” NOPE. I have actually had people…
B: No kidding
T: That think that that’s what we’re gunna go do.
B: Oh no
T: That is not what we’re gunna go do.
T: Whoever’s telling you that, okay uh maybe they’re telling you the truth but I would double check ya know. They might have some uh, ocean…
B: Trust but verify
T: What’s that song “Ocean Front Property in Arizona”
B: Oh, in Arizona, yeah
T: Garth Brooks or somebody like that. So, no. This is people who are looking to make a reasonable rate of return. Uh, Paul was on the show the other day, he was talking about a deal he did with me where he made a 280% return
B: That’s true
T: And I kind of cringed when he said it
B: I know, me too
T: Because it’s actually the number he said, he went through the amount he put in to get out and from my recollection, I do a lot of deals but I remember that was about right I believe for what the multiple was on his investment over that 4-5 year period but that is not the norm.
T: If you can double your money, basically get your money back, plus 100% of that, and you can do that over a 5 year period, then you’ve made a 20% rate of return, right
T: Because 100%, 5 years, 20% a year. Anybody who says “Oh, well I don’t think 20% is very good, they’ve been listening to some of the real estate guys…
T: I was talking about at the beginning of this show that are to me basically snake oil salesmen selling kind of these unrealistic rates of return as if that’s the every day
B: Yeah “it happens all the time”
T: Yeah like and it’s not.
T: Does it happen, yes as Paul said it does happen. But to teach that as if that’s just the norm that everyone should expect or I’m sorry, or yeah that everyone should expect in a deal.
T: to me you’re just setting people up there for disappointment and you’re going to over-promise and under-deliver. And then when that happens let that be a pleasant surprise. Don’t lead with that because ya know under promise and over deliver is what a lead investor should be trying to do.
T: And I’ve had deals where I put together a proforma and I feel like I really kind of need to back down what the proforma says
T: Because those are the actual numbers and I’m going “that just sounds too high.” Ya know I know that it’s possible and it’s happened in deals but don’t necessarily always want to put that number in people’s head and set that expectation and I also wonder, “Is a sophisticated person not going to think I’m full of crap?”
B: I think so
T: If it’s showing that amount of return
B: Absolutely, I understand the discomfort, absolutely
T: So anyway, that’s kind of what I can do. I can help somebody who’s got enough for the minimum which may not be a suitable or qualified investor for that deal even if they have the minimum but if they do look like they would be a fit it’s going to be at least 50-100,000 to get started, chances are in a lot of the deals um it could be more, but then I think I could help them grow their wealth very rapidly compared to a lot of other stuff that’s out there.
T: When we come back from the break, we’ll talk about why would be a good time or a bad time to invest right now uh in one of these deals in the advent of covid and everything else in the market so come right back and rejoin us in our next segment of Real Estate Riches Radio
T: Welcome back to Real Estate Riches Radio, I’m your host, Trey Stone, here on AM 700 KSEV and those of you that didn’t catch us before the break, my co-host, Bobby. Bobby, welcome back
B: Thanks so much, Trey
T: We have been talking today a little bit about basically a conversation
T: That we had before the show where you were doing a little bit of research for me on the market and looking into things we’re exploring doing with a video version of our podcast, looking at some stuff if we wanna share with folks on social media, etc etc. And in the process of doing that research, you had some questions about what is my unique value proposition
T: What do my investments offer, my program offer, that maybe is different from all the other programs out there, people saying “hey, ya know, come learn from me about how to invest in real estate,” We also talked about well who are these people that you can help, can you just help anybody?
T: So we answered some of these questions in the last couple segments. If someone is just now tuning in and they missed it, you can go back and access that episode of the podcast at my website Realestateriches.com uh or through my email email@example.com we’re here on KSEV Saturday’s at 1pm, I’m sorry Saturdays’ at 5pm and Thursdays at 1pm so you can catch the show live or you can go to the listen now button on the KSEV The Voice website for the radio station or you can access it by subscribing to our podcast but we talked a little about those questions. The other thing that came up when we were chatting before the show..
T: Was, “Okay so, this is what’s different about it, this is who is a good fit”
T: Or not a good fit
B: That’s right and that was an interesting conversation
T: Yeah to be in one of these deals. The other question you brought up was timing. Is this the worst possible time with all this insanity that’s going on in the market right now, it seems like it would freak a lot of people out.
B: A bit counterintuitive
T: Yes, which you were thinking right.
B: Exactly, absolutely I know we’ve touched on this in past programs but we’re in a very uh unfortunate to be clear, situation right now and in Houston we have the double whammy which of course is the decline in oil prices to say the least and then here comes COVID and it gets even worse but as we spoke about in previous programs uh although those circumstances are sad for a lot of people, our hearts go out to them, it actually makes the time to get into ad eal with you uh maybe better than it’s ever been, certainly the best in a long time.
T: Yeah I wouldn’t say it’s necessarily the best that it’s ever been
T: But, I would say that I haven’t seen an event like this to create a buyer’s market in about 10 years. So and you go back to the great recession, 2008-2009 when it really hit. You had this reset button that got hit on values where you saw stuff trading for a fraction of the price. Um, You also saw that people really lost confidence in a lot of aspects of what they thought was being part of the American dream.
B: Oh yeah
T: Where people felt like, what I want to do is go to school, get good grades, get a good job, and then from that good job save money in a 401k ya know invest that into traditional things like stocks and bonds and I want to buy a home and that home itself that white picket fenced home is gunna be sort of the physical representation or manifestation
T: Of that person accomplishing their goal to pursue and achieve the American Dream. And I don’t think that that American dream is gone but I do think it has changed
T: And I think that people definitely stopped seeing their homes as always something that’s going to be an asset
T: Because a lot of people lost their homes when they became worth less than what hey owed on those properties
B: Yeah, that’s tough
T: when they were in adjustable rate mortgage products that they were never qualified for. Ya know when you go back and look at the qualifications they had things like no income, no asset loans. That means, “we’re not going to document your income or your assets because if we did we would see that you can’t make this payment.”
B: A signature loan
B: You just sign and you go on your way
T: And I mean that is not the way that mortgages should be done.
T: So obviously that led to a collapse. Not to mention, there were a lot of predatory lending practices at that time too.
B: It was pretty bad
T: Where people were buying properties that based on their initial rate going into the deal they were going to have a payment of “x” but then once that adjustable rate mortgage adjusted and went up to market after ayear or two years or five years, whatever that interval was. It might have been “x” times 2 or “x” times 3.
T: So these massive increases and the assumption was “well you can always refi again before that happens”
T: Now for some people I think they knew what they were signing for they knew what they were getting into
B: That’s true
T: And they wanted to act like they were a victim and I don’t really agree with that but I do believe there were a lot of people that didn’t know so that all collapsed as it needed to and that led to this big price and reset and we’ve been in a rally, bull market since that time
B: That’s true
T: from 2010
T: until we hit 2020, it’s just been ya know an increasing upward market, uh especially here in the Greater Houston Area ya know as far as property values. Now for the first time we are seeing those prices come back down. And it’s because of fear, people are very scared, they’re worried that because of the virus, because of the oil and gas layoffs, and also because of the social unrest that we all see everyday
B: Absolutely. It’s right there
T: It’s a lot of uncertainty. And so that fear, creates opportunity. It’s not the way we like to see it ya know this pandemic is killing people so definitely not the way we want to see market prices come down and buying opportunities emerge but the fact remains that no matter what the cause when you have a big downturn in the market, those are when the biggest transfers of wealth in the history of the world take place
T: So when you have something like the fall of the Roman Empire,
B: For example
T: Uh to talk about on a grand scale
T: or in this case you talk about people who have a complete lack of confidence about when we’re going to come out of this thing
T: Ya know, when is it going to stop getting worse. Um that creates a lot of uncertainty and fear and that does breed opportunity in the form of lower prices because people are just not going to be investing in these properties as aggressively and more importantly they’re not able to access debt in the capital market at the same degree of leverage as they were able to before this occurred.
B: Can’t get a loan
T: Well you can get one. Um but to give you an idea I did a refi as you know recently
T: and it was still a great opportunity for me to ya know take advantage of some equity on a property, free up some capital, so in the big scheme of things I can’t complain uh and so I don’t intend to do so.
T: And that being said , uh ya know it was a loan on a property that I had been offered a loan for 39 million on before covid and this loan was for 27.5. So you know you you drop the loan amount by 11 million bucks and that’s a pretty big impact
B: Yes it is
T: that’s directly attributable to the combination of COVID-19 and the impact of the oil and gas market.
T: Uh the combination of those two and where lenders see that affecting us globally in America and in the combination with oil and gas specially what they forsee on the horizon in the short run anyway here in Houston.
T: And in my case it still allowed me to pull some cash out to make some other investments because I built so much equity in this property um by buying it at a good price and by doing a great job I’d like to think of re-positioning it. I bought it for 28 million got it reappraised at 45 million..
B: Not a bad day
T: Yeah pretty good day. But that being said, still 11 million bucks
T: Ya know, in a negative variance from what I could have borrowed against that same property 6 months earlier. So what that’s doing for people that don’t have my equity position in this deal is it’s forcing them to sell these properties at a pretty big discount. Because for whatever reason their loan is mature, they can’t refinance for enough to pay off the loan they’ve already got, obviously unless they want to come up with millions of dollars in cash at the closing, they’re going to wind up giving this property back so what’s happening is they’re willing to take less money to avoid that outcome.
T: I toured a property the other day, class A property built in 2015, probably cost 180 grand a unit to build this thing.
T: And it was available for 106,000 a door. So when you can buy something for 70 grand a unit less, than what somebody built it for ya know 5 years ago I mean that’s wild
B: And that’s why you’ve come back into this particular time, while it’s a sad and hard, difficult time for a lot of people that’s why timing is important
T: Exactly. And unfortunately, what most people do is the opposite ya know. They run away from investments in a downturn and out of fear they actually sell instead of buying. When things are going really well and they’ve been going up for a long time, which is when you want to be selling, they’re buying because the greed kicks in and so fear and greed drives those vast majority of investors and that’s what you don’t want to do. So maybe someone listening to the show today is like “you know what that last segment, he was talking about minimums for these apartment deals, I’m not going to meet that minimum, so this may be the last show I’m going to listen to, I can’t do anything else…
B: Yeah, okay. [Laughter]
T: investing with trey.”
B: We wish you well
T: Yeah, we wish you well. But maybe what you can take away from it is even if you’re not doing an apartment deal, don’t for God’s sake, don’t sell in the middle of a down turn and don’t buy after a long up swing, when everyone else has been making money and it’s been going up for a long time, that’s when you want to sell, before people think its going to go down.
T: so that you can make a profit and not the other way around. Buy low, sell high. Sounds simple but common sense is not common practice and this is an example of that. So what I’m seeing right now is that because of distressed deals that are driven by an inability to refinance them uh because the debt service coverage requirements, the debt yield requirements, the loan and value requirements, the requirements of the sponsor, that’s the person that’s saying “hey you’re not financing a personal loan for me, you’re financing a commercial property loan but I’m gunna be the guy that stands up and serves as the main person in the borrower group because it may be one person like in that deal where I’m the only owner of it like we just talked about…
T: or maybe a group of people that are the owner of the deal
B: There ya go
T: Like the people that come and invest with me now off this radio show. I’m accepting partners and new deals right now. They’re going to be in that deal. But typically the bank is going to be looking to them. First they’re going to look at the property to figure out what amount of income can this property produce to make these payments and that’s going to determine how much they can lend. Then they’re going to look at me as the sponsor or key principal in the deal and look at my track record and experience and tell me what they can lend me.
T: And what’s happening right now, for the first time in about a decade is even people with experience are simply not able to access the level of leverage that they were and so that’s forcing people who overpaid for deals to wind up selling them for a big discount to avoid losing them in foreclosure if their loan term is coming to an end.
T: And while it’s unfortunate they’re in that situation, this is when you need to act, this is when you want to put money into those properties
T: Because those times never last. The last run I did this was from 2010 through 2014 then I shut it down because prices..
B: That’s true
T: got high again so here we are 6,7 years later, now there’s been another opportunity in the market to correct. That last event was actually 10 years ago but it just took 3-4 years for it to raise to the point where I felt there was not enough opportunity to continue to go buy deals because I felt like at that point the prices already rebounded and sooner or later they were going to correct and go the other way. We’re back into one of those times no. I actually don’t think it will be 3 or 4 years this time.
B: Is that right?
T: I think it will be a year or two of this
T: And then ya know I think we’re going to see a big rebound as the vaccine becomes available to everyone that will turn it around if we don’t screw it up in some other way
B: Yeah, okay
T: Uh, I hope it goes longer so I can buy more properties in a way
T: But my point is you don’t have time to sit back and wait around then see what’s going to happen, by then it’s going to be over. So if you want to learn how to do that, shoot me an email Trey@realestateriches.com and then you can come out and partner with me in a deal if it looks like it’s going to be a good fit for us to work together. When we come back from the break we’ll talk about that process a bit more, on the next segment of Real Estate Riches Radio. Look forward to having you guys back after the break.
T: Welcome back this is Real Estate Riches Radio, I’m your host Trey Stone, my co-host in the studio today, Bobby Duncan. Bobby, welcome back.
B: Thanks so much, Trey, had a great time.
T: Me too, so this is our final segment today for those of you that didn’t hear the first uh three quarters of the show uh if you wanna go catch it you can go to our website realestateriches.com and view some of our prior episodes there
T: Some of our podcasts, etc. Also you can email me Trey@realestateriches.com so I can send you what you need, free copy of the reading list, learn how to get involved in investing in one of the deals we’ve been talking about today, etc. uh also for those of you just coming in wondering who the heck is Trey Stone and what is Real Estate Riches Radio, uh I’m an apartment owner and I raise capital from listeners like those of you listening today and I’ve been doing that here through KSEV for I guess 15 years or so now. I’ve been doing real estate investments for about 20, I was the 2014 President of the Houston Apartment Association and I’ve owned about 300 million dollars’ worth of apartment complexes in the Greater Houston Area so I’ve been doing this a little while and unlike a lot of the other groups as we spoke about today on the show, unlike a lot of the other ones where you come in and it’s great that you get an education but it’s like okay now go figure it out on your own or where they come in and say alright well you can partner up with somebody else that you meet here which is also fine but is it necessarily going to go somewhere because you don’t know who you’re going to meet, don’t know if you can trust that person, don’t know if you’re going to feel comfortable with that person, um and then also unlike the groups where people are happy to sell you, and I found some of these when I first got into the business, but they’ll sell you books or tapes or seminar programs but hen when you dig into it a little bit more, the people that are doing that, they’re not really real estate investors, they don’t necessarily actually own…
B: That’s true
T: Any of these deals that they talk about, they just write books about it or they just give speeches about it, kind of crazy that there would be that many people doing that but there’s actually more people out there teaching seminars and making a living off of doing seminars about investing in real estate
B: Than actually investing
T: Than actually living off of the real estate investments
B: Oh my gosh
T: It’s kind of weird how that works because you would think that that would last like 5 minutes and then you would go “you don’t know what you’re talking about, why would I keep working with you?” so what happens is that people feel like ya know, I’m getting into this program and this is how I’m going to learn to get into a deal and I’m going to come in and I’m going to learn everything and then I’m going to go do it on my own. And then what they do, Bobby, is they get out there and it’s very scary, because
T: They start looking at properties, they want to make an offer, but just because you went to some classes about it doesn’t mean that you have the confidence or that you should have the confidence
T: If you don’t have a background in real estate to go out there and buy a multi-million dollar deal and know that this is something that you’re going to be able to add value to and then have a capital gain somewhere down the road
T: Now maybe you never even really know, I mean we think we know, but there’s risk in any deal so of course it could go either way
T: But you should be pretty darn confident, you should sort of think that you do know, when you’re buying it
T: Because even sometimes when you think you know things could go wrong but certainly if you’re like ah am I really sure. No business putting your life savings into that kind of deal because that’s basically might as well go to the casino, it will be more fun…
B: Did you mean Wall Street
T: Well that’s one too
T: I meant an actual casino
B: Sorry, I’m sorry [Laughter]
T: But yes, I know you meant that tongue in cheek
B: I couldn’t resist
T: But for a lot of people there’s really not much difference uh so anyway what I do is a little different so people hear my show on the radio, they come to me through other investors, I’ve had some of those partners on the show with me, uh talk about deals that we’ve done, then they come in they meet with me, they meet with my business partners, we introduce them to my team at the property, my wife is often times with me at those meetings because we have a family business and she helps supervise our portfolio, does a great job, she was in property management for many years over a decade before we got together and so we go out and they see what does a deal look like, what does it smell like, what does it look like before and after ya know a unit that we haven’t renovated yet versus on that we’ve already turned that and brought that make-ready to a higher standard so this is one that our resident is paying us more rent than what the units look like when they were ya know renting them before.
T: When you look at the move out you go, “oh different flooring, different appliances, different everything” and then you see the rebranding that takes place where we’ve gone in and we’ve painted, we’ve renovated, we’ve replaced or fixed roofs, air conditioners and plumbing, and all of those different components and then they get to then go from there and look at the financials themselves, see the actual numbers of what my properties have been bought and sold for, uh we take a look at the prospective property that we’re investing in and analyze it on a very detailed level so it’s not something that you’re just kind of going to breeze your way through.
T: We’re going to spend hours together when someone contacts me from this show and says, “Trey, I want to invest with you.” And then after we spend that time together and you completely understand uh what you’re going to be investing in and everything that you want to know about these types of deals and specifically what my business model is for repositioning apartments here in Houston, you’ve met my on-site operations team and kind of gotten their perspective and people are often surprised but I’ll send sometimes when I have a new investor that’s coming in from the radio show or when I have a referral from another partner, wanting to learn more, we meet, we get to know what their goals are, if they have enough money to be able to make the investment, ya know what’s their background and then they go out and they look at the deal. They’re surprised but I’ll intentionally stay behind sometimes during portions of the tour
B: Is that right?
T: Yeah, I’ll have them go forward with the leasing agent or with the property manager because I want them to have an open ya know, unscripted dialogue where they can sit there and say, “hey, what’s it like working here” ya know, “what’s Trey like? Is he full of crap? Is he an alright guy”
B: It’s very transparent actually, it is.
T: Yeah. And so that, that’s how I expect people to get comfortable, by seeing the nuts and bolts of the deal, look at the financials, look at it in person, look at the deals I’ve already done, touring properties I already own, right now that I run here in Houston, and seeing the thousands of people that live in those units.
T: And it’s not uncommon for people to approach us during these property tours and say something to the manager or whatever it is, and I always take the opportunity to go, “Hey, I want to introduce myself. My name’s Trey. I probably haven’t met you before but I’m the owner. April, or Lupita, or Antoinnette, ya know she’s the property manager but I’m the owner. Here’s, this person with me, let’s say his names Bobby, but here’s Bobby.” Ya know, you live here you’re my customer, ya know tell me why we’re great or tell me why we’re not. And I’ll let the resident, not just the employees ya know talk about their experience and so that’s how we get started with somebody in a deal.
T: And then from there, it’s ya know, doing the paperwork, writing the check and then reviewing the financials together as the deal progresses until someday we refinance or we sell the property. So that’s really all there is to it. Somebody wants to learn more just head up to my website it’s Realestateriches.com. Shoot me an email at firstname.lastname@example.org or call my 800 number. 1-800-661-TREY, 1-800-661-8739. I’d love to meet you and find out how I can help you build wealth by investing in apartments. So, thanks for tuning in today, God Bless you.