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Welcome to the West Side Investors Network, WIN, your community of investing knowledge for growth. This is the Real Estate Professionals Investing Podcast. For Real Estate Professionals by Real Estate Professionals. This show is focused on the next step in your career....... investing.
Welcome to the Westside Investors Network. Win, your community of investing knowledge for growth. This is the real estate professionals investing podcast for real estate professionals by real estate professionals. This show is focused on the next step in your career, investing. Thank you for listening.
Intro speaker:And please, if you like our content, rate us on your podcast provider. Just a quick disclaimer, the views and opinions expressed in this podcast are for educational purposes only and should not be construed as an offer to buy or sell any shares or securities, make or consider any investments, or take any other action.
AJ Shepard:Alright, today we've got Sam Edinger with us. He's with Ironclad Property Management out of Connecticut. Sam, thanks so much for coming on the show today. Can you just like give us a little bit of background and tell us like how you got started in in real estate and how you found your way here today?
Sam Eddinger:Sure. So how I got started in real estate, my father was a shop teacher, a middle school shop teacher. And, he never understood the stock market, so he ended up using all of his extra money to buy houses. And so I saw a man on a teacher's salary with five kids and a wife, my mother, who never worked a traditional job, acquire a multimillion dollar real estate portfolio. A lot of the things that I like to I I like to believe, one of them being buy until you die, comes from my father.
Sam Eddinger:He's only sold three properties in his life. One was to me, one was to another friend of the family, and one was a really bad part of our state where his tenant actually got shot and killed in the front yard. And so my father just has never, never, never sold property. And, and people now he now say that he has the Midas touch. And, he never bought good.
Sam Eddinger:He always bought bad. You know, doesn't understand what a cap rate is, doesn't know what cash on cash means. Used to say things to me like, Sam, if I only need to subsidize this $300 a month, in thirty years, it will be paid off. So he did everything wrong, but now being thirty, forty years removed from when he started doing it, now everyone thinks he's a genius. So that's how I got my start.
Sam Eddinger:Continued, I became an engineer, did that for about fifteen years, was disenfranchised with my engineering company. Prior to that, I seeing my father do it, I started buying real estate back in 2012 and continued buying it through today. Still looking to buy, flipping now, doing things like that. Quit my job in engineering in 2018, started this property management company, and, the rest is history. How I got to find you guys, we have some common acquaintances, and also I'm looking to eventually get into the syndication game.
Sam Eddinger:So I figured you guys were some good good people to meet and to get to know a little bit better.
Chris Shepard:Awesome. Thank you, Sam. I'm excited to have you on. Yeah. That sounds pretty pretty similar.
Chris Shepard:Not not as not completely similar, but our dad also was an investor, and he really made his name doing contract sales. So he would do rent to own, and kind of had a little bit of a bleeding heart when he really wanted to provide housing to people who couldn't get loans. And AJ and I kind of saw that and then we're like, But very, very interesting and funny how we kinda all wind up in the same place in NARPAM together and, and in EO. So, yeah, why don't you tell us, just what what is interesting you right now? And what what's making you wanna get into this vacation?
Chris Shepard:And then kind of, like, what led you to get to this point?
Sam Eddinger:Yeah. So I currently own 20 something properties. I made a goal for myself. I'm very goal focused, and I made a goal that by the age of 40, I wanted to be able to retire. And I had said that I wanted to have 30 properties.
Sam Eddinger:And for most people, that's like this crazy goal, but I'm very goal driven. Age of 38, I guess, 36, I quit quit my job. I'm 42 currently. Been been doing this property management for about six years. By the age of 40, I was not at 30 properties, but I owned about 50 units.
Sam Eddinger:And so I I kinda say it's a wash, and I was able to retire if I wanted to. And so the problem that you guys may or may not realize, I'm sure you do, is when you end up having 20 something properties, your schedule e, the taxes, all of the the it it just everything gets more and more complicated just because you have more and more properties. Right? It's like I gotta keep track of all of these different income and expenses on this one family, on this two family. And then also, when I turned 40 and I was able to retire, I kinda got a little bit depressed.
Sam Eddinger:I was like, well, I I I hit my goal. So now what? And so that's a lot of where EO came in as well. It's like, what's my next what's my next thing? And I decided to double down and say, okay, by the time I'm 50, I wanna have 200 units, and I wanna make somewhere around 200 to $300,000 in, gross rents per month from those units.
Sam Eddinger:And so if I think about it from going from about 50 units to maybe 200 or 300, it's really, really, really difficult to go ones and twos. So at that point, I need to find, bigger buildings to buy. So syndication becomes the logical conclusion of
Chris Shepard:that. And, you know, once you get to about sorry, Ajay. Go ahead.
AJ Shepard:Oh, I was just gonna say for I'm not sure if all of our listeners know what EO is and NARPAM. Do you wanna explain those two organizations so that, some people have some background?
Sam Eddinger:Yeah. Sure. So NARPAM is the National Association of Residential Property Management. So it's a it's a great organization. A lot of people that wanna share.
Sam Eddinger:Our industry is really filled with people that wanna share. I think what happens when you're in property management, which you guys at the audience don't probably realize is it's a lot of people being unhappy with you for things that sometimes you can control, but most of the time you can't control. And so it's owners, it's vendors, it's residents, it's all sorts of people. And so the Narpem community really does two things. One, they support each other because we know how hard this game is.
Sam Eddinger:And two, they share best practices to allow you to become better as a property management company to try to, eliminate or reduce as much this stress and pain that you have in property management. EO, Entrepreneurs Organization, is an organization, that was founded by, Verne Harnish, I think, who's one of the preeminent, kind of thought leaders on on development and growth.
AJ Shepard:He wrote the book Scaling Up, I believe.
Sam Eddinger:Correct. Scaling Up. Yep. And so he basically, so it's a not for profit, that ultimately helps entrepreneurs have support system because, any any person that is an entrepreneur, especially a CEO type level, knows how lonely it is on top when you don't really have someone that you can go to for, ask answering questions and and give getting guidance. And so a lot of people, when you get to a certain level, to try to get to the next level, you need to find a tribe of people that can help you get there.
Sam Eddinger:And so EO is great. It's local. So I'm in Connecticut. They really care about us, and we kind of can build in each other with shared experiences.
Chris Shepard:Cool. So the question I was gonna ask was, you know, once you get to about 20 units, you mentioned retiring, but I guess AJ and I found that once we got so many units, that we actually had just made a job for ourselves. And so I guess that at what point I mean, I I guess you could third party everything out and really go hands off, but that's pretty difficult to live off of, or at least what we were, you know, when when we had 12 houses, that was kind of the point when we decided to go pro. Did you run into a similar, I guess, conclusion or or do you feel like you're retired?
Sam Eddinger:No. I I work a lot. Right? I think the concept was more optionality. Right?
Sam Eddinger:I had the ability to retire if I wanted to as opposed to the desire to retire ultimately. I I was third partying it. I was starting to buy in 2012. I was still an engineer. My brother actually owns a property management company in Connecticut too.
Sam Eddinger:We compete and cooperate. He tried to coin the the term coopetition. And, so what's what's interesting about all that stuff is that when and I think you guys realize this and and probably your audience realizes this too. When you first buy property, you're not really gonna make much, if any, money. And the reason why is because either there's a lot of deferred maintenance that you have to deal with or you gotta stabilize the rents or interest rates are high right now and and and you've got vacancy and bad debt that maybe wasn't done.
Sam Eddinger:A lot of the if you look at the t twelves that I see, maybe it's a it's an owner operator who is his own handyman still, and he's going in, and he's not really booking the labor costs. So there's a lot of that type of stuff that ends up making it so that the returns, at least for the first few years, is not as good as as you would expect in a cap rate or a pro form a. And so the same thing happened to me. I was buying back in 2012, these single family homes. And I was like, well, if I only need to buy make a hundred or $200, that's fine because I was expecting appreciation.
Sam Eddinger:Right? My brother said I was an idiot. I think I ended up proving him wrong after ten years that, actually, the appreciation game I I was buying in 2012 before the Blackrocks were buying. And I I told my brother, I said, you can't build a house for $80,000 yet I'm buying a house with land for $80,000. I said that it has to continue to go up.
Sam Eddinger:And he's like, no, it's Connecticut. There's no appreciation. And and I agreed with him. And I said, but I'm I'm it's a theory that I had, and I was living with that. And I said, I'm gonna buy these properties, and then I'm ultimately gonna sell them $10.31 into a bit into a three family and then have the cash flow there.
Sam Eddinger:But, you know, you take it ten years from now, some of these properties that I purchased for 80, a hundred thousand dollars, I was getting $1,300 a month in rent. Now I'm getting $2,300 a month in rent for a single family. So now I'm getting great cash flow on these as well. And unlike a lot of my peers, I never refinanced because I was like, look, I'm buying I'm doing this when I'm 30 years old. Thirty years from now, I'll be 60.
Sam Eddinger:I don't wanna be continuing to pay these debts when I'm 70, 80 years old. Right? So I decided strategically that I wasn't gonna refinance, wasn't gonna take all the equity out. And so I'm actually I'm actually under leveraged. I'm at about 50%, leverage or or, you know, debt to income was about 50%.
Sam Eddinger:I own some in in cash. What I also did was I have because I buy a lot of small multis, my wife and I have about 18 loans, Fannie Freddie. Figured out how you could do it where I could get 10 loans and my wife could get 10 loans. And she wasn't working because we have six kids as well. So ultimately, she wasn't working a job, but I got her 10 loans all because I learned how to play the game well, and did something strategically.
Sam Eddinger:So I don't even remember where our question went because I can meander all over the place. But, yeah, it's, you know stop there.
AJ Shepard:Yeah. There's, there's definitely that limit of 10 loans per individual name, which is awesome. You know, one thing that Chris and I did differently is we re leveraged properties about after five or seven years, and then took that capital and just bought more property, which is it's been great and certainly is able to fuel, the purchasing power. And then also, what we found too is when we first started out, we were like, we've never seen interest rates so low. The the the run of interest rates at that those low levels was incredible.
AJ Shepard:You know, if you know you can make 7% in the stock market and you're paying three percent on a mortgage, like, it just makes sense to take the cash and just know that we know where to put it someplace better. So we we opted to releverage those properties every chance we got. Obviously, there's a cost associated with that, so we wouldn't re leverage it for, you know, a couple grand. But, I mean, if it was, you know, upwards of 50 to to $200, like, that would be an opportunity that's worth paying that 3 to $7,000 to refinance. So
Sam Eddinger:Yeah. Agreed. And and what's what's interesting about that is, and and I will completely admit couple things. One, I I say this is an embarrassing fact of me, which is I've never lost money in real estate. Right?
Sam Eddinger:Which means I didn't try hard enough. Right?
Chris Shepard:I wasn't pushing hard enough.
Sam Eddinger:I wasn't doing doing what you guys were doing ultimately and and continuing to releverage. Right? Because if you're not if you're not embarrassed that you lost money, then you should be embarrassed that you always made money. You didn't do it hard enough. But the other thing about it is you're completely right.
Sam Eddinger:I have friends that own bigger apartment buildings, and every three to five years, I mean, a lot of times, they're arms that adjust anyway. So just go ahead and, you know, just do the appraisal and refinance. And and they that's how they made all their money was cashing out that money. And and there's no tax, ramifications of it either. So it's it's just a a blessing.
Sam Eddinger:So with me, because of the fact that I was doing these thirty year notes, like, for me, it was more about when I'm 60, it'll be paid off. And I understand that's not for everybody, especially people that wanna lever, lever, lever. Like, at this point where I'm 42, I probably would do fifteen year notes on anything that's, you know, five and below, or four and below, I should say. But if I did syndication, I would be le releveraging. So this building that I purchased, this commercial building, I think we have a five year arm on it.
Sam Eddinger:And when we've been doing a whole bunch of money to improve the value of it by renovations and raising rents, and I'm gonna pull every dollar out of it when I when I can because you kinda have to. Right? So it's a different game when you're doing for me, at least, when you're doing small multi versus when you're doing bigger deals.
AJ Shepard:Yeah. I mean, the difference is is the the small multifamily is based on, market value and, what is it, the sale value. Whereas, like, when you're doing multifamily, it's all off NOI.
Sam Eddinger:Yeah. So it's like approach, income approach. Yeah.
AJ Shepard:Yeah. It's a couple couple different ways to approach, like, what property is worth. And, again, like you said earlier, it's like learning how to play those games. And once you learn how to play those games and you know how to pull the right levers, you you can come in and you can do that. And but that's one of the benefits of investing with someone that's done it before.
AJ Shepard:Right? Like, being able to come through and say, you know what? This guy's he knows the knows the things, knows what to do. I mean, Chris and I can talk about, like, one of the first syndications we did. We actually, like, screwed it up.
AJ Shepard:We we made kind of a blunder. We, we've and we hadn't done a lot of commercial loans.
Chris Shepard:This actually cost us a lot of money.
AJ Shepard:This did cost
Chris Shepard:us a lot of money. Indicator.
AJ Shepard:Yeah. So we we we found a property for 1.2, and, you know, the appraisal came in when we bought it at, like, 1.5, 1 point 6 and had a ton of deferred maintenance. So we put a hard money loan on it, and we we picked it up. And, like, in three months, we had all the stuff fixed up. We we knew what to do.
AJ Shepard:We had it occupied, and then we went in for a loan. Well, turns out that on commercial loans, it's not like a residential loan where you can just refinance out to the market value and get LTV of 80%. They held us to loan the cost. So it was our purchase price plus whatever we could prove we put into it with the the max, max that they would loan us. And so we and we'd already paid all the fees to get the appraisal and, environmental and everything else associated with it.
AJ Shepard:And, like, we were we were sunk, like, and we wanted to get out of the the hard money loan rather than, you know, dump all those fees and then wait another six months to to redo it. So we've we've learned that in
Chris Shepard:Well, we should've dumped the fees and just waited the six months.
Sam Eddinger:So we
AJ Shepard:would've Yeah.
Chris Shepard:And a better appraisal and then your this would've been up. Like, we ended up getting, like, a 1,100,000 loan when we could have gotten, like, a 1.6 or 1.7 and and essentially returned all of the capital for our investors back. And so that it would have been, you know, like an infinity, IRR. Yeah. And, you know, that would have been a fiftyfifty split, based on our waterfalls, but we didn't do that.
Chris Shepard:We kept the investors money, and now it's basically an eightytwenty split. Well, actually, it's like an 80 seventhirteen split because of the preferred return and, you know, and price or, you know, sales prices are down. And so it's it's a it's a rough lesson to learn.
Sam Eddinger:It it's it's a lesson. Right? And anything else, it's like, how do you how do you get your education? Right? Usually, you have to pay for your education regardless.
Sam Eddinger:And so I try to learn some other money. I I try to learn I, yeah, I try to learn some other people's mistakes. Right? I, like, I talk to people all the time. I'm like, don't try to be, like, creative with, like, your syndication JV structures or whatever.
Sam Eddinger:You're, like, see what people do. There's a reason they do it. Don't try to reinvent the wheel. Right? And so I always go into situations and I'm like, alright.
Sam Eddinger:I need to learn something. So learn, like, seasoning requirements like you're talking about. Right? So that you know that you can get all the money out because it's based on true appraisal, not cost plus, and and all that other kind of stuff. So but, you know, there's a lot to this game.
Sam Eddinger:And so understanding and how to navigate it is is really an important part of, you know, be it the the syndicator who's doing it or be it the property manager who's doing it or be it whoever. It's, you know, it's it's it's not easy. It's not for the faint of heart. So
AJ Shepard:So, I'm gonna kinda maybe change the subject a tiny bit, but, there's a fair amount of, like, other operators and investors that listen to our podcast. And I think they might have some interest in kind of like you said you created a property management company in the last, like, six years. I know a couple other operators that are thinking about, you know, pulling property management in house. Like, do you wanna talk about the benefits? Like, you are the owner, but and maybe you haven't used other third party managers, but, like, maybe let's talk about some of the benefits of having, you know, the benefit of being vertically integrated, essentially, being able to manage and control the employees that do the management and control the property management for your own properties and assets.
Sam Eddinger:So the the benefit for me is the owner? Yeah. So the benefit for me, the owner, is I get to do only the things I wanna do. Right? So I'm not like I'm talking to you guys while today is the thirtieth, and my guys are running around doing move ins.
Sam Eddinger:Right? You know, that's the benefit of me being able to control the staff is I I get to basically, not I get to pick and choose the things that I wanna do, right, ultimately. And that optionality is really important for me. So, you know, I I like to think about it from a perspective of what are the highest value activities that I can do, and then how do I teach and train and outsource the things that either I don't like to do or are lower value activities. We we significantly leverage remote staff.
Sam Eddinger:I have seven employees international. I have five local, including myself. And there's a lot of benefit to being able to develop a really great property management company, both for the owners and investors, as well as for me as the owner of the company, because you can provide a a better service, what with better people, that are doing all the administrative functions internationally because, you know, we can leverage technology in a big way at this point in, you know, 2024.
AJ Shepard:What were some of the challenges of, like, setting up the property management company and, like, kind of, like, I'm assuming that you had to go through hiring employees for the first time in the last six years.
Sam Eddinger:Yeah. So, this is where I I think I I indicated to you in the introduction that my brother owns a property management company as well. So we actually I incubated underneath him. So at that point, I'd owned owned 30 or 40 properties. He had decided that he wanted to get rid of strategic investors because they're more price sensitive, and he really wanted to focus on accidental investors.
Sam Eddinger:And so there was people that he was thinking about firing anyway because he couldn't figure out how to get enough income to justify the cost, all of the expenses. And so I was underneath him, and I leveraged his appfolio. I leveraged, you know, all of the systems and processes that he had built over the preceding five years. And then ultimately, we split off about a year and a half later. So I didn't have a lot of the pain that, a lot of other ones do.
Sam Eddinger:With that said, I do have a check that I write to him every single month when I bought out his 50% interest in the company. But, you know, I do that willingly and and happily because it did allow me to really, get past a lot of the introduction introductory growing pains. So he had already been leveraging remote staff a little bit. He talked he showed me how to build an LLC, how to make a website, you know, who to who to pay what for what, you know, systems like, Gusto and, you know, accounting softwares. So he was really instrumental in kind of getting me accelerated in that beginning.
Sam Eddinger:And that's, I know, unique. Most people don't have some property management company that they could go in and talk to with with the express expectation that you're gonna spin off a competitor. But my brother did it willingly and lovingly because he loves me.
Chris Shepard:Wow. That's that's very lucky. And awesome too. You know? It's, it's great to have a brother.
Chris Shepard:It's true. I I
Sam Eddinger:don't know if you guys are part of a a bigger family. I actually have four brothers, no sisters.
Chris Shepard:Wow. No. It's just the two of us.
AJ Shepard:Just us.
Chris Shepard:Yep. But you have six kids?
Sam Eddinger:Yep. Three boys, three girls.
Chris Shepard:Oh my gosh. That's crazy.
Sam Eddinger:That's and and, you know, and talking about, you know, back to your question about, like, having the ability to run a company and, you know, me saying about doing it my way, one of the things my wife challenged us, we we're having our twentieth wedding anniversary next month in less than a month. And, we're gonna be this summer, we're gonna go on, on vacation for about six weeks to drive across the country. Right? And so I'm, like, thinking about, like, what are the things that I really needed to do? One of the last things I needed to do was to get a stamp with my signature on it so so I can have my ops lead actually sign local checks.
Sam Eddinger:Right? But most everything that we have and do is can be done remotely. I don't see my staff most of the time. We're all remote. The most the reason why we have an office is for keys.
Sam Eddinger:I like being in here because it's I compartmentalize. When I'm home, I'm home, and I don't think about work. When I'm at work, I'm at work, and I don't think about home. So but, yeah. So we're trying to take all six kids and my wife, to drive around country with our, Chevy Suburban.
Sam Eddinger:So it's gonna be interesting.
Chris Shepard:That's gonna be a
AJ Shepard:crammed car for sure.
Sam Eddinger:Yeah. So That's a good one.
AJ Shepard:I don't
Sam Eddinger:know how you take eight people in any car and not be crammed, though. Right? Even if you get, like, a a sprinter van or something, like, you know, driving all the way across country, things are gonna happen. So
Chris Shepard:How how old are your kids?
Sam Eddinger:My oldest is 15, almost 16, and I have twins that are you can drive? Not not in Connecticut, but she's actually one of the things that we're doing, we're holding off our our date so that it's past her birthday so she can get her permit. And then we're just gonna have her be not a third driver, but we're definitely gonna, like, allow her to drive some and gain a lot of experience driving cross country. So, and then I have my youngest twins are almost eight. So I have from 15 all the way to 16 almost almost eight.
Chris Shepard:That's awesome. I I have an 11 old, and it's a it's a fun journey.
Sam Eddinger:Well, I'm gonna
AJ Shepard:I'm gonna move this conversation onto syndication. You said a couple times that you've been interested in that. Like, maybe tell us kind of, what what sort of research you've done so far and, like, what you see as the benefits of it and and why you wanna get into it.
Sam Eddinger:Yeah. So, the benefits of it is that it allows you to leverage a lot of money relatively easily and efficiently in an asset that you know that that I know. That's one thing. The second is that you can make it passive. If you're on an LP, you can make it active.
Sam Eddinger:If you wanna be on a GP. Right? One of the things that I like to talk about is and and you guys can probably attest to this. Most syndication arms are, a deal finder and, like, a demographer, and maybe you have a third person. But I never see a traditional GP that has a property manager as part of the GP, meaning not even the property manager doing the physical managing of the property, but just as a property manager as an oversight person for it.
Sam Eddinger:Because I know what is good property management, and I know what is bad property management. And so, like, there's so many property managers that will do these syndications all throughout the country, and they're not very good. Right? And so if you have a GP partner who is has property management experience, you can help them, those property management companies, to become better than they would be with without that experience. And so I've always talked about it with you know, I wanna be on the GP because I wanna be able to provide that level of value.
Sam Eddinger:Whereas maybe I'm not the money finder, maybe I'm not the deal finder, but I can definitely add a lot of lot of value. So, you know, that's one of the things that I wanna do. We one of the other things I wanna do is I I think I've explained that my property management company is extremely systematic. I actually believe that if I go into, like a syndication type situation, I can possibly, if I do it if I think about it well, can actually utilize my property management company and software and systems anywhere in the country. And so I've systematized it enough, especially being in a blue state, that I can go into a red state pretty with pretty good expectation that I'm going to be able to manage there.
Sam Eddinger:Because blue states are a lot more, tenant friendly. And so if I'm able to do that well, then going into a Texas or Florida should be a lot simpler. There are changes in laws that you have to recognize, but I think that that's also a benefit that I'm looking to do in the future is expanding my property management company through syndications or joint venture.
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Chris Shepard:What are what are some of the hurdles that you see, kind of getting into, syndication?
Sam Eddinger:Yeah. So for me, the big hurdles are right now because of how high interest rates are, you know, that you haven't had the cap rate compression. You know, it's a seven or eight with a 7% interest rate. So it's hard to make the numbers work, especially if you're doing a preferred return. So that's one of my biggest hurdles.
Sam Eddinger:Another one of the hurdles is, an understanding of all of the changing laws with respect to fees, tenant fees, what can be charged, what cannot be charged. Because a lot of the benefit that I have as a property management company is that I'm able to realize additional revenue over other other people. So that's one of the hurdles that I would have. The other hurdle is you do still need strong leadership. I think you could do a lot of this stuff remotely, but you still are gonna need to have some ops lead over top of one of these people that one of these remote staff that are doing all the administrative functions for, the syndication.
Sam Eddinger:But you also need to have boots on the ground. So the way that I look at that is you've gotta have a good, you know, handyman type person that can also function as a field inspector, can put lock boxes on it for self self inspections, can do a lot of those functions to be able to make sure that you can continue to operate efficiently. And I think you probably would need a little bit of a higher level, you know, handyman type person. One other thing is, a lot of what I'm trying to do is be like we talked about before, is be able to refinance and get all of that equity out. Right?
Sam Eddinger:If I'm able to operate the syndication at, you know, let's say, a 1%, management fee instead of a traditional five or in five plus, all of the reimbursements of the cost. If I can do that at one, like, that that drops right to the bottom line. Right? And so I if I can do that, then presumably I can refinance it, take all of that extra, you know, net operating income that I've received from my from efficiently running it and then be able to make the return through the refinance. One guy that I spoke to said that it's a different model.
Sam Eddinger:Right? Everyone always assumes five plus, you know, payroll reimbursement. And so a lot of the banks might not actually accept that as a means to justify, you know, giving us the higher higher return profile. So that's a challenge as well. So there's a few things.
Sam Eddinger:I'm I'm kinda waiting patiently to see, you know, the election to see, you know, I believe that there's about to be a pretty big commercial issue with all of the nonperforming commercial loans that are coming due in the next year to two. And so I'm
AJ Shepard:looking to see You're referencing specifically, like, office commercial.
Sam Eddinger:Yeah. Off office commercial. Sorry. Yeah. Yeah.
Sam Eddinger:Yeah. Not residential. Industrial Industrial and residential are gonna hold up fine. The commercial side is going to be in a world of hurt because people work from home a lot more, and a lot of people had bought these with a 3% note that's now transitioning to a 7%. So there's just not the the the you can't make the numbers work on a DSTR basis without bringing a lot of cash to the table.
Sam Eddinger:Yeah.
AJ Shepard:I mean, a lot of a lot a lot of downtowns right now are 20 to 50% vacant in the office, which is Yeah.
Sam Eddinger:I'd heard some yeah. I'd heard something that, like, for most situations, you have to have be about 90% occupied for, you to be able to hit your DSCR ratios. So that was before everything happened. Right? So people were buying these elevated prices because the fact interest rates were so low, and now it's it's coming due.
Sam Eddinger:So, you know, I I'm curious what happens with the the, you know, our our our country and whether or not they stimulate again or whether or not they let those companies fail, let those people fail that have bought their commercial space. I don't think you're gonna be able to retrofit much of it, so that's not gonna bring an affordable base on the market. But, like, for me, if I guess my point is if if that failure occurs and what they do is Jerome Powell turns on the money printers again, I'm buying. Because all they said is I'm gonna reinstate reinflate that balloon. Right?
Sam Eddinger:So at that point, I'm gonna buy because housing prices and everything else and rents are just gonna keep going up.
AJ Shepard:Sure. What so I think kinda what Chris asked was, like, what do you you know, what are some of the hurdles? Like, what do you see as, like, your next steps in in, like, you know, getting into syndication?
Sam Eddinger:Yeah. So a lot of it is networking with guys like you, finding people that I I believe in, talking about some of the things that I think I do uniquely well, trying to see if I can get on some GPs, you know, and and trying to learn more about the the good places to invest. You know, maybe maybe partnering with someone that's a better fundraiser and or person that finds the deals than than me. So those are some of the things. I'm just trying to put myself out there, meet guys like you, have good conversations, and then see if any, type of partnership makes sense.
Chris Shepard:Yeah. Yeah. Generally, on a on a GP, it it gets sliced up. So Jay Scott put on a pretty phenomenal presentation on the the cost or like what it costs to fundraise and how to be compensated for fundraising at the best ever conference, which I highly recommend. It's probably the best, the best ever syndication conference.
Chris Shepard:But AJ and I, and our team really enjoyed that. And specifically Jay Scott's presentation, it was really, really good. But the way that he kind of broke it up is that fundraising is roughly about 30% of the GP, asset management, and including property management is about 40. Then you got a key principal, which that person gets about 15 or 20%. And then the person who finds the deal, you know, is getting somewhere between 510%.
Chris Shepard:Those are pretty rough numbers, but the most of the money is being able to sign for the loan, and putting, I guess, all of the people together and taking the asset management in house. But that's something that we do, we do all of it. And, you know, that's just kind of how we got started. We started syndicating on smaller properties that we could have bought ourselves, and we just brought in friends and family, and like, Hey, you know, we were also like you, who haven't lost money on a deal, and instead of reaping 100% return on that first deal, we screwed it up, messed up the loan, didn't return our investors cash, and we're gonna make a little bit less money, but that allowed us to get into bigger deals. And so, you know, from that point on, you know, I mean, our investors are happy, instead of us making money, they're making money.
Chris Shepard:So, yeah. You also touched on kind of the underwriting standards, and basically what goes into underwriting, and essentially an appraisal, whether you're gonna be able to have lower property management costs to increase your NOI to get a bigger value. Unfortunately, we've also tried to do that, and there are minimum limits, with agency debt. And so, but I mean, there's always the opportunity to get that hard money loan or get a bridge loan, and then get into that agency debt, which is a strategy that I, since the interest rates are so high, and we're kind of like at the bottom, nearing
Sam Eddinger:the bottom of the cycle
Chris Shepard:with I mean, there's there's been a lot of record supply, lot of lot of deliveries here in Portland. I'm sure you're you guys are getting new apartments delivered.
Sam Eddinger:Not really. Connecticut's soup, super old, and we had an outflow of people for the last twenty years. All of our big businesses have left, so we have not really built in twenty years, which is a lot of the reason why we're seeing such an increase in prices. We're one of the few states in the nation that actually did not see a reduction in housing prices. We're up about 8% year over year, still, even with the interest rates going up like crazy.
Sam Eddinger:And so they're all of our building departments have, like, one guy. So there's no there's really no significant development that's occurring in Connecticut. So that's another reason why I'm not syndicating in Connecticut. So
Chris Shepard:But, I mean, why wouldn't you wanna syndicate in Connecticut?
Sam Eddinger:I think that most of the properties that I would want to syndicate are traded off market. Usually, it's to a Jewish community or other other people that have held long term. A lot of the the properties, I would say, are not actually even being traded. So we're about if you look at the number of properties for sale, historically, we're about 25,000 or so at this time of the year. We're currently at about 4,000.
Sam Eddinger:So stuff is just not trading. And also for me, we've seen such an increase in in rent prices. I don't see that changing. I see rents gonna continue to go up at least in our market. In Connecticut, you know, 5% year over year for the foreseeable future.
Sam Eddinger:Like, the numbers don't justify what people are buying housing for at this point in time. And so the only explanation that I have for is that rents have to keep going up.
Chris Shepard:So I agree with you there. And so, essentially, I mean, you're you're saying that prices are too high right now to to jump in the market?
Sam Eddinger:I'm saying both how prices are both too high and too low at the same point in time. Like, we I talked about is you can't build that property for that price, but you can't justify the purchase of the property based on the rents that you're gonna receive tied to the interest rates and things like that. So they're trying to sell it, like, a a four cap, a five cap when the interest rates are seven. You're not gonna be able to survive your debt service. Right?
Sam Eddinger:But if you had to rebuild that same building, it would be still probably 50% higher than it currently is. So you have this this really weird situation where you can't bring on new inventory because you can't justify it in the building of property. At the same point in time, the rents have not gone up fast enough based on the changing dynamics in the rental markets. So we're kind of in this really weird place where I don't, you know, I I kinda wanna buy, but I kinda wanna sell. Right?
Sam Eddinger:I wanna sell because it's at an all time high, but I kinda wanna buy because I know that it's gonna keep going up because we're not building and we can't build it.
Chris Shepard:But who's gonna buy it?
Sam Eddinger:Well, so there's it's definitely interesting. There still are investors that are that are doing it. We're seeing a lot of sub two. We're seeing a lot of type those type of things in our markets. You know, we also have situations where a lot of the three and four families are bought being purchased by FHA loans.
Sam Eddinger:I think there's gonna be a lot of foreclosures in our market in the next four to five years because if you're buying on an FHA loan on a four family, you're one heating system away, you're one roof away, you're one trashed unit away from not having enough money to continue to cover, your your debt.
Chris Shepard:Interesting. So two two things there. So you you mentioned that rents have to go up, you know, but prices are high. So I guess one question is, what what if somebody has to sell? Like, what if what if they really need to sell?
Chris Shepard:You know, and so, I guess that's the point that I wanna make is that, you know, how do you find the the people who need to sell, who are willing to, you know, I guess, sacrifice a little bit on price?
Sam Eddinger:Yeah. So, like, I have a business partner who's a wholesaler. He's selling flyers out all the time. I talk with every wholesaler in the state. You know, they're canvassing all over the driving for dollars.
Sam Eddinger:Everything that's being done is being done in our state to be able to find those those gems. Right? We were currently in the process of flipping two. Both we found off market. Both we're gonna make a good return profile.
Sam Eddinger:But it's it's extremely difficult to find those opportunities in our market. I'm sure you guys are aware. I mean, everyone knows that the last three years, housing prices have gone up like crazy. So most people are not willing to take a haircut even though they, the property is somewhat distressed. Right?
Sam Eddinger:They're like, they they think they they have unrealistic expectations because of what they've been spoon fed for the last three years. And so you're it's a lot of that. And again, that's why we just don't have a lot of transactions occurring.
Chris Shepard:So but, I mean, it seems like you're that that would those wouldn't be properties that you'd syndicate. So if you were No. Looking at properties to syndicate, you know, 10 plus units, you know, North Of 1.51800000.0, Like, you know, how how do you get your foot in the door there?
Sam Eddinger:So in Connecticut, like, I would so I've strategically stated that I'm not going to buy in places that I feel unsafe providing property management services. So I said in the intro that my father had a property and and it was in Hartford, Connecticut, and his tenant got shot and killed in the front yard. And so a lot of the the quote, unquote deals are in areas where I would call it d class, not even c class. So I'm fine managing c class and above. But if I have to wear a bulletproof vest on me, if I have to have a gun on me, like, it's not worth it to me.
Sam Eddinger:So those are where the the quote, unquote syndication deals are are transacting. I have a buddy that bought a hundred unit plus building in Hartford, and he's doing well, but he's struggling because he's got a lot of vacancy issues. He's got a lot of tenant issues. For me, it's not worth it. All the other markets don't really have those type of high density buildings that were built.
Sam Eddinger:You know, we were one of the first states in the nation to be founded, and so we have a very, very old mature stock. Most the average age of houses in Connecticut's probably 19. And that's because that's that's what they say around 1900, because they don't really know when it was built. We did have some additional houses that got built in the nineteen sixties, but those were all ranch style single families after the wars where people were coming home. We really haven't had a building boom since then.
Sam Eddinger:So there's not really much indication to be had that I'd wanna do. And so that's where I would, you know, partner with some guys like you, you know, possibly, participate on an LP, get my feet wet, learn a little bit, and then try to decide to go and and syndicate somewhere else in maybe, Texas or Florida.
Chris Shepard:Interesting. Yeah. And so, I mean, is is Hartford really that bad, like, the entire city?
Sam Eddinger:Maybe not the entire city, but it's it's really, area to area. And and even with that, it's still transacting at like you guys talked about, it could be transacting in a hundred to a 30 a unit. Right? And I and the and the taxes one of the interesting things about Hartford too is the single largest employer in the city of Hartford is the state. And one of the interesting things about the state is the state doesn't pay property tax.
Sam Eddinger:So all of these beautiful state buildings don't pay any property tax. So Hartford has one of the highest property taxes in the state, and our state property tax is already ridiculously high. So there's just a lot of reasons why I don't really wanna go into Hartford. Some of it's financial too. So, but, you know, I could try to piece off those small areas that are that are worth looking at.
Sam Eddinger:But, you know, for me, for right now, like, I would probably rather just go syndicate somewhere where the laws are more favorable to me, you know, some place like Florida or Texas. Cool. Yeah. I
Chris Shepard:mean, so there's the the fund of fund models, which, you know, where you'll essentially put together your, your contacts and your relationships and then raise funds. And essentially, if you raise enough funds, you can get into the GP, otherwise you can get kind of preferred shares of an LP, which seems like a great way to get your foot in the door. Sure. And you just, you've got all this property management experience,
Sam Eddinger:so. No, and I'm sensitive to that. Yeah, that's a great
Chris Shepard:asset. It's Sure. You know, yeah. We've we've just found a go ahead, AJ.
AJ Shepard:Well, I mean, even at BEC, just meeting other operators, there's a lot of guys toying with the idea of, like, you know, bringing the property management in house. Like, a lot of the pain points is with third party managers is, you know, they don't get real time data. Like, it's the story gets kinda muddled as it comes through. Like, there's not great explanations as to why the revenues are not up. Like, you know, the that's kinda where I was getting at with the, idea of starting your own property management company is you have a lot of control.
AJ Shepard:You can talk to that employee, you can directly pull the reports, you can see what's going on, you can pull the leasing numbers off the self self showing lock boxes. Like, you can just see what's going on a lot better. So you the data that you get is more real time. And that helps with managing the asset, like, a lot better. And it also helps identify issues and problems quicker.
AJ Shepard:So you're not like at six months down the line being like, Shoot, we've had this problem for six months. You might be able to catch it in month one, month two, which can can ultimately save a lot of money and help that asset perform a lot better.
Sam Eddinger:Sure. Yeah. What I will say one thing, which I guess I didn't, state before, most, if not, most of the bigger syndicators or people that own the big buildings, they already self manage. Right? They've already built and established their own property management companies.
Sam Eddinger:And so
AJ Shepard:Yeah. That's you
Sam Eddinger:know, I'd have to
AJ Shepard:That's the natural progression for a lot of Sure. Syndicators is, like, they they get out syndicated and they get in some other GPs, and then they realize, like, oh, there's it's not it's not money to be made on property management, but it's efficiencies that make the investments perform better. And you're gonna get a larger benefit of, return as a general partner, having the investments perform better. You know, easier to raise money, like, it just makes a lot of things easier. So it's generally not like a vertical that people are like, oh, this is gonna be a huge moneymaker.
AJ Shepard:No. It's it's more of, like, this is gonna make the investment perform better, and, ultimately, that's gonna be, like, what is the best benefit to the syndication company?
Sam Eddinger:Sure.
Chris Shepard:There's there's too much. As well, there's plenty of other operators who are using third party management, who could absolutely benefit from, you know, somebody who has expertise, and as well, I mean, you know, the experience that you had with your brother, having him just show you exactly how to start up your property management company, like, that is something that many, many syndicators can benefit from. And so, I think that's just an incredible experience that you you have and you can share.
AJ Shepard:Cool. Well, I think, we're getting on towards, time here, so we'll we'll move to the last four questions, and I'll start the first one off, which is what's one piece of advice you would give to your 25 year old self?
Sam Eddinger:What I would say is, I would say, like, being an entrepreneur is amazing. I would say start earlier. Quit your job sooner. When you're disenfranchised, quit earlier and then get on this journey that you're on currently sooner.
Chris Shepard:Yeah. Yeah. I love that. Okay. So what was your first entrepreneurial endeavor?
Sam Eddinger:I, sold candy in elementary school. I used to buy Airheads, and I bought them. I think they're about 10¢ a piece, and I'd mark them up for a quarter a piece and, made a little bit extra money and got in trouble because parents were asking their kids what they had for lunch. And instead of eating school lunch, they were eating candy. All candy.
Sam Eddinger:So that was my my my first entrepreneurial experience was, selling candy to elementary kids.
AJ Shepard:Jeez. You just forgot to have them sign the disclaimer. I know.
Sam Eddinger:I got in got in got in trouble.
Chris Shepard:Yeah. I did something similar. I would, go off campus and bring pizza back on and then sell pizza.
Sam Eddinger:Hey. At least there's the nutritional value in the bread and sauce. Mine, it was
Chris Shepard:just like sugar. It's a fruit and a vegetable, isn't it? You know? There you go. Tomatoes.
Sam Eddinger:Tomatoes. Yeah.
AJ Shepard:Well, alright. Next question. How has your formal and informal training shaped your journey?
Sam Eddinger:So a lot. So my background's in engineering. I was both a nuclear engineer. I also have a physics degree. I worked on fusion and fission research, prior to quitting and joining a property management company.
Sam Eddinger:So, I'm very systematized, process focused to a fault probably. And so that's really been very beneficial in the property management space.
Chris Shepard:Cool. Yeah. Systems are huge. I mean, even when it just comes to running business. So, whether it's property management or not, being able to be remote is all like systems.
Chris Shepard:Sure. Okay. What, last question. What was your biggest mistake and what did you learn?
Sam Eddinger:Probably like I like I described, my biggest mistake was overanalyzing the numbers on everything and not taking more risk. I'm, by nature, very risk averse, but it served me well. It continues to serve me well. But I think that if I was more like a traditional real estate investor back when I was doing it in 2012, '20 '13, '20 '14, I'd probably have twice as many properties. And so I think sometimes I'm a little bit too risk averse, and that's problematic when you're trying to be, you know, making a lot of money in real estate.
Chris Shepard:Yeah. Well, thank you, Sam. If our listeners wanted to get a hold of you, how should they reach out?
Sam Eddinger:Yeah. So you can email me at sam,sam,@ironcladpm.com, I r o n c l a d, p as in Peter, m as in Mary, dot com. You can also call me, directly. My phone number is (860) 254-7343. 8 6 0 2 5 4 7 3 4 3.
Sam Eddinger:Leave a message, and I'll definitely call you back.
AJ Shepard:Awesome. Well, thank you so much for coming on the show and sharing your experience. It was it was great to hear.
Sam Eddinger:Yeah. Thanks, AJ. Thanks, Chris. Appreciate it. Yeah.
Sam Eddinger:Thanks, Sam.
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