100. Why Taking Action Is Key To Passive Investing Success With Reed Goossens

PILF 100 | Taking Action

 

Despite the name, passive investing requires you to take action consistently if you want to achieve financial freedom. Reed Goossens of RSN Property Group joins Jim Pfeifer to share how he invested in himself, found a mentor and became a successful real estate investor. Reed also discusses tips on creating a genuine connection with a new operator, how to navigate rising interest rates and how to take action to create a real estate business – passive, active or both. Tune in to hear a great real estate story and learn ways to shortcut your own successful real estate investing journey!

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Why Taking Action Is Key To Passive Investing Success With Reed Goossens

I’m excited to have Reed Goossens with us. He is the Owner of RSN Property Group, specializing in acquiring institutional multifamily assets across the US. He is also the host of Investing in the US Podcast and the author of two books, Investing in the US: The Ultimate Guide to Real Estate and 10,000 Miles to The American Dream. You might notice a small accent that he has because he is an Aussie.

Reed, welcome to the show.

Jim, thank you so much for having me.

I’m glad to have you. By the time people read this, the World Cup will be over, but we are both riding high because both of our countries made it through the knockout round. We are chatting about that. I’m excited. The way I would like to open this is if you could tell me your financial journey, where you started, how you got to the US, how you got into real estate, and how you became a syndicate. We love to hear all of it.

I have been in the US for several years. I moved here in 2012, but the journey started earlier than that. We were talking about the Dutch team and the Euros. You were talking about the Euro 2000. I was in Europe in 2008. In 2008, I graduated from university. I was working at London 2012 Olympic Games. In 2009, I was in the South of France working on the Superyachts as a deckhand. That is where I met my then-girlfriend, now wife, who is American.

In 2009, I was galling around the South of France. I’m crossing the Atlantic Ocean and having a great time. In 2010, I was back in Australia. My background is in structural engineering. When I was 24 or 25, I was thinking to myself, “There has got to be more to life than this.” That is where the curiosity started. I had no idea what entrepreneurship was. I thought a sexy name for a small business. I did stumble upon the book, Rich Dad Poor Dad, and that was the right time and moment to start thinking about doing more with my money.

From there, it was more like, “I build stuff. I’m a civil structural engineer. Why don’t I get into real estate?” I spent the next several months in Australia, learning about whatever I could in the Australian market. Coupled with that, I fallen in love with this American girl, and I wanted to chase her across the globe.

In 2012, she finished her Master’s degree in Australia. We were like, “There is a good visa here for Aussies if you got a white-collar job.” I wanted to live in New York City for a period of time. I moved here to be an expat. I loved New York City, and I was in love with this girl. She was willing to move to New York City. She is originally from LA. On a whim, we moved here. I had no idea that I would be here several years later, talking about multifamily and buying thousands of apartments.

We are here. It is a cool story and journey. Hopefully, we will unpack it a bit more, but there are some cool lessons that I have learned that I can help other people get involved with passive investing or even active investing, whatever it might be. My whole shtick is that now I run a company with over 3,000 units in RSN Property Group. You mentioned over $600 million in AUM. I achieve financial freedom and all that good stuff. I don’t say that to boast. I say that I can move halfway across the world. I came here with limited money, no visa, I didn’t know anyone, and I came here to be an expat. All of a sudden, several years later, here I am. A lot of stuff went on in between that. That is coming to America’s story in the beginning.

I like to dig in a little bit more and learn. A lot of people read the little purple book, as we call it, Rich Dad Poor Dad. What was it in there, if you remember, that lit the fire in you to say, “This is what I’m going to do?” Were there opportunities in real estate in Australia? Was it that the real estate opportunities were better in the US?

To answer your first question, when you think about Rich Dad Poor Dad, it is a good pie in the sky. This is the dream. There are no actual action items. As an engineer myself, I’m always like, “What is step one?” I love this quadrant. I get it. I’m hooked. You got me, but it seems like a big jump between where I am now to where that is over there. It was more to do with things going out and figuring it out.

How do you go figure it out? I decided that I was going to go down the path of real estate. I was trying to learn as much as I could because Rich Dad Poor Dad is that ignition to start the fire but it doesn’t have the roadmap of what you got to do, particularly if you are still in a W-2 job and earning some money. That is when I went and started looking for other people to network with around real estate.

Rich Dad, Poor Dad can serve as ignition to start the fire. However, it doesn't have a roadmap of what you need to do, particularly if you still like to get a W2 job. Click To Tweet

Coincidentally, where I lived in Australia had the only small networking event. This particular networking event is huge. It is called the Brisbane Property Network Association. It had 100 people. I would go to that, and I was starting to learn about the Australian market and different things. To answer your second question, it wasn’t that I came to the US in order to buy real estate. I wanted to chase this girl and live in New York City. Real estate didn’t matter.

It started to replicate what I was doing in Australia. Here in the US, I go to networking events. I learned the different lingo about US investing because it is a little bit different from Australian investing. We can get into the differences, but the big thing that I found coming to the US was, “Here I am in a small little networking club that I was a part of in Australia. I’m in New York City at REIA, Real Estate Investment Association, $30 at the door. There are 200 people in the bloody room.” That was a firehose of information.

Back in 2012, I was blown away at the access to information. I probably would have to pay some guru back in Australia to teach me. It was readily available at these networking events and in books. I was like, “It is at my fingertips.” It is not only even better, but it was more of that outsider’s perspective coming in and saying, “I’m going to take this with both hands and run with it.”

What was the next step? You are in New York City and going to real estate meetings. I assume you are not investing in real estate in New York City. No one does that. I got in through an accidental landlord, I bought some single-family homes, bought some multifamily, and decided I didn’t like that. I wanted to be completely passive. How did you go from I’m interested in real estate to I own 4,000 units?

It started with using the money I had saved. I had saved about $30,000 or $40,000 from my corporate career. I had not come from money. I was like, “What is the most amount of units I could buy at once?” I knew $30,000 or $40,000 doesn’t get you far in Australia. All of a sudden, I figure out there are these secondary and tertiary markets. I’m like, “You can buy triplex.” I bought my first triplex for $38,000 all cash. This is in Syracuse, New York.

I chose a market where I could get on a Greyhound bus, and I had to leave Penn Station every Saturday morning. My mate was like, “Where the hell are you going?” I’m like, “I’m going to Syracuse.” They were like, “What the hell is in Syracuse?” I’m like, “I’m going to check it out.” I did that for a number of months. The broker would pick me up in his little RAV4, and we would go around looking at these cheap properties.

It was through one of the networking events in New York City that I met another expat who was buying some stuff up there. He gave me an introduction to the market. I was like, “Within four hours, I can get there in an emergency.” It was cheap. I could buy it all in cash because no one was lending to me, Jim, because I had no credit. I didn’t even know what a credit score was. He was trying to start with what I could and buy as much as I could. Coincidentally, America had some pretty cheap properties. I learned a lot on paper.

Those Section 8 houses are great and you can make good money from them, but you need to buy at scale. I didn’t know that. I buy my only property and I remember calling my property manager. I’m like, “Why is the property empty?” One of the units was empty for two months, and I was like, “It is empty.” We had a drive-by shooting. There was a whole bunch of stuff.

The lesson is it wasn’t about the size of the first deal and cracking that deal out of the park. It was about getting going. That was my whole thing. It was my money. I could risk it. It could get me going. I do remember thinking to myself, “I could go spend this money on mentorships or whatever.” I thought, “I’m a more sink-and-swim type of guy.” I got to a point combined with my stuff learning in Australia. I have been self-educated for about several years. I’m like, “I need to get going here. I can only read so much in a book. I got to get on the treadmill and start working out.” That is what I did. That led me to my second little property, and it led me to a fix and flip that I did in Philadelphia. In 2013, not the roof came off, but the mindset expanded, and I started getting into large multifamily.

Cracking your first deal out of the park is not what matters. It's about getting going. Click To Tweet

What markets did you move in when you started getting into the large multifamily? I don’t think you are doing that in Syracuse or Philadelphia. That is not what people think of when they think of multifamily markets.

A good friend of mine from Canada came down to New York City. It was the end of 2013. I’m sitting at a bar with him, boasting about my seven units at the time, and I’m earning next to nothing in a structural engineering job in New York City and look how good I am. He went on to tell me about the 70 units that he bought in Canada. I was like, “70?” He was like, “Yes, 70.” I was like, “How the hell did you do that?” We talked about mentors, other people’s money, seller carryback financing, and all these little key phrases I had heard at these networking events, but I didn’t know how to implement them. I was like, “I got money. I’m going to buy that property over there, and I’m going to finance it.” That was all I knew in my blinkers were on.

Here is a good friend of mine who is now setting the bar at a certain level. I will say, Jim, that I was getting to a point where I knew I was hitting that ceiling and I needed that mentor. I needed someone else. It was all self-educating for several years, and I knew I needed something inside of me. At the end of 2013, I get a mentor. Through that mentor, I started building a platform, raising money and doing deals with him to eventually branch out. I often do it on my own and to what we built now.

You mentioned a mentor, and I know a lot of people are looking for mentors. How did you find a mentor because you said it is an easy thing. I walked outside and found a mentor. I’m sure that isn’t exactly how it goes. Can you talk about how you found one and what did you offer the mentor? Did you pay him or her? What was the process?

It was a paid mentorship. It was the cheapest one I could find. There was a third element that the guy, and he is famous now, Mr. Fairless. I was his 2nd or 3rd student. He had only done one deal. He was a younger guy like I was. I wanted that youthfulness back in 2013 and 2014. Joe is not my mentor anymore. He is only a mentor for a specific period of time. I have a different mentor now. I paid $2,500 for a year’s worth of time with Joe back in the day.

It was about me betting on myself, and that is the biggest thing to take away because I’m parting ways with $2,500. To me, $2,500 back then was a lot of money. It is still a lot of money now. I subconsciously had to say to myself, “I’m worth it. I’m worth investing in to take my mind itself to the next level.” No matter if you are active or passive, that act or that self-awareness to say, “I am worth it, and I’m worth betting on,” is a big mind shift change when you are trying to build something. Looking back, that was a defining moment of like, “I’m taking myself seriously, and I’m going to need someone in my court to help me get me to the next couple of steps down the path.”

I remember when I first decided I was going to get into real estate, I went to a conference. I had to get on a plane and fly to Dallas. The conference cost $1,000, and the plane ticket was $500, so it was $1,500. That is not a whole lot of money, but it is still money. What it was was a commitment. It is like you sign up with a mentor means, “I have spent money. Now I have to take some action. There is no excuse.”

That was the same for me. I have spent $1,500 or $2,000 and spent three nights away from my family and all that. I have to do something with this now. That is a helpful thing to think about. You don’t want to spend it anywhere. You want to spend it in a smart place, but it puts some pressure on you to do something.

You are investing in yourself. It is not spending. It is an investment. When you change the narrative around that, that changes the mindset and the subconscious to say, “Yes, this is worth it.” To your point, you had the guts to get on a plane to go and do something. Many people were like, “If it is not my backyard, I’m not doing it. I’m not going to do anything.”

I have been similar to you. I have always gotten on planes, been curious about other markets and not been afraid to spend not a lot of money. You got to have to spend a little bit of money to learn about a new market if you are not living in the Texases or the Floridas of the world. I live in Los Angeles. I still fly to this day. I was out in Phoenix all day looking at all my properties. I go to Texas and the Carolinas. You got to do it. That is part of the business. I flew halfway across the world to get here. A four-hour flight to Greenville, South Carolina, isn’t that fast.

You mentioned that you learned a lot of lessons. Can you talk about some of those lessons learned? If you can, most of the readers are passive investors. Maybe put it in the lens of passive investors, some lessons that would help passives.

I remember my dad always saying to me, “A fool on their money is easily parted.” He was a high school teacher. He didn’t have a ton of money, but over the years, he invested in small real estate in Australia and has created some wealth for himself. If you are reading this blog, you are not a fool and you are trying to learn more.

Like yourself, Jim, you went to a conference back in the day. Regardless if you are active or passive, you still have to invest in education and learning because you don’t want to be that fool with their money. Since 2012, the access of the JOBS Act to allow investors to invest directly within operators has been a huge game-changer and has only benefited people like yourself and me.

I invest passively in other people’s deals and other sponsors who I’m not in their niche. I invested in a quick-service restaurant business. I’m in a land flipping fund that I have no idea about land flipping. I’m a passive investor as well. There are so much benefits to that. One of the biggest benefits is diversification. If you have some money, you don’t want to put all your eggs in one basket. The beauty is you can peel off $25,000 or $50,000 at a time and invest it across a few different sponsors that will diversify your risk. You could invest it across different asset classes, multifamily, self-storage, mobile home parks, or whatever. That allows for your control.

Historically, you put your money in the stock market or with some stock agent that buys you stock. You are bringing the power to yourself, and you can only become more powerful with more knowledge. On the other side of the coin, once you have that knowledge, you can go out, deploy your money and diversify your risk over many different asset classes, which is one of the biggest in my time coming to the US. Coincidentally, 2012 was the same year I arrived. It has been a game-changer for the entire industry.

You mentioned that you invest in other people’s deals. You are on both sides. You are an operator and an investor as passive. How do you vet sponsors because you know the questions to ask because people are asking you those questions all the time? What are some tips, questions and things that people should be focusing on when they are talking to a new operator they are thinking about investing with?

Trust is everything. I remember being a first-time operator myself. The way I built that trust was through talking about my story, the coming to America story, and that is how people build trust quickly. You have to understand the person in who you are investing. My company, RSN Property Group, is a banner, but they are investing in me. They are making sure that I’m going to be a good fiduciary responsibility with their money. As a sponsor, I need to make sure I’m stepping up to the expectations that encompass a lot of things.

As a passive, I also have to trust the person who I’m investing with, and that comes through time interviewing a lot of different sponsors. The sponsors I invest with are good mates of mine who have been in the industry for many years. I see them at conferences and speaking. They are putting their name out there and putting their neck on the line in terms of, “This is a business I want to be in for many years to come. Thus, I’m putting my name against it.” That builds that trust.

It is also industries I want to selfishly learn about. I’m curious. I want to learn about self-storage. I don’t know anything about the metrics of self-storage or what makes a good self-storage deal compared to a bad self-storage deal. I’m putting a little bit of money into these operators to learn a little bit about different asset classes.

It doesn’t mean I’m going to go and be an operator there, but you never know. Someone might present a self-storage deal. They go, “Reed, this is a self-storage. Do you want to buy?” I say, “I don’t know how to underwrite it.” I know how to underwrite it because I got my cashflow model and I have invested in a couple of deals. I know what the metrics are to view from that.

In terms of deals themselves, because I get asked a lot of questions, I can explain from at least a multifamily point of view. All you need is the big stuff. You want to be investing in growth markets, and you got landlord-friendly laws. That is all good stuff. It is about the jobs to me, and it is about understanding when you are getting into the nitty-gritty, what is the arbitrage between going in cap rates and your interest rates. I know a lot of people, and we can get into this, how interest rates have changed in the last several months and why we are at a bit of a standstill, particularly in the multifamily space, where seller and buyer’s expectations aren’t meeting up. The reason is because the interest rates have increased so much.

PILF 100 | Taking Action
Taking Action: Invest in a good landlord and landlord-friendly laws in growth markets. Understand that you are getting into the nitty gritty of arbitrage between INGO in cap rates.

I have bought deals where you might be able to buy a deal at a 4% cap, but you got an interest rate at a 5% cap. It is a value add deal. That arbitrage, you are technically here starting underwater. You will start with negative cashflow because the deal won’t spit off enough to make the interest rate. You got to be confident in your business plan, how much you can push the rent, in management skills and in the market that you are going to come up for air within the first several months.

By the time you stabilize the asset, your stabilized cap rate is above the interest rate. When that 100 basis point is the max you want to be at, give or take. Take this with a grain of salt because every deal has its own story and you have to understand the story. The story is important, but in general, you want to ask if you are looking at a deal that is going in with a bit of an arbitrage, how long will it take me to get a break for air?

As interest rates in 2022 have increased so much, you still have got sellers wanting to sell at 4% to 4.5% caps, but you got interest rates at 6.5%. That gap is going to take me longer to come up for air. It might take me two years. That adds risk to the deal, so there are different ways of looking. This is not for multifamily, but this is for a lot of other deals that you are looking at. Understanding the arbitrage between going in cap rates and interest rates is important.

The other thing that is important is the story around the deal. How did the sponsor come about this deal? Was it off-market? Have they got operations in a market already, thus they know how to operate within a certain market? Have they got a good broker relationship? Have they been underwriting deals in this market for the last several months? They have put in offers, but this is only now the first time they got a rebound. I know for myself as a sponsor.

I go into a market like Greenville, South Carolina. I have been looking at that market and making offers for eighteen months. It only was three months that I got my first deal done there. The reason I do that is because I want to develop a desktop study of the deals. When I can underwrite 50 deals in a market, I’m going to understand what are the operating costs going to be, what the going-in cap rates, what is the price per pound, meaning the price per unit or price per square foot, and what things are trading for.

I build this sense like callouses on my hands. It is like going to the gym. I build this sixth sense. When someone presents me with a deal in Greenville or the Carolinas, I can be like, “What is the trade? What are you asking for per price per pound?” Within 30 seconds, I could already understand if it was going to be a deal or not.

That doesn’t come overnight. It comes from doing multiple repetitions and underwriting multiple deals. The beauty is I can do that in any single market across the country. You underwrite all these deals, and that doesn’t matter whether it is multifamily, self-storage, or single-family. If you do enough of it, you will start to develop the callouses on the knuckles and hands to know what things cost and what things trade for. Thus, you will get a better understanding if it is a deal or not.

As a passive investor, you want to hear that type of stuff. You want to say, “Is this your first deal? If it is your first deal in this market, how many deals have you offered before this deal?” That is going to give a sense of you have been studying this market for a long period of time. I can invest with someone who is new to a market, but I want to understand if they are knowledgeable about it and they have spent time and effort. They are not flying in on the jet picking up the first deal they see. You want to see some history there that for us at RSN, we go and document all those existing deals even though we are not buying them. We look at deals that we know we can’t even raise money for, but we underwrite it for the fact to keep the data. That helps us make better decisions in the future.

PILF 100 | Taking Action
Taking Action: Document existing deals even though you’re not buying them. You may not raise money
for them, but it could help you make better decisions in the future.

It isn’t sexy, but it is a way of making sure that when we do go after deals, we can look at the work and say, “We underwrote that bigger deal down the street. We were never going to buy that because it is out of our price range. That traded for XYZ, and that got rents going here. We know the story there because we have talked to a couple of property managers.” It starts to help bring the deal to be “local” so we can understand what is going on and if it is a good deal or not.

The fact that you are underwriting all these deals even though you are not buying all these deals or you don’t even tend to buy some. One way that can be translated over to passives is you ask those questions. Passive investors should be asking how many deals you are analyzing in this market and all that. The other thing passive investors can do is they can do the same thing. They can take a bunch of deals that come from you and maybe some other sponsors and do their own analysis.

At Left Field Investors, I don’t want to underwrite the deal from the ground up. That is your job. I’m going to find the sponsor, learn to trust them and assume that they are going to do that job. What I do is we have a deal analyzer at Left Field where we put in some of the financial metrics, and it spits out a red means to ask a question and green means that it fits.

The point of that is if you do one of those, you are not learning and checking anything. If you do 50 of those, you get to the same point you were talking about. I can look at a deal and look at three metrics, and then 30 seconds say, “This is one worth pursuing possibly or no way this doesn’t meet my metrics.” It is a way of screening deals. To your point, you got to do 50 of them before you put your money anywhere. I love how you explain that.

You can do the same thing. Back to my point about the control that passive investors have now with the 2012 JOBS Act, you could do that. You don’t want to do it from scratch, but you could get 50 investment summaries from 50 different sponsors, start doing the same things, and understand what is going on in the cap rate. How much NOI are they trying to grow?

In the multifamily space, particularly in some areas, this doesn’t apply to all areas. In Texas and the Carolinas, if I’m buying a deal a $100,000 a door, I know to produce a mid-teen IRR for my LPs, I need a 50% growth on that value over five years. I need to be selling it for $150,000 in five years’ time. If I’m buying it for $200,000 a door, I need to be selling it for $300,000. That is a rough rule of thumb. Take it with a grain of salt.

I can tell you that is roughly what it backs into a 50% growth in value or NOI will back into a mid-teen IRR, depending on the market. That is something to look at. This is in my experience from multifamily. I don’t know if you can do that for self-storage, but it should be the same because it is all on cashflow modeling. It is all on growing that NOI. If you’re pushing the NOI by 50% over a period of five years, that is 10% a year, you should be backing into the growth of price per pound of 50%. Thus, that should be high-level backing into a mid-teen IRR to LPs.

You mentioned the arbitrage between the going-in cap rate and the interest rate. That has changed. In 2022, everything is changed. What are some other things that we should be looking at that maybe have changed over the last few months? If you started in this in 2018 as a passive investor, you have been printing money, and everything goes full cycle in two years. You double or triple your money, and it is easy. It is not going to be easy anymore. What should we be looking at? What are some things you see in the market?

Investor expectations are the biggest one. I remember being taught back in the day that if you double your money in ten years in Australia, you are doing well. That is around an 8% or 9% IRR if you double in 10 years. As a company, if we are doubling investors’ money in 5 to 7 years, you are doing well. We have had a great run since 2008 in the commercial real estate space at full stop. People doubled or tripled their money in eighteen months.

They are anomalies. You want to be investing in good assets that could potentially double your money in 5 to 7 years. If you are doing that consistently, you are going to make a good rate of return. Don’t think because the deal doesn’t double your money in two years, it is a bad deal. You could have a deal that is more risky than a deal that is more slow and steady and wins the race.

Invest in good real estate assets that could potentially double your money in around five to seven years. Do that consistently and you will make a really good rate of return. Click To Tweet

Understanding the differences when you look at, “This is a 16% or 17% IRR versus a 14% IRR. I’m not going to go to 16% IRR.” Understand what the difference is. It might be a value add Class C deal in a not growing market versus a more core plus deal in a growing market. Where would you want to have your money coming into a “recession” over the long-term? That is important. In terms of getting debt now, it has increased fivefold in a case of a few months. This time a few months ago, we were near 0%. The interest rates you are probably getting on multifamily are around 3% to 4%, depending if it is Freddie or commercial. That is now in the 6% to 7% we have come up with.

A lot of things have happened. You probably hit your rate caps. The rate of interest if you got a floating rate debt has increased quicker if you bought a deal in the last few months. The implementation of your business plan, regardless of how good the sponsor is. I don’t care who you are. You don’t have the same power as what the Fed does to increase by fivefold and try and increase your business plan in lock stepping key. It doesn’t happen.

What is a passive investment you need to be looking for? Now, in the debt market, it is fixed straight debt and make sure you are getting fixed straight debt with flexible exit options because it has gone up quickly. You don’t want to lock in debt for the next several years at today’s price. Debt will even out. I’m pretty sure we can all agree on that.

Make sure you have a fixed rate to help your short-term pain. You are not having to get a floating rate. Make sure you got flexible exit options in several years’ time. If you can get out with not too much pain, you can refi or sell it. That is a smart move. The other one is making sure you are not going with too much leverage coming in because interest rates have increased. The debt service coverage ratio means the lenders are lending less to meet those DCI requirements. Typically, you are coming in the 55% to 65% leverage. If you can get a fixed rate, 55% to 65% leverage, and you believe in your business plan, and you are going to be able to push the value to 30% in three years, that loan will be a lot less than 50%. You can go and get some refi in there to help the deal along.

PILF 100 | Taking Action
Taking Action: Make sure you have flexible exit options between two to three years so you can get out without too much pain.

You will be raising more money, but that means your returns to investors may come down, and the investors need to be okay with that. You got to understand I’m protecting and hedging against the downside because I’m getting low leverage, I’m probably over raising a little bit from my own CapEx, and maybe I’m over raising a little bit from my operating fund. That all keeps and protects investors. It may not be 18% or 19%, but it might be 14%. The reason it is 14% is because we got low leverage, and we got a little bit more cash that we are raising in order to protect you guys as our investors.

Different things are changing. I’m doing that stuff. As a passive investor, you should be looking to understand the differences between who is offering 17% and who is offering 14% and why there is a difference. Don’t take it at face value and make sure that at that face value, understand it protect the number one thing, which is investor capital preservation. If that all lines up, maybe that 14% looks a lot better now after you have gone through all those steps from that 17%.

I noticed that you are in both A-class and B-class properties. Do you have a preference being the market has changed? What is better in the market? Is it A-class because those tenants are more likely to keep their jobs and all that, or is it C-class because people are going to be moving down to C-class if the economy goes down? Do you have an opinion on that?

I started with C-class. I still buy some C-class every now and then because it is cheaper. I still think there is a big need for “workforce housing.” Stuff in between when rent checks are around $1,000 to $1,500. That is going to be your Class B or C-plus space. If you are going to go buy a Class-A building in Phoenix or Austin, for example, that might cost you $80 million versus a Class B building in the same market for only $40 million.

It depends on, as a sponsor, what we can raise at the time. We have and like both. It is the horses for courses. What are you buying the story? What does it mean from an investment downside point of view? I do think that there is a lot of flight to newer products, and that is okay. As a sponsor, given my background in structural engineering, I’m not afraid of older properties.

I don’t like buying ‘60s assets, but a ‘70s vintage asset that I understand the bones of it. I’m not afraid of that if I have enough CapEx to cover it and the deal makes sense. It all depends. I do like newer products, but I also have executed and still execute older products. It has to be in the right location where the dirt is going to appreciate quicker over the short-term because the area is growing.

It seems like the deal flow has decreased. A lot of that is because of the uncertainty and the fact that the uncertainty means the banks maybe aren’t interested in lending as much, and the arbitrage between the cap rates and interest rates. How do you see that in the next couple of years? I know you can’t predict the future, but what are you looking for as far as deal flow? Are you holding deals to cashflow them? Are you thinking, “No, I’m going to be able to sell some soon?” What are your thoughts on that?

I did a webinar about all my investors, and I can share the link with you guys. It is on my YouTube channel. Go check it out. We talk about three things, where we come from, where we are, and where we are going. Where we are is where it is stagnant. You can even look at the single-family home market. A case in point is that I bought this house I’m living in right now in COVID at a 2.99% interest rate. Do you think I’m selling to get a 7% interest rate right now? Things have come to a grinding halt on both the single-family side homeowners and also on the multifamily side.

Everyone wants to transact at yesterday’s numbers. We are still too close to the coalface. It has only been several months of this higher interest rate environment where people want numbers from a few months ago. The other thing is we also want to know what rules to play by. We are all investors. We all can make money in any interest-rate environment. We need to understand where the trees are in the forest. When we don’t know where the ceiling is, and it is this guessing game with the Fed, it is a little bit like, “Why would I want to transact if I can hold and keep riding this out? If I can’t get the number I wanted to get several months ago, and I know I can’t get it now, maybe I hold and keep cash on hand.” That is happening across the entire industry.

I know that I’m offering on deals, and back to that arbitrage, sellers don’t want to sell at certain numbers. I’m still putting in offers and trying to have shots on goal, but it is tough right now. That is a couple of things. That was to make sure we all knew what rules to play by. In the interest rate environment, we got to see some leveling off, and the cooling of the inflation to all start to take a big exhale and start getting back into it.

Historically, if you don’t know, Christmas time is already slow in good years. 2022 is particularly slow. We had the midterms. We got all the stuff, the craziness going on, the war in Ukraine, and inflation. It has made it even slower. Coming Q1 in 2023, we will start to see deals ramping back up again. I do think it is a good time as a buyer.

If you can get deals done now, the deals that are getting done are probably because the seller is a little bit desperate and they need to get a deal done. Maybe if you can snag that good deal, it is probably because the debt and rate caps are coming due. They don’t want to refi. They got in at 4% interest rates and they can’t handle a 7% interest rate environment. They got to sell. Keep your eyes out for that.

We are also looking at consumable debt. If someone locked in some nice debt several years ago and there is still a little bit of IRR left on it, we are calling it sub 4% or 3.5%. We will snap that up all day because that is another way to protect your downside in the short-term, particularly where the debt market is.

I do think we are going to see some cooling off, at least a slowing down. The other thing I will say is that being international, and we have talked a lot about it in the green room. The interesting thing and I can’t point to anywhere in history where the entire global economy is at the same point. We are all dealing with the same issue. 2008 was an American problem that went across the globe. In 2022, 90% of central banks have had to keep raising their interest rates in lockstep and key with the Fed to keep their dollar competitive with the US dollar. It is causing pressure across the globe.

I don’t know if this has ever happened in history before. Usually, it is one country that trickles into everyone else. Nowadays, we are all at the same starting block. There is some pain coming around the corner, not necessarily in this country, but in other countries, that could have an effect on the global markets coming into 2023. I’m looking at that closely.

Case in point, what happened with the pension funds in England if you have been following what happened over there? It doesn’t necessarily mean I’m not a buyer. I’m still buying as much property as I can. The fundamentals are still there. People need housing and shelter, but you have to buy it at the right price, ensure you are getting the debt at the right leverage, and all the other metrics to make sure it makes sense.

PILF 100 | Taking Action
Taking Action: You need to buy properties at the right price and ensure you’re getting the debt the right leverage in all other metrics.

The last question I always ask is, what is a great podcast that you listened to? You cannot say Investing In The US because that is your podcast. Something else, it could be real estate related or anything.

I’m a huge fan of The Economist Podcast. It is a great organization production, and that is more for general keeping my finger on the pulse and world economics. In terms of real estate, there is a handful of ones out there. The BiggerPockets is a good one for people getting started. I’m trying to think of other ones. As you get a little older and you start operating more, you listen to less real estate podcasts and you listen to bigger economy stuff.

In terms of the book, I will recommend some good books if you are interested. Key Person of Influence by Dan Priestley. It got nothing to do with real estate. It is all to do with building a brand. Who Not How, and Traction is another big one that I love. If you can listen to that on audiobooks, it is the same thing as a podcast.

If readers want to get in touch with you, what is the best way they can do that?

The easiest way is to go to ReedGoossens.com. If you are ever coming through Los Angeles and you want to hit meet up for a beer or coffee, you can hit me up at Info@ReedGoossens.com.

Thank you very much for being on the show. It was fantastic. I enjoyed it. We will talk soon.

Thanks, Jim.

Thank you.

That was a lot of good stuff and nuggets I picked up. We had a nice soccer conversation ahead of time, which was always fun. Getting into it, the fact that he took a bus from New York City to Syracuse every weekend to get into real estate. That is the person that you want to partner with, someone who shows initiative and has the drive to get things done.

A lot of the nuggets I picked up, things that he said, “Investing in yourself is not spending. It is investing.” If you are investing in yourself by going to a conference or hiring a mentor, it is investing. It is making an investment in yourself. It is not spending money. Investments are meant to pay off and return something to you. When you are spending, it goes away, and it is gone. That is the mindset you need. If you want to improve, learn, and get better, you got to invest in yourself. As he said, “More knowledge equals more power.”

Trust is one of the components you need, and that is why at Left Field Investors, we try to use each other and our community to find partners because if I trust somebody and you trust me, maybe we all trust that person, and that is how we operate. I thought his explanation of interest rates and going in cap rates made sense. A lot of people have been talking about that and the arbitrage and how the cap rate is relative to the interest rate. I thought he explained it in Aussie English but in plain English, which I understood. That was super helpful.

Some of the things that he was looking for in the deal were low leverage and fixed-rate debt. That makes complete sense. It is going to affect returns. We are not going to have the same return we had several years ago, but we are in this for the long haul, and you got to be constantly invested to make money. That was good stuff that he had.

Analyzing deals for data. I like that conversation where he was analyzing 50 deals to buy 1. That is the same thing I try to do with the deal analyzer and some of the other tools we have at Left Field. The more you use them, the less you have to use them. You can look at a deal and almost know whether it is worth diving in, and that is a time saver. It takes you some time to develop the knowledge by underwriting 50 deals or whatever Reed did.

That gives you a shortcut later on because now you can look at a deal and decide, “I can look at three metrics, and I know this deal is not for me, or it is a maybe.” If it is a maybe, you start your process of analyzing it. It allows you to look at a ton of deals and say, “No, maybe.” Once it is a maybe, you dig in. It is a great conversation with Reed. I enjoyed it. I hope you did too. That is all we have for this time. We will see you next time in the Left Field.

 

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About Reed Goossens

PILF 100 | Taking ActionReed Goossens is an Australian real estate entrepreneur, investor, author, public speaker, and an all-around good bloke. Reed got his start in real estate investing back in 2012 when he moved to the US. Since then he has gone on to start two multifamily syndication investing firms which have been involved in the acquisition of over $650 million worth of US real estate to date. He also hosts the Investing in the U.S. Podcast, where he interviews top real estate investors to help educate entrepreneurs looking to break into the U.S. market.


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