Financial Freedom with Real Estate Investing

October 2017
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Tue, 3 October 2017

MB 081 - The Passive Income Investor - With Tim & Tom Black

There’s more than one way to skin a cat, and though we spend a lot of time on the podcast addressing aspiring syndicators, there are other routes to financial freedom via real estate investing. High net worth individuals who are interested in getting a little skin in the multifamily game should consider the benefits of passive investing. Regardless of approach, the end game of apartment building investing remains the same: Permanently replace your income and get out of the rat race for good!

Dr. Tom Black (also known as The Passive Income Physician) was working as a busy emergency doctor in a high-volume trauma center. Yes, he was making good money, but he was working insane hours and he rarely saw his family. Tom was financially secure, but far from financially free—and he was fed up with sacrificing his time for money. Already enamored by the cashflow potential of real estate, Tom purchased several single-family homes and even tried his hand at commercial real estate before stumbling into his first multifamily deal, a 305-unit in Arlington, two years ago.

Tom’s brother, Tim Black, enjoyed a 32-year career in entertainment, retiring as the COO of a large hospitality company in March of 2016 when the business was sold to private equity. Eventually, his brother convinced him that multifamily was the best means to making your money work for you, and together they started Napali Capital. The firm has grown quickly, and the Blacks currently have 1,000-plus units in assets under management. Today Tom and Tim explain why multifamily is the best choice for passive investors, how to assess the risk profile of a multifamily deal, and the characteristics to look for in a potential syndicator. Listen and learn the returns a passive investor can expect from multifamily, the skill set necessary to become a successful investor, and the staggering tax benefits afforded by the platform.

Key Takeaways

[2:41] What prompted Tom’s involvement in real estate

Poor student in HS, gained confidence in Navy
Top of class in medical school
Couldn’t sell house after finishing residency
Rented to incoming resident
Enamored with cashflow
Busy doctor in high-volume trauma center
Making good money, but sacrificing too much time
Bought land in east Texas for commercial development
Resigned from practice and moved to pursue real estate

[5:51] When Tom identified multifamily as a ‘way out’

Bought foreclosures in Houston during downturn
Single-family was hard work
Studying economies of scale
16-unit commercial development offered buffer in budget
Multifamily could take him to next level

[7:23] Tom’s shift from single family to commercial real estate

Cashflow limited to specific markets, required travel
Single-family very competitive
Saw vacant land, wanted to be ‘master of own destiny’

[8:19] Why Tom wanted out of full-time medicine

Concept of security vs. freedom
Medical practice not sustainable
Doctors in their 70’s still working

[9:25] Tom’s first multifamily deal

Moved to Dallas for medical directorship
Attended real estate investing lectures
Stumbled onto 305-unit off-the-market deal in Arlington

[10:29] The difference between commercial development and multifamily

Developing is rough, many working parts
Multifamily offers formula for success, mitigated risk
Evidence-based reasoning appealed to Tom as doctor

[13:31] Tom’s advice around quitting your day job

He continues to work in medicine one day/week
Don’t be in a hurry to quit until achieve cashflow

[14:34] How Tim came to work with his brother

Poor student, but excelled at leadership
32-year career in hospitality/entertainment
Retired in March 2016 (COO of large hospitality company)
Started Napali Capital together, capitalizing on each other’s strengths
Firm has grown rapidly, responsibly
Education is foundation of their business

[16:54] Why multifamily is the best choice for passive investors

Money works for you (cashflow, appreciation, depreciation, amortization)
Lack of affordable housing, cultural trend to downsize
Multifamily is stable and tangible

[19:22] How to assess the risk profile of a multifamily deal

Depends on syndicator, underwriter
Napali Capital is very risk averse (2% raises year-over-year)
Tim & Tom don’t offer huge returns (9% cash-on-cash)

[20:41] The returns a passive investor can expect in multifamily

9% cash-on-cash
90-100% return in five years
Napali always exceeds projections
130% in 24 months on 305-unit

[22:22] The skill set necessary for a passive investor

Ability to read P&L
Knowledge of underwriting
Understanding of costs (rent rates, insurance)
Consider a mentor

[23:58] The Black’s advice around choosing a syndicator

Look for trust, integrity
Communication is key
Transparency (share financials)
Invest alongside you

[25:54] How to pacify the passive investor’s fear around risk

Trust the track record, pedigree of the syndication team
Stock market presents much greater risk

[27:06] The staggering tax benefits of multifamily

Stock market, mutual funds require payment of capital gains tax
With depreciation, taxed income is either substantially less or zero

[30:10] Tom’s final tips for aspiring multifamily investors

Get off the sidelines
Dip your toe in the water (crowdfunding)
Get educated

[31:09] What the Blacks are excited about

Growth of firm
Dynamic of relationship

Connect with Tim & Tom Black

Napali Capital

Email Tim: tim@napalicap.com

Email Tom: thomas@napalicap.com

Resources

The Passive Income Physician Blog

The Passive Income Physician: Surviving a Career Crisis by Expanding Net Worth by Thomas Black MD

Invest with Michael

Financial Freedom Summit Wait List

Free eBook: The Secret to Raising Money to Buy Your First Apartment Building

Direct download: MB_081_-_The_Passive_Income_Investor_-_With_Tim__Tom_Black.mp3
Category:Commercial Real Estate -- posted at: 6:41pm EDT

Tue, 3 October 2017

MB 080: Nighthawk Equity: You Find the Deal, We Do The Rest – With Mark Kenney

Your chances of doing even a 60-unit multifamily deal on your own—with no track record—are very slim. Even with the capital and the knowledge, if you are lacking in the reputation department, brokers will have no confidence in your ability to close. Enter Nighthawk Equity, my partnership with Mark Kenney. You bring the deals, and Nighthawk does the rest.

Mark has been investing in real estate since he graduated from Michigan State 23 years ago, partnering with his twin brother to buy and rehab a $36K duplex. He continued to pursue small deals and flips during his career as a CPA and consultant for KPMD. Eventually, he started his own IT company. The business thrived, but 80-hour weeks and extensive travel translated to suffering in his personal life. With his marriage in trouble, Mark made the decision to take a huge pay cut, hand off the big projects to someone else, and pursue real estate investing full-time.

With the support of his family, Mark spent nearly a year securing his first big multifamily deal, a 64-unit building in Dallas. Adhering to the ‘law of the first deal,’ his second and third deals followed right away. In four years, Mark has purchased 2,000 units and raised tens of millions in capital. Today, Mark shares the process of working with Nighthawk Equity to secure a deal, explaining how we came to join forces, the response to Nighthawk, and the right time to get Nighthawk involved in your deal. Listen in to understand the mission of Nighthawk Equity, and how the firm also supports passive investors looking for a solid ROI.