Jun 6, 2022
How are you fighting burnout as a real estate investor?
To Joel Florek, it’s about letting out his creative side.
Joel is a multifamily and RV resort investor with $18 million in assets under management. He started out buying properties fresh out of college and then continued to grow his multifamily portfolio by doing creative seller finance deals. Joel has been successful in scaling his businesses by finding value in small towns and diversifying his portfolio. His team also operates a professional outdoor hospitality campground, which serves as his “professional distraction” from their multifamily investments and gets his creative juices flowing.
[00:01 - 14:35] Big Success in Small Towns
- Joel shares buying his first property and house hacking
- He wasn’t able to find investors but he found creative ways to fund deals
- Building trusts with lenders and eventually getting financed
- Finding a niche in small towns
- Joel talks about cap rates as a small town investor
- There are always opportunities for value-add
- Giving your investors a defined time horizon on their investment
[14:36 - 18:30] Creativity is Key
- Why Joel got into the outdoor campground business
- The possibilities for value add are infinite in the space
[18:31 - 20:54] Closing Segment
- Reach out to Joel!
- Links Below
- Final Words
Tweetable Quotes
“You really got to know your markets and you can find these amazing diamonds in the rough.” - Joel Florek
“I want to make sure that I still love and enjoy all the benefits that come along with multifamily for the long term. I think a great way to do that is to have a professional distraction that can pull me away and let me just get some of those creative juices out in another manner.” - Joel Florek
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Want to read the full show notes of the episode? Check it out below:
[00:00:00] Joel Florek: The way that we structured the contract, the syndication, is that the general partners would have the right to buy out the limited partner shares via an 18% IRR after a 36-month period. And the reason why we did that is, you know, typically investors want to see a defined time horizon on what their investment is going to look like.
[00:00:36] Sam Wilson: Joel Florek is a multifamily and RV resort investor with $18 million in assets under management. The portfolio of properties is based in Indiana and Michigan. Joel, welcome to the show.
[00:00:47] Joel Florek: Hey, thank you so much for having me, happy to be here today.
[00:00:50] Sam Wilson: Pleasure's mine. Three questions I ask every guest who comes to the show, in 90 seconds or less: where did you start? Where are you now? How did you get there?
[00:00:57] Joel Florek: Started with a little four-unit building fresh out of college. My parents helped me with the down payment, got the bank to finance the rest. And I, I house hacked it, lived in one unit, rented out the others. As you said, now, just about 150 units, you know, 200 site campground in the mix, family, kids, living the dream. Couldn't be happier.
[00:01:18] Sam Wilson: So you got out of college and you bought a four-unit property, and then you just kept going with real estate. Was that the plan all along?
[00:01:26] Joel Florek: I knew as I was ending my college career, that for me, financial independence was the priority. The means that which I achieved that, but I wasn't really sure how things were going to shake out.
[00:01:40] Joel Florek: I knew multifamily was going to be a part of it. And that four-unit was the first step. I had a corporate job as a program manager. So had my day job, you know, picked up that property and it just so happened. I was able to work out a number of creatively finance deals to be able to grow that portfolio pretty quick, a 16 unit with just $5,000 down, bought a three-year unit on a credit card.
[00:02:07] Joel Florek: And so, did a number of fun things and other seller finance, low money down deal to pick up an eight-unit. You know, it was over a period of three years, those deals, but this first 31 units where, you know, however, the heck I could figure out how to put the deal together and buy it. That's how I did it.
[00:02:27] Joel Florek: I tried finding some investors. No one really wanted to give me the time of day or trust me with their money that early, but I just said, you know, screw it. I'll figure it out and make it work. And I did. And things got a little bit easier, but there's still challenges and challenges that you face every day.
[00:02:47] Sam Wilson: How did you know or what gave you the confidence to figure out how to do those really creative seller finance deals? I mean, that's typically not something you're like, oh, okay. I got a four-unit. Now I'm going to go out and buy a 16-unit property. I'm gonna negotiate it to a point where the seller is willing to take five grand and trust me to get it done. I mean, that's something like a needle in a haystack for most people. How'd you, how'd you do that?
[00:03:08] Joel Florek: Yeah. Yeah. You know, I tried every other way to buy it. It was a question I asked right away, you know, would you guys be willing to keep any money on the table as a seller second position, or what have you? I got a degree in finance.
[00:03:23] Joel Florek: I mean, I don't want to say I was, you know, some financial genius, what have you, but I was familiar with lending and the process and some of the avenues, and of course, getting on, do some Google research and being on BiggerPockets early in, you know, in my career, you see a lot of that stuff. So I asked some of those questions, but ultimately, we built trust over a period of months in that particular deal, that 16 unit. And through that trust that I built with the sellers, they actually came back to me with the proposal after I exhausted every other opportunity that I could, you know, try to put together. And they said, Hey, you know, we like you. We think we can get this done if we keep a little money on the table. And again, originally they said no to that, but they came back, gave me the proposal. And I said, you know, let me call my bank. Let's talk stock in a few days.
[00:04:14] Sam Wilson: Right, yeah. For five grand down. That sounds, that sounds like a sweetheart deal assuming that the place was, you know, partially habitable.
[00:04:22] Sam Wilson: Oh, it was beautiful. It was 16 units on the water. Everyone had a deck porch overlooking, you know, all two-bedroom, you know, 1100, 1200 square foot units, carports. It was great. Small town though. And that's been kind of, my niche is I have been in smaller towns and that has allowed me to kind of grow.
[00:04:44] Sam Wilson: Now. I've been a little more competitive of, of an area I'm in, you know, larger Chicago, MSA, but still. I'm playing in Chesterton, Indiana. I'm playing in Southwest, Michigan, Three Oaks where I have, you know, it's a 40 unit apartment complex that we bought. And the only other multifamily is a two, three units in the entire town.
[00:05:06] Sam Wilson: It's a tiny town, 3000, 4000 people, but it's down the road from a major vacation destination, New Buffalo, and you know, you're still a short shot, St. Joseph with Whirlpool headquarters. And so I play in these smaller markets. Niles is a town of, you know, 20, 30,000. That's the next exit up from south bend where Notre Dame is.
[00:05:28] Sam Wilson: But again, smaller MSA, smaller town, lot less investors out clamoring for these deals. So, gives me a shot to get in and be able to, to build a portfolio.
[00:05:40] Sam Wilson: Yeah. That's really a compelling thesis, especially, I mean, it's all within striking distance from where you live currently, is that right?
[00:05:49] Joel Florek: Originally, no. The first portfolio that I built up was all an iron mountain. So I built that 23 units in Iron Mountain, Michigan, which now is like 500 miles from me. But that's where I was out of college. I lived in the town, bought the units and that town eventually chased my wife down here to where she's from.
[00:06:09] Joel Florek: And we're managing those units in-house, 500 miles away for years, went really well. Sold off that portfolio last year, did a lot of trading last year. But now yes, all our portfolio is, you know, more or less within our area that I have a management team, takes care of the day-to-day campgrounds like four and a half hours away so we're kind of back in that boat again.
[00:06:33] Sam Wilson: And that, that sounds like sorta what you'd have to do, I would think, you know, if you're buying 16 unit properties, things like that in various small towns, like one, you're going to have to know the small towns, I would think. And two, it needs to be within striking distance probably of where you live.
[00:06:50] Sam Wilson: This isn't the, Hey, we're buying 400 units in Orlando. We can manage it from Cincinnati pipe a by it's.
[00:06:57] Joel Florek: Correct, correct. And, and even so, you know, I've had so many other deals have been brought to me where if they were closer to my portfolio, I'd say, yeah, absolutely. But it's an hour in the wrong direction yet from where my stuff is.
[00:07:13] Joel Florek: So it's like, yeah, that would have been a great 20 units to pick up, but it's just a little too far to put onto my team for management. So it won't work for us. So yeah, you're certainly spot on, but my last purchase was a 44 unit. We just closed last month.
[00:07:31] Joel Florek: Last August closed on 48 units, closed on a 40 unit December before that. So right now we're kind of playing in that 50 unit range is, is where we're finding that can be competitive going out in the marketplace that I'm still seeing the cash flow and the returns that are attractive enough.
[00:07:54] Sam Wilson: Tell me on the cap rate basis. Where are these units falling for you as a small, I'm using your term, small-town investor, like what do you see on a cap rate basis for a 50 unit and under multifamily property?
[00:08:05] Joel Florek: It's a loaded question. It's a loaded question. So, I love these conversations because, you know, it obviously would be super easy if we could just be like, oh yeah, this is what the cap rate is, like super easy. But you know, of course, it depends what class of asset we're talking about.
[00:08:25] Joel Florek: The 44 unit that we just closed, you know, this is over in Chester, Indiana. It's a small town but it's very much a part of the Chicago, Northwest Indiana, MSA. That's definitely more of a dense Metro area or suburban. But, you know, I'll use like my 48 unit that I closed over Niles as an example of the 40 unit.
[00:08:46] Joel Florek: Both of those we purchased at probably like high five low six cap, depending on the, how you would underwrite. But in both cases, there were very clear opportunities for value-add. The 48 unit, for example, our units are $250 a unit under market rate in as is condition.
[00:09:09] Sam Wilson: Wow.
[00:09:10] Joel Florek: So the challenge that you have in many of these markets though, is there are very few comps for you to simply go out and be like, oh yeah, that's what the market is for these units. It's like, you know, like, yeah, there's this other complex, but those units are kind of junk, but they're getting that? Like, I think we could probably do better. So again, you really got to know your markets and you can find these amazing diamonds in the rough where it's like, wow, this thing's killer.
[00:09:39] Sam Wilson: Right? Right. That is a challenge. Something I wouldn't have thought about. What are you comping this up against, especially if you're the only, what'd you say, you bought a property and you were the only property in town outside of a triplex or two triplex.
[00:09:50] Joel Florek: Yeah, Three Oaks. Exactly. So you're not drawing comps necessarily from that town. What you're doing is you're looking at all the little towns within a 20-minute drive and trying to say, where are all of those little towns at? And is there any reason why this little town wouldn't be the same because, you know, people commute from one town to the next, to the next. So, you know, they live in our particular community because it's got this adorable little downtown and bus stop happens to be, you know, right at the property. You go to a great school district in the next town over.
[00:10:28] Sam Wilson: That's awesome. Tell me about financing these deals. Are you the majority owner in them? Do you have, have you been able to build this portfolio on your own? What's that look like?
[00:10:37] Joel Florek: Yeah, so like the 48 unit, that was a purchase that I did on my own, the 40 unit. Recently a 44 unit purchase, as well as a 15 unit townhome portfolio that we bought. Those were all syndicated deals. In each of those cases, I would be the largest owner in any of those deals. In all cases have been financing through larger regional or community. Banks that have an emphasis on lending in commercial real estate, particularly a, you know, strong multifamily arm. So, I've got a shortlist of a half dozen different lenders that I know are competitive in the area and have the benefit of being, you know, right near Chicago. They get, we talk about small towns, but again, I'm just over an hour. Downtown loop Chicago. So we have a huge number of lenders available that play all day in the Chicago MSA.
[00:11:37] Joel Florek: And you can convince those lenders to stretch out if you build a relationship. So they might take a little risk on one deal. And if we have a good, you know, good relationship, they'll expand that beyond their normal footprint on a client by client basis.
[00:11:53] Sam Wilson: Got it. Tell me about this 15 unit. We talked about this a little bit. It was kind of a unique financing where you did a buyout, I think, of your investors or something.
[00:12:03] Joel Florek: We're right in the process of executing the exit for our investors. Just about three years ago, back in 2019. I purchase this 15-unit townhome portfolio in Chesterton, Indiana.
[00:12:14] Joel Florek: And the deal's been great. We've exceeded every metric along the way. Our investors have been getting about 10% cash on cash returns over the last year. You know, they get their monthly distribution and it's been everything that we expected it to be and more. Operationally, the way that we structured the contract, the syndication is that the general partners would have the right to buy out the limited partner shares via an 18% IRR after a 36-month period. And the reason why we did that is, you know, typically investors want to see a defined time horizon on what their investment is going to look. Right. That's why you typically hear 3, 5, 7-year time horizon for syndications. Well, we're really sure.
[00:13:05] Joel Florek: I mean, it's this awesome portfolio and I'd love to hang on to these things potentially long-term. So from that standpoint, why kill the golden goose? I looked at it back in 2019. I said, well, I don't know what the world is gonna look like three years from now. And you know, I do know though that there's a good chance that I may just want to keep hanging onto these things for as long as I own properties in this area, it fits that definition of that like upper-class B class, a very insulated, like it's going to be super hard to near impossible for someone to build something new and compete with me. So, so yeah, so we structured this, so investors have a defined time horizon on their investment. They also have an expectation, you know, that the buyout is based on an IRR, which makes it really clear how we're going to define what their shares are valued at come to exit, and then we can just have a really clean refinanced, buy out the investors. And, you know, I'll be able to hang onto this deal for as long as we have it.
[00:14:10] Sam Wilson: Right. Yeah. You can buy out the investors you know, via refinance. Are you putting any cash into the deal as well when you buy them out in order to make it hit that 18 IRR or has it just worked out such that, you know, you're able to do this with a refinance and plus the cash flows and they hit their number?
[00:14:26] Joel Florek: In this particular deal, we'll have no problem with the refinance.
[00:14:30] Sam Wilson: Got it. Got it.
[00:14:31] Joel Florek: Yeah, there, there won't be any issues whatsoever.
[00:14:34] Sam Wilson: Cool. Tell me about the RV outdoor hospitality campground. What's that look like and why the, why the left turn into that?
[00:14:42] Joel Florek: You know, part of it is just want to get a different challenge. I feel like apartments, you know, it's kinda the same thing over and over and over again. It's the exact same business plan, more or less the same problems that you ended up dealing with over and over and over again. And one of the things I was concerned about was burnout. I didn't want to get burned out of multifamily and then make some rash decision to say, you know, throw my hands up. I'm out of this game.
[00:15:11] Joel Florek: I want to make sure that I still love and enjoy all the benefits that come along with multifamily for the long term. And knowing my own personality, I think a great way to do that is to have a professional distraction that can pull me away and let me just get some of those creative juices out in another manner.
[00:15:32] Joel Florek: Beyond that, there are, you know, there's a whole list of reasons. Number one, cash flow is generally much stronger. You're buying at eight to 12 caps in that space and I'm getting the same financing on those properties as I can multifamily. So right there, you know that yeah, cash flow is going to be much stronger. The number of levers that you can pull when it comes to adding value to those properties is infinitely larger. Kind of a cool thing, there was an old airstream that was for sale on the highway. And we said, screw it, let's buy that thing. So we, we did that on a whim, bought that the other month because one of the things we want to do is park models.
[00:16:12] Joel Florek: So I don't have to get any approvals from any agencies to renovate this airstream, put it on my property and rent it out as like an Airbnb. So what we're going to end up doing, our idea, our vision, as we'd like to get five, six airstreams and do like a little airstream village on the property, string lights through the trees.
[00:16:32] Joel Florek: So that's one of those, like I say, just kind of creative, fun things that we get to do in this space. My wife wanted to kind of get involved in business. She has no desire to get involved in multifamily, but the campground thing was really appealing to her. You're really doing short-term rentals and this and that, but we wanted something that was scalable and larger than just going and buying one vacation rental.
[00:16:56] Joel Florek: So this fit the mold. We have a team of six employees who are on-site who take care of all the day-to-day operations for us. And I was able to hire and bring onto the team some of my family members as well to help us in certain capacities. So, it's become this family business for us and we're just in the beginning of it.
[00:17:17] Joel Florek: Pretty cool thing, you know, like I say, it's yeah, yeah. It's pretty fun. And like I say, from a cash flow standpoint, stronger cash flow, more opportunities to add value. Again, still a very scalable business. You'll get, you know, one of the largest multifamily owners in the country, Sam Zell, while he also is in mobile home parks.
[00:17:40] Joel Florek: And he's also the largest owner of RV parks around the country. So, there's a reason why he plays in those sandboxes because, you know, they're, they're very, very interesting and lucrative financial investments within the real estate space.
[00:17:56] Sam Wilson: I love it. I love it. Joel, thank you for taking the time to share with us kind of your story of how you've grown your portfolio, how you found value and found out ways to add value, especially buying in small towns and just that, that unique strategy.
[00:18:09] Sam Wilson: I think that's the cool thing about real estate is there's just, there's no end to really the unique ways that people have figured out, Hey, this, this is the way it works both for your personality and for your you know, for your own checkbook. It's like, okay, this works for my life and for how we want to do things.
[00:18:24] Sam Wilson: And then of course I love the campground. What'd you call it a professional distraction. So that's absolutely awesome. If our listeners want to get in touch with you or learn more about you, what is the best way to do that.
[00:18:36] Joel Florek: Yeah, feel free to give me a call 9 0 6 4 5 8 8 3 5 6. Find me on Facebook, would love to chat more.
[00:18:43] Sam Wilson: Awesome. Joel, thank you for your time today. We'll certainly include all of that information as well in the show notes, have a great rest of your day.
[00:18:49] Joel Florek: Awesome. Hey, thank you very much for having me.