Mar 10, 2022
What is the right mindset when you expect a “loss” in real estate investing?
Tim Vest has been knocked down before, but he was able to get up again due to his tenacity and knowledge in real estate investing. He will share in this episode some of his experiences in investing in multifamily, including his team’s practical strategies to shorten the renovation process of their properties.
Tim has 15 years in real estate investing and development, partnering with developers to develop raw land and purchasing and investing in single family rentals, fix and flips, and multifamily. He currently owns over $100M in real estate assets.
[00:01 - 03:09] Opening Segment
- Why networking and coaching are important in real estate
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- Tim Vest shares his thoughts
- He gives his outlook on the real estate development industry
[03:10 - 08:45] A Potential Major Shortage
- Why it is hard sometimes to syndicate a new development
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- Tim explains
- Tim shares how his company is preparing for a potential major shortage of houses
- He talks about one of their exit strategies that you can follow too
[08:46 - 15:26] Shortening the Renovation Process
- Equity is almost secondary to cash flow for investors according to Tim
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- He tells us why
- How to apply bridge debts to your properties
- This is how Tim and his company are shortening the renovation process
[15:27 - 17:53] Closing Segment
- A real estate mistake you want our listeners to avoid
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- Not having a mentor when you’re starting out
- Find a mentor who has done what you plan to do
- Your way to make the world a better place
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- Promoting soccer to the youth
- Reach out to Tim
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- See links below
- Final words
Tweetable Quotes
“It's tough to do ground-up development. It all comes down to what your investor network looks like.” - Tim Vest
“You just got to do what you can to mitigate [risks in real estate], but you got to understand, it's gonna happen. If you do it long enough, it's gonna happen.” - Tim Vest
“The biggest mistake that I made that I would say I'd go back and change as [is that] I will always have a mentor from this point forward. Always.” - Tim Vest
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Email tvest@harvestpg.com to connect with Tim or follow him on
LinkedIn. Check out Harvest
Properties Group to see
multifamily opportunities available to you!
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Want to read the full show notes of the episode? Check it out below:
Tim Vest 00:00
Two main factors with renovation right now or development is you mentioned it earlier resources. So subs, contractors, and materials, delays due to materials so we look to whatever we can to shorten the window on those types of things. For instance, we're buying almost a lot of our renovations, we’re buying our materials upfront, you know, if we know over the next year, we're going to turn 32 units. We're buying 32 units worth of materials. Today, we're having a container dropped on the back of the property with a padlock on it, and we're putting our materials in that container.
Intro 00:36
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson 01:04
Tim Vest has 15 years in real estate investing in development from partnering with developers to develop raw land to purchasing and investing in single family rentals, fix and flips, and multifamily. He currently owns over $100 million in real estate assets. Tim, welcome to the show.
Tim Vest 01:01
Hey, thanks for having me. Sam. Great to be here.
Sam Wilson 01:04
Hey, man pleasure’s mine. Same three questions I ask every guest who comes on the show. In 90 seconds or less, can you tell us where did you start? Where are you now? And how did you get there?
Tim Vest 01:11
Yeah, sure. Let's see where to start 90 seconds or less. I started in 2006, doing land development. And then a couple of guys in the IT industry that already doing that. They piqued my real estate interest in started buying raw land, getting it ready for developers moved over into fix and flips shortly after 2010 after coming out in 2008. And everybody knows what happened then, got into fixing flips single family and then pivoted into multifamily shortly after 2018. That's where I am the day. And how did I get there? Just you know, strong networking and lots of good coaches and mentors, man, those made all the difference in the world to be honest.
Sam Wilson 01:47
That's intriguing. So it's fun to talk to people with a background in development. Do you see more opportunity in the development side today? Maybe even than you did in 2006?
Tim Vest 01:58
Yeah, oddly enough, I think people were kind of I hate to say it this way, but kind of manufacturing, the demand for, you know, development back in 2006. You know, what's the old saying, you know, when you see somebody who's got a $10 an hour job, and they own three homes, that kind of thing? You know, it was real easy to procure a loan back then. So, you know, here we are today, and there is a legitimate demand for housing in this country. There's a big shortage, a major shortage. And so yeah, there's a ton of development opportunity, I still have a lot of good connections in the land space. Got some buddies running a really strong land fund. And you know, the word I'm hearing from them right now is they have small builders all the way up to the big national builders calling and say if you got land, I want it, that's just point building, you got land, I want it. And so yeah, there's a lot of opportunity right now for development, for sure.
Sam Wilson 02:55
Is that and you guys are strictly you know, you said in 2018, you moved into multifamily. We've some of the things that we've heard from around the country are that now it's even cheaper just to build ground up than it is to go buy, you know, older vintage stock, what does that look like for you guys?
Tim Vest 03:10
Yeah, if you can get the lay it, it makes sense, then, yeah, it's absolutely, you know, I got a, I know a guy who just took I want to say 150 some acres, and, you know, went through the rezoning process. And now, you know, they're going for it. And they're definitely paying less per unit than I am for existing. You know, so there's definitely opportunity there, my partners and I, we have some land that came with us, purchase that we did late last year. And we're probably going to be kicking off to develop that on that this year, as well in we will end up coming in cheaper per door on development than some of the existing stuff we're purchasing.
Sam Wilson 03:45
Right, which is kind of crazy. Because I mean, lumber prices, raw material prices are so high, that it's still it's kind of mind-boggling that you can still get into these deals all done for less than you could buying something new that's 20 years old.
Tim Vest 03:59
Yeah, man, the demand though, the demand for existing a, you know, it's just absolutely crazy. You know, for every, if you're not going direct the seller, and even if you are, there's, you know, multiple offers on it, even some of my broker connections, where it's just me and three other guys, you know, you imagine something that's on the market that everybody can see. I mean, they're getting 10, 15, 20 offers on something, they're just bidding each other up. And, you know, a lot of that's going on, the money is so cheap. And then on top of that, you know, we're seeing a lot of guys with who are doing syndications. Sometimes it's hard to syndicate a new development because there's no cash flow for two years. So you know, if you don't have an investor base that's looking strictly for an equity play. You know, it's hard. It's tough to do ground-up development. It all comes down to like what your investor network looks like.
Sam Wilson 04:45
Yeah, absolutely. You know, what do you think, what the Fed does in March? How does that affect all of this demand-supply, inflation, like, what's this all look like to you and how are you guys preparing for it?
Tim Vest 04:58
Yeah, so we can only go off what they're telling us they're going to do, right? Because March isn't here yet. But if we take them at their word, they're going to raise rates at least half a point, you know, we're hearing from some of our lending partners that they're planning on three quarters of applying. So we'll say, what are we doing to prepare for it? You know, quite honestly, we were kind of preparing for 12 months ago, in our underwriting for anything that we purchased last year that had a refi of it and say, the next two years, we were underwriting those refi’s, at the five, five and a half percent rate. And, you know, I hope that doesn't come true, I'd love to see those come back in at more like four and a half. But I don't know that we will 24 months from now. So one of the ways we're preparing for it is we're underwriting even more conservatively on things we're looking at right now, quite frankly, we're trying to do less revise in, you know, two years, and we're trying to talk to our investors about that. It's like guys, like I get it, everybody wants their initial capital back. But there's also something to be said for locking in at four and a half percent, and just letting the market increase our cash flow every year. So that, you know, we're talking to our investors about that. And then the other thing we're doing to prepare is, we're even going back to some of the stuff we already own, and saying, “Hey, I know we underwrote it at five and a half on a refi. But let's make sure we are prepared for even worst case. And let's go back and see what it looks like a six, six and a half.” And if that's if we don't hit it great, but let's just be prepared, right?
Sam Wilson 06:26
And what do you do with that information? When you look at that, because you know, you own the deal? You got your investors already in it, we run through it now, not long, not at five and a half an hour at six and a half? What's your action item? Once you do that analysis?
Tim Vest 06:38
A couple of things, you know, are there ways to you know, even though you're underwriting into that, are there ways to more aggressively go after expenses and rent pumps, you know, we were going to be a little more conservative on rent bumps, you know, to try to keep the vacancies low, but maybe, you know, let's figure out, you know, instead of going after 1,250, let's see what 1,275 1,300 looks like, you know, can we get there with that? Can we get there with less renovation, right? Or do we just need to go ahead and suck it up, put the money into it and go for a much higher level renovation? You know, we're looking at those different things. And then one of the other things we're looking at is, hey, if we only have to pull out 65 versus 70%, you know, on the refi, you know what I mean? Keep 65 versus 70% in on the refi? You know, we're looking at stuff like that. And then one of the biggest places we're starting to look is, hey, if we were in a bridge product, and we were expecting 24 months on this bridge, you know what if we go in and we more aggressively go after the renovations, then we try to cut our renovation timeline from 24 months to 14, and let's refi 14 months versus 24 months. So we're looking at all those different pieces.
Sam Wilson 07:49
Yeah, I would imagine if you can truncate your renovation timeline, obviously gonna cost you more money upfront in the sense that you may renovate units, either that aren't leased, or that you just have to put that CAPEX budget to work sooner. Yeah. And what you're predicting is that maybe your bet is that interest rates, I'm asking for correction if I get this wrong, that if interest rates rise, then you can lock in a refi sooner than later.
Tim Vest 08:11
Absolutely. Yep, your 100%. So let's go ahead and refi it, even if you have to do something like, Hey, we were projecting 80% of your capital back in 24 months, hey, look, this is the market, this is what the rates look like. So we're going to go ahead and get you 70% in 14 months, but we're also going to make sure we lock in at potentially a full point lower than if we waited another 12. So you know, it's not the ideal scenario, but it is a very strong scenario. And you know, quite frankly, you know, we always go into things with multiple exit strategies, right? And this is one of those exit strategies.
Sam Wilson 08:46
Yeah, that makes a lot of sense. And I don't know any investor who would fuss if you gave them 70% of their capital back and like, oh, boy, we're saving the whole point on interest potential.
Tim Vest 08:55
Yeah, I mean, you know, and then you just show what those returns look like, like, you know, we're gonna be able to keep the cash on cash stronger for you. And, you know, at the end of the day, that's what, quite frankly, that's what a lot of our investors are looking at, like the equity is almost secondary to them, or the cash flow, right? Because, like I mentioned earlier, I don't have a ton of investors who want just equity, you know, they want things that cash flow within six months. And that's one of the reasons why we don't do more ground-up development as we just haven't built a network that's kind of leaning towards that. So…
Sam Wilson 09:25
That is really, really intriguing. How much of your portfolio has bridge debt on it? And what are you doing to offset the risk?
Tim Vest 09:33
That's yeah, currently, right now we have two properties that are on bridge debt, and those were medium to heavy value add properties. And that's the reason we did bridge on those. And then quite frankly, on at least one of those, I think we're going to be able to accelerate the renovation timeline. I think we're going to be able to cut at least eight months out of it, you know, take a little more handholding because instead of just waiting for leases to run out, we're going to be actively working With the tidbits to move them in, you know, around the property, instead of saying your lease is up, you know, I know you want to move on, we're gonna say, hey, there's a renovated unit across the parking lot, let's move you over there. Let's get access to your unit, you know.
Sam Wilson 10:14
How do you have those conversations with tenants? Because from my standpoint, or vantage point, moving stinks. Oh, but I don't know, like next to move, how do you coax a tenant to move across the street?
Tim Vest 10:27
I don't know because I don't like it. I'll be honest, I, you know, I've been in my house for 16 years now. For that day I move, it's gonna be painful. I'm just gonna open the door until my neighbors take whatever you want. But yeah, moving does stake, you kind of got to make it worth their while, you know, hey, I'm going to give you a renovated unit, you're paying 1,150, today, 1,175, for something brand new, basically, you know, something like that. Or, you know, you got folks who, you know, they just want something a little bit nicer, work with them on that, or quite frankly, you know, we have a number of tenants that are kind of saying, you know, I don't want the rat race at all. So, you know, if you got an opportunity to let me move on, you know, we can do that as well. And quite frankly, that's not typically a problem for us on any of our properties, because we get a waiting list almost on everything we have. Because there is a shortage of housing in this country. And if you have high vacancies on properties, there's usually a warning sign there, I know.
Sam Wilson 11:25
That's really, really intriguing. What are some ways on shortening the renovation process? How are you doing that?
Tim Vest 11:33
So a couple of things. And this is one of the things our lenders don't like right now, one of the biggest issues, two main factors with renovation right now or development is you mentioned it earlier, resources. So subs, contractors, and materials. Delay is due to materials. So we look to whatever we can to shorten the window on those types of things. For instance, we're buying almost a lot of our renovations, we're buying our materials upfront, you know, if we know over the next year, we're going to turn 32 units, we're buying 32 units worth of materials today. We're having a container dropped on the back of the property with a padlock on it. And we're putting our materials in that container. So that when you know when that unit’s ready, we don't have a 4, 6, 8-week delay waiting on countertops or cabinets or whatever, it's a little more money upfront. But you know, our contractors, our subs seem to like it because they know that when we're ready for that the stuff they need to do their jobs gonna be waiting on, sitting there. So that addresses the second piece, which is when our subs come to work for us, they know that they can show up, get the job done and move on. They're not going to be doing something today, then they got to wait a week on a countertop, put those in, and they got to wait two weeks on toilets, you know, you name it. They can show up, everything's there, they can knock it out in a week.
Sam Wilson 12:57
That's really, really intriguing. I love that planning. Why do you say that your lenders don't like that?
Tim Vest 13:04
Because our lenders don't like to pay for the materials upfront. So if you're dealing with like a construction loan, they don't tend to like for you to go pay for all your materials and have them sitting on the site because let's be honest, like having material sitting on a site does introduce some risks, a risk that those materials walk off, right, as a lender, and I completely understand it. As a lender, you don't want that, but you don't like it when materials go visit. So you know, we get that, oh, we try to work with them, we try to show them the things that we're doing to kind of protect those, even to the extent with one of our lenders, we said hey, you know what, here's the padlocks we're doing, we're going to have a third-party checking these things in and out. And we're putting cameras on the property, we'll put cameras on the property that focus strictly at the containers. And we'll be able to keep an eye on everything as well. As you know, we'll have a third-party on-site there that's checking materials in and out when a sub wants a countertop that big, it's checked in and out, right. So you know, we're just doing some things there to help the lenders kind of allay their fears a little bit, if you will.
Sam Wilson 14:05
How, I love the third-party idea. I mean, just in case anybody's listening to this and goes, that's a really great idea, but I have no idea how to implement that.
Tim Vest 14:13
We tend to leverage our property managers for that we get our property managers to kind of keep an eye on the materials, and we will do regular checks, right? You said that you took two cabinets out this month, you know, check them off, and then we'll do an inventory at some point, reconcile what's actually still sitting in the container.
Sam Wilson 14:31
Right. Yeah, I mean, cuz having been in the trades myself for a very well, the first third of my life, maybe I can tell you and having had 30 some odd employees in the trades, that stuff walks, even if they're your in-house employees, and you're like, hey, wait, that was where is that and you go to find out a month later you're like, Okay, this is not going as planned. So yeah, that's a really good way to handle that.
Tim Vest 14:54
Yeah. And even to your point stuff, walks, installed stuff walks too, right. That's a conversation we had with a lender recently, he's like, woah, you know, it's just sitting there, you know until it's installed. And I'm like, I've had H-fax walk off a property after they were installed. I mean, you know, I mean, it's never 100% bulletproof, right? There's a reason insurance companies don't like to insure vacant properties, right? So, you know, I mean, things walk. So you just got to be, you just got to do what you can to mitigate that risk, but you got to understand, it's gonna happen. If you do it long enough, it's gonna happen.
Sam Wilson 15:27
Oh, for sure. And know that that's just the way you know, the cost of doing business. At some point, you just, I mean, you can't prevent it entirely. You can mitigate as much as you can, but you can't prevent it entirely. Tim, this has been fascinating. Thanks for taking the time today to break down kind of your business what you guys do how you do it. We didn't even get into really the conversation that I wanted to have with you about what you guys are buying and where but maybe we'll save that for another day. Right. Now, let's jump here into, we'll do the last three questions here today, the first one for you is this: what is one mistake you can help our listeners avoid and how would you avoid it?
Tim Vest 15:57
Yeah, I'll go back to 2006. I wish I would have gotten a mentor back in 2006. I just jumped in with my IT buddies and we started buying land. They'd been doing it. Either they knew what they were doing. So we jumped in. But hey, if I had a mentor back then maybe he would have looked at me and said, you know some of that money you're making you want to stick it back and wait for a rainy day instead of just reinvesting it and buying more dollar for dollar. Because quite frankly, when 2008 happened, I didn't have any dry powder sitting on the sidelines, and everything was invested. So that would be the biggest mistake that I made that I would say I'd go back and change as I, I will always have a mentor from this point forward. Always.
Sam Wilson 16:35
Right. That's brilliant. I love that. Next question for you, when it comes to investing in the world, what's one thing you're doing right now to make the world a better place?
Tim Vest 16:41
Oh, boy, what's one thing I'm doing right now to make a world a better place? I gotta say, one of the places that we're trying to give back, we're actually trying to do it locally. Here. We're trying to I have a little bit of an interest in youth soccer. So when we make some money, we try to give back and we tried to help. Soccer can be an expensive sport. We try to help kids who can't afford soccer to, that want to play soccer. We try to help them play.
Sam Wilson 17:06
And that's cool. I love that. Tim, if our listeners want to get in touch with you or learn more about you, what is the best way to do that?
Tim Vest 17:12
Yeah, sure. So I'm always on LinkedIn, just look me up, Tim Vest on LinkedIn, or you can hit me up at my email Tvest@harvestpg.com. So that's harvest, P as in Paul, G is in George, dot com.
Sam Wilson 17:24
Tim, thank you for your time today. Certainly appreciate it.
Tim Vest 17:26
Yeah. Thanks, Sam. Take care, buddy.
Sam Wilson 17:28
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode.