Mar 8, 2022
What exactly is the next step after buying your first apartment complex?
Many real estate investors say that your very first deal is usually the hardest, but once you pull it off, everything else will be much easier.
However, many investors remain clueless on what to do next after buying their first apartment, which is why I invited Tony Castronovo in this episode.
Tony, Founder & Managing Partner at Novo Multifamily Group, will talk about his experience in closing multifamily deals and give a few tips to apply if you’re already thinking about quitting your W2 job to invest full-time in real estate.
[00:01 - 03:42] Opening Segment
- Tony Castronovo reveals the story behind the largest property he could afford to buy
- How learning syndications influenced his next deals
[03:43 - 08:49] The Role of the Sponsor in a Syndication
- Tony shares his experience in starting with a 506(b) offering
- When you’re playing the role of a sponsor, this is what you should keep in mind
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- Listen to Tony
- Tony explains what risk-adjusted type properties are
[08:50 - 12:52] The Right Time to Quit Your Day Job
- Tony reminds you to always look at your debt structure, and here’s why
- Are you planning to quit your W2 job to focus on real estate investing>
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- Here’s a piece of advice from Tony
[12:53 - 15:39] Closing Segment
- A tool or resource you can’t live without
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- Day planner
- A real estate mistake you want our listeners to avoid
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- Thinking like a mom-and-pop
- Follow an abundance mindset instead
- Your way to make the world a better place
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- Helping his kids become confident adults
- Reach out to Tony
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- See links below
- Final words
Tweetable Quotes
“...when you're in a sponsor role, when you're leading a syndication, it comes down to just ‘know, like, and trust…’ that could take years of growing relationships.” - Tony Castronovo
“I think there's always a concern no matter what asset class you're in, but I think you got to look at your debt structure.” - Tony Castronovo
“...try to be judicious about your expenses, but if you cut it to the bone, that's just the wrong move.” - Tony Castronovo
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Email tony@novomultifamilygroup.com to connect with Tony or follow him on LinkedIn, Facebook, and Instagram. Are you looking for affordable living at higher standards? Visit Novo Multifamily Group now!
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Tony Castronovo 00:00
I think there's always a concern no matter what asset class you're in. But I think you got to look at your debt structure. And for me whenever I'm structuring a loan for property, elect to have multiple exits, so you know, looking at securing longer-term debt, whether that means through extensions on a bridge or buying rate caps, or potentially, you know, getting longer-term agency loans that have favorable prepayment penalties, but I like the deals where, you know, I could exit say, three, four or five years and, you know, depending on where the market is, and the climate for a buyer, that's just the best situation.
Intro 00:43
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 00:54
Tony Castronovo is the Founder and Managing Partner of Novo Multifamily Group. They do multifamily real estate and they have over seven years of experience in the business. And I think right now you guys are almost approaching 800 units. I think if that's right, Tony, welcome to the show.
Tony Castronovo 01:09
All right. Awesome. Thank you.
Sam Wilson 01:10
Hey, man, pleasure’s mine. There's three questions I asked every guest who comes on the show. In 90 seconds or less, can you tell me where did you start? Where are you now? And how did you get there?
Tony Castronovo 01:17
All right, let's see if I can do it. 90. I started in 2014. In the single family space, primarily buy and hold and built up a small rental portfolio before I moved into multifamily in 2018. Started in multifamily. Just opening my checkbook buying the biggest property, I could learn a little bit about syndication along the way. And fast forward to today. I am approaching 100 units with a couple of acquisitions that we're looking to close here this month and next month.
Sam Wilson 01:47
That's absolutely fantastic. You said you bought the largest property you could afford to buy? What was the story on that?
Tony Castronovo 01:54
Yes. So that was a 1031 exchange and what I had done was I packaged up my single family portfolio, it was just a group of buddy homes. And for me, I didn't know how else to buy multifamily. I really didn't know anything about syndication or joint ventures or anything with a store. I just thought, hey, it's, you know, monopoly, right, I'm going to exchange, you know, a group of green ones for a red one. And you know, how do you do that? Well, you come to the closing table, and you bring as much cash as you can afford to purchase and there you go.
Sam Wilson 02:29
That's fantastic, and you said, then you started learning along the way about syndications. And so did that really tweak your business plan or the way that you then started acquiring more property?
Tony Castronovo 02:40
Yeah, it did. And not just, you know, from how do I acquire properties but how do I really grow and scale? You know, as I was operating the 20-unit, which is my first multifamily, I did a lot of hands-on, it was also a transition from me self-managing back in the day of the single family world to relying on third party property management. There was also a little bit of distance at play, where I used to have homes that were all 30 minutes away from me, but then I bought a multifamily that was about an hour and a half away. So that is convenient to get to. But during that journey of running and operating that property, I learned a little bit about syndication, I had been working with a lot of groups kind of locally, a lot of meetups, and learning the ropes from a few people. And within about a year of running my first property that was, able to syndicate my second property. And we also refined the first property to be able to put a skin in the game and bring some money to the table.
Sam Wilson 03:43
That's intriguing talk to us about investor relations. That's something or even finding investors. That is something that a lot of people who are scaling the portfolio, especially starting out, it's a slow grind at first, what was the process like for you?
Tony Castronovo 03:56
Yeah, so your listeners may be familiar with a couple of different offering types 506(b), 506(c) in the syndication world. And you're just exemptions to the SEC regulations for private offerings. And so we started with a 506(b), which is kind of the friends and family approach. That basically meant we could not broadly advertise and we needed to rely on pre-existing relationships. And so literally, I figured, how the heck am I going to pull together people who are interested in investing in a deal like this? And I just went through every email, every distribution list I could possibly get my hands on, and I put together a spreadsheet of about 200 people. And, you know, of course, I knew more people than that, but I didn't know that I knew more people than that. Right? Those people were close to me. And so that's what we started with. And, you know, we can talk about where I'm at today, but that was the beginning of it.
Sam Wilson 04:59
Yeah. What was that about? process like you got 200 people, and you say, “Hey, I've done some multifamily. I've done some real estate are looking to grow. You want to partner with me?” What would that conversation look like for you?
Tony Castronovo 05:09
I think that conversation had evolved for years, actually, because a lot of people in that sphere of a couple 100 were people that had kind of watched my journey in the single family space since 2014. And, you know, I had always kind of see me take a dilapidated single family house and turn it into something, you know, much greater than that, and what kind of results I was achieving and growing and having this portfolio and, you know, a lot of people kind of saw that. And so by the time I moved into multifamily, they were already thinking, Hey, Tony has got some experience here. And because I had also done the 20 unit multifamily now, I had relatable experience in that space. So as I brought a 60-unit to the table, to syndicate, really the conversation was pretty easy. It was just explaining the business case and how they get involved.
Sam Wilson 06:03
Right. Yeah, that's really, really intriguing. What have been some things you feel like you've done right, that other people should emulate as they are scaling up their portfolios?
Tony Castronovo 06:13
I think a couple of things I've done right, is I am all about transparency. So you know, when you're in, in kind of a sponsor role, when you're leading a syndication, you know, it comes down to just know, like, and trust, right, and how do you develop that? I mean, that could take years of growing relationships and kind of nurturing those relationships. But I think it starts with, you know, I've got nothing to hide, I want to communicate well, I want to share as much detail as any investor is interested in seen. And I like to educate. So as I was preparing for that 60-unit syndication, leading up to that for several months, I had been taking, you know, one-on-one conversations with people and bringing sort of a fictitious deal. And showing them this is what it could look like, right? Is something you'd be interested in, if it looked like this? And we just went through kind of the whole education on how it works, and how multifamily is valued and so forth. And, you know, I think that grease the skids a little bit.
Sam Wilson 07:18
Yeah, that's a great thing to do. You hit on a fictitious deal, you know, where you can show, hey, this is, you know, what we could project, a normal deal would look like, you know, take a look at this and see if this is of interest. Did you have any “no’s” along the way? Or like, that's just way too outside of what we understand.
Tony Castronovo 07:35
Yeah, and I still get plenty of “no’s,” you have to take somewhere, you have to have some thick skin in this business, right. And it's funny, I mean, sometimes the “no’s” are just because it looks like too good to be true sort of thing. And they just don't understand multifamily. Sometimes the “no’s,” surprisingly, are just because of the asset class. And funny thing is, as I started doing some C class properties that were real rough and lots of heavy lifting. And I think for new investors, especially, they can see how that value add will justify bumping rents and driving value. Fast forward, I started doing a couple of Class A properties and a beautiful sort of what I like to call, you know, risk-adjusted type properties. But people are like, “No, we don't see it. How are you generating value?” And it's different, right? Those are big amenity plays, usually, you try to buy something that it's still under market rents. But you're not going to force appreciation through renovation, right? Some people say no because that just doesn't seem to fit with their mindset has taught them.
Sam Wilson 08:50
How do you sell the project to yourself? And this is a question I've often had, when you get into class A, say there's no major value add? What about that asset is attractive to you?
Tony Castronovo 09:01
So when you're looking at Class A compared to C or even sometimes B, it's really more of kind of the golden egg at the end of the timeline, right? It's the equity multiple, you're having an appreciating asset in a stable market, you're not going to be cash flowing like you would in a class C. So you don't get that yield like you would in a class C. But it's as I mentioned earlier, risk-adjusted, right? You're not going to have big swings in your P&L. It's kind of steady Eddy.
Sam Wilson 09:33
Right. You're buying an income stream, essentially, without a lot of headaches. Is there any concern in class A property? If there is a downturn or a correction? Anything that you think or see on that front that may be concerning?
Tony Castronovo 09:47
I think there's always a concern no matter what asset class you're in, but I think you got to look at your debt structure. And for me whenever I'm structuring a loan for property elect to have multiple exits, So, you know, looking at securing longer-term debt, whether that means through extensions or bridge or buying rate caps, or potentially, you know, getting longer-term agency loans that have favorable prepayment penalties. But I like the deals where, you know, I can exit say, three, four or five years and, you know, depending on where the market is, and, you know, the climate for a buyer. You know, that's just the best situation.
Sam Wilson 10:31
Right. So you guys are at almost 800 units and I know we've talked about this off-air here, but you have just quit your W2 this last September and are going headlong into multifamily real estate, I would have thought before 800 units, maybe you would have exited a W2 long time ago. What was that process like? And then what are some concerns you have, I guess, going, you know, headlong in?
Tony Castronovo 10:57
I think, you know, it's kind of like bungee jumping, right? It's once you do it, everything is great and exciting and exhilarating. But it's that first step. So you know, for me, I always knew that I would go full time into this business. And I've been kind of planning that since probably, you know, 2015, 2016-ish as I started kind of getting into it. I had even, I remember talking to my boss at one point. And I gave him a timeline because he saw that I was growing in the space. And it's never a side gig for me, it was always two full-time jobs. Right? Right. I'm building a business, and I'm putting all my energy into it. But I also had a very demanding career. And it was not a nine to five, and it involved travel, involved lots of hours. But, find a way to get it done. You want something done, you give it to a busy person. Once I decided to leave, it was actually because I had left a job that I really enjoyed. It was working with a team that I really respected. But after the whole COVID, you know, downsizing, and so forth, I was getting a little concerned that maybe my time couldn't be sure. And so I kept raising my hand and say, “Look, I'll take the package. You know, I know what to do with that.” And it wasn't coming. Meanwhile, I had another company that had been courting me for some time. And they said, “Well, look, we'll bring you on, we'll give you a signing bonus. It's basically your severance package. And so I took a jump took a chance small boutique company and realize that our values really did not align. And so at that point, I said, “I've got to just focus on what I can do well, and I can look myself in the mirror and be excited about, passionate about, and feel good about.” And that made that very easy decision.
Sam Wilson 12:53
Right. That's absolutely fantastic. Tony, let's jump here into the final four questions. What is one tool or resource, think digital or software, that you find you can't live without?
Tony Castronovo 13:04
Well, I was gonna say, I can't live without a day planner. And I'm old school, I write on paper.
Sam Wilson 13:10
Now, that's great. I love that. It actually is not one I had mentioned here. So that's really, really cool. I love that. Question Number 2, what is one mistake you can help our listeners avoid and how would you avoid it?
Tony Castronovo 13:21
So something I learned from one of my partners, I was thinking like a mom and pop focusing on reducing expenses to the point where I was impacting quality of my product and my service. And you know, when you think of real estate, that means your apartment complex, right? And so thinking with that abundance mindset to say, you know, if we focus more on the top line, revenue solves a lot of problems, right? And then you've got a better product. And I'm not to say skimp or not, you know, try to be judicious about your expenses. But if you cut it to the bone, that's just the wrong move.
Sam Wilson 13:58
Right. I love that. It's absolutely true. Question number three is when it comes to investing in the world, what is one thing you're doing right now to make the world a better place?
Tony Castronovo 14:07
You know, I think I could do better here. Of course, like a lot of people I, you know, donate to charities, and I volunteer my time. But I think probably the best thing I'm doing for the world right now is raising happy successful kids that you know, need coaching, need love, need support so that they can be confident adults. And you know, I think anybody who's a parent can attest that that's our greatest legacy.
Sam Wilson 14:35
That is 100% spot on. I've got a first, front-row seat to children who are you know, not been parented by good parents. And so it is, yeah, always a good thing when we have good families and great parents taking care of the kids. So thanks for doing that, last question for you, Tony. If our listeners want to get in touch with you or learn more about you what is the best way to do that?
Tony Castronovo 14:55
They can certainly email me email as Tony, T-O-N-Y, at Novo, N-O-V-O, multifamily group dot com. And of course they can always reach me on my website which is novomultifamilygroup.com
Sam Wilson 15:10
Tony, thank you for your time today. I do appreciate it.
Tony Castronovo 15:13
You bet. Thank you.
Sam Wilson 15:14
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.