How to Scale Commercial Real Estate Podcast with Sam Wilson On the New York City Podcast Network

Set Up A Tenancy In Common At The Beginning Of The Deal

In this episode of the How to Scale Commercial Real Estate Podcast we welcome Anthony Scandariato back to the show He shares what he s observing about the current housing market the benefits of setting up a TIC and 1031 and how capital raising has become more efficient in recent years All this and more Anthony Scandariato is a real estate entrepreneur multifamily investor with a focus on in-place cash flow and forced value-add appreciation He s the co-founder of Red Knight Properties a privately held boutique multi-family and mixed-use real estate investment property management company with a track record of building and managing portfolios that deliver dependable cash flow and equity upside Anthony is also the host of the popular podcast Discovering Multifamily and teaches others how to become financially free through multifamily investing via tons of free content events on RedKnightProperties com and through his Facebook Meetup Group Community – Discovering Multifamily Investor Association 00 01 – 06 09 Welcoming Anthony Back Catching up with Anthony and what he s been up to with Red Knight Properties Listen to Anthony s first time on the show Why he s selling early Restrategizing and tapping into properties in the Southeast 06 09 – 14 24 The Real Estate Landscape Anthony s thoughts on the inflation to rent price ratio and its unsustainability The wage inflation s disparity with CPI inflation will cause greater supply and demand issues How Anthony is handling this next exit Setting a 1031 and TIC initially How capital raising has changed in the last 4 years 14 25 – 17 31 Closing Segment Advise Anthony has for those getting started in real estate Figure out whether you want to be a passive or active investor How to connect with Anthony Tweetable Quotes It becomes complicated if you don t have a Tenancy in Common structure set up from the beginning because you could have one investor that just wants out and just wants their money back – Anthony Scandariato So with the 1031 and the TIC if we set it up from the beginning they would actually all just move forward because it s not set up initially If everybody was on board except one or two people it blows up the TIC – Anthony Scandariato Figure out if you really want to be active or passive figure out what you want – Anthony Scandariato Resources Mentioned How to Scale Commercial Real Estate Podcast Investing in Workforce Housing with Anthony Scandariato —————————————————————————– Connect with Anthony Scandariato Website https redknightproperties com LinkedIn https www linkedin com in anthonymscandariato LinkedIn https www linkedin com company red-knight-properties IG https www instagram com redknightproperties Twitter https twitter com redknightprop Facebook https www facebook com redknightproperties Youtube https www youtube com channel UChvn3ruK6 OAY0RG5Y8LgIQ Podcast https podcasts apple com us podcast discovering-multifamily id1506820688 Connect with me I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns Facebook LinkedIn Like subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts or whatever platform you listen on Thank you for tuning in Email me sam brickeninvestmentgroup com Want to read the full show notes of the episode Check it out below HTSCRE 529 00 00 00 Anthony Scandariato Just figure out what your goals are figure out what you want You really want to be managing maintenance technicians leasing agents It s really an operating company So you really want to take on that or do you just want to partner with someone who s experienced like Sam or whoever the sponsor is and have your money work for you 00 00 16 Do whatever you re doing as a hobby or passion or whatever just really figure out what you want to do 00 00 21 Intro Welcome to the How to Scale Commercial Real Estate show to Scale Commercial Real Estate Whether you are an active or passive investor we ll teach you how to scale your real estate investing business into something big 00 00 32 Sam Wilson Anthony Scandariato auto is the co-founder of Red Knight Properties 00 00 36 Red Knight currently has over a hundred million dollars in assets under management 750 units in four different states on the east coast Anthony welcome to the show 00 00 45 Anthony Scandariato Great to be back on Sam Really appreciate you having me on again Pleasure s mine 00 00 48 Sam Wilson You came on episode number 72 So the show was just getting kicked off there 00 00 53 I think you want to go back and listen to Anthony s story We won t spend a lot of time on today s show here Previous the story that he shared with us on episode 72 that was on February 9th 2021 By the time this goes live this will probably somewhere close to June of 2022 So that s almost 16 months later in case somebody though they didn t get the chance to listen to it 00 01 13 Can you give us a 92nd synopsis where you started where you are now 00 01 18 Anthony Scandariato Yeah As Sam said one of the co-founders of Red Knight Properties were a privately held boutique mixed use and multifamily investment management company for real estate as well as a property management team As Sam said we have about a hundred million dollars under management 00 01 32 I think when I came on Sam show we were more like 60 million So basically doubled from that your time period We did quite a bit of deals in 2020 And over 750 units I think we only had maybe 400 units give or take in three different states Now we re in four different states So pretty exciting 00 01 49 I think we were just closing in our first Southeast state of this great state of Florida We re actually starting to sell some assets now given the state Where the market is and how quickly especially the state of Florida has really grown from so many different standpoints So we re starting to sell some of our assets that we weren t even considering selling for another three to four years from now 00 02 13 We re actually selling early So happy to talk about why we re starting to sell early Yeah deviating from our business plan a little bit 00 02 21 Sam Wilson Love to hear that the floor is yours Why are you selling early 00 02 25 Anthony Scandariato Sure So I started my company 2018 We can go back to the other episode and listen but since basically 2018 acquired almost a thousand units at this point 00 02 36 And once we re value added investors we come in and find operational inefficiencies From a management standpoint and mostly from a management standpoint and we re buying assets from motivated sellers long-term owners when we re investing in CapEx that hasn t been put to a life and 10 to 15 years and we re really bumping the rents up and for us to get 25 rent bump within the year with 00 03 01 We re not just investing the dollars necessary in order to get that bump We re not just going in and raising the rents like a lot of other operators We just think at this point in the cycle and this is releasing in like mid Q2 in 2022 when interest rates are on the rise inflation is still going to be carried out in my opinion for the next couple of years probably not going to be as elevated as it was 2021 but it s still going to be a problem 00 03 25 Moving forward Long-term depends what the fed decides to do probably by the time this is released we ll probably raising another half a point But with all those macroeconomic situations rates aren t going to go down inflation is going to stay pretty high in which means rents are still going to go up 00 03 42 We just think the value it s almost like we front-loaded a lot of the appreciation over the past couple of years And I feel like we re not going to just see that huge increase in spike and value that we saw Once the fed basically did their QE and rates were at near zero for a couple of years it s just the values are going to start to slow down 00 04 03 I m not saying they re going to crash They re going to slow down And obviously in the commercial real estate and all it s all driven on NOI right So as quickly as you can get rents up for us and we see the value there s a property in Florida we re selling for double what we pay for it a year ago 00 04 19 And our projections weren t even assuming that five years So we re looking at the returns and we re like if we can provide people basically double their money in a year and then we could do some tax deferred strategies reinvest the capital If they decide to come back reinvest the capital into another opportunity that s maybe not in as hot of a market as far as because there s a lot of capital 00 04 42 We were talking about this on our show which I m planning to release as well Sam was on my show Discovering Multifamily and we were just talking about some of the pivots he s been making to his business We re doing very similarly but we re sticking with our asset class multi-family we re going into other markets 00 04 57 Now we re looking at Midwest markets that haven t really been tapped as much as the Southeast has been lately even where I m based in the Northeast It s always been a little saturated So we re pivoting Where all the money s flowing We want to come in early and then you kinda gotta know when it s right to get out 00 05 14 And as of right now we could refinance Everybody can get the money back We can roll that into another property Great birth strategy for commercial real estate And I think we touched on that in the previous session You just got to do your numbers and see what makes sense and really just analyze all the risks in the economy and an informed and educated decision might not be the best decision but at least you want to just have an opinion and you want to be able to come up with some logic behind okay why are we selling early 00 05 41 Why are we selling four years early The reason is X Y Z so it s very interesting and you re seeing it in the market as well I m sure We ll see what happens A lot of other operators I ve talked to are experiencing the same type of feelings starting to sell assets early And they re doing well on them 00 05 58 Sam Wilson There s never a bad time to execute the entirety of the business plan in a shorter timeframe It s oh great Lucky us We said five years and now we re going to do it in one That s okay That s quite okay I m really curious when you think about the inflation to rent price ratio right 00 06 16 Like we ve seen inflation the published seven ish percent and then we ve seen rents again it s a very localized number but let s just use Arbitrary insights 15 on a national average I don t know what it is on a national average but it s greater than what inflation has been at some point 00 06 32 Do you feel like that is going to swap like positions there where the rents are not keeping up with where inflation is going Just because people don t have the income to support it at some point 00 06 44 Anthony Scandariato Do you think that okay you re right It depends upon wage growth At the end of the day you really should be looking at CPI that likes to quote PCE 00 06 52 So PCE They don t have Really rent like the real red figures in that number So I think inflation is higher than what they re representing to be honest with you And I know a lot of other people do as well At some point yes it s good We like to look in markets where rent is maybe 25 to 33 on the high end of their wages of their income 00 07 15 So if the wage inflation is not keeping up with rent or just regular CPI inflation Yeah it s going to be a problem There s still a supply and demand issue Over the past couple of years I think the level of new homes and also new apartments are down 50 It s only going to get worse because now with rates rising there s gonna be a lot of builders that go belly up unfortunately is going to be a lot of customers 00 07 39 I think on the single family side pulling out of deals on the apartment side it s getting harder to build because costs are just higher So they re going to have to pass that onto the consumer I specialize in the class C space So we re trying to buy deals below replacement costs in the first place 00 07 55 So yeah it s going to be a problem I again like I said I keep going back to I think we front-loaded a lot of the appreciation We re not going to see 20 year over year It s just it s stupid And I get opportunities from other sponsors who will still believe that s going to happen 00 08 10 Who knows if you re buying in the state of Florida maybe it s going to happen I don t want to see a projection where you know on a class C property where you re projecting 2 000 a month for a one bedroom apartment Even if you renovate it it s just something about that in a suburban area It just doesn t seem right to me 00 08 25 Like you said Sam you got to look The employment drivers and it s all local employment drivers in the area Where are the jobs What type of wages are they paying Is that industry experiencing wages coalitions across the board In my opinion unemployment s near time all time low 00 08 42 I actually think the unemployment rates probably in the short term going to go down Even further but then probably by the end of the year and go back up a couple of points We ll see So it s a very interesting conundrum The good thing about the commercial real estate world is if the rents still keep going up let s say three to 4 a year 00 08 58 Your NOI keeps going up If interest rates rise theoretically it s not always one for one but Rise a little bit maybe 10 basis points for every hundred basis points and interest rate move which is weird Cause it s not one-to-one correlation And again it s still a lot of money out there that we re just on the sidelines for two years chasing multifamily industrial self storage those three hot asset classes concentrated in different areas 00 09 24 Now like I said in the south and my opinion it s just still a lot of cheap money out there A lot of balance sheet lenders a lot of bridge debt I m a little nervous for some of the sponsors who took on very high leverage bridge debt and they think they re going to get out of it in two years and they re may be slow in their business plan 00 09 39 And when they go to refi they got to do a capital call because the value is not there So I m a little concerned with that But for sponsors that have been experienced around there that s good opportunity for them to start picking up some of those quote unquote distressed properties But I still don t think we re going to see that for a couple of years right 00 09 56 Sam Wilson No couldn t agree more Talk to us about your deal that you are exiting Your role in that or at least some of the proceeds of that into another deal Are you doing one large 1031 with your investors And they re just going into the next deal or what s the process like on that 00 10 12 Anthony Scandariato Yes the sale hasn t been completed well by the time this is released it ll probably be completed As a sponsor and just some pieces of advice it s very difficult to do a 1031 in a syndication Very difficult in my experience if you don t have a TIC set up from the beginning it s going to be very challenging for you to moving forward 00 10 29 So what we re doing is As if we sold the building and we were buying nothing else however we are fortunate to find another opportunity And we do cost segregation studies and the ability to pick up bonus appreciation This is 2022 I think is the last year for a hundred percent bonus depreciation 00 10 47 So whatever capital gain my investors including myself cause I invest as well I have to pay hopefully if they choose to reinvest most of it or all of it can be offset by another reinvestment So it s not a 10 31 exchange but there still is some tax benefits and deferrals cause you still have to pay it at some point 00 11 05 So that s what we re currently working on But yeah it s tough to do a 1031 if you don t have it set up for the beginning of the TIC 00 11 12 Sam Wilson when you say set up from the beginning can you explain that You mean set up in the initial investment as a so you re saying you re going to a Tenancy which to those you re listing a Tenancy in Common deal you re going to Tenancy in Common 00 11 25 Then you go to your 1031 intermediary you roll the money into the intermediary and then you go to the next deal as a Tenancy in Common Is that what Correct 00 11 32 Anthony Scandariato And it becomes complicated if you don t have Tenancy in Common structure set up from the beginning because you could have one investor that just wants out 00 11 39 Just wants their money back And it happens We ve done deals where we ve refinanced We give everybody a money back and maybe one or two people oh I need the money because I m buying a house or I m doing this I m going on vacation So with the 1031 and the TIC if we set it up from the beginning they would actually all just move forward because it s not set up initially 00 11 58 They and everybody was on board except one or two people It blows up the TIC 00 12 03 Sam Wilson there s a way around that Cause I was just involved in a deal and I was that investor yeah I didn t want to roll over one cause I wasn t in love with the next opportunity And then secondly because I had invested with my IRA funds so it didn t really matter to me if we were 10 and they didn t set it up as a 1031 in the beginning 00 12 18 So I m like one I don t like your deal The second deal And two like I gain nothing by this is a self-directed IRA So I gained nothing by 1031-ing this So I want out right So I was that pain in the neck investor sorry Anthony But there was a way around it and I don t know what they did in the deal 00 12 35 They found a way but it was paperwork heavy to your point It was paperwork heavy and there was new LLCs created 00 12 42 Anthony Scandariato and neither of us are tax advisors or experts So we re not the right people 00 12 46 Sam Wilson Right No don t take anything I say here s tax or legal advice That s for sure But just to note that there is a way around it it s just messy 00 12 53 So to your point let s avoid all the mess We can get 2018 to now what have you seen change on the capital raising side of things And are you guys doing anything differently than you were four years ago Yeah 00 13 06 Anthony Scandariato I think it s streamlined more becoming easier to raise capital And as we were talking there s a lot of money still out there in the system 00 13 13 And also a lot of we cater to individual investors So we re usually talking to mostly high net worth individuals that putting in 50 000 or a hundred thousand into a deal and looking for income and also equity upside at the sale or the It s really grown upon itself I think once you ve been around and I ve been in the industry since 2014 so it s not 2018 I worked for somebody else 00 13 40 But once you develop a reputation and you start producing case studies you start selling you start refining The case may be you ll be able to show those returns into find more investors and more partners It becomes easier in that sense And your network starts to grow Obviously we both have podcasts so both of our networks have grown from that 00 13 59 I think you just have to have a system in place We have investor portal we have software that kind of manages relationships CRM and it grown upon itself Most of our new investors come from existing investor referrals There s always the one-off the founders on LinkedIn or our podcast But it s probably similar to you 00 14 18 70 of referrals Yeah 00 14 19 Sam Wilson Awesome And that s so true You ll get one-offs But a lot of it it s a very referral based system If someone were getting in the business today and they re launching out and they want to invest in multifamily what is one piece of advice you would give 00 14 34 Anthony Scandariato Just figure out if you really want to be active or if you want to be passive figure out what you want 00 14 39 Cause they re both very different I started out active I m obviously still active my ultimate goal And we were talking about this on your show Staff is I m still young So are you is to become fully limited partner and fully passive at some point Just figure out what your goals are figure out what you want 00 14 54 You really want to be managing maintenance technicians leasing agents It s really an operating company So you really want to take on that or do you just want to partner with someone who s experienced like Sam or whoever the sponsor is and have your money work for you To whatever you re doing as a hobby or passion or whatever just really figure out what you want to do 00 15 14 Cause I have people who have come to me that want to be active and then I start telling them how much work it is and be like you know what let me just put my money in a deal and then let s see how you do it And then if I think it s a lot of work then I m not going to do it moving forward 00 15 26 So that s happened It can count on one Definitely multiple times happened 00 15 31 Sam Wilson right Yeah That s so true Absolutely so true And that s a great point because a lot of people want to get involved in real estate Then they get overwhelmed with the mechanics of it Oh my gosh there s so many terms How do I do this 00 15 42 How do I do that And then it becomes confused Mind says no And they shut down the easiest way and the best way at least for me the same as you I think is that become a passive investor That s how I cut my teeth in this It came in as a passive investor and I learned through While investing And it was like oh okay now I understand it 00 15 59 So that s an absolutely fantastic point Anthony thank you for coming on the show today Pleasure to have you back I ve enjoyed our conversation Learned certainly a lot more about what you guys are doing while you guys are exiting deals where you see the market going And then also you know how you guys are protecting yourselves 00 16 14 Certainly enjoyed that Thanks for sharing your wisdom with us If our listeners want to get in touch with you or learn more about you what is the best way to do 00 16 21 Anthony Scandariato Sure we have a website and my company is redknightproperties com Just go there We have a free e-book titled Leave Your Nine to Five Through Investing in Real Estate 00 16 28 That will actually pop up Just putting your name your email I can send that to you for free All my contact information will be on there Facebook Instagram Twitter LinkedIn either my name Anthony Scandariato or a company Red Knight Properties where you know we re on everything Absolutely 00 16 42 Sam Wilson Anthony thank you again for your time 00 16 44 All right Sam Thank you 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 podcast Spotify Google podcast 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 appreciate you listening Thanks so much and hope to catch you on the next episode Click here to visit this podcast episode