Today my guests at Lee Fjord. Lee is a multifamily real estate property manager syndicator real estate investor and he’s based in the arch city, St. Louis, Missouri. And in just a minute we’re going to speak with Lee about finding value add deals in your local market. But first a quick reminder, if you like the show, C R E P N Radio, please let us know you can like you can share subscribe. And as always leave a comment we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel and you can find us at commercial real estate pro network. With that I want to welcome my guest Lee Welcome to C R E P N Radio.
Lee Fjord 0:50
Awesome. Thank you Darren, how’s your day going?
J Darrin Gross 0:53
It’s great. I’m I’m delighted that you and I are able to connect and do this today. We We’ve talked a little bit here recently. And I think this will be a valuable for the listeners and the viewers. But before we get into this, if you could just take a minute and share a little bit about your background.
Lee Fjord 1:16
Absolutely. So I started in 2012 as a residential property manager leasing agent down in Florida, built a property management division of a real estate brokerage from 20 doors to 220 doors in four years, all simultaneously selling about $5 million dollars a year in real estate down there. God inspired by some of my clients and decided to pursue investing relocated to St. Louis, Missouri, where I have family and felt like it was a great city to be able to invest in, specifically multifamily, which is my primary focus. So moved to St. Louis. Sign up with a property management company here to learn the market, dabbled in duplexes and houses in four families for about 18 months while doing that, then linked up with my now partner and we, in October closed a 38 unit apartment building. And I decided at that point it was time for me to step away from managing other people’s properties and helping other people purchase their properties and focus my primary energy on adding to our portfolio. Since then, we have put under contract a 42 unit apartment building, and we’re working on the due diligence aspects another over 240 units in total, and we’re in the middle of a heavy value add heavy lift on that 38 unit that we just closed back in October.
J Darrin Gross 2:53
Well, for a guy that sounded like you were just about an hour of work there when you said you were going to stop Done, the property management sounds like you filled your plate that’s pretty full.
Lee Fjord 3:06
You know, overseeing the heavy lift is probably 50% of my time over at the 38 unit. You know, when you’re when you’re taking down a value add deal and you’re focusing on turning over the units and knowing increasing the value of the property, improving the property as a whole. It takes a lot of time if you’re a really hands on and that’s what my role is in my team is I’m, I’m the hands on boots on the ground guy that, you know, makes it happen.
J Darrin Gross 3:38
All right, well, let’s let’s jump into this and talk a little bit about let’s talk about the market. And then let’s talk about your local market. You mentioned you’ve you’ve had experience in Florida. And I’m wondering if you can kind of you know, step back, maybe Have a 30,000 foot view give us what you see is the current overall market. And again, that’s kind of a more of a a richer media personified deal as opposed to a local market, but just as a kind of a glimpse into what you see as the market and and then we can dive deep into local market.
Lee Fjord 4:27
Yeah, so the multifamily commercial multifamily investing market is really competitive right now. I think that’s changed for a number of reasons. And I don’t necessarily think it’s just based on the overall economy. I truly believe that, you know, 10 years 20 years ago, 30 years ago, 40 years ago, 50 years ago, people were still doing exactly what we’re doing today buying properties, moving tenants in increasing the value. So what I’m saying so forth. It was just, it was kind of a good old boys network or something that was behind the curtains that people didn’t really know about. And they were, you know, in a given MSA, you probably had a dozen wealthy families that owned the majority of their real estate in a given market.
And now with the, you know, the expansion of the internet and the ability for people to do business, not just nationwide but worldwide, a, you know, the ability to be on a zoom call or video chat with someone and be able to have a conversation about it, across the country changed the game. Now investors who are in other states and other locations, can they can readily invest in deals across the country and people around the world and now more easily and readily invest in properties where they never would have been able to 10 or 15 years ago, you know, people from China and Brazil and the UK and places where costs are so high and money is readily available, and it’s a great shelter for their money here in the United States and buying commercial real estate, it makes sense for them. So that in addition to the guys from New York and Florida, and California can invest in a property anywhere they want, you know, that makes the competition pretty stiff. And that’s what I think has led to that and I don’t think that’s changing anytime soon.
J Darrin Gross 6:32
No, I think you’re right, the the disruption of the economy and all segments segments.
It continues and and, you know, brings the world closer. I mean, just like you were saying, you got people I mean, just like this, you and I are on a zoom call. In Portland, Oregon, you’re in, in St. Louis, Missouri. Not exactly, you know, in the same room, and just the color cost of the you know, not just the fact that the technology exists, but that the cost. This is, you know, other than our time. This is a free call. And it is it really is kind of mind blowing when you think about it.
Let’s talk a little bit about what you as an investor as a syndicator. And when you’re talking with these potential investors from afar, what are what are some of the things that you look for? And maybe we can start with like a market describe what what a healthy market is. And then maybe we can dive into St. Louis and talk about what’s going on there.
Lee Fjord 7:46
Yeah, so there’s dozens of ways to evaluate individual markets and then you know, it’s it’s kind of in a triangle shape where you have you know, you have the overall MSA, which can be you know, a couple million people and across many different counties in many different areas. And then you have, you know, a city or a suburb. And then you have a neighborhood. And then you have a specific section of a specific neighborhood that might have the absolute best opportunities. And since I’m here every day, I’m experienced and the more I can identify those individual sections of individual neighborhoods within as a county or a city that is overall being in a larger MSA, that might be a little, you know, overlooked or under recognized.
You know, St. Louis has a population MSA of 2.8 million people. The average job growth is about 1%. Population growth is about 1% and That’s not breaking any records, if you compare it to, you know, markets like Atlanta, Orlando, Dallas, you know, so on and so forth. Jacksonville, you can keep naming them in there. You’ve got great, great amounts of population growth in those areas. And St. Louis doesn’t necessarily have that from a large MSA. But you know, we do have a great amount of job changeovers jobs are changing here in St. Louis. So we may only increase the number of jobs by 1%. But we’re losing 10s of thousands of jobs in areas like manufacturing. And we’re replacing those jobs with biotech employee jobs. Medical employee jobs, tech tech company jobs, we have a large growing tech business here in St. Louis and those jobs are much higher paying then, you know, then your car part manufacturing factory worker that you know those jobs are going away and now we’re bringing in jobs like biotech and those guys are making six figures plus
J Darrin Gross 10:09
Got it so that the the transformation while it’s not like just a mass movement to St. Louis but like you’re describing it’s just the the kind of the economy within St. Louis it sounds like it’s it’s changing from a more of a like a blue collar labor you know the manufacturing jobs as opposed to some of these more white collar tech jobs that is it. Do you feel like the the numbers are one for one or is it
Lee Fjord 10:45
You know, so we are growing by 1%. So it is growth in the number of population and growth in the number of jobs and addition to those jobs changing over from lower income paying jobs to higher income paying jobs. And then you look at the demographic of the people that are the new higher earners, and you look at where they’re choosing to live. And now I’m seeing a large increase in in population in the South City and inner city of St. Louis, where it was, you know, 1020 years ago was a much core area of town. And now those areas are now being populated by millennials and you know, younger families that want to live in the city that want to walk out their front door and go Reeboks over to the local coffee shop or local yoga studio. And very, they have a higher income so they’re able to afford higher rents. And that overall increases the intrinsic value of the properties that I choose to invest in those neighborhoods as the rents grow.
J Darrin Gross 11:57
Right. So are you seeing Like pockets that are gentrifying, that are mean changing from, you know, previously abandoned, possibly crime to new investment and the place to be here.
Lee Fjord 12:14
Absolutely in several different areas throughout the city, you’re seeing a lot of, you know, gentrification, a lot of cleaning out of the old and bringing in the new, lots of dumpsters everywhere. You know, cleaning out these places and homes that you never would have thought would have been opportunities for, you know, let’s say a flipper to come in and buy it and turn it into a quarter million dollar house. These are properties that 1015 years ago were worth, you know, $50,000 and now, you know, they’re selling for 250 $350,000 all day to young newer residents in those neighborhoods. And then you know, my strategy is to not only be looking in those neighborhoods that are already gentrifying, but look at the neighborhoods next door, or within a short distance away because you have displacement of the current tenants in those already improved areas moving to the neighborhood next door. So I buy in the neighborhood next door that still hasn’t quite improved that well. And then I see a large influx of the tenants that are moving from two neighborhoods over one neighborhood over and then I provide a nice, clean, safe, affordable housing option for someone that can afford you know, 678 hundred dollars a month in rent, and the previous rent might have been as low as $400 when I purchased that property.
J Darrin Gross 13:49
What what are you seeing now the if you you know, 400 was the prior rent what what are you seeing as far as a rent bump and something like that?
Lee Fjord 13:59
My reposition that I’m doing right now we are the average rent was approximately 400. We had some in like the, you know low 500 range of units that were slightly improved in the property. So when we bought it the average rent across the board was 425. And we’re you know, we’re now relating the units that we have gone in and improved you know, paint cabinets, flooring, window coverings, light fixtures, plumbing fixtures all the above and we are relating those $400 a month rental units for now $580 per month, so almost a about a 40% increase in rent by simply investing you know, less than $4,000 per door so $180 additional rent income per month per unit are 20 $200 per year for an investment of products. 30 $500 per door so we’re getting that money back in less than two years.
J Darrin Gross 15:04
No, that works and I’m assuming the, if the movement is a foot, and there’s a, you know, it’s attract to the neighborhood’s attracting more, more renters higher quality runners I’m assuming Are you seeing a red cap compression as well.
Lee Fjord 15:23
You do you see that cap rate compression in the neighborhood as it transitions from you know a d d plus neighborhood to a c c plus neighborhood, the cap rate will go from an average of you know, 8% at purchase we bought it as about you add, so we paid seven and a half percent cap rate. It was like 10% cash on cash return of purchase and then we believe that at appraisal that we will be able or within the next year or two will Have a neighborhood and have some comparables in the neighborhood and the sixes so we will see not only increase in overall net income from rent increases we’ll also see some cap rate compression in that specific neighborhood.
J Darrin Gross 16:15
Well, that works perfectly definitely better than the reverse, you know, buy the six and sell ta Yeah, that’s that’s good. So I wonder, you know, if you can talk a little bit about you know, being the boots on the ground as opposed to someone that’s looking at the lagging online information, whether it be a census, because honestly that the not being familiar with the market. You know, you may not have as granular of a picture of something and you know, there may be a distorted view Have a, an MSA or have you know, what’s really what’s really happening? Can you talk a little bit about, you know, the, what you’re, you’re able to see and and, you know, the opportunities that maybe you could get in front of that, that others from afar would not,
Lee Fjord 17:21
Of course. So, you know, when you look at the statistics, population growth, job growth, when you look at crime statistics statistics in St. Louis, I can really only speak to St. Louis, but it’s a broad spectrum for certain areas where you know, you, you have to look at the statistics, you have to look at where those crimes are happening. You have to look at where the changes are happening and you make strategic choices on your property purchase based on that. I can see it on a more granular level because I’m actually driving the streets. I’m actually meeting the tenants and I Seeing the transition from one property to the next one neighborhood to the next. Were someone that looks up, you know, St. Louis as a whole, they are going to probably pass it up because they don’t see a lot of job growth.
They see high crime they see, you know, that, you know, they read the news and they see bad things, you know, when when someone from outside of St. Louis thinks about you ask him or what do you know about St. Louis, Missouri, oh, Cardinals baseball, Budweiser beer and crime. So and you know, that’s not necessarily it, you know, people think back to, like Chevy Chase’s summer vacation when they drive through St. Louis, and he actually parks and someone’s trying to sell them something or and then they jack the car up and take the wheels off the car. I mean, that was back 90s you know, or before and it’s not like that anymore. It’s a much better community and are we? I don’t I didn’t live here then. But just like New York City’s changed in the last 2030 years St. Louis has changed in the last 2030 years. It’s just a smaller place. And now you have to know where you’re buying
J Darrin Gross 19:16
Right. No, and I think that’s, that’s kind of the thing that I can I see is it you know, when I think of a marketplace, and clearly, I grew up back in the Midwest, and in Kansas City, it was the, I think I’ve been to St. Louis maybe once or twice. But I remember there was like, you know, there were some there’s some neighborhoods to be aware of, kind of thing, but that was about all I could, I could speak to but but I think all cities have an element of whether you call it less desirable or just there’s there’s a concentration of and and then I’m kind of curious, can you speak to or are you wherever you seen any sort poured from the local government to kind of affect this change. Is there any kind of incentives for investors? Or is there is there, you know, are they attracting any new jobs? Or I mean, you mentioned some of these new technology companies coming in as are is there an effort to really, you know, track these types of opportunities and then
Lee Fjord 20:24
100% You know, it starts at the top. And, you know, in order local governments do this all the time, they give credits, tax credits or bonuses or will offer you know, a, you know, some sort of bond or something like that for a new company to move jobs to their city. It’s a common thing and St. Louis absolutely promotes that. They are great about recruiting new companies to add to their current workforce by offering Additional, you know, tax credits or so on and so forth, or they’ll offer free land to developers to develop office buildings in many cases are subsidized there that there’s tax credit opportunities for, for restoring historic properties. That’s a very big help to the, the advancement of the neighborhoods that are, you know, not, you know, that are not as desirable.
Of course, you know, the federal tax plan for opportunity zones is a big effect on St. Louis because a large swath of St. Louis is considered an opportunity zone. So, those areas where a large scale development can be drastically, you know, changed over because it requires the seller or the owner, the new buyer, to invest equal to the amount of business purchase price of the property into the property over the course of I believe the first 18 months of ownership. So let’s say someone buys a million dollar apartment building, they have to invest a million dollars into that apartment building in order to take advantage of the tax benefits of the opportunity’s own. And Matt many, if not, most of those sections of the city that I just described are considered opportunity zone. So that’ll benefit. You know, the guys that are smaller, you know, the guys that aren’t full developers like myself, so if I own the apartment building next door to that one, and it’s getting a facelift, it helps benefit us all.
J Darrin Gross 22:38
Yeah, no there’s nothing nothing wrong with being in the path of progress. You know, that’s, that’s a good place to be. So you mentioned we’ve kind of talked about jobs and stuff. And you mentioned six figures. What is the medium income of the areas you’re investing in
Lee Fjord 22:59
As a whole All last I remember checking, I want to say the median income in St. Louis is in the, like, 50 ish thousand range. Okay, for the higher MSA that’s I believe off the top of my head when I was looking at City data last it was in the in the mid 50s something along those lines.
J Darrin Gross 23:20
All right. And then as far as housing supply you know, I one of the things that the least having lived in a couple of areas, I mean, the Midwest that I’ve experienced has not really been restricted by any kind of physical, you know, limitation as far as expanding moving out now, but it sounds like what I’m hearing you say is that the jobs and the some of these new employees and the just the want to be closer in is kind of driving this gentrification which to me would be kind of, there’s a restricted area there that’s not like they’re they’re wanting to go You know, 50 miles outside of the city, they’re looking to go, they’re looking to go in, which is a, again, kind of an area and I’m assuming, is there a lot of new construction? Or is it mostly gentrifying existing stock?
Lee Fjord 24:15
All of the above. So, one interesting thing about St. Louis is it is in essentially a You are a bell shaped separated from the state of Illinois by the Mississippi River. And a lot of people who live and work in Missouri choose not to live in Illinois and would not cross over the river because the state income taxes are quite a bit higher over there. The property taxes are as well. So there is a barrier there. So there’s not a 360 degree expansion of the MSA. It’s only in this direction. You know, they’re only expanding to the to the west and the south. And the North is restricted as well, but Because it is bordered by the believe up there, it’s the Missouri River or the Illinois River.
This the reason why St. Louis exists is because of the intersection of the Missouri the Illinois and the Mississippi River. So, anyway, so that is it is landlocked, separated by the rivers that divide the state of Missouri and the state of Illinois. And, yeah, so and there’s an area of town where, like you described is very crime ridden, and very few people would choose to live there if they could choose otherwise. And that is towards the northern section of town. So that area is receiving, you know, there’s like a barrier right there that stops people from wanting to live or move to that area. So the greater you know, growth is in the south of downtown areas or what we call South City. Those areas are experiencing the, the urban growth, you know, the central corridor, and The South City area are expanding or growing in population have higher net worth people are higher income earners.
And then you have towards the west a further expansion into the more what would have been more rural counties and suburbs of Jefferson County and St. Charles County in St. Louis County. That’s where, you know, the new homes or new tract homes are going up all the time. And you have that we just only have it in one direction, which is great for being able to see where the growth might be. And my newest acquisition that’s under contract is in that direction. It’s further out in Jefferson County, where I believe over the course of the next decade, there will be a lot of growth in population in that particular county in that particular town because the schools are good, and you can get to work downtown in less than 30 minutes.
You know, so you just watch that path of progress. And once you figure out where it is, it’s pretty easy to do Able you’re able to discern where discern where the where the growth will more than likely happen.
J Darrin Gross 27:08
Is there a lot of new construction for multifamily properties
Lee Fjord 27:13
There is so in the central corridor and in the South City area of St. Louis. They are building a lot of new construction developments of apartment buildings and condos. You know, they have to house these six figure earners somewhere and a lot of those six figure earners are choosing to the ones that are renting or choosing to rent apartments and newer apartment buildings. And there’s a lot of new development going on where they’ll tear down you know, a couple smaller three story tall buildings, let’s say and then come in and build a brand new construction 12 story tall, you know, a couple hundred unit apartment building with a parking garage and a pool and all the amenities that are you know, six figure earner millennial would want to have
J Darrin Gross 28:03
Right now. And I think the more I talk with people that have kind of accepted or, you know, come to the conclusion they like running, there’s not this sense of need to race out and buy a house in the suburbs and cut their grass on the weekends and all that kind of thing. So, I think, you know, we’ve talked a lot about kind of, like the migration or the, you know, the workers and stuff, but I’m kind of curious, can you speak at all to just the, the demand? You know, in St. Louis, specifically, are you seeing who are the people that are that are choosing to rent?
Lee Fjord 28:49
I see it as three different groups. So first of all, you have the person who wouldn’t necessarily you You know, the blue collar worker or working class person who lives paycheck to paycheck to paycheck, those people will always be renters. Those are the people that they’ve probably always rented most likely, or maybe they had an opportunity to own their own home for a period of time and then fell on bad times during the recession and then, you know, lost their home to foreclosure and they’ll probably never go out and buy another home again.
And then you have the millennial person who or you know, the other like the millennials and the baby boomers who are decent earning people who have good jobs and like you said, don’t feel the need to add the, you know, four bedroom two and a half bathroom house with a three car garage in the suburbs with a white picket fence. You know, not a lot of people. A lot of people are deciding that you know, Living in an urban environment, being able to walk to the coffee shop is perfectly, you know, perfectly reasonable.
And that’s why a lot of that’s where a lot of those quarter million dollar remodeled homes are selling to are those people, or they’re choosing to rent, and they’ll choose to rent and they’ll pay, you know, good rates for their rents in a neighborhood where you can walk to coffee shops and restaurants and pubs and yoga studios and, you know, craft donut shops, like it’s, it’s great. You know, it’s really great for the urban urban suburbs of St. Louis, because they’re seeing a lot of growth. And other cities too. This isn’t just as St. Louis, you see the same thing in Cleveland and Indianapolis and you know, all the other cities as well. It’s just finding more of those pockets are and trying to get ahead of the Did the rest of the guys if possible?
J Darrin Gross 31:02
Yeah, no, I think there’s definitely a move for the lifestyle. And I’ve talked to more and more baby boomers that have that are downsizing, you know, they’re, they’re out of everybody’s out of the house, it’s just one or two of them. They house in a lot of maintenance and, you know, saw that move into an apartment and, and happy, you know, happy they made the decision. They can lock the door and leave and don’t worry about anything. So it’s all good.
Lee Fjord 31:34
Life isn’t just about mowing grass every you know, Saturday or Sunday. It’s not like my grandparents age where everybody wanted to have the house in the suburbs. Now it’s, instead of spending the time and money on that it’s spending time with your friends and family and doing activities. A lot of people now are focused on entertainment. Entertainment is a big portion of their budget. And where do you get the most entertainment? It’s living in Living in the area’s you know, urban environment where you can walk or go to a movie really easily, or the symphony or a baseball game or any number of those things, and people will make living expense sacrifices and choose to live a less expensive lifestyle when it comes to their housing expense, or owning a large home, and they’ll choose to rent and then they’ll choose to spend their time and money going out to dinner or go into the symphony or go into a baseball game.
J Darrin Gross 32:31
Yeah, no, and I think it all starts with the job. So I mean, if you’ve got there’s good paying jobs, you can have, you know, a nice place, rent a nice place and have the discretionary income to go out and enjoy all that. So it’s, it’s always important, pay attention to the jobs and be aware of them. You mentioned doing a heavy lift when you’re looking for a property are there any kind of things you look for as far as an opportunity goes?
Lee Fjord 33:00
Absolutely I look for properties where I can come in and spend money on strategic upgrades that will increase the rental ability of the apartment or the overall aesthetic feel or you know the rental rate. So things like cabinets and vinyl flooring and modern paint scheme and brush nickel hardware and a you know a modern floor plan you know with an open kitchen living dining space, all improve the repeatability you know, large closets, that that helps a lot as well. Those all add to the rent ability of the apartment and will increase the overall demand for the apartment and increase your rental rates. Of course, you know, you have to look at the other comparable rentals in the community and see what other people are offering and other people are doing. But one with you know newly painted gray walls white cabinets and all new vinyl flooring throughout. You know that will demand a slightly higher rent and the other comparables in the neighborhood. And I look for a property that has 20% or higher increase and rent ability. So if I’m buying it for you know it’s put around number of $1,000 a month, then I want to be able to know that after I go in and improve the common area spaces as well as apartment that I can rent that partment for 1200 dollars or more per month.
J Darrin Gross 34:39
I appreciate that that’s kind of some you know, easy to think of things when you’re when you’re out looking can run your numbers and, and having some sort of a benchmark that makes you know, give you a tell if you will that says hey look, this is worth digging into. I think those are always good to have Do you have any advice for investors looking to get started in their local market?
Lee Fjord 35:08
Absolutely. I’m a big believer in the power of partnerships, especially in this larger scale size business of multifamily. It’s a lot easier to get a lot more done when you have, you know, at least one if not two or three partners that you that all rely on each other to be able to execute the business plan because this is a business it’s not you know, just an investment. It’s not just a you know, one z two z house or whatever, this is a business, you know, they’re each each property has its own business plan, and when I can rely on someone else to help me take, you know, take action items off of my to do list that it frees me up to be able to do things that are that I’m more productive at things like Finding the next property, making sure that each unit is turned over properly interviewing new subcontractors renegotiating the contracts that we put on the places.
So the power of partnerships is invaluable. I see very few people that can really, you know, really grow this thing on their own. And if they do, or they’re able to, it takes them decades, you know, takes two or three decades to accumulate, you know, two or $300. And you can now with the power of partnerships, I have partners across the country. My primary partner is in California. And then I have partners in Minneapolis and I have partners in Hawaii and I have partners in Pennsylvania, and they all help me. Make sure to execute the business plan. I just happened to be the guy that is the only one here in St. Louis?
J Darrin Gross 37:03
No, I think you’re here, you’re spot on. You know, it’s one thing to say I’m gonna do it myself. But the, the rate of accomplishment is going to be limited by your capital. And, and I think the thing that that is really woken myself up to the need to partner is just when you consider that real estate to leverage play. And I mean, really what you’re trying to do is get into the biggest number you can and you know that leverage is the whole, the whole number increases in value, then your, your percentage of that will increase as well. As opposed to getting into the smallest thing you can and only having a smaller number and and the percentage of smaller numbers still going to be a lower number than the percentage of the bigger number. So
Lee Fjord 37:52
It opens up your ability to further diversify your portfolio. So for example, you Portland You if you were a the only guy on your team, you would probably have a difficult time purchasing evaluating finding properties outside of Portland. But if you found a partner in Atlanta, that now opens you up to opportunities in Atlanta or your New York partner could open up, you could open up opportunities to a new york partner in Portland. So yeah, especially now that the you know, the ability to do video chat and internet and send emails back and forth, execute contracts electronically and wire funds within hours and have it be across the country in hours. It’s so much easier to partner and find people that are strengths you know, that are strong and finding a partner that complements your strengths and or offsets your weaknesses is absolutely key. So having a partner that let’s say you are the boots on the ground, guy who As experienced in property management, well, where where are you probably going to need the most assistance with capital, you know, raising capital and bringing capital the table, maybe a net worth, or bookkeeping or something like that. That’s where I get a lot from my partners is bookkeeping and capital raising, and I focus my time a lot on finding the deals and executing the business plan.
J Darrin Gross 39:25
Now, nope, there’s definitely power in the in the partnerships there, and I couldn’t agree more. Hey, Lee, if we could like to shift gears for a second. As I mentioned you before, and we’ve talked a little bit about by day, I’m an insurance broker. And as an insurance broker, I work with clients to assess risk and determine what we can do about the risk. When we’re trying to manage risk we there’s typically three strategies we’ve we consider. The first is can we avoid the risks? The second is can we minimize the risk? And if neither of those are an option, then we look to see if we can transfer the risk. And that’s what an insurance policy is. And so, I’ve been asking all of my guests, and I’d like to ask you, if you’re willing, if you can consider what the biggest risk is. And just to be clear, I’m not necessarily looking for an insurance related answer. So, with that, if you’re willing, Lee Fjord, what is the BIGGEST RISK?
Lee Fjord 40:37
I would say the BIGGEST RISK in our business in this business of commercial multifamily is is interest rate risk. I think right now. We are at a wonderful place in time and economy with respect to our ability to get low interest rate loans with very, you know, high value to purchase or low downpayment purchase properties, low interest rates, and I think that you know, cap rates in the valuation of commercial property is directly associated with those. So, if you know, if interest rates rise to eight to 10%, then which they have been in the past before, then we’re and your loan comes due, then the cap rate on your property is going to increase which is going to decrease the value of your property and you’re going to be in a hard place. So, I try to mitigate that by first of all as quickly as possible, I try to return the initial investment back to all the investors, first of all, and then whether it be through cash flow distributions or refinancing the property so that removes their initial investment into the property and after that, Everything should be, you know, should be considered, you know returns.
So after that, so that’s my number one goal. So, I try to remove the risk by removing their initial, you know capital from the deal then we try to refinance our deals into long term debt options 10 years if possible or longer at the lowest possible interest rate, of course, and then you can offset that risk by either having a higher higher down payment or, you know, loan to value ratios, you can take out loans, and as opposed to 15% or 85% loan to value you can do you know, 75% loan to value leave a little bit more money on the table. And, you know, those are really the, and then also, I guess the last and final option for that, that you can remove risk is by putting your properties under non recourse to So then you’re removing the potential risk of having any other assets that you as a, an owner or partner or an investor on a deal for potential loss if the property were to, at one point in time be, you know, faced with a, you know, needing to be repositioned or refinanced during the worst of times, then the end of the day, the worst thing that can happen to you at that point, if it’s a non recourse property, or non recourse debt is the bank will take the property from you.
They can’t seize your personal income, they can’t seize your personal home, they can’t go after your retirement accounts. So that’s our goal. Our goal is to return the initial investment back to our partners and investors as quickly as possible and refinance into a long term debt solution at the lowest possible interest rate. That is As a non recourse loan
J Darrin Gross 44:03
No, that sounds like a good strategy, you know, like set interest rate is definitely something that that makes the real estate world go round. And, you know, all sorts of things can happen when it changes. So, appreciate you taking us through that. Lea, where can listeners go if they’d like to learn more or connect with you?
Lee Fjord 44:26
Absolutely. I love when listeners reach out to me directly. I’m happy to give my direct phone number out to anyone. So my phone number is 850-797-1307. They can email me at: email@example.com. Or they can find me on Instagram Lee.Fjord and I’m also on Facebook, LinkedIn, but Instagram Direct phone calls and emails are going to be the best way to reach me. And if I don’t have an answer, just shoot me a text and I’ll call you back as soon as possible.
J Darrin Gross 45:08
Awesome. Hey Lee, I can’t say thanks enough for taking the time. I’ve enjoyed it. learned a lot and hope we can do it again soon.
Same Darrin. I really appreciate your time and your listeners time as well. Have a great day.
J Darrin Gross 45:23
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