Marcin Drozdz 0:00
Expensive compared to what? And when you use that analogy, you’ll recognize that the US even during this run up is still some of the best priced real estate dollar for dollar as the asset classes represented compared on the world on a world stage. So for example in Canada, multifamily trades at a two cap sometimes even in the one caps, it’s insane you look at other parts of the world Europe, Australia, other developed countries it you know and when you look at the US trading at four caps, five caps and people like that’s crazy that’s insane. Well, compared to what?
Announcer 0:37
Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.
J Darrin Gross 0:56
Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
Today, my guest is Marcin Drozdz. He is a managing partner at M1 Real Capital. And they’re focused on acquiring value add properties throughout the southeast us. And just a minute we’re going to speak with Marcin whoreson, about attracting capital for multifamily syndication.
But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also if you want to see how handsome Our guests are, be sure to check out our YouTube channel and you can find us on YouTube at Commercial Real Estate Pro Network. With that I want to welcome my guest Marcin Welcome to CRE PN Radio.
Marcin Drozdz 2:13
Thank you sir really happy to be here excited.
J Darrin Gross 2:15
Well I’m looking forward to our conversation today. Before we get started if you could take just a minute and share with listeners a little bit about your background
Marcin Drozdz 2:24
Sure. The 30,000 foot view was I picked up the book Rich Dad Poor Dad while I was in high school like so many other people read it blew my mind thought to myself I could do this and you know one thing led to another bought my first rental property and my was was 20 or 21 years old learned about negative cash flow right away all the all the fun creative techniques to kind of make make the most of it sold that property did quite well. You know several properties later got recruited into private equity moved out west ended up working in the real estate side in the equity area there and you know, it was I was tremendous because you went from from buying single family homes or small multifamily and on a personal level to you know, here’s this 200 unit 55 Plus community here’s this you know, a 300 unit purpose built rental property, here’s this x y Zed fill in the blanks and you’re just like your mind is just blown like that the quantum the size of transactions was just this tremendous to see it in your early 20s. For me, I thought I died and went to heaven. It was it was amazing. So I did that for a few years had a lot of success on the equity side learned a lot of you know, really good lessons worked with a lot of really smart people. And after a few years realize that you know that business is great as was didn’t lend itself to me building a business but fitting within the context of somebody else’s business which which is great. And that’s a great you know, outlet for many people didn’t really work for me. So after a few years I broke out started putting together my own funds focusing on opportunities so if you recall after Oh 809 The carnage that ensued in the commercial sector we put together an eight figure fund went down to AZ and sort of buying up you know, whatever we whatever we thought made a good idea back then and you could buy seven eight cap buildings you know a third occupy or pardon me two thirds occupied and pay just for the remaining no why and you know, we sold out a few years after that and you know, I thought I thought when we sold that was you know close to what was the top and boy boy were we wrong and then you know fast forward to today, you know, still buying multifamily at south southeast mostly value add and having a lot of fun doing it. So
J Darrin Gross 4:52
I appreciate you sharing that it’s funny the the oh wait, crash you And for as long as I’ve been doing this, people have been saying, Yeah, we’re about the end of the cycle, you know, the, the we’re in the second or late innings, maybe we’re in a doubleheader, whatever analogy you want to use. But I think one of the things that I find that be kind of curious to get your take on this, I mean, as a student of the market and kind of an inventor, as an investor, and just kind of, you know, I think one of the things that I keep looking for, and I think that it’s kind of a memory situation that we have with just as humans is that when we see something, we look for it again, or we look for the reoccurrence and we go back on charts and graphs. And we can always point to the point on the graph where this is the cycle that happens. But one of the things I think it’s really hard to account for is the corrections that are made in those cycles. And, you know, what, were the corrections that were made this last cycle, did they prevent major crash? Or? Or is it more of just good times have been going on or just or even financial policy that’s that’s continued to propel us in this this way, but?
Marcin Drozdz 6:16
Well, it’s, it’s interesting that you say that Darrin, because the crash in, oh, 809. Everybody knows us by now, that was a debt crisis, there was a tremendous amount of water supply, there was a ton of credit out there. And, you know, when the party ended the banks, you know, and in hindsight, they would have probably done it much differently today, when they stopped lending, and they actually would drew out of the market, it created a tremendous hardship on the economy. And, and it’s easy to talk about it. And in hindsight today as an expert, because we’re, we’ve all seen the movies, we’ve all seen the documentaries, it’s it’s pretty self explanatory where the thing broke last time around. I think the difference today is even after all those restrictions were put on and in the CMBS market in the debt be the collateralization. And you know, the repackaging of securities and all this stuff that created these, you know, the over just just the market that we had, I think the major difference today that I certainly didn’t account for was the sheer volume of government intervention with the stimulus over the last, you know, take 2008 Right up until today, I mean, the the quantum like the sheer volume of government intervention, I mean, I’ve seen statistics anywhere from, you know, the last 12 months, they’ve added 40 to 80% of additional dollars to the money supply. Right. And, and I think the thing today, that’s so different. And it’s very difficult to quantify with traditional risk metrics and how we were trained to view risk and how we were to, you know, like, even in your underwriting, when you’re buying apartment buildings, we were always told to use one or 2% for your rent growth, one or 2%, for your expense growth. Today, those numbers are out the window, all of them, whether it’s your rent growth, whether it’s your expense growth, there’s your financing, like all of these components today, are flying in the face of how those in the space have been trained for the last 1020 years. And I honestly think that’s a function of we’ve never in North America, we’ve never seen run up inflation. I mean, you know, fair enough, there was inflation in the 70s and 80s. And that was addressed in a very different way than than today than it’s being addressed at this point today. But, you know, there’s other parts of the world where this story repeats itself over and over and over again, and I’ll give you an example. I was born in Poland during communism, and we had something called renumeration in 1995, where they rolled back the dollar, the Polish dollar, from 10,000 to one. So if you had 10,000 in the bank, they rolled it back to $1. And, and we’ve never had this US Canada we’ve never experienced this other parts of the world because you know, us being the world reserve currency and all commodities throughout the world being priced in US dollars that that dollar has never been scrutinized in that way. They we’ve never we’ve never had those types of issues here. And you know, I remember my grandma would go to the grocery store or or went back to visit my grandpa when he was getting getting a little bit sick. And I remember my grandma gave me a million dollar bill and this was like 93 and I went to I’m living I got my goggles from here, right? So I’m there and I’m like, grandma’s a baller, like she she gave me a million bucks or I go to the grocery store. I buy I don’t know bag of chips or Coke or whatever, some gummy bears. I get 300 grand and change 300 pounds like Oh, I’m like, alright. And I don’t know what’s going on. I’m a kid, I just, you know, I think it’s all Monopoly money anyway as a kid, right? So you’re in the My point is that in 95, a few years after, when they renumerated, the dollar, it was $10,000 to one, they rolled it back. So the people that got wiped out, were in cash, cash equivalents, they were holders of debt, they were holding the debt on someone else’s asset. And the people that maintain their purchasing power, potentially disproportionately grew their wealth were people that held real assets, whether it was real estate, whether they had the means of production to producing food, whether they had, you know, winery, farms, farmland, timber, whatever Mills, whatever it was, those were the people that really maintain their wealth and their standard of living. And if anything, they disproportionately benefited from that. So I think that’s something that we really haven’t seen here in North America just yet.
J Darrin Gross 10:59
I appreciate you sharing that perspective. And I didn’t mean to get off on a tangent to start here. But
Marcin Drozdz 11:04
That was my tangent, sorry.
J Darrin Gross 11:07
I mean, I, I’ve been just, you know, the bring it up here. But just Yeah, I think the key to this whole, this period we’re in and I think you nailed it, talking about the, the stimulus money that the government has put into the system, period. And whether it be from the economic, or the lessons learned from the depression, in whatever, and trying to keep things afloat, as opposed to having them, you know, crash hard, and, you know, despair and blood in the streets. And so, the only the only thing that I think that not the only thing, one of the many issues with that, and we’ll we’ll move on here in a second is that every time you tamper with the market, if you say the markets are pure in it, there’s a there’s a point where buyers and sellers meet, and that’s where supply and demand, you know, in the price is set. And that’s that’s a pure market, when you, you know, you, you kind of bastardize the market when you inject an unknown, the government currency, and today we’re all setting the values. I mean, it’s everybody’s like, Wait, we, and you have all this additional money pumped in and you, you know, these things that would happen naturally don’t happen. So now you’ve got this kind of artificial baseline. And, you know, I, I hope that we don’t end up in a situation like you. You shared with an in Poland, so But you’re right, though, I mean with, with other other countries and their currencies and the devaluation of it, and all that. I mean, it’s, it’s not that, you know, it’s not impossible to see something like that happen.
Marcin Drozdz 12:48
And in fairness, Darrin, I mean, you and I both know, this, we we typically and human beings, I don’t know what it is, it’s probably with within us where we sometimes overestimate the proximity of short term events, and totally disregard longer term trends, because they’re there, they’re over such a long period of time. And, and I say this because typically with weather, whether it’s a fiat currency, or you know, inflation, inflation doesn’t just go from zero to 100, in a day or a year, or five years, for that matter. This is a compounding annual, even if you look at historically, Argentina, Venezuela, other countries, and I’m not equating the US to those countries because apples and oranges, but even those types of countries before they hit their stride is the wrong word. But before inflation really became pernicious, where you’re in hundreds of percents per year, there were run up years of three 712 2383 90 It takes years sometimes decades for this thing to play out. And you know, the one thing is is there is no fiat currency throughout the history of the world that has ever survived ever and before the US was the world’s reserve currency. The Pound was the reserve currency before the pound I think Denmark had the guild I forget the name of it but but there have been various different reserve currencies throughout the world that you know, empires were built around and you know, they’re no one Empire lasts forever but also they don’t come down overnight either. Right so
J Darrin Gross 14:30
Well, and to all that, hopefully the landing is you know, we can all stick the landing and continue on and and although having said all that, you know, typically the opportunity lies in the down.
Marcin Drozdz 14:45
Well and Darrin the counter to everything I just said not to sound totally talking out of both sides of my mouth, but that’s what it’s gonna sound like is the counter to what I just said is the US is also the world’s largest exporter of technology. So there’s things that If we don’t even know that the US is going to manifest within the next five or 10 years, that’s going to fundamentally change how everything works. Right. So, you know, we may not have the coal mines and the steel and all the means of traditional production. But, you know, some of the biggest companies in the world as far as technology goes, that comes from here. And whether it’s AI or all the different various forms of what the future is going to take. A lot of that is coming from the US. So you also have to look at that as the counterbalance. Right. So what is the net result of it all? And you know, I’m sure there’s people 100 times smarter than me, that can probably speak to that. But it is a trend like this inflationary trend is a very real trend that we do have to contend with.
J Darrin Gross 15:49
Well, and as I understand the Feds continuing to try and slow it down, and you know, get it under control. So hopefully, they’re successful without too much pain. And there’s plenty of opportunity to, to recapitalize and do more. So. But anyway, let’s talk a little bit about multifamily. I want to hear a little bit more on you mentioned how you had your first property, you said you were in your early 20s, when you bought a family,
Marcin Drozdz 16:21
I think I was 20 or 21, when I bought my first house and you know, I listened to the realtor, they told me I’d get 2000 A month rent and this was way back then. So I bought it by you know, it turns out that I didn’t. And you know, you you learn how to do your own due diligence very quickly, when when it starts to cost you money.
J Darrin Gross 16:41
Well, what a powerful lesson so early on, in fact, even the fact that you said you read Rich Dad, Poor Dad High School, and I think that’s, that’s awesome, just to get that kind of a frame, you know, to frame the world and the opportunities as far as what you can do and taking control of it as opposed to just listening to the message of you know, get a good education, get a good job. Go work for somebody else kind of thing. I think that’s, that’s awesome. Yeah. So when you were working for the real estate equity firm, were you guys we strictly working in multifamily? Or did you work in other asset classes, or
Marcin Drozdz 17:18
We primarily did multifamily. We did do some other assets. We did some commercial, we did some land assembly as well. But I’d say three out of four deals that came out of our shop were multifamily. And by and large, it was us based in just for context was a Canadian firm at the time. So even back then we were doing mostly us multifamily. And here’s something else that I’ll share with you. A lot of people think that whether you’re investing in Florida, Tennessee, or you’re on the West Coast, and you’re buying whatever you’re buying, I know prices have gone up a lot in the last well pick a date, two years, five years, 10 years, but I’m going to borrow this from Jason Hartman, he always has his comment, expensive compared to what. And when you use that analogy, you’ll recognize that the US, even during this run up is still some of the best priced real estate dollar for dollar as the asset classes represented compared on the world on a world stage. So for example, in Canada, multifamily trades at a two cap, sometimes even in the one caps, it’s insane. You look at other parts of the world, Europe, Australia, other developed countries it you know, and when you look at the US trading at four caps, five caps and people are like, that’s crazy. That’s insane. Well, compared to what. And then when you combine that with the fact that in the US, and I I’m pretty certain of this, I think the US is the only country in the world where you can get a fixed term and fixed rate mortgage for 30 years, whether it’s residential or commercial, you can’t do this in well, Canada, for example, five or 10 years is the maximum term you can get with your rate, am schedule sure you can get the the extension, but the term you can’t lock your dead in for that long. And I’m almost certain that there’s nowhere else in the world where you can get 30 year fixed term debt as well. So you combine the pricing, the income relative to the purchase price, your worlds with with, you know, reducing risk, the replacement cost, the the cost to replace the asset. You know, regardless of what’s happening on a world stage. I still think the US multifamily market, obviously market by market is a tremendous opportunity going forward, especially with the inflation potential.
J Darrin Gross 19:40
Yeah, I love the perspective there because I think that for me that the challenge is not so much that I’m waiting for the crash. Because I feel like it’s a different different set of circumstances like we’ve been talking about, you know, there’s all this new capital in the market and it’s kind of invented money From the government that kind of inflates everything, just by sheer introduction of the, you know, the money into the marketplace, but, but I think just mentally, you know, you if before I got used to a certain price as being expensive, or then I adjusted to that’s the market, that there’s a lag for my brain to go, Well, this is the new new price. It’s not until you go spend some money and you realize that whatever you were used to spending is not enough. Now, you’ve got to spend more than now you realize there’s that, that delta and that becomes the new baseline, that all of a sudden recalibrates because it especially when it when it’s sudden, or it feels sudden, you know, within like a year that the transitory number, the number, you know, translates from from x to x plus. So I think you really have to, you have to be in the market and play in the market and run the numbers in the market on a regular basis, otherwise, you will, your reference point will be back, whatever, you acquired something out, or the last transaction you did, and if it was, you know, a year 234 Or five years ago, you won’t have that your reference point won’t be current, you know? And so at least that’s kind of my answer. I guess, I’m trying to reconcile my own brain, it’s just that that’s, that’s really the, that’s the exercise I have to do to just to try and, and, you know, for a reference point, mentally, to make it to make sense.
Marcin Drozdz 21:31
Yeah. Well, in there, and I’m of the same mind, I mean, even most recently, I was I was dealing with my underwriting team, on a property we just we just wrote on here in Florida, 90 is 90 units, it’s hoping to buy it for 11 million, whether whether my offer is considered or not, is another story. But that equivalent property a few years ago, wouldn’t have been 11 million. And I can tell you that it took me a minute to get to 11 million. And, you know, my underwriting, I mean, traditionally you would take, you know, the business, you would take a one or 2% rent growth assumption after your value add and, and that’s, that’s responsible that standard. Today, one or 2%? Is not what we’re seeing. So the question is, do you believe in risk? It pardon? Not risk? Do you believe the risk? This is the risk? The risk is do you believe that inflation was is in fact transitory, and we’re going to come back to normal? Or are we going to be at an elevated level for the next few years. And I can tell you, our insurance providers are underwriting for elevated levels, because the new premiums, the new quotes, we’re seeing, you know, they’re they’re, you know, Marcus and Millichap put out a report on, they were one of the charts that they put out was the replacement costs. And construction costs have gone up almost 20% year over year, and they’re expecting the same increase year over year on top of the last year over year, this year. So, you know, what is that going to do to premiums? What’s that going to do to rents? What’s it going to do to construction? You know, I had somebody just send me a development project with some 50 doors on the property and a few acres to build on to get up to 250. And I’m looking at this thing, and I’m like, How do I price this thing? Like, how do I price construction? And because the markets moving so quickly? You know, it’s, it is a different game. And on top of that today, compared to compared to, oh, 809, there is a deficit of over 4 million houses. That is for four and a half million, I forget what the numbers, but there is an acute shortage of housing. And, you know, you combine all of that together. And, you know, regardless, interest rates are going up, and you know, I don’t have a crystal ball, how are they’re gonna go, but from what I’m seeing is, if you’re running inflation, seven 8%, as far as what it’s posted. So, okay, if rates go up to 4%, or 5%, you’re still below inflation, which means you’re getting paid to take that. I mean, when was the last time we had something like this?
J Darrin Gross 24:09
No, exactly. And the just, I think the key thing to this whole, you know, the market of of multifamily housing period is just what you cited, there’s demand. And so I don’t care how you slice it, whether it be inflation, or the cost of replacement cost, or just your operating cost or whatever, whatever, you know, fill in those numbers that that you’re used to being more now than what they used to be. The fundamental concept that I’m I’m trying to remind myself of on a regular basis is there’s still a shortage of housing, period. And that’s not going to change overnight. It’s going to take years now, if if all of a sudden every obstacle in the way of development gets green lighted then the money just gets pouring into that, you know, you could have a rush to development that could that could over develop, and then you could have a crash on that direction. But just based on the numbers, it’s really hard to see that that would be the case in the short term.
Marcin Drozdz 25:15
Well, I mean, on top of that, we can talk about the labor shortage, the fact that people aren’t going back to work, for whatever reason, valid or invalid. And on top of all that, you can talk about the fact that they’re, I mean, okay, so on the heels of the, oh, 809, crash, builders literally stopped building, right throughout the US and, and that deficit grew and grew and grew. And I think if I look back at the chart, it wasn’t till 13, or 14, that they got, they even started getting close to fulfilling to bring new units on to market as properties were, you know, beyond their useful life. So you have this huge hole, and you have this massive demand you’ve got, I forget how many millions of additional households you have, since the last time construction was was on pace to meet supply, and all of these things. And now in an environment where a people aren’t going back to work, be you have lumber through the roof still through the roof. I had a gate that we put out one of our properties. Two years ago, that same gate got quoted for two and a half times the amount, literally a year, year and a half later, like really,
J Darrin Gross 26:30
I think I’m in construction right now. If you if you get a quote, and they’ll honor it, you need to lock it in.
Marcin Drozdz 26:35
Lock it on, everything is cost plus now nobody’s doing I’m not seeing fixed rates?
J Darrin Gross 26:43
No, it’s it’s very, it’s very hard for everybody to price. I mean, you can, you can run the numbers. And in your mentioned insurance, I mean, you know, we try and do a replacement cost estimate, but it’s still just kind of a kind of a shot in the dark. You’re hoping that that’s the number that holds up. But anyway, Hey, Luke, let’s talk a little bit about raising capital, you’ve clearly you’re you’re an experienced investor, you you’ve worked for others, you have your own fun now, and you’re, you know, doing deals and that what, you know, as long as you’ve been doing this, what are some things that you see is key for somebody that’s looking to raise money to be successful? raising money for multifamily investment?
Marcin Drozdz 27:33
So it’s a really good question. Because you can, you can have the best deal in the world. But if you don’t know how to get the equity together, then, you know, you’re, you don’t really have much in front of you. So and I’ll obviously preface all this with you know, when you when you’re raising money, it’s a regulated business. So get the legal get the accounting advice, don’t cheap out on this stuff, get the right lawyers get the right accountants, because capital raising is a business. It’s its own business. And US, Canada, it’s a regulated space. So let’s make sure we address that first. As far as actually practical tips for somebody to approach fundraising, I created something called the easy system, which is it’s an acronym easy as E, exclusive a abundant s scares, why your allocation? So what what the system does is it creates a reminder for people to look at their their fundraising activity, number one from an exclusive standpoint. So in other words, what makes your deal exclusive, and in the context of something that the everyday person can understand. Don’t immediately say to me, well, the going and cap rate is three and the exit cap pre, you know, we’re gonna bump into a five and then we’re gonna bring it down and scoop up couple million bucks. That’s great. I understand you 3% of the population will also understand you What about the other 97? That could write a check. So exclusive speak to me in the context of, okay, rents are 1000 They shouldn’t be 1200. Great. There’s $200 a month in the rent. There’s 53 units that we can raise the rent on. Okay, great. I understand that. That makes sense to me. If I’m an entrepreneur that sells widgets, and I’ve got money to invest, you’re speaking my language, I get you something else. Okay. It’s on the corner of Maine and Maine. There’s 50,000 cars that drive by every day. There’s no vacancy in the area. Great. These things make sense. What else? This thing was built for $10,000,000.20 years ago today, it would cost you 35 million to build. Okay, I get that I understand the tangibility of that thing, especially now when I see cereal going up, you know, $1 every three months that I go back and I’m buying the cocoa puffs for my child, I see the box going from four bucks to five bucks. I understand, like, speak to me in a way that I can relate to it. So again established thanks passivity of what makes your deal unique. That’s really important. And that applies for whether you’re marketing your deal talking about your deal, trying to get lenders, partners, property managers, whoever it is, they need to understand what you see, in a brass tacks way. That’s number one. Number two, a for abundance. Make sure you have a lot of people to talk to, obviously sounds obvious, most people don’t go out until they have a deal. And then they think the deal is going to quote unquote, sell itself. If deal sold themselves, you wouldn’t be here,
the deal would be done, there’d be nothing to talk about, there’ll be no opportunities out there for you, it would already be done, it would have already happened. The truth is you need a network of people that want to engage with you in in, in the conversation, whatever it is, whether it’s real estate, finance, and you got to find a way for people to want to engage. It’s, it’s not about selling your deal. It’s about positioning yourself as a thought leader and having a large network of people to talk to now again, what is large mean? Well, it depends. Are you raising 100? Grand? Are you raising $10 million? You’re, the size of your network will determine your capacity. I mean, you know, in my first year, if I got a check for 50, grand, I was tickled pink today, that is a rounding error. And it’s all context based, right? So where are you in that, but make sure you have a lot of people to talk to, in your world that are constantly looking at you, as someone who’s credible. As for scarcity, there’s two types of scarcity. One is the amount of equity that you require. It’s finite, you know, you need a million dollars, you need $10 million, what do you need? There’s a finite amount. Two is the time. So when is the transaction closing? Those two things will give you the ability to create urgency without being pushy, because you’re factually stating where you’re at. And it can be as simple as, actually, I’ll get to this in a sec. And then the why is the I call it the Euro allocation, but it could be your action items. So what’s your next step? What is the what is the compelling reason for somebody to engage in the next step of the conversation? So for example, Darren, if you and I were talking, I might tell you, Hey, there’s this building, there’s 200 units, it’s on the corner of Maine and Maine, there’s about $300 in the rent. Look, the vacancy here is 2%, someone moves in, someone moves out, there’s literally no available real estate, abundance, you know, as you probably know, I’ve got a bunch of people that I’ve got to get back to, you know, we’ve got our group, last deal sold out in, you know, 13 days, or whatever it is, whatever your story is, with, with where you’re at, it’s important that you essentially that it’s not showing off, it’s just factual. Here’s the deal, I have to present it to this many people, I’m only looking for $2 million. We’re closing on, you know, X date, whatever, date 45 days, not 30 days from now. And look, I know, you’ve got to do your due diligence, and I’ll send you the package. But if this if this, if this opportunity didn’t check out for you, what kind of allocation would you potentially consider. And it’s just a very soft, professional way to get to brass tacks. That’s what it is. Now, everything I just said can layer into dozens of other conversations. And that’s one of the things we do at m. One is with our students and our clients, we help them position their equity raises, in addition to buying our own buildings, but if nothing else, that es y will give your listeners some structure to be able to pursue the conversation in a more meaningful way.
J Darrin Gross 33:46
No, I love the way you set that up, you know, just in one, you know, speaking in language, that’s understandable. And, but in softly getting some commitments along the way, and one of the things was a abundance about having, you know, having this conversation with a lot of people, you know, if you need a million dollars, and you only talk to one because you think they’ve got it, chances are you won’t get it. But if you speak to you know, 100 and you’re trying to raise, you know, 100,000 per or whatever, there’s a good chance you’re going to be you can over subscribe, and, you know, when it comes down to it, especially if it’s a good deal. It’s really if it’s attractive, and you’ve communicated. I had a coffee this morning with an investor not a syndicator and we’re talking about just that, you know, if you don’t have enough in the pipe, and you get down to it and all sudden to pull out or you know, somebody starts, you know, kind of wobbling or whatever, you can all sit down end up in a more precarious situation than you thought. Just based on you know, not having that abundance of subscription and people lined up there’s that’s, that’s a that’s a great As you know, from Gregg Keizer.
Marcin Drozdz 35:02
So when I left when I left the firm, and I started doing my own thing, we were putting deals together. And I won a one month, I had three closings on three smaller properties that I was contemplating. And I developed the system out of necessity, because I had the investor, call me days before closing and back out of the transactions. So I was committed, everything was set keys had been provided instructions, provided everything was there. And once you know what I need, I’m, I’m short. And I’m really short. So I swept my way through that figured it out, resolved it, everything was fine. But I swore to myself, that I would never be caught in a situation like that again. And at a pure necessity, I created that system for myself, because I, I didn’t sleep for a few days, and I never wanted to have that, again,
J Darrin Gross 35:59
let me ask you something, because this came up in this conversation this morning, almost in as much as that the the investor that committed the funds, it will almost like a game to them, like there was you know, if they’re bigger fish, they had kind of more control, and they had some sort of sense of that they could and, and maybe we’re trying to get a better return than what the original thing was. And I thought was, that’s kind of interesting. I’m not always the guy that’s thinking that far in advance. I think that if you and I agree to something that, you know, we’ve got that agreement, I’m not thinking, you know, that you’re going to come back to me and try and work me around kind of thing. Do you do you find you know, some of the some of the larger, more established capital? You know, sources? Is there any kind of, uh, I don’t know, I don’t know if it’s ethical, or is it? Do you have you ever found that that the chair that some of the larger, more experienced players find might be more game, game oriented, or,
Marcin Drozdz 37:06
I mean, you know, the the old saying, He who has the gold makes the rules, right. So certainly, some of the largest holders of the gold are the largest private equity firms in the world. And they, they they know, their position at the table. And you know, the the people that ended up working with them, either for asset management or the equity piece, you know, you’re you give up the freedom of running things the way you want to run them, because you accept cash from one group, you effectively become, you know, and fair enough, if they’re putting up all the money, they’re going to want certain controls and processes in place, that make may run counter to how you’re accustomed to doing things. And that’s one of the perils of having one, I think that’s kind of your point is that if you have one investor, that is supplying all, you know, the cash, then you’re that is, you know, that’s who you report to, whereas, whereas if you develop the skill set, where you can diversify your capital pool, and not be beholden to any one group, you’re better off as an entrepreneur, because ultimately, you’re able to retain your autonomy. I mean, you’re still providing the reports, and you’re still running good business, and you’re still doing things the way you’re supposed to. But ultimately, if your largest investors a couple percent of the equity, and there’s dozens of these types of people, then you’re in a much more favorable position to be able to run the business as you see fit, as opposed to having one person with 50 or 80% of the equity investments. So it’s the devils in the details, but you know, giving up the so most people don’t want to admit this, but they don’t want to raise them. They don’t like the act of raising money. They don’t want to do it. But at the same time, they don’t want to be beholden to the person that writes them that one check. So it my whole thing is if you don’t want to be beholden to any one provider, you got to suck it up and learn the skill set. And if you have smaller check sizes smaller, perhaps six figure check sizes instead of seven figure check sizes, you have more of those partners. But ultimately, you do have to do more work upfront, but then you can focus on the business more as opposed to dealing with that one particular partner. And yes, I’ve heard stories of seven figure eight figure commitments, and then three days before closing. Oh, by the way, yeah, it’s not 7030 it’s now 9010. So I have heard of that. It’s typically not well received in the community. Those groups are typically here for a short time now. They’re here for a good time, not a long time. Word gets around the campfire pretty quick. If there’s groups doing things like that, and, you know, operators talk to operators entrepreneurs Talk Talk entrepreneurs, anybody who’s trying to build a long term business from the P side typically doesn’t do that the people I’ve come across are typically very genuine, sincere. But, you know, from time to time you hear about the villain, you know, the wolf in sheep’s clothing? Yes.
J Darrin Gross 40:18
Well, it was, I mean, I’ve heard I’ve heard about people committing to something and then right when they get to it, there’s something that came up, you know, there’s something legitimate came up and stuff and, and that that was enough for me to say, okay, yeah, you do need to over subscribe, you know, you need to get some reserves or, you know, people in second position ready, if a position opens up kind of thing, but, but again, I think I mean, your your easy system, there to me is ideal is an easy way to remember kind of the key fundamentals to make sure you have more than enough that you’re communicating. And in, you know, you’re gonna get to the finish line. So I appreciate you sharing that. Hey, Marcin, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker, and work with my clients to assess risk and determine what to do with the risk. And typically, we consider one of three different strategies, we first look to see if there’s a way we can avoid the risk. When that’s not an option, we’ll see if there’s a way we can minimize the risk. And when we cannot avoid nor minimize the risk. And we look to see if there’s a way we can transfer the risk. And that’s what an insurance policy is, it’s a risk transfer vehicle. And as such, I like to ask my guests if they can take a look at their own situation, could be the market interest rates, you know, the the inflation, the politics, what however, you want to take a look at the the or frame the question and the answer. But again, with respect to your situation, you know, answer the question, what is the biggest risk? And just for clarification, while I’m an insurance broker, I’m not necessarily looking for an insurance related answer. With that, so, if you are willing, I’d like to ask you Marcin Drozdz, what is the biggest risk?
Marcin Drozdz 42:20
I was gonna say if it’s an insurance question, I’d say the replacement risk right now is the biggest thing that is certainly ringing in my head. But if we’re speaking in general, contextually as the biggest risk, I think, right now, the biggest risk is not doing anything, and sitting on the sidelines and pontificating on what’s going to happen next. Because you know, regardless of where we think things are going to go, and regardless of political leanings, left, right center, wherever you’re at wherever you’re going. Ultimately, if you stand still, if you stood still, for the last 12 months, you’re you you experienced erosion of purchasing power, like you’ve never seen. And we’ve always known that inflation was kind of never we never, I don’t know anybody that believes that inflation historically was 2%, or 3%, or whatever. We were told it was historically, but let’s assume that was accurate for what it for the purposes of what we’re talking about. Today. They’re flat out telling you, it’s six, seven, whatever, 8%. And that trend is only compounding. So for anybody who’s sitting still and figure trying to figure out how to move forward. I think that is the absolute biggest risk right now.
J Darrin Gross 43:37
Oh, that’s great. Question, where can listeners go if they would like to learn more or connect with you?
Marcin Drozdz 43:44
Sure. What’s the best way is my website Marcindrozd.com, Mar cin drozdz.com. And on my website, we’ve, we’ve got free resources as well for the people that are in real estate. And they liked the whole easy system. Actually, even if you’re a business owner, entrepreneur, and you’re, for whatever reason you’re trying to raise capital or scale your business. I’ve got a free download there for the easy system where it actually there’s there’s a few videos, that’s about 15 minutes of content where you can actually walk through it in a more orderly way. So that’s available there. We do. We do boot camps, we do trainings. We also have our own apartment buildings that we buy. There’s there’s a ton of free resources on that website.
J Darrin Gross 44:31
Awesome. Well, Marcin, I can’t say thanks enough for taking the time to talk today. I have enjoyed it learned a lot. And I look forward to doing it again soon.
Marcin Drozdz 44:42
Yeah, no, really appreciate it. I think Darrin, if I could say one thing, your listeners today, more than ever, I think they need to relook or relook at how they’ve minimized the risk or like you said transfer the risk on the insurance side because it is it is a very timely conversation to have so that you know, the fact that you’re, I like how you frame that where you either transfer the risk and remove the risk, or what was that? What was the third one? Minimize or minimize the risk? Yeah. You know, I think today that is a very timely conversation on the insurance side. Certainly, that’s something we’re seeing across the board to
J Darrin Gross 45:22
Appreciate that.
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