Jason Stubblefield 0:00
So what we’re doing is working with government programs to try to keep those income levels somewhat reasonable. And so we specialize in the Low Income Housing Tax Credit space. And in that space, you have government regulations. And they may say, according to the area median income, we only want, we only want people at this property to be paying say, I’m sorry, we only want tenants at that property that make 60% of the area median income. So it’s income restricted for the people that live there. And then based off that income restriction, we don’t want them paying more than 30% of that income and rent. So that’s that’s sort of how the project project works.
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J Darrin Gross 1:03
Welcome to commercial real estate pro networks, CRE PN Radio.. Thanks for joining us. My name is J. Darrin Gross. This is a 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.
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Today, my guest is Jason Stubblefield. Jason has been investing in real estate for over 10 years. He started with single family homes and have since moved into the multifamily real estate space, he scaled his portfolio to over 100 multifamily units. In just a few years. Jason grew up in a lower class family and was always mindful of the tenants he served. That concern led him to the transition company into the affordable housing space. His company is now devoted to helping solve the affordable housing crisis while maintaining strong returns for his company and his investors. Prior to becoming a full time multifamily entrepreneur, Jason spent over 11 years in the software development, and has a Bachelor of Science degree in computer science from the University of Memphis. He is also a United States Marine Corps veteran.
And just a minute we’re going to speak with Jason, about multifamily investing, and affordable housing. 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, you can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that, I want to welcome my guest, Jason Stubblefield. Welcome to CRE PN Radio..
Jason Stubblefield 3:19
Thanks for having me there. And I’m glad to be here.
J Darrin Gross 3:22
Well, I’m really looking forward to our conversation. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.
Jason Stubblefield 3:31
Yeah, definitely, um, you really summed it up pretty good with the introduction. Started off lower income family really just started trying to better my life and what my current situation was. So I started out with just joining the Marine Corps right out right out of high school, then that led me just to once I got out, you know, did four years in the Marine Corps, uh, went and got a degree in computer science. And then from there, I was on my on my way around the corporate ladder, corporate ladder, you know, climbing the corporate ladder. And that’s what led me to real estate because I realized that I didn’t want to do it, even though I was, quote unquote successful by by some people’s opinion, that led me into real estate and starting to single family and then saw that that was going to take a lot of time, so then I scaled into multifamily. And the only thing that was a little incorrect with the introduction, it was 1000 units, we went a little over 1000 units in multifamily apartment buildings. I started out with 134 unit and that sort of led me to where I’m at right now.
J Darrin Gross 4:42
Got it, got it. Well, first off, thank you for your service. Appreciate anybody that’s willing to put on the uniform and and, you know, go to go defend and be there for our country. Appreciate that. So let’s Talking about your portfolio. So you said you started off in single family? How many units did you end up with before you realize that was kind of the slow road?
Jason Stubblefield 5:10
Yeah, it wasn’t a lot at all. So I started off house hacking, bought another, bought another unit. And then my wife and I, we got married, and we bought our first home. So this was about a span of about a year, right? When I actually got got that portfolio going that small portfolio going. But after that I had kids right, shortly after I got married. And I went a while to them about seven years really without buying anything else and real estate.
J Darrin Gross 5:47
And so when when did the light was seven years, like, just a busy with family? Or were you kind of considering your next step? Or what was your?
Jason Stubblefield 5:57
And they Yeah, it was it was really, I didn’t know what else to do. Because I didn’t have the money to put down 20% on another property prices. Prices were going up. Right. And so I was just trying to chase the next deal. It wasn’t doing a very good job of finding one
J Darrin Gross 6:15
Got it. Got it. So you have the couple you have the family going on, you’re you’re kind of short on cash you’re trying to find can’t really find the next opportunity. At what point did you realize that multifamily or what was the what was it that that said? Multifamily was the way to go?
Jason Stubblefield 6:34
Yeah, it was really the power network. So I just so happened to have a neighbor, and he was doing a lot of real estate, you know, and I was like, wow, you know, how are you doing all this how you learn. And it really got me back in the game. And I was like, You know what, I need to pick it back up. And so I was just on an island doing all these things by myself trying to figure it out. And once a once I got around him, right, he told me he was learning a lot from podcasts. So I started listening to podcasts. And at one point, I really just realized, like, hey, if I want to scale, this real estate business, right, I’m gonna need a lot of house. So I sat down one day, and I did the math. And I’m like, how many of these houses do I need in order to really be able to live off of them and retire myself. And then that’s when the light bulb went off. I was like, Whoa, this is gonna take me a lot of time. And I don’t have the money to do this. And so that’s what led led me to really just start scrambling and trying to figure out other methods to be able to better myself.
J Darrin Gross 7:39
So you mentioned a 34 unit. Tell me about your multifamily portfolio.
Jason Stubblefield 7:46
Yeah, so as I mentioned, we scaled it to a little over 1000 units, but then we started selling some stuff, and 2021. And this year as well. 34 unit was how I got started, it was a beat up property about 50% vacant, and I just had just enough money to really get into it. So threw everything I had at it and just figured it out, take shot. I learned a lot from doing that. And in the end, it worked out but it was it was a pretty, pretty rough period there while I was getting started.
J Darrin Gross 8:20
So tell me what what year was it? You said it was 50% vacant? pretty beat up? Was your plan? What was your plan for the property? How long did you hold it? Tell me tell me the ins and outs.
Jason Stubblefield 8:33
Right, right. So I knew that I knew enough about multifamily that understood refinancing and sort of being able to roll your money into another deal. So that was my plan. I’ve said it’s 50% vacant, I want to renovate a handful of units, maybe six, seven units. And after I do that, I’ll be able to refinance, pull that money back out, and I can continue, you know, implementing the business plan and go on to another property. That was my initial plan. What happened was, for one, I didn’t verify the income on the property when I bought it, so it was a lot lower than what I expected. And the second big event that happened was people left. And so I didn’t plan for that. And so as tenants left or they skipped, suddenly my plan to renovate six or seven units now I needed to renovate nine and 10 or 11 and 12. And I didn’t have the money to do that. So that’s what led me to challenge that I really wasn’t prepared for.
J Darrin Gross 9:36
So how did you overcome the lack of cash and kind of the changing situation there from from we thought it was to what it was
Jason Stubblefield 9:47
Tears and praying. It was pretty stressful. I pulled money out of my 401 K. I refinance the property just to get Some more capital, you know, whatever it was to just renovate a few more units, I then had, I want to say I refinance that property two or three times, right? It was it was really just trying to put money together to make it work. So it wasn’t the ideal way of doing it. It had I worked with somebody else or been more knowledgeable, I could have probably got the finance calls rolled into the initial loan, but I didn’t know how to do that. Just just went for it.
J Darrin Gross 10:30
And in the initial loan, you said it was 50% vacant? So I’m assuming were you in a hard money situation? Or what was your What was your original?
Jason Stubblefield 10:40
No, I did find a commercial lender that lonely, I want to say maybe 75% 70 to 75% of the purchase price. But I found that out the hard way, I probably went to, I don’t know, 10 banks or so and just kept on getting rejected. And it wasn’t until I had to understand that they were rejecting me, because I didn’t have a pro forma. I didn’t even know what pro forma was, then I was like, hey, I want to get a loan on this property. And I’m taking into banking, they’re like, no, no, no. But finally, a lender said, We don’t know if this property is going to make it, you know, for 10 years. And that’s when the light bulb went, I was like, Oh, you don’t know my plan. You don’t know that. And I plan on renovating these units. And so after I did that, it changed things. And I was able to finally get a banker to say yes,
J Darrin Gross 11:30
Yeah, no learning the banker language is kind of, if you don’t know it, you’re the outsider looking in and don’t understand it. But once you do have a an understanding of it. It definitely makes the conversation easier. You know, knowing what knowing the the numbers they speak and how they want to present it and stuff. I’ve been there done that kind of thing. I get it. All right. So you you have the situation. So how many units did you renovate? You said you refinanced it multiple times. You still have the property? No, and I sold it this year. Okay. And how many units? Did you end up renovating before you sold it?
Jason Stubblefield 12:10
Just about all?
J Darrin Gross 12:11
Okay, and how long did you have the property?
Jason Stubblefield 12:15
Bought that in 2016? So just out of this year, so that’s what six years?
J Darrin Gross 12:21
Got it? And positive exit done. So based on
Jason Stubblefield 12:25
Yeah, it turned around. It was the last refinance where I got all my money out and that was the initial business plan. So I just held the property is cashflow an asset for the last several years and then decided to exit out of it this year.
J Darrin Gross 12:44
Well, congratulations on full cycle, I’m guessing your story now when you talk to a bank is considerably different than than the the first one. And, you know, credibility you’ve gotten based on having bought a property, executed a plan, made it successful, and then sold it I’m guessing gives you entirely different positions you entirely differently than, than the new guy that likes it doesn’t really need to perform a just wants to money kind of thing. And congrats on that. So alright, so you get the first property in 2016? At what point did you or were you able to start buying additional properties? Or how did you go about getting additional units were you doing? Going Solo? Are you doing joint venture where you’re doing syndications? How are you able to grow your portfolio?
Jason Stubblefield 13:40
Yeah, so while I had that, that 34 unit, I was, I was really sort of bored, right? So I was living in the Washington DC area, this property was in Tennessee, and the business plan was being executed. But it didn’t require a lot of my time. However, I had all my money into this deal. And I’m waiting for us to renovate units so I can get a refinance and be able to go buy more real estate. During that time. That’s what led me to reach out to some other people say, hey, I really want to do a deal, but I just don’t, I don’t have any money right now. And so the advice I got was like, Hey, Jason, if you understand apartments, and you you know how to operate successfully, you can raise money with other people. And so that’s what led me even though initially I never wanted to syndicate it use anybody else’s money, lifestyle. life circumstances just sort of led me to desiring that. So at that point, I knew I made mistakes in the first deal. So I went out I got a coach said I need to know how to how to raise money and I need somebody looking back to make sure that I don’t screw anybody else’s money up right making mistakes like I did on the first one.
J Darrin Gross 14:52
Got it? Can you share that? Who do you work with as far as your coach?
Jason Stubblefield 14:57
It was Charlie Dobens.
J Darrin Gross 14:59
Okay. I’ve seen a lot of his posts. And what what were some of the things you learned from Charlie? You know, based on how to operate with other people’s money versus what you were doing solo when you when you’re operating on your own?
Jason Stubblefield 15:16
Yeah, well, I learned how to verify the income. That was that was one thing. So the next deal I did, I was definitely asking for bank statements and not just trusting a rent roll or any sort of tax returns or things that I was trying to get before. Also, it gave me more than anything confidence that I was doing the right thing with the apartment complex, like I mentioned, the mistakes I made in that in that first deal. That that’s how I realized that hey, I there’s just a lot that I don’t know that you know, you can’t pick up out of books, or, or even just some online course, right, you you, you really have to be detailed and professional. So having a coach that was able to look over my shoulder, here’s your deal. Here’s how you raised the money. Here’s how you put together a property package, all of that just helped build confidence to go out and try to pursue another deal, instead of just doing it by myself.
J Darrin Gross 16:10
Got it. So you work with Charlie, how long before you’re raising capital and into the next deal?
Jason Stubblefield 16:19
Let’s see that do close the first deal close late 2016. And I was almost 2017. So it was about a year. A year later, I had the first indication
J Darrin Gross 16:33
Got it. How many units was that?
Jason Stubblefield 16:35
That was 48 units.
J Darrin Gross 16:37
All right. And was it in Tennessee? Or was
Jason Stubblefield 16:41
It was close? It was about an hour from the first property in Western Kentucky.
J Darrin Gross 16:46
Gotcha. So you get the second unit or the second property? What’s the plan for that as the value add? What’s your strategy?
Jason Stubblefield 16:56
Yep, its value add, we were looking to renovate those units and increase the rents. So that was it is pretty is pretty straightforward. However, you know, with each new adventure comes new challenges and new land.
J Darrin Gross 17:15
So what were the challenges you found on this one?
Jason Stubblefield 17:19
Managing investors I went from? Was it just a 34 units and out 34 plus 48. And I didn’t have a team for that, you know, so I found the deal. I did the due diligence, I wanted a loan officer assigned on the debt, I raised the capital, I did everything. And during that time of getting that deal closed, probably one, one of the most stressful periods of my life. I don’t ever want to do that again. Right. But but that’s what I learned. And then also learned that I struggled with raising capital, I thought that that was going to be something that would sort of take care of itself. And like I’m working with Charlie, there’s plenty of people who want to invest, right? I was drinking the Kool Aid a little bit, that you could just go out and find investors. I didn’t actually start raising capital for it or even talking to investors until not only I had the property under contract, but I finished my like 30 days of due diligence. So I’m like 30 days now I’m like, now it’s time for me to go raise money. And it was a challenge, right? So I was I was under the done, I struggled, right? I definitely struggled with trying to make that happen. But what was born out of that was really the, the understanding that you need a team in order to do this and don’t try to do it all by yourself. So that’s what I learned from that. After we closed on it. Now I’m asset managing not only the 34 unit, but this 48 unit. And then I’m like, I’m also working a full time job at this time too. So it’s it’s very stressful to try to figure out how to take Property Management calls and underwrite the I mean, asset manage and all those things. So that’s what led me to start building a team. I started leveraging virtual assistants to just get some things off my plate.
J Darrin Gross 19:15
Got it. So you, your timeline there for raising capital is kind of short. How large was your raise for that? Property?
Jason Stubblefield 19:24
Half a million.
J Darrin Gross 19:25
All right. And how many investors did you end up putting together to get to 500,000?
Jason Stubblefield 19:33
That’s that’s that’s a quest. I gotta go back. Man. I would probably say maybe 15 to 20 ish investors probably. And that may be less. We did it in $25,000 checks. So that allow for us to have a lot more investors than, you know if we were doing like $50,000 or something like that.
J Darrin Gross 19:58
Gotcha. But you got it done. I’m And that’s the main thing that you were able to get the property. You had it under contract, you’ve done all the due diligence, you were able to raise the capital. Were there any timeline issues? Where did you have to get an extension to raise the capital? Or how did that all go smooth once you realize the situation you’re in, or
Jason Stubblefield 20:22
I don’t know if anything went smooth. It was a, it was rough. So I initially when I started, one of the first conversations I had was with an investor and he said, I liked the deal I’m wanting to, I want to invest, you know, 250,000. And so I was like, Whoa, you know, this raising money thing is really easy. I only got to 250. Left, I had a couple of other yeses, and I felt pretty good about my ability to close. What happened after that is that the investor who was going to put in 250, eventually came down said, I’m only going to do 100. Okay, that’s, that’s a little bit challenging, but we can still make it work. And then that investor went to zero. All right, and this is probably about maybe, call it a week, two weeks prior to closing. And so I was left with a big gap with not having enough money to close the deal. And so yes, I did have to exercise an extension. And that, that cost some money, you know, to to buy another extension. But during that time, I was really scrambling trying to figure out, you know, what I was going to do a house on close that deal.
J Darrin Gross 21:35
Got it. So that the investor that committed 250, down 100 Down to zero. If they’ve done any deals with yours that just been so many you’ve kind of exited your list.
Jason Stubblefield 21:49
It’s one of the issues that come along with just raising, raising capital and not necessarily having long lasting relationships, right? I feel like people, you don’t know each other you, you try to get married very early on. And it’s just one things that they don’t know you, you don’t know them. And so no, we didn’t go on. I mean, it’s not bad blood about us. I’m glad that it happened. In hindsight, right. But, but it just goes to show that you really need to start developing those relationships and nurturing those relationships early on so so that you feel better going forward. And also you want to know who you are, who you’re operating with?
J Darrin Gross 22:34
No, it makes complete sense. The situation there with the investor back and out. As you’ve gone forward, how have you corrected your approach to make certain that you’re not, you know, held hostage there at the last moment? And in a scramble position? Do you raise more than the need is you get commitments beyond what you’re looking for? Do you raise for capital improvements? Tell me a little bit about your strategy,
Jason Stubblefield 23:07
right, we always try to have more capital than what we need in order to close really feel comfortable, we’ll probably call it an additional 20 to 20 30%. And soft commitments is what we’re aiming for. And then also, just having more investors, right, the the lesson from that was just understanding that this was just one investor, that was a large chunk of the equity needed. And so there was nobody else to really swap them out with, you know, so you want to have a large investment pool. And what we find is, some people that are going to do a lower amount ended up contributing more. And then you know, some people who initially do a large amount will will come down a little bit, it’s just the nature of the beast, right? So we try to prepare for it by making sure we have plenty investors. And usually, if we’re around that 25 30% additional capital, we sort of feel like we can get it done. In addition to that, I also work with other partners now. And we all work together on the capital raise. So it’s just not it’s not just me, depending on my network, but it’s also other investors in that net network.
J Darrin Gross 24:17
Got it. So you did the 34 on your own, you get the 48. You syndicate. You get it closed, you’re executing your business plan. Tell me about the next tool. How quickly are you going with the next properties mean to get up to 1000? Sounds like you gotta be doing some deals.
Jason Stubblefield 24:40
Yeah, yeah. So so the way the way it happened for me was just doing larger deals. Once I actually got the partnership down. I understood partnerships and that’s what how you really want to leverage I wanted nothing else to do with just trying to do a deal on my own. So I kept networking a I’ve met other other groups that were doing larger deals. And so my next acquisition was 350 units, that I became a general partner in, really by just being an acquaintance. So, but but what, what helped that is that I had some experience, right, I wasn’t necessarily a newbie, I did understand business processes and all that. And so I was able to add value to that team, by bringing in what I already knew the investor database that I had, and we sort of partnered up on a larger deal like that.
J Darrin Gross 25:36
No, that’s awesome. So you’re scaling pretty fast. You start with, you know, the 34. Within a year, you’ve got a 48? How long did it take you to get the 350? After the 48?
Jason Stubblefield 25:48
I want to say that was about nine months after the 48.
J Darrin Gross 25:55
Alright, so you’re full in the networking? And, and, you know, looking for the next deal and raising the capital and, and staying engaged with your investors? I’m assuming, based on we’re looking for more deals, or was that more of Tell me about that, I guess, you mentioned the the challenge of managing investors. Tell me about your communications with your investors, since you bought the first property, or maybe
Jason Stubblefield 26:24
it was, initially we were doing quarterly distributions, I would try to send out a monthly email. And then at the end of each quarter, I tried to go back, reconcile the numbers, put together a budget, update the financials, and then send that out so that our investors could see with complete transparency, how how their money was being utilized. Since then, we now do monthly distributions. And so it’s more of more of a term, but investors like it, and then I like it as operator too, because it’s, it really makes you stay detailed on your property. How do we do this month? Where are we at? What was our CapEx budget, etc. So that’s how the communication goes, goes on now.
J Darrin Gross 27:14
Got it? Well, it sounds like you you’ve you know, you’ve heard me say, You’ve clearly come a long ways from where you started. The solo guide, not knowing how to talk to a bank to manage a team general partner 350 unit properties. That’s, that’s quite an amazing story in a very short amount of time to I mean, that, to me is really amazing that just in less than two years, you’re you’re really able to scale and my hat’s off to you. That’s, that’s incredible. Sounds like a team was really kind of one of the key things in that. I want to ask you about the Affordable Housing aspect. When you say affordable housing, told me how, how do you define affordable housing?
Jason Stubblefield 28:06
Yeah, I like the way you phrased it right how to how to you define it, because it is one of those words that depending on who you’re talking to, it could mean a lot of different things. So you have affordable housing, you have workforce housing, impact investing, all those terms get thrown around, sometimes no change. But what we call affordable housing is housing where the tenant is only paying 30% of the income in rent. All right, and I think that that’s more the technical definition of what’s affordable. Because the market has turned over so many times, keeping rental incomes at that level has become challenged. So you have tenants now that are paying 40% 50% of their income going just to rent. What we’re doing is working with government programs to try to keep those income levels somewhat reasonable. And so we specialize in the Low Income Housing Tax Credit space. And in that space, you have government regulations, and they may say, according to the area, median income, we only want, we only want people at this property to be paying, say, I’m sorry, we only want tenants at their property that make 60% of the area median income. So it’s income restricted for the people that live there. And then based off that income restriction, we don’t want them paying more than 30% of that income in rent. So that’s, that’s sort of how the project project boards.
J Darrin Gross 29:36
Got it. So you are doing LIHTC, I mean, the tax credits and tell me a little bit about that. i It’s been a little while since I’ve talked to anybody about it. But but if I understand right, will you tell me and then let me let me hear what you could say. And then I’ll tell me how’s the financing work program for for low income housing. tax credits.
Jason Stubblefield 30:01
Yeah, so the challenge with all of this is that it’s hard to develop projects, maintain projects, and keep rents affordable with costs that are just always rise, right? Especially if you’re working with investors that want to get return on their investment. It’s, it’s difficult to make that happen without having some sort of government intervention. So in the tax credit space, we’re talking about public private partnerships. And how that works is the financing will probably be 8575 80%, even sometimes 90% of the debt will come through lenders. And so I probably should establish this too, that when I talk about affordable housing tax credits, I’m doing new, not not new, but like the existing properties, right. So it’s already there, it’s already been development, we aren’t doing any ground up construction yet.
J Darrin Gross 31:02
Pretty use the property already in the in the low income housing program,
Jason Stubblefield 31:06
it’s already in the process, that’s what we lived. So we’re buying a tax credit deal, we’re gonna get, let’s call it 80 85% leverage from a bank. And then the way the equity works is, initially, we use private equity to acquire the property. So it’s just like a standard syndication, but it has those income restrictions on it. And so we still find out that we can operate those projects and still make nice returns for our investors. That’s one aspect of it. But we also want to keep these projects for the long term. And what we do is called a release indication. And during a recent occasion, this is where the public private partnership comes into play. So say, we have a project and we want to stabilize it and leave it affordable for the next 15 years or so, we’ll go back to the government agency and say, Hey, this project was already approved as a tax credit property, we want to make some upgrades and leave it as affordable for the next 15 years. That works, where you will have an entity for the equity. And that may be like a Bank of America, Wells, Fargo, Amazon, somebody like that, and they want tax credits. So the way the project works is you have your call an 80% leverage from the bank, and then the 20% equity piece comes from that entity. And they’re not necessarily looking for a return, they’re more so looking forward to tax credits. The good thing about this, though, and the way that we found a lot of value in this space, is that the government wants to to stabilize those projects for the next 15 years. So an on market rate rehabs we may do 5000, a unit 8000, a unit, something like that. In the tax credit world, we’re doing 30,000 $40,000 per unit renovations on these projects, because we’re really getting them ready to last for a long period of time. So Windows eight fax, flooring, appliances, you name it, if it’s not going to last 15 years, it gets changed. And that’s where, where I really like sharing information, because a lot of people that hear affordable housing, and they think that we’re talking about the projects, the ghetto properties, and just aren’t that appealing. But once we finish this level of rehab, you really can get some pristine product, even a glass product that is affordable to tenants. And that’s what I liked about
J Darrin Gross 33:45
Got it. So the capital stack when you first buy the property, you’re you’re raising capital from your investors. Right,
Jason Stubblefield 33:56
J Darrin Gross 33:57
You’re getting a loan from a from a lender. You you acquire the property basically like said 80/ 20 ish, is that kind of the starting point where you like a target. Okay. So you acquire the property, then you go back to and I assume it’s through the through the local housing, I’m trying to think of who you connect with to you have to reestablish the tax credits or the tax credits there and then you basically go in and then seek out the the larger equity swap. I mean, I say a swap but you’re basically selling the tax credits to that other entity that needs the tax credits for their own benefit.
Jason Stubblefield 34:44
J Darrin Gross 34:44
And you get that that capital, which basically allows you to then go in and recapitalize the property, am I understanding that Right?
Jason Stubblefield 34:56
Right. So So we go into these were two business plans. So to answer your question about where where do you go, each state has its own agency. And so right now, we’re only focused on Tennessee and Georgia because it becomes problematic to try to learn all these various different states and who to go through and their different requirements. So we focus on those markets, we go to the state agency, and we do application. So every time we buy an apartment complex now, we really have two business plans. One business plan says we get approval from the state agency, and then we’ll, we’ll go into the syndicate. The other one is we don’t want to be dependent on that, right, we don’t want to put our investors capital at risk. So we also buy with just a five year projection as a value, add D. And so when both of those deals check out, we say, hey, we can go in and re syndicated and we can also just keep this property as a tax credit deal, then has a green light on that asset. And we you know, we pursue it. So to the investor, you either want to have a five year hold period with with decent returns, or you’ll have a shorter term project with decent returns. Right? So. So that’s, that’s how we try to attack you
J Darrin Gross 36:14
Got it. So the initial investor, there’s an exit, you know, five years or less, on the plan, you get the approval for the tax credits. And you Re syndicate, I’m assuming at that point, the investors are either cash out or they have a chance to reinvest, you can bring in other investors is that I mean, it’s like a sale, but not a sale. Is that how’s that? How’s
Jason Stubblefield 36:38
it go? It’s basically selling the project into the tax credit. Program, right. So it is, it is a sale, however, it’s it’s the investors cannot stay in. And there’s tax credit law around that ownership percentages, and it gets really tricky. How it is initially, that’s what I wanted to do. I wanted to keep our investors with this throughout the duration of the project, but it just can’t happen. So they’re exited once we settled into the tax credit stuff.
J Darrin Gross 37:13
Got it? So the returns on the the the initial purchase make sense? Tell me about the returns for investors when you go into the tax credit program.
Jason Stubblefield 37:23
Yeah, so a lot of those returns come from cash flow operations, right. So they, they have cash flow depreciation, just like any other syndication, upon exit, what we do is they, they get a bump, as we sell it into this new tax credit structure. So they’ll get the cash flow for the duration of the project, call that one year, two years. And then afterwards, once we sell it in, then the investors get get a return and depending on the project, right, we determine, hey, well what are investors going to be happy with and we try to make sure that they’re very happy that they invested with us for that brief period of time if it’s basically functioning like a bridge loan.
J Darrin Gross 38:08
So you put it into the or you recent Akkadian so you’ve got a new pool of investors, they’re getting into a light tech, low income housing tax credit property. How how does how do those investors? How are they rewarded compared to the original syndication?
Jason Stubblefield 38:32
Yeah, so the so you’re talking about the new larger entity that will come in and just wants to tax credits? And
J Darrin Gross 38:38
okay, so and maybe let me let me let me be clear so when you Reese indicated Are there any of your investors that are coming in or is it strictly just the the larger tax credit equity investors
Jason Stubblefield 38:52
it’s just the larger tax credit investors
J Darrin Gross 38:54
got it? Got it. So you’re it’s basically an exit for you. But the the so the Do you have do you maintain any position in it once you Reese indicated?
Jason Stubblefield 39:05
Yes. Yeah, we do. So still stay in as an operator, but now you’re operating for different equity group.
J Darrin Gross 39:13
Okay. Okay. That’s what I was trying to it was getting a little bit confused. So, okay, so you do a syndication, you have a investment or investors, there’s returns they get their money. And then you Reese indicated, and then you’re the operator and Okay, Mike again, now, I get an end and those properties when you do the recent occasion, those tax credits are what is scheduled for like 15 years is that is that how that correct? Yeah, okay. Got it. Got it. And what you said that the government is really interested in stabilizing that. When when you is required that the whole property be low income housing or or there are there are different levels? Can you do like part of below low income housing and part of the non fi? Or is it just basic on them? The numbers, it only works really, if you just make the whole thing, low income housing.
Jason Stubblefield 40:10
Yeah. So they’ll have what you call a lower or lark, right? Because the land use restriction covenant. And so based off what that is, that really determines how the property is going to operate. So it may say, 50% of the property is only going to be available to people at 60% of area median income or less. And they may have the other 50%, that 80%, area median income or less, right, so and you can break that up sometimes 30 and 60s and 80s. Sometimes you have market rate and restricted units all at once. So you can get pretty creative with how that works afterwards.
J Darrin Gross 40:50
Well, it’s fascinating that you, you know, went from the market rate into the low income tax or housing tax credit, I know, I’ve had a little experience with, you know, different types of government financing, and, and what I do know is that that really makes it the possibility for greater returns when, when your capital requirements are, you know, substantially lower, it makes it a whole lot easier to service the debt. And that’s why the lower, you know, amount of income requirement from the tenant works in that, but that’s awesome. I’m glad to hear that you were able to figure that out. And and so are all of your units. Now, is that basically, is that the focus of your, your investment strategy?
Jason Stubblefield 41:38
Yeah, we’re we’re very much focused on the affordable space.
J Darrin Gross 41:42
Got it? And that that community of low income housing tax credit operators, like yourself, is at a fairly small, is it his or her room for more? Is it? You know, it’s a basically, if I wanted to do this another state and kind of learn the the kind of the government agencies NAD, is it? Is it? Are they typically looking for more properties
Jason Stubblefield 42:09
is challenging. So there’s a huge need for more affordable housing. However, the developer pool of people who know this information, and are building units is relatively small. And even with that, it’s competitive, right? So there’s, there’s multiple people bidding on these projects, as they come up for sale. So it’s competitive just just like market rate. Competition, multiple offers, you know, hard money day one, all of that still exist. So is that wrong? Yes. Is it? Is it needed? Yes. But it’s also a challenge.
J Darrin Gross 42:51
Gotta know what you’re getting into. That’s great. I’m my hat’s off to you figuring it out. Because like I said, I’ve heard about it. And I’m just gonna, just enough to recognize how the, the deal works here. And understanding works really well, especially kind of having that long term capital commitment. And like said, being able to look at a project with a longer view, 15 years, as opposed to let’s get in, make a pretty good out, you know, and leave for the next guy kind of thing. And I just, I like that kind of a philosophy more of something that’s gonna last. But that’s just me. Yeah. But anyway, Hey, Jason, if we couldn’t, I’d like to shift gears here for a second. My day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s a couple strategies we typically consider, we first look to see if there’s a way we can avoid the risk. When that’s not an option, we look to see if there’s a way we can minimize the risk. And when that doesn’t work, we look to see if there’s a way we can transfer the risk. And as such, I like to ask my guests, if they can look at their own situation, could be clients, investors, political interest rates market, however you want to define her identify what you consider to be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Jason Stubblefield, what is the biggest risk?
Jason Stubblefield 44:30
How’s the biggest risk for me would be doubting yourself, right? Because the foundation of the company, the foundation of the business is all based off of belief. Every time I’ve done this business or do another deal, there’s some new challenge. And with that, it’s like how do you meet that new challenge? Right, the market changes the market shifts. Currently, we’re seeing higher interest rates. And so if you lose that confidence, And to yourself, there’s always pressure to say, let me just go to a different asset class or I can’t figure it out or it’s too competitive. But if you can just keep the belief or never risk losing the belief in yourself, I feel like that allows you the ability to adapt and overcome in any any given situation.
J Darrin Gross 45:20
Definitely makes a lot of sense. gotta believe in yourself. It’s hard to hard to convince others to believe in if you don’t believe in yourself. So good. Jason, where can listeners go? If they’d like to learn more connect with you?
Jason Stubblefield 45:33
Yes, if you go to Jason Stubblefield.com got multiple ways to connect to that website.
J Darrin Gross 45:39
Awesome. Jason, I cannot say thanks again for taking the time to talk today. I’ve enjoyed it. I’ve learned a lot, and I look forward to doing it again soon.
Jason Stubblefield 45:50
Awesome. Thanks for having me. Appreciate it.
J Darrin Gross 45:52
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