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Show Summary
In this conversation, Tyler Evans discusses his journey in real estate, the importance of identifying good deals, and the challenges of building a vertically integrated company. He shares insights on hiring strategies, particularly the top grading method, and emphasizes the significance of understanding and fixing underperformance in property management. Tyler also provides valuable market insights and predictions for the future of commercial real estate, expressing optimism about investment opportunities.
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Investor Fuel Show Transcript:
Tyler Evans (00:00)
so that’s a great question because a lot of people, unfortunately, they’ll underwrite to return numbers, right? Because they want to sell their investors a really attractive deal. We’re like, wow, look at all this money I’ll make. It’s going be great. But unfortunately, when you go to execute that business plan in real life, it doesn’t always work out, right? And so how do you distinguish what will and will not? And really, it’s based on that market. What’s that market willing to accept, right? For example, I mentioned the cable.bulk internet, like that’s a big thing right now that everybody’s doing. It sounds great, it looks really good on paper, it’s gonna juice those returns, but if you go out to your comps and you say, you know, are they doing it, are they doing it? It’s like, no, nobody’s doing it, you know, say Comcast is in this market, and they’re offering, you know, really great internet for $20. And then your business plan is that we’re gonna do bulk internet, and we’re gonna charge $60 for that same speed.
⁓ Now your residents are like, well, why I have to pay that? And you’re like, yeah, unfortunately. So they’re not gonna wanna live there, right? So that’s gonna affect your other metrics, because you’re gonna have lower occupancy, harder time leasing units, because that market doesn’t accept that value add. So you have to find things that are truly of value to the residents, something that they want and it’s also a benefit to them.
Kristen (02:57)
Welcome back to the Real Estate Pros podcast. I’m Kristen and I’m here with Tyler Evans, who is a partner at Aligned Ventures, a multifamily syndication based out of Houston, Texas. Thank you for being here, Tyler.Tyler Evans (03:07)
My pleasure, thanks for having me.Kristen (03:09)
So, I mean, what you guys are building is really impressive and you help investors a lot, ⁓ know, sourcing great opportunities. How did you get into the real estate industry to begin with?Tyler Evans (03:19)
The funny story, you know, when I was in college, girl I was dating, her mom managed properties and she kept telling me, she’s like, you know, you’d be so good at this, you know, you should come work for me. And, you know, after enough probing, I was like, okay, okay, I’ll do it. You know, so I took the job. started leasing apartments, you know, when I was in school and I actually just fell in love with it. You know, the dynamics of an apartment community and it all just made so much sense. So after.you know, a few months I got promoted up to assistant manager and, you know, just kept going, you know, over the years moving up until I was running a large portfolio about 6,000 units, you know, across the United States and different markets and just, you know, loving every bit of it. So that’s how I got started and kind of found my way to where I’m at now a bit.
Kristen (04:08)
Amazing, what happened to the girl?Tyler Evans (04:11)
I married her and we have three kids and yeah, so she’s still around, still there.Kristen (04:12)
Oh, I’m sick. So it worked out.That’s awesome.
Great. So I mean, that’s really cool. And then when did you start with Aligned?
Tyler Evans (04:25)
So Aligned, this will be, we’re going on five years. ⁓ So kind of that transition was I started investing, you while I was running the property management company, ⁓ you know, buying duplexes, quads, and just kind of fixing up and selling them, and doing really well, and just scaling to bigger and bigger products. And I was like, I had this kind of realization. was like, you know, I could do this myself. ⁓ And there was a moment in the company, you know, I’d been there for about 12 years.It was a privately owned company ⁓ and they were just going a different direction that I really didn’t agree on.
And you know, when you’ve invested that much time and effort into a place, you kind of feel like you’re somewhat of an owner or irreplaceable. And you know, there was this moment where I just, you know, really didn’t agree with it. And they’re like, well, that’s great, but we’re doing it anyways. And kind of hit me. like, ⁓ I’m like, you know what? Like I am just an employee. I’m replaceable. That’s why I made that decision was like, I want to step out.
and try to build something, take that risk and be an owner in something. So ⁓ that’s where I made the move. I got out there, just looking for a partner, somebody well capitalized that could help grow, have the skill sets. And so I got connected with Arnold, who’s the other partner in the group and he’s built several businesses, wanted something that’s gonna be around, because in business you have to reinvent yourself a lot. So it’s like, well, commercial real estate is not going anywhere.
Kristen (06:36)
right?Tyler Evans (06:38)
So here’s something we can build once and just grow it. ⁓ So yeah, this is our fifth year together. So we’re doing well and ready to scale.Kristen (06:48)
Amazing, and you guys mostly work with value add. Talk more about that and kind of which deals you guys source.Tyler Evans (06:55)
Yeah, so we love value add real estate. ⁓ It takes me back to the HGTV. It just makes sense. You buy the ugly house on the block. All the other houses are worth way more money because they’re nice. And people just want what looks good. So when you’re doing apartments, ⁓ it’s the same concept, except you have so many different levers to pull to add the value, which could be from your additional income. ⁓cable or valley trash, whatever it may be, those add huge value to an asset. we typically always start with exterior, that curb a pill. So we’re looking, we target 80s product. Anything pre 80s, you kind of run into more problems, more boilers, flat roofs, things that just cause a lot of issues if they go bad.
Right? With the eighties, you get your normal pitched asphalt roofs, know, individual water tanks, individual ACs, stuff that you can fix easily. So, so we start there, we go up, we really look at stuff in a, in a strong sub market, right? Because markets go up and down. ⁓ but when you have a market that has, you know, a lot of good businesses, good schools, strong incomes, that’s where you want to be. So we’re buying the cheaper asset that has a lot of potential to be better.
in the market where people can afford it and want to live. So that’s how we kind of base our buy box. And we just look at deals, we run the numbers, and see what makes sense.
Kristen (08:20)
Right.Yeah, and I know you were talking earlier about being able to identify what’s actually a good deal and what might look like a good deal on paper. How do you distinguish between the two?
Tyler Evans (08:35)
Yeah.Well,
so that’s a great question because a lot of people, unfortunately, they’ll underwrite to return numbers, right? Because they want to sell their investors a really attractive deal. We’re like, wow, look at all this money I’ll make. It’s going be great. But unfortunately, when you go to execute that business plan in real life, it doesn’t always work out, right? And so how do you distinguish what will and will not? And really, it’s based on that market. What’s that market willing to accept, right? For example, I mentioned the cable.
bulk internet, like that’s a big thing right now that everybody’s doing. It sounds great, it looks really good on paper, it’s gonna juice those returns, but if you go out to your comps and you say, you know, are they doing it, are they doing it? It’s like, no, nobody’s doing it, you know, say Comcast is in this market, and they’re offering, you know, really great internet for $20. And then your business plan is that we’re gonna do bulk internet, and we’re gonna charge $60 for that same speed.
⁓ Now your residents are like, well, why I have to pay that? And you’re like, yeah, unfortunately. So they’re not gonna wanna live there, right? So that’s gonna affect your other metrics, because you’re gonna have lower occupancy, harder time leasing units, because that market doesn’t accept that value add. So you have to find things that are truly of value to the residents, something that they want and it’s also a benefit to them.
and then you’ll get really good acceptance and it’s going to make that property thrive in the long run. So, you know, that’s just one example, but definitely it’s, it’s market research. You know, I like to blend, you know, old school feed on the street with, you know, new data analysis. So I, a lot of times I’ll go and just shop the comps myself. You know, I go and talk to the managers. like, Hey, at the other properties, like, what are you guys doing? What do you think about this? What do you think about that? And that’s where you get the best insights. Cause if you try to pull like a costar report or
you know, these big data services, you get just kind of like a 10,000 feet up picture, which a lot of times isn’t what you need in a two block radius, you know.
Kristen (11:21)
Right, absolutely. No, I think those are really good metrics to look at. And with Aligned Ventures, youare vertically integrated. So talk to me a little bit about building that. I feel like that’s really challenging to do. Talk about building that out and finding the right people.
Tyler Evans (11:34)
Yeah.Yeah, people are key, processes are key. So we started with third party management. That was the plan to kind of give us more bandwidth to focus on growing. And after having them in place for a while, we just saw a lot of neglect, know, lot of underperformance. I remember, you know, and this is where I came from. So this is second nature to me. I remember going to the property one week. There’s like a pack of shingles on the ground next to the office. Right. And I remember these
They’re typically not your employees, right? They’re the management company’s employees. So I’m like, hey guys, you know, there’s some shingles out here. It doesn’t look great. Maybe we can clean them up and then, you know, come back the next week, still there. And I’m like, I just, okay, I’ll pick them up. Where can I put these? You know, but it’s, and that’s just, you know, a random example, but what was really suffering was the numbers, the performance of the asset, occupancy, leasing, financials, you know, they all flow together. So.
We ended up getting rid of the management company, finding out that the manager herself was committing fraud all over the place. There was people that were supposedly evicted, right? And I go to the apartment and they’re still living there. It’s marked as a vacant unit that eviction was completed and it’s just a big mess, right? So identifying that, taking action, and really diving in personally and getting it back on track.
So at that point, it’s like, I’m already here, I’m doing it, like, let’s just take over management internally. You know, I have a long background in this. So there were some things, right? So I came from a big company where we had an accounting department, a construction department. And when you’re a smaller group and you don’t have departments, you know, you have to find solutions. So, you know, for example, we found a really good third party accounting company who specializes in multifamily.
Kristen (13:21)
Right.Tyler Evans (13:33)
So I’m like, these books are a mess. They came in, they got them all cleaned up, use a software that I’m familiar with. And then, you know, a lot of the systems and processes I already had, but it’s about really ensuring that other people understand them and implement them. And so that’s where it comes to the right people, like you said. So we use a hiring method. It’s called top grading. There’s a book by Philip D. Smart, amazing philosophy and strategy.So often when we hire people we ask these surface level questions and almost everybody has a kind of like a snap answer for these surface level questions and really the the philosophy behind this is to to drill down to those second and third layers It’s like wow that’s impressive like you know how did your peers do compared to you and then like Well, how do you attribute? know what do you attribute the success to and you really like you know find out what they like what they don’t like?
Kristen (14:06)
Right?Tyler Evans (14:29)
And you ask the same questions in different ways. You find out when they’re lying. So utilizing kind of this more in-depth hiring method and knowing what we needed on this property specifically, which was somebody who was, you know, gonna follow systems and processes. We found somebody that really fit the bill. I think she’s been there for two and a half years now doing amazing properties, stabilized, performing really well. So.⁓ But yeah, definitely there’s always surprises when you’re building something like that. So
Kristen (14:59)
that.Tyler Evans (15:42)
actually I wrote a little book, it’s called like the building blocks of property management, just to help people who are going through that because even though I’ve been doing it for 12 years, when I built our own company, I was surprised by several things. So it’s like, wow, I didn’t think about that until I had to do it.Kristen (15:46)
Nice.You learn on the job a lot. I feel like that’s a lot of real estate.
Tyler Evans (16:06)
really is, you gotta ⁓ roll with the punches. You’re like, okay, but that’s great. Now you know for next time. So that’s what we always say, it makes you that much stronger. Every event is a lesson that strengthens you, right?Kristen (16:21)
Say one more time what that hiring method is called.Tyler Evans (16:25)
It’s called top grading. Upgrading.Kristen (16:27)
Top grading, that’sa really good, I mean the questions you ask people are so important and a lot of times in interviews you kind get nowhere, you’re kind of spinning your wheels.
Tyler Evans (16:37)
Yeah.Exactly. I had been hiring people like that for over a decade. so it’s something that Arnold showed me when I came on with the line and my mind was blown. I was like, I can’t believe I went so long with this BS hiring method of like, I feel like they’re a good hire. The other key part of that hiring method of top grading is it’s called threat of reference check. So basically you say early on, you’re like, hey, who was your supervisor?
Kristen (16:55)
Right,Tyler Evans (17:07)
You know, we always check with them and see what they thought of your performance. So they know like, ⁓ somebody’s going to be telling them the truth. So it brings honesty out from the beginning. So it’s really, it’s really effective.Kristen (17:17)
Right.Bye.
Definitely. And I know one of your strengths is kind of understanding where underperformance is and fixing those processes. What are some examples of that?
Tyler Evans (17:35)
Yeah, so I would say really when it comes to KPIs or key performance indicators, you have indicating and then lagging. Lagging, you know, that’s like at the end of the month you get an accounting report, right? And then you see it and you’re like, oh my gosh, we severely underperformed. That’s awful. What do we do? Right? And then you can fix it, but it’s probably going to take two to three weeks and that next month’s probably going be underperforming as well.So, you know, really the key to expedite or get around that is to be really studying those indicating KPIs, which, you know, in property management specifically, it’s your leasing traffic, your conversions, your delinquencies. They tell the story of what’s happening today, right now. And so if you set kind of thresholds, right, you’re like, hey, I’ve pulled the reports. I know what we do on average and it looks like we’re trending down.
You know, these are below our average. And then you have conversations with the people on the ground. What’s going on, guys? You know, what’s changed? What’s different? ⁓
a little slow. What are we going to do to pick that up? And you ask for people to create plans and, you know, contribute to the success of it. And that really empowers them to go out and they’re like, well, I’m going to do extra marketing. I’m going to do this. And so now you’re taking action before a failed result. So, and there’s always a cause. You know, it’s cause effect.
So it’s about understanding it. well, market, you know, traffic’s been slow. Okay, but why? You know, what are the comps pricing? It’s like, everybody lowered their prices by us. Well, there we go, right? Okay, we need to do a market survey right now and fix our pricing or, you know, whatever the case may be. But it’s about, you know, for one, identifying what’s underperforming. The only way to do that is by tracking metrics. And two, it’s about asking the questions that helps you understand.
why it’s underperforming, and then talking to your team to get solutions, right? Because we may have ideas, but the people who do it day to day, they’re gonna have really good opinions on what we should do. So listening to them also helps. So I think in any business really, aside from commercial real estate, that’s critical to track, monitor performance, and find solutions.
Kristen (19:53)
Yeah, not being too, ⁓ I guess, comfortable doing what you’re doing. Always be looking to optimize.Tyler Evans (20:01)
Yeah, yeah, absolutely. It’s optimizing, but it’s also just sticking to what works, right? Because we do get lax. You’re like, well, this property is doing good. It’s fine. Like, I don’t really need to review all these every week, do I? And if you get lax and then before you know it, you’re just looking at the monthly stuff, boom, you underperformed and now it’s going to take a month and a half to fix. And then your investors are like, well, what happened? And you’re like, don’t know. know, excuse, excuse.Kristen (20:29)
Yeah.Tyler Evans (20:29)
So keeping, it’s really those systems and just abiding by them constantly. Building them and sticking to it.Kristen (20:37)
Absolutely. And then let’s talk about the market a little bit, kind of what you’re seeing, because I think there’s a lot of information being thrown out. think a lot of people are wondering if it’s a good time or not. What are you seeing and what are you seeing for the next year?Tyler Evans (20:52)
Yeah, so we’ve been underwriting deals. I we underrode about 200 deals over the past 12 months. So we’ve looked at a lot of opportunities. Pricing in the market for commercial real estate has come down quite a bit. We’vepricing fall and kind of stabilize a bit. So rates also have trickled down a bit. I personally like where the interest rates are.
you know, versus you look at the big picture, you know, I think average interest rates are like eight or 9 % over, you know, last hundred years. So in the scheme of things, if you can get a five, five and a half percent interest rate, that’s pretty good, right? And we like to base it on that, you know, 3 % that we were getting for a minute and we’re like, oh, it’s too high. But if you, know, the cap rates, which is how we really kind of value multifamily in lot of situations.
you know, you’re seeing five and a half or six and a half percent cap rates. So you still, you know, and if you’re doing value add on top of that, you know, that’s giving you additional cushion. So you’re positive levered on this deal. So, you know, and we expect as multifamily typically does, our commercial real estate in general appreciates over time. So, ⁓ yeah, what I’m seeing is people have been scared to kind of get in the market. Everybody’s been waiting for
you know, okay, when’s the bottom? Then I’ll get in. ⁓ My personal opinion is that now is a great time to get in. Just looking at supply demand metrics, right? Every market’s a little different, so you obviously have to study your markets, but ⁓ in Texas, Dallas, and Houston specifically, ⁓ you you look at what was developed, so we had a little surplus of units going into the year, and they’ve been getting absorbed really well.
Kristen (22:23)
right.Tyler Evans (22:47)
and there’s really no new starts coming. ⁓ It’s a little harder to develop right now, know, with material costs, labor costs, labor shortage due to immigration reform, ⁓ and then interest rates, you know, when they’re doing these construction loans, they’re usually, you know, nine, 10 % right now. So it’s kind of hard for those deals to pencil. So, but yet we still see huge population growth in these markets.Kristen (23:14)
Right.Tyler Evans (23:14)
You know,because compared to a lot of the other country or the rest of the country, you California, New York, it’s still a super affordable place to live. Dallas and Houston. There’s a lot of job opportunities. So we’re seeing a lot of people move into the state, absorb these units. So, you know, over the next five years, let’s say there’s going to be a big housing deficit. So that’s going to be great opportunity for multi-family because and also, you know, when it comes to
ability to own a home.
You know, it’s so hard for an average American to own a home right now. You know, what it takes, or like your down payment, and you just think like these 20-some year old kids and they’re, you know, not making enough, it’s so hard to save, so, you know, really their option is to rent or live at home. So we see a lot of demand there too. There’s, you know, more renters now than ever due to the difficulties in owning. So when you just kind of look at all the different factors and how they play together,
I feel like commercial real estate is a good bet, multifamily and specific, over this next five year period. we’re bullish, we’re ready to acquire as much as we can.
Kristen (24:26)
That’s amazing. No, I love hearing like optimism about the market and I agree. I do think it’s a good time to get in there. I think a lot of people wait and wait and wait and then the moment just passes them by. So yeah, agree with you. Right, exactly. Well, thank you so much for being here. I feel like you’ve given a lot of good, a lot of good, tangible advice and also some inspiration for people. So tell everyone where to find you, where to find Aligned Ventures.Tyler Evans (24:37)
Yeah, they say the best time to buy is yesterday.Yeah, you can find me on LinkedIn, Tyler Evans, Aligned Ventures. We have a website. It’s investav.com. And you got all of our links and everything there. So check us out.
Kristen (25:08)
Well, thank you again for being here.Tyler Evans (25:11)
My pleasure. Thanks so much. Have a wonderful day.Kristen (25:14)
And thank you everyone for listening. Hope you got some good inspiration for your own business and learned a lot. Please reach out to Tyler. ⁓ And yeah, we will see you next time. Bye.
