How Midwest Multifamily Avoided the Real Estate Crash That Hit Sunbelt Markets

Robbie Hendricks (00:00)

We reflect on every every deal we passed on from 2017 to 2019. We’re like, whoops, because every single one you’re right, you could you could just throw a dart at a property if you were investing in especially 2017 or 2018. And you won. So a lot of people got got hubris, right? They got they got overconfident. They thought they were operators, especially people that were writing these the rent growth.

started to see the right on the wall when I saw the

the offering memorandums from syndicators where they were projecting 8 % rent growth, right? Every year for the five year hold they were trying to do, right? Like they didn’t even think to themselves, who’s going to afford that?

Dylan Silver (01:14)

Hey folks, welcome back to the show. Today’s guest, Robbie Hendricks is the managing partner of Venture Real Estate Co or VREC, a private equity multifamily apartment investment firm based out of Cincinnati. Currently, they own and operate over $270 million of multifamily apartments in the Midwest. You can find him at VREC.com or on Instagram at Robbie Hendricks Robbie, thanks for taking the time today.

Robbie Hendricks (01:40)

Hey,

yeah, thanks for having me, man. This is gonna be fun.

Dylan Silver (01:42)

Now, when we talk about the multifamily space, and I was mentioning this to you before hopping on here, there’s a lot of interest from folks. I know a lot of single-family fix-and-flippers that are looking at multifamily now, especially now that there’s so much new construction, it almost feels like you have to pivot out of flipping to some degree. But I also know multifamilies not been the easiest segment to be in over the last couple of years. know personally many…

syndicators and in fund managers who’ve either been sitting on the sidelines, you know, waiting for ⁓ the right time to get back in or, you know, unfortunately I know distressed, you know, syndicators who really bought when, when things were at the peak and then saw COVID happen rates go up, you know, the cost of materials go up and then in places like Austin, Texas, rents go sideways, which doesn’t, doesn’t help. ⁓ What’s been your, your experience, you know, over the last, you know,

five or so years and then having seen all of this.

Robbie Hendricks (02:40)

Yeah, well, you’re right, obviously.

been a really interesting five years really ever since the pandemic with multifamily investing, which is really driven by interest rates going to zero, right? But we’re in the Midwest, like you said, we’re in Ohio. So we operate a little bit differently than some of the boomer bus markets like Austin or Phoenix or Atlanta, places like that, where we didn’t have the same new supply sort of glut that those markets did. So we didn’t get nearly as disrupted.

in our market. Obviously, in Cincinnati, we’re also like a secondary or even tertiary market compared to those like Nashville’s of the world. So we didn’t have as much speculation come in. We didn’t have a lot of, you know, there were a lot of new syndicators, right? They got really excited about multi family like going in Dallas, and they’re going in Austin, San Antonio, and Houston. just, everyone’s raising capital, everyone’s buying deals, like people really got FOMO, fear of missing out, right? That people got really serious about buying property. And I think a lot of people, especially in those hotter markets kind of

Dylan Silver (03:23)

Yeah.

Robbie Hendricks (03:39)

betrayed their criteria. got variable rate debt. People got really cute trying to grow. So our market was a little different. One thing, we follow loan maturities. We follow variable rate debt, things like that. Our market didn’t have much of that at all. So Cincinnati, I guess we were a little bit insulated from some of the mania that happened in other markets, which also prevented us from ⁓ having the same sort of bust here. So while maybe we didn’t have the same sort of excitement from

I don’t know, 2015 to 2022 that, you Phoenix did where everyone’s quadrupling their money. We also didn’t have the same sort of pain, which, which was good, which was good for us.

Dylan Silver (04:12)

Yeah.

Now,

when we talk, you mentioned that time period, it almost seemed like you couldn’t buy a wrong deal. I’ve heard, I wasn’t involved in real estate at this point of time, so this is secondhand knowledge, but I’ve heard investors saying, we’re gonna exit this deal in five years, and they’re hitting it in two, right? And around that time period. And so when you’re seeing that happen, and then you’re seeing this shortage of housing nationally, and then you’re also seeing more people get into syndicating, it almost felt like, okay, this is a,

Robbie Hendricks (04:36)

Yeah.

Mm-hmm.

Dylan Silver (04:49)

a great opportunity, we can’t buy a wrong deal, then COVID happens.

Robbie Hendricks (04:53)

Yeah.

Yeah. Yeah. yeah. Well, was

We reflect on every every deal we passed on from 2017 to 2019.

We’re like, whoops, because every single one you’re right, you could you could just throw a dart at a property if you were investing in especially 2017 or 2018. And you won. So a lot of people got got hubris, right? They got they got overconfident. They thought they were operators, especially people that were writing these the rent growth.

that happened through the pandemic. People thought they were so good at operating or managing property is easy, right? Which is completely wrong. Managing single families or multifamily is hard. It’s very difficult to deal with tenants, whether it’s a single family rental or at scale. And a lot of people learn the hard way that you just can’t buy stuff because it’s in a sunbelt market and ride it forever. I started to see the right on the wall when I saw the

the offering memorandums from syndicators where they were projecting 8 % rent growth, right? Every year for the five year hold they were trying to do, right? Like they didn’t even think to themselves, who’s going to afford

right? You could just tell everyone really got, everyone got fear of missing out back then and it got a little ugly.

Dylan Silver (06:58)

Now, when we talk specifically about the market out there, you mentioned there wasn’t as much speculation, which can feel like, hey, am I in the right market? But on the flip side, you’re also seeing like, know, fires in other markets and you’re not experiencing as much of that. Was there any element, you know, now having seen that of a greater appreciation for what is happening that is

more stable in Cincinnati to where the folks who are investors in Cincinnati and stayed in Cincinnati now are even more focused on acquisitions in Cincinnati versus in looking at some other markets.

Robbie Hendricks (07:39)

Yeah, 100%. The stability here. Well, yeah, we reflect on it just grateful, right? Because who’s to say? I mean, who’s to say if we were in Dallas, like I went to high school in Dallas, who’s to say I wouldn’t have gone out there and taken on short term debt and, you know, tried to play that game? You know, my our office is a half mile from my high school. So like, I’m where I live. I know the market. I know the rents. Like, so we’re very lucky to be in sort of a stable market. Just there’s low drama.

like very stable employers, like we don’t have a lot of new population moving in, but we don’t have a lot of new supply. So while we have like net positive migration, it’s not like Phoenix, you know, but then we’re also we’re only building 1500 units a year, right? Or Phoenix built what 30,000. So those markets are going to have disruption. So we have Yeah, we have a renewed gratitude for our for our market for sure just boring, sort of stable. Maybe that’s just our sort of Midwest roots, you know.

Dylan Silver (08:11)

Yeah.

Yeah.

Well, when we talk about real estate in general, I’ve had a guest tell me the fast money is slow money. And, you know, that’s kind of symbolizing and embodying what you’re talking about with Cincinnati, with this stability aspect in that, you you might not see the kind of speculative growth that you might see in some other markets. You’re also not going to see, you know, the reverse of that, which is, you know, people.

Robbie Hendricks (08:42)

Yeah.

Dylan Silver (09:01)

getting into a point where these mortgages are doubling and then rents are going sideways. It can be a complex storm of what could go wrong. I do wanna pivot a bit here though, the Robbie and ask you about the single family space. And we were talking beforehand about even getting in to investing through house hacking. Right now I’ve had a number of people both on the mortgage side and then single family investors.

Tell me that the way for newer folks to get into real estate right now, if they’re, hey, what’s the one way that they would recommend is through a house hack. As someone who’s done it yourself, ⁓ tell me a little bit about that. And then also too, what’s the process like of getting qualified to buy a small multifamily ⁓ to then actually going ahead purchasing it and then finding a tenant for that other side?

Robbie Hendricks (09:36)

Yeah.

Sure. Well, we’ll start with I’m old, right? So I bought my first house hack in 2006. So it’s literally my 20 year anniversary.

And of course, in 2006, you know what that means? That means I overpaid, right? I overpaid for a townhome. was right before the market blew up. I bought, I actually just bought a townhome and I had this grand plan of moving my friends in. So I had this plan where I’m like, you know what? I’m going to buy this townhome. I’m going to finish the basement, build a bedroom in the basement with a full bath. And I’m going to have this four bedroom

townhome and I’m just gonna rent the other three rooms out to my friends. I was young, I was 23, right? So I was 23, like I didn’t have a girlfriend, I didn’t have a dog, I obviously didn’t have kids and all my friends were complaining about rent. Everyone’s always complained about rent being expensive, right? So it’s not like it’s new these days. So I was like, well, wait a minute, if I just rent the rooms out for like 300 bucks a month, something like that, it’s gonna cost way less than them renting an apartment.

So I house hacked that way. I didn’t even like buy a four unit or a duplex. was like, yeah, I was literally just like, I’m gonna buy a house. I’m gonna rent by the room. I’m gonna take care of all the finances. you know, those three friends paying like 300 bucks a month plus utilities that paid my mortgage, right? So that’s how I started. That’s really how I started. And then I was like, this is such a good idea. I bought another house, finished another bedroom in that and moved friends in that house. So that was my house hack. My friends were happy because they felt like they were living in a dorm.

So this only works maybe in your early 20s, right? Yeah, because obviously a better way to do it, like I have a lot of friends that bought a three unit or a four unit, like sub commercial, and they would just live in one unit, obviously run out the other two or other three. ⁓

Dylan Silver (12:08)

One of the interesting

things about those ⁓ small multi-family, one of four units is

If you go to the right lender, they can underwrite that as ⁓ income. those units can be included in your income to qualify for the, and I’m a realtor in Texas, I wasn’t aware of this. I thought it would be like, hey, they might view it favorably because it has the potential to bring in rents, but I didn’t realize that going to the right lender based on the appraisal, a certain percentage of the projected rents can literally be used

Robbie Hendricks (12:26)

Yeah.

Yeah.

Dylan Silver (12:45)

as your income. So not only are you then potentially offsetting, you know, a large portion of the mortgage and building equity with time, but then you also have the ability to get into the on-ramp of real estate investing.

Robbie Hendricks (12:47)

Yeah.

you

Right. Yeah, that’s a great point. Honestly, I didn’t even know that you could do that until I was done trying to house hack. And then I was like, what the heck? That would have been a much better solution. put down, I also, know other people, they’re putting down 3 % or 5%. I put down 20 % like an idiot. I drain my savings. You kind of don’t know what you don’t know. Even with my friends, I didn’t even have a lease. So didn’t even think that way. I was like, I’ll just move in, whatever.

Dylan Silver (13:09)

Okay.

Robbie Hendricks (13:30)

So you just kind of learn that way. wasn’t until later when I got into multifamily that I realized you could use that even in sub-commercial like a four unit, you could use that income to qualify or you get a better deal.

Dylan Silver (13:42)

Now, when we

talk specifically about acquisitions, you know, at the deals that you’re doing at scale, walk me through what these properties look like that you’re acquiring. Is there an ideal like buy box that you’re looking for in these properties?

Robbie Hendricks (13:58)

Yeah, well, know, we’re value add. So I don’t know how much you guys talk about that on here, but we’re value add guys. Obviously, what that means is we’re looking for places that are distressed. Maybe they’ve never been updated. they’re just hopefully they’re just dated. But oftentimes, it’s they’re they’re beat up pretty good because the ownership doesn’t either doesn’t know what they’re doing. They don’t want to reinvest into the property to renovate it. I mean, if we had our ideal property, it would be a B class like late 1980s 1990s construction.

You know, back then they built really nice size two bed units. I would love it if it was never updated. So it looked really just old and gross and the rents are low because it’s old and gross. Maybe they never built like amenities like so there’s maybe no pool so we can build a pool, build a clubhouse and really just, you know, build a modern property from ⁓ some older bones. ⁓ I wish we could always buy those, but that’s not the case, right? Because we’re a little bit ⁓ agnostic.

like we just want to find good opportunities where we can add value. Like recently, we bought a 353 unit portfolio and it’s

It’s like 1960s, really beat up. Like some guy bought this C class property from out of town. just sight unseen, I swear. This guy bought 353 units in a very tough sub market in Cincinnati where like you should never buy real estate in a difficult sub market if you don’t understand the sub market. So he like

In this example, this guy paid 90,000 a unit for this property. We bought it for 50,000 a unit like two years later, you know, and we paid a fair price too. That’s just how much he overpaid. So anyway, we’re looking for value add stuff like that. And look, we will buy stuff as small as 30 units. You know, of course, I think our biggest property is 240.

Dylan Silver (16:26)

Now, when we talk specifically about the ⁓ funding for these deals, ⁓ are you raising 100 % of the funds? Are you doing this in conjunction with commercial loans? What’s the funding look like for this?

Robbie Hendricks (16:41)

Yeah.

Yeah. Yeah. So we’re always, we’re always raising LP equity, right? So we, we partner with private investors. We have, we have some high net worth folks that fund our deals for us, but very often we go in at like 65 % LTV, right? So we’re bringing 35 % of the equity for the, for the loan. also raised the equity for the, capex, the renovations, the reserve budget, things like that. So like the deal we just bought was 353 units. It was in,

I think like a $17 million purchase, we raised $10 million. And in this case, the bank’s going to fund some of the rehab too. But yeah, we always use commercial debt. Once the properties are stabilized, then we typically, or of late, we’ve been refinancing with agency debt. So Fannie Mae, Freddie, things like that.

Dylan Silver (17:26)

So I had no idea that that was available. they will, you can refinance a commercial loan into Fannie and Freddie. Interesting. So.

Robbie Hendricks (17:35)

So

almost all of our stabilized properties have FANNY death.

Dylan Silver (17:39)

⁓ I think I just had ⁓ the wrong information given to me. was told that commercial debt goes to Wall Street, Fannie and Freddie buy single family.

Robbie Hendricks (17:51)

No, no, no, we refinanced three properties last year with Fannie Mae.

Dylan Silver (17:52)

That’s nice.

Now, specifically when folks are looking at getting into multifamily investing, they of course might not be able to buy hundreds of doors, but let’s say they’re buying less than 20 doors. I’ve heard a lot of people right now talk about seller financing. I’ve had many people come to me as a realtor saying, hey, can you make seller financing offers on multifamily properties? What’s your perspective on seller financing?

Robbie Hendricks (18:10)

Yeah.

Dylan Silver (18:25)

Is this something that folks you think can do to purchase property?

Robbie Hendricks (18:30)

Oh, it would be great. I mean, if you can, it’s all about whether you can find a seller to do it, right? If you can negotiate better financing terms and have a seller hold the note, you know, that’s awesome. But to your point, you have to go through the numbers to do it. But those are the properties to do it. Those 10 unit, 20 unit, 30 unit, the mom and pop owners, like they’ll entertain that stuff if it’s a way for them maybe to avoid a tax consequence. Like a lot of them have been holding these properties forever.

Dylan Silver (18:56)

Yeah.

Robbie Hendricks (19:00)

And they are so far in the money, they don’t want to eat the tax consequence. So maybe the seller financing route is a great idea for those smaller properties. Obviously, as you go bigger, you know, you get institutional size 100 plus, those sellers aren’t they’re not interested, right? They want maximum dollar, they want to sell it, they typically want out. ⁓ But I think it’s a great avenue for someone on the come up if you can go find an eight unit or a 12 unit, get the seller to finance it.

gives you some real flexibility and ideally, maybe you could not raise capital. I’m I’m a pretty, despite the fact that we syndicate and we’ve raised like $130 million, we have a great track record, we love our investors. Boy, I’m often jealous of the people that did it without investors, know, and kept it in house and started small, you know, learned the ropes, pulled cash out, bought a couple more. I think that’s a great

a great way of doing it and then you don’t have the pressure and the risk of managing LP capital.

Dylan Silver (19:58)

We are coming up on time here, Robbie, any new projects that you’re working on and also what’s the best way for folks to learn more about you and or your team.

Robbie Hendricks (20:07)

Sure, mean, new projects. We’re actually about to do our first new construction. So that’s a whole new step for us is getting into the development game. We’ve been working on a deal for three and a half years. So we’re about to build 142 Class A units, which is pretty cool and really good sub market. I’m not going to sell you on it, but we wouldn’t do it if it wasn’t great. So we’re going to be doing that here soon. It’s been a real learning curve. As for people, if they want to get in touch with me, I actually am on Twitter or X.

more than anything talking shop. It’s just Robbie Hendricks on there. So you can come say hi. Obviously our website’s just vrec.com, vrec.com. Come say hi.

Dylan Silver (20:48)

Robbie, thanks for taking the time today.

Robbie Hendricks (20:50)

I appreciate you. Thanks for having me.