How to Find Distressed Multifamily Deals Without Making a Costly Mistake

Tim Gramling (00:00)
I think a lot of it is just basically concentrating on staying disciplined and not not getting out ahead of ourselves too much. you can sometimes especially right now, you can I’ve seen deal flow here the last couple of weeks has just picked up tremendously and you’re starting to hear from other operators the kind of deals that they’re getting. So you that that distressed those distressed property deals that people have been talking about for a couple of years are starting to kind of flow in and people they’re starting to realize and you people are starting to get some some good deals at some really discounted prices. But the idea is is not to get too caught up in that and make some bad decisions, because of that, and thinking you’re gonna miss the boat if you don’t, jump in on that while you can.

Joseph Crooms (02:13)
Hey everyone. Thank you for joining Investor Fuel Real Estate Pros Podcast. And today I have a very special host. I am your host, Joseph Crooms Today I’m joined by someone I’ve been looking forward to chatting with. His name is ⁓ Tim Gramling, now I maybe gotten that wrong. So Tim, tell me what’s your last name, please.

Tim Gramling (02:36)
That’s Gramling. You got it right.

Joseph Crooms (02:37)
All right. So Tim, thank you for being here. he’s been making some and him and his partners been making some serious moves and investing. But he also has they developed a unique investment project that their investors can get involved in. So we’re gonna talk about that a little more also. So Tim, say hello to everybody.

Tim Gramling (02:57)
Hey, hey, I appreciate you having me on here, Joseph, and really looking forward to the discussion and I like what you guys are doing at Investor Fuel. So yeah, looking forward to it.

Joseph Crooms (03:05)
Thank you so much once again for being here, Tim. I think our listeners are really going to take something away from how you’re approaching business. So ⁓ and and especially that you were in the investment, but then you read the market and you made an adjustment. So let’s dive into it. So first of all, for people who may not be familiar in your world, give us a short version. What’s your main focus these days? And you can include what we spoke about on how you you moved into this other market.

And what markets are

Tim Gramling (03:35)
So yeah, okay. So yeah, we we initially were a multifamily investment firm. It’s that was our primary focus when we started up. And ⁓ we got into some deals. and our most recent one we actually got into just at the first part of the year and started working our way through that like you normally do in in a in a real estate investment. But then toward the beginning of the year the the war kind of broke out and ⁓

kind of changed the market a little bit. It seemed things kinda stalled out a little bit. seems like there was some uncertainty that kind of started and we could we noticed that in the market. The interest rates, didn’t continue to come down like they were initially, beginning of the year before the war. And and so we kind of recognized that early on and and kind of felt we started to listen to our investors. We heard what they were saying. And going into a multifamily deal, we’d already had most of our investors and committed by that time. But a lot of them were saying, because we were talking about wanting to do the next deal.

And so ⁓ they were talking about things like, they were not sure if they wanted to put their money into things right now that had those long-term, five, seven, maybe ten year type holds on them, just because of the uncertainty and wanted to get it wanted to wait a little while to get a better feel of what was going to happen with that. If this was gonna be a short-term, conflict or something that was gonna last much longer. And so hearing that, we kind of decided that we since we manage a fund, we had the option of

doing another type of offering, an an investment offering. And we we decided to go the route of a debt offering where ⁓ we allow investors to come in. They invest either anywhere minimum of fifty thousand up to, anything over two fifty, then they can get fixed returns of six percent up up to twelve percent, depending on how much they invest. And we basically loan that money out to a known partner.

who ba who is in the r and it’s a secured note, so it’s backed by real estate. And we take the payments that we are loaning out to the to that person that they pay us back and we pay our investors those returns. And so it’s about as secure of a investment that you can get. I mean nothing’s guaranteed a hundred percent, but we know the person that we’re loaning to personally and and it’s backed by real estate assets. And

⁓ we thought that was a good safe bet. And we and we offered a short-term hold of only a year. So it’s kind of like having a 12 month CD, but paying anywhere from six to twelve months. Because right now, I mean, CDs have been paying best I’ve seen is about 3.75%, on a CD. And we’re paying minimum six percent, all the way up to twelve percent. So again, listening to our our investors and reading the market, we thought it was a good thing to do to give them another opportunity to

leave if they wanted to leave their money sitting, it didn’t have to be in a savings account where it was drawing nothing, or a CD where it was drawing, a little bit. And at the same time, ⁓ would give us some operating money and to help go out. And we were going to continue to look for deals. And then we also offered the opportunity that anybody invested in that debt offering, ⁓ know, if if we did find a good a good deal that met the market and had good conditions, with the circumstances we’re under, we would allow them to roll their investment into that equity position,

They didn’t have they wouldn’t have to do anything. So it would be an easy transition for that. and it was a choice too. They wouldn’t have to, they could keep it in the debt offering if they wanted to. So so that’s what we did. And that’s what we’re we’re still raising for that. That’s an that’s an ongoing opportunity. So we’re continuing to raise for it, even though we’re issuing notes about on a monthly basis.

Joseph Crooms (07:35)
Tim, what markets are you operating in?

Tim Gramling (07:38)
We’re in the Midwest, so primarily Kansas City, Missouri, and and on the Kansas side of Kansas City and Saint Louis. The the property that we got earlier this year we’re getting ready to close on in the next couple of weeks is in Saint Louis.

Joseph Crooms (07:50)
So these properties and and the market that you operate in and this new program, how has this affected your revenue? Has has it been a good capital for you or or it’s been maintaining you during this crisis?

Tim Gramling (08:03)
it’s I would say it’s been maintaining us for now, but ⁓ we actually have had a couple of larger investors hear about our debt offering and ⁓ it sounds like they’re gonna they haven’t done it yet, so we’re not really counting on that yet until we we actually hit the money hits the bank. But they’re talking about some large investments on a monthly basis that that would be a game changer for us. That would probably give us some increased revenue. But for now it’s pretty much just kind of maintaining us through, this kind of

lull in the market.

Joseph Crooms (08:32)
Thank you. So ⁓ and and and what type of properties are they investing in? Or what what what has been your main type of ⁓ property up until this time of of the climate change? What has been your your property? Mostly residential, mostly commercial? Can you ex explain that to us?

Tim Gramling (08:48)
It’s multifamily apartment building. So we look for usually properties anywhere from about fifty or sixty units up to about a hundred and fifty units in size. we’ll do class A properties, class B value ad. But the the class B value ad and class C value ads are actually more of our in our wheelhouse because we also are vertically integrated. So we have our own in in-house property management company and construction company. And so we’re able to take advantage of those efficiencies on our expense side.

and really drive a lot of you know, NOI improvement in those value add properties. And we actually we actually our track record is we’ve we’ve done right now we have eleven properties under management, about 150 million under management. We’ve actually done eight full cycle deals. ⁓ and on the average of those eight deals that we’ve full cycled, we’ve we’ve exited at at about an average of two point four years. ⁓ and so we

We have a pretty aggressive business plan and we, we don’t necessarily want to hold on to these forever, but we do we do make sure it match matches the market and if the market, allows us to do that and the performance of the property allows us to do that. we we do what’s best for our investors. And so our we don’t have long term holds typically on our properties. But if we got a newer property, I could see, those would probably be a little more longer term than that,

Joseph Crooms (10:02)
Those ⁓ that are ⁓ short term and those that that you had prior, ⁓ I’m trying to word this c this question the correct way. So though these new short term investments and up until to the time with this market chain, what has been your your major ⁓ investments that you have been investing in?

Tim Gramling (10:24)
It’s been the multifamily ⁓ commercial properties.

Joseph Crooms (10:27)
So you mean yeah, yeah. So you s you mentioned you have A’s and B categories. Can you explain that to us?

Tim Gramling (10:33)
it was mostly probably it was mostly s smaller, ⁓ in the in the thirty to sixty, maybe, maybe seventy unit sized properties, class Cs and class Bs were were primarily what those were. And, where our philosophy was to go in and since we had the construction and the property management, our goal is to raise, if we get it into a class C, we’re our goal is to bring that to a class B. If we get into class B is to bring it to a class A. So that’s what we

been doing in the past.

Joseph Crooms (11:36)
Thank you for c helping c clarify that question. That’s that’s exactly what I was trying to bring forth. so ⁓ so you started ⁓ construction group. Can you explain w exactly or or property management group?

Tim Gramling (11:50)
Yeah, so how that started, one of our partners actually started his own construction company many years ago, probably over 20 years ago, and that’s what he was doing for a while. He decided to get into multifamily on his own and he started ⁓ buying properties and and doing that, and then he realized he was using third party property managers and he realized the inefficiency of that because when you’re using some a third party, they’re also have other clients as well. And so you’re not always the number one ⁓

go thing that they’re working on. Sometimes they’ve got to devote their attention to other things and plus they’ve got to make a profit and that kind of thing. So there was some added on overhead and all those kind of things. And he quickly saw that the best way to go was just to to learn how to do the property management the right way himself and bring that in-house. And he partnered with another person and they started a the property management cup part of the company. And then and then he came on. We actually then partnered a few years after he had all he had already established all that.

He came on and board with us and his and he wanted to scale his his ⁓ operations more in his in his business. And so he partnered with us, us for to kind of make sure to help for us to help him scale and we all came became, part of that all overall property or c company. So that that’s kinda how it started. It really kinda was him coming in, but us now getting to benefit from what he built.

Joseph Crooms (13:06)
So ⁓ your your ⁓ A properties versus your property management ⁓ the investment, ⁓ what’s the revenue ⁓ that you’re bringing a month from each one and and probably ⁓ on from each one on a monthly basis?

Tim Gramling (13:21)
⁓

I don’t have that number off the top of my head. ⁓ so sorry.

Joseph Crooms (13:27)
No, so in the comparison, how much value how many ⁓ volume of A properties and then the those the B’s and that fall into the B and C? What’s their volume on a monthly basis about?

Tim Gramling (13:40)
When you say volume, you’re talking about revenue?

Joseph Crooms (13:42)
⁓ not necessarily revenue but just ’cause if you don’t know the number but just how many properties do you have in the A’s?

Tim Gramling (13:48)
Okay. Yeah. So we don’t r A properties are really something that we haven’t focused on until more recent. We’ve actually we actually don’t have any A’s right now. but we have started looking at more at A properties because but since we do have, so many other we we have eleven hundred doors under management, assets under management, we’re looking to kind of scale up a little bit. And so we’re recognizing that, ⁓

we’re kind of expanding our scope of get a little bit output that way. But instead of just focusing on just the value add class B and C, now we’re actually searching for, maybe some little bit better, little newer class B value ads and maybe some class A’s. We haven’t actually got any yet, but but we are kind of looking at those and we’re not just booting those to the side like we used to.

Joseph Crooms (14:32)
Gotcha. So let me ask this question. ⁓ I know it’s not easy, especially in this climate, but what’s been the key to keeping your machine running smoothly?

Tim Gramling (14:40)
I think it’s been ⁓ it’s it really comes down to the people, having the right people and the right partners and b making smart decisions and being not getting out over our skis on anything. We are all very ⁓ conservative on the decisions and very deliberate about what we do. we’re all ⁓ a little little older and some people might look at that as a detriment, but we look at that as that’s kind of another one of our strengths in that, you know, we we’re

We’ve all been there around those those ⁓ the round the corner a few times and we’ve seen, rushing into decisions and that kind of thing, what that can lead to. So we’re all very deliberate about how we go about doing the business and making good decisions and leaning on each other. We all have a very diverse background in terms of our business. we have a marketing expert who owns their own marketing company, has run restaurants. We have someone who’s involved in corporate ⁓ America. We have a lady who was in the healthcare industry.

and also into some lending as well. And then me, I’m a I’m a civil professional civil engineer for forty years. I’ve been an engineer. And then and then our other partner who’s become out of the construction world. So we feel like we’re kind of well rounded and we lean on each other quite a bit listening to, what e ⁓ each other’s perspectives and and considering all those things before we make decisions. So I think it comes down and then, you know, having a an excellent we have an excellent property manager. ⁓

And that is the key to the success of our properties because it’s one thing to, find good deals and do good underwriting and, get the deal under under contract at a good price and those kind of things. But once you do that, where you really are successful or not is in the management of that property when you’re actually, doing that. And and we’ve got probably one of the best I’ve ever seen. So ⁓

Joseph Crooms (16:20)
Thank you for sharing that. So w since you got this property business

What’s been the drastic change that you’ve noticed since you’ve done this with them? With you having your own property management. What’s been the drastic change?

Tim Gramling (16:34)
Well for me personally, it’s I’m I’m kind of the lead acquisition or the yeah, the lead acquisition person for Next Legacy. So I do like most all the underwriting and that type of thing. So for me, the underwriting has gotten s much more much easier because ⁓ we know we track everything that we do and we know exactly what it cost us to run properties. And so I can apply that, it basically cost us sixty five hundred dollars a unit, in expenses ⁓ to run a property. So now when I do an

when I run it my model, I just have to factor in that sixty five hundred a unit. I don’t have to go out and estimate and think, well, what’s this property going to do and make some guesses and assumptions. I’m working off of a known quantity there and it makes the underwriting so much easier. But also, I mean it just gives us so much more confidence too when we make offers on properties because we know that’s what we can do. We’re going in with a hundred percent surety that that’s what we can do. So that’s been a that’s been a huge game changer for us.

Joseph Crooms (17:29)
Now I know every operator I know had a moment where they they they things just got real. ⁓ maybe a deal that went sideways or a time they had to pivot fast. Do you mind sharing one of those to us? I n I s notice a smile on your face so

Tim Gramling (18:25)
well and probably smiling for a different reason than what you might think is we really haven’t had to do that. ⁓ and I and I think it goes back to, our the property management that we have, just has does such a good job. I mean, everything from leasing strategies to managing, the tenants and getting the rents collected and you know, look you know, looking ahead and anticipating things changes before

They need to come. You know, when you when you got a lot of experience and you’ve been you’ve seen a lot of things happen, you can begin to recognize those by looking there, because every s every large problem that’s happened usually started with some kind of small indication somewhere along the way. And usually they become some kind of big problem because you just ignored the small ones along the way. Having somebody in place that doesn’t ignore those things and takes care of those things keeps us from getting into those situations. So

I mean, I think that’s what it is for us. Maybe we’re just lucky, maybe I need to cross my fingers or something that we don’t, but but so far we haven’t really had to do that too much.

Joseph Crooms (19:27)
That sounds great. that’s the kind of stuff people don’t talk about enough. ⁓ your honesty on believe it or not, how you’ve avoided it, and so I think that’s just as important. And honesty, it’s what separates the folks who just dabble from the ones who stay in the game long term. Yeah. What do you focus on solving or scaling next?

Tim Gramling (19:44)
Actually this.

I think a lot of it is just basically concentrating on staying disciplined and not not getting ⁓ out ahead of ourselves too much. you can sometimes especially right now, you can I’ve seen deal flow here the last couple of weeks has just picked up tremendously and you’re starting to hear from other operators the kind of deals that they’re getting. So you that

that distressed those distressed property deals that people have been talking about for a couple of years are starting to kind of flow in and people they’re starting to realize and you people are starting to get some some good deals at some really discounted prices. But the idea is is not to get too caught up in that and make some bad decisions, because of that, and thinking you’re gonna miss the boat if you don’t, jump in on that while you can. It’s still staying disciplined and and doing the things like we’ve done before, even in the tough markets, I think is is probably the biggest thing.

Joseph Crooms (20:39)
So I hear you saying that you gotta stay s discipline and what how would you define that discipline that you have? What is that component of it?

Tim Gramling (20:48)
I think it’s it’s

It’s not getting as far as, looking at the properties, falling in love with them and thinking, you can stretch the price that you’re willing to pay because you just want that deal. So maybe falling in love with it and you can’t do without it, and ⁓ stretch that price a little more than what you would have in the past, and be willing to walk away. that’s that’s a har that’s probably the one of the hardest things to do if you get into a property that you just think is a that is is just a gem of a property.

⁓ we’ve had to walk away from a lot of those kind of deals before we ever made the offer. And ⁓ sometimes that’s been hard to do, but I think just not forgetting to do that, ⁓ I think is key for us.

Joseph Crooms (21:24)
So the next move can either compound or create chaos depending on how you play it, especially g now you’re going to going after that those A properties. Now I know a lot of people listening are either early in their journey to looking to level up, and I think they’ll benefit from hearing this. When it comes to building relationships, even with your four partners and growing your network, what’s made the biggest difference to you guys?

Tim Gramling (21:49)
I think ⁓ spending enough time getting to know each other and realizing that, before you make any kind of commitments to anybody, realizing you’re getting into a business that especially like an apartment building, there could you could potentially be into one of these for, seven to ten years. you’re gonna be in a business with that person for seven to ten years. It’s a like a it’s like ⁓ getting married basically, except it’s gonna be harder to get out of than a marriage.

And so I think realizing that and then approaching those relationships from that viewpoint, not just taking for granted. Cause I’ve seen a lot of newer people, they hear that we need to have we need you need to get partners, you can’t do this by yourself. And so they’re willing to just go out and find anybody they can. Anybody that’s willing to agree to be a partner, they’ll take them on and they’ll go do a deal. That’s not necessarily what I would recommend to do. I recommend spending time getting to know those people, ⁓ however long that takes. And that’s another thing, is being patient.

in doing that because, people were are so anxious in the beginning to get into that first deal. but patience really pays off in this in this game because if you jump into things too quick or get into the wrong partnership, things can go south and it can be a miserable existence and you can lose a lot of money and be in a lot of trouble real quickly and ⁓ then there goes your whole your whole dream of doing that as a as a career. So you gotta approach it like, from a long term standpoint that, ⁓ you’re gonna be in this for a long time and ⁓

the relationship that you’re getting into is is gonna be an important part of that for a long time. And so, consider it like you would, like I said, like you’re getting married. when you get married, you go on a bunch of dates and you get to know the people and various situations and all that kind of stuff. You try to do the same thing with, potential partners.

Joseph Crooms (23:23)
Thank you for sharing that. ⁓ I I think that really defines vetting and w what you may find out from being patients. I thank you so much for sharing that. So ⁓ this you can’t fake those relationships and and and and everything and you and you talked about long term. So all right, before we wrap up, if someone wanted to reach out, connect with you, maybe collaborate

or learn more about what you’re doing, what’s the best way to reach you guys?

Tim Gramling (23:51)
So we there’s there’s several ways actually. ⁓ we’re called Next Legacy Group. We have a website called Next Legacy. Actually it’s www.nextlegacy.net you can find out about our entire group, all of our partners and what we’ve got going on. You can find out about our free webinar that we run on Friday night. You can find about our debt offering that’s on there as well. ⁓ we also have our phone numbers and email addresses on that website.

if you want to know if you want to connect directly with me, my email address is And I also have a personal website that kind of because I also do some coaching on the side as well. And I hit I like to help people, get started and shorten their learning curve in the beginning. And so I offer some coaching services. My website is

And ⁓ you can go to that website and see you can book a call with me and we can talk about, ⁓ anything that you might need or and I’d be glad to vet help people vet either potential partners, because other partners, you’re not just looking at people you and GP deals with or whatever, you’re also looking at partners for lending and partners for brokerages and partners for insurance. And I can help vet those kind of things out, make some introductions and just help people any way that I can. That’s that’s the main goal for me.

Joseph Crooms (25:09)
Thank you, Tim. Tim, perfect. Well listen, I appreciate your time, your philosophy, and your your core values that you have opened up and expressed to today and ⁓ them they mean a lot to our listening audience. So we need more people in this space who are doing the right thing. Thanks again for being here. And for those of you tuning in, I know you got some value from this. Make sure you’re subscribed. We got more conversations coming from operators.

Just like Tim, who out there building real businesses. We’ll see you at the next episode of Real Estate Pros Investor Fuel Podcast. But ⁓ I want my man Tim to say see you later one more time and get in contact with him. Tim, say goodbye.

Tim Gramling (25:50)
So you look see everybody and reach out to me if you need anything. I I’m really enjoyed being here, Joseph.