Investing in Multifamily: How Stephen Predmore Found Success in Tough Markets

Stephen Predmore (00:00)

I would say get educated, work with people that are doing it ⁓ because it’s a team sport at this level. You gotta have people that you know and trust. That’s critical. ⁓ If you’re trying to take down a deal, a bigger deal yourself, A, you’re not gonna be taken seriously. This is a much more of a relationship game

Dylan Silver (01:53)

Hey folks, welcome back to the show. Today’s guest, Stephen Predmore is the founder of Talbot Investments and is active across single family as well as multifamily, including apartments and hotels. He also has an engineering background. Stephen, welcome to the show.

Stephen Predmore (02:10)

Great, thanks for having me, Dylan. I’m excited to be here and tell my story.

Dylan Silver (02:14)

I always like to start off at the top of the show and ask my guests, you know, really how real estate came to be part of their lives. How’d you get into real estate?

Stephen Predmore (02:26)

It happened with a job loss, kind of a very unexpected job loss, late teens, 2018. And I remember it very vividly. It was the Sunday after a Super Bowl. We all walked in and my major manufacturing employer let the entire basically team go. We never saw it coming. They walked us out. I remember going back to the parking lot, just kind of being stunned.

calling my boss who was remote and he was unaware. So was part of a large, you know, corporate downsizing event. And I just really wasn’t prepared. And that was kind of my impetus. You know, I’d always, you know, been watching HDTV shows and kind of was always interested in real estate. I’m a mechanical engineer, also done some software engineering. And I always had it the back of my mind that I could flip a house or I could do that. So that was kind of the impetus to get going into it.

Dylan Silver (03:19)

you

Stephen Predmore (03:26)

⁓ I’m in Maryland and it’s Baltimore, Maryland specifically. It’s a very cheaper state cashflow. You know, it’s a great cashflow market. And that’s how I got started. I ended up taking some of my old retirement funds ⁓ and using that as kind of my seed money to get started. Again, cheap houses in Baltimore. bought a couple houses for $65,000 and people won’t believe that, but a couple of rural homes for $65,000.

Dylan Silver (03:26)

Yeah.

Stephen Predmore (03:56)

You know, I put $40,000 into them. I was doing pretty well. I was making $1,400 a month. That’s, that’s pretty good cashflow well over the 1 % roll, but just, you know, it was going well until it didn’t. We had some COVID hit. We had some rent moratoriums and things and people stopped paying and being in Maryland and definitely in Baltimore, it’s very blue and very tenant friendly. And I couldn’t get them out for.

Dylan Silver (04:02)

Yeah.

Stephen Predmore (04:25)

like over six months. So that obviously kills cash flow and I wouldn’t do it again.

Dylan Silver (04:29)

Yeah.

Now, when we talk about investing in some of these areas, you talk about, you know, Baltimore, Maryland, I’m ⁓ born and raised in northern New Jersey. Does this I mean, to me, from the outside looking in, it impacts the cost of everything. Because if you know that, hey, there could be a tenant, landlord tenant battle that could go on for months and months or a year, this is just going to have the impact of increasing rents. Is that

your experience as well or is that not necessarily true?

Stephen Predmore (05:50)

the rising cost of materials and whatnot? Is that what you’re getting at?

Dylan Silver (05:54)

rents rents

because if you’re if you’re a landlord right and you’re coming in investing in an area like Baltimore like you know in northern New Jersey around from you’re knowing that hey worst case scenario there’s going to be a eviction battle that could last quite a long time so kind of to hedge against that the rents are going to be higher is that generally true

Stephen Predmore (06:17)

I don’t know. A three, two bedroom in Baltimore, it was renting for 1,400. It’s probably going for 1,600 at this point. It’s not great, I wouldn’t say. But cost of entry is cheaper. Baltimore and like Philly and Pittsburgh, some of these kind of older cities, high cash flow, in theory, that’s just…

Dylan Silver (06:28)

Yeah.

Stephen Predmore (06:46)

I couldn’t push rents, so I did have a little bit of a, I couldn’t push rents as much as I wanted. So after I had that eviction issue, I did go the section eight route. used that, I took that same house and just went the section eight route. ⁓ And that was good for a little bit. It got a little bit bump over like market rates. It wasn’t huge, but also with section eight comes with a lot of strings attached and inspections every year. And so,

It worked out okay. It wasn’t a great it wasn’t a home run just because we’re on the East Coast. I mean the rents weren’t killer

Dylan Silver (07:23)

Yeah, yeah, I get it. And I hear this from many investors as well, talking about these these types of issues and specifically the eviction deal, and then talking about investing out of state as well. And I know that you’re active in areas like the Carolinas, Texas and Arizona, investing out of state, was there a learning curve there? How did you you acquire those properties and then and then manage them?

Stephen Predmore (07:52)

So I joined masterminds. That’s the number one thing that I did. After I had the two in Baltimore and I lost a lot of money on the eviction and getting them out and lost rent, I said, you know, I’m an engineer. There’s gotta be a better way. So that’s when I started looking at multifamily, small multifamily mastermind groups. And I joined one, it was actually out of Ohio. And… ⁓

Just a great learning curve, being around other people that were kind of at a similar place than me. They all had a handful of single family homes and were just, you know, just kind of sick of it, kind of of doing that active management, that really hands-on active management, would go in there every day after work, that kind of stuff. So I joined Masterminds. ⁓ And, you know, I just kind of hooked up with other people that were like me and we found some deals. ⁓ We did a deal in the Carolinas. And again, I wasn’t there. I’m living in Maryland. So.

I was doing co-GP work. you we met people in these groups that were boots on the ground in these areas. And, you know, they were our property manager. They were our GC. So they kind of handled that as well. ⁓ I also joined, you know, I was kind of hungry. We did a 30 unit deal in Anchorage, Alaska. ⁓ So, you know, that was where I was at the point. I was very excited. ⁓

Dylan Silver (09:08)

wow.

Stephen Predmore (09:14)

The deal was okay, didn’t turn out great, but a lot of learning, a of learning. We also did another JV deal in West Virginia, another red state ⁓ that turned out to be a home run. you know, kind of some wins and some losses.

Dylan Silver (09:30)

I haven’t spoken to anyone who’s done a deal in West Virginia, but I’m very curious about that market because it doesn’t get as much glitz and glamour as some other markets, which leads me to think that there is good deals out there because if the number of people looking at the market may be smaller, that also means that there’s more opportunity, especially if you can find deals maybe close to a metro. What is the market like out there in West Virginia?

Were you looking just at multifamily deals or were you also looking at single family as well?

Stephen Predmore (10:35)

Nope. Wasn’t looking at single family. And just to be clear, it’s Charlestown, West Virginia, which is pretty much a suburb of Washington, DC of greater DC. It’s about an hour away. So in the area is booming. but other parts of West Virginia, more rural, obviously, ⁓ no, wasn’t looking for single family again. I was kind of already, I’ve done the math and I’m going multi-family at this point. ⁓ you know, it was a JV deal that, ⁓

Dylan Silver (10:44)

Okay.

Stephen Predmore (11:05)

one of my mastermind members found and we kind of, we formed a JV together. It’s a smaller deal. It’s only, you think 1.8 million a cost. So, you know, a JV deal where we came in, we each put in money. We also got bank debt and we took that down. We had a great property manager there already. So, ⁓ I mean, I do interact with other people that are investing in single families in West Virginia and they are doing okay. ⁓ Again,

Not the huge economic drivers that obviously Washington DC is and with remote work, ⁓ we’ve had great, almost 100 % occupancy the whole time. Charlestown is a good area. got a casino, they got a horse track. So there’s a lot of drivers there that are bringing people from DC.

Dylan Silver (11:50)

Now, when we talk about going from single family into to multi family and you mentioned, you know, the scale and also not having to deal with, you know, an eviction on one property and then that could effectively tie up your entire cash flow on that deal. ⁓ What would be your feedback for folks who are making the same transition? Hey, they may have, you know, one or two rentals, but they’re interested in getting in a multi.

Stephen Predmore (12:16)

I would say get educated, work with people that are doing it ⁓ because it’s a team sport at this level. You gotta have people that you know and trust. That’s critical. ⁓ If you’re trying to take down a deal, a bigger deal yourself, A, you’re not gonna be taken seriously. This is a much more of a relationship game

with the people that you’re buying it from are more professional business owners. The banks that you’re trying to get debt from are more professional.

and you’re not even gonna qualify for the loan. You gotta have the liquidity ⁓ in your bank account to be able to get that loan. So it’s more of a team sport and it’s ⁓ seller financing is a lot more common. So you gotta come at it with a team mentality. ⁓ so it’s finding those people. And I highly recommend masterminds that people that are like you are kind of getting together and…

That’s where you find those people, at least I did.

Dylan Silver (13:18)

Now, I also know that you’ve been involved in a hotel deal, if I’m not mistaken. I have spoken with a couple folks who’ve done a hotel deal before. ⁓ Walk me through that.

Stephen Predmore (13:31)

So that was my initial foray into the mastermind. The leader actually did a syndication with some hotels in his syndication. So I invested in that with him. ⁓ Like you said, yeah, it is a scarier animal, I think. ⁓ I have not done, been part of the active side of hotels and management. ⁓ I haven’t got into that. I’ve kind of found my niche in value add multifamily.

⁓ So I’m kind of sticking with that. But yes, I did invest in the deal and I have, know, part of the mastermind group was education and and how do you underwrite hotels and in that thing. And it’s very interesting. I just haven’t I haven’t done one actively.

Dylan Silver (14:15)

Now, when you’re looking at ⁓ apartments, are you looking, you mentioned value add, I’m imagining therefore you’re looking for either some level of physical distress or maybe some type of managerial distress, but something where, you know, both it underwrites and then also you can do some type of ⁓ value add in there as well. I would also follow that up with, is there like a specific number of units that you’re looking for when you’re looking at deals?

Stephen Predmore (14:42)

So I’ve grown, I’ve matured. Like I said, we did a 30 unit deal, we did a 23 unit deal, we did a 54 unit deal in North Carolina. ⁓ What I’ve found is I want to start working with larger operators ⁓ and I’m kind of transitioning. Again, it’s evolution, we’re all evolving.

I’m finding that…

You know, like I said, it’s a team sport and these bigger deals, they need people that can help raise money for these deals. You know, these, some of the deals we’re talking about now are 200, 250 unit multifamily. So, you know, these are larger multimillion dollar deals that need a multimillion dollar amount of equity brought to the table with, investors. As far as market and our buy box, it’s, it’s 1980s, 1990s.

class B areas, ⁓ working class. ⁓ So, you know, if you get a vintage that, that they just haven’t like done any renovations at all since, you know, that’s an easy value. One of the things that we typically do is we add washers and dryers. ⁓ Some of the things we do to add value, you know, we put covered parking. So some of these areas are really warmer areas. So you add covered parking and you can get a premium for that.

those are some of the markets and things that we look for. ⁓ also now one of the big distresses is debt. So people that are coming through on debt and they, it may be running operationally. Okay. But their debt is due, you know, they may have financed in 2020 and now, you know, typically commercial financing is on five year notes and

Dylan Silver (17:01)

Great.

Stephen Predmore (17:16)

people may be in trouble. And now that interest rates have doubled and tripled in some cases, ⁓ the bank, you you’re no longer able to qualify for the loan because your DSCR, what you’re bringing in isn’t enough. So the bank wants you to come to the table with more money and people are in distress and they have to exit. So those are some of the other distressful things that we look for.

Dylan Silver (17:41)

I’m glad you mentioned that because I’ve seen that as well. Again, from the outside looking in, I’ve been seeing more and more folks in the multifamily space who for one reason or another, maybe a combination of factors. You you mentioned the rates have doubled, but also we were talking before the podcast, you know, moratorium on rents during COVID and then general rent stabilization, ⁓ stabilization over time. It lends itself to kind of ⁓

a storm of events for multifamily investors. Does this also mean that there’s more multifamily operators and investors who are maybe open to fielding seller finance offers at this point?

Stephen Predmore (18:24)

Yeah, 100%. 100%. We see that a lot, you know, and that’s what I like about multifamily as well. There’s a lot more negotiation. There’s a lot more creative things. There’s also more debt stacking. ⁓ You can get your primary debt with the bank and then you can get other type of mezzanine debt. ⁓ You can get seller financing. can bring in some equity partners. You can bring in some just debt partners. So there’s different ways to raise money for these deals.

banks are expecting that. Like if you tried to do that with just buying a single family home and saying, well, I’m getting this money from this person and this money from this person, you’re going to get, you’re going to get a lot of red flags everywhere. Like they want to see that kind of coming from you. ⁓ So, so that’s what I like about it. It’s more professional people. It’s more, it’s more professional environment. So yeah.

Dylan Silver (19:20)

Yeah, that can lend itself towards being able to do deals like that more creatively. I know in the single family space, much of it is explaining to all sides, hey, this is what’s going to happen. And if it’s a creative deal, you’re having to break down this process to someone who may be completely unfamiliar with this. But if everyone is investors already, they have some level of baseline understanding of what the possible options are.

We are coming up on time here though, Stephen. Where can folks go? Where can our audience go to learn more about Talbot Investments or how can folks reach out to you or your team?

Stephen Predmore (19:57)

Yeah, great. Thanks for asking. Yeah. My website is TalbotInvestments.com. ⁓ You know, we work with a lot of engineers, software engineers, mechanical engineers that are looking to kind of pivot. They know real estate’s sexy. Real estate’s not a tough sell to anyone, ⁓ but they want to get involved, but they’re not quite sure how to do it. And so we help investors with, you know, cash flowing passive investments.

mailbox money, as some people say, ⁓ to kind of get started. We’re also open to doing other smaller JV deals. We haven’t done one in a while. ⁓ We’ve kind of really been doing the larger multi-family this past year. We’ve done four deals this past year in the Carolinas and I really love that market. But, you know, it’s not to say that we’re not open to doing smaller deals in West Virginia, other red states, honestly. ⁓

So that’s how they can reach me. I’m very active on LinkedIn, Stephen Predmore.

Dylan Silver (20:57)

Stephen, thank you so much for your time today and thank you for coming on the show.

Stephen Predmore (21:00)

Thanks Dylan, have a good time.