Real Estate Investment Strategies: Scaling to 700+ Units

Justin (00:00)

Yeah, so I had kind of a look under the hood, if you will, before I got into it my own. And I kind of saw the good, the bad, and the ugly of scaling operations, leverage, ⁓ syndications, et cetera. So I kind of knew on the front end, I wanted to be pretty conservative and build it the right way, kind of one unit, one property at a time, if you will, and not get out over my skis.

 

Dylan Silver (01:55)

Hey folks, welcome back to the show. Today we’re joined by Justin Spillers, former real estate attorney, now real estate investor and developer based in Western Ohio. He transitioned into investing and has since built a portfolio of over 700 apartment units and today runs a vertically integrated operation with a team of around 50 focused on acquiring, developing and managing these multifamily assets. Justin, thanks for taking the time today.

 

Justin (02:23)

Dylan, great to be here, excited to connect.

 

Dylan Silver (02:25)

Now going from real estate attorney to owning over 700 units, what did you understand about deals early that maybe investors miss?

 

Justin (02:36)

Yeah, so I had kind of a look under the hood, if you will, before I got into it my own. And I kind of saw the good, the bad, and the ugly of scaling operations, leverage, ⁓ syndications, et cetera. So I kind of knew on the front end, I wanted to be pretty conservative and build it the right way, kind of one unit, one property at a time, if you will, and not get out over my skis.

 

Dylan Silver (02:59)

That can oftentimes be challenging for syndicators specifically because I think it was maybe easy money from 2016 to maybe 2014 till 2020. And then things changed. You had variable rate debt and you had longer time horizons and you had the cost of materials increase and then vacancies increase in certain areas. How were you able to navigate this changing market?

 

Justin (03:24)

Yeah, so it kind of goes back to what I alluded to. We kind of did it slow and methodically the right way. We did everything in house from day one. We didn’t rely upon anybody else, meaning we literally did leasing, property management, et cetera, just with the skeleton crew in the early days. One leasing manager, one maintenance guy, et cetera. And we keep scaling that team up over time. And we don’t have any dependencies now, which is really nice. So we can kind of ebb and flow with the market as we grow. So we never really got hit by ⁓

 

any of the macroeconomic changes over the last 10 years if we scaled because we’ve been so conservative and we do do it in house. mean, we can pause capex spend, can pause acquisitions if we will. We didn’t have any investors, it was all of our own capital, we were self funded. So we had really good cash flowing assets that we were very low in the expense load, we try to target a 40 % expense load or less, we’ve always been able to maintain that. it’s been pretty convenient to grow and the early five years we’ve

 

we had a couple of other businesses outside of real estate too that were cashflow heavy to help supplement the growth. we actually never took any money out of the business for the first eight years. We reinvested every dime for eight years. So that obviously was a huge cushion as well. We’ve since sold all the other companies. We’re all in on our investment business right now. That’s all we do. So we had that maybe unintentional slow growth period that allowed us to avoid a lot of those pitfalls that people who get overloaded

 

levered, rely upon other third party property management, leasing companies, etc. ⁓ That there’s other groups that have to make a markup, right? So you’re getting markup on a markup where we do everything at cost right now in house. So that really allowed us to avoid a of those pitfalls.

 

Dylan Silver (05:10)

Western Ohio, walk me through this market and for folks who may not be familiar with the area, what is the market like out there in the multifamily space and then maybe also give us an idea of what single family looks like out there as well.

 

Justin (06:12)

Yeah, so Ohio is kind of the sleeper state. I love it because it flies under the radar. It doesn’t have any of that great curbside of appeal as a Nashville or Denver or Houston or an Austin, right? So we’ve kind of flown under the radar for a lot of the big guys, which is great for me as a value add multifamily investor. I’m looking to take existing use property and make it like new, right? So finding C class properties and converting them into B plus as fast as can. The thing that benefits us the most is there wasn’t this huge supply shock.

 

in Ohio like there were in other states because the cost of build was the same everywhere but in those those bigger sexier markets you could get four or five thousand dollars per unit in rents where in Ohio in the markets I’m in you can’t get more than three thousand dollars no matter how nice it is so we didn’t get that oversupply but it’s a huge market Ohio is the seventh largest state it’s kind of the Silicon Valley in the Midwest now everybody’s floating into Columbus Ohio but the five major anchor cities Toledo

 

day in Cincinnati, Columbus, Cleveland are all growing very well. They have a lot of positives going forward. It’s very landlord friendly. In 10 years, we’ve never lost an eviction. So there’s just a lot of really good positives for us across the board that I really like. And I’m local. I’m from Western Ohio, my business partner brands from Western Ohio, our entire teams here locally, all of our properties are within two hours of our home base. So I can touch them, feel them, see them. I’m there every day. I really like the local appeal. And then we hunt and

 

small tertiary markets. So 30 to 80,000 populous cities outside of those five big markets. And we’re just looking for the one or two best assets at each of those that we can buy and make best in class in the area.

 

Dylan Silver (07:55)

Now, value add, there’s a lot of different strategies that people come about this. I’ve heard some of the big ones is, you can upgrade the physical property, you can upgrade the property management, or you can just buy the deal so right and the rents might be so low compared to where they should be that you can staircase up the rents maybe even year to year. What’s your approach to value add in multifamily?

 

Justin (08:20)

Yeah. So we do all three of those. So we’ve underwritten literally half of our total addressable market in Ohio. There’s about 20,000 multifamily properties in Ohio of that 4,000 fit my buy box. We know all 4,000 properties. My acquisition team hunts off those. We cold call direct mail market. All the brokers in our area call them on behalf, et cetera. I’ve underwritten over 50 % of those deals. We now underwrite about a hundred deals per month, about 1200 per year. I’m only looking to buy three or four deals per year.

 

Dylan Silver (08:45)

Wow.

 

Justin (08:50)

So I’m looking for needle in a haystack. We’ve tried every underwriting model possible. All I care about them now at end of the day is how quickly can I get my capital back? I’m looking for 100 % return on capital in less than two years. So that is our gold star North metric. And it’s usually a function of what’s the minimum amount of CapEx I can put in to increase rents, two to $400 a door per month. So the end game of that is usually we reduce expenses about 10 to 15 % from operational efficiencies.

 

and our scaling ability, and then we try to increase rents 30 to 40 % right off the rip as well. So when you do both of those things, you can increase the NOI enough to really hit a good value add property.

 

Dylan Silver (09:34)

Do you see there being more opportunity in a specific asset class in multifamily for the strategy that you’re doing? You mentioned two years recouping your initial investment. Do you C class, B class, A class properties? Where do you typically like to look at deals?

 

Justin (10:24)

Yeah, we only look at C’s typically ⁓ 1960s, 70s, 80s build. I’m looking for out of state owners, mom and pop owners, someone who has a ton of deferred maintenance, hasn’t improved the property in 10 years, probably hasn’t been to the property in 10 years. We try to pick those up, buy it, do the heavy capex renovation plan they don’t want to do. Usually a lot of them are end of year, 30 year roofs, 30 year mechanicals. They haven’t touched the parking lot in 10 years. All they’ve done is carpet and paint for turns. We come in and do everything.

 

So

 

we’re putting the curb appeal back in landscape parking light roofs and we’re also upgrading the mechanicals as needed and then we’re going in and turning every single unit to one of our three standards called classic plus silver gold we’re doing LVP floor paint trim cabinet countertop appliances bath fixtures all top to bottom and it’s literally like a like new product so we’re trying to pick up for a very low basis put about 15 to 20,000 in per unit and be at about 50 % to 40 % the replacement cost is our competitors

 

Dylan Silver (11:24)

Now, there’s a lot of competition and I think maybe I’m a fish out of water in Western Ohio, but you mentioned some of those cities that everybody knows. When it comes to finding that needle in the haystack, at what point do you say, okay, this is, know,

 

everything that I can do and I’m not going to keep pursuing this lead. Are you quick to cut your losses when there becomes a little bit of a bidding war or do you say, okay, well, this is something that we’re very interested in. Let’s see if we can work this one a little bit more.

 

Justin (11:55)

Yeah, so we’re hyper principled underwriters, meaning we don’t fudge the numbers to make the deal work, right? The numbers are the numbers. We go in what we’re comfortable at. Certainly there’s some negotiations, some wiggle room here or there. But.

 

there’s a lot of fish in the ocean, right? If it doesn’t work, we could go into the next one. We actually had a really good spot where we have more deal flow now than we can handle. So we created the preferred equity fund to bring on private capital so we could buy more and grow quicker. But we built this flywheel up over after 10 years, right? So I’m getting calls all the time from people I called three years ago, four years ago, right? I’m sending all of our top leads bottles of wine every quarter, right? I want me to be top of mind for everybody. So right place, right time when they’re ready to sell, they call us first. ⁓

 

I had a seller actually just did a clawed analysis of it. had 37 touch points in two and a half years on him and he out of the blue, just texted and said, I’m ready to sell. So that’s, that’s just the power of the follow-up, right? And that’s what we do extremely well. We buy everything off market, either direct to seller or through a broker off market. So we’re not usually in a bidding war, right? We’re the guys that are known, we close and we’re reliable. They’re going to call us. They’re going to get a convenient and easy deal. We’re going to give them a fair price and they’re

 

Dylan Silver (12:48)

Let’s go.

 

Okay.

 

Justin (13:09)

move on quickly with their lives.

 

Dylan Silver (13:11)

My perspective from having talked with folks like yourself, but then also from my experience in the single family space is these broker relationships, relationships with other investors are even more pivotal because yes, you can find properties on LoopNet and on Crexie, but you mentioned off market. People tend to see, at least from my vantage point, do more deals that way, working with investors, than finding them on market. Is there some truth to that?

 

Justin (13:39)

Yeah, we don’t buy anything on market. We haven’t in years. So all the deals we get are direct sellers, direct to brokers who got it from a seller who hasn’t put an O in the market at it yet. So relationships are everything, both direct to the seller and with the brokers. We get way more ⁓ lead flow from the broker’s zone. That’s just a function of building up the relationships, having a very good ⁓ follow up system with them. With our most important brokers, we talk to them every week, literally every single week. We send them gifts. We keep them top of mind. We never negotiate on commissions.

 

Dylan Silver (13:57)

Right.

 

Justin (14:09)

We make it easy for them. We put 1 % hard, hard, non-refundable money down with every LOI. We’ve closed on every LOI that’s been accepted, right? So we’re putting a lot of work in there and we want to make it very clear that we’re the guys you call first when a hairy deal comes across your table. You don’t want to think about it. The seller hasn’t done anything. We don’t want you to tell the seller to do anything. We want you just to think of us, call us, and we’ll figure out all the rest, make your life easy. You get to make the commission without doing any of the work.

 

Dylan Silver (14:11)

Yeah.

 

I do want to pivot here, Justin, ask you about scaling. You’re at little more than 700 units now. We were talking in the green room about plans to grow aggressively. When you’re talking about that type of explosive growth, how do you plan for the year forward and then maybe even the year after that? What do your kind of boardroom conversations look like?

 

Justin (15:43)

Yeah, great question. So everything’s a function of constraints. We look at what’s the next constraint to growth and how do we build the foundation out so that when we go from 700 units to 7,000, all of our systems don’t break. So we made sure every one of our six business divisions, we had a rock solid foundation. We had a system in place that could take on massive rapid growth. And then we stress tested all the time. And we’ve always been founder led me and my business partner, Brandon, have led all the business divisions, made all the decisions since we’ve since put a another level in the org

 

We’ve been hiring really good managers to run each business division give them more autonomy so we can work ⁓ Outside the business instead of in it and that’s worked really well. So it’s about training Onboarding systems is building out your KPIs and then we track everything ruthlessly So leading indicators legging indicators so that we know about the problem before it becomes a problem and that’s super important So being able to ratchet up and rely upon those KPIs and indicators has been everything

 

Dylan Silver (16:43)

Now,

 

when you’re doing this at scale, can imagine that these indicators can tell you a lot, but also if you’re not in it every day, it might not be obvious what it’s saying, right? It may mean a lot to you, but someone else looking at the same figure, it might be less impactful. Walk me through how you determine what to track, what’s important, and what can be maybe overlooked and less of a priority.

 

Justin (17:10)

Yeah, so

 

as you grow, right, you figure out what’s important, what you want to keep your pulse on, right? Like for vacancy, for me, I look at how many units do we have vacant that are unrented every day, right? I know right now we have 28 units that are unrented. know 18 of them are not rent ready yet. We’re turning them. 10 of them are rent ready. That’s our leasing team’s focus, right? We want that to be zero. I mean, I’m not OK with 93 % occupancy. I want 100 % occupancy. I want to wait list that every single property. So how do we get there, right?

 

to lead flow, because I know every hundred leads, I get 60 showings of that 40 show up, I get 38 applications, I get two and a half lead signs, right? It’s just increasing the paid ad spend and getting more leads in the front door. So that’s how you build that out. And then you look at the numbers every day, you understand which ones move the needle, right? Like how do we increase show up rate to get more leases signed? How do I get better quality leads? How do I get my setters to a pre-screen and qualify them quicker so my leasing managers do less? So we look at it at that granular level of detail.

 

Dylan Silver (17:58)

Yeah.

 

Justin (18:10)

in every business division of our entire team. And then the most important part is our construction team. We do all of our own turns in house. That timing of turns is everything. We used to turn units in 30 days, then 20, then 18, then 15. Now we’re down to seven day turns. We have three man crews. We’ve done time studies on every turn facet. They work 10 hour shifts. We paint at night.

 

They want to go from a fully completely destroyed unit to a fully turned finish unit moving ready in less than seven days. So things like that and tracking it are just super important. And when you’re in the weeds every day, like we are, you see what numbers and metrics are important. Right. So I can see across all channels very quickly. I know what our collections percentages today. I know how many vacancies we have. know how many showings we did yesterday. I know what the show up rate was. I know how many leads we got in. I know how many move outs we had. I don’t know how many move ins we had. Right. And I can see it all quickly. So we have a

 

Dylan Silver (18:40)

Wow.

 

Justin (19:02)

about two to three important KPIs in each business division that literally every day it gets sent to me. I every single day. So it’s always front and center. It’s always top of mind. If something looks out of place, we send a message. We ask someone to do root cause analysis. And just having the data at your fingertips always is just the most important part ⁓ for having a feel of the pulse of your entire company.

 

We have everybody in Slack, we’re all active. I have a sense of what’s going on everywhere because it’s just constant communication and data being pushed in front ⁓ of everybody at all times.

 

Dylan Silver (19:35)

Hearing how the data drives the bottom line. I mean, you broke it down perfectly going from 30 days to seven days with the turn time, hearing how 93 % occupancy may be acceptable, but then if you have, you wanna get it down to zero, right? And those KPIs, you’re keeping your pulse on the business, right? We are coming up on time here. ⁓ Any new projects that you’re working on, Justin, and then as well, what’s the best way for folks to reach out to your team?

 

Justin (20:03)

Yeah, so the Preferred Equity Fund is our big new opportunity. We’re taking on private capital for the first time. We have a super unique ⁓ return.

 

for investors that I think most people find attractive. offer 90 day liquidity at all times. We give a 12 % fixed pre-tax return. So you don’t pay any tax till year nine. You have the optionality of it paid out or compounding. And you’re in the preferred equity spot. You’re ahead of me, super safe position in the capital stack. So that’s the big thing we’re pushing now. If anybody has any interest in investing with us, we’d love to have that conversation. They can reach out to me. You can find me, Justin Spillers on LinkedIn, my email, [email protected] or our website, realestatealpha.io.

 

If you search my name, you’ll find me and you can funnel in. But we’d love to have conversations with people interested to learn more about real estate, even nothing to do with investing. I love giving back. I love talking to people, giving them some guidance directions. I still am a licensed attorney, so I can still kind of give you some unsolicited free legal advice as well, point you in the right direction there. I’m pretty dangerous in that space, those two. But yeah, I love hearing from listeners. I love hearing how people’s journey started, where they’re at, how I can help.