The Financial Backend of Property Investing

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Jacob Walter  – VP of Finance – Patriot Properties

 

Podcast Overview:

00:00 “Client Forgot Their Property”
05:12 “Life Insurance: Niche Necessity”
08:30 Hiring Considerations for Job Roles
11:35 “Client Forgot Their Property”
13:24 Property Deals and Financing Insights
18:08 Madison’s Rental Market Trends
20:52 Real Estate Rent Challenges
24:24 “Leaky Boiler Water Feature”
28:30 “Unrealistic Deal Evaluation”
31:01 Unit Maintenance and Value Maximization
35:19 Madison Property Repositioning Strategies
36:53 Tired of Property Management
41:37 Barrack-Style Madison Property Sold
43:49 Less Competition, Greater Opportunity
46:28 “First Deal Matters Most”
50:15 “Scaling Property Management Success”
53:26 Competition and Property Pricing Factors

Podcast Transcription:

Jacob Walter [00:00:00]:
I do have a funny story. One of my clients, he, he left for, I believe like Italy or Greece or something. He was gone for like two, three weeks. That was right. You know, when he came back was like, right when we were sending out our monthly statements and he called me, he’s like, Jacob, like, I forgot I had this property. I’m like, what do you, what do you mean? He’s like, yeah, you just, you guys have been handling. I haven’t had to worry about it. Nice to see that there’s plenty of money in the account.

Jacob Walter [00:00:23]:
Like, this is great. This is exactly what I want.

James Kademan [00:00:31]:
Have found Authentic Business Adventures, the business program that brings you the struggle stories and triumphant successes of business owners across the land. Downloadable audio episodes can be found in the podcast link found@drawincustomers.com we are locally underwritten by the bank of Sun Prairie and today we’re welcoming, preparing to learn from Jacob Walther, the VP of finance at Patriot Properties. Jacob, how’s it going today?

Jacob Walter [00:00:56]:
I’m doing well, thank you. Thank you for having me.

James Kademan [00:00:58]:
Let’s start with what is Patriot Properties?

Jacob Walter [00:01:00]:
Yeah, Patriot Properties, full service property management company. So we kind of joke around that if you can rent it, you know, we will manage it for you. We do. Obviously our bread and butter is multifamily. We do short term rentals. At one point we did camper van rentals.

James Kademan [00:01:19]:
Oh wow, you weren’t joking.

Jacob Walter [00:01:21]:
Yeah, yeah, don’t do that anymore. That was, that was an interesting time. But storage units, whatever you can rent, real estate wise, we can manage.

James Kademan [00:01:32]:
All right. And how long have you been with them?

Jacob Walter [00:01:35]:
I’ve been with Patriot for about five years now. Just over five years.

James Kademan [00:01:39]:
Sure. And tell me, VP of Finance, is that finance for internal within the company or is this more external helping investors and stuff like that?

Jacob Walter [00:01:47]:
So it’s more internal.

James Kademan [00:01:48]:
Okay.

Jacob Walter [00:01:49]:
Obviously with property management, you’re kind of a VP for finance for all the clients you have. So we have 122 different, different bank accounts, if you will, that.

James Kademan [00:02:02]:
Sure.

Jacob Walter [00:02:02]:
VP of Finance for. So it can, it poses its challenges, I bet. But you know, it’s, it’s, it’s fun.

James Kademan [00:02:09]:
All right. I wonder how many people would agree with that. Like, oh, VP of Finance sounds like a blast. So how do you get in that world? How do you end up as a VP of finance?

Jacob Walter [00:02:19]:
Yeah, so went to college, you know, did the accounting route. Kind of bounced around a few times before Patriot Properties and how we kind of found Patriot Properties is a little bit of an interesting story, but you Just, you know, kind of went in there. Chris needed more of an accounting role when he was starting, so I’ve been there since. Since almost the start.

James Kademan [00:02:46]:
Okay.

Jacob Walter [00:02:46]:
And he essentially just worked up with Chris being his number two from the get go kind of thing.

James Kademan [00:02:52]:
Gotcha. All right. How did you end up meeting Chris?

Jacob Walter [00:02:56]:
So I had an internship at Northwestern Mutual. Okay.

James Kademan [00:03:01]:
Like half the world, right?

Jacob Walter [00:03:03]:
Yeah. Weirdly enough, we found out that we worked with each other but didn’t realize it.

James Kademan [00:03:08]:
Oh, funny. At Northwestern Mutual.

Jacob Walter [00:03:10]:
Yeah. So we both worked in the Middleton office.

James Kademan [00:03:14]:
Okay.

Jacob Walter [00:03:16]:
And I did just apply for the Patriot Properties accounting manager position. Get to their interview. We’re like, we recognize each other. Like, where is this from? And you know, comes out that we both were at Northwestern Mutual. A lot of his mentors that were there were also my mentors.

James Kademan [00:03:35]:
Sure.

Jacob Walter [00:03:36]:
But we. We bond over the fact that we went through that. You know, the challenges that that can pose.

James Kademan [00:03:42]:
So did you go to try to be salespeople there?

Jacob Walter [00:03:44]:
Yeah, that’s what we were both working. Smiling, dialing. Oh, yeah. Oh, yeah.

James Kademan [00:03:50]:
So get your parents and your friends and your aunts and uncles on the life insurance.

Jacob Walter [00:03:54]:
You know, you find out who your true friends are when you get done with that internship.

James Kademan [00:04:00]:
True friends that actually bought life insurance?

Jacob Walter [00:04:02]:
No, no. That still talk to you after.

James Kademan [00:04:04]:
Are they the ones. Didn’t you sell me life insurance? Yeah, I don’t work there anymore. How long were you there?

Jacob Walter [00:04:11]:
I was there for a year. So it was the internship through essentially my senior year of college.

James Kademan [00:04:16]:
All right, so that’s funny.

Jacob Walter [00:04:21]:
Yeah. I’m not afraid to pick up the phone and talk to anybody.

James Kademan [00:04:24]:
No, that’s good. That’s very good.

Jacob Walter [00:04:26]:
That’s a skill that’s very, very much needed in the.

James Kademan [00:04:28]:
That is a rare skill. That is incredibly rare skill. I remember, I know quite a few people that have gone through that. Some still there and most not.

Jacob Walter [00:04:38]:
Yeah, exactly.

James Kademan [00:04:39]:
The Chernom.

Jacob Walter [00:04:41]:
Yeah. I mean, it’s a very hard industry to start out in, to your point. Yeah. It’s just a numbers game to a lot of those companies.

James Kademan [00:04:50]:
And I think once you get going, you’re fine, you’re making money, you’re coasting, essentially.

Jacob Walter [00:04:56]:
Right. Yep.

James Kademan [00:04:57]:
Until people. Until you’re clients die. But before then, you have to build that base. And I think it’s hard work.

Jacob Walter [00:05:05]:
Yeah.

James Kademan [00:05:06]:
And it’s like, why should I buy life insurance from you?

Jacob Walter [00:05:08]:
Well, yeah. Right. And that’s starving.

James Kademan [00:05:11]:
Yeah.

Jacob Walter [00:05:12]:
I mean, that’s the interesting thing. There’s such a small population in the world that actually need that. Right. I mean, yeah, if something happens, it’s nice to have. Obviously, like, I have life insurance for. From when I worked there too, but, like, the group that actually needs it is such a small group.

James Kademan [00:05:31]:
Right. Interesting. So did you have to get all your tests, all your certifications and all that jazz?

Jacob Walter [00:05:38]:
Yep. Yeah. Life disability certified, all that fun stuff.

James Kademan [00:05:42]:
How hard is it to get those?

Jacob Walter [00:05:44]:
It’s not overly difficult.

James Kademan [00:05:46]:
Okay.

Jacob Walter [00:05:47]:
For the basic stuff, it’s not very difficult.

James Kademan [00:05:50]:
I always wondered, because you, like, I meet a lot of people. You meet a lot of people just networking, going around, and you meet these people. Like, I got all these certifications, and I always wondered, how hard is it to get that?

Jacob Walter [00:06:01]:
Yeah, I mean, once you get into the investment side, it gets a little bit more difficult.

James Kademan [00:06:05]:
Okay.

Jacob Walter [00:06:06]:
So you’re like series 66, I think it’s called, and stuff like that. Those are a little bit more challenging.

James Kademan [00:06:11]:
Okay.

Jacob Walter [00:06:12]:
But essentially, to start doing life insurance, disability insurance, those are rather easy. I mean, it’s not any more difficult than. Than taking like the. The Realtor exam.

James Kademan [00:06:22]:
Gotcha. Okay.

Jacob Walter [00:06:22]:
And studying for that.

James Kademan [00:06:24]:
All right. I don’t know how hard the Realtor exam is. I assume it’s pretty easy based on the volume of Realtors out there and the people that do it as just a side hustle. Like, oh, yeah, by the way, I have five jobs as well as this.

Jacob Walter [00:06:37]:
Yeah. There was a statistic out there that I think like 85% or something crazy like that, you know, have the Realtor license but had zero transactions. It would have been last year.

James Kademan [00:06:47]:
Wow. Okay. So it can’t be that big of a deal to take that test.

Jacob Walter [00:06:50]:
Right.

James Kademan [00:06:51]:
Okay.

Jacob Walter [00:06:52]:
Assumption the varied entry is low.

James Kademan [00:06:54]:
I mean, I know a lot of real estate agents, and most. Many are cool.

Jacob Walter [00:06:59]:
Yeah.

James Kademan [00:06:59]:
Others I’m like, well, I guess you can fog a mirror. I don’t know, Whatever. So tell me a story. The VP finance.

Jacob Walter [00:07:07]:
Yeah.

James Kademan [00:07:08]:
As you guys grow, that job gets more complex, I imagine, right?

Jacob Walter [00:07:11]:
Yeah. Yeah, there’s definitely a lot. A lot more intricacies to it. So when we started out, we had. Or when I started out, I should say, we had just under 700 units.

James Kademan [00:07:22]:
Okay.

Jacob Walter [00:07:23]:
We’re touching 3,000 today.

James Kademan [00:07:25]:
Oh, wow. Okay.

Jacob Walter [00:07:27]:
Yeah, we’re roughly 50 to 75% year over year. And we do see that.

James Kademan [00:07:33]:
That’s incredible.

Jacob Walter [00:07:33]:
Yeah, we do see that, you know, continuing in the next few years here as well. You know, are we going to be able to keep that up forever? No, I mean, those are forever. Those are big numbers. Yeah. Yeah. So. But yeah, there’s a lot of challenges that come along to it. You know, this client wants his financials done this way.

Jacob Walter [00:07:53]:
You know, this gentleman over here would like it done a different way. You know, luckily, I have a fantastic team, you know, below me. I have five other accountants. So.

James Kademan [00:08:02]:
Oh, wow.

Jacob Walter [00:08:03]:
We’re. They’re good. They help keep, you know, the ship. Ship sailing. So.

James Kademan [00:08:09]:
So did you help hire those five?

Jacob Walter [00:08:11]:
Yep. So I did. I hired them all.

James Kademan [00:08:12]:
All right.

Jacob Walter [00:08:13]:
Yep.

James Kademan [00:08:13]:
And what do you look for in a good accountant?

Jacob Walter [00:08:16]:
Organization is the biggest thing.

James Kademan [00:08:18]:
Okay.

Jacob Walter [00:08:18]:
All right. A lot of. A lot of the accounting stuff. I mean, yes, you need the basics, but it’s all going to be, like I said, based on, you know, the owner, how they, you know, prefer their financials at the end of the day.

James Kademan [00:08:30]:
Okay. Because I think when I hire for the call answering service, we have certain things that we want. One is, how does your voice sound? And stuff like that. Two is from a confidence level where you’re at that way. And we have these certain questions that we ask to try to figure out, are you as cool as you say you are or can you even. Can you do the job? So I just wonder, with accounting, people are like, hey, can you add two plus two?

Jacob Walter [00:08:57]:
It’s almost that simple.

James Kademan [00:08:58]:
Okay.

Jacob Walter [00:08:59]:
Obviously, you know, there’s. There’s a little. There’s some intricate questions that we do ask. You know, have you, you know, what have you done in, like, the balance sheet accounting, your GL accounting, stuff like that. So. But at the end of the day, like, if they fit well with our team, I mean, that. That’s a huge thing.

James Kademan [00:09:16]:
Oh, my gosh. That’s. Yeah. Character is probably one of the biggest.

Jacob Walter [00:09:19]:
Exactly. So we could teach you the rest.

James Kademan [00:09:22]:
Okay.

Jacob Walter [00:09:23]:
So I’ve had a couple people on my team that progressed through the company that had no accounting background per se, but succeeded in doing what they were doing.

James Kademan [00:09:33]:
All right, so tell me a story. You mentioned multiple bank accounts. So is the idea that you have a bank account for each property.

Jacob Walter [00:09:43]:
It’s not necessarily each property. It can be. So we have some owners that are like that, that have a bank account for every property. Other owners have, you know, one bank account for 40 properties, 100 units. Okay. So again, it goes back to the, you know, ownership preference, how they, how they want their financials worked.

James Kademan [00:10:04]:
Sure.

Jacob Walter [00:10:05]:
Essentially. So, Okay.

James Kademan [00:10:07]:
I was, I’m going to say taught, but more like YouTube taught.

Jacob Walter [00:10:10]:
Yeah, YouTube University.

James Kademan [00:10:12]:
Yeah. I guess some of the gurus that I have listened to said set up an LLC for each individual property. Others are like, have Blankets.

Jacob Walter [00:10:22]:
Yep.

James Kademan [00:10:22]:
Others say individuals and then have blankets above that.

Jacob Walter [00:10:25]:
Yeah, I mean, that’s. I won’t get too much into that, but that’s. That’s like the legal side talking.

James Kademan [00:10:32]:
Okay.

Jacob Walter [00:10:32]:
Right. Each. Each individual llc, you know, protects an llc. All that is is a protection layer. Obviously, it has to be set up correctly, but, like, LLC in the finance side doesn’t necessarily matter. That’s more. You know, LLCs are created for, like, asset protection.

James Kademan [00:10:52]:
Sure. But I guess in that regard, you want to not pierce the veil. So you’d have separate bank accounts and stuff like that for an llc.

Jacob Walter [00:11:00]:
Right.

James Kademan [00:11:00]:
So a credit card or separate stuff, keep them independent of each other.

Jacob Walter [00:11:04]:
Correct.

James Kademan [00:11:04]:
So it’s not like, hey, we have all these LLCs in one bank account.

Jacob Walter [00:11:07]:
Right? Right. Yes. So, I mean, that’s. To your point. Exactly. You know, it helps asset protection, but, you know, we. We have one client that has five hundred to a thousand units run through one bank account, you know.

James Kademan [00:11:22]:
Oh, interesting.

Jacob Walter [00:11:23]:
It’s. It’s the insurance side that, you know, helps protect on the back end.

James Kademan [00:11:28]:
Okay, so tell me a story about. When you have that many units. How do they even keep track of.

Jacob Walter [00:11:35]:
Sometimes they forget. I do have a funny story. One of my clients, he left for, I believe, like, Italy or Greece or something, and he was gone for, like, two, three weeks. And that was. Right. You know, when he came back was like, right when we were sending out our monthly statements. And he called me. He’s like, jacob, like, I forgot I had this property.

Jacob Walter [00:11:55]:
I’m like, what do you. What do you mean? He’s like, yeah, you just. You guys have been handling. I haven’t had to worry about it, you know. Nice to see that there’s plenty of money in the account. Like, this is great. This is exactly what I wanted.

James Kademan [00:12:08]:
I’m going back to Italy. Oh, that’s funny. I’ve had friends that I can think of a few where they have management company taking care of their stuff. And so they’re like, money comes in, money goes out. There’s some months that they have to pay in, and other months that they get their. They’re not. Whatever.

Jacob Walter [00:12:27]:
Yep.

James Kademan [00:12:28]:
And it’s just. I remember the guy saying he drove past the property that was a few towns away from where he lives, and he. He was reminded. He was like, oh, yeah, I own that. I wonder how it’s doing.

Jacob Walter [00:12:41]:
Yeah. I hope. I hope one day I can own enough property to. To get to that point.

James Kademan [00:12:46]:
Yeah.

Jacob Walter [00:12:47]:
I’m just.

James Kademan [00:12:47]:
It’s like when you’re playing Monopoly. Right. Somebody Lands on your square. That’s your. Like when you’ve been playing it for hours, right? And you’re like, wait, wait, wait, wait.

Jacob Walter [00:12:54]:
Shuffle through all the cars.

James Kademan [00:12:55]:
Let me see. Yeah, hopefully it’s Park Place, not Baltic or something. Oh, that’s interesting. So are you giving advice to any of your clients, financial advice or how does that work?

Jacob Walter [00:13:08]:
Like an investing advice? I would say. Yeah. With real estate, that’s definitely part of the gig, if you will. You know, I had a call a couple weeks ago with a. With a client that’s looking to refi, and I’m like, you know, maybe, maybe let’s hold off.

James Kademan [00:13:23]:
All right.

Jacob Walter [00:13:24]:
All that kind of adds up into the performance, right? We look really good when everybody’s making money. You know, we’re always the problem when they’re not. Sometimes it’s like, did you see how much you paid for this building? The back end finances are definitely a big thing. So we, we help them out in underwriting properties to the point of like, hey, this property is ready to refinance. Are you going to look for something new? We have a group of guys that we work with. I call them the bird dogs. They’re the cold calling, sending the mailers out, and they bring us properties nearly daily. And some of those we kind of throw out to some of our clients that are ready to buy.

Jacob Walter [00:14:09]:
Not all of them are deals. You know, I’d say probably 25% are worth talking about.

James Kademan [00:14:14]:
Okay.

Jacob Walter [00:14:14]:
The other 75%, you know, they said yes, but, you know, they were given the make me, make me sell it price.

James Kademan [00:14:20]:
Oh, gotcha. Okay. Yeah, yeah, Everything’s for sale.

Jacob Walter [00:14:23]:
Yeah, everything’s for sale for the right.

James Kademan [00:14:24]:
Price, whether it’s worth it or not.

Jacob Walter [00:14:26]:
Yeah.

James Kademan [00:14:27]:
So got it. Let me ask you a financial question. When it comes to investing in property, the age old question that you always hear is, do you pay off your loan or do you just maintain and invest in other property?

Jacob Walter [00:14:42]:
I’m going to give you the most accounting answer ever.

James Kademan [00:14:46]:
All right. It’s going to be. It depends. The attorneys say it, the accountants say it. You went to school for years to say it depends.

Jacob Walter [00:14:55]:
Exactly. So it really matters what you’re looking to do.

James Kademan [00:14:58]:
Okay.

Jacob Walter [00:14:59]:
So in my investment cycle right now, I’m cash out, refiing as much as I can. To build.

James Kademan [00:15:06]:
To build your portfolio.

Jacob Walter [00:15:06]:
To build the portfolio. Okay. Yep, 100%. So, for instance, like, I went from five units to over 30 in this past year.

James Kademan [00:15:15]:
In a year.

Jacob Walter [00:15:15]:
In a year.

James Kademan [00:15:16]:
Holy cow.

Jacob Walter [00:15:17]:
So. And none of that was money being put in it was all repositioning, refinancing, selling some, buying some, getting the rents up, selling them pretty quickly after that. Okay. But it truly depends, like, if you just want to invest to have that extra cash flow, you know, you. You don’t want to retire off real estate. In my recommendation, it’d be pay off as fast as you can. Okay. But if you’re really looking to scale, looking to grow, you have to be aggressive.

Jacob Walter [00:15:48]:
Right. Because if you’re not, you know, the next guy in the game is. So there. There are a lot of people in real estate, especially that beginner level that, you know, the four to 10 units, you know, it’s still achievable financially for a lot of people to be in the game. Obviously, once you get it into 20, 30, 40, 50, 100, you know, then you’re. Then you’re battling with some of the big boys.

James Kademan [00:16:14]:
Sure.

Jacob Walter [00:16:15]:
Who.

James Kademan [00:16:16]:
Where do you want to be?

Jacob Walter [00:16:18]:
Where do I want to be or where does somebody want to be? Right.

James Kademan [00:16:21]:
Where would be? Boy, Let me think about the question. Best bang for the buck, let’s say, is it when you’re competing, when you have fewer people you’re competing against, you’re in a larger units.

Jacob Walter [00:16:32]:
Yeah, 100%.

James Kademan [00:16:34]:
Where it’s a smaller.

Jacob Walter [00:16:36]:
Personally, I like kind of the middle.

James Kademan [00:16:38]:
Okay.

Jacob Walter [00:16:38]:
Right there. There’s this kind of lost zone, if you will.

James Kademan [00:16:41]:
Okay.

Jacob Walter [00:16:42]:
In that, you know, 20 to 30 to 40 units, if you can get in there, like, it’s. It’s large enough that you’re not getting the weekend investors, if you will, and it’s small enough that you’re not getting some of that institutional money.

James Kademan [00:16:57]:
Okay. Where they’re coming. 20 million cash.

Jacob Walter [00:17:00]:
Yeah, exactly. Good luck finding those. Right now, real estate just in general, is in such a weird transition zone, if you will. But, like, though that’s kind of the range that I’m finding some of these deals, you know, starting to become deals.

James Kademan [00:17:17]:
Okay. So I’ve been shopping for real estate, and you see the graph of pricing. If you look over the, I’m gonna say 10 years, it seems like this graph is like, hey, stuff is up. And then it’s like, kablam.

Jacob Walter [00:17:31]:
Yeah.

James Kademan [00:17:31]:
This hockey stick.

Jacob Walter [00:17:32]:
Yep.

James Kademan [00:17:33]:
And then in my mind, I’m like, well, that seems like there’s a correction that’s coming up.

Jacob Walter [00:17:38]:
We’re seeing that.

James Kademan [00:17:39]:
Okay.

Jacob Walter [00:17:40]:
Yeah. So we are definitely seeing some prices come down more reasonable. There’s some. I won’t say too much, but there’s some stuff in Madison, new or built, that’s being foreclosed on.

James Kademan [00:17:52]:
Oh, newer.

Jacob Walter [00:17:53]:
Built, like, in the last five years, I would consider it. So when we start seeing that, we know prices are going to start coming down.

James Kademan [00:18:02]:
Gotcha.

Jacob Walter [00:18:03]:
You know, they were leveraged too much and couldn’t fulfill what they needed to.

James Kademan [00:18:08]:
All right.

Jacob Walter [00:18:08]:
Madison’s kind of unique market. A lot of units have, you know, come to market in the last year, and a lot of a class downtown stuff. So that definitely adds to it as well. There kind of is this culture of these people that hop from new property to new property, and if you’re only having people in your property one year and then you have to turn it. There’s costs associated with the return, so that adds to that as well.

James Kademan [00:18:36]:
Okay, interesting. Why would they move from new unit to new unit?

Jacob Walter [00:18:42]:
They just like the newest and greatest thing. Okay, right. So the, you know, the apartment complex yesterday, you know, might not have XYZ amenity. You know, this one doesn’t have a golf simulator, but this one does. Oh, this one doesn’t have.

James Kademan [00:18:57]:
You know, these are not the college dumps that I grew up with. No.

Jacob Walter [00:19:01]:
You should see some of the stuff that’s downtown.

James Kademan [00:19:03]:
Golf simulator. I was lucky to have a light switch. Oh, wow.

Jacob Walter [00:19:06]:
Yep.

James Kademan [00:19:07]:
All right, so interesting. Tell me where you’ve seen rent go. Let’s talk about Madison. And then I don’t know how far out you’re.

Jacob Walter [00:19:15]:
So that’s a good point. Patriot Properties, we have stuff all the way in Tomah, all the way down to Monroe. We have some stuff in Waukesha, Platteville, so we kind of follow the interstates. Okay. We’re not, you know, we’re going to Iowa. Next thing we’d love to get into is, like, the Fox Valley area, Green Bay, Oshkosh, Fond du Lac area. So we do have a large geographic location.

James Kademan [00:19:40]:
Yeah. Have you seen rents going up or maintaining?

Jacob Walter [00:19:44]:
Rents are maintaining to. Going down.

James Kademan [00:19:46]:
Going down.

Jacob Walter [00:19:47]:
Yeah.

James Kademan [00:19:47]:
Okay.

Jacob Walter [00:19:48]:
So part of that is obviously the big influx of units in the past year, specifically in the Madison area.

James Kademan [00:19:59]:
They keep adding.

Jacob Walter [00:20:00]:
They keep building, Keep building. You go downtown, you see how many cranes are in the air right now? A lot of cranes. Those are all, you know, multifamily or student housing. And when you kind of start pushing out, it’s stabilizing to a point. If you get too far out, it’s starting to decrease too.

James Kademan [00:20:17]:
Okay.

Jacob Walter [00:20:19]:
What was great, and, you know, we’re not really seeing the positive effects as much anymore was. Was actually Covid.

James Kademan [00:20:26]:
Okay.

Jacob Walter [00:20:26]:
Right. So if. As long as you weren’t downtown Madison, you know, a lot of these people Moved out to have a little bit more space, to have that kind of calmer lifestyle. We saw that in multifamily, and, you know, obviously it was in homes, too. So it’s not necessarily a fun time to be in real estate, especially if you just bought.

James Kademan [00:20:49]:
Right.

Jacob Walter [00:20:50]:
Because, you know.

James Kademan [00:20:51]:
Because you’re seeing the value go down.

Jacob Walter [00:20:52]:
Yeah. Well, when you buy something, the expectation is, I’m going to be able to raise rents sometimes. That’s not hope. Yeah. And you still have to turn the unit to get the same amount of rent. Well, you know, if I have to. I bought this building, I had to put $10,000 into a unit, and I’m only able to get what I was getting before. Like, that’s.

Jacob Walter [00:21:11]:
That’s an oh, crap moment.

James Kademan [00:21:13]:
Right. Okay. So I keep hearing from real estate agents. Right. Talking to them. They’re just like, oh, it’s a competitive market with buyers. They’re coming in with all these cash buyers and stuff like that.

Jacob Walter [00:21:26]:
Not anymore.

James Kademan [00:21:26]:
And I’m just like, are they. Or why?

Jacob Walter [00:21:30]:
Yeah.

James Kademan [00:21:31]:
Why would they be coming to buy? From my point of view, a property rental property is a business.

Jacob Walter [00:21:36]:
Yeah.

James Kademan [00:21:37]:
So why would you buy a business that’s not cash flowing?

Jacob Walter [00:21:39]:
Right.

James Kademan [00:21:39]:
Or it’s not profitable? I should say there’s money coming in, money going out, but the money that you end up with is in parentheses.

Jacob Walter [00:21:46]:
Yeah. I mean, it really depends on the buyer.

James Kademan [00:21:49]:
Okay.

Jacob Walter [00:21:49]:
There’s some people out there that, you know, not strictly for depreciation, but depreciation is a big factor for some of these. Some of these people. Okay. You know, you get the real estate designation. You get to write that off on any W2 income that your spouse may have, too.

James Kademan [00:22:04]:
Okay.

Jacob Walter [00:22:04]:
So they’re buying a lot of tax benefit maybe. Right. I mean, it’s hard. There’s. There’s some stuff that’s happened in the market that I’m scratching my head at.

James Kademan [00:22:13]:
Okay.

Jacob Walter [00:22:13]:
Still, you know, one day you hear this sale. That’s ridiculous. The next year, like, there’s five deals on market. Like, what are these people looking at?

James Kademan [00:22:22]:
All right.

Jacob Walter [00:22:23]:
So it. It’s a very confusing time in real estate. Multifamily, specifically.

James Kademan [00:22:28]:
Gotcha. Okay. Which is. That’s the market you’re in, Right.

Jacob Walter [00:22:31]:
Yeah.

James Kademan [00:22:32]:
So when you. Somebody brings you a property and they’re like, hey, man, can you rent it out and do your property management thing?

Jacob Walter [00:22:39]:
Yeah.

James Kademan [00:22:40]:
Are there any criteria you go through where you would say yes or no? Or I guess more specifically where you would say no, Not a good fit.

Jacob Walter [00:22:49]:
The biggest thing is the conversation with the Owner.

James Kademan [00:22:52]:
Okay.

Jacob Walter [00:22:53]:
So the biggest fact, I mean, real estate is really real estate. Right. Like it, you know, it’s, it’s a home for somebody. You know, it has a bedroom, it has a bathroom, it has a toilet. So the bare bones of real estate is relatively the same across the board. The changing factor is going to be the owner and are we able to provide the expectations that that owner has?

James Kademan [00:23:18]:
Okay.

Jacob Walter [00:23:18]:
Or I mean, in some cases are the expectations just, just unreasonable where they.

James Kademan [00:23:23]:
Don’T want to invest any money in the property or they want to like, hey, make rent five grand a month?

Jacob Walter [00:23:29]:
Both.

James Kademan [00:23:29]:
Okay.

Jacob Walter [00:23:30]:
So, yeah, I mean, we, we’ve had it all across the board.

James Kademan [00:23:34]:
Okay.

Jacob Walter [00:23:35]:
We have, like I said, some owners that forget they have the property and, and some owners that my team’s on the phone with them every other day. For good reasons or good, bad. Just catching up too.

James Kademan [00:23:46]:
Okay.

Jacob Walter [00:23:47]:
Yeah. It’s not necessarily like how much, you know, we have to communicate with, but to your point, you know, we have this property that needs the work done. We need to be able to do it right. And we get some pushback on some properties and it’s like, well, maybe we aren’t the best fit.

James Kademan [00:24:08]:
So. Gotcha. I was looking at a property earlier this week and we talked to the tenant and she was so straight faced and we’re like, you know, what’s been your experience at this place?

Jacob Walter [00:24:23]:
Yeah, that’s a huge thing.

James Kademan [00:24:24]:
And she said, you know, she was like, blah, blah, blah, blah, blah. It has a water feature. And I was like, wait, hold on a sec. When you say water features, do you mean decorative water features? No, no, we have this huge leak that’s been going on for over a year. Yeah, they had a boiler and all this kind of stuff. And I was like, oh, that’s an interesting way to put that. And like, no one’s come out to fix this thing. Yeah.

James Kademan [00:24:48]:
And she’s like, no, you can see the drywall bubbling.

Jacob Walter [00:24:51]:
Oh, man.

James Kademan [00:24:52]:
Oh my gosh. What’s behind that wall?

Jacob Walter [00:24:54]:
Yeah, 100%. I mean, that’s like when, when I’m going to look at prospective properties, that’s my favorite thing to do. You know, I make sure the building isn’t falling down. But beyond that, like your best source of information is the tenants.

James Kademan [00:25:06]:
Yeah.

Jacob Walter [00:25:07]:
You know, because for that. Right. They haven’t taken care of that. What else haven’t they taken care of?

James Kademan [00:25:12]:
Right.

Jacob Walter [00:25:12]:
You know, what kind of nightmares are you gonna unfold? And you know, a lot of people kind of get too excited about, oh, I have this property. I Have this opportunity and they forget to do that part of the due diligence.

James Kademan [00:25:24]:
Yeah. Never fall in love with a deal. Right?

Jacob Walter [00:25:25]:
No, no, it’s. Yeah. Take your emotions out of it.

James Kademan [00:25:29]:
Right. So interesting. Tell me, when you are buying a property, do you have some kind of a hard and fast rule when you’re looking at properties? Like there’s a 1% rule.

Jacob Walter [00:25:38]:
Yeah.

James Kademan [00:25:40]:
You’re VP of Finance, you probably have an algorithm.

Jacob Walter [00:25:42]:
Yeah, not so much that. I mean, yes, I have the numbers to look at, but to answer your question, no, I don’t have a hard and fast rule. You know, the 1% rule is strictly just a reference. What we look at is obviously the feel. Are the layouts good and is it a market? I know. What rent can I actually get and how much work does the unit?

James Kademan [00:26:07]:
Tell me about the layout.

Jacob Walter [00:26:09]:
So one beds versus two beds. You know, is there. Is this labeled a one bed, but it actually is a two bed. Like we’ve run into issues like that.

James Kademan [00:26:18]:
Well, they label it under.

Jacob Walter [00:26:20]:
Yeah.

James Kademan [00:26:21]:
Why?

Jacob Walter [00:26:21]:
Yeah, I. I don’t know.

James Kademan [00:26:23]:
Okay.

Jacob Walter [00:26:23]:
You know, they, they call it like it’s a smaller bedroom. Right. Like an office or something. But you know, for, for a family with a young child, like, that’s totally doable. That’s small.

James Kademan [00:26:34]:
I guess that’s fair. I looked at a property that was a single family house and they called it two bedroom. But when I walked in the second bedroom, I thought, I don’t even know if you could fit a twin bed in here.

Jacob Walter [00:26:45]:
Yeah.

James Kademan [00:26:46]:
So I guess it’s a room with a door and a window. Yeah, but that’s where the. I guess it’s a bedroom. Maybe if you throw a towel in the pillow on the floor. So I suppose it depends who’s, who’s counting.

Jacob Walter [00:26:59]:
Right? Right.

James Kademan [00:27:00]:
To me, it was a very large closet.

Jacob Walter [00:27:03]:
You know, some. Somebody’s wife might have loved it.

James Kademan [00:27:05]:
Sure. Maybe. Maybe. Yeah. So, okay, I get what you’re saying about the layout there. Okay. So it’s not like this room is here, this room is there. It’s just number of bedrooms, number of bathrooms.

Jacob Walter [00:27:14]:
Yeah, just the overall basic layout. Okay. And is there something being missed? Right. Is there an opportunity to add another bedroom?

James Kademan [00:27:23]:
Okay.

Jacob Walter [00:27:24]:
You know, that’s a huge value add. If you could take a one bed to a two bed.

James Kademan [00:27:28]:
Yeah.

Jacob Walter [00:27:28]:
I bet, you know, you could get two, maybe $300 more, depending on where you’re at. So.

James Kademan [00:27:34]:
And how would you do that? Would you basement, add a big window, add a room there?

Jacob Walter [00:27:40]:
No, not like to me, that would be too much. Right.

James Kademan [00:27:44]:
Too expensive.

Jacob Walter [00:27:45]:
Yes, exactly. Payoff gonna be there 100% more. So, like, hey, this is an office. Right now can we add a closet?

James Kademan [00:27:54]:
Got it.

Jacob Walter [00:27:55]:
You know, stuff like that. Because, you know, in a rental office, like, they’re not as needed. Right. So that’s something that we always look for is that, you know, value add that we can bring.

James Kademan [00:28:09]:
Okay.

Jacob Walter [00:28:09]:
At a relatively, you know, affordable price.

James Kademan [00:28:12]:
Got it. And then you mentioned raising rents and does that just go in there and say, hey, your rent was. They’re never at market.

Jacob Walter [00:28:19]:
Never.

James Kademan [00:28:19]:
Right. They’re always selling it at below market rent. You could easily raise rents.

Jacob Walter [00:28:24]:
I love that. I love when people say that.

James Kademan [00:28:26]:
It’s like buying a motorcycle. And they’re like, the carburetor just needs a quick cleaning.

Jacob Walter [00:28:30]:
Yeah. It’s really funny because I had a phone call yesterday, last night, and I won’t give too many details about the deal, but they had 18 units, want 1.6. They’re grossing like $12,000. Like, this doesn’t add up. Right? Like, they’re like, well, we’ve gotten one person at 900. Like, that’s, that’s what we’re trying to sell this off. And I’m like, that’s, that’s not how it works.

James Kademan [00:28:59]:
Yeah, right.

Jacob Walter [00:29:00]:
Yeah. I have to put $10,000 a unit in all these 17 other units to even get anywhere close. So, you know, that deal didn’t transpire, obviously. So. But yeah, it’s a. We see that a lot.

James Kademan [00:29:14]:
All right.

Jacob Walter [00:29:14]:
You know, oh, just, just raise the rents. It’s. It’s not that easy.

James Kademan [00:29:18]:
Like, they were being this so good donor kind of thing, charging cheap rent just because I hate money.

Jacob Walter [00:29:25]:
Or my other favorite. I’ve had these tenants for 10 years. It’s like, to me, that’s a red flag almost. Okay. Yeah. So if you have somebody for 10 years, I mean, obviously you look at the rents, but that tells me that they’re vastly under market.

James Kademan [00:29:39]:
All right.

Jacob Walter [00:29:40]:
You probably haven’t raised the rent. You know, what hasn’t been taken care of in the units. You know, there’s some things that are very easy to do when the tenant’s not in there and more difficult. So that’s, you know, a lot of people are like, oh, you know, long term tenants. When I’m buying a property, like, to me, that’s not interesting.

James Kademan [00:30:00]:
Do you. Okay. Do you aim for properties to be empty?

Jacob Walter [00:30:04]:
No, I wouldn’t say that. But you know, when, when the seller tries to say that, that’s like super valuable.

James Kademan [00:30:11]:
Sure. You can keep making Less money than.

Jacob Walter [00:30:15]:
You should, but, you know, they’ve had one unit that’s been 900 and they, you know, we’re gonna base the whole price off of that.

James Kademan [00:30:21]:
Got it. Okay. So interesting. So when you get a property, are you doing any fix up stuff or is there maybe the bare stuff that, like. Hey, every time we go into a property, we change, I don’t know, flooring, paint, something like that.

Jacob Walter [00:30:35]:
Yeah. So like, our unit turns. Are you talking like overall property, like common area, stuff like that?

James Kademan [00:30:42]:
Well, boy, I didn’t even think about common area. What do you do with common area?

Jacob Walter [00:30:46]:
So common areas, you know, if it’s really bad, we’ll. We’ll address those. But we tend to kind of leave.

James Kademan [00:30:52]:
Those last because there’s so much traffic.

Jacob Walter [00:30:55]:
Yep.

James Kademan [00:30:55]:
Once people get in their apartment, common area doesn’t matter.

Jacob Walter [00:30:58]:
Right, Exactly.

James Kademan [00:30:59]:
So smells like cats and cigarettes.

Jacob Walter [00:31:01]:
Yeah. I mean, if it’s like that, we’ll, you know, do what we need to do. If we need to paint, we need to, you know, get the carpet clean. You stay on that carpet cleaning schedule too. So, you know, sometimes some air fresheners in the, in the hallway kind of thing, we’ll take care of that. But no, we see, obviously the most value return on the dollar is investing into that unit.

James Kademan [00:31:22]:
Gotcha.

Jacob Walter [00:31:23]:
Obviously, if the outside looks really bad, you got to take care of that as well. But typically speaking, nothing’s too crazy when we go to buy it that we’re able to kind of start on those units right away.

James Kademan [00:31:37]:
All right, what is the deal with the landscaping in these properties? Because from my point of view, the. And I’m saying, like, I’ve looked at some properties, certainly not the great percentage of properties that exist.

Jacob Walter [00:31:49]:
Yeah.

James Kademan [00:31:49]:
But it seems to be at one point somebody’s planted some bushes or trees, and I’m gonna say they took some kind of care of it. And then 30 years happened with nobody touching it. Yeah, the wheat trees overgrowing. The lawn is barely grass.

Jacob Walter [00:32:03]:
Yeah.

James Kademan [00:32:04]:
I’m like, why don’t you just get rid of everything and just either make a grass or gravel, I don’t know, something. But it looks lumpy.

Jacob Walter [00:32:11]:
Right. When we, when we do landscaping, we make it minimal maintenance.

James Kademan [00:32:17]:
Best kind.

Jacob Walter [00:32:18]:
Yeah, exactly. So even where I live, I don’t want it 100%.

James Kademan [00:32:21]:
I got my Saturday available.

Jacob Walter [00:32:24]:
Gotta go. Weeds, flower beds. Get out of here.

James Kademan [00:32:26]:
No, no fun.

Jacob Walter [00:32:28]:
So, I mean, that’s something that we look to do too, is that, you know, minimal. Do the rock, you know, put that good a weed barrier down. So you’re not, you know, having to spray or whatever. Our lawn care contractor, he’ll spray the rocks for us.

James Kademan [00:32:43]:
Okay.

Jacob Walter [00:32:43]:
For very minimal. So that, that’s kind of the plan on the. I don’t like bushes, I don’t like trees right next to the property.

James Kademan [00:32:51]:
Yeah.

Jacob Walter [00:32:53]:
You have to maintain them a lot. And you. Once they start looking bad, it’s really hard to get them kind of under control.

James Kademan [00:32:59]:
Right. Yeah. So, yeah. I was just at a property where they had a tree that was buckling the sidewalk.

Jacob Walter [00:33:05]:
Yeah.

James Kademan [00:33:06]:
And I’m like, what do you do with that? Because as soon as you fix that sidewalk, a year later, it’s just going to pop again. Like the tree doesn’t care.

Jacob Walter [00:33:13]:
No, you got to cut that tree down.

James Kademan [00:33:15]:
Yeah. So it’s just interesting how, like, put this there.

Jacob Walter [00:33:18]:
Yeah.

James Kademan [00:33:19]:
When you go into a property and it’s kind of dumpy, but they do have tenants. Do you say, hey, tenants, we’re going to fix this property up and if you want to stay, great, but rent’s going to go up or what do you, what do you do there?

Jacob Walter [00:33:32]:
So we don’t necessarily communicate directly with tenants regarding, you know, like the overall plan per se. Okay. Like, hey, we’re going to come in and raise your rents. Like, we don’t necessarily want to freak them out right away. There. There are circumstances where, you know, market rents a thousand. We get this property and the rents are like 700.

James Kademan [00:33:55]:
Okay.

Jacob Walter [00:33:55]:
So what we’ll do is we’ll kind of split that difference. So send renewals out, split that difference. We’re bound to get at least one person to move out.

James Kademan [00:34:02]:
Sure.

Jacob Walter [00:34:03]:
So we’ll turn that unit, get that up to market and, you know, tenants, Tenants see things, tenants talk and they kind of know what’s going on. Obviously, we don’t want to keep tenants in the dark or anything, but expectation is when the property sells and you see our guys there, like, the property is going to be improved.

James Kademan [00:34:24]:
Gotcha. Okay. When you get a property that’s as dated, let’s say kitchen and stuff like that, do you find. Do you get a return on the investment of, I’m going to say, modernizing that kitchen?

Jacob Walter [00:34:38]:
So it really depends on what kind of market you’re in.

James Kademan [00:34:43]:
Okay.

Jacob Walter [00:34:44]:
So we’re seeing a lot of those, like, super dated properties, more farther out of Madison, out of Dane county, kind of thing.

James Kademan [00:34:50]:
Got it.

Jacob Walter [00:34:51]:
Where the, the ROI to fully redo those kitchens doesn’t necessarily make sense. Oh, like what you can do, you know, sand the sand the cabinets, paint them, do some of these Cheaper, you know, more economical fixes to these problems. And they look. They look almost just as good. Obviously, it’s not a new cabinet.

James Kademan [00:35:14]:
Right.

Jacob Walter [00:35:14]:
But that renter in that market doesn’t necessarily expect it for that price point that they’re willing to pay.

James Kademan [00:35:19]:
Got it.

Jacob Walter [00:35:19]:
Okay. Now, if it’s. If it’s a Madison property, it could go one of two ways. Like, how. How are we repositioning this property? Okay. So if we’re. If we’re looking, if it’s in a really good location and it just wasn’t taken care of, you know, mom and pop owned it before got old. This was their, you know, sell to retire kind of property.

James Kademan [00:35:43]:
Right.

Jacob Walter [00:35:44]:
You know, we might be a little bit more aggressive in those unit terms.

James Kademan [00:35:46]:
Okay.

Jacob Walter [00:35:48]:
Or if we get, you know, a property that’s not in the greatest location or. Or the property that we bought is the. Is the neighborhood problem. We love. We love those at Patriot Properties. We like buying the problems and fixing those community centers.

James Kademan [00:36:03]:
So because you can just bump rent up as people leave, you fix it.

Jacob Walter [00:36:08]:
We fix them up. You know, we. We kind of do it in stages. So we’re not. We’re not gonna put, you know, 10, $20,000 right. Into a unit when the rest of the complex is still, you know, working through what needs to be done.

James Kademan [00:36:23]:
Sure.

Jacob Walter [00:36:24]:
Because that. That just wasn’t make. Doesn’t make any sense. You’re not gonna get that. That return right away.

James Kademan [00:36:29]:
So that is a perfect segue to ask the question, why would somebody sell a rental property that’s actually making money?

Jacob Walter [00:36:40]:
Typically, you’re gonna have a pretty nice payout.

James Kademan [00:36:43]:
Okay.

Jacob Walter [00:36:44]:
Right. You know, a couple. A couple of the guys that we manage for, you know, we don’t make money until we sell. Okay, well, not true.

James Kademan [00:36:52]:
I hope not.

Jacob Walter [00:36:53]:
Yeah, not necessarily true, but, you know, some. Sometimes it’s just time. You know, people want to go enjoy their lives, like rental properties. Even if you have a manager, like, it still takes time. You know, you still have to, you know, be present. You still have to, you know, look over everything. So a lot of times, it’s just. They’re tired.

Jacob Walter [00:37:15]:
Right.

James Kademan [00:37:16]:
All right?

Jacob Walter [00:37:17]:
They’re. They’re ready to get that check and go sell off to paradise.

James Kademan [00:37:21]:
All right. I didn’t know if you run into anyone where they’re just like, I’m making money, but the headache from.

Jacob Walter [00:37:26]:
Oh, yeah. It’s always the interesting thing, like, you know, mentoring one of the sales guys at Patriot, and, you know, I always say, like, don’t ever just call somebody and they say, no, I’m not interested. Follow up with them in three months.

James Kademan [00:37:43]:
All right.

Jacob Walter [00:37:43]:
You know, you don’t know. If that day a pipe burst and they want to sell, like, give me a dollar.

James Kademan [00:37:49]:
It’s all.

Jacob Walter [00:37:50]:
Exactly, exactly. You don’t know. So there’s circumstances like real estate’s a very up and down. Like, you know, sky high one day, you know, next day, two tenants move out, destroy the units. Like, oh, man.

James Kademan [00:38:01]:
Gotcha.

Jacob Walter [00:38:02]:
If the right dollars on that check I’m taking.

James Kademan [00:38:06]:
Buying somebody else’s headache kind of thing.

Jacob Walter [00:38:08]:
Exactly.

James Kademan [00:38:09]:
Do you. I mean, from a financial point of view, that’s your background. So do you have any comparisons of returns of investing in real estate versus stock market versus, I don’t know, crypto.

Jacob Walter [00:38:25]:
Yeah, I never got into crypto because by that time, I was kind of in the real estate game already.

James Kademan [00:38:30]:
Sure. Crypto’s a bad example. I guess all kinds of reasons. Let’s just say stock market, real estate. I don’t know, Art. What else are people investing in?

Jacob Walter [00:38:40]:
Right, sure. So I may not be the best person to ask this question, too, because I literally have zero dollars in the stock market. Okay.

James Kademan [00:38:48]:
Zero.

Jacob Walter [00:38:49]:
Zero. I do not have a penny in the stock market.

James Kademan [00:38:51]:
Oh, my gosh.

Jacob Walter [00:38:52]:
The day I pulled it out was the AMC and the GameStop debacle. Oh, so that’s a little while ago.

James Kademan [00:38:59]:
Yeah.

Jacob Walter [00:38:59]:
Yeah. So when, you know, when that happened, it kind of opened my eyes. It’s like, this isn’t. It’s not. It’s. It’s almost going to Vegas.

James Kademan [00:39:07]:
It is.

Jacob Walter [00:39:07]:
You know, it’s a step below that, you know, extreme.

James Kademan [00:39:11]:
But Pulse is winning.

Jacob Walter [00:39:12]:
Yeah, exactly. So, you know, all of my funds are in real estate or other businesses as well.

James Kademan [00:39:22]:
Okay.

Jacob Walter [00:39:25]:
I could give you an inkling for my return this past year going five to 30 units. It was north of 400%.

James Kademan [00:39:34]:
400%, yeah.

Jacob Walter [00:39:36]:
Obviously you’re not going to do that year over year.

James Kademan [00:39:38]:
Right.

Jacob Walter [00:39:39]:
But, yeah, that was.

James Kademan [00:39:40]:
Oh, that’s helpful.

Jacob Walter [00:39:41]:
That’s a good year.

James Kademan [00:39:41]:
Okay. That’s Nvidia numbers. That’s crazy. Yeah. Wow.

Jacob Walter [00:39:48]:
I mean, I would expect year over year average in real estate to probably be. It’s gonna beat the stock market.

James Kademan [00:39:56]:
Okay.

Jacob Walter [00:39:56]:
Maybe you’ll be, you know, that 15 to 20%.

James Kademan [00:39:59]:
That’s so healthy.

Jacob Walter [00:40:00]:
Yeah. But the. I mean, the understanding is it’s not. It’s not as easy as just investing in s and P500. Exactly.

James Kademan [00:40:08]:
Okay. There’s time involved. Okay, tell me. I mean, five to 30, you said. How’d you do that? Did you buy six five units. Or did you?

Jacob Walter [00:40:18]:
No, no, no. So with partnerships, we got 40 units or 30 units. Excuse me, in an Airbnb own 25% of that. So those were kind of found on Craigslist. I found one. Facebook, I found one. And then the bird dogs found us, found us another one. Okay.

Jacob Walter [00:40:40]:
And then out of all places, like just randomly logged on to LoopNet and found another eight unit for that partnership. But the other stuff grew. So I had a five unit sold that bought two four units.

James Kademan [00:40:57]:
Okay, well, now why did you sell the five unit? To get the cash for the.

Jacob Walter [00:41:03]:
You know, it’s funny who I sold that to. Cole McCluskey.

James Kademan [00:41:07]:
Oh, the other guy, the electrician.

Jacob Walter [00:41:09]:
I had. It’s one of those points that I wanted to scale. I couldn’t scale to keep that. I needed those funds out of that property. So.

James Kademan [00:41:20]:
And is that a 1031 type thing?

Jacob Walter [00:41:21]:
Yep. So I 1031 that into 24 units. From there, we raised the rent pretty aggressively on 14 unit. It was a really old building. Like, let’s get the rents. Let’s. Let’s get out of this. I don’t want to wait for something to happen kind of thing.

Jacob Walter [00:41:37]:
All right, so we sold that into an eight unit in. In Madison here. That property was kind of interesting. They were, I believe they were actually built as like a barrack style. Oh for truax or something is what I was told. So the layouts were not good. It was like, think about like two living rooms and one of the living rooms had a bathroom attached to it like that. That was the property.

Jacob Walter [00:42:07]:
So it was a little weird. So then we, we ended up selling that into. I think that was a four unit and a 10 unit. Okay, 10 unit. I still have the four four unit we sold to help fund the renovations at the 10 unit.

James Kademan [00:42:25]:
Gotcha.

Jacob Walter [00:42:26]:
Okay, so, and then if you remember, I still have that four unit that I originally 1031 into.

James Kademan [00:42:33]:
Yeah.

Jacob Walter [00:42:35]:
Took that, sold that. That, that four unit was probably the highest gain single handedly. I bought it for 250, sold it for 450.

James Kademan [00:42:45]:
Wow.

Jacob Walter [00:42:46]:
In the matter of three months.

James Kademan [00:42:48]:
For 250.

Jacob Walter [00:42:49]:
Yeah.

James Kademan [00:42:49]:
Was it beat up?

Jacob Walter [00:42:51]:
Not really.

James Kademan [00:42:52]:
Oh, wow.

Jacob Walter [00:42:54]:
So, you know, right place, right time. Yeah, I guess a little bit older building. That’s the perfect example of an older gentleman that’s just ready to retire. All right, so we gained 200 on that in the matter of three months.

James Kademan [00:43:09]:
Holy cow.

Jacob Walter [00:43:10]:
So we jump that into the part of the 10 unit and then the 8 unit that we just bought.

James Kademan [00:43:17]:
All right, these are all around Madison.

Jacob Walter [00:43:20]:
So the 10 units Waukesha, 8 units Columbus.

James Kademan [00:43:23]:
Gotcha.

Jacob Walter [00:43:24]:
Okay. The stuff that I have with the other partnership. Lodi, Maustin, Tomah, and Portage.

James Kademan [00:43:31]:
Okay.

Jacob Walter [00:43:31]:
So, yeah. All relatively close. I mean, there’s a couple. Couple outliers.

James Kademan [00:43:36]:
Sure. And do you find going up in those smaller towns that you have more opportunity there because everyone’s hovering around Madison or Madison.

Jacob Walter [00:43:47]:
It’s a different opportunity.

James Kademan [00:43:49]:
Okay.

Jacob Walter [00:43:49]:
Right. There’s. There’s guys in those markets that don’t want to play in Dane county. Just. Just like us, too. Right. So it’s a different opportunity there. There is less competition, and it seems to you you can get in front of the seller a little bit.

Jacob Walter [00:44:08]:
Like, there’s less realtors involved.

James Kademan [00:44:09]:
Oh.

Jacob Walter [00:44:10]:
So it helps a lot when you don’t have to deal with realtors or somebody kind of making it muddy, if you will.

James Kademan [00:44:17]:
Yeah, I always. The transaction or the negotiation, when you have real estate agents involved, when I, as a buyer, can’t just have a conversation with the seller. And you got to go through this.

Jacob Walter [00:44:30]:
Let’s all four get in the room.

James Kademan [00:44:31]:
Yeah, totally.

Jacob Walter [00:44:33]:
Have a conversation. And we’ll pay you guys. Like, don’t worry. We’ll pay you.

James Kademan [00:44:36]:
Happy to.

Jacob Walter [00:44:37]:
But let’s get this deal happy, too.

James Kademan [00:44:39]:
But they’re just like, oh, we gotta fill out this form, fax it to them, wait 24 hours. Like, can we just grab a beer and figure this out?

Jacob Walter [00:44:46]:
Exactly.

James Kademan [00:44:47]:
See if it’s like, I feel like you’re trying to make this more complicated just to justify your price. Just get out of the way. Yeah. Interesting. I’m so glad that you said that. Let us make this happen.

Jacob Walter [00:45:01]:
Right.

James Kademan [00:45:02]:
Yeah. Interesting. So if you. If someone’s new into the or wants to get into the real estate game, what would be some of the advice that you’d give them?

Jacob Walter [00:45:11]:
You know, I would say don’t. Don’t go alone on your first one.

James Kademan [00:45:15]:
Okay.

Jacob Walter [00:45:15]:
Find somebody that does have experience.

James Kademan [00:45:18]:
Talking about a business partner. Yeah.

Jacob Walter [00:45:19]:
Yeah.

James Kademan [00:45:19]:
Okay.

Jacob Walter [00:45:20]:
Find somebody that has experience or, you know, get. Get your feet wet by learning. Right. So go find a mentor. You know, I didn’t. I didn’t believe that either when I first started. Yeah. But, like, looking back, it’s like, that’s a hundred percent how I would do it from.

Jacob Walter [00:45:39]:
From the start. You know, when you’re. When you’re 24, you think you know everything.

James Kademan [00:45:44]:
Yeah.

Jacob Walter [00:45:44]:
You know, I’m not 30. Yeah. Now I’m 30. And I’m like, I didn’t know anything. I just got lucky.

James Kademan [00:45:50]:
All right.

Jacob Walter [00:45:51]:
All Right. So, yeah, Finding a mentor, if you can do a business deal with somebody that’s been there, done that. The great thing that I had is I joined a property management company. So I got to see everybody’s successes and failures without my money on the line.

James Kademan [00:46:06]:
Ah, so you can learn from that.

Jacob Walter [00:46:07]:
Exactly. So you figure out what works, what doesn’t rather quickly.

James Kademan [00:46:11]:
All right. And are you guys seeing deals all the time?

Jacob Walter [00:46:15]:
It’s definitely slow, but we’re seeing, like, stuff brought to us. I mean, do you want to call them a deal you’re seeing.

James Kademan [00:46:23]:
We’ll call it Opportunities.

Jacob Walter [00:46:24]:
Opportunities, yes.

James Kademan [00:46:24]:
Okay. Not something you necessarily take up on.

Jacob Walter [00:46:28]:
But just like to the point we said earlier, like, the market’s changing and not for the seller. So we kind of have that in the back of our mind a little bit when we’re analyzing deals is like, you know, okay, do we need this now? Is this such a great deal we can’t pass up, or is there going to be something on the horizon? Got it. Now, if you’re starting out and you find something that’s maybe a base it or a double jump on it. Cause the biggest thing is getting your feet wet. It’s that first one. Once you get that first one, it’s so much easier.

James Kademan [00:47:04]:
All right. I suppose that’s just like buying a single family house as well.

Jacob Walter [00:47:07]:
Yep.

James Kademan [00:47:07]:
And they first give you that pile of paper.

Jacob Walter [00:47:09]:
You know, it’s. You know, you still get some of the stomach turning when you see your bank account and it’s nicely full. And then you buy a property and it’s not.

James Kademan [00:47:19]:
Do you have money in this?

Jacob Walter [00:47:20]:
Yeah. You’re like, oh, man, was this the right thing? But no.

James Kademan [00:47:23]:
Yeah. It seems like it’s one step back to take two steps forward kind of thing where you just like, wait, I had money. I got rid of the money in order to make money, but I could have just kept the money.

Jacob Walter [00:47:35]:
Yeah. Yep.

James Kademan [00:47:36]:
What’s the goal here? Yeah. Fair. Fair. Do you. I guess, from a buyer standpoint. I’m sorry, From a seller standpoint, do you see sellers willing to negotiate on pricing now, since the market’s a little shaky, or they just keep it and deal with it?

Jacob Walter [00:47:53]:
Yeah. You’ll see a little bit of both.

James Kademan [00:47:54]:
Right.

Jacob Walter [00:47:55]:
It depends on that person’s timeline or what’s going on. Right. So, like, for instance, the example I said about the 1.6 for the 18. They were. They were as firm as can be at 1.6.

James Kademan [00:48:06]:
Really?

Jacob Walter [00:48:06]:
Yeah. They’re like, nope.

James Kademan [00:48:07]:
And they will be for the next 10 years.

Jacob Walter [00:48:09]:
Yep. We don’t, we don’t need to sell now. You know, we’re. Ideally, we want to get rid of it before next summer so they have time, you know, they might come across somebody that’s willing to pay that.

James Kademan [00:48:19]:
Okay. Who would be willing to pay that?

Jacob Walter [00:48:22]:
I don’t know. There’s people out there, though.

James Kademan [00:48:24]:
Okay.

Jacob Walter [00:48:24]:
Like for instance, if you have a 1031 and you have to, you couldn’t find anything. Right. You didn’t identify.

James Kademan [00:48:30]:
Yeah.

Jacob Walter [00:48:31]:
And you have a big enough 1031 that you want to do. Okay. Maybe it makes sense.

James Kademan [00:48:37]:
Okay.

Jacob Walter [00:48:37]:
But I mean, so you’re banking on.

James Kademan [00:48:40]:
The tax savings to compensate for the overpayment.

Jacob Walter [00:48:42]:
Overpayment, yeah.

James Kademan [00:48:43]:
Okay.

Jacob Walter [00:48:43]:
And you know, maybe we, we were quite far apart. Okay. So you know, to say they’re, they’re fully stiff at that 1.6. I don’t know. Could you get them down to 1.5, 1.45 something? Maybe.

James Kademan [00:48:56]:
Okay.

Jacob Walter [00:48:57]:
But I mean, we were at 1.2, so.

James Kademan [00:49:00]:
Okay.

Jacob Walter [00:49:00]:
That’s a 75, you know, 25 discount. Yeah, yeah, I, I completely understand why they’re like, so.

James Kademan [00:49:08]:
All right, well, maybe they’re just. The market will let them know.

Jacob Walter [00:49:12]:
And there’s some people that don’t have the same operating costs as us.

James Kademan [00:49:15]:
Okay.

Jacob Walter [00:49:16]:
Right. So if you’re, if you’re doing it all by yourself.

James Kademan [00:49:19]:
Oh, my gosh. That’s one of the questions I want to ask you. The people that don’t use a property manager, I mean, I imagine they’re going crazy. That’s how heart attacks happen. But what has been some of your experience just coming across people that hire you saying, hey, I need someone else to take care of this headache. Yeah, tell me what their experience.

Jacob Walter [00:49:38]:
So the, the, I have a story before that and then I’ll answer that. So the greatest example I have of this is one of our largest clients. He, him and his group have about 4,000 units. He started at the same time as one of his good friends did. He has about 100 units.

James Kademan [00:50:00]:
Oh, wow. That’s the difference.

Jacob Walter [00:50:02]:
That gentleman self managed everything. Our client never self managed. All right, so your, your ability to scale because you have to do that work.

James Kademan [00:50:13]:
Yeah.

Jacob Walter [00:50:14]:
Is a little bit limited.

James Kademan [00:50:15]:
All right.

Jacob Walter [00:50:15]:
Now there are people out there, right. They’ll hire the team, they’ll bring on. They’ll essentially create their own property management. And you see those guys, you know, scale tremendously. But if you’re the person that wants to do or has to do, you can’t relinquish that control. You can still do well, but you’re not going to get up to those thousand units that real wealth, generational wealth, if you will, that comes along with those higher unit counts.

James Kademan [00:50:48]:
Yeah. 4,000 units.

Jacob Walter [00:50:49]:
My gosh, that’s a lot.

James Kademan [00:50:51]:
That is an incredible amount.

Jacob Walter [00:50:53]:
That’s a lot. So. So to answer, can you remind me what the question was exactly?

James Kademan [00:50:59]:
Oh, just when people come to you having had investment property without property management company, they come to you and they’re like, help me.

Jacob Walter [00:51:09]:
Yeah. So we get kind of two people. We get the person that’s grateful, like, oh, my gosh, I can focus on my family is a big one. Or I can focus on my family, on my kids now want to travel. I love it. We have the other people that are like, oh, I had this headache. But then, like, don’t necessarily realize that, you know, it comes with a cost. Oh, you know, property management.

James Kademan [00:51:30]:
Can you manage my property?

Jacob Walter [00:51:32]:
Yeah. So it’s. It’s a mixed bag. Generally speaking. You know, we help vet some of those people out in the initial, you know, property management interview or phone calls. So.

James Kademan [00:51:45]:
Sure.

Jacob Walter [00:51:47]:
You know, we. We don’t want to make our lives overly difficult. You know, working with a client that. That’s just, you know, I like to pick up my phone and like to talk to the person, not get screamed at every time. Right. Like, totally understand. Stuff goes wrong. You know, we fix it, we move on.

Jacob Walter [00:52:06]:
Sure, that happens. But if I see your phone number come up and I’m like, ah, dang it. What’s up?

James Kademan [00:52:13]:
This guy.

Jacob Walter [00:52:13]:
Yeah.

James Kademan [00:52:14]:
So tell me a story about how you guys figure out what you’re going to charge for rent for a given property.

Jacob Walter [00:52:19]:
Yeah. So Chris kind of touched on this a little bit. I think in his.

James Kademan [00:52:25]:
There’s about 5 million variables.

Jacob Walter [00:52:27]:
Yeah, there really is. So it depends on how much of the market we can influence.

James Kademan [00:52:35]:
Okay.

Jacob Walter [00:52:36]:
Whether that be direct influence via direct control. So, like, there. There’s some areas that we have majority of the rental units.

James Kademan [00:52:47]:
Okay.

Jacob Walter [00:52:47]:
In that, what we’ll do is we’ll look at the income. So the average income of that area and our. To qualify, you need to make three times that. So we look at that. Our two bad units, you know, we’ll. We’ll kind of hit right into that average income. And it depends on the quality of the units. Right.

Jacob Walter [00:53:08]:
It might be plus or minus.

James Kademan [00:53:09]:
So as an example, mathematically, if rent is 1,200 bucks, people should be making 3,600, 3,600amonth.

Jacob Walter [00:53:18]:
And I think that one equates out to. I could be Completely off of maybe like around 20 bucks an hour full time.

James Kademan [00:53:26]:
Sure.

Jacob Walter [00:53:26]:
So otherwise, if we have less control, like, we take those variables into account. But then we do have to look at competition. What is competition charging? You know, do we have other amenities that we can, you know, plus or minus our units? Nicer. Are they bigger? You know, do we have parking? Underground parking? So that’s what we’re seeing, obviously. More so in like, some Prairie Madison where, you know, you. Some of our properties that aren’t new are kind of competing with some of the newer stuff because, you know, the newer stuff is struggling to fill because they have to charge X amount.

James Kademan [00:54:01]:
Sure. So are they lowering their rents?

Jacob Walter [00:54:03]:
Yeah, there. There’s some that are being aggressive to fill.

James Kademan [00:54:07]:
Okay.

Jacob Walter [00:54:07]:
And then what we believe is going to happen is the renewals are going to help capture that. So $300 renewal could be a real thing.

James Kademan [00:54:16]:
Okay. All right. So they bring them in as kind of a come on in.

Jacob Walter [00:54:20]:
Yeah, the candy, you know, jiggling the candy here.

James Kademan [00:54:24]:
Okay. And then, funny story, that lease that you sign is going up a year ago.

Jacob Walter [00:54:29]:
It’s going up quite a bit.

James Kademan [00:54:30]:
All right. What’s the pain of moving? Okay.

Jacob Walter [00:54:34]:
And another thing that we do at Patriot is a lot of our properties will pay for advertising even when we don’t have a vacant unit. And we’ll. We’ll put it out there for maybe a little bit more than what we achieved.

James Kademan [00:54:48]:
Okay.

Jacob Walter [00:54:49]:
So, you know, like us, when other people are looking into the market, oh, what should I be able to rent this unit for? They see us at, you know, maybe we rent it at 995. Your apartments.com says 1050. So they’re like, oh, let’s charge 995.

James Kademan [00:55:05]:
Gotcha.

Jacob Walter [00:55:05]:
You know.

James Kademan [00:55:06]:
Okay. All right. It’s just a little bit of a chess game. Interesting. Well, Jacob, I appreciate you being on the show where I’m spilling my stuff here. Where can people find you?

Jacob Walter [00:55:21]:
So I’m not on social media too much. There’s a website for Patriot. My email is on there. Okay. Otherwise, LinkedIn, you can find me. Right on. So right on.

James Kademan [00:55:34]:
Well, cool. This has been Authentic Business Adventures, the business program that brings you the struggle stories and triumph and successes of business owners across the land. We are locally underwritten by the bank of Saint Prairie. If you’re listening or watching this on the web, if you could do us a huge favor, give it a big old thumbs up, subscribe and of course, share it with your entrepreneurial friends, especially those friends that may be interested in investing in real estate, which I think it’s safe to say they all should be right. Yeah, people need a place to live, right? It’s like investing in food. We’d like to thank you wonderful listeners as well as our guest Jacob Walter, the VP of finance at Patriot Properties. What’s the website for patriot?

Jacob Walter [00:56:13]:
It’s patriot properties wisconsin.com all one word. Yep.

James Kademan [00:56:17]:
https://Patriotpropertieswisconsin.com. all right. Past episodes can be found morning, noon and night at the podcast link found at https://drawincustomers.com.  Thank you for joining us. We will see you next week. I want you to stay awesome. And if you do nothing else, enjoy your business. And Authentic Business Adventures is brought to you by Calls On Call, offering call answering and receptionist services for service businesses across the country on the web at https://Callsoncall.com and of course, The BOLD Business book, a book for the entrepreneur and all of us available wherever fine books are sold.