AIPIS 138 - Australians Love US Real Estate! with Reed Goossens

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Welcome to the AIPIS show for accredited income property investment specialists and those who desire to be. This is your host, Jason Hartman where we talk about increasing your income, your productivity and just generally having a better life while serving your clients better with America's most historically proven asset class income property. We have a great interview for you today and we will be back with that in less than 60 seconds.

It's my pleasure to welcome a friend from down under who is investing in US Real estate, and that is Reed Goossens. He is founder of RSN Property Group. He has a wealth of knowledge on real estate from different parts of the world. Reid, welcome. How are you?

Good mate, how are you? Welcome. Thanks for having me on the show.

Yeah, it's good to have you. I love your accent. Our listeners do too, except the ones who are in Australia. They probably don't care, but everybody else likes it. What does RSN mean? Just out of curiosity.

Very good question. RSN stands for Reid Sophnell. It's my name and my two sisters names, so just sort of keeps it in the family. RSN Property Group. I thought it was pretty simple and cute.

Fantastic. And you live in Los Angeles, California, My hometown now, right?

That is correct. I do live in Los Angeles. Love the city.

How long ago did you come to the US from Australia?

I moved to the US back in 2012 and we moved to New York. And the reason I'm in the United States is that my girlfriend is from America. So that's why I'm here. You know, my journey is I moved to the United States and didn't have much capital, but wanted to start investing in U.S. real estate. And the entry barriers are a lot lower here in the US Compared to Australia. So I started cutting my teeth on some properties here in the US and that's really how I got started.

Okay, so tell, tell us what you mean about the barrier to entry. I mean, what happens in Australia that makes it so hard to buy a property there? By the way, when you talk about Australia is obviously a very Large place. Where in Australia?

Yeah. I'll just rewind just a little bit that the size of Australia is, excluding Alaska is approximately the same size as mainland America, but we only have 28 million people.

I know your population's lower than California, which is. Yeah, yeah, yeah. But in dense areas like Sydney, I mean, you know, that's. They're all right there.

Yeah, yeah. So. And that's the sort of underlying factor that I've kind of. I've been away from Australia for so long that, you know, someone says to me, how do you make money in Australia? And I'll be like, well, in terms of real estate, I was like, I don't know. I know more about the US market. But in from a big picture macro point of view, our population is growing and is going to double in size in the next 10 to 15 years. And that's causing a lot of just massive appreciation in urban sprawl. And there is a lot of land, but most of that land is pretty uninhabitable. So we're landlocked a little bit around the major cities. Millennials that want to live in, like, you're having the same issues here, want to live in cool hit places. It's very, very hard to buy. Entering the market, minimum sort of houses you'd find would be around the $250,000 mark. You would never find an $85,000 property in Australia that rents for 1,000 bucks a month. That just doesn't exist. And that's what I mean about when I talk about the markets here in the us there's so many different markets and there's sub markets and there's this is that Australia is very much. It's a large country by mass, but in terms of its real estate market, it's a very, very min. And there's not a lot of diversity there. So there's not a lot of opportunity to have those $85,000 properties for 1,000 bucks a month. I hope that sort of answered your question.

Yeah, no, that's, that's really interesting. And when you say that the population of Australia is going to double, is that mostly from Asian countries immigrating to Australia?

Yeah, there's a lot of. It's, you know, we're a Western country. We're very, you know, we've got great health care, we've got great universities. It's very similar to the United States in terms of how, you know, our law, our laws and the way we. A lot of the land of opportunity. And it's good a Lot from immigration. We are an immigration country. We're founded like America, on immigration. And yes, you're right, there's a lot more over the next 10 to 20 years that doubling will occur from a lot of influx in foreigners coming to Australia to live and to have a family.

Okay, good. You like US real estate investing. It seems like your focus now, although I think you've done all different things. You, your focus now is multifamily investing, right?

That is correct, yes.

And when you say, you know, a lot of people say, well, I like commercial real estate or I like multifamily. And nobody knows what that means half the time because some people will say multifamily and they're talking about a stupid duplex, you know, versus 150 unit apartment complex, which you might make more money on the duplex, frankly, as a percentage than you do on the 150 unit apartment complex. So I'm not saying it's stupid in that way, but I think people say that to make themselves sound big. Okay, I'm multifamily. I just do duplexes and triplexes.

Exactly, exactly.

That's kind of funny, but what's your sort of target property like?

My target property is my first property just to sort of take a step back. And like you said, I did cut my teeth on back in 2012, early 2013, when I first moved to the United states, buying the $45,000 triplex in upstate New York and doing some work to it and increasing the rents a little bit, you know, because I gave it a bit of. And I found that I was sort of unbeknownst to me, I was doing this sort of repositioning, so to speak, where I take a property and I give it a bit of tender love and care and then I put some better tenants in it and I get some better property manager. And the value of the property sort of increased just a little bit because your cash flows increased. I found that that was really quite powerful. And I thought, well, look, do it on triplex and duplexes. Why can't I do it on the economy of scale of 10, 20, 30, 100 units? And I sort of then still working full time in my day job and I'm a former structural engineer. I didn't have swads of cash lying around. I needed to start investing with other people and buying these larger multifamily apartment deals because I was seeing the value in multifamily. And the reason I love multifamily is that I can force the appreciation with a Value add play whilst getting cash flow at the same time. And I think that's really, really key. It goes back to my underlying theme of what I want and that is passive income and long term wealth. So I can get passive income from a property whilst forcing that appreciation through increasing cash flow. That's what I love and that's why I love multifamily investing. Here in the United States we don't have that. In Australia you don't have multifamily investing because of a number of reasons and I won't get into those reasons, but one of the major reasons is the availability to accessing capital and the different capital streams and we're just not set up like that in Australia. So to go out and buy 40 units in Australia you just don't do that. You usually buy condos and individual ones. Here in America you buy the entire building and that's incredible. And you put that in your portfolio and you look at it from a macro point of view in terms of what the NOI is and how you can force that NOI to increase the value of the property.

What geographies do you like? What markets are you investing in?

I started in upstate New York in Syracuse because I could drive to Syracuse from New York City where I want to live. There I'm in Philadelphia. I'm also in the Texas market, Dallas and in Houston and they're the markets I'm in right now and slowly building up. I do like the Kansas City market. I like Richmond, Virginia and I do like some of the North Carolina markets. Raleigh, North Carolina I like as well.

Okay, yeah, I would agree with most of those. We're a little concerned about Houston with the oil situation. So we've done lots of business there. I own property there, but we issued sort of a yellow light warning on Houston. Not a no, but just, just be watchful type of thing. Dallas got a little expensive. We've done lots of business in Dallas over the years. It's gotten a little pricey, you know, so it's hard to make a deal work there as like it you used to be able to. Kansas City we've certainly done, we've done lots of business in Charlotte, North Carolina over the years. So I would agree with you on all those markets. Most of our business, single family homes, we dabble in the apartment space, but not as much as you do. How do you do it? Are you raising money from investors? Do you have a fund? You do a private placement memorandum? Tell us about that.

Yeah, so I like to syndicate on my Deals and syndication involves pulling investors money together. And I put some money into the deal and we get on by larger deals that make sense and that is what I like to do. Using other people's money to help grow our business. And we all make money together. And people don't have the time or the energy. Some people don't have the time or energy to find what I like to call cracking deals. And so they want to invest in real estate, but they might not have the time, but they want to have the upside of the tax depreciation and the amortization and the appreciation and more the cash flow as well. And so they want all those things but they don't have the time to do it. So they will come to me and they'll say, hey Reid, I want to invest in some real estate. Can I invest with you in some of your deals? And I saw that some people were wanting to do that and I said this is a great idea for me to get then to start buying some larger properties. And that's how I buy though, takes down those larger properties. And I don't have, as I said, a swat of cash lying on the side in my bank account to go and take down a 50 unit property. But if I pool my money with three or four other investors, we can go and do that and I will the private placement memorandum. And got to make sure that when you're raising private capital, you've got to stick to the CC Regulation D rules. Sure. We could have a whole show just about that.

Two days of content on just that alone. It's so complicated and there are so many landmines. You just got to be really careful with this stuff. How much does it cost to do your private placement memorandum? I've heard prices all over the board on the show, you know.

Yeah. I've found if you've got roughly around $10,000 now if you're buying a property that is worth a million dollars, that's not a lot of money, you know, into the total scheme of things. And it sort of covers. It's all about disclosing to everyone so. And making sure you're keeping in line with those regulation D issues. So yeah, around $10,000 that I usually spend.

So do you spend $10,000? Do you have a lawyer do that or exactly.

Always, always a lawyer.

Okay. As opposed to some sort of document mill type. A lot of this stuff is sort of prefab anyway. You know, it's a. The legal profession is just such a scam in so many ways. I Mean, listen, I. Some great lawyer is great, but so many aren't great at all. In fact, some of them are just truly unethical.

Right.

Sleazy, awful human beings. But not that there aren't a million lawyer jokes out there. I didn't invent this concept. So it's amazing. They go to the word processor and, and type in a couple of details and oh, 10 grand.

Exactly.

That's amazing. Some of these documents are just prefab documents. Do you go and pay $10,000 each time you do a new deal or you just taking your same document and changing some of the basics and then you're done?

And that's a good question. And everyone should know that once you do, sort of, once you establish a good relationship with a lawyer and a lawyer, I'm a huge proponent of establishing your A team around you and a lawyer being one of those good team members, you know. Yeah. Typically you won't be spending ten grand again and again and again. It will be, you know, three, four grand to make the changes. And it's literally is editing a word document. But you know, at the end of the day, I do it for the liability that he's putting the document together. It's his firm, that is the lawyer's firm. He's taking that responsibility. And I'm not taking it upon myself to try and format a legal document because I'm not a lawyer.

Okay, good, good. Makes sense. And so how do you raise money? I mean, did you just do that through networking or. Yeah, good question. Nowadays you can advertise, you can use crowdfunding websites and so forth. What do you do next?

Yeah, that's a very good point. I actually just spoke last night on a panel about how to start raising money. And I like to raise money through networking. Networking is your prime source. I feel like real estate is still a little bit of the, not the wild, wild west, but the old school days of a gentleman's handshake, talking about deals and getting to know people. And people aren't just going to invest with you straight off the bat. If someone's chasing you with a check and saying, here, take my last $50,000, run the other way. Because that is not the point of this. When you're raising capital, you're developing relationships and those relationships take a long time to come to fruition. I've never met someone who's invested in my deals that I haven't had a prior 6 to 12 month solid relationship of talking, catching up for coffee, talking about what I'm Doing, developing that cred. And it goes back to developing a personal brand. It goes back to having a good pitch deck, it goes back to professionalism, and it goes back to practicing and patience.

Actually, let me just interrupt you because I think that's important. What you mentioned about the pitch deck, there are many services out there that will literally coach you on your pitch, create your PowerPoint slides for you, et cetera. Did you hire one of those in addition to the fees of getting your private placement memorandum, your PPM done for $10,000, did you make your own pitch deck or did you get some help with that?

So to rewind just a little bit to get to your first deal, you'd get to your first deal by marketing yourself. And I like to call the four Ps professionalism, pitch practice and patience. And it goes back to head down this journey of raising capital and closing a large multifamily deals. I had to develop a website, I had to develop my personal brand. I came from structural engineering. Now I've had a lot of experience in construction, but in terms of investing, I'd only had limited experience. So you've got to build credibility. And building that credibility is very, very important. It comes through a pitch deck. I did have a mentor. I think mentors are very, very important. Obviously, choose the right one. Don't spend 60, $70,000 if you do, good on you. But you want to be getting quality content from them. And one of the things that my mentor helped me do is put my pitch deck together. It was no, press a button and they pumped out a pitch deck. I had to come up with my own logo, I had to come up with my own way that I set out the pitch deck in terms of how I explain an example deal, how I'm going to str ideals, the types of returns and answering investors questions. Because that's at the end of the day, it goes back to building credibility. And that pitch deck is just one tool that you use to initiate a conversation with a potential investor.

You've got this part set up, you've got your ppm, you've got your pitch deck, you're out there networking, you're out there promoting yourself, finding investors. How do you find the deals though?

Good question. And that's what I was struggling with back a couple of years ago was, I like to look at it sort of like a two wheel sort of tricycle. One wheel is you're trying to find investors, you're trying to refine your pitch deck, you're trying to have coffees, with as many people as you can. The other one is finding deals. And I got to the point where I did my first deal, I started a networking event in downtown la and that was to get my presence out there. My sort of just networking with other people and just talking about real estate. And through that event I found someone who had good deal flow and we partnered on a first deal and it ended up being a 250 unit deal, which is huge. And I did not expect that to happen, but that was because I knew that I needed to take something off my plate. I couldn't do both things at once. And that goes back to developing your team. And one of the members in my team is my partner and he's also very, very good at finding deals. So he does the finding deals part, I do the finding raising capital part and developing investor relationships.

Can you tell us how your partner finds deals? Yes, sorry, because everybody wants to know.

Yeah, sure thing. I must stress that the types of deals, 250 units isn't just something you stumble across. These deals are institutional deal. And he had many, many years experience, you know, over a decade of experience as an asset manager working for another company. And he had a lot of relationships with brokers and that is how he is able to find these deals, through his existing relationships with brokers and in terms of making those relationships work. And we were able to get this particular deal under contract, even though we didn't have any personal experience doing such a large deal, we were able to get it done through this relationship.

Reid, I think I should just interrupt you there for a moment. That's what I need to stress to people. There are so many gurus and promoter types out there who will go and tell you how to buy a hotel, an apartment complex, and they make it sound so easy. First off is finding the deal, getting any sort of credibility, being able to tie it up for any amount of time. Because the trick is tying it up and then raising the money quickly. That's really hard to do to make that timing work. But the other part of it that's really hard to do is that these promoters, they totally understate the amount of time and due diligence effort in doing the due diligence in figuring out whether or not you should do the deal at all. I mean, these are incredibly complex deals. Looking at the rent rolls, the maintenance costs, the management scenario. I mean, the last apartment building I purchased with a client of mine, 136 unit complex. I mean, there's a subsidized rental program going on in there and government regulations that would boggle your mind. I mean we, we are still honestly not sure what we bought completely. I mean it is so flipping complex, you can't believe it. These deals take months and months and teams of people sometimes to go through this. We spent between us and the sellers on that deal, we spent about $100,000 just in legal fees. And that wasn't including the accounting side of the equation. It was unbelievably. It's the most complex deal I've ever done.

And back to that question of, you know, we were talking about two different extremes here and I think we must make it clear to all your listeners that the larger institutional deals, you are completely correct. The 100 units, the 250un, they are complex and understanding how to underwrite those deals is very, very important. On a smaller deal, a mom and pop type of deal, maybe a 20 or 30 unit deal, it's a little bit easy to get, wrap your head around it. But there was, you know, Jason, there was a long time. The reason I got my mentor was because he was actively investing in apartment communities and that's what I wanted to do. Learnt how to look at the rent rolls, identify red flags, understand where I can make operational efficiencies through build back programs, through putting in separate meters. There's a whole slew things that you can do. And that's just part of the parcel of getting to your pitch deck and getting to your credibility. Back to that professionalism P that I was talking about and the other P, the patience is another thing that these types of deals, if you do two deals a year, that's fantastic. You know, you're not the volume isn't there, quantity and quality. But by doing two deals a year, you know, we'll underwrite, I don't know, 60 or 70 deals before we do two deals a year. So it's very, very time consuming. But that is why we do what we do. Because it's a bigger deal you take down.

Yep. They are much more complicated than the gurus and promoters make them sound.

Oh, 100%. 100%.

I just really want people to know that because.

Exactly.

I've been to many of these seminars and seen many of these speakers who are literally telling a room full of unsophisticated people that the last one I went to was a hotel guy. I mean it was. I just wanted to stand up and yell, you have no concept what is involved here. I mean the way he's explaining it. Oh yeah, we just went in and we bought this hotel and then we just ran it. It ran itself and, you know, everything was all well with the world. It's unbelievable that it's just a lie. It's just a complete misrepresentation of reality.

I completely agree with you. And taking a step back in terms of the complexity of first deal that we got under contract, we ended up losing the deal originally because our offer wasn't strong enough. And they didn't. Or the offer was strong enough, but they didn't trust us as a group because we'd not done this before.

Right.

And so they were looking at an institutional buyer. And this institutional buyer had turned out that they sued each other in the past and that fell apart and we were the next in line. And because the broker who was managing the deal knew my partner very well, we pushed us forward. And there was a lot of sleepless nights and raising capital was just hugely, hugely time consuming. And I can't stress enough how complex this. And I was one piece of the puzzle. You know, there's also getting the mortgage and there's also getting the legal documents and that goes back to your team.

And getting the insurance policies in place to manage the company. I mean, management contracts for these deals are really complex.

Exactly.

You know.

Exactly. And it goes back to looking at all the management contracts that you're going to sign with the manager who's going to take over this thing. That's the insurances. You know, it's very, very complex. And no one should go into these sort of things blind and thinking, I'm just going to go out and do a, even like a 70 unit deal or there's still large deals that you've got to be aware that it's, it takes time. And you're right, Jason, that you don't be fooled.

Yeah. What, what type of heating and cooling systems property have that makes a huge difference? What type of plumbing, what type of electrical wiring. I mean, you get into these apartment deals and you make a mistake on that stuff and it'll be an expensive mistake. I mean, you know, it'll sink you, it'll sink the whole deal. You'll buy it and you'll end up going into foreclosure. I mean, many people do. And commercial lenders have no mercy. It is not like, you know, the little homeowner they're foreclosing on. They'll wait, they'll do a workout. Workout. Oh, you know, this is business. Business is business and they're just gonna steamrolly. It's a different Deal. Yeah, no question. Address that issue, Reid, of the timing of the deal, because that is fundamentally important and difficult at the same time. You found the property and if you don't have this waiting pool of investors, but say you've got this deal that looks good, how do you tie up the property? Because they're going to ask for proof of funds and you don't have to it without your investors. Right.

You're completely correct, Jason. I still struggle with this to this day. I haven't found a golden investor yet who's just going to have a pool of money sitting to the side. But it goes back to making sure that you getting your pitch deck in front of a lot of people, you're out there actively advertising that you're doing multifamily investing and you have people waiting in the wings wanting to invest with you in your deals. You'll get to a point, and as I said, I'm not at that point just yet. 2016, hopefully we're going to get to that point where we're getting some really large, high net worth individuals involved in our deals and we can rely on them a little bit more. But you're right, the timing of the chicken and the egg scenario, well, do I get a deal under contract and then raise the capital, or do I try and raise the capital and then this whole sort of issue and it goes back to credibility, and it goes back to what I'm trying to do with my business, and that is build that credibility through having a podcast, through speaking at forums and different things like that. So when I do come to ask people, hey, I'm trying to raise capital on this particular deal, would you like to invest? It's a lot quicker because I've established that credibility early. But if you do put a property.

Under, I really want you to dress. Reid, the first deal, you know, when you didn't know that credibility, you know, maybe one of the solutions was you got a hard money loan and you paid a high interest rate, so a lot of your profits got eaten up and, and you closed the deal with a hard money loan until you could raise money. You know that that's something people don't.

Yeah. So in terms of the proof of funds, we actually got a local property manager guy who had a ton of equity. He was very interested in the deal, but we had tied the deal up prior to him getting involved in it, but he still wanted to get involved. So we said, well, my partner said to him, look, if you come involved with, we'll use your bank account as proof of funds and you can have the property management on this deal as a sweetener. He did and he came in involved in the deal and that's how we were able to show the proof of funds and that's how we were able to get the deal closed. Did take a long period of time. But there's many other ways that you can close deals early on, particularly on a smaller, say 20, 30 unit property. And that might be that you do a hard money deal early on for first 12 months and that you put that in your underwriting to know that once the deal is stabilized, you can recash your money out, pay off the hard money loan, and then use more of the conventional financing once the deal is up and operating. There's many different ways you can skin an apple, so to speak. And one of those is using private equity or hard money loans to get a deal off the ground for the first 12 months and just knowing that you will be paying higher interest rate on that. Pay that interest rate off in 12 months time and then you still have an asset that is operating but you've got your first deal done. And that's really, really important.

Yeah, very interesting. Okay, what else do you want people to know? Just anything. I haven't asked you maybe.

My main focus is that I'm from Australia and that I moved to the United States and now my angle is helping other international investors break into the US market. And I have a podcast all about that and understanding the different investing lingo to understanding how to set up your entity, structuring to understanding different markets to invest in. I just had Jason, yourself on my show, which is your wealth of knowledge. It really just goes back to the steps I learned in the last four to five years and trying to avoid those pitfalls because there's a lot of really cracking investment deals out in the US and trying to get that message across to people out there that there's a high yield here in the United States, low barriers to entry and you can make some good money and people just need to be educated. So I'm coming from the point of view of trying to help international investors purchase US real estate.

Good stuff. Give out your website.

My website is@rsmpropertygroup.com you can also find me on itunes, Stitch Radio, all those things on SoundCloud. And that is investing in the US and Aussie's guide to US real estate. Or you can search my name. Reed Goossens. R E E D G O O S E N S so I hope you tune in and listen to our show.

Good stuff. Well, Reed Goossens, thank you so much for joining us.

Thank you so much Jason. Have a great day.

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