Phil Toth Puts the Pieces Together: Episode 10 of the Live Sessions

All right, Phil, you are up.

Oh, billionaire!

You said a billionaire?

Oh, you have to wear this.

Matt coined that. He's got a brand now.

Good branding.

Here we go.

It's like a baker's dozen. Phil with $3 stacks, man.

There he is.

There he is. All right. You guys all know Phil. Phil's been, uh, Phil's been a blast at this event. Phil, I appreciate you being here so much. I've said this like 4 or 5 times. Phil is more or less what should happen when you make minimal mistakes. Not that he didn't make any mistakes. You're gonna talk about some of them, I'm sure. But Phil made very few mistakes, just kind of doing the thing going through. Phil, I just wanted to talk and I want to hear you talk about your journey since you joined Multifamily Strategy, not as an ad for us. I just want, as your experience from— you had a goal. What was that goal? What did you do? And ultimately, what I'd really like to know is what— why did it work for you? There are things— you had mentioned a couple in the pub last night, right? Hey, there's a change from when I was stuck to when I was unstuck. This needs to go way up. So I'll— I'll help you there.

Slide that up.

Ladies and gentlemen, the billionaire.

Oh, geez, no pressure. Um, yeah, so basically my sort of journey started. I, uh, I, yeah, joined the mentorship. Problem was I, I sort of sat on the fence for 6 months and was, was just waiting, waiting, wasn't sure. And then I finally realized, like, the education you're gonna get is gonna move you forward so much faster. And like, once you make that leap to, all right, I wanna do the thing, um, like just getting into— you're gonna have to help me keep on track. I, I'm gonna get all sideways talking through this. But, um, yeah, it just, it moved forward so fast that Christian, you know, the— Yeah. Hold on a minute. I gotta collect my thoughts.

No, that's okay. I can Q&A you here too.

Yeah. This will help because I'm— yeah. All right. What's a specific question here I can answer?

Okay. So you joined the mentorship.

Yeah.

You had mentioned last night in the pub that there was a difference between when you joined. There was a while where you weren't participating as much as you would've liked to.

Oh, yes.

And there was a jumping off point for you where you're like, hey, what was the actual change between I was at the mentorship and I was in the mentorship.

Yeah, definitely the participation thing. Like I said, I sat for 6 months sort of hemming and hawing, finally jumped in, and sitting in the background sort of listening to everybody, not really participating because I wasn't confident on the terms. I didn't really understand, okay, we're talking about cap rates. What's a cap rate? Type that in. And then once I sort of got enough repetitions in to where I started to understand the language, then I felt confident presenting. And then I was like, oh, okay, I can do a lot better if I just get the reps in, if I get— do this over and over and over. So every week present 1 or 2 deals. And in between those sessions, I was doing on my own, doing the math, like 4, 5, 6, 7 deals every day. Just to get the reps in, and then once I sort of started to get that critical pattern recognition of like what my buy box was, not like oh this is a good deal, that might be a good deal. Like I didn't get too spread out. I was just looking at between eight and fifteen units, and I would look at everything in my market, absolutely everything. I think Cody, you were saying like you've. looked at everything in Washington. That's what you need to do. You need to be able to see what is a good deal when it comes up. Like, okay, everything is at this level, this level. Oh, this one's down here. Bam, jump on that one. And yeah, that was what really flicked the switch as far as like just the confidence to then go and make an offer. Like, oh, I've seen this before. This is a good deal. I know it's a good deal. So you double-checked me and yep, sure enough, off to the races.

His first deal, I was worried that it was too good. I was like, we're missing something. And then it turns out we weren't. It was just a really good deal. And then he did it again and then he's doing it a third time.

Yeah, it keeps working. Christian, you told, that was the deal.

You said, don't worry about that one. I'll take this one first.

Yeah.

Don't worry. Just put that in my funnel. Now, Phil, with the first deal, I know we discussed it. There's coaching around it, but for you personally, There is a jumping off point for, I believe this is a good deal and I actually go under contract for the deal. How did you, at what point did you know this is the deal that I'm ready to offer on? This is the one that we're going to do.

Oh, before I ever even presented it on the Tuesday call, I was scrolling through LoopNet, saw the property, saw the price and was like, that's mine. I'm going to, I'll have that. And as I did the under— well, it's just—

I love this.

Pattern recognition. Like, yep, this looks like the kind of thing that I've been looking at. It's the price that is significantly below market. And yep, did a quick little underwrite with the rent. All I had was a rent roll and a sort of loosey-goosey T-12. And I was like, close enough, close enough. Okay, we'll work out the details in due diligence, but I'll go under contract based on this information. Then later on worked out all the details and whatnot. But like just scrolling through, saw one that just hit that pattern. And because I'd done enough reps through the mentorship and through on my own, just saw the— that was the deal. Oh, that one.

Can you, can you tell us a little bit about your first deal? Like I know some people know because They were there.

Yeah, absolutely.

How did you, where did the money come from for the first deal? And how was, how did, like, how did the transaction go? Give us the whole—

Yeah, okay. So I started out in LA. Um, I was, you know, just a poor, broke, bum sailor. Uh, you know, the old joke is, what do you call a pro sailor without a girlfriend? Homeless. So the, the opportunity to buy my parents' house, my childhood home, I bought that house, renovated it, sold it at exactly the right time during COVID rolled all that. My wife and I then moved to Pittsburgh. In Pittsburgh, bought a house that was a third the cost. And then, so I had some capital left over. That capital, we then bought a single-family. I renovated that. Now I had renovated 3 homes. I was really confident with contractors and, you know, electrical and mechanical stuff. And then started, I took about a year off because I was burned out on renovating and I started to look around at, I had a guy that I was racing with. He's got $8.2 billion in multifamily and big, big, big, big guy out on the West Coast. And I was sitting around on a boat with no wind and I was like, all right, I've got this guy that's an incredible business mind. Let me figure out what he's done because he's clearly got something. He's doing something right. So let me pick his brain. And his advice was, yep, buy 1 house 1 year, 2 houses the next year, 3 houses the next year. And that was when I sort of started hearing your stuff. And you're like, it just— multifamily just extrapolates. It just expands and grows and— or it's scalable is the word I'm looking for. And I did the math on the single-family route of what he had advised. I was like, yeah, it looks great in 20 years, but I want to retire my wife now. I don't want to wait 20 years. I don't have 10. I don't have 5. I want to do it as soon as possible. So that was when the multifamily side of things, like, okay, it's just the same thing of what I've been dealing with. It's just longer roofs and more doors. Not a problem. And that was sort of when I got into, started looking at the multifamily stuff and started that journey towards multifamily strategy.

Now, the first, this, this first deal you did, what surprises did you get along the way doing the deal? Because the deal went exactly the way you thought it was with absolutely no hiccups, right?

Uh, yeah, of course. It always goes exactly the plan, exactly on budget. Um, no, I mean, just from day one, there were issues. The The sellers were slummy, just slimeballs. They were trying to screw— they didn't show up to closing, not for any reason, just because he wanted— the seller wanted to make me squirm. I was the new guy and he just wanted to stick it to me a little bit. And so that, going through that, developed a relationship with the broker. He came more on my side. Anyway, that ended up feeding a lot more properties down the road just because I was the standup Good guy, and he wanted to work with me rather than the seller. So that's led to the next two properties. Just being in and around the multifamily space, other people move into your sphere, and you never know who's going to come into your network. But yeah, the deal went. Of course, it never goes according to plan. But one of the big lessons I learned not to do wrong. was just fun. Bring more money than you think you need. Don't try and pay for things out of cash flow. You know, I, I brought to closing the, the closing costs plus the down payment plus another $150 grand to renovate everything. I did a budget, talked to, um, uh, construction. The whole construction industry walked through with me and gave me prices and put a budget together. Um, and yeah, we, we started doing the build. Like, we went a little over. We ended up Being able to add a 10th unit, which really increased NOI. And then on the refi, took it from purchase price of $430,000 and, and we refinanced for $1.3 million. So pulled out $550,000 cash, and that's now funding the next deal. I was able to pay off my partner on the second deal, so I own that just myself. And then I still have enough cash left over that I can buy the third deal by myself. Yeah. So that's like, it just, it's true what you say though. It's the more, the more pieces you have on the board, the more stuff you can move around and it just snowballs.

On the second deal, are you going to refinance that one as well and pull out more capital? Or is that one you love the debt product? What's the strategy now that you've finished or you're finished?

I don't have to. That's the great thing is like, I don't, I'm not in a position where I have to pull out the capital to return anything to anybody.

Yeah.

Because I've already done that with the first one. So yeah, I mean, I'm at max leverage on the first one, but it's making my life a lot easier on the next 2. I can just hold on to it until I need a big influx of capital. So if I find like this 38-unit that I'm working on, yeah, okay, I'll leverage the second property and the third property to get to that bigger unit.

What is your net cash flow from the first 2 deals?

First 2, $14,000. Yeah, yeah, cash flow. $14,000 cash flow.

That's so much per unit.

Yeah. Out of 24 units, 23 units. Oh my God.

Yeah.

It's just, yeah.

Per month?

No, this is monthly, monthly cash flow. Yeah. It's just such a, I, that's what I want. I, I often think about how much debt and how much work I put in to put together about, yeah, about $50,000 a month of cash flow.

Yeah.

If you extrapolate what Phil's done, it's like, oh, you're there at like 100 doors.

Yeah. But I mean, but it was, it was 60, 80-hour weeks and, you know, lots of literally digging ditches and, you know, foundations. It was a lot of work up front. Nothing's free. Um, but it's just what it, what business do you want to build that suits where you are? Like my, I wanted to build as big and as fast as possible. So I'm taking a lot on my shoulders, whereas Garrison has a hell of a lot more doors than I do, but he's doing using property management. He's growing a lot faster, but that's what suits his business model. It's just build the thing that fits your— where you are. You don't have to do what I'm doing because I live in the place where my units are, where I'm building my portfolio, so I can manage it.

Hmm.

So if I can manage it well, self-management makes an awful lot of sense. If you can't buy in your backyard because you live in a blue state and you're out, you're, you're relying on property management, like Garrison's doing it really well. He's found a good property manager and he's building around them because that's the limiting factor. Matt?

So a lot of folks here don't know the details of your first deal, so can you walk through the condition of the building at the start?

Yep.

Occupancy, tenants. What the plan was and then how then you won.

Yeah, absolutely. So yeah, so my— the first deal, you know, uh, fortunately the property had all— like, there was 9 units, um, and we had 9 leases. So when I went to the bank, it's fully occupied. But in reality, while I was under contract, 2 tenants— one tenant moved out organically Another one had a heart attack and he went to hospital for multiple months. So I had 2 vacancies right there. And then while we were in due diligence before we closed, another 2 more, I found, we found out that one hadn't paid for 4 months. So that was an eviction. And then there was another lady that was certifiably insane. She legitimately went to mental hospital for multiple months, was a part of a program that was funding her to live out of the hospital. Like it was just a— giant disaster. She called the cops on me multiple times. Just a whole headache. Anyway, yeah. So there was 4, really out of 9 units, there's 4 vacancies, 4 real vacancies. So we instantly went in, renovated all those 4 units, brought those up to fair market rent. And then I didn't raise rent on everybody else. I just waited for them to— their leases to expire. And said, did the binder method. Um, and then because in the meantime they'd seen all the hallways improve, they'd seen the building improve, new roofs, new gutters, all the big ice dams and ice problems in the wintertime were being taken care of. Somebody was shoveling the sidewalk for them, salting, and just things were happening. When they would call on maintenance calls, somebody would show up. Um, so they're seeing a value before you go and say, hey, pay me more money. Hey, you now have the option to go to this brand new unit over here. It's this price, or you tell me what you want to pay to stay in your unit. And invariably, they go about $75 to $100 under what fair market rent is. Like, sweet, I don't have to spend $15,000 on your unit to renovate it. You're going to pay me 90% of fair market rent. So did that through the whole building, spent about $250,000. Renovating a $400,000 place. All the rents went up and I noticed my clientele changed. My clientele went from— we had a sex offender. He was like on Megan's List, rapist, like really bad dude. He was living there. We have a couple of drug enthusiasts that were living there. When we did the 10th unit, the guy that was delivering the appliances, he was like, hey, 3 years ago I got stabbed on your front doorstep. He goes, you've done a great job with this place. It's nice, it's clean, it's neat. Like, legitimately, the kid grew up down the street and got stabbed in front of my building. Um, so yeah, we're raising the neighborhood. And because of that, the neighbor across the street, he's now sticking another $300 grand into his place. So he's seeing what I'm doing. And then the neighbor next door, he's building big warehouses and improving his facilities. And they, they own the entire street, so they're starting to build the infrastructure around us as well. So the whole area is going from— when I bought it, it was really slummy, really crappy. And it was a D-class property, D-class tenants. And it's in a C area. And so I brought it up to sort of B-. Now, I've got my tenant pool is people that are young professionals. They've been working for 4 or 5 years. They're making $80,000, $80,000 to $100,000, somewhere in that 6-figure range. Young professionals that want a nice, neat, clean place to live and that they can be proud to call home. So now I don't have delinquencies. I don't have vacancies. I don't have calls in the middle of the night. The first 3 months while we were— I was getting calls 6, 7, 8 a week. I've had 2 calls in the last 4 or 5 months because we fixed all the problems. There aren't any problems. And our tenants are good people. They're not sitting at home sticking their fist through the wall. They have lives. They have jobs. They're busy. They don't just sit at home and wreck the place. So yeah, you just move up in the world and a lot of your problems just go away. They become easier.

So your first deal is a home run. Your second deal is a home run. You were saying earlier, your third deal that you just want to contract looks better than the first 2 deals.

Yeah. Well, it's the exact same deal. It's just half price. Again, it's that pattern recognition. For the last— I hadn't— last property I bought was in November. I've been analyzing deals all the last, what, 7, 8 months. I've offered— I've made 14 or 15 offers in that time. Everything's been at like $900,000 to $1 million for the same My Little Buy Box. This one was $425,000 asking price. I called my agent. He brought it to me. It's off market. I said, well, offer them $400,000. He goes, why? Just give them their asking. Why? You know that this is a deal. Just get it done.

Okay.

I always got to ask.

This came to you through what?

Yes. Okay. Because— so it came through the first property. My agent there was the seller's agent, um, and he— so he double represented. He got annoyed and pissed off with the, with the, um, seller. The seller, because they were just unscrupulous. So that then led to the second property. Um, he— the, the broker now has an office in my part of town. One of his agents is living in this apartment building. And that agent said, oh yeah, I'm a, I'm an agent. Do you have anything for sale? And the guy, the seller said, yeah, I'm thinking about selling this. Well, actually, our client is that guy over there. He owns this, this, and this. Would you be interested? Yes. Made the connection that way. Like, it's never gonna hit the market. It's just, I'm the only one that's ever gonna look at it. And Sign the deal. Let's do it. So it's just the same thing with— it's amazing who you make connections with just randomly. I was looking at buying some washing machines for one of my units because I don't have washers and dryers in units. I have a basement that I renovated and put a whole bunch of washers and dryers in. And I went on Facebook Marketplace and found a couple of commercial washers and dryers. Turns out the guy that was selling them was just closing down His laundromat, and he owns 900 units in my town. We became friends. So now, like okay, I'm yeah, I'm getting sued by a slip and fall. Yeah, whatever. Okay. Hey, I called the best lawyer in town. Now we're not taking on any new clients. Crap. Okay. Called my guy with 900 units. Who do you use for a lawyer? The guy that I just called that told me no, we're not taking on new clients. Hey, Phil's a good dude. Hook him up. Sure, what can we do for you? Like, just open that door. Like, you get access to things that nobody else— you wouldn't otherwise normally. It's just, you gotta get— once you get moving and you get pieces on the board, people start coming into your world.

Why would that guy take $425,000?

Because his rents are really low. I'm charging $1,150 to $1,350. His are $500.

So these people just don't know what they don't know.

Well, they just, they haven't done the— they haven't done anything to improve the building. It's, you know, it probably hasn't been touched in 40 years. Um, everything's sort of run down and dilapidated. Like, I'm probably gonna have to put $200 grand into it. Um, but their rents are commensurate with the quality of the building, I'm assuming. Or they're just, they're just people that don't Oh no, this so-and-so's been in this unit for 15 years and never raised the rent on them. Their rent's been the same for the last 10 years. And well, okay, your, your property is only so profitable, ergo the price. Yeah, I mean, yeah, he probably could have asked $600 and I would have paid it. Wait, this isn't being recorded, is it?

Send it to him immediately.

Yeah. So I guess the end of it all is my business model is like what you were saying earlier is I started out thinking backwards. Who do I want to rent to? I don't want to rent to the pain-in-the-neck tenants that don't have any money. So how are they going to pay you if they don't have any money? They're just going to cause you headaches and you're going to be chasing them for collections. I don't want to deal with those sort of people. Who do I want to deal with? Young professionals that are just starting out in life, good people with a— providing good housing for good people. So I identified who I wanted to rent to. And then I thought, all right, well, what are they going to want? And I built that product for them. Instead of trying to buy a product and then find somebody to sell it to, find the person you want as a client and build something for them.

Yeah.

So that's just sort of been my business model the whole way through.

If you build it, they will come. They will come. Yeah. Yeah.

And the current owner just doesn't—

his business model is— He's a lawyer. So his daughter owns— there's 3 buildings all back to back. They own the lawyer office on the corner. And then there's an apartment building attached to it. And he's like, I'm retiring. I don't want to deal with this anymore. I'm 80 and I don't want to work anymore. I want to sell this. I want to get rid of it. They just told me like, oh, yeah, we own a whole bunch of apartments. All right. Well, guess what? Let's get a little further into this and make sure it's what I want. It's a doable deal. Hey, would you be interested in making a deal for the whole thing? I'll take all of it off your hands. Once you have that relationship—

Yeah.

I said it's not— this program's not get rich quick.

It's not passive. It's not passive. You're frontloading. We were talking about this at lunch. You're frontloading all the work up front. Yes. You know, coming from the career I had previously, at the end of my career, like all my friends look at me and they go, I race sailboats for a living. Oh, you're in Croatia. You're in, you know, next week you're in St. Barts racing on big mega yachts. Like, Oh man, you're so lucky. Lucky like hell. You didn't see the sacrifice and the hard work it takes to get to a position where— like, if it was easy, everybody would be doing it. But the hard work you have to take to get there, the sweat, the blood, the tears, the sacrifice— like not starting a family for 20 years, not having a retirement account, not having money or being able to do anything ever because you just, you're always worried about the next A little bit of income. You're sacrificing all that stuff to get to this thing at the end. Real estate's the same way. You're going to sacrifice and work really hard in the beginning, and then everybody's going to see you at the end at retirement going, wow, you get to live on an island, or you can be anywhere you want, and you have unlimited disposable income. It's delayed gratification. You're going to do the hard work now, or are you going to stretch it out over 20 years and never eventually get there?

That's awesome. Well, ladies and gentlemen, this is Phil. Phil's gonna be back up for our Q&A. We're gonna take our final break and then Phil, Phil will be up for Q&A. Every— all the speakers from today will be up for Q&A and then we'll wrap. I will ask for just a few of you guys, if you are cool with it, I would love to do an event like this again. To do so, I have to get Dylan and team actual clips of people talking about how cool the event was. If you guys are willing to give me a few testimonials like, hey, How did you like the event? What were your takeaways? I'd appreciate getting a few of those with you guys if I can grab a few of you guys after the event. But right now, let's go to the last.

Yes. Real quick question. Who here is enjoying this event?

Hate it. Yeah.

Who here feels like it was underpriced for the value of a cabin and a whole?

Both hands.

Again, at some point in the future, six or twelve months from now. Okay, cool. So we would love to be able to as a marketing person. just be able to get even more high-value people in here, right? Like, you know, you guys are all awesome, but like, let's, let's get even more people in to learn from. I've learned so much from you guys and thank you for that. And I would love to come back 6 to 12 months from now and like keep learning from you. So, uh, that would be super helpful. Just like some clips, like here, here's my experience is awesome. And, and, uh, that'd be appreciated.

Before we break, can I point this out? Dylan's superpower, which is really good. If there's one thing that I got from Dylan's presentation, Amazingly, it wasn't even the presentation. It's the fact that Dylan, how many people did Dylan name? He came in late yesterday afternoon. Dylan's superpower, he's, he's my marketing guy. He's the best sales guy I know. He remembers everyone's name. He remembers everyone's story and he's able to put together a speech. Oh yeah, this person did this and this person did this, this person. If you want to raise unlimited capital, that's the actual skill that you need to have. If you can do that. That is such a cool thing. So Dylan, thank you for displaying that on stage. That was very cool. Thank you for that.

Or find a Dylan for you.

Or find a Dylan.

All right, let's break.