PODCAST

Multi-Family Entrepreneur With Lior Rozhansky

Mitch Stephen|By September 10, 2020

Episode 410: Multi-Family Entrepreneur With Lior Rozhansky

View this episode on:

REIS 410 | Multifamily Entrepreneur

Taking the leap to real estate can be daunting. In this episode, Lior Rozhansky, an entrepreneur and Vice President at Compass, joins Mitch Stephen as they talk about the multifamily industry. From pre-med to real estate entrepreneur, Lior shares his experience coming into real estate in his early 20s and how he found the guts to make the transition. They also discuss the ups and downs of each deal and some underwriting guidelines on multifamily deals, emphasizing how you should master your niche before venturing out.

—

Watch the episode here

I’m here with Lior Rozhansky and he’s in Boston. He’s going to talk to us about how we can buy multifamilies and how we size them up and how to get into the multifamily space starting from zero. Before we do that, let’s pay homage to our sponsor, TaxFreeFuture.com. If you don’t have a tax-deferred or tax-free account in which to grow your finances or to grow your retirement, you are missing a huge tool in your toolbelt. Please check out TaxFreeFuture.com. Check out the 37 little video vignettes there. My favorite ones are the ones that show you how to open your account with a little bit of money, and then use that little bit of money to make a whole bunch of money in that account. I did it myself. I know it works. Check it out. Lior, how are you?

I’m good, Mitch. Thanks for having me on here. I’m excited to be here.

How old are you, may I ask?

I actually turned 27.

Young guys piss me off. I was 34 years old before I found my butt with both hands. I didn’t know what the hell I was doing.

I consider myself old. Don’t worry.

For the record, since I asked you, I’m about to turn 60, so I don’t want to hear none of your, “I’m old,” stuff. Good for you. You started off early. You’ve got a college degree. You graduated from high school and then what happened?

I graduated high school. I ended up going to college locally in Boston University. I was destined to be a doctor. I was in a pre-med track. I even applied to med schools after college. A year after college, I started reading a little bit about real estate. The med school trail got derailed very quickly to the dismay of my parents.

I’ve heard this story before and I’ve participated in this story before. One of my interns came to work for me for $10 an hour because he had this dream. He had graduated from Trinity University in San Antonio, which is a very expensive school. His parents were not happy. He was working for me for $10 an hour as a little stipend so he could buy gas and have a hamburger every now and then while he learned. He’s now a multimillionaire. He’s probably 33, 34 or 35 now, but his parents were upset. A lot of doctors are my investors. I have $26 million out on the streets right now from private people. If you ever want to know about that, it’s in the Private Money Changes Everything course over there at 1000Houses.com where I talk to people about how I’m able to raise that money and why. I have a lot of doctors. Sometimes you can see the frustration on their faces because they got to go in and do those operations or perform every day or they don’t get paid. They see my Facebook and me traveling around or doing what I do. A lot of them are blatantly envious. It’s hard to take off when you’re the person who has to commit the act that drives the paycheck. It’s hard to systematize, “I’m a brain surgeon, but I’m going to sub this out to this guy.” It’s not going to work that good.

There’s always a good balance of good and bad deals. Share on X

It’s time for money. It’s a very good time for money trade-off, especially for doctors. They get paid handsomely for it. If you don’t work, then the paycheck isn’t coming in. That’s what I realized on my first deal. I bought my first property. It was a multifamily and I started getting income passively. It blows your mind the first time that a monthly income hits your account without you doing much.

I like to say you’re going to spend some time or a lot of time or an absurd amount of time getting it set up and structured in place, and then you can walk away from it. It’s like a water well, it keeps producing. It took a while to drill that hole to get down there, to put the pipe and set up the mechanics of it and have a pump in it and have some pressure and all that jazz. After it’s done, you have water for a long time, if not forever.

Let’s be honest, if you’re going to be a high-paid professional like a doctor or whatever it is, you’re going to put those hours in any way through med school residency anyway. There’s a trade-off one way or the other. The question is what’s going to build you a true legacy and a system that can continue to make you wealthy?

What was the first light bulb? You didn’t just wake up one morning and say, “I’m going to find a house.” Something happened that drove you. Did you had a friend or someone told you or you watched an infomercial? What was it?

I don’t have any family in real estate. They had nothing to do with real estate at all. I actually had a couple of friends talk about buying a house while I was applying for med school. I thought they were crazy off their bus. I told them that to their faces. I started doing research like a lot of people do at that age. I realized that if I was going to invest in the stock market, I didn’t think I was going to be that next genius who would be able to crack the code on making millions in the equities market. The next best thing that seemed on the paper was somehow real estate. Even though it was incredibly intimidating, I had zero background, I knew absolutely nothing about real estate, the concept behind it, the numbers seemed to make sense. That’s why I started exploring that path. That’s why I’ve been on that path since. The numbers are very rational and logical.

Tell us about your first deal.

I was 23 at that time. I had saved up a couple of dollars for my job after college. The way I decided to attack it was go through an owner occupant loan. I knew I wanted to do multifamily because I knew I could get better cashflows than a condo or single-family. I lined up an FHA loan, which allowed me to put down 3.5% of my first deal. Boston is obviously one of the most expensive markets in the country. Every percent that you can save on the down payment is a good chunk of money here. I was able to squeeze in at 3.5% and jump into my first deal.

How do you qualify for this loan? You’re a young person. Did you have a good enough job to qualify?

Yeah, I did. You definitely need some job, income or whatever. You can’t walk into a bank and ask for it.

What were you doing?

Multifamily Entrepreneur: It blows your mind the first time that monthly income hits your account without you doing much.

At that time, that was in-between transition time between college and med school. I ended up taking a job as a management consulting. I took a couple of business courses in college. It was a little bit of an interest. Management consulting was an interesting job for me. It did pay pretty well, so I was able to qualify for a good-sized loan. That’s how I was able to leverage that into getting into my first deal.

How many units was it?

It was a three-unit property.

What was the price?

I bought that property for $520,000. Now, that property is worth about $750,000 and throws off about $1,500 per month in cashflow.

If you take care of these places and keep them running, you look up and the appreciation on $520,000 is a lot more than the appreciation on $50,000.

The numbers here are definitely a lot bigger but it takes a lot more to get into these deals. You’re right, the depreciation schedules are better here. Cashflows can be quite juicy here as well. My first deal is probably the best deal I’ve ever done.

I feel sorry for some of these people that make a crapload of money on their first deal. I’m like, “They think that every deal is going to be like that. They just got lucky.”

Trust me, my next two deals were an absolute disaster. I quickly learned that you’re going to have a good balance of good and bad deals.

Even when you think everything is aligned on your end, you still got to stay extremely sharp. Share on X

Let’s talk about that. Your next two deals are disasters. I like to talk about the downside or even 50/50. I don’t want to talk about the upside 100% of the time and not mention anything. That’s what my book, My Life & 1,000 Houses: Failing Forward to Financial Freedom, was about. What happens after the “Get rich quick” seminar? You go there and they show you boats and cars and big checks and pretty girls and all this stuff. They never tell you the downside of anything. You go out there to do what they told you to do and you start finding out all this stuff that those jerks didn’t tell you. I was venting in this book about what they didn’t tell me at the seminar. Tell us about your two not so great deals after that first one.

It’s what you said, it’s very real. It could be very sexy upfront, but once you get into the weeds of it, it can kick your butt quite a bit. My next step, my thought process at the time I bought this property. I was starting to consider a career in real estate. Your first deal went so smooth and well, why not? The next two deals, I essentially jumped into the condo development deals. I ended up networking. I did a lot of networking and got connected with a local developer. I found them the deals that made sense. With that, he essentially became a partner in that deal and became one of the main operators. Those two deals, they kicked my butt. I became not only the operating partner, but I was the GC because we sort everything out. I was running the show with absolutely zero construction experience. These contractors were talking to me and all I could do was put up a blank space. I had no idea. Half the time, I had to fake it until I make it thing.

We also took on a hard money debt at this point because those were my first two deals. We were on very expensive interest rates. We had a ton of construction delays. Both deals were supposed to take us a maximum of a year. They ended up taking us between 18 to 24 months. As you can imagine, the loan sizes here were quite significant. These were million-dollar loans on 12%, 13% interest rates. Those numbers added up very quickly. Between the interest, between the construction delays that we had, between the fact that I did not know anything about construction at that point, it was a perfect storm for me to get my butt handed to me between those two deals.

You’re not afraid. Hats off to you on that. You’ve walked right into the fire. You picked one of the most difficult things and one of the most difficult places to do. Everyone underestimates the red tape of a city and municipality. We bought the office next to our office. We’re getting ready to remodel it. It’s not even a big job. It’s a 5,000 square foot commercial job, although it needs everything in the world. The building is very old, one-storey. We figured we’d be in and out in a year pretty much. It’s about going on two years and we’re about to get the permit. The last time they kicked our permit back out, we said, “What could you possibly need now after months and months of kicking this set of plans back and forth?” They said I needed a bicycle rack. I didn’t have a bicycle rack for someone to park their bicycle. I was like, “Could you say, ‘We’re going to go ahead and approve it before you get your final, just add a bicycle rack in there. Here you go?’” I’ve got to redo it and send it back in because I don’t have that bicycle rack.

Why would it be rational?

Why does anyone need a bicycle rack? If you have a bicycle, that’s your problem. I don’t know. It isn’t my problem that you have a bicycle.

I dealt with the same thing. Honestly, before I went to these projects, I admit this once in a while. I didn’t even know what a permit was. I thought we just go in, hire some guys and they do the work. When I found out that we had to get architectural plans, we have to get permits and everything, it started sinking like this is a completely different process than I could have ever imagined upfront.

The plans alone for a little $5,000 getting the architect and get someone to walk into the city because I’m so glad we didn’t try to do that ourselves. I would never know how to deal with these people. They wouldn’t like how I wanted to deal with them, that’s for sure. The first $45,000 is for the architectural plans. By the time they finished the electric and the plumbing and the sprinkler system and on and on. It pays to get a pro sometimes. Did you lose a lot of money on that project or are you breaking even?

One of them we somehow were able to squeeze out a very small profit, almost negligible. The second one, we did lose a little bit of money. The way I consider that, that’s the price I paid for my MBA in construction management and learning real estate. It was a lesson that I still take to heart.

Multifamily Entrepreneur: There’s a trade-off one way or the other. The question is, what will build you a true legacy and a system that can continue to make you wealthy.

There’s no free education. You’re either going to hire someone to coach you through that process, whatever process that is or the street’s going to teach you a couple of lessons. It’s going to charge the hell out of you. You would have been a lot better off to even talk to a coach about this project before you started, someone who had already built a bunch of condos or whatever. You wouldn’t have committed before it was too late. Once you committed, it’s like, “I’ve got to go do it now. I’ve got all this money on the line.”

I thought I could outsmart the system a little bit because I did partner with a more experienced developer. Even that goes to show you that even when you think everything is aligned on your end, you still got to stay extremely sharp because you may have experience on your side, whether it’s you or a partner, things can still very quickly and easily turn south. It’s crucial regardless that you stay sharp and you take everything as an educational process.

Is this the same partner you have now or do you have a partner now?

No. We cut that cord with that partnership for various reasons. Now, I do have a different operating partner. Right after those projects, I swore off flipping and condo developments and decided to stick to the buy and hold strategy since my first deal was the buy and hold that worked so well.

One of the lessons learned, pick one thing, stick with it until you’re great at it.

One strategy, take one thing that you can dominate and do that over and over again.

When you can put that business on and off like a pair of pants, then maybe you say, “What’s a second strategy that fits well with this first one?” Only after you have mastered the first strategy.

We still use that principle now because after those deals, we ended up doing a number of projects that were all existing buildings, existing value add multifamily deals that were all deals that were on a little bit of distressed, whether they needed some work or they have low rent paid by tenants. We came in and stabilized the building. We ended up doing a number of projects like that. Now, we’re finally starting to go into the next branch of business. We’re starting to get into the new construction aspect of the business but still from a rental perspective, the next evolution in our business. Absolutely stick to one thing that you’re good at. Once you become good at it, then you can slowly start branching off into the different avenues.

Here’s an interesting question. How are you and your current business partner different?

Get educated, and then pull the trigger. Share on X

We both bring in two very different sets of skills. After that whole construction management project that I did with the condos, I figured out that world pretty quickly and I know that world, but I also realized that I don’t like doing it. I don’t like being the guy that has to manage all the contractors every single day, answer all their questions and all that. It’s not my favorite thing to do. Whereas my partner is good at construction management, dealing with the contractors, dealing with all the vendors, etc. That’s his forte and that’s what he brings to the table. In addition to that, he has more experience in the commercial lending world. What I bring to the table is the acquisition side. I’m very good at the underwriting aspect. I do a lot of our deal analysis. I do a lot of our marketing and deal-finding. Once we stabilize the properties, I’ll do a lot of the tenant management. I’ve got a couple of contractors that I work with that can help us with regular maintenance stuff. We do both bring in a unique set of skills that allow us to work well together.

How many doors are you pushing these days? How many doors do you collect on these days?

Right now, between everything I own, I’ve got 28 units, which is a collective value of about $9 million in real estate. We’ve got two new construction projects that are going to be kicking off as well.

You’re giving away a free property evaluator for multifamily and value-add multifamily properties. I want everyone to go to 1000Houses.com/lior in honor of our guest and go check it out. It’s a little underwriting guideline on how you size up a good multifamily property and decide whether you want to pull the trigger, what offer you want to make. Check it out. There are two courses that he can offer. You’ll find these also at 1000Houses.com/lior. It’s a course on how to successfully buy and manage your first multifamily deal and a shorter course on how to underwrite a multifamily value-add deal. Check out those two courses. If you’re interested, there will be more than enough information over there to get you to Lior and his organization. Let’s talk about property management. Do you do it yourself or do you sub it out?

We do all of our management ourselves. We’re starting to push a decent amount of unit count here. That’s one of the things on my radar for the next couple of months as well is to start interviewing professional property management. I’m starting to realize when you spend a couple of hours every single day dealing with pretty much non-income producing activities like dealing with small maintenance requests or small issues here and there.

Let me shortcut this conversation for you. Talking to tenants sucks. How’s that?

That’s a great way of saying it. There you go.

The sooner you can get out of that position and pay someone. Here’s the thing. When it’s your money and it’s your project and you’re this obviously higher-level business person than most of the people that you’re dealing with as a tenant because they wouldn’t be tenants if they were sophisticated. Typically, but not all the time. It’s your money and it’s hard to take the emotion out of that. “You need to come fix a hole in the wall.” “There wasn’t a hole on the wall when I gave it to you. How did the hole get there?” “I put my fist through it.” “In my house? The one that I built with my money?” I have to remove myself from that position because I would soon go over there and beat him with a baseball bat. “How about this? How about I beat the hell out of you here with this bat?” I had to get someone in between because when they call that lady, she doesn’t care. It wasn’t her wall. It’s not her money. “It’s okay, you’re going to have to have a little penalty for this, but we’re going to come over and have someone fix it.” I’m raging mad. I want to go there and strangle somebody. I realized right off the bat that if someone didn’t get between me and my payers, I was going to probably go to jail.

It’s a frustrating activity because you’re right, especially if it’s properties that you’ve renovated or built, there’s always going to be a little bit of emotion. For me, once you reached a certain level of business, even if you can handle the emotions and even if you can separate it, you’re better off doing something else, whether it’s acquisitions, go find another deal, whatever.

Multifamily Entrepreneur: The numbers in real estate are rational and logical.

You didn’t make your money find dealing with tenant issues. You made your money finding deals. I’m going to assume that you still like that part. I don’t know anyone who’s found a lot of deals that doesn’t like it. We all become what we call deal junkies. We’re hooked. I finally got to the point where I don’t care if I ever physically myself go buy another house or sell another house. I don’t care anymore. The new challenge for me was how do I get that happening so that it happens in the background and I don’t have to do anything about it? That was a new challenge for me. I haven’t seen the last 400 houses I bought in my town and I haven’t seen the last 400 people that bought my houses. I accomplished exactly what I wanted to do.

My role for my business and what I love to do at my age at the speed at which I want to run is I like to find the private money lenders, which requires a lot of socializing. Before COVID, it used to be basketball games, baseball games, football games, dinners, the charity event for the museum or whatever is going on. That’s where I was because that’s where the money was and that’s where the people wanted to go that I was entertaining or who had lent me money already. It was time for me to do them a solid and take them to the game on.

Those are good activities to do. I spend a lot of time on that as well because we’ve always got deals either under contract or in the pipeline. It’s critical for us to be talking to private money investors so that we have that cash lined up and wait while our next deal is ready to be funded. Even an activity like that, whether it’s raising the private money, finding the actual deal, talking to new commercial lenders, you always want to expand. For us, we always want to keep expanding our database of potential local banks that can finance our projects. All of those aspects of the business I would say are probably more crucial to growth than say necessarily property management.

Property management, it’s to manage what’s already there. You’ve got to get it up and going and set some standard for that place and then they’re going to manage that standard. Talk to me about stabilizing. You buy places that already have tenants in it and then you’ve got to get rid of a bunch and then you’ve got to clean it up and get your brand of tenants in. Tell me about that process.

We bought different types of buildings. For example, if we buy a vacant multifamily, we’ll go in, do all the renovation work upfront and lease it out. That’s probably a little bit more straightforward. We have bought buildings before where they are already tenanted. Those are always a little trickier because you’ve got to figure out whether you’re going to be doing evictions, whether you can get away with the rent increases. It’s a lot more of a trickier game and you have to find the balance there. I’ve done both. One of the first bigger portfolios we bought, we bought a six-unit building that was all tenanted out with well-below market rents. We had to go through two evictions over there. In Massachusetts, it’s a very tough eviction process. Those lasted almost 8 or 9 months. They were grueling. We definitely had those battles. One of the acquisitions I had, I bought a 40-unit building where we did actually have to do evictions. I thought we would but they were actually all Section 8 tenants there. We were actually able to go directly to Section 8 and renegotiate the leases with them without doing any upfront work. That actually worked out fantastically. Within half a year, we were able to get 3 of the 4 units to market rent within direct negotiations with Section 8.

What are some of the toughest parts about this business? What’s a tough day?

I’d say that first scenario where we’re stabilizing or we’re in the process of stabilizing, that’s always a little tough, especially if you’re dealing with tougher tenants that either make contract or access trickier, or maybe they don’t necessarily want to be talking to you. Especially with everything going on now with Coronavirus, there are definitely a couple of units we have that make our life a little bit tougher than it should be. That’s always a little tricky. If we’re in the process of doing any major renovations, we’re going to be starting some ground up soon. That’s going to be obviously on our heads every single day, making sure all the logistics are moving forward. It’s always a balance between making sure your projects are moving along nicely, making sure if you’re stabilizing in units that everything with attendance is going as smooth as it possibly can. A lot of different kinds of things to juggle.

Let’s make sure everyone has that link to get their free property evaluator for multifamily. Go to 1000Houses.com/lior. If you want to learn more about the courses, how to successfully buy and manage your first multifamily deal or how to underwrite a multifamily family value-add deal, go there to that link and check it out. There will also be all kinds of information that will lead you to Lior if you want to talk to him in person or talk to his organization. I’m sure they’ll have whatever you need over there to hook up. Is there anything you want to say to the audience, Lior?

I’m a big believer in multifamily myself. If you’re not in the multifamily space or you want to break into it, I think the opportunity is still going to be there. I think apartments are going to be here for the foreseeable future. If you’re not in that game, learn how to get into that game, whether you go through the owner-occupant path or you go through our path that we do, both me and you, Mitch, where we raise private money and structure deals that way. Regardless of how you decide to do it, get educated and then pull the trigger. You’re going to mess up. You’re going to get your butt kicked almost for sure. Once you’re in the weeds and you’re committed, you’ll figure out a way to pull through.

I’d like to thank everyone out there for taking the time to get you some Lior Rozhansky. Please check out TaxFreeFuture.com. If you do not have a tax-free or tax-deferred account in which to grow your finances, your retirement, you’re missing a big tool in your toolbelt. Check it out, please. We’re out of here.

Thanks for having me