Most Limited Partners are so into the hype of continuous rental growth rates apart from the increasing inflation of goods and services. Many investors are also in deep belief in their projections and numbers that forget to become realistic in their business plans. With that being said, Limited Partners must be able to see things objectively and dive deeper to become attuned with their business plans.
In today’s podcast episode, we interview Jason Yarusi, Managing Member of Yarusi Holdings, Multifamily syndicator and Mentor. Today’s topics are focused on setting realistic expectations in managing the multifamily real estate business which will help existing or aspiring Limited Partners manage their real estate businesses and investments.
Read the FULL EPISODE SUMMARY HERE!
[Jake] The Limited Partner shares in the potentially outsized returns of a well planned and executed investment, but as a passive investor and has the maximum leverage on their most precious asset, their time, and that is why we're here together. 90% of the millionaires out there built their net worth with real estate. However, 0% of the billionaires are hands-on managing the real estate asset because there simply isn't enough time. My name is Jake Wiley, and for the past 16 years I've been investing in real estate and I've learned a thing or two. But the most important lesson is how to leverage the expertise and time of others to maximize your investment potential. Welcome to the Limited Partner Podcast. [Jake] All right. Welcome partners. I'm so excited to be here again today. This week joined by Jason Yurusi. So, Jason is the Managing Member of Yurusi Holdings. Jason, welcome to the show.JY:
[Jason] Thank you so much for having me. Excited to be here.JW:
[Jake] Yeah, I think this conversation's gonna be great, but for our listeners out there, I'd love to give you the opportunity, give us a little bit of background on who you are, how you got started and kinda what you're doing today.JY:
[Jason] Sure. So I'll fast forward to today. We're currently just south of Nashville in Murfreesboro, Tennessee. We have approximately around about 1600 units we've acquired since 2017 of multifamily assets. Predominantly between Louisville, Nashville, and Atlanta. We've got full cycle on eight of our projects to date. Another one closing shortly. We did move down here from New Jersey. Grew up in New Jersey. Lived in New Jersey and New York City for the majority of my life. That's where I've met my wife. From that fact we started in multifamily back in 2016 and it was a pretty stark direction from where we started. I actually met my wife working at a New York City bar back in 2003. It took her about a decade to look my way. But early 2010, 2011, we had Hurricane Sandy happened in New Jersey, New York, you know, a lot of the East coast and that decimated the East coast. My father happens to have a construction company that designated or allocated to really do flood zone projects. So, his business went from doing a couple projects a year to thousands of calls within a matter of minutes. And my wife, and myself, and my brother Ryan at the time, we were in New York City. I had opened some New York City restaurants, opened and sold a brewery running some big bars there, but we said, we're gonna make the transition and go out there and help dad. And that was our first step to just leaving New York City. And, but what we discovered is that we were basically trading off one service job for another where the time was running us and we didn't control our time. Pili was pregnant with our first kiddo. And at that time we constantly just looking for that option and that thing that was going to give us back direction, control of our day, control of our outcome. And what we found is that we found real estate was a great vehicle. However, we took another uncharted path. We started flipping houses, wholesaling, doing Airbnbs and it took us to meet someone who was doing out-of-state rentals where they were basically putting together teams, putting together processes and getting these rentals on board. And they were doing single family, but we jumped in and started doing two duplexes, triplexes quads, and it was great. It was that first piece of the puzzle where we were using the business experience, what we had done prior to be able to really help and grow businesses with real estate. Because the flips and the wholesaling were again taking away all of our time. So, we wanted our time back and that was really pushing in the wrong direction. So, we jumped in there and quickly found that this was great, but doing the small rentals was not going to give us the kinds of scale and the bandwidth to accomplish our goals in a big matter. And I came upon someone doing large apartment investing, and that was that a-ha moment that we decided to dive all in, sold off our small properties, and then went for that next piece to dive into large apartment investing and win from those two, three, and four units back in 2014, 2015 and 2016 into a 94-unit as our first acquisition back in 2017. That's allowed now to about 165-170 million of real estate with another you know, 30-40 million $ in the pipeline.[ JW:
Jake] Man, that's a great story. And I mean, I think most of the folks like you, like me, we started with those, you know, onesy, twosies, the flips, the rentals, and I mean, it's a great strategy. I don't regret doing it myself. Right. But man, I wish I had known earlier, right? That's a lot of work to get there, but, okay. So, I don't know if we really got into, but how'd you end up in Nashville?[ JY:
Jason] Sure. Honestly, just decided, right. A lot of things in life is that we sometimes won't do something because we like to predict the outcome without actually having the outcome in mind. Right. And my wife grew up in Hawaii. We met in New York City. Living in New Jersey. Lived there most of my life. The majority of my family's up there. And just when the onset of COVID happened, you know, my kids were kind of in school, out at school. I have three of them now. Old young guys and girls. And it was just one of those pieces where, that wasn't really holding us. It was like some days are on Zoom, some days apart. It was just a lot of uncertainty and we just said let's go out there and make a change. And it just made sense for us to move down this area. We're investing in this area a lot and we wanted to just go out and experience it. And so, Pili had actually never been to Tennessee when we made that change and we decided to move down here. It's been about maybe 15 to 16 months now and it's been great, right. Just making that part because we always think, you know, what's the worst thing that happens? Honestly, we move back to New Jersey, right? So it's been a great experience. A lot of great friends. Lot of great people down here. Also, it puts us a lot closer to a lot of the assets, although that's not a point of that has to happen. It's made it a nice experience to, of course, go meet people in person just by jumping in the car.JW:
[Jake] So, let's jump into the multifamily right now. What gets you excited? What really gets you excited about it? I know it's bigger, right? The cash flows are there, but what really gets you moving about it?[ JY:
Jason] So you can go two sides of that. I'll start the operational side, is that I treat this like when we were really taking businesses, buy business, trade businesses, right? A large multifamily property is just basically a business. And if you look at that, you could look at ways that it's not being optimized. Now, they could be running it. It's not to say they're not, but you may find other ways that you can derive it even further. And usually you have this on both, of course, the property side and the management side, they're usually hand-in-hand. If the property has a lot of deferred maintenance not being kept up well, it's usually poor management. If it's poor management, it usually trends to a poor business or a poor building. But you also have the other point. Where they may do one part of the process and that was their plan. And there's another way to capitalize, right? You could see the narrative of someone puts a property at the market and the units are a hundred percent renovated. However, they may be renovated to a style or a form that you believe is substandard to what you can do to accomplish your goals. So, that's one side of it, right? Looking at the business and how we can form and how we can improve it. The other piece of it is making better communities for people to live. Now being here locally, you know, having assets, you know, right in our backyard. It's nice to take the kids around to areas of properties that just weren't great before. And now, you see a bunch of kids playing outside, you just see the buildings looking much better. You know, they're seven, five, and three, and they get it right. They say, Oh, you know, that's a better place for someone to live. Where before it just, there's a lot of things left to be desired. So, if you look at both ways we really serve defined ways to make better communities. And we know that if we do that on the onset, put together our approach to make this a better place to live. A few things spiral down the factor here, make it a better place to live. People who live there will treat it more like a home, which of course, will help you to have a better taken care of, which will trend to a better revenue, better expense allocation, which will trend to a better bottom line, which will trend to better returns for your investors. And so, if you look at in that front, it's a full circle narrative of really helping everyone at the same time with the same business plan.JW:
[Jake] Yeah. I think the point too, like the first one you made is really looking at it like a business is so important, right? Because it is. There are a lot of people out there that's almost like a vanity project. Yeah, that's my apartment. Or you know, like where trying to make it somewhere you'd wanna live and like, those are not really the factors. Like one, yes, you wanted to be comfortable, but you gotta look at it like a business. So let's dive in a little bit on that. I think one of the key aspects is finding the right operators, property managers, how do you handle that?JY:
[Jason] So, our role really is putting together a structure to deal, preparing the deal, making sure the deal is run properly, and also serving as asset management to make sure that the people in place to run the property are keeping the plan. We're keeping a performer and we're adjusting accordingly as we go in and we're only as good as the people who are implemented the day-to-day. And that becomes a big piece of the property management company. If you weaken the side of property management company, it doesn't matter the plan that you have set up, right? You're ultimately gonna fall victim of just their ability to perform. Now we've had a number of property management companies over the year. The majority have been very good, right? But what starts good is not always necessarily end good. So, we had five assets that we've been through with one company in the past, and we had great experience across three of them. And unfortunately they had some shake up or they were growing too fast, and so we had to adjust, right? And that's going to be part of the process. Is that good? Today does not necessarily mean bad tomorrow. But having strict practices and the strict procedures in place to make sure that you're constantly in the know of what's happening in your property, puts us in the best ability to perform. So, we do is we get weekly reports. We do weekly updates, having weekly calls with our property management companies to survey the property, not only whether it be just our regional. But also our leasing people. If construction needs to be on, depending on where to hold the asset is in terms of repositioning, we will have that conversation. So, that's our step in our process. And then checks and balances beyond that, you know, property visits and other pieces, of course, makes it a lot easier when I'm local to make property visits. But I find that if you have these procedures in place, whether you are local or not, you can do a very diligent process and diligent plan to make sure that everything is running in.JW:
[Jake] There's a point there that you made that I think is super important to call out too, is that just because history has proven that something is good doesn't mean that'll persist. And personally, in my career, one, I've had that with property managers, two contractors, and I think that it's easy, there's so much not good out there that when you find somebody that's good, you just wanna hold onto them for, you know, for dear life. But things do change and you need to figure out, like, as a limited partner, Like how are the property managers? How are the contractors? But really the property managers are the ones that are gonna make or break this. How often are they being evaluated? You know, is it, Yeah, we've worked with them for five years and they're great, but are they really maximizing the value of the asset? I don't know. And I think that's a really good point, and it's a good question that I don't think's really come up much is the continual diligence, I guess of the team that you're working with. And like I said, the same thing can go for contractors, so thank you for calling that out because I think that's so important when you just get comfortable with things and sometimes you just like, all right, we'll just keep going with that.JY:
[Jason] My dad always used to say plumbers, right? In the construction business, he always find the plumber. The third job would always seem to go wrong with the plumber. Not wrong, but just not be the service that they perform. But I see that a lot in contracts, right? You come on. And whether it's trash contracts, landscaping contracts, when you come onto a property is that prior ownership may have just gotten complacent with the service on board and not realized that there's a potentially maybe a 10% or 20% build it into the contract. That is not something of a permanent contract that you could change out and just has kept going. Right? And so, they may be paying for that service well above market because they've taken their eye off the ball.JW:
[Jake] That's another great point, right? As you think about the value add strategy, are there above or beyond market contracts that are in place. And I know we see that a lot where, you know, somebody just kind of gets used to, oh, this is what we do and this is the new price and they're not shopping it because it's work. You know, as you look at new assets, like there's a huge opportunity, assuming you, you change nothing, right? You can change nothing, but just look at the contracts and say, oh yeah, look, here's some found money. So, I love that. What other, I guess, what other things have you done wrong or you seen go wrong that we should be thinking about?JY:
[Jason] You know, the thing that we see a lot is just not being realistic either with your business plan, right? Or just not tracking what the market is. Ultimately, if you're gonna go into a market and every building around you is 20% vacant, you're probably not gonna be the magical owner to be at 98% occupied. Right? If you are going in there and assuming that you are going to find a way to achieve massive rent bumps and do it continually, you have to take the narrative to say, okay. Potentially you can potentially, there are comps but if you're estimating that you're gonna continue to have this growth rate, is that logical, is that reasonable? And if it is, will the tenant base be able to sustain or you gonna see a massive dip in occupancy? We've had a big runup right now where seen a lot of inflation built in. So, our assets pretty much are all above our pro forma rents when we first started out. However, the narrative comes back to us saying, Okay, how can this be achievable compared to the future? Because if we see price inflation at this point, what is the wage inflation that's happening for that tenant base? Because ultimately things are rising at a faster pace than we're seeing people's paychecks increase. So, we have to be reasonable with our expectations that I've seen some people model before where you've just had astronomical rent growth, right? 10 years of 10% a year of rent growth. And if you think about that and you just play out the model it's unachievable, right? Unless you're going to constantly redact to change of your tenant base. Maybe you could do that, but have you modeled in just the amount of CapEx or turns or all the other money that will be spent to have to continually do that, to meet that new need or that new income growth? So, that's one side. Another part is just comps missing out a lot on just what's already achieved. Right? Can you do something that the rest of these properties are always doing, whether it's, you know, application fees, pet fees, laundry fees you know, bill backs accordingly, Bill backs, are you missing out on those points because you're not tracking what's happening in the market that are easy things you can pick up?[ JW:
Jake] As you think about the marketplace, right, and where people are going wrong I think your point is really valid too about rent growth or just the things that can get modeled in that seem like logical, like on the face, but are like really illogical. Like to your point, it's you know, I don't know exactly when a 10% rent growth is gonna double, but it's less than, you know, it's not 10 years. Right. It's gonna grow, you know, 10% on 10%. It's five, seven years or something like that. It's crazy. Yeah.JY:
[Jason] Yeah. And yeah, they would be be the model of 72 right there, You would see it double. So you have a thousand rent, you're gonna assume it's gonna be 2000 in seven years, and that's a big jump, right? It's just hard to forecast that and you have to think about that and like potentially, you know, could it be achieved in some high-growth markets? Sure. Yeah. I'm not to say it won't. It just have you modeled in the other effect of that the constant change over a tenant base to get to that point? Because can that tenant base, it's there now. Take that jump up. And the other thing that comes with that is that maybe you can't, maybe you have a $700 rent gap of where you are to where you want to be. And it's been a poorly managed property or maybe just, you know, bad narrative to it. You can't expect that the first lease you do is gonna be at that new market rent, right? Cause you have to change the narrative, the property change, put a facelift on the property, change the overall aura of that property. So, it may take you having staggered rent. So, if you could go from say something, a thousand to 1700 $ rent, Is that firsthand coming in there when the property is still finding its way and all the data from, you know, any reviews and everything else is still from the past. Is that going to allow you to jump from a thousand to 1700 or you going to be a thousand, 1300, 1500 as you continue to just improve the property. So, looking at that forecasting accordingly really helps you just understand what it will take to get the properties performing in the best way.JW:
[Jake] Yeah, and I think that, you know, as you think about why would an operator syndicator do something like that, right? It's to make the numbers work. And it's easy to say, like on a kind of a macro scale, Oh, 10% increase here, whatever none of that's unreasonable based on the marketplace. But I think as a limited partner, you need to be looking at these deals and just kind of saying does this make sense, right? Let me put myself in the shoes of a tenant or living at this property, is what is being forecasted out. Like just go five years from now. Does that seem does that like gut check it? Just make sure it makes sense because it is what I find, you know, for example, another, you know, aspect of it be like cap rates, right? If you're saying, hey, we're at a three cap, and you know, like we've seen the market go up, maybe the caps are gonna go to two and a half. One, I don't think it's, you know, like we're not going in that direction now, but like small changes, like quarter of a percentage, half a percentage one way or the other has a massive impact on the way that the deal is gonna look, the value of the deal. And you as a limited partner, you need to be thinking about like, where are those, like small tweaks, right? Where are the little things that can just kind of get buried in a sheet that you can gut check and be like, yeah, that's not jiving. So, I mean, I think you've called out a couple but I guess what other mistakes have you seen operators make that have created some issues down the road?JY:
[Jason] Yeah, and you know, for operator's point, some may just not think it through all the way. So I don't know. You know, you can always make numbers work, right? It's a dummy spreadsheet that, you know, good inputs get good results, bad inputs, good, bad results, right? So the same thing like you said here, it just may not think in the effect, right? I can put anything into the model, but how is the connotation of what's actually going to be. We've had something work in our favor that, you know, we modeled in at having basically Delta going in place. You know, the rents in place were basically model 1125 were performed out, that we felt we could get to 1150. Literally the first month we're getting 1250, Right? So that's worked in our favor. But have you looked at the effect, if it didn't work in your favor, what if it went the opposite way? As even during COVID things of modeling out zero rent growth, not where to go, what would happen in the next three or four years in rent growth. If you are gonna have a huge increase in your, say you're looking to churn a large portion of the units for context, say we have a hundred unit property and you're gonna churn 20 units a month. Okay, on the other side of that is that achievable? And you look at it in both sides. Do you have construction team? Do you have contractors that can keep up on that pace? And if you do you have the CapEx allocated correctly to be able to do that? They'd say we have that. Okay, fine. So, we've accomplished a narrative completing the construction. On the other side, does the area warrants, where if you're gonna do four, five, $600 rent pumps, that you can go in there and actually take online, you know, 20 units at a time that are dramatically higher in price and have the saturation where those units will be taken off. And that the same effective manner. You don't want to say, I'm gonna renovate 20 units and find that you're literally exorbitant two or three of them a month. And so, in that first month, you basically have six months in product. So, making sure you're attuned with your business plan. So on both sides it's going to be able to fit right. And if you are and you are able to accomplish this through some extra marketing, something different that you need to do to make sure that you're not missing a piece of the pipeline of your investment thesis.[ JW:
Jake] We're gonna take it maybe in a different direction because to put it into context, for those of you who are listening to the show after it was initially released, so we're mid 2022. The Fed has just had the largest single rate increase since 1994. I think people are talking about the potential of a recession. What do you see into the future? How are you looking at kind of the market going forward?JY:
[Jason] So you wanna be in markets that you believe in. Right. The point of just staying narrow and going deep cannot serve better to where we stand today. Being spread out is gonna play into your disadvantage and the markets that are not market drivers where potentially you have gone out for to cert seek yield right now may ultimately impact your ability to sell in the future. Right. If you're trying to sell to say a funder REIT in five years, and you have to take a plane to take a bus to take a car to get to your property, you're probably gonna have a hard time meeting that narrative because it's going to be that they're gonna wanna stay against those primary markets and those markets are gonna trend to be more insulated. So, you wanna stay where, of course there's a supply but in limited quantities, not a lot of new construction coming on, job growth, job diversity. No employment factor is really driving a lot of the market more than 20%. The allocation of apartments right now, you're finding that are still keeping at a good trend in terms of the occupancy levels compared to how many people are coming in to the market in a good capacity, monthly, yearly, and also trending in the past, and then looking at our debt, right? Looking at our debt options and make sure our debt options align with having some control of what the future could put in front of us. So, to say that we're not gonna take on a loan today, that, you know, in 12 months, we have to get outta that loan because that's what the business plan says. We wanna make sure that we have open options with the debt to make good choices on the back end. So, we do get to the point of where we are at. We can make a good decision whether it be hold longer, whether it be refinance, whether it be to sell. It gives us multiple options here to sustain or capitalize on where we stand in the market a few years away.JW:
[Jake] Man, those are really great points, like going deeper in like really impactful markets. And then two, working now to give yourself as many options as possible and setting the stage. As opposed to necessarily working a plan that you built years ago, awesome points. .Jason, this has been an amazing conversation. I like to end every episode with a little bit of gratitude because none of us got to where we are without somebody giving us a leg up or maybe taken a risk on us that we probably didn't deserve. So, I'd love to give you an opportunity to give somebody a public shout out that gave you that leg up.JY:
Let's say this yeah, I probably, the easiest answer, the easiest one is my wife, right? My, my wife. You know, I'm still surprised. She looked my way years ago, right? But it's been the empowerment and sometimes it's the piece of the puzzle that drives you forward and you're only surrounded by what really helps you through those piece of puzzle. I mean, there's too many people that have been in our network that to really name that have helped us, and that's been one of the great things about even this community just in terms of just buying apartment buildings, right? You can meet so many great people. Just like I met you today on a podcast and learned so many great things and honestly, grow yourself because you see how other people are winning life. So, the narrative be easy answers my wife, but also surround yourself with like-minded people that are trying to accomplish like-minded things. You find you get like-minded results.JW:
[Jake] That's awesome. I am a big believer, my wife, same thing, right? Sometimes I feel like she believes in me more than I do and that is so helpful. So, I love that answer. Jason, this has been an awesome show packed full of information in the short 25 minutes that we've been together. Thank you so much for being here.JY:
[Jason] Thank you.JW:
I hope you've enjoyed today's episode and I'd actually love for you to contribute to a future episode. If you have a question you'd answered or a topic or a guest to bring on the show please email me at email@example.com. Now I realize. There's a lot of lingo that's thrown around on these shows, so I've created a cheat sheet for you with the top 26 terms that come up most often head on over to thelimitedpartner.com/lingo for the list. Enjoy and we'll see you next time.