Dec 16 2022
Finding an Effective Way to Scale
Today, we are joined by Jonathan Bombaci and Todd Wheatley to talk about finding an effective way to scale. They collectively own over 300 units in Massachusetts and New Hampshire. They are both House Hacker Extraordinaires and they also have a property management company that manages and operates over 400. [00:01 - 04:39] How They Started Out How Todd started with House Hacks, met John, and then partnered up to focus on larger assetsHow they found an effective way to scale into bigger assetsWhy they have a clear mission of focusing on finding 100 units or more [04:40 - 10:54] Tips for Sticking to Your Focus When Investing in Multi-Family How staying focused can be difficult, and how falling victim to the shiny object syndrome can be a problemHow team members and trusted partners hold each other accountable, and how acquiring assets directly from the owner can be a successful strategyWhy they discourage solicitation at their own events, instead focusing on providing valuable content and building relationships with attendees [11:31 - 18:02] Strategies to Avoid Toxic Deals How their team is made up of real estate professionals with backgrounds in different areas of the industry, including acquisitions, investor relations, financials, and property managementHow they developed processes and partnerships to help them manage their portfolio and operations more effectivelyHow a minor subdivision is taking a property splitting it into five parcels or less and how it can be a good strategy for beginning stages of a developmentHow they will hire an engineer to draw up potential plans for what the subdivision could look like and list it with a commercial broker. [18:03 - 19:42] Closing Segment Reach out to Todd and Jonathan! Links BelowFinal Words Tweetable Quotes “The bigger stuff is for other people. Let's just stick with the stuff that we know.” - Todd Wheatley “Everyone presents their best self when you're doing an interview.” - Jonathan Bombaci ----------------------------------------------------------------------------- Connect with Todd and Jonathan! Follow Jonathan Bombaci and Todd Wheatley on LinkedIn. Website: www.candorealtyboston.com Emails: Jonathan - email@example.com, Todd - firstname.lastname@example.org Connect with me: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns. Facebook LinkedIn Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in! Email me → email@example.com Want to read the full show notes of the episode? Check it out below: [00:00:00] Todd Wheatley: So having those clear lanes within our team especially, and then as you alluded to in the open Sam, we've built teams and processes for our companies, including property management, maintenance technicians in house accounting, mortgage brokering, and so we've added those very specific partners to the team and whose people to the team as we've grown. [00:00:35] Sam Wilson: Todd Wheatley and John Bombaci collectively own over 300 units in Massachusetts and New Hampshire. They are both House Hacker Extraordinaires and they also have a property management company that manages and operates over 400 units. Todd and Jon, welcome to the show. Absolutely. Guys, there's, there's three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell me where did you start? Where are you now, and how did you get there? [00:00:48] Jonathan Bombaci: Thanks for having us. [00:00:49] Sam Wilson: Absolutely. Guys, there's three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell me where did you start? Where are you now, and how did you get there? [00:00:59] Jonathan Bombaci: Sure. So both of us started with House Hacks. I started mine early and then Todd, you know, along the journey and we've kind of partnered up, and built the thing. I did a three-family house hack in Connecticut the year I graduated from college. Lived in one of the units, rented out the other two, paid off all of my debt. Thought I did a really smart thing. I worked in corporate finance for Fortune 100 companies for about 10 years before jumping into real estate. Full-time. I jumped into real estate full-time in 2019. I owned 30 units at the time and that's when I met Todd. We actually helped him house hack the five unit using an F H A loan in Walton, which could be a whole different podcast on how the heck we were able to do a five unit with an F H A.. But it was his entry into the world, kind of got his feet wet. And then I think, you know, a matter of months later, he quit his high paying corporate job and jumped into real estate full-time and we found a big property to work together on and it's been a partnership ever since. [00:01:54] Sam Wilson: That is cool. So Todd, you got a five unit and then just a few months later you're like, all right, I see the potential here. I'm out. I'm gonna go do real estate. [00:02:03] Todd Wheatley: That's about it, Sam. So caught the bug, met some good partners like John and the rest is history. [00:02:10] Sam Wilson: How did you guys decide, one, to partner up and then how did you decide on a strategy? [00:02:16] Jonathan Bombaci: I mean, I got really good at partnering up. One of the things I started saying is, you know, I own the first 29 units by myself. We own the next 300 units and the 29 units took up more of my time than the 300 units with partners since I got really good at partnering up with Todd. We just found, you know, the commonality of long-term buy and hold, large, large properties were kind of the thing that got us both interested. And so when those come across the desk, you know, I partner up with Todd and a couple of the other, you know, partners on that team. But our interests align and I don't want to do anything by myself. And so Todd was a natural fit when it came to those large assets. [00:02:50] Sam Wilson: That is really cool. You know, I think what a lot of times people struggle with taking that next step into the larger asset space. They either think it's not for me, or it's too big, or they don't know how. Those are common hurdles I think that people are struggling to overcome. How did you guys find an effective way to scale into bigger assets? [00:03:12] Todd Wheatley: John, do you mind if I take this one? [00:03:13] Jonathan Bombaci: Yeah, go ahead. [00:03:15] Todd Wheatley: Perfect. So Sam, as John alluded to, you know, we had similar backgrounds, both had personal portfolios. John started a real estate meetup here in the greater Boston area for like-minded investors to meet up. When Covid came, we had to shift to virtual, so we pivoted into a virtual meetup, and we had one of those meetups made, had a guest speaker come and educate us. Agency financing, commercial agency financing. And that really opened our eyes to larger assets. And it really made us question that imposter syndrome that you just mentioned, right? The bigger stuff is for other people. Let's just stick with the stuff that we know. And after that meetup, we really sat down and questioned ourselves. She said, why aren't we focused? Larger buildings, larger multi-family buildings. And the reason was we were scared. We didn't know, right? We were afraid of what we didn't know. And we said, that's not a good enough excuse. That's not a good enough reason not to do something. And so, as I'm sure we'll go into, you know, we came together, we set a very clear mission of focusing on finding a 100 unit apartment building or larger. We all kind of have different skill sets that round each other out, as John and I will share. And we just had a really clear mission. We got over that imposter syndrome pump and we went and found an asset. [00:04:36] Sam Wilson: Got it. I love that transition. So you went from five units, Todd, to your next buy was a hundred units thereabouts. [00:04:46] Todd Wheatley: My wife and I had about 10 units total. And we went to 130 pretty quickly. It's grown ever since. [00:04:52] Sam Wilson: That's awesome. What has probably been the biggest surprise for you, in going bigger, faster? [00:04:58] Todd Wheatley: John hit the nail on the head, which is in a certain way, scaling has been easier. Not only because we have each other, we have each other, we have partners, et cetera. We've established systems at scale, but managing a hundred and something units under one roof is not necessarily, you know, 10 times harder than a 10 unit building. It actually, in our case, becomes easier because there's economies of scale, both at the management level. And maintenance levels. And John, I don't know if you want to build upon the comment you made earlier, but we have just found that kind of growing, particularly in very tight geographies, has actually been easier than some of the smaller buildings. [00:05:41] Sam Wilson: Todd, one of the things I think that so many of us struggle with is staying focused, and especially coming in as a newer investor, there's always shiny object syndrome where it's like, oh man, hey, cool. We can do small multi-family. Oh man. Hey, cool. We can do multi-family. Oh, but what about self storage? And there's this barrage of deals that just constantly come at you and there's always that temptation to look and say, we can profit there. We can profit there. Isn't this all fun? How do you guys stay focused? I mean, it sounds like you found your lane, you've stuck inside of it from the get-go. How'd you do it? [00:06:13] Todd Wheatley: Yeah, it's a good question, Sam, and we've definitely been victims of the shiny object syndrome. When, you know, I go back to when we decided to focus on the asset class of large multifamily, when we sat down. I really mean it, we sat down as a group in person, set that vision of what we wanted, the types of asset. And part of that conversation was, guys, we know we can focus on mobile home parks. We know we can focus on storage, you know, self storage units. Maybe we will grow into those, those verticals. But right now there's so much multi-family. Certainly value add multi-family, which is our primary focus. Let's get really, really good at that. [00:07:37] Sam Wilson: I think that's brilliant to ask that question, and it's probably not one that's asked often enough, but, what is the cost of chasing this other opportunity? That's a very powerful question and I think you hit on two fronts asking that question, but also having partners that go, Hey, that's not our bread and butter. So let's just not. One of the things maybe, I don't know if we said this on air, maybe talked about it off air, was, but that in your mission statement, you guys are finding cash flowing assets that roll off 10 to 12%. On an annualized basis. How are you doing that today in the multi-family environment that those are numbers? I've just not seen a double digit cash on cash return in multi-family. I don't think any deals have come across my desk in the last two years. What's your secret sauce binding the deals? [00:08:24] Todd Wheatley: Right. There's no magic bullet. John, keep me honest, but everything we've purchased has been direct to owner, direct to seller, so we're buying these assets at pretty deep discounts. Certainly compared to a broker. And again, we're real estate professionals. We have a very successful agency, both in New Hampshire and Massachusetts that primarily focuses on small multifamily. But when it comes to these larger assets, we're looking for folks that have owned these assets for a very long time. There's value added both through renovations and through particularly operations. So rents 20% to 30% below market, no technology. They haven't reviewed their service contracts in a very long time. And so the in place lift is significant, and that's primarily where we're finding deals, word of mouth, wholesalers and direct to seller marketing. So I think that's been a huge, huge part of how we've been able to find the, you know, properties that meet kind of our cash flow targets. [00:09:26] Jonathan Bombaci: We've also down the reputation of buying the properties off of the worst landlord in the city. And so one of the habits we have is, you know, when we buy a property, go to town hall, tell them who we bought it from. They're like, oh, thank God. And then they tend to give us a hit list. The second to worst landlord, and the third second to worst landlord because, you know, we like the operational deficiencies and a lot of times it's decent properties with bad management. And so once, once we take 'em over, a lot of times the cities are very happy and more often than not, they actually give us a list of other properties they wouldn't mind if they changed hands. [00:09:59] Sam Wilson: Is that list curated based upon code violations, upon tenant complaints, you know, things of that nature that they just repeatedly see these landlords in court or in code, you know, violation of those sort of things. Is that kind of how hit list, if you will, is developed? [00:10:16] Jonathan Bombaci: Yeah, yeah. You know, order health violations, you know, notice of violations, you know, continuous problems with trash or just ugly from the outside, or a lot of times when we talk to them, it's like, when was the last time that you guys have been in this building? And they're like, you know, five years, 10 years. They want to get in, they want to do inspections, they want to check the power system. They want to do those types of things, but most of the time the landlord buying off of 'em are, are pretty aggressively against allowing the city into the buildings. [00:10:45] Sam Wilson: How do you make a seller like you when they are that, I'm gonna say type of landlord, I think it sounds like acquiring assets like that could potentially be an adversarial buy. That's probably not the right way to say that, but is there a way or a strategy for you guys to have a very friendly transaction with a seller of that type? [00:11:09] Jonathan Bombaci: I think we divide and conquer. So I think we have four members of the team. Myself and another member of our team, Matt, tend to try to befriend the sellers, you know, we're the face, we meet 'em the first time we walk the properties, you know, you know, for lack of a better word, we're kind of like the yes guys. Like, oh yeah, of course. Like, you know, we understand that you don't have any section eight units at this 132 unit property and you're not violating fair housing laws. Like I completely get that. You're awesome. Like those types of things. And then on the back end we got Todd and Nate and our legal team that are like, all right, how are we gonna fix this? How are we gonna use this to our advantage later on? But I mean, we kind of divide the team where it's like, you know, when there's bad news throughout the deal, it's coming from, you know, within when there's good news throughout the deal, we make sure it's coming from either, you know, it's coming from a friendly face and then we kind of like, you know, play good cop, bad cop within our own organization to kind of make sure that the seller wants to talk to me, but Todd is the guy behind the scenes that's squeezing him on all the things that he's doing wrong. [00:12:11] Sam Wilson: I love it. and that makes sense. I mean, cause it's one of those things where I feel like for us, we always work really hard to have, like, I don't wanna be part of a deal that's toxic, like buying, buying toxic deals and my life is too short where I have to surround myself with people like that. But I think having an effective strategy, like what you guys have developed, because there is bad news sometimes to sellers. There are times when it's like, Hey, this is, you know, it's just this is the state of your property and this is what it's gonna cost you in order for us to get this across the finish line. That's reality. But having a strategy for how you guys deal with that is really cool. Tell me about your team. How do you guys round each other out? How have you developed that team and how did you figure out who was gonna handle what seat on the bus? Todd, would you like to take this? [00:12:55] Todd Wheatley: Sure, sure. Happy to. So, yeah, we all come from real estate. We all had real estate experience where we kind of dove full time into this. We all come from different corporate backgrounds, so I was in information technology, John was in insurance. So we all have kind of a professional corporate background, but from different kinds of angles and perspectives and we set out, so both us as managers and sponsors, we set out having very clear kinds of roles. So as John mentioned, we have somebody that focuses on acquisitions and negotiations. We have others that focus on investor relations and tags. We have others that are focused on financials and operations. So having those clear lanes within our team especially, and then as you alluded to in the open, We've built aims and processes for our companies, including property management, maintenance technicians, inhouse accounting, mortgage brokering, and so we've added those very specific partners to the team and those people to the team as we've grown and we've done that through our organic network. I mean, one thing that John hasn't really mentioned, but he should be very proud of, and I'm proud to be a part of it, is he established these networkings. We have hundreds of people, both task clients, peer investors, folks of all different angles of the industry, and that has become our real estate network and we can often tap people in that network to play these really, really important roles. As we grow and we have the familiarity with these folks, we know what they can do and it's a win-win. It's a symbiotic relationship because as we grow, we create these needs and they can then kind of jump on the bus and help us and bring it to the next level, so to speak. So it hasn't been easy, as I'm sure John would attest to, but it's been very fun. We've developed most of these functions in-house so that we can kind of have that control over our portfolio and the operations. And it's been a really fun few years. [00:14:55] Sam Wilson: That is awesome. John, I want to ask you, a particular question about that starting up a meetup of that sort growing it. What are some effective strategies maybe that you use, that you would recommend to somebody else if they were thinking about doing the same? [00:15:09] Jonathan Bombaci: I think the big push is very early on, we said, no solicitation. We've all been to those meetups where it's like, you know, hey, you have five minutes of value and then 45 minutes of me trying to sell you something. And we didn't wanna be those people, so we do bring in guest speakers. They are people that are soliciting business, but the idea is they're not doing it while they're up there, they need to add value back to the group. I don't carry business cards when I'm at my own meetups. We're very, you know, against solicitation at the meetups and it's all about adding value, and then people tend to reach out the next day or the next Monday if they're interested. But we've taken a very hard dance against people's comments in marketing, and I think that's kind of gone a long way. And we put the content first. We put the people first and then, and then we even put ourselves second, you know, in terms of actually garnering business from it. [00:16:01] Sam Wilson: That's really cool. And what a unique way to build out, you know, to Todd's comment, to build out your team. I mean, if you got a front row seat to the people that are doing deals that are there, you know, you get a feel for their skill sets, you get a feel for who they are, and then when it's time for you to bolt on a new member or a new new position within the company, it's like, oh. I got how many other people are in your meetup? It sounds like more than a hundred that you can look at and go. Hey, maybe this is somebody to bring on our team. Is that a fair analysis? [00:16:29] Jonathan Bombaci: Yeah. I mean, I think up until recently, every new staff member has come from our bench, right? Has come from someone that, you know, I stick on the bench every year. We kind of go through who's on our bench and what positions might be opening up, and we try to slot people in that. I think we just recently hired two maintenance technicians in northern, in, and Southern New Hampshire that weren't on our bench because it was outside of our target area. But up until that point, everybody else has been hired from, you know, from, from the network. [00:16:59] Sam Wilson: That's cool. And what an effective way to grow and scale versus, you know,I'm gonna call it spray and pray. You're not out there putting lists on Indeed or anything like that, or, or posts on Indeed going, gosh, I wonder if this is gonna be a good fit. Hiring a random person. And again, not that you can't hire good people that way. But how much more effective to be able to have a front row seat to who they are, how they behave, what type of business they work in. You get to know the person long before you ever have to actually, or want to ever offer them a job. That's a really, really cool and effective strategy. Guys, go ahead if you have you got more to say about that? Please tack it off. [00:17:36] Jonathan Bombaci: I was gonna say, everyone presents their best self when you're doing an interview. Right? You stick 'em in front of a meetup and say, Hey, present something on your last fix and flip. And you can tell out, you can tell real quickly, you know, the type of person they are based off of how they build the presentation. Right? [00:17:50] Sam Wilson: Oh, that's super smart. I absolutely love it. Guys, you've done incredible things. I mean, 2019, it sounded like, again, you know, I think you said you own 30 units maybe. Then John and I think Todd, by the time you guys partnered up, you had 10. That's pretty impressive growth here in just a few short years. You've given us a lot of things here to think about leveraging partnerships, how to round out each other's teams, staying focused and staying in our lanes. I mean, that's a struggle I think, for all of us, and you've certainly given us a lot of really cool and great things to think about here. Appreciate you guys coming on the show today. I've loved hearing your journey thus far. If our listeners wanna get in touch with you or learn more about you or even your meetup, what is the best way to do it? [00:18:28] Jonathan Bombaci: Best way would just be to go to our website,candorrealty.com or to reach out directly to myself or Todd, I'm sure. We'll provide you with our contact information and people can reach out to us directly. [00:18:37] Sam Wilson: Awesome. And if we can get that one time, just slightly slower there. That website again there, John. That way if we're just listening, we can make sure we can look it up. Maybe if we wanna catch that up, just the audio only version. So what was that website again? [00:18:49] Jonathan Bombaci: Sure. It's candorrealty.com, which is the name of our agency. [00:18:54] Sam Wilson: Fantastic. We'll make sure to also include that there in the show notes. Todd and John, thank you again for coming on the show today. I certainly appreciate it. It was great having you guys on today. [00:19:03] Jonathan Bombaci: Yep. Thanks Sam.