Zach Haptonstall, CEO of Rise48 Equity, joins us to discuss leaving a successful career to start his business, a challenging first year, and growing his Phoenix multifamily investment company.

Connect with Zach at https://www.rise48equity.com/

 

Transcript

Devin:
Zach, welcome. Thanks for jumping on. How are you?

Zach:
Hey Devin. I’m doing great. Thanks for having me on the show. I really appreciate it.

Devin:
Excellent, excellent. Yeah, well, let’s jump in. For those folks that aren’t connected with you already or familiar with your company, you guys are in Phoenix, but how did you come to real estate? I mean, what was that journey in specifically multifamily, right? A lot of people know rental houses are kind of a good way to get started, et cetera, but multifamily is this different animal. What did that path to multifamily look like for you?

Zach:
Yeah, no. It’s a great question, Devin. I mean, I had a pretty unique journey, you could say, and I didn’t really have a background or any experience or any family connections in real estate.

Devin:
Sure.

Zach:
I guess I’ll give you a brief summary. I know we have limited time. We can go as in depth as you want, but basically I was born and raised here in Phoenix, and we’re only focused on the Phoenix market, so I’m familiar with the market. I had a journalism degree. I was actually a live news anchor and a sports reporter on Arizona PBS and I hosted a show in Fox Sports. So, I wanted to be a news anchor.

Zach:
I mean, I originally wanted to be an athlete, so I had a Division II college football scholarship. Went and did that for a bit, realized I wasn’t going to go to the NFL. Then I wanted to be a reporter, so I got that degree, did that for a bit. Realized you work crazy hours, don’t make a lot of money, not a lot of flexibility. So, I went to healthcare sales of all things working for a hospice organization. I was a marketer and then I was very fortunate, over about four years became a director of marketing, a co-owner in the company. I got my MBA, paid off all my debt, was in a good position. I bought a house.

Zach:
So, by the time I was 25, 26 I was very blessed. I was making over 200K a year, more money than both my parents combined. I came from a middle class family. So, I was able to do well there, but then I just got burnt out. I was just kind of always like, what have you done for me lately, like in sales, right? You’re always chasing the commission and it’s always a grind.

Devin:
Hero to zero.

Zach:
Exactly.

Devin:
The first every month.

Zach:
That’s exactly right, that’s exactly right. Yeah and I had already hit all my goals. In all humility, I was dominating the space, you know what I mean? I was like, “There’s got to be more.” So, it’s kind of the cliché story. I read Rich Dad, Poor Dad, like a lot of people, and I actually met a family friend at my then girlfriend, now wife’s Christmas party, her family Christmas party. I met this guy and we started talking. He owned a bunch of mobile home parks. That really intrigued me. It all kind of aligned at the same time where I was unhappy, I learned about this, I read the book. That was in December of 2017.

Zach:
January of 2018 I said, “Screw it. I don’t want to do this anymore, but I don’t have time to figure out what I want to do, so I just need to be done with the healthcare.” So, I resigned, I sold my equity in that company, and it wasn’t a crazy amount, but I had relentlessly saved, plus the pop of the equity, had about like 260K of cash, okay? And I was single. I wasn’t single, I had a girlfriend, but no kids, nothing like that. Just had [crosstalk 00:02:53].

Devin:
Low overhead, yeah.

Zach:
Low overhead, so I said, “I’m going to live off savings for the next 12 months and I’m going to figure out how to create passive income through real estate.” And I had no idea what I was going to do. I was actually looking at flipping homes initially, believe it or not, and then I was like, “No, that’s transactional.” It’s what I was just doing. Then I really wanted to focus on mobile home parks.

Zach:
So, I actually cold called over 90 mobile home park owners in the Mesa Apache Junction area of Phoenix trying to buy one on a seller carry. I was thinking I’ve got this chunk of cash, I want to take this entire chunk, deploy it in one mobile home park, buy it on a seller carry, own it, self-manage it, et cetera. So I called and called, nobody really wanted to sell. There was one opportunity where I could’ve got one, and I had analysis paralysis, so to speak. I mean, I just hesitated. By the time I picked up the phone it was already under contract.

Zach:
Then I started to think, that was about three, four months in, Devin. Then I started listening more to podcasts. I learned about multifamily. I learned about syndication, which I had never heard of before. I didn’t even really think of the concept of raising money from other people and how that works. So, I started to think about it. I was like, “Well, what if I would’ve won that mobile home park?” Great, I own this mobile home park, maybe give me two to three grand a month in cashflow, but now I have no more cash. What do I do next? You know what I mean?

Devin:
Right.

Zach:
I was just trying to think what would the next step of that, I didn’t even think about that, but with multifamily I started to realize with syndication I can start to scale this and build something out.

Zach:
So anyways, it was a long journey. I mean, it took three or four months before I even really decided to hone in on multifamily syndication specifically. It was 10 months until we got our first deal under contract, 14 months total from when I quit my job to closing the first deal. So, this entire time I’m burning through cash. I have no money coming in, you know what I mean? It’s just kind of it was a lot of adversity, honestly, because I was used to having these fat checks come in every two weeks, right? For the six figure salary and then bonuses, but now nothing is coming in. I wake up every morning and I’m like, “What do I do today? How do I move the needle today?” And it’s a very intimidating overwhelming thing, right? These big buildings, big dollar signs, you don’t know anybody with money, you don’t know anybody in the industry.

Zach:
So anyways, it was really just grinding out, listening to podcasts like yours, reading books, helped to build the foundational knowledge so I could at least speak the lingo when I’m talking to real estate professionals.

Devin:
Sure.

Zach:
But then the biggest turning point is you have to take action, right? So now I started cold calling brokers, property managers, lenders, attorneys, everybody, and started meeting with them, vetting them, building a team, and then I started going to conferences, I joined a mentorship group, anything I could do to gain networks or access to stuff, and it was all scary stuff, right? But that’s kind of how we were able to break in.

Zach:
So, anyways, long story short, Devin, it was 14 months to close that first deal. It was a 36 unit, three and a half million. We didn’t even syndicate it. We did a TIC. We basically all put in chunks of our own money because we just wanted to prove that concept out.

Devin:
Yes.

Zach:
So, after that deal, that was February of 2019. So, it’s been about 25, 26 months, or 26, 27 months. We’ve acquired 10 assets total, worth over 140 million since then, and we have four properties under contract worth 110 million. So, we’ve just been very blessed and fortunate to kind of prove the concept on that first deal, sell it. Execute the plan, sell it, it did really well, and then our entire focus has now been on passive investors, serving the investors, good communication. That’s how we kind of built the momentum. So, that’s kind of the background in a nutshell.

Devin:
Fantastic, fantastic. I love it. There’s a very strong gravity to that paycheck, right? To that W-2, that I think it’s difficult for most people to break out of, and it takes a Herculean effort to pull away from that gravity, right? You’re in this small orbit and you want to be out in this much bigger orbit.

Zach:
Yeah.

Devin:
And it just … I don’t know if there’s an easy way to do it. You committed to it, burned the boats, quit the job, you did the smart thing with some cash to get you going, but I got to imagine every day waking up, that’s pretty strong motivation, right? The clock is ticking to make the dream happen.

Zach:
It is. Yeah, you feel anxious, like you need to make progress, but it’s hard to measure what progress is, right? Until you actually have a deal, and that takes time. So, that was a tough thing.

Devin:
Yeah, no doubt. But I like, it’s kind of that law of the first deal you hear about, you get the first deal done and things kind of go from black and white to color. Then you guys have exploded the portfolio since then. Very fascinating how that pattern seems to be everywhere, right? A lot of work getting educated, deciding what you want. That first deal is really brutal to get done, kind of for everybody.

Zach:
Yeah.

Devin:
It’s a learning curve. I mean, it’s hard to do deals period, right?

Zach:
It is.

Devin:
In a competitive marketplace.

Zach:
Right.

Devin:
But especially with the learning curve and all the other headwinds, but once you get that first one done, those next ones become exponentially easier.

Zach:
They do. Yeah, you gain the experience, you gain the confidence, you get the momentum, like you said. I tell people, you’re “in the club” so to speak, right?

Devin:
That’s right.

Zach:
I mean, you and I both know, Devin, going to events and conferences, there’s thousands and thousands of people who want to be an active GP, they want to syndicate deals, they want to do it, but the difference between people who have one deal and zero deals is big, right? And there’s great people who have done a deal. So, for me it was kind of like I felt like I got the monkey off my back, because before I was going to all these events. I don’t have a job. People ask, “What do you do?” Like, “Well, I’m a real estate investor.” They’re like, “Oh, what do you own?” I don’t own any real estate. You know what I mean?

Devin:
That’s tough.

Zach:
Yeah, you don’t want to say that, you know what I mean? It’s tough, it is. So, it was almost a huge relief to kind of get that deal done, and then focus now on okay, how do we get better? So, that was kind of that experience.

Devin:
Yeah. I love it. I love it. What does the team look like today?

Zach:
Yeah, yeah. It’s a great question. So, we started out. So, there’s three co-founders, okay? Bikran, Robert and myself. We all met in 2018. We all did that first deal together.

Devin:
Excellent.

Zach:
So each of us put at least 150K of our own personal cash.

Devin:
Good.

Zach:
At the time I had like 165K left, Devin. I had burned through a lot of it. I put 160 in the first deal. I was all in because my thinking was I need to try to convince other people that I’m all in and I believe in the deal. So, if I have this much skin in the game, you know what I mean? I have all this money at risk, et cetera, they’re more likely. So anyways, I found Bikran. He put a significant amount, Robert put a significant amount. So, we’re the three co-founders. Bikran is our CFO. So, he has an economics degree, CPA, worked at PricewaterhouseCoopers for a number of years, and he’s doing all our underwriting, financial analysis, et cetera. Robert has a master’s degree in architecture and a lot of construction background, so he’s our chief construction officer doing all asset management, watching renovations, make sure we stay on schedule and on budget.

Zach:
I’m the CEO. I’ve got a journalism degree and a MBA, like I mentioned. I’m focused on acquisitions, sourcing capital, partnerships. We have three full-time salary W-2 employees. So, we have a director of asset management. She oversees our entire portfolio. She was actually previously our regional manager for our third-party management company for over a year, so we know her well. We hired her early this year. We just hired a transactions manager who is going to help with a lot of back office work and investor relations as well. Then we just hired a construction coordinator whose sole focus is to walk units that are under renovation 40 hours a week.

Zach:
So, right now we easily have 40 to 60 units a month that we’re renovating across our portfolio, and we just want to make sure that we’re staying on schedule and on budget, which we have been. So, we do all the construction management in-house. So, we basically source our own vendors, everything like that, and we just found it helps us be a lot more efficient. It helps us to exceed projections. So, we’ve been very blessed that we’re exceeding pro forma on every single deal that we’ve acquired and we’ve gone round trip on two. I think it’s really just building out the infrastructure, because there’s so much to do, as you know, Devin. So, when you can start to delegate some of these things it makes you be able to be freed up to focus on what you do best, which helps the whole company.

Devin:
Right, yeah. It’s an interesting part scaling it. I mean, in the beginning you kind of have to do it all, or your partners and you have to do it all, but then you can start peeling off pieces and get more efficient over time. Certainly operating in one market is huge there, right? You’re not going to have that guy walking units in 10 markets.

Zach:
100%, yeah. Exactly.

Devin:
You know? [crosstalk 00:11:09].

Zach:
We can get to any of our assets within 20 to 30 minutes, which is nice. So, to your point, it gives you true economies of scale, right? Because everything is close and compact, which is nice.

Devin:
Yeah. I love that story. I mean, I certainly resonate with that. We’re in San Antonio, it’s the same story. I didn’t want to get on a plane to go look at assets.

Zach:
Yeah.

Devin:
Now our office is kind of central, north central in the city. Same thing, 15 minutes I can be at any asset.

Zach:
Awesome.

Devin:
We want to go tour-

Zach:
It’s huge.

Devin:
… assets, we can do the whole thing in a morning.

Zach:
Yep.

Devin:
It’s good stuff. Certainly keep things simple. Then I think we’re both kind of fortunate to be in markets where hey, this works. You know, I don’t know-

Zach:
[crosstalk 00:11:48] markets, yeah. No, the fundamentals help you, right? They help 100%. So that’s [crosstalk 00:11:52] a lot.

Devin:
Yeah. Yes. I mean, that’s helpful there. What are you guys doing for property management? Have you brought that in-house yet? Is that third-party, is it all one company?

Zach:
Yeah, good question. We use third-party property management. I mean, we have talked about possibly starting one. If we were to, it would not be until first quarter next year at the earliest, but it’s still kind of an abstract idea.

Devin:
Yeah.

Zach:
The thought is we have a really good third-party management company and we have scale with them now. So, we do get “preferential” treatment, and they really adapt to what we need, which helps a lot. I mean, we’ve done analysis of what the fees we’re paying versus what we can take in-house, and right now … I mean, so previously I was a president and co-owner of the hospice organization. About 18 months ago started that and resigned four or five months ago, went back into it for about 18 months. We had over 110 employees, Devin, and I know what it’s like to have a ton of employees and be an operationally intensive organization. For me right now there is not enough … I think you start your own management company and you become vertically integrated for efficiencies, right? To save money, to be more efficient with everything, and because we’ve taken all the construction in-house we feel like that’s the biggest component. We’ll managing all that. We were previously having our third-party management companies do the construction, and it worked fine when we had a small portfolio, but now we have value ideals where we need to crank out 10 to 15 units a month on some of these deals, and we need to be done and pre-leased. So, we’re really on top of it.

Zach:
So, we’re using a third-party, we’ll continue to do that for now and we’ll probably just continue to build out our construction arm.

Devin:
I love it. Yeah. Third-party gives you a great flexibility and focus for you … You’re basically a private equity company, right?

Zach:
Yeah.

Devin:
So property management is this whole other thing.

Zach:
A whole, yeah.

Devin:
If you’ve got a good third-party relationship, that takes a lot off your plate.

Zach:
It does.

Devin:
A lot off your plate. There’s no right or wrong. I mean, we started a management company really out of pain. We had a really bad situation on a couple of assets.

Zach:
Yep. No, that makes total sense. I would do it because of that, because we’ve fired a couple management companies, okay? This is our third management company and we’re really happy, but if we weren’t, then we would probably do what you did because you have to do whatever it takes to make your operations run smooth, right?

Devin:
100%, yeah. We just did it out of necessity and in hindsight I’m pleased. Actually I really like it. I didn’t think I would like owning a management company, I actually really do, and that has to do everything with the person that’s running it. 100% about that person, right?

Zach:
Sure, sure. Makes sense.

Devin:
But all these years of doing these deals I was always like, “Ah, I don’t want to mess with it, and this and that.”

Zach:
Yeah.

Devin:
So, if you’ve got a good relationship, absolutely. That’s very efficient to do it that way. If you start a management company, it’s not going to be a cash cow.

Zach:
Right.

Devin:
It’s really about control and NOI.

Zach:
Yep.

Devin:
And it’s not like you’re making a bunch of money on the management company. So, that’s a great setup.

Zach:
Yeah, but it does help. Yeah, I like what you’re doing too, Devin. I think one important point for those syndicators who have scaled and they want to start doing like JV with private equity groups and go bigger, then those groups, they like the vertically integrated model more. They tend to like that you have full control. From what I’ve … We talk to a lot of these groups and we haven’t done a deal yet, but that’s another advantage of that.

Devin:
I was going to ask you on the JV, on the equity. Every time we’ve looked at it, it just never … I’ve been looking at these stuff for years.

Zach:
Yeah, I’m sure you have.

Devin:
And having these conversations for years. Every time it comes back to I think we just do it 50, 100K at a time, because any one of those investors is not going to make or break a deal.

Zach:
Yeah.

Devin:
Somebody bails on a commitment a week before closing. It’s like, who cares? It’s nonconsequential, and so it’s a lot of work.

Zach:
No, I agree with you. I agree with you. I mean, obviously I don’t have as much experience, haven’t been in as long as you, but on our limited time we’ve flirted with several equity groups on deals as well, and we have gotten in deep conversations, and gone back and forth. Yeah, I mean, here’s my perspective to kind of give the listeners some clarity into my experience, is that as a syndicator or sponsor the advantages, like you said, you’re diversified with your investors. That no one investor is going to make or break you, which is good. You’re also going to have full control over the operations, right? And that’s the biggest things. When you partner with these JV equity groups, you’re kind of like their employee in a sense. They’ll have special member rights where you have to get the permission in order to make any decisions that are over X amount of dollars for capex. You need a permission to refinance, to sell, et cetera. So, you’re going to have to get used to that, or comfortable with that, and that was the one thing in the last six months we just haven’t been comfortable with because we feel like our operations are going well like we’re doing. So, that’s one disadvantage, and then compensation as well.

Zach:
I mean, in general as a syndicator you’re going to make more compensation than when you do these JV equity partnerships from what we’ve seen, because they’re splitting all your fees significantly down, you know what I mean? The hurdles are not as favorable, and that’s just kind of industry standard.

Zach:
Then the biggest thing that you kind of alluded to, Devin, is the risk of them backing out the last minute and you can’t close, right? That’s probably the number one fear we’ve had.

Devin:
Or changing terms at the one yard line, you’re like, [crosstalk 00:17:08].

Zach:
Exactly. Re-trade you.

Devin:
I got 300K earnest money hard.

Zach:
Yeah, exactly.

Devin:
They know that.

Zach:
Exactly.

Devin:
You’re just like, “What? Are you going to back fill $8 million of equity?” No, I mean.

Zach:
No, you’re done. Yeah. You hear stories of it happening.

Devin:
Yeah.

Zach:
I know a guy that it happened to, you know what I mean? Or backed out a couple days before closing, and these guys don’t give a crap. Most of them are private equity groups out of New York and they’re all about the numbers, you know what I mean? And I don’t want to paint a broad picture. There are good groups, we’ve talked to guys, but they’re about the numbers, right? So, like you mentioned, Devin, as a sponsor you have your own personal cash, earnest money at risk, legal fees, loan deposits. Our loan deposits are now at least 100K per deal.

Devin:
Oh yeah. Yeah, I mean, you’re getting three, four, 500K into a deal before you even close it.

Zach:
Easily, easily. Yeah, I mean, we have like 1.7 million of our own personal cash out right now in nonrefundable [crosstalk 00:17:58].

Devin:
On acquisitions, yeah.

Zach:
On acquisitions, in escrow. Yes, split a third, a third, a third. So, if we don’t close, we lose a significant amount of our cash, you know what I mean?

Devin:
No doubt.

Zach:
So yeah, anyways, that’s kind of what we’ve seen. On the flip side, the advantages are is that you can scale a lot more quickly, right? I mean, we are having at least 100 or 200 investors every deal, which we love to do, and we have Alice who is Bikran’s wife. She’s putting in 50, 60 hours a week in investor relations. So, if you go the JV equity route you don’t have to worry about investor relations really. I mean, you do have to report to these guys and do investor reporting. It’s not as time intensive, and then the equity obviously. They’ll typically bring at least 80 to 95% of the equity and you bring the remaining 10%. So, you can scale. You can do a lot of volume and just focus on acquisitions, investor reporting to the PE group, and then asset management. So, it allows you to really focus and hone in.

Zach:
So, I mean, our goal, Devin, we talked about our goal going into this year was to acquire 250 million worth of new assets in the Phoenix market, okay, multifamily. Assuming we close and we have another contract by the end of July, that’ll be like 190. So, we’re getting close.

Devin:
Great.

Zach:
So we’re on track. So, we have a new goal next year to syndicate 500 million and to do JV equity 500 million for a total of a billion.

Devin:
Okay.

Zach:
So, we do want to have this construction, sorry, not the construction, the JV equity arm.

Devin:
Sure.

Zach:
Because what we’re seeing is there’s deals that are 50 million plus, 50 to 100 million that are the same exact advantage of the deals that we’re buying next door, you know what I mean? That are 10 to 40 million. We know we can execute the same plan, we know we can execute all the renovations, and we have the blueprint, it’s just we need the equity. So, we feel like we’re missing out in that space and that we can compete, because I mean, it’s probably just like in San Antonio, Devin, Phoenix is super heated. You have compressed cap rates, rising prices. We have not been able to win a marketed deal since August of 2019.

Devin:
Wow.

Zach:
The last six acquisitions we’ve had were completely off market, with no competition at all, through broker relationships, and the four that we have under contract, same exact story. It’s not because we’re not trying, I think we’re in four or five best in finals right now. I doubt we’ll win any, we’re constantly getting second and third because there’s always a wild card that’s just going crazy, you know what I mean?

Zach:
So yeah, so anyways, my point is we have the relations with the brokers who are selling these 50 to $100 million deals and they ask me and I tell them, “No, don’t send them to me because we can’t even take them down.” We’re like 10 to 40, 10 to 50. So, that is the advantage. If we can get that, then we would like to have a blend. We still love our syndication model, we love serving our investors, we love having full control performing and making people money, but we feel like there’s opportunity there too in this other space.

Devin:
Yeah, no doubt. You’re already got the team and the framework to do it. You’re just adding some zeroes and executing. I mean, all things considered, a relatively simple business plan. The people and the variables make it hard, but buy an apartment complex, rebrand it, renovate the interiors. In the scheme of real estate investment options, it’s relatively straightforward, there’s big projects, right?

Zach:
It is, yeah. As long as you have the construction down, then you’re good. You have to stay on schedule and on budget with the construction, that’s the biggest thing that we’ve seen to market.

Devin:
Absolutely, absolutely. I want to go back to your partners for a minute. How did you guys meet and connect?

Zach:
Yeah, good question. So, actually that’s a really great question because I met them at a conference in Dallas, okay? So, I started going to these conferences in Dallas, and then I joined a mentorship program. There are several of them out there now. I dropped like 30K to join this program, and I met my two partners through this program.

Zach:
So, I had spent about six months, Devin, just cold calling people, trying to go to local meetups, any exposure I can get to networks of multifamily, and there’s not a lot surprisingly. It’s hard to find meetups here. So, I felt like everybody I was meeting with the first six months I was trying to sell them on multifamily and educate them, they just didn’t get it. Then I started going to these conferences, and I’m like, “Oh my gosh, this is what I needed.” Like-minded people who already understand it. I don’t need to explain stuff to them, they already get it and they have the same goals as me.

Zach:
So, for me I joined this program, I dropped 30K when I was not making any money, right? I was already six months deep, six, seven months. I think it was July I did that.

Devin:
Yeah.

Zach:
I was about seven months deep, I had already burned through a lot of cash, but I was like, “You know what? I this can collapse a timeframe.” Because I saw other people who I viewed as just regular people doing deals. Look if these guys can do it, I can do it, you know what I mean? So, it was good because it created a competitive environment and I really didn’t get any equity from the group. I didn’t bring a lot of value in that regard. So, I viewed it as I was buying a network, and if you can spend 30K, it’s a high barrier to entry, right? So people are probably serious.

Zach:
So, I met Robert there, and Robert really satisfied a lot of our network liquidity requirements. So, I didn’t have high net worth, high liquidity. Robert really filled that role, and Bikran, same thing. I mean, I’m 29, I think I was 26, 27 when I started this a few years ago. Bikran is like 31, so he was like 28 at the time, so we didn’t have high net worth, high liquidity, so we found Robert. Bikran kind of satisfied all the back office and financial needs because I underwrote the first couple deals we did before we really kind of got married with Bikran. So, I have an MBA, I took the accounting classes, I understand how to underwrite, I just didn’t like doing it, Devin. I don’t want to sit in front of a spreadsheet.

Devin:
A lot of work, man.

Zach:
Yeah. It drives me crazy.

Devin:
It’s a grind.

Zach:
Exactly, and I hate it. So, Bikran is much smarter than me, much more sophisticated with that. So, thank god for that. But I mean, I had “dated” seven or eight different partners before that point. What I mean by that is I meet you at a meetup, Devin. We both want to do multifamily, you seem like a nice guy, let’s start underwriting deals together, or touring deals and start making offers together, right? Through that process you start to see people’s strengths and weaknesses, you see their work ethic, how are they communicating with you, do you like them, because it’s important to like your partners, you need to talk to them. If you had to have a tough conversation, could you? Do your personalities match? You know what I mean?

Zach:
So, I was going through these different people, and some people I really liked. We got along really well, we had nightly calls, but then I realized you have the same exact skillset as me. I’m going to be the acquisitions guy, finding deals, raising money, I need a back office, underwriting numbers type of person, you’re not that person. So, we split up. You know what I mean? Some people don’t fill that role, some people don’t have the work ethic. So, I was really blessed to meet those two guys, Robert and Bikran through that group, and we’ve stayed together the last few years, we have complementary skillsets, which is really big.

Devin:
Yeah that’s a huge point. That’s a huge point. One of the things I like about this business is I found that myself and I see it in other people, you kind of gravitate towards a few things. It’s like oh, this guy is he’s kind of a sales marketing capital guy, he can do that naturally, right? That’s kind of what I am. I’m comfortable.

Zach:
Exactly.

Devin:
I’ve had sales roles.

Zach:
Yeah.

Devin:
There are some other kind of back office stuff that I could do it all, but it kind of drains my energy. But there’s a guy over here that he seems to thrive on it, and that’s real important to put that together. It’s really cool too because then I guess it’s not just multifamily, it’s any business, but you could kind of see okay, there’s a series of skillsets that are needed to get this done, and you can kind of tell this guy, this engineer type over here loves the spreadsheets and he’s going to thrive in that. So, it’s very important I think for anybody who wants to do this to identify what comes easy and what you love out of this, and get the rest off your plate.

Zach:
No, you’ve said it great. I should’ve prefaced what I said with what you just said, Devin, because that’s exactly what I had to learn. Initially it was so overwhelming because I was trying to do everything. I was meeting with the brokers, getting the financials, just frustrating myself trying to underwrite because it’s like when you’re new, nothing is penciling, you think you’re doing it wrong. Like am I doing this wrong? This is frustrating, but you’re probably not. Everything is just overpriced. It’s a needle in a haystack.

Devin:
That’s right.

Zach:
We probably turn down 10 off market deals for every off market deal we buy, because just because it’s off market doesn’t mean it’s good, right? We’re constantly going through. We probably lose more deals than anybody, just cranking through the underwriting and shopping comps, making offers. You have to identify what are you good at, what do you like to do, what are you weak at, what do you not like to do, and then like you said, find those complementary skillsets so that you can just focus on your value that you bring, and you’ll be more efficient that way.

Devin:
Yeah. No, that’s totally right. I want to dig in a little bit on your motivation, right? You’re a highly motivated guy. You had success in the corporate world. You’re having success as an entrepreneur now. Have you thought about what that was maybe earlier in life that created that? Is it just kind of the way you are? Did something happen? What is that?

Zach:
Yeah, that’s a good question, Devin. I mean, I think, I mean, I’ve always been very competitive. For me it’s really not about making money. I don’t really spend any of my money, I save it anyways. Everything is being invested, I don’t really like to buy stuff, but I am very competitive and I like the fact of real estate that it’s kind of like a scoreboard, you know what I mean?

Devin:
Yeah.

Zach:
You bought this many assets, and this many assets under management, you’ve gone full cycle this many times, and I really like the competition because in healthcare that’s how it was. There was a scoreboard of referrals, and deals closed, et cetera, but there’s no exposure there really. So, I mean, I think playing football, I always played sports growing up, like I said. I was a All-State high school football player, played Division II junior college football. So, I was always very competitive. So, I think I just get excited by how hard it was initially to break in, like all the adversity I went through, and I quit mentally several days, several different times, you know what I mean?

Devin:
Right.

Zach:
Like screw this, I don’t know what I’m doing, because even my own family is questioning me.

Devin:
Sure.

Zach:
They’re like, “Dude, you’re making over 200K a year you’re like 25, 26.”

Devin:
What are you doing, yeah?

Zach:
Yeah, you have your own house, you have no debt. So, I went through all that, and through that process I actually gained a massive chip on my shoulder. I think I’ve always tried to identify or create chips on my shoulder to motivate me, you know what I mean? To push me even more. So, I think that’s a big thing. So, through that process you go through all this adversity every time you can’t do it, making no money, kind of losing my self-identity really because I didn’t know what I was or what I was doing. I just started to not care what people though anymore, you know what I mean? And you start to train your mind and go into attack more.

Zach:
So, basically it’s just exciting to be able to continue to compete, scale the company, make sure we’re building the infrastructure, do a good job, and serve the investors. So, I think it’s just exciting kind of seeing something grow, and it’s an industry that I’m excited about and I’m passionate about. Healthcare I wasn’t passionate about. So, after a certain amount of time it just wears on me, and it’s a lot. So, I don’t know. It’s a good question. I mean, my goal is to become a billionaire by age 40, and it’s not to be rich or whatever. I don’t know what I want to do next, but I just have seen how when you have financial resources and you have a social network of resources, it can insulate you and it can give you influence to make a really strong impact.

Zach:
So, I don’t know what that would be yet, but right now I’m just kind of focused on building this company and everything else would take care of itself. So, that’s kind of abstract, right? I think it just comes down to liking to compete, liking working with my partners. I mean, I like interacting with our employees, things like that.

Devin:
I love it. Thank you, that’s a great explanation. It’s the best game for me.

Zach:
Yeah.

Devin:
I like a challenge, I like to play golf, I’m a helicopter pilot, I play music.

Zach:
That’s awesome. I didn’t know that. That’s cool.

Devin:
It’s like I like challenges, but the business is the best game. It’s the best challenge, right?

Zach:
It is, yeah.

Devin:
Big decisions, big dollars, you’re making a lot of impact.

Zach:
[crosstalk 00:29:50].

Devin:
I don’t know. I’m kind of the same way. It’s like I have these big money targets, but they’re really just more to see, can I do it? Because man, I’ve got a lot of things.

Zach:
Exactly, it’s like a challenge, right?

Devin:
Yeah, it’s a challenge.

Zach:
You want to set the goal full high so you can stretch yourself out of your comfort zone.

Devin:
Yeah.

Zach:
Because you’ve already done it and you’ve seen the success it’s brought you.

Devin:
Yeah, and if you’re not a billionaire at 40, who cares? But by setting that target you’re changing your behavior today in ways that are going to be helpful, period.

Zach:
Yeah, exactly. Right.

Devin:
Whether or not you hit it. So, I like those big targets, and I think people that aren’t accustomed that might think like, “Oh, that’s crazy. And why do you need all that money?” It’s like-

Zach:
Yeah, they think you’re arrogant, or greedy, or whatever. [crosstalk 00:30:28].

Devin:
Yeah, yeah.

Zach:
Yeah, I mean [crosstalk 00:30:29].

Devin:
But this is all a journey of self-improvement really.

Zach:
Exactly. Internal, it’s all internal. It’s not like I go out there broadcasting that, but if people ask me, I’ll tell them straight up. You have to not care what people think. You have to … You know what I mean? And when you announce your goals to people, I mean, it’s kind of funny. We closed a deal in January and I did an interview with a local, the Phoenix Business Journal, and I put it out there, like our goal is to buy 250 million this year. My partner was like, “You’re going to put that out there?” I’m thinking like, “Yeah. If I put it out there then it holds me accountable to actually achieving it. I mean it. I’m not just throwing out crazy numbers. I’m focused.”

Zach:
So, those are little things, like creating chips on your shoulder, putting stuff out there to put pressure on yourself to make yourself accountable and to achieve it. Those are little things that I’ve seen that have been successful for us to achieve our goals.

Devin:
I love it. Yeah, there’s also something almost kind of mystical about putting it out there because we put our target out for this year very publicly, right? With our investor newsletter like in January. Here’s what we want to do this year.

Zach:
There you go, yeah.

Devin:
And I’m going like, “Well, for our size team and kind of everything, it’s doable, but it’s a big goal.”

Zach:
Gotcha.

Devin:
We’re at exactly the halfway mark of the year and we’re exactly halfway to our goal.

Zach:
Congrats. That’s awesome, man.

Devin:
This is like you couldn’t have orchestrated it any better.

Zach:
Right.

Devin:
It’s almost kind of magical.

Zach:
That’s how you would’ve drawn out.

Devin:
You got to put it out there though, right? You got to put it out there, so. I love it.

Zach:
Yeah. It just triggers your mind to start, it’s go time. It creates a sense of urgency, right? And you always have to have a sense of urgency to get stuff done. You have to just always be … It’s almost like, I mean, people say motivation and what motivates you, I wouldn’t even call it motivation because I feel like motivation is kind of temporary, right? It comes and goes. If you could watch a movie or listen to a song and feel pumped up but then it fades, it’s almost kind of like I don’t want to call it a paranoia, but you have like an accountability clock in your head, and it’s like you feel guilty or bad if you’re not doing what you need to do, those types of things, so.

Devin:
Yeah, 100%. So, you guys have grown obviously the portfolio, the team. I want to talk a little bit about investor relations, right? Because you start to-

Zach:
Yeah. Yeah.

Devin:
We talked earlier, in a lot of ways it’s advantageous to have many investors, 100 investors on a deal versus one private equity check where they’re kind of calling the shots.

Zach:
Yeah.

Devin:
How have you guys handled that growth to where you can raise capital from hundreds of investors, where you can get hundreds of K-1s out, communications? What does that look like for you, guys?

Zach:
Yeah, no, it’s a good question. I mean, I think right out of the gates I think it was our second syndication, we realized … I mean, you know this, Devin, when you’re starting, I mean, for us anyways, I was just trying to literally stay above water to pay my bills, because all my money was in earnest money, and trying to make everything into the business, right? So, I had credit card bills. I was probably, I think I was in debt, honestly, because all my cash was in deals. So, it’s like you want to build the business but you want to be efficient with your money. So, we immediately the second deal were like, “You know? We need to invest in an investor portal and we’re just going to do it.” So, we have an investor portal. We’ve had it since 2019, the first year we started, and it makes it really easy.

Zach:
So, basically all of our investor communication goes through there. All the K-1s are uploaded there each year for tax season so investors can just easily grab those, send them to their accountant, all their docs are there. I mean, Alice has really led the investor relations department. So, she’s our VP of investor relations, Bikran’s wife. So, we have a very streamlined process where we’ll send out our initial blast, right? We have a soft commit, investors can soft commit, and then basically Alice will handle all communication from there, sending them the appropriate PPM via a DocuSign template for the type of investment they want to do. So, send that to them and then reviewing every PPM after they’ve completed it. After they complete it she sends some wiring instructions, she tracks the wires after their wire has hit. She sends them an email to confirm that it’s been received, and then she’ll send them the log in credentials for the investor portal after we close, let them know all their docs are available fully executed.

Zach:
So that, during the escrows anyways, that’s really been smooth, a smooth process from there. Then yeah, as far as just investor communication in general, well, I guess I’ll stay on that point for one second. Investor reporting, okay? So we do a full monthly report. The last week of the month we send a full monthly report for the previous month’s performance. So, that really gives investors everything they need to know, and Bikran does all the investor reporting. He does a great job with all his graphs and analysis and key metrics, things like that.

Zach:
So, that’s been big. Then we do monthly distributions, which is more intensive as well. We used to do quarterly, but we’ve seen that investors really like the monthly more, so we make sure. So Bikran and Alice have really led the investor relations, investor reporting department and now we hired this transactions manager just a couple weeks ago and we’re going to train him to do all that stuff, to offload a lot of that stuff.

Zach:
So, it is very time intensive. There’s just a ton of hours of work that go into running these companies, as you know, Devin, that people don’t realize. So, but now that we’re a “real” company, we have an office in Phoenix, we’re all there every day like 50, 60 hours a week, our entire team. We have asset management fees and acquisition fees that are all going straight into our company operating account, just covering overhead. It gives us a lot, it’s nice because now we can cover payroll, you know what I mean? We could hire people [crosstalk 00:35:59].

Devin:
It’s nice to do.

Zach:
It’s nice, yeah. To delegate these things out. So yeah, it’s been a ton of work. Then as far as being available, I always try to have my Calendly link available. I know you probably use that, Devin, and a lot of people now.

Devin:
Oh yeah.

Zach:
Yeah. So I mean, I’ve tried to offload a lot of these stuff so I can just focus on talking to brokers, acquisitions, and then talking to investors. So, a lot of my time now, at least two to three hours a day I would say, is spent talking to either new investors or current investors, referrals, things like that, and answer, walking them through the steps of the PPM. So, I mean, for us it is a lot of work on the front end, however once we close, to be honest with you, we hardly ever hear from our investors.

Devin:
Isn’t that amazing?

Zach:
Yeah, is that your experience too?

Devin:
Yeah.

Zach:
Yeah.

Devin:
I was blown away by that, yeah.

Zach:
Yeah. When I was getting into this, I was stressed, I was like, “Oh man, I’m going to have all these investors hitting me up on my phone every month, asking.” And as long as you’re doing a good job operating asset management, you’re doing very good reporting, clearly communicating, this is the progress and the business plan. What we do is we’ll break out, this is our NOI for the month, this is where expenses came in for the month, versus what we had projected prior to the deal for this month. So we’re always showing them this is how it’s trending versus what we told you. So yeah, I mean, after we close we honestly don’t really hear from them because they get their distributions every month and they see the report, and that’s been that. So, it’s [crosstalk 00:37:21].

Devin:
We kind of joke around. It’s like we spend a lot of time, all of us, like any good operator, spend a lot of time on their reporting, right?

Zach:
Yeah.

Devin:
The writing, the data, photos, et cetera, but show me the money, Jerry, you know? I mean, that’s really-

Zach:
Yeah, yeah. They want to see [crosstalk 00:37:36]. They want the money, yeah.

Devin:
The distribution email which is like two lines. You received a distribution on this asset for … and then they get an update email. It’s like well, the distribution email is kind of the one that counts.

Zach:
That’s the one they want to see. Yeah, exactly. As long as the money keeps coming, then we don’t hear from them, right? I should say that.

Devin:
Yeah, that’s right.

Zach:
And we haven’t had that issue, so that’s been good.

Devin:
Yeah. Yeah, that’s fantastic. Well, kudos for setting up that system and at the point you guys are at, it has its own gravity and momentum where at this point I have to imagine referrals are just coming in kind of naturally.

Zach:
Yeah, most of our new investors are referrals. You’re exactly right, from [crosstalk 00:38:11].

Devin:
Yeah. I mean, that’s any business’s best lead source, right? Is referrals. So, if you could set that up. It’s still kind of mind-boggling. You and I have been steeped in this for a while, so we’re just kind of acclimated to it, but it’s kind of mind-boggling the amount of sophisticated wealthy people out there that have never heard of this, and when they do they’re like, “Oh my god, I didn’t realize this was an option.”

Zach:
It’s amazing, yeah.

Devin:
It’s like most people, right?

Zach:
It’s most people, yeah. That’s what I was telling you. When I was starting it’s like I was talking a foreign language to people, and they think it sounds risky, like oh, real estate, that sounds risky. You know what I mean? They don’t understand, so.

Devin:
Yeah.

Zach:
[crosstalk 00:38:48].

Devin:
Yeah, so that’s a huge opportunity. I like having the investors, because you’re sending checks to regular folks.

Zach:
Yeah. Exactly.

Devin:
And there’s something pretty cool about that.

Zach:
These are regular W-2 earners. Yeah, exactly. I like talking to the investors. I do enjoy it, and it’s fun educating them, like you said, and they start to see the performance, they’re happy, and it does change people’s lives, right?

Devin:
It does.

Zach:
Because they didn’t know about it and they’re getting a better return than they would in most other places.

Devin:
Yep, yep. It’s a pretty cool deal. Well, this has been great, Zach. I really appreciate you kind of peeling back the curtain here on your business. Congratulations on your success, and it sounds like you have a great team. If somebody wants to connect and learn more about what you guys are up to, what’s a good avenue for that?

Zach:
Yeah. Thanks so much, Devin. I really appreciate being on the show, man. It was a great time. You can just email me, Zach, [email protected], so just the numbers four eight. You can go to our website, rise48equity.com and set up a call with me if you’re interested to learn more about what we’re doing, and yeah. I just appreciate it. I’m happy to talk to anybody, to talk about investments, advice, whatever we can do to help [crosstalk 00:39:55].

Devin:
Outstanding. Outstanding. Well, keep kicking butt and taking names in Phoenix. We’ll link to this in the show notes, and Zach, once again, thank you very much for coming on. I really enjoyed it.

Zach:
Yeah, of course. Thanks so much, Devin. I really appreciate it. Thank you.

Devin:
All right, take care.

Zach:
Thanks.