Bruce the “Apartment Guy” Petersen joins us to discuss how he started investing by buying a 48-unit apartment complex, and parlayed that into multiple multifamily real estate projects. We also discuss writing a book, mentoring, current projects and lessons learned along the way.
Connect with Bruce at https://apt-guy.com/.
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Learn Multifamily Investing at https://www.apartmenteducators.com/
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Transcript
Devin Elder: (00:02)
Bruce Petersen, welcome. How are you?
Bruce Petersen: (00:05)
Good, bud. How are you?
Devin Elder: (00:06)
Doing great, man. I’m excited to catch up. We obviously go way back, but you’ve been doing so much new projects, new to me anyway. I mean, you’re out in Nashville. We talked about the education platform and lots of other stuff. But before we dive into all that, which is what I want to spend time talking about, maybe just a quick intro for people that don’t know the apartment guy, that don’t know Bruce Petersen, how’d you come to real estate? What was that process like for you?
Bruce Petersen: (00:34)
So, first of all, my feelings are hurt. How dare you think people don’t know who I am.
Devin Elder: (00:39)
Exactly.
Bruce Petersen: (00:41)
I’m the apartment guy. Kidding.
Devin Elder: (00:43)
How dare they?
Bruce Petersen: (00:44)
Most people aren’t going to know who the hell I am and that’s fine. So, I’m a college dropout, parents were high school dropouts. I worked in retail for almost 20 years, hit a wall at 42 and thought, “Shit, I can’t do this anymore. It’s just literally killing me and I hate doing what I’m doing.” 80 to a hundred hour work weeks toward the end of my retail career. And so, I just walked away.
Bruce Petersen: (01:05)
I had saved enough money because I was a Dave Ramsey guy back then. I’m not anymore. I lived way below by means. I invested my money smartly that I could afford to walk away at 42. I sat down at the computer one day and thought, “Okay, what am I going to do with the rest of my life? I’m not married. I have no kids. I don’t have a girlfriend.” A hundred hour workweeks, I didn’t have time for anything.
Devin Elder: (01:27)
Sure.
Bruce Petersen: (01:27)
I got to figure out what… I passed around on my front yard planting flowers and working on my lawn and things like that for a year just to decompress. And then I did a Google search looking for a mentor. I found a really, really top quality coach to help me work through how to invest in real estate. I listened to that coach and bought my first apartment complex.
Devin Elder: (01:48)
Key distinction there.
Bruce Petersen: (01:49)
What’s that?
Devin Elder: (01:50)
Key distinction you actually listened, because whatever human tendency there is to get the best advice from the most qualified person and then go, “Ah, I don’t know. I think maybe I’d do it different.”
Bruce Petersen: (02:01)
Yeah. It drives me crazy when I’ll be coaching somebody and I tell them exactly what to do. “Well, no, I think I want to do it this way,” in their minds. Because I’m the best Slurpee maker in the history of 7/11. I don’t need your advice. All right, dude.
Devin Elder: (02:14)
Have fun.
Bruce Petersen: (02:15)
Go for it. Don’t blame me when the shit blows up in your face.
Devin Elder: (02:18)
Yep. So anyway, I interrupted. So, you found a coach, you actually listened and implemented some steps, and you bought an apartment building. So interesting note there, you didn’t flip a bunch of houses. You didn’t go to a wholesaling course. You went straight into a big building with essentially zero experience. Is that right? Is that accurate?
Bruce Petersen: (02:42)
Not essentially with absolutely no experience. So, yeah, I had no job. I had no paycheck. I had no experience. I had nothing. But I started my real estate journey in apartment complexes. I bought a 48 unit apartment complex. I syndicated the first deal I ever did. I’ve only done syndicated deals. I’ve done, what, seven, eight syndications throughout Texas now.
Bruce Petersen: (03:07)
We’re doing a lot of stuff in Nashville and Chattanooga, but yeah, I jumped right in, because again, I had a coach that showed me the benefit of syndicating. Why they thought I could do it, how it all worked. And I believed in him, I trusted him, and I believed in myself really is what it was. I knew that I don’t know what the hell I’m doing, but I want to listen. I want to take coaching, guidance and I’ll figure it out. I was nervous, but I wasn’t scared.
Devin Elder: (03:36)
Right. Not scared enough to keep you from taking action.
Bruce Petersen: (03:39)
Right.
Devin Elder: (03:40)
What did that first deal look like? And particularly, given we’re talking in the middle of 2021, we know where the markets are, where pricing is. Where was pricing on that deal and how big was it?
Bruce Petersen: (03:53)
So, it was a 48 unit apartment complex, north Austin, $34,000 a door.
Devin Elder: (03:57)
No.
Bruce Petersen: (03:57)
Yeah.
Devin Elder: (03:58)
Not a lot of that floating around.
Bruce Petersen: (04:01)
No, I just closed on another 48 units. Feel like I’m going backwards in size right now, but we’re running that 48 unit out of our 200 unit right down the street. So it’s working out well. But this 48 units is, I just paid $128,000 a door for it. So, things have changed quite a bit. That first deal was 1.6 million bucks. And I had to raise a $575,000 to do my first deal.
Devin Elder: (04:25)
Right. Which I mean, for the deals you do now and have done is nothing, but how did that feel trying to raise half a million bucks the first time out? Was that pretty wild or was that capital raised relatively simple?
Bruce Petersen: (04:43)
Well, in hindsight it was pretty simple, but never having done it, yeah, I was a little nervous, but at the same time, I didn’t know to be nervous, right?
Devin Elder: (04:52)
Hmm, sure.
Bruce Petersen: (04:53)
I just knew I’m going to go do this. I never thought about what happens if I don’t, what happens if it doesn’t go. I never thought about that. Now, I knew, look, I still need this much or I still I’m short there and I got to go find people. I had to find some KPs because I didn’t have a job.
Bruce Petersen: (05:09)
And also, they’re not going to give me a loan with no experience and no way to back this loan. So, if I can’t make the loan payments through the business, Bruce, how are you going to pay for this? So, I had to bring in a couple of people. I had to do that.
Bruce Petersen: (05:23)
It’s a little stressful, but at the same time, I went into it with conviction, knowing that I’m being taught by somebody that’s done it themselves, they’ve taught other people to do what I’m trying to do successfully. I know people are out there doing it, other people who started with no experience.
Bruce Petersen: (05:38)
When it finally hit me was the day before close and I called my coach and said, “Look.” She was like, “What’s wrong?” “I don’t know what the hell I’m doing.” She said, “Well, but I do.”
Devin Elder: (05:51)
A day before close?
Bruce Petersen: (05:52)
Yeah. Well, exactly. She said, “But I do. And you’ve listened every step of the way to this point, you’re going to fine. I’m here for you as a lifeline if something goes wrong. You got to get out there and do it, Bruce. But I’m here with you.”
Bruce Petersen: (06:03)
So, to me, it was invaluable to have a coach. A lot of people on different boards, oh, they’re all crooks. You don’t need a damn coach. You don’t need a guru, is what they’re calling them. And when they’re angry about it. Do whatever works for you. Go sit down at the library for 400 hours trying to research all this shit and then when something comes up, that’s not in the books you read, what are you going to do? Guys, you need a coach if you’ve never done this. I can’t speak highly enough about the coach that I had.
Devin Elder: (06:34)
Right. Yeah. There’s certainly something to pushing the fast forward button and paying to do so. I mean, if you’re going to take somebody’s time that’s doing big deals and really experienced, that time’s not going to be free. And it’s a problem that there is so much great free content. There’s no question, right? You can go watch YouTube videos, podcasts, plenty books, et cetera. You’ve got a book, right? You’re on a podcast right now. All this stuff is great as a spice or a supplement, but that’s not going to get you all the way there.
Bruce Petersen: (07:09)
Exactly. So, people talk to me all the time about, well, I’ll just read a book. I’ll just read your book. And that’s great. You need all that knowledge. You need all that book learning, but I’m telling you, I’m not asking to be your coach. I’m telling you, you should have a coach. If you could find a free one, more power to you. Most people like Devin don’t have time to just do it for free. We’re busy as hell. So, you should expect to pay somebody for that.
Bruce Petersen: (07:34)
And people get tripped up, “Oh, I’m not going to pay for that because I can find it all for free.” All right. Look, me as a coach, just like Devin, I can teach you how to make a million dollars a year without any question. I do it myself, all the people that I know at our level, we’re all making that kind of money.
Bruce Petersen: (07:53)
And if you’re not willing to give somebody 20 to 40 or maybe even a hundred thousand dollars, okay, that’s a little high. I understand. But if investing that money, because it is an investment, in you and your future business, that can make you potentially millions of dollars a year, why the hell would you get stuck on that $20,000 number? It makes no sense.
Bruce Petersen: (08:14)
You paid Baylor or A&M UTSA, you paid somebody usually money to go to college to get a job you probably hate, or maybe didn’t even get a job in your field. You were willing to go do that dogmatic thing, but you’re not willing to pay somebody. Think of this as a trade school. Right? You’re learning a trade that could make you ridiculously wealthy if you do it right.
Devin Elder: (08:37)
Yeah. No, I love it. I like to make the analogy, well not the analogy, just get out a closing statement from a multifamily deal. Hey, look at this line item, the lender attorney made $30,000. I paid my attorney $20,000. The rate cap costs 40 grand. The title company made $60,000 on a title, but let’s just look at the line items on a closing statement and to go a $20,000, $30,000 consulting fee in this business is, the lender just made $150,000 origination fee or whatever the case is.
Devin Elder: (09:13)
So, it’s just the numbers that we’re dealing with. So, that point is well-taken. So, you did the Austin deal. You do the 48 units, you listened to your coach, how did that deal turn out? What happened with it after you closed?
Bruce Petersen: (09:28)
So, again, I went into it with no experience and I was scared to death the day before I was closing. Talked to my coach, she talked me off the ledge and we kept moving. We held it for about two years and four months, and without any experience but listening as I went. And I stumbled a few times, you bloody your nose every once in a while, ran into a few walls, but two and a half years later, we sold. And the LPs, the limited partners, passive investors, they made a 300% return on that deal.
Devin Elder: (09:55)
Love it.
Bruce Petersen: (09:56)
It worked out well. Now, yes, I’m completely aware that I bought in 2012 and the Austin market happened to me, right? For me, whatever you want to say, but we were still doing well on a cashflow front. It’s been awhile now, but I think we were making 10% to 12% cash on cash returns. So, we were doing well there, but yes, cap rates started to compress and I did ride some of that.
Bruce Petersen: (10:19)
And that brings up another point that, the original business plan for all of my investors was, “Guys, we’re probably going to hold this for about five to seven years.” They knew I had no experience, but still that was the game plan. So, I went to them at the end of the second year, said, “Hey, I’ve seen what the market’s done. I think we should sell. I don’t want to be the pig that ends up losing his ass because, ‘Oh, I just got to hold it a little. I can squeeze a little more…'”
Bruce Petersen: (10:43)
What happens if the market turns, guys? I can’t sell this tomorrow. It’s going to be a three to six month process to get this thing sold.
Devin Elder: (10:51)
That’s right.
Bruce Petersen: (10:52)
And I don’t want to see our value start to erode while we got greedy. So, I had one of them come to me. He said, “Look, man. You said five to seven years. We bought for cashflow. That was what you sold me on.”
Devin Elder: (11:02)
Oh, wow.
Bruce Petersen: (11:03)
Why are we selling our cashflow? Well, because to me, I thought it was buying a fully stabilized asset that I was paying full retail for. There might be a little bit of a bump on the back end because I’m buying retail. I will sell retail. I didn’t realize what was going to happen to the market.
Bruce Petersen: (11:18)
So yeah, I told him, “Look, we’re buying for cashflow. It’s my first deal.” But anyway, so they came to me and said, “Look, why are we selling this cashflow, this income stream?”
Bruce Petersen: (11:26)
I said, “Okay, I understand what you’re saying. I hear you.” I only had one of those people, but I said, “Think about it this way, the cashflow that we’re giving up, dude, I’m going to give you nine years of cashflow in one day.”
Devin Elder: (11:38)
That’s right. In one day.
Bruce Petersen: (11:40)
So, I mean, let’s lock in at 300% profit. Let’s not get greedy. So, what happened now, I don’t remember what that specific investor did with their proceeds. I didn’t understand 1031s and multifamily then, so we didn’t 1031, but I didn’t take a promote on that first deal, by the way. So, I got paid exactly the way the investor got paid. I got the same 300%. I didn’t get any premium compensation because I didn’t have a promote.
Bruce Petersen: (12:07)
So, I took the money from that first deal and it turned into the investment capital for my personal stake in my next two deals. So that first deal for me turned into three total deals.
Devin Elder: (12:18)
Outstanding.
Bruce Petersen: (12:19)
It was an incredible move.
Devin Elder: (12:20)
Right, right. Going from nothing, buying the 48 unit. It’s funny to hear you say 35K doors is full retail pricing. That just doesn’t even compute, but hey, that’s how it goes. And then you were able to parlay that into more deals, and what size were those subsequent deals?
Bruce Petersen: (12:37)
So, the next deal I bought was 120 units right up the street from the first deal. And then the third one I bought was in San Antonio. It was a 256 unit that somebody that’s on the podcast right now probably knows a little bit about.
Devin Elder: (12:52)
That’s right. That’s right. I’ve been preparing for this podcast, I completely for even forgot about that deal. That’s awesome. I was having lunch with a mutual friend of ours who mentioned that that deal was on the market, which I didn’t even realize because we’d looked at it two years before or something.
Devin Elder: (13:09)
I called our broker friend, mutual friend, and next thing you know, we’re closing on it. Very small world in multifamily folks, so keep that in mind at all times.
Bruce Petersen: (13:19)
Yeah. That’s why I try to tell people when I’m coaching them, be a good buyer, be a good seller, be a professional, act with integrity, class and professionalism because you’re probably going to cross paths with that son of a bitch again. So, you just-
Devin Elder: (13:30)
Yeah, with everybody. The brokers, the sellers, the attorneys-
Bruce Petersen: (13:33)
Absolutely.
Devin Elder: (13:33)
I mean, it’s such a small world, which is good and bad, but I would say mostly good if you’re a good operator. Let’s talk about management. So, we spend a lot of time with financial engineering and obviously we spend a lot of time with the lenders, we’re working with a loan broker, because that’s a huge lever we can pull. And we spend all this time raising capital, but you own it for two, three, four, five years, there’s a lot going on day to day. What was your property management approach and what are you guys doing for property management today?
Bruce Petersen: (14:07)
So, the 48 unit didn’t have an onsite management office. So, what was going on, the person that owned it also owned a 200 unit up the street and they were managing it out of that property that I didn’t owe. So, I had to keep the management company on board when I first bought it. That and the lender’s like, “Hell no, you’re going to give this to a professional to do for you because I’m taking a lot of risk on you. I’m not going to take that risk.” Like, “Okay.”
Bruce Petersen: (14:33)
So, my loan doc said, “You must have third party management,” but it didn’t say for how long. They just said you must have it basically to get the loan is the way it was read. So, after we took it over, it took six months, but I built an office onsite. Just a little bitty, 10 by 10. Didn’t need much. It’s 48 units. I hired a part-time manager and fired my property management company.
Bruce Petersen: (14:53)
Because again, the documents did not say I had to have them for the duration or for X amount of time. It just said you must have. So, I hired somebody myself and got rid of them and it’s the best thing I’ve ever done. I love having a management company now. Honestly, it is the brain damage of this industry.
Devin Elder: (15:13)
It’s the work.
Bruce Petersen: (15:13)
It is absolutely, right? You have your own management company now too, so I love it, but it’s probably 80% of the job. The asset management, it’s vitally important. That’s the company or the person that’s driving the investment for the investors, but it’s not that day-to-day difficult. It’s the management company. That’s where you have turnover constantly. You have to deal with the death on a property. You have to deal with, how are we going to lock down the office during COVID, right?
Devin Elder: (15:44)
Right.
Bruce Petersen: (15:45)
So, I love doing it. Most people don’t want to do it, because again, it is absolute brain damage.
Devin Elder: (15:51)
Yeah, it is. And it’s tempting to just voice that off on some third-party, which may work and may not work, but you’ve got to be able to control these things, which is the conundrum of build your own management company or use third party.
Devin Elder: (16:06)
We both know guys that have been very successful growing big investment firms with third party. And that’s great if you can make it work, but you got to find the right one and you got to be super cautious there. Damned if you do, damned if you don’t. If you build your own, that’s a whole other ball of wax, but you find that having that level of control at the end of the day is worth owning a management company.
Bruce Petersen: (16:30)
Well, it’s not only the amount of control. I love people, I love businesses, I love grooming, mentoring, hiring, I like the hiring process. I really do. I like to interview people. It’s fun for me. If I don’t have that management company, I don’t get the day-to-day interaction with the staff. Now, I can go up and say, “Hey, how you doing?” They’re not my employees though.
Devin Elder: (16:52)
That’s right.
Bruce Petersen: (16:53)
They’re the employees of the management company and they could take that person and move him up to another property anytime they choose. I do have more control, but at the same time I get to be more involved in my employees’ lives. We have a super high standard but we also try to make it fun.
Bruce Petersen: (17:09)
If I hire a third-party management company, I don’t know how you’re going to be treating the employees. And that matters to me.
Devin Elder: (17:14)
For sure.
Bruce Petersen: (17:15)
I don’t know how you’re going to be treating the residents for the most part. I don’t know what’s going on. I’m only going to know what you’re going to allow me to see. Now, there are public reviews on Google and Yelp and all that, but for the most part, I’m only going to get the feedback you choose to share with me.
Devin Elder: (17:31)
That’s right? Yeah. Yeah, that totally makes sense. So, Austin, San Antonio, leveraging your first deal to get into more deals. Let’s talk about Nashville. I’m curious about that, right? I mean, we just stick around in Texas, but you’ve made some connections in Nashville, which is considered a sister city of Austin, and then Chattanooga you mentioned, how’d that come about? What are you guys doing out there and why do you like Tennessee?
Bruce Petersen: (18:00)
Well, I found a guy that… Well, it was a men’s accountability group that you and I both used to belong to. You still do, I think.
Devin Elder: (18:06)
I do.
Bruce Petersen: (18:07)
I did a presentation on what syndications are and how they worked at one of our Austin events. They were like 50 guys in the room, and my business partner now, he came up to me afterwards. He’s 26-years-old. Said, “Hey man, I’m a commercial broker and I’m a developer, but what’s this syndication thing? I’ve never even heard of that.”
Devin Elder: (18:27)
Oh, wow. Yeah.
Bruce Petersen: (18:27)
That’s really interesting. He said, “So, I’d like to pick your brain.” So, for the next 6 to 12 months, we just kept talking every once in a while on the phone. He’d call me with some questions. “How does that work? What does this mean?”
Bruce Petersen: (18:37)
And then he came to me 12 months after I met him and said, “Hey, I’m thinking about starting a management company in Tennessee in Nashville. I don’t know anything about multifamily, would you be interested in starting this company with me? I’m like, “Absolutely.” Because I had known the guy now for a year and I really liked him. I trusted him, good character, just a guy that everybody loves.
Bruce Petersen: (18:56)
And so, we joined forces. Two years into that relationship, we started doing deals together. Now, I’m not going to go out to Nashville with no boots on the ground-
Devin Elder: (19:06)
Of course.
Bruce Petersen: (19:06)
With nothing out there. So, it worked out very well. We together now have, we just closed on a 52 key notel motel, I’ll be honest about that, but it’s going to be redeveloped into a resort-style hotel.
Devin Elder: (19:21)
Excellent.
Bruce Petersen: (19:22)
And it’s going to be the most incredible thing Nashville has ever seen. It’s not going to be a high rise, downtown skyscraper kind of hotel, but that’s not what we’re going after. It’s going to be a resort style thing. So it’s in east Nashville, which is transitioning, becoming a very hot, hip place to be. So we’re doing that.
Bruce Petersen: (19:40)
We bought a two-tower office building in Chattanooga, downtown Chattanooga. And build costs or something like that, it’s going to be $150 to $200 a square foot, but we got it for $42 a square foot.
Devin Elder: (19:54)
That’s wild.
Bruce Petersen: (19:55)
How can I lose you?
Devin Elder: (19:56)
How can you go wrong? Yeah.
Bruce Petersen: (19:57)
Exactly. So we bought that.
Devin Elder: (19:58)
Those sound like fun projects, man.
Bruce Petersen: (20:01)
Oh, dude. They’re bad-ass projects.
Devin Elder: (20:03)
Yeah.
Bruce Petersen: (20:03)
One of my consultants… So, I’ve got advisory shares basically on a really large 1.5 million square foot once this all built out project that we’re doing out in Nashville too. So, lots of stuff going on out there. That’s where I’m getting more into the more traditional, commercial space. I’m still doing all the multi-family down here.
Bruce Petersen: (20:22)
Multi-Family in Nashville for me has been hard to find things that fit. Most of it seems to be built 400 years ago or it was built yesterday. There’s not a lot of what you and I usually buy. I’m usually buying ’80s and ’90s construction. It seems like Nashville went through a very tough economic time at that point and there just isn’t much construction.
Devin Elder: (20:43)
Interesting.
Bruce Petersen: (20:44)
So, it’s been really hard to find things that really fit what we’re looking to buy. And just like Austin, it’s expensive as hell, but we’re finding lots of deals in commercial. And we’re buying a lot of stuff that’s completely vacant because that’s your turnaround story. That office complex in Downtown Chattanooga, totally empty. And it had been for two or three years. It was owned by the City of Chattanooga. They don’t need to make a profit. They just want that shit off their books.
Devin Elder: (21:11)
Yeah. Fill it up. Somebody take it.
Bruce Petersen: (21:13)
Yeah. I don’t know what prompted them to sell it to us for $42 a foot. But again, they don’t really have a P&L that they have to answer to investors on. So, we got a great deal on that.
Devin Elder: (21:24)
I love it. Yeah. Talk about value-add. I mean, a vacant building. How’s the financing for that? I mean, clearly there’s some lenders that have the appetite for that. Is it…
Bruce Petersen: (21:33)
It’s fun.
Devin Elder: (21:34)
Yeah, I can imagine.
Bruce Petersen: (21:36)
Yeah, no, it’s not fun at all, actually. So, so what you and I do at multi-family, we’re getting agency debt. We’re going to Fannie and Freddie on almost everything. We’ll do a bridge loan every once in a while, but that’s very easy. That’s cookie-cutter stuff, you know exactly what it’s going to be. The pricing is good. You’ve got long amortization table. You go into these smaller deals, you’re usually going to be dealing with the local or regional bank.
Bruce Petersen: (22:04)
What I’ve learned, if some of you are listening and you work at one of those local or regional banks, I apologize now. Oh my God, they suck. Because what ends up happening, this is what’s in my brain. This might not be exactly what’s happening, but this is the way it feels.
Bruce Petersen: (22:20)
They’re a sales guy. They’re trying to lock up every single potential loan they can. And then they’re going to let the underwriting team figure it all out. Oh, yeah. I can deliver a 15% down payment, 30 year am, non-recourse, and then at the 11th hour, “Oh, we’re not going to be able to do this loan for you.” I’ve had that happen four or five times.
Devin Elder: (22:43)
Money’s hard. You get the team in place.
Bruce Petersen: (22:46)
Exactly. Now I’m stuck. The hell am I going to do? I got to get an extension from the seller. What usually is going to cost me a few dollars. You’re not going to just do it for free because they like me, or I got to bring in hard money, and we’ve done hard money. We did one that was seller financed to get it across the finish line. He was super cool about it.
Devin Elder: (23:05)
Nice. And you pulled the seller finance at the last hour?
Bruce Petersen: (23:08)
Yes.
Devin Elder: (23:09)
And they went for it. That’s great.
Bruce Petersen: (23:10)
Yep. They went for it. Well, because we had been letting them know all along for about the last two weeks that it’s going a little slower than we thought, are you open to this if it comes to it? And then it did come to it. We did hard money on one. Hard money scares the hell out of people.
Bruce Petersen: (23:24)
But if you know you’re only going to be in hard money for a couple of months, it’s fine. You just roll all the fees and your closing costs. And these deals are big enough that the fees are pretty high, but the overall scope of that deal, it’s kind of meaningless.
Bruce Petersen: (23:40)
Even if I have a 10 to 40 to $60,000 fee, an origination on that loan and it’s short term, still, if I’m going to have a $15 to $20 million project, that’s not a big deal.
Devin Elder: (23:51)
Yeah. It gets absorbed by the…
Bruce Petersen: (23:53)
Yeah.
Devin Elder: (23:54)
As a dollar amount it’s a lot of money, but in the scope of the project, it gets absorbed.
Bruce Petersen: (23:58)
Right. So I’ve learned in commercial, especially when you’re dealing with some of the smaller commercial, you learn how to forge relationships with lots of backup people. Lots of redundancy.
Devin Elder: (24:09)
Yep.
Bruce Petersen: (24:10)
We’re always out there looking for non-conventional lenders to put into our Rolodex in case we ever need them. So, you have to get more creative in commercial than I have had to be in multifamily. For Sure.
Devin Elder: (24:21)
Interesting. Interesting. So, going back to the hotel, 52 key. This is fascinating to me because I haven’t done any of those projects. Are you guys going to bring in a hotel operator? Are you going to run it yourself? And what’s the renovation plan look like?
Bruce Petersen: (24:36)
No, no, no. We don’t know what the hell we’re doing with the hotel. Because of our social media presence, we had a guy reach out to us and said, “Hey, I’m moving to Nashville. I’d really be interested in talking to you guys about what you’re doing and see if there’s a fit.” We’re like, “Oh, hell yeah.”
Bruce Petersen: (24:52)
So, what happened is, Tyler and I, my partner, we had been looking at this hotel. It’s a shit hole. Right? It’s you drug infested. It’s hooker infested.
Devin Elder: (25:03)
Our kind of deal.
Bruce Petersen: (25:04)
Exactly.
Devin Elder: (25:04)
Value add.
Bruce Petersen: (25:05)
Yeah. But we kept looking at it for two years going, “I can’t envision it. I can’t see it, but this seems like this is a good price. I just don’t know what to do with it.” It never got formally listed as far as I’m aware.
Bruce Petersen: (25:18)
But then this guy reached out to us and we’re like, “Oh my God, this… Hey, look at this deal with us. Do you see anything?” He go, “Oh, yeah.” And bells just [crosstalk 00:25:27].
Devin Elder: (25:27)
And this guy was an operator. He’s a hotel operator?
Bruce Petersen: (25:29)
He’s a designer and an operator.
Devin Elder: (25:31)
Okay. Cool.
Bruce Petersen: (25:31)
So, he is one of the two guys behind L’Horizon, which is the number one rated boutique hotel in the world by Condé Nast, four years running. He’s the guy that designed that and operated that. And he found us on social media and reached out. It’s all about social media.
Bruce Petersen: (25:48)
So now this dude, he’s a bad-ass. He’s a brilliant dude. He’s done this multiple times. So it was a perfect fit. So now he’s going to be the operator. He’s the designer. Tyler is the developer. I run all the back office investor relations. So we’ve got our perfect little team put together now.
Devin Elder: (26:07)
Love it.
Bruce Petersen: (26:07)
Yeah, we would have never done this without somebody like Jordan on our team.
Devin Elder: (26:11)
Right. Yeah. Dan Sullivan’s got a book with Benjamin Hardy, Who Not How. Great concept and the thesis is right in the title. Right? It’s not a, how do we solve this problem? It’s who knows how to do this that we can bring in? And it sounds like a perfect setup on that project. That’s really cool, man. Are you guys going to be sharing that stuff on social as you progress through that project or is that more of just for your investors or?
Bruce Petersen: (26:42)
Well, no, we will. You know, it’s a 506B and we still do 506B. So we got to be careful what we share. Can you believe there’s only so much we appropriately should share? But no, we’re going to share all that we can. We had an investor event about a month and a half ago where I brought up prospective investors, friends and family, and just walked over on the project.
Bruce Petersen: (27:03)
It’s one thing to see a PDF or a glossy brochure, but we got a bus, we set up lunch afterwards. We went out there, toured the project, had a good time with it, but yeah, we will be posting online about it and I’ve shared a few things on my social. Tyler shares it on his YouTube quite a bit too.
Devin Elder: (27:24)
Oh, that’s awesome. That’s awesome. Look forward to following that. Well, let’s talk about streetversity.com. So, this is an education platform. What was the genesis of that? What is it? What are you doing with it?
Bruce Petersen: (27:35)
Well, it all started because I wrote the book and it just got my wheels turning. So, I wrote a book called Syndicating is Bitch because I, just like you, we’ve been in rooms where you get, come to my free event. But the whole time you’re at my free event I’m trying to sell you a $500 million worth of product. And so-
Devin Elder: (27:57)
Call and raise your credit card limit before the event starts, right? That kind of deal.
Bruce Petersen: (28:00)
Exactly or open 14 more. So, what happens at these events, they create a euphoric atmosphere, kind of a Tony Robbins type thing very often. They have students come across the stage saying, “Oh, I joined this group and two weeks ago I turned into a trillionaire.”
Devin Elder: (28:16)
That’s right.
Bruce Petersen: (28:17)
And you’re like, “Oh my God, I got to do this.”
Devin Elder: (28:20)
No effort.
Bruce Petersen: (28:20)
A lot of people are thinking, “Well, this is too good to be true.” But a lot of people really get swept up into that emotion. So they write a $20,000 check or a $50,000 check to this group. Well, the group showed you some of their students. It’s all legit. It’s all real. These people really did have lots of success following their program.
Devin Elder: (28:41)
Sure.
Bruce Petersen: (28:41)
But they’re not telling you about the dead people you’re going to find on your property, or the arson, or the home invasion, or the carjacking, or COVID. How do you deal with that? They don’t talk about that stuff, because if they do, you’re going to get scared. You’re not going to write them a check. Right?
Bruce Petersen: (28:55)
So, I had to write the book in my opinion, to peel back that curtain, to say, “Hey, everything that they’re telling you on these stages, it’s true, but they’re not giving you the whole story. So before you write somebody a $50,000 check and then regret it two months down the line, you’re like, ‘Oh my God, this is harder than you guys made it sound.'” I teach you exactly what happens in a syndication. I tell you who to use, when to use them, how much you’re going to pay for them, how to get it under contract, how to raise money.
Bruce Petersen: (29:22)
I give you every single thing you need to go out and do it on your own. But then I realized the book could only do so much. And people are asking me constantly, “Do you have education? Do you have mentoring? Do you have coaching?” So I thought, “You know what, let let’s do that. Let’s go ahead and start this.” So I created, I’ve got an entry level class for syndications. I’ve got an advanced that will come with a lot of bonus forms, some bonus videos on advanced techniques.
Bruce Petersen: (29:49)
But the original course, it’s enough, it’s all you really need to go out there and do your own syndication. But again, just like paying a coach, the advanced will give you a lot more. I’ve created a ton of spreadsheets and forms that help guide you through the process a little more in depth.
Bruce Petersen: (30:07)
And then my wife has actually got an accounting course that she’s put on there because one thing these groups are not doing usually, that I’m aware of, they’re not teaching you bookkeeping. You don’t need to be a CPA to do this, but you have to have a basic understanding of how to keep books or how to know the bookkeeping that your management company is sending you every month. Is this legit? Are they stealing from me? How do I read these financials? So we’ve got that on there.
Bruce Petersen: (30:34)
The big thing with Street Versity, not only can you go in there and I’ll teach you everything I know, but also we’ve designed it that we can onboard other instructors. So, think about Kajabi or Udemi. We’ve built the exact same thing. Once we have it up and running for ourselves and we have proof of concept, work out all the bugs and the kinks, we’re going to start onboarding other instructors that, it’s the same thing that the other companies are doing.
Bruce Petersen: (31:01)
For 15% to 30% whatever the number of works out to be, you host all your stuff on my site, I’ll help you market it. And I’m just going to take a cut of your sales. But now you don’t have to do anything except teach people how to do stuff.
Devin Elder: (31:12)
That’s right. You get right to it. That’s a great model. I love it.
Bruce Petersen: (31:16)
Yep. That’s what we’re up to there. We’re in the planning stages of a big workshop that we’re going to do on how to syndicate and how to buy your first deal. We keep having to put it off because we finally get to the other side of COVID and now Delta’s spiraling. So now I’m like, let’s just lay it again.
Bruce Petersen: (31:36)
Because I don’t want to sell people tickets to get into this thing and then at the last sec, now you could probably change your flights and reschedule those, but your hotel might not let you do that. I don’t want to create a lot of heartburn for people because we had to reschedule. Right? So, we’re probably going to do it first quarter of 2022. It’ll be here in Austin.
Devin Elder: (31:56)
Awesome.
Bruce Petersen: (31:57)
So, that’s going to be a lot of fun.
Devin Elder: (31:58)
Yeah, Outstanding. Outstanding. You mentioned that you built some spreadsheets and put them in the course and it seems to me, I’ve talked to a lot of people, I’ve coached some people, I’ve been investing for a while, there’s this spreadsheet mind, and there’s guys that love that. And then there’s the relationships and capital raising.
Devin Elder: (32:19)
You very clearly have done both and they’re very different skill sets. Right? Do you identify more with a guy that can just crank spreadsheets or the guy that can go out and get up on stage and talk to a room without any hesitation?
Devin Elder: (32:35)
Are you more one or the other, do you think you’re a blend and how has that played into your success? Because I see people falling into one or the other. Right?
Bruce Petersen: (32:45)
I am a blend. I’m lucky enough to be born with a very high level of EQ, emotional intelligence. And I love to be on stage. I absolutely love it. Because on stage, I can help 1,000, 5, 10,000 people.
Devin Elder: (33:02)
Super leveraged.
Bruce Petersen: (33:03)
Exactly. But I’m also a spreadsheet guy. I grew up a baseball player, right? Baseball. I’m a baseball fanatic, it’s all stats, it’s all numbers. So, my brain is really wired that way too. And I love investing, so I love spreadsheets. Because I do have a blend, what I’ve noticed, and people would probably look at my spreadsheet and go, “Oh, you’re full of shit. It’s just as bad with yours.” Spreadsheets are so individualized. I will create a spreadsheet and share it with you and you’ll look at it and go, “None of this makes sense. I can’t figure…”
Bruce Petersen: (33:39)
People don’t understand when they create these spreadsheets, they’re not user-friendly, they’re not intuitive at all. They know what’s in that spreadsheet, but the person on the other end that’s going to use that spreadsheet now they’re like, “Ah, I’m just going to plug numbers where you told me to plug numbers, but I don’t understand.”
Bruce Petersen: (33:54)
I want you to understand the mechanism behind the scenes. I want you to understand what’s going on under the hood. I’ve purposely designed my underwriting spreadsheet and it comes with four videos to walk you through each section in detail. But I wanted it to be very simplistically done, very robust, but also very readable, very intuitive because most people that I’m teaching and that you’re teaching probably they’re not coming out of Texas A&M with a master’s in real estate finance.
Bruce Petersen: (34:24)
They need to understand it at a very base level. So, that’s why I’ve constructed my spreadsheet the way I have. But yeah, I do have a little bit of both. I don’t know how to network in a room where I don’t know people very well, but I’m great on stage. I also like the nuts and bolts of the deal. I love the spreadsheet. So I really do like both of it.
Devin Elder: (34:47)
Right. Yeah. No, it’s apparent. And thanks for sharing that. I like what you mentioned about keeping the spreadsheet simple. I think I see people getting bent out of shape and I’ve struggled with it too, where if you play with the exit cap by 15 basis points, it’s going to change things or what are taxes going to be, or is it going to be assessed at 100%, 90%? I mean, that’s a huge swing and people want to just naturally make the spreadsheet reality and not change it.
Devin Elder: (35:13)
And that’s not how it goes. We’re making the best guess with the information we have. And I have over time preferred simplicity because we’re going to assume some things on rents and expenses, and then we’re going to get out and do it. It’s all going to change. And we’re going to constantly monitor and tweak things the entire time we own the property. And I think that’s tough for people to understand that you don’t just build a spreadsheet, go do it and have it just PA, PA, PA, PA, follow the spreadsheet for five years.
Bruce Petersen: (35:41)
Oh yeah, absolutely. One of the biggest things that I’m teaching people when I’m teaching them how to underwrite. I talk to them about this, that look, spreadsheet is very mechanical. It’s, let’s see. I’m drawing a blank here. It’s more of an art than a science almost. Right? So simplistically, it is a science.
Bruce Petersen: (36:03)
Plug this in to there and you get that, right? That’s what a spreadsheet is all about. It’s to simplify things. But I teach people that there’s as much art involved in underwriting as there is science. Because if you just take numbers off of a P&L, a profit and loss statement or what we call a T12, and you just plug it into your spreadsheet, am I allowed to cuss?
Devin Elder: (36:23)
I hope so.
Bruce Petersen: (36:25)
I almost said a really bad word and caught myself.
Devin Elder: (36:26)
Otherwise this isn’t getting published.
Bruce Petersen: (36:27)
You’re going to fuck yourself. You really are because… On one deal that I was underwriting with some guy that I’m coaching, he just took the numbers and plugged them in there and said, “Okay, let’s start breaking all this stuff down now. I’ve taught you how to do it. You did it. Let’s look at it.”
Bruce Petersen: (36:43)
I said, “Look at your payroll. How much was your payroll?” I’m just going to pull some numbers out of my ass here. $240,000 for the year. Okay. So that’s why you put $240,000 into your underwriting spreadsheet. Well, yeah, because that’s what they’re paying and I know I can run it that way. I’m like, “Oh, can you?”
Bruce Petersen: (37:00)
He goes, “What do you mean?” I say, “Now, don’t just look at the total, look month by month. They’re averaging $20,000 a month. Right? $240,000 straight a year. But do you notice anything weird in June, July, August of 2020?” He goes, “Oh, yeah. There’s nothing there.” “They got a PPP loan, dude. You’re not going to get that. If you take their total, you’re screwed because you have so underestimated your payroll.”
Bruce Petersen: (37:29)
Now, you’re going to run it the way you run it not the way the seller runs it. I get that too. But yeah, there’s a lot of investigative work that you have to do to break down those financials. Not just take them on the surface. Go into the income, look for anomalies.
Bruce Petersen: (37:44)
So, I’ve got a huge bump in cable TV income. Well, don’t assume you’re going… If you take the total, you’re going to get screwed up because they probably signed a bulk contract with a cable company and they gave them thousands of dollars in one month. You’re probably not going to be able to replicate that.
Bruce Petersen: (38:03)
So, you just got to dig through, figure out what’s going on. That’s the fun part of it to me. Yeah, the spreadsheet is fine, but it’s all about building the spreadsheet, understanding the business intimately. And that’s what underwriting is to me.
Devin Elder: (38:19)
Yeah. No, I love it. I’ve told our team that does underwriting, “Just assume the financials are fraud, outright fraudulent. Because it’s a good indicator. We can look at stuff. We could try to do some forensic accounting here based on a T12 or older financials, but don’t put any weight on it. We’re going to look at our proforma moving forward, what we can operate this thing at. And we may get some ideas and ask some questions based on the historicals, but they’re not running it and the numbers might not be in there.
Devin Elder: (38:55)
I’ve seen stuff. You’ve probably seen stuff where things were outright deleted out of the financials. Right? So, just assume that you’re dealing with incorrect financials and you got to build your own number and your own story moving forward.
Bruce Petersen: (39:10)
Absolutely. Because even if they’re not being fraudulent, they may be running the property you were to buy out of a sister property.
Devin Elder: (39:16)
Sure.
Bruce Petersen: (39:16)
So, I’ve seen times where they show nothing for payroll. Well, I know that if I buy it, I don’t have a sister property down the street. I got to put all payroll in there.
Devin Elder: (39:25)
That’s right.
Bruce Petersen: (39:25)
So, you just got to know what’s going on there and be able to see through it. And like you said, you can get a good feel for what’s going on in the business, what they are or are not doing right, in my opinion, but it’s based on experience that if I see, say, their electric, or let’s say their water bill is running $1,000 to $1,500 a unit, I’m like, “Whoa, I’m paying 500 bucks a unit in San Antonio for utilities, not just water, but for all utilities.”
Bruce Petersen: (39:54)
Well, what that tells me, if they’re running three times what I’m running with other projects in the same city, well, they probably haven’t retrofitted toilet. So now, I can start breaking down that T12 and go, “Oh, they have done this. They haven’t done that.” Again, that’s the fun part is just trying to figure out what the real story is.
Devin Elder: (40:12)
Right, right. Yeah. I love it. You’re starting to see the matrix after a little while, right?
Bruce Petersen: (40:16)
Yeah, exactly.
Devin Elder: (40:17)
You don’t even know what would happen. I love it. Well, Bruce Petersen, thank you for jumping on, sharing some of your story. I’m excited for what you guys have going on right now and will continue to do. If somebody wants to get in your world, connect with you on all the stuff you do, how can they do that?
Bruce Petersen: (40:35)
Well, I’d say go to Instagram, follow me there, but I’ve been hacked and I can’t get into it right now.
Devin Elder: (40:39)
No.
Bruce Petersen: (40:40)
I’m trying to get that back right now, but apt-guy.com. It’s apt-guy.com. That’s where you’ll see everything we’re working on. There’s a link into Street Versity in the education tab, so you can see what the education is all about. I try to be active on Facebook and LinkedIn, not as active as I should be, but Apt-Guy on Facebook and Apt.Guy, I think it is, on LinkedIn. Yeah, that’s the best way to keep in touch with me. The website probably is easiest, actually.
Devin Elder: (41:12)
Got you. Awesome. We’ll link to that in the show notes. You guys can just scroll down, listening to this, right in the description, click through the website and connect with Bruce on all the stuff he has going on. So, awesome. Bruce, thank you. Really enjoyed it, man. Good to catch up.
Bruce Petersen: (41:25)
Appreciate you having me on.
Devin Elder: (41:27)
All right. Take care.