Axel Ragnarsson (00:03:14):

And then, sophomore, junior year, I was trying to figure out, is there anything bigger, more expensive that I can buy and sell to go out there and make more money? What’s the next step with this? So I started learning about flipping houses. That was my natural, I guess the next step from flipping cars was that. So did the whole thing where I was watching HGTV and learning about it online.

Axel Ragnarsson (00:03:31):

And as I was learning about flipping houses, I learned about rental property and just passive income and multifamily property. And just the idea of buying a building and your tenants pay your rent and they give you passive income. And that sounded like a really good deal to me in terms of, you buy a property once, or you do the work once, and you can get paid in perpetuity.

Axel Ragnarsson (00:03:49):

So I started shifting my strategy to figuring out how I could build a portfolio of rental properties rather than flip houses. And basically, figured out that I needed to find some private lenders, because I didn’t have the money and I didn’t have a good W2 job, or good tax returns to go out there and get lending. So I went out and found a couple of private lenders that I could work with. And then I started looking for deals.

Axel Ragnarsson (00:04:08):

And when I was in college, I did a three unit deal that I found on Craigslist finance with private money. Where I had very little of my own cash to that one and just got the bag from there. So, that led to doing a few more of those over the next couple of years before I graduated. And then I basically went full-time after that. Started doing a few deals a year, growing a portfolio.

Axel Ragnarsson (00:04:28):

And all of this was being done in Manchester, New Hampshire, a small market in New Hampshire, that folks that aren’t even from New England, probably have never heard of. But market up in New Hampshire, and then I moved down to Boston a couple of years after I graduated college. And was doing deals up there, but also wanted to start doing deals out of State and wanted to start doing some larger deals.

Axel Ragnarsson (00:04:46):

So basically the evolution of the business was build a portfolio up in Manchester that replaced my income and gave me the freedom to start thinking about what else I wanted to do in real estate. And at that point I decided that I wanted to start working with investors and wanted to start bringing in partners so that I could scale a little bit more quickly.

Axel Ragnarsson (00:05:03):

And that’s culminated in doing some slightly larger deals down in a market in Florida called Lakeland, Florida. And we’ve been down there for about six months, doing deals, partnering on a big deal in Houston, Texas as well with another successful investor. And at this point, the business, just looking to scale and do larger deals, work with investors and help other people get into real estate. So hopefully that’s a good enough explanation. Try to keep it quick.

Robert Leonard (00:05:27):

All of that long-distance investing piece is all new from the last time we talked. So the first two episodes that we had chatted, you hadn’t done any long-distance investing. And it was funny because I’m from the Manchester area like you, and I was only long-distance and you were only in Manchester and not long-distance. So I was excited to hear that you decided to go long-distance.

Robert Leonard (00:05:46):

And so, I want to dive into that and see how things are going. To start out, what made you decide to go long-distance? We had chatted about it a few times and you didn’t seem ready, and you were happy with the market you were in, and then I saw you took the leap. So what was the turning point that made you ready to give long-distance investing a shot?

Axel Ragnarsson (00:06:05):

Sure. So I think there were two main reasons. One was, I wanted to do bigger deals, right? Historically the deals I did up in Manchester, New Hampshire, were three to 10 to 15-unit deals. There were a lot of smaller multifamily, and I wanted to get into a larger multi-family. And for me that was 25, 30-plus-unit properties.

Axel Ragnarsson (00:06:25):

I ran a data list in New Hampshire, just as a state of 30 plus unit properties, a couple more filtering criteria to that. But, the list just wasn’t big enough to go out there and hunt for deals and to actually try and find those deals. I would have toured through that list in a week, and then I would have been back to square one, trying to find them. So the reality is, just the actual pure inventory, just wasn’t there to try and do those deals alone. I wanted to stay busy trying to do that in New Hampshire, just as a state.

Axel Ragnarsson (00:07:03):

One of the driving reasons was, I want to do larger deals. I need to look in a few markets to stay busy looking for those deals, just in general. So that was the first thing, was that Manchester and New Hampshire, just as states were almost too small of a market to do that.

Axel Ragnarsson (00:07:05):

So the other piece was, Manchester specifically as a market in the last year has gained a ton of out-of-state interests from out-of-state buyers. A lot of folks who are living in Boston, a lot of folks living in New York, are investing around those areas. There’s absolutely no opportunity for cash flow if you’re within 30 minutes of Boston, and you [are] investing within 30 minutes of Boston, a traditional long-term lease strategy, the same thing with New York, had some people coming up from Connecticut, and Manchester blew up as a market is really what it was. So there was a ton of interest.

Axel Ragnarsson (00:07:34):

I’ve sold probably six properties in the last year. They’ve all been to out-of-state buyers and they’re just paying the most. And in my opinion, the average price per unit, the average sales price for a lot of the multifamilies are starting to stray a little bit from the fundamental drivers of that market. I like Manchester. There is some population growth, there is income growth, all that fun stuff. New Hampshire is the only state in New England with a growing population.

Axel Ragnarsson (00:07:57):

But for me, I was like, “You know what? I think I need to diversify a little bit. I don’t want all my eggs in this one, small city, right? All in this one basket.” So that led me down to Florida, which has a lot of those awesome fundamental indicators, right? I mean, tons of population growth, tons of income growth, job growth, rent growth, relatively landlord friendly. All of those reasons were like, “Let’s just pick Florida and pick a couple markets here, and we’ll start trying to do deals.

Axel Ragnarsson (00:08:21):

In summary, my local market was getting pretty expensive, especially compared to the rent that we were getting per unit. And I didn’t want to just [put] all my eggs in that one basket. And there just was too small of a market to stay busy looking for these larger deals.

Robert Leonard (00:08:33):

Yeah. That dynamic of people from out of market coming into new markets, and paying a higher price is interesting. You talk about it from [one state to another state, which is what you and I do as investors. But we also see this, even in some major cities. People wonder how people can invest in Los Angeles, let’s say.

Robert Leonard (00:08:50):

And that’s because people will come from China, and Canada, and Australia, and other countries, and come and invest here. And people who are local to that market, know that they wouldn’t pay those rates because they can do better elsewhere. But these people from other countries come there and they’re like, “Well, this is way better than what I get in my country and my home market, so we’ll still pay it.” And so, it’s like, that same dynamic, but on a little bit smaller scale for Manchester.

Axel Ragnarsson (00:09:13):

Yeah, exactly. I mean, Boston, right? I live in Boston. I don’t actively invest in Boston, but I’m familiar with the dynamics of Boston, right? Because I know a lot of folks want to invest down here. Previously, whether it’s out of country money you’re mentioning, whether it’s Europe, China, some of these other countries where you have wealthy folks that just like the security of US real estate, or even just larger players, groups. Whether it’s private equity funds or family offices, or extremely well-capitalized, large investors, they’ve been trickling down in terms of the size of deals they’ll do. They’re starting to do smaller and smaller deals.

Axel Ragnarsson (00:09:46):

So it’s not uncommon that you have a family office buying a five-unit deal within 10 minutes of Boston proper. So it’s not only are you competing with out-of-country money, you’re competing with very well-capitalized firms that have a lower return requirement than just a lot of the average investors. They’re okay earning 5% cash on cash return, for example. Whereas investors like URI or folks that are trying to aggressively build a portfolio or want to replace their income, they’re going to need more than that, right?

Axel Ragnarsson (00:10:12):

So there are all these dynamics that come into play. But oftentimes that drives people up to a smaller market like Manchester, where there’s still opportunity for cash flow. There’s less competition. There are less sophisticated buyers doing deals up there, and that’s just the evolution of the real estate market, I guess.

Axel Ragnarsson (00:10:27):

So I found myself on the uptake of that, right? In properties that I’d paid 80 grand a door for a year ago, were now selling for 110 a door. And you just have to look at the numbers and say, “At some point, it gets irresponsible for me to not take some of my chips off the table here. And to not just think about looking elsewhere, because it just felt like it was getting a little too out of the ordinary.” And I guess, that’s really what just drove that higher level, conceptually. Let’s go take this somewhere else.

Robert Leonard (00:10:51):

Once you decided that you were going to go somewhere else to invest, how did you find which markets you were going to invest in? And I don’t mean what were you looking for in those cities? We’ll talk about that in just a second, but actually tactically speaking, how did you find the cities? Which programs did you use, platforms, software did you use to do your research to even find these markets?

Axel Ragnarsson (00:11:15):

That’s a great question. That’s by far the hardest part. Because, if you live in a city like Boston and in the Southeast United States, there’s all this population migration, right? And you’re like, “There are 20 cities that all look great, that you can start looking at.” It’s actually really hard to narrow it down. And that was a struggle that I had, was, let’s look at Chattanooga, Tennessee, Knoxville, Tennessee. Let’s go look in Charlotte, North Carolina, let’s go look in South Carolina. Let’s go look in Georgia. Let’s go look in Huntsville, Alabama.

Axel Ragnarsson (00:11:39):

There are all these great markets, but you’ll just go insane trying to analyze all of them. So for me, I almost started the other way and then I’ll get back to a lot of the specifics of your question. But for me, I was like, “What’s easy for me to travel to? Where would I enjoy traveling to? And where can I actually just compete on a fundamental level?” I can’t compete in a Nashville, Tennessee. I can’t compete in a Charlotte, North Carolina. I mean, I can, but it’s going to take me a while to find deals there because they’re very mature markets. There’s a ton of local competition and national competition.

Axel Ragnarsson (00:12:09):

So for me, I was like, “Where can I actually go and compete? What’s easy for me to travel to when I need to? And we’ll make sure that it checks all those other boxes that have the growth we’re looking for. That it has a lot of those metrics we’re seeking.” So for me, Tampa, Florida was just a market at the time when I started looking at it, it hadn’t really matured to the level that it has today. But I started looking at Tampa and I said, “What’s within 45 minutes of Tampa that is likely going to be a growing market. It’s going to benefit from all the demographics of a market like Tampa.”

Axel Ragnarsson (00:12:39):

So that led me to Lakeland, Florida, which is just 45 minutes from Tampa. It’s actually 40 minutes from Orlando as well, situated right between the two. And then I said, “I think that I could compete in a market like that. It’s not a major city. There’s probably local interests, maybe some regional interests, but not national interests.” So then I backed into, does it check all the boxes that I’m looking for? Lakeland has unbelievable population growth.

Axel Ragnarsson (00:13:00):

A lot of people [are] migrating out of Tampa and out of Orlando into Lakeland, just because the cost of living in those two cities is increasing. It’s situated right along Interstate 4. It’s an unbelievable logistical hub for a lot of major companies. Amazon, UPS, Publix grocery store, which is obviously a major grocery store chain throughout Florida and the Southeast. They have a headquarters there and a distribution facility there.

Axel Ragnarsson (00:13:22):

So there were all these great reasons to like it, right? So I had the job, the income, the population growth, which is really what we care about. And then obviously ran growth as a by-product of all that. And it was also just a size where I knew that I could come in and compete. I believe the population of Lakeland is just over 100K. It’s actually very similar to Manchester, and that’s why I liked it.

Axel Ragnarsson (00:13:38):

It was a very clear parallel to my local market in terms of the size, the price for units, the rents. I mean, it was all very similar. And I was like, “You know what? I can go in there, and actually… I’m not going to compete with some guy from California who’s looking to do deals.” I’m like, “I think that it’s a little bit more off the beaten path in terms of the interest level for a market like that, but it is still very close to large major cities in Florida.”

Axel Ragnarsson (00:14:00):

And it’s just a two-hour, 45-minute flight. It’s a cheap flight. It’s easy to get there. If I need to go there, I can do so easily. If I want to go down there and network with brokers and agents, it’s direct. Simple to do. I don’t know if that answers your question. I can talk about some more of the specifics, but I think that for me, I needed to almost back into the market by way of, what’s easy for me to get to? What is similar to the markets that I’m already operating in? And just, where can I actually compete? Where might I develop a competitive advantage rather than just going off stair some of these huge ones with a ton of interests.

Robert Leonard (00:14:27):

What did you use to even find Lakeland? Did you use a website? What platform? Or, how did you even come across Lakeland? Because, I mean, like you said, there are so many different markets, so I mean, it’s hard to know how to even get there.

Axel Ragnarsson (00:14:38):

So one of the things that I did, just tactically was, I pulled a list of all the cities in Florida, the 80,000 to 200,000 people. And I said, “Do you know what? The major cities obviously have a higher population than that? That’s similar to what I know. I feel I can compete in a market that has that population and probably that level of interest.” So I just made a list of 8,200 K. What cities, and there were maybe 15, 20 cities or sub-markets of largest cities on that list.

Axel Ragnarsson (00:15:03):

And I just pulled just a Google search. You can pull that from a number of websites. And then I started using city-data.com to analyze a lot of the metrics within those cities. What’s been the population for the last 10 years? What’s been the rent growth in the last 10 years? And I basically just use an Excel sheet and chart it out, all those metrics.

Axel Ragnarsson (00:15:18):

And the thing is, I didn’t just go to the one with just the best on all of them, right? Because that’s logically what I feel a lot of folks were going to be doing, who are coming from out of state. So for me, I basically did one step further and obviously looked them all up on a map. Figured out, direct flight to Tampa and Orlando, very simple to get to.

Axel Ragnarsson (00:15:34):

And then I just started mapping out the proximity of a lot of these, right? Lakeland is a little bit more inland in terms of the price per unit. It’s not a coastal city, like a Sarasota, for example, where you’re going to be paying a very high price per door to get into a market like that. So for me, I was like, “I got to find some inland cities, some cities that are 65 to 85 grand a door so that I can actually go in there and find some cash flow.”

Axel Ragnarsson (00:15:53):

I didn’t want the 150,000 population headed down the east coast where it’s very high income, A class property. That just wasn’t going to be a fit for me. So I started to weed, a lot of those out. And to get down to a few, right? You get down to a Gainesville, Florida. An Ocala, Florida. A Lakeland, Florida. Just heading down the central part of Florida.

Axel Ragnarsson (00:16:13):

And I look at Lakeland, it’s situated right between Tampa and Orlando. I said, “That’s an unbelievable location.” Did some research. I knew a couple of guys that were doing deals down at Tampa and they were like, “We love Lakeland. We’d love to grow a rental portfolio in Lakeland.” And through all of that information gathering, I was like, “Let me just actually focus on this.” And then I tried my best to cut out the rest of the noise and to stop thinking about other markets to go all in on that one.

Robert Leonard (00:16:34):

You mentioned that you’re looking for population growth, rental price growth, and income growth. What are the benchmarks there? What is good for population growth? What’s bad? And for the other metrics as well.

Axel Ragnarsson (00:16:47):

Yeah. I think that’s a good question, right? I think you’d get a lot of different answers from different people, right? I mean, I think for someone from Boston, they see like 3% income growth and 3% population, and they’re like, “That’s good. That’s better than here.” Or, somebody from San Francisco takes less than that, or the less than that is good to them, right? Just in terms of the comparison of the two.

Axel Ragnarsson (00:17:04):

So for me, I was like, “We’re growing by 3% annually. That’s a really good figure.” Tampa as a market is growing at four or 5% right now. Orlando is similar. You get Austin, Texas at 9%. It’s up there, right? So I think it’s all relative, but for me, I didn’t need to see a huge population growth because that wasn’t going to be critical to what I was trying to do.

Axel Ragnarsson (00:17:23):

So for me, I almost wanted more of a sleepy market where there’s no growth, but something that was a little bit more in the meaty part of the curve, because I didn’t want to be competing with so many folks who found that market because of all these great metrics.

Axel Ragnarsson (00:17:35):

So to answer your question directly, I mean, I think 3% cross all those figures, there’s a pretty good number, and it’s really the big three population job and income, right? And then all the rest of it gets figured out in terms of rent growth and in terms of the vacancy rates, staying, and all that stuff.

Axel Ragnarsson (00:17:50):

So Lakeland hits right around those figures, some of these bigger markets going to beat it. A market like Manchester, New Hampshire, right? Maybe you’re at one and a half, 2% population growth. So it’s a little bit below that benchmark, but I still like Manchester. So I think it’s all pretty relative, but I think that’s a good place to start in terms of if you’re just trying to create a baseline.

Robert Leonard (00:18:08):

Was the availability of real estate and construction professionals, such as property managers, electricians, plumbers, et cetera, a consideration when you were looking for markets, or were you not too worried about that since you have experience as a property manager?

Axel Ragnarsson (00:18:22):

I mean, I think that’s really important, right? I mean, you can go and look up, and I think you can take what I’m saying to the extreme, right? Where you can go find a market in Arkansas with 40,000 people and maybe it’s a good market and you can really compete there because you’re just competing with the people that live there. But, maybe there are just two property managers and maybe they don’t do a great job and you go through both and you’re like, “What do I do now?” And that’s the danger of going out of state.

Axel Ragnarsson (00:18:43):

So for me, I found that 100K as a population for a city is really the benchmark for when you got enough quality professionals to choose from, whether it’s property managers, contractors, agents, lenders, whoever. So, I mean, that was big for me. And I really wanted to make sure I had a management company lined up, or some boots-on-the-ground partner that I could partner on a deal with, who had those connections and was confident in those connections to work with.

Axel Ragnarsson (00:19:06):

So that’s what I did. I spoke with a lot of agents. I spoke with a few management companies that maybe they were based in Tampa, but they managed out in Lakeland since it was just 40 minutes away. I spoke with a couple of Lakeland’s specific property management companies. There was more than enough to choose from, especially when you factor in its proximity to Orlando and Tampa, but that’s a critical piece, right?

Axel Ragnarsson (00:19:24):

Especially if you’re planning to buy and hold, you need a good property manager, and if you don’t have one you’re confident with don’t even bother looking for deals there, it’s just not worth your time because that’s the most critical person in your team. If you’re going to get one thing right, you got to get your management company right. So we definitely did that research before we started heavily pursuing deals down there.

Robert Leonard (00:19:42):

Which type of properties are you looking for down there? What are your criteria?

Axel Ragnarsson (00:19:48):

So we want to do multifamily. We have a pretty wide criteria at the moment. We’re looking to do anything from 16 to over 100 units. Anything that’s 16 to 40 units, we can put together ourselves, maybe with a partner or two, and that’ll be something that we have a larger equity portion and that we control. Anything that’s 40, 50 plus units, we’re going to actually bring in a number of investors and put that deal together.

Axel Ragnarsson (00:20:10):

So we have a pretty wide criteria in that respect, but midsize to large multifamily is really what we’re looking for. And I think our sweet spot right now in terms of where we can compete and find deals is the 16 to 20 to 80 unit deals because we’re not competing with larger national buyers at that level. Once you get to 100 plus there is significantly more buyers pursuing those because they can have onsite management at the property. There’s more scale, it’s worth it for a large firm based in Boston, in New York, or wherever to go out and actually do that deal, right? Because now they’re actually deploying enough capital for it to be worth it for them to do that.

Axel Ragnarsson (00:20:42):

So we found that we can compete pretty well in that middling area where it’s a little too big for the local buyers, but it’s a little bit too small for the big out-of-state buyers. And, we’ve done a 16 unit down there, a 28 unit down there, we’re looking at a 44 right now. Those are the types of deals that I think we’re going to be doing in the short term. But we would certainly look at the larger ones if somebody brought them.

Robert Leonard (00:21:03):

How important is it for newer investors to have a set of defined criteria for properties before they start searching for their first or even their next property?

Axel Ragnarsson (00:21:14):

I mean, it’s so critical. And I think it’s really, really important to understand what you can do. When I was initially going out of state, I was looking at small deals. I was like, “I just need to do something to get the reps in, to just go through the motions, to do it,” right? It happened to be a 16-unit, which was a small enough deal for where I was with my crew to where I felt comfortable doing something like that.

Axel Ragnarsson (00:21:32):

But I think that it’s going to be really hard to get people to send you deals, or to get people to think about you when you’re out there looking for deals that they don’t know exactly what you’re looking for. When I started talking to brokers, I was like, “I want to do the deals that maybe are a little bit too big for maybe a local buyer list, but too small for some of the more larger players you’re working with. I want to be the kind of guy that can come in and pick up that slack.”

Axel Ragnarsson (00:21:53):

So if you have a 16 to a 40 unit deal, that’s built in the ’70s or ’80s around this price per door, 65 to 75, a door, the rents are below market and maybe the ownership group has let it run without paying too much attention in the last couple of years, and they’re leaving meat on the table. Those are the types of deals I’m looking for.

Axel Ragnarsson (00:22:12):

So age, construction style, the price per door, the ownership story, obviously the unit range, because you want somebody… And this is literally what happened, we closed a 16 unit deal. I called up a broker at the time that we closed the deal, that I had a very rough relationship with. I think we spoke maybe one time. And I say, “Hey, we did this 16 unit deal, if you see any more, that are similar ’70s, ’80s built below-market rents,” blah, blah, blah. And I just further establish my criteria with them. I said, “Make sure you send them to me.”

Axel Ragnarsson (00:22:40):

And literally the next week, he’s like, “I just found a 28 unit that has all these things you just mentioned. And I think it would be a perfect fit for you and your guys.” And I was like, “That’s the exact definition of why you get really granular with your criteria.” That also just helps you focus too. The worst thing you can do is go out there and be looking for multiple things because it’s hard enough to find deals locally. It’s even harder to find good deals out of state because you have to compete with the guys that can get face-to-face with everyone.

Axel Ragnarsson (00:23:04):

So you really need to put in more effort and get more specific. And I mean, I made that mistake. I went out there and I was looking for, Hey, I’d love a single family that maybe I could Airbnb, so maybe look for that as well as I could do a small multi myself or I could do something larger with some partners. And there was not a lot of specificity to it. They got really helpful when I really drilled down because it forced me to spend my time more wisely and to actually build relationships with the right people rather than spreading myself too thin and planting a bunch of shallow seeds. It’s better to plant a few deep ones, because that’s actually, what’s going to give you the results.

Robert Leonard (00:23:36):

When you’re analyzing a property, what are your metrics that you’re looking at? Are you looking at cash on cash? Are you looking at IRR? Are you looking at monthly cash flow per door? What [are] the main metrics that you’re looking at? And then what is your minimum required return for each of the major metrics that you’re looking at?

Axel Ragnarsson (00:23:53):

Sure. So this is a two-parter for me. I mean, I think that there are the metrics that I’m looking for personally as an investor. And then there are the metrics that I’m looking for deals where I’m raising money from other investors because then it really becomes what their criteria is. And then we have to back into the deals we do. So for me personally, cash flow is great. I’m looking for cash flow, and the markets that are locking in, I know I’m going to find cash flow. So that almost works itself out.

Axel Ragnarsson (00:24:15):

For me, what’s really critical is, I want to be in below market after my purchase price and renovation per door. So for example, one of the deals that we recently did down there, we’re paying 65 a door, and we’re going to put about 5K a door into it. So we’re going to be in for just over 70 with closing costs per unit. And the market value for that property is 80 to 85k a door.

Axel Ragnarsson (00:24:32):

So we’re all in for 10 to 15% below market value in that scenario, a little bit more than that, actually. So for me, I care a lot about the velocity of money. I don’t want to just write a check and then if I’m making money through cash flow, that’s the only return I’m really getting on that cash. I can’t turn it over fast enough for me to grow the portfolio the way I want to.

Axel Ragnarsson (00:24:50):

So for me, I need to get in at 15% plus, 20% plus below market value so that I can refinance a good chunk of my capital out and then go put it into another deal. So that’s the biggest thing for me getting in below market, being able to refinance 75 to 100% of that initial investment out within 12 to 18 months so that I can keep that money flowing.

Axel Ragnarsson (00:25:11):

And outside of that, once it’s stabilized and we have long-term debt on it, I’d like to see an eight to 10% cash on cash return just to service the debt safely. See a good debt service coverage of 1, 3, 1, 4. But for me, it’s really all about getting it at a below equity figure or below market figure so that I have some built-in equity when I buy. And that’s really the big thing.

Axel Ragnarsson (00:25:31):

As for raising money, we’re looking at projects that are 75 to 100 plus units. At the property level, we want to see 10% plus cash on cash return, and 20% plus IRR. Because then we can work backwards into offering our investors 89% cash on cash and a 15 to 17.5% IRR. And then we’re structuring the deals so that we have some equity and we’re making that difference. And we can, I guess, again, into how we structure those, but that’s really what we’re looking at that level.

Axel Ragnarsson (00:25:59):

And that’s where we’re more concerned about cash flow because that’s where our investors are more concerned with, so long as we can deliver them the returns they’re looking for, if the deal supports and we can make some money for putting it together, that’s a win-win there.

Robert Leonard (00:26:10):

So is that roughly where your investors are required? That’s one of the questions that I was going to ask you is, what is your minimum return that your investors ask for? It sounds [like] it’s eight to 10% on cash on cash and that 15% range on IRR.

Axel Ragnarsson (00:26:23):

Yeah. And I think that answer, you can take it a number of ways, right? Because, we can get into the whole concept of risk-adjusted returns, right? And I think that if you’re doing a tiny little deal in Pontotoc, Mississippi, you’re going to want to earn more, right? Then if you’re doing a deal in, that’s maybe more core Tampa, or you’re on the side of Lakeland, that’s within 30 minutes of Tampa and you’re getting closer to [the] real core market.

Axel Ragnarsson (00:26:43):

And the whole other piece of it too, is like, what’s the business plan? Is this a heavy value add where you’re gutting all the units and it’s going to be vacant for eight months and there’s a lot of risk associated with it? Or is it, you’re buying it, and you’re organically raising rents, and it’s actually a simple rinse and repeat business plan. Something that the ownership team has done before, right? So I think the context matters, right?

Axel Ragnarsson (00:27:01):

For the deals that we do, which are, Lakeland is a great market. I think that it’s not Tampa, right? Tampa is a safer market. It’s just [the] core city. But for a market like Lakeland, which is more of a secondary to a core city like Tampa, I think that it’s considered a relatively safe market in terms of the out of the drivers that are there.

Axel Ragnarsson (00:27:18):

So in a market like that, with a simple deal where we’re going in and raising some rents or doing some light rehab in each unit, and the actual business plan implementation risk isn’t really that high, I think nine to 10% cash on cash returns over the life of the deal. And 15 to 17.5% IRR is a fair number. And I think that’s what investors are expecting nowadays.

Axel Ragnarsson (00:27:39):

And I think right now, investors are recalibrating their expectations too, because the returns are slowly shrinking in multifamily. There are more and more folks going out there and getting into the business and prices are going up, returns are getting pushed down. So investors right now are trying to recalibrate their expectations a little bit.

Axel Ragnarsson (00:27:56):

I think three, four years ago, the standard projected returns were 10% cash on cash, 18, 19, 20% IRR, and now we’re a few percentage points lower than that in terms of what the average market returns are. But I’m being long-winded here. But I think it really matters in terms of what the deal is. What’s the risk associated with this deal market-wise and business plan-wise. That Mississippi deal you’re probably gonna want to earn 22, 25% projected on the front-end in terms of an IRR. But a deal in Lakeland or Tampa, one of these really solid markets, maybe get away with 15 to 17 and a half, and that’s okay for your investors.

Robert Leonard (00:28:28):

For those who may not know, what is an IRR? And what factors go into calculating that?

Axel Ragnarsson (00:28:34):

So it’s basically the sum of all of your returns along, basically through the life of the hold period, right? So cash on cash returns your distributions, right? It’s just one stream of income that you’re seeing in your investment. And that’s what you’re actually seeing on an annual basis. IRR takes into account debt pay down and takes into account the value that we’re adding to the property. So basically the equity that we’re building into the property.

Axel Ragnarsson (00:28:56):

And then it also takes into account cash flow as well, which is the one that everybody’s really familiar with. But it’s really those big three. Cashflow, paying down the debt as we hold the property, and also adding value to the property. So it’s basically the sum of all those cash flows when we sell. When it’s a total return on your money, basically extrapolated over the life of the hole.

Axel Ragnarsson (00:29:12):

So cash on cash, a lot of people like that, because it’s like, this is what I’m going to earn annually. It’s a very simple number and concept to understand. However, the real money in real estate is made by creating value in properties. When we buy the property and we’re all in for 2 million bucks and it’s worth two five, what’s the value of that equity growth to each investor, right? And that’s what IRR captures.

Robert Leonard (00:29:33):

In your IRR models, do you build in any annual appreciation in the property value? And if so, what do you use for that? Do you use two, three, 4%?

Axel Ragnarsson (00:29:42):

So, when we’re doing multifamily, it’s not necessarily property value appreciation, but the appreciation is, [it] comes through rent growth. Rent growth versus expense growth, because commercial properties are valued based on the net operating income and a cap rate. So you’re getting the value by growth in your income.

Axel Ragnarsson (00:30:00):

So, and by way of doing that in our model is… And this is actually really interesting because, if you do two and a half percent rent growth over five years versus three and a half percent, that has major implications on your value in five years. Major implications. You can take a bad deal and make it look good by just changing that one number by 1%. So for us, we try and stay really conservative. And right now we have rents growing at the same exact level of expenses growing. So in all of our underwriting, we’re doing 2% rent growth, 2% expense growth.

Axel Ragnarsson (00:30:26):

So there’s no disproportionate growth in our NOI over time. And that’s basically the equivalent of assuming no appreciation growth. If you were to do it on a single family, right? That’s the conceptual equivalent to that. So for us, we’re trying to keep that really conservative. We still think the market has legs. I mean, it’s just multifamily housing. There’s…every single metric supports long-term growth for the asset class, right?

Axel Ragnarsson (00:30:47):

We may be honestly over-conservative, especially if we’re doing deals in really, really solid markets. A lot of these markets in Florida that I mentioned. However, we obviously want to just under promise over deliver as everyone does, especially when you’re working with investors, and we want to protect our own money. So we aren’t projecting, really, any growth above and beyond what we’re creating by buying a below market.

Robert Leonard (00:31:07):

You mentioned a few minutes ago that you want to get it into long-term debt. What does long-term debt look like for a property like this? What are the terms, interest rates? Things like that.

Axel Ragnarsson (00:31:17):

Yes. Let’s just use the 28, we just did. For example, we bought that deal using a bridge loan, so we had a lender loaning on the purchase price and lending 80% of our proposed renovation budget. So they’re financing a lot of the renovations as we go. However, obviously, that comes with a higher interest rate, shorter-term, and our goal is to fix the property up, get the rents to market, boost that NOI so we can get a good appraisal. And when we go out there to refi and hopefully deliver some of our investors cashback.

Axel Ragnarsson (00:31:44):

And then from there, obviously long-term debt can look like a few different things, right? You can go to a local bank, local credit union and get a 25 year amortized commercial loan and the low 4% interest rate range that’s common for deals of that size. There’s also the big agency one, Fannie Mae and Freddie Mac that do numerous multifamily loan programs. For a deal like this, that’s a little bit smaller in terms of its overall value, we would use either a Fannie or Freddie small balance loan.

Axel Ragnarsson (00:32:09):

And basically what that is, is a government-backed agency loan with a longer amortization schedule than what you can typically find out there from a bank, a credit union, or some other lender, a balance sheet lender, or something like that. So you get a 30-year amortization, we get a really solid interest rate, low threes, mid threes, and usually Fannie, Freddie, they have a $1 million minimum loan size. So a deal like this will qualify for that.

Axel Ragnarsson (00:32:33):

And that’s really our end game, is to get a really solid long amortization schedule, a low-interest rate, 10-year fixed term, and then we just ride that out. It’s the golden goose from multifamily lending us these big agency lenders. And for us, that’s the end game for us in a deal like that. For a deal that was smaller, we’d go to a local bank, local credit union. Get some that are 25 years, below four’s high, free interest rate. And that’s what our long-term debt would look like.

Robert Leonard (00:32:57):

When I invest long-distance, step one is to identify the city or cities that I want to invest in. Step two is to determine if there’s enough inventory. And if there’s the right inventory for me to actually purchase. Step three is to determine if there are high-quality real estate and related professionals in the area. And then step four is, to find out which areas, neighborhoods, zip codes, et cetera, that I actually want to invest in, in that area.

Robert Leonard (00:33:22):

We’ve already talked about the first three steps. So now that you’ve determined which markets that you want to invest in, has all the right people, et cetera, has inventory. How do you personally find out which areas within that city, which zip codes, neighborhoods, et cetera that you actually want to buy in?

Axel Ragnarsson (00:33:38):

So for me, a lot of it is price-driven, right? And neighborhood class-driven. So I want to be buying C+, B- class properties. So if I were to go look at the downtown of a city like Lakeland, right? I mean, it’s just going to be B+, A class property, right? And a lot of these suburbs around downtown might be B+ to A-class properties, right? And I’m not too interested in those because they don’t really fit our model and our criteria, which is, we’re buying below market, we still want cash flow. And we want to be in that C, D class, that kind of niche.

Axel Ragnarsson (00:34:05):

So basically I always work backwards from what are the areas that those classes, right? And you can do that by looking up crime maps. And this is almost the universe, right? Where I’m like, “The place that has the lowest crime rates within the city is typically going to be the areas that I’m not looking to invest in. However, the areas with the worst crime rates, I still don’t want to be there.

Axel Ragnarsson (00:34:25):

So I look for a lot of those submarkets, and zip codes, and neighborhoods that are in the middle, right? Where it’s in the meaty part of that curve for that city. So that’s how I select them. And then I start to look at basically just sales comps for those specific areas. And then I start to work back into my price per unit threshold. A semi-criteria and I want to be at 65 to 85 a door, in these areas that I’m looking in, that just becomes a check for me to see what the sole transactions are like. If they’re within that range, then I know that that’s a good place for me to be spending my time looking. And then I use a lot of just local opinions, right?

Axel Ragnarsson (00:34:57):

I mean, I just talked to my management company. I talked to the agents, talked to other investors down there. And, a lot of the questions I ask are where are you finding other investors who are buying that are doing C, B class deals? What’s the zip code? What streets? What are the neighborhoods? And then I start asking for more of their opinion. Are there any areas within those pockets that are actually maybe C-, D class? They’re a little bit rougher in terms of higher crime, or maybe there’s a couple of really bad C properties around there that are muddying the area.

Axel Ragnarsson (00:35:24):

And I just have a lot of conversations with people that have very localized knowledge. And that’s how you’re going to get the best info. You look at the stats you want, but it’s not until somebody tells you over the phone who manages a few hundred units around where you’re looking, their opinions are going to be what’s worth most. So for me, I use like ADT crime maps, truly crime maps are a couple of the resources and they’ll shade over the different areas within the city.

Axel Ragnarsson (00:35:45):

And like I said, “I Look for what’s in the middle there. And then I just use people on the ground to give me their take.” And I think the other piece is, people forget that you have a financial criteria as well as what you’d like to buy, right? So it’s like, what can you afford? What is typically the price range for properties that are going to naturally fit into your model?

Axel Ragnarsson (00:36:04):

For us, it’s usually we’re trying to buy stuff at 65, 75, a door, that’s worth 85 to 95 a door. So where the properties are already selling they are already in that price range, right? So from there, you do a lot of the checks. Okay, for these reasons, I actually might not want to be in this specific area. It’s got truly high crime. Maybe it’s location. Otherwise, not very beneficial. Maybe it’s too far from downtown or employment centers or something like that. Maybe my management company doesn’t manage their what-have-you. But I think that’s the good high-level screening. It’s just to use those concepts and ideas.

Robert Leonard (00:36:33):

I have noticed that throughout this conversation, almost every single time that you referenced price, you haven’t mentioned the total price once. Every time you have mentioned price per unit. And I think that’s important for people listening to notice. And I want to bring that up and ask, I think I know why, but I want you to explain why you talk about it that way. Why do you talk about it on a price per unit basis rather than price per property? Is that so you can compare apples and oranges better or explain to us your thought process there?

Axel Ragnarsson (00:37:02):

Yeah, that’s a good question. I almost don’t even notice that I do it, but I think in general, just saying total price can be misleading in a way. For example, if I was telling agents down there, “Hey, I want to spend one to $2 million [on] a multifamily. This unit threshold, maybe they’re going to start sending me a lot of the 16 units for 1.6 million, but 100K a door.

Axel Ragnarsson (00:37:21):

Maybe it’s in my price range that I mentioned to them. But like, I can very quickly tell that that’s not a deal for all the analysis I’ve done, right? I’ve done enough underwriting to know exactly where I need to be price-wise, given the average rents to just even justify getting into an Excel sheet and really tearing it apart, even further. So for me, that’s what that price range is.

Axel Ragnarsson (00:37:39):

I think a lot of your listeners, I’m sure, are familiar with the 1% rule, right? And typically people apply that to single-family homes or small multi’s. But it applies in large multifamily too where you don’t want to spend more than 100 grand on the single-family house that rents for a thousand bucks a month. Similar concept, the multi-family. If I’m buying a 16-year, and 100K a door, but the average rents are only 800 a door. I know that there are no legs on that deal, and it’s just not going to hit any of those metrics that I want.

Axel Ragnarsson (00:38:04):

So for me, I’m looking at the 65 to 70,000 a door range for those units that rent for that 800 bucks a door, right? Because that’s my quick back in the napkin check, to see if there are legs in that deal because I know that most of the deals in that market are appraising at a price per door that is around the 1% rule. And I know that I have the opportunity to maybe grow or increase the value of that property.

Axel Ragnarsson (00:38:25):

So that’s just how I do my quick underwriting: average rent versus price per door. That’s just how I can quickly tell it’s worth looking at a deal more than what I’ve already done. And it’s easy to really explain to agents, because if you’re telling agents a price range like I said, maybe they’re going to be bringing you those smaller deals that fit within your price range that have the high price per unit and are overpriced.

Axel Ragnarsson (00:38:45):

Whereas I’m like, “I don’t have a top-end range either. In terms of my price cap, we can do a deal up at three, 4 million bucks. We’ll figure it out. We can raise the money, we’ll get it done.” So if you find 100 units at 50 or 60 a door, I’ll figure out how to do that deal in a market where the properties are 80, 90 a door. So I don’t want to cap myself on price or give some constricting range. So I think that’s a piece of it as well. But for me, it just allows me to quickly look at deals a little bit faster because I just know the boxes I got to hit in order to hit all those metrics I want.

Robert Leonard (00:39:15):

Makes it a little bit easier to compare properties too, that aren’t of the same unit count, right? If you have one that’s 25 units at 100,000 a unit versus one that’s 30 units, it’s going to be a little bit more, probably, total price because it’s five more units, but if it’s less price per average unit, then it might be a better deal. So it’s tough to just look at the total price.

Axel Ragnarsson (00:39:35):

Exactly, yeah. That’s a great point as well. Because it easily allows you to compare, especially across neighborhoods and classes of property, too. So it’s like the C-class properties in Lakeland, maybe the true market is 80 to 90 a door. We’re trying to get in at 65 to 70 a door, maybe the B class through [the] market is 90 to 100, maybe the A-class is 100 to 120. So it gives you all these ranges, right?

Axel Ragnarsson (00:39:56):

And you can compare it across other classes too. You’re like, “Well, I’m not going to play or pay 90 a door for a C-class property. That’s what B class is selling for.” And like, “I know that I’ve looked at enough deals to understand that. And it makes it easier to have a conversation with your agent, and rather than saying, “Well, and we’re not going to pay 2.75 million for that, because I know this is a $2.5 million property. It’s harder to conceptually put all that together, conversationally, it’s just more challenging too.

Robert Leonard (00:40:18):

You mentioned that you have to start raising real money for these deals around the 50 unit plus mark. But we were just talking about a deal that was to, one, to say 4 million. And you talked about raising money from investors. I want to dive into the smaller deals where you raise money. And I also want to talk about how they’re different. So first, tell us a little bit about how you think about them differently. When you say you have to raise money for the bigger deals, how is that different than when you’re raising money for the smaller deals?

Axel Ragnarsson (00:40:47):

There are two key differences. I mean, just a basic level. I mean, the smaller deals we’ve got to raise more money for more people, right? It’s more challenging, right? There are more moving pieces to doing those larger deals. For the smaller ones, we might be able to do it with two or three key partners that we know really well. And those deals get put together a lot more easily because we’ve worked with these people before we really understand what they want to make on their money. Putting the legal docs together is much more simple.

Axel Ragnarsson (00:41:12):

So I think that just when you get to a deal, that’s, let’s just call it around [the] number $4 million. And you’ve got to go out there and raise one and a half for round numbers, you know, 25% down payment and some money for renovation and closing. Now that’s when you’re getting into 10, 15 people, you got to raise that money for, and then there are more documents that are acquired. You need, probably, to do a syndication, and you have to file the legal docs in order to put that together. And it’s just more of an intensive process.

Axel Ragnarsson (00:41:33):

Whereas, if we’re doing a $2 million deal and we maybe got to raise six, 700 grand for that one, me and two people can do the bulk of that. And maybe we just bring in a third partner, who’s more limited in what they’re doing, and they’re more of just like a capital guy. So I think those are the two big differences.

Axel Ragnarsson (00:41:47):

And then smaller than that, I’m a big I’d-love-to- control-my-own-destiny guy, and I don’t want too many cooks in the kitchen. So if possible, I want to do all my deals myself. In Manchester, that’s what I do up here. Every deal I’ve done has just been me, and my own money, trying to figure it out. And I’d rather control my own destiny when I can and not have to answer the partners or investors. However, the reality of getting into larger deals is, you gotta raise the money if you don’t have it, so.

Robert Leonard (00:42:09):

How are you actually legally structuring a deal? Let’s just say it’s 750,000 to $1.5 million. How do you structure a deal like that? You don’t have enough money necessarily, say to fully fund it yourself, so you got to bring in 2, 3, 4 maybe partners that are really not doing much for the deal, they’re just bringing in capital. How do you structure that from a legal perspective?

Axel Ragnarsson (00:42:32):

So this is where it gets tricky, right? I don’t even know if I have to say this, but I will, because I feel you got like, I’m not an attorney, right? I think you got to go talk to yours when you’re putting these deals together, especially when you have investors involved, right? You really got to make sure everything’s figured out on the legal side.

Axel Ragnarsson (00:42:46):

So we’ve done a couple of things. We’ve done syndications, we’ve done joint ventures. The joint venture structure is what we’ve done on a lot of these smaller deals, where, for example, one of the deals we have in Lakeland, it’s me, and it’s two investors, and it’s two partners that are local to Tampa that help us out with everything.

Axel Ragnarsson (00:43:01):

In deals like that, we keep everybody a little bit more involved, it’s truly not. You’re writing a check and you’re never hearing from us, right? Because that is a definition of a limited partnership. And that’s when you start to cross into that SEC syndication requirement zone, right? Where you’re writing a check for security and somebody else is running with it.

Axel Ragnarsson (00:43:19):

So that’s really the fine line we’re flirting with here is, how do we put together a deal with a couple of partners on these smaller ones, and everybody stays involved and we don’t have to go through the whole rigamarole of 15 grand on SEC documents, which is oftentimes completely unnecessary for some of these deals, so…

Axel Ragnarsson (00:43:34):

And that deal, for example, it’s three or there are five people on the LOC operating agreement. Three of us brought the bulk of the cash, me and two investors that I have had a relationship with for a long time. And then the two boots on the ground partners, two guys I know over in Tampa. They have some money in it, but their main role is they’re helping with asset management as we go. And they’re meeting the property manager out there every couple of months, they’re helping with that.

Axel Ragnarsson (00:43:56):

And me and my two investors, right? We’re involved in the decision-making, we’re involved in what’s going on, but maybe we’re not onsite when it needs to happen. So that’s something that you can put together with an operating agreement, a couple grand from an attorney, you work everything out, it’s nice and simple. And you get to the, let’s call it, just the 50 unit deal at $4 million, and you’re raising one and a half, and you’re raising 50 grand from 15 people or something like that.

Axel Ragnarsson (00:44:22):

And you’ve got a couple of partners yourself for actively running the deal. And those investors that write that $50,000 check are completely passive. That’s when you need to start putting together more documentation to protect everybody involved. And that’s when you cross into that syndication line.

Axel Ragnarsson (00:44:36):

So there’s a whole lot of gray area with this. It’s like, you just want to make sure you work with a really good attorney and cover your butt. And that’s really what it is. You want to make sure you’re taking care of everybody. But those are the big differences. It’s two very different deal structures because they require very different legal documents. And, one’s much more work than the other, right? And on the small ones, it’s nice to keep it simple. Just a few people.

Robert Leonard (00:44:56):

Yeah. I really wanted to hear more about that first one you mentioned. A little bit smaller one because I think people listening, not to say that they couldn’t do a 50-unit, but I think that’s a little bit probably of a stretch for a lot of people listening, including myself. I don’t think I’m ready to do a 50-unit yet, but I think it’s very reasonable and plausible for somebody listening to go take down a 750 to $1.5 million property with two to three partners. And I know a lot of people have questions about that. So I think it’s good to hear how you structure that and how you work with that for your partners.

Axel Ragnarsson (00:45:29):

Sure yeah. Let me give you an example, right? I’ll start with a simple one and then make it a little bit more complicated. I’ve done both. I guess we’ll start with the simple one. So let’s say you’re an investor out there who wants to go find a deal. You don’t have too much cash in your bank and you’re going to have to bring in a partner to do something.

Axel Ragnarsson (00:45:44):

For round numbers, you go out there, you find a 10 unit deal that’s $1 million, it’s 100 grand a door. Maybe you’re doing deals up in Manchester, New Hampshire, that’s the pricing up there now. So you have a partner that can bring the down payment. Maybe you’ve got two partners that can bring the down payment and some money for the renovations. You’re going to be compensated by finding the deal and either managing the deal, managing the property, manager, whatever.

Axel Ragnarsson (00:46:04):

And let’s say you need 300 grand to close it, right? You need, let’s call it 250 down and you have 50 grand for closing costs, put some money in the bank. So you need 300 grand. You can go out there and you can just do a very simple equity split. Maybe that deal is projected to do 10% cash on cash and 20% IRR. And investors want to make eight to 15.

Axel Ragnarsson (00:46:22):

So structure the equity in a way so that they’re going to make that, that you keep the equity that basically would be given to you above and beyond what they need to earn that return. So you can just do a simple split. Maybe you give them 80% of the equity for bringing the 300 grand, and you keep 20%, and that’s your compensation for, again, finding the deal, running it, putting together the financing and all that, and doing all that fun stuff.

Axel Ragnarsson (00:46:46):

And, that’s not a bad deal, right? And every time you do a distribution, let’s say you’re distributing a thousand dollars one month, 800 goes to your investors in proportion to whatever they put in, and 200 goes to you. So that’s very simple, you can just chop up the equity, and then when you sell your 20% of the proceeds, 80% goes to your investors. That’s a very simple structure that requires the investor to bring no money to a deal like that.

Axel Ragnarsson (00:47:08):

If you want it to make it more complicated, and a little bit more complicated you can offer what’s called a preferred return. So for example, with that same scenario, let’s say, you will offer your investors an 8% preferred return. And then above that, you split everything 50-50. So the first 8% on any cash flow distributions is going to go to your investors.

Axel Ragnarsson (00:47:29):

And then if you’re distributing money above and beyond the 8% that goes to them before you get paid, you split all that 50 50. And then when you sell the investors on 8% on their original investment. And then all the proceeds above that, you split 50 50. In a situation like that, investors like it, because they know they’re going to get paid first and they’re going to get paid before you. And they can reasonably project their returns. 8% annually, I know I’m going to get that before Robert gets anything, he’s running the deal.

Axel Ragnarsson (00:47:54):

But for you, maybe you keep a little bit more upside. [inaudible 00:47:57] in that first 8%, but you give yourself a bigger split above and beyond what they make. You can make it as simple or as complicated as you want. And it’s almost like you’re opening Pandora’s box when you get into these structures. But the conceptual theme is if you’re going to work with a couple of investors, you really have to understand what they need to make on their money, and what they want to make on their money.

Axel Ragnarsson (00:48:15):

And then you need to go tailor a solution that provides them that return, but then also makes it worth your while. So if your investors are cool with making 8% cash-on-cash and 15% overall for the life of the deal, great, then you know how to look for deals. And you know, a lot of small ones that are going to give you a nice bump above and beyond that.

Axel Ragnarsson (00:48:32):

I know a lot of investors that don’t even care about the IRR. They don’t care about the bump in their original investor. They only care about cash flow, that’s it? So I’ve had an investor who just wants to earn 12% on his money and he doesn’t really care what happens above and beyond that.

Axel Ragnarsson (00:48:46):

So I did a deal with him where I promised him a 12% preferred return. So he was going to get paid 12% of this money annually before I made anything, but he had no equity in the property. So I owned all the equity. So when we went and sold, he had been earning 12% along the way, I paid him his 12% on his original investment. Then I kept everything above and beyond that.

Axel Ragnarsson (00:49:06):

So for me, I wasn’t earning a lot of passive income on the way, but I got a really big bump in terms of the split that I had when we actually sold that deal. So again, I guess those are just a few examples, but you get pretty creative with it. Chat with other investors, see what they’re doing. You can really get into the nitty gritty with that.

Axel Ragnarsson (00:49:20):

But it doesn’t really have to be any more complicated than it needs to be. Especially, if you’re working with folks that are just like, “I know what I want to make. I don’t need to make this complicated. Let’s just get deals done. And you can offer me this return and you keep whatever you keep, that’s fine, as long as I’m making this.” That’s the best way to look at it as you’re putting these together.

Robert Leonard (00:49:40):

And again, I’m not an attorney, you’re not an attorney, but all of these return situations that we just talked about don’t change the legal structure. You can still have a joint venture with an LLC with the partners in the operating agreement and still offer a preferred return or just the 80-20 split. Is that correct?

Axel Ragnarsson (00:49:57):

Yeah, that’s correct. I mean, you can do all of this may be as you get a little bit more complex or adding a page or two to an operating agreement, but it’s not changing it severely. I think the operating agreement we had for the small deal that we did, I think it was like 30 pages and it was longer than it needed to be because we have a really good attorney and that’s just how it ends up going. But probably could have been done in 20, but it’s like, one of those situations where if we had made the preferred return structure a little bit more complicated. Maybe we’re adding a couple more paragraphs, but it doesn’t change the cost of the real structure of putting it together that much.

Robert Leonard (00:50:28):

Yeah. Those extra pages are just, more providing clarity and detail on the return rather than changing the actual legal structure.

Axel Ragnarsson (00:50:37):

Yeah, exactly. What’s funny about doing these JV operating agreements when you’re putting deals like this together is, 90% of the operating agreement is all of the stuff that happens when the bad things happen. What happens if a partner dies? What happens if a partner wants out? What happens if somebody wants to sell? What happens if there’s an issue? Or that’s 90%. And that 10% is what everyone really cares about, which is like, how’s everybody getting paid? How are we structuring this? All that fun stuff. So that 90% is going to be pretty constant on every deal you do. You’re just changing that 10.

Robert Leonard (00:51:05):

How does the financing work? And keeping with the same situation that we’re talking about, how does the financing work? Do these partners that come in, just say, you have two or three of them and yourself, do they have to be involved with all the bank paperwork and all of that? How does that piece work?

Axel Ragnarsson (00:51:20):

So it depends on the bank, right? And this is going to be a hurdle for some people. And then this is oftentimes a hurdle. Well, I mean, I think it’s a requirement, so I’m not totally sure. I think of the Patriot Act, [which] makes us [do] a requirement where every time you go and get a loan as an LLC, the bank makes you sign a beneficial ownership form that outlines who’s in the LLC and who owns what percentage.

Axel Ragnarsson (00:51:39):

Some banks require anyone that has more than 20% or 25% to sign on the loan. Some banks don’t require that. If they have the one guy who’s signing on the debt, that’s a slam dunk bar where maybe they’re not going to require other people to do it. So I think that is a conversation that you do need to have with lenders, especially if you don’t want to make your investors sign the loan, which most investors don’t want to do that because, I mean, there’s just a lot of upside to not doing that, right?

Axel Ragnarsson (00:52:05):

I mean this obviously all the liability and risk that comes with signing on loans. So that’s a conversation that you have to have with your lenders. I think local banks, local credit unions, local financial institutions. They’re going to be the ones that are much more flexible with that. I think they’re going to have a hard time convincing citizens bank. I guess, as a regional bank for you and I, but so maybe not a [inaudible 00:52:22], but like a Bank of America or something like that, they’re never going to work with you on anything unless you have $20 million in deposits there.

Axel Ragnarsson (00:52:30):

So oftentimes you got to go to the local banks with the three to 10 branches and you can get a direct, the VP of lending’s cell phone. And you work out all this stuff. Those are going to be the lenders you want to work with on special situations like this. But yeah, you might run into a situation if you’re truly bringing, not a lot of money and your investors are getting 80% of the equity, and let’s say you got two of them and they both own 40%, and you own the other 20, to use that example I used earlier, you might find yourself in a situation where some banks want them to sign on the loan, but maybe you’ve talked to enough and you’re good enough borrower that they don’t require that.

Axel Ragnarsson (00:53:00):

So that’s all just a matter of conversation, I think. But yeah, that could be a problem that some people face in a situation like that if their investors just don’t want to be involved in that process.

Robert Leonard (00:53:09):

It’s funny, you mentioned having the cell phone number for the VP because I’m working with a small credit union just like that in Texas for some single-family deals, actually not big deals, but that’s exactly the case. I don’t know how many branches they have or anything, but I have the senior vice president’s cell phone number. I email him directly all the time, and we chat about the different situations going on. And you’d never have that happen at Bank of America, TD, any of these big banks.

Axel Ragnarsson (00:53:33):

You can’t get anyone’s phone number, at a bigger bank like that. I mean, let alone on the lending side, right? I mean, it’s just such a challenge. I mean, the real money in real estate is made as you’re growing your portfolio by building unbelievable relationships with local banks and local credit unions. Getting creative with them, becoming a trusted lender on their side so that they work for you.

Axel Ragnarsson (00:53:52):

You really got to have good relationships with those people, whether you’re doing single families. I mean, even if you’re doing 100 unit deals, I mean, it’s just like, local banks, local credit unions can oftentimes be a really good solution, lending-wise for big deals too. So it’s across the board. Those are going to be great partners for you. And if you build a good relationship, maybe you get around some of these trip-ups that happen as you’re trying to put together more creative deals and creative structures.

Robert Leonard (00:54:13):

One of the most common questions I get from people when I talk about long-distance investing is whether or not I’ve seen the properties, or if I plan to travel to them frequently. You’ve mentioned before that you liked that the markets are pretty easy to get to, whether you might even want to visit there. So have you seen all your long-distance properties? Do you travel to them frequently? If you haven’t, do you plan on doing that? What is your thought process in terms of going to properties you’re investing in long-distance?

Axel Ragnarsson (00:54:42):

Yeah, so I don’t think that you really need to, if they’re smaller deals and you’re comfortable with it, right? For example, this 28-unit deal, we just closed in Lakeland. I went down there for the inspection and spent the whole day there. And I mean, it’s a big enough deal to where [I’m] spending a couple 100 bucks on a flight, and a couple 100 bucks on a hotel. And I’m like more than worth it, just in the grand scheme of that. And it’s big enough to where I want it to make sure that everything was copacetic there, and then I was comfortable with it.

Axel Ragnarsson (00:55:04):

If I was doing a duplex or a four-unit or a single-family or something like that. Then I was getting a home inspection, I just really read the report and maybe have the agent or somebody down there walk around and send me a video of it and walk them down the neighborhood or something like that, with a video or on FaceTime or something like that. But for the bigger deals where you could financially justify going down there and spending a couple of days, I think that’s probably the good thing to do if you want to cover your butt.

Axel Ragnarsson (00:55:28):

But for small deals, I mean, I don’t personally feel like I would need to do that. I think that that is such a limiting belief for other people. I mean, it’s such a limiting belief, right? It’s like, how do you know what’s really there? You’re not getting screwed. Well, I mean, if you have an agent you trust and you’re working with a home inspector you trust, or you have anybody else in that market that can just go and look at it for you. I mean, if you look it up on a tax card, if you look it up on a tax card, if you look it up on street view, it exists. The inspector, he’s going to know more than you do anyways. So like, it doesn’t matter if you’re there, you’re not going to be catching the same thing he’s catching.

Axel Ragnarsson (00:55:56):

Just jump on a video. I dunno, look at the report and have some phone calls to summarize. Maybe the things that you were worried about right after he’s done. So I don’t think that should stop anyone from really doing it, right? I mean, I think that the big issue is like, you want to make sure you’re comfortable with the neighborhood, not the property specifically. You can feel comfortable with the property specifically easy enough, I feel like, but make sure you get good context on the neighborhood, and that comes back to talking to property managers, agents, people that are familiar with that market because that’s where it’s harder to do that research from afar.

Robert Leonard (00:56:24):

I agree, if it was a big deal, I’d probably go, but my smaller stuff I don’t go to. And there are even other creative ways like, “Hey, my toilet’s running. Can my plumber go check it out?” And you just have them check it out for you, there you go. A lot of people would have to line up in a row for you to get completely scammed these days. And if you think that that’s potentially an issue, find somebody that’s completely unrelated, a third party that nobody that you are working with on that deal has ever talked to, or even heard of, a plumber, a handyman, whatever. That’s completely unhooked from anything else that’s going on, and just have them go check out the property and just tell you what’s going on. And there’s an unbiased opinion for you.

Axel Ragnarsson (00:57:05):

Yeah, exactly. I mean, the reality is, when you have a really, really good management company, you don’t need to go anywhere near the property. It’s just the reality of the situation. So it’s like, I was living in Boston and all my properties are an hour north in Manchester. I wouldn’t see some of them for a year. They were an hour away. I was in Manchester regularly, but I remember I owned one duplex that was just on the edge of Manchester that I would never naturally drive by when I went into the market. Or, just drove into the city, I wouldn’t see it for nine months, 12 months.

Axel Ragnarsson (00:57:35):

And then the one time I saw it was when I sold it and I just walked it with the agent when I was going to list it. And I was like, “Oh, this looks pretty good. Looks like they did a good job on the rehab.” So I mean, you should obviously understand what’s happening within your properties, but it doesn’t physically require you to be there.

Robert Leonard (00:57:50):

I love that it makes you work on your business rather than in your business because if you live local, a lot of people feel they have to go there, and now they’re working in the business rather than on it. Whereas if you’re long-distance, I mean, I have no choice, but to work on the business and figure out solutions on how to not be involved.

Axel Ragnarsson (00:58:07):

That’s actually a really good point, right? Because that’s something that I’ve found myself in that position so often with my local. I call them local deals. The market’s an hour away from me. Even though maybe I’m not doing day-to-day management stuff, maybe I’m still getting pulled up that they go meet an appraiser or the one-off type of things. And I find myself killing three and a half hours in the middle of the day doing that. And I’m like, “This just isn’t a good use of my time.”

Axel Ragnarsson (00:58:29):

Doing these out-of-state deals, yeah. I mean, I can’t go there. We have to figure out solutions and we have to build the systems. And as you said, especially as it relates to property management, it’s so much easier to justify self-managing your properties. If you’re local, when in reality for anyone that has a relatively decent paying job or cares about their time at all, it almost always makes sense to hire a management company because those little tasks are going to wear you down, and they’re just going to make you not investing in real estate unless you just happen to be wired that way.

Axel Ragnarsson (00:58:58):

But yeah, I mean, that was a benefit. I mean, for me, even just being an hour away, that was my limit where I self-managed up until 10, 15 units. And I was like, “I can’t do this.” I’m driving an hour to meet a guy to go look at carpet, that’s insane. That’s just such a waste of my time. So it’s a great point. It’s a great by-product of doing that.

Robert Leonard (00:59:13):

What has been different about long-distance investing than you expected? Is it easier or harder than you expected so far?

Axel Ragnarsson (00:59:20):

It’s a really good question. I think maybe what was harder about it than I originally realized there really isn’t that much that’s hard. I’m trying to think of something that was hard. I think what was maybe easier, I’ll go the other way. What was maybe easier was, how easy it is to just get a feel for a property in the neighborhood from afar.

Axel Ragnarsson (00:59:34):

I literally just had an agent down there. I paid him. I gave him 50 bucks for half an hour of his time. I go, “Can you just drive this little zip code and get me on FaceTime? Show me a couple of properties I’m looking at. Do a few block radius.” And when it was done, I was like, “I just drove that market. I completely understand what’s going on over there.” I thought that was the biggest challenge I thought I was going to have was, I knew I was comfortable underwriting. I knew I was comfortable establishing whether a property itself is a good deal.

Axel Ragnarsson (01:00:02):

I thought maybe I’d have a hard time understanding whether an overall neighborhood was quality or not, and what was really going on around the property. People are willing to help you out. I always hate asking people for stuff, I hate asking people for help. That’s just the thing with me. So I never really did that.

Axel Ragnarsson (01:00:15):

So for me, I was just paying people to do it. It makes the conversation easier for me. I never want to ask an agent to spend time driving around a market with some guy on FaceTime. Even most agents would probably be very willing to do that. So for me, I was always trying to do it from afar without the local help. And I realized you just got to lean on the people that are local and that’s just how you’re going to get a good feel for what’s going on.

Axel Ragnarsson (01:00:34):

So I don’t think anything has been more challenging than I thought to be honest with you. I think everything’s been a lot easier and I had the same limiting beliefs everybody else did, but especially if you go to market once, you get really comfortable. If you go to a market and then you lean on people that you’ve met down there for that local advice, you should start to feel pretty comfortable and understand what’s really the downside risk.

Axel Ragnarsson (01:00:55):

Downside risk is you buy a bad deal. Obviously, that sucks. You don’t want to do that, but just be extremely diligent in your underwriting and really make sure that you’re doing good deals to where, oh, shoot, I accidentally bought a property in a neighborhood that’s worse than I thought.

Axel Ragnarsson (01:01:07):

Well, I got in at a below-market price, comparatively to the comps that I’ve been looking at. I can get out of this without losing, just all my hair here. So I think for me, I was like, “If I’m doing good deals, my downsides really hedge. And that makes that whole process a lot less scary.”

Robert Leonard (01:01:21):

Is there anything you wish you knew about long-distance investing before you started that you know now?

Axel Ragnarsson (01:01:27):

Yeah. I mean, I wish I had started doing it a while ago, right? So I think that the reason that I didn’t do it was, I just didn’t think, one, that I could compete. I mean, I had a limiting belief where I was like, “I don’t think I can compete with people that are local. How can I find deals? How is that going to work?” And in reality, it’s whether you’re local or far hustling, it’s hustling.

Axel Ragnarsson (01:01:46):

If you’re sending the mailers, if you’re really talking to the brokers, if you’re making offers, you can compete with people that are local. I used to think like, “Hey, I just want to do deals up in New Hampshire because I can compete there. I can get there. I really know the market. I have a great team.” So I stayed tunnel-visioned on that one market when I really didn’t need to do that.

Axel Ragnarsson (01:02:02):

And I had the knowledge, the ability, the capital, the connections to do deals out of state, but I just didn’t think that I could compete, right? So I think that, and I don’t know if anybody else has that belief, right? I mean, maybe that’s just exclusive to me, but I think that if I had realized that, I could actually go out there and do deals in terms of I could compete with the people that are local and win deals and actually gain traction. I think I would’ve started doing it earlier and started starting that process earlier.

Robert Leonard (01:02:28):

I know a lot of people that listen to this show are interested in investing in real estate, long-distance, but they’re on the fence about it. What wisdom or guidance do you give those people? What can you tell them that might help them get off the fence? Whether it be, “Hey, you shouldn’t do it.” And then fall on that side of the fence, or, “Hey, you should probably consider this and fall on that side of the fence.” Either way, what can you tell them that will help get them off of the fence about long-distance investing?

Axel Ragnarsson (01:02:56):

I would sit down and for a decent amount of time and actually really think about what’s freaking you out about it. Is it buying a bad deal? Is it buying a deal in a bad neighborhood? Is it getting screwed by a contractor, or by a property manager? Write down everything, right? And then be honest with yourself. What’s the downside risk of all of these individual things happening and how can I really hedge against it, right?

Axel Ragnarsson (01:03:20):

So for me, the neighborhood thing, I went to the market, that was the first thing I did, right? Maybe you don’t want to do that. Maybe you don’t want to go that far. That’s fine. Go out this week, call five agents, build a relationship with five agents, find one that’s willing to get on Google maps with you and walk you through every street, ask them a million questions, find someone who’s willing to do that. Pay them if you need to.

Axel Ragnarsson (01:03:42):

Basically, what I’m trying to get at is just figure out what the solution is to all of these things that are scaring you about it. And you’re probably gonna find that there’s more than enough to get you over that. Talk to three to five management companies going on bigger pockets, get referrals, start asking your agent for referrals, start asking your lender for referrals. You’re going to get two, three names that bubble up to the top.

Axel Ragnarsson (01:04:02):

And in terms of names that are constantly referred, get really comfortable with them. Understand that once you have a deal, you can bring it to them, take that fear away. So just start taking away what’s actually holding you back. Really, really be honest with yourself about the downside. There’s a minimal downside if you’re going out there buying a deal that’s a good deal in a good neighborhood where you’re getting an inspection and your property managers walk in and during the inspection and telling you the rent and you’re getting five sets of eyes on it.

Axel Ragnarsson (01:04:27):

Really where’s the downside there? Honestly, I mean, it’s no different than doing a deal near you at all. So that’s just the reality of where I found myself ending up. I was like, “I started asking myself with the downside.” And then I started looking at the downside of not doing it. And that was significantly more costly than making a mistake and doing it.

Axel Ragnarsson (01:04:43):

If I did the deal and let’s say the first deal I did on a Lakeland at 16 unit, and I lost 100 grand on that deal over the three, four years, believe me that 100 grand was worth it to get over that fear, to get the reps in, to build the relationships, to work with the property management company, to get a better feel for that market, because it led to many more deals.

Axel Ragnarsson (01:05:00):

And I mean, that’s an extreme scenario, right? But if you break, even if you don’t make that much money, it doesn’t matter. You did it, right? Once you do it once you’re like, “Oh my gosh, it’s so simple. I just gotta go do that again.” So I think that not enough people look at the downside risk of not doing something right. And that’s usually a pretty frightening realization when you look at it, when you write it down, when you think about it. So I guess that exercise has been helpful for me and I’d recommend other folks do that.

Robert Leonard (01:05:23):

Yeah. I completely 110% agree. That’s almost exactly [inaudible 01:05:28] exactly how I explain it. I really feel the same way. As we wrap up the show, I want to give you a chance to tell the audience where they can go to connect with you, learn more about all the different things you got going on.

Axel Ragnarsson (01:05:40):

Absolutely. No, I mean, this has been great, and appreciate you having me on again. Thank you. I guess the best way for people to get in touch with me is, well, you can check out my Instagram. It’s @multifamilywealth. I host a podcast as well, and that’s multifamily-focused and we have some really, really great guests on there. It’s the Multifamily Wealth Podcast, and I’ll shamelessly plug my little ebook giveaway.

Axel Ragnarsson (01:06:00):

So if you go out there and leave a rating and review for that, then a screenshot, send to multifamilywealth@gmail. I’ll send you a longer ebook. I put together really outlining how I built this business, how I started from minimal, and built a portfolio of properties that’s replaced my income.

Axel Ragnarsson (01:06:15):

So I’ll go ahead and plug that, but you can find me on LinkedIn too, Axel Ragnarsson. Email me at Axel@brickleafproperties.com. B-R-I-C-K-L-E-A-F Properties. I’ll try and reply. I’d be happy to meet anyone that’s out there. And if you’re looking to passively invest, we work with a lot of investors too. So happy to speak with people on that level.

Robert Leonard (01:06:36):

I’ll put a link to all the different resources and ways you can get in touch with Axel. Axel, thanks so much for joining me.

Axel Ragnarsson (01:06:42):

Absolutely. Thanks again for having me. Hopefully, I can become the first of four-time guests if this goes well, so.

Robert Leonard (01:06:48):

I think there’s a good chance for that.

Axel Ragnarsson (01:06:50):

We’ll stay in touch.

Robert Leonard (01:06:52):

All right, man. See you.

Axel Ragnarsson (01:06:53):

Thank you.

Robert Leonard (01:06:54):

All right, guys. That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro (01:07:00):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.