Axel Ragnarsson (00:03:25):

And Wednesday I got a call at noon or something like that from a seller that received a direct mail piece. And I mean, no joke, I literally got home. It was 7:00 at night. I listened to his voicemail, gave him a call back. And in the time between noon and seven, he called another investor who sent him a piece of direct mail and accepted an offer from that individual. And it would’ve been the best deal I’ve ever done by far. And I think that to further clarify that statement, if your goal is to proactively and quickly build a real estate portfolio and not divert time away from your day job, it’s extremely difficult to do that in terms of, for example, sending direct mail, managing intensive business plan implementations where there’s a lot of renovation components, a lot of operational changes. If you’re working with other people and you’re on somebody else’s schedule, whether it’s a partner or whether it’s some kind of investors of some kind, a lot of that is challenging to do with a full-time job.

Axel Ragnarsson (00:04:20):

That’s probably the asterisk there is if you would like to buy a duplex or a couple properties on annual basis and it’s something where you’re scouring the MLS and waiting for that good deal, but you’re not doing a lot of the other more business level related activities that actually drive you to buying a piece of real estate, I think that’s a little bit more manageable. But in the context of buying larger assets and really, really effectively managing them, it requires almost a full-time effort on its own. And it’s hard to balance two of those things if you’re working a job and doing that at the same time.

Robert Leonard (00:04:49):

So people listening to the show who have a W2 job don’t have to run out and give up their dreams on real estate investing?

Axel Ragnarsson (00:04:56):

Of course not. And I think if you have a W2 job and you’re in the context of buying, let’s say small multi families or some single family properties, and you’re investing at a really predictable pace and you’re jogging down the road, but you’re not sprinting, it would actually be completely unwise to give up your W2 because it’s necessary for lending. In the world that we’re playing in where it’s all commercial assets, a W2 doesn’t really move the needle in if you are bankable or not really. Definitely moves the needle if you’re buying one to four unit residential properties. For example, you’re buying single families or condos, or what have you. I’ve been a full-time real estate investor for seven years. I have a harder time getting a loan on a duplex that I don’t occupy than somebody who’s just worked a W2 for the last few years with a predictable income stream.

Axel Ragnarsson (00:05:35):

It’s the worst idea, honestly, to give up your full-time job if you’re getting into real estate, because you need that to get loans. But if you’re looking to scale a real estate business, and I think that’s the context that I’m speaking in, it’s really hard to balance, especially if you have a demanding W2. Something where you’re working more than 40 hours a week, which is the situation I was in. And that’s the situation I think a lot of folks are in that are trying to get into larger asset types. Large multifamily, commercial asset types of other kinds. Doing both of those, you can do it. It’s just, you’re going to be doing both of them a little bit ineffectively or less effectively than you could if you’ve placed full-time focus on one or the other.

Robert Leonard (00:06:09):

I follow a lot of entrepreneurs on Twitter and I saw one tweet. This is probably a couple months ago now, but he tweeted that it’s literally easier for his employees to get mortgages for their houses than it is for him who literally owns the company that these employees work for. It’s easier for them to get a mortgage than it is for him himself.

Axel Ragnarsson (00:06:29):

I’m not surprised whatsoever. Especially if you’re in a business like real estate, where it’s a very lucrative business to participate in as an investor, as the owner of a real estate investment company, whatever your role is, but on a tax return level, you’re not showing a lot of income because of all the depreciation from the real estate assets, because there’s so many deductions that are available to a real estate investor that when the bank asks you to send your prior three years tax returns, you’re not showing a lot of income there. So it’s this weird balance where obviously as a business owner, you want to pay the least amount of taxes, you want to bring the most amount home, but it’s also, you’re disincentivized to do that if you want to go out there and get a loan for yourself or a small investment property where you want to get better financing.

Axel Ragnarsson (00:07:08):

And I mean, that’s a huge component why very early on I just jumped right to commercial. I was like, this is just not an area that I really want to play in because there’s just so much red tape. And the underwriting process doesn’t make any sense from a lender perspective on these smaller deals. But for any business owner, I mean real estate or otherwise, yeah, it’s such an interesting challenge that makes no sense at the end of the day.

Robert Leonard (00:07:26):

We’re going to talk a bit about that transition and a lot more about working with five plus unit deals a little bit later in the show, because that’s exactly the point that I’m at in my real estate investing is I had just mentioned to you before we started recording that I’m done with four units or less. I’m really going to five units or more. We’ll talk about that in a little bit later in the show. But this is your fourth time back on the show. I think you’re the first four P guests. I think we’ve had some threes.

Axel Ragnarsson (00:07:50):

I’m honored.

Robert Leonard (00:07:51):

But I think you’re the first four. For anybody that’s interested, likes this episode, the previous episodes that Axel was on were six, 53 and 79. During the first episode you were not investing out of state yet. Then in the second and third episodes you had started to do it. And now today in the fourth episode you have a pretty sizable unit count in five different markets across different states. How has the out-of-state investing experience been going for you? Is it easier or harder than you expected?

Axel Ragnarsson (00:08:19):

That’s a great question. First of all, I find it interesting that you’ve captured me I guess at literally the inflection points in my business. It’s just coincidental or planned on your end. I’m not sure. But really each time I’ve been on has been a new step. But as for actually making a transition to doing more deals out of state, it was as hard as I originally predicted it, but it was harder in a different way than what I originally thought. The original challenges I thought that I would face were more personnel related. Finding the right people to actually help with management, to help do due diligence when I go down there to actually … We get something under contract, we want to go bring a inspector through the project, we want to bring contractors through. We need to line up the management company. We have to line up the insurance people.

Axel Ragnarsson (00:08:58):

I thought the personnel components of it and building the team was going to be a little bit more challenging and finding the right people and actually developing the trust and everything required to actually want to continue buying deals in a new market. That was actually the easier part. And fundamentally, it was just ask people you really, really respect who are operating the markets that you want to be in for referrals. And you ask a few of those individuals and then the A players rise to the top and there’s the spider web effect of a referral network where you start to get a lot of lines crossed with a few great people. And then those are the people you just worked with. So that was actually the easier part.

Axel Ragnarsson (00:09:30):

The more challenging part I found was knowing the market well enough or developing a deep enough understanding of the market to really quickly move on deals. Because I think every single time I’ve been on this show … I mean, it’s probably been the last two years or three years that I’ve been on, I think the market’s been hot the whole time. And originally I was really, really great at identifying deals in New Hampshire, which was the local market. And I said, all right, well I know how to spot a deal up here, I want to go down into central Florida. I can fundamentally spot the deals down there. But it takes a while to really understand the true nuances to each specific market. And basically getting over that knowledge gap was something that took a little bit longer than I anticipated. And I definitely approached the market or just approached different markets through the lens of just being too conservative. I’d rather miss out on deals than overpay for a deal.

Axel Ragnarsson (00:10:17):

And I missed out on a lot of deals that I otherwise didn’t need to miss out on because I was being overly conservative because I didn’t trust my understanding of the market enough. And I think there’s a fine line to be struck between just spending your whole time analyzing markets and not pursuing deals. Obviously that’s not a situation you want to be in. But there is something to really, really, really understanding at a street by street neighborhood level what’s going on in a specific market so that when you’re sending mail out and the owner calls you and says, “Hey, I’m looking for 80,000 a door. This is what my property is. This is what my rents are.”, that you can quickly act on it. Because everyone understands today you have to be so fast when you’re pursuing deals. You can’t get a call from a seller on a Tuesday. If the deal looks somewhat compelling you need to get offers out by Wednesday. You got to get stuff out to this individual. An LOI, some kind of a purchase contract, some kind of a verbal offer. Something to progress the conversation the next day.

Axel Ragnarsson (00:11:07):

If you’re waiting from Tuesday and Friday rolls around and you were waiting to speak with a broker, you were waiting to run it by your management company, you wanted your buddy who’s active down in that market to give you a second opinion on what the rents could be, you’re probably already behind the eight ball. So for me, I wasn’t acting fast enough and I was missing out on deals as a result because I didn’t trust my own knowledge of the market. I just jumped out of the plane in a sense. And I was like, I’ll find deals. I’ll learn the market as I’m going and all this.

Axel Ragnarsson (00:11:31):

And we did deals and overall it’s a success, but I left some money on the table, some opportunity on the table because I wasn’t able to act fast enough. So I think the actionable takeaway there is if you’re going to go into a new market, try and really be honest with yourself and find the line between paralysis analysis and not taking action but also analyzing market to the point to where you can very quickly act on an opportunity and understand that’s how you have to approach the business. Because if you’re not approaching it that way, you’re not going to compete with the people that are local there.

Robert Leonard (00:12:00):

Since you weren’t local to this market, how did you find the people that you could ask for referrals?

Axel Ragnarsson (00:12:05):

I mean, I just do a ton of networking. I’m a part of a lot of different real estate groups, paid or not paid. I could throw a deal into a Slack channel and say, “Hey, is anybody operating in the Lakeland, Florida area?” And hop on the phone when someone, get their take, have some verbal conversations in that capacity. I lined up individuals in other markets that I would literally pay to go just drive by deals and take a video of a street, take a video of the property, do a two minute walkthrough. And I think taking the approach you got to pay to play in a lot of this stuff. So for me, I found a couple of young, real estate brokers. One of the markets that I was trying to expand into is Indianapolis.

Axel Ragnarsson (00:12:42):

And I said, “Hey, this is my background. One, if you find any deals, I’d love to work together. I might need help operating. Maybe we can work together on a deal if there’s synergy there.” So trying to establish a higher level relationship, but then also saying, “Hey, if I look at a deal and the initial back of the napkin underwriting checks out, but I want to get a feel for the neighborhood and the physical condition of the exterior of the structure, would you mind taking 30, 40 minutes out of your day? I’ll throw you 30 bucks or something like that and make it worth your time.” I was literally Venmoing people in other markets. Just individuals to go and drive by and take a … FaceTime me. We walk the exterior. We can see, okay, you know what, this siding’s actually pretty dilapidated. All right, these roofs are actually a little bit old. That’s going to affect the price I might be able to offer this seller. There’s two burnt out mobile homes across the street that are hurting the curb appeal.

Axel Ragnarsson (00:13:28):

And for me, that was huge. Because at the end of the day, everyone’s afraid. I think the biggest fear for people investing remotely is what’s going on with the property on the ground? So if you get a sense there, that helps. And then for us, I’m getting a property under contract, I’m going down and doing extensive due diligence during our due diligence period. Committing mentally to the cost of flying down, spending two days there, spending six, seven hours the first day with the inspector walking every single unit, evaluating every single major system. While I’m there, the management company’s getting on site and we’re verifying all of the projected rents. We’re verifying the construction budget. We’re getting every single service provider that’s specific to each component to the deal.

Axel Ragnarsson (00:14:06):

We get a roofing contractor out. We get our HVAC folks out to look at the cooling systems. We do all of this stuff. At that point after due diligence … I mean, it’s an absolute. I have no fear in actually closing on the deal because I’ve done so much DD that, I mean, I’ve really mitigated that risk. So I think some people just getting on a plane and going down there and doing that, it just feels like it’s a lot harder than it actually is. In reality, it’s a couple hundred bucks for a plane ticket. Spend a couple days, you spend a hundred bucks in a hotel. Commit to doing that and the whole process becomes a little less intimidating.

Robert Leonard (00:14:33):

Do you pay for the travel yourself out of your own income or do you pass that into your deal and your underwriting?

Axel Ragnarsson (00:14:40):

That’s all out of pocket on my end. It’s funny, I think some syndicators or capital raisers or people that are putting together deals with investor money, they might structure it a little bit differently. For me, I don’t think that should be a burden of the deal, of the investors of the actual … Basically an out of pocket cost for the deal. That’s something I fund on my own. It’s funny. I used to think that was like, oh, it would be the worst thing in the world if I bought a plane ticket and spent a few days in a market looking at a deal that I didn’t end up buying, and I’ve done that multiple times. I’ve flown to markets, done due diligence, and it’s just the property’s way different than what we anticipated and we have to walk away.

Axel Ragnarsson (00:15:13):

And you just have to understand that those types of expenses, those types of costs are going to come if you want to invest out of state. I mean, it’s just the price of doing business. And I think some people just … That makes them uncomfortable. They feel like they wasted a few days and some money on a plane ticket. But if your inspection is … And we’re doing larger commercial assets so we might have an inspection that’s $3,000. Another 500 bucks in travel and to get there, that doesn’t really move the needle on a multimillion dollar deal. It’s not a big deal.

Axel Ragnarsson (00:15:40):

And it doesn’t really move the needle on a smaller deal either. If you’re buying a $300,000, four unit property in some other market that’s not where you live, it’s probably not the end of the world if you go get there to make yourself feel comfortable. And then once you’re there, you build a better relationship with the broker, the property management company, spend another day there and network with all the investors, drive the city and now you’re much more plugged into that market than you previously were. And it’s an investment in future deals. An investment in future relationships. And once I made that shift, I think I really started putting more gasoline on that fire so to speak in terms of looking for deals outside of my area.

Robert Leonard (00:16:14):

And it can also be a tax write-off.

Axel Ragnarsson (00:16:16):

Exactly. Yeah, it’s deductible.

Robert Leonard (00:16:19):

The specific markets that you’re in are Houston, Texas, Manchester, New Hampshire, Lakeland, and Daytona Beach, Florida, and Indianapolis, Indiana. Why’d you choose those markets?

Axel Ragnarsson (00:16:31):

It’s interesting. And I’m probably going to give you a longer answer here so hang on I guess. There is some markets there that I know I can physically compete in as a deal finder, as an operator, as an investor myself. And for example, those would be the Daytona Beaches of the world, the Lakeland, Floridas, the Indianapolis, the Manchester. Manchester, New Hampshire is. And what I describe these markets as, they’re … Indianapolis is bigger, that’s more of a major city. But the other cities I mentioned are fundamentally … They’re smaller cities with less buyer competition. In the aggregate, there’s less focus on those from a media perspective, from an investor perspective, from capital chasing deals perspective. My whole thing when I go into a market, I want inefficiency. We make money in real estate from inefficiency. We don’t make it from really anything else.

Axel Ragnarsson (00:17:18):

We make it from, there’s an opportunity that the seller maybe has underutilized or doesn’t understand what they have and as a buyer, we’re able to identify that inefficiency and basically just a seller leaving something on the table and we’re able to extract value from that. It’s much, much harder to do that in popular cities or popular markets where there’s significantly more buyer competition. So when I started looking in Florida, I was looking in Tampa. I was looking in Jacksonville. I was looking at deals in Texas. I was looking in San Antonio, Dallas areas. And that’s just everyone knows that people are moving there, incomes are growing. There’s more jobs. There’s companies moving there. And there’s a reason why … Tampa, it’s incredibly challenging to find a deal in Tampa. We’ve done direct to seller marketing there for 12 plus months, we haven’t found a deal. Whereas we’ve done the same thing in Lakeland, we’ve found numerous deals.

Axel Ragnarsson (00:18:03):

And the major reason why is you’re only really competing with local folks and a couple of out-of-state people. And if you’re going to go start a business, you want to start a computer business and compete with Apple, or do you want to start a flooring company and you’re competing with a near retiree, local guy who’s running a flooring company with no software? Obviously you’re going to gain traction a lot more quickly if you start the flooring company where you’re competing with somebody that doesn’t really understand the sport of business. And that’s the same thing with real estate. Do you want to go and compete with the people doing deals in the Tampas and in the Dallas’s, the Austins, the Phoenix’s or do you want to just go and play a little bit more in the mud in some of these more tertiary markets?

Axel Ragnarsson (00:18:41):

So that is literally how I thought of identifying markets. So that’s why I picked a lot of cities with populations of a 100,000 to 200,000 people. Lakeland, Manchester, Daytona Beach all kind of fall into that range. And it’s just easier to find deals. And we know how to operate really well. We know how to take a deal from close to stabilize really effectively. We can apply those systems anywhere. And from a capital perspective, people are still interested in investing in those markets because it’s still fundamentally in Florida. Manchester being in New Hampshire. Manchester’s one of the only states in the Northeast with positive population growth. So if you’re somebody who wants to invest in real estate, up in the Northeast, that’s a pretty great outlet to do so. So all the fundamentals still check out, but I’m more interested in where’s my time best spent?

Axel Ragnarsson (00:19:21):

And the other deals. So now I’ll hop to some of the other markets like Houston and where I partnered in a deal out in Phoenix as well. Those markets that are harder to break into … It’s extremely hard to go from zero to transacting a sizeable deal in a market like Houston, which is an extremely hot, active, popular market with absolute rockstar A players on the ground that you’re just going to have a really hard time competing with. So I said, if I want to participate in those markets, how can I bring value to somebody else who already has the relationships, the deal flow, the skillset to bring a deal from contract to close? That has the confidence in their knowledge to get sent a deal on Monday and get it under contract on a Tuesday based on limited information. It’s going to take me a year to get to that place at a minimum.

Axel Ragnarsson (00:20:03):

I took the approach of, let me find these people and let me raise capital for their deals. And let me partner in this deal with them as a capital raiser. That’s the value I’m going to bring. I’m going to bring a group of investors that make their capital raise a little bit easier and in return, I can participate in the deal. I’ll help with investor relations. I’ll be active in some capacity so we’re compliant with all the SEC guidelines. But that’s really the value I’m bringing. Instead of me coming in as an investor myself and bringing X amount of dollars, I can bring a group of 10 investors that are in aggregate going to bring six, seven, $800,000 to this deal. It makes the sponsor, the individuals finding and operating the deal, makes their life easier because they get to spend less time raising the capital.

Axel Ragnarsson (00:20:41):

It’s a less stressful contract period trying to put it all together. And if there’s value there, you can be compensated for doing so. I’m a smaller partner in those deals. I’m on the general partnership and I’m technically an active member of those deals, but that was my way of participating in those specific areas and still developing some relationships with folks there without having to actually go through the process of sourcing the deal and developing those relationships that’ll bring you the deals. Because that’s the hardest part of this whole game. If you could shortcut that by bringing value in some other way, it’s pretty beneficial.

Robert Leonard (00:21:12):

How are you raising that capital? When you’re bringing it into those deals, what are you exactly doing to raise the capital?

Axel Ragnarsson (00:21:18):

I think any experienced real estate sponsor that’s doing all of this stuff where they’re finding the deals and raising the money, they should be spending half their time finding deals, half their time finding investors. So for me, that’s how I try and structure my time. I got a podcast where I discuss what we do. I’m really active on LinkedIn and on Instagram. I’m constantly networking through different events and sharing my story. I speak at a lot of local real estate meetups. And at the end I say, “Hey, if you’re interested in investing passively and you want to participate in deals led by individuals that are full time A players in this business, give me a call. We’ll talk about it.” And so I try and cast a wide net. Like any sales funnel, I try and pull in leads from any different direction. And then I work them down. I make sure they’re qualified. Make sure they’d be a good fit as an investor in our deals. And at the end of the day, you have a stable of individuals that have expressed some level of investing to you.

Axel Ragnarsson (00:22:08):

And when we have an opportunity, whether it’s a deal that we’re personally buying and operating and raising the money for or it’s somebody else’s, we’ve put together a lengthy pitch deck. Basically an offering memorandum is what we call it. That outlines the opportunity, the sponsors, the market, the business plan, the capital requirements and we share that. Oftentimes we’ll put together our webinar. So we walk through the opportunity, the market. And usually it’s about 30, 45 minutes. We field some questions if we do it live, or we have people send in questions and we address them on the webinar and we record that. Send that out.

Axel Ragnarsson (00:22:39):

But it’s basically a funnel like anything else. And I like to equate it to similar to selling physical products online or selling an online service. If you’re scrolling Instagram, you probably get all the ads for jump on our email list, I’ll tell you how to drop ship. I’ll tell you how to create a course and sell a course. I’ll tell you how to do this, do that. And that’s oftentimes what we do. I don’t do any paid advertising, but specifically say get on our email list. Download our eight ways busy real estate professionals can benefit from passively investing in real estate. And I have a lead magnet. Throw your email in there. You drop into a sequence of five emails. It prompts you to schedule a call at the end of that. And I push all of these things in a traditional business development perspective. I just apply it to finding interested investors. And this is something I’m actively trying to do a little bit more efficiently now. But build an infrastructure that brings investors to us and allows me to convert them and basically leave them on the sidelines and pull them into deals that we’re putting together at any given time.

Robert Leonard (00:23:31):

Are you doing that exact same process for funds that you’re raising for other people and funds you’re doing for yourself?

Axel Ragnarsson (00:23:38):

Yes. Process is totally the same. I just want to get people into our ecosystem. That’s fundamentally what I’m hoping to do. And in deals that we’re doing ourselves, we talked about it. We say, this is a deal that we’re leading, we found, we’re lead sponsoring this, we’re going to be running the operations, we’re going to be executing the business plan. And for me, that story is much easier to tell investors for deals that are in markets that I’ve proven that I’ve a proven track record in. So I’ve done a lot of business up in New Hampshire. I’ve done a good amount of business now in central Florida, and we’re going to be doing more in Florida. We just closed a 48 unit down there and we’re starting to really gain traction down in Florida. An investor looks at the track record that I have in those two markets specifically and says, “Yeah, this is pretty rinse and repeat for him. I trust this individual to run this deal and to steward my capital effectively.”

Axel Ragnarsson (00:24:26):

Whereas a market like Houston, if I were to send a deal in Houston out to my investors, they’re like, “Have you done anything in Houston?” And I’m like, “No. This is the first deal. We’re getting our feet wet.” As a passive investor that story is a little bit less compelling. In those deals, I want to give the investors that are interested in participating in our opportunities access to these great markets and the way to do that is to partner with other folks. So the process is still the same, but we can bring a more diverse set of opportunities to the folks that are in our ecosystem.

Robert Leonard (00:24:55):

You mentioned you get a piece of the GP when you bring that to other people. What does that piece look like? Is it 1%, 2%? I’m sure it varies based on how much you’re raising. But just give us a general idea on what that structure looks like.

Axel Ragnarsson (00:25:05):

Yeah, absolutely. It definitely varies. And there is a line that can be crossed. Granted, I’m not an attorney. Consult an attorney anytime your raise in capital. That’s the whole big disclosure. Depending on the deal there’s … And it really depends on the need on the sponsor side for capital. If the sponsor can raise the money on autopilot they can send an email out to their list and raise all the money, they have less of the need for capital. So they may be willing to compensate you slightly less for doing that or give you a smaller slice of the deal. Typically, what I oftentimes see in real estate general partnerships, you have 20, 30% of the general partnership. So of the GP specific equity. So you got maybe 20, 30% of that for the deal finder and whoever’s really sourcing the opportunity and getting it to close. Probably got another 30% or so for the operator in the deal. The individual that’s going to take it from close to really creating value there.

Axel Ragnarsson (00:25:57):

And oftentimes the deal finder and the operator is the same person or the same group. And then you got another 30% or so for capital or for somebody who’s going to be a capital partner in that deal. And depending on how much you raise, maybe you have a different piece of that. But there’s still the implication that whoever’s bringing in the capital needs to actively participate in the deal. Unless you’re a licensed capital broker there’s implications to being compensated solely for raising capital that violates some SEC stuff. So if you’re going to be raising money for other people’s deals, you still need to be an active partner in that deal and your compensation’s going to vary. And it’s really going to depend on the deal and the operator.

Axel Ragnarsson (00:26:31):

If the operator is somebody who’s got a couple thousand units in a marketplace and they don’t really need you to help them raise capital, probably not going to participate really meaningfully in that deal versus a newer investor that literally needs you to raise money to get it closed. Obviously there’s a different expectation there. But in general, a general partnership pool of equity is 20, 30% for the deal finder, you got 20, 30% for the operator, 20, 30% for the capital raiser. And then the rest of it might be more special folks. Somebody to sign the debt who has a really large balance sheet and a lot of liquidity to help the sponsor group qualify for the loan. Maybe you have another line item in there for somebody that helped you with the pursue costs. What we call them in the business. All of the out of pocket costs required to get a deal and a contract. It’s not uncommon you need multiple six figures in earnest money today if you’re pursuing 50, 60 plus unit assets. So somebody might be fronting that to get the deal under contract and they’re being compensated on the back end with some of the general partnership. So there’s different roles, but that’s a very high level, I guess, view of how that equity’s usually chopped up.

Robert Leonard (00:27:32):

For your deals specifically, how are you structuring them? Are you using 506(b) or 506(c)?

Axel Ragnarsson (00:27:38):

We’ve done a couple of 506(b)s and I like to do 506(b)s. Granted you have the downside is you can’t publicly advertise a 506(b) opportunity so it’s something that you need to keep closer to the vest and only share with people you have a longer standing relationship with 30 days or more. And anyone that’s participating in those deals, you have to know them. You have to tell the SEC that you have some level of fundamental understanding of their financial situation to make sure they’re not overextending themselves by participating in the deal. Basically that they’re truly qualified to invest. So there’s some more legal implications there, but a lot of our investors are people that are right on that verge of being accredited, which is the requirement to participate in a 506(c) syndication, but we want them to participate in what we have going on.

Axel Ragnarsson (00:28:18):

We do a lot of deals with lower check sizes. A lot of syndicators require 50K, 100K minimum. We usually do 25K so we can bring some more people in. And from an actual compensation structure or an actual deal structure, we do pretty similar to what other folks do where we have some kind of a preferred return and then a split above and beyond that. A big part of our business is charging less fees. We want to be compensated through the promote, because that more accurately aligns all of the incentives across the general partner down to the limited partners. Usually some kind of a 7% to 9% preferred return and then the split above that typically varies on the deal, but it’s anywhere from 50/50, 50 to the GP group, 50 to the LPs or to 70/30. 70 to the LPs, 30% to the GP group.

Axel Ragnarsson (00:29:03):

That usually depends on the deal, the market, how great the deal is and what the preferred return is. Sometimes we play with the preferred return and we increase that a little bit to provide a little bit more downside security to the investors and then we toggle the promote above that to basically compensate us for taking a little bit more risk in terms of we’re paying out more in a pref. We want to participate a little bit more in the back end. That’s a structure we use on deals where there’s maybe more of a risk component to it. It’s a larger renovation, there’s more moving pieces and we want to give our limited partners the security of having a higher preferred return. Versus maybe more straightforward deals that are a little bit more cookie cutter, where it’s a light renovation. We’re not really doing that much. Maybe it’s a slightly lower preferred return and they can participate a little bit more on the back end. A lot of it’s deal dependent, but that’s the high level structure we use.

Robert Leonard (00:29:46):

How do you manage those advertising laws with your 506(b) and having that relationship? And I know you’re not a securities attorney by any stretch of the imagination, but just from your experience, does having somebody on your newsletter list, does that count as a relationship? How do you think about that and how do you navigate that water?

Axel Ragnarsson (00:30:04):

That’s a great question. I mean, it’s so tricky. It’s like, this is still fundamentally a new industry. Syndicating private real estate transactions. I mean the legislature was passed to allow this to happen literally 10 years ago and it’s really the last four or five years where this has become a really popular method to invest. So there’s still a lot of gray area and I think that’s something the SEC’s probably going to start taking a little bit more seriously heading out in multiple years in the future as this becomes a more mature industry. But the way I approach it is I just want to be overly cautious. Obviously I don’t share any of our ongoing 506(b) raises on any type of social media because that violates public advertising. It’s all literally confined to a segment of my email newsletter where I have a relationship with those folks.

Axel Ragnarsson (00:30:45):

And what I define as a relationship is we have spoken on the phone and we’ve talked about real estate investing. We’ve spoken about what we do with our business. You’ve expressed some level of interest in potentially participating in an offering in the future. And that qualifies you as somebody that can see that level of an opportunity. Even if you just send it out to your email newsletter, but you got a bunch of people on there that you don’t necessarily know, there’s some implications to doing that because you’re still kind of advertising that to somebody you don’t have a relationship with. And for me, if I’m ever on the line of maybe this person is not qualified to invest in this. I like to know that if you’re going to invest in this deal, that’s less than 20% of your investible cash.

Axel Ragnarsson (00:31:25):

If I think you’re writing a $25,000 check to participate in our deal and you have 50 grand in your checking account, you’re not going to participate in the deal because there’s way more downside risk to you despite the fact that I’m extremely confident in what we’re doing, because there’s no liquidity. That’s the challenge. When you invest privately, you can’t go sell your shares a year later if you want to go buy a house or go buy a new boat. That’s not an option that you really have. If it’s an absolute must, we might be able to figure it out but that’s not a situation you want to be in and that I want to be in it as a sponsor. So I only want to select people that really understand the type of opportunity they’re participating in and that are able to do that.

Axel Ragnarsson (00:32:00):

The letter of the law is the 30 days and then you can bring them in so long as you’re not public advertising and all that. But I like to be a little bit more selective than that too, because you have what’s legal and then what common sense dictates. Which is for me as an investor, I don’t want to get on the phone every time there’s a minor, minor problem or we report some minor roadblock in an investor update because this is 50% of your net worth that you’ve just committed to this deal. That’s not interesting to me and that’s not a scalable business for me to run. From there, I take whatever the SEC requires and then I almost narrow it down even more because I want to build an easy business for me to run.

Robert Leonard (00:32:35):

What have your costs been to set up a 506(b) for your deals?

Axel Ragnarsson (00:32:39):

It depends on how many investors that you have and specifically at what states they’re coming from. So there’s the cost to put together a PPM, and that can run anywhere from nine to 12 grand, depending on the attorney. Which is if you’re getting charged more than 12 grand to put a PPM together, unless you’re doing some massive complicated raise, you’re probably paying too much. But after you draft the PPM, you have what are called blue sky filing fees, which are basically fees that you need to pay to record this transaction in the separate states where investors are coming from. And of course there are some states that just charge more to do anything than others. Massachusetts, New York, California are the big three. Those are the really expensive states to file or to do blue sky filings in versus a state like Florida, New Hampshire. It’s just a little less expensive.

Axel Ragnarsson (00:33:22):

You’re going to have those fees right after you close the deal. So depending on how many states where there’s people investing … Basically depending on the number of states that your investors live in, those costs can vary. But for example, we just did a 48 unit deal. We had a few different states. It was 2,500 bucks. So between PPM and blue sky filing fees, it was 9,500 for the PPM, 2,500 to do that. So we were all in around 12K. And then you might have some ancillary attorney’s fees as they help you draft an operating agreement and some of the more minor documents to help round out the legal package. And you might be in for 14 or 15 depending on how expensive your attorney is, of course. But that’s a safe estimate for what you’ve got to pay to put these docs together.

Robert Leonard (00:34:01):

And are you using a real estate attorney for this or is it a securities lawyer?

Axel Ragnarsson (00:34:06):

We use a securities attorney that specifically specializes in real estate securities. The best thing to do is find an attorney that has a securities background. Because they need to be able to draft these documents in such a way that’s compliant with all of the SEC regulations. But it’s also important to have an attorney that understands the real estate application. So they are able to have a fundamental real estate conversation with you about how much capital you’re raising, what types of returns you should offer, how to list all the risks of the opportunity, how to list these sponsors and their experience and why it’s beneficial to the opportunity. If you have someone that has truly no real estate background, they might have a hard time just from a conceptual and common sense perspective putting that document together. But for us, we use a real estate securities attorney. Somebody that literally his role, his job is drafting these documents for real estate investors. I highly recommend going down that road because there’s too much on the line and it’s too expensive of a document to not work with someone that understands exactly what they’re doing.

Robert Leonard (00:35:06):

Do they have to be in the state in which you’re buying the property or can you find one that you really like working with and use them for your deals across the country?

Axel Ragnarsson (00:35:14):

It can be anywhere. Our attorney lives in Denver, for example. Obviously I’m not doing deals in Denver. I don’t live in Denver. He’s drafting a PPM for a New Hampshire deal. He’s drafting a PPM for a Florida deal. And there’s a little bit more state specific requirements just as it relates to the entity. Basically what we do when we raise capital is we raise capital to invest in an LLC and the sole purpose of that LLC is to buy the property. Naturally, you have to create an LLC. You can create it anywhere, but there’s different … If you’re going to create it in Florida for example, you get some filing requirements in Florida. So your attorney should know how to get the answers or have somebody they can go to in each of these states to make sure they’re doing everything from a compliance perspective correctly in each specific state that you might be creating an actual LLC or entity in. But from a true syndication doc standpoint, I mean, it’s the same anywhere. It doesn’t change depending on the state so that’s a little bit easier. That’s what’s the nice part about doing these deals is you can just find a great attorney and use them for every market.

Robert Leonard (00:36:09):

Do you typically get your LLCs in the states that you’re investing in or do you usually get the LLC based in Delaware or something like that and then still buy the real estate in other states?

Axel Ragnarsson (00:36:19):

Yeah. We do Delaware, Wyoming and New Hampshire LLCs typically. And the only reason we’ve done a few is some lenders … And these are more institutional lenders. For example, we had an institutional lender that did a bridge loan on a recent deal we did and part of their underwriting requirement, they wouldn’t close the loan otherwise, was the borrower must take title in a Delaware LLC. I don’t know. I don’t know why they do it. It’s check some box in their systems that for some reason that makes them feel comfortable. So we had to create a Delaware LLC for a deal that we were buying in Florida, where I’d normally just make a New Hampshire LLC because I know it’s 150 bucks a year, it takes two weeks to get approved and I’ve done a million times online by myself. For me, that’s just what I do.

Axel Ragnarsson (00:36:55):

I just go make New Hampshire LLCs because New Hampshire is an expensive state to do that. But Delaware and Wyoming are the two states that are most popular in terms of people just make LLCs in those two states every damn day because it just checks so many other boxes. It’s cheap to make them. It’s a quick process. There’s not a lot of insight behind the scenes. There’s a lot of anonymity in those cities as well to where they don’t share. For example, a lot of the registered agent information. It depends, I would say. But if you’re buying a deal in New York or California or Mass or Illinois, probably don’t make an LLC for those states because it’s just so much more expensive to have it. Mass is 550 bucks a year. I think New Hampshire’s 150 bucks. So you might as well make it in New Hampshire if you’re going to make one. But that’s my two cents. I think everyone just probably does what they’re comfortable with and what they know.

Robert Leonard (00:37:40):

The first time I went to file an LLC in a state outside of New Hampshire … Because I live in New Hampshire too. I was shocked. I was like, “Oh my God, this takes so long. There’s so much paperwork. It’s so expensive.” And then I’m like, man, I love New Hampshire. Like you said 150 bucks, you could do it yourself. It takes literally a couple days usually. I think I always get my approval in less than a week. So it’s just so easy in New Hampshire. So completely agree. Do you worry or how do you deal with the foreign entity fees that some states have since your LLC could be in a different state? I know some states have a foreign registered entity fee depending on where it is.

Axel Ragnarsson (00:38:12):

We have historically made LLCs specific to the market in which we’ve been buying properties literally up until this deal where we had to do a Delaware one. So all my New Hampshire stuff, I was making New Hampshire LLCs. We had a couple of deals done in Florida prior to this one that we just closed and those were Florida LLCs because they were made by a partner of mine on those deals. Our deal in Indianapolis, we have an Indiana LLC. In the future, I’m probably going to start making more Delaware and Wyoming ones just because at some point you just want to model what all the really successful folks are doing and that’s what they’re doing. So I might just start doing that. And this is something that I honestly need to spend a little bit more time understanding thoroughly basically the risks and rewards where the different implications of owning LLCs in different markets. So for me, I haven’t necessarily had to deal with that yet, but I imagine that there’s … Again, it’s a situation where Delaware, Wyoming, I know that those fees are more minimal. But I don’t have a great answer for that question just because I haven’t necessarily had to go down that road just yet in terms of owning an LLC that’s doing business in a separate market or separate state.

Robert Leonard (00:39:10):

You mentioned that there’s different costs for different states for raising money from people that live in those states. Do you ever just exclude certain states because you know it’s expensive? You’re like, “All right, Massachusetts, you’re really expensive for me to file in. I’m just not raising any money. If you live in Mass, sorry, but you can get in these deals.” Or even do you just restrict it to a specific state? You just say I’m only going to raise money from people in this state or a couple states, maybe one, two, three states.

Axel Ragnarsson (00:39:34):

No, it’s a really good question. And I would imagine that if your business is large enough to where you have the ability to choose, that might be something that makes sense to do. For example, if I was doing a smaller deal in New Hampshire and we were doing a 506(b) or C and we were putting together syndication docs, but the capital raise wasn’t that big, I’d probably just raise money from people that I know that live in New Hampshire or Mass instead of bringing in a couple of folks from New York or something like that. Because I have a little bit more autonomy and I’m able to choose. And I think a lot of groups might get to that size to where they have the freedom to make those types of decisions. I’m still in a stage of the business right now where for me, I just want to raise money. I want to get deals closed. And if I have to pay a little bit more to raise that capital, that’s fine. And we’re buying meaty enough deals where the deal can absorb that cost.

Axel Ragnarsson (00:40:18):

And it’s funny because when you think about it, most of the people that have money live in very densely populated areas. A huge percentage of our investors are Massachusetts based and New York based. And just a function of Boston’s got a lot of really well paid individuals living in it. Obviously the same thing in New York City are now on to Long Island and it’s just a more densely populated market. Same thing with California. Everyone that lives in … I shouldn’t say everyone. But a good chunk of the people that live in San Francisco and Los Angeles are making enough money to have disposable income to go invest in real estate. So it’s a necessary evil. And for me, I think maybe that’s something I would consider if the deal was small enough and I had a little bit more ability to cherry pick who participates. But as of right now I think it’s a cost of doing business type of situation.

Robert Leonard (00:40:59):

Is it a cost per person or a cost per state? So let’s just say you have five people in New York, is it the same cost as if you had one person in New York?

Axel Ragnarsson (00:41:08):

It’s just a cost per state. You get one person that participates from New York, you’re going to have the associated costs with having that person involved in your deal. And that’s where I think you probably have a little bit more where you might actually start to do what you’re describing, where if you get one investor coming in with 50K from New York and he’s a small portion of the overall deal, you might just elect to not go that route or to not have that person participate in the deal. But at the end of the day, I think it’s not a large enough cost to really move the needle too significantly. And especially if you’re doing deals of scale. Once you get to $2 million, $3 million in purchase price, the deal itself can absorb a lot of these costs. Because the costs are the same on a $10 million deal as in a $1 million deal as $100,000 deal. The legal cost are the same, no matter how big the deal is which is why we’re trying to do larger deals is because all of the legal, transactional, due diligence costs are smaller percentage of the overall deal. So it’s less of a hit the day you transact in terms of out of pocket costs.

Axel Ragnarsson (00:42:04):

For example, we just did a deal that was a $2.7 million purchase price. That’s like the line I’m finding as where putting together PPMs and all of these documents start to really become a meaningful percentage of the overall capital required to close the deal as a percentage of the overall deal. So the larger the deal is the less of a hit that is. And I think that filing fees is probably a little bit more of a hindrance on small deals or maybe it’s you’re right on the line of it being large enough to even go down the route of syndicating the capital.

Robert Leonard (00:42:32):

That raises an exact question that I wanted to ask you is at what point do you think it is worth even doing a 506(b)? Is it about two and a half million give or take?

Axel Ragnarsson (00:42:41):

Yeah. That’s a pretty arbitrary number, but that’s my take on it. I think that’s probably where I would suggest it. And we’ve done a lot of deals in the $1 to $2 million size where we bring investors in but we just do it with an operating agreement. We spend 1200 bucks, two grand on an operating agreement. Well thought out operating agreement that outlines everybody’s roles in the deals and how investors are compensated. And we use similar structures, but we don’t have to go down the whole route of putting together a massive document. The PPM is really applicable. And if you want to raise capital from a lot of individuals that are going to be truly passive in the deal, that they write a check and then they have zero involvement, you can still put together an operating agreement and bring a few people into a deal so long as they’re materially participating in the deal and so long as they aren’t truly, truly passive. Because at that point, that’s when you violate a lot of the SEC stuff.

Axel Ragnarsson (00:43:29):

And obviously again, speak with an attorney at length about this. But you can still structure deals in the way that we’re talking without all the legal implications for the smaller deals. You just have to speak with an attorney and draft something that makes sense for you and an investor and what you agree on. For me, a couple million bucks, that’s probably the line. Otherwise it’s just too expensive. I mean, unless you find an amazing … If you find a deal that’s worth two million, but you’re buying it at 1.3 million, sure, you can spend 15 grand on legal costs. That’s not going to … You’re still going to make a bunch of money and your investors going to be really happy. But I think it just depends on the deal itself and what the actual structure is and how many people are really involved.

Robert Leonard (00:44:04):

When you do those, say one to two million or even less deals that are I’m assuming what you’re referencing is a joint venture, how do you have to think about advertising? How are you able to advertise those types of opportunities?

Axel Ragnarsson (00:44:16):

In those deals I don’t advertise them at all. The way people are finding out about potential opportunities where that’s the structure that I want to employ, I’m picking up my phone, I’m just calling them and we have a longer relationship. We did a deal in Florida, a 16 unit that was really small. It was me, couple of partners on the ground that found the deal that were helping me run it. This is the first deal I did in Florida. And the investors were just me and two other people and we’re all essentially participating in the deal. We hop on the deal, talk about it once a month for 20 minutes or whatever and it’s a very straightforward structure. So for deals like that, I just called them both of up and said, “Hey, I’m doing a deal in Florida. It’s got a lot of meat on the bone. You interested in coming along for the ride and send you some details?” And we talk about it and we go and partner on it.

Axel Ragnarsson (00:44:57):

Those aren’t deals that I’m sending out to an email list that I’m “blasting” out or really trying to generate interest in because deals like that are a little bit more intimate in terms of how people are participating. And I don’t want to bring somebody in that I don’t have a multi-year relationship with and really trust and understand how they like to view the business and what their goals are. That’s close network, let’s all bring some money to the table. Let’s tackle this deal. We’ll structure the equity in such a way that everybody’s really happy and we go from there. I treat it totally different than the syndication opportunities where we’re bringing in a bunch of people that are investing 50K and are truly passive. These are like, you get a few larger check writers and you collaborate on the deal and the structure is a little bit more simplistic in a lot of those deals.

Robert Leonard (00:45:37):

How does the financing work with a joint venture like that? They all have to be on the debt right?

Axel Ragnarsson (00:45:43):

It depends on the lender and that’s the tricky part. And boy, that’s a constant battle that I’m having with lenders where every lender has a different underwriting requirement for that. The very common requirement that I think people are familiar with is the beneficial ownership form. Where it’s the lender wants to see anybody that owns 20 or 25% or more of the LLC signing on the loan. There’s different ways you can get around that. You can structure the percentage interests on an LLC a little bit differently, but you can include language throughout the document that outlines how people actually get paid. So there’s not an exact marriage between the economic interest or the percentage ownership in the LLC versus how people are compensated.

Axel Ragnarsson (00:46:22):

You can, again, speak with an attorney. And that’s probably as far as I can go into that without crossing some lines. But there are ways to draft the language of an operating agreement to where even if somebody owns more than that percentage, but they’re not interested in signing on the debt and that’s not the role within the deal to where they don’t have to do that, but they can still get compensated as if they had more than X percentage. Get creative with an attorney. Have a conversation. Express that challenge If that’s something that you’re going to have. But it is a challenge and you need to be upfront with your lender. And some lenders don’t mind. Some lenders, I see he owns 30%. I understand what his role is. I know he’s not signing on the debt. He’s just helping with this component to the deal. We’re not going to make him sign on it.

Axel Ragnarsson (00:46:57):

But some lenders are more okay with that and more accurately understand how these deals are put together. But the more conventional lenders, if you were to go to a Bank of America or Chase or some more residential type lender, they might not see enough of these deals to really understand that and they might just be like, no, no, no, it’s more than 20%, they got to sign it. Have an open and honest dialogue with your lender. Find lenders that are a little bit more flexible and a little bit more familiar with creative deal structures and deals with multiple partners and work with them.

Axel Ragnarsson (00:47:25):

And then the other thing too is you can wordsmith your operating agreement to read what you’d like it to read. You can have a section where language outlines so everybody’s getting compensated and it’s not as simple as this person gets 25% of the proceeds because they have 25% of the equity. This person gets 10, this person gets 20 or whatever. Those numbers don’t need to translate to what the actual agreement for the deal is. You can do a little bit of work in the operating agreement. Find a great attorney that’s familiar with real estate and real estate deal structure that can have an educated conversation with you about this. Don’t go to an attorney that isn’t familiar with this and try and talk about this, because it’s just going to go over their head. You got to find the right attorney. You got to find the right lender and from there it’s a lot easier for sure.

Robert Leonard (00:48:04):

I mean I’m no attorney either, but my understanding is you can have an ownership percentage, then you could have different rights to cash flow, different rights to proceeds at a sale, et cetera. So like you said, you can structure it or wordsmith it to fit your specific situation.

Axel Ragnarsson (00:48:19):

Exactly. No. And what you just described is exactly what we do. Where we have distributions as a section in our operating agreement. How are distributions handled with routine cash flow? How are distributions handled at time of a capital event, which is a refinance or a sale? How is that capital distributed? If there’s any fees, how are fees distributed? For example, we take … We don’t charge a lot of fees in our deals, but we typically take an acquisition fee. You can work that into a $200,000 deal the same way you can a $200 million deal. These are all things that you can include in an operating agreement. And you just have to think about all the different levers you can pull as an investor and how you can create wins for all of the participants in a deal. And then you take that rough bullet point list to an attorney and say, “Let’s get this on a document and let’s actually translate this to that section of the operating agreement.” And then you probably get by a lot of this stuff, like you’ve mentioned. Basically echoing what you just said.

Robert Leonard (00:49:07):

How is the financing different when you do a 506(b)? Is it just the GP people that are on the loans?

Axel Ragnarsson (00:49:14):

Yeah, just the GP. Different lenders again are going to have different requirements. When you’re doing a syndication, most lenders still want to see you bring money to the deal. They don’t want to see you raising 100% of the capital because then you functionally have no skin in the game. There’s typically still a requirement for the sponsors to bring equity. 10%, 15% of the overall equity is usually the minimum that I see. Again, it’s all lender dependent. No one size fits all. But the lender’s going to want to see you still bringing money to the deal. They’re still going to underwrite you as a borrower. They don’t care about your W2. We’re past that, but they care about what’s your balance sheet, what’s your net worth? What’s your liquidity? How much cash you have in the bank available? And they usually underwrite the sponsor group.

Axel Ragnarsson (00:49:52):

You can have somebody on the sponsor group that’s got a big balance sheet. They might help you qualify for the loan and they’re not really participating in the deal, but that’s their role in the deal is helping to get it across the finish line. You might have somebody who has a ton of liquidity, because maybe you don’t. Maybe you got a great balance sheet, but you don’t have enough liquidity at that moment to qualify for the loan so you got to bring somebody in, that’s got a bunch of liquid cash in the bank or whatever to help you get it across the finish line. But all the passive investors are not involved in the debt process whatsoever. They’re signing a PPM, wiring their money and that’s all they’re doing. And typically when you’re doing a deal with a lender that understands that type of deal structure, they’re on the same page.

Axel Ragnarsson (00:50:27):

You might have that problem if you go to a small local credit union with a complex syndication deal. You might be like, “All right, dude, I don’t know what’s going on here. You need to go speak with a different bank.” That’s a likely scenario. But if you work with larger lenders that are familiar with these deal structures, they’re still going to want to see you bring some money. They’re going to want to see a net worth that’s equal to the loan amount or greater. And they’re going to want to typically see nine to 12 months of liquidity in your bank account the day you close. So those are usually the big hurdles. And then obviously they underwrite the asset itself and make sure that the asset’s lendable. But luckily that’s part of the benefit of passively investing. You’re not even remotely involved in that process. You don’t have to sign on debt. You have no mortgage risk.

Robert Leonard (00:51:04):

When it comes to the smaller deals, the more JV type deals, what are you bringing to the deal in terms of capital? We just talked about how much you need to bring for 506(b). But I’m curious when you just raise from a couple people that you know really well, what do they expect from you to bring to the deal for capital?

Axel Ragnarsson (00:51:19):

I almost feel bad continually saying I think it depends, but for me, I usually bring a third of the cash or something like that. Maybe 25 to 50% of the cash. Usually around a third of the cash. If we’re doing a million dollar deal and we need 350K to close it with some operating reserves and we need some money in there to start our renovation plans, we need some capital in there to pay maybe a small acquisition fee or something like that, I’ll bring a third of that. Maybe I’ll go find a couple of other partners to bring a third each or maybe I find a big partner to bring two thirds. But for me, I mean I have the option to bring much less than that. I could bring significantly less capital than that if I wanted to. But for me, especially with these smaller deals, I want my money in the deals. Which is contrary to what a lot of people think. A lot of people want to do no money down. And I’ve done all the no money down stuff and you can do this with no money down. You could go raise all the capital and create an operating agreement that allows you to do so. And that’s an option.

Axel Ragnarsson (00:52:09):

But for me with the smaller deals, oftentimes they’re too small for me to want to spend all of the time operating the deal, getting it to closing, creating all this value for there to be only the reward of a small slice of equity that I receive for having no money in it. I still want money in the deal so I have a good percentage of the equity so I feel like I’m materially participating. Because it really does take the same amount of time to operate a 10 unit deals as It does a 100 unit deal. A 100 unit deal takes a little bit more, but it doesn’t take 10 times as much.

Axel Ragnarsson (00:52:36):

So if I’m doing a 10 unit deal and I’ve brought no money to it and maybe I got 20% of the equity, that’s just a lot of work on a deal of that size to only have 20% of the equity. So I actually like bringing my money into those deals. But if you’re creative enough, you can structure it to where you don’t have that. If you’re newer to the business and you don’t have a lot of cash, that’s something that you could do. But for me, that’s something that I actually seek to do because people like to think real estate’s passive. Real estate’s not passive. When you do these deals that are larger, where there’s construction, where you’re turning around a building where you’re turning over units, where you’re increasing the NOI, where you’re handling the debt, it’s not passive. It takes a lot of time. So for me, I want money in the deal as an investment so that I can experience the fruits of my labor in addition to the sweat equity piece of it.

Robert Leonard (00:53:17):

I want to take a couple minutes and talk about the nitty gritty of how you source your deals. Let’s just assume that you wake up in the morning and your goal for that day is to find a deal to buy. Where are you going? How are you doing it? Are you hopping on LoopNet? If you are, what search criteria are you using? You mentioned direct mail before. Talk to us a little bit about that as well.

Axel Ragnarsson (00:53:38):

If I’m waking up tomorrow morning and I have to find a deal, there’s two things I’m doing. And it might take me a little bit more than a day, but this is where I’m going to start my day. I’m going to go and buy a list of … For example, my criteria, five to … Let’s call it my New Hampshire criteria. Five to 100 unit multifamily properties. I got a pretty wide criteria. I’m going to go buy a list from either Reonomy. I’m going to go get a Reonomy subscription and yank some stuff off the free trial or I’m just going to commit to spending the money for at least a month. Or I’m going to go to ListSource. One of the two. I think Reonomy has slightly better data for commercial assets. So I’m going to go Reonomy.

Robert Leonard (00:54:13):

Can you spell that for me?

Axel Ragnarsson (00:54:15):

Yeah. R-E-O-N-O-M-Y I believe is the spelling. But basically I’m going to go there. I’m going to pull a list in my target zip codes that I want to own assets in. I’m going to filter it down to where properties that have sold in the last five years are excluded from that. So no properties that have sold in the last five years. I want people with equity that have owned the property for at least five years. I’m going to narrow it down to the physical asset criteria that I want to buy in. So for me, in New Hampshire, that’s 1880s to 1980s. I don’t want any newer stuff, because that’s not really my model. So I’m going to get my nice clean data list. I’m going to export that from ListSource or Reonomy are the two big ones. CoStar’s another one, but that’s really expensive so not for this example. I won’t go down that road.

Axel Ragnarsson (00:54:55):

And then I’m going to go out there and I’m going to find the owners behind each LLC. If the property is owned by an LLC, I’m going to do a little bit of work to actually go and find that person. You can go to the secretary of state site for the specific state that you’re looking for the deal and sometimes a manager, a member, a registered agent is listed. If they are listed, then you have that person. Go ahead and put that in your list next to all of the records that you just pulled. And then I’m going to take all of those natural individuals, those human beings that truly own the property and I’m going to go skip trace it. So there’s a number of services that can do this for you. I use a service called Open Letter Marketing.

Axel Ragnarsson (00:55:29):

There’s a lot of individuals that will do this. You can do it yourself. If you were to Google, how do I skip trace a real estate data list, there’s a ton of resources on this. But basically I want to get the actual owner of the LLC, their address and their phone number. That’s my ultimate goal. And then once I have that list, I’m going to go to FedEx. I’m going to print … Well, I guess before I go to FedEx, I’m going to print out a piece of direct mail that introduces who I am. Hey, my name is Axel Ragnarsson. I’m a real estate investor that’s active in Manchester, New Hampshire. I’m from New Hampshire. I’m local to New Hampshire. I’ve transacted a lot of business in the marketplace and I’m looking to continue growing my portfolio. I noticed you on the property at 123 Main Street. I would love to speak with you about the property if you’d ever thought about selling. Here are some benefits to selling to us. We can close quickly. If you’re looking to do a 1031 exchange, we can give you time to find a replacement property. We aren’t going to overly disturb your tenants. We’re going to make this a pretty carefree process and you don’t have to pay broker commissions. That’s the language we use.

Axel Ragnarsson (00:56:24):

So a quick two, three paragraph printed piece of direct mail. I throw my picture on the bottom with my contact information. Humanize it a little bit. On the backside of that piece of paper I might include some more information about our business. And for me, the number one hurdle for direct to seller marketing that I need to overcome is I’m a real person. I’m not going to waste their time if they were to entertain having this conversation with me and I can actually close. Those are the big things for multifamily that owners want to see. As an owner, I receive a lot of direct mail. I want to make sure that those boxes are checked before I get on the phone with someone. Can you actually close this? Do you have experience? And are you smart enough to understand what the building’s worth? And then I just … If I can learn a little bit more about [inaudible 00:57:06], that’s great too because I develop a little bit more of a familiar relationship.

Axel Ragnarsson (00:57:08):

So I take that for all of these different properties and I would go do priority mail to get this out to them. Not snail mail. I would go and drop it in a FedEx envelope where it’s getting delivered and basically it stands out from regular mail. I know some guy that does the sign mail. Basically it’s returned unless they sign for it. And granted he’s going after a very targeted list and he can afford to spend that money. But if I got to get a deal, I’m going to step outside of the realm to do that a little bit.

Axel Ragnarsson (00:57:35):

So I’m going to send that out. Once I know it’s there I’m going to get on the phone and I’m going to call the entire list. Call everybody, reference the piece of mail I sent them. Introduce myself. If they don’t answer, I leave a voicemail. And then if I have their email address, I’m going to go and send them an email with literally a video that I record with my webcam. I’m going to say basically the same thing that’s on the direct mail piece. And I’m going to send that video to them to create some familiarity over an email if I have their email. And it’s really those three things. You do those three things at some level of scale and consistency and you’ll find just an absurd amount of real estate deals. But it’s not easy to do that and it’s very intensive in terms of the time and the energy and the cost sometimes associated with doing that. But if you want to find off-market deals, do those three things, you’ll find deals.

Robert Leonard (00:58:17):

So you’re sending letters, not postcards?

Axel Ragnarsson (00:58:20):

I send letters. For multifamily real estate I want to be able to introduce my … I want a little bit more space to tell my story. And it’s hard to really do that with a postcard effectively. I think postcards are probably as effective as mailers for the small … I have no data so I could be wrong. But for single family house flippers who are trying to go out and get in front of Aunt Sally, who just inherited her mother’s house and she’s like, “I just don’t want this anymore.” And she has financial motivation or life motivation. A postcard, you just got to get your name in front of them. For us in multifamily real estate, we’re never buying properties from people who are in financial distress. We’re never doing that.

Axel Ragnarsson (00:58:57):

Every time we buy a property direct to seller it’s because they like us, because they want to transition to a different stage of their life or business. They want to get out of smaller assets. They want to sell those off. They want to get into bigger assets. Or they’re moving out of the state or something and they’re trying to debate whether or not they hire a property management company or whether they sell it. But there’s no financial, oh, I got to get rid of this. So the whole cash offer doesn’t really speak to them. And I want to be able to tell my story, build credibility and introduce myself so I can do more in a mailer than a postcard.

Robert Leonard (00:59:26):

Axel has dropped so much gold and so much knowledge for us in this episode. I know that I can’t absorb it all just while I’m recording this. I’m going to go back personally and re-listen to this at least another time, if not two. And there’s so many more questions and things I want to talk to Axel about so we’ll have to bring them back on the show for a fifth time. I’m guessing you’ll probably our be our first fifth guest. But Axel-

Axel Ragnarsson (00:59:47):

I look forward to it.

Robert Leonard (00:59:48):

Yeah, me too. Me too. I always learn a lot from you. For those who are interested in learning more about you, connecting with you, where is the best place to find you?

Axel Ragnarsson (00:59:58):

Yeah. Our website is alignedrep.com. That’s for Aligned Real Estate Partners. Fill out any of those contact forms if you want to get on our list and chat with me. And then I’m obviously really active on Instagram. So @MultifamilyWealth is my Instagram handle. And then I host the Multifamily Wealth Podcast as well, which is all about multifamily real estate and we talk about what’s going on in the market, how we grow our portfolios as multifamily investors. And you’ll find more about that on my Instagram as well. So those three places are probably the best way to get in the ecosystem like I mentioned.

Robert Leonard (01:00:29):

I’ll put a link to Axel’s website, podcast and social media handles in the show notes below for anybody that’s interested in checking them out. I’ll also link to the previous episodes that we’ve done together here on the show so anybody can go back and listen to those as well. You’ll hear how Axel has progressed in his career. And also if you just want to learn more about what we talked about. Axel, thanks so much for joining me again.

Axel Ragnarsson (01:00:48):

Thanks Robert. This was great. Appreciate it.

Robert Leonard (01:00:51):

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 (01:00:56):

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