If you missed it, BAM founder and CEO, Ivan Barratt recently appeared on the Commercial Real Estate Pro Network podcast. Host J. Darrin Gross explored Ivan’s years of experience and life lessons within the real estate and multifamily industries. We share some of the high points in today’s BAM Blog…
If you didn’t catch the podcast, you can listen to it in its entirety here. Ivan and host J. Darrin Gross discuss some great lessons for those interested in getting into multifamily investing, as well as those who are already in the business. Ivan shared some hard-earned lessons as well as current strategy, and we give you the highlights below.
Ivan grew up watching his father, an attorney, collect rent checks and thinking real estate would be a great way to make money and not need a “real job.” After graduating from Indiana University’s prestigious real estate program, Ivan learned that real estate is a real job – that he fortunately loves. He worked early on for a developer, accepting payment only for sales he made. After the crash, Ivan was disillusioned with development, in debt, and realized he needed to go in a different direction.
Ivan undertook building a property management “machine” as what he calls a “reluctant choice.” He knew that by getting into property management he’d have recurring income, by building the machine that would to execute his wealth plan of owning thousands of apartments. It wasn’t a quick and easy move from working for a developer to running his own property management company. Ivan cut expenses, lived in a 700 square-foot duplex with his wife, and started BAM in a spare bedroom. Over time, he lived within his means and scaled up, noting that success isn’t a straight path. Refusing to file bankruptcy, Ivan paid everyone back and kept both his credit and reputation intact. Eventually, Ivan was in the position to buy distressed properties for himself while managing nicer assets he could rent. By continuing to focus on taking the next step and the next deal, BAM grew to now having 80 employees, on-site personnel, and around $300 million under management.
Some of Ivan’s Mantras:
Ivan has a “mind filled with mantras,” such as:
- Do what others won’t do today, so you can do what others can’t tomorrow
- The journey of 10,000 steps begins with just one
- The journey of 10,000 units begins with the next deal
- Do what has to be done today for tomorrow
- If you look at the summit of the mountain it never gets any closer, pay attention to the steps you’re taking
Build the Freight Train
Ivan discussed how a freight train may be hard to get moving, but once you get it moving it can become almost unstoppable. Similarly, it takes time to build a solid working model, but by getting things moving you can build something unstoppable. He talks about how flippers eventually flop, so you have to develop a repeatable model. Even successful developers may have declared bankruptcy once or twice, so the smoother path is the repeatable model – that unstoppable freight train. He also talks about building a solid team by trusting people to learn, grow, and even fail while they do so. Ivan is able to focus on raising capital and big picture items because his partner is the “implementer,” and the rest of his team is so capable. Ivan also suggests changing the mindset: you’re not a small business, you’re a big business which happens to be small right now.
Ivan discussed the similarities with the cycle and seasons; you’ll have spring, summer, fall, and yes, winter. As Ivan notes, just because winter will come, no one knows exactly how cold, long, dark, or bad it will be. That being said, the focus should be on being prepared for winter, and able to do well regardless of the “weather.” Ivan also mentioned the book Antifragile. The good news, is that Ivan also talked about how the winter of ’08-11 was akin to 1929, and was what some call a “super cycle”; and those who expect the next winter to be like the last will be disappointed. Ivan said the next downturn should be a much softer landing.
The host asked Ivan about the idea of managing risk; Ivan said that aside from executing a deal, the biggest risk is debt maturity. Going back to the crash, Ivan talked about how this happened with banks doing new valuations and forcing people to pay up or sell. One way BAM avoids debt maturity risk is to avoid the banks and use Fannie, Freddie, and HUD. Ivan pointed out that although many people think HUD is exclusively for subsidized housing, it actually finances ABC and D assets. There’s higher leverage with HUD, with 85% loan-to-cost. The benefits are myriad: you can virtually eliminate risk by locking in a 35-year rate, 35-year amortization schedule and if there is a downturn you don’t have to do anything with the HUD debt, but continue collecting cash flow and ride out the storm. As Ivan says, it takes a huge risk off the table.
Other questions about multifamily investing? Head over to ivanbarratteducation.com! Ivan created an entire website dedicated to sharing his knowledge and experience. You’ll find a free library featuring Ivan’s extensive knowledge, explained in accessible, interesting videos and articles.