WS196: Achieving Success In Multifamily Syndication with Sam Rust

RES 196 | Multifamily Syndication

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A lover of learning, Sam Rust started investing in real estate and quickly moved to multifamily syndication back in 2017. Today, he is an accomplished managing partner of over $10 million worth of real estate, a loving husband, and a father to four daughters. How did he achieve success in a short period of time? Sam walks us through his syndication journey and enlightens us about stewardship. Sharing the things he wished he would have done sooner, he talks about what inspired him to invest and be a good steward of the things he’s been given. In this interview, learn how Sam got to a place where he never needed to trade time for money anymore.

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Achieving Success In Multifamily Syndication with Sam Rust

Our guest is Sam Rust. Thanks for being on the show, Sam.

I’m excited to be here. Thanks, Whitney.

I met Sam in Denver and was very impressed with what he’s accomplished in a very short amount of time. He has an ability to get things done in starting a syndication business and having some success and doing well. I knew he’d be a great guest and could relate to a lot of the readers. Sam grew in Idaho on a farm and is the oldest of eight. He learned the value of hard work, stacking over 200 tons of hay per summer. That’s a lot of hay. I’ve stacked a lot of hay in my time and that sounds a lot.

It definitely kept us out of trouble in Idaho summers.

He learned the value of learning. He graduated from college at the age of seventeen, which is also extremely impressive. He married his wife back in 2012 and now has four daughters. He started investing in real estate in 2017 and quickly moved to syndication and a managing partner of 65 units. Sam, thanks again for your time and being on the show. I felt that you could relate to the audience in where you’re at in your process right now of the syndication business. Give the audience a little more about your background and what you’re doing right now in real estate.

I started back in 2017 like most people. I read Rich Dad Poor Dad and had a little bit of an epiphany. It changed my mind specifically on how it relates to debt and using debt to get ahead. I’ve been influenced a lot by Dave Ramsey growing up and I think Dave Ramsey does an excellent job of teaching people how to be an adult with money. I think that that’s important. No matter what you’re trying to do, being a good steward with your money is the number one thing. After that, Rich Dad Poor Dad opened my eyes to what’s possible looking at assets, things like that. I started diving in and doing a ton of research, reading a bunch of books and listening to a ton of podcasts. With my background, my parents instilled in me a love of learning. I think that’s the most important gift they gave me and so I enjoyed the process of researching all these different areas in real estate that people can and have been very successful in.

As I journeyed down that road, I started appreciating the scale that comes from multifamily syndication. The business model made sense to me and I felt there were a lot of large demographic reasons to start looking at that space as housing continues to get more expensive. People are always going to need somewhere to live and if you can make that jump and scale relatively quickly, I think that there are a lot of benefits that come with that. An interesting side note that I noticed as I was listening to all these podcasts was whenever someone would have a syndicator on, they would ask them, “What do you wish you had done sooner or what do you wish that you had done a little bit differently?”

They’ll say, “I wish I had skipped single family fix and flipping or whatever it was and gone straight to syndication.” I found that to be a pattern that repeated over and over and by this time, in the fall of 2017, I had bought a single family house to basically house hack with some student housing. I listened to that and then read Grant Cardone’s book, The 10X Rule. That convicted me of the need for massive action. I said, “In 2018, we’re going to buy an apartment complex.” We started the process and started building the foundation. By the end of 2018, we had a 64-unit apartment complex.

When you and I met, I was impressed that you jumped right into syndication. Like you, I’ve heard time and time again even on this show that people say, “I wish I had skipped the ten years of fixing and flipping and got into syndication a lot sooner.” I know part of your background and I know you have a successful family business that you’re a part of. All of a sudden, you’re looking at real estate. When did you say, “I want to start educating myself about real estate?” Even though you have a great career going, you still want to look into real estate. When did that happen? I know you said Rich Dad Poor Dad, some of that opened your eyes but when in this process?

My wife and I, we’ve been looking towards the future. We were trying to define how we can be the best stewards of what we’ve been given both in time and in money. Early in 2018, before we had landed on an apartment complex, we were beginning to research syndication. We were searching for our why and I think that that’s important. You have to have a big enough why and we’re still working on defining exactly what some of those details look like but a big component of it was we wanted to get to a place where I didn’t have to trade time for money. Rich Dad Poor Dad talks about that in his quadrants but it would free us up to do a lot of different things with both our money but especially our time obviously if we’re not making that traditional exchange of clocking in at a W2 employer.

I do work in a family business that I enjoy. It’s in industrial sales organization but even there, I am somewhat bound by the clock. Real estate has the ability to give us the freedom to pick and choose and design our lifestyle. Again, for us, it comes back to the concept of stewardship. How can we be the best stewards of what we’ve been given? You mentioned we’ve got four daughters. Raising them is a fairly full-time job for my wife and I would love to be more involved in that and do things together as a family. I also enjoy real estate. I’ve taken to it and enjoyed the entire process.

I’d to go into that first deal a little bit and your confidence of being able to do that right off the bat. I heard they’re getting started in the syndication business. I try to find those people that are way ahead of me and try to network and connect and most of them are especially at the local REIA will say, “Wait a minute. Most people start with that single-family home and then they get a duplex and then they scale up from there.” I heard that so many times, but I was like, “I’m not listening to that. I’m going to pursue this syndication thing that I’m starting to learn about.” I think we can scale a lot faster than that. You’ve done that as well. Could you elaborate on going into that first deal through syndication and how you had the confidence to do that?

RES 196 | Multifamily Syndication
Rich Dad Poor Dad: What The Rich Teach Their Kids About Money – That the Poor and Middle Class Do Not!

I think it’s a learning process and the first thing is identifying what you need to know. There’s a ton of moving parts in syndication. Overall, syndication is not a terribly complex business but there’s a lot of aspects of it that you have to have under your belt to execute a deal from start to finish. After being exposed to the concept and generally knowing it, the first thing that came to the forefront of what I needed to do was to start building a relationship with brokers. The deal is all important. If you find a good deal, the rest of it falls into place as it were. Start to establish relationships with brokers and then at the same time also learn how to underwrite.

I broke down the entire process into manageable chunks. What do I need to learn today that I can then go and implement as I’m trying to find a deal, as I’m trying to talk to brokers, as I am underwriting knowing that I don’t have to master the intricacies of the SCC law until we get a deal under contract? I don’t need to learn everything there is to know about due diligence until we’re under contract. Obviously, you need to have a little bit of a heads up. Not all of that learning can be crammed into the first five days of contract but generally, try to space out and not try to learn all of syndication at once but starting with what we needed immediately and then grow from there.

I like that and it’s like how to eat an elephant. It’s one bite at a time. I like how you talked about, “What do I need to learn today?” It’s like The One Thing, if you’ve heard of that book. What is most important right now instead of possibly getting overwhelmed or discouraged by seeing this big task at hand? What can I do today? I find that by finding that one thing today and knocking those small accomplishments, it builds some momentum and it helps me to get to the bigger goal at the end.

A buzz word that comes out of The 10X Rule is massive action. Massive action is taking deliberate steps on a daily basis and it will compound like interest into something pretty incredible if you stick to it, you have a game plan and you work the plan.

Tell us about how you built that relationship with this broker. You hadn’t done syndication before. How did you have confidence in you that you were going to be able to close this deal? What did that look like getting started?

I first went to LoopNet which is more of a public area for deals and where people would say good deals go to die. I started practicing underwriting deals and I also was looking at who are the more active brokerage firms here in Colorado. I’m based in the Denver area and I wanted to pick a market that I could drive to. I wasn’t interested in my first syndication doing something out of state. I was looking at Denver, Colorado Springs, Fort Collins and I started noticing that there were two or three brokerage firms as there are in most cities that control a good solid 75% of the deal flow. Once I identified those firms, I went into those firm’s websites and started looking for brokers that were on the younger side but weren’t brand new to the business. I was looking for guys that had some internal award whether that was the highest growth or an overachiever. There’s a variety of different awards that get published in local real estate journals.

[bctt tweet=”Massive action is just taking deliberate steps on a daily basis. Like interest, it will compound into something pretty incredible.” username=””]

In my mind, I was trying to find somebody or a couple of people who would be young enough that they’re still filling out their investor network and still looking for buyers but experienced enough that they’re actually going to be valuable to me and they’re actually going to have relationships with sellers. That’s the whole point of the broker. I didn’t want to grow with a complete rookie but didn’t feel going after a well-established broker that had been in the business for twenty years who was going to be the best fit. I started cold calling them telling them exactly what I was looking for a value-add deal north of 50 doors somewhere in Denver or Colorado Springs. By that point, I had narrowed down my market. It was hard to get people to take me seriously but I think that going for a broker with that demographic and situational overview was helpful and got me to the right couple of people that were willing to start sending deals and willing to start talking to me even if they have since admitted they didn’t take me seriously at the time.

I was at least demonstrating the right steps that I knew what I was talking about. Then when they would send me deals, I remember one deal, in particular, was a brand-new build of about twelve units. It didn’t fit any of the criteria that I had asked but it was in a resort area that could have been an Airbnb hotspot. I asked the broker, “Could you Airbnb this?” He didn’t know. I took it upon myself to go research with the city council. What is available here for Airbnb? Is it a licensed area? It ended up that three of the twelve units could have been Airbnb and that would have capped out. I provided that information to the broker but it was at that moment that our relationship turned and he realized that, “This guy is engaged and is thinking outside the box of ways to make properties work,” and I was providing some value to him. He went on and later sold that deal, but he was able to say, “Here’s what you can do from an Airbnb standpoint,” trying to provide value to the brokers even as I’m trying to leverage them to find my first deal.

He sends you this deal that you closed on. What happened next? How did you approach that? How did you figure out that this is something you want to pursue?

When I first saw the deal, it was on the company website and it had been on the market for about nine months. When I ran the numbers, it looked too good to be true. By that point, I’d probably underwritten 50 deals and by no means an expert. I’m still growing in that area, but I’d done enough to know generally what a good deal would look like. This was the first good deal that I had ever seen and instantly I’m wondering what’s wrong, what happened on the environmental reports? I haven’t seen any good deals last on the market. Why is the deal still around? It was a 64-unit on the north end of Colorado Springs built in 1965. It looked a solid asset that was still on the market for some odd reason.

I started quizzing the broker. What’s the backstory on this? The backstory is this was a complex that had been built by a lawyer and was still owned by the builder. He had been based in Colorado Springs and had amassed a quite substantial portfolio across the country. He was slowly divesting himself of all his Colorado Springs assets and this was his very first project. This was his baby and he was somewhat emotionally tied to it. Then his son had managed the property for at least three years prior and had put it into the tank. It would have been almost 50% vacant. It had actually gone under contract several times but wasn’t able to get agency debt because of the vacancy factor and he ended up hiring a professional property manager.

An individual, not affirm but somebody who had prior experience and tasked them with getting occupancy up. I happened to see the property right when they had put on some updated T12 and rent roll information. By this time, it’s stale on the market and most people weren’t looking actively at it and they’ve already been under contract twice and falling out. It was a case of perfect timing. The data showed that it was starting to turn the corner. The occupancy was back up to a level where an agency or traditional debt would touch it and you wouldn’t have to get a bridge loan. The more I dug into it, the better the numbers looked and the story was compelling as well. You couldn’t script it better for a value-add play which is what we were looking for.

RES 196 | Multifamily Syndication
Multifamily Syndication: Wait on the seller to take time to evaluate your offer and sign and commit to the deal process.

A 50% vacant, your first syndication is impressive and I hope that inspires the audience as well that you got to get in there and make it happen. I like how you mentioned you had underwritten at least 50 deals before you found your first one. It wasn’t the first one or two properties that you have underwritten that you got a contract on. It’s going to take some time usually. You’ve got to put the time in and it sounds like you did. You wondered why the deal was still around. You dug in, you figured out why and so what happened next? Why were you awarded the deal maybe over other people?

We actually came in. It was a competitive bid environment, but we offered two 30-day extensions. The seller was an old lawyer. He cared about avoiding taxes. We gave him two 30-day extensions to be able to identify a 1031 exchange. We actually placed our offer and didn’t get feedback from the seller for a month. He had a hard time focusing on us. This property was low on his priority list. The other buyers, potential buyers fell out of the bidding process because he was so unresponsive. We didn’t actually go under contract until the beginning of June and that was not because we were negotiating back and forth. It was because we were jumping up and down trying to get him to pay attention to us. The terms didn’t change at all from our initial offer to what we signed on, but it was an exercise in patience, waiting on the seller to take time to evaluate our offer and once he had to actually sign and commit to the deal process.

I think that’s another reason that this deal sat around for so long. He wasn’t completely sure he wanted to sell it. There were some emotions tied up into it I think and generally was at a point in his career where he couldn’t be bothered with the small fry, 64 unit. For us, while it could have been a little bit frustrating, I was thankful for because it was another barrier to entry. It kept other people from getting into the deal. Once we got it under contract, we knew that we were going to be able to close.

I like how you stuck with it and you talked about how the seller was so unresponsive. That made the other potential buyers fall off or lose interest, but you stayed in there.

I think that that’s important in real estate in general. There’s going to be a lot of obstacles. I’ve certainly found that nothing is “easy” and you have to look at those obstacles as opportunities. If it’s an obstacle, for me, if I can figure out a way around it, I’ve shed 50% or 90% of my competition because they aren’t willing to take the time to figure out a way around this obstacle whatever it may be. Seeing those obstacles as opportunities I think is an important outlook on life in general but specifically in real estate, it helps in getting deals done.

I like that a lot. What was the hardest part of this process? This deal in general, in this syndication process, what was the hardest part for you?

[bctt tweet=”Seeing obstacles as opportunities is an important outlook on life in general. In real estate, it helps in getting deals done.” username=””]

The hardest part would have been finding the deal. Once we got it under contract, the due diligence, the capital raise, all of that went smoother than I expected. In the six months we’ve owned the deal, we haven’t uncovered any huge misses that we made or any huge mistakes that we made in those processes. I feel a little bit safe in saying that, but they’re finding the deal. Finding deals today is difficult. You have to look at a ton and you have to dig into your underwriting to make sure that when you find something that looks good on paper, it’s actually good in person.

Is there a way that you have improved your business that we can all apply to ours or maybe the way you recommend that something everybody does to have a successful syndication business?

I think taking notes of your process along the way. I’ve started scribing. For those of you who are familiar with The Miracle Morning, you know what I’m talking about. It’s keeping track of what you’re learning over time and creating processes. I know that’s something that you’ve done in your podcast, but anytime that you’re doing something, take notes of how you did that process and how you could improve it down the line. I know that’s a somewhat general and maybe even an obvious statement but for me that’s something that I’ve been working on in my business. We’re under contract on another deal right now. I’m going back to my notes and looking at what did we do in the due diligence process the last time, what did I wish I had improved on and what do I want to do differently in this deal? It’s hard to do that if you haven’t taken notes, if you can’t recall quickly what you did do and then obviously standardizing your processes for all of those functions. It’s important. It allows you to be more effective and more efficient.

What would you say is the number one thing that’s contributed to your success?

I think it would be my love of learning. I was homeschooled growing up and that allowed my parents to instill in me a love of learning and that was their number one goal. They did a great job of educating me. I enjoyed that experience. It allowed me to graduate from college early. Through that whole process, it was a love of exploration and a curiosity about the world around me. I’m extraordinarily thankful for that, but I think if you’re willing to learn, there’s not a lot that isn’t possible.

Is there anything you’re excited about in your business right now?

RES 196 | Multifamily Syndication
Multifamily Syndication: If you’re willing to learn there’s not a lot that isn’t possible.

I’m very excited that we’re scaling up. We went under contract on a 180-unit deal again in Colorado Springs. I’m excited to walk through the due diligence process of that. We’re about to do a unit walkthrough and then hit into our capital raise. There’s a lot of parts about that that are exciting to me. I can’t wait to get this deal under contract and excited to see where this goes. We’re actively looking to grow here in Colorado and so far, it’s been an exciting ride.

Tell us how you like to give back.

My wife and I are both committed followers of Christ and we’re very active in our local church that’s probably the number one way we give back. We enjoy fellowshipping and serving with our local body here in Brighton, Colorado.

Sam, I appreciate you mentioning that and I appreciate your time being on the show and the value you’ve provided to the readers and myself. Tell the readers how they can learn more about you and get in touch with you.

My website is VGI Capital. It stands for Vision, Growth and Integrity. Those are three things that I’m committed to as part of our business, I also host a podcast that’s dedicated to reviewing books with a partner. We read a variety of books from history to personal development and try to provide helpful tips for our readers, Review-Improve. You can find that on iTunes or on Spotify.

Sam, thanks again. I appreciate the audience who have been with us today as well. I hope you’ll go to Life Bridge Capital and connect with me and go to our Facebook group, The Real Estate Syndication Show where we can all learn from experts Sam and grow our businesses together. We will talk to each of you tomorrow.

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About Sam Rust

RES 196 | Multifamily SyndicationSam grew up in Idaho on a farm as the oldest of 8, learned the value of hard work stacking over 200 tons of hay per summer; and the value of learning, graduating college at 17.

He married his wife Bekah in 2012, now have 4 daughters. He started investing in real estate in 2017, quickly moved to syndication and am a managing partner for 65 units.

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