WS397: Going From Single-Family to Syndication with Travis Watts

Today, we are joined by Travis Watts of Ashcroft Capital, who talks about his experience transitioning from self-managed single-family investments to full-time syndication. Despite his aspirations to grow his portfolio of single-family homes, Travis soon realized that the amount of work necessary both in management and operations meant that this model was not passive investing at all. He did not want to manage tenants or have an active role in his properties any longer which led him to discover syndication.

[INTRODUCTION]

[00:00:00] ANNOUNCER: Welcome to The Real Estate Syndication Show. Whether you are a seasoned investor or building a new real estate business, this is the show for you. Whitney Sewell talks to top experts in the business. Our goal is to help you master real estate syndication.

And now your host, Whitney Sewell.

[INTERVIEW]

[00:00:24] WS: This is your daily Real Estate Syndication Show. I’m your host, Whitney Sewell. Today, our guest is Travis Watts. Thanks for being on the show, Travis.

[00:00:32] TW: Thanks so much for having me, Whitney.

[00:00:34] WS: Yeah. I’m excited about this interview and pleasure to meet you, Travis. A little about Travis, he’s an apartment investor, a passive income advocate, and he’s the Director of Investor Relations at Ashcroft Capital.

So, Travis, give us a little more about your background in investing and what you’re up to. Then let’s dive in.

[00:00:51] TW: Sure. Yeah, absolutely. I originally got into real estate investing in 2009 in the single-family space. So, I started doing a little bit of house hacking where I was renting out some spare bedrooms. I got into some fix-and-flips. I did some single-family buy-and-holds and some vacation rentals. It was all in the Colorado market. All my properties were in my own backyard.

The funny thing is I originally set out to be a passive investor and to scale a portfolio of single-family homes, acquiring maybe two or three a year at most over time to have 50 or 100 one day. That was kind of the big goal at the time. As I got a small handful of portfolios that I was actively managing, I quickly realized that was going to be really tough to scale that model. I was spending a lot of my time managing them where I didn’t really anticipate that happening. I was working a full-time job simultaneously. So, I had to kind of take a step back, reevaluate, and say, “How am I going to scale this?”

I tried a couple property management groups and things but really ended up doubling the workload at that point. I was now managing property managers, in addition to my tenants, and I had all the same problems. They certainly didn’t go away. So that’s when I learned about syndications and being literally 100% passive with investing. So long story short, I ended up liquidating that portfolio of self-managed properties and going 100% into real estate syndication.

[00:02:25] WS: Nice. It’s a similar story to mine. I actually started in 2009. It was small, very small multis, thinking like that was the only way. I didn’t know about this big world of syndication at the time. So that’s awesome. So, you really got to the point to where it’s like, “Wait a minute. This is going to be very difficult to scale this, and it’s definitely not passive.” Even if you had that manager, it wasn’t passive you said, right?

[00:02:47] TW: Right. In my case, certainly. Yeah. Somebody recently had just reminded me of this. But the whole world of real estate investing is all self-taught. I mean, you’ve got to be the go-getter to get out there and get that information. So probably in a similar way, we started with a particular mindset based off one individual or one book or something. Then, yeah, the more you scale out and expand your mind, it’s like, “Wow! There’s a whole lot more out there I could be doing.”

[00:03:15] WS: Yeah. Okay. So, then you decided to liquidate. I mean, that’s a pretty big step to say, “Okay. I’m selling all of this and going this other route over here.” How did you educate yourself enough to know that that was the correct move?

[00:03:28] TW: That’s a good question. So, it didn’t happen all at once. It wasn’t a knee-jerk reaction by any means. When I had first learned about syndications, I was still a bit skeptical about what was the catch there. But I was so set on not managing tenants any longer and doing all the active roles.

So, I did one syndication. That’s how I got started. I just did one. I forget I did the bare minimum investment on it and I said about maybe three to six months, and I just kicked back as I watched it. I watched. I want to make sure. Do I really get monthly reporting? Do I really get monthly distributions? Are they going to do what they say they’re going to do? After I kind of saw that unfold in real time firsthand, I thought, “That’s absolutely the path I want to take, 100%.”

[00:04:13] WS: So, I think that’s so smart. So, you invested in one, and you said you dissuaded. So, you’re patient, right, like, “Let’s check this out. Let’s test the waters.”

[00:04:22] TW: As much as I wanted to just throw it all in day one, I knew it was going to take a lot of vetting of teams, getting to know people, building relationships. I was realizing quickly, you don’t know what you don’t know, and I certainly didn’t want to put all my capital with maybe one group later to find out that wasn’t the best group to invest with.

[00:04:42] WS: So how did you build that relationship to the point you were comfortable investing more and more?

[00:04:48] TW: That’s a great question too. So obviously, that’s a relationship. This all is a relationship business. So, it starts with just understanding this team exists out there. They do these types of deals. They’re in these types of markets. That’s kind of a first step. If that resonates with you, if those are markets that you also believe in, and that’s the type of asset you like to invest in for whatever reason, take it to the next level. Reach out. Get to know the syndicators. If possible, maybe set up a face-to-face meeting.

A big thing I do is I attend a lot of networking events, whether that be local or just nationwide. Just to get word-of-mouth referrals to figure out who else is investing with what groups and what their experience has been. That always goes a long way with me, is the gut check of meeting the individual themselves and getting the word-of-mouth referrals not always from the group because, of course, they’re going to give you their best followers.

[00:05:47] WS: Right. So, I guess how did that change though as far as in the beginning? You kind of had to learn how to not just vet that sponsor to some extent initially, and you may not know how. But you gave it that time. You were patient to test the waters a little bit. But what about vetting the deal and vetting the market also?

[00:06:04] TW: Yeah. That’s a great question too. So just one step at a time quite literally. Like I said, it’ll start with, “Okay. I’m taking a look at a deal right now. Personally, I like the B class assets. I don’t do a lot of investing in ground-up construction or brand-new luxury, things like that. I also don’t like to go into the C class, D class, rougher neighborhoods, harder to manage, stuff like that. Or maybe a property with no occupancy currently with a big plan to fill the whole thing up. There’s just more risk. I mean, bottom line my risk tolerance isn’t that high.

So, if it’s a B class, if it’s in a good market that’s growing and expanding, that’s diversified with jobs and employment opportunities specific to workforce, housing tenants, those are the main factors that I look at. In addition to, of course, the numbers are obviously important. But I think it’s more about the team and their ability to execute the business plan. I don’t just jump right to the numbers and say, “That deal is 10%. That deal is 7. I’m going to do the 10.” There’s a lot more to it.

I think I kind of started that way, thinking that was the most important factor and find the highest deal. But in some of those first deals, I quickly realized that they weren’t going to hit those numbers anyway.

[00:07:20] WS: Yeah. It is about the operator, right? It’s all about the team.

[00:07:22] TW: Yeah.

[00:07:23] WS: I think as an LP or a limited partner, I mean, hopefully the team knows more about the numbers than you do, right?

[00:07:29] TW: Yeah. I would hope so.

[00:07:31] WS: That’s right. So maybe you can elaborate even more on things you were looking at or maybe even how that’s changed to now. Things, tips you can provide now that you wish you had known on that first deal that you invested in.

[00:07:44] TW: Yeah. Great. So, the first two to three deals I did, I was totally deal-focused. I was really reading hard into the pro forma. Like I said, the numbers. This one’s got better numbers than those numbers, so I’m going to go with this one. I wasn’t doing much due diligence on the team. I wasn’t doing much digging on what’s their track record, what’s their history, who’s on the team, how long they’ve been there, that kind of stuff. I think that was a huge mistake for me.

Thankfully, the asset class itself I think is just a great asset to be in, and all the deals had actually performed as expected, despite maybe having a team with a lack of experience or a track record. But just things like frequent communication and accuracy of reporting. If they tell you, “We send distributions out on the 15th,” realizing that some groups that that’s a loose guideline. For others, it’s always on the 15^th. Just kind of realizing that there’s teams with a higher competency level.

So, all of my time now, because I consider myself a full-time apartment investor as a limited partner, which is kind of the irony, right? So 100% passive but I’m full-time. But all of my time is spent vetting out operators and groups and getting references and referrals.

[00:09:01] WS: Elaborate again on how you got referrals.

[00:09:04] TW: Yeah. So, I will absolutely ask the sponsors themselves for referrals. That’s always a great thing to do. But I won’t just solely rely on that, because they’re going to, like I said, get two or three of their best investors. Of course, it’s always things are great and they’re awesome. So, I’m going to take it a step further. A lot of times, that comes out of just meet up groups locally or nationally, seminars, any type of real estate gathering or online forums. Maybe hop on to BiggerPockets and search for that syndicator group to see kind of what the perception is out there for other folks.

So, kind of a combination of all of this. It’s a gut check with me meeting one-on-one or by phone or by Zoom conference with the group. And then getting their referral list, talking to those folks, and then going out and trying to do my own due diligence that way.

[00:09:55] WS: I don’t think I’ve ever had anybody mention having a Zoom call with the deal sponsor.

[00:09:59] TW: To me, it’s always nicer to try to do a face-to-face. I understand completely, it’s not always reasonable. You’re, say, in LA, and the group’s out in New York City. It’s not feasible to, “I’m going to jump on a plane and go there and shake your hand.” But if you can tie that up at an event or something, that’s always a great way to do it. But, yeah, a Web call, definitely done that.

[00:10:21] WS: I like that. I mean, that’s great. So even as a LP, request that. So, “Hey! Could we have a Zoom call or schedule a Zoom call so that we can just meet face-to-face?” I think that’s a great idea. A lot can be deciphered by having face-to-face interaction, right?

[00:10:36] TW: 100%. 100%. Yeah.

[00:10:38] WS: So, anything else that – From an LP, now that you’ve moved to – Or maybe you can elaborate, if you can elaborate, tell us your transition from an LP to now moving in more of a active role or part of an active business or sponsorship team.

[00:10:53] TW: Yeah, absolutely. So, I’ve invested with – I don’t know the actual number. I’m going to say somewhere in the ballpark of 14 different groups in the syndication space, all different types of deals. One that really aligned with me personally as an investor was Ashcroft Capital. So, Joe Fairless is the co-founder of Ashcroft Capital. Just everything from the team to the competency level to the types of deals, the markets they were in, the monthly reporting, monthly distributions.

Again, I just started with one deal. That’s it. Set back and let it ride. I did two. I did three. I did four. I’m in currently I think nine of their deals as of today. So, after a while of that and just letting my own network know how things were going and watching pro formas get exceeded, I wanted to be part of that team. That really resonated with me because though I am 100% passive as an apartment investor, I still like to do something actively with my time.

So, Joe Fairless had given me an opportunity just here recently to be part of the Ashcroft team as a director of investor relations. So, I do the same thing I’ve always done. I just walked through deals with individuals. I just helped explain the business model. I just helped share why I like the deals and why I am best in them. That’s really what I do.

[00:12:09] WS: That’s great. That’s awesome. It’s neat that you’ve been able to take that role and really go from – I mean, it just shows the mindset change and how you’ve educated yourself as well. So, you were focused on single-family homes. You had this goal or vision of 50 to 100, and that’s what it was going to take to have this passive income, right?

[00:12:27] TW: Yup.

[00:12:27] WS: To the point now to where obviously you’re educated enough to where you can tell investors about deals, and you can vet deals, and you can walk them through these things. That’s incredible. So incredible transformation in how you’ve educated yourself. So, what does that look like now on a daily basis to be in that type of role for obviously a well-established company? I know them all personally as well and thank the world of Joe. So, what does that look like to have that position maybe on a day-to-day basis?

[00:12:52] TW: Yeah. Great question as well. In general, I just like talking real estate with anybody willing to talk real estate. I don’t care what type of real estate you’re in. I like hearing about a new development deal. I like hearing about your fix-and-flip success or you as a general partner and what you think you’re doing right in the industry or could improve on or giving my opinion on a particular deal somebody has, anything like that.

I would say rather than day-to-day, because I don’t really have a strict schedule of any kind, but I attend a lot of events. So, you’d probably run into me there if you’re the type of person that goes to real estate meet ups and real estate events. That’s just a great way to network and expand your mindset, share experience, and learn some new things. That’s basically what I do, both personally and with Ashcroft as well.

[00:13:42] WS: Awesome. Okay. So, what’s been the hardest part for you, Travis, from making that transition from where you’re at with those single-family homes to where you are now?

[00:13:49] TW: Yeah. I think that not so much with me. But I know with a lot of individuals, it’s hard to give up control. It’s hard to say, “I’m going to choose that person over there to make the best decision on my behalf,” whether they choose to refinance the property, sell it, continue to hold it longer than they expected. Whatever it may be.

Again, I don’t find that extremely hard, but the more and more deals I do and the more and more teams I invest with, I just realized that I’ve selected a handful of folks I’m putting my full faith and trust into. It’s not easy to fork up a hundred thousand dollars and say, “I hope you’re going to make the decision that I would make.”

So that sometimes I have a little bit of a struggle with it. But when I find a great partnership like I have with Ashcroft, I just continue doing deal after deal with them. I’m not doing every deal just because it’s available. Of course, I’m vetting the deals individually. But that can deftly be tough on a lot of people.

[00:14:51] WS: Could you elaborate on your buying criteria now or criteria for that ideal property that you’re looking to invest in?

[00:14:58] TW: Yeah, definitely. I want to make sure it’s got enough value-add potential, number one. There are certainly different stages of value-add. It could be as simple as, “Well, that properly only needs a little landscaping help and some exterior paint. That’s it.” I don’t feel like that would be a deal I would invest in just solely because I don’t think something like that is really going to bump rents enough to justify it.

But on the flipside of that, I don’t want to take on a project where, like I said, the occupancy is super low and it needs pretty much everything done, including new plumbing and electrical and new roofs and new everything. That’s a lot. Even for a very experienced team, that’s a very tough project to pull off. So, I’m looking for some kind of middle-of-the-road needs new flooring, new carpets, new blinds, new appliances. Maybe adding some value-add to the tenants like a larger gym or maybe putting in like a dog park or some covered carports for parking or some on-site self-storage. So, people don’t have to drive as far to storage units, things like that.

Those are the types of deals I look for in the B-class arena. Typically, 200-unit to 600-unit. That’s kind of the playground that I’m in as an investor for any group I invest with.

[00:16:12] WS: So, another question about – You probably get this. When you’re talking to a potential deal sponsor we’ll say as an LP or – You can answer that as an LP or working for the Ashcroft team. But preparing for that downturn or the potential downturn that everybody is talking about, are you asking a deal sponsor how are they preparing for this? Or what is that answer you like to hear or how are you all preparing?

[00:16:36] TW: Yeah. That’s excellent. I absolutely asked that question. I’ve always asked that question, and I always will even if we’re coming out of a downturn, because it’s an important question. I like to see how they respond to that.

I have my own philosophy on that and reasons why I invest in value-add multifamily primarily. The bottom line to me is I’m always looking for something that’s going to ride out the recessions. There’s obviously times to be in different types of projects. There’s nothing wrong with a new development or a highly distressed property. But there’s better times to be in those types of investments.

A typical standard middle-of-the-road value-add, I think there’s always kind of a reason to be in that space for the most part. I shouldn’t say always but for the most part. If you look at the history of them, a lot of these are from the ‘70s or the ‘80s, sometimes the ‘90s. Well, they’ve been through recessions. So, a lot of times, you’ll have that track record. You’ll be able to look back and see, “Well, hey!” Worst-case scenario here, they at least were able to cash flow and hold onto that property through 2008 and 2009. That’s not always the case in every asset class as you’re aware.

[00:17:50] WS: Yeah. So, are there any other questions around the downturn or anything like that or answers that you like to hear when you’re kind of establishing?

[00:17:59] TW: Absolutely. So, I’ll give you another example. With some other groups I’ve invested with, their personal philosophy is, “Well, if we go into recession, we’re just going to hold tight on what we have, and we’re going to stop doing deals, and we’re just going to wait it out. Then it’s going to bottom. Then a couple years later, hopefully it starts up turning. At that point, we’ll start looking for new opportunities.”

Not my favorite answer. I prefer, “Let’s continue looking for opportunities throughout a recession. There’s obviously going to be deals that are going to come available that may have higher returns than what you were just getting a year or two ago.” I like to just keep the ball moving. I’m a firm believer there’s always a time to buy real estate. It doesn’t matter for talking about mid-2008 or we’re talking about 2007 or we’re talking about 2010. Always a deal or an opportunity is somewhere in there. It’s about finding a team that can identify that, get it under contract, make a business plan, and execute on it.

[00:18:56] WS: No doubt. Is there, say, a setback or mistake possibly that you can elaborate on as an LP that maybe you wish that you had done little more due diligence or anything like that?

[00:19:06] TW: Certainly. A couple of the first groups that I’d invested with, I was so focused on the deal specifics that I sort of left out the key component of the team and the track record. Of course, I would do some due diligence there. It just wasn’t nearly enough. It was have a quick phone call, “Hey! What’s your name? This is my name. So, I hear your deal’s available. Okay. I have 50K I can invest.” That was just the totally wrong approach obviously to take.

And I also, I wouldn’t say I was deceived or lied to by some sponsors, but there were ways to kind of maybe fudge the numbers such as one of these sponsors who told me, “Well, I have 15 years’ experience in this space.” I would think, “Oh! Well, that sounds pretty good. You must know what you’re doing.”

Well, I come to find out after I had invested, 15 years’ experience doing fix-and-flips and single-family real estate, one and a half years in the syndication space. They definitely did not have the track record I was looking for or hoping for. Again, it’s not that they had lied about it, but that was my mistake for not clarifying that and digging a little deeper.

[00:20:12] WS: Wow. So, what’s a way that either you personally or Ashcroft have improved your business that we can apply to ours?

[00:20:18] TW: I think the model of – So everyone’s going to have a different answer to this or a different philosophy on this. I love keeping a pulse on my investments. Not to the extreme of if I was investing in stocks. Not to the point of checking my account every single day and seeing what happened or hour by hour. But I like monthly reporting. And I like monthly distributions. And I like the ability to have open communication when I have a question.

It’s not going to be, “Oh! I left him a voicemail last Thursday, and I haven’t heard back, and today’s Tuesday.” Or if I send an email. I just switched bank accounts. I’d like to get that updated before the next distribution. It drives me nuts when it gets sent to the old bank. “Oh! I missed your email. We’ll get it next month,” and things like that. So, I think everybody could focus a little more on keeping the frequency and open communication up with limited partners specifically. It’s okay to do like quarterly distributions, quarterly reporting, but just make sure that you have an open communication line for those maybe a bit more needy like myself that may have a question in that three-month period.

[00:21:28] WS: Yeah. Great answer. I always ask too somebody like yourself your best advice for caring for investors and so they want to come back. You may have already answered that. But just in case, is there anything else?

[00:21:39] TW: I also subscribe to the philosophy of under promise, over deliver. I always try to do that myself. That’s something Ashcroft Capital definitely does, and it’s something I’ve learned that not a lot of groups necessarily do in the space. Very important.

[00:21:54] WS: Is there any way that they are or any group, you don’t even have to name them, that have stood out as far as over delivering?

[00:22:01] TW: Yeah. The most obvious or the most common I should say would be like on a pro forma. So, they say were projecting maybe a 7% cash flow in the first year at the end of 12 months. It turned out it was actually 8% or something like that. Just a small little bump or on the back end of the equity, thinking it’ll end up being this percentage or this dollar amount, but it’s actually 15% higher than that. “Congrats or we’re able to refinance early. We’re able to find a buyer early.” Things like that are always a common way to over deliver.

In addition to, like we spoke about earlier in our call, the distributions, if you tell your investors, “I’m going to distribute every month on the 15^th,” do it between the 13th and the 15th every month. Don’t be late. Don’t cause the calls to come in. “I didn’t get my payment this month. What’s going on?” Easy way to over deliver.

[00:22:53] WS: Love that. What would you say is the number one thing that’s contributed your success?

[00:22:57] TW: Education, 100%. Man, I just wish. When I first was in real estate, I had read maybe two books and I had known four people. That was my network and my knowledge. It’s like, “Why didn’t I read 25 books that year? Why wasn’t I in real estate groups then? Because I would’ve saved a lot of time and a lot of money throughout that progression?” Probably would’ve ended up in multifamily sooner, but at least I would’ve done strategies that would’ve benefited me more than what I actually did.

[00:23:29] WS: How do you like to give back?

[00:23:31] TW: My wife and I do a lot of charity events more so than we’ve ever done this year, which is great. In addition to charity though, I just feel that sharing your knowledge and experience, whatever that is, whatever field you’re in is hugely beneficial to other people. I know that’s added a tremendous value to me, and so that’s what I do. I guess we could call it day-to-day, certainly week-to-week, is just jump on phone calls with people and, “How can I add value to you and how can I help? Oh! You’re an investor with that group as well. That’s cool. What’s your experience been? Tell me some stories there.”

[00:24:05] WS: Travis, I appreciate your time today and elaborating just from your experience and just the transformation from – I mean, similar to myself, thinking small multis was the way to go. Then really, it hit you in the face that way. “This is going to be really difficult to scale this.” And not as passive as you had originally thought it was going to be. But making the transition to where you’re at today and all the techniques from being a limited partner and how you vet deals and sponsors and what was important to you at that time compared to now. I appreciate that. But more importantly at the moment, tell the listeners how they get in touch with you.

[00:24:38] TW:  Sure. Yeah, absolutely. Best way is always by email for me. You can simply email me at [email protected]. You can also find me on LinkedIn and Facebook and things like that. So definitely reach out if you’ve got questions about passive investing, how to scale your portfolio, you just want to strategize, share information. Certainly, if you have any questions about Ashcroft Capital or their deals or just want to learn more, reach out to me for that reason as well.

[00:25:07] WS: Awesome. That’s a wrap, Travis. Thank you very much.

[00:25:10] TW: Cool! I appreciate it very much. Thank you.

[END OF INTERVIEW]

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[OUTRO]

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[END]