[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.
[00:00:24] WS: This is your daily Real Estate Syndication Show. I’m your host, Whitney Sewell. Today, our guests are Anthony Scandariato and Brian Leonard. Thanks for being on the show, Anthony and Brian.
[00:00:35] AS: Thanks for having us, Whitney.
[00:00:36] BL: Thanks for having us, Whitney. Appreciate it.
[00:00:38] WS: Yeah. They are the co-founders and managing principals of Red Knight Properties, a boutique multifamily and mixed-use real estate investment company with a track record of building portfolios that deliver dependable cash flow and equity upside. They have 65 apartment and rental units under management or ownership in Northern New Jersey and under contract for an additional 74, totaling 139 units acquired in less than a year. Also, they own and manage in Orange County, New York.
Prior to forming Red Knight Properties, Anthony worked as an acquisitions and asset manager Vice President for Vision Properties where he was directly involved in sourcing, negotiation, and managing the acquisitions of $600 million of class A office assets. After an impressive college football career, Brian was drafted by the St. Louis Rams in the second round and went on to play eight years as running back in the NFL. Now, he’s in real estate, and we’re going to hear a little about that as well I think.
Guys, thank you again for being on the show. Give us just a little background of what you all are focused on right now and just a couple minutes of maybe how you got into the syndication business.
[00:01:50] BL: Yeah. I guess I can start. I grew up in a small town upstate New York, and I was a pretty good football player. So I have gotten a scholarship to Rutgers University and a good career there. I played there five years, redshirted, and then I ended up getting drafted in the second round of the St. Louis Rams. I had a pretty good NFL career.
I ended up playing eight years. The average NFL career is about 2.5, so I outlasted most of them and did pretty well. But after my football career, I had to make that transition into regular life, a real job, and that’s never easy for an NFL football player. Basically, we grew up playing sports and we don’t really have job experience. So it’s a struggle for a lot of players to make that transition to the next step of life.
I always knew that I was super interested in real estate. I bought a house out in St. Louis and I rented that out and I was making some cash flow on that. So that kind of excited me. Then after I was done playing, I always wanted to take a couple years off. So, I took two years off. My son was born. I spent a year and a half with him. Then as a stay-at-home dad, I’m like, “Okay. This is great building about my son but I got to get a real job. I got to get out and set more goals and aspire to be something more than a stay-at-home dad.”
So I started reading a bunch of real estate books, and it was basically the books focused on multifamily properties. One of my old teammates, David Milewski, worked at this company called Vision Properties. He’s like, “Come on in and meet my boss. It would be a good experience for you maybe to come in. Do an internship or just kind of learn the real estate business.” When I went in there, I talked to his boos. It was great meeting him, but I met another guy in the side. I met Anthony, and Anthony started talking to me. He was in multifamily properties on the side of his company. So he’s doing small properties, two to three, four units.
That’s exactly what I was reading about and that’s what I was interested in. I’m like, “Anthony, maybe your next deal, we can work on it together.” That was a little over a year ago today. The first deal we did was an amazing deal. I’m going to talk about that later, but it was in Chester, New Jersey. We just refinanced that and we added value, and it was a heck of a deal.
Ever since then, we’ve been growing. Now, we’re almost at 139 units, and it’s been a whirlwind. I’ve learned a lot over the last year because basically I have no experience in real estate. Just I think people have a lot of trust and belief in me from my NFL career and my college career, and I built a good reputation. So it’s been a long, great process. But I’m excited to keep growing with Anthony.
[00:04:07] WS: Awesome. What about you Anthony? Give us just as brief as you can, and let’s get into it.
[00:04:10] AS: Great. That was excellent. To a little to what you were saying in the beginning, Whitney, we actually have now 139 but it will be 180 by February of 2020, assuming that everything goes well with closing and networking. Yes, so that’s pretty much how Brian and I got started about a year ago. As Brian said, I was in the business already, working for a corporation that specialized in office buildings. At the time, I was there, and Brian said this on the side, I was working on two to four units. Buy and holds, some buy and flips. The returns that I was achieving were pretty high, and so we just set it off from there. We acquired our first property.
What we’re focusing on now more of and the way we bought our first property building in Chester that Brian mentioned was just do a general partnership. So for your listeners, most of the times, people think of when they want to partner with someone, it’s one on the syndication side. It doesn’t always have to be. They could just be with one or two other people in just a simple LLC format with different rights and responsibilities for each of the property managers. So that’s kind of how we started it.
Then we’ve gravitated towards a syndication area, which Whitney has a lot of experience in. I’m sure your listeners do as well. We’re trying to focus on more of that, because for us, you’re going to run out of money at some point and you’re going to want to partner with other people who are interested or might not have the expertise and knowledge to be able to sign on a loan, different requirements you need to buy larger properties where you could force the appreciation. Because as Brian said before a little bit, if you stick with the two to four families, there’s only so much you could do even if you raised the rents from 500 to 1,200. If the building next door didn’t sell for 300 grand and you bought it for 200 grand, it’s kind of still stuck, unless you hold it forever. I saw that very quickly, and that’s when Brian and I met. Yeah, we’ve been growing.
[00:06:04] WS: So tell me, how many deals have you all syndicated since partnering?
[00:06:07] AS: We did one. We’re in a contract with another, as I mentioned.
[00:06:10] WS: Tell me about how you all have structured the partnership as far as who does what?
[00:06:18] AS: Go ahead, Brian.
[00:06:19] BL: Yes. So I’m more of the field guy. So we’re building a management company alongside of a real estate company. I’m building that beside of the company, and we got a management software called – It’s called Buildium, which is a great management software, and it has everything under one roof. So you can do your leasing on there. You can do your accounting maintenance. You can communicate with the tenants and your vendors. You can have task on there. So it has everything under one roof. That’s been great for us. It’s been better than not having the communication all in one place.
It just important to – We wanted to be part of that property. We wanted to manage our own properties, because who’s going to love our properties as much as we love our properties and grow our company as much as we want to grow our company. There are some great third-party management companies, but why not manage your own if you can? We’re doing that at this point, and it’s been good so far.
[00:07:05] AS: Real quick for your listeners, we’re based out of New Jersey, and all the properties we own have been in New Jersey within an hour or so driving radius. So it’s been easy to do that.
[00:07:05] WS: Quickly on the property management side, why bring that in-house and take the time to develop your own management company? I mean, for both sides of the coin, why we should or why some people say, “Oh! We’re not going to do that.” But for you all, why did that make sense to spend the time and energy building them the property management company when you can hire a third party?
[00:07:35] BL: I would say because we started off small with 10 units, 15 units, 20 units. To have someone manage and a third-party company manage those size of properties is going to be a pretty big management fee, anywhere from 5 to 10%, which is a big chunk of your income off those properties. So at first with the smaller properties, we didn’t want to give a chunk of our money to a third-party management, paying right off the bat like that.
Eventually, as we grow and we started properties outside of New Jersey, outside of our radius that we like to keep our buildings inside of, then obviously we’re going to have to go to a third-party management company. But if you get the experience of managing your own properties and knowing how to do it, and you’re going to know what to look for when you actually go out and hire a third-party management company when you go outside of New Jersey or outside of our radius.
[00:08:19] WS: So what about buying in New Jersey? I mean, that’s some pretty high-priced markets up there. How are you all buying there and still making any money?
[00:08:28] AS: Yes. So keeping your ear to the ground with the brokers, being able to source off market opportunities. Also, the areas we really like to invest in New Jersey are not – When you hear of New Jersey, people think of Hudson Waterfront or like Hoboken, Jersey City with access to Manhattan. So we kind of stay away from that, because the prices have been extremely highly over the past few years. We’re west of that, so people still live within an hour, driving for a fair distance to Manhattan and able to find some good opportunities in the outer periphery. So as long as you understand.
The important thing for us, same with your listeners, to look at is if there’s any rent control, because I would say a quarter of New Jersey have rent control municipalities. If you’re going in get there with a value-add strategy, you might be surprised when you start trying to do renovations and raising rents over time and you’re getting a lot of kickback from the tenants, and they start [inaudible 00:09:20] the rent control laws. It’s 2% a year and it completely throws off your numbers. So if you’re listeners, please look into rent control ordinances no matter where it is, even North Carolina or Florida. I mean, their municipalities have it.
New Jersey has municipality by municipality. So if you understand that and you kind of stay away from the markets that have very strict rent controls. Some of them are side-tied to CPI to sometimes 1.5%. You should be okay.
[00:09:47] WS: Sorry. You all – Maybe you can elaborate more on this or maybe I missed it. But the rent control piece. You’re okay with buying in areas that have rent control or not?
[00:09:56] AS: Yeah. I mean, we’re okay with it as long as the numbers still make sense. Some municipalities are better than others. All the properties that we own aren’t in any rent control areas whatsoever. But some of them are pretty favorable. Some of them allow, for example, 5% a year, which is pretty good if you can get it. Then if a unit comes off return, you can actually put that even to market without any problems. Some of them are capped at 20% of the previous rent, etc. So being aware of those are very important, especially in a densely populated state like New Jersey.
[00:10:32] WS: Yeah. I would imagine that would change your business plan if I know I’ve got rent control, because it’s going to change obviously how much you can increase rents or force the appreciation. It’s going to change maybe how much I plan to remodel a unit or something like that, because if I can’t raise the rents, I have to market right away. But can you elaborate on that?
[00:10:52] BL: Yeah. That is our business plan too is to force the appreciation, and it’s, obviously, you said, it’s hard to do that if you’re in a rent-controlled area. At this time, we haven’t bought anything in a rent-controlled area because of that reason, because our business model is we like to buy undervalued properties, going there, and increase the NOI by putting some capital improvements in the property and then increasing the rent to market and then lowering the expenses.
I touched on our little property, the first property in New Jersey, which is a very successful deal for us and it was in Chester, New Jersey. We bought that property at an average income of $95,000. The average rents were about 875. It was a 10-unit property. We bought it for 1,285,000 and put $20,000 in capital improvements into it.
Then we ended up increasing the NOI to 157,000 and we’re stabilized at six months. This is how low the rents where some guy owned it. It was a farmer, who owned it for 20 years, yet the principal paid down on it. It was collecting great cash flow on the property. It really didn’t keep up with market rates and it was a great town too and a very little vacancy in that town.
So we knew. Anthony and I knew we could go in there and we could force the appreciation pretty quickly with very little capital improvement. We had three weeks vacancy and raised the rents from 875 on average to about 14 on average. We just got it appraised last week for $2.2 million. So we almost doubled the value of the property in a year period. Now, we’re going to pull out the equity and we’re still going to own that building and cash flow pretty well in that building. We’re going to obviously take that money and put it into a new deal.
So those deals in Jersey, you just – You got to find them. You got to know people. You got to have relationships with brokers. I think that’s one of the most important things is building those relationships, because the best deals are pocket deals. When you’re looking at deals on LoopNet, those deals have been looked over 150 times, 200 times. That’s why they put them on LoopNet. Once in a while, you can find a great deal in there. But most likely, you’re not going to be able to. You’re got to have great relationships with brokers.
[00:12:47] WS: Was that deal through a broker?
[00:12:49] BL: That was through a broker, yes.
[00:12:51] WS: Even Anthony had mentioned like keeping your ear to the ground with brokers and off-market properties. Are there some techniques that you all have used to build that relationship with these brokers?
[00:13:00] AS: Yeah. Dealing with the brokers in person, definitely key. Even if you’re just starting out and you want to grab brokers a cup of coffee or even meet them at Starbucks and telling them what you’re doing. It really helps, because they’re going to be able to understand what your plan is moving forward and they’re going to have properties that they wouldn’t show other people and just start showing you the properties.
For your listeners, a good strategy that’s worked for us is, Brian mentioned LoopNet. Even if it’s a deal you’re not interested in or it’s in a market that you’re interested in, definitely reach out to the broker, because that deal on LoopNet is not the only deal that he has. I can guarantee that. So that’s helped us too. Actually, we got a deal out of it at one time. We just hit up the broker. He had a two-family house for a listing, and I was just prospecting, and we were talking. He’s like, “Yeah. I actually got this 20-unit property that I own. Would you guys be interested in buying it? I’m looking to retire.” We’re like, “Yeah.”
We were already looking in the area anyway, so that happens too, getting a list of the most prominent brokerage firms in your specific area. Just reaching out and seeing what they have. As Brian mentioned, they’re not going to advertise their best deals, but the first deal did come through a broker that we were communicating with over the past two months before we bought our first deal. I believe Brian met with him before, and kind of everybody headed off. So we understood what we were looking for.
[00:14:26] BL: I think another great thing too that we did last week is we had a networking event in Moorestown, New Jersey. We had 150 people show up, anywhere from brokers, leasing agents. These people are interested in real estate. 150 though we had there, and we’re the sponsors of it, so our name was on it. Our business cards were out there. Just building those relationships and having our name on a thing like a big networking with 150 different people that were interested in real estate. Anthony set that up and did a great job, and that’s another way to build relationships also.
I think another thing too is when you build a relationship with a broker, do what you say you’re going to do. If you say you’re going to close this deal, close the deal. If you’re saying you’re going to – Whatever you say you’re going to do, you do it and you build trust with that broker, and that broker will bring you back more deals. If you could close a deal fast, you’re not a pain the butt, the next good deal he has, he’s going to bring it to you because he knows you’re going to close that deal and he knows you’re a good buyer.
[00:15:15] WS: Give me just a couple tips on how you marketed that event to have that many people show up.
[00:15:20] AS: So I kind of have a little bit of an advantage because I worked in the business prior, so I had a lot of those contacts and relationships that I invited. I was a part of a networking group as well. For your listeners, what I see in this meetup is a very powerful platform. Eventbrite is a very powerful platform.
[00:15:38] WS: What was that one? Event what?
[00:15:40] AS: Eventbrite, B-R-I-T-E. We got maybe 30 RSVPs just off of Eventbrite meetup. We had 30 RSVPs through Brian and my network. We probably – Like he said, we had 80 or 90 between out networks. Leverage social media. Leveraging that as well. You can definitely make a meetup happen. I’ve seen a lot, especially in New Jersey. There’s a lot of multifamily meetups. You can even go to those events and start meeting people and invite them to see your events. You can definitely make it work.
[00:16:09] WS: Guys, a lot of people are scared of the – This potential recession that may be coming. May or may not be coming. Everybody – Most people I think say it is coming, but how are you all preparing for that?
[00:16:22] BL: Anthony, I’ll start off and you can add on to it. But I think we’re buying right. We’re buying B and C class properties. In 2008 in the real estate market, I had the big crash there. B and C class properties were the least to lose value. Less likely lose value. That’s because everyone needs a place to live. These A class properties with a lot of minis that are very expensive, those places are the first places that people live. They had some place to live, so we go down the B and C class properties with less amenities, a little less expensive, and also buying right, buying with cash flow. I think that’s very important for people to do is just buy with cash flow.
If you’re buying in the hopes of just natural appreciation and with a low cap rate, you’re in trouble. You’re playing a roulette. You might hit big on one year. Then the next year, if there’s a recession, you’re going to lose. Well, I think buying right, buying with cash flow, buying B and C class properties, it kind of – It’s not recession-proof but it’s better than buying in hopes of this natural appreciation rather than force appreciation and increasing the rents and lowering your expenses.
[00:17:20] WS: What’s a way that you all have recently improved your business that we can apply to ours?
[00:17:25] AS: Improved out business. So I would say and I can give credit to Brian, setting up property management software. Also, if you’re syndicating, to your listeners, there’s software that incorporates an investor relations portal. So streamlining the communication with one platform was extremely important. We need that, because there will be papers all over the place and you’ll be very disadvantaged. So for your listeners, Buildium is a great software platform for not only property management but also accounting and investor relation. Setting that up was definitely improving the business.
[00:17:56] WS: What’s been the hardest part of the syndication journey for you all?
[00:18:00] AS:I think just learning all the rules for your listeners is a lot of different regulatory rules that you got to abide by in order to issue, because you’re really issuing a security at the end of the day. I don’t need to get in too deep on this podcast. Look into 5 or 6b and 5 or 6c. The rules change so trying to keep in touch with that. Old properties have been 5 or 6b so what that means for your listeners is people who you had a pre-existing relationship with that are generally sophisticated investors in the eyes of the SEC. Just been friends and family through our mostly professional network.
For your listeners looking to syndicate their first deal, that’s the way that we would recommend. Just go to your friends and family. You don’t have to deal with a lot of 6c and paying for what’s called a PPM out of pocket and very expensive. What I like to say to newbies who try to get into business, if you don’t think you could raise anywhere between 500,000 to a million dollars for first deal, I don’t think you should be in this business. Just do your immediate network, a little piece of advice.
[00:19:01] WS: What’s your best advice for caring for an investor, so they want to return to the next deal?
[00:19:06] AS: Go ahead, Brian.
[00:19:08] BL: I would say [inaudible 00:19:09]. Caring for the investor, so they return?
[00:19:13] WS: Yeah. So they – The most important things that we need to know, so investors want to return to the next deal.
[00:19:19] BL: Well, obviously, give them a good return on their investment. That’s number one. If you give them good return on investment, they’re going to come back and do the next deal with you. Just building that trust, that relationship with the investor. A lot of these investors are into real estate. They don’t know everything about it. But if they trust you and respect you, they will invest with you, and I’ve realized that.
I know people. I know a lot of people through football and a lot of the relationships I’ve built with big-money donors through Rutgers. I’ve had some of those people investing in our deals right now, and they don’t know much about real estate but they’re betting in me and they’re betting in Anthony. They trust those and they believe in us and they believe that we can give them a great return on their investment. We’re in the process of doing that right now.
Once we add value to this property that we’re syndicating and we’re refinancing here too and we give them 50% to 100% of their capital and they’re still investing back and then they’re cash flowing after that, they’re going to be happy. Once they get that money back from the refi, they’re going to put that capital into another [inaudible 00:19:19] and just keep rolling it over from there.
So do what you said you’re going do. Just like I said with the brokers, do what you say you’re going to do. Build that relationship. Build that trust factor with them. For your listeners, if they don’t have a great reputation in the community, build that. Build it up. Meet with people. Go out to these investor networking events. Build those relationships and build that trust with these future investors and build up your reputation. It takes a lifetime to build a reputation. It takes one second to lose it.
I’ve seen that a lot with my teammates in the NFL and in football. There’s a lot of great players, a lot of great people, a lot of great players that invest a lot of their time and their money into charitable events, but there are some that make one mistake at one time and it ruins your entire reputation that they built up over a lifetime. So just be smart and build those relationships.
[00:21:11] WS: What’s the number one thing that’s contributed your success?
[00:21:15] AS: I mean, it’s – Go ahead, Brian.
[00:21:15] BL: No. You go and I’ll add on.
[00:21:19] AS: All right. No. I was just going to say, as Brian said, your reputation is key. For me, for example, just coming from industry already in a different capacity, in a different asset class but definitely just building those relationships. A little bit for your listeners, even if you don’t have a deal on the table and just also regulatory rules behind that too, which I want to get into, but even if you don’t have a property that you want to offer other people to invest in, just tell them what you’re doing.
Over time, once you do have a property and you do have a deal, you’ll be able to go to them and say, “Here is the opportunity. Here’s the structure. Here’s what the returns are looking like. Here is the business plan.” It’s a lot easier to transition, whereas you have a deal. If you don’t have any network, definitely setting those up early contributes to success.
[00:22:05] WS: How do you like to give back?
[00:22:08] BL: So I’ve been giving back for a long time now. I partnered with a charity called Embrace Kids. It’s based out of New Brunswick, New Jersey and it helps families with kids suffering from blood disorders and cancer. I’ve been involved with that and [inaudible 00:22:19]. It’s called Rally at the Alley, where we raise money for these kids. I have a bunch of players there. Anthony came last year and all the guys from Mohamed Sanu, the McCourty twins. They all play on the Patriots right now. Michael Burton, he’s a fallback for the Redskins.
We just got together, and people come out and pool and love being around us and raise money. I think it’s important. It’s one of those things that when I first got into NFL and when I first got some money in my pocket, the first thing I want to do was give back. I’ve been given so much in my life. I’ve been given great opportunities. I think for those opportunities I have and the platform I had in NFL, it’s so important to give back, and I’m going to keep continuing that as I get better with real estate and syndicating and bringing capital in. A lot of that money is going to go to charitable charities.
[00:23:13] WS: Awesome. Well, thank you guys so much. It’s been a great interview. I love learning about how you all have gotten into this business and even some dynamics about your partnership and even this networking event that you all hosted and how that helped further the relationships with brokers and how other ways that you all have done that and the amazing deal. You almost doubled the value of that property in just a year or so. That’s incredible. Congratulations to you for that and just the importance of buying right and buying for cash flow.
[00:23:42] AS: Thank you.
[00:23:43] WS: But tell the listeners how they can get in touch with you and learn more about what you all have going on.
[00:23:48] AS: You can go to our website redknightproperties, and that’s redknight with a K. redknightproperties.com. We have a contact us form. We can reach Brian and I or send either of us a email. It’s our first initials. So for me, it’s a.last name, scandariato@ redknightproperties.com. Same thing goes for Brian, b.leonard@ redknightproperties.com. We just set up a Facebook too, so make sure you like us there. We’re in the process of doing more social media because we haven’t really done much in the past, so yeah.
[00:24:20] WS: Awesome, guys. That’s a wrap. Thank you very much.
[00:24:23] BL: Thank you. I appreciate it having us on.
[00:24:24] AS: Thanks a lot, Whitney. We appreciate it.
[00:24:26] WS: Yeah. I appreciate you all again. You will get emails from us as a reminder on December the13th. Then on the day of December 14th, you will get another email with some links and things. Then if you have any questions or if I can help in any way, please reach out and let me know.
[00:24:39] BL: Appreciate it.
[00:24:40] AS: We’ll do.
[00:24:41] BL: Thank you.
[00:24:41] AS: Thanks a lot.
[END OF INTERVIEW]
[00:24:42] WS: Don’t go yet. Thank you for listening to today’s episode. I would love it if you would go to iTunes right now and leave a rating and written review. I want to hear your feedback. It makes a big difference in getting the podcast out there. You can also go to the Real Estate Syndication Show on Facebook, so you can connect with me and we can also receive feedback and your questions there that you want me to answer on the show. Subscribe too, so you can get the latest episodes.
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