WS1213: Retrading and Winning the Deal with Andrew Leedom | #TechandTacticsTuesday

EPISODE 1213

[INTRODUCTION]

0:00:00.0 

Andrew Leedom (AL): Just reviewing goals, that was huge during this whole process; having clear goals that are written down. Just being able to go back a year and see goals that I’ve set that seemed almost unattainable and how just about every single one of those has been hit and I attribute that to really having those set and written down.

0:00:27.1 

Whitney Sewell (WS): This is your daily Real Estate Syndication Show. I’m your host, Whitney Sewell. Today, our guest, one of his first projects outside of a couple of small multi-family projects was a self-storage facility with a gas station and a car wash. And not only that, this project had lots of hair on it, and it had some issues that I think most people would not typically, anyway, tackle for one of their first projects, but Andrew Leedom, he saw an opportunity, he noticed issues at this project, and he didn’t back away from it, this deal had been on the market on Loopnet for a long time, and he’s made it work and you’re gonna get to hear about that project today, not only that, but you’re gonna hear how he was in a position for many years and worked very hard to get there, they still decided to leave and go into real estate full-time. And you’re gonna hear why he did that, and how he’s done that, but also this project of his, you’re gonna learn many things today, he had to re-trade through due diligence, he learned many things that I think is gonna be beneficial for you as you are looking at going through due diligence on a project. But also, the closing table, many challenges also happen there that you’re gonna learn from. Even managing remotely, we go into.

0:01:48.5 

WS: So, learn from Andrew today. And a little more about Andrew, has been a father of four from Southeast Virginia. He has a master’s degree in Civil Engineering and practiced as a structural engineer for 12 years, before stepping away from engineering to focus on commercial real estate full-time. He began investing in residential multi-family in 2015 and now he’s transitioned to acquiring self-storage properties. So, I know you are going to learn a lot from Andrew today. 

[INTERVIEW]

0:02:14.5 

WS: Andrew, welcome to the show. I’m honored to have you on. You and I have known each other for a couple of years now, maybe I’ve seen your progression into where you are now, and I think it’s going to be very encouraging to the listeners and many of them are where you were a couple of years ago also, and our debating, having the same thoughts or limiting beliefs around making this leap into real estate, and you’re doing some big stuff. So, I’m looking forward to the conversation. Tell the listeners though a little bit about that back story, ’cause I think it’s gonna be helpful to them, who were you, say five years ago, and why real estate? Let’s jump into that transition a little bit before we get into your niche specifically.

0:02:58.2 

AL: Yeah, absolutely, I’ve been an engineer for 12 years now. I graduated with my bachelor’s in Mechanical Engineering and a master’s in Structural Engineering. Worked designing buildings, waterfront structures, things like that, for 12 years, and along the way, I found myself doing real estate on the side, and that actually came about back in 2015 when we had started a 529 plan for our daughter when she was born. And after a couple of years of that, I realized that that was not gonna do what we were hoping it to accomplish, and so I started looking at other things and talking to some friends who were doing some real estate things, some flipping rentals, and found BiggerPockets and a lot of the other podcasts and books, and just really dug in, and after several months of looking, ended up purchasing my first duplex in 2016 and purchased several other residential multifamily units along the way, and then at some point, I saw that that was gonna take a long time to get to where I wanted to go, and that’s really what led me to the commercial space. The amount of leverage that you have on your time and your resources and what you can do in the commercial space is just unmatched in anything else that I’ve seen.

0:04:25.3 

AL: So, I started with just being a passive investor in some multifamily apartments, and then made the decision that I wanted to shift into commercial real estate myself, and it took some time and evaluated between multifamily self-storage and mobile home parks, and ended up on self-storage, and now I’ve got two self-storage facilities and looking to grow more and, yeah, excited for where that path is leading.

0:04:55.4 

WS: That’s awesome. I mean, 12 years as an engineer that didn’t come just overnight right, and I say that often, ’cause I interviewed folks who, you know, spent lots of time, lots of money invested in the education and then getting that career path ironed out, right. And what you had dreamed of at that time, so it’s a lot to say, hey, I’m just cutting this off, I’m gonna take a different path now completely. What did that look like? Did you have limiting beliefs, did you think you know what out of this is gonna work, or was it just like, no, this is easy, I’m just gonna go hammer this out, make this happen. I would imagine it wasn’t that way, but shed some light there on that situation, because that’s a hard step for all of us at some point, typically.

0:05:35.8 

AL: I’ve never been the natural entrepreneur or stepping outside the box, it’s been go to school, get a good job, work hard, and so, yeah, engineering made sense, and it really came down to just evaluating my life. And I’ve got four kids and just the demand on that part of my life was just growing, and the higher I got in the field, the more the demands are, so I wanted to be more available to my family to be a better husband and father and friend and have the ability to really mentor and help other people. But to answer your question, two years ago, it wouldn’t have even crossed my mind to be where I’m at right now, that commercial real estate is for those guys out there that the guys doing big things and so yeah, it really came down to a lot of people say that the first thing that happens is your why has to be big enough. And so, I think that was the first step, is just having that why and having that drive me to wanna pursue this and make it happen. And really with that, Napoleon Hill talks about that definitive purpose, once that was there, and I was set on that goal, it was gonna happen. It was just a matter of time and when and where.

0:07:12.8 

WS: How did you share that with your better half the first time? Or how did that go? When you said, you know what, I think I wanna do this full-time. I’m gonna leave engineering. Was that a massive shock? How did that play out?

0:07:23.7 

AL: Karen is so supportive of me and has been my biggest cheerleader along the way. When I first started talking to her, I came home and we had a conversation one evening and I said, You know, I wanna do whatever it takes to make this commercial real estate thing, work, and she was 100% behind me, and along the way, talked to the kids about just the sacrifices that it’s gonna take trying to pursue this while working a full-time job, and she had more confidence in my ability to make it happen than I did.

0:07:58.1 

WS: That’s a great place to be. That shows you have great pride there, and that you’re blessed to say the least. That’s awesome. Well, and it doesn’t always go that way, right? Sometimes it’s a matter of educating the spouse in a way that, hey, they can also get behind this vision or this dream that you have, and so they can see the possibilities like you’re seeing. So yes, I just encourage every listener, and I just hope your spouse is on board. If you’re married, you’re fixing to pursue this, it’s so important. And so let’s jump in a little further, Andrew, and get to this self-storage deal. Give us a little back story on the self-storage deal, I know that you have one that you even 1031 in. Let’s talk about that, give us some details on that deal, why you selected the deal, maybe how you found it. Any challenges? Let’s jump in.

0:08:43.7 

AL: Yeah, first of all, I mean, the deal itself is in Orono, Virginia, and it’s a gas station, car wash, self-storage combination. I found it on Loopnet where they say deals go to die, and this one had been on there for two years, so when I first saw it, it was in the very beginning of this journey, I had the beginning of analyzing deals and looking for properties, and so I was pretty conservative at that point with all my numbers, and it was listed for 1.5 million and my numbers were coming out around a million, and so I wasn’t ready to make an offer, I thought it was, I wasn’t even at ballpark. And so I just kept looking for deals, analyzing deals, and three months later, when it was still in the market listed for the same price, I decided to reach out to the broker and have a conversation and just ask him, Is the owner just testing the market and trying to see what he can get or does he really wanna sell? And he said it started out probably testing the market, but he wants to sell, and so I made an offer and got it accepted in the spring of 2021, and moved through closing, we had some hurdles in the financing part, we were going SPA route for the deal, and because of the gas station and the car wash, there’s a lot of environmental issues, and so we worked through all that, and about a week before closing, they got the appraisal back and the appraiser said, because I had a car wash on it, the remaining service life of the property was 14 years, and so the bank wasn’t gonna lend on a 20 or 25M, if the appraiser saying it’s got a service life of 14 years, so they said typically when they go back to the appraisers, they’re able to get them to adjust that to the term of the loan, but he wouldn’t budge.

0:10:45.2 S1: So, we were at that point, the SPA wasn’t an option, so I was able to work with a local bank and get the financing done, and we closed about a month after originally anticipated.

0:10:58.1 

WS: No, that’s awesome. Congratulations on getting this deal done, right? I’ve heard numerous stories recently where the appraiser comes back with something different than expected, like in one shape or color or something, and it calls massive hiccups in the lending process or the loan. And so, it’s not a new thing, right, that maybe the appraiser is thinking something different than the lender. But I wanted to back up a little bit, let’s see, but you reached out to the broker, right, you asked questions, you confirmed the seller wanted to sell. Can you share what you paid for it or would you rather not?

0:11:29.7 

AL: Yeah, originally offered 1.27, but during due diligence, we found a number of issues, some structural issues, just… It had been a lot of deferred maintenance, so we ended up getting it down to 1.07. 

0:11:43.0 

WS: That’s great. Okay, so 1.07. That’s great. And even close to what you wanted to offer at first, the one million.

0:11:52.0 

AL:  Yes, yeah, exactly. 

0:11:53.0 

WS: So, good for you. That’s awesome. And so, what were some of the things maybe you found during due diligence that you were able to go back and say, hey, Mr. Seller, this is sort of things that we found that we’re gonna have to re-adjust or re-negotiate.

0:12:06.6 

AL: Yeah, there were some structural issues with some of the slabs on the building, one of the back buildings is right up against hill, and so there was some slope stability there at the back of the building and started settling, so really that knocked off about 1500 square feet of usual units, so we’re gonna have to go in and there’s some repairs there before we can actually utilize those units, so obviously that lowers your growth income.

0:12:34.9 

WS: How did you find that?

0:12:36.0 

AL: So, during the inspection, we went through all the units that we could, which this property only had an occupancy of about 44 physical occupancy, and so we went through a lot of the units and that’s how we found that.

0:12:50.3 

WS: Okay, no, that’s great. You gotta do your due diligence. It sounds like you found some issues here and it saved you a lot of money because you found them and was able to renegotiate and think how did you present that to the seller then or the broker to show that, hey, this is a real issue here. And it deserves renegotiating.

0:13:07.9 

AL: I basically just showed them my numbers, my analysis, and I’d run several different outcomes with where the rental rates would be kind of on the low end of the market, and then your average, if we raise it up to the average, and if you take out 1500 square feet, it had 17,100 square feet initially, so that drops it down to 15,000 and change. So, that obviously affects the income and just the performance of the asset itself, it wasn’t performing, it had a lot of just operational issues with both the car wash and the self-storage. So, really just being frank and saying, this is where we’re at, and this is where we’re comfortable being as well as some of the unknowns with the environmental, we had to go back and do a phase two.

0:14:02.1 

WS: Is that because of the gas station?

0:14:04.0 

AL: Yeah, because the underground tanks, the phase one came back and they had flagged some items that required the phase two, so we had to do that and negotiate the cost of phase two since that ended up being, I think around 13 or 14,000, so we were able to split that with the seller. 

0:14:32.2 

WS: So many things there, right, gas station, car wash, self-storage all in one. It’s incredible. But tell us, I wanted to highlight also, we’ll go back just a little bit ’cause you 1031’d into this deal. Is that right? So, give us a couple of things learned or lessons learned through the 1031 process.

0:14:45.2 

AL: First of all, I 1031’d it. It wasn’t my initial plan. Once we had it under contract and we had all the environmental stuff that was stretching it out, that was when I figured I’d throw up our TriPlex on the market just to see what it would get because people are paying ridiculous prices for real estate right now. So basically, put a number that if somebody’s willing to pay this we’ll sell, so we put it on the market Friday evening and had a full price offer the next morning. So, yeah, walking through that, the timeline worked well, we had a couple week buffer, so everything did need to fall into place pretty quickly, but we worked with a great group of intermediaries for the 1031 exchange got that going. And if you’re working with good professionals, you know what they’re doing, they make the process very straightforward. The biggest thing, I think in 1031 is when you sell and have all those timelines of 45 days to identify a property and the 180 days to close that a lot of that can lead people to buying things that they otherwise wouldn’t have because they’ve got all this money that they have to place, and so I didn’t wanna be in that position, but since I had it under contract that’s kind of a big reason why we went down that route. And were able to get that done.

0:16:13.5 

WS: That’s awesome. It just shows you didn’t give up either. You hit some hurdles here at 1031, it’s just a long process. But then also you finally got the deal, and then I was just thinking through the appraiser and the lending, and I wanted to jump to that though, so I wanted to give you a moment to talk about what happened specifically with the lender and how you overcame that issue.

0:16:32.8 

AL: Yeah, so with the original lender that I was working with, we were working with a local bank, and they do the most SBA loans in the country for self-storage, they’ve got a whole self-storage division. So, they were great to work with. Highly recommend them. If somebody’s looking to do an SBA loan. 

0:16:51.8 

WS: Why would somebody wanna do an SBA loan? What does that mean? 

0:16:55.8 

AL: So, the SBA loan, yeah, it’s a small business loan, but the advantage is the self-storage qualifies for SBA, and it allows you to get up to 90% financing, so you only come up with a 10% down payment is huge. You’re gonna pay a little bit more on the interest rate side, there are some fees associated with SBA originally, when I had everything lined up for that original close date, we were trying to take advantage of the first three months of principal interest payments being covered by the government under some of the CARES Act thing. But yeah, it’s a good start for somebody who doesn’t necessarily have all that down payment money, and it is a long process though. They dig into everything, and so the process with dealing with the local bank was just much more painless and upfront.

0:17:53.3 

AL: When I initially started the process, I knew I was gonna look at doing the SBA, I still met with three local banks in the Roanoke area, did site tours with them, just because I didn’t want all eggs in one basket, and so that came out to be a good thing in the end, because I was able to go back to all of them, they had already seen my underwriting, my business plan, and we’re willing to work with me months before, and so when I came back, a lot of that groundwork had been done, and I actually had another property under contract and had the loan with one of those banks, and so they had already underwritten me as an operator, and so they basically were able to say, What do you need? We can close as soon as two weeks, and so that was huge and very unexpected, and working with anybody but a local bank, I doubt that that could have been the case.

0:18:52.6 

WS: Yeah, for sure. It sounds like your due diligence ahead of time meeting with different lenders, right, you had a backup plan and that paid off in a massive way, otherwise, it would have fallen through probably if you hadn’t already built some kind of relationship there with some other lenders. So, any other challenges around closing that we haven’t discussed?

0:19:12.5 

AL: I don’t think so. I’m sure that there definitely were but those were the big ones.

0:19:16.9 

WS: What about the first few months of operations now, what are some challenges and maybe some lessons learned as well?

0:19:23.5 

AL: Yeah, absolutely. I think a lot of the challenges have been around just the years of mismanagement of this property, it was a hotspot for just crime and vandalism, a lot of break-ins. When we got there, all of the vacant units were open, so there were people living in units and so that was one of the first things we did was we went in and put locks on all the vacant units, so everything was secure, cleaned out, a lot of the units, just cleaned up the area in general, put in the security system. We still had some troubles with vandalism, we have somebody, two days after Christmas, come in and take our change machine out of our car wash, and the same guy has had several break-ins to some of the units, so we’re working with the police to try to curb that, but the original management from the previous management had a single gate code for everyone, it had been that way for 10 years, so anybody that’s had a unit in the last 10 years could go in there. So, we just recently got a cloud access system set up for the gate, so every tenant has their own gate code. Now, we can track who’s coming and going, putting in operational access hours from 7 AM to 9 PM, so we know anybody there after nine shouldn’t be. And so, we can be more proactive with the local law enforcement, and then just really encouraging all of our customers to use disc locks which are much more secure than your standard padlock, which can be cut with bulk cutters, so we’ve actually been giving that to our customers anybody that has a padlock, we offer them for free, a disc lock, just to keep the whole facility more secure.

0:21:11.3 

WS: Awesome, it sounds like you’ve learned a lot, it sounds like you have been very active in putting in better management, better systems, just everything around this property, but it sounds like you saw an opportunity as well… Right, he didn’t shy away from all those issues, it’s interesting, the property had people living in the vacant units, as sad as that is for those individuals, but still, that’s a big issue you have to deal with it. And so how did you help them to move or how did you take care of that problem? 

0:21:46.2 

AL: Fortunately, for most of them, they weren’t there during the day, and so we just went in one weekend and just cleared everything out, put locks on all the units, so there wasn’t any way to get back into the units.

0:22:00.1 

WS: No, that’s awesome. I just wondered ’cause it’s a rare problem. But what about managing remotely? I know you don’t live in Roanoke where these units are, you’re probably, what? Six or seven hours away? (Yes.) And so, tell us a little bit about managing or taking on a project like that that had these issues going into it, the mismanagement, the deferred maintenance, the crime, all those things. But you’re that far away. How are you managing it?

0:22:22.7 

AL: Yeah, absolutely, that was one of the big reasons why I got into self-storage is the ability to manage remotely. There’s several other reasons as well, but that was one of them, and just the confidence, I’m part of a mastermind group called the storage rebellion, and really a lot of the things that I had learned from that group or just, there’s really a three-prong approach to managing remotely, you’ve got your boots on the ground, personnel who are handling all the on-site things, ’cause there really is, there’s no such thing as an unmanned facility, there’s always going to be a need for somebody to be on-site doing things. So, you’ve got your boots on the ground, your website that is able to handle online rentals and your online presence, marketing and your call center. So, you’ve got a call center that takes calls and is able to sign people up to rent new units or take payments, so those are the three things that bolster that ability to manage remotely.

0:23:27.6 

WS: That’s awesome. And you also made some local connections, I think too, right, that maybe helped with maintenance and things like that, maybe you could speak to building those critical relationships while you are in the area versus planning to work remotely.

0:23:41.6 

AL: Yeah, absolutely. As soon as the property is under contract, you start reaching out to folks, ’cause that’s gonna be, you make it or break it. Your management, similar to any other asset class is really going to make or break it. You can have a great investment, but if the management isn’t there, it’s not going to succeed. So, really reaching out to a lot of contacts. I went to school at Virginia Tech, New Roanoke, and have a lot of church friends in the area from back then, and so I had a network already in place, and so I’m able to reach out there, but also just asking around and identifying some folks that fit that ability to be on-site occasionally to handle some of those maintenance tasks, to run some of the actual storage business side of things, and being able to look online and see who’s late for their payments and be able to overlock people. So, all of that is definitely key, what

0:24:40.9 

WS: What about, I’m gonna shift gears a little bit cause we just have a couple of minutes left, but what are some daily habits that you have, Andrew, that maybe through this process, from W2 to real estate entrepreneur to full-time that have helped you to stay motivated and keep moving forward?

0:24:56.4 

AL: I’m a big fan of Hal Elrod’s The Miracle Morning, I definitely do not do all of those things, it’s a goal of mine to eventually get to that point where he’s got a SAVERS acronym where you have silence, affirmations, visualization, exercise, reading and scripting that you ideally would work all that into a morning routine, I’m doing good if I get two or three of those, but I try to start every morning with prayer and time in the Bible, as well as exercise, try to go for a run that can be hit or miss, but as well as just reviewing goals, that was huge during this whole process of having clear goals that are written down, that just being able to go back a year and see goals that I had set that seemed almost unattainable and how just about every single one of those has been hit, and I attribute that to really having those set and written down.

0:26:00.0 

WS: That’s awesome. Yeah, if you don’t have ’em written down, I just like having that plan written down, right. They can change it, but you’re not gonna know what the plan is, or your gonna plan to fail if you don’t plan. So, I appreciate you elaborating on that. What about, how do you like to give back?

0:26:13.4 

AL: I love teaching, and I always have in college, whether it was tutoring people in math or just helping, so I’ve loved the ability to share the knowledge that I’ve gained along the way and help encourage people if people are at that point where they’re kinda trying to decide whether to make that jump, I would say it’s possible. If I can do it, you can do it.

0:26:39.1 

WS: It’s awesome, Andrew, and I just appreciate your transparency and just sharing about your transition, even from engineering for 12 years, I just think there’s a lot of listeners that can relate to being in some type of career that, man, they’ve spent a lot of time and money to get there, and it’s a big deal to make that transition and make that decision. And obviously, then for the whole family to be on board, but you did that, right, you took that lap and then even going through that deal, or you 1031 into this storage facility and had some issues, right, and I guess a lot of people would say it’s pretty hairy, it was a pretty hairy deal, there were lots of things you had to work through, right, and typically that may have been something that most people would have shot away from, especially their first storage facility or a second storage facility, whichever that was for you, but that would have been seen as too much, I think, or too much risk on the table, but you tackled that and now I think you’re gonna be okay, because I feel like you’ve gotten through the hardest part of it now, in your own uphill slope. So, grateful for your transparency and sharing that deal, ’cause I think we can all learn from many of those items that you shared. Tell the listeners how they can get in touch with you and learn more about you?

0:27:47.0 

AL: Yeah, if anybody wants to reach out, they can shoot me an email at [email protected] and I’d be more than happy to connect and help out in any way I can.

0:27:57.4 

Whitney Sewell: Thank you for being a loyal listener of the Real Estate Syndication Show, please subscribe and like the show, share it with your friends so we can help them as well. Don’t forget to go to LifeBridgeCapital.com, where you can sign up and start investing in real estate today. Have a blessed day. 

[END]