Joe:   What's going on? Joe McCall here. Listen, have you ever read one of those articles, those hit pieces in the newspaper or online on whatever, MSNBC, CNN, and you read an article about something going on in the real estate space, or you read an article about some guru or somebody out there that is like, oh, no. So here's the story. Just a few a month ago, a few weeks ago, I was reading the Wall Street Journal, and I saw this article about an apartment syndicator guru, somebody who invest in apartments and also teaches and educates the best people how to do this. And I'd recognized his name before, and I was like, oh no, my heart sank. I was like, dang it, what's going on? Another a hit piece because I don't remember. It's 4 or 5 months. Six months earlier, there was another article in the Wall Street Journal about a guy who made some really stupid decisions and lost millions of dollars in some apartment buildings. And so part of me is wondering, I wonder if this is like a follow up article to that. And so I was like, oh man, this is kind of like the way sometimes these newspapers do it. It's like tabloids, you know, they want that's clickbait. They enjoy reveling in trashing people and making them look bad. Right. For the clicks. What? Anyway, I read this article going through. It's about a, you know, it takes ten, 15 minutes to read it. And after I was done, I was like, this is actually almost written, like a promotional piece for this guy. And like, I got more excited about investing in apartments. I got excited about multifamily investing. And this is, you know, you know, my show, we do mainly single family houses and vacant land. You know, we're wholesaling and things like that. And so I looked the guy up because I thought, oh no, he's probably they talked about his you know, he kind of is a little flashy maybe on his Instagram and shows nice cars and stuff. So they talked about that. Like I went to his Instagram channel thinking he probably took down his channel or he took down all of those posts. And no, he was still there and he was still talking about what he's doing and the and he's. So I started digging into this guy and he's got a ton of success. And I just was texting my friend a little bit ago who has a lot of multifamily, and he's like, yeah, Brad's a good guy. Oh, what a how cool you got him on your show. So anyway, long intro here I want to bring on the one and only Brad Sumrok. Now some of you guys have heard of Brad but he is here in the house with us. Brad how are you doing, man?

Brad:   Hey, I'm really good. I'm really good. And thanks for having me on.

Joe:   Thank you for being here. You everybody. He stepped out of a big conference that he's at right now to spend some time with us on this podcast. So I really appreciate that, Brad. You know, I just wanted to ask you a little bit about this article first, and then maybe you can tell us a little bit about your background and how you got into the apartment business. But did your heart sink when you got a call from Wall Street Journal saying, hey, we want to interview you or ask you some questions?

Brad:   Oh my God. Yeah, let me just I'm so glad you're asking because I want to clear something up though. Like, and Joe, have you ever seen and I'm sure you have, but it's also for people listening. But have you ever been to somebody's, like, website or social media page? And it says things like as seen on CNN, NBC, Fox News and all this type of stuff. We've seen that right.

Joe:   Half the time it's B.S., right? Yeah.

Brad:   Well, what it is and there's nothing fundamentally wrong with that. But what a what is most of the time is like paid sponsored ads. Yeah, yeah. And you can pay to be on TV or to be on the cover of a book or magazine or radio, TV media. And so, you know, it's a strategy that, that people use that want to get more attention and promote their business across the board, whether it's real estate or not. And so, you know, I've been investing in apartments since 2002, and I've been mentoring others for, you know, a decade and a half. And I can have a dream to be featured in national media. And believe me, I've tried and I've had some paid spots on like local TV and stuff, but never was able to get the attention of, like any national publication that was had a lot of readers a credible source. And so something bad happened, of course. And then, you know, I get this call and yeah, like I was like, I have been, I have been and am committed to the multifamily business for 22 years, done my best to be an incredible investor and a steward of my investors and the investments that I've made and all sorts of the people that I coach and mentor, and teaching them best practices and guiding them down the yellow brick road to success. And I've had a lot of success stories and none of that ever made national media. Yeah, but one of my students that I had coached, you know, earlier on, you know, kind of went off his skis a little bit and went ahead and did a really big deal. And it was during the season that he was able to raise the money and get the debt and check all the boxes. Well, and like you said, he made a lot of bad decisions or even worse and lost a bunch of people's money. And so that was in the Wall Street Journal back in like 2023. And they found out that I was his former coach. I certainly contacted me and wanted to see if I was going to comment on it. And like, I was scared. Like I'm thinking like, man, my whole, you know, two decades is about to be tested here. And what about my reputation and everything? All the good work that I did is going to be challenged or questioned, that I had a lot of anxiety and a lot of sleepless nights. And I asked two of my mentors and, you know, and I got different answers along, was like, don't engage with the media at all. They're just going to manipulate you. And the other was like, yeah, you need a PR team. And I'm glad that I went with the second option. Then I hired a PR team and fully engaged. And so in that article back in 2023, they were going to print a lot of bad things that they had heard about me just through a handful of people that invested with this guy, but they didn't. And basically all they printed was I wear expensive suits, I have a Ferrari and I have a vanity license plate. And honestly, all those things are true. So it kind of made me look like SAG, but you know it. They didn't publish anything else. And then fast forward in this year, in March of 2024, they call me again and they say, hey, we're going to do a deep dive into the multifamily syndication industry. And on your role in popularizing it, because our research indicates that you, more than anybody else, has impacted, like the average person, to get into the multifamily syndication business. And so we're going to profile you and the business. And they told me upfront, this is not going to be like a good article, like it's going to be a critical article because we've again, they've had and they had a negative narrative from, you know, some of the investors that lost money in this deal in 2023.

Joe:   Well, and some other people we won't name names, but, you know, kind of rubbed people the wrong way maybe a little bit.

Brad:   Yeah. So you know bottom line is yeah, I was scared, I was nervous, but I fully engaged. And, you know, I don't know if you want to ask me anything else, but there's a lot more that a story that like you said. Yeah.

Joe:   You actually flew to New York. Yeah, I love them.

Brad:   Yeah. And there's. This is an important lesson for everybody here. It's like they offered neither, you know, talk on the phone. But I made the decision and their request to have an in-person meeting. And one of the things that's important that is that there's a hierarchy of communication. Like if you want to have a maximum impact on somebody and look, you know, a lot of the people I coached are like, oh, it's tougher times now because of all the challenge in the industry. It's harder to raise money. And I'm like, they're trying to raise money the way they did three years ago through email blasts, you know, or text messaging. And I'm like, you got to get in front of people. So the hierarchy of influence is and person meeting. And the second would be like a zoom meeting where you can connect with people through all the senses. And the third would be a phone call. And the worst is like email and texting. So, you know, rather than do a phone call, I went up there and it was going to be a one hour interview, and it literally turned into a four hour meeting. Where were you really connected? And I honestly, I was scared to go in and I prepared for it like it was the biggest interview in my life. But the guys doing the work at the Journal, where, you know, young guys and they're great guys, and I still this day, I feel like it was a great experience and I kind of feel that we became friends. I don't want to use that term loosely, but we came positive acquaintances with each other, and I learned about the guy that was held hostage. What's his name? Evan Garcia. What's that? It was just released. Yeah, I learned about that because they had posters of him on that says, and it was just a phenomenal experience. And they learned that I was very committed to the business, and I was very committed to the people I coach and mentor, and that I was also committed to their project that they were working on, because I took the time and energy and expense to fly there and stay overnight. And that took, you know, two days of my life and, and several thousand dollars. And yeah.

Joe:   Thank God you did. I mean, the article was fair. I thought it was very fair. And you interviewed, even interviewed some of your successful students that have done deals that are doing well today. They talked about you gave some really good answers cause, you know, everybody's talking about it in the news now with the interest rates going up and what's going to happen with all of these apartment owners and stuff like that, but you gave some really good feedback and ended the article is good with everybody needs a place to live. And so there will always be a demand for multifamily housing. I thought the article was really good. I was so pleased after I read it. And, you know, there are some few things little, little, a few little punches in there that I thought maybe weren't fair. But overall, I'm, I'm, I'm, I was glad were.

Brad:   Me too overall. Like. Yeah. So at the end of that interview, they asked me, they said, hey, do you have any students that have had positive experience with your program that would be willing to talk to us? And those are two questions. I have hundreds of students that have had amazing, positive results with my program, but I wasn't sure any of them were going to talk to the media. And that was a whole nother question. So I remember going home, Joe, and I'm like, I made a list of like over 100 people that, you know, right off the top of my head that we've helped massively and moved the. Needle in their life financially. Like in a big way. Hundreds of them. And then I started calling people and, you know, and I would kind of set the framework and like, hey, I'm Charles talk in me and here's what they're working on. And then I was like, would you be willing to talk to him about your experience? And the first person I asked said, yes. And they were like, yes, Brad, you've changed my life so much, and me and my family and then the next person said, yes. And the next person said yes. And the next person said yes. And after 12 people, I had 11 yeses out of 12. But one person was like, I gotta talk to my partner that, you know, so I at the end of that day, I was I broke down in tears. I just felt so grateful that that my students were willing to go out on the lam. And there is risk involved when you're talking the national media. But like 11 out of 12 that I had asked said yes. And the journal and we talked to, you know, not all of them because they I guess they got enough from talking to six or know them. And then they published, you know, quoted four of them, but they talked to a lot more than four.

Joe:   Wow. Good for you. You know, like, here's the thing. And I've said this many times, and this is a podcast about real estate investing. We teach people how to do their first deal. Right? But like, I'm always coming to the defense of gurus and there are some guys out there that aren't any good, right? But I say this like, Thank God for the gurus. Thank God for the Carlton Sheets, you know, Robert Allens like those guys were putting themselves out there and they got attacked a lot. They are on TV and for what? But like it was because of some guy that bought that program, made some money, right. Became a coach, became a guru, taught somebody else, who taught somebody else who taught me and was able to I was able to learn how to do this business. And then I just I'm thankful and grateful for guys like you, Brad, who you put your like, you put your neck on the line, you know, you make good money doing what you do, but you deserve every penny of it. You've worked hard and you, when you become out, put yourself in the public like that and do big events like what you do and you take as many clients on as you do, you're taking a huge risk with regulation, regulatory authorities, the government, the public, the social media stuff. So, you know, I'll stand up and say, hey, I'm grateful for gurus. I'm grateful for Brad Sumroks.

Brad:   Well, thank you, thank you so much. And let me share with you I am too, because I wouldn't be anywhere near where I'm at if it wasn't for my mentors and just to share about that. Like I have an engineering degree in an MBA, worked in corporate America 17 years, and if it wasn't for Robert Kiyosaki writing his books, those books changed my life because he I remember him saying things like, formal education will get you a job, which I had two degrees and I was unfulfilled and lost my job twice in 17 years. But specialized education, like the type you'll get in conferences and seminars and masterminds, could earn you a fortune. And that's set the in the direction, find real estate conferences and mentorship. And I went to a program in 2001, you know, back in Houston, Texas, and there was a guy that put himself out there to teach and mentor other people, and I had success in that program. And then I went to Tony Robbins in 2006, and I'm actually at a Tony Robbins event right now, and I'm in my hotel room and it's like, you know, Tony's been under attack. You know, it's like anybody Grand Garden has been under attack. And these people, I mean, they all have strengths and weaknesses, like all of us as humans, that they put themselves out there and they also develop haters and you know, it's tough, you know, to, to put yourself out there and try to impact people. But I could just say if it wasn't for these people, like, I still might be like in corporate America for, you know, now like 47 years and have been on like ten different jobs like, and still trying to climb the corporate ladder and, and achieve financial independence.

Joe:   And you know, if you don't have any haters, it makes you wonder if you're doing something wrong because that's what it takes. Sometimes if you want to put yourself out there and make a difference and have an impact in the world, not everybody's going to like it. Yeah. So, Brad can I ask you a couple quick questions I want to ask you about how did you get into multifamily and apartments? And then I want to ask you kind of like, what's the state of the market today? You know, you hear doom and gloom all over the place. But how did you come into multifamily investing?

Brad:   Yeah. So I came in the multifamily buy, and I'm glad you asked. And I already started, you know, explaining this, but I never thought I would be doing real estate like my parents never finished college. And they impressed. And my dad's boss was an engineer. So like, I grew up in Pittsburgh and they were like, you got to study hard, get good grades, go to college, save your money, get a job you know, and work for corporate America and retire. And so I followed that map. It was a blueprint of success that I was able to follow, because that's what my parents taught me. But again, after 17 years in corporate America, I was I lost my job not one time, but two times. And I started and I was in my early 30s and I started getting worried and fearful and desperate. Plus, I didn't really love what I was doing and, you know, worked for five different companies. In that time period. And so when I picked up the Rich dad, Poor Dad book, it gave me a different road map. And that road map was instead of being an employee with an aspiration to be self-employed. You could be a business owner or an investor. And that was the cash flow quadrant with ESB and I employee, self-employed business owner, investor. And that gave me the idea to seek out a different type of education. You know, the type of education you get from mentors, conferences, mastermind events. And so I did that with real estate. And I went there and I was skeptical. Like my first conference I went to, I was in the back of the room thinking like, what am I going to learn here? And by day two, I was in the front row taking notes and I. So not only that, I go to a real estate event. I bought a mentorship program. That's how I started this. I bought a program and it worked. I went out and took action and I implement it, you know, and that's one of my skill sets is I, I don't go to conferences and just learn. I go to conferences and I learn, and then I take action and I make it happen. I do like that's one of the secret to success is you got to learn better if you just learn and don't take action, that the knowledge is not power. Knowledge plus execution is power. So I took action and my first deal was a 32 unit deal was on a single family ran of four plex, if you'd like. So it's an unit. I put a lot of money virtually most of the money I had saved in those 14. So, you know, I started with 14 years of corporate America, and then I worked for three more years. And after three years of real estate investing, I quit my job. So I started in 2002 with 14 years of corporate America. And in 2005, you know, I was doing corporate and real estate investing. And in 2005, I quit my job for good and retired at the age of 38. And I had 62 apartment units. And that's all it took for me to quit my job with 62 units. And now I had own those properties 100%, so I was not yet syndicating. And now I got into syndication. Joe, is that when I had the 62 doors, a broker brought me a 250 unit deal, and I had no money because all my money was tied up in these 62 units. Right? I bought them with all my own money.

Joe:   So can I ask? The first units that you buy, did you still use leverage banks?

Brad:   Yeah. I put 20% down and got an 80% loan in 2002 to buy 32 units. And let me guess, guess what my interest rate was when I bought that 32 unit building and got an $800,000 loan.

Joe:   2002, um 12%.

Brad:   No it was 6.4%, which is lower than I was, which is which is about what it is right now, by the way. But right now everybody thinks it's super high, but it's only high relative to the super low rates that we had, you know, and 2 or 3 years ago.

Joe:   Right, right. Yeah. So a broker brought you a bigger deal, and all of a sudden you had a problem, you needed to get more raise. Yeah.

Brad:   And look, and it's only because I had invested in myself, you know, I joined a mentorship program. And from that program, I was, you know, there were networking events and there was a community of investors. And so, you know, when I showed up and I got to know people, so people knew me as the guy that had 32 units and then 62 units. And they would say things like, hey, Brad, at the like, you get a you get another deal, I want in on it, I want in on it. And you know, and you're thinking, yeah, yeah, yeah. But then all of a sudden I get this deal. And so the short story is I raised $2 million from 27 people. So like, people were like, how do you raise money, Brad? And look, you raise money by going out there doing the work, connecting with people, sharing with people where it is that you're doing, having some success. And so it's not like I just started from scratch and somebody brought me a deal and the numbers look good. And then I'm like, oh shit. Like I got to go scramble and talk to people. It's like, no, I was talking to people for 2 or 3 years in this investor club that I was a member of.

Joe:   Wow. Yeah. So you raised the money. Now, the original program you invested in, was that a multifamily apartment program?

Brad:   It was not. It was a, they taught single family rentals and multifamily rentals.

Joe:   So they're out of Texas and they're based out of Texas. I know where they are.

Brad:   Yeah, I don't mind saying it because I give it a lot of credit. It was Lifestyles Unlimited. And some people, Brad, you're they're still in business. And why do you talk about your competitor. Because it's true. It's like I don't mind. You know, Joe, one of my pet peeves is when people started with a mentor and then they're interviewed, like on a podcast, or they have a blog or they write a book, and someone asked how you got started then. And they don't tell the truth. They say, oh, you got some books and went to some meetups. And it's like, no, you didn't. Because like, like, I don't mind saying I'm at a Tony Robbins event right now. Like invest in mentors. It works.

Joe:   You know, it's funny that my, you were talking about you jumped, right in and you were starting to implement right away. I was a little bit the opposite. I was an engineer background, but like, I was a professional student for three years before I actually started taking action and buying. Like implementing the courses that I was buying because I got sick and tired and fed up of spending more money on my education than I was making on deals. And one of the guys courses I bought was a good friend of mine's De Chris Chico, and I said, I'm going to buy one more program and I'm just going to do what this guy says to do, and I'm not going to change anything. I'm not going to question it. I'm just going to do it. Blind faith. I'm going to jump off the building and figure out how to fly as I fall. I'm just going to trust this guy. Well, anyway, fast forward a couple months. I made my first deal, made 12 grand, just doing what he said to do. And I remember that feeling of like, oh my gosh, I can't believe it. It works like it actually works. It really does. Then that was the one of the best days of my life. I could not get over the excitement. Yeah, being at work, right, I could, I believe it could work for everybody else, but not for me.

Brad:   Well, look, man, you know, like, you know, Tony Robbins, for example, he's got a saying that is so true. Success leaves clues. If you want to be successful. Like, you could figure it out on your own, but it might take you a decade. But if you leverage somebody else's experience, see you. Everybody in real estate hears about OPM other people's money. But what about leveraging OPE other people's experience on other people's time? Like this is a way to collapse decades like turned decades into days. And so like, again, you know, I know and you didn't ask me. But the other reason I'm not concerned about talking about how I started is like, I'll put my program up against anybody who's out there, like the Wall Street Journal didn't feature, you know, any anyone else that's doing multifamily education? They featured me because I've done more for people that are investing in multifamily than anyone else out there. And as quoted in the Journal, and that's why I like I don't want to brag, but like, they call me America's apartment king and the nickname that I got Apartment King, I didn't give it to myself like some of my clients. And a friend of mine that also has a big podcast was like, hey, you're. He actually called me the King of Apartments, and that wouldn't fit on a license plate. That APT King actually does fit on a license plate. And so that's how the Apartment King nickname came about.

Joe:   Right? Yeah, it's I have two friends who do a lot of multifamily apartments, and I've texted them both saying, hey, I'm interviewing this guy, and they're like, oh, he's awesome. That's great. Good for you. Okay. So can we talk about the market cycles? You know, everybody's talking about in the news. And it's like, personally, I'll admit, I a couple of years ago when I saw interest rates going up and I saw some of the deals that my friends were buying or I heard about people that were syndicating, I was like, this does not make any sense. Like, what's going on? So where are we at in the market? And by the way, you got started about, what, 5 or 6 years before the Great Recession. Can you put, you know, what's going on now, maybe in context of what's happened before and what we're going through.

Brad:   Yeah. And look, I mean, I'm not like an economist or like an expert in capital markets and fed policies and stuff, but I do study it. And I was like, as you mentioned, I got started in multifamily in 2002. And so, you know, I remember closing a deal in April of 2008 and by October of 2008, like the bottom dropped out. And one of the properties that I just bought was in Houston, Texas. And so anyone that was living in Houston in 2008 remembers Hurricane Ike. So not only did like the economy just drop really fast and we went into a fast recession, but a property that I owned got hit with Hurricane Ike and we had 40% of the units down from down means like uninhabitable from a hurricane. And so I remember this one deal. Like, I literally put in hundreds of thousands of dollars of my own money to pay the bills and keep it going. And this was, you know, a syndication where and a lot of investors. And I was the only general partner. So like, if it wasn't for me putting in the money, I would have either had to do a capital call or turn the keys in to the bank. And so I was fighting the recession and the huge insurance and I took it took me 14 months to get insurance money. And so this is why I like. And so, you know, one of the similarities, Joe, back then and now is, yes, there are deals that are underwater and underwater means like, let's say I bought a $10 million deal and got an $8 million loan. And the plan was to go raise the value through, you know, NOI appreciation from 10 million to 14 million and then get a new loan, you know, at a 70% LTV, and you pay off the 8 million and you get a an $11 million loan.

Joe:   And the first loan is like a temporary short term loan, right? Yeah. Goal is to refinance it into more, longer term loan.

Brad:   Yes. But what happened is that $10 million property, if you look at NOI and NOI is income minus expenses. And so what's happened is a lot of expenses have gone up okay. And it's not just interest rate. So there are people that are and variable rate loans where these loans are. Do. And so, you know. But what if taxes went up? You know, in certain markets like taxes double or insurance double, you know, or maybe not taxes doubled, the taxes went up, you know, after Covid rents went up and that after 12 months, after rent went up, taxes went up because taxes are based on property values. So, you know, we add taxes going up. We have insurance going up in Texas and Florida and other markets. We have supplies going up. You know, the pandemic created a whole slew of problems, you know, and inflation, you know, higher interest rates. You know, we I bought a 300 unit deal with some other partners. And when we bought it, we budgeted $1,800 to replace appliances and every unit. And now it's like $3,500 to replace appliances and every unit. So like costs just skyrocketed, you know? And so it's not just variable rate loans. That's part of it with rising interest rates. But it was also rising taxes, rising insurance, rising payroll, rising maintenance costs, rising supply costs. And at the same time, Joe, we had a lot of new supply coming on because during the pandemic, a lot of these new development projects got delayed. And so right around the third quarter of 2022, around two years ago, from where we're at today, all these problems started happening. The fed started raising rates, inflation started going off through the roof and all this supply came on. So we were in like a negative perfect storm. So the last two years have been a tough season for multifamily and it's created a lot of challenges. And again the challenges are on the income side and on the expense side. And what I see happening is that there's a lot of deals where the income is performing really well, meaning like we're hitting or even beyond our pro forma rents, but we have an expense problem, and I think those deals are going to be okay as long as we can get through the storm. There's some other deals where if the expenses have gone up and the income isn't hitting the numbers, those deals could have more challenges, you know.

Joe:   And you short term, these loans, I don't know what they're called. I sometimes heard them as bridge loans or some kind of like yeah okay. But what happens when those become due.

Brad:   Yeah. So and look I'm, I'm in 37 syndications right now and I have 3 or 4 that are in these situations. So like when the three year alone is up and I just was interviewed on another show and I went through this yesterday. So here's what, here's what they, the GP team should do, and the team or the investors that lead the deal or make the decisions. So number one, when the loan is up, you can evaluate selling the deal. Now when the deal's projecting as planned, it's going to be worth more in three years than it is when you bought it. But again, because of all the rising costs and the new supply, in this moment of time, a lot of deals are worth less now than it was three years ago. So if you sell, you're probably going to lose investors money, some of it or all of that. Okay. So that's one option. As do we sell. The other one is refinance. Again. If the deal performed as projected it's going to be worth more. And so you could get a new line that pays off the old bond. But if it's worth less then you get a new loan. But it's lower than the original loan. And so you actually have the opposite, which is a cash and refinance as opposed to the projected cash out refinance. And so there's a lot of equity groups out there right now. And I'm talking across the board. I'm not just talking like some rod students, like some rock students. We where there's a lot of us that are doing really well and we own like billions of dollars of apartments, but we make up a small fraction of like, you know, the apartment owners in the country, you know, as these syndicators, by the way. So, you know, bottom line is there's a there's a lot of people that are having to refinance these loans and having to raise money from capital calls or even get private equity groups to come in and, and put in more money to these deals. So again, you can you can sell it, you can refinance it and or you can extend the loan. So all these bridge loans are three year allowance with an option to extend for year four. And then another option to extend in year five. But to extend you have to meet certain performance criteria. So like and I've done all three of these like I bought a deal in 2021 and one of my deals is performed so well that we actually did a cash out refinance, which in this market cycle was extremely rare. So that was a huge win. I'm in another deal where I bought in 2021, and because it's performed well enough, we were able to extend this three year loan and we're getting year four add in the lot. But we had to meet certain performance metrics. But we met that okay. So that's a good outcome as well. And yeah and I mean another deal. And again people focus on the one negative. But I'm in another deal. You know like you know a handful like less than a handful out of 37 where we had to go back to the investors and raise more money. And so we've done that too. But the deal performed. Well on the income side. I mean, it's in the path of progress. You know, there's a lot of jobs being created. The supply is going down. And so by. Yeah. Look. Owning an apartment building is owning a business. You know, it's owning a business. And people think that they could get into business without risk are just delusional. And I always talk about the risks. And I still do. Like, I talk about the upside and the potential risks. So any business at some point in time may need extra capital. And so there are some deals right now because of a lot of reasons. Some of the reasons are operator error meaning like the people that own it made bad decisions. And some of the reasons are not because they made bad decisions, but because the market turned and like, look, anybody that says now, oh well, they should never get variable rate loans. Honestly I would say that is not accurate because over time and I've been doing this 22 years, variable rate loans on average have been a lot more profitable than fixed rate loans because people don't consider the prepayment penalties on these fixed rate loans, which could be huge. And so you know what, Joe, investors and humans in general, we tend to have very clear memories of short term events like, oh, you know, syndication is risky and variable rate loans are bad. And you should never get variable rate loans. But honestly, like I would debate that with people over and over again because there are situations where you should get a fixed rate loan and there are situations where you should get a variable rate loan.

Joe:   So this the guy was featured in an article a year ago. What are some of the mistakes he made on those in that situation? Is that okay to talk about?

Brad:   Yeah, yeah. And part of it and this is this is one of the things that I loved about the journal was they committed to be fair and balanced and they were that person like I didn't mentor him on that deal, like I mentioned him on previous deals. But when he went to do that deal, he didn't ask me for mentoring, you know. And so and had he asked me, we may have had a chance to influence some of the things that he did. Okay. Yeah. But the bottom line is, is what I heard. And so some of these things is I'm not his business partner. I was his coach. Okay. And what that means is, like, I don't have access to his company agreements, his private placements, you know, his securities documentation. Like that's his business. You know, I'm his coach. And so, you know, I didn't coach him to do the things that he did that caused him to make a lot of mistakes. Okay. And I'm in that. I'm clear about that. And so yeah, but some of the things that I heard is like, okay, you didn't have much of an infrastructure. Like if you're going to go out and buy 3000 units in one transaction, you need to have a deep team like asset managers, you know, people that focus on the asset, managing the asset. What I heard as he didn't have that, he had like a couple Vas that were living in another country, and he really focused a lot of his time and energy on learning to build a capital raising machine. So like he became really good at raising money digitally, you know, through social media and email and stuff like that. And this, this is a concern, by the way, because going upstream from this, Joe, it's like it occurs to me that everybody wants to be an expert without doing the work, you know, and there's a lot of gurus that even teach that, you know, fake it to you, make it, you know, Experts Academy, how do you become how do you be an expert? You know, you need to be on TV, radio, newspaper, magazine, write a book, start a podcast, you know, grab somebody's attention and fake it til you make it. And like, I didn't do that. Like, I've been investing in apartments for 22 years. I don't have a book. It's half written. I haven't started the podcast yet, although honestly, I'm starting one now and I'd love to have you on my show, by the way. How? Yeah that like he it I in the beginning he went slow and was very coachable. But then he went from like, you know and drive and driving a car analogy. He went from like 0 to 20mph very slowly in math a lot, you know, thoughtful way. But then he tried to go from 20 to 120 way too fast without the infrastructure and without, a team of advisors. And so, well, other than that, like, I'm not, like, in his day to day, and I wasn't an investor in the deal, wasn't a general partner in the deal. So I wasn't involved in, like, his day to day and strategic decisions or mis decisions that he made that caused that business to go under, like how he allocated the capital and the management company that he hired and the team, the team of people that he hired or didn't hire. Like, I don't have access to all that information, but it occurs to me that he made bad decisions around those topics.

Joe:   The few friends I have who have a lot of multifamily investments, that's their number one struggle, challenge. The hardest thing to corral and get is the people management. The property management, managing the people, the team doing the work. Like you talking about. Right. What are some of the things that you do on your deals? Do you have a national title, a national property management company that works with you on all your deals, or do you work with local property management companies where each apartment building is at?

Brad:   Yeah. So the answer is the second. So like here's what I do. Number one is when I invest into a multifamily syndication, more often than not I'm a general partner, which means I'm on the, you know, think about that. There's a passive investor and there's an active investor. And so let's say there's 20 people that put their money, time and resources together and go out and buy a property. You can have one of those 20 is the sole general partner. Then maybe you have three. That's money. And I like the three the 20 model. Because Joe, we can divide and conquer the work. Meaning like somebody's got to find the deals, analyze the deals, raise the money, secure the debt, manage the asset, manage the investors, manage the CapEx. Right. And so in the beginning, when I started syndicating, I did all of that myself. But I found that it was hard to grow and scale. And so what I started doing is I'm really diligent about the people that I general partnership with. And we call that a co GP like a co general partner. And so like I'm in 37 deals right now and a handful of them have some challenges. But I can tell you where we don't have challenges is our GP team is in alignment, even in the midst of challenges and maybe some financial struggles on 3 or 4 deals that I'm in without a 37, which, by the way, isn't that bad, you know, if you think about it. But like, we're all still working together will pull in the same direction. We're not infighting. And that's not true with some people that have. They had a poor vetting process on how they're that their co general partners in terms of their experience, their character, their values, their liquidity, you know, what they're willing to do during adverse times. And what they found is when adversity hit the deal, like, you know, lack of performance or lack of cash or lack of whatever, they didn't have their they weren't in alignment. They didn't agree on how to solve the problem. And so you had some people in that GP team, you know, wanting to do this and maybe others wanting to do that. And so like, I'm not having that experiences with any of my partners. Okay. So the selection process of who you invest with is sometimes it's just as important or sometimes more important than the property that you invest in. Okay.

Joe:  Yeah. You're picking your co GP's before the deals even.

Brad:   Well that's one of my recipes for success is I teach that like you know so that's one. And then number two is like the selection and vetting of your property management company. And so no, I don't have a national company that runs all my deals because it's not a one size fits all approach like the company that's managing our Nashville deal is not the same one that's managing the Houston deal. And it's not the same one managing the Dallas deal. Yeah, and the ones that manages our class A property in Dallas is not the same one that manages our B and C class property in Dallas because these are different types of assets. And so you want to match up the management company with the asset and the business plan and make the best selection. And so that's the second thing I do. And the third is you got to keep your eye on the ball like it occurs. And I could be wrong. But it occurs to me that like Jay probably wasn't, you know, he probably didn't make the best selection of property management companies. He didn't have the right team in place, at least in my opinion, from what I've heard. And he probably wasn't paying attention to the financial performance. Or maybe he didn't understand how to read financial statements and really assess how the deal was performing. You know, if you don't understand, it's not just an income and occupancy. It's like you have income, you have expenses, you have NOI, and then you have below the line, you have your debt payment, you have your CapEx, you have you know, there's a big difference between NOI and cash flow. And it's not the same thing. And like, like, and I teach this that the general partners are accountable for that. And they're also accountable for selecting the right that like I've talked to my students over and over again about fixed rate debt, variable rate debt, getting options from an industry expert like a commercial lender, that's going to say, hey, here's an option for this type of dad, here's an option for this type of debt. And then that's the best that match the debt to the business model and select the right that. And so it occurs to me that like he didn't do that.

Joe:   Yeah okay. We just got a few minutes left. My apartment buddies were asking me to ask you a couple questions here real quick. How are you recommending or how are you sourcing deals in this crazy competitive market right now? Are you are you still looking for deals today?

Brad:   Of course. Because and I could tell you this, there's less competition now than I've seen in a decade. Okay. So like I truly believe that this is a time to get in. Like. Imagine it's 2011, Joe. Imagine it's 2011 or 2010. Like, I don't know anybody that says, man, I wish I would have invested less in that bottom of the market cycle. But at the same time, like, I was buying a deal in 2011 and there were some that call me crazy. They said things like, Brad, you're catching a balling up a falling knife. How do you know it's at the bottom? Why wait for things to turn around? And I'm here to tell you that once things do turn around, there's trillions of dollars or maybe hundreds of billions of dollars of dry powder that's sitting on the sidelines. And then when you see, like Blackstone and KKR and these big REIT's buying billions of dollars of multifamily, it might be something for you to pay attention to and say, hey, where do these big companies know that we don't know? And so it occurs to me that we're at or near the bottom of the market cycle, at or near, and I don't know exactly where we're at, but when you're at or near the bottom, it's in those transactional moments. It's tough because there's no you know, investors are skittish and that is more expensive. Or maybe there's less loan dollars available. And so it makes it harder to transact. But if you do find the transaction, you're going to get a deal of a decade. And so right, right now I'm looking for deals of the decade because once they start cutting interest rates and this is my crystal ball, by the way, and I could be wrong. The fed is going to cut interest rates. And September they make out of the again by the end of the year. That's going to create a lot of momentum for multifamily because it's going to lower the cost of debt, and it's going to make transactions more doable again. And then we're going to have an election. And either way, by the way, either way, capital markets and Wall Street and you know, the way things work. And our economy likes stability. And they like predictability and they like certainty. So whether we have a Trump administration or a Harris administration, once that election has gone, we're going to have at least three years of stability. Now, this can be offset by like World War three or like a middle eastern conflict that broadens, or a Ukraine Russia conflict that broadens. And so there's things that that could derail things. But, you know, outside of those type of situations are another black swan event, like we're going to enter into a period of certainty and stability and predictability, and we're going to see good times for multifamily. And that's why I'm really excited about right now. And I'm looking for deals of a decade like within the next 12 months.

Joe:   I love that. So you're definitely bullish. Okay. One more question from my friend. Can you talk about the state of the market in terms of the A, B and C class? You know, are what kind of deals are you wanting to go after?

Brad:   Well, I've always preferred B and C. And the reason is like a few, like I was just in Austin, Texas a couple days ago. You take a picture of the skyline and buildings that go up and down like this, where you see cranes on the top. These are a class buildings that are in the most affluent neighborhoods. Okay. And so imagine I have a property, Joe, or we have a property that was built in 2014 that's in downtown Austin. And, and there's tens of thousands of new inventory coming online, like you're competing with those people, but you are 20 minutes away from downtown Austin, and they, economically and, and, ethnically diverse neighborhoods that has a mix of all different types of people and people making 40, 50, 60,000 a year. Families afford you don't see these types of buildings, you don't see cranes. You see buildings going this way. There are 2 or 3 stories, and you don't see any new inventory coming online. And I like those buildings and I still like them. And so what happened though, prior to 2022 is cap rates for A, B and C properties. There is a a wide spread like, you know, maybe you could buy, a C class at a seven cap and a B class at a five and a half cap, and an eight class was a four cap. And by 2022, that all compressed where like an eight class was a three cap and B class was a three and a half cap. And people were paying four caps for C class. And so that's called cap rate compression where they all kind of got close. And so what a lot of people did was they said, well, hey, I might as well buy the class because there's a lot of big spread between these cap rates. But now we're seeing the spread happen again. And so, we're seeing things spread out a little bit more between like, you know, a spread between an A, B and a C. But to me, and there's pros and cons for having a B's and C's, but I really like what I would call the B class, or C plus class like the C's that are in like, you know, still like safe communities next to schools and churches with population growth and jobs being created. And so that's always been my bread and butter. And I just responded to a LinkedIn post the other day where people were talking about, like, Jay Parsons was, is an industry. Was talking about, like, hey, everyone's trying to buy A-Class properties and I'm like, I'll buy the businesses any day of the week and I still will.

Joe:   Nice. Good Mr. Brad Sumrok. Thank you so much for being on my show. I'm humbled. Honored. How can people reach you and what's what do you like to send people to?

Brad:   Yeah, well a lot. So I my website is Brad Sumrok.com. There's no C in my last name so it's just Brad Sumrok.com. Same thing for LinkedIn Facebook Instagram Brad Sumrok. And so that's where I like to send people to Joe. And I also like to mention my three day event coming up in September. And if I can send you some, are you are all for that. It's a three day event and I'm going to be taking a lot of what it is that I do.

Joe:   Yeah, well, go ahead and give me that and I will, I'll put it on the podcast. There's notes, the descriptions and all of that. What is it?

Brad:   It's a three day event. It's called, Apartment Investor Mastery. It's funny because my company name is actually Sumrok Multifamily Mentoring, but I don't use that for branding. So most people know me by Brad Sumrok. But then our programs are called Apartment Investor Mastery is like a global umbrella. And I saw I see your podcast is real estate investing mastery. And so it's called AIM, Apartment Investor Mastery. AIM, NAT for National, CON for conference. And it's my seventh annual AIM NAT Con in Dallas, Texas September 27, 8, and 9.

Joe:   There it is. How about that? AIM NAT CON and the dates again are?

Brad:   September 27th through 29 in Dallas, Texas. And it's an in-person event only. No virtual. No. Yeah. This is not a hybrid event where you can watch it from home this year. We're not doing that this year.

Joe:   Good. All right. Thank you again, Brad. Appreciate you. Get back to the conference, hopefully. I mean, when Tony does these things, he's going to be he's probably. It's 4:00 now, central time. He's probably going to be done midnight. Right. So you got lots of drink more coffee.

Brad:   Midnight would be an early night.

Joe:   Yeah. All right. Thank you again, sir.

Brad:   Appreciate you. Hey, thanks for having me.

Joe:   We'll see you guys later. Bye bye.