#167: Multifamily and Self Storage Success

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Welcome back to The Richer Geek Podcast! Today we're joined by Taylor Loht, a real estate investor and host of the "Passive Wealth Strategy" podcast. Taylor specializes in multifamily and self-storage properties across markets like Dallas, Houston, and Atlanta. Through syndication, he raises capital for strategic property acquisitions, emphasizing value-add strategies to boost net operating income and property value.

In this episode, we’re discussing…

Taylor's Background

• Graduated from college and initially moved into stock market investing, inspired by "The Intelligent Investor" by Benjamin Graham.

• Shifted focus to real estate after recognizing the potential in property ownership.

Lessons from Taylor's First Syndication

• Invested passively in two C class apartment complexes.

• Faced challenges with property manager mismanagement and legal disputes.

Shift to Multifamily and Self Storage

• Transitioned from C class to B class multifamily properties due to unexpected expenses in older properties.

Self Storage Investment

• Seized opportunities to acquire and modernize facilities previously owned by older generation "mom and pops."

Key Terminology in Passive Investing

• LP (Limited Partner): Passive investor with limited involvement and risk.

• GP (General Partner): Active operator responsible for sourcing and managing deals.

• 506B vs 506C: Different SEC exemptions with distinct rules on advertising and investor qualifications.

• Preferred Return: The initial return distributed to LPs before profit sharing.

• Profit Split: Typically a 70/30 or 80/20 split between LPs and GPs after preferred return.

Resources from Taylor:

Instagram | Passive Wealth Strategy | NT Capital | Invest With Taylor

Resources from Mike and Nichole:

Gateway Private Equity Group | REI Words | Nic's guide

+ Read the transcript

Mike Stohler
Everybody, welcome back to another episode of The Richer Geek Podcast. Today we have Taylor Loht. He is into multifamily self storage. And he'll tell you how to do it. He's a real estate investor who teaches others how to invest in real estate. And this is very interesting, we'll get back into it with him without buying themselves another job. And I know that most of our listeners have very stressful jobs, you work a long time. So how you're able to invest with out getting yourself into another full time job. So how are you doing, Taylor?

Taylor Loht
I'm doing great. Thank you so much for having me today. I'm excited to speak with you and your listeners.

Mike Stohler
Absolutely. So give us always like a little background, you know, who are you, what made you get into this very lucrative, crazy job in real estate?

Taylor Loht
Sure. So really, at my core, I'm an investor. From the day I started having a little bit of money from the first job that I worked first, I worked at a grocery store. And then I worked at Sears back when Sears existed. And, my goal was to turn that into more money. And at the time, my toolkit only included look for a bank account with the highest interest rates that I could. Now back in the day, that was pre Great Recession, when you could get an okay rate that's kind of returning today. But for the longest time it was 0%. Then going from there, yeah, I went to college and everything, graduated from college and got my first big boy job making some big boy money. And, of course, wanted to turn it into more. So I read one of these books that's over my shoulder here, The Intelligent Investor, by Benjamin Graham, that got me started investing in the stock market really looking for value and focusing on those areas. But I wanted to be able to create more value in my investments and to take more of an active role. And I didn't know what that was going to look like. Back in the day around 2011. I think it was in the fall 2011 I was actually driving to my job at the time around 730. In the morning, a fall day in central Pennsylvania in Lancaster driving to a job at the time that I just hated. It was the wrong fit for me, maybe some of your listeners out there can relate to that how they're listening to us right now. But I lived in a relatively nice townhome complex at the time and driving to work, I drove past the office of the townhome complex and just happened to look over my shoulder and I saw a brand new at the time 2011 Audi A8 sitting in the parking lot. And I was driving my old VW Jetta in a career that was never going to lead me to drive an expensive luxury vehicle like that. And a very happy thought occurred to me just totally on accident. And I thought that you know what, whoever owns that car owns this townhome complex. And that was the first time the very first time that I thought and I realized that somebody owns these big apartment and townhome complexes, it's people now it turns out, it's typically a lot of people that own these things together. But that was the first time that I realized that people own all of these assets around us. And that is an achievable goal. So fast forward a few years digging into more investing, learning more found out about apartment syndication, ultimately into self storage syndication as well, where we pool our money to go buy these assets. And he was able to achieve that dream of investing in larger properties like that I, I only had that realization somewhat recently, because I remembered seeing that car in that parking lot. And I didn't realize how formative and of an experience that was for me at the time setting me in a particular trajectory to begin investing in real estate, but you know, little things like that can set you in a different direction than you thought.

Mike Stohler
Yeah, and that is so true. I don't know if you're the same way. But I didn't get into the syndication for a while because I didn't know about and I thought well, I buy something, fix it up, sell it, buy something, fix it up, sell it, and I was like, man, it's gonna take me 40 years to make any money. If I do it that way. What was your first indication of your fund experience like? And what kind of lessons did you learn that you can, you know, tell our listeners about, wow, I wish I would have done something this way instead of this way and how you've grown as a syndicator because of some of those lessons learned?

Taylor Loht
Sure, absolutely. So my first lesson or my first experience in the syndication space was actually as a passive investor, I wanted to get into the space on the active side, and I had capital that I had saved up and accumulated and invested. So I looked for opportunities to invest and this was in 2016. So it was a kind of a completely different market from today but ended up investing in two C Class apartment complexes on the south side of Atlanta. There are so many lessons learned out of that one of the biggest ones was to make a very long story short, basically, the property manager wound up stealing some money from us. And that turned into a pretty extensive legal battle. And the way that he was kind of able to sort of get away with it, we got some of the money back. It's murky is that the property manager had ownership in the syndication, he was one of the general partners. So that kind of gave him in my mind a sense of entitlement and feeling that he couldn't be fired. And I've seen that structure backfire for a lot of folks where they go find a property manager, and they say, Hey, I want to incentivize this guy to perform as best I can. So even though he's a different company, I'll give him some GP shares, so that if he performs, he's going to be compensated for it. But from what I've seen, that actually makes it more likely to backfire, because again, they feel like they can't be fired. So it's a third party property manager, they need to be third party, you need to be able to fire them. Or if you're in a situation where a syndicator owns their own property management firm, then in that case, they can fire individuals who misbehave. But that kind of quasi third party, they're a different company, but they get GP shares, it just muddies the waters too much, again, in my experience, in my observation, speaking with other investors in the space leads property managers to think they can't get fired for underperformance. So not a good look as a big lesson learned.

Mike Stohler
Property manager was just I think the stickler of every asset class, I agree does have to be performance based. I don't like the flat fees. And then we also have to look at all the little fine lines about how they get paid. And when they get paid. It's just so crazy. But yeah, I've got tales about property manager groups. That's why I went into hotels, everyone. I'm just kidding. Because you have property management, also in hotels, and you have to watch just a whole different business type of thing. So what are you doing now? Are you still doing multifamily? Are you doing other asset classes?

Taylor Loht
We do multifamily and self storage primarily. Now things have shifted. So as I mentioned, pre COVID, I started investing in C Class multifamily, and did that for a few years, not just those first two, but did a few more after that. And there are some very good reasons in my experience not to buy older C class properties, what we found is that, for those older properties, there are more skeletons in the closet, there are going to be more capital expenditure needs in the property that you can look for and account for on the front end. But just the reality of owning properties built in the 60s 70s, or earlier, is that things are going to pop up that despite your best efforts and intentions, you didn't see coming and oftentimes the bill is much higher than you would think or are prepared for. And so many of those bills don't add to your noi, at the end of the day net operating income, which at the end of the day, your goal is to raise the net operating income. So shifting from from my investment model and experience shifting from C class to B class built in the 1980s or earlier, has been very important move, you can make a good argument for a class multifamily as well. But really think one thing that's not enough folks in this space, we're talking about or maybe still are talking about, if you will, aren't talking about enough. It's just the age of the property, I would not buy anything built in the 60s and 70s or earlier anymore, unless you really, really, really know what you're doing. Oftentimes, folks do that, because the place just looks so cheap. But in reality, the bills on the back end are the problem.

Mike Stohler
Yeah, that makes a lot of sense. I know. I'm thinking this and probably a lot of maybe the listeners, how do you justify like maybe where you're buying these? The cap rates are different, but the interest rates? It seems like they're above the cap rates, especially in my area where they're around for four and a half percent. Interest rates are almost double that maybe six or seven. How do you look at because back in the day, it was eight to 10 cap, three to 4% interest, just buy them all day long. What's your focus now on looking at something and making sure that you're not getting to a speculative type of deal?

Taylor Loht
Yeah, that's a great question. And I think that's the reason that we've seen a very steep decline in the volume of multifamily transactions in 2023. One of the more recent pieces of data that I saw is that multifamily transactions are down by something like 75% and buyers and sellers are having a hard time coming to term because some sellers still have those 2021, early 2022 price expectations and they're not selling unless they really have to. Now, I can't necessarily get into specifics, but we've had opportunities where sellers are selling because they need to they can't make their debt payments. So we're able to get a very attractive basis, if you will. And in some cases, just Speaking more broadly, folks who have had to sell today sometimes are getting their entire equity wiped out from where they purchased in 2021, or 2022. And, yeah, that's unfortunate. I certainly don't hope for anybody else to lose money in a deal. That's just kind of the nature of the game today. But again, going back to your point about cap rates versus interest rates, we see that in the volume of transactions, things are just way down from where they were, and maybe it'll recover in the future. Some folks are talking about, hey, maybe rates will come down next year. I'm not banking, that, my strategy on that, because I see that as kind of hope and hope it's not a strategy. But I think we will see some leveling out of the commercial real estate market into the future just don't know what it's going to look like. I speak with a lot of office owners, investors and property managers on my podcast, I want to speak about distress and multifamily. From what I've seen, the office market is so much worse or huge vacancy problems, you know, prices that are a half or less of what they were in within COVID, and even pre COVID Things are selling for today. So the bloodbath that I see happening is really in office and commercial real estate right now. But there are struggling operators in multifamily. It's true.

Mike Stohler
Yeah, I think I just saw an article today in The Wall Street Journal. Where I don't know if I think it was Florida, I thought, but they're saying that they can't get loans. They're not giving any office loans, none. And there are people that are trying to refinance or their five year seven year loans or come up. And they're just like, nope, not doing it. So we're going to see a lot of opportunity, perhaps. But I don't know who would buy it just because of the hybrid work model. And we just don't need those big ones unless you can convert the asset into something.

Taylor Loht
Yeah, somewhat paradoxically, that is the conversion, adaptive reuse model of offices is almost non viable. From again, speaking with folks who have really dug into this, who are experts in the office space and have looked at adaptive reuse the costs to just put in the plumbing that you need to turn an office into, say, an apartment complex, just completely blows the model out. And there's so much more that goes into adaptive reuse of an office building and turning it into apartments. From speaking with Office experts, what I understand is that most of the office buildings that could be adaptively reused are either already in that process or kind of have already been done. So unfortunately, it seems like that's not going to be a model that bails us out. And you know, you're this, we have a lot of tech people listening right now who are certainly familiar with WeWork, the collapse of WeWork. And I guess, defaulting on their leases, who knows what that's actually going to look like? That's another huge issue for the office market. And I don't know what's going to happen as a result of that. But they did have a lot of leases, that seems like they're not going to get paid, the owners of those properties aren't going to get paid, maybe blood in the water. I don't know whether there's going to be opportunity out there for someone who sees it. And I don't know what that opportunity is going to look like. But again, unfortunately, the adaptive reuse model kind of seems like it doesn't work in most cases. I wish it would honestly, I would go for it if it did, but it just doesn't. Yeah,

Mike Stohler
it's very interesting. And ladies and gentlemen, I want to give everyone your website passivewealthstrategy.com Talk a little bit of difference if someone hasn't gotten into a syndication before. an LP what a passive investor give us some of the things that the terminology of what they're dealing with when they go to your website, because they're looking at us like why am I passive? What's a GP? What's an LP? Give us a little breakdown for those that aren't familiar? Sure.

Taylor Loht
So LP is the limited partner, it's a passive investor whose participation in a deal is limited to their investment. They're not providing their own labor in the deal. They're not putting up their credit, for example, on the loan, and along with that their risk in the deal is limited to their investments. So there the LPS can't be basically sued by a tenant. That's a big concern for Sometimes doctors who invest in single family rentals get concerned about maybe personal liability as a result of their rentals. One of the benefits of syndication is that limited partners risk is limited to their original investment. Their participation in the deal is also limited to their original investment, GP general partner, the people who are operating the deal, finding the deal, oftentimes putting up their own credit to qualify for the financing, really the people who are doing the work to find and deliver and sell the deal and produce a return for investors. What else there's two key legal structures that are the most common are exemptions for filing with the SEC that you'll hear 506(b) and 506(c). 506(b) is basically a private offering that's not advertised where an unlimited number of accredited investors can invest up to 35 non accredited investors. But the sponsor cannot advertise that deal. They have to have a pre existing relationship with the investors, if I will succeed is a little bit different in the sense that the general partners can go publicly advertised. So what the government giveth, the government taketh something away, so they can have an unlimited number of accredited investors, but no non accredited, sophisticated investors. Another important consideration there is for 506(c) deals, the sponsor is required to obtain third party verification of investors accreditation status, that's something that sponsors pay for it's just kind of another hoop, if you will, that folks have to jump through, but the government says yes, you can advertise. But you also need to really make sure that these people are accredited investors, and not just basically saying so by having a third party weigh in on that, what else are there any other key terms we could touch on a credit, it's a big one, their net worth or income requirements, a lot of tech folks do qualify, either based on income or their net worth, you know, what else? Anything else we want to do?

Mike Stohler
Usually, do I prefer to return or based on IRR? Or do you just do a split?

Taylor Loht
That's a great question. So yeah, our deals typically will have a preferred return and then a split on the back end, it's important to know what a preferred return is. preferred return is essentially the position that we each stand in line, if you will, on distributions of again returns from the deal. So if the limited partners, the passive investors are entitled to a 7% preferred return in any given deal, they stand in line first before the general partners to receive a return up to 7% of their investment on an annual basis. And then above that, there's typically a split of whatever the cash flow on the investment is, all deals are different. All operators are different how they do that split above the preferred return. And then on the back end, there's typically a return again, all sponsors are different. The most common splits that I see in the industry, speaking, you know, objectively, if you will, is either 7030 70% for the limited partners and 30% for the general partners, or 8020. So those are the most common but the limited partners should eat first and get a bigger piece of the pie, they should be receive a preferential position because they are essentially taking the most risk by investing the money and giving up control.

Mike Stohler
Yep, very good. And everybody is passivewealthstrategy.com. So we've talked about multifamily, a little bit, self storage, gives little details and what you're doing in that space.

Taylor Loht
Yes, in the self storage space is really interesting. And you were talking about this a bit before we started recording, but people really like their stuff. And it's not just people, it's also businesses and that stuff needs to be put somewhere. Sometimes, you know, obviously people keep it at home, but when they're moving, relocating, upsizing or downsizing their lifestyles, depending on how they're moving, they tend to use self storage facilities to keep their stuff and one of the biggest things that I like about the self storage is that it's a lien law based agreement with the renter of the property rather than a landlord tenant law. So that was a big concern of a lot of folks through COVID The first couple of years of COVID There were so many eviction moratoriums, and everything depending on where you were some were worse or better than others. But self Sstorage didn't deal with that because it's just stuff so you're not dealing with landlord tenant law. Now, that's not to say that you can always immediately just go cut the lock off and change it and sell it on Storage Wars or whatever. Every state has different rules about how long the waiting period is and everything like that. But either way, it's nowhere near as onerous in a legal sense as An eviction with an apartment or what have you sell storage, I think a big value play, if you will, in the self-storage space these days, and I think probably for the next few years, is that so much of the industry, so much of the product out there is owned by mom and pops older folks who have own the facilities for a long time, and they see the facilities as essentially their retirement plan. So they see it as a source of income, but they get more tired, or sometimes they pass away, and look to pass on the asset to their kids who most of the time don't really want it. So our opportunity is to acquire those facilities and bring them up to the market, those modern pops don't tend to push rents because they tend to prioritize 100% Physical occupancy, just getting people in the places and collect rent and cash or cheques or what have you. But our goal should be to acquire those facilities, modernize the operations, normalize the rents, of course, a lot of times that comes with fixing up the interiors or exteriors repainting the buildings, and of course expanding and adding more square footage. Now, self storage is not immune to the capital markets, the increasing debt service costs have also slowed down the self storage industry. Because when you're say adding square footage that's typically bank financed and when your interest rate is significantly higher now than it was a two years ago, makes it a lot harder to pencil that deal. Also factoring in that construction costs are significantly higher now than they used to be. So what I'm seeing now, and what I expect, we'll see, at least until interest rates start to fall, whenever that is, is a reduction in the addition of square footage of sale storage in different markets, whether that's new facilities going up or existing facilities expanding, we're just going to see that slowdown. And that's the nature of interest rates going up. So higher rates have made commercial real estate across the board, frankly, harder to do. And I think that's going to wash people out. We still do see opportunities. But the reality is, it's just a bit more difficult to find a good compelling opportunity now than it used to be. But that's why they raise interest rates, right. And that will change eventually, we just don't know exactly when that will be.

Mike Stohler
Yeah, it's probably good thing. And maybe most of the time, it's a good thing that we're coming into an election year. So everyone wants to posture everyone wants to say, oh, look what I've done to the economy. And a lot of times rates tend to go down or stabilize. I don't think that the current administration will raise them just because it just looks bad. You know that we're seeing some positive trends in the economy right now, with inflation. So I think at least it'll stay the same. And then I've read a lot of economists in the Wall Street Journal, they're saying that they think next year, it'll start coming down. So we can all hope for that. So how can people find you? You know, we've been talking a little bit about self storage, multifamily passive investing, do number one. Do you have something open now? Are you getting ready to open a syndication or a fund?

Taylor Loht
So for compliance reasons, if I had a deal, I wouldn't be able to talk about it on your show. But if anybody wants to talk, certainly welcome to look me up. But I do have something free I can give to your audience that may be beneficial to them, if I may.

Mike Stohler
Absolutely. And is it on the website?

Taylor Loht
Yeah, so you can go to passiverealestatecourse.com That'll take you directly to my free seven day video course on red flags in passive real estate investing. There are seven relatively short videos that I've tried to make bite size, talking about seven different red flags in passive real estate investing and I hope that's useful for your listeners pointing out seven things that I've seen go wrong in deals more commonly, or oftentimes seven little blind spots that many new passive investors have because you know, when you're new, you don't exactly know what expectations you should have in many cases. So this is hopefully you know, going to help set expectations and give you seven things to look out for and to consider. If you look into investing in real estate passively.

Mike Stohler
And everybody we'll put that in our show notes. It's passiverealestatecourse.com seven red flags and passive real estate investing with a free video course. Taylor, it's been well, before we end where can people find you? I'm sure LinkedIn Put your website anywhere else.

Taylor Loht
im_taylor_the investor on Instagram underscores between the words if you want to speak about investing, go to invest with taylor.com. Or again, check out the video course. And you'll get emails from me as well. And you can just get to me through those emails probably the best way.

Mike Stohler
Very good. Taylor, any closing thoughts that you'd like to tell our listeners?

Taylor Loht
I would say, you know, we talked about interest rates and what might happen over the next year and everything like that what's happened over the past year and everything like that. But personally, I see real estate, it's a long term wealth creation vehicle, we should pay attention to the short term, shorter term, you know, one year macro moves, things that are happening. But I believe we should have a 510, even 20 year vision of where our investments are going to be taking us. So keep the long term in mind when you're looking at short term changes in the market.

Mike Stohler
Yeah, and I can't say that any better it listen to people, if you're always waiting for the interest rates to come down. For instance, I think it was like in 1972, if you bought a house, and you waited for so well, I need the rates that come down or need the race to come down. They didn't go down till the early 90s. But what did happen is that asset probably increased his appreciation for fold. So as long as you cashflow as long as it somehow pencils, what we always say is you marry the asset, but date the rate. Because you can always at some point, change the rate. But you can't always get a hold of that asset because it's going to appreciate, but the rates will fluctuate. So don't let that be, oh, I'm not going to invest with Taylor because the rates are high. Yeah, but that asset, Taylor's done his homework, that asset is going to be pretty good. So Taylor, I appreciate you coming on The Richer Geek Podcast and have a wonderful day.

Taylor Loht
Thanks, you too.

ABOUT TAYLOR LOHT

Taylor is a multifamily and self storage real estate investor who teaches others how to invest in real estate without buying themselves another job. He is the host of the "Passive Wealth Strategy" podcast, where he shares his insights from investing across diverse markets such as Dallas, Houston, Atlanta, Phoenix, and mid-Michigan. Utilizing syndication models, Taylor raises investor capital for targeted property acquisitions. His investment approach focuses on implementing value-add strategies to enhance net operating income and property appreciation.