Jun 28, 2022
Finding investors is easier than we think.
In this episode, Ace Karimi reveals the secrets to getting investors interested in your deals. He is the co-founder of Invest Capital, a real estate investment firm that is dedicated to buying A and B apartments to provide double-digit returns to its clients. Ace goes to the nitty-gritty of their unique syndication model, how they are turning around projects with heavy deferred maintenance, and the importance of setting the right expectations with investors to increase the chances of success.
[00:01 - 06:47] Getting Out of the Hamster Wheel of Wholesaling and Flipping
- Making the leap from single-family to multifamily
- Ace breaks down their first deal
- Taking massive action and getting the word out
- Finding an asset that feels right
- Running the numbers
[06:48 - 20:26] Building a Unique Syndication Model
- Presenting the offers to investors
- The #1 thing investors are looking for: when will they get their money back?
- Ace on asset management fees
- Taking on heavy-lift assets
- Offsetting refi risks
- Looking out for the worst-case scenarios
- Helping everyone to be an investor
[20:27 - 21:50] Closing Segment
- Reach out to Ace!
- Links Below
- Final Words
Tweetable Quotes
“Just getting your name out every single place possible. That's the thing. It's like, you got to let everybody know you're buying unapologetically.” - Ace Karimi
“Investors are hungry for deals. There's so much hunger and desire for just an opportunity, right?” - Ace Karimi
“Money finds deals. Money's trying to find deals to go into and the only thing is you need is to have good enough deals that the money wants to be a part of.” - Ace Karimi
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Want to read the full show notes of the episode? Check it out below:
[00:00:00] Ace Karimi: The owners, they don't care. Like, they're not looking after the property. They're just, Hey, I'll just take a check and whatever happens, happens, and property management's usually not involved. And you know, that's just, what's going on. Nobody really cares. Like, we care about our properties, right? My team's involved every single week.
[00:00:16] Ace Karimi: We're on Slack. Well, we have a communication channel, 24/7. We do weekly pulse checks. You know, we're looking after our asset for our investors, but also for ourselves. That's always how I am with any business I do. I'm keeping my eyes on the prize.
[00:00:41] Sam Wilson: Ace Karimi buys cash flowing apartment buildings through a unique indication model, and he teaches others how to do the same. In 2021, he bought 35 million in deals and they are growing. Ace, welcome to the show.
[00:00:53] Ace Karimi: You're welcome, Sam. Thank you for having me.
[00:00:55] Sam Wilson: Hey, man. Pleasure's mine. There's three questions I ask every guest who comes in the show in 90 seconds or less, can you tell me, where did you start? Where are you now? And how did you get there?
[00:01:04] Ace Karimi: Wow. I like it. Rapid fire. So we started, I think three years ago, we, we jumped in from single family.
[00:01:10] Ace Karimi: We used to do a lot of wholesale and flipping, pretty sure you're familiar with that, doing the hamster wheel, always hunting the next deal, next deal, next deal. Like, looking for those single checks, I realized we wanted a better way. We wanted consistency. We wanted predictability. So, we made the jump.
[00:01:25] Ace Karimi: We made the leap one day. It was actually. Right before COVID happened, believe it or not. But we went really, you know, full all hands on deck. Like, Hey, we're not turning around. This is it. And that was the year that we ended up buying 35 million in apartment buildings through our unique syndication model in which we're able to give the investors, their money back a lot sooner, 24 to 36 months usually give 'em an infinite return while still kill while still keeping most of the deal.
[00:01:51] Sam Wilson: Now that is really cool. So you guys went, went long in multifamily at the beginning of the pandemic. How long did it take you to get your first deal?
[00:01:59] Ace Karimi: Let me think. So here, here, it's the funny thing is, you know, how you start doing it initially, you're kind of just looking at deals on a side here and there.
[00:02:07] Ace Karimi: And if I look at it from that regards, probably like, I don't know, three four months, something like that. But when we really went like committed, Hey, this is it. We're going to find a way. It was like maybe 60 days.
[00:02:19] Sam Wilson: Okay. Okay. That's pretty fast for people, you know, out there listening. I mean a lot of people we talk to on the show, just say, Hey, look, you know, be patient when you get your first be patient, you know, as it cuz it takes time to get your first deal.
[00:02:32] Sam Wilson: What do you feel like you did differently that allowed you to find your first deal? So fast?
[00:02:37] Ace Karimi: Massive action.
[00:02:39] Sam Wilson: What does that mean? Can you define that for us?
[00:02:41] Ace Karimi: Dude, just, just getting your name out every single place possible. I mean, that, that's the thing. It's like, you got to let everybody know you're buying, you know, unapologetically.
[00:02:48] Ace Karimi: I was letting it be known. Like, Hey, I'm going to buy apartment buildings. And everybody that I was talking to, I was flowing up with them consistently. And I'm like, Hey look, do you have something for me? Do you have something for me? I'm looking, I have capital sitting right here. Then I eventually found one.
[00:03:01] Sam Wilson: Okay. Tell me about the first deal. What, how big was it? What, what were the parameters of it? And, how did you know that was the one for you?
[00:03:10] Ace Karimi: Oh man. So yeah. Great question. So, you know, your first deal, it, it means so much 'cause once you can really identify what a deal is, you know, it, it makes everything a lot easier for your second, third, fourth that, you know, the domino trickles down.
[00:03:23] Ace Karimi: My first deal we got, we were at our first deal four different times. I had one down in Georgia. I had one down over in Maryland, like I'm in the east coast by the way. Right. I'm in DC. So I'm over here looking out of the area, which, you know, you're as an more of an inexperienced investor getting into multifamily, you're just looking anywhere and everywhere for a deal, which is a big mistake, right? And so, it was so many close times where the numbers looked good, everything looked good, but something just didn't line up. And we had to pass on it, which, you know, you have to have the discipline to do. And we ended up finding this deal that literally passed and checked every box that those other properties didn't right.
[00:04:01] Ace Karimi: It was a 72 unit property, in my home state here in Virginia. So I'm right out of the DC Metro I'm in Northern Virginia. And great property. Beautiful, right? Still, it was like a seventies build, but it didn't look like it. Right. It just, you know, the owner had, was already starting to put a lot of CapEx into the property as we were looking to buy it, which was great.
[00:04:22] Ace Karimi: Already started doing the windows, the roof and the plumbing work and a lot of the exterior stuff. So, you know, he was already getting that ball rolling for us. We, we came across the deal and it had a beautiful view of the mountains. Believe it or not, which was, you know, amazing. That's just one of the things that's like, it felt good.
[00:04:39] Ace Karimi: I think that's one of the things that you just know of. It's the deal. Something feels good about it. It's in a great location. You're just like, dude, I would love to own this asset. Right. And then the numbers, like I, the numbers look kind of slim at first. Like, we bought it for 3.8 million. It was a 72 unit asset, right? Market rents were nuts. They were, they were at $600. And at the time, yeah, exactly. And at the time the, the rents in the market were like 900. So there was a $300 discrepancy. And now fast forward to now it, they went up to like 1100, by the way. So it we've got a big, big boost.
[00:05:16] Ace Karimi: We came across a deal, you know, we, we had a discussion and we went back and forth and then we ended up, putting it under contract at 3.8 million, put $600,000 into the property. We knew we could drastically increase the value. So, we underwrote the valuation around six and a half million, I believe, conservatively. So there was, you know, there was a couple million in equity at play and from our modeling, we realized that, Hey look, we don't necessarily need to give up most of the meat of this bone.
[00:05:43] Ace Karimi: It's, it's a heavier value add property. We have a lot of work to do, really have to, you know, roll up our sleeves. And so we used our own syndication model in that regard and we gave up a higher preferred return and we actually kept most of the equity for ourselves because of the work that was involved.
[00:06:01] Ace Karimi: And we promised an 18 to 24 month principal return, which we're actually on pace to do that even faster right now we've already initiated our refinance and essentially that's it. And they get to stay in the deal in, in perpetuity and they get a hundred percent of their capital back and a check and they get to keep the press, you know, and they get to stay in the deal.
[00:06:22] Ace Karimi: And on top of that, they get a, they get a check at exit. So it's pretty awesome. And our valuation, by the way, for this deals coming between 9 and 10 million.
[00:06:30] Sam Wilson: I was going to say at a, 10 cap you're, based on the rent bumps, you know, I'm sitting here running your numbers behind and I'm like, okay, it's worth about nine and a half million bucks at a 10 cap.
[00:06:39] Sam Wilson: Yep. I mean, so that's ridiculously, probably low, I would think, you know, actual valuation so that, that's really, really cool. Tell me, I want to hear more about the actual structure of how you brought investors in on this deal. 'Cause what I heard was that, did you identify and line out those terms, obviously on the front end? You said, okay, Hey, here's exactly how we're going to take this down because we just see huge runway here. And then I guess, break that down for me. Let's assume I'm, I'm an investor and I say, Hey Ace, I want to put a hundred grand in your deal. How does it work?
[00:07:15] Ace Karimi: Oh, great question. So essentially, yeah. So, Hey look, we, we, if it's this type of a deal, right, it has to be a specific type of deal, but you know, I'd go into the conversation and be like, Hey, look, I have a great opportunity.
[00:07:26] Ace Karimi: There's a lot of upside, you know, several hundred dollars of upside. We have several comparables to prove that. It's not just one or two, this isn't speculation. Like, this property has not been bumped up in a, in a while. Owners kind of had some deferred maintenance to it. There's a lot of work involved to go in there and to raise these up to market level, turn all the tenant base and we're prepared to do that.
[00:07:47] Ace Karimi: But in order to do that, and to, to make this property worthwhile for everybody, we ran a numbers, you know, we're buying it at an incredible price, far below market value. And so here here's where it's going to be valued. In 18 to 24 months, we're actually going to be able to give you your full principle payment back and we're giving you a higher preferred return.
[00:08:06] Ace Karimi: Here's a structure. And then I show them, Hey, look, you're going to be able to make, I don't know, 30%, 20, 30, 40% in that short amount of time. And you get your a hundred percent of, of your principle back, 'cause at the end of the day, what they care about most number one thing. Isn't how much money they're going to make.
[00:08:24] Ace Karimi: And you know, those too, Sam, they care. How long is it going to take to get their money back? If I can tell them, Hey, look, I'm, I'm telling you right now, from what I'm seeing here, 24 to 36 months, you get all your money back, you get an eight to 10% pref, virtually guarantee it. You can't ever guarantee anything, but it's like, dude, you're, you're getting the pref.
[00:08:42] Ace Karimi: All the money's essentially going to them. I'm working for you essentially. I'm not getting paid. I'm getting paid, maybe some fees, but the, the alignment with that is, is because there's not really going to be any cash flows during the, during the period of time. Most indications don't really have cash flows anyway.
[00:08:58] Ace Karimi: So it's like, why, why does it even matter? But it, you let them know, Hey, look, I only really get paid when I do the, what I'm telling you is possible. You don't have to believe me and, and see the numbers that it's going to hit this metric. But you are going to have the security to know that. Look, you're going to get your pref.
[00:09:14] Ace Karimi: You're going to get your principal back one way or another. And the only way I'm really going to get paid is on the backside when I increase the valuation up. And you've already got your money back in your pocket safely.
[00:09:23] Sam Wilson: What is the investor split once you give them their money back? So you've done a cashout refi you've given 'em a 10, a 10 pref on the deal, cashout refi. I got my money back. What's your investor split going forward?
[00:09:36] Ace Karimi: 30%.
[00:09:37] Sam Wilson: Okay. So it's still a 70, 30 split.
[00:09:40] Ace Karimi: Yeah. And they get the stay a deal. Exactly.
[00:09:41] Sam Wilson: It's flip flopped in this case, most of the time, it is 70% to the investor. 30% to the sponsor. In this case, you're saying, look, if I can get your money back in 24 months, give you a 10 pref.
[00:09:52] Sam Wilson: Of course the profit goes away once the capital is returned. At that point, you collect 30% of the upside on the cash flow and then upon disposition and you as the sponsor collect 70%. Do you guys, and again, I'm sorry, I'm getting in the weeds on this, but this, this is very different than what we see, you know, a pretty standard syndication model.
[00:10:11] Sam Wilson: So this is why I kinda want to spend some time on this, just to hear that, give other, give listeners the idea that there's other options out there for how we structure these deals, you know? So, so you return the 30% to your investors, but do you guys take acquisition fees? Do you guys take other fees in the front end of these deals or do you wave all that just so you can say, Hey, you know what? We are truly getting paid only when we perform.
[00:10:33] Ace Karimi: No, I still take the fees because, you know what, the reality is, like the kind of deal that I'm talking by here, by the way, they're not something that you just find. Like, we have to hunt for these deals usually, right? So if I'm hunting for these deals and I'm spending time, resources, money, months to follow up, like, this is something that yes, we will still take a feet on upfront.
[00:10:53] Ace Karimi: You know, and, and it's not like it's going to go straight into all my pockets. It's, it's just the reimburse really for our soft costs, right. That that's not even money that we're really grabbing. And then on a second hand, asset management fee is just there to just take care of, of the asset management team in the meantime.
[00:11:09] Ace Karimi: But it's really pennies. Like, this isn't like you you're really, you're not really doing this on a large scale that that's, that's the differentiation I want to make here. You're not doing this on like, kind of 80 to a hundred million dollar property. I, I think you could, if you find it properly, but you know, these are, these are, this model is great for somebody who's just starting out, who sees an opportunity with an asset that's got heavy, deferred maintenance and needs a lot of work. And you're like, dude, I could come up there, scoop up a lot of the equity, do a lot of hard work once, twice, grab that equity, give my investors a return and then go put it into something better. Does that make sense?
[00:11:42] Sam Wilson: It does. So I guess that's the, that that's a follow on question to your investors. Heavy lift, heavy value, add, you know, maybe low occupancy, maybe there's crime, maybe there's a lot of those things that go along with, it feels like additional risk, you know, to a lot of investors. How do you frame that conversationto let them know, Hey, we can, we can make this work. And you know, the, it, it's not as risky as it may seem.
[00:12:08] Ace Karimi: Oh, for sure, here's why our model still has certain metrics. It still has to be a B area, like C plus at the worst. I'm not going into the hood. Like, I'm just not, there's no way I'm going to go in there. You know, some people want do that. I'm not. Like, these properties still exist where they're in good areas. They are just mismanaged. They're just not they're, you know, they're not looked after properly and the right operator can go in there and turn things around.
[00:12:34] Ace Karimi: And so at the end of the day, like if it's 40% occupied or something, I, I wouldn't really look at it too much. You know, like I'm not, I'm not taking on that much extra risk where I'm saying, Hey, look, I'm going to go into a D class area and take on a property that's low occupied. No, that, that that's just trouble.
[00:12:52] Ace Karimi: We, we stay away from that completely. So there's complete no's that we do. Our, our properties, I did three of these in one year. They were all in over 90% occupied. Wow. And they were in good areas.
[00:13:01] Sam Wilson: 90% occupied.
[00:13:03] Ace Karimi: Yeah.
[00:13:03] Sam Wilson: Submarket rents because the place looked like garbage.
[00:13:07] Ace Karimi: Yeah, they just didn't treat it. Right, dude. And, and here's the thing it's like, and I, and I tell people this, and when they ask me, it's like the owners, they don't care. Like, they're not looking after the property. They're just, Hey, I'll just take a check and whatever happens, happens, and property management's usually not involved. And you know, that's just, what's going on.
[00:13:24] Ace Karimi: Nobody really cares. Like, we care about our properties, right? My team's involved every single week. We're on Slack. Well, we have a communication channel, 24/7. We do weekly pulse checks. You know, we're looking after our asset for our investors, but also for ourselves. That's always how I am with any business I do. I'm keeping my eyes on the prize.
[00:13:43] Sam Wilson: Right. And, and we bought one like that last year is just like, I mean, absentee owner, running to the ground. They didn't care. Didn't care. So I get it, you know, then again, they were making their money along the way 'cause they bought it, you know, eight years ago for a, for a...
[00:13:57] Ace Karimi: Exactly. Dude, they're happy either way.
[00:14:00] Sam Wilson: They're happy. They're clipping a coupon and the place looks terrible.
[00:14:04] Ace Karimi: To be honest, you want to be them? Like, that's the funny, that's what I tell people. I'm like, dude, it's not that fact that I'm winning. These guys already won. They're like 8 to 10X-ing their money doing absolutely nothing.
[00:14:14] Sam Wilson: Well for sure. For sure. They're also slumlords and those are the people that we want to get out of the business. So it's like...
[00:14:19] Ace Karimi: That's true. That's true.
[00:14:20] Sam Wilson: They're the ones that give us a bad name, so, and you're the one going in there and, and giving us a good name.
[00:14:25] Sam Wilson: So you're doing, you're doing right. And I like that. Tell me about how do you offset refi risk, especially in today's rates environment. I mean, your business plan sounds incumbent upon being able to refi this property in two to three years.
[00:14:39] Ace Karimi: No, I could also just sell it, too. Like that, that's always something we, we let 'em know, like, Hey look, 'cause because if you sell it, they're, they're, you know, they actually get a higher than average returns metrics.
[00:14:48] Ace Karimi: It's usually like 3X, two and a half, 3X or something. So if we sell it, they're even happier. They're like, wow, I'm making all my money. But to be honest, they want that capital to be used all the time. So we, we always run at both scenarios. We present both in front of 'em here. Here's our plan A, it's to go and refi. But if we can't do that, if we saw here's what it looks like. And on one of our deals, it was flip flopped. We're saying, Hey, look, we're looking to sell this deal, but if we can get an above average valuation above higher than our conservative number, then we're going to get a refi. So we always run both scenarios 'cause it's like, I don't ever like having one exit and be enforced into a position. Not, not a way you want to do that, especially with these big deals. Yeah. That's usually it.
[00:15:28] Sam Wilson: Right. Makes no, that makes sense. That makes sense. You could, you could always sell it. What is, I guess when you guys look at a cash out refi, are you maximizing the amount of capital you can pull out of the deal? Or is it, are you de-leveraging in some capacity or what's that.
[00:15:43] Sam Wilson: How, how, how do you like to look at that? I'm sure it's on a deal by deal basis, but what's your general feeling around that?
[00:15:48] Ace Karimi: No, no. The funny thing is, so this first deal that we just refinance, right? Like, we're going to only going to pull out 70%. You don't need to pull all of it out. I don't, I, I think, you know, definitely keeps some in the deal for just cash flows to always pay things off, you know?
[00:16:02] Ace Karimi: You always got to be looking out for the worst case scenarios, man. I'm just like thinking in the back of my mind. Sometimes I'm like, okay, some crazy thing happens. I don't know, like you've got to have months where you're able to have reserves, something drop, something crazy happens, you know, like, you got to make sure you can always break even. You have extra months to pay things off. You do all this work. Like, what's the point, you know, you pull out 80% and then your, your margins are thin as it is. And you always need to keep it 98 to 99% occupied. It's not smart.
[00:16:31] Sam Wilson: I hear you. I hear you, man. That, that makes a lot of sense. Ace, one of the things we talked about before actually hitting record on this was that you feel like finding investors is really easy to do.
[00:16:44] Sam Wilson: That runs kind of counter to what a lot of people experience, especially getting started. Why do you say that?
[00:16:51] Ace Karimi: One, it's perspective, man. I, I really think it's like just a perspective. Like I've always had that belief even before I raised any money. You know, when I was wholesaling and flipping, I think that's one of the things that I saw.
[00:17:01] Ace Karimi: It's it's investors are hungry for deals, man. There's so much, like, hunger and desire for just a, an opportunity, right? They will jump on it. I've seen when I used to wholesale houses, 'cause a lot of times we flipped, but sometimes when we wholesale, if I send it out in an email link, okay. And I had a property with some margin, with some meat on the bone and they can make, you know, 15, 20% dude, you should see how often it would blow up my.
[00:17:27] Ace Karimi: Hey, what is it going to take to get in this deal? What's it going to take? You let me know, give me the number. Hey man, I don't want to be in a bidding war, blah, blah, blah. And I'm like, dude, here's my process. If you want to get the deal, I need you to come and highest and best and stop playing around, you know, because I have the opportunity.
[00:17:42] Ace Karimi: I want to build a relationship with you, but you're not going to come and undercut me. So it's a respect thing, right? You have to come from a place of, of respect of holding yourself in a way where he's like, dude, like I got to, I got to understand that this guy has the value and I'm trying to build a relationship with him.
[00:17:56] Ace Karimi: You know, I always look to the future. Sometimes I'll even take a little bit less, but I always go with the guy that I felt better about, that I knew had more principles instead of going for the extra five grand, six grand on, on somebody I did not like, I didn't like the way they were carrying themselves and they acted like they could run me just 'cause they had extra money.
[00:18:13] Ace Karimi: I don't, I, you know, it's like, it's always about principles to me. So when I saw that in, in wholesaling that people wanted opportunity, you know, and, or everywhere. Hundreds and hundreds and, like, that, that I had just in my local market who just wanted single family houses, you know, but when I started talking to 'em, they were also just down for any opportunity.
[00:18:33] Ace Karimi: That's the thing is if people, if you have an opportunity to make money, money finds deals, money's trying to find deals to go into. And the only thing is you need is to have good enough deals that the money wants to be a part of. That's how it works. So like, now that I did my apartment building, I probably raised, I don't know, five, 10 million by now in really over in about a year. The thing is it's like, as long as you structure it clearly, they see the upside, they understand, to me, everyone is an investor and everyone should be an investor, right? Like, I have my shirt here, right? Like, like part of our mission in our business is to help everyone become investors. I've, I've invested my own family's money and on, on my properties, I believe in it that much, right?
[00:19:16] Ace Karimi: Savings accounts for years, I have friends of family that are investing with me. They're investors. Everyone's got money stacked, stacked away. They just want to be like, that guy's an expert. I trust him. He's an authority, knows what he's doing and I feel good. And you set the right expectations and you just lay back.
[00:19:35] Ace Karimi: You should, you should see the responses. They, some of them, they just do it 'cause they trust you. And then throughout the actual stabilization period, dude, they're collecting monthly checks and they're happy. They're not getting that from stocks. Where else are they getting that? You know? So just from the monthly dripper loan on 6, 7, 8% pref, dude, they're happy. I promise you. And then, and they don't even realize that like when I return their money and then I'm going to give them an extra check and refi, dude, their mind's going to be blown, right? But just the pref alone, like that's powerful. It is.
[00:20:07] Sam Wilson: It really is. It really is. And that's, I got one of those texts from somebody the other day that just said, Hey, thank you. Thank you for giving me an opportunity to get outta the stock market. And get paid on a quarter. We, we, we do quarterly distributions, but get paid quarterly. This is awesome. Yeah, I really appreciate it. It's like, oh right. What you're, what you're doing is of value. Ace, thanks for the time to come on the show today and share with us what you've been doing, how you've done it so quickly, your perspective on , you know, finding investors is easy to do, how to take on a heavier lift project and yet still offset ,risk and, you know, really, your unique indication model.
[00:20:42] Sam Wilson: I think that's really cool the way that you've kind of turned this on its head. And yet at the same time, are really attracting investors to your deals in a unique way. So, and congrats on that one deal that you've taken from basically four and a half million to a 10 million deal in a very short period of time. That is super cool. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?
[00:21:03] Ace Karimi: Social media is usually the best. Add me on Facebook, Ace Karimi, LinkedIn, Ace Karimi, and then on Instagram, @ace.Invest. That's it. I'm happy to provide the rest of the details to you. My email, if they have anything they want to talk about for sure.
[00:21:19] Sam Wilson: Certainly we'll put all that in the show notes. Ace, thanks for coming on the show today. Certainly appreciate it.
[00:21:24] Ace Karimi: Sam. Thank you.