Sep 24, 2022
Rich Neuharth is a full-time air traffic controller at some of the busiest airports in the world and an experienced real estate investor and partner at Aviana Capital Group. Currently a GP at 600+ units and continuously growing rich, he joins us today to discuss how to strategically form and leverage partnerships to scale your business. He also opens up about lessons he learned the hard way during his career and offers valuable insights on relationship building and mitigating risks.
[00:01 - 05:33] Finding Balance as an Air Traffic Controller and RE Investor
- Get to know Rich
- With good partnerships, he’s able to manage his time and focus on what matters
- They found success in single-family before transitioning to bigger assets
- There’s a higher level of professionalism that comes with larger numbers
[05:34 - 10:33] Partnering Up Well
- Building a network is valuable to accelerate the business
- It’s important to be strategic when deciding who to team up with
- Know the people in the deal and ask a lot of questions to vet the potential partner or sponsor
[10:34 - 20:59] Staying Competitive in the Market
- Rich and his team do traditional and direct dealings with brokers
- Touring has helped them find off-market deals
- Be calculating and don’t rush into getting deals done
- Stop relying on equity sources and foster relationships
- Rich reflects on a time where their equity pulled out last minute
- Eliminating risks associated with 1031 exchanges
- Make sure you've got at least two X of what you need to raise ready to go at any time
- Look for the opportunities in a down market
[21:00 - 22:10] Closing Segment
- Reach out to Rich!
- Links Below
- Final Words
Tweetable Quotes
“To be 100% honest, I wouldn't do a deal with anybody that I didn't go out to have lunch with regularly.” - Rich Neuharth
“Maybe it costs me 600, 700 bucks for a plane ticket, but I get a full day of touring properties, photos and social media content, and catching up with them.” - Rich Neuharth
“There are better deals to be had. There's more cash flow to be had. I think more investors should be placing more money in the market right now than 6 months to 18 months ago when everything was at the top.” - Rich Neuharth
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Connect with Rich through AvianaCapGroup.com or email him at rich@avianaco.com
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Want to read the full show notes of the episode? Check it out below:
[00:00:00] Rich Neuharth: We are not relying on just any equity sources anymore, whether that's funds or traditional capital raisers, we need to have a relationship with those people or have a relationship of a relationship that has worked with those people 'cause it's tough to have your equity pull out last minute. It's pretty devastating and nobody likes it.
[00:00:33] Sam Wilson: Rich Neuharth is an air force veteran that's been investing in real estate since 2010. He's currently a general partner in 600 plus units and growing rich. Welcome to the show.
[00:00:42] Rich Neuharth: Thanks, Sam. Glad to be here.
[00:00:44] Sam Wilson: Hey man, the pleasure's mine. Rich, there are three questions. I ask every guest who comes on 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?
[00:00:53] Rich Neuharth: Started in Las Vegas, Nevada, just after the downturn, 2008. I started there by reading a lot of books. Right now we are only in multifamily space. So we'd raise funds, manage funds, run sponsorship teams for only multifamily. So we're out of single family. No flips, no rentals, no, nothing like that.
[00:01:18] Sam Wilson: Man, that's awesome. Where are you based out of right now? Are you still buying in Las Vegas? Are you buying somewhere else?
[00:01:26] Rich Neuharth: Nope, we buy in Texas and Georgia. I'm based out of Denton, Texas, just North of Dallas and Fort Worth.
[00:01:32] Sam Wilson: Gotcha. Gotcha. Based out of Denton, Texas, and you're buying in Denton. That's really cool. Now let me get this straight. You are still full-time employed and still, also pursuing real estate in any spare time. Is that right?
[00:01:45] Rich Neuharth: Absolutely. I tell people I got two full-time jobs.
[00:01:48] Sam Wilson: Oh, gosh. Yeah, man. I was talking to somebody earlier today and the conversation went something along the lines of you work for yourself now, which is great, but it doesn't mean you work less. It probably means you work more. And they're like, yeah. The only difference is that I get to choose when I do it. So I was like, yeah, that's, you know, probably a fair point. What do you do for a full-time career?
[00:02:08] Rich Neuharth: I'm an air traffic controller.
[00:02:09] Sam Wilson: Air traffic controller, okay. So you work in the same shift every week or is it all over the place on your shift schedule?
[00:02:15] Rich Neuharth: I work a different schedule every day, six days a week.
[00:02:18] Sam Wilson: Holy smokes. Okay. So you're working a different schedule. If you're listening to this and wondering if you can scale your portfolio, if you can grow, rich is your guide and mentor, 'cause he is working a different schedule at six days a week, every single week. He has no idea what his schedule's going to be. And yet he's still finding a way to acquire multifamily assets. Tell us what has been one strategy that you have used in order to continue the momentum? Cause I can't imagine you wake up every day, feeling bright-eyed and bushy-tailed ready to go out and acquire real estate.
[00:02:50] Rich Neuharth: Nope. I would say good partnerships. So I've got a business partner and then my wife helps me as well, managing time, just putting the important things first every day.
[00:03:00] Sam Wilson: Got it, man. That's really cool. So you started in Las Vegas, now you're buying in the Texas markets. Tell me, how did you make that strategy? How did you make that transition? And then when did you finally decide to go into bigger assets?
[00:03:14] Rich Neuharth: Yeah, so we started buying rental properties back in 2010 basically is when we bought our first piece of real estate. Sounded like a great idea. I wanted to, I was reading a couple of books on how to create streams of income. And I just, read this book is called Multiple Streams of Income and had like 10 or 12 ways. I just picked a couple of them and gave 'em a shot. With rentals, I just fell in love with, I've always been interested in how people buy real estate, and bought a couple of the no-money-down properties. They don't always actually turn out that way, by the way. I've had. pretty good successes in the single-family game, but we've also taken our licks as well. And then 2018, we decided it was time to make a shift and partnered with people that were better and stronger than us in certain areas and bring our skillset of property management and deal sourcing, capital raising to the game and play with bigger numbers.
[00:04:08] Sam Wilson: Right. What is so 2018, you guys made that leap? What has been the most surprising thing that I think or that you would say you've discovered since making that transition to bigger assets?
[00:04:22] Rich Neuharth: Oh, the most surprising thing is how much more fun it is. Dealing with the level of professionalism that we get when we build out a really great team from your sponsors to your lenders, your brokers, your insurance professionals, just everything is high caliber. And it's super awesome to see a project come together like of these sizes, you know, 20, 30, 50 million deals come together. Sometimes I would say relatively flawless. You know, compared to what it could be. Not that any deal is easy, but a lot of great people that we surround ourselves with.
[00:04:59] Sam Wilson: Man, that's no different than I would imagine what you find in the air traffic control side of things. I mean, there is a lot of coordinated effort with a lot of people doing a lot of different things in order to get a plane from, you know, gate to gate or from part, you know, from hub to hub, whatever it is you're doing. There's a lot of people doing a lot of different tasks in there in order to make that happen. It seems like you've gone from one, one really well-choreographed dance to another you know, with the same level of professionalism.
[00:05:30] Rich Neuharth: Yeah. That's a good way to look at it. I never thought of it like that.
[00:05:33] Sam Wilson: Yeah, absolutely. That's really cool. I love it. So you guys, in 2018, you started taking down bigger assets. You said one of the things that you've done is really partner up well, what does that mean to you?
[00:05:43] Rich Neuharth: So partner up well is, not every your project requires the same team. If you're doing a 50-unit project, maybe it's only one or two people. If you're doing a 50 million deal, maybe it's seven or eight, you know, everybody would like to have three or four people on a 50 million deal, but it's not always, that's not how you start. It was a lot of time building our network, finding the people that we could bring value to, you know, some people like the yield play, just buy it, let a cash flow type deal, other people like a value add. And so really being that super connector for people is invaluable.
[00:06:19] Sam Wilson: Super connector?
[00:06:20] Rich Neuharth: Yeah. So when we started, we joined a couple of different masterminds, found some great people, kind of accelerated our network that way. But then after that, we find that we were meeting people outside of masterminds. And so if I got somebody in Atlanta and they're looking for a deal, well, I've got somebody else that I know that is sourcing deals. You know, the sponsorship team, the network liquidity, and we can arrange that and get more deals done with people. And it's done.
[00:06:45] Sam Wilson: How have you strategically decided what or who, I should say, who to partner up with on projects and who not to partner up with?
[00:06:56] Rich Neuharth: Yeah, I would say that we learned the lesson the hard way in a couple of instances. The first group that we partnered up with, great guys, a lot of strong communication, organizational skills. They had a lot of success and it was in a tertiary market, oddly enough. And then our second deal was kind of, it was a referral and we didn't really ask the questions, which I think vetting your sponsor is something that's insanely important that a lot of people overlook right now, but they just didn't click very well with us. So we're, you know, in this field for five or six years, and not that we don't get along or we're butting heads or anything, it's just different styles of management and control.
[00:07:39] Sam Wilson: That's a tough place to be because these are, like you said, five to seven-year projected deals where you're partnered up for that period of time and, you know, or until that asset is sold. What are some things that you feel like you would've asked or done differently maybe on the front end when you said you, especially when you said vet the partner a little bit better, what would you have done differently?
[00:08:04] Rich Neuharth: I would've spent a lot more time asking just honestly, more detailed questions, getting to know somebody truly like, not just partnering up with somebody because they have a deal or because they have, you know, a skill that I don't have. They could have something, but I don't have 'em be absolutely great at it. But then you put us together and it's like oil and water. You just don't want that. So I would ask questions, background, how many deals you've done. To be 100% honest I wouldn't do a deal with anybody that I didn't go out to have lunch with regularly. Or, you know, I'm not talking to on a monthly basis or something like. In my opinion, it should be a pretty good friendship. You should be able to ask the candid questions and, you know, a lot of people I see rush to just do a deal and I think it creates a lot of bad vibes amongst partnerships and properties too.
[00:08:58] Sam Wilson: Is there a way from a passive investor's perspective to spot that?
[00:09:04] Rich Neuharth: A bad partnership? I would say, same thing would kind of apply to the passive investor side. You really need to know who the sponsor, like who's actually running the deal. So in some of these syndications, maybe there's, let's say seven or eight partners, you have your lead sponsor, you know, the person you go to. Let's say, it's me and you have a relationship with me, but you don't know who's beyond me all the time. Right. But I would say it's really about relationship building is what it comes down to. You need to know the people in the deal, who all is there? It seems like a lot of times there are a couple of key figures in each deal, but you don't always see the whole team or the whole picture from the passive investment side. And I think it is really important.
[00:09:51] Sam Wilson: Yeah, for sure. Yeah, and I think you've answered it to a certain extent, which is, you know, 'cause I have a relationship with you, but I may not necessarily know who the lead sponsor is if it's not you in particular. And I'm just curious if there's a quick way to identify a potential problem or poorly vetted sponsorship team in advance as a passive investor. I've got some ideas on it, but I just didn't know if maybe there was other things that would come to mind as you say that. 'Cause again, you know, like you said, there's not, you're not in deals right now where you're like, Hey, there's bad blood. There's bad, it's just not what it could be. So just, just really curious, you know, from the passive investor side, but either way, you've answered that question. So I appreciate you taking the time to kind of mull that over. Certainly appreciate it. What's one thing you guys are doing right now, moving forward? I mean, you're buying, you said in the DFW market, right, or in the Texas markets as a whole?
[00:10:42] Rich Neuharth: Yeah. So we do buy in DFW and then Georgia is another major market of ours.
[00:10:46] Sam Wilson: Got it. What are you doing to be competitive in today's market?
[00:10:52] Rich Neuharth: Well, I would say we got a couple of different aspects. We do the traditional direct to, you know, dealing with our brokers, building relationships, go golf, travel, visit, tour lots of properties. Touring properties gives us probably the most solid looks at off-market deals. Because when you, let's say I travel from DFW to Atlanta, I go tour our property. Well, the broker, most of them, if they're good brokers, they're like, well, you flew all the way out here, let's go check out, you know, I'm working on a listing agreement over here and over here, and let's talk about this operator and this operator. We found so many off-market deals just by traveling. So maybe it costs me 600, 700 bucks for a plane ticket, but I walk away and I get a full day of touring properties and photos and social media content and catching up with 'em so huge right there. We do run a couple of direct-to-seller campaigns as well.
[00:11:45] Sam Wilson: That's something that, yeah, for those that want to ride a desk and pick up the phone and make deals happen. I remember, gosh, this has been several years ago. I was at a meetup here in Memphis and this young guy, you know, walked up and he said, man, I just started six months ago and he was wholesaling houses, right, and was just blowing the doors off. And I'm like, no pun intended. Maybe there's a pun intended, but I said, dude, what are you doing? And he goes, man, he goes, I find absentee owner properties. And again, I'm not advocating for this necessarily in the show, but I guess just shows you what the hustle does to your point of actually going out and spend traveling and going and seeing he goes like, I go to absentee owner properties. I find the owners wherever they live, and he goes, I go knock on their doors, goes, I knock on the front door of the person that owns that rental property. I won't mail 'em. I don't call him. I knock on their door and he goes, dude, I am moving properties as fast as I could. I mean, he goes, it's just unbelievable pace. Where everybody else is still staying in the room going, gosh, how do I get my first deal done? I'm like, genius. Of course, like just do what everybody else isn't. And I think that's what your point is, spend the 700 bucks, go out, spend the day, you go see every property in town that you could possibly visit. So I think that's really, really cool. I love that. That's a great way to stay competitive. What's a risk that you might see in the market or risk that you see other people taking right now that you guys are actively avoiding?
[00:13:06] Rich Neuharth: I would say rushing to get deals done. I still see a lot of that. I think there's still some overpaying in the market considering how everything has kind of been, you know, low leverage high-interest rates, sellers still want a premium, even though it may not necessarily be there in value. So we have been there, tried that and we've moved on. So we're very calculated when we submit our LOIs and what our pricing is. And I would say that we are not relying on just any equity sources anymore, whether that's funds or traditional capital raisers, we need to have a relationship with those people or have a relationship of a relationship that has worked with those people, 'cause it's tough to have your equity pull out last minute. It's pretty devastating and nobody likes it.
[00:13:55] Sam Wilson: No, and it sounds like there might have been a situation in which your equity did pull out last minute. Is that what I'm hearing?
[00:14:03] Rich Neuharth: Yeah. So we were almost to the closing table down in Corpus Christi earlier this month, a couple of late sixties properties. We had all the equity lined up. Everything was good to go until about two weeks before closing. And then we had a couple of significant players back out and change their commitment last minute.
[00:14:22] Sam Wilson: Wow. What happened?
[00:14:25] Rich Neuharth: What it boiled down to was a little bit of pref equity and a large fund. And a 1031 exchange decided that the market was softening, and they didn't want to be in Corpus Christi anymore, and they wanted to do business somewhere else.
[00:14:41] Sam Wilson: Wow. What could you have done either differently or what will you do differently in the future to ensure that doesn't happen again?
[00:14:50] Rich Neuharth: We've talked about a couple of different things. With 1031 exchanges, there's been a lot of movement, you know, we've seen it on a couple of different projects, not ours, but maybe people that we know where that 1031 is committed. I'd say a good chunk of money. You know, like you already won half a million or so to bring a 1031 on and sometimes, but doing maybe a non-refundable deposit because we've seen a 1031 commit and then they'll jump ship to another deal if it's an option for them sometimes. So we've looked at doing that.
[00:15:23] Sam Wilson: How do you get a 1031, depending on where they are in the process? How do you get them to put down a deposit and, or commit hard money earlier in the deal?
[00:15:34] Rich Neuharth: We're just upfront about it. So one story from really good friends of ours, they had a really large 1031. I think it was like 3 million. It was basically going to cover the full raise. And then they kind of rearranged their equity around this check 'cause they were like, great, we don't have to do any raising. We don't have to do anything. We just go straight to the closing table. And then when it came time to actually transfer the money to 1031 said, no, I had another deal that I had identified and I'm going to move my money over there. Yeah, so obviously it puts 'em in a bad place. They had time, they got it done, but nobody wants to be in that position.
[00:16:06] Sam Wilson: No. And I wonder if there's a, you know, because I just wonder about the complexity of this and I'm just talking out loud here 'cause I don't know, but if you have a 1031 exchange and let's say there's, you know, 3 million bucks coming in, is there a way to get the intermediary whoever's holding that 1031 money, assuming that it's already there if they've already sold their other property, is there a way to get a deposit on that? Like, Hey, you know, you're going to put 10% down now, and then the other 90% when it's time to close or whatever it is. I mean, at that point, like to your point, that's real money at that point, that's $300,000 at that point. And you're kind of putting your money where your mouth is, but that's a serious risk and one I've not actually heard of is, you know, a large check. I mean, obviously, you heard of people pulling out of deals, but, you know, that presents a new wrinkle in the mix. When it's the right time to close, were you guys able to get that property that they pulled out of closed?
[00:16:57] Rich Neuharth: Ours in Corpus Christi? No. Unfortunately, we lost that deal. The sellers didn't want to agree to an extension or, you know, we just couldn't hash out the terms. So we decided to part ways and move on to the next one.
[00:17:09] Sam Wilson: Wow. Wow. Okay, man. Rich, thanks for taking the time to share. That's a painful story, for anybody listening to this that doesn't understand. I mean, cause it's so much work that goes into getting a deal that far along. I mean, you guys are, you're a lot of money and and and a lot more time in by the time you're two weeks to close. I mean, you're at the finish line at that point.
[00:17:30] Rich Neuharth: Yep.
[00:17:31] Sam Wilson: Then to have your equity pull out, that's brutal. So man, thanks for taking the time to share that. I mean, other than getting your deposit on that, was there any other action items, steps that you would take next time if you're presented with a similar scenario?
[00:17:44] Rich Neuharth: I would say for anybody out there just starting or maybe newer and they're, you know, lead position taken down a project, make sure you've got at least two X of what you need to raise, ready to go at any time. Maybe even more than that, honestly, especially right now with, you know, 65 to 70% leverage being pretty common throughout the US. Things are going to change. The market's going to change. We know interest rates are going to keep going up at least for the time being. So you got to be able to adjust, especially one to two-week period before close.
[00:18:15] Sam Wilson: Is there a communication, cause I've often wondered or thought about this is that, oh gosh, I'm going to talk about a book now. I can't remember the title of, but basically, he said that if you go through history, you'll find that investors invest, especially passive investors like stock market, okay, I put money and forget about it, they tend to invest at the completely wrong times in the cycle. Of course, everybody's terrified. So they start pulling out money at the bottom and then they start pumping it at the top. And he and he gives some really compelling data over like 70-year periods as to why this happens. I've often thought, as a deal sponsor, like one of our jobs is to not just advocate for what we're doing, but also to educate our investors so that when it becomes time, when everybody, all of a sudden starts going, oh my gosh, I'm terrified. You know, the sky is falling. Everybody run. It's like, no, actually right now it's probably the best time to be getting in. Is there anything that you can think of? 'Cause as you said, the investor sentiment is changing. Is there anything you guys are doing proactively to make sure you stay in front of investors and make sure you not just project confidence but give reasons as to why what it is that you're doing currently makes sense?
[00:19:24] Rich Neuharth: Yeah. So great that you brought that up. I was just having a conversation. I think this last week we were in Vegas for a conference and I was talking about somebody there. Warren Buffet talks about it all the time. Like, when people are fearful, you know, go after it, like that type of thing. And that's exactly what's happening right now is everything is softening. And people are like, oh my gosh, the market is crashing. The market's crashing. Let's not invest. But we are we're on the opposite side of that. We see properties coming available. You know, maybe their bridge note is being called due and they can't refi out of it or they can't sell it right now. Those are opportunities to be had. The cap rates coming down a little bit, they're not completely just washing away by any means, but there are better deals to be had. There's more cash flow to be had. So, yeah, great that you brought that up. I think more investors should be placing more money in the market right now than 6 months to 18 months ago when everything was at the top. It's crazy.
[00:20:25] Sam Wilson: It really is and finding and finding the right way to convey that message, I think is a challenge. But I think it's something that we as deal sponsors, again, assuming that you believe in what you're selling 'cause if you don't believe in it, obviously don't do it. But, you know, as deal sponsors, it's something that we need to be, you know, actively sharing that. The book I was thinking of was Mastering The Market Cycle by Howard Marks, a great book. It's a great book and give some real insight as to the psychology of the common investor and it's kind of eye-opening. But anyway, look that up if you if you're so inclined. Rich, thank you for taking the time to come on the show today and tell us, you know, what you guys are working on. You've shared some painful lessons here today with us. I know you guys have had awesome success in what you're doing, but also at the same time, you know, you've taken some licks and you were willing to share those with us. So thanks for doing that. And hopefully, you can save some of our investors the same heartache that I think, you know, all too well. So again, thanks for doing that. Appreciate it. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?
[00:21:26] Rich Neuharth: Yeah, the best way is through our website. It is avianacapgroup.com. A V I A N A C A P group.com. You can also send me a direct email if you'd like it's rich@avianaco.com.
[00:21:41] Sam Wilson: Fantastic. Rich, thank you so much for your time today. Certainly appreciate it.
[00:21:45] Rich Neuharth: Thanks, Sam.