March 25, 2024 • 45 mins
In this episode of the Active Commercial Real Estate Investing Show, we delve into the inspiring journey of Jim Lee, a once jobless graduate who transformed into a real estate syndicator.
Throughout the show, Jim shares his experience of transitioning from residential to commercial real estate in a transparent manner. Jim:
• Emphasizes the critical mindset shifts that are necessary for success in the field • Discusses the importance of shedding a saver's mentality • Highlights the pivotal role that networking and learning from seasoned investors played in his trajectory • Reflects on the challenges he encountered in his first syndication deal and key lessons learned along the way • And more
By sharing his strategies and experiences, Jim offers a roadmap for aspiring investors seeking to make the leap from residential to commercial properties.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:23):
Hello and welcome to the active commercialreal estate investing show brought to you
by the one and only school of commercialreal estate investing.
I'm Patrick.
And I'm Noelle.
And today we are joined with Jim Lee.
Jim received his bachelor of sciencedegree in economics from UCLA in 2010, and
started his career as an inside salesrepresentative for LoopNet CoStar.
(00:45):
By being the top sales rep and winning a$50,000 sales incentive bonus, he used
that savings to purchase his first twobedroom, one bath condo and learn the
importance of having multiple streams ofincome.
Now through real estate syndication.
He's invested in over 600 units in thepast two years, where he's participated as
a general partner and limited partner.
(01:06):
Jim, welcome to the show and thanks forbeing here.
Thanks for having me.
Absolutely.
Well, fantastic story.
We're excited to dive into it in moredetail today.
And we'd love if you could just kickthings off with a background about
yourself.
Yeah, absolutely.
So just like you mentioned, I graduatedfrom UCLA back in 2010.
Now, as many of your listeners might knowthat that's right after the 2008 subprime
(01:32):
mortgage crash followed by the 2010European debt crisis.
So it was a really difficult time to finda job.
At the time, I was jobless for about ayear and a half due to...
uh, this recession and, um, my parents,you know, just coming from an Asian
(01:54):
culture background, they wanted me to goback to school for, to get a PhD or MBA.
But all I wanted to do is get some workexperience.
So I was pretty stubborn about getting ajob.
That's why it took me a while, but, uh,eventually I was fortunate enough to lend
an inside sales job, uh, working atLoopnet and CoStar.
And from there, I just never looked back.
(02:16):
I was
hungry, I was motivated, I took the jobvery serious and, uh, excelled and won
$50,000 bonus and, um, use that money tostart investing in real estate.
And from, and, and I did inside sales forabout seven years where I finally, um, uh,
like what I, what I'd started by investingin real estate.
(02:38):
And then I'd kind of transition from a W2employee
to become a realtor and then eventually tobecome the, what I always wanted to do to
be an entrepreneur like my dad, bystarting off my real estate syndication
business.
Okay.
So what was it, when you were working atloop net costar that started to get you
(02:59):
into the mindset of, of wanting to investin general?
I think just having the luxury of beingable to talk to real estate investors, you
know, property managers, lenders, youknow, all kinds of insurance brokers, just
all, you know, all these different piecesof the puzzle of what you need,
(03:24):
essentially the team that you need toacquire to be able to manage your, real
estate portfolio.
And so,
just by talking to these people on a dailybasis, you can kind of understand that,
okay, so this is how the rich get richer,is by using their money to make more
(03:45):
money.
And you see that everywhere on socialmedia that nowadays it's like, why would I
spend money to buy material when I canspend money to buy asset that makes money
for me to buy material?
So the concept is easy, it's always beenthere.
Um, it's just a matter, you know, I just,I was just, like I said, fortunate enough
to be able to work at a, at a co-star tobe able to learn from that.
(04:10):
I love that.
And I feel like networking is one of thosethings that so many people talk about, but
so many people won't put the effort into.
But I love that you have the experiencewith where you are working to be able to
have that natural network component of it,to be able to talk to people that are
already in the game and doing the game alittle bit differently than you are as you
were getting off to starting and lettingyou say, "Hey, I've got this big chunk of
(04:32):
cash.
Let's go ahead and invest and...
make sure that we can make some money tooand build wealth for myself and not just
watch all these people around me buildingthat wealth." So that's really cool that
you had that opportunity.
I know for listeners, one of the thingsthat we try to talk about is get out there
and talk to people, talk to the people inthose positions, whether it be lenders,
(04:53):
brokers, investors, realtors, you know, tohelp with feeling confident in going and
making that deal.
Yeah, yeah, absolutely.
Everything, everything helped.
You know, I had a, I had a great managerthat taught me everything about sales.
Cause you know, this is my first job outof college.
So without any, any experience at all.
So I definitely learned a lot from thatjob and I took away probably the most.
(05:17):
And, uh, and, uh, and you know, I alsoworked my butt off.
I, I put in 10 to 12 hours a day and, youknow, sometimes I take my work home as
well.
So,
that's how serious I took it because, youknow, just being, going through that
recession, going through the hard times,you never want to go back to that place
again, you know?
(05:38):
And that's something that I always searchfor, that fire.
That just keep burning and just wants youto get up and just continue to push
forward.
Yeah.
So once you got that two bedroom, one bathcondo, where did you go from there?
Um, so I got two beds and one bath afterbeing laid off the second time, um, on my
(06:02):
second job, that's when I realized that,okay, you know, I can't just depend on my
W2 job.
Um, I got to think of way to createpassive income for myself.
And that's how I referred back to my, um,first job, which is real estate.
And after I acquired this two bedroom, onebathroom, I
started to seek other opportunities, otherreal estate opportunities.
(06:26):
Cause now that you've done one deal,you're kind of hooked to it, right?
You're like, okay, I can do this.
I can add more to it.
And so I got, uh, made a decision, got myreal estate license thinking that it would
be easy for me to find my own deal, butit's not that easy.
It's like what Noelle was mentioningearlier.
It's all about networking.
(06:46):
It's all about building relationships.
So it's all about who you know,
and who trusts you, who thinks that youhave the ability to close for them, right?
Because essentially it's all, you gottathink of way to mutually benefit each
other for the relationship to work, right?
So, yeah, so, and that was also a learningprocess for me.
(07:09):
Being a realtor, I tried to make a careerout of it, but it just wasn't a good fit,
and that's why I transitioned to become areal estate syndicator.
Yeah.
And I think the mutually beneficialcomponent that you just mentioned is very
important.
And I will also mention that youdefinitely practice what you preach
because when I reached out to you aboutbeing a guest on the show, your first
(07:31):
response was, "Well, if it's helpful foryou and it's helpful for me, like, let's
do it.
There's no reason not to, you know?" Andso I think, you know, finding those
win-win situations is definitely a greatway to navigate life in general.
So thank you for practicing what youpreach there.
Yeah, yeah, absolutely.
I, I'm a big fan of, um, what is it?
Uh, Rich Dad Poor Dad you know, that'sthe, that's, that's the one book that
(07:55):
changed my mindset from savers mentalityto kind of the investor mentality.
And on his show— I used to listen to them,though like five years ago— on his show,
he used to talk about that practice whatyou preach and follow those people that
practice what they preach and don't followthe fake gurus out there.
So,
that's something that I still hold to myheart to this day.
(08:17):
Yeah.
And can you talk a little bit more aboutthat savers mentality that you used to
have and where that came from and how thatimpacted the earlier part of your journey?
Yeah, absolutely.
So I grew up in an Asian household.
I was born and raised in Taiwan.
And I came here when I was 11 years old asan immigrant.
And so everything that was taught by myparents, it's in Asian culture, debt is
(08:44):
slavery, cash is freedom, that's how wethink.
And so, you know, we work very hard tosave pretty much every dollar that we, you
know, we can save possibly.
And it's a good mindset to have, but it'skind of like, you know, it can work for
you, but it can also work against you,right?
(09:06):
And that's something that I didn't realizegrowing up because it's just what my
parents kind of instilled the belief inme.
And so I thought this is the right way.
This is the only way to do things.
And then eventually, you know, as Istarted to educate myself,
just like all of us, through readingbooks, podcasts, networking, just constant
(09:31):
learning about "How can I make thingsbetter?" Shortly after I bought my two
bedroom, one bathroom condo.
That's when I picked up the Rich That PoorDad, wanted to educate myself.
Because I realized how much I didn't knowabout real estate after you actually take
action and acquire your first building.
and having to deal with tenant toilettrash, right?
(09:54):
So you wanna just make it as easy aspossible for yourself.
So you educate yourself.
And so that's when I realized, okay, I'vebeen doing this all wrong this whole time,
because my first deal, it was, I paideverything in cash.
I thought that was the only way to buyproperty.
And I saved up like for...
years and years of savings to be able todo that.
(10:16):
And then I realized, oh, you know, you gotto use debt, you know, it's the best, it's
your best leverage, you know, so, it'sjust a little bit of education.
Yeah, but I love what you said therebecause there's two components of that.
There's the component of, you know, howyou're raised and having a certain
mindset, you know, and trusting those,like you trust your family.
(10:37):
You want to listen to your family.
And then also going into real estate andjust trusting what the box says that you
should do.
But I think what you said is important,like educate yourself and start to look
outside that box, start to think about theother alternatives and the other things
that could help you and advance you
where you want to go.
(10:57):
I mean, you said it yourself.
You're like, I don't want to be working orrelying on this W-2.
I need to find another way to do that.
And part of that was taking action.
And you learned from that first deal of,"Okay, so maybe I didn't use debt in a
very smart way, could have done thatbetter." But when we think about
practicing what you preach and lookingwhere you're at now, like you're not
(11:18):
relying on your W-2.
You've learned from those.
You've educated yourself and now have
plenty of other deals.
And I know we'll want to get into talkingabout maybe one that you have like a
latest deal that you want to talk aboutand kind of dive into a little bit.
But I want to stress that because I,Patrick and I especially are finding as we
are opening up our networks and as we aretalking to people about these like, "What
(11:42):
do you mean I don't have to put 20% down?""What do you mean I don't have to do X, Y
or Z?" And this is more people that arecoming from a residential side of doing
house hacking.
But
I think it goes so far of like, look intoall of the potentials and it's going to
take a little time to read the books, tolook up the articles, to listen to the
podcasts, but you're going to be so muchbetter for it.
And you'll be so much better for learningfrom people like you, Jim, and learning
(12:05):
from people who are spreading thatknowledge and talking about all of these
different ways to go about taking the sameactions.
Yeah, absolutely.
Well said.
I mean, just I think in general, I thinkthere's no, there's no, I wouldn't say, I
don't think there's a, like a right answerto everything.
I mean, we all are in, in our own littlepath.
(12:25):
They're all journeys getting to where wewant to be at, and the journey is all
going to be different because we're allgoing to experience something different,
right?
So, um, I can only speak of from myexperience.
I can't speak for everyone else, but Ithink that's what makes you unique.
That's what makes all of our lives unique,right?
(12:46):
In our own way, we can share our story andstill be able to reach the same
conclusion, same destination.
So I like that a lot.
And going back to what you said, I thinklooking at things in different angles
always helps.
We can't be too biased sometimes.
That's my opinion.
(13:07):
Yeah.
Now back to your story, you know, pickingup on the timeline here, you've got the
two bedroom, one bath condo.
You're starting to look at more realestate deals.
Did you invest more in residential or didyou start to make the shift to commercial
shortly after that?
And what, what made you make that pivot?
(13:29):
So, um, my mindset was stuck onresidential for the longest time.
Uh, cause I didn't think that doingcommercial was possible, um, by myself.
And that was the wrong mindset, right?
By myself, because I didn't know that, um,in the commercial world, especially in the
hundred unit plus buildings, it's alwaysthrough partnerships.
(13:52):
It's always through a team collectedeffort.
Very rarely will you see someone that justoutright buys the whole building on their
own.
Unless you're like Bill Gates or someone,you know, if you have that kind of
capital, but typically it's owned by, youknow, multiple partners, and that's
something that I had to learn.
And I think that's how I transitioned frombeing from residential to commercial is
(14:17):
that, again, it's just constant educationright?
In 2020 during lockdown, I couldn't doanything as a realtor.
So I started to educate myself about otherways of making money through real estate.
And that's how I came across syndication.
And they said that in syndication, itdoesn't make sense to syndicate
you know, something that's like four unitsor, you know, maybe five to 50 units.
(14:38):
But if you're, if you're thinking bigenough, then it makes sense because you
can bring investors on board, you canbring other partners on board and
everybody can have a little piece, of thatbig overall pie if, uh, this property is
being managed, uh, well, you know, so, sothat's how I, I started to think
(14:59):
everything was possible once I discoveredsyndication.
Yeah.
But that's still a pretty big leap, youknow, to go from the residential world to
the commercial world, especially straightinto buildings that are over a hundred
units.
What were some of the mindset hurdles youexperienced personally as you started to
make that transition?
(15:20):
The biggest mindset I had to overcome wasthat, um, I can't tell, I don't know if
you guys can tell, but I'm like, I'm a bigintrovert.
If I, if I, um, if I can just stay homeand not go out and face it and meet
people, I, I would not, this is, it's notsomething I like to do, but that's
something that's, that was the biggesthurdle for me, right?
(15:40):
Because being a realtor, how can you saythat?
Like, how can you tell yourself that youdon't
like to meet people, because that's yourbread and butter of your business, right?
And when I became a syndicator, I realizedhow much more of that I need to do, even
more than being a realtor.
So the biggest mindset shift that I had todo, I had to go through the struggle
(16:02):
during the pandemic was really get out ofmy comfort zone.
Like once I started educating myself aboutsyndication, the next step was to go out
and put myself out there and continue tolearn from other syndicators.
How can I do that by just staying home.
I gotta put myself out there, go out,travel, network, join mastermind groups,
(16:23):
volunteer for real estate meetup clubs.
So that's basically what I've been doing,you know, to try to get myself out of the
groove and trying to get comfortable doingit.
And then everything is just, you're liketrying to progress and trying to build on
top of what you've already achieved.
Right?
So...
I'm doing all this stuff to kind ofpractice for myself to eventually start my
(16:45):
own podcast show just like you guys.
And then also start my own local realestate meetup club where as I can host and
have a guest speaker come over to mycommunity.
So it's all just like little steppingstones to reach your, you know, your
dream, your end goal.
Yeah, that's well said and a veryintelligent path forward and framework to
(17:10):
put around all of that.
As you started looking at your first stepsinto syndication, you just mentioned a
slew of actions that you took and thatyou've been taking, but you founded
Formosa Investing.
Can you give us a background of how thatcame to be?
Yeah, sure.
(17:30):
So during my two years of being asyndicator,
I basically spent about a year justconstantly putting myself out there and
eventually met my business partner.
And then we decided to, uh, do a dealtogether and we did it a year later.
So,
that's why it took me two years to finallysyndicate my very first deal.
As an entrepreneur, you either staystagnant or you take action.
(17:52):
All these little things, the littleactions I'm taking.
It's not getting the results I want yet,but, um, it is working towards something
that we realized that, okay, we need to bebuilding our own brand awareness,
individually first.
And then once we reach a certain level,then we can, you know, merge.
(18:14):
Cause we're, we're looking at otherbusinesses who are
like, you know, three to five years aheadof us, what are they doing and how do they
get there?
You kind of just analyze, because mybusiness partner were like very analytical
people.
So I think that's where we kind of decidethat, yeah, okay, it would make sense to
(18:36):
just build a brand.
And I created Formosa as my brand, becauseFormosa, it's like a nickname for Taiwan.
Back in
1600 Portuguese discovered Taiwan Theyjust call it Formosa because it's the
beautiful island.
So that's how I came across that name.
Oh, thanks.
(18:58):
Yeah, it's nice.
It's something that we're Taiwanese arevery proud of.
When you mentioned the word Formosa, we'relike, yeah, that's Taiwan.
That's awesome.
Well, and I think something else you saidis important.
We, depending on your bubble, if you're onsocial media and what your phone's picking
up and serving you with, I feel like somany people get started with these
(19:21):
overnight success stories.
And I think what you said there isimportant.
It takes patience and it took two yearsfor you to be able to find a partner, get
the right deal.
But,
you are still taking action.
Like even though it's not the immediategratification in doing a deal every month
for the whole year, like five deals ayear, or five deals a month, I mean, like
(19:43):
you are still making progress towards thatgoal, even if it's a little bit slower in
your mind than you would like to.
But I think it's still important becausethe analytical side, Patrick can attest to
this, I'm very much the like, let's go go,and Patrick's like, let's sit down and
let's
like analyze things and make sure this isright.
You know, and there's obviously a goodbalance to that, but it is, it's important
(20:05):
to find the right person, A, so taking thetime to find your partner is very
important.
And then you wanna make sure that you arethinking about that deal, especially
getting over the hurdle of that, oh mygosh, I'm taking a huge jump.
What is this going to do?
How are we going to make this work?
So I really appreciate that you said that,and I appreciate that you put value in the
(20:27):
analytical piece too, because I do thinkit's important.
And sure, at some point in your journey,because like you said, everyone's journey
is a little different, things might speedup, but it's okay if they're not full
speed ahead right now all the time.
Right.
And that's something that I have to remindmyself, like, almost every day, or maybe
(20:48):
every week, that be grateful and be proudof the progress you've made, you know, and
then give yourself some time, you know,don't like, put too much pressure, you
know, and stress on yourself for noreason, you know.
Yeah.
When we do our annual goals, we like tostart off with looking at the successes
(21:09):
from the previous year, even the smallthings like, you know, we kept our
daughter alive.
Hooray.
Like that was a success.
But because you're right, it is important.
Count those successes because, you know,you would use the word fuel and fire
earlier.
It's like that helps set the stage forthat fire, for that fuel, for that
motivation.
If you can count all these successes, evensmall ones, it's going to help you keep
(21:31):
going because that's the content you'regiving yourself is.
I'm making progress, I'm making successes,and I can keep this going.
Not to take us on a tangent from yourstory, but I just, I really like these
tidbits that you have as a part of yourjourney as well, because I think it
resonates really well for Patrick and Iindividually, and I think it resonates for
the people that are hopefully listeningand getting value out of this right now as
(21:52):
well.
Yeah, absolutely.
so you found your partner, you you formedFormosa, you spent a while looking for the
first deal...
What did that first deal look like?
It's a 200 unit apartment building inOrlando, Florida.
(22:13):
It's residing in a Class A neighborhood.
It has like convenient shops, it hasChick-fil-A down the street, it has a
mall, it's a good school district, butit's a building built in 1970, so it's a
Class C building.
It has a lot of deferred maintenance.
Yeah.
And when we took over the project, there'sa couple hundred work order back, backed
(22:37):
up work order that we had to fix.
So it was definitely something that wedidn't, a lot of things that we didn't
foresee coming, but that's part of aboutowning and managing real estate, right?
There's always problems.
Always, Yeah.
If you expect otherwise, you're settingyourself up for disappointment for sure.
(22:59):
Well, that's great.
That's a hefty size building to get intofor the first deal.
What did the capital raise look like forthat one in particular?
So it's a $50 million deal, includingCapEx renovation costs.
And so out of 50 million, 30 million wasloan, and then 10 million was private
(23:24):
equity, and then we had to raise 10million from retail investors.
And what was your process for going aboutthe retail investor side of that?
So for me, since it's my first deal, noexperience, really tough, tough.
And they always say like doing your firstdeal is going to be the most challenging.
Well, tell me about it because when weclosed this deal, it was July of 2022.
(23:48):
I don't know if you guys recall, butthat's when the market shift.
It was between April and July.
Yeah, that was when the interest ratesstarted going crazy on us.
So.
a very, very tough time to raise money.
So the only people that really contributedtowards my raise was my family and my best
(24:09):
friend.
And I'm pretty proud of it because, it'smy first deal.
And even though, just the people that, Iwould say they trust me more than they
trust the deal.
They just trust me because, I've been,they know me, they know what kind of
person I am.
So that's
I've raised $200,000 for that deal, forthe first deal.
(24:32):
And I'm learning a lot.
It's just behind the scenes, assetmanagement, and then be able to manage the
property managers who is managing 200units.
So there's a lot of moving pieces behindthe scenes.
So it's a great deal.
Yeah, I'm sure that Noelle has a fewquestions about the operations perspective
(24:55):
of that deal in particular.
I mean, 200 units is a lot.
Obviously, not something that you want tobe managing.
You want to hire professionals to manage.
How did you figure out who the bestproperty management company was?
Was that already a part of the purchase oris that something that you went out and
had to find who the best partner would befor that?
(25:19):
So, you know, we thought just, you know,like everything was linear.
Obviously it doesn't, business alwaysdon't always play out that way.
So we just thought, okay, um, we're goingto hire the best of the best, right?
You know, Res Prop I don't know if youguys ever heard of them, of them, but they
manage, they have over two or $3 billionof, uh, commercial real estate asset under
(25:45):
management.
So they're pretty huge nationwide.
Unfortunately, we made a mistake becausethey got on board and they spent, I
believe, a little bit less than half ayear.
They still had all these hundreds of workorders backed up.
And we realized the real issues, whythings are not moving along the way we
(26:07):
want it to move is because they don't haveany local presence in Orlando.
They sure they might be one of the biggestnational property management out there.
But
you gotta make sure that they have localpresence in the area that you're serving,
right?
They had a branch in Miami, but the peoplefrom there are not gonna come to Orlando
to help us out.
(26:28):
So we switch property management company.
And that was a risk we didn't see coming,you know?
We just thought that hiring one of thebiggest would serve us but no, it was not
that easy.
Well, like you said, nothing is ever easyin your first deal, right?
Um, but that's a lot.
I mean, transition period wise, was thereany other big hurdles that, um, you ran
(26:53):
into for property management in particularwith making that transition from a large
national firm to one that was, I assumestill large, but locally based.
And again, that's a great piece of advice.
Like if you don't have a maintenancestaff, a cleaning staff, people that are.
local that are able to make it to theproperty within the 24 hours that I would
assume in a Class A neighborhood peopleexpect to be taken care of, you know, in
(27:17):
their residence.
What was that?
What was that like in transitioning?
absolutely.
So when you say transition from the oldowner to us, right?
The new owners, okay, so yeah.
So the biggest breakdown would just bewhat I was telling you about is that when
we took over the project, we did notforesee this coming.
(27:38):
We didn't think that, okay, there areliterally 300 work orders backed up.
Apparently like the property managementcompany that used to service this building
for the previous owner,
they didn't give us any of thisinformation and they literally just
terminated their work, like I believeseven weeks before taking new ownership.
(28:01):
So they just left everything behind.
The seller wasn't, I guess like the sellerdidn't have good relationship with this
property management company.
That's why the deal wasn't performingoptimally, right?
Because the seller,
He's out there.
They're also from California.
So they're managing it away kind of fromout of state.
Whereas within our team, we have localpresence.
(28:22):
We have investors.
We have one of our general partners livesin Orlando, Florida.
So we have boots on the ground, so tospeak.
And that's very important, right?
It's always, if you're going to invest outof state you got to make sure you got to
have a good team,
people you can trust, boots on the groundto kind of help you out with that type of
(28:44):
stuff.
So 300 backed up work orders, and then wefound out later that a property management
company wasn't doing much about it.
And that's when we started to realize,okay, we need to switch this property
management company because we need to getthe occupancy rate up because when we took
over,
(29:05):
Occupancy was at 92, 93%.
Upon taking over, it dropped to 84, 85%.
So typically, once you switch owners,tenants tend to leave, eventually it
dropped down to 74% because of all thosebacked up work orders,
backed up maintenance, backed up all this,you know, just a lot of things and people
(29:26):
started to leave and so Yeah, so there wasa big challenge entering into this deal
Yeah, but we were but our asset managementteam our GP team have done such a
wonderful job that they went from 74%Occupancy to 98% now.
So we're doing
(29:47):
We're doing things to the best of ourability.
That's a great occupancy on 200 unitbuilding.
And I mean, that just goes to show too,you don't know what you don't know and due
diligence goes so far.
You can ask so many questions, but if youdon't know to ask for something like, like
who would have ever thought to ask forsomething like that in your first deal if
(30:09):
you've never had to worry about thatbefore?
So, oh my gosh, that's tough.
I can't imagine being in that position.
I hope to imagine that one day, but I canempathize and sympathize.
with that and going through that in themoment.
Yeah, I think a lot of us just gotexcited, right?
Like how did seven or eight GP of us missthat?
(30:31):
You know, like the more people you have,the less risk you should have.
Technically, you should be able tomitigate more risk.
But I guess we're all just excited.
Yeah, we're gonna get this to the finishline during economic downturn.
So that's where we're like more focusedon.
And then the problem started to occur.
(30:52):
Yeah, yeah.
Well, and sometimes when you have so manypartners too, I experienced this in my W-2
job, it's you think someone else isthinking about it.
Right, and I'm sure you guys had verydiligent paths of who was doing what, but
there are some things that are inherentlygoing to get missed or not thought about
(31:12):
in terms of who's checking on what or it'sa, okay, well, surely someone else has
thought about that.
I know exactly what to think about.
So hear you there.
But things get missed.
That's life.
And that's part of the learning process.
Yeah, and glad that you were able to workthat out and definitely stabilize the
property.
(31:33):
Moving forward then, I know that you'vebeen doing a handful of deals since then,
but you mentioned one at the beginning ofour call that you're particularly excited
about that's a little bit unique.
So, we would love to dive into that andhear what you have in the pipeline right
now.
Yeah, so this is a perfect transitionbecause the new deal that I'm raising
(31:56):
money for is actually the deal I just toldyou.
So that's what makes this story unique.
Would you like me to explain a little bitfor your audience or...
just go right into my deal.
Okay.
So typically in a real estate syndication,it's basically where investors pull money
together to buy one commercial property.
And then the profits, the rental incomegenerates, gets split amongst other
(32:18):
investors.
It's like a win-win for the syndicator,the operator and the investors.
So typically in these, um, Class Capartment building that we go in, we
purchase, we add value.
We project five year hold period.
And what that means is that after fiveyears, we sell the property, we can 2X
your money back.
Now let's use a easy number as an example.
(32:40):
If you invest a hundred thousand, you canexpect 200,000 back once we sell the
property.
Now on top of that, every year you canalso expect 8% preferred return, which
means that every year, if you invest ahundred thousand, you can get 8,000 of
passive income to you.
And so that's the benefit, right?
Like that's the type of return you can seefrom this type of deal.
(33:05):
Now for our deal, we closed this July of2022.
So it's been almost two years since then.
And
Let's just say the first year you're owed8% of your $100,000 and we don't end up
making distribution to you as an investor.
Well, what that means is that preferredreturn it gets accumulated to the
(33:28):
following year.
So if we only pay you 1% the first year,we owe you 15% in the following year and
then so forth.
It does accumulate and when...
When you do get paid out your preferredreturn, that's when whenever we have a
capital liquidity event, such as cash outrefi or selling the property, right?
(33:49):
So that's typically how it works.
Now if you are on a variable interest rateright now,
you're getting crushed.
And that's what's happening in thesyndication world.
A lot of us, we tend to like to use what'scalled bridge loan.
So bridge loan is where you bridge thegap, you pay interest only typically, and
then it's only good for three years.
(34:11):
Reason why we love to use this product asa syndicator is because we can, you know,
use up all the cash to renovate theapartment, to add value to the apartment.
Right.
And that also explains why our currentinvestors for this deal have not received
their distribution, even though it's beentwo years, because we've been just using
(34:34):
the first year, second year's cashflow torenovate our building, which is already
90% renovated.
180 units, 185 units out of 200 units havebeen renovated and rents have already been
to market value.
Um, we've re increased our net operatingincome since taking over a project from
(34:54):
$70,000 to $200,000.
So the deal is performing optimally andeven so we still had a capital call.
Now, for those that don't know what acapital call is, it's basically: Deal is
not doing too well due to whether it's notbeing managed well, or whether it's market
(35:15):
condition in our situation is just marketcondition.
that the interest rate has gone throughthe roof for us, but also insurance costs
have gone through the roof because we'rein Orlando, Florida, where there's
hurricanes and stuff like that.
And so even because of all these risingcosts, it's put us upside down, we're in
negative cashflow, even when our deal isperforming optimally.
(35:39):
So that's the deal that I'm pushing outbecause I'm in the works of talking to my
lease sponsor.
Um, we had a capital call.
We were successful with our capital call,but we needed $2 million, but we were
short by, I don't know, $400,000,$500,000, I think.
But that is good enough for us to be ableto refi our current debt, which is
(36:02):
variable interest rate into a fixed rateloan.
And so that's why we need the capital for.
And I was talking to the lead sponsor andhe wants me to just push this out and see
if any of my new investors would beinterested in this type of deal.
And I said, "Wait a second, are youtelling me that they're able to just, you
know, invest and have the same basis asthe, the first group of investors that
(36:26):
they would get the same benefit?" And he'stelling me, yes, it might be a slightly
different, but yes, because
You know, this is a, it's a very uniquedeal because you get to invest, you get to
come in when we've already mitigated abunch of risk for you, you know, whether
it's through switching property managementcompany, changing from variable debt to
(36:47):
into fixed rate debt, um, just all thestuff that we're, we're going through.
So, um, yeah, so that's what I'm raisingmy capital for, for this deal.
And,
my least number of sponsor was telling methat, you know, the more capital that we
have to get this to the finish line, thebetter, you know, just, just for safety
measure.
And so we just need to see this deal to2025 and we should be good.
(37:13):
Yeah, well, thank you for sharing all ofthat because I think this is the type of
information and detail that's often notnecessarily publicized, but it's really
important for syndicators and investors tobe aware of because, you know, the more
you can learn about scenarios like this,the more you can prepare for them in the
future.
So to quickly recap, you purchased thisfor, it was a $50 million deal,
(37:39):
originally, correct?
Yeah.
And you said that the initial NOI wasabout $70,000.
And then you have since done renovationson the vast majority of the units, which
has bumped up the NOI to, $200,000.
Okay.
So $70,000 to $200,000.
Thanks for correcting me there.
And for newer investors, that's importantto note because the value of the property
(38:04):
is primarily based on the NOI.
So by increasing the NOI, by more thandoubling it in a short period of time, Jim
and his team have drastically improved andincreased the value of the property
overall.
So that is phenomenal.
(38:25):
And then what Jim was saying is that someof the debt in the debt stack was variable
rate, which comes with some risk.
And then there were some unexpected coststhat arose from things like insurance and
being in a more extreme weather area thatwere not necessarily expected.
(38:46):
And I know there have been a lot ofheadlines recently, especially around
Florida and just insurance rates acrossthe board rising rapidly there.
So that's just an example of somethingthat you might not be able to predict
until it's standing right in front of youand you have to address it.
So
Now you're going out and you're raisingsome additional capital to be able to
(39:07):
refinance all of the debt into a moremanageable fixed rate.
Is that correct?
Correct.
Wonderful.
And the newer investors, I think this isalso pretty neat, the newer investors are
walking into a more stabilized asset withless risk in the grand scheme of things
for a similar return as those earlyinvestors.
(39:30):
I believe in this deal and I love theteam.
I love what we're doing.
And so this is something that I am excitedto tell people about it because I feel
like I have my own money in this.
So does my parents, like I mentionedearlier in this episode, right?
We put in, I put in 75, my parents put in75.
(39:51):
And then during capital call, we also putin another 50.
So total we have 200, both my family andI.
And so, you know, we are a big believer inthis deal.
I'm pretty much like basically justtelling my investors, whoever wants to
join, let's make some money together.
Because this is how much I believe in thisdeal, you know?
(40:13):
Of course, there could still be risk.
Any investment, there's risk, right?
But, you know.
Well, I'm pretty transparent abouteverything we talked about, you know, all
the risk, all the all those challenges,all the things that we had to fix to get
to where we're at today.
And that's why I can speak confidently andabout the deal.
Yeah.
(40:33):
Well, and thank you for being sotransparent about it because I think there
are a lot of great lessons to take awayhere.
And I love the perseverance of you andyour team to continue to see it through
and take the challenges head on andcontinue to look for a successful exit.
So thank you so much for sharing that.
Yeah, yeah, it's unique because my leadsponsor, he's been in this business for 20
(40:56):
to 30 years.
He, back in 2008, he scooped up 200 homes.
Yeah.
And
he realized how it's not scalable.
And so he is transitioning to multifamilysyndication.
And, you know, and then he's surrounded byvery, very successful people.
(41:16):
This team, you know, they're all very,very smart.
They've all been in the game for a verylong time.
And so I always try to think about like,even though I'm just a little small fish
in a pond, how can I contribute to thisteam?
You know?
And this is the only thing I can work on,right?
Because when they first put out this deal,they've already raised all the capital
(41:38):
from the investors.
Now that they're going through capitalcall, they're definitely not going to be
putting even more money.
So that's just the reality of it.
And so with me, with the position I'm in,I'm just trying to figure out how can I
continue to add value to the team.
And so since I have new investors, sinceI'm...
brand new starting out, this is anopportunity I see for myself and for my
(42:03):
investors.
And that's a great way to look at it iswhere, can you add the value and how does
that end up being something that'smutually beneficial for all parties
involved?
So thanks for sharing that mentalframework and outlook because I think it's
incredibly helpful and very important.
Well, Jim, thank you so much for takingthe time to meet with us today.
(42:25):
Any parting words that you would have forinvestors who are either brand new or have
some experience in the residential space,but are looking to transition into the
commercial space?
I think my number one tip to new peoplestarting out is really know what you wanna
(42:50):
get yourself into.
First of all, figure out what interestsyou.
What are you passionate about?
Are you passionate about whether it's justhaving a certain amount of residential and
just be okay with...
a certain amount of passive income.
I think that's the first thing, right?
(43:10):
You got to figure out what is your endgoal.
Like how big, like how much passive incomedo you want?
How many houses do you want to manage?
Do you want to manage a team?
Do you want, you know, you kind of have tofigure it all this out, like the biggest,
you know, my end goal is, let's just saymy end goal is 10,000 units, right?
Well, how do I get to 10,000 units?
(43:31):
I'm not going to be acquiring four unitsone at a time.
That's gonna take me forever.
You start with your goal and then youfigure out as you go along to reach that
goal.
So I think that's the very most important.
If you want to get into residential forwhat?
For Airbnb or is it for assisted living oris it for something else?
(43:52):
You want to get into commercial, you wantretail, industrial.
So you got to be very, you got to figureout what is it you want, right?
And then you start from there and then youcontinue, you start to educate yourself,
start to go to meetups.
Then you'll start, you're going to startto see people that can help you reach your
goal, right?
(44:13):
By putting yourself out there.
That's how I've been, I've always beenjust working, like just continue to take
these little small actions.
Cause at the end of the day, I know thatreal estate takes time, right?
It takes a lot of patience, a lot of work,but if you grind it out, good things are
going to happen to you.
Yeah, wonderful.
Well, thank you again.
And really quickly, where can people learnmore about you if they want to connect?
(44:38):
They can visit my websiteformosainvesting.com and they can also
connect with me on social media TwitterInstagram Facebook LinkedIn at Formosa
investing
Yeah.
And we will be sure to include all ofthose links in the show notes.
So, reach out to Jim, if you've got anyquestions, or if you just want to connect
(44:59):
and even participate in the deal that he'sworking on.
Um, but Jim, thanks again.
It's been a pleasure having you and, uh,best of luck with the rest of this, deal
raise.
Thank you.
Thanks for having me, Patrick.
Hello and welcome to the active commercialreal estate investing show brought to you
by the one and only school of commercialreal estate investing.
I'm Patrick.
And I'm Noelle.
And today we are joined with Jim Lee.
Jim received his bachelor of sciencedegree in economics from UCLA in 2010, and
started his career as an inside salesrepresentative for LoopNet CoStar.
(00:45):
By being the top sales rep and winning a$50,000 sales incentive bonus, he used
that savings to purchase his first twobedroom, one bath condo and learn the
importance of having multiple streams ofincome.
Now through real estate syndication.
He's invested in over 600 units in thepast two years, where he's participated as
a general partner and limited partner.
(01:06):
Jim, welcome to the show and thanks forbeing here.
Thanks for having me.
Absolutely.
Well, fantastic story.
We're excited to dive into it in moredetail today.
And we'd love if you could just kickthings off with a background about
yourself.
Yeah, absolutely.
So just like you mentioned, I graduatedfrom UCLA back in 2010.
Now, as many of your listeners might knowthat that's right after the 2008 subprime
(01:32):
mortgage crash followed by the 2010European debt crisis.
So it was a really difficult time to finda job.
At the time, I was jobless for about ayear and a half due to...
uh, this recession and, um, my parents,you know, just coming from an Asian
(01:54):
culture background, they wanted me to goback to school for, to get a PhD or MBA.
But all I wanted to do is get some workexperience.
So I was pretty stubborn about getting ajob.
That's why it took me a while, but, uh,eventually I was fortunate enough to lend
an inside sales job, uh, working atLoopnet and CoStar.
And from there, I just never looked back.
(02:16):
I was
hungry, I was motivated, I took the jobvery serious and, uh, excelled and won
$50,000 bonus and, um, use that money tostart investing in real estate.
And from, and, and I did inside sales forabout seven years where I finally, um, uh,
like what I, what I'd started by investingin real estate.
(02:38):
And then I'd kind of transition from a W2employee
to become a realtor and then eventually tobecome the, what I always wanted to do to
be an entrepreneur like my dad, bystarting off my real estate syndication
business.
Okay.
So what was it, when you were working atloop net costar that started to get you
(02:59):
into the mindset of, of wanting to investin general?
I think just having the luxury of beingable to talk to real estate investors, you
know, property managers, lenders, youknow, all kinds of insurance brokers, just
all, you know, all these different piecesof the puzzle of what you need,
(03:24):
essentially the team that you need toacquire to be able to manage your, real
estate portfolio.
And so,
just by talking to these people on a dailybasis, you can kind of understand that,
okay, so this is how the rich get richer,is by using their money to make more
(03:45):
money.
And you see that everywhere on socialmedia that nowadays it's like, why would I
spend money to buy material when I canspend money to buy asset that makes money
for me to buy material?
So the concept is easy, it's always beenthere.
Um, it's just a matter, you know, I just,I was just, like I said, fortunate enough
to be able to work at a, at a co-star tobe able to learn from that.
(04:10):
I love that.
And I feel like networking is one of thosethings that so many people talk about, but
so many people won't put the effort into.
But I love that you have the experiencewith where you are working to be able to
have that natural network component of it,to be able to talk to people that are
already in the game and doing the game alittle bit differently than you are as you
were getting off to starting and lettingyou say, "Hey, I've got this big chunk of
(04:32):
cash.
Let's go ahead and invest and...
make sure that we can make some money tooand build wealth for myself and not just
watch all these people around me buildingthat wealth." So that's really cool that
you had that opportunity.
I know for listeners, one of the thingsthat we try to talk about is get out there
and talk to people, talk to the people inthose positions, whether it be lenders,
(04:53):
brokers, investors, realtors, you know, tohelp with feeling confident in going and
making that deal.
Yeah, yeah, absolutely.
Everything, everything helped.
You know, I had a, I had a great managerthat taught me everything about sales.
Cause you know, this is my first job outof college.
So without any, any experience at all.
So I definitely learned a lot from thatjob and I took away probably the most.
(05:17):
And, uh, and, uh, and you know, I alsoworked my butt off.
I, I put in 10 to 12 hours a day and, youknow, sometimes I take my work home as
well.
So,
that's how serious I took it because, youknow, just being, going through that
recession, going through the hard times,you never want to go back to that place
again, you know?
(05:38):
And that's something that I always searchfor, that fire.
That just keep burning and just wants youto get up and just continue to push
forward.
Yeah.
So once you got that two bedroom, one bathcondo, where did you go from there?
Um, so I got two beds and one bath afterbeing laid off the second time, um, on my
(06:02):
second job, that's when I realized that,okay, you know, I can't just depend on my
W2 job.
Um, I got to think of way to createpassive income for myself.
And that's how I referred back to my, um,first job, which is real estate.
And after I acquired this two bedroom, onebathroom, I
started to seek other opportunities, otherreal estate opportunities.
(06:26):
Cause now that you've done one deal,you're kind of hooked to it, right?
You're like, okay, I can do this.
I can add more to it.
And so I got, uh, made a decision, got myreal estate license thinking that it would
be easy for me to find my own deal, butit's not that easy.
It's like what Noelle was mentioningearlier.
It's all about networking.
(06:46):
It's all about building relationships.
So it's all about who you know,
and who trusts you, who thinks that youhave the ability to close for them, right?
Because essentially it's all, you gottathink of way to mutually benefit each
other for the relationship to work, right?
So, yeah, so, and that was also a learningprocess for me.
(07:09):
Being a realtor, I tried to make a careerout of it, but it just wasn't a good fit,
and that's why I transitioned to become areal estate syndicator.
Yeah.
And I think the mutually beneficialcomponent that you just mentioned is very
important.
And I will also mention that youdefinitely practice what you preach
because when I reached out to you aboutbeing a guest on the show, your first
(07:31):
response was, "Well, if it's helpful foryou and it's helpful for me, like, let's
do it.
There's no reason not to, you know?" Andso I think, you know, finding those
win-win situations is definitely a greatway to navigate life in general.
So thank you for practicing what youpreach there.
Yeah, yeah, absolutely.
I, I'm a big fan of, um, what is it?
Uh, Rich Dad Poor Dad you know, that'sthe, that's, that's the one book that
(07:55):
changed my mindset from savers mentalityto kind of the investor mentality.
And on his show— I used to listen to them,though like five years ago— on his show,
he used to talk about that practice whatyou preach and follow those people that
practice what they preach and don't followthe fake gurus out there.
So,
that's something that I still hold to myheart to this day.
(08:17):
Yeah.
And can you talk a little bit more aboutthat savers mentality that you used to
have and where that came from and how thatimpacted the earlier part of your journey?
Yeah, absolutely.
So I grew up in an Asian household.
I was born and raised in Taiwan.
And I came here when I was 11 years old asan immigrant.
And so everything that was taught by myparents, it's in Asian culture, debt is
(08:44):
slavery, cash is freedom, that's how wethink.
And so, you know, we work very hard tosave pretty much every dollar that we, you
know, we can save possibly.
And it's a good mindset to have, but it'skind of like, you know, it can work for
you, but it can also work against you,right?
(09:06):
And that's something that I didn't realizegrowing up because it's just what my
parents kind of instilled the belief inme.
And so I thought this is the right way.
This is the only way to do things.
And then eventually, you know, as Istarted to educate myself,
just like all of us, through readingbooks, podcasts, networking, just constant
(09:31):
learning about "How can I make thingsbetter?" Shortly after I bought my two
bedroom, one bathroom condo.
That's when I picked up the Rich That PoorDad, wanted to educate myself.
Because I realized how much I didn't knowabout real estate after you actually take
action and acquire your first building.
and having to deal with tenant toilettrash, right?
(09:54):
So you wanna just make it as easy aspossible for yourself.
So you educate yourself.
And so that's when I realized, okay, I'vebeen doing this all wrong this whole time,
because my first deal, it was, I paideverything in cash.
I thought that was the only way to buyproperty.
And I saved up like for...
years and years of savings to be able todo that.
(10:16):
And then I realized, oh, you know, you gotto use debt, you know, it's the best, it's
your best leverage, you know, so, it'sjust a little bit of education.
Yeah, but I love what you said therebecause there's two components of that.
There's the component of, you know, howyou're raised and having a certain
mindset, you know, and trusting those,like you trust your family.
(10:37):
You want to listen to your family.
And then also going into real estate andjust trusting what the box says that you
should do.
But I think what you said is important,like educate yourself and start to look
outside that box, start to think about theother alternatives and the other things
that could help you and advance you
where you want to go.
(10:57):
I mean, you said it yourself.
You're like, I don't want to be working orrelying on this W-2.
I need to find another way to do that.
And part of that was taking action.
And you learned from that first deal of,"Okay, so maybe I didn't use debt in a
very smart way, could have done thatbetter." But when we think about
practicing what you preach and lookingwhere you're at now, like you're not
(11:18):
relying on your W-2.
You've learned from those.
You've educated yourself and now have
plenty of other deals.
And I know we'll want to get into talkingabout maybe one that you have like a
latest deal that you want to talk aboutand kind of dive into a little bit.
But I want to stress that because I,Patrick and I especially are finding as we
are opening up our networks and as we aretalking to people about these like, "What
(11:42):
do you mean I don't have to put 20% down?""What do you mean I don't have to do X, Y
or Z?" And this is more people that arecoming from a residential side of doing
house hacking.
But
I think it goes so far of like, look intoall of the potentials and it's going to
take a little time to read the books, tolook up the articles, to listen to the
podcasts, but you're going to be so muchbetter for it.
And you'll be so much better for learningfrom people like you, Jim, and learning
(12:05):
from people who are spreading thatknowledge and talking about all of these
different ways to go about taking the sameactions.
Yeah, absolutely.
Well said.
I mean, just I think in general, I thinkthere's no, there's no, I wouldn't say, I
don't think there's a, like a right answerto everything.
I mean, we all are in, in our own littlepath.
(12:25):
They're all journeys getting to where wewant to be at, and the journey is all
going to be different because we're allgoing to experience something different,
right?
So, um, I can only speak of from myexperience.
I can't speak for everyone else, but Ithink that's what makes you unique.
That's what makes all of our lives unique,right?
(12:46):
In our own way, we can share our story andstill be able to reach the same
conclusion, same destination.
So I like that a lot.
And going back to what you said, I thinklooking at things in different angles
always helps.
We can't be too biased sometimes.
That's my opinion.
(13:07):
Yeah.
Now back to your story, you know, pickingup on the timeline here, you've got the
two bedroom, one bath condo.
You're starting to look at more realestate deals.
Did you invest more in residential or didyou start to make the shift to commercial
shortly after that?
And what, what made you make that pivot?
(13:29):
So, um, my mindset was stuck onresidential for the longest time.
Uh, cause I didn't think that doingcommercial was possible, um, by myself.
And that was the wrong mindset, right?
By myself, because I didn't know that, um,in the commercial world, especially in the
hundred unit plus buildings, it's alwaysthrough partnerships.
(13:52):
It's always through a team collectedeffort.
Very rarely will you see someone that justoutright buys the whole building on their
own.
Unless you're like Bill Gates or someone,you know, if you have that kind of
capital, but typically it's owned by, youknow, multiple partners, and that's
something that I had to learn.
And I think that's how I transitioned frombeing from residential to commercial is
(14:17):
that, again, it's just constant educationright?
In 2020 during lockdown, I couldn't doanything as a realtor.
So I started to educate myself about otherways of making money through real estate.
And that's how I came across syndication.
And they said that in syndication, itdoesn't make sense to syndicate
you know, something that's like four unitsor, you know, maybe five to 50 units.
(14:38):
But if you're, if you're thinking bigenough, then it makes sense because you
can bring investors on board, you canbring other partners on board and
everybody can have a little piece, of thatbig overall pie if, uh, this property is
being managed, uh, well, you know, so, sothat's how I, I started to think
(14:59):
everything was possible once I discoveredsyndication.
Yeah.
But that's still a pretty big leap, youknow, to go from the residential world to
the commercial world, especially straightinto buildings that are over a hundred
units.
What were some of the mindset hurdles youexperienced personally as you started to
make that transition?
(15:20):
The biggest mindset I had to overcome wasthat, um, I can't tell, I don't know if
you guys can tell, but I'm like, I'm a bigintrovert.
If I, if I, um, if I can just stay homeand not go out and face it and meet
people, I, I would not, this is, it's notsomething I like to do, but that's
something that's, that was the biggesthurdle for me, right?
(15:40):
Because being a realtor, how can you saythat?
Like, how can you tell yourself that youdon't
like to meet people, because that's yourbread and butter of your business, right?
And when I became a syndicator, I realizedhow much more of that I need to do, even
more than being a realtor.
So the biggest mindset shift that I had todo, I had to go through the struggle
(16:02):
during the pandemic was really get out ofmy comfort zone.
Like once I started educating myself aboutsyndication, the next step was to go out
and put myself out there and continue tolearn from other syndicators.
How can I do that by just staying home.
I gotta put myself out there, go out,travel, network, join mastermind groups,
(16:23):
volunteer for real estate meetup clubs.
So that's basically what I've been doing,you know, to try to get myself out of the
groove and trying to get comfortable doingit.
And then everything is just, you're liketrying to progress and trying to build on
top of what you've already achieved.
Right?
So...
I'm doing all this stuff to kind ofpractice for myself to eventually start my
(16:45):
own podcast show just like you guys.
And then also start my own local realestate meetup club where as I can host and
have a guest speaker come over to mycommunity.
So it's all just like little steppingstones to reach your, you know, your
dream, your end goal.
Yeah, that's well said and a veryintelligent path forward and framework to
(17:10):
put around all of that.
As you started looking at your first stepsinto syndication, you just mentioned a
slew of actions that you took and thatyou've been taking, but you founded
Formosa Investing.
Can you give us a background of how thatcame to be?
Yeah, sure.
(17:30):
So during my two years of being asyndicator,
I basically spent about a year justconstantly putting myself out there and
eventually met my business partner.
And then we decided to, uh, do a dealtogether and we did it a year later.
So,
that's why it took me two years to finallysyndicate my very first deal.
As an entrepreneur, you either staystagnant or you take action.
(17:52):
All these little things, the littleactions I'm taking.
It's not getting the results I want yet,but, um, it is working towards something
that we realized that, okay, we need to bebuilding our own brand awareness,
individually first.
And then once we reach a certain level,then we can, you know, merge.
(18:14):
Cause we're, we're looking at otherbusinesses who are
like, you know, three to five years aheadof us, what are they doing and how do they
get there?
You kind of just analyze, because mybusiness partner were like very analytical
people.
So I think that's where we kind of decidethat, yeah, okay, it would make sense to
(18:36):
just build a brand.
And I created Formosa as my brand, becauseFormosa, it's like a nickname for Taiwan.
Back in
1600 Portuguese discovered Taiwan Theyjust call it Formosa because it's the
beautiful island.
So that's how I came across that name.
Oh, thanks.
(18:58):
Yeah, it's nice.
It's something that we're Taiwanese arevery proud of.
When you mentioned the word Formosa, we'relike, yeah, that's Taiwan.
That's awesome.
Well, and I think something else you saidis important.
We, depending on your bubble, if you're onsocial media and what your phone's picking
up and serving you with, I feel like somany people get started with these
(19:21):
overnight success stories.
And I think what you said there isimportant.
It takes patience and it took two yearsfor you to be able to find a partner, get
the right deal.
But,
you are still taking action.
Like even though it's not the immediategratification in doing a deal every month
for the whole year, like five deals ayear, or five deals a month, I mean, like
(19:43):
you are still making progress towards thatgoal, even if it's a little bit slower in
your mind than you would like to.
But I think it's still important becausethe analytical side, Patrick can attest to
this, I'm very much the like, let's go go,and Patrick's like, let's sit down and
let's
like analyze things and make sure this isright.
You know, and there's obviously a goodbalance to that, but it is, it's important
(20:05):
to find the right person, A, so taking thetime to find your partner is very
important.
And then you wanna make sure that you arethinking about that deal, especially
getting over the hurdle of that, oh mygosh, I'm taking a huge jump.
What is this going to do?
How are we going to make this work?
So I really appreciate that you said that,and I appreciate that you put value in the
(20:27):
analytical piece too, because I do thinkit's important.
And sure, at some point in your journey,because like you said, everyone's journey
is a little different, things might speedup, but it's okay if they're not full
speed ahead right now all the time.
Right.
And that's something that I have to remindmyself, like, almost every day, or maybe
(20:48):
every week, that be grateful and be proudof the progress you've made, you know, and
then give yourself some time, you know,don't like, put too much pressure, you
know, and stress on yourself for noreason, you know.
Yeah.
When we do our annual goals, we like tostart off with looking at the successes
(21:09):
from the previous year, even the smallthings like, you know, we kept our
daughter alive.
Hooray.
Like that was a success.
But because you're right, it is important.
Count those successes because, you know,you would use the word fuel and fire
earlier.
It's like that helps set the stage forthat fire, for that fuel, for that
motivation.
If you can count all these successes, evensmall ones, it's going to help you keep
(21:31):
going because that's the content you'regiving yourself is.
I'm making progress, I'm making successes,and I can keep this going.
Not to take us on a tangent from yourstory, but I just, I really like these
tidbits that you have as a part of yourjourney as well, because I think it
resonates really well for Patrick and Iindividually, and I think it resonates for
the people that are hopefully listeningand getting value out of this right now as
(21:52):
well.
Yeah, absolutely.
so you found your partner, you you formedFormosa, you spent a while looking for the
first deal...
What did that first deal look like?
It's a 200 unit apartment building inOrlando, Florida.
(22:13):
It's residing in a Class A neighborhood.
It has like convenient shops, it hasChick-fil-A down the street, it has a
mall, it's a good school district, butit's a building built in 1970, so it's a
Class C building.
It has a lot of deferred maintenance.
Yeah.
And when we took over the project, there'sa couple hundred work order back, backed
(22:37):
up work order that we had to fix.
So it was definitely something that wedidn't, a lot of things that we didn't
foresee coming, but that's part of aboutowning and managing real estate, right?
There's always problems.
Always, Yeah.
If you expect otherwise, you're settingyourself up for disappointment for sure.
(22:59):
Well, that's great.
That's a hefty size building to get intofor the first deal.
What did the capital raise look like forthat one in particular?
So it's a $50 million deal, includingCapEx renovation costs.
And so out of 50 million, 30 million wasloan, and then 10 million was private
(23:24):
equity, and then we had to raise 10million from retail investors.
And what was your process for going aboutthe retail investor side of that?
So for me, since it's my first deal, noexperience, really tough, tough.
And they always say like doing your firstdeal is going to be the most challenging.
Well, tell me about it because when weclosed this deal, it was July of 2022.
(23:48):
I don't know if you guys recall, butthat's when the market shift.
It was between April and July.
Yeah, that was when the interest ratesstarted going crazy on us.
So.
a very, very tough time to raise money.
So the only people that really contributedtowards my raise was my family and my best
(24:09):
friend.
And I'm pretty proud of it because, it'smy first deal.
And even though, just the people that, Iwould say they trust me more than they
trust the deal.
They just trust me because, I've been,they know me, they know what kind of
person I am.
So that's
I've raised $200,000 for that deal, forthe first deal.
(24:32):
And I'm learning a lot.
It's just behind the scenes, assetmanagement, and then be able to manage the
property managers who is managing 200units.
So there's a lot of moving pieces behindthe scenes.
So it's a great deal.
Yeah, I'm sure that Noelle has a fewquestions about the operations perspective
(24:55):
of that deal in particular.
I mean, 200 units is a lot.
Obviously, not something that you want tobe managing.
You want to hire professionals to manage.
How did you figure out who the bestproperty management company was?
Was that already a part of the purchase oris that something that you went out and
had to find who the best partner would befor that?
(25:19):
So, you know, we thought just, you know,like everything was linear.
Obviously it doesn't, business alwaysdon't always play out that way.
So we just thought, okay, um, we're goingto hire the best of the best, right?
You know, Res Prop I don't know if youguys ever heard of them, of them, but they
manage, they have over two or $3 billionof, uh, commercial real estate asset under
(25:45):
management.
So they're pretty huge nationwide.
Unfortunately, we made a mistake becausethey got on board and they spent, I
believe, a little bit less than half ayear.
They still had all these hundreds of workorders backed up.
And we realized the real issues, whythings are not moving along the way we
(26:07):
want it to move is because they don't haveany local presence in Orlando.
They sure they might be one of the biggestnational property management out there.
But
you gotta make sure that they have localpresence in the area that you're serving,
right?
They had a branch in Miami, but the peoplefrom there are not gonna come to Orlando
to help us out.
(26:28):
So we switch property management company.
And that was a risk we didn't see coming,you know?
We just thought that hiring one of thebiggest would serve us but no, it was not
that easy.
Well, like you said, nothing is ever easyin your first deal, right?
Um, but that's a lot.
I mean, transition period wise, was thereany other big hurdles that, um, you ran
(26:53):
into for property management in particularwith making that transition from a large
national firm to one that was, I assumestill large, but locally based.
And again, that's a great piece of advice.
Like if you don't have a maintenancestaff, a cleaning staff, people that are.
local that are able to make it to theproperty within the 24 hours that I would
assume in a Class A neighborhood peopleexpect to be taken care of, you know, in
(27:17):
their residence.
What was that?
What was that like in transitioning?
absolutely.
So when you say transition from the oldowner to us, right?
The new owners, okay, so yeah.
So the biggest breakdown would just bewhat I was telling you about is that when
we took over the project, we did notforesee this coming.
(27:38):
We didn't think that, okay, there areliterally 300 work orders backed up.
Apparently like the property managementcompany that used to service this building
for the previous owner,
they didn't give us any of thisinformation and they literally just
terminated their work, like I believeseven weeks before taking new ownership.
(28:01):
So they just left everything behind.
The seller wasn't, I guess like the sellerdidn't have good relationship with this
property management company.
That's why the deal wasn't performingoptimally, right?
Because the seller,
He's out there.
They're also from California.
So they're managing it away kind of fromout of state.
Whereas within our team, we have localpresence.
(28:22):
We have investors.
We have one of our general partners livesin Orlando, Florida.
So we have boots on the ground, so tospeak.
And that's very important, right?
It's always, if you're going to invest outof state you got to make sure you got to
have a good team,
people you can trust, boots on the groundto kind of help you out with that type of
(28:44):
stuff.
So 300 backed up work orders, and then wefound out later that a property management
company wasn't doing much about it.
And that's when we started to realize,okay, we need to switch this property
management company because we need to getthe occupancy rate up because when we took
over,
(29:05):
Occupancy was at 92, 93%.
Upon taking over, it dropped to 84, 85%.
So typically, once you switch owners,tenants tend to leave, eventually it
dropped down to 74% because of all thosebacked up work orders,
backed up maintenance, backed up all this,you know, just a lot of things and people
(29:26):
started to leave and so Yeah, so there wasa big challenge entering into this deal
Yeah, but we were but our asset managementteam our GP team have done such a
wonderful job that they went from 74%Occupancy to 98% now.
So we're doing
(29:47):
We're doing things to the best of ourability.
That's a great occupancy on 200 unitbuilding.
And I mean, that just goes to show too,you don't know what you don't know and due
diligence goes so far.
You can ask so many questions, but if youdon't know to ask for something like, like
who would have ever thought to ask forsomething like that in your first deal if
(30:09):
you've never had to worry about thatbefore?
So, oh my gosh, that's tough.
I can't imagine being in that position.
I hope to imagine that one day, but I canempathize and sympathize.
with that and going through that in themoment.
Yeah, I think a lot of us just gotexcited, right?
Like how did seven or eight GP of us missthat?
(30:31):
You know, like the more people you have,the less risk you should have.
Technically, you should be able tomitigate more risk.
But I guess we're all just excited.
Yeah, we're gonna get this to the finishline during economic downturn.
So that's where we're like more focusedon.
And then the problem started to occur.
(30:52):
Yeah, yeah.
Well, and sometimes when you have so manypartners too, I experienced this in my W-2
job, it's you think someone else isthinking about it.
Right, and I'm sure you guys had verydiligent paths of who was doing what, but
there are some things that are inherentlygoing to get missed or not thought about
(31:12):
in terms of who's checking on what or it'sa, okay, well, surely someone else has
thought about that.
I know exactly what to think about.
So hear you there.
But things get missed.
That's life.
And that's part of the learning process.
Yeah, and glad that you were able to workthat out and definitely stabilize the
property.
(31:33):
Moving forward then, I know that you'vebeen doing a handful of deals since then,
but you mentioned one at the beginning ofour call that you're particularly excited
about that's a little bit unique.
So, we would love to dive into that andhear what you have in the pipeline right
now.
Yeah, so this is a perfect transitionbecause the new deal that I'm raising
(31:56):
money for is actually the deal I just toldyou.
So that's what makes this story unique.
Would you like me to explain a little bitfor your audience or...
just go right into my deal.
Okay.
So typically in a real estate syndication,it's basically where investors pull money
together to buy one commercial property.
And then the profits, the rental incomegenerates, gets split amongst other
(32:18):
investors.
It's like a win-win for the syndicator,the operator and the investors.
So typically in these, um, Class Capartment building that we go in, we
purchase, we add value.
We project five year hold period.
And what that means is that after fiveyears, we sell the property, we can 2X
your money back.
Now let's use a easy number as an example.
(32:40):
If you invest a hundred thousand, you canexpect 200,000 back once we sell the
property.
Now on top of that, every year you canalso expect 8% preferred return, which
means that every year, if you invest ahundred thousand, you can get 8,000 of
passive income to you.
And so that's the benefit, right?
Like that's the type of return you can seefrom this type of deal.
(33:05):
Now for our deal, we closed this July of2022.
So it's been almost two years since then.
And
Let's just say the first year you're owed8% of your $100,000 and we don't end up
making distribution to you as an investor.
Well, what that means is that preferredreturn it gets accumulated to the
(33:28):
following year.
So if we only pay you 1% the first year,we owe you 15% in the following year and
then so forth.
It does accumulate and when...
When you do get paid out your preferredreturn, that's when whenever we have a
capital liquidity event, such as cash outrefi or selling the property, right?
(33:49):
So that's typically how it works.
Now if you are on a variable interest rateright now,
you're getting crushed.
And that's what's happening in thesyndication world.
A lot of us, we tend to like to use what'scalled bridge loan.
So bridge loan is where you bridge thegap, you pay interest only typically, and
then it's only good for three years.
(34:11):
Reason why we love to use this product asa syndicator is because we can, you know,
use up all the cash to renovate theapartment, to add value to the apartment.
Right.
And that also explains why our currentinvestors for this deal have not received
their distribution, even though it's beentwo years, because we've been just using
(34:34):
the first year, second year's cashflow torenovate our building, which is already
90% renovated.
180 units, 185 units out of 200 units havebeen renovated and rents have already been
to market value.
Um, we've re increased our net operatingincome since taking over a project from
(34:54):
$70,000 to $200,000.
So the deal is performing optimally andeven so we still had a capital call.
Now, for those that don't know what acapital call is, it's basically: Deal is
not doing too well due to whether it's notbeing managed well, or whether it's market
(35:15):
condition in our situation is just marketcondition.
that the interest rate has gone throughthe roof for us, but also insurance costs
have gone through the roof because we'rein Orlando, Florida, where there's
hurricanes and stuff like that.
And so even because of all these risingcosts, it's put us upside down, we're in
negative cashflow, even when our deal isperforming optimally.
(35:39):
So that's the deal that I'm pushing outbecause I'm in the works of talking to my
lease sponsor.
Um, we had a capital call.
We were successful with our capital call,but we needed $2 million, but we were
short by, I don't know, $400,000,$500,000, I think.
But that is good enough for us to be ableto refi our current debt, which is
(36:02):
variable interest rate into a fixed rateloan.
And so that's why we need the capital for.
And I was talking to the lead sponsor andhe wants me to just push this out and see
if any of my new investors would beinterested in this type of deal.
And I said, "Wait a second, are youtelling me that they're able to just, you
know, invest and have the same basis asthe, the first group of investors that
(36:26):
they would get the same benefit?" And he'stelling me, yes, it might be a slightly
different, but yes, because
You know, this is a, it's a very uniquedeal because you get to invest, you get to
come in when we've already mitigated abunch of risk for you, you know, whether
it's through switching property managementcompany, changing from variable debt to
(36:47):
into fixed rate debt, um, just all thestuff that we're, we're going through.
So, um, yeah, so that's what I'm raisingmy capital for, for this deal.
And,
my least number of sponsor was telling methat, you know, the more capital that we
have to get this to the finish line, thebetter, you know, just, just for safety
measure.
And so we just need to see this deal to2025 and we should be good.
(37:13):
Yeah, well, thank you for sharing all ofthat because I think this is the type of
information and detail that's often notnecessarily publicized, but it's really
important for syndicators and investors tobe aware of because, you know, the more
you can learn about scenarios like this,the more you can prepare for them in the
future.
So to quickly recap, you purchased thisfor, it was a $50 million deal,
(37:39):
originally, correct?
Yeah.
And you said that the initial NOI wasabout $70,000.
And then you have since done renovationson the vast majority of the units, which
has bumped up the NOI to, $200,000.
Okay.
So $70,000 to $200,000.
Thanks for correcting me there.
And for newer investors, that's importantto note because the value of the property
(38:04):
is primarily based on the NOI.
So by increasing the NOI, by more thandoubling it in a short period of time, Jim
and his team have drastically improved andincreased the value of the property
overall.
So that is phenomenal.
(38:25):
And then what Jim was saying is that someof the debt in the debt stack was variable
rate, which comes with some risk.
And then there were some unexpected coststhat arose from things like insurance and
being in a more extreme weather area thatwere not necessarily expected.
(38:46):
And I know there have been a lot ofheadlines recently, especially around
Florida and just insurance rates acrossthe board rising rapidly there.
So that's just an example of somethingthat you might not be able to predict
until it's standing right in front of youand you have to address it.
So
Now you're going out and you're raisingsome additional capital to be able to
(39:07):
refinance all of the debt into a moremanageable fixed rate.
Is that correct?
Correct.
Wonderful.
And the newer investors, I think this isalso pretty neat, the newer investors are
walking into a more stabilized asset withless risk in the grand scheme of things
for a similar return as those earlyinvestors.
(39:30):
I believe in this deal and I love theteam.
I love what we're doing.
And so this is something that I am excitedto tell people about it because I feel
like I have my own money in this.
So does my parents, like I mentionedearlier in this episode, right?
We put in, I put in 75, my parents put in75.
(39:51):
And then during capital call, we also putin another 50.
So total we have 200, both my family andI.
And so, you know, we are a big believer inthis deal.
I'm pretty much like basically justtelling my investors, whoever wants to
join, let's make some money together.
Because this is how much I believe in thisdeal, you know?
(40:13):
Of course, there could still be risk.
Any investment, there's risk, right?
But, you know.
Well, I'm pretty transparent abouteverything we talked about, you know, all
the risk, all the all those challenges,all the things that we had to fix to get
to where we're at today.
And that's why I can speak confidently andabout the deal.
Yeah.
(40:33):
Well, and thank you for being sotransparent about it because I think there
are a lot of great lessons to take awayhere.
And I love the perseverance of you andyour team to continue to see it through
and take the challenges head on andcontinue to look for a successful exit.
So thank you so much for sharing that.
Yeah, yeah, it's unique because my leadsponsor, he's been in this business for 20
(40:56):
to 30 years.
He, back in 2008, he scooped up 200 homes.
Yeah.
And
he realized how it's not scalable.
And so he is transitioning to multifamilysyndication.
And, you know, and then he's surrounded byvery, very successful people.
(41:16):
This team, you know, they're all very,very smart.
They've all been in the game for a verylong time.
And so I always try to think about like,even though I'm just a little small fish
in a pond, how can I contribute to thisteam?
You know?
And this is the only thing I can work on,right?
Because when they first put out this deal,they've already raised all the capital
(41:38):
from the investors.
Now that they're going through capitalcall, they're definitely not going to be
putting even more money.
So that's just the reality of it.
And so with me, with the position I'm in,I'm just trying to figure out how can I
continue to add value to the team.
And so since I have new investors, sinceI'm...
brand new starting out, this is anopportunity I see for myself and for my
(42:03):
investors.
And that's a great way to look at it iswhere, can you add the value and how does
that end up being something that'smutually beneficial for all parties
involved?
So thanks for sharing that mentalframework and outlook because I think it's
incredibly helpful and very important.
Well, Jim, thank you so much for takingthe time to meet with us today.
(42:25):
Any parting words that you would have forinvestors who are either brand new or have
some experience in the residential space,but are looking to transition into the
commercial space?
I think my number one tip to new peoplestarting out is really know what you wanna
(42:50):
get yourself into.
First of all, figure out what interestsyou.
What are you passionate about?
Are you passionate about whether it's justhaving a certain amount of residential and
just be okay with...
a certain amount of passive income.
I think that's the first thing, right?
(43:10):
You got to figure out what is your endgoal.
Like how big, like how much passive incomedo you want?
How many houses do you want to manage?
Do you want to manage a team?
Do you want, you know, you kind of have tofigure it all this out, like the biggest,
you know, my end goal is, let's just saymy end goal is 10,000 units, right?
Well, how do I get to 10,000 units?
(43:31):
I'm not going to be acquiring four unitsone at a time.
That's gonna take me forever.
You start with your goal and then youfigure out as you go along to reach that
goal.
So I think that's the very most important.
If you want to get into residential forwhat?
For Airbnb or is it for assisted living oris it for something else?
(43:52):
You want to get into commercial, you wantretail, industrial.
So you got to be very, you got to figureout what is it you want, right?
And then you start from there and then youcontinue, you start to educate yourself,
start to go to meetups.
Then you'll start, you're going to startto see people that can help you reach your
goal, right?
(44:13):
By putting yourself out there.
That's how I've been, I've always beenjust working, like just continue to take
these little small actions.
Cause at the end of the day, I know thatreal estate takes time, right?
It takes a lot of patience, a lot of work,but if you grind it out, good things are
going to happen to you.
Yeah, wonderful.
Well, thank you again.
And really quickly, where can people learnmore about you if they want to connect?
(44:38):
They can visit my websiteformosainvesting.com and they can also
connect with me on social media TwitterInstagram Facebook LinkedIn at Formosa
investing
Yeah.
And we will be sure to include all ofthose links in the show notes.
So, reach out to Jim, if you've got anyquestions, or if you just want to connect
(44:59):
and even participate in the deal that he'sworking on.
Um, but Jim, thanks again.
It's been a pleasure having you and, uh,best of luck with the rest of this, deal
raise.
Thank you.
Thanks for having me, Patrick.
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