What type of real estate should you NOT invest in? Get the answer to this question and more as Matt chats with Rachel and Dylan Grunn — experienced active and passive investors in multifamily apartment syndications. They’ll also share why you need to be clear on your investing criteria and goals.
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“I understand it's a lot of money that you're investing and we've been there before. It's scary at first, but after the first cycle of a deal you're suddenly addicted and there's no rehab out there for you.” :)
“I ask investors what their biggest regret is and it's always that they didn't start earlier. The perfect time to invest was 10 years ago. The second best time is right now and I think to get better returns you really just gotta commit.”
ABOUT RACHEL & DYLAN
Rachel and Dylan Grunn are the co-founders of Third Coast Capital, which is an innovative investment company offering passive investors the opportunity to become co-owners of large multifamily apartment buildings. From Airbnbs, to mobile home parks, to development, and commercial real estate funds, Dylan and Rachel have done it all — but multifamily remains their favorite asset in their portfolio!
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welcome to better returns where you will learn how to escape the volatility of the stock market by passively investing in real estate like a pro 90 of millionaires earned and maintain their wealth by investing in real estate we will share real-life examples from Savvy investors so you can do the same he started working at his family's drugstore at the age of 9 and by 12 he was running the cash register your host and my dad Matt Hansen well I'd like to welcome to the show Rachel and Dylan Grunn they are co-founders of Third Coast Capital which is an Innovative Investment Company offering passive investors the opportunity to become co-owners in large multi-family deals from airbnbs to mobile home parks to new development commercial real estate funds Rachel and Dylan have done it all but multi-family continues to be their very favorite asset class in their portfolio so happy to have you both on the show today welcome thank you for having us man we're excited as well well tell us a little bit about how you guys got started in multi-family and then a little bit more about you know passively investing that you've done yeah so um I come from a multi-family real estate investing background my my family grew up in the real estate industry so growing up I was homeschooled and so instead of going to calculus we were going to Flips with my with my mom and my dad so they started in the you know beating the pavement in the single family residential type stuff which you know a lot of people do um a lot you know because generally because they don't know there's a better way so it wasn't until about seven years ago that my mom discovered passive multi-family investing is the word of mouth thing um as you know and maybe your listeners know um it's there's not much advertising that goes on in this space so a lot of people find out about it through word of mouth and luckily my mom did and that was seven years ago um I invested in my first passive deal in 2015 seven years ago um and that was awesome and exciting and after I started to see that return come back in through the mailbox money and the cash on cash I mean I was totally hooked and I was like okay that's it liquidating all of the single Family Assets my mom did the same thing she cashed out a 401k took the hit invested it in in multi-family real estate like totally all in and it has paid off huge dividends my mom has gone full cycle on almost 20 deals so far in just seven years yeah that is incredible yeah go ahead Dylan oh no I mean I uh so I was also homeschooled but uh I was not taken to Flips as a kid or anything like that or you know um I was enjoying my life no I'm kidding um I was being a kid um but I yeah I actually didn't really know anything about uh you know the multi-family world or passive investment World until meeting Rachel and pretty much meeting her family as well and hearing her mom's story um you know I had a pretty good understanding of stocks and mutual funds and 401 days and all that but um didn't really understand that there was a certainly another path you could take that was a lot more lucrative in a shorter amount of time instead of you know um even just having an employer match your uh your um contribution yeah contributions to your 401k seemed like like oh wow this is amazing yeah someone's gonna give me the same thing I'm putting in that that seems like the best thing you could possibly exist but um yeah I was obviously very uh uninformed and uh yeah I'm glad that she certainly turned me on to it it's definitely a very it's an interesting path to go down um for sure and I just love the fact that you can you have age on your side to be that young and discover this Rachel is really wonderful that your parents brought you into this and they've done so much I mean 20 deals I don't know that many people that have been invested in that many deals that's impressive along oh yeah and then so you get to learn from all of her experience and she's passing down okay here's what you need to look for so in the past invest that she's investing I I know she invests with because the same people we like um multi-family we'll just say it yeah um so what what is the criteria that she shared with you and you follow like when you're looking for a deal what are the criterias that you look for as a you're a passive investor what's the key three or four things that you really look for that are critical when you're evaluating a deal that's a great question because my mom is she's a very active passive so she's passive but she goes to all the events all the meetups she looks at deals in depth she's on the phone with sponsors and it's because she has a very specific set of criteria that she looks for in a deal and also she you know is she she says it's really important to at least have a baseline understanding of a syndication so that you know exactly what's happening you know what the underwriting terms mean Etc um so I would say that what I look for and what she looks for is very different because it also depends on the face of life that you're in my mom is looking to replace income because she's retired right so that's very different to what I'm looking for because I'm not retired I have a nine to five I'm a realtor in Dallas so I don't really necessarily need the the cash on cash element is not as important to me um so my mom looks for high cash on cash and high depreciation um depreciation is you know what we use to offset our tax liability my mom is a real estate professional so fortunately she can also use that to offset her ordinary income as well though at this point they're retired so their only income is multi-family uh so anyway so she looks for high depreciation benefit and um High cash on cash I look more for the multiplier so I'm looking at you know what kind of X is my money gonna do in five-ish years so I think you know at least I know the deals that we look at it's like 2x at the bottom like I need something to at least project conservatively two x in five years like 100 return in five years um and then cash on cash is a great cherry on top not necessarily very important to me I'd rather trade cash on cash for a higher like Equity multiplier not that they're like in you know reverse sort of conjunction or anything like that you can have high cash on cash and a high return but um I would say that's much more important for me and then I also look for sponsor track record right like when I'm passively investing in a deal um Mark Kinney who obviously we both know and work with he said something at a conference I went to that was so good and he said if you ask a sponsor you know have you had a deal blow up in your face like what's the worst thing that happened if they said if they say that they everything's ever always gone perfectly they've never had a deal blow up never had anything bad happen they either haven't been doing it long enough or they're lying and both are bad so I think it's really important that you know you vet your sponsor and and you know that like they're not perfect of course but you do want the track record to show a history of success right um and then for them to be honest about the shortcomings maybe they've had in lessons that they've learned along the way exactly transparency anything else you want to add to that Dylan in terms of what you guys look for when you're investing yeah I think that's I mean he definitely touched on pretty much everything um I think another thing too though is like um definitely the geography of the area is important um you know whether it's a primary secondary tertiary Market um and I think because I think sometimes people get like uh really intrigued by a certain area like oh that's a really nice city like oh that's there's a lot of fun things to do there doesn't necessarily mean it's a great place to invest either so I think those are things that you know you got to be really specific with and make sure that you're you're not just investing because it of the name of it you know or or the um you know you wanna there's a lot more into involved as far as like industry and things like that that you need to consider versus like oh I would go have a birthday party there or something like that which is why everyone should attend the webinars like yes if your sponsor is hosting a webinar attend it if you attend it live generally there's a q a at the end where you can ask questions but um at least all the sponsors webinars I've attended definitely go over everything that Dylan just said you know jobs and all that kind of stuff yeah back to your mom's criteria that was a really good answer Rachel because your criteria is different than your mom based on where she's at in life like same thing with me you know my strategy is probably different than yours what I'm investing that's a really good point it's the old like I'm going to say Socrates know thyself know thyself know yourself before because not all deals are great for you they may be great deals but they may not fit your needs like I've got people that are that want to invest but well my kids going to go off to college in four years well you don't want to put in a multi-family because that money is going to be tied up five to six years potentially so you know that excludes them for from this this isn't a good fit for you and that's fine you know eventually I'm sure they'll work with me but that's really important to know that everybody's different you just can't say I'm going to copy this criteria got to be really what's what's best for you right now let's talk a little bit about the markets like you said I think the real estate guys are the famous ones that quote live where you want to live but invest where it makes sense and I have that problem in me I live in Michigan and but we own properties in Texas Florida in Tennessee and you know all over like oh they want to they want to invest locally well it's not really the best place Michigan's got a negative population growth I live love it here but it's really not the best place to buy a multi-family so what markets do you guys like that you feel are pretty good based on your criteria that you you really say hey these are the markets we like to play yeah I mean I I think you know the South obviously is notorious for being a really great place to invest for the most part you know primarily because I mean it is changing but primarily because the returns are a lot greater than anywhere else in the United States um you know it's a lot lower cost for a purchase price which helps the return you know there's a lot of variables that uh certainly make it a positive you know um and not to say you know you can't invest you can't invest in other areas of the US you know it just might not be as fruitful or uh you know it might be going back to you know where you are in your life it might be just a different type of return you know you might be getting other benefits from it maybe there's better tax benefits than money that you know return they would get back uh from cash flow and things like that um so definitely yeah I think the South you know Texas obviously is always a great place Florida is a great place um Alabama and and Georgia are always really lucrative so it's kind of like this weird like I mean I guess it's the Sun Belt technically it says we're a little sliver and then it kind of shaves off but yeah I really love those areas but you know um Ohio is becoming a really great place you know it has for the past five years to invest in you know very very um and definitely some great returns you can have there and um you know the a lot of um a lot of syndicators and multi-family this there's uh you know they they have um like what are called ozone areas and those are great great for tax benefits as well so it's again it's just what kind of play you're looking for whether it's you know a lot of cash up front or whether you're just looking to offset some of your ordinary income yeah anything you want to add to that Rachel yeah no I think like he had all the points is where people are moving to right where are they moving where's the industry um what is a landlord-friendly state and then also um like he said there's other incentives that maybe aren't as obvious like the opportunity zones or there's like a pilot program in Tennessee which I know you know a lot you've had probably properties in Memphis and it's like some good like tax advantages so I think there's there's different merits to different markets um just you know make sure that you do your preliminary research and that you know your sponsor's done their research as well and that's the beauty of the internet everything's Google it really is so you can check the crime rate you can check whatever so I and I always recommend investors like take a look at it you know you know certainly we're providing you the data but you can verify everything that we share in our presentations in our investor decks and all that so that's a really good that's a really good point do your own due diligence as well because your money as well so oh yeah so let's talk about deal sponsors like what do you look for in a really good deal sponsor when you're going to passively invest into what are the what are the criteria used for those people yeah I think again um trackwork is really important um I want to see that they've done a lot of deals or they're partnered with someone who has done a lot of deals and had a lot of experience and you know that's um experience is the great educator so if you see someone that's done you know in the tens of thousands of units then that is awesome indicator that you know they're gonna be great managing Partners um and then I love to get you know an investor referral I love to hear from someone who's invested with them passively and you know kind of see what they thought of their experience communication is huge by the way communication is like number one you want a sponsor who gets back to you as soon as possible is transparent Matt like you were saying transparency is huge you want you don't want them to beat around the bush you know open book with the financials with everything that should be totally open to a passive investor which is why people choose this asset overreats because with a Reit you don't get this kind of transparency you don't know where your money goes frankly and that's the beauty of a syndication is it's still completely passive like a Reit you actually own the real estate which gives you the tax benefit and then also you get a lot more control over which deals that you invest in which gives you the opportunity to ask a lot of questions and be prudent about where you're putting your money I think also to um you know this is I guess again maybe more philosophical or behavioral but you know I think people that not that's not always the case but I think people that might might could be your friend maybe like that kind of personality are also a great thing to look out for because last thing you want is someone who's like really pushy all the time or just really rude you know like what's the point in investing with people like that you know because they're gonna most likely make some bad choices down the road as well because of just who they are as a person and how they go about life you know and you got to deal with them for the next five years yeah that's the thing you're married to them for five to six years so you want to make sure do you like their communication mode do you like you know the frequency are they transparent are they following up quickly and that's the worst things I think I've learned I've invested a lot of passive deals not 20 but probably 15 or so and I learned more from the bad General Partners than the good ones because those ones I'll never do that out of my investor I will never leave them hanging I'll never send them a document let them figure out how to fill it out you know yeah and things have changed quite a bit now we have DocuSign and all that but I just remember the day when I first started that nobody really did hold my hand that much and so I'm super and I know you guys are as well super empathetic because you've done it you know what it's like you remember what it feels like so I think that's a really good point you're you're tied to that person for a long period of time and use your gut I'm A vibe person you know if you don't have a good vibe walk away you know you don't have to there's lots of other opportunities out there I love it exactly the message yeah totally totally you have a great Vibe well thank you I think we're pretty close friends we vibe pretty well we work together on stuff we vibed immediately yeah so has there been any things that I've shared before my my horror stories of investing in actually as a general partner I've had one that had a capital call I put a hundred thousand dollars into a deal another deal during covid so I've had my mark Kinney I've had my my challenges and we've overcome them um some opportunity costs they're lost but not a ton of money fortunately so is there anything that you guys have run across any challenges you've personally experienced or you've seen in other deals that you could kind of tip off new investors to look out for yeah student housing don't do it very good don't do student housing yeah don't there was a deal in Waco that I was a passive investor in and it was a Baylor you know it was owned by the by the University of Baylor and um it was student housing and the syndicator that was syndicating it is like so amazing and all of his deals have been total ballparks like just an awesome guy so it wasn't an operator problem at all it was just a bad investment and we just took a flyer on student housing and it was just awful I mean they don't take care of the place it's very cyclical right it's hard to you don't get you know tenants resigning because they're just students they're gone for the Summers I mean it was just a bad bad news So Bad News Bears hopefully someone got that joke I think that you know uh I think I mean there there's always a risk with this you know type investing of course you know but going back to you know as long as you're with a good actor on on the deal you know I think you know you're in good hands for the most part so there's always you know things can always go wrong but I don't think I should deter anyone from wanting to try it out and see what it's like and you know I guarantee if someone gives a shy we tell to our investors all the time and say look I understand it's a lot of money that's you're investing in and we've been there before it's scary at first but after the first cycle of a deal you're suddenly addicted and there's no rehab out there for you so that's true that's true once you didn't realize that oh my gosh it just they're too extra money yeah I know it's been uncommon times that we're doing deals to vaccine in 24 months or 36 months now I don't know if it's gonna continue probably not but when you see something like that you can experience that in Wall Street or pretty much anything else that isn't super super speculative that is you know this is backed you know one of the best risk-adjusted investments it's backed by real estate a physical asset it's not a Paper Stock you're holding or a Reit which is just another piece of paper it is an actual physical collateral item that's insured so if something goes wrong you know you've got covered for lost income and all sorts of stuff I mean it's just it's like you said Rachel Wall Street spends billions of dollars advertising this but nobody advertises you know syndications or passively investing in real estate like this like this it's great that we're out here putting the word out there there's other options people you just you just don't know about it because no one's paid a lot of money to share that information right exactly and the risk is mitigated right we you know we carry comprehensive I know you do too comprehensive coverage on all of the Investments because frankly the lender requires us to so it's like you don't have insurance on your stocks you know it's like if the Fire Hits the stock market it's tanking and if a fire it's our building we're just making a claim so it's a little bit different exactly exactly this is um is there any um any good projects you're working on right now anything you want to share with us that you're you guys are working on what's your focus right now a little bit yeah we are working on some development projects I'm super excited about them there's so many things that can happen with development so I mean we haven't even approached the investor level yet like we're still just working out with stuff with the city because you know the city can put a kibosh on it in a second um you know there could be a soil problem like there's just all these different weird things that can happen with development so super embryonic with my fingers across that'd be a fantastic deal to get on to get rolling on and then um yeah we have a couple other raises going on for various multi-family asset classes in Georgia and Arizona right now um yeah and then what else just um we're also I mean we're also learning real estate fun too yeah yeah of course um we're also learning a lot of you know trying to Branch out and just uh you know even if we don't invest in other sectors of passive Investments um you know at least learn about them you know like carbon capturing for example I mean that's like super fascinating ATMs I mean there's so much out there it's kind of it's seems like it's an endless book of ideas as far as that goes oh yeah the multi-family surface yeah mine too I mean I invest in tons of other things but the majority of my Holdings the same thing are multi-family because it's the most stable it's most predictive if you all every every everybody needs a place to live and when the economy goes bad more people unfortunately move into apartments and so I think it's it's a pretty safe bet but yes that's good and it's going to be aware of those other opportunities out there because maybe you do want to Pivot at some point or at least do some more diversifications sure excellent yeah well this has been good information here now we're going to move to the rapid fire five in my right hand I have some questions here for you these are just fun questions to get to know you a little bit better yeah so I'll let each of you answer the question Rachel you go first and then Dylan the number one what was your nickname as a child oh wait um for my family or from like school just whatever oh okay you can share both if you'd like my grandma called me Jitterbug uh and then when I went to I was homeschooled till high school and then when I was in high school it was thin because my maiden name is Finninger but anyway uh mine is pretty boring it was just Dill so yeah no Grace sir I mean I had a plenty of other you know names that you know my friends called me jokingly but um I won't share those but uh yeah Dill was Dill was the the primary primary one and now Rachel calls me mac don't know where it came from it just evolves yeah totally it's the mustache I think it's the Mustachio thing going on there you look like a map of 1972. I'm a Mac that's right yeah number two morning person or night owl oh morning because there's coffee that's tough yeah because uh I definitely fluctuate um but I'm gonna go with morning also lately everybody's a natural tendency so you're both mornings what's good yeah I think so yeah well I think I think uh we go to bed at midnight and we wake up at seven so it's kind of both well not since we had our baby yeah so now now we uh we're like in bed by 10 and not by seven yeah and something in between with Willow is there something in between usually you have to get up in the middle of the night she sleeps straight through we're so lucky yeah totally seven to seven yeah well well this next question applies because you've you've already won it so what would the first thing you do if you won the lottery well first off you won the lottery with Willow she sleeps through the night at that age phenomenal so you've already won okay this is monetary what would you do if you won the lottery monetarily I would buy a super nice Ranch in the Ozarks and have horses and a Truck and a trailer and just all the like really nice horse things because that's like my dream yeah I would come visit you yes and I oh my gosh and I'd have a guest house for Matt for sure excellent um I would probably uh well since Rachel would do that I would probably just and this can sound like really uh goody two shoes but I would probably put a hundred dollars in every person's mailbox in Dallas I just drive around pop it in and you know because right what's your real answer [Laughter] forward what a great guy okay number four if you could live anywhere in the world where would it be well well we really I mean we really love Tokyo yeah I know I was gonna say Tokyo but I just you're your second home where would that be okay I'd be for sure love it love it is incredible it's so clean the people are so nice it's so affordable the food is fantastic like it we went for like what a couple weeks a few years ago it was uh amazing and like it has beaches it has like um this island on the south coast which looks like the Hawaii or the Maldives or something it has the mountains skiing it has um like every type of topography you'd want it's fantastic yeah that's pretty cool and as a volcano you know what better way to die so what better way to die yeah love it we'll die there that's what was it right yeah yeah they took a turn for the worst there okay we're gonna move on number five the last question is one piece of advice that you would give to new investors to help them get better returns it's the one Golden Nugget you would get oh to help them get better returns um I would say just do it yeah because I think the biggest regret I ask I ask investors what their biggest regret is and it's always that they didn't start earlier the perfect time to invest was 10 years ago the second best time is right now and I think to get better returns you really just gotta commit just do it just do it don't overthink it I mean of course do your due diligence but if you're just putting in like you know like 10K here 10K there you're not going to get great returns that's not going to move the needle you know you're gonna be like oh this multi-family thing isn't so well yeah because you barely put any skin in the game so I that would be my best advice would be just do it but if that's all you have then you should definitely invest it if you can you know I think I think yeah I think people do wait because they're they wait to have the right amount of money which I know sounds like a crazy concept but if you can get you know 10 of your friends to all pitch in five thousand dollars and invest it together then you're at least starting with something otherwise you're gonna know yes I mean it's relative yeah it's relative right right but but I agree with it yeah yeah exactly yeah yeah totally definitely yeah no I I even if it's a little scary what's your advice that's my advice yes which is good because I've had investors ask say hey you know what it's a hundred thousand dollar minimum can I get three people to come and that's fine you've got to come into one individual but you guys can do stuff behind the scenes that's fine and so I we've had lots of ambassadors I think we had five people bringing in a chunk of money a few years ago on one deal I they came in as one investor so that's a really good tip that I don't think to promote or anything but yeah Dylan well because it's it's yeah I think it's scary even if you know like the whole being afraid thing too it's like okay well if you don't want to invest a full 50 75 000 whatever it is you know Elite maybe get people together and then you can all be afraid together and do it you know yourself yeah you can minimize your risk but yeah the big reward because you're getting in those opportunities right exactly outstanding advice it's just been an absolute pleasure having you two on the show before we end tell us how people can reach you yeah so um our company is called Third Coast capitals so you can head over to our website which is Third Coast hyphen capital.com and third is spelled out t-h-i-r-d and then um you reach me Rachel at Third Coast hyphencapital.com and then Dylan's the same but Dylan at yeah I want you to plug your podcast it's great go ahead yeah thank you yeah so I have a podcast um with one of my other business partners Andrea and it's called good good investing it's on iTunes uh like apps my iTunes Apple podcast Google podcast Spotify YouTube like all the regular suspects and um yeah go check it out it's just education that's all education for Passive investors it's very good I'm a fan of the show so yeah oh thanks Matt likewise yeah thank you both for being on the show we greatly appreciate you dropping some really good nuggets of knowledge here for the listener I do appreciate you both take care take care and that's a wrap thank you for listening to better returns brought to you by Hanson Holdings if you enjoyed this episode please leave a five star review because it helps others discover this valuable content if you would like to earn truly hands-off passive income go to hansonholdings.com where we help you invest in large apartment complexes to grow your family's wealth see you next week with another awesome episode have a great day