Better Returns: Invest Like a Pro

11. Musician to Mega Multifamily Investor with Rick Martin

December 27, 2022 Rick Martin Episode 11
Better Returns: Invest Like a Pro
11. Musician to Mega Multifamily Investor with Rick Martin
Show Notes Transcript

Get the inside scoop on how real estate investors get into the biz from Rick Martin. He shares all the ways apartment syndicators are making sure investors get great returns for their money. 


  • Rick’s journey from a one house rental to investing primarily in large multifamily apartments.
  • There’s currently a shortage of housing in the U.S. and with 1 in 7 houses purchased by a corporation, more people are turning to apartment rental. 
  • Even compared to the current “sale” in the stock market, apartment investing still provides more consistent and higher returns.
  • What apartment investing syndicators are currently doing to offer the best opportunities for investors.

“Don't suffer from paralysis by analysis. Don't wait for the perfect deal. Definitely do your homework. Do your due diligence on who you're investing with and where they're investing. But I see people let five years go by and they still haven't invested."

“Slowly but surely, real estate kind of became my side gig because I could see the big payoffs.”

Rick has been investing in real estate since 1997. He is the founder of Fortress Federation Investments, which provides value-add, multifamily investment opportunities in the Southeast, Texas and Arizona. He helps investors build generational wealth and multiple income streams. Fortress Federation is currently a General Partner in over 2,200 units. Rick is also a limited partner across multiple syndications giving him insight into how powerful passive investing can be.

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I'd like to welcome to the show my good friend Rick Martin Rick has been investing in real estate since 1997. he's the founder of Fortress Federation Investments where provides a value value-add multi-family investment opportunities in the Southeast Texas and Arizona he helps investors build generational wealth and multiple income streams Fortress Federation is currently a general partner in over 2 200 units Rick is also a limited partner across many syndications but which gives him great insight to passive investing and I must say he puts out a monthly newsletter from The Fortress Federation the one of the few newsletters that I read every single month he somehow is able to attract me and other people to read that it's really good content about passively investing and in good I always says good stories in there something relevant and uh just want to commend you on that I love getting your newsletter you're probably that's not a lot a lot of people say that but I'm going to say it Rick it's out there yeah um I no you told me that off camera and um I was very flattered I was I was happy to hear that it's always good to know somebody's reading you know you my mom maybe my uh my sister um it's good to know the three of you or at least reading it we're fans we're fans no I was like you know what I I I'm sorry to catch up I I enjoy writing a newsletter I get a kick out of it and I do get good feedback um in all seriousness and and um I'm glad you know it's I like to Pepper in something personal you know just what's going on with me maybe people can identify with that not just keep it just boring you know black and white here are the numbers this is the economy and you know get right into it um try to make it a little fun so anyway I appreciate that man I appreciate you um so I like to get the origin story like how did you get into how did Rick get into real estate particularly you know you're doing large syndications and and helping a lot of passive investors so how did you stumble across this I did stumble across it um you know I didn't know much about investing other than uh you know your best investment you can make is you know to buy your own residence right so that was that was the goal this is years ago back back a long time ago I'm not let's not age ourselves here man but um it was a long time ago and um you know I just I set out to buy a house I was actually had a girlfriend we were going to get married that didn't work out but the house worked out I I hung onto the house she was gone but I said I had the house um and actually it was a a interesting time for me very volatile like the I was kind of leaving the music career the the aspirations of being a musician um and uh I had to move on and go to basically film school at that time um or a media school which was my prior life and um I had to either sell it or put it up for rent so I put it for rent and that's you know that's how light bulb went off I was getting these rent checks which was very helpful being a broke student um as I was going back to school I originally attended the University of Washington um you know was doing some stuff doing didn't you know had some jobs that were not very um inspiring let's say um and uh so I was really scratching that that dream of being a musician on the side and then slowly but surely uh real estate kind of became my side gig because I could see the big payoffs you know um I you know I mentioned the the mailbox money that that was nice um but boy you know once I turn around and I sold that thing that was the biggest uh wealth generator that I'd ever had so I knew you know I knew I was on the right track I was doing all the like dollar cost averaging and mutual funds and that was going nowhere um it really was not um I think gosh right around crash um I didn't make a cent for like 10 years on on my stocks but the real estate was still doing well um and then after the the real estate crash 2008 um things were on sale but I did have a few properties previous to the crash that weren't doing so well um I was a little shy you know like if the man you know the world the when you're in it it feels bad right the recession felt bad um but still I I I recognized that you know hey I can double down and get myself out of this and did manage to hang on to the other properties that I had before 2008 and then continue to build um after it was tough getting loans back then like the Capital Market was pretty dried up like we were paying cash um out in Palm Desert it was cheap you know like 50 grand for a property in California that's kind of crazy to think um we did that eventually got onto the whole out of state investing thing I mean that was out of state um I had done some like investing in Nevada um I'd moved down from Seattle that was where my first house was came to California did some invest in California did some investing in Nevada but did my first big like long distance out of state investment in the Midwest and that was in Indianapolis and then did a little bit in Columbus and that's when I started to find out about multi-family and uh started to look over the shoulder of an experienced operator in Columbus and um he was I wouldn't call him a mentor but he was very helpful um and uh then just started growing my network that's how you and I ran into each other right we we were at a it was a rock cliff yeah almost three years ago in January yeah and um you know how it is like there's a lot of great people in this Biz um you don't click with everybody but I could say hey this is a good dude and you know you and I we were talking about doing deals right out of that and that's kind of how it works right network is definitely a big big part of it um but I would say before I ever started getting actively involved I think I invested in seven syndications uh passively still due today because I like building them up and being able to count on like a chunk of passive cash flow just in case things get a little slow in the other department or you know hey my wife and I were going to Fiji in a week you know and and back in the day when I was freelancing I didn't have passive income um if I wasn't working I wasn't making a cent you know so now it's kind of like I have a paid vacation um now I know you know W-2 workers they get paid vacations but they only get two weeks off a year and that's no way to live um sorry to all uw-2 in point um so I think it's a good goal to build up as much passive income as you can because you don't have to rely on anybody yeah you have to Choose Wisely make sound Investments you know vet who's ever running these deals but um certainly is nice having that come in it's it's Pizza not a peace of mind I would say So you you're the classic story you're an accidental landlord you had a house moved out of it you need to rent it and probably hold it I can make money doing this and then you know probably the last three years and so you I didn't realize you're a limited partner in a bunch of deals beforehand so then you started to become a general partner about three years ago when we met when you started actually being involved in syndication and helping raise Capital run deals yeah that's kind of when you really went full well transition fully into um not fully but um into multi-family and that was your focus then at that point did you still own any single family homes no even today I have a four Plex oh that's not bad I've sold I've sold everything um you know you can 1031 into syndications you can do that you can you know if you really would just want to get out of being a landlord um the the fourplex you know still does okay um it it's probably something I'll eventually you know get rid of um right now it's okay um you know I thought man maybe I'll get a vacation rental although I was just reading uh Airbnb Market is saturated right now and and properties are sitting vacant because um everybody wanted to jump into that um but um yeah for the most part multi-family is my focus I like the the resistance of it to recessions you know you always need a place to live um and it's just not going anywhere you know the projections are so strong there's a shortage of housing in the United States and I'd heard some stats that like one in seven houses owned by a corporation now or an investor which is incredible which means people aren't going to be able to buy single family homes they're going to rent them and then some of them will end up in apartments so there's a whole whole shift going on some crazy stuff out there but you know multi-family Apartments not going to go away the demand is going to continue to grow particularly in the southern states where you and I invest that's where the population is migrating to so of course there's a shortage of housing to in Arizona Florida Texas and you know those Southern States so that's perfect yeah yeah no you that's a great point I'm always talking about that now um I know it's frustrating for people like there's just there's just nothing out there there's no Supply there's nothing to buy to live in um I don't know how they're going to fix this issue um but you know a lot of a lot of people are capitalizing on it in that they're you know developing build to rent communities it's becoming you know less and less the American dream to own because it financially doesn't make much sense unless you bought a long time ago um but out here in California oh my gosh you can't get value for your money um which is that's kind of interesting background part of my story like my my wife and I we had a duplex in Mid Wilshire nice area here and um LA and we had we we decided to sell it and we're like should we go buy a fancy place out by the beach or should we go buy an apartment um and instead of you know paying six grand in mortgage maybe we could get paid you know in five six grand in cash flow you know the whole uh um what's his face uh the purple Kawasaki Kiyosaki thing where you know don't don't get uh liabilities get assets and that right you know I had read that book you know not that long before that moment where I had the discussion with my wife and and my wife didn't even have to read the book she got it I'm lucky that way like um she she was she was into building up um just be being financially free was more important to us than you know having the American dream of of the the big house on the beach or whatever yeah when we're returning to renters Nation but the other thing is that your point is that I don't think I'll ever buy a house I've got you know a lake house here in Michigan and I've got a house in Florida that I'm renting out now but like I'm not gonna buy any more houses take that money and I'm gonna invest in real estate and if I want to rent something on the ocean eventually I'll be able to do that you know because I don't want to be able to move around and be mobile I'm all about the experience not the accumulation of material things you know at my point and I think you're the same way as if you're saying it's like what are the the cash then locked into a house that that's all you're gonna you have to now you feel obligated to stay there all the time oh my God yeah I totally agree with you and you know I I was reading some other article about all the people that bought homes in 2021 uh you know side on side unseen uh not doing um not getting um inspections and um now not only are they having a hard time meeting their mortgage but they can't keep up with all the repairs and and it's the whole um you know The Money Pit thing and um gosh that'd be that's that's some stress in life you don't need you know why not just have plenty of equity that you can actually tap into and use as opposed to you're paying the mortgage every month it's um you know it's it's a radical thought for a lot of people but um really financially it makes it makes a ton of sense well let's get into the passive investors um what are you seeing people are looking for and what are you guys doing to make deals work nowadays because it's tough you know because cap compression and people are overpaying and it's different apartments are valued based on the net operating income not the comps around us so we're not everybody when they hear real estate they think the residential Market well no the barriers we play in our commercial totally different game so if we can increase you know the value of the property so what are you guys doing in the deals that you're looking at now to make sure they're still viable and good Investments for your passive investors well first first of all you know people they have short short memories um or actually I should say they have long memories um you know they they remember just a couple years ago when they were getting eight percent cash on cash um regularly and um we all know what's going on you know in in the lending environment right now you know interest rates are way up and it's it impacts the uh the costs over the the mortgage payment on an apartment just like it does a single family home you know it just makes it that much more expensive and it squeezes the cash flow so investors who are expecting what they were getting a couple years ago might feel disappointed getting five percent six percent cash on cash um just forgetting about the upside for a moment um but I remind those people um you know you could be getting yes five six percent cash on cash monthly quarterly whatever however it's paid out of your syndication um you have the upside to look forward to so maybe on an annualized basis you're making anywhere from 15 to 20 percent and you know I just ask people to compare that to the the 30 they just lost in their portfolio in the stock market um you know I think people say oh stock market's on sale right now well for how long um and such a betting man's game like yeah good luck um for me you know I've done both you know I do stocks I do real estate but right now I'm I'm geez I'm probably like 80 in real estate and the reason for that is because it um it grows over time um I mean it it's like clockwork where's my stocks I don't know man they they go up they go down they go up and honestly my portfolio kind of It kind of where it's always been you know and it's down now of course and hopefully it'll get back to where it went but anyway to answer your question what are we doing It's Tricky you know um for one thing buyers are having a hard time closing so um how do they how do they close how you know as as a syndicator we have to make the returns attractive enough um so now we have some expensive uh borrowing costs to deal with so yeah there's right away things that we've done one is um you know whereas before you get like 75 LTV on a loan well we're down to 56 LTV on your loan and you hear that and you think well gosh that must be a very expensive mortgage so we bring in something called preferred equity which is just a partner um their they're they're more expensive than going to the bank and getting a loan but they're less expensive than going out to a bunch of private investors like your listeners and you blend that rate and lo and behold it becomes the deal pencils and now at least you can bring a deal to people where they're getting six percent cash on cash they still have the potential to make 20 annualized double their money in five years um that's that's one thing um another thing that we did was we actually went partial recourse on loan for about 20 percent um we actually stuck our necks out or personally um uh accountable for 20 of that loan meaning they could come after us personally if if uh yeah yeah if we didn't perform of course we did all our due diligence we we mitigated that risk um didn't want to take on too much risk so we we did a lot of due diligence on that and turned out to be worth it and that reduced the spread uh you know what the banks charge um thank God in a large way to where it improves the returns for the investors I would say four percent on average um and uh you know improved the equity multiple and improved the cash flow cash um and just improve the deal so they're different there are different ways you can go about it we rather than purchasing a rate cap which is a sunk cost um you know rate cap basically limits how much exposure did you have to Rising interest rates to caps it off for those that don't understand um well we found a bank that they even suggested to us so that we could actually escrow reserves meaning hold as much money as it would cost for the rate cap in an account um and if we don't end up having to use all those reserves to make up you know for Rising interest rates we can actually return that money back to investors and improve the returns beyond what we're projecting so um yeah just a variety of things you have to do you know to Pivot in this environment um to make it happen because on the flip side we do have a couple properties that we've been trying to sell and the buyers are they're having a very difficult time um closing in fact we're talking six months um and they're still buying extensions and so yeah you have to be crafty um but it can happen that's great that's really good those are some techniques that I've not even heard of that's pretty impressive the bottom line is you're going if you think about it um I mean where do you think interest rates will be I don't know two three years from now do you think they're going to be higher you think they're going to be lower I'm going to be lower me too um and you know we don't know for sure but if you if you look at the the history yeah the FED funds rate um everybody says oh yeah mortgages aren't directly tied to the yeah they are I don't care what people say the the FED is basically the bank's managers um or the the and um but I agree so if you could get into a deal to pencils now two three years out down the road you can refinance into some attractive fixed debt and you're going to improve the cash flow uh a ton on that deal so you know a deal that's attractive now could get really attractive in a couple years um so I think the future is actually pretty bright that's really good that's good yeah it's the you know the cash out refi that they do with single family homes like you can cash out refi you know if the interest rates go down significantly and your your ass is performing well so it's a it's a good good opportunity potentially then as well so absolutely we were talking about this earlier before the call like what what do you say to people that are saying ah you know what I'm gonna keep all my money sitting in the bank or in the in a money market fund on the stock market first off I don't want to take a hit second off but there's people still having money sitting in the bank because they're waiting for the economy to turn around what what is your advice to those individuals yeah I used to be one of those people who would kind of sit on the sideline and stockpile calf cash is King right um and wait for the perfect time to buy um that's a that's a mistake you know um right now purchasing power we're kind of debating what it is it could be you know what they're saying is eight nine percent you know could be 15 percent so if you have money sitting in a potentially sitting in a money market you're essentially losing you know eight to fifteen percent a year on your money um that's but I still don't think people wrap their heads around they don't can't really wrap their heads around inflation they they and my paychecks the same I mean I'm earning this much on they don't they don't understand it until maybe they really go by the pump and like whoa that just cost 80 bucks to fill up my gas tank or at the end of the month you're like whoa I I spent more than I made this this month um we're all unfortunately losing money unless we are we have a hedge and you know I'm biased but there's no better hedge than real estate um and you know if you're waiting around for deals to come back they're offering eight to ten percent cash on cash you're losing money as you're doing it you're now you're you're your nest egg is reducing so now you have less money to invest uh in those deals so you might as well invest today five to six percent um get ahead like I say you know things could improve anyway um and it just so happens that rents rise with inflation um you know rents can only get so high you know I imagine we're kind of leveling out um but you know there's still ways to increase the the efficiency of the operations and to to increase that Delta between your revenues and your expenses um and still increase the value of the asset um so my advice is you know I had this conversation I'm not going to say who it was um she's she's a relative and her her uh financial advisor told her just keep your money in in a money market and I was like don't do that please and here's why um just kind of what I what I talked about um so it's that velocity of money you know maybe you're not making as much as you thought you were but you're making money and it's and that money is making money on top of that money you know once you get your money working for yourself or for itself it it grows exponentially um you just have to kind of keep the the the the ball moving forward the the analogy I I had was The Snowball Effect you know um yeah okay you roll a snowball down the hill maybe it's rolling slower and you're accumulating less mass and that you know that could be likened to um today's market since you know the returns aren't what they were but if you just let that snowball sit there in the Sun not doing anything it's just going to melt away into nothing so keep that Snowball Effect going um no matter what um don't don't be so concerned with making the maximum you know there's never you're never going to time it right don't try to time it um just do it and lo and behold you're gonna have a nice nest egg in front of you outstanding advice outstanding advice okay we're gonna move on to our lightning round now these are five fun questions you get to know Rick a little bit better and I don't know I don't know are you ready questions either are you ready I no because I I'm not prepared I hope you don't throw me any curveballs but not the expert you're the expert on you you can do this yeah yeah and bio can we tell the audience I do have a bit of a sore throat that's why I have the sultry uh what do I say what was his name uh uh Barry White he's got the Barry White voice he's doing for everyone I call the Gravelly he calls it Barry White yeah but it is and thanks for coming on the show I know you're a little under the weather today yeah I'm just such a trooper feeling good I was looking forward to this but let's let's do the Lightning Run lightning round number one what was your nickname as a child uh double Juke um that was I was playing basketball in third grade and I had this hero back then uh in the NBA Dennis Dennis Johnson he would do this double pump where you know you jump up and he'd hang in the air and he kind of he basically a double pump where the guy would just kind of like go to the ground he'd still be up in the air and then he'd you know make the basket and if they're great I was trying to do this and like my coach like he starts to practice what what is this what's this double Juke you're doing and uh you know like he thought it was fundamentally unsound I thought it was cool um and then of course everybody on the team picked up on it so everybody called me double duke or dub Juke sometimes that's pretty funny that's pretty interesting third grade and it's stuck huh wow number two are you a morning person or a night owl man well I used to be a night owl before I had little kids um the little kids wear me out it's sad I'm neither because I either want to be getting up early or I want to be staying up late so I can get my stuff done in life right but um the kids wear me out because the moment I like I'm asked to read a story uh they get wired with my story I'm just like you know by page two of Dr Seuss or whatever I'm young and I'm ready for bed and you know yeah you know so I'll go to bed it like then um which is you know early compared to my my older days um or younger days and uh getting up I get up early you know I I'm not in one of these four o'clock people I mean all the power to you can't do that uh when it's like that dark especially when it's cold um the bed feels so warm you really have to talk yourself into getting out of bed like I'm you know that's the best thing you should do is get up exercise drink some water but all I'm thinking about is coffee you know and um it's not natural for me but uh yeah out of necessity I guess I have to be a morning person right now I'm checking the box I'm taking a poll I'm taking the boxes at night because you're a natural intent Tendencies isn't Night Owl so you get a night owl check even though your your Amber slippers okay that word your Amber Amber something on that okay interesting okay number three what would be the first thing you'd do if you won the lottery give it all charity definitely um first thing I would do I buy a single family residence no I'm just kidding um I just talked about we're not buying any more houses we're investing that we'll rent there when we want to rent on the on the ocean uh-huh um first thing I would do now I would get as much I would turn that into a ton of income streams you can never have enough income streams um and uh but you know I I'd keep doing what I'm doing I love I love real estate so I'm having fun with with this um you know I mean just like I'm already kind of have the kids future sort of set up you know I feel like I'm pretty well set up so I would just take that money and add it to what I'm you know growing already I kind of have a strategy in place already so that's a different answer than I would have had you know 20 years ago I'd be like oh man I'd be I'd be heading off to Tahiti I mean you know I don't know I was never material I'd never a material guy but I do like to travel so yeah I definitely take some uh definitely take some trips you know around the world very good on in number five the the podcast is called better returns so that's why this is a kind of a play on there what's one piece of advice one Golden Nugget you would give to new passive investors to help them get better returns uh don't suffer from paralysis by analysis don't don't wait for the perfect deal um definitely do your homework you know do your due diligence on on who you're investing with you know where they're investing um but I see people they they let five years go by and they still haven't invested so um you know don't take your La if it if you only got 50k don't invest it in into one um deal um but you know build up build up that income and um you know try it out try it try a few and you know continue educating yourself um you know be ready but don't don't wait too long I just don't suffer from paralysis by analysis really good advice I think a lot of people do that very good excellent excellent nugget there Rick so tell the listener how they can get a hold of you uh best way is to um go by the website at there's a bunch of free content up there uh you can get a free guide at Fortress forward slash guide and that um it's kind of a just a quick start guide on investing in syndications you know which is what we focus on so that's the best way excellent we'll put it in the show notes so they'll be able to reach out to you and you're again I can't say enough good things about your news monthly newsletter subscribe that's all I'm going to say to the listener you're the man man I appreciate that man absolute pleasure having the show today Rick I really appreciate your time oh yeah it's been a blast let's do it again all right we will do thanks all right see you man