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In this episode, we're joined by Vince Gethings, founder of Villanautics, LLC and co-founder of Tri-City Equity Group, LLC. Over the last several years, Vince has built a multifamily portfolio and owns and operates over 20 units personally, 52 units as part of a joint venture, and just closed on a 48-unit apartment syndication as a general partner.
Vince has been serving active duty in the Air Force for 14 years. In 2013, Vince bought his first fix and flip using a VA home loan. Upon sale, Vince rolled the proceeds into more real estate, this time for passive income. Vince chose small multifamily properties, 2-4 units. He soon built this portfolio up to 20 units. At this point, Vince felt that his systems and his bandwidth was maxed out at this level.
Upon hitting this wall, Vince knew he needed more education. He joined a mastermind group, figured out everything he could be doing better, and learned about different strategies. Within 6 months he was under contract on the 52-unit in a joint venture. Today, Vince has recently closed on a 48-unit value-add apartment complex in El Paso - in April 2020.
Vince and his team found the property in February 2020 and were ready to close in March. As the closing date was approaching in March, COVID was just beginning to hit some larger U.S. cities. By the time the deal was to be closed, the country had been fully shutdown.
Their underwriting was fine and they had a value-add plan. At the end of March they met and needed to scrap everything they had designed over the previous few months. They scrapped everything and started over with assumptions and underwriting. These were new assumptions such as higher vacancy projections, no rent increase projected, and larger amounts of lender reserves.
After building an entirely new pro forma, Vince and his team realized the deal wasn't going to work. They told the sellers and asked for a $130,000 seller credit to move forward. They settled on a $90,000 seller credit. They knew they could weather a much longer storm with this setup.
With the revised underwriting in place, the property is performing well above projections.
Vince prefers open-minded property managers that are willing to learn new processes. Many property managers may believe they know the best way, or refuse to change their processes. If a potential property manager takes this position, Vince is probably not going to work with them. If a potential property manager is open and curious to new ideas, Vince knows they can grow together and the property manager will listen and adapt overtime. These are the same type of people that are open to jumping on the weekly pulse checks. Vince sets the KPIs and expectations and reviews the metrics with the property managers every week.
"Get the property managers to think and act like owners. The best way to do that is to incentivize them to think and act like owners by paying them like owners. We create a structure where they get bonuses if they reach certain KPIs. That has been, by far, the best incentive to get property managers to start thinking and acting like an owner."
In some situations, Vince will even add a property manager to the deal. Adding an equity portion helps to line up everyone's interests.
"I'm huge on operation efficiencies. I spend a lot of time knowing the market and narrowing down [costs] per door. Once I get those numbers zoned in... I can figure out where there's waste."
Lean Six Sigma Process Improvement
Vince received this certification in the Air Force, it's a set of tools that helps you identify waste in processes. There are questioning techniques and ways to dissect processes, such as the Pareto analysis, the 80/20 principle. This principle, from the perspective of waste, states that 80% of your waste is coming from 20% of your inefficiencies. A spaghetti diagram, as another example, would be mapping movement, compounded overtime, to observe repeat and unnecessary movements.
Learn more about Vince and his work: https://tricityequity.com/