Putting Equity to Work in Real Estate Investing with Ivan Barratt

00:00 Welcome to another episode of purchase to profits. I’m Seth Ferguson. Make sure you hit the subscribe button so you don’t miss our daily interviews with successful real estate investors. Our guest today has raised nearly $60 million in equity and acquired over 2500 units. his company managed well over $200 million in assets made up of nearly 300 sorry, 3500 units. Ivan Barrett is the CEO of Barrett asset management. Ivan, welcome to purchase to profits. It’s good to have you on the show.

00:33 Thank you, Seth. It’s awesome to be here. Man.

00:35 I almost didn’t give you credit for 3500 units. I almost said you know, 350

00:40 Oh, that’s, that’s okay. That’s okay. As long as you got my assets under management number, right, I’m fine with less.

00:46 That’s right. So I’m really looking forward to talking with you. You’re a guy who’s done some really neat stuff in real estate. So to kick things off, tell us about your real estate goals right now.

00:58 Gosh, yeah, so 2019, I’m hoping is a big year for us. We’re continuing to scale our leadership. Here at bam, we are almost 80 employees, mostly on-site management personnel. And then here at BAM HQ, we’ve got our asset management team, the three-legged stool construction, maintenance, property management, of course, and then accounting, finance, and operations. And so for us, it’s about having a great culture about getting players on our team. So we can continue to scale the right way, not just work harder, but work smarter to use that cliche. And my goal for this year is the same as it was last year. It still choirs 2000 units. Of course, the mass market may have other ideas. Last year, we had the same goal. And we were able to only close on about, oh gosh, a little over 800 units, not for lack of capital really just for lack of deal flow. However, we’re now in three states, looking at two more states here in the Midwest to acquire property. So the more markets that we find that we’d like that we want to plant a flag and scale, the more deals going into the top of the funnel, hopefully, the more deals coming out, the bottom ratio is still the same for us. It’s about one in 200 tails right now that actually makes sense.

02:29 Yeah. And what were you entering into different states, different markets, a direct byproduct of that lack of deal flow right now based on where we’re at in the cycle?

02:41 Sorry, direct by a direct

02:43 byproduct? So did you purposely expanded to other markets strictly because your deal flow was so thin?

02:51 You know that? That is a great question. For us. It’s not so much only thin deal-flow sure that helps. It’s a great byproduct, go into more markets, as you said, to get more deal flow, but also geographic diversity, not having all my eggs in one market, per se. Yeah. But absolutely, you’ve got to, you’ve got to play the hand, you’re dealt in a lot of ways. And so if there’s lots of global capital crashing into the United States in search for yield, in driving up prices, in coastal markets, that local regional capital is coming inland to places like Indianapolis, Charlotte, Nashville, for example. And so that’s driving up pricing, which makes it more difficult to find yield and find value. So you have to find that value to support your investment thesis. And so sometimes, we’re driven to tertiary markets, it’s still meet a certain population threshold, have good demographics, have stable diversified employments and a few other key metrics that get us comfortable with that, that tertiary market, for instance, we really like University cities, our two big 10 cities now, both Indiana University where I went Bloomington, Indiana, and also champagne, Illinois, Southern Illinois, home to the University of Illinois. Again, in both cases, we’re still sticking to our workforce, housing investment thesis, we’re not buying students, student housing, but we do like those University small cities where you’ve got a big college, all the ancillary jobs, and industry that spins off from that. Lots of government jobs and lots of medical and in fact, I didn’t coin this term, but I heard it a long time ago and it’s stuck with me. We call those are Jim, markets, government, education, and medical. And so for us, we first look for stability. those markets before we look for a value add potential, we have to know that we’re that our odds of losing money are very, very small. Yeah.

05:10 And you just, you mentioned before, just where we’re at in terms of the market, what changes have you had to make in your business, let’s see over the past five years to really move with how things have changed.

05:23 Yeah, so with interest rates, staying low, capital markets, staying very liquid, lots of capital, looking for real estate. And the fact that frankly, we all know we’re at a later stage in the cycle today than we were five years ago, we focus on a strategy that is less likely to end in disaster. And when I say that, I mean, we have gravitated towards higher quality, newer assets, north of 20 million in most cases, in some cases, even 30 to 40 million. Up there, the altitude, the air is a little thinner, there’s less buyers. And at a newer aged assets, say later, the 1990, early 2000s, you’re capping your upside, there’s not as much value add left. However, you’re also greatly reducing your downside risk. And so if we can still achieve our return requirements to our investor, but lower the risk, right, so we’re taking a little bit lower return call it maybe a 1415 1617 IRR at most. But we’re able to reduce the risk, we’re actually still seeking an outsize return. We’re just taking a lot more risk off the table. In my high net worth. Investors appreciate that. Yeah.

06:57 And you’re talking about, you know, B plus plus to a minus properties is that kind of the area you’re working in.

07:04 Exactly, yeah, we’re looking if it’s a B, we’re going to make it a B plus, the typically now we’re looking at that d plus a minus range. And sometimes people confuse that and they think we’re getting close to the central business district brand new, we would call a plus plus core product or core plus product, what we’re really looking for, is that still that middle to upper end of workforce rent. So here in the Midwest, we’re talking, gosh, seven to maybe 1400 a month. And if you’re renting at 1400 a month, you’ve probably got a two or three bedroom townhome in my case. So we have to pair that with strong sub markets, great school districts, lots of diversified employment. And we still want to have a fairly large delta between our our renovated rent or our value add rent. Sometimes we’re not renovating sometimes it’s just a management play. But again, our our projected rent, that value proposition still has to be hundreds of dollars less than what the brand new class A plus communities are offering. Yeah,

08:21 Well, you know that that a plus plus they’re they’re offering all the bells and whistles that nobody can compete with right now.

08:27 Yeah, we still don’t we don’t target properties with with you know, infinity pools and concierge service and, and all the all the fancy new stuff. We certainly don’t want to be the operator renting out Midwestern. You know, one bedrooms for 2000 a month in downtown Indianapolis, we still target that workforce. But we’re targeting a segment a cohort of that workforce. That pairs well with our call it getting seven to 14 $100 a month. Rental range on an as improved basis. Yeah, after we go ahead

09:05 And right now, are you are you pushing out your whole period to let’s say, before everybody was holding, let’s say three to five years? are you pushing that out to seven to eight now?

09:15 You’re asking all the great questions that says it’s it’s funny, so we always started looking at seven to 10 year holds. And that’s a product of me going through 2008 and seeing what happens when you’ve got short term capital and what what can happen if you’re in the midst of a correction and you have to roll over debt or you have a balloon payment or you’re beholden to the bank. So early on in my career, I decided okay, let’s start with HUD financing, agency financing where we can lock in terms at a much longer clip. But then we’re also looking for deals where if all the cylinders fire so to speak, we can still exited deal early. But if if we’re not, if a seven to 10 year hold doesn’t say need a three to three and a half x, a multiple of invested capital, then it’s probably not a deal we’re going to do. Certainly Our hope is that most deals would average of five year hold. But you know, deals I bought just two years ago we’re refinancing and a couple or even selling. So you know, everybody gets into this business and you think you’re gonna buy a bunch of rental properties and hold them forever, right. And then as you get into it, you realize that that it’s better to balance your portfolio and run different analyses every so often as to whether you should refinance, sell, or continue to cash flow. And a big number we look at a lot here at band is what’s the return on equity. If I doubled the value of your investment, and let’s say you’re you’ve invested 100 grand with me, and we’ve doubled the value of the asset, your equity essentially is 200 grand now, right? Just Just for example, purposes? Well, if you’re getting a seven or eight pref, on that 100, you think you’re getting a percent, but if your equity now is 200, you’re getting three and a half to 4% yield on that on that new value add. And so oftentimes, that’s when guys like me, or operators like me, seek to sell or to refinance, not because we necessarily want to let go of a great asset. But because we need to recycle that capital and continue to put it to work at a return that makes sense, which is going to be much higher than 4%. Yeah,

11:40 No, 100%. I wanted to circle back to you were talking about right now you’ve got I think, 80 employees in your property met on the property management side. Going back in time, how did you think about your business in terms of how to build it to bring you from when you first started to where you’re at now? Yeah. So

12:01 Back to being a product of 2008. So I had been working for a developer for about eight years, started in in early 2000s. And basically got my foot in the door by saying, I’ll work for free, I just want to work to learn. Well, I was able to continue to make that work for me, because there was lots of stuff to sell, there was land or condos. My developer, great guy, smart guy was doing a lot of transactions. And so I would get a piece of those when I sold them for him. At the same time, I was getting a great education. What when 2008 hit all that came to a screeching stop. And all of a sudden, you know, I’m underwater and cashflow, I’m thinking okay, gosh, I’ve gotten way off track here, I didn’t get into real estate to speculate, I didn’t get into flip, which is basically what development often is a little bit longer of a term, but it’s still flipping. And so I really just had to hit the reset button on my mind in my mindset and decided that I needed to start my own company, but I needed to do it in a way that would provide consistent cash flow. It would be scalable, because just buying real estate is a very, very get rich, slow method if you don’t have some sort of funnel of cash coming into it to buy more assets. So I hated property management. I had a couple rentals but hated property management, but ultimately decided that I had to do what I hate to get to where I wanted to go. And so I started bam, in my spare bedroom as a one man show with a bookkeeper that came in every other week to make sure I didn’t screw anything up and just started taking on little management deals from investors and also landlords by necessity. Back then, when people couldn’t sell those condos they bought or those those homes that they bought were underwater, oftentimes they were seeking to rent them out and I was their management solution. And I continued to scale that and at the same time I started buying small multifamily deals and I learned how to how to renovate with hard money and how to make that work. And so I I was able to use private debt to get some more deals under control during the renovation game. Then I started buying small apartment buildings in the process, hiring people and firing people and hiring people and firing people and learning how to grow it. And in kept growing the apartment side as well. And just really started with the end in mind. I knew I wanted to be a big company one day, but I had to just get some momentum and take those small steps and just as importantly, I knew I was gonna make a lot of mistakes. But I also knew that if I made them early and they were smaller would pay less tuition. And those would aid me later. So, you know, for instance, there’s a couple of deals that that almost killed me, but didn’t because of their size. And so when I bought a 30 unit deal where I did a big renovation on it, I knew I was going to screw up some stuff. But I, I said to myself, I would rather learn it on 30. The 300 Yeah, and so I just plowed forward, and every time I’d make a mistake, I would learn from it, make sure not to make the same mistake twice. And after a while, we started gaining a lot of momentum, I found a great business partner, four years ago, this June, he’s the opposite of me. 10 times smarter, way better day to day operator than I am. And so now we have our respective lanes, we stay in our lanes. And together, we’re a lot more powerful, a lot more impactful and can do a lot more than we could on our own. Yeah. And

16:05 Lots of the viewers watching this show. They might they might be smaller operators. Without that, you know that, that network of support behind them? What advice would you give them if they’re looking to scale up and grow their business? And right now they’re they have that small team? What does it take to go from that small team to a larger operation?

16:27 I really think it depends on where you want to go with this. There’s so many different paths that people can take, and there’s so many different ways to be successful at it. So I think it takes a lot of a lot of study for those that want to truly treat it like a business which is the the true way to get really wealthy at this and to grow it to a large extent and for at one day to really support your life, right. So I’m at, I’m doing this because I’m designing a life for my my family, not designing my family around my business, designing my business around my family. Now’s an amazing time to start a business. The best time to start a business is like the best time to plant a walnut tree, right? It’s 20 years ago or today. And the good news is there’s never been so much great technology and free resources and access to information to help you become a better, more efficient business machine. When I started, there was like one or two property management software options. Now there’s there’s dozens, right? There’s so many more creative ways to market those properties, there’s so much more access to virtual assistants all around the world that can help with certain aspects of business that don’t need to be in your timezone. Or in your office, there’s just so many great tools out there. The people can help with what I think, you know, sidetracks a lot of folks is it takes a lot of effort, it takes a lot of time, you really have to want it and stick with it, you have to go into it, knowing that you’re going to fall on your face a lot. And you you also have to realize that people are most of the time, especially early on going to make real estate seem easy. What I mean by that is managing people is even steeper learning curve. But it’s not rocket science. It just takes some trial and error, some tinkering. And if you if you can come to grips with that and just realize that’s just part of the process. And everybody goes through that and you’re not, you know, you’re not an idiot, right? It it. It is meant to be. You just have to realize that this is what all of us go through to grow something, then there’s something really special waiting for you. If if you just don’t quit and you persevere and you stay relentless.

19:10 Yeah. Those are some good messages and you know for you Do you have any routines or rituals that you go through? Maybe daily or weekly that helps keep you focused?

19:21 Oh, yeah, yeah, big time. daily rituals, you know, getting up early, working out. I’ve got several notes that I go back to that focus on my, my big, weekly, monthly, quarterly and yearly goals. A big part of my success is also coaches. So I have I have a coach personally, spiritually. My marriage and then I’m in a few different mastermind groups of other entrepreneurs, not just real estate, but other operating companies in completely different industries. But we come together as our entrepreneur so it’s called eco entrepreneurs organization big global network. I’m I’m in a couple of masterminds within that I just had my my personal business coaching call this morning, we’re really focused on on accountability to my my big rocks that helped move my life helped move my business. Now that, you know, we’ve got a bigger organization, I’ve got to really focus on the the high level strategy, right, the big initiatives that continue to move us forward. For the small business owner, it’s still the same routines, listening to great content. I don’t watch the news. I feed my body more content, when I’m in my car, when I when I’ve got a few spare moments. That that helps nurture the entrepreneur, the desire not to quit the business, I’ve got to develop that sort of thing. It’s, you’ll often hear me quoting, it’s like doing push ups or pull ups. If you want to get better at doing push ups and pull ups, you have to do more of it. And you have to do it every day. And that’s that’s the secret. You don’t just go to the gym once a month to get a six pack. It’s these little things that you do every day, that over time. Start building up really strong, in some cases, unstoppable momentum. Yeah,

21:33 No, for sure. So let’s talk about one of your Keystone deals. So deal that made a big impact for you.

21:41 Gosh, you know, the first deal going from scattered site, which are smaller apartments, right where you don’t have an onsite manager to my first big deal was 112 units. And I went straight to HUD. Luckily, I had some really good people around me a great HUD originator servicer here in town and for the audience. You don’t have to use HUD primarily on income assisted property or subsidized property, you can use HUD on A, B and C and D assets. And so I went I went straight for the jugular and went went to HUD financing locked in a 35 year loan 10 year prepayment at 5% leverage did a HUD renovation. So really just jumped into the deep end of the pool. And it helped put me on the map, not just for my investors, but also deal flow from other brokers and industry insiders here in the Midwest. So that was sort of a coming out deal for us. Another one we just purchased a couple years ago in a small sub tertiary market within the Indianapolis solar system. I knew it was going to be a deal but had no idea it was going to turn out like this. We wrote to go buy a property and deliver two and a half x net to our investors in just over two years. Nice ended up being like a low 60s IRR, I think Yeah. And that you know, that may have spoiled a few people. So now I have to tell them hey, remember guys this this doesn’t always happen to work out quite this good. Yeah. It still was very gratifying.

23:27 Oh, for sure. So how did you source that deal? Was it through a broker? Did it? Or did you go directly to the seller? Yeah, so

23:34 both those deals were via brokers. Once you get north of 100 units, it’s oftentimes going to come through a broker, there’s definitely some sellers here in the Midwest, I keep in touch with. But you really have to take care of the brokers once you get up into that higher level site managed deal. They’re really your frontline 24, seven acquisition team, right? And they’re only paid on success. So taking care of those those folks is a really smart move. We did three off market deals. The only deals I did in 2018 were all off market, but they all still came via a broker. And we love those guys. Yeah, it’s who you are.

24:18 Yeah. And so with that deal where you did, I think it was two and a half x. He said, Yeah, what initially attracted you to that property? Was it the location was there, they what was that big, blinking light?

24:33 Yeah, you know, we looked at a lot of deals in that market. And so when this one came along, we knew it was better than the rest. It was owned at the time by a really respected construction guy. And he had done most of the heavy lifting on the improvements and then after touring the units, we realized that there was still a lot of management efficiency that we could add with our growing management. company. And then we also suspected that that market, which was lagging the rest of the region, as the apartment market continued to heat up would would catch up with, with cap rates and multiples of comparable properties, you know, within an hour’s drive and other parts of the Indianapolis market, so we just, we had these little suspicions, but we, we ran the numbers, and we looked at our conservative, pro forma, we said, okay, even if we don’t hit everything, and we only achieve the conservative outlook, we’re still gonna look pretty darn smart. If these other things fall into place, we’re going to look like, like geniuses, right? And so that was the perfect example of getting, you know, what we thought was going to be a single or a double, and it won’t be hold as a homerun. You just you never know it going into the deal. That’s just not how this works. Yeah, it’s it. If you swing for the fences, oftentimes you strike out. Every now and then every now and then you pop one out there.

26:06 Yeah. So so like you said, you’re always looking to hit singles and doubles instead of the full home run?

26:13 Oh, yeah, yeah, yeah, yeah, we’re, we would rather again, limit the downside risk by these, especially at this stage in the cycle, buy a newer nicer asset with less value add potential, but where there’s still enough room to get into that, that low to mid teens IRR on a seven year hold. If it looks better than that, obviously great. But again, my first rule is don’t lose money. My second rule is remember rule number one. And the third rule is how do we get cash flow off of it? Yeah,

26:44 those are good. Those are good. Three rules. So uh, so going back to when you first started in real estate, how has getting into this business changed your life?

26:57 Oh, wow. You know, I’ve been at this a long time. And these days, having a lot of fun, it’s great to watch a big company. And now I’ve got these great people that work with me and my partner that really are the leadership team for the company, the directors now in those different aspects of HR and finance and operations, asset management, construction, maintenance, it’s really fun to develop these leaders and help them get leaders underneath them. And that’s really how you scale and so is the is the guy that started this whole thing, but now it doesn’t get, you know, nearly as much of a credit because it’s deserved elsewhere. watching these folks grow and accomplish these great things on their own. It’s just it’s really, really gratifying. And you know, real estate is a great way to design an abundant life. I get to work how I want when I want, where I want. And I get to take great, great vacations with my family, I get to spend a lot of time with other entrepreneurs and and exchange ideas and information ways of doing things. And I get to fill some other other buckets as well, we get to give back, I get to stay in shape and stay stay on top of what’s important to me. What’s what’s really the magic here, and I alluded to it earlier is, you know, real estate is great. But it’s even greater if you can pair it with another quadrant in rich dad’s Cash Flow Quadrant, right? If you’re a really successful s, and you can add a really successful I quadrant amount of real estate, it’s a great model. For me growing a big business, funneling those extra funds into my own real estate investing because we invest alongside our investors is a great pair as well. And then Gosh, we have investors that are just really well paid employees and they also want to play in the the AI quadrant as well. So when you can do two of those quadrants really well. A beautiful thing happens. And you get to design a really fun life now. A filling life yeah.

29:16 So I mean if somebody is looking to learn more about what you’re doing or get in touch, where can they find you?

29:23 Thanks for asking. I’m really easy to find online. I’m lucky My name is spelled a little differently. My last name Barratt ba RR att first name Ivan IV and I’m all over the the interwebs phone number. If you’d like to schedule a call, my assistant can help with that. 317-762-2625 31776 to 2625. I launched a new site recently called Ivan Barrett education calm and that’s a site for high net worth investors. To get a better idea of who we are our investment thesis and how we do things. Our corporate site is Barrett asset. management.com.

30:04 That’s great. Well, Ivan, just want to say thanks so much for taking the time today to share your success.

30:10 Absolutely. Seth, thank you for having me. Perfect.

30:13 And to you, our viewers, I wish you well in your journey from purchase to profits. See you next time.