Many people have the perception that you need to be accredited IE kind of wealthy or very high income to invest in syndications. I think the big mistake was they went to this floating rate debt, it blew up in their face and unfortunately a lot of investors got hurt with it. We all know from single family, multiple listings the way these properties are marketed, and I would say 95% of all houses for sale go to multiple listings. So he clearly understood bad stuff can happen. And so one of the first lessons he gave me was fixed rate debt is the keys to the kingdom with real estate. Investings success isn’t necessarily about the amount of money you have in your bank account or how much property you own. I think success is more about

Welcome back to the podcast. Arn, thank you so much for taking the time and coming on here with us today. I know you’re doing a bunch of deals in the Carolina market. I am curious to kind of go back in time and see what got you into real estate in the first place.

Yeah, so Noah, thanks for having me on. Looking forward to having a nice conversation. And I was a pretty typical middle income American kid. Grew up in the San Francisco Bay area. Of course the parents emphasized the value of education and school and I did pretty well in school. Ended up with a master’s in chemistry of all things, and that was from the University of Michigan, which of course is in the news today about the coach. But in any case, got a degree in physical chemistry master’s degree and wanted to return to the Bay Area. So my father had a real estate office in Menlo Park, California, which is next to Palo Alto, which is where Stanford is kind of right above Silicon Valley. And he said, come on out, get your license and I’ll put you to work. And that was March, 1978. So there was no grand plan. I just wanted to return to the Bay Area and I realized academia wasn’t what I wanted to spend my life doing. So I had an opportunity, got my license and went to work selling single family homes, one of the greatest markets in the world, and I think most of your listeners understand what’s happened in Bay Area real estate over the last 30, 40 years. So I was blessed to just grow up there and benefit from that market.

Awesome. And then going from then to now, what does your business look like right now?

Yeah, so about 11 years ago I moved to Greenville, South Carolina and a little over five years ago, after a long career, almost 40 years as a single family broker and a single family investor, I moved into multifamily just about the time COVID hit form, spark Investment Group. March of 2020, we acquired our first asset May of 2021 and we now have maybe eight syndications complete it with two or three other joint ventures all in Greenville County, South Carolina, which is where one of my primary partners lives. And we specialize in the smaller multifamily, we do syndication deals for your audience if they’re not familiar, basically we reach out to private investors and we pool their capital to go buy a larger building so they get the benefits of investing in real estate, but they don’t get calls from the tenant about the toilet or the furnace going out or where’s the rent and so forth. So it’s kind of a passive hands-off investment for them, but they get the benefit of real estate investing. And I know you guys do a lot of different kind of investing and you can testify it’s a full on hands-on job and it takes a lot of time. And most professionals these days, they’re working 50, 60, 70 hours a week and they don’t really have time to deal with the details of managing rental real estate. And so that’s where we come in.

Yeah, why do you think a lot of investors don’t touch the syndication space until maybe later on, but sometimes at all?

Yeah, so anything else in life, there’s always pros and cons. And so I came from a single family background. I manage my own properties. It’s a tried and true way to invest in single family in real estate. So if you’re capable of buying one rental house every year or two in your local community and you kind of manage and oversee those properties and you do that for five to 10 years, I promise you’re going to create wealth, you’re going to create income. So that’s a very good way to go. Under that scenario, you as the owner have total control of what’s going on. Where in a syndication, basically the general partnership team, which would be my team, they make all the decisions and the investors who are called limited partners really have no say so in the property in terms of when it’s sold, when it’s refinanced, what rents do you charge, what improvements you do.

So I think some people like to have control of their real estate and take a more active role in it. With syndications, it’s passive, you have less control. And I think it just kind of depends on what your tolerance level is. Do you enjoy being hands-on with real estate? Do you enjoy dealing with tenants and calling about the rent and managing repairs? Or are you so busy between your job community, kids, family, church, that what I notice is most people are spread too thin anyway. Life contemporary life is really busy. And so if you don’t have the time or desire to learn the real estate business, syndication’s a good option. But either way, I’m a super big believer in real estate. It’s a long-term proven investment. And that’s not to say I’m against the stock market. I come from the Bay area. Many of my investors have large stock portfolios often in tech companies.

And the way I approach them is, Hey, I’m not asking you to get rid of all your tech stock. I’m just suggesting would transferring 10 to 20% of your total portfolio into real estate make sense? Would diversification make sense to you? And I think everybody’s interested in real estate when we go to Christmas parties here over the next week or two, I guarantee you people are going to be going, did you see what that house down the street sold for? And oh, can you believe they’re building that? So people I think intuitively know real estate’s good. It’s just either lack of time, knowledge or experience that maybe holds them back from investing,

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What do you think the most common misconception is about syndications that might not correlate to a traditional fix and flip wholesale wholesale strategy?

Yeah, so I think one of the big misconceptions is you have to be rich or wealthy to invest in syndication. So there’s something called being an accredited investor and basically the definition of an accredited investor is a net worth of 1 million exclusive of your primary residence. Or if you’re a single making 200,000 a year, more a couple 300,000 more a year. So many people have the perception that you need to be accredited IE kind of wealthy or very high income to invest in syndications. And that is true under the so-called 5 0 6 C syndication. You have to be accredited to invest. There’s a different format called 5 0 6 B, which is open to accredited investors, but also sophisticated investors. And what sophisticated investor means is the person has the financial knowledge and acumen to properly determine whether an investment’s suitable with them. Usually it means they have good credit, they have good income, they financial houses in order, they have some stock investments, they have a 401k, maybe they have a rental house. So I think the big misconception that I come across is you can’t be kind of a regular person and invest in syndication. So at my firm, spark Investment Group, we accept sophisticated investors. Our minimum investment is 25,000. Many other operators have 50 or a hundred thousand dollars minimums where we think it’s important to democratize the process, make it open to people who are starting their careers, trying to be smart with their money and give them the opportunity to do that. So unlike a fix and flip where it’s very hands on, the syndications are passive investments. And I think the other thing that the other difference and every investor is sort of different. One size doesn’t fit all your fix and flip investor is usually looking to invest some money, maybe a six to nine month time period to renovate it, sell it, take the profit and move on. So there’s a high velocity of capital there where with most multifamily syndication investments, it’s more a 3, 5, 7 year process, so your money’s tied up longer and there’s some investors who like to put the money away and forget about it. There’s others that like to kind of turn it over more quickly in hopes of building wealth a little bit more quickly.

What are some main strategies that you’re using to find your syndication deals?

Yeah, that’s a great question. So number one, we only do deals in our home market. Maybe many syndicators could be in Los Angeles and they do deals in Dallas and Charlotte and Boise. That’s not kind of our model. So we simply do deals in Greenville County, it’s home to BMW, every X car in the world that BMW makes is built in Greenville, Spartanburg, Michelin is here, 500,000 people. So it’s a relatively small market. The region’s called the upstate, it’s about nine counties, a million people. Okay. And I preface all that because my strategy works in a clearly geographically defined market that isn’t huge. So the other thing your listeners may be interested in, we all know from single family multiple listings the way these properties are marketed, and I would say 95% of all houses for sale go to multiple listing. In the commercial real estate market, there is no real multiple listing. So basically each commercial broker has their listings that they try to sell. And so if you want to play in the commercial real estate space, you have to start building personal relationships with the brokers who do deals in your market with the type property that you are going after. And the deals we typically do are three to 5 million, maybe up to 10 million, which in our market might be 30 to a hundred units. So we’re not doing 500 unit apartment complexes, we do the small multifamily. So I spend a lot of time networking with those brokers. I’m active on social media. And I think the other thing is you start attending various investor groups. Some are in person, some are virtual on Zoom, and you just start letting people know what you’re doing. Hey, I’m looking to buy a 10 20 unit building in Charlotte, whatever it is. So it’s very much word of mouth building those connections with brokers, property managers and other investors. And social media is big. I’ve done two or three deals basically with connections I made over social media. But again, my approach is very narrowly focused. And I would encourage investors when they’re talking to brokers to the degree you can really drill down and identify what you’re looking for. It makes it easier for the broker to bring you deals that make sense to you. And that applies on flips and fix and flips too. Are you looking to do the high end fix and flips in your community or are you looking to do the low end rental market? What’s your niche? And to the degree people understand your niche, they will bring you deals. So that’s how we kind of do it. I don’t do a lot of direct to seller marketing. One, it’s a lot of work as you well know. And in my mind, I’m perfectly fine with a broker or a wholesaler making a profit bringing a deal to me that I want to buy. I have no problem. Everybody can share in the pie. And so wholesalers are really built and they have a system where they’re dialing for dollars and they’re great at what they do. It’s not what I do. So I’d rather let them do their thing. They make money when they bring me a deal. And it’s the same with the brokers, with commercial brokers. They’re calling sellers all the time and that’s how they get the leads.

That’s awesome. And what mistakes do you often see other syndicators do that you think could be really easily avoided?

Well, yeah, that’s a great question. And many of your listeners may be aware that the syndication space has had some trouble the last couple years. 2018, 19, 20, 21, the streets were paved with gold. We had 3% debt, we had cap rates going down and then all of a sudden the bubble bursts. So I was taught the real estate business from my dad who was born in 1921. So he actually lived through the depression. So he clearly understood bad stuff can happen. And so one of the first lessons he gave me was fixed rate debt is the keys to the kingdom with real estate investing. So I think if one was to research and kind of catalog some of the multifamily deals that are in trouble, I would say almost all of them are tied to floating rate bridge debt where in 20 22, 20 23, they got a 4% initial rate. And in a matter of 18 months, rates were seven. And understand that’s not a 3% increase in debt service. That’s a 75% increase in debt service. I mean the Fed raised rates to a degree and with the speed that was unprecedented in history. But what I would say is back in the heyday, everybody was saying, Hey, we got historically low rates. Well, historic doesn’t mean normal.

And I can tell you I paid 11 and three quarters for my first house I bought in 1980 and I was happy to get it. And then shortly after that rates, you won’t believe it went to 16 or 17, like 1981, spring 81, 16, 17. So for me, we always do fixed rate debt. We don’t over leverage the property. So typically we’re buying with 60, 65, 70% leverage. And then the other important thing is when we put these deals together, we always have a nice cash reserve because as a real estate operator yourself, Murphy’s law strikes from time to time, right? You’re going to find an unexpected problem, rents are going to soften. And as long as you have that cash reserve, you can deal with the contemporary problems. Because generally with real estate long-term, the trend is clearly up. If anyone wants to look at housing prices or rent over the last 50 years, the curve is going up. Yes, there’s some ups and downs. The point being is if you can buy an asset and set it up properly so that you can ride out the inevitable downturn, you will profit when the cycle changes. And so I think the big mistake was they went to this floating rate debt, it blew up in their face, and unfortunately a lot of investors got hurt with it.

When it comes to the word success, everyone’s got their own definition for it. I’m very curious to hear yours, but to take it further, how do you define the word success? How do you strive for it every day? And what would you tell people that are maybe earlier in their journey?

Yeah, so that’s another great question. And so what I would say is success isn’t necessarily about the amount of money you have in your bank account or how much property you own. I think success is more about what’s the quality of the totality of your life. And certainly as my mom used to say, money can’t buy happiness, but it sure doesn’t hurt. And so taking care of the financial side of your life and being smart about it is certainly important. But I think the end goal should be to create the kind of life you want, the quality of life you want. And for everybody that’s different. I always talk about just enjoying the simple pleasures and we talked about playing golf, and I go down to the muni and play with my buddies never been to a never joined a country club. We take road trips instead of three week trips to B. So each person’s got to define what’s their life. The financial part will help them get there. But I would just caution people about sacrificing the quality of their life in pursuit of money because I think ultimately you’ll find that a little bit less than satisfying. To answer the question about young people, I would say number one, try to live below your means. What I mean by that is try to live on 80 to 90% of your income. And I understand in consumer driven America and contemporary society, it’s difficult, but until you start spending less than you make, you’ll never have any capital to invest. If you spend every penny you make, how do you get capital to invest? So try to live below your means might mean drive the car seven years instead of five, whatever it happens to be, then invest that difference consistent with discipline over time.

And real estate could be part of that. Certainly stocks could be, I don’t understand Bitcoin, so I don’t invest in Bitcoin, but if somebody wants to put a little money in Bitcoin, go ahead. So start investing that capital. And the way I look at it is the capital I have invested every day that those dollars get up and they go to work for me. They put on their suit, they put on their tool belt, their nurse’s uniform, whatever it happens to be. And that capital is working for me, whether I’m sleeping on vacation or whatever. So I think if you’re 30 and you just start regularly investing, I promise you by the time you get to be 40, 45, you’re now actually going to have some options. Maybe you love your career, it’s high powered, you have a lot of authority making a lot of money, and if that’s what you want to do, you can do that. But by investing, you now have options. Maybe you don’t take that promotion because you don’t want the extra 10 hours, maybe you want more time with your family and so on and so forth. So I think it’s Americans aren’t patient by nature, and you’ll find a lot of real estate gurus who will promise you’ll get rich in two or three years if you follow my program. My experience is it doesn’t work that way, but 10 to 15 years of consistent investing, you can make tremendous strides and then the whole mushroom kind of opens up for you and then you have options to determine what you want to do with your life. And I think the other thing I would say is we are living longer. Today’s healthy, 55 year olds probably going to make it to 90. So the old style retirement doesn’t really work anymore because we’re living longer. And so as you’re in your working career, you have to start producing these other streams of income for you. I can tell you I’m collecting social security. It covers about a third of what I need to live a comfortable life. And again, we don’t live a jet set life. It covers about a third. I’m happy to get it, but I’m happy I have these other sources of income, which primarily come for real estate. So kind of think long term, think about freedom, time freedom, the component of wealth helping that, but the end goal is really the quality of life.

Yeah. I want to ask you a question. I want to challenge you a little bit. So let’s say everything that you’ve done in real estate goes away. You can keep all the knowledge that you have learned over the years, the money, the business, the syndications, everything goes away. What would you focus on first to rebuild?

Well, assuming I had the fundamental things I needed for my life with what is food shelter, assuming that was all taken care of, I would just go back into real estate. And for me, I think I would then focus more on perhaps educating others on how to kind of do it. Because I’m 71 now, and so I’m in a little different place than I’m 30, but I think I would fall back on the wealth of knowledge. And I do this Spark investment group, not because I have to, I’m good, but I enjoy it and I enjoy the mental stimulation of finding properties and putting deals together. And I love the social interaction of working with my two partners and my investors, and there’s a friendship there. So I would just fall back on that and just kind of keep doing the same thing. I think humans have a need to be productive to keep their mind sharp and actually kind of provide some value. And the kind of way I think about it is I have some level of experience and expertise that is of value that will be a benefit to people. And oh, by the way, I can also get compensated and I like doing it. So to me it’s kind of a no-brainer. So I don’t know if that answered your question, but I just pick up the pieces and that’s another interesting point. I would say as you invest, you are going to make mistakes. I’ve made mistakes. It goes with the territory. You’re not going to be perfect as all. I would encourage the listeners to do is have the mistakes, be small enough that you can live to fight another day. You gain the knowledge, you paid a price for it in terms of dollars, but you live to fight another day, which I think to me talks about kind of building your portfolio in a systematic way, not getting too far out over your skis because that’s where you crash and burn and it’s hard to come back when you crash and burn. The analogy I make is if you’re a beginner skier, you’re not going to go to the top of the black double diamond and hope to make it down. Sorry, you’re going to kill yourself. So no, you start on the bunny slopes, you get those handled, you move up. And of course the other thing is along the way, you partner with people who have done it before and that helps you kind of avoid some of the pitfalls. So that would be my advice.

Awesome. I love it. If someone is interested in getting into syndications and wants to work with you, where can people learn more about what you’re doing and where can people connect with you?

Yeah, well appreciate that opportunity. So I’m very active on social media, either LinkedIn or Facebook, either under my name, a Cella or under Multifamily Investment Group. My website is invest with spark.com, all one word.com and reach out. And we always have to have an introductory call with any potential investors to kind of ascertain whether we’re a good fit and happy to help. So you don’t have to invest, but if you have some questions and you’re thinking of getting into syndication yourself or doing multifamily in your hometown, reach out. Glad to help.

Awesome. I love it. Any final advice for any investor looking to get into syndication before we hop off?

So educate yourself, partner with somebody who has done it before. That’s how I did it. I had two or three mentors to kind of hold my hand when I got started. I remember my first multifamily deal, 43 units, wasn’t huge, 2.8 million. Some stuff came up on the inspection and I’m losing my brain and my mentor goes on, not that big a deal. He talked me off the ledge and it turned into a great deal. So partner with some people who have similar values, but also maybe a little bit more knowledge than you and grow that way.

Awesome. I love it. Thank you so much for coming on. It was a pleasure speaking to you. Everyone. Thank you for watching and we’ll see you next time.

Yep. Thanks Noah.