Axel Ragnarsson, a notable figure in the realm of real estate investment, particularly in the multifamily sector, was the guest on this episode of the REsimpli podcast. The discussion offers an in-depth look at Ragnarsson’s journey from an aspiring investor to a successful entrepreneur, revealing the strategies, challenges, and insights he has encountered along the way.
Ragnarsson shares his initial entry into real estate, which was motivated by the allure of financial freedom and the potential for building long-term wealth. He emphasizes the pivotal role that education played in his early days, advocating for continuous learning and the importance of staying abreast of market trends and investment techniques. Ragnarsson’s approach underscores the significance of due diligence, market analysis, and the cultivation of a strong network, which he identifies as key components to his success.
The conversation also delves into the nuances of multifamily investments, where Ragnarsson has carved out his niche. He discusses the complexities of managing and scaling a multifamily portfolio, touching on the challenges of tenant management, property maintenance, and financing. Ragnarsson provides valuable insights into the strategies that have enabled him to optimize operations, enhance tenant satisfaction, and achieve sustainable growth in his investments.
Listeners are treated to a masterclass in multifamily real estate investment, complete with actionable advice and real-world examples from Ragnarsson’s own experiences. His journey illustrates the power of perseverance, strategic planning, and the importance of building a solid foundation in the principles of real estate investment. This episode is not only a source of inspiration but also a practical guide for anyone looking to navigate the multifamily investment landscape successfully.
Sharad Mehta 0:06
Hey guys, this is Sharad host of REsimpli podcast super excited to have a great guest on this REsimpli Podcast XL. Ragnar sent a xo. How are you doing, man?
Axel Ragnarsson 0:19
I’m doing well. How about yourself?
Sharad Mehta 0:21
Doing really good, man, thank you so much for being on the show. Man. I’m super excited to be talking to you. Tell us a little bit about yourself. You know who you are, where you’re joining in from and what kind of investing do you do?
Axel Ragnarsson 0:33
I live in Boston, Massachusetts, originally from New Hampshire. So I lived in New England my whole life got into the real estate business back in 2016 was a junior in college was doing a couple of different things to make a buck at that time, I’ve always been pretty entrepreneurial. But at the time I was buying and selling cars, I was flipping cars. And I think I saw an Instagram ad or I watched an episode on HGTV of like Flip or Flop or something like that. And I said you know what I want to go and try and flip houses. Let’s let’s make that kind of the the next objective from an entrepreneurial standpoint. And at the time started learning all I could about how to flip houses, how to find deals, you know how to talk to sellers, as I was trying to look for single family house flips. I did. And as I was learning about real estate, I stumbled upon multifamily real estate at the time, which I just that spoke to me I think a little bit more than than the construct the construction, heavy nature of buying and selling single family homes. And I really liked the idea, you can go buy a multifamily property or rental property, fix it up and put a tenant in there. And they start to pay you every month. And you can start building passive income. So at the time I adjusted my strategy, but I still had a focus on going direct to seller to find deals, and started calling and mailing and doing all of that to owners of two to 10 unit properties. And I found a couple of individuals that would do would extend me some private money financing to go out and buy them. And that was really how I got into the business. And to fast forward to the first three, four years I was in the business really from 2016 to 2020. It was just me buying small multifamily properties with private debt, adding value, creating value refinancing out of private money and into commercial debt and just growing the portfolio that way. So first few years in the business bought about 7080 units that I personally owned 2020 came around into 2021 and had a moment of reflection where I was like, do I really want to go out there and just continue buying rentals, six, eight units at a time. Or do I want to try and scale a business and actually more intentionally build a business. And that’s really what I ended up wanting to do was let’s go out there, let’s find bigger deals, let’s raise some money to go and capitalise these larger deals, maybe we’ll start looking at some other markets as well. And, and that’s where we really shifted the business into being more of a capital raising business. So from 2021 to now, just two and a half, three years or so, we’ve bought a few 100 units, we’ve raised a lot of LP capital from passive investors. I’ve still done a handful of deals myself on the side, just that I personally own, that I personally invest in. But we’ve really turned the business into more of a syndication type of business. We’re going out there syndicating capital and buying small to mid size multifamily projects throughout Southern New Hampshire. In other markets as well. We’ve done some deals down in Florida as well. And along the way, we started a property management company but our management in house, we started offering third party management services to other people in New Hampshire as well. And some other stuff like starting a podcast and starting to build a personal brand as well. But really now the business is we go out there and we buy small to mid size multifamily, which I defined as really tend to ad unit deals, smaller side I buy and when they get a little bit larger, we go out there and raise capital and continuing to just grow the portfolio and bring more investors into our sphere. And that’s that’s currently what the business looks like today. And
Sharad Mehta 3:51
It’s fantastic man. So you started in real estate watching HGTV Flip or Flop or some flipping show. And then instead of doing then once you started looking more into it instead of doing single family you just started doing multifamily. Have you done any single family deals?
Axel Ragnarsson 4:09
I bought a couple of houses to flip. And I did a couple condos. I did a you know a single family that we converted into a duplex. But you know what I realised really quickly was my skill set is in the finding the deals in the putting together the dough deals and money was where my skill set was operationally speaking, construction management. All of that was not necessarily where I would define my skill set to be. And over the years I’ve gotten you know, I’ve gotten good at it like I have a great team now we operate really well from a multifamily standpoint. But you know, when I was like getting into the business, I just didn’t enjoy that part of the business and that’s insanely critical design construction, controlling your costs, building a product that an end buyer a homeowner would want. That just wasn’t for me, so I did a couple of deals. I broke even on to and lost a tonne lot of money on one early very early and in the business that actually had to sell a bunch of rentals to just get out of that other deal. And I was like, You know what? I’m good. Like, that’s not, that’s not the lane that I want to play in my skill sets and finding and adding value to multifamily assets. So that’s right, shifted my no man.
Sharad Mehta 5:17
That’s, that’s incredible. I’m really curious. So you started out buying multifamily? Do you have any fear factor? Like not, you know, just starting out big and not starting out with, like smaller properties? I mean, that’s what vast majority of investors do is eventually, a lot of investors want to go into multifamily if they’re doing buy and hold, but you just started out with that. How did you? I mean, did you have any fear? And if you did, how did you deal with that? Yeah,
Axel Ragnarsson 5:42
I don’t really think I had a lot of fear. To be honest, I think the proposition and I will clarify, too, like a lot of the first deals I did were smaller multifamily. So the first deal, it was a three unit. Second one I did was a duplex third deal with six units, right, that was kind of the jump right, it was that third deal, outside of the couple of house flips I did along the way. And I gotta tell you, the proposition of buying a, whether it was a small multifamily two to four units, or commercial five plus was significantly less because it wasn’t so dependent on my ability to do a great job. From a construction management standpoint, buying an income producing property, just there’s a lot more forgiving, and a lot of ways because outside of doing massive exterior work, like you’re in Unit renovations are much more streamlined and simplified. Like you’re you’re doing some LVP flooring, you’re putting some paints in you’re doing kind of contractor grade cabinets if you’re doing a kitchen. And the first few deals I bought didn’t require significant renovations within the units, I was just going direct to seller and securing great pricing on the buy side. And that was really where I was creating the value was just buying at the right price, versus doing a house flip where I’m like, Okay, I gotta knock down a wall, I gotta get you know, I gotta I gotta manage a GC, it’s a much larger renovation scope, maybe you’re spending 10 15k in an apartment, you know, you’re doing a house flip a three bed, two bath, you’re spending 50 grands, because you’re doing the kitchen and you’re you’re you’re maybe changing the floor plan so that it’s more functional. There’s a lot more execution risk there. That’s how I thought about it, like the margin for error was a lot lower. So for me, it was I was more afraid of doing anything on the transactional house flipping side than I was getting into, you know, multifamily property. I thought that was actually a lot easier.
Sharad Mehta 7:19
Yeah, man that that makes sense. I mean, no, it’s tonnes of credit to you. But, Mike, you know, I want to I’m curious, like a lot of investors, you know, I’m sure you’ve noticed, start out with wholesaling, like, that’s the way they start. And then they go into flipping, then buy and hold. What’s your goal always to just jump right into buying hold, and then just like, start with the, you know, end goal in mind and just cut out wholesaling and flipping?
Axel Ragnarsson 7:45
Yeah, it really was early on. My goal was always I want to grow my past, I want to grow, I want to build passive income, I want checks coming in, I want some consistency of income, you know, and it’s funny, if I were to go back and do it again, I probably would have wholesaled more deals, because it would have allowed me to stack cash and resources a little bit more quickly early on, versus trying to buy multi families and scrape by with cash flow until I got to the refinance and got my you know, my the chunk of equity I put down back out. So it took me a little bit longer to grow in the beginning as a result of that. But But frankly, I think the reason I was buying everything was because I had the financing lined up like it did a very good job of networking with a lot of different private money lenders that lent me very large percentages of purchase prices on the deals I was buying. So like I knew that I could buy all the good deals I found. So there was no roadblock as it relates to actually closing the deal, which I think a lot of people face on the wholesaling side, that you know, they started out they don’t necessarily either have the money themselves or the or the source of money, whether it’s a partner or whether it’s a private money lender, so they just resort to wholesaling, and they want to pick up those fees. But early on, I was like I want to build a portfolio, I want to get to 1520 units so that I’m pulling in a few grand a month. And you know, my goal is like I just want to pay for my rent and I want to pay for my expenses. And and then I’ll take a step back and reevaluate what I want to do. But that was always my goal initially was to get to that point very quickly. And I had everything else lined up to actually go out and buy the properties themselves. So I felt I felt like that was a better path for me. But if I were to do it again, I probably would have wholesaled and been a little bit more transactional on deals here and there to to just get more money coming back in the door would have made it a little bit less stressful. As I was growing the portfolio initially.
Sharad Mehta 9:27
Yeah, no absolutely commands. I
Axel Ragnarsson 9:29
Was running my cash reserves out every time.
Sharad Mehta 9:30
How do you really go about building a list of private lenders so you don’t have financing lined up? That’s all that’s I think one of the biggest challenges newer investors have is the lack of fund and you had that and that’s why you started out with multifamily. How did you make that happen?
Axel Ragnarsson 9:48
I just went to a tonne of meetups you know I think private money lenders go to meetups. It sounds so simplified but that’s really the best place to go. You know you go to private money or excuse me, not private money you go to Real Estate meetups and you just asked you stand up in front of the whole group saying, I’m an investor that buys this, you know, I’ve done a handful of deals, I have the ability to execute just looking for hard money lenders, private money lenders, and you’ll start to meet people, you might meet people that aren’t gonna offer you great terms, maybe they’re only gonna offer you 80% of purchase price, and they’re gonna charge you 13% interest or something like that. But you just, you know, you just continue putting yourself out there and voicing what you’re looking for. And you’ll start to find folks, you know, pro tip, and this is kind of the real tactical one for everybody listening, when you think about who is actually speaking with private money lenders all the time. It’s the people conducting the closings, right? So closing attorneys and title companies, they know all the private money lenders, you know, if you find the title companies or the closing attorneys in your marketplace, that are very active, that are transacting a large volume of business that are just sitting at the closing table between buyer seller, and they know who the lender is because you’re either putting the loan docs together, they just see it on the on the HUD statement, closing statement, they’re going to be great sources from a referral standpoint, in terms of, you know, hey, Mr. Attorney, who’s handling, you know, 20 closings a week, who are you seeing that? Does private money laying in this area? Would you be comfortable making an intro? And they’re typically going to be comfortable making that intro because they’re not vouching for you as a borrower? They’re just gonna go out to that lender and say, Hey, I got a borrower is wondering if there’s going to be more private money lenders, maybe it would make sense for you to chat. And, and that’s how I found a couple of private money lenders as well as just getting referrals from title companies and closing attorneys. And it’s just a sheer volume of effort always asking for referrals, going to the meetups, asking the A players, the brokers, the title companies, the mortgage brokers, the the property managers, the whoever, for referrals, and eventually you start to build out a roster of lenders
Sharad Mehta 11:45
For the first couple of deals. Did you use your own money? Or you had private money from day one? Or from day one? Yeah,
Axel Ragnarsson 11:52
I was forced to go the private money route, just, you know, the first deal I did, I was 21. I had no credit, you know, I had I had I had money, right? I think that’s an important distinction, I think get into real estate with like, $0 I, I’ve made, I was fortunate to do very well, in my previous business, my side hustle, I guess. So flipping cars. So I had 30 35k at the time, and I found a deal that was 200 grand, it was a three unit deal. I met somebody through an internship, I heard it was actually one of the managers at this investment group that I was interning at in college, who did private money lending on the side, and I just convinced them to lend me the dough 90% loan to value, no construction financing or anything like that. It’s just 90% of the purchase price. I said, Hey, this is worth 250, I have it under contract at 200 get an appraisal to validate that, if it if it if the appraisal validates that it’s worth 250, if you can give me 90% of the 210, which was 180, you still have plenty of equity as a lender here, between loan balance and property value. And he was like, yep, sounds good. charging me 12%. So it’s not like it was cheap money. It was I was basically hard money rates. But I was in and out of that deal in a year. And that’s what I did on the first, you know, a handful of properties was I started with this 30 grand or so. And that was basically when you know, it was all put all of that down to buy that first one. And, you know, I had a couple of water heaters that broke and I just put it on my credit cards with like 30 Day advances and stuff like that. Don’t do that not smart, but at the time, that was really the only option I had. But I just, you know, recycled that capital into the first deal into the into the second deal, I should say into the third, the fourth, the fifth. And over time, I built relationships with private money lenders, so where they would just finance 100% of the purchase price. That’s rare, that takes relationship development with a lender. But you know, the way that I sold that was in a deal where let’s say I was buying a property for 500 grand, I need to invest 75 into it, and then it’s worth 750 or something like that, I was always coming out of pocket for construction. So I was still bringing skin to the game. So it’s not like I was truly into it for $0. I was like, you know, if you finance the full purchase price, I’ll go in there and actually finance all the construction in the capex and I was paying healthy interest rates 1011 12% Those first dozens of deals, right? It’s not like I was getting really cheap money. So it made sense for both lender and myself over time. And and that’s really how I built the business initially the first few years.
Sharad Mehta 14:15
And once I’ve noticed, I’m sure you’re very similar experience. Once you do a couple of deals with private money lenders, and you actually return them the money, they make money, then they want to borrow it but then they want to lend you more money, they have more money to lend and then they talk to their friends and families and then all of a sudden Do you have more money to use? Is that kind of been your experience?
Axel Ragnarsson 14:34
No. 100%? Yeah, I would get referrals from some lenders to other folks, you know, within their network. You know, the the dream situation for private money lenders, if you put yourselves in their shoes, is they just want to work with like one or two people who are going to borrow all their money. They don’t want to have to go through the process of finding new borrowers vetting new borrowers, because that means they have to vet their experience. They need to be more diligent about vetting the deal. Those that they’re being brought, do they have to explain their their terms and their process, etc, etc. The dream situation for lenders, like I just have these couple of couple of investors or few investors that just come back to me a few times a year for lending. And it’s like, I know exactly what types of projects they buy, I know actual buys five to 20, to multifamily properties in this little area. I know, I know that he knows how to do that. I know that he knows how to define a good deal. I know that he’s got the GCS and the contract, or the the GCS, the vendors, the property management, all of that set up, and he’s going to do a good job. And he knows how I like to lend. And he’s familiar with my loan docs, and he’s familiar with my terms. So when you think about it that way, like once you do a couple of deals with one lender, they would just prefer to continue working with you. And then over time, you actually start to build negotiating power as a borrower, because they’d rather lend you money at, you know, 10%, hypothetically, and a couple of points, versus this new investor, that they have no relationship with that 1111 and a quarter or something like that. It makes more sense for them to just go back and do more volume with the same person. I
Sharad Mehta 16:02
Agree. Yeah, I mean, at that point, their money is like, relatively speaking safe with you, you know, they know you they trust you. So they’re okay, taking a little bit less return tend to go after like, couple of extra points with someone, they have no idea about 100% agreement. So can you walk us through what your typical deal looks like? You know, maybe one of the recent deals you’ve done? What does that look like numbers on it? You don’t have to, you know, give advice or anything. But yeah, it would be great if you can walk us through, you know, what’s your buying buying criteria? What makes a good property? What does it make a good deal? Absolutely,
Axel Ragnarsson 16:38
Yeah. So we have a pretty wide criteria, because I’m still personally open to buying smaller pieces of real estate, just myself, you know, just me, we raise money to buy the vast majority of the deals that we’ve sourced now, but I’ll still buy stuff on my own. So I define our buying criteria as five to 80 unit buildings, which is very wide, right. And this is in Southern New Hampshire, in northern Rhode Island, basically an hour north of Boston, an hour south of Boston. And then we also buy real estate in Florida. But we’ve cooled on Florida in the last year, just for some challenges from an insurance standpoint, down there in the short term, very focused in New England and specifically focused in New Hampshire where we own our property management company. So really, our sweet spot are deals that are 20 to 80 units in size, most of what we do is 20 to 4020 to 50 units, we love to source opportunities direct to seller, you know we’re REsimpli users, we do a lot of direct to seller marketing, both male outbound calling up on texting. I’m also very, very intentional about building our brand awareness in the marketplace so that we’re brought deals by you know, brokers off market, we’re brought deals by other service providers, like insurance brokers, attorneys, PMS, etc. Other investors that may stumble across a deal, that doesn’t work for him, they can refer to us and make a couple couple bucks. And that’s really where we thrive. And as an example, you know, we close two buildings that were sourced from one seller, we bought these in July of 2023. Thinking that this will just be a good example of what we’re talking about here. Not technically direct to seller, despite that being the vast majority of what we do is direct to seller but this was a situation where there was a residential agent who normally sells single family homes, but was on our email list and knew us really well and, and brought us a 23 unit deal and a 45 unit deal from an owner that was just like a personal friend of hers. She’s not a multifamily broker. She’s not she was not marketing it in the correct way. And she just kind of brought it to us saying like, Hey, I just have a family friend who wants to sell these buildings is that something you’d be interested in, and dove on those. Those are, those are two separate deals. But for example, the 23 unit deal is kind of the exact story of what we like to buy. I mean, both were but I’ll talk about the 23 and one where we had 17 Studios three two beds, three three bedroom units. Building had a little bit of deferred maintenance needed a roof needed a new parking lot, we needed to paint the siding, we had to go through paint common areas do new flooring and common areas, renovate you know the units painful and kind of cosmetic upgrades at 12 to 18 grand a unit depending on whether it was a studio or a larger three bed and it was owned by someone who had owned it for I think they were they bought it in like 2015 so they owned it for seven eight years. Their management company was terrible just was not doing a good job at all the units were severely under rented like studios that were renting at six $700 a month that market is 12 1300 a month conservatively and that’s where we’ve been leasing and you know, to beds at 1000 that should have been 1700 and it’s just you know bought it for cheap money back then and just didn’t really keep up to date with how it was doing and and just kind of let it go and then we’re like I you know I want to retire and get rid of this. I don’t even want to deal with it anymore. Let’s just sell it called up their family friend who was not the right individual to sell that building. And then it got to us right. And from an economic standpoint, we paid we always talk in per unit prices to make things easier with multifamily. We paid Roughly 104 A unit for that building, we’re into it for roughly 118 120 a unit with transactional costs. And that’s a building that if we went and got it appraised, we’ve only under for seven months now, it would appraise in the mid 140s to win 150 a unit, right, we could pull all the equity we have in that deal out, you know, we’re we’ve basically created 20 to $30,000 per unit in value 20 30% Plus above our bases in that, which means we can pull out all of our capital and our investor capital in that deal when we do decide to refinance it. And those are the deals we love. Those are like our sweet spot. And that happened to be an example of one we were brought up by an individual, but it was still very much an off market deal. And we find these deals direct to seller. And that’s why we we spend a lot of time going direct to sellers, because you can still find those types of deals going directly to owner these small to mid size multifamily types of deals.
Sharad Mehta 20:52
So is there a certain percentage of after repaired value that you have like a cut off that let’s say if talking about in per unit costs, let’s say if the after repair value is 100,000, like you will not go over? You know, in residential real estate people use 70% formula, right? They want to go whatever the ARV is times 70% minus any repairs? Do you have something like that in multifamily that you use?
Axel Ragnarsson 21:18
I think it’s very similar conceptually speaking, right? You know, you we do the analysis the same way we want to be into it, you know, we’re okay with being in a little bit more than 70%. You know, if we’re into it for 80% of the value, I think that’s a, that’s a very good deal for us. That’s creating great returns for us, and then more specifically, our investors that are investing in that deal, to the point to where they’re very happy with their returns, where we’re happy as sponsors of the deal, in terms of creating value for both our investors, and then we’re gonna get into our split above our preferred return, which is more like tactical kind of deal structure conversations, but to more specifically answer your question, if we’re into it for 80%. That’s a great outcome. That’s typically where we’re trying to underwrite. You know, for example, if we’re buying a property for a million bucks, we’re putting a couple 100 grand into it, and it’s worth one, five, when we’re done 1515516, that’s a win for us. And the way we get there, you know, very simple, it’s very similar to how somebody’s calculating the value. From a comp standpoint, in the in the single family world or the small two to four unit, multifamily worlds, our purchase price, our transaction costs are projected renovation, that’s going to be our all in basis, we’re gonna go and take our stabilised net operating income, which is how we’re going to value a multifamily property, what is this property going to be producing when we’re done and we take all the rents to market and we take the rents to where they got to where they need to be? Maybe we’re cutting some of the expenses, and we’re trying to reduce the expenses, all trickles down to what’s the net operating income of the building? What’s the cap rate in the marketplace? Now we have our stabilised value, and we can work backwards from there to figuring out what we’re able to pay for that building. So very similar process, you know, we just were using a bigger Excel sheet and it takes a little bit longer, but but conceptually speaking, that’s how we think about it. Right, similar approach?
Sharad Mehta 23:03
How has the interest rate affected your business? Has it been a positive or negative impact on your business?
Axel Ragnarsson 23:10
That’s a great question. You know, I think it’s, there’s a little bit of nuance in that it hasn’t necessarily affected what we do on the smaller components of our criteria to significantly, you know, like a five 610 unit building, oftentimes, those are going to be owned by a mom and pop owner, like, you know, if they’re selling, you still have the ability to negotiate a good deal. However, we’re going to define that you know, where you’re into it for 70 80% of after repair value in the in the interest rate market isn’t necessarily going to affect your underwriting that significantly, the cost of borrowing isn’t going to be such a significant difference that it’s like turning a deal and to not a deal type of situation right might affect the overall market in terms of what you think the property’s gonna be worth after, because cap rates might have gone up. But you still are able to negotiate quality deals there because there’s typically some owner distress, they got a few tenants in the building that aren’t paying and they’re just fed up, they’re sick of managing it, they want to retire, what have you, and they’re still a motivated seller. So you can still secure a good price on the smaller end of that spectrum. However, it’s been much more on a more of an effect on the larger side of our criteria, call it 40 to 80 units, right, we’re starting to get into $5 million plus in deal size. Because those owners are very sophisticated, like those owners understand the landscape, they’re probably operating their property fairly well. Rents are probably pretty close to market, they probably have a sense of what’s going on in the market as well, in general, probably not going to be motivated, right? From a financial standpoint, they’re probably just going to be selling because they want to sell and they want to capitalise on maybe some value they’ve created or maybe they’ve owned it with a partner and the partner wants to sell and one doesn’t suddenly decide to sell it but like they still understand the marketplace. And that’s those deals have been much trickier to pencil with high interest rates because those owners don’t necessarily have the personal motivation of the lifestyle motivation. And they’re anchored to pricing from 2021 2022, when they’ve been getting appraisals as they refinance. You know, the one situation we always see is somebody refight and 21, or 22, because rates were so low, and they had their appraisal done as they refinance. And that’s kind of anchoring their value of their property. And it was much higher back then than it is today. So we’ve had a really hard time closing the gap between where sellers want to be and where we want to be as buyers on the larger deals. And that’s probably where it’s affected our business a little bit more on the smaller stuff. It’s like not too dissimilar from the house flipping game where you people are selling personal motivation, lifestyle motivation, and you can still negotiate a good deal if you’re catching somebody at the right time. But it’s made it harder to do the big deals for sure.
Sharad Mehta 25:45
But on the on the large multifamily or any, you know, 500 or above, you’re not getting 30% fixed loans, right, you’re getting loans that are adjusting every five to seven years, is that correct?
Axel Ragnarsson 26:00
That is correct. Yeah. So we typically work with local banks, local credit unions to finance our deals with commercial mortgages, you know, 25% will actually go the other way. 75% loan to cost is typically what we try to secure when we’re buying a property. So 75% of purchase price 75% of construction. And usually we have a fixed rate for five, seven or 10 years, depending on how long you fix it for will determine what that rate is, if you’re fixing it for 10, that’s going to be a little bit higher than if you’re fixing it for five and letting it adjust for the last five usually got a 10 year term. And then we usually still secure 30 year amortisation periods with like the local banks we work with, but you’re correct, and that the term is going to be shorter. And then the rates typically going to be a little bit higher than what you would see on a 30 year fixed rate loan on a smaller building. Are you are you
Sharad Mehta 26:46
Noticing people like not very sophisticated investors who took out loans, maybe, let’s say three to five to seven years ago, and now their interest rate is adjusting to a much higher interest rate. And they’re like, oh, shoot, we cannot afford this property. Are you noticing those sellers?
Axel Ragnarsson 27:03
Yeah, I think parts of the country that’s much more prevalent than other parts in a market like Florida, yes, like without a doubt, where Florida became such a hot market with national interests from a buyer standpoint, like we were competing, you know, I’m in Boston, right where we’re competing with deals in Central Florida in a in the city of Lakeland, which is 100,000 people it’s not like Tampa, Orlando or Miami, like done a major city down there. But we were still competing with New York buyers and Austin buyers and California buyers and local Florida buyers. And those deals were so bid up and just hotly contested that a lot of buyers were forced to go the shorter term Adjustable Rate approach just because they needed to reduce their interest rate to get the deal done just to make a pencil and there’s a lot of owners that are in tricky spots in markets that were hot like you know, just the southeast Southwest US Phoenix that you know the the cities like the Phoenix Tampa’s Austin, Dallas, but conversely, in a market like New Hampshire, which, you know, there’s you’re we’re competing with New Hampshire people are competing with Boston people. That’s kind of really it. And there wasn’t really ever the need to go insane from a debt structure standpoint to get deals done, that a lot of the people out there actually doing just fine, right. And there’s almost no distress up there, comparatively speaking to the southeast, southwest. And the other component too is and this is like very tactical, nitty gritty. So apologies if I get sidetracked but there’s less local banks and local community lender or community, community banks and local community credit unions that are lending in a market like Florida than the Northeast. The Northeast has one of the highest concentrations of local banks and local credit unions in the country because it’s just the oldest part of the US like there’s been banks here for 300 years. So there’s an abundance of quality local debt with fixed rate options so that buyers never really had to go the floating rate direction. Whereas a lot of multifamily owners in the in the Sunbelt the best option was typically the agency lenders Fannie Mae, Freddie Mac, and working with their multifamily lending programmes, typically lower rates, typically longer amortisation periods better LTVs comparatively to the northeast. So a lot of buyers were using those agency loan products. And if you use an agency loan and you fix your rate, you’re facing incredibly prohibitive prepayment penalties where it’s like extremely difficult to sell or refinance, because your prepayment penalties for your loan are huge. And a lot of buyers that are buying value, I don’t want to be locked into that. So they go the floating rate route. So there’s just a much higher percentage of individuals buying property in the southeast southwest with floating rate debt, just because that’s more of an abundant option versus the Northeast where we can work with a local bank, we can fix our rate and we can negotiate away our prepayment penalties so we can have our cake and eat it too. So it’s it’s an interesting dynamic for those two specific geographical areas. And I’ll give you a sense of where they’re on. No, no, I
Sharad Mehta 29:56
I think it makes total sense to me and I work with a local lender in my area also though and you have more flexibility working with a local lender, then you have working with Chase or Wells Fargo’s of the world so 100% agree with with you on that. So I have one question before we move on to the next segment of our podcast. So if there’s a newbie investor, right, someone’s listening to this podcast, and thinking, man, it sounds like multifamily, especially like, you know, up to 20 unit, it’s very similar to residential property, right? You running the numbers the same way, you’re just playing at a bigger level, right? You just need to have money lined up a little bit more money lined up, but then your return is going to be much higher. Right. What would you tell that investor to take the leap?
Axel Ragnarsson 30:46
Yeah, I think there’s really a few specific things that you should try to avoid doing when you’re getting into multifamily real estate. Like let’s say you’ve got experience buying single family rentals or wholesaling, flipping single family properties, you want to go out buy a 10 unit, right? Your mail campaign is hit a guy that owns a 10 unit property, and you’re trying to figure out, hey, is this something that I can handle? I think you need to just protect yourself, I think something that a lot of investors don’t do when they get into multifamily is make it easy for themselves to buy the property and and increase the likelihood that they don’t get burned. And really, that happens in a few different ways. You just buy in a really bad neighbourhood. Like buying in a really bad neighbourhood which I’ll define as like a very high crime area, an area with like a median income that’s much less than that city or town’s median income is going to make everything just so much more challenging. And that’s where you have the biggest disconnects between your spreadsheet math, and then your reality math. And that’s really where an investor can find themselves in a tricky spot where it’s like, okay, you underwrote your vacancy at 5%. But in this neighbourhood is probably 10. And then even when you’re not physically vacant, you’re gonna have 10% economic vacancy because 10% of your tenants or tenants aren’t gonna pay. And now your spreadsheet math is totally shot. So make it easy for yourself, don’t buy in like a really bad area buy in, you know, a CRB area meeting income kind of around the median income, not a crazy high crime, something that is going to align with your spreadsheet math most significantly, you don’t want to buy anything that requires a massive amount of CapEx of just renovations, again, because that increases the variance of how the deal is going to go. Specifically, you should look for a property that only really requires in Unit renovations that has a good roof, good bones, good siding, decent windows, maybe you got to do a heating system here and there or something like that, maybe a repave in the driveway. But you want the majority of your dollars to be spent inside of the units when you’re buying multifamily, because that’s what drives rents, therefore driving net operating income and therefore driving the value of the property. So it’s a lot easier for you to really affect the value of the property when you’re spending your capex dollars your renovation dollars inside the units or on stuff that helps you rent the unit for more. So avoid really bad areas of voids, high CapEx spend type of properties. Worst thing you can do is combine those two mistakes on the on one deal, because that’s really where you start to get into some trouble. And the third thing is put together your debt in a way that doesn’t put you in a really tough spot. You know, I got into this game by using a lot of private money, but I was doing so in very small buildings where I knew that I could get it to the after repair situation stabilised situation within the first six months within the first nine months. And I was borrowing private money at eight on 18 month notes right 18 month term, so I had a buffer there. Typically when negotiate comes some kind of an extension option. I never would ever want to buy something with a shorter loan term than that, you know, one of the worst situations you can be in is buying multifamily. You know, the business plan starts to start to take a little bit longer if you’d implement, you have a one year note on it, and then you become a forced refinance or forced seller in that year. That’s where things start to get really stressful. So my recommendation would be the first deal you buy, just go to the local bank, if you don’t have the 25% down required to do that. Go find a partner. You know, if you have a great deal, it’s very it should be easy to find another active investor in your marketplace that will partner on it with you. Maybe you bring half the capital maybe you bring they bring half or they bring 75 You bring 25% of the required money. Maybe you make a little bit less than that first one because you don’t own the whole thing but that’s okay, right you’re just trying to learn on those on that first deal those first couple of deals and and then that sets you up for success on the next one, right? You start building a resume, you start to understand the process of multifamily ownership. You go through the underwriting process with the bank, you become more familiar with that part of the process. And and you’re just shortcutting the curve or short removing the variables required to get into that first property which is ultimately the goal is you just want to get into it. You just want to do one, which is where you learn everything. So I guess if I were to summarise choose the right debt, don’t use like hard money financing on a big multifamily deal where you’re just going to be stressed out. That’s I’ve seen more people get into trouble because they didn’t use the right debt. And really any other reason. And then second, and third are just buying it in an area that’s not terrible. And don’t buy something that requires a tonne of dough, to turn the building around, buy something where it’s like, Alright, we’re gonna go and spruce up the units when somebody moves out, and keep it to a simple business plan, so that you’re getting the chances that you get in your own way.
Sharad Mehta 35:19
That’s such such a good advice. Just basically stick to fundamentals, don’t try to, you know, just get into something that’s way beyond your capacity, just buy something in a decent neighbourhood that doesn’t need too much work. It doesn’t have to be homerun with your first deal. Just get your feet well, you know, it doesn’t have to be the best deal ever. Just buy something just to get into, you know, just to get some experience. I 100% agree with that, man. Thank you so much for sharing that cool, man. Moving on to the next part of our podcast. What do you do for fun?
Axel Ragnarsson 35:54
Oh, that’s a good question. Um, I live in I live in New England. So I ski a lot in the winter and I golf a lot in the summer, I would say those are the outside activities. You know, outside of that. It’s, it sounds lame, but I just love what I do. You know, I really love the game of real estate. I’m a crack addict deal junkie, like the best of them. I love you know, I get the most juiced up when I’m when I’m chasing a deal. So for me I just naturally work a decent amount as a result of that but you know, and then the stuff outside that I do it that’s adjacent to the to the core real estate business stuff I enjoy as well stuff like hosting the podcast, which we just had you on there. Love hosting the podcast. I love hosting events like meetups as it relates to real estate. But if I want to give you a better answer golf skiing, and and then I travel a lot, and I try to get outside of the country a few times a year. I’m going to South America for a couple of weeks here and a month or so Colombia then down in Brazil. And you know, I tried to get out and do a trip like that a few times a year. So it’s fantastic, man, maybe I need to find more hobbies. Long story short.
Sharad Mehta 36:53
You got a lot going on? Yeah, with buying a multifamily building a multifamily business skiing golf and travel. Yeah, I think you have your hands full. All right, what, what’s the one book, it could be a business book, or a personal book, or one of each that has had the biggest impact in your life?
Axel Ragnarsson 37:13
Oh, that’s really good. I should read more. So I’m gonna caveat that I’ve probably read like 10 books, I gotta I gotta read more books. But I think the one book specific to me. And I think it really helped me, because of the time that I read it. That was the book who not how Dan Sullivan, Ben Hardy. It’s all about it’s fundamentally a book on delegation, and bringing other people into your business into your sphere to help you grow faster. And as both personal applications just in your own life, and then also business applications, right. It’s not really about how you do something, it’s about who can potentially do that for you. I’ve never had a partner in my business, I spent the first five years in this business with no employees, no partners, nothing like that. Even on individual deals, I just did everything myself. And the reason that I got into real estate was I wanted to work for myself and I kind of had a fear of bringing other people into my business, whether they were, you know, salaried employees or contract employees or partners, you know, even investors, right. And I read that book I remember a few years ago, and it kind of just for some reason really unlocked something at the time with me where it was like, You’re just simply not going to get where you want to go if you’re just continuing to do everything yourself. And I’ve really done a 180 on that. And we use a lot of contracted VAs contract employees, I you know, built a property management company around that time and started to build out that business and started to build out our own business where I have a full time acquisitions, personnel, you know, an assistant, and that’s really what also helped me to make the leap to raising capital from investors. You know, you’re gonna need to bring in other people if you have a big objective, a big mission, a big goal. So for me, that book was really impactful, specifically because of when I read it, I think as well.
Sharad Mehta 38:49
It’s a great book, man is I don’t know if it’s an African thing, or Chinese, or I don’t know where it’s from. But if you want to go fast, go alone. If you want to go far. Go with others or something like that. Yeah. Which like, yeah, I’ve read that book. Fantastic book. I mean, last question. If you could spend a day with anyone dead or alive. Who would you want to spend the day with? And why?
Axel Ragnarsson 39:15
Oh, man, you got some great questions. He’s a really good. Spend the day with anyone. Hmm. Ooh, that are alive. I’d love to just kick it with Matt Damon for a day. Yeah, Boston guy. He’s my favourite actor. I’m a big movie guy. So that would be a lot of fun. Maybe that’s the personal one. That would be a cool thing. You know, on the business side. If I were to really like, Who do I want to talk to you that probably has every answer from a real estate standpoint. Man, probably Barry sternlicht. The guy that runs Starwood Capital Group, he’s one of the most successful real estate investors of all time. He I respect him immensely, both as a real estate guy and a business owner. A lot of what I’ve read and consumed from a real estate education standpoint is just it his interviews is conversations, articles that he’s written over the years to his company investors. And a lot of the principles that he’s applied to real estate investing are principles that I try to apply to what we do in our business. So I’ll give you two but he’s probably the business answer. And then I create an assessment at the end was my favourite accent. I want to show them
Sharad Mehta 40:19
Great answers. Yeah. I mean, so anyone who’s listening to the show, what’s the best way for them to get in touch with you if you want to if they want to connect with you a little bit more about what you have going on? What’s the best way?
Axel Ragnarsson 40:33
So at multifamily wealth on Instagram is my Instagram account. I’m very active on there constantly posting helpful content for folks who want to start build or scale their multifamily business that host the multifamily wealth podcasts. I like to think it’s one of the best multifamily podcasts out there. I mean, we’re certainly one of the highest reviewed both in numbers a number of reviews and an average reviews. And, you know, if you just want to reach out to me over email, Axel HX, E L at aligned our ep.com so a li g nedrep.com.
Sharad Mehta 41:06
We’ll put that in the show notes also, man. Alright, Axl, thank you so much for being on the show. Man. You shed tonnes and tonnes of great information makes me want to go out and buy some might have family properties, you know, just like scale up my game. So thank you for doing that and breaking it all down.
Axel Ragnarsson 41:25
Love it and I appreciate the invite. Thanks for having me.
Sharad Mehta 41:28
Absolutely, man. Thanks.
