Imagine starting small in real estate, learning the ropes when all of a sudden you’ve bought into the market during COVID-19, a global pandemic.
Trevor Thompson a passive now turned active investor took small steps in real estate by educating himself, joining mentorship programs, acquiring knowledge. Now he has 17 deals as a limited partner and 1 deal as a General Partner. Listen to this episode to hear how Trevor went from not knowing what he was doing, putting a little bit of money into this and that property, to now, a seasoned investor making smart moves with his portfolio.
[00:01] – [03:51] Opening Segment
Trevor tells us how he began in real estate and where he is in his journey
How Trevor gained capital and made it available for syndications?
Trevor’s strategy of joining a local mentoring program and slowly building his portfolio
[04:13] – [12:35] Going from Passive to Active Investing
How Trevor ‘backdoored’ his way into being an active member as a limited partner
Telltale signs of a bad investment
Is the CAPEX realistic?
What have they done with property taxes?
Insurance
[12:36] – [19:18] Creating a Diverse Portfolio
How Trevor invests in different asset classes
Lessons learned from Trevor’s investment history
Trevor’s blended return profile
[19:19] – [20:13] Closing Segment
Reach out to K. Trevor
See links below
Final words
Tweetable Quotes
“We made no money, but we didn’t lose money. And I think if I hadn’t been there for that particular period, we could have definitely lost some money because at least we got it up stabilized. You can’t ask for better learning.” – K. Trevor Thompson
“I refer to my investing as earn and learn.” – K. Trevor Thompson
“We all know there are risks in real estate. Let’s at least make this a better learning opportunity.” – K. Trevor Thompson
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Connect with K. Trevor Thompson on LinkedIn and Facebook. Visit his website at https://www.niagara-investments.com email him at ktt@Niagara-Investments.com
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Want to read the full show notes of the episode? Check it out below:
Trevor Thompson [00:00]
I refer to my investing as earn and learn. So I wanted to learn about different things. So I tried to invest in some different asset classes, some of them fell in my lap. So one of them, you know, I cashed in some stocks, that deal was close to close and literally fell through that day. And basically, it was corporate secured debt to buy a piece of property up in the west of Dallas, and you know, 16% interest, they needed my money for a year and I went, Okay, well, this is a much better use of my money, they needed it for a bit longer now. And then, you know, I always wanted to get into retail. So one of the next investments I did was a retail strip center.
Intro [00:36]
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson [00:48]
Trevor Thompson is a passive investor now turned active investor. Trevor, welcome to the show.
Trevor Thompson [00:54]
Thanks for having me. I’m excited to be here.
Sam Wilson [00:56]
Hey, man, the pleasure is mine. There are three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell us where did you start? Where are you now? And how did you get there?
Trevor Thompson [01:03]
Sure. So I started before and a half years ago, joined the local mentoring program, and wanted to start passively investing in real estate started to learn. So I started passively investing. And then I have 17 deals as a limited partner, my first deal as a GP where I joined the team for a new takeover of an asset in San Antonio. And my goal is to do two more active deals this year in Central Texas.
Sam Wilson [01:29]
Wow, hey, that’s awesome. I love that. I mean, in 17 deals, that’s a lot of progress. Let’s start with the idea because most people don’t keep enough capital unused or untapped. Right? Usually, it’s deployed in stocks, bonds, and a variety of assets. I mean, maybe you did, maybe you had a liquidity event or something like that. But how have you gone out and taken the capital you had and made it available for syndications? Yeah, so
Trevor Thompson [01:51]
I was very fortunate, I worked for a company called I fly indoor skydiving, and we got bought out by a private equity company. And so that gave me in theory, the big payday financial event. And I put it all in different asset classes, mostly the stock market. And then I always knew that I wanted to get involved in real estate. So I started out slow joined a local mentoring program. What I liked about them is they were Texans doing deals in Texas. And that’s where I was. So I felt like, okay, I can see these guys touch them, feel them. And then I started passively investing. And I just slowly but surely kept creeping up how many investments I did based on opportunities. And then, you know, COVID happened. And I woke up in the morning and what there was a day when my net worth and the stock were going down 30%. And I thought, man, there’s got to be a better way to do this. And then as it started to recover, which of course is more than recovered, but I managed to get keep pulling money out. And then to be honest, I was trying to go active earlier. So I would get close to a deal. No, I’m going to need some earnest money, cashing some stuff, only to not invest in the final. And so now I get this money sitting in a bank account going backward, and then a nice deal would pop up in my inbox, I would look at it and say, Okay, so I’m a little out of balance. And eventually, once those passive, you know, come off, then I’ll switch most of that cash over to active because you should always invest in your own deal as well.
Sam Wilson [03:21]
Right? Yeah, absolutely. I love that is unique. The indoor skydiving, that’s one of those big places where they build like the, I don’t know, 10 story buildings, or whatever it is,
Trevor Thompson [03:29]
yeah, the wind. So I started in Orlando, Florida with the original owner. And the cool thing about that is more than 20 years ago, on our very first team meeting, he gave everybody a copy of Rich Dad, Poor Dad. So talk about like kind of telling the future. And he just said you guys need to set up your lives. So you have some sort of passive income do not be job dependent. And then I put that book on the shelf and spent the boat the next 17 years being job-dependent. I did not start investing. I wish I had my advice to anyone out there. Start early, you know, buy real estate and wait, don’t wait to buy real estate. And I definitely would be in a completely different position right now, if I did that. But again, you start where you start. And then it’s just you go from there.
Sam Wilson [04:13]
Yeah, absolutely. So your hunt, you went, you know, you participate in all these passive deals. And then eventually you became an active member of a general partnership. But for that, from what I understand, you kind of backdoored your way into being an active member as a limited partner.
Trevor Thompson [04:30]
Yeah. So what happened was, that was part of my mentorship program. And so that was my first investment. I put some money in a property and I’ll be honest, I didn’t know what I was investing in, right. I had a little bit of education. I was just like, Okay, I’m going to go along. These are the people I’ve served that linked myself to, I’m going to go along, and then you know, it’s about a year, 14 months into it. I said I’m not learning anything. I thought I would learn a little more as a passive investor, and I have other deals that disclose much more Information and you’ll learn a lot more in this one band, they only told you what they had to tell you. But anyway, so I went and saw the mentor and said, Hey, I’ve got some extra time, because of the way my work schedule was I was doing weekend. So I’ve got some days off there anything I can do to help out and learn. And so they said, Okay, well, we’ll make you the asset manager for one of our properties. Very interestingly, the first time I showed up at the property, I went, oh, boy, what did I invest in here? Um, you know, it was told that it was a c plus property, and it was a D, and it had a lot of issues. But anyway, I saw that as a challenge.
And I was at the beginning, assisting their asset manager. So being a bit detailed orientated, I went in there and started looking at stuff and I started finding all these things that were wrong. And I’m like, Well, this can’t be right. So I made this big list, made an appointment with the main sponsor, and said, Listen, we’re not at 92% occupancy, there are this many units that people have skipped, they just haven’t moved them off of the rent roll. So in reality, you know, we’re at 6% occupied, and I know this is a problem because we want to be stabilized and all these things. So then eventually, that asset managers had all they told us to do that. And then everybody, you know, blamed everybody else? Well, at the end of it all, that was the end of that asset manager, oh, there were some other things, two invoices in a drawer. So you’d already done the work, but you didn’t want to pay the bills, because you had to stay in budget? Well, you already spent the money. You know, eventually, you got to pay the bills. And we were on hold. And so I became the full-time asset manager for that property. And we still struggled a little bit. So the GP decided, well, I had to be the property management company, let’s fire them and self manage, but don’t worry, we’ll help you. Well, the will help you was few and far between because he had about nine different assets that he did that too at the same time. So now he had no asset manager fired the property management company and basically tried to appoint at one of his investors in each of his locations, but I learned a ton, I mean, just a ton, we started really taking care of the property, we started making the conversion.
So I started in January of 2020. And then we all know what happened a little later in 2020. And you know, when you’re on a deep value add a project that most of your people are living paycheck to paycheck, barely met the income requirements to get in there, it starts to hurt that and you know, they stopped paying, they started doing different things and took some of them would refuse to sign the rent Relief Program paperwork. And, you know, it’s very interesting. And then I’ll go the relief checks, rent check guide. So this will be great, somebody will come in and pay the rent, that Monday morning, there were 27, big screen TV boxes at the dumpster. So they bought a big screen TV, instead of paying the rent with their rent, you know, if their relief checks. And again, it is that type of workforce housing at the D class. Anyways, it was a real struggle. And then I did that for about 10 months. And then we just had some real expense, all those 10 months cleaning up the property. And then they basically wanted to give it all back up to quickly fill the occupancy so they could sell it to the next person, you know, looking better. And I just refused to do that. So it was sold about a year to a bit later, I fell through in that sale. And unfortunately, we made no money, but we didn’t lose money. And I think if I hadn’t been there for that particular period, we could have definitely lost some money because at least we got it up stabilized. Yeah, man. You can’t ask for better learning.
Sam Wilson [08:31]
That’s one way to look at it. I mean, my gosh, for your first passive investment, that was your first right?
Trevor Thompson [08:37]
Yeah, it was my very first passive investment. And I actually kept track of it because I thought at some point at least, might get paid my mileage 12,780 miles driving from Austin to San Antonio for 10 months. And the end of the day, I just got my money back and a small Thank you, but not much. Because after I left when they did their invested, cause they blamed previous management. It wasn’t named by name, but they were looking for somebody to blame other than themselves, which I learned a lot about. Right.
Sam Wilson [09:06]
Were there any things? Let’s talk about that for a minute. Were there anything that now because now you’ve been in 17 deals are there with their tell-tale signs that would have tipped you off? Or would tip you off now?
Trevor Thompson [09:18]
Yeah, definitely. So when I looked at it, and I actually asked, Could we have a learning session that what happened? They did not want to do it? I said, with the investors. You know, we’re, we’re all part of a mentor program. Let’s at least learn one thing, okay. We’re all big boys and girls, we didn’t make money. We all know there are risks in real estate. Let’s at least make this a better learning opportunity. But they weren’t up to that. But basically, when I look back at it, they underestimated their CAPEX by a substantial amount of money. Substantial, you know, they ran out. I think they misappropriated some of it not like maliciously, so they wanted to rebrand the property. Okay, this was known as a drug-infested gang deck. I mean, this is what this is. lets you know, and so they decided, Oh, if we use the back entrance and spend a bunch of money and fix the back entrance up and rename that as the new street address, people won’t figure it out. But people figured it out. And to be honest, GPS still sent me to the front door. So spending $100,000 fixing up the back entrance versus taking care of plumbing and some of the other issues, it would have been a much better use of resources. They underestimated the increase of property taxes and insurance. So kind of three big things in Texas, you know, so it all those things all added up. And then they were trying to get out of bridge debt. And of course, when you’re not stabilized, going from bridge to bridge is very challenging,
Sam Wilson [10:43]
Right. But were there things now that you would see before you ever invested your money as a passive investor where you’d say, yeah, that this doesn’t smell
Trevor Thompson [10:51]
right. Yeah, I think just the underestimation of those things like now, when I look at investment, I look at the CAPEX. Is it realistic? Can they achieve it with their plan? Do they have enough money? I look at what have they done with property taxes, you know, so they’re going to buy this property, increase the value, but they don’t increase the property taxes. Right, Texas, there’s property taxes are huge. And then of course, insurance, Texas insurance has been going crazy. Now, they could say, Okay, we couldn’t foresee that. That was a few years ago. And maybe, but they you know, and then they just underestimated everything. You know, like how much of $5,000 to turn a unit, it was seven and a half $1,000. Right? Well, you get out of whack pretty quickly, when you get that kind of disproportionate per unit turn.
Sam Wilson [11:36]
Yeah, absolutely. That’s a really interesting point. And for those of you who are listening, yeah, taxes are a big deal. And we’ve certainly walked away from deals just because we’ve known that if we buy it, then it’s going to get reassessed. And depending on the geography get reassessed based upon what we just bought it for. Not every town is that way, but some places are. And then the other thing is the hardening of the insurance market. Yeah, maybe you couldn’t have seen that. You know, we’ve had a lot of guests in the insurance industry come on the show, and they just say, hey, you know, rates may have been the same 16 1718. But worse, the intended 20% increases annually, right now, especially on multifamily insurance. So to your point, if you’re not seeing those things underwritten, then I mean, that money’s got to come from somewhere. And then also, the third Cardinal mistake that I think you bring up, these are golden mistakes is underestimating CAPEX not raising enough for that. I mean, again, unfortunately, not an uncommon thing I’ve heard on this show, which is, hey, if we’ve made a mistake, they fell into those three categories quite times. That’s really interesting. You’ve really done a great job personally, you know, across 17 different assets have diversified. Tell me how you have selected your different asset classes,
Trevor Thompson [12:43]
you know, so part of it was I refer to my investing as earning and learning. So I wanted to learn about different things. So I tried to invest in some different asset classes, some of them fell in my lap. So one of them you know, I cashed in some stocks, that deal was close to close and literally fell through that day. And then I got sent an email from somebody I have a non real estate investment with said, Hey, we need to buy some land, they needed a minimum was exactly what I cashed into to make the thing go. And so I said, Okay, well, let me try this. And basically, it was corporate secured debt to buy a piece of property up in west of Dallas, and you know, 16% interest, they needed my money for a year and I went, Okay, well, this is a much better use of my money, they needed it for a bit longer now. And then, you know, I always wanted to get into retail. So one of the next investments I did was a retail strip center, and it’s very similar to multifamily. So you basically you buy an old dilapidated retail strip center, you basically try to convert the tenant base, put them on what’s called a triple net lease, where the tenants are responsible for all the payments. There was a restaurant that hadn’t paid his rent in a while we knew they were going out. So find a new restaurant tenant, basically rebrand the plaza, and then sell to somebody who doesn’t need the large return. They’re looking for the security of a triple-net lease. Well, great timing, we closed on March 15, 2020. And thank goodness, obviously, Q2 and Q3 and 2020. We didn’t get the Q4 We got a 5% cash on cash, and all 21 We got a 5% cash on cash. So all things considered in the retail space, I feel very fortunate. I’d like to do better. And you know, I think retail is starting to recover.
Trevor Thompson [14:25]
They did manage to take all of the leases and convert them to triple net. So they basically use the COVID event and said okay, we’ll forgive the three months that you were forced to shut down because that was about only shut down in Texas if you resign a new lease. So they got the extended leases, they got the triple net so that was good. Another very interesting one was to buy, again, lots of things happen with COVID, buy an underperforming apartment complex converted to condos, and that’s in Austin. There’s a big housing shortage a lot of people want to try to buy but they can’t necessarily afford it. So they bought this 32 Plex of apartment complexes, fourplex, and eightplexes and started converting them over to condominiums and selling them. And it was a pretty slow start because it was really hard to sell the first four Plex because the rest of the place look pretty ghetto still, but eventually, they started cleaning it up, and they spent some extra money fixing the exterior of the other ones, even though they hadn’t turned the tenants. And again, you have an underperforming asset, and the no eviction moratorium comes in. And so you can’t get those tenants out. Austin was one of the slowest ones to actually go back and allow you to do evictions. And then, of course, once we did, they were backed up on permits at the city. And then of course, the supply chain issue. But at the end of the day, the beautiful thing is that there’s such a housing crisis in Austin, that housing prices have gone insane. And so what was selling for 265,000, they just sold one for 450. Insane, right?
So we’re all gonna be made whole, it’s gonna be fine. But it could have ended quite badly, because again, who expected anything like that to ever happen. And then I did a medical center. And it’s a little different. It’s not like a high return, this was just a 10% pref return no upside. But again, you’re very interested in you’re buying a building, it was missing one payment, they did some bird maintenance, put everybody on a triple net lease. And the crazy thing there is the practice of the doctor and the doctor personally guarantees all the loans. So you want to talk about safe investments, you know, and again, that was a great place for some retirement money, just that 10% return, I was okay with that. And then very interestingly, the group that I joined was mostly the single-family so they did syndication for Single Family Fund. And so they raised about two and a half million dollars in anybody in the single-family business knows your biggest cost is those hard money loans, run out and get a job get a property. Well, now they got two and a half million bucks sitting in a bank so they can move quickly on distress. So hey, I can give you cash today. And their plan was you know, $200,000 ARV three bedroom, two bath, no swimming pools, $200,000, then a bit of a challenge, because obviously, housing’s gone crazy in Texas as well. But on the good side, you know, these assets they bought that had an ARV of 200,000, our sitting in the fund it almost $300,000, and they’ve gone up a third in value. And that also in turn, allows them after the first year to really do something with the rents. And the idea of this fund is quite interesting. They’re going to build it up to a critical mass, get a portfolio loan, pay you back your money, build the portfolio a little bigger, and then sell it to somebody bigger, and in theory, double your money on the other side. So I think that one’s coming along really well.
Sam Wilson [17:47]
That’s fantastic. I love the variety that you have invested in. Have you ever figured out the blended kind of return profile across all? So
Trevor Thompson [17:55]
it’s been challenging to do that, because most of the apartment investments are value add. So you know, even though they have a seven pref you know, everybody was very honest, hey, we’re not going to catch up to 18 months. And so most of them are just starting to get close to catch up. But it you know, blended I’m probably still around 14%. And that’s because I had to that paid nothing but I can still live with 14% blended.
Sam Wilson [18:18]
Right. And I think that’s the beauty of it in the beauty of what we do is that you can achieve, you know, above market returns in a fairly predictable obviously, you’ve got some more stories here that tell us not everything’s predictable, but a fairly predictable manner. I mean, tell the average market investor, hey, you can make 14% of your money and retain the balance of your equity position in the deal is pretty incredible.
Trevor Thompson [18:40]
Yeah. And of course, the big tax difference, right? My very first deal I did that had a cost StG was at the very end of 20. You know, put $50,000 in the deal, got a $46,000 passive loss and happened to be smart enough that hey, I ran that apartment complex for 10 months. I’m now a professional real estate person, even though I collected severance the whole year. I wasn’t working. It was purely severance, I could show the hours. And so even though I didn’t get paid, I did get paid because… I didn’t go to zero like everybody claims. But you know, I went from, you know, mid 30s to 11% effective tax rate that made life a little easier.
Sam Wilson [19:19]
A little bit easier. That’s fantastic. Trevor, thank you for taking the time to come on today. If our listeners want to get in touch with you or learn more about you what is the best way to do that?
Trevor Thompson [19:27]
Yeah, so I’m very active on LinkedIn and Facebook so you can find me at K. Trevor Thompson. I have a website, http://www.niagara-investments.com and then I email ktt@Niagara-Investments.com. So those are the three ways that you can reach me.
Sam Wilson [19:43]
Wonderful, Trevor, thank you for your time today. Certainly it was my pleasure.
Trevor Thompson [19:46]
It’s great to be here.
Sam Wilson [19:47]
Hey, thanks for listening to the How to Scale Commercial Real EstatePodcast if you can do me a favor and subscribe and leave us a review on Apple podcasts, Spotify, Google podcasts, whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show it helps us both attract new listeners as well as rank higher on those directories so appreciate you listening thanks so much and hope to catch you on the next episode.
