Do your job the best way that you can to improve people’s quality of life. In this episode, Sam Wilson talks with AJ Shepard who is the co-owner of Uptown Properties. He is a licensed property manager, contractor based in Oregon, active investor, and indicator of multifamily apartments in the Portland area. He shares his journey through the real estate business. As most people go through, he started relatively small by having his first house bought from his dad. From fixing one to two houses a year with his brother to starting their own property management company, they eventually expanded their business and now hold different businesses related to properties and financing. Together, we can consider them as veterans in their line of work and have provided us life lessons along the way.
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Listen to the podcast here:
Live and Learn: A Journey In The Real Estate Industry With AJ Shepard
AJ Shepard is the Co-Owner of Uptown Properties. He is also a licensed property manager and contractor in Oregon who started investing in real estate many years ago. He is an active investor and syndicator of multifamily apartments in the Portland area. AJ, welcome to the show.
Thank you for having me. I appreciate it.
Where are you based out of?
I’m out of Portland, Oregon.
I got three questions for you. They’re the same questions I ask everybody who comes on the show. Can you tell us, where did you start? Where are you now and how did you get there?
It all started back in 2007. I was getting out of college. My dad had been a real estate investor. He had always told us to buy houses and create passive income. When I got out of college, I made my way to Portland, Oregon. I bought my first house from my dad and I still own it. He had a renter back out on a deal and it became available. I was looking at the time. I had a couple of contracts fall out and this one seemed pretty good so I got into it. That’s where I started.
My brother and I have several companies here in Portland, Oregon associated with real estate, contracting, syndication and property management. We are vertically integrated. We are actively looking and buying apartment complexes and adding them to the portfolio to manage. How did we get from there to here? We started off with 1 or 2 houses a year. We would buy and fix them up. It was about a few years after I had bought my first house. We got up to that point where we were like, “Why don’t we start a property management company.” We started to get some additional income and help qualify for more financing.
We started a property management and contracting company in 2011. We then opened up brokerage services to sell and buy real estate for other people in 2017 or 2018. We had purchased an eightplex ourselves, renovated it and came into that a-ha moment of commercial financing. Once you start getting into lending that is over $1 million, the financing rates become a lot better. You’re not limited by the number of loans that you can get. The deal is underwritten as opposed to the person that’s buying it. It is underwritten like your cashflow is being underwritten but it’s mostly the deal. That commercial financing was the a-ha moment of, “We should do bigger deals.”
We have done four syndications since that point. We mocked up that eight-unit as though it was syndication for us so that we could present to investors and people to be like, “If we were going to do something, it would look like this. Is that something that you would be interested in?” Having that talking piece is what gave us that next step to get into syndication.
If you’re doing your homework correctly and it looks like it’s going to be a good deal, hitting singles and doubles when you first start out is more important than hitting a grand slam.
That’s a lot of moving pieces. I love the high-level rundown of how your business has evolved. It’s one of those things where you see a finished product or at least the version of the finished product nowadays. You go, “That’s cool,” but you don’t see all the intermediate steps that it took someone to get there. I was having breakfast with a gentleman and he goes, “We spent the better part of many years at the bottom of that channel slugging our way out. It wasn’t until the last few years that we start to have a meteoric rise in our business.” It’s interesting to hear those developments. You’re doing single-family and you got into some eightplexes. You did a property management company and opened a brokerage. When you say commercial financing, did you open a financing company as well?
No. That was just us procuring financing. It was the threshold of going from residential mortgages to commercial mortgages and commercial lending. I wouldn’t say the heavens opened up and the sun came down, but it was certainly some different light that we experienced, which we were very happy about.
It’s amazing that getting a $10 million loan is easier than a $700,000 loan.
The worst loans to get are the 5 or 6-units that are under $1.4 million. If the principal amount is less than $1 million, it is the hardest thing to find. The residential guys can’t touch it because it’s not four or less units. The big banks are like, “That’s not worth my time.” It’s the missing middle.
I can commiserate with that statement. I’ve had a project that falls in that $1.8 million range. We’re getting it figured out, but what a nightmare it has been. I’m like, “I’m never doing this again. There’s going to be another zero at the end of this or a couple of more before I ever touch something this small again.” Talk to us about why you have gone to the commercial side of things outside of lending. You’ve got a property management company. You are vertically integrated. You can buy a property at will and things are going along. Why the switch?
We still do the 1 to 4-units. One cool thing is we’ve partnered with some of our brokers. They’re running the projects and we’re acting as the knowledge base and financers on them. We still do those types of units but my brother and I focus our time on the larger units because it comes with bigger sums of money. It’s more doors at a time and there are advantages of the economy of scale. It’s worth our time more to work on those than it is the smaller stuff. We also want to see our company and employees come up and build their own wealth and work towards doing what we do.
That’s a missing link in the real estate space, especially if you’re just an affiliate broker. Usually, you’re not out there doing the investing. How are you educating and bringing up your brokers in that sense?
Most of them come on doing a leasing agent job or performing some work within the property management company. It’s a great experience to see the ins and outs of the down and dirty investing that needs to take place. It’s not fun kicking bad tenants out, getting stuff ready for renovation, and dealing with contractors. Getting that experience and getting paid for it is beneficial for them. After they’ve done that for a little bit, we will go through and buy a fourplex. They will do the renovation and manage it.
We’ve done that with about 4 or 5 people. It has been great for us and I would assume that they would say it was great for them as well. They have the assurance that we’ve done this before. We know what we’re doing and they’re not going to lose their shorts. More often than not, that comes out significantly better than everyone thinks.
What have been some of the keys to your growth? Handling all these different companies is a lot to manage. How have you done that in a way that makes sense without taking on too much at once?
It is definitely getting good at delegating. Getting people to work with you, partner with you and work for you. There’s no way that I could do it all by myself. My brother and I have a great relationship, which is awesome. We have about 25 employees. One of our little secrets is we have hired a ton of assistance from overseas. We use virtual assistants and utilize technology a lot more than some of the older guys or other companies that I know of.
Delegating is certainly important. One of the things that is an older school of thought is developing an entire training manual. I’m hearing that is going by the wayside because no one’s going to take the time to read a training manual. How have you gotten around that?
We are on video-recording software here with Zoom. Instead of doing manuals, we do videos. We will share a screen on this, talk through what we’re doing, and then we’re able to send that over to our VAs. They are able to refer to it over and over again if they should need to. We also use some automation software instead of a how-to manual or even a written checklist. What it does is it has the checklist programmed in so it creates a task list. This is much like a CRM. Every day, they come in and their task list is populated because of what someone else has done, and then they go through and keep doing those tasks.
Do you mind sharing with our readers the resource that you use to create those tasks and make sure that that stays front of mind?
It’s specific to the property management field. It’s called LeadSimple. Other people have used Trello, Asana, Process Street or some other technologies that do that. HubSpot is pretty expensive so if you can afford that then great. That’s the process flow and process management within the business that you can use. LeadSimple has been great for us. They’re newer at it but I’ve used them for our business development for years and it made sense to move our operations into that.
Thanks for taking the time to share some of the insights into your business. Let’s talk a little about where you invest. Are you strictly in the Portland area?
We are. We stay in a segment of the Portland area. We try to stay in the Southwest and surrounding cities. Portland is a metro area of about 800,000 or 900,000 people. It has multiple cities surrounding it, such as Tualatin, Tigard, Beaverton, Hillsboro, Forest Grove, Vancouver, Washington and Gresham. We try to stay away from North and East and stay in the South and West. We’re keeping it close to our office.
Investing allows us to sharpen the pencil on our management, prices and rents. Knowing that niche area well has been beneficial for us. We might be able to pay a little bit more than the next guy just because we know exactly what everything is going to cost and what revenues we could get. We feel like we’re super competitive in this market.
The biggest grand slam that you’re going to hit is getting that foot in the door.
Most people have heard about Portland, Oregon as the first state to pass rent control. We have a lot of laws that are very confusing. More often than not, you’re going to hear larger investors be like, “I don’t want to go to Oregon. That sounds too complicated.” What it has done is that has driven out some of the markets. There is less competition because it’s more convoluted and complex.
How have you found a way to navigate that?
We’ve been in this business for many years, day in and day out and a full-time job. We are plugged into networks. We have Rental Housing Alliance, Multifamily Northwest and the National Association of Residential Property Managers. It is the management that sets us apart from the rest. We are familiar with the laws. We know all the lawyers here in town that practice landlord law. When you’ve been in this business for that long, you create those relationships. Seeking out a new market to create those types of relationships as soon as possible will be quite beneficial.
It is interesting that you say that. It would be a natural consequence. It does drive out the competition because you get guys like me that hear the negative news and I go, “Why would you invest in Portland?”
Why even look there?
Meanwhile, in the background, you’re clapping your hands going, “You keep thinking that.” That’s hysterical. I know you said to get to know lawyers, attorneys, and find those people if you’re entering a new market. What’s a good way to do that?
I am not familiar with investing out of state. We have focused on this area but I know that NARPM has chapters all over. There is your local real estate agency and finding out who’s on those boards and if there are forms in the states. Most states will have standard forms and standard leases for property management. Finding out what attorney writes those forms is a good way to find out who’s in the business.
A lot of attorneys are mostly in general practice and try to do everything. It’s important to try to find the ones that practice in the landlord-tenant law. There is a service here called Landlord Solutions and they do mass evictions. They’ve got a streamlined process, and pretty much all the property management companies use that service. It’s not open to non-professionals.
The other thing you might think about too is getting a professional license in that state like a broker’s license or property management license. It’s good information and it’s going to be state-specific. In the grand scheme of things, it’s a drop in the bucket for price. The one in Oregon is $1,000. It’s not that much money for the knowledge and specific education that you’ll get within that area.
I’ve never thought about looking up who writes those forms because you’re right, I do have my license here in Tennessee and I don’t even think it was $1,000. It was an online 90-hour course. It took me 35 hours to do it online and maybe $750. I was like, “This is not rocket science.” Also, your ongoing fees do add up. It’s still inconsequential. That’s a good point. I never thought about who writes those forms.
I know that there are attorneys here because they’re always changing. They have to stay in business somehow so they’re always changing the forms every 3 or 4 months like, “There’s a new updated version of these forms,” but who’s writing that? Find those people and reach out to them. That’s brilliant. Let’s shift gears here a little and go back to the syndication side of things. What is that process been like for you? I would imagine that you’ve already got a nice pool of investors that you work alongside of. What’s it been like growing that business and how do you see it moving forward?
Growing that business has been great. We’ve been connecting with brokers here in the area. That has been important for deal flow. We have had some investors from our property management business. It has been connecting with people on BiggerPockets and doing podcasts like this. We run our own podcast, Westside Investors Network, getting out and finding those people that are interested in investing in real estate.
We find that people who already have a little bit of experience with real estate are much more likely to invest than those people that have no experience. They’re not out there seeking to figure out what to do with their money. Growing the business has been great. We’re still new. Our first project kicked off in 2020 right before the pandemic. It went swimmingly.
We made one big mistake and learned from it. We bought the property with hard money. It was nine units, about $1.2 million or $1.3 million. We went and go refinance it and it had only been six months. For the new agency debt, we didn’t find out until we were well into the process that they would only finance loan-to-cost as opposed to loan-to-value.
That limited our ability to get good financing. It appraised for $1.8 million when we were done. We only got a new loan for $1.35 million or $1.4 million, which was a little disappointing, when we could have gotten more. We needed to wait that full year before refinancing, which we would have gladly paid a little extra interest for six more months and gotten a larger chunk back.
It was the pandemic, we learned our lesson. It was one of those things. As we made the jump from residential mortgages to commercial mortgages, we knew the residential stuff inside and out and we still do. We were still figuring out all the ins and outs and the ways to tweak the commercial mortgages. That comes with time and doing more deals.
Were you able to get all of your capital that you had put in the deal back out or did you put more in it, then you were able to get back out?
We weren’t able to get all of it back out. We were only able to return 20% of our investors’ money back to them on refinance. Whereas had we been able to do loan-to-value, we would have gotten 60% to 70% back.
You live and learn.
The cashflow is going to be fine for the next few years. It’s going to be a 10% or 11% instead of if we had financed the whole thing, it would have been back down to 5% or 6%. There are pluses and minuses behind it. It’s not the end of the world but it’s one of those things like, “Had I known that, waiting for another six months would have been a lot better.”
It was too late in the process to put it on pause and wait.
We had spent the money for the appraisal, phase one and all the origination fees. We were deep into the process.
It didn’t make any sense at that point. When you review the last several years of your business, what are some things you feel you have done right that other people can emulate?
People who already have a little bit of experience with real estate are much more likely to invest than people who have no experience.
It’s leveraging property. We started buying properties, doing the value-add and refinancing. Refinancing is key. Make sure that the property is spick and span, the landscape is done and the outside exterior looks good. When that appraiser comes, hand them all the comps that you think are worthy of being a comp. Some of that financing stuff like the determination of a value is so subjective from the appraiser’s opinion. Being able to make sure that you give them the best light possible for your property is good.
When you are able to bring that capital back out of a property and then go into the next one, the velocity of your money increases a ton. I would say that it’s being able to figure out what sort of financing is going to be the best, making sure that you’re able to follow through with it, and then keep your money working as much as possible.
That’s interesting that you say that because I had a property. It’s the office I work out of. I did the same thing and I was blown away with what the appraiser came back with. It was great and very in my favor. I’m like, “What in the world? How did you come up with that? I’m all good. I’m fine with that. It’s better than arguing the other way.” It is interesting how subjective it is because I looked at it and go, “That’s fairly subject.”
When we were first starting out, it was the 6th or 7th property. We were trying to get financing for it and the appraisal came back at $550,000. The loan fell through. The bank was like, “That seems too high.” We went through another broker and another appraisal came in at $250,000. It was a huge difference. We were blown away at how these appraisals were done and how subjective they are. We kicked that one, went to another broker and ended up getting somewhere in the middle like $375,000 or $380,000 on that project. We were blown away that they can be $200,000 or $300,000 apart within a couple of months of each other.
Your point there of bringing comps to that appraiser, I’ve never heard of that.
We always print out comps of what we think it’s close to and hand them those pieces of paper. You’re not supposed to have any direct communication other than the questions that they ask. If we have that stuff available, it can’t hurt. They can either take it or not.
A comp is a comp. You’re not telling them anything. It is simply, “Here are some other properties and what they sold for. Do whatever you want with it. Throw it in the trash.” That’s interesting. I would have thought that would tend to make an appraiser frustrated or be like, “I don’t like you. I’m going to give you a bad appraisal.”
I think everyone is just trying to do their job. They want to get it done as quickly as possible, get onto the next one and make money. You can help them out with a little bit of work and they’re like, “I might as well.”
The return on time in the appraisal business has gone down significantly. I talked to plenty of appraisers and they’re like, “Many years ago, we were doing great. Now, it’s twice the work for half the pay.” Maybe you’re not going to make them mad but help them out a little bit. Before we jump into the final four questions, are there any parting thoughts or last pieces of advice you’d love to share with our readers?
Sometimes, it’s tough to get started to make that initial leap. If you’re doing your homework correctly and it looks like it’s going to be a good deal, hitting singles and doubles when you first start out is more important than hitting a grand slam. You have to get your foot in the door somewhere, get in there and start out. The biggest grand slam that you’re going to hit is getting that foot in the door.
The final four questions. If I gave you the $20,000 to invest in real estate with no previous real estate investing experience, what would you do with it and why?
I would find a partner that knows real estate and has good credit. I’d say, “Let’s partner on some fourplexes.” I’m going to move into one of the units and then after a year, move out. We will have it rented out and it will cashflow. We will refinance it, and then we will go do it again.
Question number two is this. If you could help our readers avoid one mistake in real estate, what would it be and how would you avoid it?
If there’s one mistake that I had, it’s not having a written contract with a contractor or something in writing. In verbal communication, one person can recognize something or not. If you are having someone do work for you, make sure you have it written down as explicitly as possible so both people are on the same page now and in the future.
That is a lesson that sounds like it was learned the hard way. Question number three. When it comes to investing in the world, what is one thing you’re doing to make the world a better place?
Every time that we go into a unit and fix it up, the quality of the unit is better off for the next person. It might be a little bit more rent but ultimately, we’re improving the quality of life for a large number of people. I firmly believe that. I also believe that the employees and people that are working with me, I am trained to help them generate as much wealth as possible. I feel like that is a blessing too.
They’re lucky to have you. This is the last question for you. If our readers want to get in touch with you, what is the best way to do that?
My email address is AJ@UptownPM.com. I’m happy to answer any questions. You can find me on BiggerPockets. Please listen to our podcast Westside Investors Network or WIN for short. UptownSyndication.com and UptownProperties.com. We did start a virtual assistance business called Offsite Professionals. If you’re interested in getting an off-site professional, check it out at OffsiteProfessionals.com.
AJ, thank you so much. I do appreciate it.
Thank you.
Important Links:
- Uptown Properties
- Westside Investors Network
- Rental Housing Alliance
- Multifamily Northwest
- National Association of Residential Property Managers
- Landlord Solutions
- BiggerPockets – AJ Shepard
- AJ@UptownPM.com
- UptownSyndication.com
- OffsiteProfessionals.com
- LeadSimple
- Trello
- Asana
- Process Street
- HubSpot
- https://www.LinkedIn.com/in/aj-shepard-uptownproperties/
- https://Twitter.com/WIN_pdx
- https://www.Facebook.com/WestsideInvestorsNetwork/?ref=pages_you_manage
- https://www.Instagram.com/westsideinvestorsnetwork/
About AJ Shepard
AJ Shepard is the co-owner of Uptown Properties. He is also a licensed property manager and contractor in Oregon who started investing in real estate more than ten years ago. AJ is an active investor and syndicator of multi-family apartments in the Portland area.
