Podcast Transcript
Speaker 1:
Welcome to Real Wealth Real Health. The show that empowers you with insight, information and inspiration to achieve your version of financial wellness. Learn how to balance living a full life today with planning for the future. This podcast is brought to you by Alpha Investing, a real estate centric, private capital network that provides exclusive investment opportunities to its members. And now here are your hosts, AdaPia d’Errico and Daniel Cocca.
AdaPia d’Errico:
Hello, everyone. Welcome back to Real Wealth Real Health. Today we are speaking with Reed Goossens. Reed is a young entrepreneurial real estate investor originally from Australia. Who’s had his fair share of ups and downs in diving headlong into real estate investing. Reed began his career with small single family assets and now he manages over a hundred million dollars of multifamily assets in his portfolio. We talk to read about his decision making and thought process as he forayed into real estate entrepreneurship and what has led to his great success in a relatively short amount of time.
AdaPia d’Errico:
His perspective as an immigrant to America has given him invaluable experience in understanding the why of why the USA is the best place to earn returns as a real estate investor. We did record this interview with Reed prior to the worldwide COVID-19 shutdowns, but in any case, this episode highlights just how much the economic environment has changed and still signals that savvy investors have been preparing for quite a while for an eventual downturn. As Reeds insights have been key to his own success, we dive into evaluating market trends and how to shift investor expectations for impending economic contractions. Hi Reed, thank you so much for joining us today.
Reed Goossens:
Hi AdaPia, thanks for having me on the show.
AdaPia d’Errico:
Yeah, it was really fun when we were getting started with the podcast and I thought, who are people from my network, especially this network that I’ve built up over the past few years in the real estate space that I wanted to reach out to. And as I was going through my list, your email came through my inbox about this book that you were launching. And I thought, gosh, I haven’t talked to Reed in years. So here we are and I’m so excited to talk to you about this journey because we met back in like, I want to say 2015, 2016 and a lot has changed in the past four years for all of us in this space. And I’m really excited to hear all about what you’ve been up to and share your knowledge and your wisdom with our listeners.
Reed Goossens:
Well, thank you very much and very flattering introduction, a lot to live up to, right?
AdaPia d’Errico:
Oh no, you will be fine. So then I would love to start with is like, I know you, but let’s hear from you a little bit about who you are, your experience and what our listeners can look forward to hearing from you.
Reed Goossens:
Wow. Okay, big one. Who am I? I think that’s the question we always ask ourselves each and every day. I guess I’m a self loving, down to earth guy who loves surfing and investing in real estate and finding financial freedom. And really, I think the crux of who I am as a person is someone who likes uncertainty, but also fears regret. And my story is that I moved to the United States back in 2012, I quit my job in Australia and we can get into that a little bit, but I’ve always been, I’ve always thought to myself, if I don’t give this a crack or don’t give something a go, I’m going to wake up when I’m 70 years of age and regret it. And I’m in my early 30s now, and I’ve looked back in the last 10 years and I’ve been really proud of what I’ve achieved to date.
Reed Goossens:
And that means the next 10 years, I don’t have to stress as much because I know if left to my own devices clearly I know I’ll figure it out somehow. And that’s really who I am as a person is just understanding that don’t put as much stress on what’s going to happen in the next 10 years, but just look at the doors that are in front of you right now, open them, walk through those doors and let the future figure itself out along the way. So does that answer the question of who I am?
AdaPia d’Errico:
Yeah. I think it’s such a hard question to answer because we’re so nuanced and there’s so much to talk about. One of the reasons why I really wanted you on the show was because you have this deep financial or rather real estate experience. I mean, it’s both financial and real estate. As an entrepreneur, you were doing a 9:00 to 5:00 life. You’ve read a book and you took the action to change your life. It’s not like, oh, this book changed my life, but you read it and you did something about it. And like you said, you’re opening doors going through them, probably closing other doors.
AdaPia d’Errico:
And so what has that looked like for you as an entrepreneur getting into real estate? And obviously everyone can hear your accent, you’re not from America. So you’ve also done this as an expat. So I’d love to just talk a little bit about the professional side, to start with, especially as it relates to the real estate.
Reed Goossens:
Yeah. So the professional side, the bug was planted, you alluded to the Rich Dad Poor Dad, and that really came after a couple of years of traveling abroad. So if I rewind the clock even further, I graduated in 2007 from University of Queensland in Australia as a structural engineer. 2008, went abroad to London to work on the 2012 Olympic games, but in 2008 on infrastructure development. 2009 was in the South of France talking about super yachts, in the green room before we press record here. And then in 2009 is where I met my then girlfriend, now wife, Erica, who is American.
Reed Goossens:
At the end of 2009, I moved back to Australia and that’s when I really realized about, I want someone to pay me to live my life, right? I just enjoyed this incredible two years being abroad, all these adventures, I crossed the Atlantic ocean on a super yacht, had these incredible eyeopening experiences, but I was still working, I ended up being back in a cubicle and I was like, this is not what I signed up for. This is not what I want out of life. And I really felt like that star athlete sitting on the bench and just watching my life go by. And I was in mid 20s, late 20s and I didn’t know what the word entrepreneurship meant, and when I picked up that book, Rich Dad Poor Dad, it sort of ignited the spark within me to say, okay, there’s more here to life. I.e. financial freedom than what I was told, right?
Reed Goossens:
What I was told growing up, you got to go to school, you got to get a job. You got to be in this cubicle, you got to punch the clock. And then at 65 years of age, somehow then you get this golden ticket to living now the rest of your life. And I didn’t really subscribe to that, so the whole idea around the book was just, Rich Dad Poor Dad, it planted a seed and that seed was enough for me to challenge the status quo, which I had been brought up to believe. And so then the next, since 2009, over a decade later, it’s been that quest towards financial freedom, towards figuring it out, towards opening doors and the rest of it. So yeah.
AdaPia d’Errico:
I didn’t realize it was 2009, that’s actually when I also started my own entrepreneurial journey, I was at a hedge fund in Switzerland actually. I was living in Europe at the time and we’re coming off the tail end of the almost a near destruction of the fund with everything that started happening in September of 2008. And for various personal reasons I left the fund and that really started my entrepreneurial path back in 2009 as well. So I didn’t realize that, that was that for you. What made you choose real estate? Was it specifically what was said in the book or were you already kind of familiar with it?
Reed Goossens:
Yeah. From being familiar enough without the fact that I was a structural engineer working on infrastructure projects on some developments in my early career as an engineer, but also my dad had, he was a high school teacher, came from very humble upbringings, nothing fancy, but he had credit and a little nest egg for himself through investing in real estate. And really Australians have been taught over the years, you buy something and hopefully if you double your money or double the value of an asset in 10 years, you’re doing pretty well. Right? So that’s the mindset I’ve come from of slow and steady wins the race and he had created not necessarily financial freedom, but some comfortable living where now he’s at 65 years of age and he doesn’t have any loans on his houses, and he owns them debt-free, which is pretty incredible for a person who had sort of say measly, but not a great income as a high school teacher growing up.
Reed Goossens:
So being really smart with money and then investing in assets was sort of, I could have chosen the stocks and bonds route, but I chose the tangible physical assets because of my ability to build stuff and that sort of engineer in me, but also the fact that I had an upbringing where my dad had invested in a little bit of real estate along the way. So yeah.
AdaPia d’Errico:
And what was the first project you invested in and was that in the US?
Reed Goossens:
Yeah. So the first project, so summarizing the 2009 to moving to the United States was 2009 got home, had the epiphany of like, I need to do more with my life, Rich Dad Poor Dad. Started in educating myself about the benefits of real estate, attending local real estate investment clubs in Australia. Erica moves out to Australia for her master’s degree in 2011, she does that for 12 months and at the end of that, 2011 was like, all right, we’ve come to a fork in the road. Do I want to go and live abroad again, being an expat? And that was a real desire within me, or do I want to stay in Australia and do something in Aussie and just play it safe? And the uncertainty in me wanted to go and throw caution to the wind, let’s give it a crack.
Reed Goossens:
So I quit the job at the end of 2011. Erica and I moved to New York city and I had a tourist visa and I had to get a job pretty quickly, and I had to get a visa pretty quickly because I only had three months to be in the country. Erica on the other hand is an American citizen, so it was a completely different kettle of fish. And yeah, I think within two weeks of being fresh off the boat, I was at the real estate REIAs, real estate investment associations in New York city. And I thought Australia had some pretty awesome networking events, this was, it’s the big apple, it’s networking on steroids. And it’s the fast paced, fast talking Americans coming at me with all this lingo that I wasn’t maybe necessarily, we didn’t use the same lingo because of the different investing climate market in Australia.
Reed Goossens:
So really, I spent the first six months readjusting or recalibrating my mind on how to invest in real estate in the United States, but also realized that the barriers to entry here are so much lower than they are in Australia. And for what Rich Dad Poor Dad said I’ve found these markets within a four hour drive of New York city, I.e. Syracuse and upstate New York where you can buy $50,000 properties. And that just wouldn’t exist in Australia. So I’d saved a little bit of money and my first deal was a $38,000 triplex in Syracuse New York, it was because I could get on the Greyhound bus and travel to and from a market that I could afford. And when I moved here, no one really wanted to lend to me anyway, even that I did have a job was to the fact that I just didn’t have any credit.
Reed Goossens:
I didn’t know what a credit score was when I first moved here, so that was my first deal was just within six months of moving here was about getting the cash flow or cash flow, proceed cash flow, but had a very quick lesson in section eight housing and investing in the slums. So had a drive by shooting at one of my properties, but you shake your head it’s, I wouldn’t have got to where I am today without doing that first deal. And that first deal meant it was my own cash, it was my risk. It was my money. I was willing to put it on the line just because I was sick of having my nose in a book on the subway learning about something, right? It was more getting out and taking action, and the only way I was going to learn, and at that point, AdaPia, I’d been learning since 2009. So it was sort of like over two years, two and a half years of Australian learning and then coming to the United States, I was like, I just needed to get something done.
Reed Goossens:
That was more the reason. But I got the first deal done and that rolled into the second little deal. And then, all like multi-family, little multi-family deals and then look to do some, I did a flip in Philadelphia, which didn’t go great, but it still got it going. And then really got to the end of 2013 and a friend of mine came down from Canada who I actually studied with at the University of Queensland. And I was telling him about my little portfolio of probably less than $200,000 worth of property, but I still wasn’t financially free. And I was boasting to him about what I’m doing and he sort of slapped me in the back and well done, good on ya. And he tells me he’s closes on a 70 unit deal. And I said, “70?” He’s like, “Yeah, 70.” I said, “How the hell did you do that?” And he talked to me about getting a mentor, about raising other people’s money and seller carryback finance and all that sort of stuff. And that was the impetus to get me thinking about, okay, I need to scale this.
Reed Goossens:
And at that sort of, that was the second epiphany in my life, which was the first one was Rich Dad Poor Dad, this was the second conversation over a couple of years. And I kind of had the sense that I was getting to the end of my tether already with three little deals or four little deals under my belt, like the banks weren’t really lending to me that much, because I wasn’t credit worthy. My income wasn’t going up enough to get more loans, so I really needed to change my thought process. And I knew I was getting to the ceiling of my own abilities and I needed someone else on my team to take me to that next level. So the mentor and the coach, like that’s where I went out to try. And I did that and got a coach, someone who I could surround myself with and be able to ride on their coattails of credibility.
Reed Goossens:
At the same time, I started my own podcast called Investing In The US and that was back in early 2014 and really tracking the history of what I was doing, because a lot of international investors were looking at the United States as a favorable what place to invest, but when I looked on iTunes and podcasting, there was no educational platforms talking specifically to the international investor yet I was doing it, figuring out how to close my first little triplex. I didn’t even know what credit score was. I try to make relationships with local banks, LLC startups, EINs, all that sort of stuff. Foreign exchange, getting money out of Australia and into the United States, all that sort of stuff, like loans. How do you get a loan from a “Foreigner?” So that’s when I started the podcast, Investing In The US and that really sort of helps snowball the effect of attracting capital to then invest and co-invest in my mentor’s deals.
Reed Goossens:
And then over a period of three or four years, I was able to break out and do my own deals. And in that same period of time, I was able to transition from structural engineering, into being an owner’s rep for a reputable developer in Long Beach, and building a 500 high end luxury, multi-family apartments. And so knowing that I had to, I didn’t have the green card yet, I could quit and I could go financially free. So I spent many years before five years spinning the plates of trying to get my side hustle going, trying to get the podcast going, trying to keep food on the table and a roof over my head with a day job. But I made the conscious decision that if I had to have a day job, I would transition into a job where I could continue to learn as a real estate, in the real estate business. So yeah.
Daniel Cocca:
That’s awesome. I’m actually really curious about your perspective of investing into the United States before you arrived here, and then what things has turned out to be true? What are some of the realities like for those folks who are not US-based, like what should they expect investing in the United States?
Reed Goossens:
Well, so the expectation, I had no expectation. I thought I was moving here and just going to be an expert for two years and move back to Australia after getting a job. There was no expectation to invest, it was just the fact that I saw the barriers to entry was much lower. So if you look at the international world, globe, Western world, America is very, very unique in terms of it has a really nice balance between appreciating markets, but also cash flowing markets. And the reason is, and I always equate it back to Australia because that’s where I’m from, but you can equate it very similar to England or Europe, Canada, where we in Australia have the same land mass as United States, mainland America, sort of excluding Alaska give or take, but we only have 25 million people.
Reed Goossens:
We can only inhabit 20% of our land, in America you guys have 350 million people I think, you also can inhabit North to South East to West, and you can have these pockets of high appreciation markets. You can also have through the population growth and just population density, these secondary and tertiary markets where it’s a lower barrier to entry. The cost of living is more affordable and that’s where more cashflow exists. You have this really weird balance of cash flow and appreciation, depending on what, it’s like a buffet, it’s like what do you want? Do you want the meat and potatoes or do you want the salmon and the salad? Like you have a bit of everything, but it wasn’t until I moved here and I really started researching that I fully understood the benefits of investing here. Coupled with that also compared to my home country particular on the commercial real estate side, the access to financing was just, you guys have thousands of different arms of financing structures in Australia.
Reed Goossens:
We have four big banks and they control everything. And so having Fannie and Freddie, government backed agency bond debt at 30 years, amateurize with 10 years interest only, fixed rate, like you would not find that in Australia. And I’d be hard pressed to think you’d find it in other Western countries. So this whole mix of capitalism/population/perfect boiling pot, I don’t know if that answers your question, but it does make United States a very unique place to invest, particularly when you’re chasing yield, but you also can get the appreciation from, forced appreciation particularly if investing in commercial real estate. So I hope that answers your question in terms of the perspective.
Daniel Cocca:
Yeah, absolutely. It’s really interesting from my perspective as someone who is born here, thinking about investing in real estate, particularly being an active investor in real estate and the hurdles that I may think exist, but then hearing your perspective about coming to America and how these hurdles seem so much lower than they did in Australia, it’s just an interesting thought.
Reed Goossens:
And don’t get me wrong, I try to tell people, think of Australian commercial real estate and really real estate markets like LA, San Francisco, New York just had a baby, that’s the type of market you have, high barriers to entry, negatively geared, you supporting the mortgage to keep it going, but also having commercial assets, whether in the two and 3% cap rates have been historically two or 3% cap rates, because the demand to live there is so much higher than the supply. And also I forgot to even mention, particularly the multi-family side, multi-family does not exist in Australia because of again the abilities of financing and the way in which the financing structures in Australia, they don’t view … it’s very much a condominium market.
Reed Goossens:
So the local governments get their tax breaks through strata title, so when a developer goes and wants to build a block of apartments, they’re saying, okay, you’ve got to presale 30% or 40% of the deals off the plan before we’ll bring you the construction loan. And so when you’ve already broken up the pie, you can’t really put it back together again, nor would there be a financing vehicle to say, come along and say, well, there’s a 200 unit apartment building, we’re going to value it on this future ROI once you’ve built it. Again, lack of the, wouldn’t say sophistication, just the lack of the different resource streams for commercial financing in Australia versus here in America. So yeah.
AdaPia d’Errico:
I’m really curious for you as you made all of these transitions geographically, like in your life and in your lifestyle, what would you say drives you? Like what was driving you like that deep, deep place beyond, you’ve talked about some of the things, but do you know like really inside of you, what drives you towards where you’ve arrived at even today?
Reed Goossens:
I think, a little bit back to the uncertainty, a little bit back to the not throwing caution to the wind, it runs in our DNA, are conquerors, we live by ourselves all the way down under and we all sound the same, look the same and talk the same. So getting out and exploring the world was probably the first and foremost thing when I first come to the United States is to challenge to live here and make it happen. But back to the other question of like the perspective, I had no idea that I’d start to invest in commercial multi-family when I first moved here, it was again putting one foot in front of the other and not having the shackles of expecting to be somewhere in 10 years time or expecting to have a family and kids and house and picket fence and all that sort of stuff.
Reed Goossens:
But not that, that’s bad, just that it doesn’t drive me as much as where it was about living my life. I want to live my life now and the challenges of moving halfway across the world excited me, that’s really it. And then from there it was like, okay, well, this opportunity popped up bullets, let’s go have a look at that opportunity and then seeing how it has evolved over time. So didn’t really answer the question, but sort of at the point of how I perceive it. Because then I still, even at 33, 34 years of age today, my North star for the last 10 years has been financial freedom. The next 10 years, my North star is going to be something different. And that’s what I’m still struggling to figure out right now, today is when you build companies, when you build entrepreneurship, when you build businesses, what does a North star change as you progress along that, evolve along that life of entrepreneurship. So, yeah.
AdaPia d’Errico:
Yeah. That’s really interesting, you talking about this change in your North star right now, would you say that you’ve achieved this level of financial freedom or stability or this like financial foundation that we talk about right now? And how is that affecting the way that maybe your North star will change?
Reed Goossens:
Yeah. Like the whole social media thing, can you challenge if I look back and it was 10 years ago, I picked up Rich Dad Poor Dad and 10 years later I would have no idea that I’d be sitting here talking to you about the fact that I have 1700 units in my portfolio and I manage $175 million of multi-family real estate. Not to boast, but excuse my language, shit, like that’s nuts. Like those numbers they’re so big, you don’t even fathom them. And I now look at my portfolio and think, when you spend, bought a $46 million deal, it’s like, I did what?
Reed Goossens:
Like you got to stop and really think about it, because sometimes when you’re so fast paced in your growth or just head down blinkers on, let’s go to get this deal done, you sort of got to stop and realize, wow, this is pretty cool. Enjoy the view for a little bit. So back to the North star, yes, my financial goals have been well and exceeded of what I wanted to do, but now I have different challenges, right? I have investors to answer to, I have portfolios to manage and making sure that those portfolios are successful because that is now what I put my brand behind, my name on. So people’s livelihoods and future retirements are reliant upon me. So yeah, my new North star is probably looking something like we want to have successful portfolios that we are proud of and our investors are proud of and a sustainable longterm investment thesis that people want to continue to come back year after year or deal after deal. So, yeah.
AdaPia d’Errico:
Yeah. It’s really telling when you get to that point of like all this success, you didn’t do that. I mean, a lot of it was you, like the by yourself thing, like the lone wolf theory that people love so much, but in your life, you said that that jump that you made was thanks to a mentor and a coach, like who else in the past 10 years has been a really important influence for you in terms of like partners and mentors, coaches, and how do you think about partnership in business and life in general?
Reed Goossens:
Yeah, I think, look, the first mentors I spoke about is my dad, he was not necessarily mentor, but an inspiration in terms of having an upbringing where you back in a curiosity, I think I’m a very curious person by nature. So backing your intuition and knowing that, I came from a household full of like yeah, you want to go give that a go? Go, we’ve got you 100%. So allowing that freedom to wonder, to be curious, to explore, helped me evolve into the person I am today. More on the professional side, yeah, the first mentor that I got, I don’t know if you allow it. He pushed me into what I wanted to be pushed into because I helped him as much as he helped me, but it allowed me to partway with money to take this seriously and give me the approval that I can go off and achieve whatever I wanted to achieve.
Reed Goossens:
So the whole theory of like the world is your oyster sort of that, the world is your oyster, a lot of people say that, but don’t actually do anything about it. I think the taking action part is really what has helped me be that successful, even if it was meant at the cost of other things or the potential of failure in the future, a lot of people would stop at that and go, well, that potential failure is too great, I’m not going to take any action. For my personal self it’s like, well, I’ve weighed up the downfalls. I’m okay with those risks and I’m going to then just move forward.
Reed Goossens:
And so yes, there’s been some very influential people along the way. Don’t get me wrong, there’s been also people that I’ve … I’ve had bad partnerships. I’ve had bad … My first flip deal went terribly. I had a drive by shooting at my first a triplex. Now, that just, it was coincidence, but that would scare people and they were the first two deals, that would scare people to not do it again. Right? Not even get back out of bed and look at real estate, but I knew that you’ve got to break it down into what’s the big picture here. I was like, okay, well, a tenant’s son was the issue with the drive by shooting. The flip deal, we just didn’t have the ARV on the back end and we had a bad GC who stole a bunch of stuff from us, we did everything right up until that point.
Reed Goossens:
Some things just go bad and you have to succumb to that and understand that you can’t beat yourself over the head about it and never not take a next step forward. Yeah, you’re going to be bucked off a few times. You’ve got to dust your knees off and get back on. And I expect there’s going to be more failures in the future, just how you navigate those values and the thought of like, we’re never going to fail is pretty, pretty ludicrous if you ask me. So, yeah.
Daniel Cocca:
It sounds like you started out as a trial by fire type of guy. I think we’d love to hear what are the lessons? I’m sure you’ve learned a ton of lessons, but what are some of the top lessons you’ve learned that maybe we can share with the audience, help them relate to some?
Reed Goossens:
Sure. Look, and it’s not necessarily trial by fire, it was, I’m a very calculated person, but also a risk taker. So for that example of the drive by shooting, for example. Better screening of my tenants, I had a third party property manager. I realized that, okay, if I’m going to be successful in this space, do you think my third party property manager who I had one property with, they’re collecting 7% on a thousand dollars a month is really going to care a lot about the tenant I put into that house? Probably not. I mean, if you’re going to be successful in that space, in that sort of lower socioeconomic space, section 8 housing, I would encourage you to go and buy 10 houses at once. So you have those bad eggs every now and then, you get them out, you sort of more portfolio based.
Reed Goossens:
The general contracting thing is just, by the end of the day, probably, maybe not enough ARV on the back end to know that we had the meat to carry the deal when we had to go and fire the general contractor. And it took longer than expected to get the deal to market. And so that ARV, after repair value, the longer we held it for that more to add into our profits, and I took a bit of a hit of about 20% of my money, but my investors who actually happen to be my dad and my uncle, I made sure that they we’re paid whole and they got their interests that I told them that they’re going to get.
Reed Goossens:
So I learned that when things go bad, they can go bad. You can do everything in your power to make sure that they don’t, but when they do, you got to be big enough and have enough to reach into your own pocket to pay your investors what you said you were going to pay them. So there are a couple of just the very basic level lessons that have been in the early “Failures” or stumbling blocks, in the beginning of the career.
AdaPia d’Errico:
What have you understood now you’re like at this point, like now you’re managing large buildings? Tell us about this Austin building that you closed in, I want to say late 2019.
Reed Goossens:
Yep, it’s September 2019. Yeah. What specifically do you want to know about it?
AdaPia d’Errico:
Well, just tell us, I mean, we go from drive by shooting and a triplex, to it looked like a really beautiful property in Austin. Just tell us a little bit about that experience and what you learned there and to where you were partners there, you raised capital yourself for this specific deal, right?
Reed Goossens:
No, I’m the leading GP.
AdaPia d’Errico:
Okay.
Reed Goossens:
So it’s my deal, it’s my baby. And Doug, this is deal seven, eight of syndication under Reed Goossens and my business partner, Andrew Campbell. So there was three or four deals prior to that, back in 2013, ’14, ’15, that was under co-GP status. The last three years have been all under myself. But it’s a good deal to bring up in terms of how we’ve reacted to the market in terms of offering a structure to our investors that is different to what we historically, that the previous seven deals that we’ve taken out. So previously we’ve been doing like a 70/30 split at a seven or 8% pref, in secondary markets. And I will say, secondary market like San Antonio, right?
Reed Goossens:
Slow and steady wins the race, nothing crazy in terms of economic forecasts, in terms of if it’s going to go up like a hockey stick. We figured out that as deals got harder and thinner to buy, that upfront 7% pref, particularly also the type of investors we go after, the retail investors are sophisticated and are accredited, but some of them might not understand that if you don’t get your pref payment on the first 12 months, they think that the deal’s going bad. So we have to change, if we want to chase better deals, high quality deals in markets which are transitioning like Austin, Texas into really like a coastal city where the barriers to entry for a new product are a lot higher, downtown dirt in Austin, Texas is trading for just nearly as much as downtown Los Angeles, 200 and $300 a square foot.
Reed Goossens:
It takes two years to get planning approvals, so similar type of process here in Los Angeles. And when you buy existing assets yeah, you’re going to pay a bit of a premium for it and thus you’re going to have to … Your upfront cashflow is going to be less. So we transition to what’s a very similar structure to a ground up construction deal where you have the debt and then we have two types of equity. We’ll have a class A type, and a class B type, and Class A gets a 10% pref, but they’re only limited to 25% of the equity and they get none of the backend. Where class B has an accruing 7% pref, but gets 70% of the upside on the backend.
Reed Goossens:
And the reason we transition to that means that you can take 25% of the equity out of the proceeds on the back, it juices the IRR to the class B, but also allowing our investors to sit in a more preferred position if they want that safer position, the capital stack. So it’s a bit of both, it’s the best of both worlds in terms of we can make deals, pencil a little better, in terms of the IRR to the class B investors, but also offers a little bit of cashflow. And it also means that we can cashflow two and a half percent out of the gate, and you can pay that 10% on 25% of the equities, you just do the math if it works out.
Reed Goossens:
So that is a total different shift to our historically 70/30, 7% pref, everyone’s sitting in the same position. Splitting it up allows us to go chase what I think are nice assets, which is exactly the one you spoke about before, and also gets us to react to the market of offering us our investors two options, and really then going nurturing more, a better relationship with our class B investors because they’re the type of investors who will understand longterm growth and going from a big picture point of view, the last 10 years of what we had here in the United States, we’ve seen these great, beautiful returns, but the next 10 years are going to be completely different.
Reed Goossens:
And I think people think we’re, when you tell all of them, I’m going to double your money in seven years or eight years, they think, oh, I was doubling my money in five years only two or three years ago. I was like, well, we’re not in that market anymore. We’re sort of more plateauing out, in my opinion, again, going back to my, where I come from in Australia, where if you double your money in 10 years, you’re doing really, really well where some investors now think today, they just got so used to the last 10 years, since 2009, and they got spoiled and now they’re not willing to adjust to where the market returns are being … risk adjusted market returns.
Reed Goossens:
I.e. like investing in a better town like Austin, Texas compared to San Antonio, Texas, and thus the returns reduce and thus the risk reduces. So having those conversations with those types of investors and pivoting to a different return structure has definitely helped us stay present and stay able to close some deals in 2019 and hopefully in 2020. So, yeah.
Daniel Cocca:
Well, what I thought was interesting was really the part of the conversation about benchmarks, right? And investor perspectives. And I think one of the things, one of the challenges that we have, and that we’ve taken on as an opportunity is trying to just educate investors about where we are in the market cycle, how to look at deals on a risk adjusted basis. And you Reed, you’re out there kind of on the front lines with your podcast. There are a lot of people that are listening to kind of what you say every day, how do you get that message across to folks who are either new to real estate, or even those who have been in it for a while and just the environment today different than it was five years ago?
Reed Goossens:
Well, it comes down back down to investor expectations and what I briefly touched on before. The historical retail investor has experienced in multi-family commercial real estate an X percent return over the last five to six years, that is now changing. And you can … Mobile home parks, self storage, any commercial asset is changing to being thinner. And what does that mean? You have to understand the meaning behind why is it more thin compared to what it was? It’s obviously, there’s a lot more competition in the market, prices are going up. So how do you protect your downside? What is your investment thesis and longterm horizon? Again, a lot of people are trying to get into this mindset of three to five year holds, well, we’re now trying to shift that mindset into more six to 10 year holds and that, you can ride out recessions at that point, making sure you have low-interest fixed rate debt on your product, low leverage.
Reed Goossens:
If you have to you have capex in dollars on hand, maybe you’re raising that from equity. So you’re in control of it rather than being over leveraged and being at the whim of the bank and being underwater very quickly if occupancy increases. So there’s a lot of different conversations we talk about. We also look at the overall market metrics and the different markets we’re investing in. Where is the … We’ve got a new gentleman who just joined our team. He has worked on the Austin Economic Advisory Board and has been on that board since early 2001 where they made a conscious decision in Austin to invest something like a couple of trillion dollars over the next 40 years in Austin’s growth. And where are we in that cycle? And how much more tailwind does that has got to go for that local market of Austin.
Reed Goossens:
Knowing that type of information is really important when you’re trying to sell an investor on someone like, hey, yeah, this is not a 17 or 18% IRR return, this is only a 12 or 13% IRR, but it’s a lower risk because of XYZ because the city is investing into the community, we’ve got all these jobs coming into the community and the demand is not keeping up. So very much looking at it with a different lens and investors, when you sit down and explain that to them, they get it, right? They get the overall picture. The other thing I also talked to investors about is like, this preferred return is just really where you sit in the capital stack.
Reed Goossens:
If you invest a hundred thousand dollars with me, does me paying you 7% a year, seven grand, is that changing your lifestyle drastically, or is the fact that you invest a hundred thousand dollars today in six years time I give you $200,000 back or $250,000 back? That is a better conversation to have rather than the here and the now from the cash flow, which so many of my investors have been so focused on because the last 10 years has been so cash flow driven and is the whole thing of cash flow, cash flow, cash flow, you don’t have it, it’s crap deal even if you don’t. So changing that narrative a little bit has really helped changing the investment structure and really focusing on people who understand the longterm growth, and don’t maybe necessarily need that cashflow today to live off. They can wait two or three years, and then the deal gets going and appreciation happens at the same time. So-
Daniel Cocca:
Sorry, in those types of deals, the ground up deals, the ones that take two to three years to kind of take shape, how do you talk about just these uncertain times we live in right now, this 2020 election, which will inevitably be very polarizing? Like, how does that impact the way you look at these deals? Do you perceive it as a risk? How do you offset it and mitigate it, that sort of thing?
Reed Goossens:
And just so I’m clear, I’m not investing in ground up construction. It’s just more to do with still value, add multi-family, it’s just a little bit thinner on the front end because the cashflow isn’t there. But to your bigger, larger point, yes, those things or I remember we closed on a deal at the end of 2017, and the treasury went nuts when Trump got elected, because the market was so worried about what was going to happen. And we ended up acting hyped to over raise, to adjust for the shift in the 10 year note. So yeah, it’s real. Investor confidence and sentiment is real, and it really affects how we go get financing. It really affects how the market is perceived, trying to mitigate that risk is really important leading up to the election, I think there will be some, not necessarily volatility, but there’ll be some instability.
Reed Goossens:
People are not maybe bringing deals to market or holding off until seeing what happens, in terms of results, whether you’re on the left or the right, I think there is going to … I don’t have a crystal ball. And if I did, we’d been in the wrong business, but in hindsight, you got to keep doing what you know is right for the deal. And the short-term volatility, you’ve got also look at the longterm growth of where this deal is going. And that’s what I think changing the perspective of what investors are seeing right now today, what’s going to happen the next 12 months. What’s going to happen to the deal in the next 10 years, and let’s talk about that. And then we can ride out sort of market influxes or de-fluxes, depending on where we end up going. And undoubtedly we’re long in the tooth, right? So everyone’s, well, it goes just around the corner, it’s just around the corner.
Reed Goossens:
So understanding where you’re investing in, doubling down in my thesis is doubling down when there’s high barriers to entry in the markets, but has a really good longterm tailwind in terms of the economic growth and development investment into a particular market in order to keep that momentum of job growth of attracting businesses and thus attracting increasing rents, over a seven to 10 year hold. So, yeah.
AdaPia d’Errico:
Yeah. It’s funny you say it’s around the corner. I feel like we’ve been saying that for the past three years, when’s it coming? It’s around the corner, it’s about to happen. It’s about to happen and at the same time so are deals still happening and opportunities, and like you said, it’s more widespread. There are so many other opportunities within different markets that just weren’t possible before. So I think it’s a really healthy outlook and approach because we can’t always be sitting in fear, sitting on the sidelines, waiting for either something good or something bad to happen, “Because who’s to say?” It’s just a matter of really understanding, like who you are, what your values are, how you vet anything and your ability to be resilient. And you’re certainly like really, really resilient.
Reed Goossens:
And I’ll add one other thing is that the United States has 400 MSAs, metropolitan statistical areas. Within that MSA there’s a North South East West and within that certain, there’s so much variability and there’s always going to be deals getting done. It’s just about when a market correction occurs or a slowdown occurs, how do you change as an operator to make sure you are weeding out or shaking the tree, the lemon tree, as I like to say, are we going to shake the tree and make lemonade, or we’re making lemon juice and making sure you’re seeing those opportunities come your way and you’re hanging around the hoop long enough to make sure you’re getting those opportunities in order to pounce, because there will be deals that need to get done, financing maybe tighter or in a recession. So do you have other ways of getting deals done across the line, is it through your investor network? Is it through raising out international fund because of the fact that the United States is feeling a bit of a pinch rollout.
Reed Goossens:
That is all possible, and it’s just having the abilities to go off and execute that in those pinch times and knowing that deals can get done a million ways till Sunday, and being creative as much as best as you can, but also seeing the right deals for that given time in the market cycle. So, yeah.
AdaPia d’Errico:
Yeah, that’s great. Well, let’s talk about lemonade. Let’s talk about like the fruits of your labor and something that like, we’re really passionate about, which is this idea of living your life today, living a full life today, still planning for the future, how that ties into your personal values. Like where are you at today? Like, what do you love the most about your life today that you’ve been able to really structure and design this life? Tell us a little bit about that, about yourself.
Reed Goossens:
I think the big thing for me in particular, my business partner is like, we are a life by design company. We always joke that if we need HR, we’re done growing with employees. Like I don’t want 20,000 units, I think a healthy one deal a quarter, you get to a point where you’re buying four deals a year, you’re selling four deals a year, and that might change in terms of asset class over time. But really understanding what that growth looks like, not being too far out over your skis, having a sustainable business that can sustain three or four employees. And so, having five to 6,000 units with five employees, I think is pretty sustainable, which still leads me to … that’s where we’re trajecting towards. Still leads me to have the life that I go back to Australia two or three times a year, because I want to hang out with my family back there, making sure that I, when I open my laptop, I can work. As long as I’ve got internet, I can work.
Reed Goossens:
Having the systems in place in order for things to keep going and keep chugging forward without me being there, understanding where I am as a solo entrepreneur/entrepreneur where I’m the bottleneck in the business in relieving that bottleneck with a different system is really where I’m shifting to right now, in order to have a sustainable business for the longterm. In terms of the overall perspective of what I do on a daily basis in my life, in the last 12 months, I went to the Philippines, I finally got to my honeymoon. I went to Japan for the Rugby World Cup, I went over to London for a couple of weeks, and I was back. I went back to Australia three times, so like it can happen and I love travel. And so it’s a matter of just making it happen. You can be anywhere in the world in 24 hours and living life now, not waiting to … The whole Rugby World Cup, I’ve always wanted to go. It was in Japan and I was like, screw it, I’m going.
Reed Goossens:
Like I’m just going to make it happen. Andrew, my business buddy, he’ll figure it out. The property manager, I’m sure they’ve got it for a week and a half that I’m gone. So it’s about being intentional with what I do and how I go and get fulfillment out of life. And right now it’s trouble, I’m sure it’s going to shift in the next couple of years to family. So we just bought a house actually the other day, so things are starting to change and I know that when I do probably have children my mind shift might change a little bit, but for right now, really enjoying it, very grateful to live the life I do and get to fly around the country doing deals, talking to you types of folks and just really living it to the fullest. So, yeah.
AdaPia d’Errico:
Wow. That’s amazing. That is a lot of long distance travel, I hope you’re using your points for your upgrades on those international flights. I know I went to Australia years and years and years ago, it was like 24 hours to get there.
Reed Goossens:
That’s why I live in LA, it’s one shot, it’s one direct flight and you’re done.
AdaPia d’Errico:
It’s true.
Reed Goossens:
So, yeah.
AdaPia d’Errico:
That’s true. And congratulations on buying a house.
Reed Goossens:
Thank you.
AdaPia d’Errico:
I’m glad you’ve still found something in this market.
Reed Goossens:
Well, a primary residence and your wife’s involved, it’s a little bit different, right? You’re trying to take the investor hat off.
AdaPia d’Errico:
Yeah. Oh, yes. Yeah, exactly. Well Reed, it’s been so wonderful hearing all about your past 10 years. It sounds like a 30 year career that you’ve actually made happen in 10 years. And in that short period of time, you’ve done so much and you’re living this life. You’re doing your travel, you’re preparing for a family, just like a couple of last things. Like, is there any sort of insight or little bits of wisdom that you would have for people specifically around this living for today and how important that is? Just, do you have any kind of insight?
Reed Goossens:
Yeah. It’s look, insights is, I’ve been there where you’re grinding so freaking hard. You’re trying to have a day job, you’re trying to get a side hustle going. You’re trying to keep a family or a relationship going. You’re trying to have time for yourself, it’s tough. Right? I’ve been there, it’s not easy. But what you have to understand is little things like journaling, little things like writing down the victories that you have done in the last 12 months, looking and enjoying the view from where you are right now. And it might not be the mountain top that you want to scale to, but ultimately the end of the journey, it’s not the peak, it’s enjoying it along the way.
Reed Goossens:
And I think, taking that time to enjoy the process is easier said than done. It’s a learned skill, a lot of meditation, a lot of journaling, a lot of being a little bit more self-aware. And then reprioritizing things in life as well. Like understanding that this table of what you support your life on it has different pillars. We spoke a little bit before we pressed record, there’s the business side and how does that fit into your life? And it’s probably the main pillar, but there’s also your health. There’s also your family and I’ve been guilty of reprioritizing those in different orders over the last 10 years and I’ve had to re-come and take stock of that life is short. Life is precious. Unfortunately, I had some loss recently that has made me readjust the way I think, because it’s not all about sprinting right now. It is a marathon, it will take some time and that’s okay.
Reed Goossens:
And I guess that is the big piece of advice, that you’re on your own journey, whoever’s listening to this right now, and it will take time. It might take five years, it might take six months, it might take 10 years. That’s okay, it’s your journey. And being okay with that is probably the hardest thing that we all have to come to grasp cross with being an entrepreneur on this road to success, whatever that looks like in life. And it’s about your perspective. So just taking a breath and making sure that you don’t beat yourself to a pulp to try and achieve that success along the way. So, yeah.
AdaPia d’Errico:
Oh, that’s beautiful. Thank you. That’s such great advice. In this world, that’s so plagued by FOMO, fear of missing out and this like very glamorous idea that real estate, or I’m sorry, that entrepreneurship has a road to riches and it’s not necessarily a road to riches, but it’s a road rich of experience.
Reed Goossens:
100%, yes.
AdaPia d’Errico:
So those are really beautiful insights. So I just want to say thank you again so much for spending some time with us today and congratulations on all your successes. And I’m excited to see everything that’s in store for you in 2020 and beyond.
Reed Goossens:
Thank you very much, guys. I’m really honored to come on the show and just share a little bit of an insight. And hopefully it’s inspired one or two people, but you’re doing a great job and I can’t wait to see the success that you guys are going to have in the next couple of years. So, yeah.
Daniel Cocca:
Yeah. Reed, awesome story, man. I was writing down some of the things that you were talking about, and as I’m looking back at it now, I’m like, wow. Like I cannot believe you did all of that in 10 years, and so it sounds like you’ve been grinding, man. That’s all awesome.
Reed Goossens:
Thank you. And don’t … We’re talking about the pretty stuff here, and it’s what these platforms are for. It’s been a lot of fricking hard work and it’s come at sacrifices. We didn’t even get into those sacrifices yet, but understand that it is. Be willing to roll up the sleeves and get dirt under your nails, I think is the takeaway.
Daniel Cocca:
Yeah, love it. There’s something behind me, it’s a long story to what it is, but the theme of it is stay hungry, stay foolish. And that’s like the … I know a lot of people talk about it because Steve Jobs mentioned it in his commencement speech at Stanford, but like great quote to live by and sounds like you’re doing exactly that.
Reed Goossens:
Yep, exactly right. Couldn’t have said it better myself, I love that quote.
AdaPia d’Errico:
All right. And before I forget, as we wrap up, Reed, can you tell people about your books and your sites and I’ll put everything in the show notes, of course, for people to find you, but tell us the titles of your books and the website or the social media channels that you most use.
Reed Goossens:
Yeah. So there’s two books, Investing In The US: The Ultimate Guide to US Real Estate, it’s all the best episodes from my podcast in sort of a step by step guide. If anyone is thinking about getting started in real estate, it’s really sort of that introduction to real estate with my story interwoven. And the second book is 10,000 Miles to the American Dream. It’s me and seven other Aussie’s. We started a mastermind group about three or four years ago, and we all had made the pilgrimage across the pond and we’ve all created successful real estate businesses here in the United States. And each one of us has a chapter.
Reed Goossens:
And so that’s the second book that’s come out that you can all find that on my website, which is reedgoossens.com. And if anyone is coming through LA and they want to say good day, or meet up for a beer or coffee, you can always hit me up. Just give me a little bit of full warning at [email protected]. I always love meeting up with other folks who just want to talk shop. So, yeah,
AdaPia d’Errico:
That’s awesome. All right, thanks again, Reed. It was great to have you on the show.
Reed Goossens:
Thank you guys.
AdaPia d’Errico:
Thanks for tuning in to Real Wealth Real Health. We hope that you’ve enjoyed today’s episode and found it both informative and insightful. We welcome all your questions and your feedback about today’s episode, and especially we welcome your questions about specific topics that you would like us to cover. So shoot us an email at [email protected]. And if you have a moment, we really appreciate ratings and reviews as it helps us grow our online community and our interactions with you. And we’ll also be linking to a number of relevant articles on topics that we might have touched on during our conversations. Some of them are broad, some of them are technical, but we’re always aiming to provide information that helps you better understand the mechanics of building this healthy financial foundation, especially if you’re looking to do this with real estate.
