SPEAKER_00 0:02

All right, everyone, here we go. Hold on. We are going to talk about when is it okay to stop? Whoa.

SPEAKER_01 0:11

Whoa. Whoa. It's not it's not just nonstop 10x growth every single year.

SPEAKER_00 0:16

No, no, in fact it's not.

SPEAKER_01 0:17

It is not if you're growing, you're dying.

SPEAKER_00 0:20

If you're not growing, you're dying.

SPEAKER_01 0:22

Oh, there was some sort of Freudian slip there.

SPEAKER_00 0:26

Yeah. So our entire journey from 2011 until 2023 was doubling, doubling, doubling, doubling. It's easier to double when you're smaller. We continued to double as we, you know, got into the hundreds of units and um, you know, dozens of employees. We kept going, going, going. But it is not wise to grow simply for the sake of growing, to grow because it's sexy or egotistical or feels good. It is absolutely okay to look at what's happening in your life, in the market, and say, now is not the time to grow. And that came for us in 2023. In 2022, the country was plagued with record inflation in the post-pandemic era, largely because a lot of the stimulus that went out during the pandemic, you know, just to keep the economy moving. And as a result of that, the Federal Reserve raised interest rates faster than ever before in the history of the Federal Reserve. So we had generally prepared for that. You know, we certainly, you know, make no illusion that we had predicted that the fastest rise in interest rates in the history of the Federal Reserve would happen. But we did have some sense during the years of the pandemic when interest rates were very, very, very low that they wouldn't stay that low forever. And so we made the really tough choice to get fixed rate debt on the entirety of our portfolio. And that allowed us to sleep really well at night as interest rates were going up because our mortgage payments were locked in. We had five or greater years on our loans at that fixed rate. And so while many of our peers in the industry were struggling with their mortgage payments going up as a result of interest rates going up and blowing past their rate caps and needing to have capital calls or capital loss, we did really well through those years because we had fixed rate debt. But nevertheless, it became very, very, very challenging to grow. And we also decided that it was unwise to continue to grow, that there was just too much uncertainty in the market with inflation and interest rates. And so we made the decision in 2023 to completely halt all acquisitions. That might sound simple, might sound like a simple statement there, but it was not, right? Because if you've been listening to these episodes, you know that at our core, you know, who we are as people, we are always thinking about the next level, the next way to add value, the new frontier, something else that we've never done before, that we want to explore and master. And all of a sudden in 2023, we said, you know what? The risk far outweighs the reward right now. So even though it maybe doesn't feel as good to take a pause, it's the right thing to do. And that's what we did in 2023.

SPEAKER_01 3:29

We definitely see this, I don't know, cult of growth or something like that, where sometimes you feel like you need to be broadcasting that things are just uh sunshine and rainbows at all times. And you know, the last few years have been the toughest time in multifamily real estate in half a century, not since the energy crisis and 16% inflation rates and so forth. And there's there's seasons to all these things. So there's times of explosive growth. You gotta make, hey, well, the sun shines and and you need to be a student of the seasons and recognize those seasons. And there's other times when when growth does not make sense. And in in 2023, uh, you know, and and as we got towards the end of 2022, you know, we had uh fund three uh on a like a wait list at one point. Gosh, we got up to$30 million or something crazy on the wait list for fund three. And we never we never opened it for funding. If we had fees you know loaded into our fund and stuff, we would have had a huge incentive to like open the fund and and make some acquisitions at a time when that would have been a poor decision. And so I'm so glad that we built an incentive structure that that kept all of our incentives aligned with our investors. And instead of spending all those resources growing, uh, we we spent all those resources focusing on operations, focusing on the city.

SPEAKER_00 4:44

Oh my gosh, operations.

SPEAKER_01 4:46

It's a critical concept.

SPEAKER_00 4:47

Is operations everything?

SPEAKER_01 4:48

Operations everything, baby. Yeah, we brought uh lots of things in-house. We brought uh lawn and snow in-house, uh buying tons of you know, uh tractors and trucks and power brooms and stuff, and and today we probably save about 80% of our you know typical vended cost on lawn and snow. And that's not something where you can just snap your fingers and spin it up. You have to go make some big you know financial moves, you have to hire people, you have to train people, you have to work on insurance. You don't just you know buy a push mower and say, go get them tiger. We experimented with short-term rentals, and we had some vacant units because there was a lot of supply delivery kind of everywhere, and there was you know uh challenges with rent growth. So we we ran an experiment doing short-term rentals. And it's during these times of slower growth when you hopefully have bandwidth to spare. You have bandwidth to spare. In general, you know, kind of a framework that we use is you should always have enough uh operational capacity in your organization to be either growing or to be doing process improvement. If you only have enough staff, enough, enough money, enough budget to kind of hold things together, you are in a hopelessly unsustainable place. You can't afford if uh you know someone suddenly leaves the company or this huge opportunity comes along to grow. And so in you know, in that 2023, there's about an 18-month time frame where we had zero acquisitions. Uh, we went all in on vertical integration. We actually grew our staff uh over 50% that year. We brought uh all of our remaining cleaning in-house. We hired an entire you know full-time construction team. We built out supply chains, which was a huge uh concept. Like that wasn't even a concept that you thought about in our industry until the pandemic universe. So, you know, where what mill is our flooring created in, and how can we like get in touch with that mill and figure out where their underlying materials come from and how reliable is their supply chain? All of our LVP flooring today comes from a mill in in Georgia that has you know onshore uh supply chains. So we can always get our LVP flooring and we buy it by the truckload and put together a great win-win deal on that. These are all things that were just absolutely monster focuses for us in 2023. And for us, it was a a little strange. It was a little strange not to grow, but it was it was joyful to be able to do something different, to focus on driving yield to our existing portfolio, to you know, building moats that uh you know protected us from risk and uh do just doing everything we could to lean into the art of our business and and running our business.

SPEAKER_00 7:19

There's so few things in life or business that are just absolute 100% truths. And that's something that I'll see as a coach is someone might, you know, just to give like a really simple example, someone might see, you know, maybe my tri trajectory and they're you know thinking about maybe their own real estate portfolio or their private practice or launching a business or something, and they'll say, like, well, I I should always be growing. And I'm like, well, well, well, hold on. You need to have wisdom. You do need to think about some general algorithms in life, some rules, some fundamental truths. Fundamental truths does not mean that it's a universal truth and that it applies to all situations at all times. That's where we have to lean into wisdom. That's where we have to lean into discernment, lead into journaling, meditation, prayer, reflection. And just like we had to make a big decision in our own hearts to leap forward with fund one and to do so in a way that was so outside of market norms, we had to make that big decision to halt growth in 2023 at a time when kind of everyone, I think, expected that we would continue to grow. We had so much investor demand. We had conditioned our employees that we were, you know, always acquiring something every couple of months. We had conditioned our own selves for the the 12 years prior to that, that that was just kind of who we are. And we had to instead really hone in our identity as no, no, no, we are people who have successful investments in a successful business. And that does not necessarily mean growing simply for the sake of growing. It means having wisdom and discernment. So, where's a place in your life where it's okay to slow down? It's okay to stop. Maybe you go back and you listen to the episode just before this one and you think about how can you improve operations in that area of your life. So it's a different type of growing, right? There's kind of linear or exponential growth, and then there's also strengthening. And when I look back at 2023, you know, I think like if we were a kid, you know, maybe we weren't necessarily getting taller that year, but we were getting so much stronger. And you keep those strength gains, and then they lead to the next growth spurt. So it's okay to slow down, it's okay to stop. It's okay to have wisdom and discernment and to say there's something in your personal life or your personal growth trajectory or the local market or the broader market, or just a sense of intuition that you feel and slow down or stop intentionally, not from a place of fear, not from a place of limiting beliefs, not from a place of I'm not good enough for the next level of growth or that's impossible for me. None of that stuff from a place of strength and certainty and inner wisdom and a plan for what you are going to do with that time. Rest is intentional. Rest is an active activity, right? We we maybe think of rest as, you know, like Nick and I could have said, like, oh, we're just gonna go on like a year-long vacation and, you know, just kind of check out of the business. And instead, we said, no, no, we're gonna, we're gonna keep coming into the office every single day, working with our team. But instead of thinking about acquisitions, we're going to be thinking about how do we improve everything that we already have? How do we drive up rents, drive down expenses, strengthen our team, build our culture, build ourselves as leaders, and use this rest period for permanent good. Hopefully that resonates with you, whether it's in your personal life, your real estate portfolio, your business life, if you're an entrepreneur. Pausing is okay. Rest is okay. Stopping is okay. It is not always, always, always a story of growth. I sincerely hope that you've enjoyed all of the episodes that we've had so far as we're sharing this, you know, very fast-paced growth trajectory that we'd been on and the lessons that we've learned. And I hope you've benefited so much from taking those lessons and thinking about how they apply to your own life. And then this episode is a bit of a turn in the story. And I hope this lesson is just as valuable for you as the others.

SPEAKER_01 11:44

Another thing that's really important to talk about is that we certainly were projecting to our investors, to our staff, that it was unlikely we'd be making any uh acquisitions, you know, in in the near future. But we kept looking at deals. The deals were so just hopelessly afar from what would work. You know, there was a time there when we were contemplating like you know 9% interest rates on deals where the year before it was like you know 3%. It was a pretty extreme spread. And it wasn't even just that interest rates had gone up, it's that lenders had pulled back so much that uh it was almost impossible to loan. I remember there was a s there was a single day in 2023 where I met with three different bankers and and you know, we spent a lot of time meeting with bankers and building those relationships. And usually we're meeting with those bankers to get a loan and talk about getting a loan in the future. And none of those bankers wanted to sell us alone. In fact, uh they all wanted to get deposits because they were all desperate for deposits. And one of them said, Well, we're no longer in the lending business. In fact, you know, he used to be a commercial loan officer, was a commercial loan officer for a decade. He's like, I am now a commercial deposit officer. I'm like, I've never heard of that job before. He's like, that's right, they just made it up so that I didn't get fired, and I really need deposits, so I don't get fired. Can you please give me some deposits? And we're like, Well, I guess we're not getting a loan anytime soon. But if we had just kind of stopped being in the market, if we had just completely disengaged, if you know, from a place of of scarcity, of fear, we we wouldn't have the these kind of zany, salient, critical data points for us to have very, very memorable meetings we had that year. We kept looking at deals, and you know, our offer price would be literally 50% of asking price because the sellers they were in a pickle, they were upside down, their expectations have not been tempered by market conditions, and it'd be easy to get discouraged, it'd be easy to stop looking. But it's only when you look for opportunities that you find opportunities. So you can have uh quiescent periods, you can have uh periods where it's it's a it's an active rest. I'm I'm about to go deadlift at the gym here right after we get done recording this, so I'm actually thinking about that right now and how it's so critical to take a rest after doing you know heavy, heavy lifting like that. Uh, but you can always be improving, you can always be looking for those opportunities, and and most of our best opportunities that we've ever pursued, in terms of like buying an apartment building or or anything, any of the business or personal opportunities, they are they are always serendipity of a kind. I'm a person of faith. I think my path is guided, and I just need to stay open to those opportunities. I need to, I need to just show up, and uh God of the universe will take care of that. I I just I have a moral imperative to stay in the arena. And it was during that time looking at those deals where we, you know, we slowly came to the conclusion that we're just gonna have to change the way we thought about deals. We're gonna have to look at changing um maybe how we structure deals or how we underwrote deals, and and uh and we had to go through all those repetitions of looking at deals that had no chance to work to get to the the place where we had crystal clarity on what a deal which could work would look like. So, you know, a lot of times people will mistake activity for outcome and they'll be ferociously busy but accomplishing nothing. And there are other times I feel like where people can make the opposite mistake. And, you know, during that kind of quiescent period for us, maybe it looked like we weren't doing anything. Maybe it looked like we were resting on our laurels uh as being, you know, one of these few groups that are not having capital calls and not losing capital and stuff and and and doing okay despite incredible headwinds. But no, we were we were uh ferociously curious. We kept showing up. And so the moment that we sensed the seasons had changed and that first opportunity hit our radar that was just a can't miss opportunity, and interest rates were finally moving in the right direction and seller expectations were being tempered. I feel like we stepped back into the market at the absolute perfect time when we got uh Georgetown and Uptown apartments at just phenomenal purchase prices, and uh and those deals have been have been just rock star deals because uh we we never gave up. We just knew that it wasn't the right time. And whatever it is in your life where maybe, maybe it's not the right time, that's okay. There's nothing wrong with that. There's no judgment, there's no uh, you know, men make plans and God laughs. Uh maybe that's just a delay, not a denial. Maybe uh maybe there's an opportunity for you to learn, to grow, to build your operational capacity so that you're ready when the opportunity is right. And wherever you're at on your journey, let's say you're, I don't know, you're launching a private practice and like your your patient roster just isn't growing as fast as you'd like it to be. Well, maybe you need to focus on that core capability. And when you when you focus on that core capability, you will one day in the near future experience explosive growth. And then you'll be prepared for whatever that next great leap will be for your journey, your entrepreneurship journey, your your journey in scaling your life, whatever that looks like.

SPEAKER_00 16:54

That's another episode of the real estate real life podcast. I'm Elaine, joined by my wonderful husband, Nick. And we hope you got a tremendous amount of value out of this episode, and it gives you a different way of thinking than the episodes that came before it. Like, subscribe, share with a friend, and check out the next episode.