Welcome back to another episode of Unstoppable Real Estate Investing Wealth and today you are in for a real treat as we are joined by Adam Stern.
Adam Stern has transacted on more Single-Family Rental Portfolios than any other single professional in the SFR industry. He has built a firm presence in the institutional Single-Family Rental industry since its emergence in 2010. Over the past decade, he has made a career listing and selling existing rental property portfolios to and for some of the largest institutional investors in the space as well as newly emerging private equity groups.
Adam has over a decade of real estate experience and before launching Strata SFR, he was the president and co-founder of an online Single-Family Rental Property marketplace, OwnAmerica, which was sold in 2019.
Episode Key Moments:
[00:04:38] That's the first thing I do. I figure out where the buyers are and kind of what they're looking to buy. And then what I do is I look for portfolios or assets that fit the buy box of a big swath of those buyers so that I can offer my clients. Or if I was an investor, if you did that, you would know that you had an exit or that you had multiple exit options.
[00:04:56] And that's kind of how I started and I would suggest anyone do this. The way I look at it is when I find a portfolio and my average portfolio size is about 30 to 40 properties. We look at the market first. It makes sure that age, the market we have buyers for, but also that it's fundamentally sound. It has all the drivers like economics population growth.
[00:09:29] That's really for a broker. That's a really comfortable place to be because. We've wholesaled land before. And when you wholesale any deal, the assumption is you're trying to maximize your price. So there's a cutoff and there's a different way of dealing with buyers when you're a wholesaler versus when you're a broker.
[00:09:46] And it's just easier being a broker, especially on SFR portfolio deals.
[00:12:00] Adam: So on SFR portfolios, since we are beholden to our sellers to get them the best price, we can't bind them as principles. That idea doesn't work with SFR portfolios. So on the bill for rent side though, it works out just fine, because if anyone knows anything about build for rent, and it all starts with the land.
[00:12:18] And a lot of times we find land deals that aren't developed, they need something done, either zoning or a site plan or permits being pulled. To make the land more valuable. And sometimes we found a really good deal. We'll tell them, Hey, we're not going to broker this. Well, we'd like to act as a principle in offering on those deals.
[00:19:05] It just, my view of the marketplace is it's a lot easier to find deals if you know, what the hell you're looking for. So I always start with the buy-side. I always start with demand side first.
Thank you all for listening and I will see you on the next episode.
When you are ready head on over to https://billyalvaro.com or go grab your tools to help you at https://billyssecrets.com
[00:00:00] Billy: Welcome to episode 48 unstoppable REI wealth. I'm your host, Billy Alvaro today. I'm interviewing Adam Stern fellow New Yorker transplanted down in North Carolina. The dude has a very unique business. Never interviewed somebody like him before I thought initially he was buying and holding onto single family rental portfolios.
[00:00:19] When I started researching him and understanding what he actually did come to find that this dude has a process, a very unique way to analyze. 75, a hundred, 150 single family rental portfolio units quickly in a matter of hours, understand what that package is worth. And then what he does, he turns around and he sells those packages over to institutional investors and he's making a pretty penny doing it.
[00:00:46] He's a bright dude, a fast talker like me in New York who makes things happen. And the guy is definitely going to. You're going to enjoy this episode, meet Adam Stern.
[00:00:58] Welcome to Unstoppable Real Estate Investing Wealth. My name is Billy Alvaro, AKA the Unstoppable BA former billion dollar mortgage banker gone bankrupt turn professional real estate fester where each week you'll learn the tools, strategies, systems, and secrets myself and other highly successful real estate investing entrepreneurs use to start, grow and scale their businesses, creating massive profits and how you can. And we'll teach you how to put those profits to work. So you no longer have to get ready to finally experience financial freedom and generational wealth.
[00:01:35] Now let's get started.
[00:01:38] What's going on, everybody. Welcome back to the episode of unstoppable REI wealth. I'm your host, Billy Alvaro. And as you know, this show is all about getting you to learn how to start grow and scale. And I do that by interviewing experts in the field. And today I'm bringing on Adam Stern and Adam, so unique individual.
[00:01:56] He is going to teach you, show you. I'm going to pick his brain on how to not only do single family, small rental portfolios, but larger portfolios as well nationally, Adam, welcome to the show.
[00:02:06] Adam: Billy. How you doing today?
[00:02:08] Billy: Do a well man do well. You're a handsome bastard.
[00:02:10] Adam: I'm telling ya. I thought I was until I started looking at you.
[00:02:13] And now I got ground to makeup for sure.
[00:02:17] Billy: New York has get this attitude. Right. I love it. Do me a favor, bro. Give me like, give the audience a quick five, 10 minutes of your background. What do you actually do? Cause I thought you were a buy and hold single family rental guy, but after speaking to you prior,
[00:02:33] Adam: Yeah. So I'm an odd duck. I had been in the institutional single family rental space for the last 11 years. That space is the space. The industry that popped up around 2008, where wall street funds started raising money in wall street to buy foreclosures and turn them into rentals. Right. So I previously launched a website called OneAmerica.
[00:02:53] That was basically a website where people could bring their portfolio spreadsheets going to instant evaluation, instant pricing analysis. Then allow me to collect a lot of portfolios from all over the United States. And I built the client base of those institutional investors that I sold portfolios to.
[00:03:06] So I ended up kind of hurting the position in a very small emerging industry as the portfolio guy. And I sold that business in 2018 and I've launched strata because all my clients were like, Hey Adam, keep bringing us SFR portfolios. We love it. We want this new thing called bill for rent. And we want you to help us source those deals and package them and structure them.
[00:03:24] And I launched strata in 2020 as the SFR portfolio and build for rent, brokerage. And that's kind of my background as the high level.
[00:03:32] Billy: Got it. Love it. So I want to go into the two-step process, right? So first you said you had the one company you sold where you would take in portfolios of loans of single family rental portfolios, and do a quick analysis.
[00:03:43] So my question to you is this I'm in the rental space, I'm in a fix and flip space, the wholesale space, devlopment. I've had small packages come across my desk and people like, look, I got a 75 small package, 150 small package.
[00:03:56] Adam: I can't, as a real estate investor, look at how do I analyze a package that comes across my desk?
[00:04:02] Billy: Like I'm used to doing one by one. How do you go about analyzing a package of 75 or 150 single family rental portfolios?
[00:04:10] Adam: Yes. So my viewpoint is like I was starting, I'm a broker, right? I'm a, I'm a guy that adds value in the middle. So my start with serving my buyer base to understand where they want to buy what they want to buy and how they buy.
[00:04:22] So like we've got three dozen institutional investors that raised wall street, money, buy portfolios and managed properties who got twice or three times that amount, that, that, or mid cap investors. And we've got thousands of people that are like individual investors. So I focused on the institutional and fund investors.
[00:04:38] That's the first thing I do. I figure out where the buyers are and kind of what they're looking to buy. And then what I do is I look for portfolios or assets that fit the buy box of a big swath of those buyers so that I can offer my clients. Or if I was an investor, if you did that, you would know that you had an exit or that you had multiple exit options.
[00:04:56] And that's kind of how I started and I would suggest anyone do this. The way I look at it is when I find a portfolio and my average portfolio size is about 30 to 40 properties. We look at the market first. It makes sure that age, the market we have buyers for, but also that it's fundamentally sound. It has all the drivers like economics population growth.
[00:05:15] Places that were things that people would want as renters as much as they would as buyers. Right. So I've got a really defined target box. You know, I worked from Raleigh down in Jacksonville, Florida, over to Nashville and that's kinda my triangle. So when I find assets that fit my buyer basis, kind of gushing out of that complicated of a process.
[00:05:36] It goes like this first thing we do is we find out by using data, what market value, what retail value is for the properties, because I have yet to meet an investor that will pay a dollar over market value to of how good the cap rate is. Right? So high watermark is a retail value. We use data to do that.
[00:05:51] The next thing we do, because we can't see the properties and we're not gonna go visit 30, 40, 50 properties. It's trying to figure out the condition. And yet by essentially pulling data on what the market rents are, right. What the rents would be. If a house was fixed up to the level of where most other rentals that are fetching high rents are.
[00:06:10] And then we compare it to the actual rents that the portfolio is throwing off. So we compare the Asher rents to the market rents. Then you basically analyze the Delta or the difference between. Those two numbers. Our assumption that we make is the bigger the Delta the worst shape the properties in cause obviously you're not getting as good a rents.
[00:06:28] It's probably because the property is not as nice. So then what we do with that Delta is we look at condition scores. So we, we use, appraisal Institute's condition rating scale from C1 to C6 C1, being a new construction property, C6 being a total gut rehab. And then based on the condition score, get this, we assign a cap X rate per square foot.
[00:06:50] This is intelligence that we gathered by knowing how much cap X would be required to bring a property to market rents. And then it's a simple calculation retail value minus cap X equals fair market value or the value of the property and current condition. And then what we do is we simply analyzed at that price using standard proform expense assumptions, like standard vacancies.
[00:07:13] Management rate and maintenance rate insurance rate, actual taxes to figure out a cap rate. So that, and this is the important part we got to say, we've got to be on par with our buyers. When we talk about cap rate, our cap rate assumptions, and our Capra calculations have to match theirs. Like I'll be telling someone it's a six cap when they think it's a forecast and no one will believe me or listen to me or return my calls.
[00:07:33] So from front to back, that's kind of the process
[00:07:36] Billy: That is that's insane. It sounds like it's old fully automated.. The way you guys are running this through the engines,
[00:07:41] Adam: trying to automate as much as we can, but pulling data is still a manual process. Doing everything on the spreadsheet it's calculated, but all the inputs more or less after we pull the data, it's all manually input into a spreadsheet.
[00:07:53] Billy: Got it. So I heard you say initially that you do, and it's really, for the big boys, you're not really dealing. Single investors that want to buy, read the portfolios
[00:08:02] Adam: the way we go search for our portfolios, we're searching for a portfolio that we can sell to the institutional investors or the fund investors.
[00:08:08] Whenever we find a deal to be an inevitably uncover smaller deals, like we find five property portfolios, 10 property portfolios that institutions really don't want to spend the time on. So really what we do is we have a buyer lists and campaigns that go out when a deal is too small, it kind of brings to the.
[00:08:26] We put it on our disposition list and we send it out to all of our medium sizes, small size investors. And I'm about 18 months into this business. And I haven't grown well enough to be able to accommodate smaller investors. So like rough, right now we're focusing on larger deals with larger investors.
[00:08:41] But as I grow, I scale from me in an office with a shingle hung on the. So right now I've got 11 people under my umbrella. So as we start scaling up over the next months and years, they'll become more possible.
[00:08:53] Billy: So it's amazing on how you're basically, you're like a large wholesaler for single rental portfolios.
[00:09:00] That's you're a mega wholeseller
[00:09:01] Adam: not a broker we don't wholesale at all. I want to make a distinction. I don't mind wholesalers. I don't think that it's a bad model or that it's anything. We just don't decide not to wholesale because. Position that we earn with our buyers is that of a broker that if someone that is basically working for a fee and we're never going to stay in between a deal by maximizing our profit people always know the percentage we're making, which means they know that we're working to get our seller the best price.
[00:09:29] That's really for a broker. That's a really comfortable place to be because. We've wholesaled land before. And when you wholesale any deal, the assumption is you're trying to maximize your price. So there's a cutoff and there's a different way of dealing with buyers when you're a wholesaler versus when you're a broker.
[00:09:46] And it's just easier being a broker, especially on SFR portfolio deals.
[00:09:49] Billy: So with the brokerage, are you licensed nationally? Like how does that work if you're a licensed national broker?
[00:09:55] Adam: We're licensed in North Carolina. These are not re the retail home is when they're not being sold to retail buyers. So we have all the correct licensing and we partner with brokers in markets that we're not licensed in.
[00:10:06] And we do broker to broker referral fees when appropriate. Right? So the rules around this are really, really strict in terms of like having to have licenses and we adhere to all those.
[00:10:17] Billy: Where do you see the company over the course of the next three to five years?
[00:10:20] Adam: So we've got a interesting kind of model here where all the people that are on my team are part of one team.
[00:10:26] You know, we got A-list side of the house, guys that only go out and find SFR portfolios. We've got guys that only go out and buy or find built for rent deals. And we're going to buy side of the house, which is essentially me. And we've got a higher someone. Soon to deal with getting those assets and then finding a disposition for them in the course of a business.
[00:10:44] So I want to grow that to, you know, this could be a 20, $30 million business, and I don't think it's going to be unlikely that we get there in the next call it three to five years. So I want to build, I want to stable Jake and I want to build this as a really high powered real estate team, like a brokerage team, as opposed to a brokerage.
[00:11:01] With multiple brokers. So that's the one side. And as my guys find portfolios and as they find build for rent projects, the rule is if the deal is awesome, then we can act as a principal on those deals. And when they have enough money to invest, their requirement is they bring it to the house. So we could partner with them to buy those deals, process them and make a profit.
[00:11:22] And if we can't do it as a company, they have to go around to the other team members and offer them the opportunity to partner on them with it, if they need the money. So, where I see this going is, you know, maybe growing this to 20 people, everyone having real estate investments, either SFR portfolios or land deals or girlfriend deals going on.
[00:11:39] And being able to have everyone invest their own money, their own commission dollars into deals to make a profit and having us all have a really good time doing it. So that's, that's really coming out with it.
[00:11:48] Billy: That's the bottom line. Right. Let's make some money to have fun doing it. Exactly. Right. So with that model, you're going to be buying and holding, or are you going to be taken down these portfolios and then reselling, like what would the model look like.
[00:12:00] Adam: So on SFR portfolios, since we are beholden to our sellers to get them the best price, we can't bind them as principles. That idea doesn't work with SFR portfolios. So on the bill for rent side though, it works out just fine, because if anyone knows anything about build for rent, and it all starts with the land.
[00:12:18] And a lot of times we find land deals that aren't developed, they need something done, either zoning or a site plan or permits being pulled. To make the land more valuable. And sometimes we found a really good deal. We'll tell them, Hey, we're not going to broker this. Well, we'd like to act as a principle in offering on those deals.
[00:12:35] We've done one so far, just a couple months ago, bought the land, put under contract for X, spinning Y on entitlement, and then we're selling it for Z and that's spread between, the middle part and selling it. That's a big number when you got. So I would expect all my guys to learn this really fast.
[00:12:53] It's not a hard concept. It's complicated, but not complex, a lot of moving parts. So I expect every one of my team to make money doing that. And then when they find going out there and finding an SFR portfolio on their own outside of the company, because it will have the knowledge brokering deals. I don't mind them calling people as a principal, as independent principal.
[00:13:12] That is not part of strata SFR, because that's not nothing wrong with that. You know, if you're calling them as an investor and not part of a brokerage company, that's a pretty safe place to be.
[00:13:21] Billy: So have you, have you ever thought about, or do you offer services for smaller investors that have rental portfolios.
[00:13:29] I have portfolios that are being pushed across my desk. I'm honestly not looking at them. I'm not analyzing because I don't have the expertise. I could look at a small multi-family package and analyze it. Cause I have the spreadsheets I have the information put to do. Like I said earlier, before we came on here.
[00:13:44] To analyze a 30 or 50 or 75 unit single family rental portfolio for a guy like me. I'm like, it will take me two weeks to try to analyze this.
[00:13:54] Adam: Yeah. It takes us three hours. Right? So most of my sellers are guys like you were probably guys, people, men and women in your audience. Most of my sellers are private investors.
[00:14:06] Right, we tend to focus on private investors that own. 10 to 150 properties. That's still, most of them are still non-institutional non-funded sellers. And that's a big part of the service we offer. How do we go about doing it? Is we find these people and say, Hey, we've got dozens of funds that we know will compete for your portfolio.
[00:14:24] Send it over, let us analyze it. We'll give you the analysis because you know, it's a good thing to know. How much you can sell your entire portfolio for and how it would be viewed from an institutional investor wanting to buy your portfolio. That's a big part of what we do. We analyze dozens and dozens of portfolios every week.
[00:14:42] Only a small percentage of those ever ended up going through this dispo channel and getting sold because most people say, yeah, this is great. Thanks. I'll keep enjoying my cashflow. And we're like, no problem. We'll put in our nutrition. We'll email you once a month until you decide that, you know, you want to swing back.
[00:14:55] So yeah, absolutely. We work with a lot of small and private event.
[00:14:58] Billy: I love it. I love it, man. That's really good information. So on your, uh, your whole, like, let's switch over now. You said you land deals. So is that primarily, that's going to be your focus moving forward. You're going to be acquiring land.
[00:15:10] Packaging it and try to do the whole building to rent.
[00:15:13] Adam: Yeah. So, so to know it's always going to be pat, my business is always gonna be SFR portfolio is half of it's always going to be built for rent. And I'll talk a little bit about build for rent. People hear the term, they don't really understand what it is.
[00:15:24] So like if you think about the idea of build to rent, it's when you construct new properties for the sole purpose of them being for the specific purpose of being a rental properties. Right. And since they're new construction properties, there's a lot of different ways. I deal together. If you think about it, like in a linear fashion, you know, the easiest way to acquire new construction homes to hold is rentals is to buy finished.
[00:15:46] So you talked to a home builder or someone that owns new construction homes, and you say I'm going to buy all your new construction homes in this subdivision. Generally girlfriend projects are bought in entire subdivisions. There are some where you can buy that the last few units of an already built subdivision, but what institutional guys are doing is they're buying entire subsidies.
[00:16:05] That's the easiest way to do it. It's the most expensive and least profitable way to do it. Line finished homes from builders. A lot of times builders don't want to sell you an entire subdivision or even the last finished homes because the real estate market it's blazing hot right now. So what I do is I go upstream and I compete with the home builders for finished lots.
[00:16:24] And I go to the lot owner and I say, Hey, I've got a buyer. That'll buy your finished lots. The whole subdivision will take them down all at once. Which many times national builders or regional builders won't do, but they come down in stages and I'll say, well, buy all your lots at once. And, um, I really should lock it out.
[00:16:39] And then what I do is I knock on the builder's door that said, no, I won't sell you a subdivision. And I say, I got a nice fat fee building contract that could offer you, how would you like to build 30, 40, 50 homes for me? And they're like, absolutely no problem. And that gives me leverage to go back to him and say, Hey, you're welcome for the fee build.
[00:16:56] Give me your next bill for end product. Give me your next whole sub-division. And I'll keep bringing a fee bill projects as long as you're a good builder. A lot of times since the rural is so hot, lot owners don't want to sell you lots or they don't have any lots. So I even went further upstream to look for landowners that have what's called entitled land.
[00:17:14] Entitled land is essentially a raw dirt that has a plan attached to it, of what you could build and what your approved to build. So a lot of times I'll take that deal and I'll knock on the door of my land developer, who didn't have lots to sell me. And I'll say, how much can you develop this land for, give me a price and then I'll bring it to the builder and say, Hey, how much can you build these homes for?
[00:17:32] And then I'll kind of tie it up with a nice, neat bow, all three land developer builder. And I'll say, hold on, everyone. I'll be back in a week. And I go to my institutional investors and say, Hey, I got a deal for you. Buy the land, develop it, build the homes, blah, blah, blah, or I'll say, buy the lots, build the homes, or I'll say buy finished homes.
[00:17:51] And it all comes down to a cap rate at the end of the day. Right? What yield does the buyer need in order to make it makes sense for them as a new construction building project and that's bill for.
[00:18:00] Billy: Front to back. I mean, it's ingenious, you're creating your own market, right? You don't want out there and you're figuring out who all the players are, who your end buyer is.
[00:18:07] And then you go one upstream, like you said, packing this whole freaking thing up. In a bow, handing them a complete package with a cap.
[00:18:14] Adam: And that's kind of like a big subject that I'm very passionate about. Like when I do work, where I live is this place called the off market as opposed to the on market.
[00:18:22] Yep. And the reason why I got exist in this space called the off market is because there's no ubiquitous marketplace for SFR portfolios. They don't fit on the MLS as portfolios. And there's certainly not a place that you can kind of package and sell specifically bill for end projects. So the different.
[00:18:41] In the way I look at the market versus like a wholesaler that leveraged the MLS to sell their properties or a commercial broker that leverages like 10 X or LoopNet or CoStar to sell their properties is I let my relationships guide me. Right. And that's what the auto market soul. You know, operating as an off-market broker is all about making the market before you actually find the product or find the product and then making the market.
[00:19:05] It just, my view of the marketplace is it's a lot easier to find deals if you know, what the hell you're looking for. So I always start with the buy-side. I always start with demand side first.
[00:19:12] Billy: It's smart. I mean, it's like reverse wholesaling, right? You find out what your buyers want. In a specific market and then you go mark for those properties search for those properties off markets, you get yourself a good deal.
[00:19:22] And you're just making the spread for just putting two people together.
[00:19:25] Adam: And that's what smart wholesalers do. I've seen wholesalers do the opposite way, where they pick an area and they mark it and then they figure out if they can find buyers for it. And it's like, it's always easier to find the buyer first because you know, you have a disposition method. .
[00:19:37] Billy: It's all about man. I mean, that's the name of the game and you have to know how to require, but if you don't know how to liquidate and sell on the backend yeah.
[00:19:44] Adam: Yeah, otherwise you're just finding properties and then they sit there, you know, who doesn't do anyone any get?
[00:19:50] Billy: So if we had people, listeners who wanted their rental portfolios reviewed, are you doing this nationally?
[00:19:55] I keep. Cause in the beginning you said you focusing on a small area that you're personally looking at, but you'll, it's at a national level.
[00:20:02] Adam: We're not doing nationally. We can do a nationally, but you know, we focus on the Southeast United States. So call it from. Raleigh. Sometimes we do Virginia so-called Richmond, Virginia, all the way down to like the middle coast of Florida, all the way across past Tampa, all the way out to Nashville.
[00:20:19] That's our triangle. So like, that's really our focus because that's where we have the buyers.
[00:20:24] Billy: That's your body has got it sick. If people want to get in touch with you and they want to start having you review their portfolio in those areas where they do, how do they reach it?
[00:20:31] Adam: Go to stratasfr.com.
[00:20:33] That's it. That's it you'll learn. So strata SFR, S T R a T a S F r.com. You can learn everything you need on that website explains what we do. Let you kind of connect with us and. Yeah, fill out a form. Believe me. One of my sales guys is going to call you within two, three hours.
[00:20:51] Billy: Well, listen, brother. And if they want to get in touch with you social media with.
[00:20:55] Adam: Yep. I'm on LinkedIn. We've got an Instagram page. We've got a Facebook page. I have a podcast called welcome to the off market with Adam Stern. You can find that on all the podcast platforms. I won't name them, but you know, they're out there. So if you can't find them either, I'm not doing something right.
[00:21:11] Or if you're not doing something. Right.
[00:21:12] Billy: So look for that search on Google guys.
[00:21:15] Adam: Exactly. Right.
[00:21:16] Billy: Adam, appreciate your time, bro. Very interesting conversation,
[00:21:19] Adam: Billy loved it, man.
[00:21:21] Billy: Thank you, bro. Thank you so much for listening to today's episode of unstoppable real estate investing wealth. My mission is to give you my listeners, the blueprint for success inside the secrets for starting growing and scaling your real estate investing business.
[00:21:37] You could experience and live unstoppable lifestyle. I've been simple for you to catapult yourself to succeed. Go to Billys secrets.com @billyssecrets.com. There you will find every single tool tip trick strategies, system, and sprit. You use to make millions of dollars as. Everything my team uses and my guest use all in one place for you to tap into you can start, grow and scale real estate investing business.
[00:22:11] I really hope you implement what you're learning. I hope you utilize tools, tips, tricks, strategies, and secrets. And I hope to see you on the next God. Bless bye-bye.