The Birmingham Real Estate Investor – Episode 17 – Steve Nunnelley – Hustle and Trust in the Multifamily World

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HIGHLIGHTS FROM THE PODCAST:

0:55 – How Steve began in real estate

10:45 – What types of deals did Steve start out doing vs the deals now

12:46 – Mistakes that new investors make

13:54 – What are the most successful investors doing today

14:40 – Hot areas in Birmingham to invest in

16:34 – Investing mindsets for single-family -> small multi-family -> large multi-family

18:37 – Tips for new investors in multi-family real estate

21:23 – The Closing process + issues to be prepared for

23:01 – The market in a COVID world – Is it a good time to invest?

24:52 – Collections in the apartment world during COVID

FULL TRANSCRIPT OF THE PODCAST AUDIO
Steve Nunnelley:
There’s a lot more buyers out there. If there’s one seller selling a building, there’s going to be 100 people wanting to buy it. So, I really encourage people, if they don’t already have the experience to get into it, or if you own a 30-unit building and you’re trying to buy a 60-unit building from me, we’re good to go.

Spencer Sutton:
All right, everybody. Welcome back to another episode of The Birmingham Real Estate Investor. I’m one of your co-hosts, Spencer Sutton. I’ve got Matthew Whitaker back with me this week, and we’re excited to introduce everybody to Steve Nunnelley. And Steve is a director at Berkadia, here in Birmingham, and he is involved in multi-family investments. So, Steve, man, thanks so much for joining us on the podcast.

Steve Nunnelley:
Yeah. I appreciate it, you guys. I’m glad to be here.

Matthew Whitaker:
So Steve works with David Oakley, who we’ve had as a guest on in the past. And if you haven’t heard that episode, you absolutely need to go listen to it. But Steve, tell us a little bit about your background and your history in the real estate business.

Steve Nunnelley:
Yeah, I got into real estate right around, going on three years ago, I had been trading agriculture commodities, and I knew a guy, met him through mutual friends, who was a broker, doing really well and I just had always been intrigued by the real estate markets where you can get a lot of the due diligence done on the front end and protect your investment just by putting in the hard work. It’s just something I really found interesting. And being a broker, I thought was a really good way to get in and meet the people and learn everything. And it’s definitely proven true.

Steve Nunnelley:
I was offered a job with Berkadia, which was my dream job. I was offered that, and I’ve been here a couple months now and really taking my career to the next level. Have a really good team here, David Oakley, who you mentioned earlier. Again, I encourage people also to listen to that podcast. He’s a really good mentor of mine and a really connected person that knows as much as anybody I’ve met about real estate, all different types.

Matthew Whitaker:
One of the things David said about you was, and admired in you is your hustle. And one of the things I always say is, “Hustle in real estate gets you a long way.” If you’re willing to go out and do the work and meet the people and make the connections, that hustle gets you a long way. So, I’d love for you to talk a little bit about hustle as it pertains to your growth and the opportunities it’s afforded you.

Steve Nunnelley:
Absolutely. For me, hustle is really just phone calls and for the first, probably, it was about a year-and-a-half of making phone calls before I closed my first deal. Everybody in real estate, when they’re getting started, unless they have an unlimited bank account, you’re going to have to get out and do things that at times you don’t really know if it’s paying off. And those phone calls I made, I didn’t know if they were paying off, and then they started to pay off, and the same goes for meetings, which is probably the thing I would recommend most, and to myself and others is to get in front of people physically. Those phone calls, once you get to know somebody, it really opens the doors to do that. But again, I think that’s something everybody that’s had to build a career in real estate has had to do, is just the reps of calls or meetings and things like that, and driving properties and everything, and can feel like it’s not paying off, but definitely does in time.

Matthew Whitaker:
Talk about your mindset during that year-and-a-half of making all those phone calls? And then, what were you doing for income? So two questions there.

Steve Nunnelley:
Okay. Yeah, that was a tough year-and-a-half or so. My mindset was, it’s just a numbers game and there’s enough people out there that have proven if you’re an intelligent person and you know what you’re selling and doing, if you’re a likable person, and then if you, again, just have the persistence and the drive to do it. So I just knew if I kept on doing it long enough, I’d find deals, find financials on deals. That was really my goal, was find financials, get somebody to trust me enough to show me their P and L, or their rent roll on apartments. So that’s really where I was focused, was just the numbers game, and eventually it would pay off. Having meetings especially is what really paid off.

Steve Nunnelley:
And then, financially I was fortunate. I worked two-and-a-half years as a commodity trader and had saved up money, and actually traded options and things that were… Really, they were a lot more difficult and stressful than real estate, it seemed like, with big swings up and down. But I had saved up enough, but I was full commission, so it was watching more money go out than come in, and sink or swim kind of. And I think a lot of people, especially if they quit their job like I did, and try to make it in real estate, it actually just lights a little bit of a fire to keeps the phones ringing, to keeps the meetings being set and everything. So definitely a stressful year, glad to be past it. And I think there’s probably a lot more people out there in a similar situation. I felt pretty alone at times, but I bet there’s a lot of people out there that are in the same situation, or considering making the jump.

Spencer Sutton:
Yeah. I think when you are on 100% commission, it definitely lights the fire to get out there and to meet people. So I’d like to know, how did these phone calls go? So you’re calling people, you’re trying to find these multi-unit owners. And then what’s your goal? Your goal is to get them to a meeting, to sit down and talk with them and then to eventually list their property? How many meetings would it typically take to get that listing?

Steve Nunnelley:
Right. Ironically, I should have probably done more meetings, but my goal was to try to just get on apartment communities, it was just get their rent roll and get their financials. So I just had to explain to them that I knew buyers that would be interested, and I wanted to give them a free valuation of what their property was worth. If you talk to somebody on the phone and you get along, a lot of times they’ll let you have it. They’ll share a file with you, which seems like it would be a lot easier, but you really have to work for it. But a lot of that actually came… I was getting financials without even having met the people.

Steve Nunnelley:
Looking back, I wish I had met more of them to help build that trust level, but my really goal was, if this guy, if I sense at all that he wants to sell this property, I’d need his financials so I can help him find the best buyer for it. And I think they can sense when you really are just trying to help them. If I then sense if they want to buy more, I would just make sure I logged that this guy is not a seller, but when I find somebody that might be interested, I need to remember this guy. And that’s really what my mindset was, which was building trust and figuring out what they needed, and if that was at all selling, that guy would be flagged and maybe I would try to go meet him.

Matthew Whitaker:
You’ve used the word trust a number of times, and I think it’s so important in the real estate business, as you build a career, to have a lot of people trusting you. So talk a little bit about ways to build trust and how you can build value for your potential clients that in turns manifest itself in trust.

Steve Nunnelley:
Like I said, my goal was really get the financials, and at times, I realized that the best thing to do is really, when your mind really is in helping the person reach their goal, as I mentioned earlier, that’s what builds trust. If my mindset really is, “How can I help this guy?” Maybe I just want to sell his buildings, but he wants to buy more. So I have to put my mind and think about what my client really wants and what’s going to benefit him the most. There were times that selling his apartment community is what I wanted, but it wasn’t ready, it needed new management, and I’ve recommended management companies I’ve met and helped them get the management from a potential client. And then if I recommend the right guys that really do fit and really will make a difference, it’s led to listing.

Steve Nunnelley:
So, really my number one thing, the reason why my clients trust me is because I really do sit around and brainstorm ways to help them reach their goals, be it selling or making their property more profitable, or even just finding more properties. The thing I noticed, the days or the weeks that I’d go in and just want to sell a property or to get financials were less successful than the days I sat around and figured out, “How can I help these people?” So now it’s just become part of my day-to-day, is trying to help people. One way or another, it ends up coming back around and paying off.

Matthew Whitaker:
Yeah, I think about this, and admire you. You could have easily taken the short-term gain and focused on just getting a deal done that wasn’t in your client’s best interest just because you didn’t have money rolling in, versus building that trust, taking that time over the long term so that you’re building a career in real estate. And I think a lot of people make that mistake when they first get in is, that the stress of, “I need money now,” and they make a lot of bad decisions and almost ruin their reputation right off the bat.

Matthew Whitaker:
Talk a little bit about, from a mindset standpoint, of how hard that is to stay disciplined, to being trustworthy so that you can build a long-term career.

Steve Nunnelley:
Right. I think a lot of it in a way can come naturally to certain people. But I always notice if I ever do have an opportunity that can benefit me and not other people, I try to really take a step back and recognize, “What am I doing? And is that really what I want to do?” Nine out of 10 times, I truly believe if you just put the other people first, it’s going to be a better outcome in the long run. So that’s something that just, again, it’s part of my day-to-day. And it shows, there’s definitely people I’ve met that that’s not the case. It’s very obvious. And a lot of people, once they find out, don’t want to work with those people. I don’t want to work with a investor or buyer that I think is going to try and trick a seller, because then he might try to trick me or something. If you pick up on those things… I think a lot of the industry has a long memory, and if that happens one time, they’re going to remember it. So it’s just something to be cautious of but-

Matthew Whitaker:
Tell us about the type deals that you’re focusing on now. What types of deals are you doing and who your clients are.

Spencer Sutton:
I’d also like to know, maybe even the progression. So you’ve been doing this for three years. How did you start out? What were the types of deals you were doing when you started out, and then even today?

Steve Nunnelley:
Okay. I started out on, really, C-class apartment properties, 50 plus units. The first one I actually sold was 120 units. And it was in really rough shape, needed a lot of rehab. It was actually under 20,000 per unit, and needed about the same in rehab. So that’s where I started just because those properties, not as many brokers were chasing the ugly ones. And so from that, I then… The same owner owned 27 units. It was four different little buildings, and sold that, which ended up leading to a few more, again, these also needed heavy rehab. So it led to a few more similar 30 to 40-unit properties, distressed on most of them. Now that I’m with Berkadia, it is somewhat switched. We right now have a 40 million, a 80 something million and a over a hundred million dollar property.

Steve Nunnelley:
One of them is over a thousand units. It’s the largest in Alabama. So it’s definitely switching. I’m getting into a little bit bigger game, but at the same time, it’s very interesting to me that there’s clients that are looking and making offers on some of those properties that… Actually one of them started out in single-family, and was buying portfolios in single-family. Now here he is making offers on these massive buildings. So, it’s a fluid thing. In a way I really do like where I started. I like the C-class, I like the smaller properties. I like under-capitalized assets that, maybe not as many brokers are chasing. And again, I also am thankful to be here with Berkadia and selling these massive communities.

Matthew Whitaker:
Everybody gets really excited as you’re moving up to what I would consider the big leagues in real estate. And so congratulations. But what are some of the things that, when you were getting started and now you see from other investors, that they do wrong, what are some of the mistakes that they make that are completely avoidable?

Steve Nunnelley:
I think more so than what they do wrong… Everybody has their own business plan, but I think the biggest thing we all could do better is more face-to-face meetings. Every one of us says that, but how many of us, especially with COVID, have even had five meetings in the last month or so? So I think that even as a broker, if I meet somebody and he tells me he wants to buy property, versus if I talk to, which I talk to probably 100 people a week that want to buy property, the guy that shows up in the office is going to automatically move to the top of mind, top of the list, just because it’s natural that I remember him, and if you had lunch or something. So, that’s the biggest thing I can say is, the more, and again, I’m speaking myself, but the more face-to-face meetings, the better.

Spencer Sutton:
Yeah. So, also going on that, the opposite, what are the most successful investors that you see today, what are they doing that maybe others aren’t doing?

Steve Nunnelley:
I would say that the most successful guys are… They definitely are setting the meetings, just keeping their eyes open, staying in contact with brokers. And we have so many people to talk to, definitely helps out if… There’s certain clients of mine, they do. If I haven’t talked to them in a few weeks I got busy, they’ll give me a call and check on me. They’re doing my job for me, making that call. And little things like that really do help, but I don’t know if there’s one thing that’s really showing the guys, that really makes a difference, that I can note.

Matthew Whitaker:
Talk a little bit about Birmingham. Let’s dig into some areas that you’re saying are very hot right now in Birmingham. Can you just give us a Birmingham overview?

Steve Nunnelley:
Definitely. I’ve lived in Birmingham for about two months now, so there’s definitely going to be better market experts, David Oakley would be one of them, but one of the things for my personal business I’ve been targeting is the outskirts of Center Point. It’s just to the north of Birmingham, about 20 or 30 minutes. And we have a property up there we’re working on and there’s… I like to really target some areas that maybe are in the path of growth and maybe just need… There’s some under-capitalized deals, but nobody’s willing to take the risk on.

Steve Nunnelley:
You go to the real well-known Homewoods, Mountain Brook and Vestavia Hills type areas, those are the areas that people know what they have. They know their land is valuable, and the asset on top of it’s even more valuable. And I think in a way it can take away some of the opportunity, is if you can get ahead of the Avondale type areas, it’s becoming… There’s breweries and things coming up in that area. I think that’s really where I try to go is places that are in the path of growth. And a lot of times, the way you find those, is just areas that you can just tell by driving through them, they’re a little bit under-capitalized.

Matthew Whitaker:
Give us some specific areas. You mentioned Center Point, which is northeast of town. What are some other areas that you think are in the path of growth right now?

Steve Nunnelley:
Well, I think, like I said, Avondale, it’s already growing. I’ve heard good things about Irondale, a little bit more to the east. I haven’t personally worked on that area, but it’s definitely one that I have as a target.

Matthew Whitaker:
Talk about when investors move up from single-family to small multi-family then to large multi-family. What changes in an investor’s mindset, in their income, what is it that gets somebody from one plateau to the next?

Steve Nunnelley:
Right. I know a good amount of guys that are in the single-family space. And what I’ve seen is, they’ll have 10 or 20 or even over a hundred houses to keep track of, then they can go buy 30 or 40 units. I noticed that there’s a little bit of lower return on the 30 or 40 or 50-unit properties as there might be on a single-family house, but there’s also, what I think they like, is less risk. If you have one guy move out of house and it takes you three months to fill it in. You just lost a quarter of your revenue for the year, whereas with apartments, you can really fine tune it a little bit, play with rents and really dial it in to perform at the optimal level. That’s on the smaller ones going from the 100 plus units, because then you can afford to have somebody on the payroll there.

Steve Nunnelley:
And it just makes sense. And you can have, maybe a maintenance guy or at least part-time maintenance guy, or you can get a management company to run it for say six or 8%, sometimes even lower if you have a portfolio with them. So you get the economies of scale. And I really do think there’s a sweet spot in that 100 plus unit range that the guys really strive to get there. If you get up to the large 300 plus units, you run into a bunch of institutional money and there’s a wall, but if you stay in that, I really think, maybe more like 50 to 120 range, you can find a lot of off market deals are under-capitalized, maybe mom and pop shop type things that need a little work and are large enough to pay the bills for good management and employees if needed.

Matthew Whitaker:
Let’s say I am a potential client of yours and I come to you and I say, “I’m really looking for one of these 50 to 120-unit buildings or a series of buildings.” What are some questions that you would ask me to make sure that I could perform? So if somebody is listening to this and they want to get into that, so they can make sure that they check all the boxes.

Steve Nunnelley:
Right. The biggest thing is everybody wants to own that, but how many people do? And as a broker, it’ll make me nervous if you’ve if you don’t own that and you’ve never gone through that process with the banks and with everything. But if you don’t already own, I recommend the key is… We see a lot of guys that team up, or they’re a partner with somebody. If you can get under somebody’s wing and get to where even if you’re just a limited partner, as long as you can show you’ve been through the process or you’re going to bring somebody in to help you with that process, that’s a huge benefit because there’s a lot more buyers out there than there are… If there’s one seller selling a building, there’s going to be a hundred people wanting to buy it.

Steve Nunnelley:
So I really encourage people, if they don’t already have the experience to get into it, or if you own a 30-unit building and you’re trying to buy a 60-unit building from me, we’re good to go. That’s perfect. You’ve got that done. Now this is just the natural next step. You probably have a little equity in the first one. But I definitely think single-family jumping to apartments, it’s going to be… To buy the first 30 or 40 units, isn’t a big deal. But if you’re trying to get into that larger range, you’re going to need some type of experience to really buy the credibility.

Matthew Whitaker:
What type of cash am I going to need to buy one of these properties or balance sheet? What do you look for in a buyer when you’re looking to represent one?

Steve Nunnelley:
Right. Really some of the 30 and 40-unit properties I’ve sold, they can be, depending on how much rehab needed, they can be close to a million dollars, maybe up to 2 million. So a lot of those are going to have a 75% loan to value. So, realistically, three, four, $500,000 of equity is enough to get a lot of these done. So, on that smaller range, the first step, that’s what you need. Now you start getting up to the 50, to 120 units, that range, you might need well over a million dollar raise. So if you don’t personally have that, you’re going to have to show you at least have a group together who does or other properties with equity in it, just sort of the initial screening.

Matthew Whitaker:
You also mentioned the close process, that a lot of people get cold feet, it sounds like during the close process. I’m curious, from the time somebody agrees to a price to the time we close, how long does that take? And what are some issues that, if I’m buying one, I should be prepared for when we’re going through the diligence process?

Steve Nunnelley:
Right. The due diligence process is typically… Typically, we get a letter of intent and then within about a week, we’ll have a purchase sale agreement. And then you have around 30 days, some people will try to push it to 45, which can really hurt, even though that 15 days could help you, it really can hurt you in the eyes of the broker or the seller, because at that point we could get 45 days down the road, and you can back out and take your earnest money deposit with you, which can be pretty substantial on some of these deals. But you’ll have your 30 day due diligence. A lot of times, the best thing to do during that is… You’re going to have the bank really guiding a lot of that. They’re going to have an appraiser out there for an inspection. We really just recommend letting them handle a lot of that to make sure… Them and a good property management company are going to be the most beneficial to make sure you really uncover everything you can.

Steve Nunnelley:
Then typically we have 30 to 60 days after that to close. Again, if you can do it in 30, that always seems to look better to the seller, but a lot of times we do see 60 days after the expiration of due diligence to close.

Matthew Whitaker:
And it seems like the market is pretty hot right now and a lot of transactions are taking place. Is that true, even in a COVID world? And why do you think so many transactions are taking place if the answer’s yes?

Steve Nunnelley:
I think the answer is yes. And I think that there’s enough people that have owned long enough that have ridden this wave of appreciation, that are starting to feel, maybe like the world’s a little bit shaky right now. And the second thing is, the banks definitely had a pause where they really tightened up, in the March, April, May area, but people with longterm relationships with banks or large lines of credit or cash flow, a lot of those guys were able to capitalize on the pause and a little bit of market instability, and just keep on writing checks and buying properties. So there’s always going to be people out there that are willing to take the risk. And then when things like this happen, maybe it will scare a couple people into selling as well. So that’s what I’ve seen.

Matthew Whitaker:
And where are cap rates today? Just give a range. I know it varies based on the building, but where are you seeing cap rates today?

Steve Nunnelley:
A lot of the properties I sell, especially less than 100 units, and if they need rehab, it can be six, 7%. Some of the smaller ones are closer to eight. And again, a lot of those, if they do need rehab, there’s still a lot of upside in that. So, might trade for a little lower if it has some obvious… 30% of it’s vacant, it might end up trading below a six cap, but you’re able to just go put 5,000 a unit into those 30%, and all of a sudden you’re up, back closer to 8% equivalent. So, I would say around high sixes is what a lot of the C-class properties I trade are.

Spencer Sutton:
Just going back to the COVID world, how have collections been in these apartments? We’ve noticed we’ve had the best leasing summer that we’ve ever had here at GK Houses, but was wondering about in the apartment world, what that’s looked like this summer.

Steve Nunnelley:
Good to hear that. And oddly enough, that’s been what I’ve heard from a lot of my clients. It’s been very strong and I think that’s actually driven more dollars towards multi-family, is how well it did perform through COVID. I did hear some really large groups that own all over the country in large cities, maybe 5% decline in collections, but a lot of that’s going to be the A-class large city portfolios and the Nashville’s, and I guess, Downtown Atlanta, things like that. But most of my clients, because they’re in the trending upward rehabbing stages, have had record years of collection. So it really has not, thankfully, affected us that much.

Matthew Whitaker:
And this is a Birmingham show, but just for the sake of the audience, you focus on all of Alabama. Tell us what markets that you like to focus on. So if somebody is interested in the market other than Birmingham, what areas would they contact you for?

Steve Nunnelley:
Right. I used to live in Huntsville. I think the market there is a little bit almost too hot right now, you have too many buyers looking at it. I focus a lot in Mobile, Alabama, along the Gulf Coast. We’ve had quite a few, we have several under contract and listed down there right now. So I really liked that market. Birmingham’s a great market. One market I would like to target a little bit more is the Chattanooga Knoxville area. I really think that there’s a lot of opportunity up there. And again, a little bit more along the Gulf Coast, there’s some deals we worked on in Mississippi and the Florida Panhandle, but again, most of what I focus on is Mobile, and I think Birmingham is also a great market to get into.

Matthew Whitaker:
We also have an office in Chattanooga. And I agree, Chattanooga’s market is really hot right now. A lot of investors are coming out of Nashville and then a lot of people coming from all over the country to invest there. So, if somebody wanted to get in touch with you, what’s the best way for them to reach you, Steve?

Steve Nunnelley:
Best thing would be probably phone call or also my email, which is steve.nunnelley, N-U-N-N-E-L-L-E-Y @berkadia.com. And they can also just go onto the Berkadia website and search for Birmingham.

Spencer Sutton:
We’ll definitely put the link in the show notes so people can find you. This has been great.

Steve Nunnelley:
I’ll appreciate that. Definitely.

Spencer Sutton:
No, Steve, this has been great. I’m impressed with your hot start. And I think you teamed up with a really cool guy and David Oakley. And for the people out there that are looking for somebody that’ll get out and hustle for them, I think partnering with you or getting you on their team makes a lot of sense. So thank you so much for joining the show.

Steve Nunnelley:
Definitely. Well, I appreciate that. And thank you guys.

Spencer Sutton:
All right, everybody. That’s another wrap on an episode of The Birmingham Real Estate Investor. If you haven’t subscribed already, go ahead and do that and look for us on the next episode. And give us a review.