Category: Multifamily

In today’s episode of #RitterOnRealEstate, we sit down with Sam Bates. Sam is the founder and CEO of Bates Capital Group. Sam started his real estate journey in 2009 and has been directly involved in the acquisition, reposition, disposition, and asset management of over $150,000,000 in AUM. His portfolio currently has 924 units in Texas, Mississippi, Georgia, and Florida. Sam and his partners have roughly another 250 units in the pipeline to be developed.

Sam spent over a decade in Corporate America working in various consulting, finance, and accounting positions. He quickly realized a W-2 job was not going to satisfy his desire to help people improve their lives. Once Sam started investing in real estate, he quickly realized how powerful real estate is and decided this was how he wanted to help others meet their goals and create generation wealth to leave their legacy.

Sam has a Bachelor of Science degree from Texas A&M University in Finance, an MS in Personal Financial Planning, and an MBA from Texas Tech University.

Key Points From The Episode:

  • Building a business from the ground up.
  • Partnering with the right people with the same values and vision.
  • How the return profiles differ from an acquisition side to a development side.
  • Components of market evaluation.
  • Enhancing value by gaining supplementary knowledge.
  • Entering a new market and managing from afar.
  • Shifts in capitalization rates and how they affect investors.
  • The Importance of revenue management system.
  • Understanding ROI and how it is an important factor in evaluating a deal.

Books mentioned:

  1. Who, Not How by Dan Sullivan and Dr. Benjamin Hardy


[0:00:00.0] SB:

Investors listen to podcasts or do reading or talking to brokers or industry professionals like you can figure out a lot of ways to enhance value in your market that might not be happening now. And like that’s been one of the only drawbacks or push backs going into other markets is the management companies in those markets aren’t used to certain things or fees that we can charge in Texas, and they push back on a lot.

 [0:00:28.0] KR:

Welcome to Ritter On Real Estate, the show about how to passively invest like a pro. On each episode, I interview real estate experts to give their top investing advice, strategies and tools, I break down the insights into practical steps to avoid the pitfalls and make better investments. I want to help you passively invest like a pro. This is ritter on real estate. I’m your host, Kent Ritter

 [0:00:52.0] KR:

Hello fellow investors Welcome back to another episode of Ritter On Real Estate, where we teach you how to passively invest like a pro. Today, my guest is Sam Bates and Sam is the founder and CEO of Bates Capital Group. Sam has been involved in over $140 million in multifamily transactions and assets from acquisition to Asset Management disposition and everything in between. and he has he and his partners currently have 924 units in Texas and throughout the southeast, and roughly another 120 units in the pipeline for new development. So Sam’s got a lot going on and are excited to dig in today with him and learn a little bit more about what it is.

 [0:01:35.0] SB:

Oh, go ahead. I’m sorry.

 [0:01:37.0] KR:

No, Sam, just thanks for being here.

[0:01:39.0] SB:

Yeah, thank you for having me. I’m excited to talk to you and hopefully share some value with your listeners.

[0:01:46.0] KR:

Yeah, but let’s let’s get into it. Let’s start right at the top, Sam, you know, you’ve you obviously have built up a nice multifamily portfolio now, but you didn’t start there. So tell us where you started and kind of how you got to be where you’re at today?

[0:02:02.0] SB:

Yeah, definitely. Um, it started a long time ago, and I was a finance major and undergrad, I actually thought about going to get my masters in real estate. But at that time, I had no idea of what syndication was I didn’t honestly really even know what a real estate investor was. I just thought it was kind of the next progression. And I was just going to be a mortgage broker or officer at a bank or something like that. And through I guess, the senior year, before I enrolled in grad school, I had an internship with UBS, out in Los Angeles. And I loved it. And then they offered me a job as an investment analyst. And since I graduated, I just decided to stay out there and not come back. And I was there for a couple years and really enjoyed the experience and learn significantly more about the market, the stock market and bond market than had ever learned or dreamed of in undergrad. But I knew I always wanted to get a master’s and my family’s always been a big proponent on education. So I went back and got my master’s during that time, the market tanked. And I saw clients, family members lose 30 to 50% of their portfolio essentially overnight. And I knew I didn’t want to be a part of that or be able to raise money from investors and they lose it in a heartbeat. So I graduated with an MBA and a master’s in personal financial planning. And I started consulting in Dallas and I was in a few consulting firms and going from an investment analysts where I was talking on the phone significantly doing some research, but it was research I love to go in and research in tax laws and oil and gas equipment for 12,14 hours a day. Sometimes it just was not what I envisioned a career to be. So I kind of by a lucky intervention between a guy I took my TV to get repaired and we started talking and he found out i’d finance background he starts telling me about real estate into this investment group in Dallas. So I went and looked at it. And I first was a limited partner and a couple deals. And then I did single family from 2010 to 13 or 14 and realize you couldn’t scale and I did great on the single family returns probably even better than the multifamily since I was buying them it’s so I mean, US buying three bed two baths for under 100,000 completely rehabbed. But I just need to kind of scale so in 14 I started looking to buy a small multi families and from 14 to about mid 15 or 16. I just we weren’t getting anything. I had a couple brokers Tell me They don’t trust me since I was young, they don’t trust baggy clothes. And after banging my head against the wall for a while, I reached out to a guy who had been in construction for about 20 years. And then another person that I worked with at a consulting firm, and we came together and built a 60 unit apartment complex, and then 10,000 square feet of retail space, and it’s kind of went from there.

[0:05:29.0] KR:

Wow, that’s a heck of a start. You started right out building from the ground up, huh?

[0:05:33.0] SB:

Yeah, we, since I’ve partnered with a guy who had been in the business for 20 years, we had, I had a lot of surety that he was going to be able to perform, like, I still wouldn’t take on a development project by myself, there’s just so many nuances that I don’t feel comfortable with from the construction aspect, or I don’t have the teams in place to be able to do it. But I think partnerships are critical in real estate, and they’ve exponentially they’ve increased my growth rate exponentially. And if you can partner with the right people, the guys or girls that have the same beliefs have same work ethic, kind of have your same values and vision, I think they’re great. And the first one was their success, and we just decided to continue going down that path.

[0:06:27.0] KR:

And how many units have you developed now,

[0:06:29.0] SB:

Um, I don’t know that off the top of my head. But um, out of the 13 Gp projects, we’ve done seven developments. But one was a lot development, that we took raw land and turn it into a residential subdivision. One was the development that we just did the horizontal construction on, and we’re selling the land to read for them to build. We. So probably four to 500 of the units are from the development perspective.

[0:07:02.0] KR:

Gotcha. That’s awesome. So you’re kind of 5050 in your portfolio of what you’ve developed versus what you’ve acquired.

[0:07:08.0] SB:

Yeah, it’s great, because I mean, acquisitions, you can, you can buy them, and really 60 to 90 days. And you can start getting that cash flow for investors almost immediately, or within six months to close or whatnot. And developments a lot different. I mean, depending on where you buy the land out, and how it zoned will depend on how long you have to go through the zoning process. And I mean, one deal, it took us almost three years to get through planning zoning. So we were doing that without any investors. And then once we got approved by the city, we brought investors and then a construction period can take two to, I mean, 15 months to lately, it’s taken a lot longer just because the supply chain issues, the shortages and materials and labor. Like we have one project we’ll be finishing that’s been almost a three year build process, just because COVID and everything that’s floated the build process down.

[0:08:12.0] KR:

Gotcha. that’s a that’s a really interesting perspective you have in both sides like that. And how do you see you talked a little bit about, you know, obviously, cash flow, no cash flow, but how do the return profiles differ on the deals you’re doing from a acquisition side to a development side, the return early,

[0:08:30.0] SB:

The return early,the returns differ greatly. I mean, especially if you get acquisition from a broker. But realistically, if you get 100 plus unit acquisition, it’s going to come from a broker and you have a lot of competition. So the acquisitions we’ve, we’ve projected 15, maybe 18% IRR. And luckily, on the ones we’ve exited, are about to exit. We’ve done significantly better than that, like one we have listed where we’ll probably return to investors a 32 to 35% IRR. But I don’t think that’s repeatable, especially now since cap rates have compressed in it’s just that much more competition. But on the development side, we have a deal listed where we’ll 3x investor money and about 27 months. The retail deal that we developed, we provide a 41% IRR and 16 months, the land development, we the equity multiples about 2.5 and roughly three years so the returns are significantly better. But there’s just more uncertainties and some people just don’t want to add that risk into their portfolio. Some people love it and they’re more entrepreneurial minded, or they have a larger nest egg or they can take that risk but some of our investors they’re essentially coupon clippers and they want that consistent cash flow because they live on it to either pay their bills or retirement. And so the risk profiles of the different investors is critical to actually figure out what their risk profile is, and let them know the differences, because it does take a different investor that wants to invest in a development than it might on an acquisition.

[0:10:24.0] KR:

Yeah, I think you made a really good point there. Because if they’re, if the goals aren’t aligned from the beginning, because the investors maybe don’t really understand, right, all the aspects of it, then you’re not setting yourself up for them for success, right, that’s gonna be a troubled relationship through the process, when they’re in six months into the development deal. They’re calling you asking when they’re when they’re going to get their distribution, right.

[0:10:45.0] SB:

And luckily, we’ve done a really good job of explaining the timing and the risk and different things. But in development, you just don’t know like one of the developments, the city told us we were going to have the city pay for a road that was literally six feet. And they backed out of that. So we have to bring an additional 500,000 to development. And it’s just, there’s risks or uncertainties that you can’t plan for and like, luckily, most of our investors have been happy. There’s been one in particular a referral, we had that it would have been a lot better if she would have invested in acquisition, the development. I don’t think she understood the timeline. So we’ve had to teach and coach her a lot more than we have with other investors just because she was new to real estate. I don’t exactly know what all can transpire in a development.

[0:11:42.0] KR:

Sure, yeah. I can imagine that that that comes up pretty often. Well, so as you look to as you’re looking to move forward, where are you focusing your time on now? Is it development? Is it acquisition? Is it a blend of both and kind of how does that work?

[0:11:57.0] SB:

Right now it’s more acquisitions. Once lumber prices shot up, labor shortages. And also other materials like on one development, we waited five months for Windows. So it, it puts a kink in your plans and your performance. And right now at least I’m focused more on acquisitions. I know the returns can be better on development, but I just kind of want to see where the supply change shakes out. And the land over the last couple of years and Dallas Fort Worth, it’s skyrocketed. So it’s harder to make deals work or pencil. And when the material increases and jumps, I mean, we were building developments for granted, these are secondary cities that DFW so we’re again the land really cheap, but we’re building them for $80 a square foot on some of them, some of them, we could basically build a unit and these are large units for 100 105,000. The last deal we underwrote that we’re looking at, we still migte develop it, we’re at 135 to 148 cost per unit. So the the costs is just completely changed. And that’s going to definitely hurt the returns. So

[0:13:18.0] KR:

in our those kind of B class suburban, like garden style, is that what you’re building,

[0:13:23.0] SB:

they’re their garden style. Some we’ve done really well and on. They’re essentially for plexes. But they’re nice townhome looking for plexes two story three bed, two bath. But the the apartments are definitely garden style, I would say they’re, they’re a class for their area. But if you put them in Uptown Dallas, or downtown of a major Metro, they’d probably be B plus a minus. But we import a lot of the materials from Asia. So we have nice vinyl plank flooring, we have worse countertops, custom cabinets, it’s just we don’t have all the amenities that somebody would expect in an urban location.

[0:14:07.0] KR:

 Gotcha.Gotcha. So yeah, so so prices have gone up anywhere from sounds like 30 to 40%.

[0:14:15.0] SB:

That Yeah, exactly. And in some of the materials, maybe even more than that. But and one of the issues we’re finding and not even just developments, but from our acquisitions is labor with all the stimulus and the government funding. It’s hard to keep good qualified people. Like in one of our properties, we’ve went through probably five or six maintenance guys, and they’ll since codes happen because they’re more money then they’re making they’re they’re collecting just a little bit under what they’re making. So it makes sense to them to work 40 hours a week,

[0:14:50.0] KR:

Yeah, I mean, I was gonna Yeah, I’m glad you said maintenance because I was the first thing that popped into my head too, because I know that just you know, a lot of the cities that we’re investing in Just in general, in a city, I mean, maintenance people are a premium. And so you know, it comes down to individual apartment, it’s difficult to find folks. And I know that you know, the past that company, I worked for that several maintenance positions open for quite a while, it seems like it’s a tough, tough job to fill right now, it makes me wonder if that model has to change the model of having just the maintenance guy dedicated to the apartment, you know, that’s on call and doing all the work, it seems like that it’s not sustainable anymore. Like you said, folks are making more money going other places, or just staying home based on the government checks, but but even going in what I’ve seen more as people go in and get a job with h fac, or plumbing or specializing, you know, and you can make quite a bit more.

[0:15:48.0] SB:

Yeah, and for our lead maintenance, that all of our properties require to be hbic certified into your, like, if they are hpac certified, they can work for each contractor make significantly more money. So I think there might be a shift in that, obviously, I don’t want that to happen, because I think it’s just gonna drive up maintenance or repair costs. But it could definitely be something that happens in the next decade, I know one of our properties, we’ve basically just had to go to a staffing agency and get labor, or maintenance guys from there, because the people we are hiring, they were leaving after a week or two. And there wasn’t enough of a market poll to bring in those people. But that property was in a smaller market of 90,000 or so. So in your larger markets, I think you’re gonna have a lot bigger base, and hopefully, a bigger base to choose from.

[0:16:46.0] KR:

And so that’s a good segue into markets cuz I wanted to ask you, you know, what are the markets that that you guys are actively looking at right now? And maybe you can give us some example of actual markets. But then like, just criteria wise, what what is it that helps you define a market,

[0:17:04.0] SB:

My thought process over the last five or six years has honestly changed. We’ve had a lot of success in secondary and tertiary markets. And I am still considering steps, especially developing there. But I don’t know if I buy there again, just because cap rates have compressed so much that it’s, I would much rather buy in a primary market at a four cap, or three and a half cap, versus buying a secondary market, a four and a half or five cap. And maybe that cap rates a little bit low. But I mean, I’m seeing deals in Austin, trade under three. So that’s going to continue and any market we look in, I’d make sure there’s population growth, there’s job growth and rec growth, those are kind of three primary drivers. And then I’ll look at median household income. And it depends on if it’s an acquisition or versus development. And it depends on the class like we have. I mean, our oldest property right now is 1972. Our newest acquisition is a 2017. And then from a development perspective, we have 2020, and 2021. So depending on the asset class will depend on what median income I require, because the rents are gonna vary. And then I think, luckily, we have, we’re blessed to be in Texas, or I’m blessed to be in Texas, and everybody’s moving here. So I’ve looked at DFW Houston, Austin, really since 14, and just have never been able to get a deal. I mean, hindsight is always 2020. So at each time I was offering less than what it took to buy, but, and maybe they’ll continue and that’s honestly why we went to the southeast. And we have a deal right south in Memphis, Tennessee, that is actually in Mississippi, but it’s been phenomenal. We have a deal in a suburb of Atlanta, that we closed in January, and I was looking at our unit mix and rents last Friday, and we raise rents on average $269. And then the last acquisition was in a suburb of Orlando. So I’m still looking at cities that have a lot of growth and the economic drivers behind them. But I’ve luckily found a couple good property managers that are either regional or nationwide. And I if they’re in a market, and I believe in the market, I’ve faith in them to go in and execute a business plan that we’ve created.

[0:19:47.0] KR:

Now, it’s great to find those partnerships. I was gonna ask and maybe that’s the answer of going into these different markets. You’re obviously in Texas and I have a few partners. We can’t be boots on the ground everywhere. How do you how do you enjoy are a new market and how do you manage from afar?

[0:20:03.0] SB:

Early on, it was honestly trial and error. The first property we built was five hours away from us. And we It was about 60 minutes northwest of San Antonio, in a market that is median household income is extremely high. So retirement community, and there’s probably average house, median house values 700 800,000. So you have a lot of afloat people, then you have a lot of very low and working class, like blue collar type apartments. But there’s absolutely zero apartments built within the last 10 years. And we did some market studies. And we realized there’s a great demand for it. So we built it. And we went through two property managers before we found the third one that made sense to us. And one of the property managers was actually an investor of ours, and he was managing from Dallas, and he just didn’t have the right people in place. So I was going down there, I’m more of the boots on the ground operations, after we raised the funds, and I was going down there a significant amount of time, and I was like this cannot continue to happen. So we’ve met the property managers a lot more. And now I’ve worked with probably eight property managers, they all have strengths, they all have weaknesses. But I’ve learned if I can actually interview the onsite staff, that’s going to help tremendously, because we’ve had third party managers that we’ve used at one location that they’ve done phenomenal. And another location they didn’t, it will basically down to the onsite staff and the regional. And even though they they managed a billion dollars of assets and claim that their systems were streamlined, I quickly realized that was not.

[0:21:56.0] KR:

Yeah, it’s never as pretty when you see how the sausage is made. Right? Exactly. I think it’s a great point you just brought up to interview the on site staff. Because you’re right, it’s so dependent on the individuals on site, you can have all the good systems in the world, but it comes down to the people at the end of the day.

[0:22:14.0] SB:

It is and like one of the biggest mistakes I’ve made is I trusted in the third party management company. And I didn’t go with my gut. Because the first time I met on site person, I knew she wasn’t a fit for the demographic. And I was like, well, I trust, I trust the manager to make the right decision on their hiring. And at that point, we never interviewed anybody. But it was apparent, it was quickly apparent that she wasn’t the right fit. And I waited a few months, probably too long to fire. And I asked the region to fire and she wouldn’t. So we had to get rid of the third party company in general, just and replace them with somebody else that would listen to what we needed to execute the business one.

[0:23:01.0] KR: 

Yeah, absolutely. That’s critical. So you talked about the shifting cap rates a little bit, you guys have seen that happen? More than most in Texas, it’s got happening everywhere. But I mean, Texas has been one of the epicenters of it. So I’m curious, how has that changed your strategy of just going from a couple years ago to like a five cap to now like you said, three, three caps. I mean, how do you alter strategy to account for that?

[0:23:29.0] SB:

That’s a great question. And it’s really hard. I know, if you want to deal that’s marketing right now. You have to be somewhat aggressive, like everybody says they underwrite conservatively. And you definitely do need to underwrite conservatively, but like, previously, we were expanding our exit cap 10 basis points per year, or maybe even 20. So sometimes we’re excellent at a seven cap for buying a six cap. And we’ve definitely changed that and underwriting where we’ll maybe it’ll be a 10 basis, point spread, but even then, realistically, we won’t get the deal if that’s the case. And it kind of depends on the market. And now I’m focused more, since I have a track record, and brokers can trust that I can close, I’m focused on more of the primary markets. So I think and the areas we’re looking at, and cap rates are going to stay the same or potentially even compress more. And I’ve talked to a lot of people and a lot of veterans that have been in the industry since the 80s and 90s. And that’s their fill as well and over the last five to 10 years. I mean with social media with technology, and a lot of different factors, but it’s real estate’s now invested in syndications mainstream where when I invested in my first deals a limited partner. I don’t think many people even heard about a syndication It was like, I invested. I’d been in the business for 15 years. And it was, quote unquote, his first like ppm. And that syndication process that he had ever done. What year was that? It was 2009. Oh, yeah, that was that was early on. Yeah. So it’s, it’s just become so commonplace that interest rates are so low across the world. And you have capital coming in from all different asset classes, industries, other nations that even if interest rates increase, I’ve read where interest rates aren’t always correlated with cap rates. And I think cap rates could just stay compressed where they are maybe even decreased. I’m not putting that in my underwriting. But I think it’s a good bet that they’re gonna stay that way. So maybe we can keep the underwriting cap or the reversion cap rate, the same as the interest cap rate on a stabilized deal, and maybe be a little less aggressive in some other areas.

[0:26:03.0] KR: 

Hmm. Yeah, it’s an interesting conflict. Right? Because like you said, Everybody wants to say the underwrite conservatively, the general rule of thumb forever has been kind of 10 basis points, increase a year, and for every year you hold it right. But the that that’s difficult for a couple of reasons, right. One is, well, that’s not the reality of what’s played out in the last, I don’t know, close to probably 10 years. And then also, if everybody’s doing it, then then how do you win the deal? If you’re, if you’re doing what everybody else is doing? Right? Like you said, you have to be willing to be a little more aggressive in certain areas, it seems on those on market competitive deals, right. 

[0:26:47.0] SB: 

And, like we have a deal under contract now in East Dallas that is completely off market direct to seller. And we’re a lot more conservative in our projections. And I think it’s going to be a Grand Slam, maybe one of the best deals we’ve ever gotten, but is truly off market. And if it would have been grabbed up by brokerage shop, we probably wouldn’t have got it. Yeah. If we did, it’d be at a significantly higher price.

[0:27:16.0] KR:

Yeah, I mean, it’s, uh, it is interesting. And, you know, we just had a situation where we had a deal under an ally, there was direct to seller strategy, deal deal was under LSI. And a broker swooped in and told the guy that he could get in, you know, about, do quick math, but 18% more than then what we were offering. And, and the guy dropped to, and we were stretching it at that number, honestly, I mean, we were stretching underwriting to to get to the guys number that to try to take it down and avoid him to go into market. But it was, it’s just easier to know the numbers. It was like we were at 5.2. And then a broker came in and told him he’d get him six for it. So the guy the guy backed out of ROI, and now he’s taken it to market. And I know somebody might pay 6 million for it. You know, I didn’t think it was worth more than 5.2. But it just to your point of kind of, you know, the difference between an off market deal and an on market deal. You know, I’m sure somebody will pay six, somebody might pay six too for it.

[0:28:21.0] SB: 

Yeah, I have to say, before we jumped on the call, we’re kind of talking and I was in Charlotte, the last couple days looking at deals. And there’s a deal that it’s in a core plus area, great location, the Charlotte, and they initially whispered to 90 adore. Now they’re saying 310 adore, which it’s 180. Maybe I shouldn’t say that. Exactly, you know, but it’s a larger? Yes. So it’s significantly increased the purchase price, and I guarantee somebody is going to pay that.

[0:28:54.0] KR: 

Yep. Yeah. Yeah, it is interesting. So. So when you’re say so in that market, or in a market where you’re operating with three calves, let’s say How about from a value add standpoint, from like a renovation scope standpoint? How has your has that changed? Knowing that you know, for every dollar you can you can tweak the noi you can, you can even increase the valuation that much more, are you doing more? More because of that? Are you doing less because it’s more expensive? Like how does that change in strategy?

[0:29:29.0] SB: 

Well, luckily, we haven’t bought anything in a three cap market. Okay. Like the lowest purchase we’ve done is a fourcap, but some of the markets we’re looking at it got to the threecap

[0:29:42.0] KR: 

Yeah. But still in in a lower cap rate environment. How does that adjust

[0:29:47.0] SB:

question? I focus a lot on mismanaged operations and how the previous owner property manager whoever’s managing the asset, what they’ve done And then obviously we want to go in and be able to renovate it to another level, that’s a comp in the market. So all the assets we’ve bought, we’ve always went in and done renovations, it kind of depends on to what level like this last acquisition was built in 17. And for some reasons, a developer built it like a B class property, even those that have A class 90 plus 1000, median household income area. So we’re going in and put in granite, or sorry, quartz counters, stainless steel appliances, just anything a young professional would expect when they’re paying 1500 a month for a one bedroom. But I think anybody can do that. But where we find value is just from mismanaged operations. And partly, you could say not raising rents is mismanagement. But the last, really three deals I bought, the onsite managers were absolutely horrible. And like in Memphis, granted, we’ve owned it now for a little over two years, but we’ve raised rents with Rob’s $350. And in Atlanta, we’ve been able to raise them $270 in six months, essentially, and we’re in the Florida deal. We’ve already increased lease renewals by $200, on average, or close to 20. There. So there is still opportunities, even in the low cap rate environment, it’s just harder to find them. And I mean, the deal in Atlanta was off market, the deal in Orlando, we preempted before the bid process can get up to get bought up and the Mississippi deal. We weren’t the highest bidder, and they the person who got the all accepted, they kind of figured out a PSA. So the broker came back to us and asked us and we submit an offer, we got accepted, but as a little bit lower than what we initially submitted. So I feel like we’ve been very successful in getting deals without having a ton of competition. But that’s why in three years, I’ve only bought three deals. So you have to be selective.

[0:32:17.0] KR:

Yeah, absolutely. And just going back to what you were saying about mismanagement, I mean, what are be more specific? What are you seeing on these? Like, when you look at a deal from the outside? What’s something that says to you, oh, man, I know there’s opportunity here. 

[0:32:32.0] SB:

If you’re underwriting, I know some groups that have analysts. And they can do this. But if you’re starting off in just underwriting all the deals you get, and maybe now that I’m in a lot of markets, I can be underwriting or have my analysts underwrite 100 deals a month. And if you aren’t digging deep into it, you won’t see it. But like, when you go on property tours, you can ask a lot of questions. One of the biggest things I found value from is revenue management systems. And they can be great if you have somebody that knows how to input the data, but it’s garbage in garbage out. And like one of the properties we bought use the previous hour use the revenue management system, and on the rent roll, they had the two bedrooms with a $5 difference in some of the three bedroom units. And it just makes no sense. Why you’re charged $5 more for a three bedroom versus a two bedroom. One of the properties, we bought the mess of the property we bought from a hotel operator who had a small multifamily portfolio, and they just didn’t know how to operate it. Like they were paying literally all the utilities for the residents like they even were paying cable and internet for the residents with no bill back, nothing. So those are two big areas. I think going in and I don’t know how many properties I’ve toured. But you can definitely tell if the owner slash manager doesn’t take care of the property, your tenants don’t take care of it. I think there’s just simple things you can make the property look nice and clean. And if you have pride ownership, the tenants are more than likely going to have pride of ownership. And this East Dallas property we have under contract. I mean, we’re the owners that he’s owner for 30 years basic plate slumlord, he bought it, I’m sure for I don’t know 5,10 1000 unit. He does all the repairs, he does everything. And he’s worked really hard, but you can tell he just doing whatever you can to get by and you can tell that from the tenants that are in place like we’re gonna have to go in and remove probably 100% of the tenants I mean, their stripper poles and some of the units, there’s, I mean, some are math units, you can walk in and just completely tell that mathematics live there for years. So just being on site, asking pertinent questions, I think is a great way to tell how operations around.

[0:35:24.0] KR:

Yeah, so a couple things you said, one is just the revenue management system, or it sounds like just just pricing disparities among the units, right? You see, there’s not a delta between twos and threes, you see, I mean, you haven’t seen crazy stuff, sometimes, like twos that we’re reading more than threes, or vice versa. So just kind of looking at the rent prices and say, Do these Make sense? And, and you said, actually getting like into the rent roll and seeing what’s in the rent roll. Right. So I think that can be very telling on on just the different prices you see and kind of how they operate, then rubs or just utility bill backs, right? So that’s a that’s a huge opportunity. If folks aren’t billing back utilities, when we have a couple properties under contract right now, where it’s opportunities on both of them, we just start, just get the utilities off of the properties books and get back to the residents. And that’s a huge expense savings,right?

[0:36:17.0] SB:

Yeah, it is.

[0:36:20.0] KR:

Yeah. And lastly,you said, you just pride of ownership, right? You’re just being able to just evaluate, is there that pride of ownership? Is the property clean? Are people taking care of it? and likely there could be easy upside there and just better maintaining the property right and getting the right. And in doing that, you’ll you’ll get the right tenant in there as well?

[0:36:40.0] SB:

Yeah, exactly. And all markets are not created equally. Luckily, I’m in Texas, and a lot of our properties are in Texas. And I feel like owners in Texas, are cutthroat, cutthroat. And you can see just from underwriting deals, you can see a lot of things from an operational standpoint that other owners do, and you can learn from it. And now, I’ve been in real estate for 11 or 12 years. So I’ve read a lot, listen to a lot of podcasts. And my knowledge base has grown significantly since even five years ago. I mean, I look at stuff, my underwriting from five years ago, and I laugh at it. But if investors listen to podcast, or do reading or talking to brokers or industry professionals, like you can figure out a lot of ways to enhance value in your market, that might not be happening now. And like that’s been one of the only drawbacks or push backs, going into other markets is the management companies in those markets aren’t used to certain things or fees that we can charge in taxes, and they push back on a lot like one property manager, the manager of our assets, and we could easily implement cable and internet package for our residents, they benefit from it, we’d benefit from it. And we’ve been going back and forth for literally four months on it. And the property manager keeps pushing back on us. Because they just don’t understand the concept.

[0:38:11.0] KR:

Interesting. That is interesting. Yeah, that’s a no brainer for me.

[0:38:15.0] SB:

Exactly. Yeah. I was talking to a guy that’s in Iowa, and just some of the things that they do. And what he does, is like, it just blows my mind. But he says the tenants, they don’t expect anything more. So they’ll pay maximum value for a unit that is basically in the 80s or 70s in Texas, but he’s like they’re happy with that and I was so

[0:38:44.0] KR:

it’s it’s interesting to learn that learn learn how people are doing it in different places. And it’s different every city, right?

[0:38:51.0] SB:

I know when I told him you should do this and that and that he’s like, I’ve tried it on other properties and you just don’t get the rest but that would in specific markets.

[0:39:00.0] KR:

 Yeah,that’s an important lesson too is you know, don’t over improve it and do things just to do and make sure that there’s going to be a return and you’re going to be able to increase the rents. Right.

[0:39:09.0] SB:

Exactly. I mean, ROI is by far the most important factor and decisions that should be made so if you can’t get a return on investment, you probably shouldn’t

[0:39:21.0] KR:

Yeah, absolutely. Well, Sam it’s been so much fun having you here today and and getting into some of the the nitty gritty with you. And I think it’s been really, really valuable to the folks listening and up their game on both how to look at deals and or how to evaluate deals that they may be looking to invest in. And now before I let you go, I want to take you through our keys to success round. There’s four questions I want to ask you. And the first one is, so put your investor hat on your passive investor hat if you could only ask your deal sponsor and one question what would that question be?

[0:39:50.0] SB:

That’s the Very good question. And it’s hard to ask just one question. But I think outside of anything, I would want to know, why is the lead sponsor? Or she’s the lead sponsor? And I think from that question, it can shed a lot of light into who they are as a person. And then obviously, that will create more questions. But if somebody is doing it just to make money, or if somebody is doing it just to grow their unit count to 40,000, or 5000 10,000, whatever, I probably don’t want to be invested with that person.

[0:40:33.0] SB:

Um, I think there’s a lot of things and it helps me possibly know why they’re invested in real estate. What their worldview is, I mean, from that one specific question, it might be hard to get down into the nitty gritty, but how they determine success, what they think a successful investment? Is? There’s a lot of things that can stem from that one question. And I mean, another great question, I think, is share how you’ve experienced or share your failures and how you’ve overcome that. I mean, because multifamily and real estate in general isn’t going to go to 100% plan. So like life, and depending on how you can mitigate or how you respond to failures, I think, is paramount. And I know, from my some of my largest failures as the most growth that’s occurred in my life, and I hope other people that have went through failures, saying can say the same thing.

[0:41:42.0] KR:

 Yeah, that’s a really that’s a great perspective. So next question is, what are you most proud of in your career?

[0:41:50.0] SB:

I think I’m most proud of just being able to provide, well, I have a lot of goals in real estate. And that’s why I’m invested in syndicating, and I’m looking at each investment or development is helping, essentially three shareholders. And that’s the tenants, the city that we’re invested in. And then the investors and one of my goal is to make as many millionaires through real estate investing as possible. And every property we go into, we make better for the tenant we make granted, we do increase rents, but we make their lives better their place to living, we improve it, make it cleaner, create community, within the apartment, and then the city like this one that we have in East Dallas is a complete eyesore. And we’re going to completely revolutionize it. And it’s going to be something that I hope city officials are happy with. And it’s going to increase tax base, it’s going to increase a lot of revenue for even the city that I’m just thankful that I’ve been able to do it in multiple locations, or under people in multiple ways and just continue to grow and hopefully impact more people throughout this process.

[0:43:12.0] KR:

Yeah, that’s awesome. You’re making a big change through what you’re doing. And I agree with you, I think there is a positive social impact to what we do and you’re improving. You’re making clean, relatively affordable housing. And a lot of people don’t have that option. You said, the people that are living in that guy’s building out in East Dallas right now, you know, in those poor conditions, and you come in and improve it. Yeah, that’s awesome. So what is a book that everybody should read?

[0:43:43.0] SB:

I’ve read probably 150 books in the last two to three years. So there’s a lot I could recommend. And maybe it’s just because it’s top of mind, since I’m reading it right now. But it’s a book called gugun not why. And it’s simple concepts. But it’s been kind of earth shattering to me. And throughout my career, I’ve been very hands on. And I’ve, I’ve worked a lot hours over the last 12 or 13 years. And I’ve realized, I need out, start outsourcing a lot of my responsibilities and activities. And I’ve already hired a couple people to help do that. But this book is just great on how to basically remove yourself from the business, or remove yourself from whatever you’re doing to help it run as a true business and not be the sole person responsible for every aspect of that business.

[0:44:42.0] KR:

Yeah, that’s a great lesson. It’s the only way to really grow.

[0:44:45.0] SB:

Exactly. And I, it helps me realize you don’t need to be focusing in the business but focusing on the business and you think you can do it better than somebody else. And that’s not the case. And you’re, you’re helping them you’re giving them a job to help their livelihood and their family and it’s just a reciprocal relationship. If it’s if it’s done well it can be very fruitful up from both sides.

[0:45:12.0] KR:

Yeah, that’s awesome. And then lastly, what is your number one key to success?

[0:45:19.0] SB:

My number one key to success, I think is just being almost stubborn or having Have the grit to continue. I feel like every aspect of my real estate journey, maybe I won’t say every aspect, but there’s been a lot of times in my real estate journey for I could have easily given up, like the first single family house I bought. The contractor went in before we closed as are ripping it up. And I found out there’s a lot of foundation issues, that I was going to actually pull out the contract. And then I found out that he had already went in start doing it. So I was stuck. Or it could have been the lawsuit. underwriting, I don’t know how many deals for two years without seeing anything, I think a lot of people would, would have given up. And if you use that stubbornness, in positive ways to ignite your flame or fire to, to do well, I think stubbornness can be a great personality trait. I know a lot of people look at it as a negative. But sometimes in business, you have to be stubborn, you have to just do things that other people want, or you have to work similar significantly more than other people to get an advantage, especially starting out early on when nobody knows who you are. You don’t have a track record and you can’t prove anything .

[0:46:53.0] KR:

Right? Yeah. And I think stubbornness or maybe the more positive spin is like perseverance. Right? I think that’s a fantastic trade. And it has led to a lot of your success. I’m sure it sounds like and said, No, never give up attitude. And you can’t you’re constantly learning and improving as you go. That’s great.

[0:47:15.0] SB:

I love your perspective on perseverance. That’s that’s the most

[0:47:22.0] KR:

I asked that question on on every episode, and a lot of people have said, a lot of like, perseverance has has been a very common theme among folks that have been successful, you know, what’s their key? It’s been that perseverance, or, hey, that’s the stubbornness to write. You just say dammit, I’m gonna do it. Like, you’re not gonna stop me.

[0:47:41.0] SB:

Yeah, then maybe this is one A, and I’m sure depending on my mood, it can be or maybe one B or one A. But like, I’ve surround myself with some phenomenal people over my career. And a lot of people talk about real estate being a team sport. And I don’t know if I really like that mantra, but or mantra, but it is important to surround yourself with great people. And that can help you that have personality or skill traits that are a little bit different than yours that can compliment you. And I’ve been in multiple industries before real estate, and it was very cutthroat. And I felt like the knowledge sharing and the willingness to work together was non existent. And that’s definitely not the case with real estate. And maybe it’s because the companies I work for were fortune 100 500 companies, but now real estate investors are kinda one offs, or they have a small team. But I love the just the teamwork, environment and atmosphere that comes through real estate investing.

[0:48:46.0] KR:

Yeah, yeah, that’s fantastic. Yeah, I completely agree with you. And well, great, Sam. Well, thank you so much for coming on the show. Before I let you go. if folks want to learn more about you, or what you’re doing, how can they get ahold of you?

[0:49:00.0] SB:

Yes, well, can’t thank you again for having me on the show. And you can reach out to me on my website at Bates capital, or through both social media channels, or my cell phones 972-855-7654.

[0:49:17.0] KR:

Awesome. And we’ll include all that in the show notes so everybody can can hit you up on your cell phone. All right, Sam, thank you. Thank you so much for coming on the show again and have a great rest of the day.

[0:49:28.0] SB:

Thank you, you too.

Thanks for listening to another great episode of Ritter On Real Estate. Hit the subscribe button and make sure you don’t miss out on the content that will make you a better investor. Also visit for articles, videos and tools curated just for passive investors. come next time. This is Kent Ritter  with “Ritter On Real Estate” Go out and invest like a pro.