James: Hey audience and listeners, this is James Kandasamy from Achieve Wealth Through Value-Add Real Estate Investing Podcast. Today, I have Sterling White. Sterling is from Indianapolis and he focuses in Indianapolis and Louisville, Kentucky, currently owning almost 400 units with valuation of 19 million, his company’s called Zander Investment Group. Hey Sterling, welcome to the show.
Sterling: Alright. Welcome everyone, it is Sonder Investment Group is one thing I did want to do.
James: Awesome, we’ll get that right, Sonder Investment Group.
Sterling: If then off camera, for those of you who are from Louisville, he pronounced it Lewisville so, it sounds like you do too. So, that was hilarious. But get your popcorn ready everyone, it’s about to be a show.
James: Awesome. Sterling is very popular in BiggerPockets, you know, I’ve been, you know, getting his blog posts on BiggerPockets for many, many years. Wait, how long have we been doing that?
Sterling: Oh gosh, I– four and a half, five, four years, three and a half years. I don’t even know what day it is anymore James.
James: And you have been interviewed on BiggerPockets podcast for many, many times, right?
Sterling: I would say Episode 308 and then also, I’ve been on their Best Deal Ever podcast, which is like a spin off from their main podcast, but yeah.
James: Okay, that’s awesome. Well, that’s BiggerPockets, this is Achieve Wealth, we are still one of the top 24 Real Estate podcasts for 2019. So, you are in the right place. So, Sterling, why don’t you tell our audience about yourself, about your story? Because I think you have a lot of good stories to share that can be inspirational to others.
Sterling: Yeah. So, just a little background on myself, I’ll give everyone like a cliff note version. So, born and raised in Indianapolis, as James mentioned earlier, fraternal twin brother and single mother and we grew up on welfare, section eight housing, food stamps and I’m sure of other government assistance my mother didn’t tell me about. And I remember the environment that we grew up in just wasn’t the best. And I remember one instance my brother and I were actually sitting at one of those little multi-color like Fisher Price type tables, we’re about six years old and as soon as we get done eating dinner, we go upstairs to– we’re playing like PlayStation or Sega or something and a bullet comes right through the back patio where we were sitting. So, I may not be here, he may not be here, but at the end of the day, decided to not be a product of that environment and use that as fuel. Got started in real estate 2009 on the construction side, fell in love with the industry, not so much getting my hands dirty, and then shifted to the investing. Bought first deal 2013, no money out of pocket with leveraging my mentors cash at that time, scaled up to 150 single families and then in 2017 made the entire shift to multifamily in scale portfolio, just under 600 units, exited out of all the single families and now just all multifamily.
James: Yeah, I remember when I was reading your blog you were all about single family and you know, I didn’t care, but I did learn a lot. I’m happy that you wrote that blog because–
Sterling: The content marketing too, that’s a whole nother, yeah.
James: Yeah, we’ll go deep into that because I think, you know, writing blogs like that where you generate content and sometimes people say, “Why do I need to write?”, right? I mean, that is definitely credibility establishment when that happens, right? So, I’m happy for you that. So, coming back to your– so, after you finish your studies, you said– did you go directly into real estate? I know we missed that part on how did you move to real estate, why real estate was the aha moment. I mean, you said you did some construction but, why investment?
Sterling: Yeah, so, I was in college at the time, I actually dropped out at a later point, college was not for me. I took chemistry one and two, a total five times. Yeah, chemistry, it was–
James: Chemistry is fun man, even though I don’t enjoy it.
Sterling: So, during those college times, during the summer, my roommate’s dad owned a construction company and he saw that I had some free time and that’s how I got started. He said, “Hey, I see you’re around the house oftentimes.”, and I also was doing entrepreneur ventures and then that’s how I was able to earn some money.
James: So, when you were having free time, and when your, you know, friend’s father saw you and there must be something that has attracted you to go and try out this. Because the reason why you had free time because you didn’t find something that was motivating enough for you to go and do, right? But what was the trigger point? Maybe I should go and try that out.
Sterling: One thing that I always did enjoy and seeing, because also, I was able to visit some of his houses that he had because he owned rentals, not my roommate’s dad did and also, he owned rentals. I really enjoyed the element of seeing a house in distress condition and then seeing the aftermath, once the value is created, and then you’re able to see afterwards so, the before and then after. So, that’s what I enjoyed. And then on the construction side, I was helping the bricklayers, I provided them the mortar to be able to lay the bricks, huge grind for sure but after that project is, I started from the beginning and then it was on the fire station to look back and say, “Wow, I was involved with all that.”, such a cool experience.
James: Yeah, didn’t you write a blog about it? I remember someone writing a blog, doing a wall, is that you?
Sterling: Will Smith has a–
James: No, not Will Smith. I mean, this is from a BiggerPockets somewhere, I mean, either podcast or a blog where someone said they build a wall, it was very cool. That’s fine. So, how did you move– I mean, so, before going into multifamily. So, on single family, was there any limiting factor that you had? Because you know, you’re moving from construction to investment side of it, was there any limiting factor, you know, limiting hurdle that you had in your mind, and how did you overcome that?
Sterling: Yeah, I would say I had no limiting beliefs when I was making that transition, and what really helped with that was feeding my mind as much positivity. So, that same roommate that got me started in construction, he has also been pivotal in terms of another aha moment that I had in my life, which was, I was at a college party, yes, I’ll call it what it is and having a good time and I ventured out on my own. This is my early 20’s and I’m out on this boat, and there’s this, and I’m all by myself and there’s this beaming question that comes down to me and says, “Sterling, is this what you want to do with your life?”, and I answered back to that question, “No. This is not.”. Since then, I cut off all my friends because they weren’t going where I wanted to go ultimately. I cut off all the news because there was so much negativity and then I started with a lot of self-improvement and that allowed me to get a lot of the limiting beliefs out and replace those with more empowerment. And I still believe I have limiting beliefs to this day and I’m always looking to become self-aware to identify those and replace those with more empowered ones.
James: Got it. So, when you started on a single family, did you– I mean, how did you start buying deals, how many single families did you have before you transitioned to multifamily? And how did you buy that deal? And how did you make money on a single family to transition to multifamily?
Sterling: Yeah, so, just got up to about 150 of those and I’ll start it with one, and that very first deal was, it was a $25,000. It was in about, I would say a C neighborhood, C plus neighborhood and it was not a shed, those of you who may be on the West Coast or East Coast, you can actually, in Indianapolis get some very affordable houses, you couldn’t get that for that much now since things have gone up. And I presented that to my mentor, he funded the purchase price, and also the rehab and one thing before all of that happened with that deal, I was working for him for completely free, and that’s how I got started in the investing side and was able to compact his 20 years knowledge into the two and a half years that I worked with him.
James: Got it. So, did you use any, but– so, you went up to 150 single family houses? That’s great. That’s crazy because I stopped at 13.
Sterling: I wish I would’ve known that sooner.
James: I cannot take it after 13. But did you have the infrastructure to manage that many houses or did you have like a system?
Sterling: Yes. So, ended up from that mentorship, shifted to a, finding a partner that was very similar, in terms of our ages, because I outgrew that original mentorship, and he was behind the scenes of an operation of a operator that managed closer to about 1000 single families. So, he understood how that worked and we were able to lay the foundation to start building up on that and scale our portfolio.
James: Got it. And how did you buy these houses? Is it through normal MLS or you did off market marketing?
Sterling: A mix of just about everything. So, doing the bandit signs, that was one route and I remember doing those way back when and there was someone who always would go down and take them out. So, that was one. And–
James: I did that too.
Sterling: Oh, did you?
James: Of course, we all are hustlers.
Sterling: Yeah. It was funny, there was a stapler, you would take a PVC pipe, and then you would take the staple and– a staple gun and put it on there so you can hang the sign all the way up on a telephone pole.
James: I didn’t do that.
Sterling: So, people just couldn’t jump up there to–
James: Oh, you did the more advanced bandit sign. I did the one that you just put in, you know, on the side yard and all that. You did the one that is harder, more effective because people can see it from early and nobody can come and grab it. But you’re right, every time you put in and after a few days, the city or someone’s going to come and take it out.
Sterling: Not if you put it all the way up there. So, that was one route, was purchasing from the MLS and then also taking the direct to owner approach as well. So, a multitude.
James: Which one was the most effective? Made you the highest money? Bandit sign, MLS and, you know, direct to seller marketing.
Sterling: I would say the direct to seller was by far. The MLS, had success with that, but that took a lot in terms of offers, which most of it, whichever channel you go through does, that’s the same thing but in essence is, I would say it was the MLS and also the direct to seller approach which included mostly direct mail.
James: Got it. And how did you transition to multifamily and why?
Sterling: Because managing that many single families was a pain in the grass.
James: But you had someone helping you out, right?
Sterling: Yeah, there was a whole team that was involved with the acquisitions.
James: How many was the team?
Sterling: 15, 16 team members.
James: Yeah, that takes time.
Sterling: It worked out on the property management side.
James: Okay. Yeah, I had like 13 houses all on my own so, just crazy, right? So, yeah, that needs a team, 150 houses needs a team. So, why did you move to multifamily?
Sterling: More so, economies of scale was the biggest and then also looked at, okay, where we want to go in the future, which was ultimately shifting to the multifamily at some point so, why not do it sooner rather than later?
James: So, what are the key learnings that you took from single family to multifamily acquisition and operation?
Sterling: Yeah, I would say more so is the management. I mean, if you’re able to manage that many single families, so, yeah, if you’re able to manage that many single families, the same could apply. Of course, there’s some more, what is it? Small day to day changes that would be different on the multifamily side but managing 46 single families is a lot more difficult to manage 1 46-unit apartment complex, which was my very first deal in 2017, which was a 46 unit. And then so, there’s that, and it’s just a lot more labor intensive, because scaling to that many single families is, it wasn’t 1, 2 transactions. There was close to about 100 to 125 transactions, because a lot were one offs, a package of two, maybe a package of three or four every so often. And then, from the multifamily, that very first deal was one seller, one transaction, all in one single location. So, once that happened, it was like, light bulb went off.
James: Yeah. What do you think, I mean, in terms of like value add, right? Because multifamily is valued differently from single family, I mean, did you find that out halfway through? Sometimes people do like single family, I have people who just want to do single family. But I moved from single family to multifamily. What did you see in terms of value add and how did that change your strategy?
Sterling: Yeah, I would say that is a great point. So, also, what was learned is, underwriting was a different style. So, looking at it from, “Okay, the NOI is, let’s say it’s this, we’re purchasing at a 7% cap, in, let’s say, five, six years, we’re going to be looking at an exit. Let’s be a little bit more conservative at a seven and a half or eight and not bank on cap rates or so much going steadily be compressing.”. So, on the single family– on the multifamily side, we took more so that it’s valuated as a business versus on a single family, there’s more exits and so, there was, “Okay, this is one if we exit to an investor, okay this is one if we exit to retail..”, so, those were also differences too.
James: Got it. So, tell us about more about your multifamily journey like, how many units you started and how many units you have right now and how did you grow each one of that, I mean.
Sterling: Yeah, so, started with a 46 unit then acquired a 50 unit and after that 2 80-unit apartments and then 156 units. So, exited out of the 46 unit, the 50 unit and now just own the 2 80 units and the 156 unit.
James: Why did you exit out from the smaller ones?
Sterling: Because they were smaller.
James: That must have made you a lot of money too, right?
Sterling: Yeah, I mean, the one that was a 46 unit is one that was the boiler system. So, that was the old age property. So, there was heating the boiler, that was affecting the, I mean, in terms of the expenses, and then also, we wanted to be able to push up the rent a little bit more and we felt a little bit capped off. And also, we were transitioning to more desirable assets and just step above in terms of the neighborhoods. And so, with all those things considered, that and we’re not able to have on site staff, that’s why we made the transition selling that one and then also there was a 1031 buyer too.
James: Got it. Yeah, smaller one can be a problem with the onsite buyer. So, where do you see yourself going from now on wards on multifamily or any other asset classes?
Sterling: Yeah, so, have shifted more from the older style. So, the ones that have been built pre 1970’s and shifting more to those in the, what you would say, B class, that have less heavy lifting.
James: So, how do you under write a deal? I mean, can you like, walk through your basic sniff test? Because, I mean, this is a market in the Midwest state, right? So, how– what would you look for when a deal is thrown to you by a broker?
Sterling: Yeah, so, more so just looking at and– so, I go the approach of going direct to owner. So, I still do have brokers send over deals, but in essence is, looking for cash on cash to be in the double digits, that way myself as operator, our team as, when we do the equity split, that we still have enough to provide our partners double digits so, there’s that. And our IRs to be anywhere between 15% to 18% on a three to five-year horizon.
James: So, what would you look for, I mean, I’m not talking about the compensation structure. Oh, yeah. So, basically, you say the end result is what they look at compensation structure, right? Before that, do you look at the area, the demographic, the household incomes and all that?
Sterling: Oh, yeah. So, looking at the– so, we look at the overarching market and ensure like, Indianapolis is very diversified in terms of the businesses, you got Simon Property Group, which is one of the largest real estate investment trusts in the world, you’ve got Eli Lilly, which is one of the largest pharmaceutical companies, you got Blue Cross, which is one of the largest healthcare. So, looking at that from that, a high level and then go into the submarket, looking at how are the schools, how is the crime, that’s always something that’s very significant. And then, also yes, looking at the median incomes, ensure that when we’re doing the value add that that submarket can support it or absorb it.
James: Got it. So, let’s talk about off market strategy, there you talked about, how many multifamily deals have you bought using your off-market strategy?
Sterling: All of them.
James: Oh, all of them. So, basically, this broker doesn’t exist, I guess. So, you bought like, what? Almost 4 to 500 units on all of market?
Sterling: That is correct.
James: Awesome. So, let’s talk about that. What kind of strategy did you use to get off market deals?
Sterling: So, that is a secret, just kidding, no, I wouldn’t do that. So, it all starts with a co-call and I know there’s people on here that a little bit screams like, “I don’t know about a co-call.”, but in essence is, that’s the route that we go, we pull a list, we’ll use something such as rihanme.com or even costar.com, not affiliated with either, but those databases you can pool these properties that are between 75 to 200 units in let’s say, Indianapolis, Indiana or Austin, Texas, and then from there, further narrow down the list and say, “Okay, I want the assets that haven’t been sold in the most recent five years.”, and then further narrow it down, “I want the rents market rates between 700 to $1,000.”, and then that is very niche of a list. Most of them will be owned in LLC so, skip trace the LLC and then find the persons, the principal, the owner, and then give him a call.
James: Got it. That’s– well I do a lot of off market as well. So, that’s why I want to understand that, how are you doing it and all that. But it’s impressive that you found all of your deals off market. I think I found like almost three of my deals were off market out of my nine deals that I’ve done right now.
Sterling: Yeah, it’s a whole separate infrastructure, it’s one thing because you think of it when I first started building that out myself, I was the one that headed all of it. So, that’s a full-time job because that’s what brokers do on a full-time basis. So, I was doing that on top of everything else but then I decided to document what I was doing, put an infrastructure in place and now hire people to do that and then now, they, when an owner raises their hand, they just set the appointment with me.
James: So, what kind of infrastructure did you have to do that? Because that’s a lot of work.
Sterling: Yeah, it is. So, a researcher is the first one, and that’s the person I’ll provide the criteria to, they’ll go to St. Louis, Missouri, pull all those properties, and then most of are owned in LLC so, they’ll skip trace the LLC. Second role that comes into play as the co-caller, they’re the one that places all the outbound calls. And the third is, you could say, the acquisition’s manager where the appointment is set with me, or I then hop on the phone call. One of the questions I always ask right from the beginning is, “Why now being open to selling?”, just to understand if there actually is a motivation, if they’re saying, “I just want to hear your offer, and I’m looking for something that I couldn’t resist ultimately, and then I would sell.”, then that person wouldn’t be a good fit. But if there is something to where, not a slam dunk deal, especially in today’s environment, then that’s when I would retrieve the T 12 as well as to start the underwriting process.
James: So, where do you get the list for the initial, you know, such?
Sterling: Rehanme and costar.
James: Rehanme and costar. So, do you use both of it or, do use both in conjunction of each other?
Sterling: I use Rehanme right now and formally, I would use costar because I had a, what is it? The agent that we used, we used apartments.com and they had access to costar because costar bought apartments.com so, they would just send that from the data that I wanted.
James: How accurate is Rehanme owned information?
Sterling: Not accurate, same with costar. And I’ll give you all the prime example for costar, which is one of the most reputable, if not the most reputable when it comes to data, had a representative, one of their reps in the office of one of the apartments that I have here in Indianapolis and I said could you pull the data on this specific property and they pulled the property and also the owner information, I said, “My information is not there and I have this property.”. I said, “Don’t add it.” but, yeah.
James: The same thing happened to me when I first talked to costar, I told them, “Hey, can you pull my property and it’s under somebody else’s name and okay, forget about it.”. No point of selling anything else to me.
Sterling: So, it’s just one of those things that yes, these places are a good starting point. but still you have to go the extra mile and actually do your own due diligence.
James: Yeah, but that was like almost five years ago, maybe they’re better right now, right. So, okay, after you get the data out from Rehanme, do you basically do skip tracing? What software do you use for skip tracing?
Sterling: So, public records. So, have it found an absolute science when it comes to skip tracing LLCs, I’ve looked for just about anything. So, if anyone who’s on here who knows a software or a service that offers that, I would love to hear about it. There’s some I’ve actually looked at two, but they don’t work. So, the route is to go public record to find out who filed the articles of organization.
James: Okay, after that, how you find their information?
Sterling: You use a source such as beenverified.com, B-E-E-N verified.com, or there’s truepeoplesearch.com, whitepages.com, just one of those providers to type in their name. Hopefully it’s not as common as John Smith.
James: Yeah, I’ve heard about beenverified, I’ve never really used it, but I’ve heard about it. That’s good. So, okay, so, now you have all the information, the owner’s information, you’re going to get your acquisition person to call these owners, right? So, how would they first call and how would they pick up the call and how would they approach the sellers?
Sterling: So, sometimes it does vary on script, whether they get the gatekeeper, or they get the decision maker, but it’s more along the lines of, “Hey”, it goes ring ring, “Hey John.”. Well, I’ll speak from my side is how we go. “Hey.”, ring ring, “Hey, Sterling here, Jim, did I catch you at a bad time?”, and then the person on the– or we could just do some role playing right now– no, I was going to say we could do role play but–
James: I’m a tough guy.
Sterling: Because this is what I do with the team is that, we do role playing on a daily basis, going back and forth of objections. But the opening is just more so, “Hey, Sterling here, I just bought Bit Wood Apartments across the street from yours and wanted to personally reach out to see if you’d consider selling.”. So, it’s more of just straight to the point, transparent. Then from there, a lot of times they’ll say not interested, “John, I completely understand. I’m sure you get these types of calls all the time. Tell you what, give me 30 seconds, if you don’t like what you hear, I’ll hang up on myself.”. So, that’s how the dialogue goes and then we also go into some additional questions.
James: Yeah, I get a lot of calls too, maybe one of that is your guys too and I wouldn’t know. Because you mentioned, Austin in the beginning, but I will say I’m not interested, forget about it, because sometimes you’re very busy on the phone, or I mean during our day time and suddenly someone calling and asking something irrelevant, we want to hang up as quickly as possible, but it’s fine that you said, “Hey, give me 30 seconds, you know, so that I can explain it.”.
Sterling: Yeah. You’re just looking to buy as much time as possible.
James: Yeah, it’s all about connection and numbers, right? End of the day, right? I mean–
Sterling: Contacts equals contract.
James: And that one person who said yes to you could be $10 million deal, right? So
Sterling: Yeah, that deal that we were talking about offline was a $7 million deal and that all started with a co-call. And of course, there took many people see, “Oh, it was a co-call that closed on this deal.”, but you don’t see all the contacts and all the work that happened until it got to that point.
James: Correct. Yeah. I think my– yeah, I’m– you know, we made millions of dollars just by co-calling, co-texting, that’s what I use.
Sterling: It works best– it works. But at the end of the day, whatever channel anyone uses, it’s about consistency.
James: Yes. I mean, you can do broker relationship, but I think it’s, you know, you probably get the normal deal at the same time, for a newbie it’s just so hard to get with brokers, right? I mean, they already know you’re a newbie and they’re not going to waste time giving you the best deals out there, right? So, that’s good. So, let’s talk about content marketing because you are expert in content marketing to get invest acquisition, let’s walk through that process. How did you thought about content marketing? How did that have worked out for you? And how does the investors are attracted to come and you know, connect with you through content marketing?
Sterling: Yeah. So, it all started with the book, Jab, Jab, Right Hook by Gary Vaynerchuk. Phenomenal book, he’s an influencer out there. But in terms of that book, planted the seed, and in essence, Jab, Jab– the jab jab is, value, value, value content, content marketing, free content, and then the right hook could be invest with me, what is it? Does it go with my coaching? Or whatever your services happen to be, and– but the original title of the book was supposed to keep saying more jabs, and that’s the exact process that I take it, is put out a lot of content, a ton of content and then also, I use Grant Cardones 10 x rule, philosophy with pushing out a lot. Because the thing is, it’s so noisy in the marketplace so, overall from the content marketing is to provide value and those of you who are just getting started that are thinking, “I don’t know what value I can create.”, share your story, people would want to hear your story and also document your journey as well as far as the content.
James: Got it. So, what are the content channels do you use? You use blogs, podcasts?
Sterling: All of it.
James: YouTube? Oh, you’re on all of it.
Sterling: Yeah, I would say more so now is on, I’ve pushed to the video side. And so, I have my own podcast Real Estate Experience, which James is on and that will be airing soon. So, there’s that is one channel and then also, I use all the social media platforms to post that content. So, on the audio side, iTunes, SoundCloud, Spotify, through the podcasts which a lot is shifting more to the, what is it? Listening, and then have the video side, got YouTube, got Facebook, got Instagram, in which I could take like what you’re doing here James is, you could take the video from this and be able to post it on all those platforms and repurpose it.
James: So, which one do you think is the most effective in terms of connecting with investors and investor, you know, acquisition?
Sterling: Yeah, I would say in terms of, when I got started BiggerPockets was huge and then also, being on others’ podcasts really help, just those two channels alone, of course I had a multitude of other channels but those two really did help with brand awareness.
James: Got it. That’s awesome. Alright Sterling, I’m sure you had tons of value to our listeners. Why don’t you tell our listeners how to get hold of you?
Sterling: Yeah, so, you can visit Sonder Investment Group and contact me on there. My email is Sterling@sonderinvestmentgroup, and also, I’m on Instagram, Sterlingwhiteofficial. If you have any questions, slide into the DM with any questions.
James: And how do you spell Sonder?
Sterling: S-O-N-D-E-R Investment Group.
James: Okay. Got it. Okay, awesome. Alright. Thanks for coming on the show.
Sterling: Alright. Have a great one everyone, keep being awesome.
James: Thank you.