[00:00:00] Michael Voulgarakis: On the side, I just got the itch. I started buying condominiums, off market through a direct mail campaign strategy. And, I would buy a condo unit, do a lot of the renovations with my own two hands because I knew how to do the work. I enjoyed it. I was single with no kids. I had plenty of time to do that. And, I sold off a number of them and the bug just kept biting me. you realize, wow, I just made more money on the sale, than I make at my salary W2 job.
​[00:01:09] Tim Little: Hello everyone and welcome to the journey to multifamily millions. I'm your host, founder and CEO of ZANA Investments, Tim Little. And on the show today, we have with us Michael Voulgarakis, a seasoned industry expert with over 17 years of commercial real estate experience in underwriting and asset management. Michael oversees operations, capital raising, asset management, and investor relations at Southgate Ventures. Michael, welcome to the show.
[00:01:35] Michael Voulgarakis: Thank you for having me. I appreciate it.
[00:01:37] Tim Little: Yeah, and it's great to have you on here. I did look at your bio and it seems like you've been basically living and breathing real estate since you were a teenager. Please tell us how you got started on your journey and how you got to where you are today.
[00:01:52] Michael Voulgarakis: Sure. Yeah, you're correct. I did start off with exposure to the real estate industry. My father was a single family home builder, so I was the cheap laborer. I got brought to job sites to work with the tradesmen in whatever capacity they needed me and I ended up going to undergraduate college, finishing off and I didn't go into real estate right away. I went into some sales roles at some other companies, but, while I was there. This was the run up prior to the Great Recession and real estate values were climbing. That was the last cycle, if you will. And on the side, I just got the itch. I started buying condominiums, off market through a direct mail campaign strategy. And, I would buy a condo unit, do a lot of the renovations with my own two hands because I knew how to do the work. I enjoyed it. I was single with no kids. I had plenty of time to do that. And, when you, I sold off a number of them and the bug just kept biting me. you realize, wow, I just made more money on the sale, than I make at my, my, salary W2 job. I rethought my career. And I decided to go back to graduate school. I got a master's degree in commercial real estate finance from New York University. And, I got my first job in commercial real estate. And the reason I did that is because I did want to invest. In multifamily properties, but,I recognized, look, this is, you're dealing with large dollar amounts,it's an illiquid asset. I really wanted to understand the numbers and all the nuances of the business before I did that. And I chose to go to grad school and take a job in the field. I ended up. taking a,going through, a job with an appraiser. Then I was working for Morgan Stanley on their commercial mortgage backed security desk as an underwriter, underwriting loans. I worked for a number of other lenders doing bridge loans for distressed properties coming out of the Great Recession. and I, there is where I learned, from the inside. what value add apartment or real estate investing is. We did an awful lot of loans on projects all across the country that needed an injection of capital, new ownership to turn them around, to make them profitable. And I had a front row seat to this business play. and I just learned a ton. I met my partner at that job. We ended up. having a little bonus money in our pocket saying, okay, let's go figure out what to do with this now is our time to, to jump in. And we ended up, of all things, being a couple of guys that worked in New York City, starting to buy commercial real estate in Seattle, Washington. Yeah, we, people say, what are you doing? How are you going to manage this? How are you going to make this happen? And we started small, very modest, buying a couple single family homes, condos. Then we started buying quads, duplexes, five units, et cetera. And this was, while we were working our W 2 jobs, my partner, then decided he was going to move to Seattle full time. He's been living there for nine years now. And, he became. what is known as boots on the ground, and I remained on the East Coast. I am still on the East Coast and I started handling everything that I could from afar. number of things. Number one, sourcing deals. I, you pulled some plays off the shelf to source deals off market. and I started raising capital. So those are the two big contributions that I was able to provide to him while he was on the ground dealing with the construction management, the property management, and he really headed up the, the acquisitions, and dispositions, role as well. I did also take part in finding. Debt sources too because that can be done from a desk, you know across the country So I found a way to be valuable to him and stay in that in that business and I did it part time for Oh About five years and three years ago right in the midst Of,the pandemic, I decided to jump off and go full time with him. we had at that, by that time, we had purchased 20 properties in the market and sold off, about, I think nine or 10 of them. And now we're starting to grow our portfolio into larger and larger assets.
[00:06:41] Tim Little: many things that I want to pick apart there. I think the first one is just the exposure that you had early on, right? Like I, I wish, in retrospect, that I had more exposure to entrepreneurial endeavors and well, successful entrepreneurial endeavors. I'll put it that way. My dad tried some things, they didn't all work out, but that's all right. We got by, and then the real estate market specifically, I think some of the lessons I saw didn't really, Resonate or make sense with me until so many years later, right? I saw my parents climb the property ladder. Which happened a lot right in the eighties going into the nineties, someone started out an apartment, which is how we started out. Then they moved into a condo where they have ownership and then wound up making a pretty good profit from that condo and was able to own it. Put that profit into a house. And again, that house appreciated over five, 10 years. and so that in retrospect is where I saw the value of real estate, how you can get this appreciation, which seemed like magic to me. Like I didn't understand why the condo was worth so much more when we sold it. Then when we got into it still seemed just the same to me. and so I think that's one lesson that. That's stuck with me despite not seeing people actively engaged in real estate investing. So I think that's an awesome opportunity for you. And that's something that I'm trying to show my daughters who are now five and eight is, if they ever ask questions, about what I'm doing, I always explain it to them. I don't dumb it down. they may not get it the first time or the second time, but eventually some of it will start to make sense. and then even bringing them onto properties like the triplex that I own when I'm doing small repairs and stuff like that, I'm hoping that, some of that stuff will stick with them and, they'll be smarter than I was sooner than I was when it comes to investing in real estate and really seeing the opportunity there. The other thing that I wanted to hit on was the fact that, it sounds like at each phase, you're using your own resources, right? What you can bring to the table early on, your greatest resource, not just you, but most people is their time. When they don't have experience to leverage, and getting into this business, they're like, I'm, whether I'm a college student or whatever the case may be, may not have a whole lot of money. And maybe I don't have a whole lot of experience, but I do have time. So you were able to leverage that time. And it sounds like you were pretty handy. So that's good too. when it came to improving those condos that you were working on. and then the other thing that I wanted to talk about was when you develop this partnership again, it went back to, I'm assuming strengths and weaknesses, maybe you were better on the numbers was that the case? Yeah,
[00:09:33] Michael Voulgarakis: I think we're, we are My partner and I are both good on the numbers because we do have some similar backgrounds. However,I think where you're going with this is, you don't want to have partners where both partners have the exact same skill sets and interests. and we, while we have the same educational background and job experience, I was the one. That, took, more of a shine or maybe it came more natural to me to capital raising, to talking to prospective investors, to, to spreading the word to, colleagues, friends, et cetera, Hey, this is what I'm doing, and,it wasn't, it's not, it wasn't salesmanship per se, but people would say, why are you flying out to Seattle again? it's a natural conversation to have, and, I realize I enjoy building those relationships and,you do need someone who's going to be capital raising and overseeing operations and, and my partner and I, we slid into these slots where he became a construction manager, right? He was on site at the properties daily, overseeing construction, sometimes doing the work himself at the early stages. procuring materials, working with contractors, and, being however many thousands of miles away, we slowly started realizing, hey, this works. if I can source deals from the East Coast. And equity and help out at, do any random tasks that he couldn't get to do with some paperwork or set up a new property management software or something like that. I was going to do it to try to add value so that we could both be successful.
[00:11:13] Tim Little: I think that's an important point that you bring up. It's not about just skills, right? because a lot of it does come down to. What you enjoy doing because you're probably going to be more successful and add more value doing those things that you enjoy doing,underwriting is a perfect example. There's plenty of people who are very competent at underwriting, but their brain just starts to melt and they lose their soul little by little, the longer they stare at a spreadsheet. Maybe something else is better suited to what they enjoy doing. and I know that's the case for me. I can underwrite, I don't. It doesn't spark joy for me, as Marie Kondo would say, but, and so that's why, I tend towards the asset management side of things. and I think it's very much in line with backgrounds sometimes too, right? As an army officer, I'm used to dealing with teams, solving problems, stuff like that. So it makes a whole lot of sense for me to be sitting in with Property managers and talking to them. Okay, guys, what's the situation? Okay, what have you done to address it? Have you thought about doing this right? that kind of framework and managing the manager as it were?
[00:12:22] Michael Voulgarakis: Yes, I would agree with that.
[00:12:24] Tim Little: Yeah. And so I think the other thing that I wanted to hit on just in terms of your journey, Is that it's, I don't want to call it baby steps because that, that demeans it in some way, but I think people need to understand that just because you had this background where you were getting a front row seat, like you say to,presumably large investors doing large deals, you just happen to be on the other side of the table. that maybe you would jump right in, and the first thing you ever did would be, a 200 unit apartment building because you had seen it so many times before. But it sounds like that really wasn't the case. Tell me why you did. start off small and if you had a plan, from the outset of a, I'll start with a few single family homes and I'll go up like this, and this, because I think for some people they get they start on a bigger pockets or whatever the case may be and they say, I'm going to buy a house. This many single family homes until I reach my freedom number, right?
[00:13:27] Michael Voulgarakis: right,
[00:13:28] Tim Little: and sometimes a wrench gets thrown into that once reality sets in. But they don't know anything outside of that market because things are different Once you get to the commercial side of things, so can you just talk a little bit about that progression in your journey?
[00:13:44] Michael Voulgarakis: sure. in large part. it's a, it was a matter of resource constraint, meaning we didn't have a lot of money, my partner and I are not from wealthy families, we can't, ask our uncle for a million dollar check, half a million dollar check, so it had to be very grassroots, but, we had a few dollars in our pockets and we said, we are going to go You know, we're not afraid to take our own hard earned cash and go prove out our thesis in that market. and, we made money. And, and then we did it again and again. And then you start to realize, okay, we can start to attract investors because we can just show them. the public records of what we bought something for and what we sold it for, and they can see the amount of money we were making. And the proof is in the pudding, right? If you are, if you're making money, people will say, there's a, maybe they'll make more money. and sure. I'm willing to invest with them to see if I can ride along. And that. raising capital at that point, and was still a constraint, it still is a constraint. It's a skill set that I think, anyone who's out there, who's going to buy assets, who wants to buy large assets, if they're not what I'll call independently wealthy, they do have to have someone on their team who focuses on the job task. But, we also wanted to grow into the business. and I say that because I think,what a lot of sponsors do, and this is, I'm not, not to speak poorly about anybody, but they go into a market that they might not actually Have deep knowledge of and to us that was very important. Being in this market that we focus on is Seattle, Washington. not a lot of people are focused on it. and we wanted to get to know it as well as possible, because if we're going to put our own capital at risk and investors' capital at risk, we really felt strongly that we want to have a lot of reps, a lot of deals under our belt before we start to grow. in order to feel confident that, hey, we can, this is our thesis and it works and we want to continue to, to replicate it. But I think the proof is in the pudding when you start building up a track record. You also, what's important, over the past nine years that I think some people overlook is the relationships that my partner, especially because he's on the ground and me to a lesser degree, has made with me. local market participants, most notably brokers. My partner did a very smart thing early on. He said, nine years ago, he said, I'm going to get to know the young brokers in the market who are just starting off. if I buy a deal from them, I'm going to give them the sale. And,we've purchased 24 deals, sold 14 of them. And we've built some wonderful relationships that way. We've closed on everything that we've ever put a deposit down on. So they know we close. So we have that strength going as well. That is not something that you can get by just walking. Walking into a market. day one. I'm not saying that's just the way we chose to go about it and grow organically. but those are a couple of big things that I think have made a difference in our ability to source good deals in a market. That is, it's a very competitive and tight market, but very low cap rates. And I think all those things combined have made a very big difference.
[00:17:15] Tim Little: Yeah, and you highlight, like two, two schools of thought on that, right? so I talked to tons of sponsors and some of them are hyper specialized in these unique markets that a lot of people don't even necessarily want to play in. For whatever reason, whether it's, high barrier due to cost or the relationships like you talked about, in places like Seattle, Boston, California, pretty much anywhere in California, And so they like,cut out their own little niche there because they have those established relationships. They understand how maybe even the city and the county work, the speed or lack thereof at which they work and who to talk to in order to get things done. They establish relationships with brokers and other players, whether that's local banks, insurance. And so that gives them a distinct advantage within those specific markets. But then you talk to other sponsors. And they're very much about the numbers, right? If the numbers work, then, we will do this deal. And I think that can be successful. But, going back to your earlier point about having boots on the ground, you still need to have someone who is on the ground in order to make sure that things go as planned, that business plan gets implemented the way it's supposed to, because it's virtually impossible to. Asset management with no one on the ground to enforce your standards and what you want done Some try to fly in and fly out, but it that's not feasible to me Some people may make it work and if they do, more power to them. That's just my perspective on that
[00:19:29] Michael Voulgarakis: Yeah, I would agree with you on that. We self manage our properties. We do all our own construction management. and we manage everything ourselves. We are what's called vertically integrated. which resonates with investors very well. they like to hear that story, and I would agree with you. I,if someone can, buy an asset that is in a market where they don't have someone located there who has an equity interest in the building, who's not incentivized to. mind the store, if you will, all the power to him. For us, we found that no one will manage the property. Your property like you will no one will asset manage like you will no one will Do any do construction management like you will and you know what when you're dealing with large assets and you start if you have, expense leakage, like expenses are a little bit higher here, a little bit higher there, those numbers start to grow very quickly and having someone who's on the ground to, to has the authority to make the decisions to say, no, we're not going to do that. We're going to do this instead. and also someone who has theirs, because they're living, my, my partner's living and breathing the market, he sees what's going on. In the market, he can, it's a, there, I will say that there is a feeling of what's going on in the market,and he has the ability to say, yes, we can raise rents by this much, and he's willing to, he's, because he's in charge, he's willing to push those rents, if a tenant comes back and says, yes, we if there's a discussion over that, he's willing to try to push those metrics to see where, quote, the market is, end quote, and try to maximize value. Now, third party property managers are great, but, are they pushing for that last, 5 percent on the, on the income? are they pushing for the extra 10 here, the 5 there? if they're not, then you're just not making as much money and you're not creating as much value. And oftentimes in real estate. Those last few dollars, in any business really, those last few dollars are the ones that, that, you're able to put in your pocket, right? It's the difference between a low cash on cash return, or, and a, and an okay, respectable increase in value on an asset, if you, to create, versus a really good or outstanding. Cash on cash return and a phenomenal value creation when you go to, to sell an asset. the little things over time, do matter, ultimately.
[00:22:11] Tim Little: Yeah, absolutely. and like you said that's from our side having third property, third party property management in place, that's why we have to keep such a close eye on things like expenses, whether it's on the renovations or the staff, etc. Because if you don't pay attention to it and you just assume they're doing a great job, then all of a sudden those costs will rise and you'll be like, what is this? What is this travel fee? What is this, office expenses and they'll, I don't want to say they'll get away with what they can, but they'll be a little more liberal in how they're spending if they don't understand that, someone is keeping a close eye on it. I guess I'll leave it at that. The other, I think, is an important gold nugget that you dropped for, especially those who are. aspiring sponsors, syndicators, is that idea of establishing relationships with brokers early on, right? And when you go into it, everybody's all gung ho when they first decide they want to be an active investor. And they want to establish a relationship with the VP at, this and that. brokerage, and that's not gonna be easy because you have zero credibility, and you just have to be mindful of that, accept it and say, that's okay. I'm gonna go to the junior guy who's 24 years old, freshly minted into the job and guess what? He's eager to establish relationships too, right? He's trying to build his own budding career So there's a mutually beneficial relationship that can be established there and you guys can grow together And I think you know part of that what's important to understand is that most of these deals are Used to be three to five years now, maybe closer to five to seven years In my world at least so you have to think about that relationship over the next five years like yeah He may be, junior new hire now, but five years from now He won't be and over the course of that time you want to be the one that eventually, you know He's calling with that pocket listing that he hasn't put out there yet. And that may save you know, tens of thousands of dollars because it didn't go to market. So that's a really important point for anyone who's considering going the more active route of real estate investing.
[00:24:32] Michael Voulgarakis: Yeah, I, and, I, if I may add one more tactic that worked for us, alongside, my partner developing those. Broker relationships,and this is one that I undertook and did, because I was so far away. if you are, if you're, if your listeners have an interest in buying,not going for the 200 unit property on their first, go around because they don't have the resources, whatnot. If you want to get noticed, aside from buying a small asset from a junior broker, it helps put them on the board, as you mentioned. Another way is sourcing an off market deal yourself. That is, sizeable, whatever that might be. in Seattle, that's a, maybe a 10 unit building. 250, 000 a door typically for an unrenovated property. You're talking a 2. 5 million assets. That's, that will get you noticed, when that sale is recorded and the brokers will find out. Now, how do you do that? It's an old school technique. it's one that I employed to buy the condos in when I was much younger and it's a, it's,it's not fancy. It's a direct mail campaign. So I would encourage people to do a direct mail campaign to owners that have not sold their buildings for many years, the longer they've owned it, the higher the chance that they'll. I want to sell it. Especially as they, naturally as people age, typically those small buildings are not owned by corporations or REIT or something like that. And, then, we've done two of those direct mail campaigns in that market and each time we've bought one very good deal. So for a few thousand dollars, we bought, however many millions of dollars worth of assets. And,you end up finding owners that want to save money on the commissions. They don't want to deal with a broker, and, if you can close on something like that and take advantage. of something like that, you immediately go up on the radar because everyone says, who are these people? We don't know who they are. And the junior broker might say, I know who they are. And it becomes a symbiotic relationship. You're helping your own brand in that market. You're helping the brokers in that market. and people are going to want to get to know you at that point. So instead of you chasing the brokers, a little bit of the momentum might start coming your way. as well.
[00:27:00] Tim Little: Yeah. And just to drill down on that, do you find that's most effective on what the five to 20 unit range is, is that about right?
[00:27:07] Michael Voulgarakis: Correct. Absolutely.
[00:27:09] Tim Little: Okay, awesome. Yeah, that's good. That's another good one. All right, so we're gonna pivot a little bit And so that you can help level set the audience because I probably should have mentioned this before but please tell us in your own words What asset management is and then I have a question related to that
[00:27:28] Michael Voulgarakis: Sure. Asset Management does differ From property management, and the primary objective of an asset manager is to maximize the value of the property you're overseeing. To that end, the asset manager oversees not only the property manager and the leasing, but also the financing of the asset, whether it's on the acquisition. or, refinance or the disposition or the sale of the property. They oversee and plan for capital improvement, projects, major items that need to be fixed, or upgrades, to a building. and they do also oversee, typically the eventual sale of the asset. and they're, and throughout the life cycle, they're also, overseeing the, and creating the budget for the operating and the capital expenditure budgets. and if it's a, if commercial leases are involved, if it's a commercial property, negotiating commercial leases is a very important part, and negotiating any third party contracts with. any, anyone that provides any service that's outside of the property manager's realm to the business that needs to be paid for, for example, we have, laundry,maintenance contracts with,with a provider who will come fix some of the washing machines and,and dryers, at our, at our properties, right? I've negotiated those contracts with them. and ultimately, an asset manager is looking at the property from a high level and making sure that they're managing the cash flow of the property properly, and managing the monthly or quarterly, distributions, to owners.
[00:29:15] Tim Little: Yeah, and I guess the way when, like I'm talking to folks who are in the business world, I try to equate it to a project manager, right? because they're ensuring the implementation of whatever your business plan is, which includes all of those things that you just went into. I feel like sometimes that's the best way for them to wrap their mind around it and it's something that they can relate to. Now, I have my own opinions on this, but tell me how important you think asset management is in the current commercial real estate environment.
[00:29:48] Michael Voulgarakis: I think it's more important and more important than ever. I think,people, you can buy an asset. You can put all those pieces together, buy something successfully, but then what? What is your plan for the asset? And, tying into our, what we were talking about before, who is overseeing the property manager, and who is minding the store? they're the ones that are ultimately doing that and making the decisions that will make the property as profitable as possible. And if you don't have someone in that seat, yes, an asset can run, but I was hired to take an asset management job many years ago, because the company was growing. They purchased a lot of assets, but they didn't have someone who could dedicate themselves full time to it, and you end up having a lot of expense leakage. you have, your downtime between leases is oftentimes higher than it should be. so you're losing revenue that way. So really, on a pro forma, your cash flow statement, you really are looking at every single line item on your pro forma and figuring out, how do I improve all of these? What strategies can I implement? And you work with your property managers and,to implement those strategies to, to make the building more valuable. But I think your statement about your project manager. is, is spot on.
[00:31:11] Tim Little: Yeah, and I guess, putting yourselves in the shoes of a passive investor, what questions should they be asking? You know a potential sponsor that they're going to invest with about asset management
[00:31:24] Michael Voulgarakis: I think they should ask, do you have someone that's dedicated to asset management? or is that responsibility split up amongst people? And, one thing also, I think, some people think, you buy an asset and you, whether you're renovating it or not, and,You don't need to necessarily account for the money or project forward for the money that you're going to need to keep the building up to market standards. That's called capital expenditures. As an example, let's say you have an apartment, a 100 unit apartment building, and you buy it, and all the air conditioning units, all the HVAC units are, they're working. Let's say, but they're at the end of their useful life. Like in the next five years, they're probably going to start to go you're So have you budgeted for those? Have you budgeted for the roofs? How old is the roof? How old is the, pick the largest items at a building, the most expensive ones, that is, the roof, the paving, air conditioning units, siding, windows, things like that. And if they You know, if you look at an asset and say,yeah, you could buy it and you can run the property as is for a good while, a few years, four or five years. But at some point, you're going to have to start spending money on these large capital items. The question to ask is, have you budgeted for them and how far out have you budgeted and where are you getting your numbers from? because ultimately you should have a study done by your engineer. who will say, roofs cost, your roofs are going to cost this much, paving is going to cost this much. And ideally you cross reference that with quotes from actual contractors and the numbers won't necessarily be the same, but you come to an agreeable number and you put it into your schedule and ideally, either that money should be in an account today or some of the cash, some should be in there today and some of the cashflow gets contributed to it. Or,you start a, to drip money into a savings account over time to meet those capital needs as they arrive in the future.
[00:33:31] Tim Little: Yeah, I think that makes a lot of sense and it's probably going to resonate with a lot of folks who have you know Even dabbled in the single family space because they too have had to take into account Okay, if I need to replace this roof within five years Approximately how much will that cost and at some point I need to set that money aside to do that You're just you just have to think that through, but on, a much larger scale and asking those questions. if that sponsor doesn't have a good answer, for, one, what their estimated costs associated with that over The entire whole period of the deal and then to like, like you talked about, which is also really important is how that money will be allocated, whether it's going to be, they'll have it up front in reserves or whether there'll be setting aside a certain amount, each month in order to address those additional costs, they should have good answers for the, For that If not, that's a big red flag in my book. Alright, we are running low on time, so we do need to transition to the turbo round. So I'm gonna ask you three questions that I ask every guest and I just ask for a quick, honest answer. Are you ready?
[00:34:42] Michael Voulgarakis: Yes.
[00:34:43] Tim Little: All right, let's do it. What is one red flag every investor should look out for?
[00:34:50] Michael Voulgarakis: I would say overzealous underwriting assumptions on the part of the sponsor. I would look at the rent that they are projecting to achieve in the units. If, let's say it's a value-added property and they're going to renovate it and they think they're going to get higher rents, I would do some homework on your own as an investor to see what apartment units are going for in the market to make sure of that. That number sits right with you, so it seems right. If they're way over,or a little bit over, you should be having a discussion with the sponsor about that.
[00:35:27] Tim Little: Yeah, absolutely. and I've seen brokers be guilty of being a little. I'd say overly optimistic in their projections for future rents. so for the passive investors and the active investors alike, they both need to pay attention to that piece. All right. What is a myth about this business that you would like to set straight?
[00:35:48] Michael Voulgarakis: that, it is a, a get rich quick business. it's a get rich slowly but steadily business instead.
[00:35:57] Tim Little: Yep. Couldn't agree more. We've heard that a few times on here. All right. What does success look like to you?
[00:36:04] Michael Voulgarakis: for me, it is having enough resources to be able to spend time the way I want to spend my time and most notably, the ability to spend as much time as possible with my wife and two daughters.
[00:36:21] Tim Little: Awesome. a fellow girl, dad. Love to hear it. All right, Michael. hey, this has been great. You brought a lot of insight on the show today So thank you for that Please tell our listeners how they can get ahold of you and if there's anything else that you'd like to share with them
[00:36:34] Michael Voulgarakis: Sure, you can, visit our website. It's S R E Ventures. SREVENTURES.com. It stands for Southgate Real Estate Ventures.
[00:36:48] Tim Little: All right. we'll have all that information in the show notes I appreciate you coming on Michael and I look forward to continuing to see you do big things on your journey to multifamily millions
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