Sterling White (03:02):

The only thing I would say, Robert, is they say everything’s bigger here in Texas except the toilet that I have. I don’t know if I just have a defective toilet because it’s the same size as the ones back home.

Robert Leonard (03:13):

What made you make the move from Indy to Houston?

Sterling White (03:17):

I’d say is real estate was a part of that decision. Also, the weather too. During the winter times it is brutal in the Midwest, in Indianapolis. There’s that. And then also I just wanted to change. I was having success in Indianapolis. I started to get a little bit more comfortable and as a way to really just change up the environment, I just ended up moving to Houston. And I’ll tell you I was scared… Not scared. Yeah, I would use the word scared or just fearful in making that such of a big decision.

Sterling White (03:51):

And as soon as I was thinking about making the move is all these different thoughts came in my mind. You’ve been living here all your life. Your family is here. That’s the unknown. And when I’ve had my biggest breakthroughs in life is when I’ve actually leaned into it.

Robert Leonard (04:05):

There are a lot of places you could have gone. Why did you choose Houston?

Sterling White (04:10):

Yeah. So I was looking at Tampa and then I was looking at Austin. So one, the cost of living here is good on that side and then also buying deals as well as you really get the best of both worlds from an appreciation and a cashflow. It’s diverse from the people that are here, the culture. There were just a multitude of things, but more so from a real estate play and then also from a cost of living because I ended up… Tampa was one and then I ended up narrowing down to Austin, then Houston, and then Austin, the getting cash flow and yields out there a little bit more difficult. And then also the cost of living is higher too, so that’s when just Houston made the most sense.

Robert Leonard (04:53):

For those who didn’t hear our last episode together, since we’ve gotten a lot of new listeners since then, tell us a bit about your background and your upbringing through Section 8 housing and how that’s led to where you are today.

Sterling White (05:06):

Humble beginnings for myself is that I grow up in the not so good parts of the city of Indianapolis where when you’re driving through the neighborhood you’d lock your doors and roll up the windows. Single mother, fraternal twin brother. Some people say he’s as dark as Wesley Snipes. I don’t think he’s that dark but is. And at the age of five years old almost lost my life due to a stray bullet. That was just another day living in the hood and you never knew if you was going to make it to the next day.

Sterling White (05:36):

And then luckily ended up making out of that environment when mother moved us out from the inner city to more of the suburbian location. We were instilling lower income housing. My brother went back to that environment and actually took a different trajectory in life and got started in real estate on the construction side as a laborer.

Sterling White (05:54):

Then I read the book, Rich Dad, Poor Dad and everyone’s familiar with that book. Well, most I would say. And I saw that the rich and wealthy people did not get that way by being laborers, and I started investing. I figure out a way to become an investor, but I had no cash and credit score wouldn’t even register when you would pull it. Ended up finding someone to partner with who brought the cash on that very first deal, which was a single family house, bought 150 single families and then started transitioning to multifamily, which got up to about 500 units. And over the years had been selling.

Robert Leonard (06:27):

How did you make that transition from the smaller deals, the single family deals to multifamily. Why did you decide to make that transition?

Sterling White (06:36):

I’ve got a hat on for everyone who’s on here, but part of the reason due to that is having that many single families, 150 is I lost a lot of hair due to that because there is… I was self-managing. And when I say I, there was a team involved as well is that there was a lot of moving parts. This wasn’t just one package of 150 single families. That would’ve been nice, but this was a lot of one-offs and if lucky, would get a package of two to three here and there.

Sterling White (07:04):

So it was a lot of volume, Robert with looking at a lot of deals in order to get one. And then also from the management standpoint is had 10, 11 employees or so roughly around that in order to manage all that because had several in Indianapolis and then several in Dayton and then took a step back and said which model is more scalable? And it just made the most sense to make that transition to multifamily. And this was in 2017.

Robert Leonard (07:31):

Since you lived in Indy, you spent a lot of time focusing on that market. I’d say you know it really, really well. How has that market evolved over time for real estate investing and where are you focusing your efforts now outside of just Indy? I know you mentioned Houston, but are you looking in any other markets as well?

Sterling White (07:48):

Yeah. So I actually bought a deal, this was an 80-unit in Louisville. This was 2019. Yeah, 2019. And so primarily in the Midwest markets, Louisville, Louisville, or Louisville, however you want to pronounce that, and then also Lexington, Kansas City. And then several markets such as Cincinnati and Columbus in Ohio. And how Indianapolis has shifted over the years is it’s becoming even more competitive and the price per unit, that’s one gauger I would always use when buying deals is could be all into a property anywhere between about 50 to 55,000 per unit.

Sterling White (08:29):

And this isn’t Indianapolis, you guys. People in California are thinking, “I couldn’t even… What?” There’s no way be all into the unit about 50 to 55, a thousand and then be able to rent that and push the rents up to about $800 on average. However, that has gone up to 70, 75 per unit and that’s just getting priced out.

Robert Leonard (08:52):

How did you find the other markets to invest in? I know some of those are not that far from Indy. Was that a part of it? Was it data? Was it demographics? What were you looking for in those markets?

Sterling White (09:04):

Very comparable to Indianapolis and the economics, meaning that the population growth, the job growth as well, and then also the corporations that are within the city. But nothing too crazy when it comes to the growth. Slow and steady, which is how Indianapolis has been. And then also preferably markets that are within about a two, two and a half hour drive, because I have taken the strategy, and actually when I say I again, there’s a team involved in that, have taken the approach and going direct to the owner.

Sterling White (09:39):

The way on how I follow up, I could say I in this particular case, but is how I would follow up with an owner is that it would be easier for… Let’s say it’s Monday, Robert. I would follow up with the owner say, “Hey, I’m actually going to be in town this upcoming Thursday. I would enjoy putting my hand in your hand or either catching up.” Just another way to follow up and it would be easier to take that trip and that would give me the upper hand over a lot of competitors who couldn’t move with that type of speed.

Sterling White (10:07):

So that’s another element that helped too is that those economics and then also how close it was to the Indianapolis market, about two and a half hours.

Robert Leonard (10:18):

You just mentioned briefly how you’re finding deals, how you’re getting contact with owners, but breakdown for us your acquisition strategy. How are you finding deals? What strategies are you using? Are you doing any on market stuff? Is it all relationship based? Are you doing direct listing to direct owner? Are you doing mailings? What strategies are you utilizing?

Sterling White (10:36):

We’re going to have to unpack that quite a bit, Robert, but how is pulling list? So how it first started was taking the driving for dollars approach. That very first apartment, which was a 46-unit is just driving around finding properties that need work. This one in particular is you would… The parking lot looked like an alligator’s back. So it was just very bland and just needed work. So with that one, that was the approach that was taken from a lead generation standpoint. But the primary point of outreach is via call. So cold calling.

Sterling White (11:09):

And then shortly after finding that initial deal is had to find another scalable approach. So then started pulling lists from, let’s say, a database such as Reonomy or even Costar and pull these lists and then do the outreach through that way and have VAs that are making the calls. And then soon as an owner raises their hand, “Yes, I would be interested in selling, not just give me an offer I can’t refuse or everything is for sale for the right price.” There has to be actual motivations. And then that’s when the appointment’s set for me.

Robert Leonard (11:42):

I remember last time we talked, even though it’s been a while, you walked us through your script and your conversation that you have with these sellers when you’re doing cold calling. Take us through that example. I know you mentioned that your team is making those calls for you. You’re not necessarily doing it so much yourself anymore, but still talk us through that a little bit. What is their script? What are they saying? How are they having those conversations?

Sterling White (12:04):

It’s very simple and transparent, and straight to the point. There’s no NLP, this person says this, I’m going to do a back flip there based upon what they said to, what is it, match what they said? There’s none of that. It’s just simply, “Hey, my boss…” Well, it opens, “Hey, Robert. Sterling here. Did I catch you at a bad time?” So we always open up with that note, “Hey, how was your day?” That just screams sales call.

Sterling White (12:29):

So we start out with that. Many of times, they’ll say, “Well, what is this called regarding?” And say, “Hey, completely understand. I’m sure you get these calls all the time, Robert. My boss wanted me to personally reach out to you. We just bought Bentwood Apartments across the street from yours and wanted to personally reach out to see if you consider selling.”

Sterling White (12:46):

So very straight to the point and it’s either yay or nay from that. And many of the times they’ll say, “Hey, not interested. Hey, I knew you were going to say. Now, give me 30 seconds. If you don’t like what you hear, I’ll hang up on myself. Sound fair?” Because many times you want to keep yourself in the call because they may just say not interested just to get you off the phone.

Sterling White (13:06):

It’s the same as if you walk to a shoe store, which not many people do nowadays because now you could just order the shoes, but let’s say you do walk into a shoe store and the person comes up to you and you just say, “Just looking.” It’s just a reflex. That’s one thing same as the call is you want to overcome that initial objection and find out if it’s actually real. And then that’s when you go into the fact-finding to actually determine if there is a desire to sell or some motivation.

Robert Leonard (13:34):

We’ve talked a bit about the markets you’re going into, how you’re finding those deals, some of your cold calling strategies. We haven’t talked about. What are you actually buying? Take us through your buying criteria. What does that look like? What are your criteria when you’re going to look for something to acquire?

Sterling White (13:50):

Formally, these were and actually have shifted the criteria since then, but more so around the 1970s built in construction. These are in B minus to B locations and also just right outside the city. So not in the city, not in the suburbs, but just right outside of that. I believe some people actually call it the urban core. So just outside of the actual city and these are properties that need work.

Sterling White (14:19):

So that’s formally how it was. And just give you a prime example of this, this is 156 unit that bought about a year and a half ago is that it was $6.2 million is the purchase price. An absolute steal from a… Was at a purchase price standpoint and then put $2 million into that. So it was a heavy value add and actually now shifting more to the 1980s less of the heavy lifting because what I’m finding or have found is that the risk versus reward of its best oftentimes actually by the newer asset that has less of the heavy lifting because has more risk, it’s just not as enough of a spread.

Robert Leonard (14:58):

I think you were looking for the word deferred maintenance maybe?

Sterling White (15:02):

I would say the delta in saying that you can buy something that, let’s say distressed at a five and a half cap and then a B property or that’s 1980s for about the same. So it’s not worth the risk in going with something that has more risk and deferred maintenance as a prime example versus just now going with something that’s 1980 that has less because the costs are actually becoming very thin on the seat because people are willing to pay more.

Robert Leonard (15:31):

Are you raising capital for these deals?

Sterling White (15:34):

Correct, yes. All in house.

Robert Leonard (15:37):

And how are you doing that? Take us through the entire cycle from very beginning to the end of a potential investor in one of your deals. So take us from, they just heard about you, you got to take them from the very, very beginning all the way to the end of when they actually give you money to invest in one of your deals.

Sterling White (15:52):

But how it starts from the beginning-beginning is content marketing. That is the way being on podcasts, being on BiggerPockets is another example is contributing content so that way people come to you and they’re more warmer that way versus you reaching out to them. So there’s that. They come into the funnel that way and then once a deal is under contract, then that’s when you would email the investors and say, “Hey, we got this deal. It’s under contract. We’ve got 30 days due diligence. We’ll keep in the loop of how things are progressing.”

Sterling White (16:25):

And during that whole 30 days phase and even prior to that is we’ll get soft commitments from investors. So take the approach there as raising the fund to where you already have the capital available. The process that I take is that once the deal is under contract then start raising money.

Robert Leonard (16:43):

Have you ever run into a situation where you got a property on your contract and you weren’t able to raise the capital?

Sterling White (16:48):

Yes and no. So yes on this was a deal that was the second, which was the 50 unit but it didn’t raise all of the money to actually have in the bank account. And that’s one thing you want to have is that you want to have the money raised that you need to actually close on the property in your bank account. Can’t show up to the title company and say, “Hey, we’ve got about a million dollars that’s on the way. I don’t care. You need that in your actual bank.” On one deal is didn’t have… It was about 200 to about $300,000 left was needed to actually close on the property.

Sterling White (17:19):

So it didn’t have that. In essence had to get gap funding from a lender, so a short term bridge to close on the property and then we were still continuously raising to then cash that person out.

Robert Leonard (17:32):

Has it become more difficult in recent months, weeks to raise capital given the environment that we’re in?

Sterling White (17:39):

I would say is over the years is haven’t been acquiring. I wouldn’t know necessarily on that. I do know my business partner who has taken a transition in raising capital for deals. There hasn’t been any issues on that.

Robert Leonard (17:54):

When was the last time you acquired a property?

Sterling White (17:57):

This was a year and a half. So that 156 unit. Myself is over the years have been selling to get dry powder because I believe we’re going to start to… Which I’ve seen a shift in the market to be more of a buyer’s market and have the cash ready and available to start to scoop these deals up.

Robert Leonard (18:15):

How often are you using creative financing when acquiring deals and which creative financing strategies are you using?

Sterling White (18:23):

On the creative financing side, the very first deal, which was the four to six unit was the creative. And we could go into the definition of what is creative financing, but I would say is for that one in particular is that the total purchase price was $900,000 of which had the… It was seller financing. I had to put down $200,000. The seller carried back 700,000 and then raised additional $485,000 from outside investors to then take care of those improvements.

Sterling White (18:56):

However, after that have just taken the simple approaches. If the property is $10 million is the purchase price, 7 million of that will come from a lender and then raise the remaining 30% from investors. That’s the structure that have been utilized and going forward.

Robert Leonard (19:13):

It sounds like you have some potentially strong opinions maybe on the current environment given that you’re selling off some properties, not doing any acquisitions currently. What do you make of the current environment and what do you think it means for real estate investors?

Sterling White (19:27):

It’s very uncertain times I would say. And I’ll tell you, Robert, the third deal that I acquired, it was an 80-unit apartment, Buckridge at Southport, bought it for $3.35 million. A year and a half, two years later, sold it for $5 million. I have no clue how that person made that deal work. I’m looking at it, we’re operating it at this, how can someone make that work? So it is just at this point not making sense where people are buying deals for.

Sterling White (19:57):

I believe those same deals will start to come up because what they penciled out in their aggressive model likely is just not going to end up panning out and then they’re going to have to sell because they’re not going to be able to operate the property at that level. So that’s what I see, those deals starting to come up. And then also the rising of the interest rates. But also the thing is with commercial is that even with the inflation going up as another is that as inflation goes up, rents go up.

Sterling White (20:26):

So I don’t see a huge shift when it comes to multifamily. Residential for sure. That’s already being affected. But I am starting to see sellers’ expectations starting to come down to be more with where the market actually should be.

Robert Leonard (20:41):

Are you keeping a list of any of those properties that you’ve sold that you felt were maybe a little bit on the steep side and you’re not really sure how those people are making the deals work so that you can follow up with them in maybe six to nine months, 12 months to see if they’re ready to sell just given that you know that their business plan might not have worked out?

Sterling White (20:58):

Yeah, because I made the mistake and I don’t know exactly how their numbers end up panning out or anything. But one of the deals that I acquired, which was a 50-unit ended up overpaying for the property, didn’t raise enough money to take care of the renovations up front because if it would’ve raised the money up front then it would’ve affected the returns on the investors. And the returns, it was already tight deal.

Sterling White (21:23):

This was a mistake I heard so many other people make and was like, “You know what, I’ll be able to figure this out.” No it didn’t end up hand out that way. So I believe there’s people now that are actually more so making that mistake as well. I wouldn’t speak on that particular deal because I don’t know their underwriting, but several years on that mistake that I made was just a year and a half later had to end up selling that. So that’s what I believe what you’re saying is will definitely follow up with those.

Robert Leonard (21:51):

How did that deal end up for you?

Sterling White (21:53):

It was okay on the return to the investors. Did not hit the expected projections, but it was a death spiral as I would say is that the thought would be able to take the improvements that we would put to the upgrades to the units to then push those to the market rate rents out of the cash flow.

Sterling White (22:13):

You guys, everyone on here, please, please, please, please jot this down. I know someone’s going to make the mistake anyway, but that does not translate to reality because it turns out that we just didn’t have enough cashflow to be able to sustain that. So we were barely just breaking even on it and could barely pay, what is it, distributions to our investor partner who actually had to sell it.

Sterling White (22:36):

But here’s the thing, Robert, we sold it at the height of the market. Just think is if we sold it in a downturn or actually couldn’t be able to sell it and we would’ve had to ride it out, that would not have been a good experience. So that’s why I want to share that with people is yes, it’s good to learn from your own mistakes, but I’ll tell you is it is even better to learn from others.

Robert Leonard (22:58):

What would you say the biggest mistake was with that deal? Did you pay too much money or was it overestimating cash flow?

Sterling White (23:05):

It was a combination, but I would say initially was in the scarcity mindset and that, hey, we got to figure out a way to make this deal work. So that was first and foremost. And second, one, overpaying for the property but then second by overpaying for the property that caused us to say to creatively figure out ways to get into a bad deal and that was not raising enough money to take care of the CapEx. So that was the second mistake that was made. And then that of course led to other things too. But primarily is overpaid for the property and was in the scarcity mindset.

Robert Leonard (23:42):

Does the scarcity mindset mean that you felt that you were going to have a hard time finding another deal so you felt like you had to make this deal work?

Sterling White (23:49):

Exactly. I know we’re talking about real estate but it also works into other aspects of life is let’s say the dating for whatever is you’re in the dating and you’re like, “Oh man, I want this woman here and I don’t have any other ones that are close to this one or just in the pipeline,” for lack of better words. And then you overlook all the red flags in order to make that work. So it’s the same thing in this case.

Robert Leonard (24:17):

How have you applied what you learned from that deal to future deals?

Sterling White (24:22):

How that works is just having more of the abundance mindset is numbers don’t lie and the numbers tell you an actual story is that you have to look at it objectively and logically and not get your emotions involved with it. That’s the biggest thing I’ve learned is that if the numbers tell you one story just to stick to those numbers and don’t look to creatively figure out a way to get into a bad deal.

Sterling White (24:50):

I had a call with this other investor that he was looking to buy a deal and he was asking me for all these creative ways to finance the deal. And I said, “I know what you’re asking me is I remember asking others the same question on a bad deal, meaning that I was creatively trying to figure out a way to get into a bad deal and overpay for it.” There’s no creative that I found, creative way to get… Or why you should back into a bad deal. If it’s too much, it’s too much.

Robert Leonard (25:21):

How did your investors handle that? How did they just accept what that deal became?

Sterling White (25:27):

Luckily, I had a track record before that and having good to great returns on that. And this was just one of those deals that through the whole entire process was very transparent with each and every one of the investors. It was unfortunate. It wasn’t that they lost money or anything. It was they got their initial investment back. We just didn’t hit our original projections. So as we were transparent through the process and then also set that expectation that, “Hey, we’re not going to get what we thought we were going to get. We’re actually shooting for this.”

Sterling White (26:00):

They were okay with that and they actually… Some invested, some didn’t invest in our upcoming deals. Others did because we were transparent throughout the whole process. And those things is on here. I’m okay with sharing my mistakes because mistakes are going to happen and I want to be transparent with everyone on here, that way you can learn from my mistakes.

Robert Leonard (26:20):

I’m sure it’s going to vary from deal to deal, but what do you classify as a good deal? What are your benchmarks or hurdle rates for whatever metric you look at? Are you looking at cash on cash, IRR, payback period? What are you looking at and what are those benchmarks?

Sterling White (26:34):

Primarily the cash on cash in IRR. So for the cash on cash to be double digits, so nine to 11% and then for the IRR to be closer to the 20%.

Robert Leonard (26:46):

And are those hard rules for you and that you won’t… If it 8% you’re not even interested or is it have some wiggle room there?

Sterling White (26:54):

There’s some wiggle room, but it comes down to the risk versus a reward, which wouldn’t even look at a property that’s in a really bad location, but is want to be close to those metrics that I mentioned to you. So there is definitely some wiggle room.

Robert Leonard (27:10):

What are you looking at now that’s going to tell you now is the time to start buying? When do you know it’s going to be right to start buying again?

Sterling White (27:19):

I would say the sentiment on… The sentiment, I think it’s how you pronounce it, among the investors that I currently speak with because there’s investors that are even further along in their journeys than I am, is that when the overall sentiment is not a seller’s market. So once I start to see more of a shift, it is shifting a little bit, but even the brokers, I’m still communicating with is that buyers are still able to come up to above market prices.

Sterling White (27:49):

So once the brokers actually start calling me and following up with me, “Hey, you want to look at this deal? Hey, it’s been sitting a little bit longer and there’s no highest and best, hey…” Oh, I mean, excuse me, there’s a final call to offers and then after the final call offers, there’s another highest and best and another round from that. Once I see a slow down on that side or maybe even a black swan event comes, Robert, then that’s when I believe it starts to be the time to pull the trigger.

Robert Leonard (28:15):

Are you not concerned that you’re potentially trying to time the market? Warren Buffett has very famously said, the best time to invest is when there’s blood in the streets and be fearful when others are greedy and be greedy when others are fearful. I think people have been greedy over the last few years and people are a bit fearful now. So maybe it’s our turn to be greedy. So I’m curious how you kind of balance that dynamic.

Sterling White (28:37):

From what I indicated is some form of timing the market, but preferably which you can use in… Which is used more so in, let’s say, investing in stocks or other asset classes is using the dollar cost average. That would be similar in this case is it doesn’t have to absolutely be rock bottom because trying to time, but rock bottom is virtually impossible. As things start to turn down and when underwriting deals actually able to pencil out close to those cash on cash returns that I mentioned to you, are IRR doesn’t have to be absolutely closer to 20%, but it just has to come down to the risk versus reward.

Sterling White (29:18):

So it could be 17%. But look at that and then once things starts to shift to be within reason, then that’s when we’ll start to pull trigger.

Robert Leonard (29:27):

Sterling, as we wrap up the show here, I want to give you a chance to tell the audience where they can go to connect with you. What are the best resources, websites, social media, where can everybody find you that wants to learn a bit more about you?

Sterling White (29:40):

Yeah. So you can find me on sterlingwhiteofficial.com. That is sterlingwhiteofficial.com. And then also I’m pretty active on the YouTube side. So you just type in Sterling White. Look for a bald handsome guy with a smile and I’ll come right on up.

Robert Leonard (29:57):

I will be sure to put a link to your resources, everything you just mentioned in the show notes below. I’ll also link to our previous episode that we did together for anybody that’s interested in going back and checking that out as well. Sterling, it’s been two and a half years, but thank you so much for joining me again. It was great to catch up.

Sterling White (30:14):

Likewise. And Robert, any pivotal or changes that you experienced on your side in the past two and a half years?

Robert Leonard (30:22):

No, I wouldn’t say nothing pivotal. Really just taking small chunk.

Sterling White (30:28):

Got the beard.

Robert Leonard (30:28):

Yeah, I got a beard. So I guess just maybe the most pivotal thing is I was able to grow a beard, which is interesting because no other male in my family can grow a beard. My dad, my brother, everybody else is very bald face. I was very surprised and not expecting to be able to grow a beard. I guess I would say that’s pivotal. But on the more business front really is just kind of chipping away, chipping away, chipping away, chipping away. And in real time nothing seems overly pivotal really, but when I look back, I think five, 10 years, I think every little notch is going to look back and I’ll see that I moved a lot. Yeah, exactly.

Sterling White (31:02):

I definitely appreciate you having me again on the podcast, Robert. I really enjoy, what is it, chopping it up with you.

Robert Leonard (31:09):

Well, thank you Sterling. We’ll, catch up again soon. Hopefully sooner than two and a half years.

Sterling White (31:13):

Yeah, so let’s do it.

Robert Leonard (31:15):

All right, guys. That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro (31:21):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday we teach you about Bitcoin, and every Saturday, We Study Billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.