A Podcast | Andrew Yates

Pete Neubig: Welcome, everybody, to the NARPM Radio podcast. I'm your host, Pete Neubig. Thank you so much for being here. So I say this every week, but even this week we have another great show. Andrew Yates has 20 years of residential real estate experience developed, flipped, managed over 70 single family homes, building a strong rental portfolio. So we'll talk to him a little bit about, you know, the importance of of actually owning the property. In 2016, he founded Yates Management and he expanded it into a multifamily development with projects like Townhomes of Liberty Ridge, which was a 92 unit luxury apartment complex that he built and completed in 2020, right before the pandemic. Uh, we'll talk to him a little bit about that. And his portfolio now totals 142 multifamily units with over 30 million in assets under management. Andrew, thank you so much for being here, man. Big time player. Appreciate it. Thank you. All right, so talk to me a little bit. You did, you know, 20 years of residential experience. And, uh, did you go from, like, did you go from realtor to, like, starting to develop, like, talk to me about your path into actually developing because I find that super fascinating.

Andrew Yates: Yeah. So I actually started, um, I was maybe 15 years old. And this is not uncommon for people about my age that got into real estate. I read the book Rich Dad, Poor Dad and became interested in real estate. So at the time I was still in high school, so I couldn't really do anything other than educate myself, read books, and, uh, and then once I got my license, drive around and look at properties. So I spent my junior and senior year looking for properties by underwriting deals. And then as soon as I actually a month before I graduated high school, uh, had purchased my first property and kind of hit the ground running, so I, I knew I wanted.

Pete Neubig: Hold on, hold on. I gotta pause. You there. You're in high school. Obviously, you're not making big money while you're working in high school. You got to tell me about your first deal. How did you. How did you make that happen?

Andrew Yates: Yeah. So I wouldn't quit bugging my dad about, you know, looking at properties with me. So I had actually I, and I also would I was, you know, 17, 18 when I was looking at some properties, but I probably looked like I was 14, I was calling realtors and they didn't ask questions. I would go through properties with them, not prepared to buy. I just wanted to educate myself. So, um, by the time I was a senior, um, I had saved up enough money for the down payment and a little bit of reserves there. I did meet my father to co-sign on the first loan, but I just.

Pete Neubig: Like 17, 18, 18.

Andrew Yates: I was, uh, I was I had just turned 18. It was before I graduated high school. So, uh, I was in sports, but in between I closed on my first duplex and then evenings after practice or super early in the morning, um, I would get some work done and started working basically the month before I graduated high school. So a lot of my, my friends were making fun of me because they thought I was crazy. But, uh, yeah, I got started then and then basically rented. One side was vacant. I rehabbed it that summer and then rented it out.

Pete Neubig: When you said you rehabbed it, you did the work yourself. You. You and you.

Andrew Yates: Yeah. So fortunately, I.

Pete Neubig: Hire some folks.

Andrew Yates: My dad owned a plumbing and heating company, so I when I was younger, I grew up kind of in the trades, I'll say. And a friend of mine that was several years older than me, um, had started doing this. So I free labor, worked on his properties as well, so I knew enough to be dangerous. So I rehabbed the one side, rented it out. Uh, the other tenant had moved out rerented it at a higher rate and then ended up refinancing it. So, um, that kind of kicked things off. And I was actually able to this is 2005. So prices were I got a good deal on it, but prices were inflated. So I was able to refinance it and then start on my my next deal. And then I began flipping at that point.

Pete Neubig: Yes, I remember back those days I used to refinance stuff for higher value, uh, take money, take cash out. That was good times back then.

Andrew Yates: Those were the good old days when you could do that and not overleveraged. So basically.

Pete Neubig: Mortgage fraud.

Andrew Yates: Well, I would I would get a good enough deal. That was a lot of times that wasn't a foreclosure, but the next, I don't know, 5 or 6 were foreclosures, so I would buy them, uh, substantially under market value. I would rehab it if necessary and then and then flip them. So that was just a good time, an easy time to get in it when, um, when you could buy properties. Uh.

Pete Neubig: How'd you get into foreclosures? You have a in with somebody at the bank, or did you just, uh, find them on the MLS? What was the way you found the foreclosures?

Andrew Yates: So I would just at the time, I would contact realtors or brokers that would have listings. And then once I started buying, a few, got, uh, you know, a little bit of credibility to where, you know, they'd make me aware of deals that are coming. And it was just honestly 2005 six, a flood of properties. And there were less there were just not enough buyers.

Pete Neubig: You can buy, right?

Andrew Yates: Yeah. So there was very little competition for it. And it was just, uh, quite frankly, pretty easy at that point.

Pete Neubig: Um, were you buying, uh, stuff that needed work? Well, did you have, like a buy box that you that you were, like, working out of?

Andrew Yates: Um, I didn't have a specific bite box, but just in the particular market that I am, there were a lot of single family homes that were probably built in the, I don't know, 70s and 80s that they so they needed work, but there were so many comps that it was very easy to project what the resale value would be. And the good thing about starting out doing a lot of the labor yourself, if you maybe, um, aren't conservative enough on some of your expenses, you can make up for it by doing your own work. So the first handful of properties, although I was careful, you know, I, you know, you learn as you go. So I was able to make sure I did well because I did a lot of my own labor. However, I transitioned away from that to where I stopped doing the physical work and was hired people to work for me.

Pete Neubig: Yeah, it kind of took one hat off and and kind of moved up in the, in the business, uh, remind everybody where what market are you in?

Andrew Yates: Uh, I'm in Findlay, Ohio, so it's a little bit west of Columbus, south of Toledo.

Pete Neubig: Findlay, Ohio, home of Marathon Oil. Yeah.

Andrew Yates: That's right.

Pete Neubig: And Ben Roethlisberger.

Andrew Yates: That is correct. Yes.

Pete Neubig: Is it weird that I know stuff like that?

Andrew Yates: I remember when I was a little kid going to watching him play play, uh, at a at the high school.

Pete Neubig: That's pretty cool. Uh, yeah. My my, uh, Felicia, my wife used to work for Marathon Oil. So we we're familiar with, uh, with Finley. Okay, so you're 18 years old. Did you get your license by then at this point? Um, or did you decide not to? Because I know a lot of investors don't want their license because they just want to, you know, for whatever reason, one reason or another, they just decide, hey, I don't need my license to go by as a as a real estate investor.

Andrew Yates: Yeah, it was a good question. So I actually again at 18 I went to take courses to, to do that, took all the classes. The day of the test, I had full intention of, um, taking the test and getting my license. And I met someone there that was an investor, and, um, I, I was talking to him, and he discouraged me from taking it just simply because I just wanted to invest. And my thought was I would save on commission or I could make some money there. But really the main focus was I wanted to own the assets. Uh, and, and actually invest. So I didn't want to discourage a lot of brokers and or realtors from bringing me the best deals. So just my decision that day was, hey, it makes more sense for me to to not worry about that. And then if agents are going to get more commission by bringing me a deal, I'll get more deals brought my way. So I just, um, just decided not to take the test and just focus on investing and just, uh, establish very good rapport and working relationship with a lot of agents that got most of the foreclosures. So deal flow was good and, um, was able to get a lot of deals that way.

Pete Neubig: Now talk about alright, so you bought the first one, you refinanced, you were able to cash get some money out. Um, you're you're still a young man. You're in your early 20s at this time. How'd you buy the next properties?

Andrew Yates: Yeah. So the.

Pete Neubig: Did you have your dad co-sign again, or were you able to start now getting getting loans in your name or did you hire did you get investors like, talk about the structure.

Andrew Yates: Yeah. So the first one I did, I got a moderate deal on the first one, but I ended up rehabbing it, refinancing it. And at the time, again, it was a little easier to pull a little money out. So I refinanced it and pulled just a little bit of money out. But the money I had also put down, I was able to pull out enough to where I could kind of do the next deal, which was a very cheap house that I flipped, um, bought it for 30 some thousand. Um, so that one, um, I was I did get a loan on, but my dad co-signed for the next one and I flipped it. I did very well on that one, and that was enough money on my own to start doing it on my own. So I flipped two more. Additionally. And then I think that by the time I was, I think I did three that year after the other. Um, so by the time I was about 19, I actually had a decent amount of cash to just start, um, buying more foreclosures, um, that were rentals. So that was when it started to be 2006, 2007, where the market was turning. I was a little hesitant to flip more houses, so I just transitioned that to buying foreclosed duplexes and triplexes and bought them. Rehabbed them if necessary. Rented them and then refinanced them. And I was able to continue to do that without over leveraging because the deals were were good.

Pete Neubig: So the first property you buy, it needs work. You buy it, you put the work in you, you increase the value so you're able to pull a bunch of money out plus, plus, plus that gets you your second deal. And you again, what you do is you buy that, you rehab it, and then you flip it basically.

Andrew Yates: Correct. And then I did that three times. And by after the after the third one, I actually had enough money to where I could pay cash for a property. And then I just kept kept doing that over and over. But what I would do is I pay cash for, say, a duplex or triplex, rehab it, rent it, refinance it. The Burr method, which I didn't know until 15 years later, existed. Um, I just did just naturally did that. It just made sense. And, uh, um, I was able to then finance them at, let's say, 75% loan to value. So not over leveraged. And I was usually able to pull out slightly more cash than I even put in the deal. Um, if I would go that route with financing it. So I was able to just perpetually grow a portfolio. So increased net worth, increased cash flow, uh, and not over leverage.

Pete Neubig: And now on these, on these duplexes triplex that you bought back in 2008, time frame, you still own most of them. Some of them, none of.

Andrew Yates: Them sold, sold off pretty much all of the small like duplexes, triplexes, fourplexes just because it's easier to manage an apartment complex. Um, so, uh, a couple of years ago, I sold off a portfolio of properties, and then I sold off the remainder, um, not too long, a couple of years ago. So. Not that they weren't great properties. I feel like it served its purpose. It was easier to just leverage those. I sold them off in a portfolio and 1031 them into a larger deal.

Pete Neubig: Kind of like the monopoly method, right? Got four houses you trade them in for hotel, got a bunch of duplexes, you trade them in. And now, um, and so now today you have, um, 142 multifamily units. How many buildings is that right now?

Andrew Yates: Uh, four, four buildings, so I have a couple smaller ones, a ten unit, 16 unit, 24 unit, and then that 92 one that I developed.

Pete Neubig: All in the same, all in the Findlay area.

Andrew Yates: Correct. On the Findlay area. Um, I do anticipate going into other markets. I used to own property in Florida as well. Um, but I anticipate going outside of Findlay here soon. I just, um, I haven't thus far.

Pete Neubig: What do you think the challenge like? Are you seeing different challenges from your ten unit per se versus like, your bigger property? Um, it comes to managing residents.

Andrew Yates: Yeah. So part of the reason I transitioned away from duplexes and triplexes just complexity. Like having properties sprinkled all over town with different ages of roofs, different building materials, different mechanicals. It's just more complex, unnecessarily so those smaller, the ten unit, 16 unit, 24 unit all probably ultimately sell off those and leverage it into larger deals. I would rather buy 100 plus apartment unit apartment complexes. So just it's easier to manage larger deals. The only reason I have the others is because they're all in the same city, so that makes it at least convenient. I wouldn't be interested in buying a 20 unit deal in a city that's an hour away. It would have to be enough, uh, enough unit revenue that I could justify a local staff.

Pete Neubig: Yeah. Putting somebody on staff. Yeah. Um, I always found whether I was third party managing or I owned, you know, anything from, like, four units to, like, that 50 unit. That is just a different type of clientele. The the residents are typically, you know, it's it's the buildings are typically older. Um, I don't know where it is in your area, but in Houston, typically older, uh, there's no amenities. The residents don't really know how to pay rent online. They're not very tech savvy. Uh, and they seem to have lots of challenges that with their neighbors and, and outside that they try to like, they call you instead of, like, the police or whatever, you know. So I found it very difficult. And I found it like, a lot of, um, evictions. And, you know, you always have, you always have, you know, unpaid rent, uh, were you are you were you seeing that or are you seeing that in your smaller units as well?

Andrew Yates: So what I would say yes and no is the short answer. Yes in the fact that I do agree with what you're saying. And I did see that to a degree. However, a lot of my niche I would say is I'm more on the high end. So if I bought a property, I'm going to fix it up, um, to justify a better quality tenant. That being the case, that did help with some of that. But yes, I certainly did still see, um, that um, the lower units and a lot of times that did come with the age of the property. So I think just with some of the, the zoning and age of when a lot of these were built, that does line up with what you're seeing. Um, yeah, that made it a little more challenging. So having sold some of those off and leveraging into larger units where you do have amenities, um, newer property, you tend to get, um, people that rent by choice and therefore they know how things work, and it's just a little more convenient and easy to manage.

Pete Neubig: Now, Findlay's kind of a tertiary market, right? It's not like a big city. Small city. Uh, do you find it hard to get, uh, properties rented in that in a smaller market? And, uh, also, do you have trouble finding trades in a smaller market?

Andrew Yates: Uh, good questions. Yeah. So I would say it would depend on the tertiary market. The one that I'm in it particularly is, um, not difficult to rent just because the development has not, um, maintained compared to the supply or. Excuse me, the supply hasn't kept up with the demand, basically. So since 2005, there was a development in 2005, and then there was like a ten, 12 year gap, really. Nothing was developed, uh, in part because the recession, I'm sure. Um, but that being the case, there was just a high demand, and that's why I chose to, to develop. I had done a market study, and it just I couldn't believe that there were other people weren't building. I built an apartment complex, and then there was a handful of others that have built, so there has been increased supply. But, um, there's just strong demand for for rentals in this particular city. Um, so that that hasn't been an issue as far as, uh, contractors. Yes, that's been a challenge. So, um, trying to find good qualified contractors that are able to get to your, um, you know, your issue on time. That's been a challenge. So we do a lot in-house, but we do sub a few things out that can be, um, uh, difficult to manage sometimes.

Pete Neubig: Before I ask you about the, uh, the building of the of the apartment complex when you had your duplexes and triplexes. Um, why did you not use a third party management company and you and self-manage instead?

Andrew Yates: Yeah, well, that's a very simple answer to that is because being in a smaller market, there were zero good, I would say good management companies. There were a couple like, uh, individuals that kind of did it on the side or that kind of thing, but there were no. Um, what I would say professional management companies. So that being the case, it was born out of necessity. Uh, if I was in a bigger city and there were, you know, four or 8 or 10 options, I probably would have gone that route. But I think having started out doing it, I've learned a lot. And, um, as I continue to grow, I would rather be able to control things and scale it with the management in-house, especially as you go into different markets. The one challenge that I know that other investors have, they grow in different, different cities and different states. And although some of the management companies do well, they have, um, substantial challenges with some and it can impact them financially. So I guess I would rather grow a little bit more slowly and ensure that the performance of the the asset does well. So that's just the route I've chosen.

Pete Neubig: Yeah. Also, if you're an investor and you're going into different markets, you might have to have 3 or 4 different management companies as well. Um all right. So what was the trigger that you said? Aha, I should build an apartment complex even though I've never done it before. And tell me about that mindset. Like you just have this mindset of like, I'm just going to go do it like, which is pretty, pretty interesting as well.

Andrew Yates: Yeah. So actually to take a step back. So I didn't even remember doing this. But my senior year again, I started investing in real estate. But apparently we did a what was called a senior class survey, and it asked what one of our goals were. And I, in one of my moves a couple of years ago, I ran across this in a box and I had written down, apparently when I was like 17 or 18, that my goal was to develop an apartment complex. By age 40. I had no idea that I even thought of that back then, but apparently that was a goal of mine when I was in high school. So I don't remember it going back that far. So I don't know. I just enjoy creating things and I it's although it's challenging, I really do enjoy it. Um, so part of it was there were just not many deals to be had and there was tremendous demand. And I was buying this as part of it too. I was buying some houses to flip that were more high end, and I had people like asking if I would rent it for 2500, and I just blew my mind in the market that we're in.

Andrew Yates: And I had so many people asking for 2000, 2500. If you have something nice, man, I would rent. And just over and over hearing that is what initiated me to do a market study. Once I did the market study, I felt pretty confident that the demand was there. I also in college, visited a lot of friends in different cities and saw basically. So I developed townhomes. I saw some different, um, unit types that didn't exist in the small town here. I thought it would go well and seemed to be a demand for it, so I, I guess I pulled the trigger. I had also developed some houses too, so I had flipped a lot of houses and became very familiar with construction, grew up in and around the trades and then, um, developed, I don't know, 5 or 7 houses. So I became more accustomed to construction in general and then just decided to build a house.

Pete Neubig: All right. Take me, take me just high level through the process. So first thing is, okay, you do the market search, market research. You say, yep, I think this is good. You find a plot of land, you you go and you put an offer on a plot of land. Do you? Before that though, do you like make sure like, hey, can I get sewer hookups, can I? Where does utilities come in? Is it the land? Is it after?

Andrew Yates: So first I, um, I assess different parcels. That might make sense. So I just, um, pros and cons, see which ones made more sense. And then I underwrote, underwrote the deal as if it were stabilized. So I kind of backed into how many units I would need, so on and so forth. And then, um, being in and around construction, I had an idea of costs in general. I had also I didn't necessarily want to develop it in-house. However, I had met with several different construction companies, and, um, if I went that route, it was going to cost me several million dollars more, which is their was their fee, and that's fine. Um, I just was at the point where I wanted to maintain more ownership, so that to me, at the time, I was able to maintain ownership by doing it in-house and not not paying that. So I, in essence paid that to myself. Um, so that's why I went that route. So I just did a lot of research on construction with the overall cost would be, um, what the valuation would be. And then, um, started looking for land. And then I actually took that portfolio of properties that I had 1031 into the land and then began the process. I did it, I broke it into three separate phases, though, so I would I would develop the first phase and lease it, uh, and then refinance it and then do the second, third phase. That was a lot slower, but it allowed me to maintain ownership.

Pete Neubig: Got it. Wow. And then did you just have so is it a bunch of townhomes or is it single family homes or what is the what is the makeup?

Andrew Yates: Yeah, it's, um, all townhomes. There's a combination of two and three bedrooms. We also have a clubhouse with a fitness center, game room, indoor outdoor lounge, patio, dog park. It's more of a class A property. The only thing it doesn't have is a pool. Just didn't feel that it was overly necessary in the northwest Ohio.

Pete Neubig: So did you, um, did you create the plans for it, or did you have a, uh, did you have some, um, professional say, okay, here's the here's how we, you know, an architect, uh, you know, build the plans or some kind of plan drawing.

Andrew Yates: Um, so I one thing I will mention that I did, as far as the due diligence as well, I drove and visited about five apartment complexes that aren't direct competition to me because I just felt like people would answer my questions. So I actually met with some owners, some property managers of different apartment complexes to see what worked well, what didn't. So I did that. But in looking at the different unit types, I did meet with an architect slash engineer in the city that I live in, and just work with them to kind of build out what I had in my mind. I also at the time had a condo in Florida, and I kind of copied some of the layout because I just personally liked it, thought it would go well. So I kind of incorporated all that, uh, literally googled floorplans and started just playing with it to, to find what I wanted and worked with the architect to to design it.

Pete Neubig: I'm going to put you on the spot now. Um, as an investor that has owned a bunch of rentals and he kept some for for many years. Uh, we, you know, this is a property management podcast. So what are maybe 1 or 2 things that you would look for should you ever look into hiring a property manager? What is like the most like most important things for you as an investor?

Andrew Yates: So this is something that, um, probably only an investor would say because it's from their perspective. So the one thing that I would look for if I were to hire a third party management company, I would want to make sure our incentives are aligned. So I would want to not just pay a flat fee. I would want to have. I would want to even give the property management more upside if we hit certain financial metrics to ensure that they're viewing the asset the way an owner would, not just to. Of course, we want to keep it occupied. Of course we want to keep delinquency low and whatnot. But, um, I would want to maximize net operating income. So a strategy to work with them to find the most efficient way to do that, and giving the property management company honestly upside so that if if they hit it, they get extra money. If they don't, they're at least incentivized to do so. So that would be something. If I were to hire third party management company that I would have to work out. That might be unorthodox or not. A lot of property management companies may do that, but that would be something that I would want just because, as I've talked with other property management companies, they don't necessarily structure it like that. And as an investor it just ensures success or a higher likelihood of it.

Pete Neubig: I like that, so make sure everything's in alignment.

Andrew Yates: Yeah. And it's working together because it might be like, hey, this is how you normally do it. But hey, look, this is what's important to me. And how can we work it out to where we're both better off if we hit this? It's we're not working against each other. Um, or as an investor viewing the property management company like they're nickel and diming you with just different fees and whatnot, versus you create enough value. I'll share it with you.

Pete Neubig: Interesting. So almost like a rev share program.

Andrew Yates: Something along those lines. And I do know, uh, from an investor standpoint, the, the larger ones that use third party management companies in larger cities, a lot of them, um, they line it up like that. And those are probably, I would say, more the long term relationships with the third party management company, because it's more of a strategic partnership than it is just a transactional one year contract. So, um, if I were to do it, that's how I would do it.

Pete Neubig: Awesome. All right. You're off the hot seat, man. Thank you so much for being here today, buddy. I really appreciate it. I love your journey. I love the fact that you started in high school and your poor dad. I bet your dad wasn't in real estate. Is that. Is that a fair?

Andrew Yates: Yeah, he was in, uh, he was in plumbing and heating, but I did rope him in to help me own a few properties.

Pete Neubig: That's amazing.

Andrew Yates: Yeah, he was great. I had, uh, hired his company to do some stuff, and he was always obviously providing that at cost, so just, uh, it was a lot of fun, but, yeah, I can't say I didn't have help.

Pete Neubig: Hey, gotta use you. Gotta. Hey, look, I always talk about leverage. You gotta use leverage, right? I mean, vpn's about about remote team members. You leverage remote team members, you leverage your your contacts. You you you leverage your knowledge. You leverage everything to to, uh, to be successful. So absolutely did a great job of it. Alright, man, if, uh, if anybody was inspired and wanted to pick your brain on anything, what's the best way to reach you?

Andrew Yates: Uh, if you want to just go on LinkedIn, you can find find me there. Andrew Yates, uh, should be able to find me there. And if you want to send me a message, happy to communicate.

Pete Neubig: Awesome. And if you're listening to this and you're not a NARPM member, you can join by going to narpm.org or give them a call at (800) 782-3452. And if you are looking to leverage remote team members, give us a shot, vpmsolutions.com. Or you can email me directly at pete@vpmsolutions.com. Andrew, thanks so much for being here, buddy.

Andrew Yates: All right. Thank you.