On this episode, Ross McArthur shares his journey in real estate investing, from starting with small multifamily properties to building a successful flipping business. He emphasizes the importance of treating real estate investing as a business and not a hobby. Ross also discusses the benefits of passive investing and how it can help lower your retirement age. He provides insights into finding multifamily opportunities in secondary markets and the importance of cash flow and forced appreciation. Ross also talks about the value of having an in-house property management team and the future plans for his company.

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What’s Covered In This Episode

  • In this episode we’ll cover:
    • Treat real estate investing as a business, not a hobby
    • Passive investing can help lower your retirement age
    • Focus on cash flow and forced appreciation in multifamily investing
    • Having an in-house property management team can improve efficiency
    • Flipping houses requires systems and processes to run smoothly
    • Invest in secondary markets for better opportunities
    • Be cautious of manipulated metrics like IRR
    • Consider diversifying into other real estate asset classes

Connect with Ross: 

www.followthedeal.com

Resources 

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Read The Transcript Here

Trevor Oldham (00:01.838)
Hey everyone, welcome back into the REI Marketing Secrets podcast. Today on the show we have Ross McArthur. And Ross, for our audience out there that’s just learning about yourself for the very first time, do you mind just going into a little bit about your background and how you got started investing in real estate?

Ross McArthur (00:18.008)
Yeah, absolutely. So again, Ross MacArthur born and raised in Michigan, as I say, because it makes a little more sense later. But in the last 10 years or so been in central Florida. But how we got, I guess, started investing could be a 30 man story or it could be a five man story. So we’ll stick with the short version. But, you know, I grew up in a middle class family. I really didn’t have any investors around me. But my mom was, you know, the I guess the the financial brain and.

in my mom and dad’s relationship. So basic, you know, took care of the finances and things like that as far as paying bills and managing budgets. And so she always taught us really early on, like basic one -on -one finances, which I could go on for an hour of how important that really is, is teaching kids financial literacy at an early age. But so I had a good foundation, but I didn’t know much about investing. And so,

When I went away to school and got my first career, really it was outside sales. And for anybody who’s been in outside sales, like actual executive sales role, I think you probably understand that you’re on the road a lot. You have a lot of windshield time and welcome to the world of podcasts, audio books and anything in between. It’s really around us always. And so for years, I just spent time on the road because I had this burning itch around real estate, just listening. So that’s why I was…

Trevor, I was telling you is I love doing podcasts because this is how I learned personally. So, you know, I spent tons of time on the sideline, just understanding and really understand what the power of a hard asset is, you know, like a lot of people do. And as that went on, I saw a lot of things happen around me in the economy that kind of pushed me to finally take a step. So one of the things is, I said, I grew up in Michigan, so.

08, 09, I’m pretty sure most people understand that timeframe, is there was a big recession, and particularly if you were in Michigan around the automotive sector, or what we call the big three. And my father -in -law actually worked for GM for almost 40 years. And I remember him walking into the house, looking at us ghost face and said, two thirds of my retirement just went poof, it was gone. And I remember thinking like,

Ross McArthur (02:29.688)
You worked your entire life to this moment. He was a year within retirement to have two thirds of what he put away just magically go away. Not magically, there’s reasons why, but essentially went away. There was no controlling it. And from that moment on, I was determined over the next few years to find a way to control my own destiny when it came to retirement. We happened to pick real estate, right? So.

In 2020, we decided to finally jump in the deep end and become an active investor. And we picked small multifamily. We picked the Midwest, mostly because honestly, we were comfortable with it. I’m a big fan of buying for cash flow and then looking at forced appreciation. Midwest is great lower cost of entry, so your money went a little bit further. So we picked that. We bought a fourplex and it was the scariest thing I’ve ever done, which is so funny thinking back five years ago now to that. I was terrified.

25 % down and we were essentially making enough money to buy Chipotle once a month. That was about all we were getting out. But hey, it was successful, right? It was like, proof of concept. And so when we bought that first one, my wife and I’s conversation honestly was, let’s just try to lower our retirement age. That was the only goal. So again, where you start and where you end is very different. So we started with just trying to lower our retirement age. That went well. We decided to buy a couple more.

Our first year goal was 10 units. We ended up doing 50. Our second year goal was 25. We ended up buying 100, all small multifamily in Indiana. And through that, we finally decided, okay, well, that’s going pretty well. And we get a lot of single family houses. And we were talking about this earlier about what type of asset to invest in and things like that. But we decided to go ahead and try a flip because we get these opportunities and we were turning them down. Did our first flip.

Didn’t lose money, went awful as most people tell you, but we actually did pretty good on it, even though it didn’t go super well, because I’ll be honest, contractors are everything in that space. And that eventually grew to where we do about anywhere from 15 to 25 flips a year right now. Most we’ve ever done was 30. That was a really good year, but I think our sweet spot’s that 15 to 25. So that takes us up to January 2022. I’m going to kind of pause because I don’t know if you have any questions or feedback on that, but.

Ross McArthur (04:53.016)
That’s a lot in a very short amount of time.

Trevor Oldham (04:55.854)
That’s that’s phenomenal. And it’s funny that you mentioned proof of concept. I remember when I was doing passive investing and I was investing in mortgage notes and it was through a fund and they raised the minimum now. But back when I had done it was 500 bucks to get into it. And I remember getting like the three dollar or like three dollars and change a month in distribution. And I was like, but honestly for me, it was like that was like the proof of concept. And then next thing, you know, a couple of months later, I got it and I ended up writing them a check for 25K because I liked it.

But like you mentioned, it’s just having that proof of concept and it can be definitely scary in the first pop. Yeah, no, I’d love for you to continue. I have some questions about the multifamily space and the Midwest in particular, but feel free to continue.

Ross McArthur (05:36.6)
Yeah, so that kind of takes us up to January 2022. A lot of lessons learned, right? When you’re doing this actively. And what I didn’t mention is my career up until this point, my technically full -time career was in software sales and eventually a VP of a large software company in the automotive space. So, you know, I’m doing this on the side. So I was essentially doing my W2 job, the best of my ability, scaling the corporate ladder. But every ounce of effort I was going to put into.

into this business and try to grow it. And so one of the things that I always say to a lot of friends and family, whether active or passive, is work for your money and then put your money work for you. And that was kind of our goal was to continue to work for that money and then put it to work, put it to work over and over again. So during this time, a good friend and neighbor of mine, Stan Remling, who was also doing something similar, just on a smaller scale, we’re buddies, you know how it is with investing with buddies who are, they’re not investing with you, but they’re investing.

And so we would talk a lot and he had a couple of small multifamily projects and we both were like, man, we’re working really hard buying these assets. They’re doing okay. Like we’re doing well. We’re making money, but like, how do we grow faster? And this is no different than you’ve heard a hundred times and people on who are listening have heard this a hundred times. The way you do a faster scale, generally speaking, or one of the many ways. So we decided to go bigger.

And Stan and I partnered on our business called Follow the Deal Investments. And again, what it started as and what it is now is different. So what it started as is Stan and I just partnering together, pooling funds and ultimately buying these assets. What it became, because we are both, he works for Disney, we surrounded ourselves by high net worth people and just people who don’t have the time, energy and effort to invest actively. They would talk to us about real estate constantly.

And what would happen though, we’d have those deja vu conversations, right? Hey, Trevor, well, man, how’s real estate business? You’re like, man, it’s great. I’m like, all right, tell me everything you do. Give me, teach me everything you teach me. And then next Friday we’d have the same conversation, right? Over and over and over again, like just constantly. And so my neighbor Ryan, one night when Stan and I were all hanging out, having the typical guy BS session over some beers, he’s like, man, how about I just give you a hundred thousand dollars and you do it for me. And I literally was like, Trevor,

Ross McArthur (08:01.016)
I was like, Ryan, you’re stupid. Like, why would you ever do that? Jokingly, he’s one of our best friends. But in the next morning, he’s like, no, for real, honestly. And I was like, you know what? Ryan’s just like probably half the people we know. They’ve seen us doing this forever. They want to get involved. They do not want the work of it, but they want to diversify. And so that’s the moment when Follow the Deal Investments actually became a small group investing company for our friends and family. Since then, we’ve added about 600 units.

Well, 650 units to our portfolio in the last 18 months and about a year ago, almost a year ago, we started our own property management company because we’ll probably get into that later, but so we can be vertically integrated and really control the property’s destiny. So again, a lot in a five minutes, a lot of dips and turns and so on and so forth along the way, but that’s where we’re at today.

Trevor Oldham (08:55.47)
Yeah, that’s a phenomenal story. And I really like where you mentioned to put your money to work for you. And that was the reason why I became a passive investor myself is I was like, I’m too busy to be active. Nor I feel like I would be I know we’re talking about passive investing. I’d be too passive with attendance, you know, and I would just be like, I wouldn’t want to kick them out. I mean, I also got a property management team, but I felt like I probably would have started small. So I was like, what’s the way where I can start bigger? Okay. this company, they have a, you know, a hundred unit apartment complex in Dallas, Texas. I like what they have going on.

I don’t have to deal with any of the headaches. I’m just more checking on the sponsor, making sure they’re doing a good job. You know, just I’m not gonna like blindly invest my money, but it’s nice to having that money just to give it to someone and let them put it to work instead of me trying to, to do all that backend leg work on my own. So I really like that aspect of it, but I’m curious within like the multifamily space. I know some folks in the last bug year or so, you know, they’ve had a hard time scaling or just finding deals. How has it been for you when it comes to.

finding multifamily opportunities? Are you doing, basically are you doing it differently than you had been a few years prior? Maybe getting more fixed rate debt, maybe a little percent lower LTV? Just curious what, how it’s been in the multifamily space, you know, from when you first got into Sora, where it is now, where it’s, you know, I don’t want to say it’s taken a hit, it’s just gotten a little more tighter with just interest rates, you know, it’s great, going as high as they have, no one really could have expected that.

Ross McArthur (10:17.976)
Yeah, I mean, the rates, I mean, depending on when this gets released, I mean, we were in the seven and well, anyway, it depends on how you how you structure your debt, but anywhere from low seven to almost eight, eight percent. And, you know, when we first started, even in large multifamily, 18 to 18 months, 24 months ago, you know, you’re in the fives or high fours even at a point. So pretty drastic. So.

We are niche again in real estate. It seems like you have to kind of in business, you have to have a niche, right? Something that you’re focused on for us. We look at generally speaking, 30 to 120 unit properties. We are kind of within two hours, two and a half hours of Indianapolis, mostly because of an airport and logistics. And then that also allows us to have our own property management company because the properties are somewhat regional.

But the other thing we really look at is, you know, I don’t get me wrong. I love Indianapolis. I love Fort Wayne. I love Cincinnati. You can name all these. I love Dallas and we live in near Orlando. Great markets, right? But you know, those are tough markets. I mean, especially now they’re really tough. And so very early on, I mentioned about cash flow. So I think there’s affordable housing crisis personally in the last few years. I think everyone would generally agree.

And the one job that’s incredibly safe is the blue collar job. And I will argue that till I’m blue in the face because guess what? There’s a lack of people that want to do it. And so you’re not going to cut wages and fire people. You know what’s going to get fired is the tech space, which we saw, right? You know, a bunch of people working in tech got let go over the last couple of years, particularly out in California. So we really focused on that truciary market where…

You know, there’s probably anywhere from 10 to 50 ,000 people, 60 ,000 people. There’s good quality jobs, everything from medical, education, industrial, so on and so forth. And because of that, with the interest rates, we’re still able to somewhat find, and we’ve slowed down too, but we’ve still been able to somewhat find things that cash flow well, solid assets at a fair cost basis or cost per door. So,

Ross McArthur (12:33.016)
I would say we haven’t been hit quite as much as the average person, mostly because we play in that market. Now, if we’re in Indianapolis or Dallas or Orlando, where the cap rates are so compressed, I think it would be a little bit of a different story. So I think just because of our niche and what we’ve leaned into, we haven’t been quite as impacted, if that makes sense.

Trevor Oldham (12:55.918)
Yeah, that definitely makes sense. And I like that looking at those secondary markets where it seems like a lot of these big cities have been the ones that have been crushed. I think adding up, I know you mentioned Dallas, but like Austin, I think I was talking to an investor that’s been a terrible, it’s crazy because it’s like if you invested in Austin, like in 2012, and then you just sold, you would have made so much money. But if you just got into like a year or two ago, you would lose your shirt. It’s crazy how that market has, has set up and down. And I feel like there’s more stability in those secondary markets where.

Yeah, you want to have that appreciation, but maybe it doesn’t appreciate as much as if you invested directly in Cincinnati. But because of that, you have a little bit lower risk. Maybe the cash flow is a little bit better. Like I know like where I’m in, like if you’re looking at the 1 % rule, every pretty much every multifamily you can get, you’re going to get that 1%. I mean, I was looking at a deal. It was like a $250 ,000 for unit and you would get like it was like $1250 a month per unit. So whatever that is, you know, $5 ,000 a month.

but in a year the property might be worth 260. So it’s not gonna appreciate as much, but you get that nice cashflow coming in on the back and where the numbers make sense. But here’s the newer deals that are going out there and structuring. Is there, for the investors that are investing in the deals through your company, is there a minimum sort of cashflow that you’re looking like in year one and then spreading it out? Is there an average IRR, let’s say hypothetically, maybe 5 % cashflow first year or maybe by the end of it we’re trying to get to

8%, maybe the IRR we’re trying to find 12 to 15%. Just curious what someone could expect like if they’re investing with you, like what the sort of, obviously no return is guaranteed and every property is going to be different, but just curious like what you guys sort of look for when you’re looking at a property.

Ross McArthur (14:37.176)
Well, I want to ask, skipped one of your questions you asked earlier. I apologize about that. So you asked about leverage too. So we are still very much, you know, as much as 75, 80 % leverage is as much as we can construction lines again, you know, we’ll take the money. It’s a, we’re all about velocity of money. So, you know, we’re big fans of that. So let me just state that really quick in, in prior market conditions and now, but.

When we look at our deals, a lot of times we want to see that kind of minimum 6 % cash on cash return year one is what we’re looking at. That doesn’t really include rent bumps year one and some other stuff. And then as we go, really, you mentioned about appreciation. Well, we want forced appreciation, which for anybody who’s listening who doesn’t understand that, again, it’s you’re looking at gross income, essentially, or excuse me, net income.

and then divided by your mortgage expense or your debt expense. You know, those are the things that you want to really look at. I said that totally wrong, by the way. I don’t know why. I was thinking debt ratio there, but you get the point. So NOI, obviously income minus expenses is NOI. So you want the, as you increase the income and you lower your expenses, your NOI goes up, which means the value of the property goes up. That simple. It’s a pretty simple math equation. So.

where in Orlando, Dallas, and Austin, you’re just gonna get pure population growth, which will force the appreciation up. We’re looking from forced appreciation through actual NOI. So I’ll kinda make that point, but we’re usually around that six, 7 % return, and then we wanna see that growth though, because when we’re generally taking over a property, it’s usually a bad operator, maybe doesn’t run twice as tight of a ship, maybe they’ve owned the property for 30 or 40 years, they haven’t pushed rents.

And so we want to look at it from there and then we want to try to get a refinance event somewhere in year three to five, just depending on the property, return some capital and then hold that asset as long as it makes sense.

Trevor Oldham (16:40.686)
Yeah, like that. I like where you mentioned like the asset makes sense. You guys just hold that as long, you know, as possible, whether it makes sense to sell it year three, year five, seven, you know, hopefully not. I mean, maybe if you want to, you could hold it however long, you know, 20, 30 years, but if it makes sense to sell and get that investor capital back. But I’m, I’m curious. I know we touched on a briefly, but how you built up that property management business. Cause I find that a lot of sponsors that I talked to, a lot of them just third party management.

Ross McArthur (16:54.296)
Yeah.

Trevor Oldham (17:09.998)
And I don’t know, just like, obviously that works for some sponsors, but for me, I feel like when it’s your own property management company, you’re the one that’s putting it all together. I don’t know. I just feels like it’s, I’d rather invest with a company that owns the property management team or has that part of their business than a syndicator that’s pushing it out to a third party. That again, I’m assuming there’s tons of good property management companies out there. That’s just my preference as an investor, but curious how it’s been for you and your company going out there and building up that property management team.

Ross McArthur (17:38.712)
Yeah, I mean, that is a very valid point. And I do think it is a pro when you kind of pro and con different sponsors and different investing companies. I think it is a pro for for syndicator or a sponsor to have that. I think for us, we’ve used five different third parties in the past for property management. Some on the small scale when we first started, of course, which is a different type of asset. And we used three on larger assets.

So apartment assets are probably range from 50 to 90 doors at the time. And so those, what we really found was they have multiple owners, right? So, you know, this case it’s me and you, right? You operate different than I do. So you hold their operations to a different standard. The SOPs are going to be different for you, what you expect. Communication cadence is different. And now,

We’re going to have the same thing. We’re going to have different cadences, different things we’re looking for, different expectations. Now times that by 50 or a hundred different owners who all have the same thing. It is incredibly inefficient to have 50 or a hundred different standard operating procedures for a third party property management company, but that’s what they deal with. And guess what? They’re not going to be good at it. Right. So one of the main things would, and we couldn’t do it till we had scale.

Trevor Oldham (18:58.67)
Mm -hmm.

Ross McArthur (19:02.424)
Right? It did not make sense to do it. And we don’t take on other third parties, by the way. It is 100 % just for us. And the main reason is back to the standard operating procedures, we want one. There’s one way to do it. It’s follow the deal slash our property management company is called Thrive, Thrive Property Group. So it’s Thrive’s way. And that’s it. And so that alone creates so much more efficiencies.

across the board. And then it really allows our PM team to focus in on the day -to -day task and executing at a very, very high level versus going to meetings with owners, taking phone calls and texts. It’s really, it’s very clean and very crisp. And because of that, we’ve seen, I mean, night and day improvements in every KPI you can.

Trevor Oldham (19:53.582)
I would imagine that and I just feel like from a systems and processes standpoint, it just makes a lot of sense. I just think if I’m an operator and I like how you mentioned that specific market that you went, but I’ve seen operators and maybe they have in Texas and then Florida, Georgia, maybe they have something in Indiana and all of a sudden they have all these different third party property management. Maybe all, let’s just say, let’s say they have five different property management companies in five different States, five different systems and processes with those companies. I just feel like it would be.

logistically just be a nightmare and where you have it in house, it just makes more sense. You can control everything you control. It’s just not like the micromanagement, but just to have that more aspect of control. Cause I find that you could find a really good asset, but if you don’t have that good property management team in place, it could, you know, it could underperform. Maybe there’s a lot of tenant turnover, obviously more tenant turnover. I mean, depending on the unit, maybe there’s more vacancy, maybe the tenants leave and more people move in depending on the market. So.

I really like that aspect of it, but curiously, what’s next for your company when it comes to, are you just continuing to look and find more deals when it comes to say the capital side of the business? Do you guys have like an ongoing opportunity where it comes to invest with your company, whether it’s through a fund or is it more like, hey, we have this new asset, we’re going out and raising capital for it for past investors like myself. What does that sort of look like?

Ross McArthur (21:15.384)
Yeah, so I mentioned earlier, we are kind of friends and family. So it’s a pretty close net investing group, but we are asset to asset today. So essentially we’re going to acquire an asset. We are going to market that asset to our group of friends and family. And generally we do a lot of investor meetings upfront with people to understand like, you know, Trevor, you have an 11 month old baby. You know, this is what your life looks like today.

what type of asset, because even within apartments, there’s different types, right? There’s going to be kind of a shorter term gain, long term gain, what type of ROI, heavier lift, softer lift, you know, all these different risk profiles. And we’ve matched that to people upfront. And so we, our kind of goal is before we even send it out through our CRM and we use Invest Next for our investor portal, before we launch that, we hope to have anywhere from.

35 to 50 percent of the slots filled up front and it’s because you kind of do that upfront work with investor group And then as far as like where we’re going the future I you mentioned the flood model We have talked a lot about that because I think that could be an interesting play for us long term What we invest in we’re staying very focused still on what we do today, which is

I would say C plus to B plus Indiana assets, Midwest assets as a whole. And because our left hand of apartments feeds the right hand of the property management group and it works really well together. But I could see us longer term next three to five years start to move into assets that are a little less labor intensive as an example.

We do invest in water parks and family fund centers. That’s a story for a different day. And I could see us moving into some triple net stuff as well, just to diversify within diversification. So if you would have asked me 18 months ago or two years ago, Ross, where will you be? I would have never thought a year ago I would have essentially stepped away from my W -2 job and went real estate full time. I would have never guessed that we’ve…

Ross McArthur (23:24.024)
we have a flipping company that, you know, I would say is a business as its own thing, you know, a substantial business and then this group investing company. So it’s always really hard to predict what you’re going to go in the future, but I hope it’s a lot of the same and I hope we continue to grow in different offshoots that make sense.

Trevor Oldham (23:42.638)
Yeah, that’s awesome. And I would say for the triple net lease, I know I’m invested in triple net lease deal and I like it. It’s just a nice, it’s easy. For the most part, it’s pretty safe, like to give you an example. So it’s part of a fun model. So there’s five different properties in it. One of them happens to be, it’s either Dollar Tree, Dollar General. One of those dollar stores where one of them, they foreclosed on 600 locations. And I don’t think one of ours is one of those locations where I guess the preface for our audience, basically what a triple net lease is, is,

in a nutshell where I’m going to go out and I own the building that’s going to be rented out. In this scenario, it’s going to be a corporate grade A tenant and they cover a lot of the taxes, the maintenance and the insurance. So for this example, the tenants are auto zone, dollar general, family dollar, like I was mentioning where it’s nice. Like, okay, yeah, one of these, one of these tenants, they’re having 600 locations foreclosed on. If one of these locations happens to be ours, well, it’s socks, but at the same time we have a lease structured with them.

and they have to pay on that lease for another three years, even if they foreclose on the location. So it gives us that three year timeline to go out and find a new tenant, you know, hopefully, but it’s also part of that fun model where four to five properties are underperforming. I mean, hopefully not four to five, one out of five is underperforming. Maybe it’ll drag the returns down a little bit, but at least like you’re getting some sort of cashflow left. So I definitely like the chip one at least. I mean, you’re not going to hit it out of the ballpark with it in terms of returns, I think.

I get 7 % on it. The goal is to get it to 10 % by year three or four. So I mean, it’s a decent return, but it’s not going to be like something you’d see in multifamily. But at least it, you know, it’s pretty stable cashflow. It’s, it’s pretty, I like it from that perspective, but we were talking early on in our conversation and I just wanted to bring up, I think it was more when we are offline, but here’s when it comes to the, the financial freedom part of passive investing. And I think that was something.

I had to learn on my end from being on LinkedIn and I see a ton of people just promoting passive investing and retire early. And I know for me, like I have a hundred K invested and I get like 800 bucks a month off those investments. And I’m like, that’s nice. But I mean, that’s not, that’s not going to be your retire. You know, I’m not going to be able to retire on that. I mean, I’m always saving up to get into that next deal. And I like where you mentioned it could lower your retirement age where maybe you’re planning on retiring at 60.

Trevor Oldham (26:05.262)
And then now you can retire at 55 or 50 and you can buy back some of those years of your life. So just curious when it comes to your perspective, what it looks like, you know, when it comes to passive investing and trying to build up that financial freedom. Cause I think it can, can be a little bit misleading sometimes to especially newer passive investors, what they might see online.

Ross McArthur (26:24.344)
Yeah, well, in general, we’re in this instant gratification age in 2024 in the last few years with obviously social and things like that. But I mean, there is so much propaganda out there about get rich quick, invest passively, retire at age 25. All these different all that is BS. 100 % propaganda. And I don’t care who you are, because at the end of the day, a passive return is going to hopefully be between

you know, somewhere six to 20 % on the high side, you know, the six on the low side, you know, 6 % is like lately essentially paces inflation. So there is no way. And by the way, you know, generally S and P 500 and stock market’s going to be between five and seven. So let’s just call that six too. So six is a way to diversify essentially what you would be doing in other retirement funds. Above that is going to then lower your retirement age, not have you quit your job.

So, you know, if you double that, you can do the math. If you’re getting a 12 or an 18 % or triple that 18 % return, that is going to lower it by X amount of years. And that’s the type of thing you need to look at is, isn’t how I’m going to retire by investing passively. It’s how, how am I, you said it best, how am I going to get some more of that time back? And, and I think that’s really, really crucial. And then, you know, for those who want to be active, don’t get me wrong.

Being active is awesome. But it is a lot of work. And it is not for 99 % of the people out there. Because it is stressful and there’s a lot of work. But do you get a better return when you’re active, potentially? Yeah, you potentially do. Because you’re doing all the work. And you should, by the way. So that’s kind of one thing. I didn’t want to jump back to something. I wrote it down really quickly. So I’m sorry to squirrel a little bit on. You mentioned IRR and metrics earlier.

So we were kinda talking about like propaganda. IRR is a bullshit term too, sorry. So it has a place and it’s a metric, but it’s a metric that can be completely manipulated. Example, we had a project and I do this every time because generally a friend or family member will mention IRR to me. So we have it in our deck. Cash on cash, equity, multiple, IRR. Those are the three metrics at the bottom. Because somebody’s gonna ask you about it, right? So they’ll ask you about it.

Trevor Oldham (28:25.582)
Mm -hmm.

Ross McArthur (28:49.24)
And we had an IRR, it was like, I don’t know, 22 % or something like that. Great IRR, right? That’s a really good IRR. But what I was trying to explain to them, if I took the sale event from year five and moved it to year four, the IRR goes to like 28 % or 27%. Now, if I move that sale event back one year, so from five years to six years, it goes to like 17%. So just by moving certain events,

Trevor Oldham (29:14.478)
Mm.

Ross McArthur (29:17.112)
one year, two years, either way is going to dramatically impact what the IR is. So I always joke, tell me what IR you want and I’ll make this say that. Because that’s how you can move. The number that as an LP investor or a passive investor or an active investor, IR matters because it truly is a metric of your money and how hard it’s working for you. But once you buy asset, you have no idea what’s going to happen the next year.

Trevor Oldham (29:26.318)
Thank you.

Trevor Oldham (29:43.822)
Mm -hmm.

Ross McArthur (29:43.864)
You have zero idea or three years or five years or 10 years. We have three assets we’re selling right now. All three were long -term holds and we’re selling them in 18 months. Every one of them. Because one ended up being a bigger project than we expect. We’re going to get our capital back and make some money real quick on it. The other two are smaller assets and we decide let’s go ahead and sell those and move that money into larger ones. And so just that when you’re, when you’re interviewing sponsors and GPs or

Trevor Oldham (29:53.066)
wow.

Ross McArthur (30:10.04)
Or just looking at financials as a whole, take IRR with a grain of salt, lean into cash on cash, lean into equity multiples.

Trevor Oldham (30:18.126)
Yeah, I think that’s like you mentioned, it can definitely be manipulated. And I think when, at least for me, when I was looking at sponsors to invest in, it’s almost like I got to go through and learn how to do the underwriting myself just to make sure, confirm like one, like what’s the rent growth? Like are they over, are they underestimating the vacancy depending on the class of property, you know, capex expenses, different things like that, where you can definitely go through and you can manipulate the numbers to make it look like you’re getting a better return where it’s like, okay, you want to bump rents from.

let’s say 1200 a month to 1500 a month, but if every apartment complex similar in the area with what your upgrades are gonna be is 1300 a month, can we really get that 1500 a month? Maybe, but is that over projecting? And then maybe if we bring it down to 1300 a month, we just bump it up 100. Now, like you mentioned, like the IRR maybe, or the return goes from 15 % to 10%. Well, I’d rather you tell me 10 % and then we get the 15 % instead of you, me getting excited about what I’m gonna be getting.

as a return and then something else like I want to talk about that you mentioned, I found that was helpful for me was when I was thinking about like the retirement age, whereas I basically looked at it as like, okay, if I invest in real estate, let’s just hypothetically say I got a two X equity multiple over five years, just make it pretty standard. I know hypothetically, if I invest in the stock market, I’m gonna double my money in seven years. So for me, when I was looking at real estate, I can double my money in five years versus seven years and then you.

go out another time period. Now I can double it in 10 years versus 14 years. And then when you start to do that, you start to realize like, by investing in real estate, by just getting a little bit better of a return, I can shave seven to 10 years off the retirement age. And that’s not including like if you double your money even sooner or different things like that, that may occasionally happen if you get a little bit better out of a return or you invest in like a private equity fund or different things where you can get, you know, maybe a little bit more risky. So,

I do like that you mentioned that I think I wish more people were talking about that where it’s you can buy back your time, but it’s, it’s not like some, unless you have like a million, two, three million to start and you can put into it, which most people that have that are going to be near the retirement age to begin with, unless it’s someone I know maybe younger that had hit it really good. Maybe they sold their company in there and their thirties, but for most folks, you know, that takes a decent amount of time to acquire that amount of wealth. But I really enjoyed that. But I wanted to,

Trevor Oldham (32:40.174)
I wanted to dive in real quick before we have to hop off, but curious what it’s like been building that fix and flip business. I know you mentioned you do anywhere from 15 to 20 flips a year. I mean, for me, I’m like, maybe I’ll do one and that seems overwhelming. So for you to do, you know, 15 to 25 a year, just curious how, how that’s been. I’m assuming you have some sort of systems and processes in place to make it run smoothly.

Ross McArthur (33:02.936)
Yeah, I mean, it’s a evolution of system and processes. So, I mean, that’s all flipping really is, is your it’s a math equation up front. You know, I’m buying a hard asset. I have to spend a certain amount to get that asset retail ready to sell. And then so those are two numbers you have to figure out. And then what can I sell for and what’s my cost to sell? And does that leave me enough profit conservatively that makes it worth its while?

Now there’s a million variables in between that, that get complicated, but again, it’s people processing technology, like anything in business. So, you know, we started with one construction crew. We used then a second one for about three years, and now we’re on our third one that we, you know, because again, relationships and things, these are a lot of times hard to find good people that you can trust. And eventually it seems like always trust seems to be broken somewhere and you have to find the next person. But.

We’ve done about 50 to date and what we do is when we find the off market, on market, doesn’t matter, we have the realtor and our construction team go out and visit that property. Most of these properties, I’ve never been in. Never seen them, never touched them, never been in them. So all these are up in Indiana, just like the rest of our business. So they go in and they write a bid up to get that retail ready. And then I do the math on the backside to determine whether that…

It really makes sense. Realtor helps me with some cops just to make sure pretty much we know now what everything’s going to sell for roughly, but you know, some cops and then we will negotiate that price based on what it needs and what we can sell it for. And then everything from there on is all the construction side. And then it’s the listing and trying to sell the property. But when you really boil down flipping, as long as you understand the potholes or the pitfalls of it, it is no different than any other business.

But what people do is they get attached to these and they treat it like a hobby. And they go and they try to tear out stuff themselves. They go and they try to over rehab it because they want to make it super cute. You know, all these different things. It’s a business. So it is buy for this and invest this much more money to get it ready. Sell it for that equals profit. That is it. That’s all that matters to me. I don’t care what the asset is. I don’t care. You know, I do care about how long it’s going to take and how heavy of a lift it is.

Ross McArthur (35:29.112)
But essentially, I don’t care if the numbers work, they work. And so you’ve got to do it as a business, just like real estate, as far as apartments go, and just like you and your business, you treat it like a business, it’s gonna pay you like a business, as they say. You treat it like a hobby, it’s gonna pay you like a hobby. So we’ve been very fortunate early and often to always treat it like a business. And I think that’s really why we’ve had a lot of success in a lot of different categories.

Trevor Oldham (35:53.614)
Yeah, that’s phenomenal. And like you mentioned, I love it that you’re still doing the long distance from Orlando to Indiana. And it just proves where you don’t have to do it in your local market. So I really like that as well. But Russ, I want to be respectful of your time today. And the last question I want to ask you is if our audience wants to learn more about you or has any questions, where can they get in contact with you?

Ross McArthur (36:15.096)
Yeah, so we’re joking about this. I’m not a big diehard social media guy, but I do put a lot of effort into LinkedIn. I think LinkedIn and these podcasts are a lot of how I learned. So you can find me personally on LinkedIn. Again, R -O -S -S, Ross, McArthur, -C -A -R -T -H -U -R. And if you want to learn a little bit about what we’re doing, kind of the type of assets we’re buying and just kind of see what our business structure looks like, our website, followthedeal .com.

Trevor Oldham (36:42.862)
Awesome. I’ll make sure to include that in today’s show notes. And Ross, again, thanks so much for coming on to the show today.

Ross McArthur (36:48.536)
Awesome, finally nice to meet you face to face too.

Trevor Oldham (36:51.342)
Likewise, thank you.