Cash Flow Champs Real Estate Podcast

David Lindahl is the Founder and CEO of RE Mentor™. Starting with very little money and a desire to change his and his family’s lives for the better, David began his real estate investing journey. Fast forward almost twenty years and David has bought and sold over 8,200 real estate units from foreclosures, short sales, wholesale deals, lease options, and rehabs with single-family, multi-family, and commercial properties. In an effort to help anyone who has an interest in changing their lives through real estate, David created RE Mentor™.

What You’re Going to Learn:

What inspired you to get into the Multifamily Asset Class and how did you get in?
What are some of the challenges you faced during the early stages of your Real Estate journey?
Why Investors are in fear right now?
Are we in the Recession phase yet or what phase are we in right now?
Where do you see the opportunity for the new buyers if the sellers are not reducing the pricing?
How are the new market conditions affecting the Acquisition process?
What are the Emerging Markets?
How do you overcome the challenges in your career?
Where does the equity come from?
Are Investors narrowing themselves to a particular market?
The best deal you can do is a one-off deal in a market
The bigger deals have better quality management
A piece of advice from David Lindahl
A habit that contributes to the success

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Show Highlights

What inspired you to get into the Multifamily Asset Class and how did you get in?

Paul Senior- What inspired you to get into the multifamily asset class and how did you get in?

David Lindahl- Well, first of all, I love this question because people ask me, what was it that changed your life? What was that defining? Like, one defining moment.

I was just tired of being British. I grew up poor, and I was the leasing in a rock and roll band. I left that and started a landscaping company trying to make it. And I thought 50,000 a year was making it. I thought it was awesome, right? Doing cleanouts for houses, and we get rich in real estate. Course during that, and I started listening to it, and I thought, wow, this sounds pretty good. It was an old Carlton sheets course. I was like, oh, this sounds pretty good. Maybe I’ll start doing that. And that’s when I saw a biography. I saw a biography on a guy named Harry Helmsley who started buying multi-family properties in New York City when he was broke and ended up owning the empire state building. And he said, that what I love best about apartments is that your tenants pay for your management company so you don’t have to answer any phone calls or collect any rent. They do it. They’ll pay maintenance guys to swing the hammers and take out the trash. And they’ll give you enough money every month. Oh, they pay down your mortgage every month, so they pay for your mortgage, and then at the end of the month, they give you so much money that after they’re that’s all paid off, then you have extra money. It’s your cash flow that you can reinvest and put into a savings account or just go out and have a whole bunch of fun with. And I thought, man if that’s true, I want in.

Paul Senior- Absolutely.

What are some of the challenges you faced during the early stages of your Real Estate journey?

Paul Senior- From zero to 9000 units, I know you probably faced some challenges along the way. What are some of the challenges you faced during the early stages of your real estate journey and how did you overcome those?

David Lindahl- I had a lot of challenges and I made a lot of mistakes. I had a lot of fear at the beginning because there was nobody out there teaching like now there are a lot of people teaching it. At one time I was the only person teaching it, but

then when we started, there was nobody teaching it right. So it took me nine months to get into my first deal. And the way I learned is through a good mentor who was a very conservative multifamily investor that was in my real estate investment club. And then there were two or three other guys that were investing in multifamily that I would take the lunch and pick their brain and they were very helpful for me, so I appreciated that. But even though I had their support, I was still afraid to do my first deal and finally banged it out. I asked my best friend to do it with me because my father told me it was going to be a disaster. I was going to go broke if you got to go down. He had this hand signal and I would have dinner with him every Monday night and sometimes he would just look at me, not say anything and just get I was nervous. So I said to my friend, who was just as broke as I was, how would you like to invest in multifamily properties over in Brockton? Because the market is such that you can buy them for below replacement cost and they still cash flow. And that’s a recipe for success for anybody who’s listening. If you can get them for below replacement cost in the cash flow 95% of the time, that’s a really good deal. At the time, that’s where the market wasn’t brought in. And we started buying them after nine months of going through the fear. After we bought the first one, we ended up with three. Three months later we had three. Within six months we had nine. Within a year we had eleven. Within three years we had almost 40 of them. And then from that point, the market started to change. We had become wealthy in a short period. It was like I was in a one-bedroom apartment and basically because I didn’t have time to buy anything else, we were so great. That was the busiest time in my life and yet I was making more money than I ever made in my life. So that the market changes and I have a choice. Either cash out, I learned about it, and I kept learning. It’s a big process of learning. And I started learning about market cycles and I learned that we were like getting near the top of our market. And I either needed to cash out and get to a cash position and sit through the decline phase or move into another market that was in the emerging phase, where I could potentially double, triple, or quadruple my equity instead of waiting in the decline phase. And I thought that was a better idea, even though I was nervous about that because I had to travel. The market that I pinpointed was Montgomery. I learned to follow job growth. If you take notes, follow job growth, follow household formations, look for markets that have a 2% year-over-year job growth and a 2% year-over-year household formation. Not population household formation. That’s more important because those are the people moving in and they’re going to rent from us. So Montgomery was a good place. They were building a Kia plant down there. 5000 new jobs were coming in. The key to new jobs coming into a market is that there’s always a multiplier effect. Montgomery was a market that had a very small multiplier effect. It was three, but this still meant that 15,000 additional jobs were coming in three times, and 15,000 jobs were still going to come into the marketplace. And it was surrounded by floodplains, which is called the barrier to entry. Like if you go to Phoenix, the mountains are a barrier to entry because you can’t go behind them. Even though flying out of there the other day, I noticed how they are going around, starting to go around the mountains. Now on the east and west coasts, the oceans are barriers to entry. The floodplain was a barrier to entry because you can’t build there. So supply was going to remain the same. Demand was going up. That just means one thing, values would go up behind it. And that’s what happened. And played the emerging market game. And within a relatively short period, of two or three years, I was in 18 different markets.

Paul Senior- It’s impressive.

Why Investors are in fear right now?

Prashant Kumar- Many investors have a lot of fear right now. So, what is your take on this?

David Lindahl- They should have had fear last year. What should happen today? Yeah, this is what’s going to happen. So last year there should have been a lot of fear in the marketplace. And the year before that, there should have been a lot of fear in the marketplace. But you have these people doing these crazy deals. I mean, they would go by my desk and I look at them and say, this is ridiculous. The bridge financing, the prep debt, and reliance on either a value add that probably wasn’t going to materialize or the prep being replenished at the disposal of the property with the profits from the disposal were very high-risk investing. It’s not what you want to do. So right now we are in transition. We were in 2009 all over again. Inflation caused this market change. The interest rates went up the bridge. People that did bridge financing are in trouble. People that were relying on value adds are in trouble. And so that’s the opportunity for us. Unfortunately, other people’s trouble is an opportunity for people that are prepared. And that’s what happens in the market cycle. So we’re in transition. But sellers are still not

ready to decrease their prices. The smart sellers will. Even last year, as the interest rate started going up, some sellers would not renegotiate because of that, interest rate increase. But the smart ones did. And they willingly accepted the lower price because they knew we were going into a recession. We see these prices again for who knows when we’re going to be on the decline side. So there will be a time even the cap rates are still compressed below the debt rate. And cap rates have to go up and meet it and then exceed it. That’s when it’s time to run again.

Are we in the Recession phase yet or what phase are we in right now?

Paul Senior- Do you think we’re in a recession phase yet, or what phase are we in right now?

David Lindahl- Besides, we were in the recession last quarter, if not the quarter before that. It started the inverted yield curve. I saw a graph today. It’s the highest inverted yield curve that’s been since the 80s since the guy that I follow was plotting the yield curve extremely high. So the recession started. A recession is two-quarters of negative GDP happened in the summertime and in the fall.

Where do you see the opportunity for the new buyers if the sellers are not reducing the pricing?

Prashant Kumar- Where do you see the opportunity for the new buyers if the sellers are not reducing the pricing?

David Lindahl- The opportunity right now is to get yourself ready for the next run. So it’s to secure your broker relationships, secure your team, and decide on the market that you want to go on. Could be your backyard, or could be one of the markets that will probably take off fastest as we emerge again and get inroads in there. There are still deals out there to be had. It’s kind of like a Jiffy Pop popcorn. The jiffy pop. Shake it on your countertop and all of a sudden it starts to pop. It starts to sizzle for us. That’s what’s going on right now. It’s like the sizzle, and then there’s a pop. And those are the types of deals that people are doing. Pop here, pop there. We’ve been doing that for like the last four years. I refused to this market should have reset itself during the last election, right after the last election. Then COVID hit, and it screwed up the reset and we had a very odd market during COVID. The thing that supported the COVID market was all of these office and retail investors that realized that there was no opportunity in office and retail. They came into our marketplace, inflated the pricing, and compressed the cap rate.

Prashant Kumar- A lot of people are very agitated in the sense that they want to buy, but they are not able to buy. What is the message for them? How much should they test their patience? A lot of people are sitting on the sideline for the last three to six months or maybe nine months. They’re not able to buy anything because obviously, the market has changed. What do you tell them?

David Lindahl- If you want to buy stuff in this market, it’s all based on your relationships. You got good quality relationships. There are still deals out there. We just had our insiders’ club meeting, and we’ve got three different levels of people there. People that haven’t done a deal, Rainmakers people have between three and 1000 units and then Magnets 1000 plus units, and everybody’s doing deals except for the Doers. The Doers are the ones that just want to get into a deal, and they meet two days separately. The Rainmakers and the Magnets people are still doing deals. They’re certainly not doing as many. We have this expression and our mentor staking a flag in a market, stake a flag in the emerging market, run in that market for three to five years, and then as you establish yourself, stake a flag in another market. There are no markets to stake your flag in. Right now, they’re one-off deals, but those one-off deals are dependent upon the quality of your relationships with your brokers. So if you want to do some deals, create good quality relationships, and you’ll get those off-market deals, that’s the game right now. As the jiffy pop popcorn, the pop deal here, pop a deal there, then it starts to pop up. Pop starts to get a little bit faster. We’ll see that, like near the end of the summer, third quarter this year. Then all of a sudden, it’s just going to be like 2024 as we go into that. Then we start running until probably 2027, or 2028, and it’s going to be awesome. And people like you and me and Paul Senior, we’re going to have a boatload of properties. We’re going to be exhausted, right? But we’re going to have a bank account. It’s going to be big.

How are the new market conditions affecting the Acquisition process?

Paul Senior- You make mention of what’s seen, a decompressing cap rate and of course, higher interest rate and lower LTV and properties, at least compared to last year this time. So how are these new conditions affecting the acquisition process, maybe, for properties that you’re dealing with and the type of terms you’re getting from your lenders in terms of how you can acquire properties in this current marketplace?

David Lindahl- We still go with conventional lending, Freddie, and CMBS, if we have to use them, we try not to. So we still underwrite conservatively.

We did just put a deal together last week with due diligence. Now we got a couple of other offers in a row. Just take into consideration what the interest rate is in your underwriting and then you offer what you can, you offer what makes sense, and if the sellers aren’t there, there’s nothing you can do. You just move on.

What are the Emerging Markets?

Prashant Kumar- What are the emerging markets? Do you think that will come up over the next year or so?

David Lindahl- I would look at Dallas, Orlando, Charlotte, and Raleigh. I like these markets. I like Nashville, DC always runs first. But, you know, it’s weird. DC in Minneapolis, Minnesota. Always run first. Why Minneapolis? I don’t know. I haven’t done enough into it. I’ve never really invested up there because I’m from Boston, and if I want to go visit my properties in the wintertime, I don’t want to go to Minneapolis because it’s I like investing down in the south. I like those markets. Vegas is going to come back fast. All the Texas markets in the markets in Utah, the two most business-friendly states of all 48 states, those are the ones, you know, Ogden, Utah, Salt Lake City, Provo, those are all good markets as well. Then there’s going to come to a point where the markets in California are going to start cash flowing with San Francisco, Los Angeles, and San Diego. For a brief period, at the depths of this recession, you will see those markets cash flowing and that window of opportunity where there’s more opportunity than usual having happens for maybe four to six months, and then it closes again. You need to have strong relationships to get deals done there.

Prashant Kumar- What’s your take on the Phoenix market?

David Lindahl- Phoenix is always a good market because it has higher highs and lower lows. As I said, I was just there for our ultimate partnering event. There are a ton of cranes up over there. Just like here in Boston, there are a ton of cranes up. But, if there was a place where I would move to because I love the market, it would be Phoenix and Dallas. In the lifestyle, these are good markets. And the great thing about Phoenix is that Tucson lags Phoenix by about nine months to a year. So you just watch what’s happening in Phoenix and you just wait for it to happen in Tucson so you can be ahead of the herd over there, which is good.

Prashant Kumar- Phoenix is going down a little bit like Austin over the last couple of months. How long do you think that could last?

David Lindahl- I don’t know an exact time frame. All I know is that what will happen is the interest rates will stabilize and start to go down on capitalization. Rates will start to go up, sellers will start to realize that they’re not going to get the pricing that they could have gotten the last few years had they sold. The market will face kind of like an equilibrium, and then it will eventually turn into a buyer’s market. More properties will start coming onto the marketplace because people are going to start losing them. That’s what’s going to shift this market. When people realize when banks start putting properties on the market and they’re looking to get their money back, mainly if they can get a profit, that’d rate, if they send it over to somebody like CW Capital to dispose of it, they could potentially get a profit. But they’re just looking to get their capital back when these properties are coming onto the market faster, that’s when the sellers are going to have to take inventory as to whether or not put their property on the market and if they do, what the pricing is going to be.

How do you overcome the challenges in your career?

Paul Senior- You’ve been at this for a long time, and I know there have been some victories and also maybe some challenges as you go along the way. For folks who are starting, can you give them some advice? In terms of what is probably one of the challenges you have gone through and that most people who are experienced go through? How do you overcome that type of challenge in your career so you can continue to move on and reach the destiny that you are here today?

David Lindahl- Let me tell you about my biggest mistake, and I’ll also tell you the mistakes I have seen people making in the 20 years of teaching. My biggest mistake was I went too big too fast. I bought a 400-unit property in Huntsville, Alabama, that was 26% occupied. Never should have bought it. I had already owned 800 units at that time and rehabbed a ton of properties in Boston. I thought, 400 units is just like

a ton of smaller properties all just mixed. I was so wrong.

It took six years out of my life to run that deal as I’m trying to do other things, and it was just awful. So going too big too fast, especially in repositioning, is a mistake that people will make. I was just on a call the other day inside my organization, and somebody asked me if they should do a 31-unit empty property. I said, how many deals have you done so far? And he said this will be my first. I said, don’t do it unless you have a partner that understands how to do those types of deals because you’re going to waste a lot of time. It may not even be successful, and you’re going

to waste a lot of time if it is and there are so many easier deals, and momentum plays that you could have been doing in the meantime. This is the advice for everybody. I started teaching in 2002. I didn’t learn this until 2005. I learned that it’s much easier to do bigger deals, 100-plus unit deals, so that’s what I would teach. But I didn’t just start doing 100-plus unit deals. I started doing smaller deals and I worked my way up because of fear. When I first started teaching, I was like, what am I doing wrong? Why am I not a good teacher? Because I knew the system worked and then it turned out, from the feedback. I got to start calling people and realized that even though they know from the training that 100-unit deals are easier subconsciously and psychologically, they weren’t ready for it, yet they still were. So they were sabotaging themselves. They were finding reasons not to do those deals. Then I thought to myself, these people are going through the same journey that I went on. What were the emotions that I had as I went through that journey? So what I was comfortable with, I did a small deal, I did a three-unit deal. I went back and I started teaching people, doesn’t matter what size deal you do, the most

important thing is that you do a deal because your first deal is the hardest deal to do.

So get that deal under your belt and then move forward from there and you will start to

a three-unit deal will get you. Your next deal will be a third-unit deal because you have all the confidence. Next year will be 100 unit deal. The one thing I know, you get into your first deal and this has been proven over and over again. This is exactly what happened to me. If you remember what I talked about at the very beginning of this when somebody does their first deal, their second deal is usually two or three months away. It comes very quickly and the reason is that to do that first deal, you have to get your systems in place, and you have to get your team in place. Then you have gone through the entire process and closed that deal. Now you know how it works and

you have all the confidence in the world. But because the team and the systems are in place. That’s why that second deal comes in, because you’ve already got the motor going, and then the third deal comes in, and then the fourth and fifth deal comes in.

We get calls from clients that say, Dave, I got five deals going on. I got to work on my systems. So that’s what happens. If you are just starting, just work on your first deal. The goal is your very first deal. You may have a goal of I want to have $10,000 a month positive cash flow, or I want to own 100 units or 1000 units. Doesn’t matter the first goal, the first deal doesn’t matter what size it is.

Paul Senior- It sounds counter-intuitive. It’s just like, how can a 100-unit deal be easier than a 10-unit deal.

Where does the equity come from?

Prashant Kumar- So what about money? We are starting off and for those who are starting new, if they go into bigger deals, like 100 unit deals, equity is always an issue.

The capital stack is always an issue in the sense that the bank may give you a loan. But finding the equity, especially with the current prices, $150,000 unit, $100 unit, you are talking about a $15 to $20 million project. What is your take on equity? Where does the equity come from?

David Lindahl- There are two answers to that. One of them is to get an equity partner and by the way, I love sponsoring deals. I like 100-plus unit deals in emerging markets. So if anybody has a deal that they think works, call my office, I would love to sponsor your deal. In reality, you don’t want sponsors in your deals because sponsors take a cut of the deal. But you may need them to get started. You want to be building up your tribe. So you should be out there at meetups and just talking to people. At first, I’m an introvert, but believe it or not, I still hate networking with people. I hate going up to them.

At first, I thought I was asking for money. Then I shifted my mindset to I’m not asking for money, I’m offering the opportunity. So I wouldn’t ask anybody if they wanted to invest in my deal. I would just talk about the deals. This is what I do. I invest in this type of property in emerging markets and then they would start asking me questions and they would qualify themselves. But for each person, I would get their contact information that was interested and I put it in my database and then I contact them once a month, let them know what I’m doing, and then when the time comes, it’s like a strike. So you got to have goals. If you know that your first goal is to do a deal, that’s a million dollars and you probably need about 30% of that is the equity you’ll get from somebody else if you have no money. That’s $300,000. Well, the real formula is that you need to have at least $600,000 worth of commitments in your database to get that $300. Because half the people, whenever you ask for the money when you go back and say, hey, I got a deal, you’re ready to invest, half of them will say, oh no, I’m not ready at all. I don’t have the money. But you don’t know which half. And then some of them right before you’re about to close will drop out. So if you’re not prepared for that, you need to be so with that formula that I just gave you. So those are your initial goals as you move forward and then as you keep doing it, you start doing deals. Your investors become a really good source for other investors, for you, and that’s what you do. There are two things that you should always be focused on finding deals and finding money. Eventually, you can get an acquisition team to start bringing you deals regularly, but you should always be looking for sources of capital. Just like I said to you, I’ve

been in this business for 20 years. We’ve raised over $200 million. You got connections in India because there are always deals going on to be held.

Sometimes they’re really big. I remember one time, this is when I first started, and I was in Texas because I was buying a lot down there. And somebody said, hey, Dave, I want you to talk to this guy who’s from Dubai, and he’s an investor. He wants to put some money in the US. So he says, what size deals? I said to him, what size deal do you want to do? He said about 25 million. And I thought, does he want to do a $25 million deal, or does he want to give me a check for 25 million? That’s what I asked him.

He said I want to give you a check for 25 million. At that point, I had not done a $25 million deal. My raises were like 2 or 3 million. And I said I’m sorry. I’m not the guy for you right now. I said, but maybe in the future, I will be your guy. That was my mindset, like, all right, maybe work up to that level. That’s the opportunity

Are Investors narrowing themselves to a particular market?

Prashant Kumar- Some guys restrict themselves to a particular market, one or two markets. What is your message to them? Are they narrowing themselves, shooting themselves to death, just struggling in those markets, or what’s your thought?

David Lindahl- It all depends on why they’re in that one market or those couple of markets. And with the knowledge of market cycles, you can be making money in any of the four phases of the market cycle. So if somebody likes to be in a particular market

for a particular reason, then you do the right strategy at the right time, and you’re making money. The difference is, while that market is in two phases of decline, we’re all running out after the other markets that are in two phases of emerging. We’re moving our equity, so we multiply it. I never question why, if somebody’s real motive is to generate as much wealth as possible in the shortest amount of time, then you need to be going from emerging market to emerging market.

But if somebody is just comfortable being in a market, and that’s where they want to be,

you know, stake their flag or one or two markets without let people live their lives.

The best deal you can do is a one-off deal in a market

Prashant Kumar- But there’s no emerging market right now. Just for the next three to six months. There’s nothing out there. I know people are doing deals, with the broker relationships, but as of right now, I don’t see any path forward. I mean, either they are declining or they are at the bottom. Nothing is at the bottom.

David Lindahl- Nothing is running yet. But what they’re doing is they’re in transition and they’re getting ready to. They’re still one-off deals there. The best deal you can do is a one-off deal in a market that’s going to run to make a ton of money in that deal because you bought it early going into the market into the next phase.

The bigger deals have better quality management

Prashant Kumar- What is your take on sub-50 unit deals? Depressed assets or undervalued because of the distress of the seller? I mean not talking about 100 units.

I’m talking about the deals we buy. We renovate like completely 50 units and 70 units, and boom, be ready when the market emerges in a year or so. What’s your take on them?

David Lindahl- I know people that are very successful playing that game. There’s a guy right here in Massachusetts and two of the guys in our insiders’ club that play that game. It’s not a game that I play. I like the bigger deals because I like to be able to talk really in real-time to my manager on-site and get real-time information. When you’re in deals like that, 50 units, actually it’s like 75 units, and below is 75 and above is when you can afford a manager who probably is not on site all the time. The bigger deals have better quality management. For the smaller deals, it’s hard to find good management. I like an easier life.

Paul Senior- That’s going to lead us into our lightning round of this podcast.

A piece of advice from David Lindahl

Paul Senior- One piece of advice that impacts your life and how you think it may benefit others. One good piece of advice to perceive from someone in life and how you can help somebody else along the way.

David Lindahl- All right, here’s the best advice that I can give you from 20 years of teaching, and this works with anything in life whatever you want to do. You’ve got to set your mindset up first and you’ve got to be working on your mind from this day forward for the rest of your life because that’s the only thing that will set you up to be successful. Doesn’t matter. I’ve got a proven system for 20-plus years we’ve been teaching it to so many successful people. But the thing that separates the people from the very successful to the ones that aren’t is their mindset. So there’s a ton of work out there. Dr. Joe Dispenza has a book “Become Supernatural”. Esther Hicks has explained how things are brought to us by the laws of the universe. Study the laws of the universe, especially frequency. The law of frequency. That is what will set you up for success. In anything that you want to do in life.

Paul Senior- That’s awesome. Thanks.

A habit that contributes to the success

Paul Senior- Share one of the personal habits that contribute to your success.

David Lindahl- I do gratitude. It might be a little cliche, but every morning when I wake up, before my eyes even open, when my consciousness I know I’m awake, but I’m not. I say to myself before any other thoughts can come in, this is going to be a great day. This is going to be a great day. And then I’ll do. I am affirmations. I’m a great real estate investor, I’m a great father. I am blah, blah, blah. And then I go into gratitude I’m so thankful for, and I do that as I’m lying there. This is a good five or ten minutes before you open up your eyes while you’re still unconscious and where your brain waves are at that particular point when you’re just waking up before you’re going to sleep, that goes into your subconscious. So what you’re doing is you’re programming your subconscious for the rest of the day. I do the same thing before I go to sleep. At night, too, before I go to sleep, I vision. I visualize what I want. I’ve got three major goals every year. I have three to five major goals. I’ve got three major goals. And before I go to sleep, I vision that I have that goal presently, and I feel that feeling of having it, and then I slip into sleep. So I’m programming in my subconscious mind to be a stepped pilot and go out and get it. Works well. Wow. I got that from Dr. Wayne Dyer, by the way. He’s passed away right now, but he’s got so much great stuff on his mind and mindset. Anybody should get his stuff and listen.

Paul Senior- It’s awesome. Thank you so much.