Especially in bigger cities, there are less and less standalone houses as more multifamily properties rise to take their place. In these areas, apartment investing has become a much bigger deal—and if you play your cards right, your returns could be even better. Monick Halm sits down with Arleen Garza, a Principal at Real Estate Equity Partners. Arleen and Monick talk about the rise of apartment investing, and how you can take advantage of this growing trend in real estate.
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Apartment Investing — Interview with Arleen Garza
Our guest for this episode is definitely an inspiration. Arleen Garza launched her real estate investing business in 2012. Since then, she’s sponsored a total of twelve multifamily acquisitions. She’s taken four properties full cycle from buying to selling, with total returns as high as 370%. Her multifamily portfolio consists of 2,621 units as a deal sponsor and passive investor in Texas, Florida, and Georgia. In 2017, she established a management company that manages eight of their own properties in San Antonio. She’s an investor and a property manager. Prior to establishing their real estate business, Arleen spent twenty years as an Executive in the financial services industry. She holds a BBA in Finance. I’m excited to have her here. Welcome, Arleen.
Monick, I’m excited to be on your show. I’m honored to be able to share what I’ve learned about apartment investing with other women. You and I have been at some of the same events but we’ve never met face to face. It’s great to talk about something we have in common.
We’ve been to some of the same events and we’ve been on a somewhat similar path. How did you get started in real estate investing? You were in the financial services industry. What made you go, “I want to invest in real estate?”
I left the corporate world in 2008. I moved to San Antonio with the husband and two kids. You may recall that there was a dip in the stock market at that time. I saw friends whose investments dropped in value by 30% or more. Luckily, with my conservative banking background, I wasn’t in the same situation but it shocked me. It made me think about what I wanted to do with our investment dollars. I’d always heard real estate was a solid place to put your investment dollars. We started to get educated on apartment investing. The way I thought was real estate is something that I can touch and see versus other investments where somebody in New York or somewhere out in the world decides the value of my stocks or bonds. We took off and started educating ourselves. We joined different real estate groups. We read lots of books and watched educational videos on apartment investing.
In 2012, we landed our first four units in San Antonio. That was real life education because we decided to manage the property ourselves, not knowing any different. We didn’t have a mentor at the time. I did the marketing, leasing, accounting, and resident relations while my husband managed the vendors, maintenance, and all the rehab work we were doing on the property. We sold it two years later and that was the one that had the biggest return of 370%. That hooked me. I was convinced that this is the way to build wealth. We’ve syndicated the purchase of twelve different properties and have also invested passively in different parts of the country. I’m a big believer in real estate investing. All we’ve ever done is apartments and we’re happy doing that.
Real estate is a solid place to put your investment dollars. Share on XLet me ask you about that because we have a mentor in common, Brad Sumrok. I know that he started with an apartment building as well. That is unusual because most people start smaller. They start with a single-family rental. Personally, I started with a duplex. What made you start with apartments instead of starting smaller as most people do?
My husband had a property management software company in Dallas. He sold that before we moved to San Antonio. He had it for fourteen years. Over that time, he would come home and we’d have conversations about what different owners were looking for and what software upgrades they were adding to make it easier for owners to manage their properties. When he sold that and we moved to San Antonio, he said, “I saw all the successes that the various apartment owners had that were using my software. I think it’s the way to go.” I’ll tell you, I’m that conservative banker. I said, “Hold on a minute.” All I had ever done was traditional stocks, bonds, and everything else like that. He said, “Let’s visit a real estate group that focuses on that and see what you think.” We did. The more that I learned, the more excited I got. In 2012, we took our first step and we’ve never looked back.
You’ve been in apartments and multifamily this whole time. You’ve done cycles and you’re also on the property management side. First, I’m going to ask you about the investment side then I want to ask you a couple of questions on the property management side. On the investment side, you’ve done four buildings all the way through from purchase to sale. I know that we all learn so much more from mistakes that we do than from when things go well. What would you say is your biggest mistake as an investor and what did you learn from it?
I have a good one for you. One of the first properties we bought had a chiller on it. There’s water that runs through pipes and this big chiller manages it all. The water running through those pipes either heats or cools the apartment units. It’s not like your typical AC unit that is individual to each unit. In this case, the water is running through what’s called a loop. It was our first time to buy a property with a chiller. I’m not going to say that there aren’t ways to make money on properties with the chiller. There are and I’ve seen it. We didn’t have anyone to mentor us through this process on how to analyze that property because it’s different. The numbers are different.
In this case, you’ve got some additional expenses that happen with the chiller. Even if the chiller is running well, what typically can happen is, especially in San Antonio, if you don’t have a water softener that helps treat the water, the pipes will have issues over time and they start to leak. We discovered that it’s expensive to work on the chillers. It’s hard to hire a maintenance guy who knows how to work on them. You spend a lot of money on the unit individually because that water is coming through. If there’s a leak in the unit from the pipe, not only do you fix the pipe but you have to fix the sheetrock around it. You have water and where you have water, you have bugs. The other issue with it is that in Texas, we have crazy weather. There are some months of the year where you can start out the morning cool in the 60s but it may warm up to the 80s or 90s on that same day. You have to switch the chiller from heat to cold. It takes a couple of hours for the process to change over to whatever you’re doing.
The impact to residence is pretty big. At any rate, we also discovered that these properties are on what’s called a master meter. With that master meter, all of the bills get sent to the property. It becomes the full responsibility of the property. On average, it can be $14,000 to $20,000 depending on the size of the property. You get a big bill and you have to turn around and collect it from the residents. Not only are you collecting the rent, but you’re also the utility company for the residents. In a nutshell, the numbers work differently. Your capture rate or the amount that you collect back from utilities is different. Your income projections, when you do that on your analysis, have to be right. In our case, we didn’t have a mentor guiding us through that process. We ended up with a 95% total return but it was a big learning experience. We look back and we go, “If we had a good coach like we have now, the situation would have been different.” The message is if you’re venturing out to do this, make sure you have good guidance from a coach, mentor, or someone who’s done this before.
Apartment Investing: Find the balance between giving plenty of attention to detail and expense control.
I get worried when I see a building with one of those. How about on the property management side? What are some mistakes with property management you’ve seen owners make or you’ve made?
We started out self-managing. We self-managed 333 units and then we tried third-party management. We turned over four of the properties at the time to third-party management. I don’t know if it’s that we knew too much or that we knew what they weren’t doing. What we found is their attention to detail in terms of expense control. There are lots of things that you can do with your own staff if you know what you’re doing. For example, if you have a plumbing issue and a pipe that’s underground, that could be a $5,000 to $8,000 job if you farm it out to a vendor. What we found is that we could bring in day laborers or have our own maintenance people dig the hole. You then bring the plumber to fix that piece of the pipe as needed. That could be a saving of $7,000 right there as an example. On flooring, we were paying about $4 a square foot for materials and labor to install vinyl plank flooring, which is popular in our B and C class properties for units that we’re upgrading. When we took the properties over under our management company, we brought in our own flooring crews. That cost went down to $1.65 per square foot. It’s significant to go from $4 to $1.65. That’s on the expense side of it.
On the management side of it, we are able to hire our own talent for the properties. There are some great property management companies out there. We just didn’t seem to find them when we were working with them. Since we had the experience and scale, we brought a partner in. His name is Kris Martinez. He brought a wealth of knowledge on the financial side since he’s a CPA. We said, “Let’s divide and conquer.” I manage the operation side of it through the staff. I have a director of operations and two regional managers. My husband, Jacob, manages the rehab and the maintenance side of the equation. Kris helps us on the deal analysis side and the financial reporting for the property. It was a good combination of talents. We said, “Let’s go for it. Let’s bring the properties back in-house.” In a two-month period, we onboarded all of them and switched software. We kept most of the existing staff and hired where we needed replacements. It’s worked well for us so far.
I did a podcast a little while back where my husband and I were speaking about working together, being a married couple. You and Jacob work together. How is that for you? How do you successfully work together with your spouse?
Initially, it was an adjustment. I’ll say that honestly. When we defined our roles, knew what I was going to be overseeing, and what he was going to be overseeing, life became a whole lot easier. We weren’t trying to step into each other’s roles, make decisions for the other, etc. Once we did that, it became a fun thing to do together. Adding our third partner, Kris, helped because he was able to take the other piece which I had on my plate before. It is about defining the roles and a lot of communication. I can’t stress that enough. Communicating, being honest and saying, “This is the way I feel about this particular issue and here are my suggestions,” and being open to hearing the other person’s viewpoint.
The more thoroughly you divide your roles, the better the results. Share on XI found the same. The more we could divide up our roles, the better it’s gotten. Communication is key. That’s great advice. On the flip side of the mistake, what are you most proud of?
I am most proud of my family and the great friends that I have. I have two great kids. It’s wonderful when you don’t have to worry about them. They are good and responsible people but it helps when you don’t have that worry on your mind. I’m married to a great man. He’s taught me a lot about business. I’ve got good relationships with extended family and friends. I believe it’s the people in your life who make it rich. The business part of it helps but in the end, it is the people in your life who make it better and make it what it is.
Maybe this is a similar response but to what do you attribute your success?
On the personal end, that is watching my parents. I know a lot of people say that. My mom and dad raised ten of us on an income of $30,000 on the high end. It wasn’t always that high. I watched my mother budget. We never lacked for anything. You know what to ask for and what not to ask for. I grew up in a small town of 3,000 people where everybody did help raise you. The one thing that stuck out was my mom having an opportunity to go to college. Back in her day, she wasn’t allowed to go. They both decided that a college education was a must for their kids.
On our end, we knew we had to get good grades in school. A scholarship makes a huge difference for our parents. At one time, there were five of us in college. We worked our way through school. We had scholarships. You had to keep the grade point average up to keep those scholarships. What I found is that with working hard and smart, you can get what you want. You have to set your goals just like we did. We’re going to graduate first. From there, we’re going to build a career. A lot of my siblings are entrepreneurs. It was from watching my dad do small jobs around town when work was scarce. He always found a way to bring money home and support us. That was a big inspiration for me.
On the business side, I will say that it’s been having a good coach. Before we met Brad Sumrok, we had the four properties. Within a couple of years of working under his guidance and mentorship, we’ve grown it from number 4 to 12. We have eight properties and have grown our assets to $120 million, which we didn’t think about when we started this process. It’s been a good journey. It’s been about having a coach, finding somebody that has done it themselves, and building a good team because you can’t do it alone.
Apartment Investing: The most important things you’ll need when working with a partner are clearly defining your individual roles and a lot of communication.
That’s good and inspiring, especially where you come from. It’s having had to work to get it through college. Watching your parents, that contributed to your success. Oftentimes, not getting things easily makes you successful. It’s having had to work for it and make it happen.
Our kids have worked every summer since they were freshmen in high school. A lot of them have been on the properties. I told them, “When you finish college, you’ve got to have your own career. You’ve got to have your own life. You’ve got to build that foundation for it. That’s understanding what it’s like to go to work every day and the value of what you earn.”
You’ve been doing this for quite a while now. What advice do you have for a woman who’s just starting out?
My advice is to remove fear from your vocabulary. In one of my favorite songs, the lyrics say, “Fear is a liar.” It can make you believe that you’re not worthy enough or smart enough to make it. Instead, replace that fear with knowledge. Educate yourself on the real estate lingo, find a good coach, and build your network of brokers, lenders, investors and partners. That team of people is going to help you get there. I found that it’s totally doable but you have to work with people who can guide, support, and help you along the way. We’ve tried to do that. People come to us and ask questions like, “I’ve got this issue. What should I do?” We don’t coach them. We’re not coaches but we’ll give them guidance. We’ll say, “This is how we handle that particular situation.” It’s about giving back. Somebody helped us get started early on and we want to help others as they progress as apartment investors. For women, I’ll say don’t let fear hold you back. It is a pretty male-dominated environment. I came from banking, which is a similar male-dominated environment. Put yourself out there, build that network, and let people know that you’ve educated yourself on how to invest in apartments, and they’ll believe you.
I love that advice. Remove fear from your vocabulary. Replace fear with knowledge. What do you wish you’d known at the beginning that you now know?
I wish we had started bigger. Owning a property that’s big enough to have a property manager either on site or a property management company. If you’re choosing not to run it yourself, it’s a better place to start. Looking back, I wish we’d started that with a bigger property. Don’t get me wrong. I’m thankful for what I learned firsthand, running the small property we bought. As I look back, I found that it slowed down our ability to grow. We were so busy working in the business and not on the business. People and mostly new investors don’t quite understand that it doesn’t take loads of money to start out. You do need to work with others to get the capital on the loan and everything you need to buy the property.
Replace fear with knowledge and educate yourself on the lingo. Share on XIt’s that team of people that you build around you. It could be other investors that want to invest either passively or want to co-sponsor with you. Finding a lender that will help you get started. Those were the things that we did in the first one. We should have started bigger but we didn’t and that’s okay. We’re at a good place. We set our goals and we built our team. That’s what I would tell people. Set your goals. What do you want to achieve in real estate investing? Build your team. I’ve heard you say it many times, it’s a team sport. Don’t let fear or anybody hold you back. Go for it.
Before we get into our Trinity, how can people who want to find out more about you and what you do get in touch?
They can reach me at [email protected]. REEP stands for Real Estate Equity Partners. We shortened it to REEP because it had a double meaning like reap the rewards. It worked for us.
It’s time for our famed end of show Trinity. What’s one thing you’re celebrating right now? What are you bragging?
We syndicated and closed our biggest deal. It was 537 units, two-property acquisition. It helped us increase our portfolio value to over $120 million. If you would have told me that years ago when we started, I would have been wowed. It’s been so much fun for us. This is what we do full-time. It’s been wonderful. The way I see it is it’s not only about doing good for our investors and ourselves. We invest in every deal that we put together. I look at what we’ve been able to do at the properties, some of the services, and providing good quality living for our residents. That’s the biggest thing.
What’s one thing you’re grateful for?
Apartment Investing: It doesn’t take loads of money to start out, but you do need to work with others to get the capital you require.
The faith that my mother helped foster from when I was little. It’s carried me through a lot in life. I’ve been intentional in sharing that faith with my kids. In fact, it warms my heart. They both have thanked my husband and me for sharing our faith with them. I always look at faith, family, fun and finances. Those are the things that I focus on. It keeps me centered. It’s so easy to get busy with the work and everything around there. Faith is what keeps me going.
I love those priorities in that order. Last but not least, what’s one thing you desire?
I was at a coaching class and I saw a poster. It said, “Make your purpose greater than your money.” It resonated with me. On the business side, I would like to see our portfolio grow to 10,000 units. That would allow us to grow our philanthropic fund. We give to various charities but I want to do more for others. I see business as a means to help us build that fund that we will be able to use to help others in our community.
So shall your desire be or so much better than you can imagine. Thank you so much, Arleen, for your story. The nuggets of gold that you threw in there were brilliant and inspiring.
Thank you, Monick.
It’s my pleasure. You can find her at [email protected]. You can find me at RealEstateInvestorGoddesses.com. You can connect with our community of incredible women investors from all over the country and the world. I hope to see you there. I’ll see you next time for the Real Estate Investor Goddess interview.
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About Arleen Garza
As a Principal and Co-founder of REEP Equity, Arleen oversees the operational aspects of their multifamily portfolio along with serving as a decision-maker on acquisitions and company growth strategy. In overseeing the management company, REEP Management, her goal is to maximize investor returns by increasing revenue, while controlling expenses for the properties under their ownership umbrella.
Arleen received her Bachelor’s in Business Administration in Finance from Texas Tech University. Prior to establishing the real estate business, Ms. Garza served in various senior-level key roles in the financial services industry, achieving the title of Senior Vice President. In addition, she served as Vice President for Bank One (predecessor of Chase Bank) serving in key roles as Retail Banking Center Manager, International Private Banking Manager, and as a Credit Officer.
After leaving the corporate world, Ms. Garza established a consulting business through which she worked together with entrepreneurs in developing marketing strategies and human resource strategies to achieve accelerated growth.
Arleen launched her initial real estate investing business in 2012. She and her husband began with a small 24-unit property which they owned and managed. As a Principal in REEP Equity, they have sponsored a total of twelve multi-family acquisitions, taking four properties full cycle with total returns as high as 370%. Currently, her multifamily portfolio consists of 2,621 units as a deal sponsor and passive investor in San Antonio, Atlanta, Dallas, Jacksonville, and Houston. In 2017, she was instrumental in starting a management company that currently manages eight properties in San Antonio and has over seventy employees.
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