November 01, 2023

FF12 Tammy's Journey to Lean FI, 20+ MTRs & 100+ Doors By Leveraging BRRRRs & Syndications

Tammy Richey, the visionary and CEO of Lucid Management, has an inspiring story that resonates with many property owners and real estate enthusiasts. Starting with DIY flips six years ago, she now manages over 100 doors, including around 20 midterm rentals. Her journey, filled with determination, innovation, and a passion for giving back, offers valuable insights for property owners looking to expand their portfolios.

The Beginning: DIY Flips

Tammy's journey into real estate began unintentionally when she and her husband became landlords in 2008 after relocating from Phoenix to Ohio. The passion for real estate was always there, but it was a layoff that led her husband to consider flipping a house. They started with fix-and-flip projects, attending Sheriff's auctions, and practicing before pulling the trigger.

They pooled private funds and made a good profit on their first flip, leading them to continue the process. Tammy and her husband were very hands-on, sharing duties in plumbing, electrical, framing, carpentry, tiling, and more. However, they realized a more sustainable plan was needed.

Transition to Buy and Hold

In 2019, Tammy went on a buying spree, acquiring 10 properties, including single-family homes and duplexes, using private money and local bank relationships. They were paying private lenders 10% interest, but a mentor offered to invest at 6%, introducing them to a community bank for portfolio loans.

They managed to get three portfolio loans at rates in the fours. By utilizing the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat), Tammy was able to refinance the properties, extend the loans to 30 years and reduce the rate to the mid- to high-threes.

Scaling to 100 Doors: Syndication

Tammy's desire to go big led her to syndication. Between January and May 2020, she went from 10 to 100 units. Tammy sought to reach her "lean fi" (Financial Independence), where passive income covers the lifestyle budget. She desired to retire early with her husband and travel while still young.

In the company of like-minded people, she learned about syndications at a mastermind event. This exposure helped her realize that she needed to go from duplexes to something bigger. The mastermind experience was a game-changer, she found her tribe and realized her passion.

In the context of real estate, syndication refers to a method where multiple investors pool their financial resources to invest in properties and projects that are more substantial than they could afford individually.

Real Estate Syndication Explained

  1. Structure and Participants: Real estate syndication involves two main types of participants: General Partners (GPs) and Limited Partners (LPs). GPs are typically responsible for managing the investment, making decisions, and running the day-to-day operations. They are the active participants who find, acquire, and manage the property. LPs, on the other hand, are passive investors who contribute capital but do not participate in the daily management of the investment.
  2. Investment Opportunities and Returns: Syndication allows investors to participate in larger, often commercial real estate opportunities that would be out of reach for individual investors. By pooling resources, investors can access properties with higher earning potential. The profits (and losses) are distributed among the investors according to their share of the investment. This often includes a preferred return, where LPs receive a predetermined percentage before profits are shared more broadly, and then additional profits are divided between GPs and LPs.
  3. Legal Framework: Syndications are subject to specific legal structures and must abide by rules set forth by organizations like the Securities and Exchange Commission (SEC). This includes the creation of legal documents like a Letter of Intent (LOI), a Purchase and Sale Agreement (PSA), and compliance with specific syndication rules like 506 B and 506 C, which dictate how the investment can be advertised and who can invest.
  4. Benefits and Risks: Syndication offers the benefits of diversification, access to larger investment opportunities, and the ability to invest passively. However, it also comes with risks, including dependence on the management skills of the GPs, market risks, and the illiquid nature of real estate investments.

In summary, real estate syndication is a collaborative investment strategy that enables individual investors to come together to invest in larger real estate projects. It offers a way to access significant investment opportunities with the potential for substantial returns, but it requires careful consideration of the structure, legal compliance, and roles and responsibilities of the involved parties.

Now, let's explore how Tammy Richey leveraged syndication to grow her real estate portfolio.

Finding the Right Property and Partners

Tammy's journey in real estate syndication began with a hands-on approach. She found properties herself, contacted brokers, and even wrote Letters of Intent (LOIs). As she gained experience, she realized the importance of building a "super team" of GPs and LPs, each with specific responsibilities. This allowed her to delegate tasks like due diligence, capital raising, and asset management.

Understanding the Process

In a syndication, GPs are responsible for running the deal, including acquisitions, due diligence, capital raising, and asset management. LPs, on the other hand, provide the money for the down payment, closing costs, construction costs, etc. but remain silent partners. A Key Principle (KP) might also be involved, lending their balance sheet to enable the purchase of larger properties.

The Deal

Tammy's first apartment complex was valued at $5 million, with a capital raise of about $1.5 million. They secured favorable terms through agency debt, emphasizing the importance of relationships with brokers and others in the commercial real estate community. These relationships proved vital in securing subsequent deals.

Finding Limited Partners

Tammy explained two types of syndications: 506 B (Buddy round) and 506 C (Community round), each with different rules regarding advertising and accreditation. She found her C-round investors by leveraging her B-round contacts and talking about her projects at various gatherings.

Why Choose Syndication?

Syndication offers completely passive income with tangible asset security. The payment structure typically includes a preferred return of 8–8.5% paid quarterly, plus sharing on the upside. This can lead to an internal rate of return of around 20–22%, making it an attractive investment opportunity.

Building an Empire: Strategies for Success in Property Investment

1. Employee Engagement and Rewards

Tammy's approach to employee engagement is both structured and personal. She conducts regular reviews, starting with a 60-day review and continuing with 90-day, six-month, and yearly reviews, as well as every six months after that. This continuous engagement ensures alignment with employees' aspirations and challenges, helping to adjust pay structures and align roles with individual strengths.

In addition to monetary rewards, Tammy offers unique non-monetary incentives. She has a prize wheel with various rewards, fostering a fun and motivating work environment. These rewards range from paid time off to free stays at her properties in attractive locations like Naples, Florida. This blend of monetary and experiential rewards creates a culture of appreciation and motivation within her team.

2. Philanthropic Vision

Tammy's philanthropic vision is both ambitious and innovative. She aims to use her real estate success to radically serve others. Her approach involves syndicating properties and refinancing them like a "big fat BRRR," creating a sustainable funding source for charitable causes. This strategy leverages real estate to generate continuous funds for nonprofits, reflecting her commitment to social responsibility.

Her desire to build generational wealth while creating an empire that serves others meaningfully goes beyond profit-making. By aligning her real estate endeavors with higher purposes, Tammy sets an inspiring example of how business success can be harnessed to make a positive impact on the world.

3. Mid-Term Rental Success

Tammy's specific example of a duplex in Cuyahoga Falls, Ohio, serves to illustrate her success in mid-term rentals. Initially rented at a market rent of $750 per unit, she converted them to mid-term rentals at $1800 each, with utilities costing around $200–225 a month. This conversion led to a significant increase in revenue, showcasing the potential profitability of mid-term rentals.

Her pricing strategy, known as the "enemy method," is a key component of her success. She analyzes competitors on platforms like Airbnb and Furnished Finder, focusing on listings booked for around 18 weeks. By understanding the competitive landscape and modeling her pricing after successful listings, Tammy has been able to maximize her rental income and quickly fill her properties.

4. The Power of Passion

Tammy's passion for real estate drives her success and attracts like-minded individuals to her vision. She refers to her real estate investments as her "passion projects," emphasizing that her work doesn't feel like work because she's passionate about what she wants to create and build. This passion fuels her drive to grow her empire and resonates with those who work with her.

Her belief that everyone wants to be part of something bigger than themselves is central to her approach. By building an empire that serves others and aligning her business with her personal values, Tammy creates a magnetic pull that attracts people who share her vision and commitment to excellence.

5. Exploring New Markets

Tammy encourages property owners to explore new markets with flexibility and minimal risk. She suggests renting furniture as a low-commitment way to try out a new market. This strategy allows property owners to test the waters and gauge demand before fully committing, offering a practical approach to expanding into new areas.

Her willingness to explore new avenues and adapt to market demands exemplifies her innovative approach to real estate investment. By minimizing risk and maximizing flexibility, Tammy's strategies provide property owners with actionable insights to navigate new markets and seize opportunities.

6. Utilizing Data and Tools

Tammy's data-driven approach leverages tools like Furnished Finder to understand market trends and identify opportunities. She frequently uses Furnished Finder's statistics, including pie charts and local market data, to make informed decisions. Her use of these tools exemplifies her commitment to making data-driven decisions that align with market demand.

In one instance, she looked up a market and found 41,000 searches with only three properties, highlighting a potential opportunity. By utilizing data and technology, Tammy is able to identify gaps in the market and position her properties to meet demand. Her strategic use of data provides a roadmap for property owners looking to optimize their investments.

Listen to the Podcast here

Author : FF Team