EP. 63 // How to Buy Apartment Buildings While Working a Day Job w/ Anthony Scandariato
Ever wanted to peek behind the curtain of successful real estate investing? Today's the day! Join us as we unravel the journey of Anthony Scandariato, Co-founder and principal of Red Knight Properties, from flipping a two-family house to acquiring a portfolio of 70 units.
Anthony walks us through his investment strategies and the challenges he faced, while also shedding light on why he branched out his ventures to different states. Get ready to gain a deeper understanding of the real estate landscape as we delve into eviction proceedings in New Jersey and how it influenced Anthony's decisions. With Anthony, we traverse the intriguing world of Assets Under Management (AUM), as he explains why it’s not always an accurate measure of a deal's success. Anthony reveals how he and his partner managed to raise an impressive 1.4 million for their first deal, and have since soared to manage 140 million in AUM.
From investing in Florida to managing properties in Ohio, we tackle the challenges and risks of out-of-state markets. Hear firsthand from Anthony about the importance of local presence and trusting your hires, as he shares his experiences and strategies for remote property management. We end with a detailed discussion about current market conditions and how they are impacting investments. This is an episode you won't want to miss, packed with nuggets of wisdom from an industry expert who has navigated the complex world of real estate investment successfully.
In This Episode:
0:00 Real Estate Journey and Investment Strategies
12:27 Athlete Financial Education and Real Estate
16:48 Expanding Into New Markets and Challenges
26:39 Remote Property Management and Syndication Strategies
32:21 Underwriting Approach and Market Conditions
45:17 Discovering Multi-Family Podcast Collaboration
-
Eric Panecki
Host
00:00
Yeah, nobody talks about that, though I bet that's a better metric right, I think.
Anthony Scandariato
Guest
00:04
Well, you hear sometimes the syndicators oh, I own 10,000 units and they're like a very small GP in one deal and they put in like 50 grand. And they're like yeah, I own 10,000 units.
David Choi
Host
00:26
All right. Today we have Anthony Scantariado Wow Co-founder and principal of Red Knight Properties. He's a local Jersey guy but does not buy in Jersey. I used to buy in Jersey, Used to, and then he learned his lesson.
Anthony Scandariato
Guest
00:43
But he did really well in New Jersey. I have to say we still have properties here, but we're moving forward. We're in other states.
David Choi
Host
00:50
Or it's a little more landlord friendly, a little.
Anthony Scandariato
Guest
00:54
How long has an eviction taken in Jersey?
David Choi
Host
00:55
right now. Oh man, it depends on what county what county.
Anthony Scandariato
Guest
00:59
Average what? Six months, Six months, Six months. Yeah, it used to be a month and a half two months, right, Ever since COVID. It's just downhill.
David Choi
Host
01:10
What's it like right now for you? Where are you buying now?
Anthony Scandariato
Guest
01:13
We're in six different states, new Jersey being one of them. We still have holdings here, pennsylvania. We had a holding in New York state. We sold that and you talk about even worse than New Jersey Landlord tenant laws, ohio, florida and Alabama.
David Choi
Host
01:31
Ohio and Alabama.
Anthony Scandariato
Guest
01:32
Three-day payer quit in Alabama. Wow, yep, sheriffs on the door in two weeks.
Eric Panecki
Host
01:38
Get out of here. That's so great.
Anthony Scandariato
Guest
01:41
So it definitely helps.
Eric Panecki
Host
01:44
So is that your reason? Like you're like.
Anthony Scandariato
Guest
01:48
That I mean you look at net migration trends. You look at different economic indicators where are the jobs, where are millennials moving to? We look at many different demographic indicators, just like I'm sure you guys do your business. And we just think it makes a lot more sense from that standpoint. And it's obviously the landlord tenant laws help as well. So we're staying on top of collections because collections and I was just telling David before we self-managed, so we're on top of our rental collections pretty much daily if not hourly to understand what the status is.
02:25
And if you're invested in New Jersey and you haven't had a tenant pay for three months, there's really nothing you could do Instead of just got to let the system play itself out.
David Choi
Host
02:36
So, Anthony, just give a brief background. Everybody you own about 1,000 doors.
Anthony Scandariato
Guest
02:41
Yeah, give it to you.
David Choi
Host
02:42
You're a young guy, relatively speaking.
Anthony Scandariato
Guest
02:45
I don't know it was my birthday last week.
David Choi
Host
02:47
Oh, happy birthday. How old did you turn? How? Old do you think I'm thinking?
Eric Panecki
Host
02:54
I'm going to go with 33.
David Choi
Host
02:57
No, I'll go with 31, 32.
Anthony Scandariato
Guest
02:59
All right, took the under on that 31. There we go, nice, yeah, nice.
David Choi
Host
03:03
So young but incredibly successful. You got 1,000 doors under management. I'm sure it wasn't like that when you first got started. Obviously Can you just walk me through your real estate journey.
Anthony Scandariato
Guest
03:13
Two family we started with two family Well and I know David from my previous career. But I worked for another real estate operator from 2015 to 2020 buying multi-tenant class A office buildings up and down the East Coast based out of Morris County, new Jersey. So I worked there. We got to learn a lot.
Eric Panecki
Host
03:33
Is that an answer? You guys work together. Vision, no vision, oh OK.
Anthony Scandariato
Guest
03:37
And had a great experience. Can't say enough positive things about the principal there and the team there. Learned a lot, worked 80 hours plus a week.
03:46
And you know. But on the side I bought a two family home and I was like, wow, I'm making $1,000 a month and I don't have to do shit. So not, you know, I did some value add in the beginning. But it was just kind of a light bulb that went off and I was like, wow, let me see if we could. You know, I could buy some more units on the side. I still, I mean, I'm still young, I've only had a few years in the business and you know, let me see what else I can buy while I'm still here. And so, yeah, started out with two family house. We still own it today and then it was a two family flip that I bought with the partner we sold, did well on it, and then I bought a 10 unit with my partner he's still my business partner, brian Leonard, in northern New Jersey.
04:34
We bought, basically while I was working, we bought about 70 units together mixed use properties, so mostly in Morris and Sussex County, so basically 25 to 50 miles northwest of Midtown, so to speak. And so I began out atryn Touch and then by firepoint, they were at four different towns. There are a few different properties. They're like 10, you know, call a million bucks right yeah, for each property. They're about 10 unit properties and they had. They were mostly from long-term owners. They were able the broker was able to source all the deals for us and they were mostly off market. One was on the market but it was on Zillow. It was one of those list things where he had no idea what it was on Zillow.
05:16
It was actually an apartment building. Those are the best because you know they're completely mis-marketed and so, yeah, so we bought those together. We were able to turn them around. You know, he did most of the management while I was.
Eric Panecki
Host
05:28
I still had a job.
Anthony Scandariato
Guest
05:29
I still had responsibilities and duties. So, but he did, my partner did most of the management, contributed capital, I contributed capital I could as well, and it was just a very simple partnership. And then late 2019 comes around, we found a 51 unit up in Sussex County. That was like a $5 million deal. That was our what town and Newton.
Eric Panecki
Host
05:51
That's, I grew up in Hampton, which is the town over, the town over, all right, so you know.
Anthony Scandariato
Guest
05:56
Where in Newton it was called. We rebranded it but it was off of Mill Street.
Eric Panecki
Host
06:00
I know exactly where, over 206. Yeah, I know exactly where there's like a barber shop like next to it. Across from it or maybe across.
Anthony Scandariato
Guest
06:08
Across is a pizza place. There's like a three. There's like a strip mall right across from it. I think one of them's a barber shop.
Eric Panecki
Host
06:14
I don't know if it's still there, but we bought that 2019.
Anthony Scandariato
Guest
06:18
So that was our first syndication quote unquote. And then I had another one that was off market, that came to me from a different broker that was right behind it was also a Newton 64 unit building that I put under contract in December 2019. And I was like, wow, okay, now we got, you know, 150, 180 units. I can't do both. I can't work there and that's not right to them, you know, to my employer, and so you know, it was 25 at the time. I was just telling David and I was like, why don't I just take the? You know I don't have kids, I'm not married. I'm married now but no kids yet. Why don't I just, you know, take the leap of faith now, because it's going to get a lot harder if I wait? But I did have units that did have income coming in from the other properties and we had a few case studies to, you know, put ourselves in the right trajectory.
David Choi
Host
07:08
It's when you get started right. I feel like there's three hurdles that every operator needs to overcome. It's capital, deal flow and operations. Where were you struggling most when you, when you tied that 50 unit up in Newen?
Anthony Scandariato
Guest
07:24
So we self-managed to this day. But that was when we self-self-managed so meaning we, for the units that my partner and I acquired, the 70 units we didn't have a maintenance technician on staff, we didn't have a property manager on staff, it was us, and we had vendors for plumbing, we had electrical, so on and so forth, you know renovations, so we just relied on them. But you can't do that with an apartment complex. You need some sort of staff. So we were trying to do the same thing you know that we did with our ten unit property, just didn't work. So actually him and I ended up going out to the property I mean, where I live, it's only 40 minutes away in Morristown area and same with him. So we were going up there pretty much every day for the first three months.
Eric Panecki
Host
08:05
You moved in, we moved in. I wish no, I wish it would have been a lot easier.
Anthony Scandariato
Guest
08:10
Yeah, right Cause. So we were up there pretty much every day like we were picking up the trash on the ground. You know the bears were getting the trash, so we, you know, had to pick it up, make it.
Eric Panecki
Host
08:18
There's a lot of bears up there A lot of bears.
Anthony Scandariato
Guest
08:19
Yeah, and pick up the trash, make sure the laundry room is clean. We were knocking on tenants doors that didn't respond to us in terms of collecting the rent or they were month to month and we were trying to get the.
08:32
you know, we're trying to you know we're trying to increase the rents and not just increase them. But we were doing renovations outside renovations and interior. So we would literally knock on tenants doors and sometimes we do cash for keys. Sometimes we would do some negotiations on site. It's pretty crazy, but we learned pretty quickly that you know from there, we can't. We can't do this, like there's no way we're going to grow, all right. So obviously COVID happened in March of you know 2020. So everything got a little wonky. Our second deal, that 64 unit we had in our contract. The lending dried up at the time, so that didn't it ultimately closed, but it closed in July. So between that time period we were able to figure out okay, how can we manage this better? So we put some systems in place, we hired, somebody to help us oversee each property on the management side.
09:21
And then we hired a maintenance person full time and a leasing person, Cause you know we were about to have some scale with 120 units in Newton. So we sold those properties in 2020, mid 2022. I'm glad I did.
Eric Panecki
Host
09:36
Yeah, how'd you guys do on those?
Anthony Scandariato
Guest
09:40
So we, we were able to complete the business plan relatively quickly on both of them within I think it was like 14, 16 months. The average rent was, I think it was like 750 for, like on app, between one and three bedrooms and when we sold them they were 1300. So we, you know, we knew that going in I think our basis was like a little less than a hundred a door, maybe a little bit over. And then we sold them for we refied in 21,. So we had a 3.64% debt on it at 70% LTV for the new guy. So we were probably all in at maybe 120 in terms of all in costs and then we sold for 172. And the buyer assumed the debt. You know, 10, you know.
Eric Panecki
Host
10:27
I think it was 7. Seven-year debt at 3.64.
Anthony Scandariato
Guest
10:31
And I think we closed in September of 22, and that's when everything was still increasing and it's still increasing to this day in terms of rates. So we did well on that, those two, and I'm glad I did, because you know, just realizing what was happening with the, because we couldn't evict anybody, there were tenants not paying, but we were still able to. We got creative and we're still able to increase the rents even during COVID and we're still able to finish the business plan. We just got really creative, we were really hands-on. It helps that it was local, because if it wasn't local we would have probably struggled a little bit more.
Eric Panecki
Host
11:06
Right, I mean, how valuable is that experience though?
Anthony Scandariato
Guest
11:09
I mean, I feel like yeah, I mean invaluable that first. You know, even we didn't buy another syndication until like towards the end of 2020. Just because we wanted to get everything up and running, we didn't want to jump the gun into a new deal. So I think we bought another one, I think we closed on in like November of 2020 was the next deal. That was in Pennsylvania, right over the border, so still somewhat local deal. We didn't really start buying at a state until 2021, like mid-2021 in Florida, where we started out with and what gave you the confidence?
Eric Panecki
Host
11:43
I mean you guys are buying units. I guess you're already working in real estate your partner was doing. Was he working another job or he's?
Anthony Scandariato
Guest
11:53
He's actually an XNFL player, so he was retired at the time and he was bored. When I met him he was 34. I think he's 39 now.
Eric Panecki
Host
12:03
You meet a lot of NFL players in Morristown.
Anthony Scandariato
Guest
12:06
Yeah, yeah he got the Jets there. Yeah, so he was, you know, basically retired, but he was getting bored because you know, he just had a couple kids and he stayed at home Dad, you know. Yeah, he just was getting a little bit bored with that.
Eric Panecki
Host
12:18
Yeah, it's a great experience.
Anthony Scandariato
Guest
12:20
So yeah, so we met and, like I said, bought those 70 together and then now we're almost a thousand. But you know, like I said, we've sold quite a bit along the way. I think we've sold 400 units along the way, so a portfolio would have been a little bit more, but it's whatever. You know, not complaining, Probably in terms of AUM now probably 140 million, if I had to guess.
Eric Panecki
Host
12:43
It's kind of why I hate the AUM Like, oh, I got, you know whatever AUM. Doesn't mean and it's like well, you know, it doesn't really matter, because if you sold a deal at the perfect time but you lost the AUM, like you still made a smart decision.
Anthony Scandariato
Guest
12:57
Yeah.
Eric Panecki
Host
12:58
So people get tied to that AUM thing and I think not necessarily always a good thing, right.
Anthony Scandariato
Guest
13:04
That's a good point. And when you're talking about just experience, I mean I just literally said you know, transacted, gone full cycle on probably 15 deals and across 1500 units or 2000,. Whatever it is that's a better. I haven't even done the math on that but that's probably what it comes out to.
Eric Panecki
Host
13:18
Yeah yeah, nobody talks about that, though, but that's like a better metric, right, I think.
Anthony Scandariato
Guest
13:23
Well, you hear sometimes the syndicators oh, I own 10,000 units and they're like a GP and maybe like a very small GP in one deal, and they put in like 50 grand and they're like, yeah, I own 10,000 units. And then there was one guy I'm not going to say his name on here, but he misrepresented himself pretty significantly and I haven't seen him close anything just because of what he was telling people. I think people sniffed him out, right. So you got to be careful with what you say. But if you're truthful and you're honest, I mean you can back it up.
Eric Panecki
Host
13:54
I think it's important for some of our listeners. A lot of them are experienced but a lot of them aren't, and you hear these numbers tossed around. But you can technically own 100,000 units, but own 0.1% of 100,000 units.
Anthony Scandariato
Guest
14:11
Yeah, exactly what does that mean? It does not a lot.
Eric Panecki
Host
14:14
You threw in a dollar or something.
Anthony Scandariato
Guest
14:17
You threw in a dollar or you helped raise 50 grand for a $40 million deal and, like, you have no idea about property management, you have no idea about financing, no idea about cost structure. You just, yeah, so I've seen that. Yeah, and it's funny, the people that start out that way, they're not in the business anymore, like I just. I went on, actually the gentleman's website I'm referencing, two days ago. I was like I wonder what this guy's up to? Nothing Gone.
Eric Panecki
Host
14:42
So yeah, it's gone basically Wow, yeah, wow so, and then, as you're going through this, so XNFL player, you probably have some cash, but then you got to go raise money, I assume, right?
Anthony Scandariato
Guest
14:54
Yeah, the first deal we raised was like 1.4 million was the total and that was including me and my partner and I think he raised half and I. It just kind of worked out that way. It was like he raised half, I raised half. Mine was mostly from friends and family and professional network and I think his was too. We didn't have any NFL players coming in. We don't really have a lot of NFL players involved with us. We have a couple, but it's not as many as you would think. It's mostly professional, greater network.
Eric Panecki
Host
15:24
Interesting. We had a guy, max Lep, he's with Max Management, he represents a bunch of NFL players and we were tossing around the idea of, you know, it seems like a lot of these guys want to get into real estate and don't know where to start, and we were speaking to a couple guys about potentially investing in some of our deals and maybe putting together an event with some some. There's a lot. I feel like there's a lot of synergies there. These guys, you know, they want, they want to be involved, right, or they want to, you know, get into real estate because it's safe and yeah, yeah, I mean I think the stats are 80 or 90% of them go broke within four years after the NFL.
16:01
Right.
Anthony Scandariato
Guest
16:02
And it's pretty terrible and so you know. Obviously my partner was the NFL player so he can speak to that a little bit more. But from what he's described is that the NFL does put you in touch with the financial advisor, but you know, not all financial advisors have your best interests at heart and some of them, you know, advise stupid decisions. Or the NFL player just says to hell with you, I know how to make my own decisions and they just they blow it all in a year or two.
16:32
So it's yeah, it's definitely, definitely a mission, I wouldn't say of mine to help more athletes get you know, be better. Fiduciaries is more of my partners, but it's definitely, definitely something that's on our forefront.
Eric Panecki
Host
16:46
Yeah, yeah and then okay. So then you're in New Jersey, you're in Newton, new Jersey, which is not the worst place ever, but it's kind of like Alabama of New Jersey, yeah it is.
Anthony Scandariato
Guest
16:57
Yeah, you can say that.
Eric Panecki
Host
16:59
And so, and then you jump to Alabama. What made you do that jump?
Anthony Scandariato
Guest
17:03
Yeah, so we were, you know, successful on those two deals in New Jersey and you know, we bought two buildings in Pennsylvania as well that we sold as well. One type of story a hundred, I think, we sold for about 175, very similar story, and we owned in Florida. I was exposed to Florida when I worked at Vision. My old employer and I was exposed to the specific market where we bought.
Eric Panecki
Host
17:29
We bought in Clearwater and Tampa you know Greater Tampa Bay Area, Nice, so I was yeah, so I was very comfortable with the market, like I kind of knew a lot about it already.
Anthony Scandariato
Guest
17:38
So we started to have success there too and I was like, all right, well, what other states can we grow into? We bought in Cincinnati, ohio we still own the property, we're almost done with our value add. And Alabama we got into in January of this year. So very significant progress there already. So it's only been seven months since we've owned those properties, but we're doing pretty well so far. So, you know, moving forward right now, obviously, capital markets are still nutty and we don't really know where things are going. I kind of do and you kind of don't, right, you think you do, but then there's a fake out. So we're being pretty cautious right now in terms of new opportunities and working on a couple right now, but they're in markets we already own and we know, you know what the rents are and have management control.
18:26
So I think that's for us moving forward, what we're working on right now. What's it like?
David Choi
Host
18:33
jumping into a new market as far as sourcing deals. Really, here in New Jersey, 45 minutes away, you could actually go knock on doors and implement the value add. But, you know, in a brand new market where you might not own assets or you're not vertically integrated or have economies like, what are the difficulties that you experienced and how did you overcome them?
Anthony Scandariato
Guest
18:56
Yeah, again, it's the management and it's really about trust. It comes down to trusting who you hire at the end of the day, and we had some really good maintenance technicians. We had some really good contractors, really good leasing agents. We sold that property in Clearwater, by the way, so we don't own there anymore, but we still own in Florida or Orlando and Ocala.
19:15
But you know it's really. You're on the ground, people are going to make or break you and you know we do visits to the properties or so we still went there. You know, it just wasn't daily or it wasn't monthly. Maybe it was bi-monthly or once every quarter, because we would go more. My saying is, if things aren't like, we would be there. If things aren't going well, like if things are moving and if units are getting done, leases are getting signed, everything's moving in the right direction to our business plan, why do I need to go? You know, if things are slow and you have a lot of vacancies at one time and it's like what's going on the maintenance, people aren't showing up. We've had that happen before. When then we go, we go right away and we take action to implement different hiring procedures or like we're not gonna wait. You know to have. Basically we like to give.
20:08
When we take over a new property in an out-of-state, usually there's management that's in place and sometimes we Hire them. We say, hey, we have a property management company as well. We interview them, make sure that they fit with us and they do well in the interview, but then when you close, they're like stuck in their own ways. They won't get on our property management software, they won't drop off notices to the tenants that were the new landlord, they won't tell the tenants how to pay online.
20:36
You know so, you've learned really quick. So you know, once we realize we do get people, we're good people we're not gonna just oh To hell with you, we're gonna change management. Already we usually get people, you know, pretty decent chance to turn things around. If it's not working out, we're gonna make a change. So that's the hardest thing just making sure you have trust in your, you know, on the ground managers there and if that requires, you know, more airplane visits. We usually do day trips, so like we'll get on a 6 am Flight and I'll hit my pillow at probably 11 30 pm.
21:08
You know, on the same day and in all the markets. So if we can get there within the day we do what we need to do, then we're gonna buy. You know, if it's, if it's a flight where you know we got to take two planes to get there and you know it's, it's out there on the West Coast, I don't think we're gonna be interested in that just because things could go wrong. But we know very quickly and you got to be able to get up to go yeah. Yeah, so that's interesting.
David Choi
Host
21:31
So it's all about hiring the right people. So, before you close on a property, are you like, how do you know what people you're gonna hire? Do you do you kind of start building out of a team before you even close?
Anthony Scandariato
Guest
21:43
Yeah, we try to if we can. Like I said, a lot of the times the management comes on with us but it's just never. Nine times out of ten it doesn't work out. So we have, you know, we use indeed we use different hiring sites Facebook, so we have different ways to get talent. So we try to do that in advance if there's no management in place. I think we've done, we've done that a couple times and, yeah, usually we close or we tell them we're gonna close and they'll have a job. We might not have somebody for two weeks after we close, but we'll have somebody start right away after then.
22:13
So we've always been able to find talent. Whether the talent is good or not, you find. Like I said, you find out pretty quickly. But in terms of the markets where we're in, obviously Florida is very hot and humid, alabama is very hot and humid, ohio can be the same as well. You know someone that knows HVAC, someone that's certified, to buy free on. You know that's something I learned today you need a certification Alabama to buy that like a separate one. So you know, making sure that our technicians are competent and we're gonna pay pretty well, we always, you know, if we're in a property where we're gonna refire or sell, we always tell you know our maintenance and leasing agents or managers hey, we're gonna we take care of you, like if you do a good job, we're gonna take care of you. Sometimes, you know, our property managers are getting a $10,000 bonus at the end of the year, you know, or at the at a refire sale right.
23:01
That's a lot of money. For some people that are in a certain income bracket, it's a lot of money for me.
Eric Panecki
Host
23:07
A lot of money for me too. Yeah, yeah, yeah so. Yeah, definitely, definitely. I mean 1500 units. I'm sure at this point you have some horror stories.
Anthony Scandariato
Guest
23:22
Give us, give us, well, the one I always remember is just on the management side in the beginning with Newton, there's one tenant and I remember her name, remember what she looked like we had to have. Let's create the crazy thing about. As we evicted her. We started the eviction Actually, we evicted her before COVID. It was very quick, it used to be very quick and she ended up moving to the apartment building that we were under contract for. So I was like, alright, I saw her on the rent roll for the new building. I'm like she's not gonna pay, so just right, discount that off the cash flow analysis. But when we evicted her, she was giving us a hard time, not gonna get into some of the stories before them.
24:00
But when we evicted her we went into her apartment because Me and Brian were checking these tenants would leave. We would go up and see what the condition of the unit. We didn't have anybody, so we were checking out this needs new flooring or this needs new appliances, or oh, we can get away with painting the cabinets, you know, instead of replacing them or doing your hardware. So this one tenant I saw like a. There was some like artwork in the living room and it was all over the place. There were people and I Was looking at close. I'm like this guy's shorter, this guy's taller, they both have nooses around their necks and as both it's both profanity or in front of it I'm gonna find you. You know, f Anthony and Brian was like oh, shit.
Eric Panecki
Host
24:44
Yeah, it was awesome, no way.
Anthony Scandariato
Guest
24:46
Yeah, so I mean, the cops didn't do anything about it. But what do you do? Yeah?
Eric Panecki
Host
24:53
So it was scary.
Anthony Scandariato
Guest
24:54
Yeah, so I had walked into a unit and there was a drawing with the noose around my neck and my partner.
Eric Panecki
Host
24:59
Yeah, that is scary.
Anthony Scandariato
Guest
25:01
Yeah, that is scary. That was interesting.
Eric Panecki
Host
25:02
I think everybody has those stories. Everybody has at least one of those, those, and I don't know what her problem was with us?
Anthony Scandariato
Guest
25:08
I really because she didn't pay, so we evicted her right away. What do you? What are we supposed to do? All right, I mean.
Eric Panecki
Host
25:14
I got. I got the worst that happened to me. I have a turn. I got shit, shit socked, shit socked. So we had, we had a tenant that we had to eject. They just were it lost the house and foreclosure, and then they stayed there and we went through. It was during COVID, whole process. Finally they get out, open the door. I walk a step in, I step on, it looks like a sock and it's like squishes. It was a shit sock, they, shit and they. It was like it was a booby trap. They trapped me and I got shit socks.
Anthony Scandariato
Guest
25:45
So you know that's yeah, thank you very much, yeah, thanks.
Eric Panecki
Host
25:49
Thanks, thanks. That one stuck with me for a little while.
Anthony Scandariato
Guest
25:52
We had one, I mean I've seen every more sad stories I've seen. I've walked into units where pills are all over the place. I mean that's more sad.
Eric Panecki
Host
26:00
Yeah, I've walked into units with shit all over the place. Yeah, yeah, yeah, but people living?
Anthony Scandariato
Guest
26:05
there. It's crazy. I mean, I Don't know how some people live. It's crazy. But you know, we, we, we try to clean up the place from what they were before and, you know, get better clientele or even if it's the clientele that are there, listen, you don't have to live like this anymore. We're coming in and changing things around. We try to do the right thing, but some people don't you know, right I don't want to hear they just want the cheapest place possible.
26:28
It's like alright, this might not be the place for you then right right you know, go go somewhere else.
Eric Panecki
Host
26:34
What is it? What does your team look like right now?
Anthony Scandariato
Guest
26:36
Yeah, so it turns out a general partnership. It's me and my partner, brian, and the two of us you know, and it's really property management, that's our team. It's really the two of us. Underwriting deal, sourcing, kind of overseeing the management, overseeing the construction is really the two of us. So we're up to our eyeballs pretty much every day.
Eric Panecki
Host
26:58
Can I say yeah, it must be going crazy how do you time to do a podcast right now?
Anthony Scandariato
Guest
27:04
It's a good. Quite a long story I'll tell you after, but no, I really the bulk of the time is the management. Yeah quite honestly. I mean it's and we have. We have a bookkeeper on staff, we have a senior property manager who oversees All the maintenance people on each side, or the leasing people, sometimes the contractors.
27:24
We get involved in that you know a little bit more than what we should and she has an assistant now. So we have enough units to kind of afford that. She has an assistant, so she he helps her with lease renewals and move ins and move out schedules and Collections. So we do have it's. I'm not doing that every day anymore. I might I do look at it every day, but so you know, the bookkeeper, we have an outsourced tax return account it. So we do have a team. You know, in terms of the property management, it's more I think it's like 12 employees we have and that's leasing agents and that's maintenance technicians and Project managers and that's everywhere as really location specific. Yeah, really, who's working for us is our senior property manager bookkeeper and Our assistant senior property manager got it and they're all remote. We don't have, you know, anybody in person. Our senior property managers out of Missouri and Our assistant property manager is more of what? More of a virtual system. He's really good too. He's actually out of Pakistan, yeah, so Pretty interesting how you can.
Eric Panecki
Host
28:32
You know, spread labor out and yeah, it's really interesting.
Anthony Scandariato
Guest
28:35
I have, we're doing that and our bookkeeper is Actually out of India.
Eric Panecki
Host
28:39
No way, wow. So you guys, you're managing everything from afar, essentially.
Anthony Scandariato
Guest
28:45
Yeah, yeah, I mean afar, but close right because it's like doesn't matter you know, I know, probably like if you ask me about a property I probably know way too much about it. But you know, if I wanted to know what was going on at the property, I just got to pull up my laptop and pull up our property management software and Just click on the property, see what's going on and all communications are, you know, through Microsoft Teams, our work order systems, through the property management software we have. You know, for most of our deals are with, you know, syndicated, you know. So we have Equity investors usually put in fifty hundred thousand, two hundred thousand, so we have a portal for that as well. That's, that's more, through a third-party software subscription agreement.
29:26
So we have a portal on that as well. But obviously you know the investor relations are me and my partner and the asset management reporting.
29:33
That's still us. So it's a lot. But you know, to what I was saying before, we've sold a decent amount and we have active syndications. I think we have maybe Five or six right now maybe that are still in the value add or almost done with the value add, but we had a lot more. I mean we, like I said, we sold I think five or six, maybe seven. We're under contract to sell another one. So you know we're we've been kind of in and out much quicker than I thought on some of these deals. I mean we're always looking at five year holding periods.
30:05
I'm sure you know you guys do too, but some of these are just like wow, it's, it's happening in like 18 months.
Eric Panecki
Host
30:12
It's like crazy you know you can only do that, and in red red states really.
Anthony Scandariato
Guest
30:19
We did it in New Jersey, which you know is a blue state, a blue state in a red area, red area in a blue state. But I mean, we know, I mean that factors a little bit into our decision-making where we're looking and and whatnot. A little bit, but it's mostly suburban. You know one to two story garden style walk up. You know 1970s to 1990s, class C we would try to turn to C plus, b minus. You know complexes that are owned from long-term owners. You know between five and 20 million Middle market, you know. So we're not competing with the big guys, not competing with really small guys. That's a nice little niche that we have here. Our average deal sizes Maybe seven to ten million. You know, on a transaction base, yep, and when we, you know, we go into a new market, we're looking at at least a hundred units, just because we have the management component and we have to have you know costs associated with that scale, scale associated with that.
31:19
So that's another thing. When we look at a state, it's like all right, well, do we have enough units to afford and full-time maintenance in a full-time manager? So that's probably number one thing that we look at you know, oh, how many units is it? Oh, it's in Kansas City. I like Kansas City, right. Oh, how many units is always 30 units? Okay, I'm not gonna look at that Like because you can't, I'm not gonna.
Eric Panecki
Host
31:41
Yeah, I can't have the man.
Anthony Scandariato
Guest
31:42
I can third-party manage it, but I'm just not used to not come. I'm not. At some point I'll let go, but right now I'm still still on control. Let's have control while you're young.
Eric Panecki
Host
31:51
That makes sense.
Anthony Scandariato
Guest
31:52
I mean, and you can still do it.
Eric Panecki
Host
31:56
So you know it sounds like you're buying deals In COVID and, and you know, I guess a little bit after COVID, yep, when interest rates were super low and I'm curious, you know how many of those deals when you model them out, you know probably lower interest rates than it is now Did any of those deals for you, you know, did they not tie out or you just bought? You know you bought so well that you know it all kind of worked out for you what you know yeah, I mean we never really.
Anthony Scandariato
Guest
32:28
I was learned to be, in terms of the underwriting approach, pretty conservative for working at vision. I mean we were buying office. You have to be conservative.
Eric Panecki
Host
32:35
Yeah, how are they?
Anthony Scandariato
Guest
32:36
doing. I mean, good, I have to catch up with them. But I heard pretty, pretty decent, the properties we we bought, even when I was there, were, you know, trophy and well located and had amenities. So that's what's doing well right now with office. Make sense but you know I was. I learned to be very conservative in the approach and you know when we like. The two deals are new and that was before COVID rates were still five four and a half five.
33:03
So like I didn't underwrite selling at I think we sold out of Five and a quarter, I underwrote selling at a seven, wow, and the deal still penciled out.
33:12
So like it was, just that's what I was used to right so I mean I, even when we bought during cove and I was like there's no way this is gonna last for another year Like these low is just no way. So I always on, if it made sense and I was selling at, you know, 400 basis point higher cap rate or, yeah, expand cap rate, expansion, and it made sense I'm gonna buy it, you know, and that's that's what I did. I mean I was still bought six caps during coven, like actual tax adjusted insurance adjusted six caps. And now I'm glad I did because you know people are Kind of it's kind of like the minimum again, you know I'm not gonna look at it, it's income producing at least at a six cap, because that's just the reality of the market right now.
33:58
So, and that's what I was used to, I mean in office we were buying, you know, maybe 80% occupied building, some of them are 10 caps, like I was. Just I was just used to that. So I understand multi families a lot lower, you know, and that's due to the risk premium of the asset there's a little bit much more highly sought out after than office, right now at least. So it just kind of was just gravy to answer your question that we were able to sell these at lower cap rates.
34:25
That's not we would have been okay if they were higher too, like if we saw them now, we would still would have been fine.
Eric Panecki
Host
34:29
Yeah, I mean that's. That's great that you know you had that experience, because I mean, how many people were, you know, underwriting, thinking everything's gonna?
Anthony Scandariato
Guest
34:36
see an af cap for classy in Houston. I mean, we could talk about that deal all day right, right.
Eric Panecki
Host
34:42
Yeah, I wanted to. Yeah, I actually wanted to ask you about. You know, you're seeing now all over. You know the news, the real deal, all these things, syndicators going bust. I don't know if it's just one deal or just you know man. It seems like it was just one deal, but it's everywhere.
Anthony Scandariato
Guest
34:55
Yeah, it's gonna happen more. That's that's for sure. That was the highlight, because that was a big deal. I don't know. I know wait, I know probably more than most about the deal, but I don't know how they got that done. I really have no idea. On the debt and the equity side, just I mean, I think they lost a hundred million dollars in equity and then the lender took a 20% haircut. It's terrible, and that was in eight months. It's insane.
35:21
So, but I've seen stuff like that before. Not necessarily with vision, but I've just seen, I've heard stories like that, and you know, my father is also in the business too. He's been. He's a CFO for another real estate company.
35:35
He's been doing this for 40 years, so it's good to have him on my side to you know, bounce different you know ideas and he's bounced bounces like, okay, well, this is, we're in a different economic cycle. And like this is what happened last time. And you know Even the principal of vision. He worked at Goldman Sachs back in the 80s. You know he's, he helped started the, the Whitehall funds and, and now he, you know, just sitting next to him and just kind of, he's been through, oh wait, he's been through, oh one, he's been through the 90s a bit. It's just like you gotta. You know not everything. You know, when we were in 2020-2021, all the feds never gonna raise rates ever again. Oh, inflation is not gonna get out of control. I'm like, what are you talking about? Like it just, I see it happening. Like it's, just like you don't see that this is you know, this is not, this is temporary, this is not gonna be forever, and this is exactly what's happening now, playing out.
David Choi
Host
36:30
Yeah so when you're when you're buying deals. Now, how are you modeling? Are you are you modeling for like a 200 300 basis point expansion on the cap rate? What kind of rates are you modeling?
Anthony Scandariato
Guest
36:41
Yeah, it depends on the deal, depends on the market. We're definitely underwriting expansion, no compression, that's for sure and I've always been that way. It really depends like we just picked up in Alabama, seven and a 7.6 on in place cat.
37:01
Oh yeah, a hundred four hundred six units kind of off-market unique situation. So I think I think I under wrote maybe eight or eight and a quarter on my base case on that. Then on an exit, just you know that was a little lower cap rate expand just because we bought it so high on the cap rate.
Eric Panecki
Host
37:18
But yeah.
Anthony Scandariato
Guest
37:19
I would say two to four hundred at least. But it depends on the story, like it depends on you know how low the rents are. If there's a really good story, if it's a you know 10 plus your owner.
37:29
That just never touched anything. And Okay, let's say it is a five and a half cap. Okay, fine, on in place. Okay, what's the upside in the rents, like real upside, like, like what's actual? What's the value there? Is it a good basis to begin with? And then what's my yield on cost? If my yield on cost is north of 8%, I think hopefully we're gonna be okay. That's another metric I look at as well and that's you know, for like we have three we always do three different projects is downside base case optimistic. So I always refer to our base case.
38:01
You know projections as okay. My yield to cost is eight. I think I'll be, think I'll be alright. And you know we try not to go too crazy with the rental assumptions either. We just kind of do it based on you know, at least if it's a new, if it's an asset, we're buying in a market we already know. We just kind of mark it up to what we're getting already you know, so we're not going too crazy.
David Choi
Host
38:23
Got it. Where do you think rates are gonna land?
Anthony Scandariato
Guest
38:26
Um you talking a short term or long term, that's.
David Choi
Host
38:29
I guess over the next, like two years.
Anthony Scandariato
Guest
38:31
Yeah, so I haven't. I'm trying not to check because it's driving me crazy. The ten year note I think we're probably at four, if I had to guess, as we're recording this.
Eric Panecki
Host
38:41
I think it was like four one. It went up to four one where we had a strong jobs report.
Anthony Scandariato
Guest
38:45
That's why, yeah. So it's probably gonna cry four, four and a quarter if I had to guess hover around, yeah, which you know would put rates Hate to say it but six and a half, seven right now on you know, you know five to ten year money you can get better. You know, with the agencies, with your maintenance prepayment structures or you know, step down prepays, I know for the agencies fan, he's quoting any they had the lowest spreads right now, from what I understand, like 180, which is pretty standard, like traditional norms. So 180 over, you know right now. You know 5, 8, you can still get in the high fives.
39:25
But you know, realize you're taking long-term money. You're not really gonna touch that deal for 10 years and I don't know, it's kind of an interesting situation because that interest rate not be the same might not be the same in two years from now and if you want to sell the building, someone's gonna look at that debt and be like, dude, I can get four, seven, five, like why would I take your debt? I saw this happen and when I was at vision, so trying to, you know, learn from the past and it's like, well, why would I take the above market debt, I'm gonna discount, you know, the purchase price on this. So I've seen that it kind of reversed both ways. So we always, every time we're taking debt out, we look for flexibility if we can, even if it's a little bit higher rate, we just always want the flexibility just in case something happens, you know we were, we were learning about Huddlones.
Eric Panecki
Host
40:09
Harrison was telling us, which is basically, you know, a little harder to get into a pair a lot harder but people do it for sure. Yeah, and it's kind of a protection against interest rate decreases. Because how does he explain?
David Choi
Host
40:24
basically you, they can you can loan modify but it readjust the amortization so like if you're in, if you get a hud loan in your three years in to a ten-year term and Raidstrap you know 2%, Raidstrap like 2%, you could do a loan modification. Take that you know Current prevailing market interest rates but the loan readjust back to a tenure, you know as if you're starting in year one in the tenure amp that's interesting.
Eric Panecki
Host
40:54
Yeah, and then apparently they do, a ton of them it's. They're like the hot, these guys.
Anthony Scandariato
Guest
40:58
Oh, into that now.
Eric Panecki
Host
40:59
Yeah, that way. If rates go down, you're good, but if you know, if rates go up, whatever, it doesn't and those are assumable loans, Yep. So says it takes about six months process. It's not really any more documentation or anything than Fannie Freddie apparently. Okay, just a longer process.
Anthony Scandariato
Guest
41:15
I'm not, I'm not gonna lie to you. I have no hot experience, so I know idea, but um yeah.
41:21
That's interesting. But where do I think rates go from here? I was on the camp, or recording this, before the July Fed meeting. I was in the camp that they were all taught like barking no bite, that they were gonna pause for July. I'm thinking they're gonna raise in July because of the jobs and it depends with CPIs coming out next week. I mean it could have a three on it, it could even have a high two on it, I mean so I don't know, but I think we'll probably get one more if we'll get to. That's debatable.
41:50
And then you know, I think we'll probably see a slow trickle down pretty much as soon as Lending the lending market. The banks know that the Fed is done. That's when we'll see the spread start to come in, because you know right now, besides the Fannie product that I'm aware of, even like the local banks, they're still quoting 300 over Whatever the ten. You know the Treasury is, which is ridiculous. Historical norms are 160 to 180. So I think you'll start to see the spreads come in Just once we know they're done. Like that's it. So I might take it, you know, another couple months to for them to be done or just to proclaim they're done, and. But I do see a slow, slow trickle down and in in the bonds in the ten years.
Eric Panecki
Host
42:36
I mean.
Anthony Scandariato
Guest
42:36
I'm not an expert, but that's just what I see. But I didn't then you know, I think we'll probably. I don't think we're gonna get a cut until I don't even know if we'll get one in March of next year, I mean, whatever the next meeting is, I don't know. It's a pal, depends upon economic data. It could get, it could get pretty weak soon, but We'll wait and see what happens.
42:58
And you know it's kind of you got to watch it as a real estate investor what's going on. But you know, instead of you know, I feel like I'm a trader because I'm like watching it every day. Now I was like I got into real estate not to have to like worry about this all the time. But you know, most of our portfolio was fixed rate. I wouldn't, you know, I would say our average rate is maybe high fours or in the fives. If I had to blend it out, we leverage across her portfolio and Maturities aren't at least. We have a couple that are due in 24, like late 24, but we're done with those in terms of the plan and you know, but most of ours are five plus years out, right now Nice nice.
Eric Panecki
Host
43:38
So 1500 units and transactions, you're, you get, you're around a thousand. Now what's next for you when you headed?
Anthony Scandariato
Guest
43:45
Yeah, like I was saying before, you know, we have a couple new deals we're working on right now. So we're trying to figure out those that'll close this year and then we'll see where we are, because they're probably gonna close towards, you know, q3 ish. Let's see where we're at, you know, see where rates are at, see where the economy's at, kind of see where the rest of our portfolios at. Just take a step back. I feel like it's been go, go, go, go go. It's good to take a step back every once in a while, so kind of a Because we have, we don't have a fun. So every deal is deal by deal. So that's how I think. I just think about project by project and property by Property, entity by entity. So each you know I'm more of like okay, we finished this, now we can move on to the next one, right?
44:28
You know, but we'll say it'll. It'll be an interesting Next six months, that's for sure, at least to see how things play out.
Eric Panecki
Host
44:35
So, anthony, I mean we appreciate you. Man. This has been awesome time. Where for for people trying to find you, whether they want to invest with you or, you know, ask for advice, work for you? Yeah, where can people find you?
Anthony Scandariato
Guest
44:47
Yeah, so we obviously our website. You know redknightpropertiescom that's red night with the K. We give out a special report. You know, basically put your name and put your email in. I'll send it to you and then that way you'll have my contact information. You'll get the special report just explains kind of a little bit more in detail what we do, how I was able to leave, you know, full-time job and do this and kind of my story and my partner's story. So you'll get that. It'll have my Facebook, twitter, instagram, linkedin link there. We have a podcast as well I think you guys are scheduled to come on, called discovering multi-family 20 to 30 minute podcasts, maybe a little bit longer with you guys, but and those get released. I think we're at 250 episodes right now. So we're continuing that so you can listen to our show there as well.
Eric Panecki
Host
45:37
We appreciate you, brothers, it's been awesome super. Thank you. Thank you so much.
RELEVANT LINKS
Red Knight Properties Official Website
ABOUT ANTHONY SCANDARIATO
Prior to forming Red Knight Properties, Anthony Scandariato who graduated from Cornell University with a Bachelor’s degree in Applied Economics and Management, was a Co-Founder in Ridgeview Partners. He specialized in the retail space with a vertical model that provided flexibility to serve multiple customer segments with similar product lines through retail, wholesale, and production contracting channels. He Acquired and developed growth of 110+ retailers within first-year operations. He later moved on to Acquisitions & Asset Manager Vice President for Vision Properties, where he was directly involved and responsible for sourcing, negotiation, and managing the acquisition of $594MM of Class A office assets.
