Episode #006 - What does investing look like in DFW? In this episode we visit with Steve Fithian. Steve has a wealth of experience in all levels of real estate. Join us as we get to know Steve and dive into the world of investing with one of the best!
(https://youtu.be/uFfXqie_3e8)
Steve’s Bio: Steve Fithian serves as Senior Advisor and Managing Director for SVN | Trinity Advisors. With over 30 years of commercial real estate experience, Fithian specializes in selling and overseeing investment property sales that include multifamily, mini-warehouse, office, retail, undeveloped land and finished lots. He also organizes, manages, and acts as the general partner in property partnerships.
Fithian holds the designation of Certified Commercial Investment Member (CCIM) and is the former chairperson of the North Texas Chapter CCIM Membership Committee. In 2011, he was named a counselor to the Society of Exchange Counselors. The Society of Exchange Counselors is a marketing group consisting of approximately 100 investment brokers from various parts of the country who have proven their skills at solving clients’ problems.
Links from this episode:
Coffee purchased from Dwell: http://www.dwellcoffeeandbiscuits.com
Frontline Property Management: http://frontlineproperty.com
SVN Trinity Advisors: https://svntrinity.com
Transcription
Episode #006 REN Podcast Transcription (Steve Fithian)
Jason: Alrighty. Hello everybody! This is Jason Reynolds with the Real Estate Now podcast, and I've got the one, the only, Steve Fithian - broker of Visions Realty and Investments and also partner with SVN Trinity advisers here in Fort Worth. How are you Steve?
Steve: Are we glad there's only one?
Jason: Only one what?
Steve: Steve Fithian. I'm doing great. It's a beautiful Friday afternoon.
Jason: Perfect, perfect. Well, today what we're going to talk about- hey Don. Nice to see you. You know Steve, Don Lauer?
Steve: Yes.
Jason: Yeah, he just jumped on, he's watching right now.
Steve: Super. Alright Don, hello!
Jason: So what we're going to do is - I brought Steve on today to talk a lot about, or mainly about single family properties, he's been in the area a very long time. And so we'll be jumping on that, but before we do that I want to get to know Steve a little bit, so I researched you a little bit even though we've been working together a while. So you moved to Texas in 1990, is that right?
Steve: Correct.
Jason: Okay. So you are a certified commercial investment member.
Steve: Actually that time I wasn't. I was in the process of getting a-
Jason: But now you are.
Steve: Now I am. 1993 I received that designation.
Jason: Okay. You are a former chairperson of the north Texas chapter CCIM membership committee?
Steve: Yes.
Jason: Okay. See, I'm doing good! In 2011 you were named a counselor with society of exchange counselors. So what does that mean?
Steve: It's a national organization, it's invitation only and it's a group of everything from developers to owners of real estate, brokers, and it's a way of getting together and trying to produce transactions amongst ourselves.
Jason: Okay. Okay, awesome. Last thing I have here is in 2008 you received the Charles D. Tandy commercial realtor of the Year award?
Steve: Correct.
Jason: So did you have to do anything special for that? Was that for a certain transaction?
Steve: That one was not, no. It was just voted on by my peers at the Fort Worth Border chairs. So...
Jason: So there is an award that you won for transaction?
Steve: Yes. It's in my office.
Jason: What was that one?
Steve: That was for a transaction in Arlington where we purchased an existing apartment complex in one phase, a condo complex in the second phase, converted them both to individual condos and then sold them off individually while maintaining it as a rental property for cash flow during that period of time.
Jason: So a little complicated.
Steve: It was pretty complicated. Also it was purchased from a wreath that kind of made it a little bit more complicated as well.
Jason: Okay, alright. So we're gonna go ahead and do a coffee shop- Hey James! And in the midst there, I'll be asking questions. So Steve tell us a little bit about yourself. Are you married? How long have you been married? Do you have kids, grandkids?
Steve: Been married for 35 years, have 4 kids. All of them are out of the home, so it's kinda lonely at home right now. And we have 2 grandsons, they are in North Carolina, and so unfortunately we don't get to see them as often as we'd like.
Jason: Okay. Wife is Vicky?
Steve: Vicky, yes. Like I said I've been married to her 35 years. She's a sweetheart.
Jason: Okay. And now grandkids?
Steve: The 2, the 2 in North Carolina.
Jason: The 2, okay gotcha.
Steve: Right.
Jason: Well awesome. And so you've been in Texas since 1990, but where did you, were you in California prior to that? (3:34)
Steve: I grew up in California, went to most of my schooling there including college and then worked there for a number of years until we relocated here.
Jason: Okay. So then kind of using that segway, let's jump into the single family investment arena. So did you start that in California? Like when you graduated, did you go straight into working in real estate or were you in a different business first? (3:59)
Steve: My first career was as a CPA, and so I was working for a big 6 accounting firm. But I had an interest in real estate starting in college, just didn't know how to make a living in real estate coming right out of college. I graduated with student debt and so you know I needed to have a good job and accounting provided me a good job. But I started investing- the first house I bought was 6 months after graduating from college.
Jason: So did you go into that alone or did you go in with a partner for the house? (4:30)
Steve: I got a partner. Again I was paying on debt, and was making okay money but I needed a partner to be able to do that, and found a good friend of mine who was same thing- graduated from college and we actually both stayed at home rather than getting an apartment after college. We stayed at home for a year. So in 6 months we bought our first home and then 6 months later we bought our 2nd property and that's when we moved away from home and moved into that 2nd property.
Jason: Okay. So you still had the first one, and then you moved into the second property?
Steve: Correct.
Jason: When you moved out, did that become an investment as well, or did you...?
Steve: Well I was living at home with my parents-
Jason: Okay.
Steve: And so we moved into the 2nd home that my friend and I purchased.
Jason: Okay.
Steve: And so we had one rental, and then we lived in the second home.
Jason: So when you bought that first property, you leveraged it? (5:18)
Steve: Yes, got a FHA loan at that time and investors to get FHA financing.
Jason: Really?
Steve: Yes.
Jason: Okay! With favorable...what was the down payment of that?
Steve: 20%.
Jason: Okay so you still had to do a pretty high down payment on it.
Steve: Right.
Jason: Okay. And how did it perform? Do you remember just- what kind of cap rate or return you were getting? (5:33)
Steve: I don't remember the cap rate at that time, and I can tell you - I mean I was just in Southern California last week and that property - we bought it for $43,000 and I would guess that that property's worth is probably $400,000 now. Maybe 300,000-400,000.
Jason: Why didn't you keep it?
Steve: Well, we did keep it for a while. We actually ended up buying a 3rd home, and moving into that. And so then we kept the first 2 as rentals and then we got 7 units. So it just got to the point where as we were, you know, continuing to expand we sold some of the earlier properties. I did keep it for quite a while. I'm trying to remember- it was probably about 1988 or so. So which would've been about 9 years hold before I sold it.
Jason: Okay.
Steve: And at that time I was- you know we were making the plans to move to Texas, and so I was starting to do exchanges, sell the properties that we had in California and exchange into properties in Texas.
Jason: So when you bought that first property, so people that are- want to get into your mindset, were you looking to make x amount of dollars per month profit on it? Or were you just mainly wanting to get a property in your portfolio? (6:44)
Steve: Coming from California, if you look at statistics there's a huge amount of people that have done extremely well with real estate. And so that was pounded into my head from an early age and in college I did a lot of research on it. And so I was just looking for gaining net worth through real-estate ownership.
Jason: Okay.
Steve: I was not flipping properties. I was strictly just wanting to accumulate a long-term portfolio of real estate.
Jason: Okay. So did you eventually, was it 4 homes that you had in California before you moved to Texas? (7:26)
Steve: Oh no, no. I partnered up with another and we bought a lot of houses. I mean... I don't know, 30, 40 houses and then started buying residential units, multi-family units.
Jason: Okay. Did you self-manage first? (7:45)
Steve: At that time I was still working in accounting. I had changed jobs and was controller of Coldwell banker. And so it's my job to locate the properties and then arrange the financing and then again due to my accounting background I purchased Yardi software and so I was doing all of the accounting.
Jason: Okay.
Steve: And then I had a partner at that time that his job was to manage them in the physical leasing of the properties, arranging for the maintenance. He did all of that side of it.
Jason: Okay. So was that- when you were in California, you had all those properties, did you ever hire out management or was it always between and your partners? (8:22)
Steve: No, I never hired it out. When I left Coldwell banker at 1988 and started full time doing this, I did start self-managing other assets in addition to the assets that I had with this one partner, so the ones I have with that partner he was managing the other properties we did start managing at that time.
Jason: Okay. So then what was the catalyst to come into California? Or to Texas, sorry. (8:49)
Steve: The values in California were very high, the returns were low. The cycles were pretty short, and in the market in Texas at that time there was a unbelievable opportunity because the market had adjusted, and so there was some fantastic buying opportunities. And so I came strictly looking for the buying opportunities that Texas had. And originally, frankly I wasn't planning on moving there, I was just planning on investing there and I moved a management partner there to start managing the assets, and so my kids at that age, my oldest was 4. Wasn't in school yet, so we would go back there, spend a month, month and a half at a time. I would use that as a buying opportunity, meet with my management partner, go look at all the properties, etc.
Jason: Okay. So how long was it before you started? Was it just a year or two before you started investing that you decided to move here? (9:44)
Steve: We bought our first properties at May of 1990. It was on, we were here on a business trip in February of 1991., and on the drive back I mentioned that my wife and she was frankly astatic about the idea and so on the drive back we made all the plans, went back home, put our house on the market, and started making firm plans and by May of that year we were back in Texas.
Jason: Oh, wow great! Okay, so pretty quick.
Steve: Yes.
Jason: So then, over your period of time, when you moved to Texas and you started investing in single family here as well, what are the things that you used- what are the things you used to look at in an investment property to determine whether you wanted it or liked it, and has that changed over time or has it stayed the same or are there different factors that have played the part? (10:21)
Steve: Well I need to back up before that.
Jason: Okay.
Steve: The very first thing that I do is evaluate the market. I mean, is there that a market that I don't even want to own the houses, so I don't buy houses just indiscriminately across the country. I do own property at other states, but I start with evaluating that local market- is it a long-term market, is it an opportunity just for the short-term. In Texas I did intense investigation into the market, and found out that in my opinion it had really long-range prospects. And in retrospect I was absolutely correct, and that's why I stayed because originally I thought I would come here and stay during the market cycle and move back to California.
Jason: Okay.
Steve: But that market cycle lasted far longer than any market that I've ever seen in California. And by then I was entrenched in the local market and believed in why they're creating the jobs here and was convinced that was going to continue. And so that's why I've stayed.
Jason: Was there a period of time in the downturn of 2006, 2008 that you thought about leaving or was it still good at that time? (11:48)
Steve: No, not at all. And in that downturn it was much more modest than what you saw, for example, on either coast or a lot of the other areas. And if you look a lot of the statistics, for example, the residential market in Dallas it did soften, but it was far less than any other part of the country, and again I attribute that to the long-term dynamics of this economy. The things, the pro business outlook with what Texas does and that that's carried through to the local municipalities as well.
Jason: Okay. So then what are your, as you're here, you're doing a commercial side as well, what are you personally see the market being like in Dallas Fort Worth area over the next 5 years for both residential and for commercial? Just in your personal opinion. (12:35)
Steve: I still think that we have an outstanding economy. I'm still very proud of it, I'm still investing here. I think that there are some areas that for example Houston- I'm actually investing in Houston but it's had the hurricane, the storms there, and then Houston has a little bit more of an impact from oil prices, but nonetheless I'm still in Houston because I know long-term that that market is going to do very well. And on a lot of their commercial markets like industrial, it's extremely strong because you have contractors that have relocated to that area to help in the rebuilding process. So long-term I believe that, I study demographics and the amount of incoming both from out of the country, from other states, people are coming here because of our consistent job row that's been consistent over many decades.
Jason: Right, right.
Steve: And it's still very affordable, even though we've had great price appreciation on residential, it's still extremely affordable when you compare it to other cities across the country and people with the salaries that they get here can afford not only a much better home but cars, and can play more etc. than they can't in another, a lot of other locations.
Jason: Okay. So then when you started in California you self-managed with your partners, and then now you're, you have front line property management that you started. As an investor, what about property management made your life easier? What made you decide to get in that business and then, do you recommend that to investors and what does that do in terms of helping them maybe free up time to invest in more product? (14:16)
Steve: Well I own a management company that I'm extremely proud of and I feel that we achieved some fantastic results, but on the other hand we cannot compete with somebody that is hands-on, that has the time to do their own maintenance that has the time to do their own leasing. But, the front line is not marketed to those types of people. There are so many people that have busy careers and are professionals, and they want a piece of real estate, but they don't have the time or want to deal with the headaches that come with management. So I would say it depends on who that investor is. If that's somebody that has the talent and the expertise and is willing to deal with the headaches, then they'll save the management fee and so that can add to the bottom line. But for most people, I would say that management is not the best use of their time.
Jason: Yeah, okay. So then, if you were to come up with maybe just a few pointers of the biggest, some of the lessons you've learned in owning investment properties, is there anything that stands of that you think of when either purchasing properties, investment properties that you've learned over the years that has stuck in your mind? (15:51)
Steve: Well due diligence is just up there at the top. And due diligence, that can be a very broad term so again that starts with selecting the right area, and then I would say it extends to the team that you have. I mean I was fortunate enough that I was doing this for a living, and I was trained to do proper due diligence etc. So when I was buying our houses etc, we always thoroughly checked them out and likewise on the commercial side as well. We checked them out professionally. So I would encourage everybody to do that, and so the other thing is you've got to have a great team whether it'd be everything from your broker, your financing, your attorney. That whole team is very, very important and I feel that I've been very fortunate that we have developed a good team and it's helped keep me out of trouble, you know? Then again some of the scars that I have, I would say legally, talk to an attorney as far as planning, the proper vehicle to hold title. Be properly insured. And so I would say those are some of the top tips that I would have. And then I guess I would also say that, do your homework but then don't be afraid to engage. I mean I meet a lot of people that are, I would say they're the gurus of the circuit. They go to the latest seminars, they get the latest tapes and the books and they just keep going over that process and spending more and more money getting more and more education, and they don't pull the trigger and buy their first asset. So I would just highly encourage people. Do your homework, but then engage. Go buy a property.
Jason: So in terms of your personal journey, a lot of new clients that I work with have questions about "Okay, should I start in LLC if I'm purchasing 10 properties to put those into? If I only have a couple, should I worry about that?" Obviously they should probably talk to their attorney, but in your personal experience did you start out right with an LLC or did you with those few properties just have in your own, you and your partner's name? (18:07)
Steve: We had them in our personal name and we had, what I refer to as a 'joint venture agreement draft' that was not recorded or record, but it was drafted. It, I would say it depends on the person's goals. It does get expensive to do entities like that, especially if you're doing one house, but certainly if you are planning to do this on a repeat basis, then I would get good legal representation and whether that advice- it would be cost prohibited frankly to put every single single-family home in a single asset entity, but certainly on the commercial property that's what I do. Every single one is a brand new entity.
Jason: Okay. So, I had another question I was going to ask you but I just forgot.
Steve: Should I turn it around and interview you a little bit?
Jason: No this is all about Steve Fithian.
Steve: Well that'd be boring. Hopefully going to talk about some things that are going to interest the investors.
Jason: So in your, I was going to ask you- in terms on investing now, I know we talked a little bit before we jumped on in terms of, you had more commercial opportunities that have been popping up so you've been selling out of your single-family investments due to appreciation. But, when you do purchase single-family investment properties and you're analyzing say cap rates, things like that. What do you factor in, your analysis for costs when you're trying to get an accurate picture about how the property performs? (19:59)
Steve: Well I try to be as conservative as I can in forecasting what the accurate cash flow is going to be. So obviously property taxes, insurance. What if it's going to be managed, the management fee, and then your maintenance. You also have to factor in what the vacancy is going to be. But I will say for me, my goal again back to some people that are in some of these investors, a lot of that I see that read or some of the books and tapes or thinking "Well I want to retire in 3-5 years." And so, they, to do that they're looking at some very creative ways to do that whether it'd be extreme leverage or whether it'd be very lofty estimates of rental increases etc.
Jason: Right.
Steve: I don't do that. I'm more patient, I want to look about building a network over a period of time. I'm still working, I enjoy what I do and so I don't have to live on the cash flow. I want to build passive income and believe the passive income is there, but I'm more looking at rather than flipping properties, I'm wanting to accumulate properties and that cumulative cash flow from a lot of different properties and a lot of different sources in my opinion that gives me more of a stabilized and diversified portfolio income. And so that's what I've tried to do over my career.
Jason: Okay. So I want to give you two different scenarios and tell me when you were just jumping in as a new investor, which property you would've picked then versus if it popped up now what would you pick now. So you say I have 1 property that was built in 1960 and both of these perform the same in terms of cap rates. So one is in the metroplex and, but was built in maybe 1960, and or you could maybe purchase another property that's maybe in Weatherford which for those of you that don't know Weatherford is about 25 miles west of Fort Worth. So say you had to go out of the metroplex but you got a newer product. Say it was built after 2000. What are you- or maybe you got a little bit of a higher cap rate on the older property. Would you take more risk when you're younger, or do you think is that a question you can even answer without seeing all the numbers? (21:41)
Steve: No I mean if you go back to in California, part of what I was doing there was acquiring distressed houses through foreclosures and some REO's and so I was less picky about the houses, I was less picky about the locations. We got some homes that were fantastic value, but after doing that starting in 1979 and doing that up through about 1990. What I found was that, for example frame houses, so older houses that were, I would say inferior to new construction. And also I'll say not the prime areas, and so specifically like Riverside county, San Bernardino county as opposed to Orange county. During the cyclical downturns in California, I found that the less desirable areas, the values got softer decreased more, likewise the rentability of those was a little more challenging, and the houses that I had held in in Orange county, they survived those downturns better. So when I came to Texas, I tended to buy more quality homes, you know 3 bedroom, 2 bath. Brick homes, and better school districts, tried to look for newer homes. And so I kind of tried to learn from that experience and from my opinion there can be some differences between looking at strictly just the cap rate. When you're looking at holding two different houses over a period of time, the higher cap rate property in maybe a less desirable area, older property versus the newer property brick in a better area. The cap rate is a lot less on the better property but holding that property over a period of time from my expertise, I frankly would rather take the better property.
Jason: Okay.
Steve: And part of that, it's not just the return, it's the less headache. And so, and the appreciation potential over that period of time. So I've turned out to be a little bit of a different investor then when I started 30 years ago.
Jason: Okay. So somebody, coming to this area, obviously there's a lot of appreciation going on in Dallas and Fort Worth so it's harder to find that type of product that's pulling in a good cap rate. But part of what I'm finding is, you can find still some good properties, say side of the metroplex in the town such as Granbury or Burleson or Weatherford. What are your thoughts, just yourself as an investor. I think some investors are maybe nervous about towns like that, they are maybe 25 miles away. What are your personal opinions on investing in a home or a duplex in Weatherford with it being a little bit further out of the metroplex? (25:02)
Steve: Well I've had good experience with that here in Texas, and so I've been investing in Granbury for over 10 years. I've had investments out in Weatherford that have done very well. I guess the difference that I would make, and this is really going to only make sense to somebody from both California and Texas but San Bernardino and Riverside counties, those areas are not as attractive as say for example Orange county in my mind because of things like the beach, and the weather and smog. At that time when I was there, those areas San Bernardino and Riverside county, they were hotter they were a lot bigger, longer drive to the work centers. They had more smog, and so it wasn't just- I mean there were multiple factors why I think when the economy went down that people decided "I'd rather live in Orange county than make that drive from Riverside or San Bernardino." Whereas here the areas that I'm describing like Weatherford and Granbury and Burleson- those are very desirable areas to live. They have very good school districts. The weather is not any different in those areas so it's not a negative for a weather pattern. And yet you can commute into the heavy job sources. But there's also job sources in those local areas, and those are I would say up and coming areas where the growth rates have been phenomenal both on the residential side but also for commercial purposes, retail etc. So like I said I've done very, very well in those areas and have been glad that I've invested in them.
Jason: Okay. So just jumping a little bit, I think we've talked about single-family and gotten some tips on that. But can you tell us a little bit about more of what you're doing now in what you're focusing on with your commercial business and what kind of opportunities you're jumping into and what your focus is? (27:26)
Steve: Well I'm always looking for houses, but frankly most of my effort has been on the commercial side. So because of that I'm looking for very good deals with the houses. And they come far and few between. But if they pop up, I'm ready to jump on it immediately.
Jason: So when you say a good deal, do you have a cap rate- I mean aside from the property meeting your criteria in terms of condition, location. Are you looking for a cap rate in your mind for a deal? (28:03)
Steve: No.
Jason: No?
Steve: No I'm not.
Jason: You're kind of-
Steve: My parameters, Jason, have changed. I mean you know, when I was buying houses on the courthouse steps, I used to like to get properties 70% a value then it got to where you couldn't do that. And so increased it to 80%, and then when it increased past that, I quit going to the sales. Then as our market continued to improve and you can put almost any house on the market and have multiple offers, then if a deal came to me higher than 80% I was still willing to buy it because I knew the value of it was higher than that in the rental market was very, very strong. So for me it's not just kind of a formula that stays the same, it depends on what's going on in the economy and where I'm at.
Jason: It always fluctuates.
Steve: Right. So I am currently in the market for single-family, but I'm looking for deals. Really my focus is more on the commercial side, and the reason is is because I mean for what I've found houses right now if you were to buy it on a cap rate you're looking at 6% or maybe 5.5% cap. And I can find cap rates higher than that right now on the commercial side significantly higher than that. So I'm focusing more of my daily activities on the commercial market right now.
Jason: Okay. So you have the Visions company that you started. Did you start that in 1990? (29:37)
Steve: Well it was actually started in southern California in 1988.
Jason: Okay. So then at what point did you start your own commercial brokerage?
Steve: Well 'Visions Realty' in California did a residential as well as commercial. And then when I came to Texas in 1990 the focus was strictly on multi-family. And so we did multi-family from '90 to about 1993. And then the multi-family market, the deals started kind of evaporating so then we went into office and retail and self-storage. And so that play was ending by about '96 or '97 but the single-family still had opportunities. So that's when we started going into single-family and Texas was in the late 90's. And so then by the late 90's we were very involved in all factors of that. I mean 'Visions' was doing the residential side, and then we had the management business, both the residential and commercial management business and we were very actively involved on transactional brokerage business on the commercial side, and as well as on the residential side. It was more like about 14 years ago that we affiliated the commercial side with 'Sperry Van Ness' and really separated the two so that 'Visions' was doing the residential brokerage and 'Sperry Van Ness' was doing commercial brokerage. And then 'Sperry Van Ness' evolved into SVN.
Jason: Okay. So are there any other tips, advice, anything like that that you can think of for maybe investors that are thinking of coming to Texas to invest their money and invest in single-family even though it's harder to get maybe even though it's still 5.5 cap, 6 cap. Do you think it's still a good area to invest in? You're still here, so… (31:20)
Steve: I do and I'm still investing. When I go, I travel a lot and I travel for real estate and so I'm going to meetings across the country, seeing different areas, talking to investors in different areas and I still feel that our opportunities are really unsurpassed. And so I have no plans on leaving, have no plans- I mean I could say I am buying property in other locations but Texas is absolutely my first choice. And so yes my focus is here. Do I have anything to say? Yes, I would say that from my perspective real estate has been the best investment opportunity that I've been able to find. I mean with stocks and other forms I've invested in those, and when I look back consistently over my career I've never been able to do better than I've been able to do in real estate. And when I compare what I've done in other states, I've never done better than again what I've done here in Texas.
Jason: Wow. Okay. Well that's all I've got, so thank you Steve for jumping in. If anybody has questions about maybe commercial investment or questions for you, how would they reach out to you to contact you maybe about opportunities? (32:50)
Steve: Well either give me a call or shoot me an e-mail. Phone number is 817-288-5524. E-mail is steve.fithian@svn.com.
Jason: Perfect! Okay, thanks Steve!
Steve: Alright, thank you Jason!