Patrick Grimes - Building A $500M Portfolio & Diversifying Through Energy
LISTEN TO THE FULL EPISODE ON:
With a background as an engineer, Patrick Grimes began buying single-family residential properties and lost it all in the last recession. Taking what he learned, he began building a portfolio into multifamily real estate and amassed a portfolio over 3,000 units and $500M in value through his company Invest on Main Street. He's now working with his investors to diversify into energy. Patrick is also on the Forbes Real Estate Council and is known for being a thought leader and expert panelist in commercial real estate. In addition, he's co-authored a #1 best selling book "Persistence, Pivots and Game Changers, Turning Challenges Into Opportunities."
In this episode, hosted by Mike Swenson, we discussed:
- Why portfolio diversification is important with your investments.
- In finding a deal you should look at the markets, regions, locations and recessions
- When looking for places to invest, find areas that are growing, have diversified employment, and are recession resilient markets.
- Leasing agents and property maintenance staff are controlling multimillion dollar investments, so it is important to treat them well when employing them.
- As a large syndicator, your residents are your investors, so take care of them long-term so that they want to stick around.
- You will succeed through hiring great people.
- A diversified portfolio isn't something you can just create overnight.
- You can't be an expert in everything, so lean on the expertise of others.
- You need to build a good reputation to earn your investors trust.
Timestamps
0:00 - Intro to Patrick’s Career
2:11 - Engineering Field and Real Estate
4:23 - Portfolio
6:23 - Finding First Deal
8:35 - Process
12:15 - Investing on Main Street
15: 20 - Finding Great Deals
22:35 - Feedback
27:32 - Books
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Full transcript here:
Mike Swenson
Oh hello, everybody and welcome to another episode of REL Freedom Podcast where we talk about building time and financial freedom through opportunities in real estate. And today I'm so excited to have Patrick Grimes on. And we're gonna start by saying first time dad, four days old as of the time of this recording, and so we're excited that he's taking time out to continue with his commitments from before having a baby boy. Patrick is the CEO and founder of invest on Main Street with holdings that include general partner ownership of multifamily real estate portfolio valued over 500 million, including 3000 Plus units. We've been an active real estate investor since 2007.
Mike Swenson
On the Forbes real estate Council, you author thought leadership articles and contribute to expert panels for Forbes on investing in commercial real estate, and also co authored number one Amazon best selling book persistence pivots and Game Changers turning challenges into opportunities. You have BS degree in mechanical engineering and an MBA and a Master of Science and Engineering. Welcome to the podcast. We're so excited to have you talked about real estate.
Patrick Grimes
Yeah, well, it's a topic near and dear to my heart, getting freedom through real estate because it's been a bit of my journey since I started as a snot nosed engineer and machine design automation and robotics. And now I'm a snot nose real estate investor. All right, I had I just I now I have a son. That's not No, really. Yeah. So it's really exciting to be on this show. And I appreciate you having me.
Mike Swenson
awesome. So yeah, talk about that. I mean, there's so many people that come from outside of real estate, they're looking for something to be able to, you know, most likely passively get into real estate on the side maybe eventually make that transition, but kind of talk about being in the engineering field and what was it about real estate and what were you looking to accomplish by getting into real estate?
Patrick Grimes
Well, I got so when I started out in college at a machine design firm, the owner there that hey are sharp kid, but you shouldn't put all your bets in high tech, the ebbs and flows of the high risk space, a lot of fun and calm to rewarding but you can invest as much as you can, and as early as you can into real estate. And I took that to heart actually. And I dumped everything I had into predevelopment single family residential, and then lost it all because this was 2006 and seven, and they rake me over the coals. And I personally guaranteed and learned a lot of really hard lessons up front that kind of paved the way for how to build a low risk real estate portfolio that cash flows and is recession resilient. And and that's what took me from single family to multifamily.
Mike Swenson
Interestingly enough, yeah, that you you had that loss, because so many people think when I invest in multifamily, it's always going to make money, it's always going to appreciate it's going to cash flow or the cash flow is going to get better. You've learned that lesson. And I think that probably speaks to your strategy here in a shifting market right now and looking to diversify your portfolio because you experienced the pain of what what happened early on.
Patrick Grimes
Yeah, well, I It's true. I mean, now that I look at deals I look at I kind of very different lens, right. And I also look at portfolio diversification to I mean, if you read my passive investor guide, it talks about needing to be diversified into alternative assets, which is multifamily. It's also business equities, and other old assets, such as energy, which were also in as well. And I think it's important for everybody not to hang their hat all in one spot, right, but they get into to various investments. So your total portfolio has a lower risk.
Mike Swenson
So walk through the growth. I know you had mentioned that, you know, the challenges in single family and moving to multifamily. But for people that are maybe in a spot where it's like I've got a few properties, I'm looking to scale. I don't really know how to do that. How do I bring in investors and kind of that that launch phase of getting your portfolio off and running, talk about how that worked for you.
Patrick Grimes
And then multifamily say well, I had kind of a leg up because I had been doing automation and robotics, which led me to a lot of entrepreneurs and business owners that are dumping millions of dollars with me into much higher risk investments, right doing one of the kinds of machinery for satellites and solar cells, Evie vehicles, rockets, medical devices, that kind of stuff. So you know, I when I got into and I was like, hey, look, I want to go into these larger apartments instead of the single family stuff. I had a number of guys I was like, yeah, let me know what you're doing and and And so when I, it took me about two and a half years to transition between the two as my back when I met my wife was when I realized I couldn't trade my my time anymore for my family, friends and hobbies and moonlight real estate because I needed to marry my wife. And I married her in Beijing in California.
Patrick Grimes
So that was successful. And then after that, I said, we're trading at the multifamily. And she goes, What's that, and then we started diving in took me about two and a half years of just analyzing, learning, really getting into the nitty gritty, a little analysis paralysis there, it's kind of the engineer for me, and I come from a background where I'm very risk averse, for good reason. So and then I, I was able to find numerous partners, some worked out, some didn't. And then finally, we found an opportunity with a great partner. And we dove into it. And I went from a portfolio of three bedroom, two bath, single family homes, to add six units on my first multifamily deal. And then after that, one, it was a matter of time before we found the second and then third happened kind of in parallel, and then it was off from there.
Mike Swenson
So when you're thinking about, you know, let's just start with the 86 unit. In terms of location, what were you looking for, you know, we want to make sure that we're doing a great job for our investors, because if we help them make money, they're gonna want to plow it back into more properties with you. So kind of talk about finding that first deal, or maybe the first couple, what were you focusing on in finding a deal, location, price point, any certain metrics, that sort of thing?
Patrick Grimes
Well, so there's in any asset class, there's ways to do things where you can potentially make a really high return. And then there's ways to do things that are safer, that will give you a more predictable return, even in a down economy. And so other than slide at all at the stack on green, green pointing forward, spin the wheel again, I wanted to look at markets, regions, locations that fared well in past recessions, right ones that had diversified employment and recession, resilient markets and research related industries. And I wanted to find which areas within those are growing, growing, because you want to ride a rising tide. You don't want to be fighting and declining market. And that tends to be places that are legislative friendly, and low cost to live, because they attract businesses and low cost to live attracts people.
Patrick Grimes
And you marry those two with landlord friendly locations that allow you to continue to collect rents and evict, bad residents and, and allow you to renovate and drive rents up and they don't have rent control. And which allows us the freedom to build a cleaner, safer, improve living experience for our residents and these, these properties, then you found yourself with good place to set up shop and it's a business, then it's about the numbers, it's about the analysis. But you can't forget that it's also about residents. And a lot of the times we'll get into these deals, and they're kind of rundown. And they've neglected the residence and they lost their building. And we get in there and we make it a better place while returning great returns to our investors. And I think that win win, which I think makes a sustainable company last service that
Mike Swenson
now talk about, you know, a lot of syndicators and larger multifamily folks, it's the value add opportunity we're going to come in, we're going to pump money in we're going to increase the rents, we're going to increase the quality of the units. A very key piece of that is good property management. So talk through your process, have, you know, maybe you're in a new market that you haven't been before you're looking to establish relationships for property managers, what are you looking for, in terms of finding that person that you're going to link arms with and say, Hey, I trust you with this asset to go make it better, so that we can so that we can make money off of it.
Patrick Grimes
It's interesting. So starting out, I was very much about the larger property management firms, because I learned a lot from them. They had a lot of high powered people that had been in the industry for 20 years. That could help us bring in partners, contractors, teaches metrics and things like that. It wasn't until COVID that I kind of flipped the script on that. And I realized that the properties that were outsource to property managers struggle. And that was because the property managers had a hard time keeping their people they weren't paying them very much just just enough, and they were relying on training and replacing them frequently not long term loyalty and investing in their people. They're in large, large, large product managers, oftentimes they're a commodity. And it turns out that those leasing agents and those maintenance guys are controlling multimillion dollar investments. And they're the lowest paid people in the business. And so it really is a people business, whether it's your prop Pretty managers, your residents are your investors.
Patrick Grimes
And so ever since then I've been a bigger fan of vertically integrated property management is through COVID. On the Properties where we were vertically integrated, we were able to knock on the doors, here are the tenants story, understand why they're not paying rent, help them fill out to render assistantship. And then find the ones that wouldn't talk to us and found the ones that were just scheming the system. And were able to figure out which ones were worth sticking with and which ones weren't on the other side. And when you were able to control all the way down to the tenant experience, you're gonna have a better happier tenant, that's going to pay you and work with you to get paid, whether it's through themselves or through government assistantship. And many of the investments we're finding that are distressed, like ones that have 19%, bad debt 19% People not paying, those are people that treated their residents as as a commodity at their local. In fact, we brought back some of the leasing agents that they had turned through. And so that's kind of what we look for, I'd say, and that helps to give a little bit of an explanation.
Mike Swenson
That's good to hear. Because for somebody looking to do this, and looking to scale, obviously, you have to succeed through great people. And if you're in markets, where you don't live places, that you're not familiar with states, all the way across the United States, you know, in your case, you have to find find great people and like you said that their performance controls multimillion dollar assets. And so if you have somebody that's not doing a great job, that has a huge impact on the returns that you can have.
Patrick Grimes
Exactly, yeah. And when you pour your heart and soul into, you know, somebody in the businesses, you want them to stick with you. But if you have third party property management, you're pouring your heart and soul into somebody that the property manager is going to promote to somebody else's property and leave you hanging and anyways, so that's been it not that we haven't had a good experience with our third party properties or third party product management necessarily, but I believe it to be more powerful if you take the time as a private equity firm to learn in different business and align that core value set. Okay.
Mike Swenson
So talk about you know, your your company invest on Main Street, when did that get started right out of the gate with your first property? Or did that idea come along as you are looking to grow?
Patrick Grimes
Well, when I first did my original predevelopment single family and got raked over the coals that was me. And then when I got back into it doing low risk and lower risk investments in growth markets, like like Houston, Texas, doing single family buy, distressed and renovate, add, I was doing it from California. That was still me, the one that control and I still wanted to own it wasn't until I realized that you could spray it up to lower risk assets. And I've articles in Forbes have talked about how the single family approach Reynolds has an outsized risk associated both legally and and financially without model and the Guru's don't talk about it. And I'd be happy to share those articles, and both asset protection and accelerated retirement, we can return on equity and you're in a much better place in all of those aspects in larger multifamily.
Patrick Grimes
And so I realized I needed to partner I needed to trade up. And when I did that, I needed to bring on other investors. I couldn't just use my own money all the time. And I did I knew 1031 into larger multifamily and I haven't I have an article in Forbes on how to 1031 Enter multifamily and guide on my website. If there's a landlord dealing with tenants toilets and trash wants to trade into a multifamily deal. You can come in that way. But I built the company around an educational platform, truly to partner with others, but to educate the individuals that I have a passion for, you know, single family landlords slaving away, or busy professionals like I used to be, and fighting their way through trying to escape retirement, but not investing into alternative investments. It's not their fault.
Patrick Grimes
They just weren't, and they just weren't exposed and providing investments not just in multifamily. But we also have investments in energy, lower risk profile energy deals, diversified portfolios that give crazy tax advantages, no debt that don't ride the curve of interest rates that are actually increasing in value while real estate's declining value. And the diversified portfolio isn't something you can just create overnight. You can't be experts in everything. And so we decided to start offering those kinds of investments through our platform. And we have some other ones coming in in the New Year, which we're excited about.
Mike Swenson
So real quick before we kind of pop over to the the energy side for a little bit when you're looking at potential deals, locations, we kind of touched on what are you looking for, from a city standpoint, a general location estate standpoint? But what are you looking for for an individual property? Are you working through boots on the ground brokers, you're obviously been around long enough, you've built some great relationships. But for people looking for great deals, how do you find those.
Patrick Grimes
So for the most part, the business of the syndication space is saturated. And the quote value add phrase shows up on every broker package. So when some of these used to describe everything, that it's meaningless, right, and to say you're doing value add deals or deals that you're going to buy, distressed and renovate, improve is almost cliche, because everybody's saying they do it, every broker says that's what they have. And to your point, the reality is most of the investments that people hear about are the PERT the the properties for sale, or there's like 20 or 40 people clamoring, paying to the highest bidder to get those. So pretty much all of our properties have come from off market, pocket listings, from brokers, lenders, or even insurance agents that have made a connection.
Patrick Grimes
We've closed on them quickly, oftentimes with our own capital or through a family office partner. And then backfill that with the syndication. And we close on them quickly to get the biggest discount, we can. Just like we found this asset operator that a 14%, not collected rent and a building burned down, we got a five and a quarter million discount on that guy, but we closed real fast in Atlanta due which is right near downtown 15 minutes. But they're the kind of assets we're looking for somebody, somebody's having a bad day, they're struggling, they need out, they don't want to make it they need to get out quickly. And we can move quick. And we can lock it up. And then we can offer it to our investors.
Mike Swenson
Yeah, I mean, you've definitely got to a scalable size now where you you can be able to pull those things off really quickly. And, and so kudos to you for being able to do right by investors and build and grow that to a portfolio size that you have. So yeah, let's let's transition and talk a little bit about the energy space. So, you know, because you came from a period where, you know, you had a tough time in the market with the last recession, because we're we're in a spot where there's a lot of people in the space right now. And yeah, you're looking for alternative investments for people talk about that transition to energy. Well, I
Patrick Grimes
wouldn't call it transition to energy. I'm more Just kidding. By the way I am I am diversified in my my passive investor guide, talks about how the middle class, high income and ultra wealthy have respectively 7% 25% and 50% of their wealth in business equities, alternative assets in real estate, not just real estate, right. And for the most part, the America is uneducated in these areas. Why? Because we don't value that financial education. I tech professionals that are brilliant, some of the sharpest people I've worked with Tesla Locky j&j Like some of the it's really incredible, but all they know about is their 401 K. Or maybe they're lucky enough to graduate to an IRA through their employer, or a financial planner.
Patrick Grimes
Unfortunately, all of these are maybe their day trading stock on the side, and maybe dabble in crypto, but those are not sustainable retirement solutions. But all of these that I just listed are correlated assets to the stock market, and I and they will slaving away, they really don't have time to then invest in real estate. Or maybe they're the few select few which have broken away and done it and given it a shot. Well, I'm going to share that through and I can happy to share with your listeners that if they're doing it themselves, then they're trading time away from their family, friends and hobby. So kind of the graduate school version is to try and do it yourself. But then the PhD is do it passively through syndications. But now you're in two verticals. Where real estate whether it's single family, multi self storage, mobile home, Park, assisted living, all that stuff, Airbnb, it's all one vertical.
Patrick Grimes
And that, quote, diversification that they think they have between the stock market real estate really is one correlated asset and real estate and a highly volatile solution in the stock market that won't produce a retirement. And somebody that has seen a market crash in 2009 and 10 lost it all. As I mentioned, I believe in diversification happens to be that my family actually clicks royalties and oil and but most of my investors, they're lucky enough to even get into real estate How could they possibly find any other assets which are totally Different than real estate non correlated in real estate so that they fall in different market trends. And how do they none of them essentially have the knowledge, the network or the resources to find those and take those down.
Patrick Grimes
So turning to actually, it turns out that me and my buddies, we trade these, these opportunities and even small network of people that know about them. Even my security, the attorney has invested in this inner New Deal, before I even learned about it, when I brought it to him. And we, so we decided to start taking some of these inner these investments, which have even better tax advantages in real estate, come off your ordinary income 75% of it crazy tax advantages, great passive income, two to three year exit multiples, similar in structure to real estate, but different market cycles, and then offer it as a diversification play, not to find lower risk deals than real estate, but to find a lower risk, diversified portfolio through diversification and non correlated assets.
Patrick Grimes
And we know that they're not fraudulent, they have a track record, you know, 30 year, third generation, long standing firms and property that are investments that we are invested into. So those are hard to find. And our journey now is to kind of make good on instead of me just tell everybody, you need to go being diversified me to say, well, like Harrison vehicles for you to get there.
Mike Swenson
So now you have additional offerings for your investors, where, hey, you can you can choose make a couple of choices. And yeah, depending on where they're at in their life, it's not all my eggs are in the real estate basket, and whether it's just diversified through, like you said, mobile homes, single family multifamily. Now, it truly is another opportunity for diversification. And so you take a defensive approach and a protective approach as well, to your portfolio.
Patrick Grimes
Yeah, exactly. And we have other ones coming up and take it's taken years to get to the point where we launched alternative assets. Well, it turns out multifamily and real estate is an alternative asset. So the real perspective is that real estate never really was the end game. Real estate is one of other all assets. Right? And there are others and we're gonna we're bringing more and more of those on and structuring those way those those specific opportunities that we feel comfortable. I'm very risk averse guy. So it's very difficult for me to get on board with things. Like I said, it took me two and a half years to warm up to one specific niche of multifamily value add real estate. And so I'm getting there now is some other assets that I can then offer, you can set up a call, I'd be happy to chat with you.
Mike Swenson
What's been the feedback from your investors now having these additional opportunities?
Patrick Grimes
Well, the last the last fine was overwhelming. Pretty much everybody resonates with the fact that holy, you're right. I'm in all these real estate products. And I'm not in anything else. In fact, right. I was the guy who wrote an article in Forbes that multifamily is the best hedge against inflation. Well, I still believe that to be true over the long haul. But right now, everybody from Goldman stat Sachs, Chase, Elon, even Warren Buffett just bought a $12 billion stake in oil and gas. Robert Kiyosaki just in March by oil and gas a rich dad poor dad guy in Texas in North Dakota, this cycle in real estate and at this cycle in energy, energy is a better hedge against inflation.
Patrick Grimes
The future's bright cash flow is going up, valuations are going up where in real estate, interest rates are going up, cash flow is going down and valuations are waning. That doesn't mean our multifamily deals won't do well. They have been built to do well through these recessions. But in this market cycle, energy is the right time. It's the right time to invest in energy. You know if you get into it, but OPEC dialing back 2 million barrels a day to force the energy of Russia misbehaving. You pulling out of natural gas. I mean, we all want sustainable energy to be the end game. But if you look at the graphs, it's not going to happen in our lifetime.
Patrick Grimes
We're making progress. But right now, it takes 800 barrels of oil to make a Tesla and 38% of the electricity comes from natural gas. Elon is saying we have to increase natural gas and oil drilling here in the United States. Why? Because his business is powered by. And it's important for us to just kind of let that sink in for a minute. But in the horizon of this fine, we can do it and we can do it in a greener way. We have a whole video on how we do it in a safer, greener way. And we can do it in a way that supports our national security and has incredible returns. And so that's that's kind of like the the two cent than two minute bank little intro to that.
Mike Swenson
You know, it's it's great to talk about, you know, obviously talking about real estate, that's why we've got the podcast but what I also like highlighting too is it opens up opportunities to do other things outside of real estate. And in your case, it's you're looking out for your investors If you're looking out for how can we best help help serve them in more of a holistic approach, and obviously help them make money in the same time, because if if it didn't make money, they wouldn't be, they'd be less excited to be investing.
Mike Swenson
And so you're taking another angle of, hey, I've done a great job building great relationships with investors over time, and how can we accent that. And so it's it's fun to have conversations with people doing things outside of real estate as well. That's the freedom that you earn right through, through what you've built so far, building a good reputation to be able to do these other things and have investors trust you because you've done a great job with their money.
Patrick Grimes
You know, it's so funny you say that, because to bring him back to the tailor your show, when I left engineering, and I was I mean, I went back in engineering during COVID. And ended I did COVID assembly test kits, automated assembly test kits for some large medical device and I was trying to be part of the solution. My wife and I were living in Hawaii time. I literally read I hang out to pick them out and look at these automated systems for coding. But after COVID, I did walk away from engineering and even in a part time role. And it was that freedom to do that, which allowed for the time for me to really launch invests on these great alternative assets, and they go in there to
Mike Swenson
Awesome, well, Patrick, for people that want to learn more about you. And obviously you're brilliant person. So how can they reach out to you and connect?
Patrick Grimes
So invest on Main street.com invest on Main and then street all spelled out.com. We have offerings at the top of the page there and multifamily and energy. My number is two. Sorry, my, my email is Patrick at invest on Main street.com. Patrick, the KPA tra CK at invest on Main street.com. And if you're interested, I do have a book out that made an Amazon number one best seller. And it was a really fun project I did with some really cool people. It's persistence pivots and Game Changers turning challenges and the opportunities and there's the guys that I did it with and gals. Here I am with a wig on. I'm just kidding. I did have hair before I had my boy baby boy four days ago but anyways, but there's some really cool people on here.
Patrick Grimes
Rachel gave them the real estate guys Phil Collins, lead guitarist and Def Leppard NFL NBA coaches players really fun project about how my whole story is in here on the journey being high tech and real estate losing an oil company back rating up, and it tells a lot of good stuff. I really believe in this content. If you would like to copy this book, I'm actually giving it away for free to go to invest on Main street.com/book And what's the promo code freedom, freedom Okay, invest on Main street.com/book and use the promo code freedom and we'll actually ship you a signed hard copy of this guy. I really believe in the stories and I hope it inspires you and adds to your journey.
Mike Swenson
Awesome. Well thank you so much Patrick, for coming on and best of luck to you in the future. With your your business, your investors, and also your your baby boy. So congratulations on that.
Patrick Grimes
Thanks so much Mike.
