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Trent Werner: Welcome back to another episode of the Deal Deep Dive segment on the Westside Investors Network podcast. I'm your host, Trent Werner. In this segment, our featured guests will share their unique stories on a specific deal they've invested in. We will dive deep into finding the deal, financing the deal, writing an offer, and the due diligence.
Do us a solid and smash that subscribe button, leave us a rating, and share this episode. And now, let's dive deep. Welcome back to the Westside Investors Network podcast. I'm your host, Trent Werner. On today's episode, we are joined by Michael Voulgarakis with Southgate Ventures.
Michael and his partner have been investing in Seattle, Washington MSA for ten years now. And today, Michael and I are going to talk about how you can still be successful in these markets that may be considered high priced, may be considered more difficult to operate in. But Michael's gonna debunk those myths today and share in detail how he and his partner have been successful investing in Seattle, Washington, MSA. Now let's welcome Michael Voulgarakis . Alright.
We have Michael Voulgarakis joining the Westside Investors Network podcast today. Michael, thanks for taking the time to chat with us.
Michael Voulgarakis: Absolutely. I'm really glad to be here.
Trent Werner: So, Michael, I don't know if you've listened to any of our episodes or our conversations before, but, typically, what I like to do is learn more about you, Michael. I don't think everyone just was born and started in real estate. And, we talked a little bit a lot a little bit offline, prior to starting this today. And I'm curious how your previous career has correlated with your current real estate career. So what did you do prior to Southgate Ventures?
Michael Voulgarakis: Well, I started my career in IT client services. However, my father used to build homes, you know, when I was younger, and I ended up, while I was working for these companies, buying some condos and renovating them, flipping them, living in some of them as well. And I realized that I was having a lot of fun, number one. It was because it was profitable. I enjoy the work.
And I said to myself, I I really want to understand the income-producing real estate side of things. I had, you know, some education, but not nearly enough. So I decided to go back to graduate school. I went back and got a master's degree in commercial real estate finance in New York City, took a job in New York City, and and I've had appraisal, asset management, and, underwriting jobs before starting, Southgate asset management with my partner.
Trent Werner: Very nice. And were there any, I guess, skills or traits that you learned doing IT that have correlated or transferred to all of your, you know, vast real estate experience at this point?
Michael Voulgarakis: I I would really say, the big thing is the communication with customers. Right? That was the side of the business I was on to make sure that IT implementations were, going smoothly, that problems as quickly as possible, solve them. And in general, it's just a great skill to have, and, it also helps with investor communication as well. Communicate frequently, tell people what's going on, and, you know, your investors, when they're when they're well informed, it really, creates a a very happy investor overall.
Trent Werner: Yeah. I mean, you mentioned two things there that I think anyone can learn from. One, being able to solve problems and communicate those problems and the solutions, and to being able to think creatively to get to a a solution from a problem that arises. So that would make perfect sense in my opinion, and I think those are skills, like you said, anyone can use in their entire life. So, Michael, what is Southgate Ventures, and what do you guys focus on?
Michael Voulgarakis: So Southgate Ventures purchases value add multifamily and core multifamily assets in the Puget Sound region. So Seattle, Washington, the Seattle MSA. And, we've been buying properties there for close to ten years now, and we continue to grow. And and, it's a market that we're very focused on. It's the only market we're buying properties in at present, because we believe that it has tremendous economic growth drivers and a pretty large pool of assets that are prime for value-added strategies.
So that's why we're sticking with that original thesis because there's plenty more runway to go in that market.
Trent Werner: I don't know if you guys thought about this prior to investing in Seattle area, but have you ever considered any, I guess, natural disaster regions or anything like that? And and when you were thinking about that or if you thought about those, is that why you chose to to stay in the Pacific Northwest, or is that not a factor?
Michael Voulgarakis: It it wasn't a factor. However, you know, we're cognizant of certain markets that we had my partner and I had been exposed to when we were colleagues at a company. And, for example, Florida or areas in California, you know, flooding slash fires. And, we we recognize that, you know, for for many reasons, we didn't have, any connections in those markets. And then we also said, well, let's cross those off.
We're we're not really you know, I'd love to buy something in in Miami on the beach. However, you know, maintenance cost, capital expenditure cost for those types of buildings with, all the salt in the air is incredibly high. Insurance is incredibly high, you know, and it's only gotten worse over the years. That doesn't mean that, you know, investors can't make it work in those markets. It just wasn't something that was in our wheelhouse, and and we decided, you know, let's go with something where we feel a little bit more comfortable, without taking on that, what I would call environmental risk.
Trent Werner: So you guys chose the rain?
Michael Voulgarakis: We chose I'd rather have the rain than the hail or snow or saltwater or fire. Yes. Absolutely.
Trent Werner: I think that's the safest out of all of them if I had to if I had to guess. So, Michael, you mentioned something about Florida, for example, you know, very different, I guess, market on the spectrum of of real estate markets. What are some of the things because, you know, people talk. Headlines are are headlines. You know, one person would say Florida's great.
It's very business friendly. Yada yada yada. But then the the flip side of that is insurance costs have gone through the roof. Taxes can go, you know, all these things. What would you tell someone on the other side of the spectrum that would say, you you know, I'm I'm in Portland, Oregon for anyone that doesn't know.
So I'm very familiar with what Seattle you know, how Seattle operates because Portland's Seattle's little brother. So how what would you tell someone that says, well, you can't invest in Seattle. The deals don't make sense. There's rent control, you know, yada yada, all the political things going on. I guess, what would you tell someone that would say you can't do any of the things that you're doing in this market?
Michael Voulgarakis: I would say that you cannot make an overarching assumption like that about any market. You can't say, some blanket statement that says, you know, Texas and Florida, good. West Coast, bad. Right? What I mean by that is you have to dig a little deeper.
And the question really should be, how are people making money in various markets? Because, for example, I know someone very well who is making really good money in San Diego. And people say, well, how is that possible? How can you possibly buy real estate and make money in San Diego? Well, he's you know, they passed, accessory dwelling unit laws.
So he's able to take a one or two family home, add a third or fourth unit on there, and then make money that way. I know other people who are making money buying apartment buildings in in Los Angeles. And I I would really caution people again from not just placing a blanket statement over something and totally writing it off because I think what they're what they're missing is opportunities to invest where other people are not. So if everyone's flocking to the Sun Belt to buy apartment buildings and less people are flocking to some of these other markets that, you know, the national headlines would have you believe no one can make money in, I would say, again, go talk to operators in that market and figure out what niche do they have that they're making money in. Because as you alluded to before, some people will say, the prices in Seattle are too high.
It's it's not possible to make money. Well, we've been buying properties there for ten years, and we are making money. So how is that possible? I would encourage people to talk to sponsors in those markets and and figure out what their niche is, get themselves better educated before they they make a blanket statement like that.
Trent Werner: Yeah. That's really good. I mean, there's gonna be good deals in markets, and there's gonna be bad deals in markets. It doesn't necessarily what market or mean what market you're in, but rather, can you find a good deal in said market?
Michael Voulgarakis: Absolutely.
Trent Werner: One question I have for you because, like I said, Portland and Seattle area are similar in terms of the, rules and regulations and laws that are up there. I've had a lot of people, that I've known that have left Portland, because of some of these laws saying, you know, they're too strict. We can't you know, our hands are tied. We can't do anything with evictions and moratoriums and all that stuff. What have you guys done, especially in the last four and a half, five years?
And how have you been able to handle some of these new laws that have passed when it comes to evictions and and that sort of thing?
Michael Voulgarakis: Well, the tenant landlord laws in Seattle are not nearly as onerous as, many people believe. I think there are some huge misconceptions out there. Number one, Washington state does not have rent control. It was banned by the state legislature in 1981. Do does the legislature continue to, or do people continue to bring that up as a possible law in Washington state?
Yes. They do. But it to me, it's consistently shot down. Over the past ten years, it's been brought up maybe two or three times, and every single time it dies before that gets passed. The other thing is that the other rules are really quite, I I would think, equitable.
Number one, we have to provide tenants with a notification if we are raising rents above a 5% level. And that notification is a hundred and eighty days. Well, we satisfy that requirement by putting a rent notification into a tenant's original lease. So instead, we give them 365 days, and we say, hey. Your rent can go up to this amount.
Now we're not gonna charge someone an above-market rent. Right? The market will dictate tenants will dictate that is what they're willing to pay. So we'll put a relatively decent increase in there based on what we're seeing, forecasted increases are gonna be in that market for CoStar or Green Street or any of these other systems that provide forecasting data. And that's how we satisfy that requirement.
We've never had any complaints from tenants. At the end of the day, it's a conversation about how much we can raise rent with a tenant, what they're willing to accept, what we're willing to accept. And like any other interaction, you know, we treat people with respect, and we can either agree on a a rent increase or we cannot agree on a rent increase. So that's very simple. The only other thing is the potential to pay out relocation, assistance money with two tenants that make below a certain percentage of area median income.
And it varies between, you know, how many people are in the household, one, two, three, etcetera. And that is really, not that onerous as well because couple reasons. One, we're buying in b b plus areas. So we're buying class c b buildings in b p b or b plus areas. And our average tenant is making $95,000 a year.
So, well-educated, high-earning tenants, they don't meet any of that, those those area median income thresholds. And for the four so we never had to pay out any of those payments. And it's also not that onerous of a payment if we had to pay it out because there's a state fund that will pay for half of it and the landlord has to pay for the other half. And I think it's I think it's two months that that the landlord would have to pay. So it's not that big of an expense, and we just haven't experienced it given the the tenant profile of who we're renting to.
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Michael Voulgarakis: I mean, I gotta
Trent Werner: be honest. After hearing how loose the requirements are up in Washington, you guys are living in the wild, wild West compared to Oregon and California. Jeez.
Michael Voulgarakis: Yeah. It's it's, you know, you know, Seattle gets lumped in with LA, with Portland, and, you know, I continually have to say politely, no. Actually, that is not the case and explain the same thing that I just, you know, mentioned to you. A lot of people were shocked by it. But, you know, it's, you know, you couple that with the the growth market that Seattle is and, you know, it it it helps it helps with the business plan, certainly.
Trent Werner: So I know Seattle's got plenty of growth. I mean, apparently, they got way better landlord tenant laws than we have down here. What would what would or what's your thought on the cost of the Seattle MSA? Because that's a big one that people talk about. It's I mean, I have a a cousin or second aunt or something like that that is actually in real estate up there.
She's a a broker, and she sent me some of her listings, then it's crazy how expensive they can get. So what it where does that play into your guys' underwriting and and assets and portfolio?
Michael Voulgarakis: Well, it it it's a great question. It really goes back to the the underlying economic fundamentals in that market. So Seattle is a market where and you know this well. It is driven by tech, AI, aerospace, biotech, and medical job growth. And the amount of jobs that are are are there is prompting massive, population growth as well.
Then you if you layer on the supply deficit, you have a supply and demand, a problem where more people want units than are available. That that helps us drive up prices. It's appreciation, essentially. And it as far as doing the math on a building, it really comes down to, can these tenants afford the rents that we are projecting? And in our experience in ten years, having owned 27 assets in that market, yes, they they can afford the rents.
Now, obviously, there is a level at which they they they cannot. Right? And we have to be competitive with every other building in the market too. But when you look at Seattle, on a, price per door basis for apartment buildings, for example, and you compare that to Silicon Valley or Los Angeles or San Diego, and this was part of our original thesis, we said, this is very expensive compared to these other markets. I'm not saying that Seattle will ever be Silicon Valley or LA or San Diego purely, you know, I say this in jest, like, because of the weather.
Right? But but the price per pound is very reasonable compared to other West Coast markets. And if you're a, someone who's, you know, working in tech, AI, aerospace, etcetera, and you're living in in California. And you have an opportunity to take a job in Seattle and you recognize that, wait a minute. Washington state does not have state income tax, so I'm saving a ton of money there.
And then you you you couple that with the fact that the rents are more affordable than where you are living now. It's sort of a a a double, benefit to an individual's bottom line. So that is in part why a lot of people are moving there. They say, you know, especially young people. They say, I I finished school.
Why wouldn't I go to Seattle for a few years? I'm gonna get to bank a lot of money, keep a lot of the own my own money that I I I've made, get incredible experience. Maybe I stay, maybe I don't. And but that's our that's our typical renter profile. But it really comes down to, can the tenants afford to pay those rents and and the math of doing a pro form a in order to arrive at the purchase price for your building.
And there's no shortage of of properties out there that we can buy and run profitably because of that.
Trent Werner: And, again, this might be getting too into the nitty gritty. I'm not not expecting you to know the answers off the top of your head for all of these questions. But when it comes to, you know, taxes and insurance and some of the other expenses that have just ballooned across the country over the last twelve to eighteen months. Does Washington have anything in place that caps those, or are there is there no caps on property taxes and insurance and that sort of thing?
Michael Voulgarakis: I don't know of any any caps on either of those expense items. However, the the the taxable, rate, you know, your assessed value on properties for us has not been going up as fast as, you know, I I've heard about in other markets. Insurance is a different story, though. Right? Although it's not in a flood zone, although it's not in an area that's prone to wildfires, Seattle, like every other market in the country, has sort of been thrown in the pool with with with all those other markets, and we're experiencing rate increases, you know, premium increases.
It depends on the asset you're buying, though. Right? If you're buying an asset that is older, that's unsprinkler, so an apartment building from the nineteen seventies, no sprinkler systems, You're gonna get dinged for that. You're buying an apartment building in the eighties with a sprinkler system with no losses on it, either in during our ownership period or the prior owners ownership period, the the the the increases are much less severe. But, you know, I was just speaking to someone who's a former colleague of mine in New York today, and we were talking about insurance in general.
They're a commercial real estate lender, and nobody knows where insurance costs are are gonna end up. So when they're underwriting loans, they're adding really, really heavy premium increases across all markets, even more so in those, markets that are subject to flooding, fire, etcetera.
Trent Werner: Yeah. And and the reason I asked is because, obviously, I think everyone can attest to the fact that insurance is going up. But in, you know, Portland Metro, our property tax rates, like you said, are are pretty consistent. They're not gonna they're not gonna jump on you. And we looked at a deal in Texas that I think I think it was Texas.
Is there Texas or Florida or one of the Sunbelt, you know, down south somewhere where the deal they they take the property tax rate based on the the new purchase price, and it, like, it quadrupled the property taxes in one year. And so I was curious if Washington had anything similar to that.
Michael Voulgarakis: Yeah. They do. I I mean, most markets do, based on my experience. Any deal that we are underwriting, we are going to whether it's a value add deal or a core, a stabilized deal. In our underwriting model, we're gonna take the we're gonna look at the existing assessed value and the and the mill rate, and then we're gonna look at the purchase price.
Right? If there's a a huge gap between assessed value and what we're paying for the property, your your property taxes are going to go up. They're gonna go up to about, 95% of the purchase price. So we underwrite that in there as a safety measure. Right?
Because once that property sale hits the tax rolls, they flag it. They say, well, if you were willing to pay $8,000,000 for a building, that is the value of the property. So we're gonna mark our assessed value to that. So we do take that into account. And it's it's not, it's not an uncommon thing across the markets that I've been exposed to.
Trent Werner: And last question about the Seattle market in particular in terms of just data. What do you what would you guess or if you know the, I guess, average rent increase on an annual basis across your portfolio or the market?
Michael Voulgarakis: That this is a great question. We have seen five, six, seven percent rent increases for the most part over the past few years. During the pandemic, our rents dropped by very low single digits because there was a softening in the market, but there was no major fallout. Most people, especially if they're working in tech, they were just working from home. Right?
And there was a little bit of softening in demand, but we've seen consistent rent increases, pre pandemic and post pandemic as well, and depending on the market, some market rather, in Seattle. There are some instances where, CoStar, Green Street, etcetera, are forecasting 6% growth. Many of them are 4% growth. But, very strong rent growth, given that construction starts have fallen tremendously since the Fed started raising rates, and you still have this influx of people for for high very high paying jobs. That's why they're forecasting those those rent growth as well.
Trent Werner: Sounds like a great a great, result for your guys' business and portfolio then.
Michael Voulgarakis: Yeah. It, you know, it continues to be a true growth market. Right? It's it's a market that, you're getting a significant amount of your return from appreciation. We do the buildings do cash flow as well for sure.
But, you know, if anyone is out there and they're interested in in getting exposure to, I like to call it the talent magnet that Seattle is and these these incredibly high paying jobs of the future. And I think a growth market should be part of everyone's portfolio, especially for diversification. Right? If you're if you're all in, let's say, majority of an investor's money is in, multifamily or mobile home parks, let's say, throughout the the Midwest or the Sun Belt, well, you're you're kind of overexposed at that point. Right?
You you should probably start thinking about taking some portion of your your portfolio and putting it into a market that has no correlation to to your existing investments. Right? Seattle, it would be one of those. You know? You know?
There's there's many other markets too, but that's sort of where we fit in with, investors and, and if if they're looking for a growth market.
Trent Werner: Awesome. Yeah. And, Michael, you said that right now, you guys are are, you know, focused on operating your current portfolio, obviously, still underwriting deals. What kind of deals are you looking for currently in case anyone listening might have a deal that that would, meet your criteria?
Michael Voulgarakis: Well, we're looking for either multifamily or mixed use value add or core deals anywhere in the, the Seattle area. So we'd like to buy stuff, ideally, that is commuting distance to either Redmond, Washington, which is where Microsoft is headquartered and many other businesses, or Downtown Seattle, itself. Our deal size ranges from, about 3,000,000 up to 10,000,000, so that's the sweet spot we're playing in right now. And if if anyone has any properties that they're that they're looking to sell on market or off market, we've we've certainly purchased plenty of both. We we'd love to talk to them.
Trent Werner: Very nice. And, Michael, how can people connect with you? Website, social media?
Michael Voulgarakis: The the best place is to go to our our website. And, the company again is Southgate Real Estate Ventures. So our website is sreventures.com.
Trent Werner: Very nice. Well, Michael, did I did I miss asking you questions, or did you have anything else you wanted to share today?
Michael Voulgarakis: No. I Ithink that was it. I I I appreciated getting an opportunity to to talk shop with you, to talk about, you know, West Coast markets versus other markets as well. And and, hopefully, we've we've debunked some myths that that some people might not realize were were simply untrue.
Trent Werner: I would I would say that you did. You debunked myths that, I guess, I had in my own head that, I hadn't done any research on, but you definitely taught me something today, and I know our listeners will get the same experience.
Michael Voulgarakis: Fantastic. Again, it was a pleasure being on the show. Thank you very much, Trent.
Trent Werner: Thanks, Michael.
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