Gelt

$150K fourplex with 2.5% down: how Gelt got started in the 2008 crash

Keith Wasserman launched his real estate career in December 2008 by buying a Bakersfield fourplex that had sold for $500K for just $150K, using an FHA loan with 2.5% down, $5,000 borrowed from a friend, and a $10,000 credit card cash advance for renovations.

“And we could buy this one little building for $150,000. It previously sold for $500,000. I could get an FHA loan, only 2.5% down, live in one of the units, rent out the rest, and literally learn the local market and just got started, you know, plunged in headfirst with one little building. And 2.5% down, we borrowed $5,000 from a friend. We got a cash advance of $10,000 on our credit card.”

Steal thisUse an owner-occupied FHA loan (1-4 units) to buy your first multifamily with almost no money down, live in one unit and rent the rest.

Make money on the buy: buy distress so it cash flows day one

Keith's core real estate principle is to find value others miss and buy at a price low enough that the deal works immediately, rather than betting on a future sale. His first fourplex had a ~$700 mortgage against units renting at $695 each, so two rented units already covered it.

“Yeah, you make money on your buy. You find value where others don't see value. You know, when people were fearful and were, you know, losing their real estate and dumping real estate, that's when we got in and got and started the business. So you want to look for either distress or something that's the value's off. And we bought that first fourplex. Our mortgage payment was like $700 and each unit rented for $695. So you have 2 units rented, you're, you're cash flowing positively. 3 or 4, you're cash flowing like a pig.”

Steal thisUnderwrite so the deal cash flows the day you close; never rely on a guessed future sale price to make money.

Never sell: refinance and let it ride like a slot machine

Keith's hold philosophy: if you don't have to sell, keep refinancing to pull your money out tax-free rather than selling. His mentor's adage 'time and inflation are real estate's best friends' is borne out by the building that went $16M to $27M to $45M.

“there's an old adage in real estate, you know, you never want to sell. Actually, if you don't have to sell, the best thing to do is over time just refinance, be able to pull out all your money. And it's like a slot machine. It just keeps paying off. So if you have a piece of property in a good location that's improving, and you take good care of it, you never want to sell because, you know, over time, one of my biggest mentors said time and inflation are real estate's best friends. And literally that same building resold for $45 million a few years later.”

Steal thisHold quality property long-term and refinance to extract equity tax-free instead of selling and triggering taxes.

Never sell: refinance and let it ride like a slot machine

Keith's hold philosophy: if you don't have to sell, keep refinancing to pull your money out tax-free rather than selling. His mentor's adage 'time and inflation are real estate's best friends' is borne out by the building that went $16M to $27M to $45M.

“there's an old adage in real estate, you know, you never want to sell. Actually, if you don't have to sell, the best thing to do is over time just refinance, be able to pull out all your money. And it's like a slot machine. It just keeps paying off. So if you have a piece of property in a good location that's improving, and you take good care of it, you never want to sell because, you know, over time, one of my biggest mentors said time and inflation are real estate's best friends. And literally that same building resold for $45 million a few years later.”

Steal thisHold quality property long-term and refinance to extract equity tax-free instead of selling and triggering taxes.

6-8% cash-on-cash, sheltered by depreciation

Gelt underwrites deals to throw off 6-8% cash-on-cash return per year. Because of depreciation (a 'phantom expense'), that cash flow is largely tax-sheltered in the early years, and accelerated depreciation front-loads the write-off.

“Okay, so $100, you get back $6 to $8 per year. Okay. And that's in cash flow. And the beautiful thing about that cash flow is there's a phantom expense that you're not actually spending called depreciation that you could write off. So it's as if you were spending it. And so that cash flow, you're not going to be paying taxes on it for many, many years because of the depreciation.”

Steal thisTarget 6-8% cash-on-cash and use depreciation to shelter the income from taxes in the early years.

Syndication ELI5: $1M property, $500K renovation, you collect a quarterly check

Galena's plain-English walkthrough of a value-add syndication: buy a $1M property, put $500K of renovations in (new cabinets, paint), pool investor money for the equity raise, and after renovation each $100 invested earns $6-8/year paid out quarterly, with newsletters reporting on the pro forma.

“And once we complete the renovations, the property is going to give you a cash-on-cash return, meaning your $100 is going to earn you $6 to $8 every year. And that $6 to $8 is going to be distributed to you every quarter. So every 3 months throughout the year and every 3 months throughout the year, you're also going to receive newsletters that will tell you what it is that we're doing with the property, if we hit our returns, what the pro forma looks like”

The preferred return: 7% to investors first, then split 50/50

Gelt restructured deals so investors get a preferred 7% of cash flow first, with everything above that split 50/50 between the sponsor and investors. This aligns incentives to hold long-term and gave Gelt real operating cash flow instead of being 'cash poor but real estate rich.'

“one of the best things we did is we have something called a preferred rate of return, and generally it's 7%. So the first 7% of cash flow from the property goes to the investor. Anything above that, we split 50/50. So if the property throws off, let's say, 9% cash flow, the investor gets that first 7, and we split that next 2%, 1 point each.”

Steal thisStructure syndications with a preferred return to investors, then split the upside, so your incentives align with holding long-term.

Mark up your own fourplexes, sell 49% to fund the next deals

After buying three fourplexes (with $35K, $30-40K, and an FHA down payment), Keith renovated the boarded-up units into cash-flowing assets, marked up the LLC, and sold 49% to a former family lawyer in Israel for ~$200K, recycling that into down payments on 3-4 more buildings.

“And then what we did is we sold 49% of the LLC that owned those three little fourplexes to one of my dad's previous lawyers that used to work for him and was calling him and asking him about— just, he lived in Israel and saw the real estate market was crashing in the US and he wanted to deploy, I think, like $200,000, which was like huge for us at the time. So we sold 49% of that entity. We marked it up because we brought these fourplexes that were boarded up and forlorn and forgotten, and we made them into cash-flowing assets, and we marked that up, and then we used that $200 grand to buy as the down payment for another 3 or 4 buildings.”

Steal thisForce value into small properties, then sell a stake at the marked-up value to recycle capital into more deals.

$25M Salt Lake City building sold for $40M; $25K investor doubled-tripled

Gelt bought a ~220-unit Salt Lake City building for $25M, raised ~$6M in equity, and sold it for $40M four years later. A friend who invested just $25,000 doubled or tripled their money while earning ~10% annual cash-on-cash along the way.

“We paid $25 million for it in Salt Lake City, around 220 units, 4 years ago. We raised maybe around $6 million of equity. We sold it recently for $40 million. It was a huge windfall. You know, they doubled or tripled their money. But along the way, they were making around 10% annual cash on cash or more.”

Buy where rent is 20-25% of income, not 50-60%

Gelt avoids expensive coastal markets that don't cash flow and targets secondary cities (Salt Lake City, Denver, Reno, Portland, San Antonio) where renters spend only 20-25% of income on rent, versus the 50-60% squeezing tenants in the Bay Area and LA.

“I mean, they're paying 50 to 60% of their, their income for rent. So we typically like markets, you know, people are maybe spending 20 to 25% of their income on rents. Like San Antonio is been booming. It's, it's the, I think, 8th largest city in the US. It's not sexy like Austin or Dallas, but definitely we see some great opportunity to buy there.”

Steal thisBuy in secondary markets where renters spend 20-25% of income on rent, not coastal cities where they spend 50-60% and deals don't cash flow.

$63M Denver deal: $25M equity from ~200 investors

Gelt's most recent deal at the time was a ~400-unit Denver property for $63M, with ~$25M of equity raised from about 200 investors, averaging ~$100K each (ranging from $25K up to $1M).

“the last deal we bought was $63 million in Denver. It was around 400 units. We raised around $25 million of equity from around 200 investors. So you could say the average investor put in, you know, around $100,000, but we had a whole bunch that were $50,000, some $25,000”