Last Cast Letter #3: Boots On The Ground

Hi All - Happy Friday. It’s the last day of the month, which means it’s time for the Last Cast Letter.

Before we dive into today’s edition, I want to welcome a handful of new subscribers to the list. A majority of you came from the Short Squeeze newsletter and my friend @overheardonwallstreet. Welcome, it’s sincerely great to have you here. My name is Brooks Dyroff. I worked at J.P. Morgan and then Blackstone, before leaving to start Walk-On Holdings.

This is a targeted list, written specifically for those who are interested in direct and private real estate investment opportunities. If this is not why you signed up, please unsubscribe at the bottom.

🟡 If this is why you signed up, and you haven’t already, please take a moment to fill out our investor form.

For those of you who have filled out this form, keep an eye on your inbox. I’ll be reaching out this week – I’d love to find a time to introduce myself. 

I’m excited about today’s edition because it’s a chance for me to highlight some of the stuff I’ve already been doing. It’s one thing to talk and write about investment trends and ideas. It’s another thing to execute those ideas and put them into action. Being an operator is exponentially more fun than being an orator.  

The way I tried to structure this initial email series is like an upside-down triangle, starting with the wide base:

• 30,000-foot view: Why Florida, and more specifically, Miami, is interesting from a macro perspective due to migration patterns, demographic trends, and inherent supply constraints. Read the full newsletter.

• 15,000-foot view: Why asset class and location matter in Miami and why workforce housing on Miami Beach caught my eye. (I don’t think a “15,000-foot view” is even a thing, but you get the point). Read the full newsletter.

• Boots on the ground view: What it actually looks like to establish a framework based on the ideas above and deploy capital. This is what I’ll be outlining today, so with that, let’s dive in.

The Fundraise

After discussing the 30,000 and 15,000-foot views above with a very small group of people I was able to complete an initial equity raise. I was also able to secure a line of credit, which is still in place. However, as we all know, times have changed.

The average rate on a 30-year fixed-rate mortgage was 3.646% at the end of December 2021. Today the national average is 6.85%. Nevertheless, the cap stack was set and the ammunition was locked and loaded. Next, it was time for the hunt.

The Hunt

The very first unit I toured on Miami Beach was located in 552 Euclid Ave. 

The building is right across the street from one of my favorite cafes – an old-school, greasy spoon called Las Olas. Get the Cubano if you go. It’s a quasi-two-for-one deal.

I’ll be honest, I can’t remember if the apartment was a studio or a 1-bedroom at this point, but that doesn’t matter. What I’ll never forget is that the listing agent wasn’t there and never picked up our calls, the door to the apartment was unlocked and open, and the place was a mess. No one was inside. The whole thing was very confusing. I didn’t take more than two steps inside before leaving. 

This was in February 2022, so just over a year ago at this point. Since then, I’ve seen more units than I can remember. If I had to put a figure on it, I would say probably upwards of 30-40. Some were like the one I saw in 552 Euclid: unkempt and questionable. Others were absolutely adorable: bright and airy with a beach chair by the door. Tucked away in a picturesque Art Deco building, coated in pastel colors, and framed by palm trees that swayed gently in the dry winter breeze.

Anyway, on these property tours, a few thoughts emerged. The bolded parts are obvious, but the devil is in the details.

• Specific streets matter: I don’t love 6th street (where 552 Euclid Ave is located), especially as you get closer to Washington Ave. For whatever reason, this spot seems to attract some “riff-raff”. I don’t dislike it entirely, I just don’t know if this is where I would want to live personally. Meridian Ave, on the other hand? One of my favorite streets in Miami, and a top-five contender for favorite streets in the country. It’s tree-lined and shaded. It has lights that come on at night along the stretch next to Flamingo Park. It’s lovely.

• Specific buildings matter: Next time you’re in Miami, or if you live there already, grab a Citibike and ride through the Lummus Park district of Miami Beach. You’ll see right away that some buildings have curb appeal and others simply, don’t. Even some of the buildings that do have curb appeal need their hoods popped with further inspection. What do the reserves look like? Have they passed the 40-year recertification process? Are there any assessments in place? If so, for what? Is it a co-op or a condo? Just typing the word “co-op” sends shivers down my spine.  

• Specific apartments matter: A lot of times you’ll know as soon as you step in the door. Would you live here? Does the air inside smell musty? That could be mold. Is the floor carpet, vinyl plank, or wood? Is there central AC or is it fixed in the wall? Are there impact windows? Does it have parking? Do you hear a tiny dog with crust in its eyes barking next door? That last one is enough to drive someone mad. 

Moral of the story: There are a lot of factors at play, which makes the exercise of finding the right unit and/or building challenging, but incredibly fun as well. 

Before I move on, do you remember why I landed on the name Last Cast? This process is a lot like fishing, where multiple factors are at play as well. On the water, you have to understand the depth, the current, the wind, the weather, what’s biting that day, and which bait to use. It’s a small wonder you end up catching anything at all. But herein lies the beauty of the sport. The cast, the tug on the line, and landing one in the boat. It’s a feeling that can’t be replicated.  

The Purchases

With money in the bank and my checklist in hand, I came across a dozen or so apartments that fit the bill. I made offers on all of them, went through inspections on a handful of them, and ended up with 3 of them. 

• A 407 sqft studio on 13th Street and Meridian Ave right near Flamingo Park.  

• A 446 sqft studio a few blocks north on 15th Street, just off Meridian Ave. 

• A 450 sqft 1 bedroom 1 bath on 13th Street and Pennsylvania. 

It’s hard to say which one is my “favorite”. I love the location of the studio on 13th and Meridian. It’s right across the street from Flamingo Park, which means it’s a two-minute walk to the tennis center if smacking the ball around before work sounds appealing. The one on 15th Street has incredible curb appeal: bushes with purple flowers and doors with green trim. And I can only describe the entryway to the 1 bedroom on Pennsylvania as serene. The small pathway is lined with palm trees and there’s a fountain in the middle that provides a soothing soundtrack as you approach the front door. 

Two of these units had tenants in place meaning they immediately cash flowed, albeit less than I would have liked at first, but we’ll get to that. All three were in good shape but needed a little bit of TLC. And lastly, all of them came furnished. I’ll be honest, in the future, I don't know if I'll buy them furnished or not. There are pros and cons to this aspect of the purchase process, many of which I’ve discussed at length with people who know the beach better than I do. 

Speaking of people that know the beach better than I do, this is a great segue to a critical part of the purchase process that took a good amount of time, including interviews: finding the right property manager.

Before closing I reached out to 8-10 companies. One or two never returned my call, another cohort was slow to respond, and the final few were professional and provided unique insights during their pitch. Ultimately, in addition to knowledge base and track record, it came down to responsiveness. The group I ended up with always returned my text, calls, and emails in a timely manner. They still do.

A few people asked me why I hired a property manager and my answer is simple. I do not want to be called in the middle of the night because there’s a leak in the apartment or the air conditioner broke. I especially don’t want to be the one evicting a tenant. Part of avoiding the eviction process altogether requires finding the right tenant in the first place. The property manager does all of this and more.

And yes, I pay a fee, but this is baked into my underwriting model and it’s a fair price to pay for being able to sleep at night. Plus, one of my goals with these three units was to establish a framework. Who are my investors, which bank am I using, who is my broker, who is my closing agent, who is my property manager, who can help with renovations, etc?

I wanted to build out my team from the ground up. A structure of sorts where, once it’s in place, we can plug and play. 

The Stabilization Process

I closed on these apartments in May and June of 2022. As I mentioned above, there were tenants in place in two of the units (both of the studios), but they were paying below-market rents. No one was in the 1 bedroom and the past owner appeared to be using it as an office. The interior was dated, but otherwise, it was in great shape. I’m going to start with an overview of the studios first, and then the 1 bedroom:

When I closed on the studio on 13th Street and Meridian Ave, it was being rented for $1500/mo. From a stabilization standpoint, this one didn’t need a lot of work. When the lease expired in September, my property manager helped me add a fresh coat of paint, update some lighting fixtures, and tighten some loose knobs. Nothing crazy and not a lot of work involved. We ended up renting the apartment to a new tenant at $1900/mo. 

The second studio on 15th Street required a little more work, but again, nothing dramatic. A fresh coat of paint, new lights, and a few other knicks and knacks, and we were good to go. This unit was being rented at $1250/mo. When the lease expired in October and the refreshed unit was ready, we re-leased it for $1875/mo. 

Now, the 1 bedroom might be nearest and dearest to my heart for a few reasons. It required the most work, and, more importantly, I lived in it with my wife. Without going into too much detail, we were originally living in Edgewater, but we found out our unit had mold. Twice. Shame on us? Either way, after the second time we broke our lease, but we needed a place to live. 

This was right around the time that I was closing on the 1 bedroom, so my wife and I decided to put most of our stuff in storage and move into the unit on Pennsylvania Ave. It will forever be one of my favorite memories. If my wife is reading this, I want to say a quick thank you for being flexible and trying this out with me. No better way to learn than by doing, or in this case being your own tenant. 

So yes, in this one, I was my own tenant for a few months. Since the previous owner hadn’t been renting this one, I don’t have an exact before and after lease comparison. But, here’s what I can offer. The apartment next to ours in this building was rented for $1,200/mo in 2020. My wife and I are no longer in the apartment. A new tenant is paying $2,200/mo.

That’s a big jump and highlights the wild rent growth that’s made national headlines over the past years. We also didn’t get this rent growth without putting a little work into the place. 

Again, this wasn’t some big rehab or massive renovation project, but it did take some time and effort. We re-did the floors with Sterling Oak Click Lock Luxury Vinyl Plank, put new lights in, staged it well, and put it back on the market. Here are some before and after shots:

What’s Next

So, there you have it. That’s what I’ve been up to over the past year or so on the real estate front. This has not been easy. Behind the scenes, there have been some potholes.

• A pipe broke in the building on 15th Street. It wasn’t in our unit, but it’s something the building management had to fix. 

• The washer/dryer that was originally in the unit on 13th Street broke. We bought a new one, which stung, but the reserves I modeled for each unit covered it so we were fine. 

• And the 1 bedroom took slightly longer than I anticipated to rent. In hindsight, we put it on the market at an awkward time, right before the holidays.

While everything above has not been easy, I think it’s been incredibly worthwhile because, as I mentioned, now I have a framework in place. 

Now that I have this framework in place, it's time to scale, which means jumping from individual units to an entire building, or multifamily property. This is where you come in. Over the next month, I’ll be putting a preliminary deck together to outline what's next.

The goal of the deck will be to get an indication of interest if you are serious about investing alongside me. As such, I'll only be sharing the deck with those of you who have filled out our investor form. I’m blessed to have commitments already, so for those of you who also want in on the next deal, hit the button below:

With that, I hope you enjoy the final day of March and the first weekend of April. I'm already looking forward to the next edition of the Last Cast Letter as we inch closer to phase two.

— Brooks