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This episode is packed with so many lessons I don't even know where to start! All I know is that you won't want to miss my interview with Jonathan Twombly who finally did something about the job he hated.

He decided that apartment building investing was his way out of the corporate world. After a slow start, he met another investor and they started a partnership. After two deals they failed to close, they parted ways.

Jonathan then went out on this own. By the time he closed on this first deal, three long years had gone by! He shares with us the *many* mistakes he made along the way and things he would do differently the next time. Here are some of the highlights from lessons learned:

For the full transcript, please see below.

Enjoy the show!



Talk about what happened before you did your first deal

I grew up in the New Jersey suburbs just outside New York City and came from a pretty modest home.  My parents were divorced.  My mom raised my brother and me pretty much by herself as a public school teacher.

I was a good student in high school and went on from there to study at Harvard College.  I was studying US history and thought I wanted to be a college professor.  But while I was in college, in the late 1980s, Japan’s bubble was at its height and a lot of people thought Japan was “taking over” and getting in on this was somehow going to make them rich.  One of those people was my girlfriend at the time.  She was majoring in Japanese and basically told me that she was going to Japan after graduation, regardless of what I did.  So I started studying Japanese and became really interested in Japan.  Naturally, we broke up soon after that, but I kept studying, and when I graduated in 1991 we were in the midst of a recession and I figured it would be easier to get a job in Japan than here, so off I went.  I wound up there for three years.

I had decided that I wanted to do something related to Japan, but not as a professor.  Coming from a family with no business background at all, I shot for what seemed to me the most prestigious and highest paid job, which was lawyer.  I came back to the US and went to Columbia Law School, and then worked at various law firms for about ten years or so.

I enjoyed the first few years of practicing law, but after a few years, I got pretty burned out.  I bounced in and out of law, trying a few other things, including going back to school to get a PhD in Japanese history.  During that time, I met my wife and decided that I did not want to try to support a family as a 37 year old graduate student, so I went back into law.

I still hated practicing law, and during the time I was working again, I used to fantasize about starting a real estate investment firm. I used to look for property and analyze it during slow times at work.  But I had the golden handcuffs and could not leave my law job.

My “break” came in 2011, when I got laid off from my law job.  I was kind of a delayed victim of the Great Recession, because I had very little work after 2008.  I guess my firm liked me, and kept me on, but the work never came back and they eventually made the right decision and let me go.

I had seen the writing on the wall and had been networking a lot with people in real estate.  When I finally got laid off, I had already developed a little bit of a network.  I had this one meeting with a very senior real estate guy, Richard Warshauer, who told me that, at my age and with my background, the only way that I was ever going to break into real estate was if someone in a small shop took a liking to me and asked me to become partners.

A few weeks later, that actually happened.  One of the people I was talking to was in the process of starting her own multifamily investment business.   She asked if I would like to join her.  She knew I had no background in real estate, but she thought I had integrity and could learn the business.  I think she also thought that I had some ability to raise money.

I talked this offer over with a few friends, who then told me that, if I went for it, they would invest with me.  So, there I was, with an offer of a partnership and some money on the table, so I decided that the universe was telling me I should do this.

We started out looking for deals in Louisiana and Texas, which my partner knew because she and her family already owned some properties out there.  We had a couple of deals under contract, but we were unable to close them.  We had the equity capital lined up, but the lender backed out on one deal pretty much at the last minute, and we found something in due diligence that we did not like on the other deal and terminated that one.   It was very painful, because we were out of pocket for a lot of expenses.

At that point, we both decided it was best to go our separate ways.  We had been at it for nearly two years at that point.  I was not sure what to do next, and had dinner with one of my friends who had planned to invest with us.  He suggested that he back me in a new venture, so that is when Two Bridges was formed.  That was early 2013.

That was painful first two years: I learned everything up to closing. I was a much better risk to my investors having educated myself on my own nickel.

Wow, that's quite the story, what happened next?

One of my investors encouraged me to start my own firm and he would be one of my first backers.  So we founded Two Bridges Asset Management.

The company focuses solely on multifamily assets in the Southeast.  Even though we’re located in Brooklyn, NY, we invest only in the Southeast, because we see better value there.  Given the competition for property in New York, values are sky-high, and you have to be betting primarily on appreciation – which may never come.  People think New York real estate always appreciates, but you have to have a very long time horizon for that to be true.  If your time horizon is shorter and you don’t time things just right, you could get hurt, especially if you are over-leveraged.

In the Southeast, we still see reasonably attractive cap rates that allow us to generate current cash flow on assets.  We also see long-term appreciation opportunities because of the population growth happening there, but we don’t invest for appreciation.  I view that as a risky strategy.  We only invest in currently cash flowing properties.  We look for deals where we don’t need to put in very much capex, and there is value to be added on the management side, through running things more efficiently.

OK, talk about your first deal.

I had some connections in Charleston, SC, and I started to look around and asked for CRE brokers. Your non-RE friends have more connections than you think. I met a broker called Tyler Flesh. Spent 1 year looking for deals, again on my nickel, and not finding anything. What am going to do?

The break that we got, we got a listing from one of Tyler's broker contacts, and she convinced the seller to take it.

Valley Creek: 102-units, 1970s property, buying it from a guy who was flipping it. Used to be in bad shape, he had it for about a year. We paid $4.1M for it, LTV 75%, rest from investors. One investor had it pre-funded from my previous partnership. But we had an issue with getting the debt. Lenders don't want to be involved with your first deal. There were issues with net worth etc. Some of my other mortgage brokers couldn't do anything for us. Co-sponsor wasn't American. Finally my partner was able to pull some strings with his bank. I didn't know that lenders wanted capital expense escrows. We're constantly scrambling to get more money.

Right before our money was supposed to go hard, we found out we had to do a Phase 2 environmental because the Phase 1 revealed an old junk yard was at top of the hill. My partner said “go for it, we'll take our loss if necessary”. So we went ahead. Fortunately it came back that it was clean.

Then the FEMA flood map changed and the seller didn't have flood insurance, and we now needed it.

So we closed on this deal, and then the fun began. It was cash flowing like crazy. But then suddenly the occupancy started to decline. We couldn't figure out what was going on. The PM was saying everything was OK. Until the point I was getting very concerned, and I lost it. I had been referring to the PM but I felt like I needed to step up as the manager. I shot an email to the CEO of the PM that they needed to fix this or I would fire them. That got their attention.

When that happens, you don't have the cash flow to do things like turn over apartments, to pay attorneys to pay for evictions etc. So units stayed vacant.

It turned out that we inherited a bad tenant profile. They had been putting up bad tenants who paid for a couple of months who then stopped. The PM had a background in affordable properties, and she didn't know how to market the property and qualify tenants.

We ended up replacing the entire management team for the property. We ended up with a really good regional manager who is now taking care of all of our properties.

We ended up behind on payables and vendors. It took out a long time to dig us out of that hole.

Now the property is firing on all cylinders.

Lesson is: you're the boss. Don't defer to someone else. You have to take responsibility. The only person who's going to look out for you, is you.

Congratulations on your first deal! But if I'm counting correctly, 3 years had gone by from time you formed your FIRST partnership and closing this deal, correct?

Yes, that's right. What got me going was really not going back to corporate America. And I really wanted to succeed. And I really liked it. And my wife was supportive the entire time. She was nervous, but she never said but you have to quit this stupid dream of yours. She was supportive the whole time. When I started this, I had a 2-year old, and when I started Two Bridges we had a new born. I had a lot of anxiety.

Early Success in 2014

Then things got much better fast. We did our 2nd deal six months later. It was from the same brokers, they showed us that deal off market. At the time I felt nervous about the price, but in retrospect was a great price.

Then we closed 2 more deals at the end of 2014. We did 4 deals in 11 months to 404 units really fast.

The Rough Patch in 2015

We felt pretty good starting 2015. But two of our biggest investors backed out. One was a foreign investor who backed out because of currency reasons. The other for personal reasons.

That accelerated my plan to create a fund. I originally wanted to wait to do that until I got to 1,000 units. I still needed co-sponsors. But I felt now it was time to form a fund. One of the partners is my broker Tyler and one other who had a lot of experience.

We spent a lot of time on the partnership agreement and pitch books. We were planning on launching in labor day. And then we had a smoking hot deal hit. But we didn't have the fund set up. So we decided to do it outside the fund. We had investors who wanted to invest with us.

Everything's going great. We underwrite the deal at a 75% LTV. Bank said they'd only give 67% because the cash flow wasn't there. The sellers was accounting for bad debt at the end of the year, and the bank thought that the cash wasn't in. The investors got skittish. They thought if the bank was getting skittish, they were getting nervous too.

We ultimately got the bank back to 75% LTV but at that point we had lost the investors. We ran out of time.

Fortunately we lost only a small part of our deposit. And I deferred ordering the 3rd party reports etc.

That was really an eye-opening experience.  I learned that we were much too dependent on our existing investors.  Now my first priority is getting better known in the investment community and developing a wider set of relationships so that we never find ourselves in this position again, with a great deal we’re not 110% certain of closing before we start.

We have a great pipeline of deals and access to off-market assets because of the great relationships we have in the Southeastern marketplace.  So it’s critical for us to strengthen and broaden our relationships in the investment community and among private, accredited investors.

What are you most excited about right now?

I’m excited about a couple of things.

First, we have decided to raise a $25 million fund to invest in multifamily assets in the Southeast.  We strongly feel that the Southeast provides value and yield that is impossible to obtain in larger markets like New York.  I’ve brought on a couple of new partners with extensive fund experience, and we are preparing to start talking privately with investors later this month.

Second, I’ve always loved to write and teach – I was supposed to be a professor, remember?  So I recently started blogging about real estate at The Mortar (  I’ve just gotten started, but so far I’ve had some good feedback from initial subscribers, and I am looking forward to being able to share some tips about investing through this medium.

If you could have a conversation with your younger self, what would you say?

I'd tell my younger self that the difference between successful people and unsuccessful ones is not who is smarter, but who takes action and who doesn’t.  Most people don’t take action.  Not everyone who takes action succeeds, but everyone who succeeds takes action.  And “failure” is a dumb thing to be afraid of.  “Failures” never hurt as badly as you think they will before they happen.  You just move on with your life.  But fearing failure will keep you from taking action, and that’s the real tragedy.

I would have told myself to start taking action earlier, and to get out of a job I hated much sooner.  Life is short.  What, exactly, are you waiting for?

What do I think sets apart successful investors from those who fail or who never get started?

I think a huge factor is simply getting started.  Woody Allen said that 90% of success is just showing up.  I think that’s as true in real estate as it is in everything else.

The other 10% is taking calculated risks.  I think that people fail when they are all action and no thinking.  People who refuse to consider and plan for downside risks are likely to fail, too.

I believe that, if you combine action taking with thorough due diligence and mitigation of risk, you will be successful.

You also need to just keep moving forward.  Consistent effort, directed at the right things, will over time lead to success.

What personal habit has contributed to your success?

On a daily basis, I have a routine that involves getting up very early and meditating and then writing in my journal.  I also try to leave the house early, go somewhere I can be alone, and just think about the days and weeks coming up.  If I do that, I am very efficient throughout the day.  If I deviate from my routine, that’s when I can get bogged down in things that are not important.

On a larger scale, on a larger scale, I think that maintaining my integrity is the most important habit.  The opportunities I have had to get started in this business without a track record have come because I impressed people with my integrity.  Integrity is a habit.  You have to cultivate it by not cutting corners, by doing the right thing, and by always giving your best to other people.  You have to be your word.  If you are like this, then opportunity will come your way, because people will trust you and want to do business with you.

Favorite online resource?

Don’t know if this is what you’re going for, but I have fallen in love with Anti-Social and Freedom, which are apps that allow you disable the internet for whatever time you set.  They are incredible for your productivity.

What's your Favorite Book?

The War of Art by Steven Pressfield is a must-read for anyone in business for themselves.  It’s about the importance of honing your craft every single day, without fail.

What's the best way for people to find you?

Register on my blog to receive updates at The Mortar (

One Response

  1. My heart rate elevated and I could feel the anxiety while listening to his story.

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