JF2332: Balancing W2 Work and Real Estate Investing with Kevin Galang and Adam Ulrey

While working full-time, Kevin Galang and Adam Ulrey are active real estate investors. Adam prefers to build his portfolio by being a syndicate partner, while Kevin primarily focuses on notes.

Prioritizing and finding a balance is the key when pursuing multiple directions. Kevin works from home, and Adam has a lot of flexibility as a consultant. They both utilize their free time to tackle and execute their real estate objectives and share their knowledge on a podcast show of their own.

Kevin Galang and Adam Ulrey  Real Estate Background:

  • Kevin is a full-time software sales engineer and Adam is a business agility coach
  • 6 years of combined experience in real estate
  • Kevin’s portfolio consists of 4 performing notes and 1 nonperforming note
  • Adam’s portfolio consists of 308 doors across 6 properties
  • Based in Tampa Bay, FL
  • Say hi to them at: www.dreamstoneinvest.com and www.notenuggets.com 
  • Best Ever Book: Can’t Hurt Me

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You need to understand how you want the system to run. A system isn’t just magically going to make your life better.” – Kevin Galang.

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JF2330: Using Closet Space to Increase Net Operating Income With Jim Monk

Jim Monk is the founder of Clozzits which he started up after reviewing needs in the multi-family industry for optimized closet space. His goal is to differentiate beyond the normal amenities and tap into a new area of construction development, renovations, and property management. Jim has 2 years of experience in multifamily ownership with 623 units himself but his primary focus has been bringing superior closets to billion-dollar multifamily companies

Jim Monk Real Estate Background: 

  • Founder of Clozzits, Clozzits is dedicated to increasing NOI & overall asset value resulting in immediate rent increase at an average of 2-5% 
  • 2 years experience in multifamily ownership with 623 units 
  • His current focus is optimizing closet space for multifamily companies
  • Based in Dallas, TX
  • Say hi to him at: www.clozzits.com 
  • Best Ever Book: Blitz Scaling

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Trust your team” – Jim Monk

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JF2329: Money Saving Lessons With Jack Miller #SkillsetSunday

Jack is the president and founder of Gelt Financial Corporation and has experience in buying and financing over 10,000 properties and today he wants to share with you all the lessons you must learn to save yourself money in buying or selling properties. Jack was a previous guest on episode JF1675 so be sure to go check his previous episode out when you have time.

Jack Miller Real Estate Background:

  • President and Founder of Gelt Financial Corporation
  • Since founding Gelt, has made over 10,000 loans in excess of $1 billion
  • A previous guest on episode JF1675
  • Based in Boca Raton, FL
  • Say hi to him at www.geltfinancial.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You don’t have to do that many good deals to make a fantastic living, so focus on the best deals” – Jack Miller

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JF2322: Social Entrepreneur With Matthew Ryan #SkillsetSunday

Matthew Ryan is a social entrepreneur, founder of Re-viv, which addresses the market inefficiencies in community revitalization efforts. Matthew was on the show before on episode JF1593 so be sure to go and check it out to learn more about his background. Today Matthew will be diving into “the what, why, and how of co-living”.

Matthew Ryan  Real Estate Background: 

  • A social entrepreneur, founder of Re-viv, which addresses the market inefficiencies in community revitalization efforts
  • Primarily focuses on the multifamily value-add and development space in distressed areas
  • A previous guest on episode JF1593
  • Based in San Francisco, CA
  • Say hi to him at www.re-viv.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The best way to think about co-living is monetizing an existing market” – Matthew Ryan


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today we’ll be speaking with Matthew Ryan. Matthew, how are you doing today?

Matthew Ryan: Doing great. How about you, Theo?

Theo Hicks: I am well, thanks for asking, and thanks for joining us again. So Matthew was previously interviewed by Joe on episode 1593, so make sure you check that out to learn more about his background. Today is Sunday, so it’s skillset Sunday. We’re going to talk about a specific skill that Matthew is focusing on and how you can apply that to your business… And that is going to be co-living.

Before that a little bit about Matthew. He is a social entrepreneur, founder of Re-viv which addresses the market inefficiencies in community revitalization efforts. His focus is on multifamily value-add, multifamily co-living now, as well as the development space in distressed areas. As I mentioned, the previous episode is Episode 1593. He is based in San Francisco and the website is Re-viv.com.

So Matthew, before we get into talking about co-living, could you tell us just a little bit more about your background and then what you’ve been up to since we last had you on the show?

Matthew Ryan: Yeah. So my background was in the energy efficiency in green building space, specifically focusing on how we can make residential and commercial buildings more efficient. Back when I started the business in 2010, this was a blossoming industry. I ended up taking that skillset that I learned, the kind of comprehensive knowledge of building science and how we can build more efficient and advanced structures and dovetailed that into community revitalization and essentially value-add investing and development.

Theo Hicks: And then now you’re doing the co-living, right? That’s your focus now.

Matthew Ryan: Yeah. Yeah. [unintelligible [00:05:01].09] did the last episode, just to let the listeners know. So we were talking about opportunity zones back then, and that was actually around that time that we’ve launched our opportunity zone fund. And the primary focus was co-living, was to kind of overlay this blossoming industry with this now extremely advantageous tax deferral strategy with opp zones. So we launched our fund, we raised about a million and two million in capital in the early part of 2019. I spent the rest of the half of the year trying to place that capital, and got a little tripped up; we had a lot of difficulties. As everyone knows, we were very much at the top of the cycle, but here we are, back at it again.

Theo Hicks: So I’d never heard of co-living applied to real estate before. This will be very new to me, which is going to be good. I can ask you questions as a complete noob. So you said that the strategy is the using of opportunity zone funds, and then the properties that are developed, those will be co-living spaces, or are these two separate things?

Matthew Ryan: Yes, you hit the nail on the head. And then the as you know, with opportunity zones, the majority of opportunity zone investments are developments. We started in the value-add space, so we’ve kind of created a hybrid, looking at adaptive reuse, converting empty warehouses and districts in Oakland and Berkeley that can be converted into co-working, as well as co-living. And then also taking a single-family home in an empty duplex, triplex, quadplex, and utilizing the existing zoning. We’re looking at lot sizes that are much larger, where there’s available footprint and expansion. And in the early part of 2019, there was also an advancement in California law that allowed us to add up to two ADUs.

Theo Hicks: What’s ADU?

Matthew Ryan: An ADU is an accessory dwelling unit. So it’s a granny flat. So what it’s allowed us to do is basically take, say, a traditional 2000 square foot home that they had three to four bedrooms, right? And expand the footprint of that building up to 4000 square feet, and getting it up to 12 bedrooms. So we’re actually increasing the density between 200% to 300%. And in the context of what co-living is, and I know you want to touch on that, think of it as college-educated 22 to 35-year-olds who are struggling to find an affordable place to live, but they want to live close to a major metro where the high-paying jobs are. Sounds familiar? I’m sure some of us have experienced it or we’ve had friends who have experienced it.

And you know, what’s traditionally happened is those roommates had been bunking up in three and five-bedroom homes, splitting the rent… But then you’ve gotta figure out how you’re going to furnish it, how you’re going to split the utility bills, who’s going to clean the toilets, who’s responsible for the dirty dishes… So the best way to think about co-living is it’s monetizing an already existing marketplace. We call it the Craigslist marketplace, right? Apartments.com and so on and so forth. And it’s really just kind of capitalizing on this roommate situation, but adding degrees of efficiency.

So someone wants to rent a room, they don’t have to worry about getting a bunch of roommates together, putting a big deposit down, and taking that risk. They can simply hop on their smartphone, go to some of these co-living platforms, and look and see what inventory they have available, schedule a viewing, go and meet the roommates, and plug right in.

So it’s a turnkey strategy for people who are new to a city, again, looking for an affordable place to live. They want to be in these desirable areas, but they’re really struggling to find a place. And that’s the simplest way to break it down. There are all different shapes and sizes of co-living developments now. Developers are now integrating them into their mid-rise to high-rise developments. But that’s really the best way I can describe it. And then, of course, you’re sharing furnished areas and common spaces. So it’s not like a true apartment. But it’s really for those people who want an affordable place to live. The typical rents in a co-living are anywhere between 15% to 25% below the market rate and rent of a studio.

Theo Hicks: Okay, so let’s start from the beginning. So if I’m a developer, and I want to develop a multi-family building, with co-living… So do I need to develop a different unit for co-living? Or is it the same unit as before?

Matthew Ryan: Typically, you’re going to see a higher bedroom count. So the traditional multi-family developer, he’d have a one to three-bedroom unit. And if they’re set up in the development space, they’re set up as pods, right? So anywhere between four to six bedrooms, sharing a large common space. So you’re seeing a little bit bigger footprint, which you traditionally didn’t see, and a little bit more sharing of common space in lieu of that, where sometimes you’re using an old Victorian or an old house that had crammed up common spaces. These guys are actually expanding common spaces, expanding now offices post-COVID, where people can have a place to work from home. And they’re even integrating into their bedrooms as well. So does that answer your question?

Theo Hicks: Yeah, it did. So these are the development strategies, but also… I lived in a house in college that had 13 bedrooms in it, I think. So it can be the brand new development or you can be taking an existing, as you said, Victorian type home that has a ton of bedrooms and then turning it into co-living. So that all makes sense.

So if I’m developing an apartment, is it something where it’s I’m developing one? Or would it be like a 100-unit apartment that has a percentage that is co-living and a percentage that is regular? Or would it be all 100 units co-living?

Matthew Ryan: Both, is the short answer. People are also taking apartment complexes that have larger living spaces, common areas, maybe they’ve got a formal dining as well as a kitchen, and converting those extra spare rooms into bedrooms now. So you had a two one with an extra-large space, you can get an extra bedroom in there. That’s one way of working at it, but you’ve got to be careful; you don’t want to create a cramped space. Ground-up developers, yeah, they’re basically doing a four to six-bedroom, sharing a common space… They can start from scratch. Our strategy is typically taking these larger historical homes that have a lot of common space. Again, formal dining rooms, maybe two living rooms, finding ways to convert them, but then also expanding the footprint of the building. Sometimes they have an illegalized basement, so we’ll put a new foundation underneath it, expand the basement. The ADU law allows us to add up to 1,500 square feet additional.

So we’re kind of doing a value-add strategy, plus adding development, adding square footage, which again allows us to increase our bedroom count, squeeze the cash on cash return out of an otherwise not-cash-flowing assets… And again, provide a much superior product to those guys and gals out there just trying to rent on Craigslist and do the buddy-up system.

Theo Hicks: When you’re expanding, is it expanding horizontally? Or do you expand vertically, too?

Matthew Ryan: Wherever the lot will allow us and we can get that back. The nice thing about at the ADU law is typically residential zoning [unintelligible [00:11:48].14] 10 to 15-foot setback. Well, with ADU law you can do it right on the backlot line. So you don’t have to have to work about those setback rules, which is really, really nice, because a lot of these Victorians are built on these very fixed, large, five, six, 7,000 square foot lots, that are practically unutilized. You can fit almost another house there if you wanted to, if the current planning and zoning would allow you to. And that’s where the ADU laws come in and help us kind of expand that footprint.

Theo Hicks: Perfect. So my next question is going to be about where these types of properties are in demand. So can I do this anywhere? You kind of got it a little bit, but I guess be more specific, what are the characteristics of the ideal market for co-living?

Matthew Ryan: It’s funny, because I thought that definition was very defined to what we’re doing, which is extremely supply-constrained markets, with very high barrier to entry, high rent on a one-bedroom; San Francisco, now Oakland, which I think is now the fourth or fifth most expensive metro in the US… The New Yorks, the Bostons, the LAs… But just the other day I met a co-living operator who’s now taking a four or five-bedroom house in the suburbs in Charlotte and converting that into co-living. He’s seeing very strong demand, getting great cash on cash returns, and doing a fantastic job building a portfolio.

So I think, again, it’s from a product and a geographic area, I’m seeing that definition continue to expand. Most of what we think of in co-living is high density, urban areas, expensive markets. But again, we’re seeing success with other operators who are moving into the suburban market in an already somewhat affordable market like Charlotte, out in the suburbs. And he’s obviously seeing demand for his product.

So there is no right answer to that question, to be honest, because again, we’re constantly seeing this idea of co-living evolve, and people, again, just monetizing on that existing model of alleviating those pain points. Because normally, if you’re going to rent a house, and then get a bunch of roommates, you’re going to become the master tenant. It puts a lot of burden on someone who doesn’t traditionally have property management experience. I remember from our conversations, you’ve been through the hell of property management, right? So it’s not an easy game, and it creates a lot of tension. So I think what a lot of these operators are doing a very good job is not only are they taking that burden away from someone, but they’re also adding in community events. They’re also adding in value to those individual tenants. And I think that’s really interesting.

Theo Hicks: Okay, perfect. If I own one of these, how do the leases work on this? Is it an individual lease per room, and I’m charging per room? Or I think you mentioned it’s not going to be one lease one person, and the tenant collects rent from everyone else. How does that work?

Matthew Ryan: Yeah, it typically is a master lease, and then you’re subleasing individual rooms. As far as the larger developers, you’re traditionally going to have probably a professional management company in place. And again, they’re assigning individual leases for the rooms.

Theo Hicks: So the person who owns it – is he the master lease person? Or is one of the tenants the master lease?

Matthew Ryan: Well, typically the property manager — excuse me; let me back up. So you know in the smaller developments we’re instituting professional property management, which is technically the master tenant.

Theo Hicks: Okay, got it. And then you mentioned before about co-living platforms. So you said it’s capitalizing on the Craigslist market, right? That’s kind of what I thought about. And I know Joe – he lived in New York, and that’s how he found a roommate, was on Craigslist. So I know people are doing this already on Craigslist, but are there specific platforms for co-living?

Matthew Ryan: Yeah. And when I say a platform, fancy word for a co-living operator, a property manager, right? But when I’m talking about platforms, they’re instituting these technology platforms where someone’s now just going to their website, here’s the contact number, call me and I’ll set up an apartment viewing. These guys are going so far as they’re creating 3D models with the internals of the building, especially since COVID, especially the ones that are VC backed. They’ve got mobile apps where people can go on there and check inventory, they can scroll pictures of the rooms, they can set up leasing on their phone. So they’re really just taking this a step further and literally building a platform for people to be able to communicate with them, very much like the high-end multi-family leasing companies do. So the level of sophistication that they’ve instituted is what I mean when they talk about a specific platform.

Theo Hicks: I see what you’re saying. So it’s not like a Craigslist for co-living, you’re talking about this specific — like your company would have these technologies that the renters can use to have an understanding of what’s available… Just like if you go to a professional property management company site, and it says, “Here are all the available units we have for rent.” You have that, but then it’s a lot more; it’s as much detail with the models as those. Is that what you’re saying?

Matthew Ryan: Correct. We want to distinguish that there are developers who are vertically integrated in providing the property management in-house. There is few that I know of who are doing that on developing co-living assets as well as managing, but it’s typically the property manager who’s offering those platforms and services for the tenants to be able to go there and check that out. As a developer, we’re not; we’re just simply developing the assets and doing like every developer does, turning it over to a property manager who specializes in co-living, and then there have their degrees of setting up their own platforms for tenants to be able to view and check out the apartments, and lease, and all that fun stuff.

Theo Hicks: So after you develop, are you selling them? Or are the management companies managing them, and you’re still getting the income from that?

Matthew Ryan: Yeah, our strategy is and probably will be to hold over the long term. The reason behind that right now is there isn’t a lot of comps for co-living. The debt market is starting to approach co-living differently since COVID. So I really don’t think it’s advantageous for anyone to be trying to develop a co-living asset and then turn around and sell it, I think you’re actually going to lose a little bit of value in the marketplace until we start to see this make its way up through the chasm, through the adoption cycle, and it becomes more familiar, it becomes more of a regular part of multi-family, which every industry expert has agreed it will be; like, this is a permanent segment. But there’s still some trepidatiousness, and there’s still a lot of unknown in this marketplace.

So that’s not only our motive; we’re traditionally a long term buy and hold value-add investor. But that has also solidified our desire to not only develop assets, but to hold on for the long term, because quite frankly, we think over time people are going to see this 15% to 25% net operating premium that we’re getting on a co-living development versus traditional multi-family, and we think that those assets are going to essentially be worth more. So right now you’re not really getting that value; that level of value is not really being appreciated in the marketplace.

Theo Hicks: That totally makes sense. And so again, on the front end, how is the underwriting process? Not the due diligence, but like before you’re submitting an offer on these properties, how are you high level coming up with the purchase price? So basically, how do you know what rents you’re going to be able to get, and then how do you know the cost of the rehabs?

Matthew Ryan: So we’ve integrated with a very strong [00:18:46].13] and general contracting… Fancy term. A design-build company, general contractor. So they can really help us navigate the nuance, the development, the entitlement phase, which is very short, as well as the construction. So that makes it really easy from an underwriting perspective for us to be in constant communication with them when we get a property, that are generally all the same, but again, they all have little nuances. So that’s been a key portion of our underwriting.

The second piece is it’s extensive. So we’re looking at a couple of different things. There’s now enough inventory that we can go out to other co-living operators who have assets on the ground and see what they’re charging; it’s very traditional for multi-family. The flip side of that is we’re literally going to the Craigslist roommates section, and as well as Craigslist listings for two, three, four or five-bedrooms, and saying “Okay, if we were to split this amongst all roommates, what would be the price per head? What’s the average rent for a roommate?”

We just did this for a property that we’re under contract on right now, where you literally have three levels of consideration. And just like in the multifamily space, now you have to look and see “Okay, my roommates [unintelligible [00:19:53].06] say 1,500 a bedroom. If some were to split a three-bedroom that comes out to around 1,550. But my co-living operators were fully furnished, very high-end products, very well developed.. They’re more 1,700 to 1,750. So where do I land in all this, right? You have to make that determination based on the product that you have available to you, what finishes you’re going to institute… And also trying to keep up with how much supply is out there in that marketplace.

So when it comes to underwriting, those are two key components, just like any value-add investor, right? Your construction costs and your rentals. We will typically on an in-the-door basis, we’ll look at a company like Rentometer, who’s aggregating listings, and we’ll just say, “Hey, the studio rent is 2,000 bucks.” We know we’re going to have to be between 15% to 25% below that; let’s benchmark it at 20% in underwriting.” And that’s how we’ll evaluate the deal as it comes in the door.

The process I just described is obviously once we’re getting a property that we’ve submitted an LOI, or we submitted a purchase sale agreement, we’re starting to get the feeling that the deal is going to maybe go under contract, and then we’ll start doing that extra leg of due diligence. And that’s the extensiveness of our underwriting process. It sounds very simple, but of course, it’s fairly complex. And of course, we spend a lot of time building our performance up to where we can with our own in-house metrics be able to quickly analyze these deals. We’ve gotten to the point now where the smaller co-living deals we can underwrite in 45 minutes.

Theo Hicks: Something I think about – you might have mentioned it before, but it’s just clicking now… So when you say furnish, you just mean the common areas need to be furnished, right?

Matthew Ryan: Correct.

Theo Hicks: Again, this is kind of super-detailed, but are you putting in silverware? Who buys the silverware? Who buys the towels?

Matthew Ryan: Oh, I think that’s a great question. Towels, I’m not sure of. I think that’s what you’ve got to bring your own, especially in the days of COVID. But yes, traditionally, all the furnishings, all the kitchenware, all that stuff is there. Again, they try to make it as turnkey as possible. And there are also operators who are going out there and furnishing their apartments. Some people have differing opinions from a liability perspective, from a tenant preference… But the majority of the operators that I know – very high-end finishes; some are even instituting interior designers to come in here and make these spaces much nicer than the places you and I probably lived in coming at college.

Theo Hicks: Seriously.

Matthew Ryan: Yeah, yeah. So the level of detail there is great. And yeah, most of that stuff is just well finished. And everything’s pretty much supplied, and stocked, and ready. All the way down to the toilet paper and those types of things. All of them have their own cleaning plan. They all have their own cleaners coming in cleaning the place regularly.

Theo Hicks: I can definitely see that there’s going to be a lot of demand for this in the future, for sure. A hundred percent. Alright, Matthew, is there anything else that you want to mention about this strategy, about where people can learn more about you and your company before we sign off?

Matthew Ryan: Yeah, I would just like to say that there is still a lot of degree of doubt in the co-living space, especially with COVID. And we’ve seen this just in the last two months. And I would just like to remind your users – just let’s rewind, let’s go back to say March, or even further, let’s go February, January, December of ’19, and think about the world that we lived in prior to COVID… Because we’re also seeing this – everyone’s moving out of the urban core, everyone’s flying to the suburbs… And there’s a lot of doubt being sown in the co-living space. And for me, it’s very simple – just go back to the world that we were in before, where 72% of all the jobs created out of the last recession were in metros with over a million people. There was a reason why people are flocking to these [unintelligible [00:23:26].17] and there’s a reason why people are going to be flocking to them the future. And once we have a vaccine developed, and we’ve moved past this, I think a lot of the concerns – that are founded, but they’re a little unfounded, they’re a little irrational, about the co-living space… I challenge people just to think about that. The pandemic is a temporary situation, and co-living is very much, in my perspective, a long-term trend.

Theo Hicks: Perfect, Matthew. It was great catching up, and thanks for going in a lot of detail on this co-living strategy. We talked about some of the advantages from both the operator developers’ perspective, as well as from the renters’ perspective. We talked about the strategy… You could develop a new property and turn that into co-living, you can find one of these big — as you mentioned, what your company specializes in are these big single-family Victorian homes, lots of rooms and common areas… You can buy something and expand upon it horizontally or vertically. There’s really a lot of different options you have for the type of property you can buy or create to do this.

You also talked about the market and how you thought that it initially would be the high-density urban areas with really high one-bedroom rents, with very low supply, but then you heard of someone who’s doing it out in a suburban area… So there’s really no specific definition for the market, it can really work anywhere. Maybe a good thing to do would be just go on Craigslist and see how many people are looking for roommates.

We also talked about the underwriting process, and the way you’re approaching the construction cost is partnering with a company that specializes in design and building. And then for the rents, depending on where you’re at – if you’re in one of these high-density urban areas, it might be that inventory to do the traditional rent comps. If you’re not, then you can go on to the Roommates section on Craigslist and calculate comps that way; put a Rentometer, take a look at the studio costs and then reduce that by 15 to 20%, and do it that way.

You said a lot more, but that’s just all I got in my notes… So it’s definitely worth a relisten. At the end, you mentioned how there are doubts around co-living, but if go back to this time last year, I’m sure everyone thought this was the best idea ever. So this situation we’re going through now is temporary.

I can totally see this being a huge thing in five to 10 years, especially with people coming out of school and you’re moving someplace you don’t know anyone. If I move somewhere and I didn’t know someone that lived there that I could live with, I would go on Craigslist, [unintelligible [00:25:51].08]something like this. Matthew, again, appreciate you joining us again today. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Matthew Ryan: Thank you, Theo. I appreciate it.

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JF2320: Adapting Your Real Estate Business With Bruce Wuollet

Bruce is the founder, and owner of Bakerson, a multifamily syndication business. Growing up in the bakery business in the Twin Cities of Minnesota, Bruce wanted to pay homage to his now late father, hence the name “Bakerson”. He has a proven track record of success throughout Bakerson’s nearly 18 years in business with thousands of individual units bought, repositioned, and sold. His personal portfolio consists of 250 units and he focuses on finding good deals while his passion is serving the residents by providing them with one of their basic human needs – shelter.

Bruce Wuollet Real Estate Background:

  • Owner of Bakerson, full-time multifamily syndicator
  • Over 18 years of real estate investing experience
  • Bakerson has bought thousands of individual units, repositioned them, and sold
  • Personal portfolio consists of 250 units
  • Track record of 16 multifamily – 850 units and transacted over 2000 single-family homes
  • Based in Phoenix, AZ
  • Say hi to him at www.bakerson.com 
  • Best Ever Book: Relentless

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Always adapt” – Bruce Wuollet


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’ll be speaking with Bruce Wuollet. Bruce, how are you doing today?

Bruce Wuollet: I’m doing fantastic. Thanks for having me on.

Theo Hicks: Absolutely. Thank you for joining us. A little bit about Bruce. He’s the owner of Bakerson, which is a full-time multifamily syndication company. He has over 18 years of real estate investing experience. Bakerson has bought thousands of individual units, repositioned them, and sold them. He has a personal portfolio of 250 units, and then his track record is 16 multi-family deals that are 850 units. And he has also transacted over 2,000 single-family homes. He is based in Phoenix, Arizona and his website is bakerson.com. So Bruce, do you mind telling us some more about your background and what you’re focused on today?

Bruce Wuollet: That’d be great. So, the first thing is the name Bakerson, I called it Mr. Bakerson, and people say where does that name come from? So I’d like to share that. I tell everybody that I’m an S-O-B, I’m a son of a baker. I grew up in the bakery business in Minneapolis; my grandfather started the Wuollet bakeries. I worked there as a kid, and it’s to pay homage to my father. He was alive when I named the company and he really, at that time was suffering from cancer. He loved the name, “That’s just awesome, Boo.” That’s what he called me. So it’s pretty fun to keep and have that name in his memory. So that’s where it came from.

And I got started in real estate, in tax lien foreclosures. And in the tax lien foreclosure world, it’s a long and arduous process, so we found ways that we could get into the transactions in a shorter period. I worked with a guy named Gary who has now passed away; he was my mentor. And one of the things is he left money on the table when we were negotiating with these people to buy their homes, and I said “Gary, you could spend 15, 20 grand for this house and turn it around and make money on it.” And he said “No, that just not my model. I buy the tax lien and if they redeem the taxes, that’s it. If they don’t, then I get the house.” So I said, “Well, what if I buy them?” He said, “Go ahead.” So I started buying houses that way, from basically the Kiyosaki mindset of other people’s money. I picked up a triplex, duplex, and three houses.

But then in 2002 I met Jack Martin, and he and I wanted to go full-time in real estate, and we started finding houses, and I could find more houses than we could possibly fix and sell or keep… So I was introduced to wholesaling. And that’s where I’ve done over 2000 transactions in the single-family world. We were one of the top wholesalers volume-wise in Phoenix. And when the market shifted in 2006 and 2007, we got into land. Then the market came back after it crashed, I got back into houses at the auction and what have you…

But the transition to multi-family was the one that was almost accidental, because we got squeezed out of the wholesaling world and we didn’t adapt to technology like other people have. So to always adapt is something that’s very important to us now is you need to pivot and turn as the market shifts. Because everybody is shifting to technology, and we’re still doing the driving the neighborhoods, and the little yellow notes and everything done through the courthouse. But people were buying online, bidding online, getting loans online, title insurance, the whole bit for $1,200 somebody would flip a property to them. And I thought, “Man, I can’t compete with that.” We were averaging aroun$5,800 a flip. So we ended up switching to multi-family. And we did a couple of dozen of those 20, 25 multi-family flips, and we said, “Hey, we can buy, fix and sell those.” So we ended up doing our first apartment deal in Phoenix, a 64-unit with another group, and bought a 120-unit, and after that, we ended up buying six properties in Phoenix.

Then when we thought the market peaked, we said “Hey, we’re going to look at Tucson, it’s a little softer market, a little better margins. Let’s go down there.” And the values in Phoenix have almost doubled since we thought it peaked six years ago, five years ago. So in Tucson we’ve done 11 projects. So it’s actually 17 multifamily projects, the smallest being six units, the largest 120. Our sweet spot seems to be the 60 to 100 unit, which is where we’re able to carve out our sweet spot.

So that brings us to where we are today in the buy, fix, and sell. However, we’re now in another transition where I want to buy and never sell. I do not enjoy the sale process, and I absolutely love the buy and stabilization process. I love the impact we have on the residents and the community, so that’s really where we’re going in the future, is to buy and cashflow.

Theo Hicks: That’s interesting. So I don’t think I’ve interviewed someone who flips apartments. So I know that you want to transition into the buy and hold strategy, but what would you say is the biggest difference on your end between fix and flipping just single-family homes, as opposed to fix and flipping the 60 to 100 unit apartment buildings? Is it the same thing, just the property is different or is there something different?

Bruce Wuollet: Well, on the first flips we did in the apartment, we didn’t fix and flip, we just flipped the contract. So that’s where he flipped the apartments, that’s what I was talking about there. But on the buy, fix, and sell, as a standard syndication you buy it and within 24 to 36 months, you reposition the undervalued asset and sell it. So that’s pretty typical in the market. So those are, I guess, not really flips, I probably use the wrong term there, but the buy, fix, and sell, the 17 projects we’ve done in Phoenix and Tucson in Arizona.

So the difference between when we did the houses, even the ones that weren’t retail, of over the 2000 houses we did, only 12 were full retail products; everything else was buying them, cleaning them up, make it city of Phoenix primarily (or city of Glendale) compliant, and then selling to an investor. We do the trash out, get rid of the graffiti, and all that. The difference between that and what we’re doing in apartments is when you’re selling a house, it’s a commodity. When we do apartments, we’re selling a business, because we’re putting residents in there, we’re selling them as occupied units. So it’s your traditional buy, fix, and sell apartment turn, that is pretty popular right now.

Theo Hicks: So you said 24 to 36 months from buy to sell, right?

Bruce Wuollet: Yes, that’s historically what we’ve done.

Theo Hicks: Sure. So is a portion of that the fixing up, and then you stabilize, and then you sell, correct?

Bruce Wuollet: Yes.

Theo Hicks: So of the 24 to 36 months, what’s the breakdown? How long does it usually take to fix them up? And then how long does it take to stabilize them?

Bruce Wuollet: Okay, on the larger project like the 74-unit in Tucson took us three years. We bought it with 35 units occupied, so a 50% vacancy, or 55% vacancy. We ran it down to 17 occupied units. So basically there was a valley of death there, where we had a huge debt coverage to cover with no income. So that was part of that process. That takes about eight to 12 months to get through that. That whole cycle of getting in and repositioning those and putting in new residents.

And then the next year was where we did the additional value-add where we updated some of the units that were already occupied, and pushed the rents up to market. And then the last year is just getting from the 70% stabilized to 90%. Because when you go all the way down to vacant back up, it takes a good 12 to 18 months to create a really stable balance sheet. People say, “Oh, you can do it in six to nine months.” You can get there in six to nine months, but to keep it stable — when you ramp up that fast, you get a lot of residents you wish you wouldn’t have signed up for, because you get anything you can to get in the door.

So that is the reality that we have seen, at least in our experience. I’m not saying that’s everybody’s experience, but that’s been our experience… It really takes 18 months to get from when you’re filling the units until it’s completely stabilized.

Theo Hicks: Sure. So just to kind of dive into that a little bit and make sure I’m understanding correctly… So you bought it at 55% vacancy for that deal. And you said it went down to 17 units occupied. Is that because you evicted people, so it had low-quality residents? Or, I guess I don’t understand, because you said after eight to 12 months it was occupied, and then you did the value -add. So are you turning over the units first and then once you’ve got them occupied then you do the renovations? Or do you do the renovations right away?

Bruce Wuollet: Okay, this particular one was a slumlord that owned the property, so it was in a really, really rough shape. So there were some units that just needed paint and carpet. So we just did paint and carpet and we were moving people in. But then after those turned, we would update the cabinets, we’d update the countertops, update the flooring on some of those.

So it was almost like a two-phase value-add. First was to get rid of all the problematic tenants. And yes, that’s when we went down to 17. It was like a drive-through pharmacy; it was high, high crime. And we had to get rid of the bad residents and get a stable resident base in there. And that took a wave of people to get through there, because we ended up getting some bad people in initially, and we had to do a second wave of moving those people out. And then when we moved those out, then we did some updates to some of the units to show that, “Hey, if you update these units to this level you can push the rents to market.” And that’s the value add, the meat we left on the bone for the new buyer, that they can finish that, and push through the rest of the units.

Theo Hicks: So is that a typical deal where it’s not stabilized when you buy it? Like it’s got high vacancy? Or are you buying a mixed bag of deals? Do you target these types of deals that are really distressed? Or is your net a little bit wider?

Bruce Wuollet: Well, the net is wider now, but initially, yeah, that’s what we targeted. We would look for the roughest property in a somewhat stable neighborhood, and really zero in on that through our own efforts and the broker efforts to buy that property. There was a 32-unit in Tucson that we brought down to four occupied units. There was a 75-unit that was about 75%, 80% occupied, and when we bought it, we brought it to under 50%. 52-unit, brought to under 50%, because they were really, really rough properties. And they may have been a good quality product as far as the asset goes, but that resident base was really, really rough, where the property managers lost control. So we’ve targeted those. However, it’s been more and more difficult to find those types of properties in our current market cycle.

So we have broadened the net now… Our last purchase was a 90-unit in Tucson, and it’s a stabilized asset. It was over 90% occupied with a lot of economic vacancy. We’ve fixed the economic vacancy, we were at 80% occupied, now we’re back up to over 90%.

Theo Hicks: Is there a value-add/renovation play in that deal? Or is this still just a resident quality issue?

Bruce Wuollet: No, there will be a play on that as well for updating the units. It’s an older building that does need some effort. It’s not bad, but we can certainly upgrade the units. The beauty behind this one is the units’ average square feet is thousands, so they’re quite large. So we have an opportunity to bring in a more stable family resident base than the more transient single.

Theo Hicks: And then you’re raising money for these deals… Are you syndicating them with limited partners?

Bruce Wuollet: Yes.

Theo Hicks: What type of compensation structure is offered? Do you do a preferred return? Is it a profit split? Do I start getting a preferred return right away, or is it delayed until sale? How does that work for the people who are investing in your deals?

Bruce Wuollet: To date, there have been two times where there’s money exchanged. Once when they invest the money, and the second one when they get it back. And in between, there is no distribution, just because the assets have been negative cash flow. So that’s how it’s been, historically; there’s a pref or a split. So because there’s a heavy value add, there’s a little more favor to the sponsor for the return than some of the other syndications that you see. So the investors still get a mid-teens return, but it comes in a lump sum, it’s not distributed quarterly or monthly. However, the asset we’re looking at right now to buy would have immediate, probably second quarter, there would be a distribution. So we are moving more towards a stabilized asset where we can come into the market and finish the value-add that somebody else has started; kind of how we sold properties previously. But we’re looking at 150 to 200 units for the stabilized assets, under a hundred units for the heavy, heavy value-add.

Theo Hicks: Whenever you’re initially underwriting a deal, so not during the due diligence when you’ve got to go into more detail on the property… You mentioned that, for example, on these deals where you buy them and they were really distressed, maybe the property was fine, but it was more of a resident issue. So you know you’re going to go in there and reduce the vacancy to some unknown level, and then obviously, during that time, you’re going to have to cover that debt service, cover your expenses. So how are you calculating what that number is? So how do you know how much extra money you need to raise to cover the holding costs during that first phase of the value-add project?

Bruce Wuollet: We project pretty accurately how we’re going to vacate the units based on what we see when we do our inspection. You get a pretty good feel for “Okay, what number of residents are going to have to be let go?” And then you also look at their historicals… Now, when the resident base is not stable, you would see what their delinquency rates are, and you just have a feeling, “Okay, there’s going to be this many.” And it’s from experience, knowing that we’re going to vacate this many units. So with that plus the reserves that we save, there’s always been enough to cover the negative cash flow during that part of the renovation or the value-add.

So it’s put on a spreadsheet and we just build like a Gantt chart of when things are going to start, when they’re going to end, what is that… What we call the valley of death. What is our valley of death? Okay, it’s nine months. Okay, so we need to plan for more than nine months, because it may take longer, or we may have to plan for more vacant units, maybe a deeper valley than what we’ve projected. So we do the stress test, worst-case scenarios, and what does that timeline look like, and then we put that into reserves.

Theo Hicks: Do you know the death valley before the deal is under contract, or is it not until after you’ve done all these inspections that you know?

Bruce Wuollet: No, it’s during the due diligence that that is discovered.

Theo Hicks: So how do you come up with the initial offer price?

Bruce Wuollet: The initial offer price is based on four things: price per square foot, price per unit, and then based on the rent they’re getting per square foot and rent per unit. So if they’re not a performing asset, you can’t buy it on a cap rate. Right? So you say “Okay, I know that once this is stabilized, this property could be worth let’s say, 6 million.” So you’ll be able to back out the numbers. What is the estimated cost for renovations? Well, we have an estimate of the valley of death, but it won’t be finalized until we get through the underwriting after the inspection. But we usually have a pretty good idea of what the assets would trade for in that market, and then plug those numbers into the spreadsheet.

Theo Hicks: Alright, what is your best real estate investing advice ever?

Bruce Wuollet: I’d like to go with opinions, because advice comes with so much responsibility, right? Just looking at the words. But for me it’s two parts – it’s focusing on the resident, and then also when you’re doing the inspection, to really dive deep into the plumbing and HVAC. That’s the area where it seems to be the most hidden costs in our projects, has been plumbing and HVAC. So the inspection of the property is to hire contractors who are specialists in plumbing and HVAC for us to make sure that anything hidden can be estimated.

Theo Hicks: I wish I would have had this interview three years ago when I bought all these fourplexes and the plumbing amd the HVAC were absolute disasters. And the inspector had missed that. Alright, Bruce are you ready for the Best Ever lightning round?

Bruce Wuollet: Yes sir.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:18:05][00:18:55]

Theo Hicks: Okay, what is the Best Ever book you’ve recently read?

Bruce Wuollet: That would be Relentless by Tim S. Grover.

Theo Hicks: If your business were to collapse today, what would you do next?

Bruce Wuollet: I would do podcasts with you.

Theo Hicks: Every day. [laughs] What is the Best Ever deal you’ve done?

Bruce Wuollet: The Best Ever deal is my favorite one, it’s a 22-unit in Glendale that was in bankruptcy, foreclosure, a lawsuit, and the owner was arrested for drugs and prostitution, and it was vacant, boarded, distressed, and it was scheduled for demolition. And we were able to save the property, turn it around and sell it as a fully occupied asset. That is our favorite deal.

Theo Hicks: What about a deal that you’ve lost money on? How much did you lose and what lesson did you learn?

Bruce Wuollet: Well, the only deal that I lost money on is one that we didn’t buy. We had to walk away from the earnest money because we were uncertain of the market, so we ended up losing some earnest money. But as far as the projects go, they’ve been been profitable.

Theo Hicks: What is the Best Ever way you like to give back?

Bruce Wuollet: I like to give back by sharing anything that people ask me; that there is no secrets and I’d rather people would learn from people like me and you in the industry, and not from what they find on Google.

Theo Hicks: And then lastly, what’s the Best Ever place to reach you?

Bruce Wuollet: You can call or text me at 520-808-9111. That is my cell. And I invite people to reach out. Or bruce@bakerson.com.

Theo Hicks: Alright, Bruce. Well, thank you for joining us today and walking us through your multi-family strategy. So it’s kind of changing a little bit now, but what you were doing was focusing on very specific 60 to 100 units. These are properties that were very distressed, and it didn’t necessarily need to be the actual property was distressed. So it’s kind of like  property or operationally distressed.

As you mentioned, your best deal was the property and operations were a mess. But it could also be something where the asset is in good condition, but the resident base needs to be turned over. And so you’ll acquire the properties, and then during that valley of death, I think is what you called it, you’ll drop the vacancy so that you get all of the low-quality tenants out, you get better quality tenants in.

Once that phase is done, the second phase would be to upgrade the units and to kind of implement the value-add strategy. And then you will sell those properties as a business, right? Because the property is stabilized. And you’ll sell that as a business to someone else. You said that now because of the fact that those deals are kind of hard to find, you’re transitioning into properties that are going to be more of a buy, fix, and hold strategy.

We talked about the limited partner structure, so they invest and they get a lump sum on the back end whether it’s a preferred return or profit split. We talked about how you determine the upfront reserves, how to cover these holding costs during the death valley… And it’s basically you’ve got a spreadsheet where you’ll go in there during the inspection, looking at delinquency rates to be able to plug the numbers into your spreadsheet to determine exactly how long it will take to stabilize the property based off of the current occupancy, and then the number of people that you’re going to have to remove and then bring back in, how long that takes.

We also talked about how you come up with your offer price; so there’s a price per square foot, price per unit, rent per unit, rent per square foot, estimated cost renovations, estimated death valley time, and the after renovation value, to calculate the offer price.

In the beginning, you actually talked about a piece of advice about making sure you’re always at pivoting when the market shifts. You gave the example of wholesaling and how you didn’t transition into tech, which is why you accidentally got into multi-family.

And then your Best Ever advice, or as you said, your Best Ever opinion, was to number one focus on the resident, and number two, and I can concur with this wholeheartedly, is during the inspection make sure you take a deep dive into the plumbing and the HVAC, because those are where the most expensive hidden issues are. So thanks again, Bruce, for joining us today. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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JF2316: Rentals & ATMs With Billy Keels

Billy has been working as a sales executive for a market-leading application software company and is a real estate entrepreneur, long-distance investing expert coach, and mentor. He currently has 361 doors as well as ATM machines. 

Billy Keels Real Estate Background:

  • Full-time Application Software Sales Executive
  • Bought his first rental in June 2013
  • Portfolio consists of 361 doors as well as ATM machines
  • Based in Barcelona, Spain
  • Say hi to him at: www.billykeels.com 
  • Best Ever Book: The Creature From Jekyll Island

Click here for more info on groundbreaker.co

Best Ever Tweet:

“It’s about always making sure that your capital is always working out.” – Billy Keels


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’ll be speaking with Billy Keels. Billy, how are you doing today?

Billy Keels: Theo, I’m doing fantastic, and really looking forward to today’s conversation.

Theo Hicks: Yes, me too, and thank you for joining us today. A little bit about Billy – he is a full-time application software sales executive. He bought his first rental in June of 2013, and his portfolio now consists of 361 doors, as well as ATM machines. He is based in Barcelona, Spain, and his website is BillyKeels.com.

Billy, do you mind telling us some more about your background and what you’re focused on today?

Billy Keels: Sure, Theo. You highlighted a couple things there, and I guess a very typical software sales executive, I’ve done leadership as well in the software sales arena… And I’ve been living in Europe for the last 19 years, actually. I didn’t even plan on doing that… And when I was here, I was fortunate enough to enjoy three different countries; I lived in France, I lived in Italy, and most recently in Spain… And I guess one of the reasons, aside from working in large multinational enterprise leading software type of companies, I had some experiences that were not so nice in the stock market crash in 2000… And then the same thing happened in 2008. So one of the things my parents always told me – if something happens once, it’s shame on them; if it happens twice, shame on you. So it was at that point, 2008, that I started really looking for some new alternatives… And that’s when a couple years later I actually found real  estate.

I was one of those people who just very much wanted to continue to climb the corporate ladder. I was doing everything to get the next raise, to get the next promotion… And as I went through that, I started realizing that I was going around and around and around in circles. And I remember one morning in October that my older son was turning 3, and I remember getting on a plane that morning – I was supposed to go to Germany, and when I flew to Germany, I thought “Well, something’s not right. I’ve been doing all this work”, I wanted to do all these things so that I could spend more time with my family, and I was flying away on my son’s third birthday.

So that’s when I really started focusing on how I could take more control of my financial life; that’s what I was thinking about then, and that’s how I started getting into real estate. I thought that I was gonna buy real estate here in Spain, because I read this little purple book, Rich Dad, Poor Dad, that kind of changed my life… And one thing led to the next, and as a US citizen who was living abroad, someone said to me one day “Well, why don’t you buy a property back in the United States?” and I thought that was the craziest thing I’d ever heard… But after listening to a couple people and doing my own research, that’s exactly what I decided to do.

So that’s how I got into real estate, that is what I’m enjoying, and now really having real estate as a vehicle that can help myself, and now even other investors that are alongside me get closer to our goals and our dreams, so we can really live the life that we want to.

Theo Hicks: Thank you for sharing that. So those 361 doors – are those all in the U.S.?

Billy Keels: 100% in the United States. They are, Theo.

Theo Hicks: Okay. And then can you maybe give us a breakdown of what those doors are? Are those single-family houses that you bought by yourself? Are you raising money for larger apartment deals? What’s that portfolio and what’s your main focus now?

Billy Keels: Yeah, I love that question. So what I have today is a mixture. So there are properties that actually 100% my company owns… And then I also found out – because I didn’t really know – that you could invest with and through other people’s syndications. So I’ve done a mixture of the two of those to get to the 361 doors, as well as the ATM.  So I’ve actually done active, as well as passive investing…

And as it relates to where I’m going now, even though I’m working in a very large multinational, my focus is really on building out the syndication part of the business, to be able to do that and do that in a way that is done full-time… Because one of the things that I really love, Theo, that I’ve found, is that I can use a lot of the same skillset that I’ve been building in the multinational, and I can do that to actually bring value to people that I know, and that know, like and trust me… And that is something that’s given me a lot of emotional satisfaction and fulfillment, and that is definitely where my heart and my mind is moving me, is to add more value in that way, as someone who is able to syndicate different types of opportunity.

Theo Hicks: So just to confirm – your company owns a portion of those, and then another portion of those are you passively invested into other deals… And then moving forward, you wanna start transitioning into raising money from other people for your own deals.

Billy Keels: Absolutely correct.

Theo Hicks: So what would you say is the number one thing you’ve learned, or the number one piece of advice you would give to someone who wants to invest while  not living in that country?

Billy Keels: This is one of the things I really like to focus on a  lot, and have been focusing on a lot lately, and speaking to people, and doing a lot of that even on my podcast… But this really is about helping people to understand that whether you’re tens of thousands of kilometers away or you are 30 kilometers/miles away from a property and it’s not in your backyard, at the end of the day, when you want to be able to scale and sleep well at night, it comes down to making sure that you understand why you want to invest in something, whatever that something is… And then when you’re doing it, if you wanna scale, it’s make sure that you’re in the location that’s going to provide you what it is that you’re looking for. That could be cashflow, that could be appreciation, that could be privacy; it depends on what the person’s looking for. And then the most important element is, without a doubt, in my experience, the team.

Make sure that you understand the team, make sure that you understand the track record of the team, understand what they’re very good at, understand where maybe they need to rely on others to complement what they’re doing… But I would say without a doubt, especially if you’re looking to place capital, or even if it’s your own team, it’s to make sure that you have a very strong team.

Theo Hicks: Let’s talk about ATMs. How does investing in ATM work?

Billy Keels: This is one of the things that I’ve found out as a passive investor; I guess when you’re really busy and you’re in a multinational and you’re thinking to yourself “Well, you’ve gotta bet on the stock market, you’ve gotta do this, you’ve gotta do that”, and one day it looks like you’ve got a lot of money, because it’s on paper, and then three days later some things happen, or someone’s said something or done something and you’re in the hole again… So one of the things that attracted me to ATMs, or at least the ones that I’ve invested in passively, is it provided a very predictable stream of income. There was a portion of my portfolio that I needed to just provide very predictable streams of income.

So building our relationships, understanding, getting to know more about the person who is syndicating, as well as the team that was delivering their track record, how many successful ventures they’ve done – it  was something that made sense for me, because as I mentioned, I was looking for a portion of my portfolio to provide very predictable streams of income. ATMs are a real asset at the end of the day, it’s a  real asset play, and it’s something that everybody understands. You walk up to an ATM machine, you take money out, and when you take money out, you typically see at the bottom there’s a little transaction fee… So there is a portion of that transaction fee that goes to the person that owns the machine, there’s a portion that goes to the person that’s renting it in the space, the restaurant or whatever place you’re in… And then to the investor.

So it was something that really made sense, it was really simple, and it fit into what I wanted that part of my portfolio to do.

Theo Hicks: Can you maybe walk us through an example of one of your ATM investments? How you’ve found the actual team that owned the ATM, and then what the compensation to you looks like. You don’t have to get specific if you don’t want to, but just to understand how much money I can make investing in ATMs, and then how do I find these ATM deals.

Billy Keels: So just explaining how it works, the mechanics behind it? Is that right?

Theo Hicks: I’m more thinking how do I find these people, and then how much money will I make.

Billy Keels: Perfect, I love that. So it’s much like most things  – you have to be in the right place t the right time, and you need to be able to find the people. So you’re asking the right questions – I’m sure people will want to know how do you find out more about ATM machines; as I’ve mentioned, I’ve done this passively.

One of the things I think is really important, Theo, is to continuously go out and look to build relationships. I know it’s something that you believe a lot in as well. And I have done that not only living in Spain, but you meet a lot of people doing things remotely, on Zoom, or Skype, or Teams, or whatever the case may be… But I actually spend a lot of time where I invest my own capital to fly back to United States. So going to a number of events in the United States, I was able to meet people, and a lot of times, in a lot of these different events, there are people that have certain types of opportunities. It can be self-storage, it can be multifamily, it can be ATM. I didn’t know much about ATM, but it was something — just like you’re asking the question now, it’s like “Okay, let me find out a little bit more about this. I don’t have any idea about it.”

So through a number of different relationships and getting to meet people over the span of a year, I was able to find out specifically about the ATM opportunity. So having taken action, gone to the U.S, met someone at an event, when I was there at the event; we had a conversation then offline. I had a chance to meet them offline back in the United States, and then found out more about the specific ATM opportunity.

Basically, the way that the ATM works – and this is different for different people, but this specific ATM works… Is you put a certain amount of money – this is typically for accredited investors; I believe it’s accredited investors only, this particular one… But you place your capital; you have a seven-year lease on the ATMs. For the use of your capital during the seven-year period you get a predictable stream of income every single month. So every single month for the use of your capital, for a period of seven years, you get the exact same amount of capital, that you can see from now until seven years from now.

Going back, it’s really about being able to build relationships, meet people, ask the right questions, and find out about the opportunity; that was done offline.  We went online, and eventually offline, and it was something that made sense for me and that specific portion of capital in my portfolio. So hopefully, that is clear, how we built the relationship, and also the way that this particular ATM works.

Theo Hicks: Something else I wanna ask you, too – we talked about before you were in real estate you were doing the stock market, and how the values kind of fluctuate, you’re not really in control, and so you knew that you needed to transition into something else that gave  you more control… But it sounds like you’re kind of investing your own money  into your active business, you’re investing money passive into real estate, you’re investing money passively into ATMs… How do you decide what portion of your money goes into what? Or maybe a different way to look at it is  am I gonna invest in ATMs next, or am I gonna invest in my own deals next, am I gonna invest in this next? Or was it kind of just as opportunities come up? How do you know what to invest in and how do you know what portion of your capital should go into what?

Billy Keels: Okay, I love that question. And I guess this is maybe just giving you a little bit more about my background and how I grew up. I grew up in a family where we didn’t have lots of excess capital, so one of the things as I started to get to know myself  even more – I really fell in love with being able to see money in the bank, because that gave me a sense of security, and a sense of satisfaction.

Up until recently, I really was one of those people that believed “Just have more and more capital.” And as I’ve continued to get educated more and more, it’s about making sure that my capital is always working out. It’s always on the treadmill and moving. So at the same time, I wanna make sure that there is always a portion of my capital that is in the bank, so that I can sleep well at night no matter what.

And then from there, it’s going through a process of saying “There is a portion of my capital that I know that I want to be able to actively manage”, for a couple of reasons. Number one, because I want my business to continue to grow; so through that business and placing capital and building the relationships I’m able to make sure that that capital will also get the highest financial return, as well as educational return, I believe… And I have that portion of my portfolio that isn’t active.

And then there is a lesser portion of my portfolio that I know that I don’t want just sitting in the bank, Theo, because that’s something that I did for a really long time, and I realized that that wasn’t it. I’ve been in an area where I wanted to know more about multifamily investing, so I knew that I wanted to place capital in at least one or two other passive investments. So it was more about the quantity of investments in multifamily assets. I knew that I wanted to do something that was development, so I placed capital on development, and then there was just additional capital.

So the ATM play was really the wild card that went beyond the multifamily, and went beyond development. So it wasn’t any more sophisticated than that, but I knew more than anything that there was a portion of my capital that I just wanted to be in the bank, so that I can sleep well at night; the other portions of my capital were specifically there to be able to invest. A larger portion for direct investment, to build out my business, and then the others were to gain more experience and have that capital working.

Theo Hicks: And then really quickly – you don’t have to give me exact numbers, but if you had 100% of your money, what percent is that security blanket, what percent is being actively managed, what percent is being passive invested? If you had to give me ballpark percentages.

Billy Keels: For me it’s 15% that is just sitting there, that I know just needs to be there to help keep me fine in the evening. Then there’s gonna be about another 45%-50% that is actively for my business, and then another 35% that is moving or investing through and with other people.

Theo Hicks: Alright, Billy, what is your best real estate investing advice ever?

Billy Keels: So one of the things I believe is that you need to surrounding yourself with the right  team of people that are where you want to be, so that they can always inspire you. And most importantly, you need to take action. And take action before you’re ready; don’t be like I was many years ago, and I’m still fighting through this as a recovering perfectionist. So don’t wait for things to be perfect before you get started, or you will lose so much time. And time is really what is the most important thing. So start before you’re ready I guess is probably the best thing.

Theo Hicks: Alright, Billy, are you ready for the Best Ever Lightning Round?

Billy Keels: I am. Let’s go!

Theo Hicks: Perfect. First, a quick word from our sponsor.

Break: [00:17:21].05] to  [00:18:10].23]

Theo Hicks: Okay, Billy – if you guys are watching on YouTube, you’ll see the beautiful bookshelves behind him, so… What is the best ever book you’ve recently read?

Billy Keels: Wow, the best ever book I’ve recently read… It’s one that I talk about a lot. It’s called “The creature from Jekyll Island.” I say “recently read” because I’m rereading it again; it’s by G. Edward Griffin. It’s just amazing if you really wanna understand what is happening what is happening, how the money system works, debt… It’s “The creature from Jekyll Island.”

Theo Hicks: If your business were to collapse today, what would you do next?

Billy Keels: The first thing that I would do is, number one, make sure that I have a clear plan, and reach out to my network.

Theo Hicks: If you’ve lost money on a deal before, how much money did you lose and what lesson did you learn?

Billy Keels: Wow. So I definitely lost money on a deal; the one that has been the most painful is I lost $25,000 because I did not take the time to read a home inspection. I got the home inspection done, but once I got the home inspection done, I didn’t read it and really understand it. I just felt good because I got  it, and it cost me $25,000 on some roof issues… So the lesson is if you’re gonna take the time to get the inspections, make sure that you or somebody on your team understands what the potential risks are. That cost me $25,000 about seven months into owning the property.

Theo Hicks: What about the best ever deal you’ve done?

Billy Keels: Without a doubt it’s — my company purchased a mobile home park in the Charlotte MSA. Without a doubt, it was the best opportunity, primarily because it was one where the owner – he was really skeptical of owner financing, and once he understood, because myself and the broker would really spend time helping him to understand the advantages for him from a taxation perspective, he got his accountant involved, and it was something that really worked out well for him, and it also worked out for my company as well. So that was without a doubt the best ever opportunity.

Theo Hicks: What is the best ever way you like to give back?

Billy Keels: Really two ways. Number one is there’s something that we do every year, where we actually donate capital to a local children’s school just outside of Barcelona. At the same time, I also love spending time helping people to understand, especially really busy six-figure salary employees to understand more about finances by playing Cashflow 101. It’s one of my favorite things to give back.

Theo Hicks: So we have a few more minutes, and there’s one thing I wanted to ask, and I wanted to make sure I have enough time… So you do work full-time as an application software sales executive, and then you’ve got half of your money in your active real estate business, buying mobile home parks, and rental properties… You’re passively investing… When are you doing the real estate aspect of your business? Do you have a job that allows you to do it during the day, or are you waking up really early, or doing it at night, or only at weekends? How does that work?

Billy Keels: Yeah, great question. One of the things that I’ve been very blessed with is that I sleep very little. So I love – and I like to share on different social media platforms as well – to wake up in the morning. I don’t have an alarm clock or anything like that, but I’m usually up somewhere between [4:30] and [5:30]. For where I live, that’s really early… So I go through meditation, reading in the morning, getting things done, and then I can focus on my business before my boys wake up and get ready for school.

So between about [4:35] until 8 o’clock I really have time to focus on myself, on getting my energy right, and also looking at the business. Then I’m working typically from about 9 until 6 or so, and then afterwards I like to spend some time with my boys. It doesn’t always happen every single time, but I do like to get some quality time with them, and then typically once I have dinner, I’m going back and I’m working on building relationships, I’m on the phone, or specifically looking at the properties, and then I’m in bed somewhere around [11:30], 12. [unintelligible [00:21:44].09] and I try to maximize every single minute that I can between family, my own business, and definitely with the company where I’m working, where I continue to overachieve, again, some of the objectives.

Theo Hicks: Thank you for breaking that down for us, I appreciate that. I’ve always wanted to try the getting up early, but I definitely cannot survive off of that little sleep… Maybe it’s something you just kind of get used to.

The last question is what’s the best ever place to reach you.

Billy Keels: The best ever place to reach me is basically on my website, which is BillyKeels.com, which you’ve talked about before. If anyone wants to learn more about long-distance investing and some of the things that you can avoid and a lot of the mistakes that I’ve made, you can also go to billykeels.com/seven-mistakes-to-avoid, and we’ll be in touch. I’ll get you a PDF so you can avoid the mistakes that I’ve made.

Theo Hicks: Perfect, Billy. Well, thank you for joining us. A lot of solid info, I think, in this interview. Really, we kind of focused a lot on two things. Number one is how do you do your full-time job and invest at the same time? For you, you don’t sleep a lot; for other people it’s obviously working in the morning, working at night, or working on weekends…

And then in the actual investment arena we’ve talked about diversification and the balance between the different types of ways you can invest… And then the benefits of each of those different types. So you’ve talked about you’ve got your money that kind of just sits there for security, and you’ve got the money that you actively manage for your financial reasons, but also for educational reasons; passive investing – same thing… It’s like, “Okay, I might be interested in doing this type of thing in the future”, so rather than just doing it for a year, you’re going to just passively invest in a deal and see what it’s like. I really appreciate you talking about that.

Then also you went into a lot of specifics on investing in ATMs, which I thought was very fascinating. Billy, thank you for joining us; I really appreciate it. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we will talk to you tomorrow.

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JF2315: High Density Parking With Matthew Wiatrek & Ben Trantham #SkillsetSunday

Ben is the President & Matthew is the Vice President of Trident Structures, and their focus is high-density parking that helps improve investor’s ROI. This is an episode that Joe Fairless really enjoyed because he loves talking about topics he does not have any knowledge in and especially one that can help improve your returns in your business.

Matthew Wiatrek & Ben Trantham Real Estate Background:

  • Ben is the President & Matthew is the Vice president of Trident Structures 
  • Matthew has participated in 5 multi-family deals
  • Trident Structures focus on high-density parking that improves investors ROI
  • Based in Fort Worth, TX
  • Say hi to them at www.trident-structures.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“By using a mobile app you now can request your car from our parking garage” – Trident Structures


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Matthew Wiatrek and Ben Trantham. How are you doing, Ben and Matthew?

Matthew Wiatrek: Doing well!

Ben Trantham: Doing well, thanks for having us, Joe.

Joe Fairless: I’m glad to hear that. So we’re gonna be talking about high-density parkings; we’re gonna be talking about parking lots today. It is an asset class that doesn’t get talked about a lot, at least in my circle, and I always find it interesting to talk about stuff that I don’t know a whole lot about… And that is certainly parking lots.

Ben is president, Matt is vice-president of Trident Structures, and they focus on parking lots. They’ve got a website, Trident-Structures.com. There’s also a link in the show notes. They’re based in Cowtown, Texas. Who knows what Cowtown is, and where Cowtown is? Yes, it’s Fort Worth; good guess if you’ve guessed it. That’s where I’m from, too.

So let’s talk about your backgrounds in parking lots first… Where should we start with that?

Ben Trantham: Hey, Joe. This has been really about eight years ago, we realized one of our only [unintelligible [00:04:07].22] customers – again, coming from our design/build industrial construction background – they had a project up in Calgary that needed to expand. As a mid-rise development, they were gonna be forced to pay for some parking in a municipal facility in [unintelligible [00:04:22].08] dig deeper, whatever the options may have been, those weren’t on the table. So we came in with some high-density mechanical parking and said “Listen, this is what we do, automated storage and retrieval for a variety of commodities”, and that was the start.

So they were gonna be able to provide their own parking right on-site, invest in their own property, with space they already had. So since then, we’ve worked in a variety of locations around the U.S. We’ve traveled to ten different countries, learning what’s out there, what’s been working for 40 years, qualifying some of the OEMs, figuring out how we can put our special sauce on it, and really understanding how to bring value to folks like your audience.

So we’ve worked on a variety of the Carvana facilities around the country, everything from fabricating the structures, to installing the systems, and providing some maintenance/support to those facilities. Most recently, we actually have a high-density, fully-automated parking project here in Fort Worth, on a piece of property overlooking the botanical gardens in this region… A piece of property that the market said was undevelopable and was priced as such.

Long story short, with respect to parking, it’s a  class A office space, it is dedicated to that, but we’re gonna be putting 72 parking spaces on the footprint of eight, right outside the front door.

Joe Fairless: Wow… 72 parking spaces on the footprint of 8. So just to catch up to Best Ever listeners, because I might have teed it up in a misleading way… Trident Structures – you all have a company that creates these structures on a parking lot, that you can stack cars on top of, so that you can park more cars in less space, right?

Ben Trantham: Essentially, yes.

Joe Fairless: Okay. So the eight spaces — did I hear you right, 72 cars in 8 spaces?

Ben Trantham: You heard it right.

Joe Fairless: Alright. How do you do that? You go really high, clearly…

Ben Trantham: We go really high… So we have a couple of options on this site, and that’s part of what makes us unique in the marketplace… We’re able to evaluate with experience a variety of different system types… Because again, for many decades, in other parts of the world and in the U.S, especially over the last decade, a lot of mechanical systems have been employed, and there’s actually quite a few out there that most people don’t realize. But in this case, we landed on a final solution of a couple of towers; it’s an open-air garage, and it has an elevator in the center of it. Vehicles pull onto a steel pallet, we lift it up, and it slides left or right into a storage spot for the vehicle.

In this case, we’ll actually be deploying a first of its kind with this system a mobile app that also — in this case, again, the land use is office… These folks will be able to retrieve their vehicle from their desk. They’ll see the queue on-demand, wherever they’re at, on their smart device. They’ll come down, right outside the front door, and pick up their vehicle.

As you mentioned, it’s a structural tower, open-air… We’ll see how the developer ultimately wants to dress it up and make it look good, but in this case, it’s interstate frontage, a piece of forgotten property, and it’s a pretty exciting project, that is on the cusp of getting bought, much less pre-leased, before we even finish 100% construction [unintelligible [00:07:38].23]

Joe Fairless: That’s fascinating, how you were able to do that… Because it just opens up so many other possibilities with buying real estate. And I think that’s a really interesting angle, because if an investor, as we all are who are listening to this show, as a real estate investor who looks at a piece of property, especially — let’s talk commercial real estate, because it’s easier to think about in this context… If three’s a piece of real estate that doesn’t have a lot of parking, but is in a good location that you like, and the structure is pretty good too, then this is the solution for it. You just stack them. You just go straight up.

Matthew Wiatrek: Yeah. Joe, I think it’s not limited just to commercial. Even on the multifamily…

Joe Fairless: Well, that’s what I meant, multifamily, too.

Matthew Wiatrek: Yeah, on the multifamily side… If you’re a value-add investor, like the majority of your audience is, or if you’re on the development side… So if you’re developing an apartment community in Downtown Dallas, or you’re in one of the tertiary markets, the key here is the high density system – we’re talking about the parking component of it, but the system itself, the beauty of it is it’s for the creative investor, the creative developer. They’re getting land use back. So what else can we do with that? What are the kind of amenities that we can bring to attract and retain tenants? What other cash-generating opportunities? We can talk a little bit about those (self-storage, and whatnot), to help drive rents or just improve cashflows on the property.

So it’s really a tool. We talk about the parking component, but there’s so much more to just the high-density parking systems, that for the creative investor/developer it really opens up, and I think gives you a competitive advantage, when  you’re out in this market especially.

Joe Fairless: If you have an apartment community, how does installing this structure make you more money?

Ben Trantham: That’s a good question. There’s several scenarios we’re talking through with several interested parties right now that says “Hey, there’s a lot of things in the current market that got accelerated due to Covid.” Everything related to e-commerce, final mile logistics, the increase of fleets as it relates to the future electrification of the automobile industry. In Dallas there’s a startup company that’s competing with Uber and Lyfts, and it may be more sustainable simply because of how they classify their employees… But the interesting thing is they will actually own their fleets and vehicles, and they’ll eventually be electric.

So when you take a look at what we’re building here in Fort Worth at the project called the Triune Center, it’s essentially an automated storage and retrieval vault. So when  you think about the fact that we can store and retrieve something that’s at least 2-3 tonnes, and can fit in that virtual box of the space claim of the vehicle, what else can you put in that space in addition to a vehicle? Several things, and we can talk about those in a moment. Just to plant a seed, one of them with respect to the multifamily market – self-storage.

Joe Fairless: Storage, right.

Ben Trantham: You can put a storage box on these systems. But you can create secure space, easily accessed digitally, if you have some of these systems on your property. So is that high-end vehicle storage? Is that fleet storage? You name it. Electric vehicle charging…

Matthew Wiatrek: Amazon distribution…

Ben Trantham: There’s so many conversations we’re a part of right now, where people are expanding their mind on how to actually make the parking facility portion of the project revenue generating… Because in this day and age, with the technology, we can control access, we can automate communication, revenue generation… We’re really just selling space. But at the end of the day, it can be automated or it can be non-automated. We also don’t wanna paint the picture for the audience that just because you’re on the edge of the city, more of a garden style development or whatever – there are different price points within the family of solutions here, and it could create some interesting opportunities for whatever your property or your local market is hungry for.

Joe Fairless: If I want five parking spaces full of these systems that stack five cars tall, how much will that cost me?

Ben Trantham: Let me answer that by giving a little structure around what’s out there. There’s everything from manual systems that simply lift up one level, or even up to four levels; sometimes it’s a valet operation, sometimes it’s a dedicated operation where you will operate the system yourself with an RFID card, or a manual control that only you have access to… There’s semi-automated systems that are next up in price point, but give you the ability to only get the vehicle you need out of the storage area. And then there’s the fully-automated.

So it could be as low as, installed, anywhere from 5k to 10k a space, which is going to be equivalent to, if not less, in some cases, in your surface lot construction. If you’re a value-add group, you may already have the sufficient concrete to employ some of the simpler systems out there to get density, or add some flexibility of use; again, self-storage, or whatever it may be.

If you wanna go sophisticated – in Fort Worth, the project we’ve mentioned, we’re in the mid-twenties on the parking system for a space. So again, that was made possible from a proforma standpoint because the land – we were able to activate unutilized land, because the market saw it at a lower value. We’re putting 30,000 sqft. of class A office space, again–

Joe Fairless: Yeah, I get that. I’m thinking more for everyone who’s listening – most people aren’t developing that type of land. A lot of people do have value-add apartment buildings, so… That’s helpful.

So the 5k to 10k a space – let’s just say people are parking their cars there. I’m a resident, I live in a  unit, and – holy cow, there’s my car… But oh, wait. I parked it, and it’s on top of three other cars. How do I get it down?

Ben Trantham: So there’s a couple of ways to do it. If it’s manual, that’s what we call a dependent system, where you have to have access to the vehicle below to retrieve it.

Joe Fairless: That’s a problem.

Ben Trantham: If it’s your vehicle – no problem, you have the keys. If you’re the owner/investor/developer, then you may have reason to want to limit that cap ex, so you employ a system where they’ve got control over whatever they’ve put in that space, whether it’s their motorcycle, their other car, or their self-storage box, so that they can manage that themselves.

A semi-automated is a great way to go, because one of the system types out there that’s very common is – if you can image a Hollywood squares type, where a cars shift left, they shift up and down… But in those systems, they’re independent. You only need to have access to the car you want. So it’s semi-automated in the sense that it knows how to make the machinery movements to present the vehicle you want, but you don’t have to literally have the keys to any other vehicle to get yours. That’s actually very easy. In the multifamily space in the U.S, what we call a lift-and-slide, semi-automatic system is actually becoming quite popular.

Joe Fairless: Okay. And that’s somewhere in between the 10k and 25k range?

Ben Trantham: Yeah, so that one’s gonna be probably more on the 10k to 18k range. You’re going to be towards the top end of that if you’re only putting 20 spaces in. But when you start to put in 100+ or more… And I’m not saying 100 is the breaking point, but as with anything, the more you do, the lower the cost per space.

Joe Fairless: Of course.

Ben Trantham: What we’re seeing in the U.S, most of the space is being built with semi-automated, with probably between 75 to maybe 200 in count.

Joe Fairless: What type of permit, if any, is required for this type of usage?

Ben Trantham: I can’t imagine a vast amount of your audience perhaps is — correct me if I’m wrong, but in places like L.A. County…

Joe Fairless: We’ve got a lot of California listeners.

Ben Trantham: There you go. So in L.A. though, they’ve actually done  a fantastic job developing a review process, where prequalified equipment needs to be selected. There’s been certain safety constraints verified… They’ve actually developed their own structural testing procedure, as I understand it.

So there there’s a well-primed mechanism to get these things approved and implemented. Although it’s an interesting use case, Carvana, the e-commerce car sales company – they’re putting up these automated towers all around the country. We’ve worked on at least 13 of them, in a variety of ways… But they also have paved the way, through a variety of  municipalities, getting these things approved.

So some cities, like L.A, there’s a rigorous process, but it’s a proven and fleshed-out process. Then in some cities, quite honestly like Fort Worth, so far we’ve been very upfront; strategically, they worked with us to — we’ve learned some things over the years about what is gonna make these systems most attractive from a regulatory standpoint… So an open-air garage that is breathable, you can limit the cap ex, and we don’t have to sprinkler so far in this location… So at the end of the day, you’re always up to the review of the local officials, but at the end of the day, it’s equipment. And there’s even some tax advantages associated with that as well.

We’ve commissioned some tax studies… Depending on how you implement the primary structure, even with the equipment in and of itself, a vast amount, if not the entirety of your high-density mechanical parking project could be depreciable year one 100% through bonus depreciation in the current tax law.

If you dispose of that property or resell that, the new owner – at least through 2022 – will get the same benefit. [unintelligible [00:17:39].08] if you don’t wanna do it all year one, but depending on what your portfolio looks like and whatnot, that could be attractive to some folks. It is expected that that tax benefit will be renewed, with some of the tax professionals we’ve talked to… But really, it depends on where you’re at.

The thing I wanna really impress upon you, Joe, and your audience – this isn’t brand new technology. This stuff is, one, proven, but more importantly, in getting things done, L.A. is a great case in the fact that these things have been around long enough they’ve developed a way in more involved locations to handle it.

NFPA (National Fire Protection) codes addressed specifically mechanical parking a few years ago. Most municipalities, if they’re going to take a position enough to make it difficult or easy on implementing this stuff, they’ve got great precedent if they haven’t already figured it out. Things like national codes, building codes, fire codes are responding in a way that we don’t’ have to overbuild these systems like maybe a decade we had to, because people were concerned about a variety of elements of safety.

So there’s a lot of things I mentioned to answer your question. I hope I answered it. If not, let me know.

Joe Fairless: Yeah, you did. Thank you. I appreciate that. I think it’s really interesting from a multifamily owner standpoint… And if you have an infill location and you don’t have much green space – maybe you’ve got all one-bedrooms, or your space is limited; you could do self-storage through some setup like this. As you said, you’re selling secure space. That’s what’s interesting. It’s like “What business are you in? No, no, no, what business are you REALLY in?” It’s like, okay, you answered the “What business are you really in” part, which is selling secure space. Thank you for that.

Anything that you wanna mention as it relates to this before we wrap up? I wanna make sure we’ve talked about anything that you think would be relevant before we wrap this up.

Ben Trantham: What I would do, Joe, is pull on the string you’ve just mentioned just a little bit further. We get into these conversations with some folks, and we’ve been conversing with municipalities, universities, individual developers, all across the gamut of folks that could potentially be interested in these types of systems… And there’s no problem ever in getting people excited. When the rubber meets the road, one of the things we’re learning is, really again, what you’ve just said – yes, we’re selling secure space, but these things are better than a Swiss Army knife, in the sense that directly, they can reveal some incredible new opportunities of how you leverage or utilize the space opportunities you can have by employing one of these systems. Add that dog park, or increase that open space, make up for the space that you need to give back to the onslaught of delivery van spaces we may need to provide now, and food delivery, and you name it.

But indirectly, we really wanna leave with folks the thought that the potential is really at your limit of creativity. So what else could you do with the space that could be revealed? Do you have such an amount of surface lot – if you’re a value-add and you come onto a property that others developed, is there an amount of space that could be reclaimed, that a vast amount of value can be revealed through an amount of space that could add units, that could reveal property that could go to a new land use, or whatever it may be…

We were in meeting about a year ago with a development group that said “Man, the thing that annoys me the most with some of my properties is having to deal with the trash dumpsters. Could I automate the material handling of where those dumpsters are, bring it more in close proximity to where people wanna use it, but then automatically kick it out at the right time to the best place for where the trash track could get to it?” Well, the answer was absolutely yes, because again, we’re already handling big and bulky with the vehicles… But some of the off the wall potential that could be is just stuff that we’ve never considered before.

So you’re right… To pull on that string – yes, we’re space-savers, we’re selling secure space, but the real return that can be realized is not what you can do from even solving a parking problem, but just what incredible opportunities could be revealed because now you can go after a piece of property that previously wasn’t available to your development footprint. Or what else, if you’re looking at a property, is going on around it in the gig economy or in adjacent development… All of a sudden, you get a tool here that – again, because it’s giving space, but because it’s secure and controlled, there’s just so many things that you could do. Matt, you’ve been in this space a little bit more, but that’s really the seed, I think, most important to leave with folks.

Joe Fairless: It makes sense. The challenge though, just from a practical standpoint, that I would have as an apartment owner – I have ideas for it, but I would be concerned about the permitting and approval process to actually execute those ideas, and how could you possibly get the approval of everyone who needs to approve it prior to closing on, or at least getting under contract, that deal. Do you have a solution for that?

Matthew Wiatrek: Well, I think you look at our background, Joe – we’re not an OEM. We’re design/build contractors. That’s our history. So navigating those waters from conceptual stages of a construction project, through the commissioning process – that’s what we do, and that’s what we’re experts at.

Joe Fairless: You could customize it based off of what’s needed by the permitting process.

Matthew Wiatrek: Right. Our value is to say “Look, here’s all the options, and then to help you as the end user or potential client navigate those waters, and to walk you through to [unintelligible [00:23:19].09] from a concept to a reality. That’s the role we play.

Joe Fairless: So it’s not a “round peg, square hole.” You can actually shave it down to whatever you need to, or customize or update it based off of what they’re saying. That makes sense.

Ben Trantham: That’s right. Real quick, Joe, to go back to the project here in Fort Worth  – we knew on the frontend this was the first of its kind for the city. We had actually already primed the city as far as five years ago that “Hey, we’re in town. We’re looking to do this stuff”, and we had support from day one. But we knew there would be certain challenges from a fire standpoint, from a design standpoint, from a potential developer tenant standpoint… There were certain things we did, like make it a standalone facility, open-air, various things like that that made it less of a target for any type of barrier to getting this thing approved. So some of them were site-specific, some of them were in the design… And just like Matt said, that’s what we do.

Another important thing to consider – it’s equipment, right? One of the things we do in our company is we maintain facilities that are 24/7. Again, our background came from industrial space, so we spent a lot of time traveling around the world in the last eight years. Good design, and then after, construction support is essential. So it’s one of the things we do, and it’s how we’re trying to position ourselves as a differentiator. But no matter what you do, folks, if you consider the use of these tools, you’ve gotta make sure you’ve got the backend squared away. Just like you take care of your HVAC systems, the elevators, whatever you may have. And that’s what we do for a living as well, is take care of these systems from a remote standpoint, and from an outside standpoint, mechanically.

Joe Fairless: How can the Best Ever listeners learn more about Trident Structures?

Matthew Wiatrek: You can visit our website, Trident-Structures.com. We’re also on all the major social media platforms. LinkedIn and Instagram I would say are our most active. You could obviously email Ben or I directly.

Joe Fairless: What’s your emails?

Matthew Wiatrek: mwiatrek@trident-structures.com.

Ben Trantham: And then ben@trident-structures.com.

Joe Fairless: Ben, Matthew, thank you so much for being on the show, talking to us about your business and how it could help us make more money on our current properties, or uncover opportunities that others are passing by because they know about this.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Matthew Wiatrek: Thanks, Joe.

Ben Trantham: Thanks, Joe.

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JF2313: Tennis To Investor With Sunitha Rao

Sunitha works in corporate financial planning for a biopharmaceutical firm while investing on the side for the past 2 years and currently has a portfolio consisting of 6 properties with a total of 9 doors. She shares how she dropped out of school to pursue tennis and eventually realized tennis wasn’t for her so she pivoted and went back to school to get a degree and now she is working full-time and building her wealth on the side part-time. 

Sunitha Rao Real Estate Background:

  • Works in corporate financial planning for a biopharmaceutical firm while investing on the side
  • 2 years of real estate investing experience
  • Portfolio consists of 6 properties with 9 door rentals
  • Based in Indianapolis, IN
  • Say hi to her at www.Griffixpropertygroup.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You have to add value in everything you do” – Sunitha Rao


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Sunitha Rao. How are you doing, Sunitha?

Sunitha Rao: Doing well, thanks. And yourself?

Joe Fairless: I am doing well, and thanks for asking. A little bit about Sunitha – she works in corporate financial planning for a biopharmaceutical firm, while investing on the side; she’s got two years in real estate investing experience. Her portfolio consists of six properties with nine doors, and she’s based in Indianapolis, Indiana. With that being said, do you wanna give the best ever listeners a little bit more about your background and your current focus?

Sunitha Rao: Sure. My background is a little different from many people, especially those in the investing world. I spent actually the first ten years of my “professional life” as a professional tennis player.

Joe Fairless: Nice!

Sunitha Rao: I turned pro when I was 14, that’s why the air quotations are there. I retired at 23; no money, no education. I dropped out of school after sixth grade. I was basically a train wreck, right?

Joe Fairless: So don’t have my daughter do that then, huh?

Sunitha Rao: No. Don’t. Keep her in school. [laughs]

Joe Fairless: Okay.

Sunitha Rao: So at that point I was all about “Let’s get a good job, let’s make that stable income, let’s get going with life. There’s no reason to be poor and broke for the rest of my years.” So I went back to school, I got my bachelor’s, I got a job at a Fortune 500 company, in their management training program; it was a rotational program meant to breed leadership… And I thought life was great. But as time went on, I realize — and by “time” I mean like two whole years. It didn’t take me too long to figure out what was going on, I think. I was giving so much of my time to this company, and I just wasn’t seeing the same returns back for the time invested… And I started thinking “There’s got to be a better way to invest my time so that I can have more financial freedom, and maybe even earn back some of that time in the future.” And that was when I started looking into different areas of personal finance; I found actually Bigger Pockets and real estate investing, and just kind of dove in head first, studying basically any free moment that I had… Because I was also getting my MBA and working full-time at that time. I like to have a full plate.  [laughs]

Joe Fairless: Clearly.

Sunitha Rao: And then it took me about two years to save up a little bit of money, and then I started investing in Indianapolis, after I’d saved up that money and gotten a little bit of that knowledge base. However, at this time I was still based in Boston, still working that full-time job, still trying to make ends meet, figure things out on a single W-2 income salary. So that in itself was a really interesting process.

After that first investment, spring of 2018, a little over two years now, I’ve gotten up to nine doors using a variety of strategies, from BRRR, long-term buy and hold, I have an Airbnb, I’ve house-hacked, I’m still house-hacking, I’ve done seller financing, investor financing, you name it. I’ve had to use a whole variety of strategies in order to make the most of my W-2 income, so that I can grow this business as safely and as quickly as possible.

Joe Fairless: Wow, you have just been resourceful and made it happen. When you left the tennis world at age 23, I think I heard you — you said you went back to school. Now, I imagine you already had your high school degree, right?

Sunitha Rao: Uhm…

Joe Fairless: No?! Okay, tell us about that. So you’re 23 years old and — what do you mean when you said you went back to school?

Sunitha Rao: So what I had was a GED, which was an equivalency diploma.

Joe Fairless: Yeah, that checks the box, right?

Sunitha Rao: Yeah, but this test is so easy; I feel like if you’re even halfway literate… I dropped out of school after sixth grade; I didn’t know any high school math. I didn’t even finish middle-school math, yet I don’t know how I was able to get a high school equivalency diploma when I didn’t do anything after that, essentially… So yes, I did have a high school degree, but when I went back to school, I enrolled in local community college and I had to take 6-8 months of remedial English and math classes to get myself back up to a college level. Then I started from there.

Joe Fairless: Okay. And then you got your undergrad?

Sunitha Rao: Yes. I eventually got kind of an academic merits scholarship, which is hilarious…

Joe Fairless: Wow.

Sunitha Rao: …and so weird, at a private school up in Boston called Babson College.

Joe Fairless: Oh, yeah.

Sunitha Rao: They focus on business and entrepreneurship. So I was really lucky to have landed that spot, and ended up getting my undergrad from there.

Joe Fairless: And how were you paying for school?

Sunitha Rao: Through scholarships and merits, and I was also working all the time; I was teaching tennis on the side, I was bartending on the side, waiting tables… I dog-sat, I baby-sat… I didn’t like kids then. [laughs] I did basically anything I could to fund my existence during that time.

Joe Fairless: So then you saved up some money and you bought your first place… What did you buy and how much money did you save up to buy it?

Sunitha Rao: I think at the time I had about $60,000 saved up. I bought — there were two homes on the same parcel. They weren’t attached, it wasn’t a duplex. It was a single-family home with a dethatched carriage house, and it was in one of the more affluent counties in Indianapolis, while not being in the most affluent city. So I was getting a lot of the run-off with people who couldn’t afford to be in the best area, but still wanted their kids in the best school district, and they wanted to be in a low-crime neighborhood, and that sort of thing. So it was a really good situation to have found; I found this while I was still half a country away, essentially.

So the numbers – the purchase price was 95k. I spent about 11k in initial rehab, and got that rented. Since then, I have transformed this property; it’s much more profitable now. At that time I rented the main house for $800 and rented the carriage house for $500. So it was still about 1.3% price-to-rent ratio. But since then I’ve had to invest probably another 13k, but I turned the dethatched carriage home into an Airbnb. It’s this 400 sqft. level home that is just so awkward and weird… But it’s been great as an Airbnb. I’ve been doing it about a year. I’m grossing between $1,400 to $2,000 amount, so that’s netting at least 1k a month after all of the  holding expenses, and stuff.

Joe Fairless: Wow.

Sunitha Rao: So it’s a little over 2% in a very good area.

Joe Fairless: And it’s been over a year since you’ve been doing the Airbnb. How has the impact been over the last 3-4 months?

Sunitha Rao: It’s actually not been too terrible. When Covid initially hit and the travel started to die down, and the quarantines were in place, I actually shifted to a medium-term rental, so like one month here, another person who wanted two months… So I was really lucky to have found it; it’s not like I went out searching for it, they just reached out to me via VRBO or Airbnb, and we’re like “What can you do…?”

I definitely had a little bit of a hit in terms of profit, but it’s still way more profitable than a long-term rental, so I consider that a win.

Joe Fairless: You bought it for $95,000… What type of financing did you get?

Sunitha Rao: Conventional. That was my first deal. There’s no way I was going into it with cash; not that I had it, or any other options… So yeah, I did the conventional route. But it’s actually helped me out getting into it with a little  bit more equity, because about a year and change after I purchased the property I refinanced that and a couple others into a commercial mortgage… And that property actually ended up appraising for about 140k. So I already had 20% equity, it appraised for 140k, and I was able to get a line of credit as a second position, that I’ve since been using to fund other rehabs and other acquisitions. So I actually didn’t mind in the long run having a little more equity in that property.

Joe Fairless: I’d like to talk more about that in just a brief moment… But first, you were in Boston at the time, and this is in Indianapolis… Are you from Indianapolis?

Sunitha Rao: No, I have never been to Indianapolis before doing that deal… [laughs]

Joe Fairless: Really?

Sunitha Rao: Yeah…

Joe Fairless: How did you come across the deal?

Sunitha Rao: MLS.

Joe Fairless: MLS, but how do you know — were you looking at MLS’es in a bunch of cities, or what?

Sunitha Rao: No, I was focused on Indianapolis. I’m a visual person, and what I did was I built out this map of where the Trader Joe’s were in the city, where the good school districts were, where certain crimes were happening, so I  could get a visual depiction of exactly which neighborhoods I wanted to be in. Then when I looked at the MLS, I would look at it in the map view; and when something popped up in my price range in the right area, I could pull that trigger really quickly and know what I was looking at.

Joe Fairless: And how did you have access to the MLS?

Sunitha Rao: Through a broker.

Joe Fairless: Through a broker, okay. So you were working with a real estate agent… And did they give you access  to the MLS? Or were they looking–

Sunitha Rao: They would just send me the drip feeds whenever something came within my criteria, and that’s when I would use the map view.

Joe Fairless: Okay, cool. Well, I wanna talk about what you just mentioned… You refinanced that and a couple others into a commercial mortgage, and then you got money out… Plus, you got a line of credit.

Sunitha Rao: Yes.

Joe Fairless: Please elaborate on that. Next level.

Sunitha Rao: This is one of my favorite things.

Joe Fairless: Yeah, next level is what it is.

Sunitha Rao: Thank you. [laughs] So a lot of people talk about having “dead equity” in the smaller residential area, and I don’t think that’s 100% true because of what I’ve been able  to do. It also, I think, highlights the importance of not only buying for cashflow, but also buying with plenty of equity and for appreciation in good areas. I’m a firm believer in balancing the two, and that it’s possible.

So I found a lender; it was a local portfolio lender. This was one of the benefits in terms of moving to Indiana, because then I was able to network and build the relations I needed to meet these people. But I’ve found this lender who would take a minimum of five doors — it didn’t even have to be five properties, just five doors… And they would appraise it. They would have to have first-lien position. So they would have to have the primary loan under their name, but then for whatever equity was left over after whatever they loaned on, they would give a line of credit. It’s essentially like a HELOC, but it was under my LLC, so it was kind of like a business equity line of credit; I don’t know if that’s actually a name, if that’s the actual name for it…

So I went with them, I refied, and even though it was on a 20-year amortization schedule, they were able to offer a lower blended interest rate that actually brought my payments down. At this point I think it’s like $200/month lower, despite being on a shorter amortization schedule.

Then they did the appraisal. There were three properties, five doors, and they said “Okay, you have this much equity. We will lend–” I think it was 80%. I forgot if it was 75% or 80% of that, in this line of credit… Which you can basically use as a credit card. I don’t use it a lot of time, but when I need to have the cash for a BRRR, or now that I’m paying that off, if I want to acquire, I can just pull on that cash and be a cash buyer, which is so impactful, and also really helpful, because on my single W-2 income it’s not like I’m gonna have hoards of cash sitting around. I’m just trying to figure this out and basically get by and grow this as time goes on. So having just this little pile for an acquisition fund is so beneficial.

Joe Fairless:  Oh, it’s empowering, because you know you’ve got that in your toolkit, and should you choose to exercise it, then you have the ability to close on deals that you wouldn’t have… But just the confidence in knowing that you’ve got that in your backpocket, it’s gotta be awesome.

Sunitha Rao: If you told me two years ago that I would have X thousand dollars just sitting in cash, doing nothing, until I want to do something with it, I would have told you you were crazy. But there’s a  way to achieve things if you just keep plugging along.

Joe Fairless: So on that refinance where you put it all under a commercial mortgage with a portfolio lender that’s local to Indianapolis – just so I’m clear, you didn’t get any money out, just that money that you would have gotten out was a part of equity that you have a line of credit against up to 75% or 80%… Is that correct?

Sunitha Rao: That is correct. I didn’t look into options for cash-out refi, because I didn’t want one.

Joe Fairless: Why not?

Sunitha Rao: So let’s say I could cash-out refi for 200k – then I could pull that cash out and it would also be sitting there, but then regardless of whether I am using it to earn a return or not, I’m paying for that. I much preferred with where I am at this point in my investment journey  to not have to incur extra costs while I’m not using the money.

Joe Fairless: And what do you mean by you’re paying for that in extra costs?

Sunitha Rao: Because it’s essentially a loan, right? So if it’s a cash-out refi, you’re taking out that 200k, you’re taking the money from the bank and you are keeping it. And if you get to keep the money, they’re like “Sure, you can keep it, but you’re gonna be paying that in a larger loan value.” Now I only took out, let’s say, 150k, so I’m only paying for 150k until I wanna use that 50k. When I use that 50k and I can earn a return with it, then I’m like “Okay, I’ll pay the bank for it, because I’m making money off of it anyway.” But the rest of the time, I don’t have to.

Joe Fairless: Do you remember what the interest rate is?

Sunitha Rao: Yes. Initially, it was 5.5% for the primary, and I think the HELOC (or the BELOC) was 6%, but then when interest rates dropped this year, I went back to them and I brought them like a bunch of business, and we’d all become buddies, and I was like “Guys, help me out here.” They were like “Okay, let me talk to underwriting.” Because it was a portfolio lender, because they did everything in-house, a week later they came back and they were like “Okay, we’ll lower your rates.” And I didn’t have to pay a dime or do anything else.

So now I’m at 4.75% on the commercial/primary, and 4.75% on the business line of credit.

Joe Fairless: Good for you. Wow, they lowered both.

Sunitha Rao: Yeah.

Joe Fairless: I could see them lowering the line of credit rate, but you’ve got some power of persuasion to have them lower the other one… It wasn’t fixed, was it?

Sunitha Rao: Five-year balloon.

Joe Fairless: It was a five-year balloon… Fixed interest rate?

Sunitha Rao: Until the five years, and then we’ll see after that.

Joe Fairless: Yeah. So they lowered a fixed interest rate?

Sunitha Rao: Mm-hm…

Joe Fairless: Wow. [laughs]

Sunitha Rao: It pays to make [unintelligible [00:17:42].02]

Joe Fairless: That’s me clapping right here. That’s me clapping. Wow… Okay. So let’s talk about what you did right there with the lender who you had a fixed interest rate with, but yet you go to them and you somehow convince them to lower your fixed interest rate. I’m not sure the right question to ask, other than I’ll start with how did you convince them to do that?

Sunitha Rao: It’s everything else. You have to add value. If I hadn’t worked on building those relationships… I make it as easy as possible for them to work with me. They’re working with me because they make money off of me. And if they need information when they’re trying to get something to work, I am on it right away. I answer emails, I don’t make them wait, and then as time goes by, when I find people who I think will be a good fit, I’m always looking to connect people. And if I can find people who will be a good fit, then I connect them right away. Sometimes it works, sometimes it doesn’t, but I try to make sure that it will work before I meet with them, so that I don’t waste anybody’s time.

Joe Fairless: What are some examples of how you added value to them in the past, other than you business?

Sunitha Rao: I brought them other investors who were looking for similar products in the area, and who I thought would also be easy to work with and enjoyable for them to work with. It’s not enough that they just bring money if the guy’s a complete jerk. So I’m very careful with the people I connect. I like to make sure that they’ll be able to execute, and they’ll also just be generally good people.

Joe Fairless: And how many customers have you brought them?

Sunitha Rao: Quite a few. I don’t know the exact numbers, but these aren’t people who have one home or two homes. These are also portfolios of dozens of homes, or millions of dollars etc. So I bring them the gamut, and then I also work to help them on their residential space; there are other people I know who are trying to have HELOCs – I’ll connect them. So then I have an overall holistic, strong relationship with the bank.

So even if I’m like “Hey, I haven’t done anything for a minute for you, but I talked to the other lady on the residential side and I heard things are going well. She’s gotten a couple HELOCs” etc. So they want to keep working with me because I’m bringing value to them personally, but also to the bank.

Joe Fairless: It makes sense. So if you had to guess or estimate about  how many referrals you’ve sent their way… Give it your best shot, if you wouldn’t mind.

Sunitha Rao: Probably at least two dozen, at least.

Joe Fairless: And they’re highly qualified, based off of what you’re saying.

Sunitha Rao: Oh, yeah.

Joe Fairless: Say you’ve got a new referral today. Are you sending it to the same person you’ve been speaking to all along and have a relationship with, or are there a couple people that you make sure always copy it on the emails, and they see that you’re hooking them up.

Sunitha Rao: I try not to flood anyone’s inbox. So the people who will directly benefit are the ones who will have that connection.

Joe Fairless: Okay. So do you have one point of contact there?

Sunitha Rao: It depends on the need. Within that specific bank there are two points of contact, and I’ll loop in whoever is needed at that point.

Joe Fairless: Okay, so there’s two different people who you have a really strong relationship with.

Sunitha Rao: Yeah. And you also have to really know what they’re looking for and what they can offer. If someone comes to me with a cash-out refi, wanting a contact for a cash-out refi for X property, and I know someone at that bank – if one side of that bank is not gonna work, I won’t even go there, because that’s not gonna be in the investor’s best interest. It is  a warm lead for the bank, but the bank might not be able to execute on that, so why would I wanna waste their time?

So it’s about looking through and evaluating each individual with their unique needs, and figuring out how to help them, and that in turn somehow helps you… I don’t know. But it’s worked.

Joe Fairless: Oh, absolutely. I have a relationship with a local bank, and I have not once asked them  “What types of customers are you looking for, who maybe I can bring them to you?” I’ve never asked that. Never even thought to ask. And I pride myself on — I have a vision board, and on my vision board in the middle it says “The secret to living is giving.”

Sunitha Rao: I love that.

Joe Fairless: But I’ve never even thought of asking the questions that you were asking them, and then connecting those dots…

Sunitha Rao: It’s not just that either… So when I talk to the residential broker there, I’m like “Okay, so if I bring someone to you, what’s the most efficient way to get them through your process and to give you the information?” And she’ll be like “Okay, if this is the situation, just send me an email. If this is the situation, they can apply online. Here’s the link.” That also makes it more efficient for both the banker and the person trying to reach out for the loan product.

If they are larger investors, usually I connect them personally, so that both sides can build that relationship, because there’s more possibility for a long-term relationship in those situations.

Joe Fairless: Yeah, that is beautiful. That is absolutely beautiful. I will today email my point person at my local bank and ask her — in so many words; I’ll wordsmith it, but “Who can I introduce you to? What are you looking  for to help your business?” And then as a follow-up, what’s the best way to do that, so that I’m not (as  you were talking about) flooding someone’s inbox and not becoming a nuisance when I’m trying to help; I don’t want it to backfire on me.

Sunitha Rao: Exactly, exactly.

Joe Fairless: Well, taking a step back, what is your best real estate investing advice ever?

Sunitha Rao: It is to think outside the box. I’m paraphrasing a Steve Jobs quote that I saw somewhere, but it has to do with getting ahead. If you want to succeed or get ahead, look at what others are doing, but do it differently. And I think investing is no different. When we invest in real estate, it’s the same thing like buying a stock. You’re trying to identify a mispriced asset. And if you are looking at everything in the same way that everybody else is, if you’re looking in the same place that everybody else is, doing things the same way, you’re shooting yourself in the foot.

So that’s in terms of investing… But then also, looking at what others are doing who might have the same goal. My goal is financial independence, and I have a lot of friends in the FIRE arena; one of them was like “Yeah, you have to go to FinCon.” FinCon, for those who haven’t heard of it, the tagline is “Where money and media meet.” It’s the largest personal finance conference, geared towards those who put out financial content – financial advisors/websites etc. When he told me that, I was like “You’ve got to be out of your mind. I don’t have a website.” I didn’t have an Instagram at that point. I had three houses. I was like “What am I gonna do?” But I trusted that he knew what he was doing, because he was so much more successful. And I went, and it was one of the best decisions I could have made for my investing career. I met so many people, got so many ideas… It was amazing.

So don’t be afraid to do things differently than  maybe you initially saw yourself doing.

Joe Fairless: Story of your life, right? Tennis from 14 to 23, and then just making a very dramatic pivot at that point…

Sunitha Rao: Yeah, basically. Thanks for connecting those dots. I hadn’t seen that until this point.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the best ever lightning round?

Sunitha Rao: Yes, I am ready. Let’s do it.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:24:46].11] to [00:25:27].00]

Joe Fairless: Okay, what deal have you lost the most amount of money on?

Sunitha Rao: I don’t think I’ve lost money on any deal just yet. However, I did just finish a BRRR. I literally refinanced three days ago, completed the refi… And that was not as successful as I had hoped, because — we all make rookie mistakes; I made rookie mistakes on this go around. I didn’t factor in holding costs, because it leased and rehabbed during the time of Covid, so we had trouble getting materials, it took longer… So I didn’t take that into account. I didn’t take in to account refinancing costs, etc. So I definitely ended up leaving more in the deal than I had wanted. I still would have done it, but that was a little bit sad for me.

Joe Fairless: What’s the best ever way you like to give back to the community?

Sunitha Rao: I am very passionate about social causes. At this point I’m a little bit formant in my activities, but in prior years I’ve been heavily involved in women’s causes, diversity and inclusion initiatives at my workplace, LGBTQ community stuff, presenting at workshops and just doing anything I can to help those who I think don’t have as strong a voice, or helping those who may not have allies. That’s really why also I’m in real estate… I really want to be involved in non-profit work as a long-term goal. I just can’t do that right now with my job in real estate.

Joe Fairless: Any non-profit in particular?

Sunitha Rao: Yes. One is the National Coalition of Domestic Violence Against Women. I am a survivor, so that is something that means very much to me. I’m also after my time in my LGBTQ [unintelligible [00:27:00].04] at my prior employer; I’m also really passionate about that. I have many friends who are in the LGBTQ community and have seen how they have suffered and been treated unfairly, and not been able to have the same experiences and opportunities as many of those who have the privilege of being straight, or in more of a majority position. So those are two areas I’m particularly passionate about.

Joe Fairless: How can the best ever listeners learn more about what you’re doing?

Sunitha Rao: I have a website and I have an Instagram. Both go by the same moniker, GriffixPropertyGroup.com. And then my Instagram goes by that handle, @griffixpropertygroup.

Joe Fairless: Sunitha, it was a pleasure having a conversation with you and learning from you and your path, and your resourceful ways about getting deals done… Which we didn’t get into a whole lot, but I’m confident that we got into some stuff that was at least equally as valuable, which is adding value, and specific ways to add value to lenders, so that you can build that relationship and ultimately save money on what is likely your largest expense for the deal.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Sunitha Rao: Thanks for having me.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2303: Insurance Broker and Investor With Nathan Britten

Nathan is a full-time insurance broker and part-time real estate investor with five years of experience. He went to school to study entrepreneurship and eventually found a calling in insurance which led to insuring houses to now focusing on growing his own portfolio while working full-time. 

 Nathan Britten Real Estate Background:

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Find a project with the lowest barrier of entry and with the highest return” – Nathan Britten


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today I’ll be speaking with Nathan Britten. Nathan, how are you doing today?

Nathan Britten: I’m doing great. Thanks for having me on, man. I appreciate it.

Theo Hicks: No problem. Thanks for joining us. A little bit about Nathan, he is a full-time insurance broker and a part-time real estate investor with five years of real estate experience. His portfolio consists of two flips and one rental. He is based in Oklahoma City, Oklahoma, and his website is www.pi-ins.com/nathan-britten. Just go to the show notes and click on his website. It will be easier that way.

Nathan Britten: [laughs] Yeah, I’m sure everybody’s writing that down, letter for letter.

Theo Hicks: Alright, Nathan, do you mind telling us some more about your background and what you’re focused on today?

Nathan Britten: Yeah. So I graduated from OU in 2014, with a degree in entrepreneurship, and that’s not a very common degree, but generally speaking, it’s kind of general business… Essentially, we started companies basically each semester and pitched to investors and banks and tried to prove viability, stuff like that. So that gave a lot of good background and training into sales and general business. After I graduated, I started a CNG conversion business with my dad, which was converting vehicles to run on natural gas. We sold that about two years once oil and gas was going down, and got out of that.

I knew of a guy who worked in insurance in Oklahoma City, and I was just kind of exploring all my different options, and interviewed with them. It was kind of the entrepreneurial spirit of being able to create your own book and go out and build your own thing, but kind of under the scope of a company, but have a lot of freedom and a lot of freedom to do whatever you do in a great business. So with that, I got into running a lot of property for insurance, a lot of single-family investors, large schedules, apartment schedules… And being in Oklahoma, that’s a little bit more challenging than other places to ensure things. So with that, I met a lot of good contacts, I got involved a lot in real estate investing groups, and kind of learned from them and picked up some things along the way, and decided to kind of do my own things.  It really came out of needing a place to live… And it’s like, “Well, I guess we’ll just buy a house.”

[unintelligible [00:05:40].21] I guess what brought me to there, but I got into a deal that was a short sale. It was terrible, kind of a drug house almost, not in good condition; I turned that into basically a flip property. That was my first endeavor in that, and that’s kind of where it got me to this point of what I do now… And obviously, full-time as an insurance broker for a lot of property risks… And then now I just basically do it in my free time, just looking for deals and flips and other rentals.

Theo Hicks: So for your insurance job – that’s providing insurance for real estate, right?

Nathan Britten: Primarily, yes.

Theo Hicks: Interesting. It’s the first time I’ve heard of someone getting into real estate through insurance.

Nathan Britten: It’s an unusual path, and really, because a property is not everyone’s favorite thing to do for insurance. It’s just something that I was kind of naturally drawn to. We’ve got a really great program now that we write nationwide; we probably have about 20,000 rental properties in there, and a great apartment program as well… So I’ve got to get my own plug in here – anybody looking for single-family rentals or apartment quotes, I’m your guy.

Theo Hicks: So when people are kind of first starting off, there are usually two philosophies. The one philosophy is after they’ve gotten interested in real estate, their main focus is to quit their job and then do real estate full time. And then there’s the other philosophy that’s “I’m going to keep working, and then do real estate part-time, because of the benefits of having a full-time job.” So from your perspective, is your plan to eventually do real estate full time? Or do you plan on doing it with this full-time job? And then whatever your answer is, why do you select that route?

Nathan Britten: I think there’s a line that you cross once you either have a certain amount of funds, or you have a model that you’re going after, and a situational job that would force you to go full time into real estate investing. Insurance is one of those, where – as I was mentioning earlier – there’s a lot of flexibility, a lot of freedom. And that’s what allowed me the two flips that I’ve done thus far. Granted, they were pretty close to my office, but I was spending primarily all my time during the day managing contractors and projects at the houses, and I can still get most of the insurance stuffs done through my phone. So it gives me that kind of freedom.

But eventually, I do enjoy investing in real estate and doing those types of projects more than insurance… But that’s the thing that provides me my money to do that. So there’s a line, I think it’s probably a money line; not to say you can’t go out and raise some money and partner with people, different ways to do that. But for now, what works best for me, and kind of how I see it for the foreseeable future is to keep the insurance boat rowing, and invest in real estate on the side, and kind of have the best of both worlds.

Theo Hicks: What would be your recommendation to someone who wants to get started in real estate, and they have a full-time job, but it’s not like yours, where it’s very flexible. Let’s say they have a full-time job and they’re in an office; they have a non real estate related full-time job. They’re in an office – I guess not now technically not in the office, but they need to be in front of their computer or in an office starting at eight o’clock, and they can’t get off until five o’clock. What would be your recommendation to them to get started?

Nathan Britten: Well, you’re going to have to delegate a little bit; if you buy a rental, you’re probably going to have to hire a property manager. I don’t have a property manager personally, just because I’ve just got one rental and I handle that pretty well, and they’re five minutes from my office if they ever needing anything. You’re going to have to put in some overtime. You can’t be looking for deals and meeting with people during your work hours. That’s a little bit of conflict of interest. The boss probably wouldn’t appreciate that.

But after hours – the internet is 24/7, so you can get a lot of stuff done on the internet, I’m sure you know, Theo. And as far as a lot of those real estate investing clubs – they meet after hours, and you can learn a lot there. Obviously a lot of books and articles and websites like BiggerPockets, where we connected… You can get a lot of information that way. As far as if you were to do a flip, that’s pretty tough, because I personally like to be very hands-on… And I don’t know everything off the top of my head, to tell you, “Hey, go do this and do it this way.” I need to be there. And if you ask me a question, I can answer it, say how I want it. But that’s going to be a lot more hands-on, so I probably wouldn’t go with the full flip… Otherwise, it’s going to either take way too long, or it’s going to be way too troublesome, I think, if you’re not actually there.

Theo Hicks: So obviously, it’s very difficult to do the flip. So if you did not have this insurance job, would you have not done the flip? Or would you have been willing to change to a more flexible job to do flips?

Nathan Britten: I would have found a way. I’m just kind of a problem solver by nature; this just happened to be the way I did it. I think if I was tied to a desk, eight to five, I don’t think I could do that for very long. I would probably be out in I would say less than a month, of that kind of situation. And I think I would have gone more towards drop that eight to five, go full-in on real estate, because obviously, I’m young, I can take a few more risks… I would figure out a way to raise some money and partner with people, and… I’m just a problem-solver by nature, so whatever situation I feel like gets thrown at me, I’d figured out a way to solve it and make it work.

Theo Hicks: Let’s talk about your rental. So you mentioned the first flip – did you go in with the intention of living there and it turned into a flip?

Nathan Britten: Yeah. I actually did live there for a bit.

Theo Hicks: Was it like a live and flip?

Nathan Britten: Yes. I got it on a short sale, which I had no idea what that meant, and I don’t think my realtor really did either. So I wasn’t very well-prepped for it. And I had a lease ending this month, and it ended up taking much longer to get the property actually closed. And once we did, I was like, “Man, we were right on the line here.” [unintelligible [00:11:48].18]  $30,000 and basically a full remodel of this place into one month. And we ended up doing it. And I was there pretty much all day, every day. It was definitely trial by fire… And I really enjoyed it, I thought it was awesome. And then it turned out exactly how I wanted it.

I kind of combined a few different of the entryways into real estate investing… I had a buddy who’s in med school, he was renting from me and basically paying my mortgage for it too at the same time, once we got it finished. So we did that for a couple of years and ended up selling it for basically double for what we had into it. So it was a good deal.

Theo Hicks: And then after that flip, was the rental next, or was the rental the third deal?

Nathan Britten: The rental was next. It was actually a place next door, and I just had been keeping tabs on it. It was a great area. I essentially did my exact same deal of how I bought this house, the first flip, and just bought the one next door. It was in even worse condition, and I had a little more time to evaluate the area… And obviously, now I have my contractors that I trust and know they can do good work, and more of an idea of what it would take to do this. So I got that fixed up and ready. Not as nice as the first one, because I knew I was going to be renting it, but I’ve had pretty much the same tenants in there for coming up on three, four years now.

Theo Hicks: You said it was next door… Was this something that you kind of just waited for it to go on the market? Or did you actively pursue this deal?

Nathan Britten: I did actively pursue it. I knew that they were renting it, and I didn’t like the neighbors. I didn’t like the renters. They were terrible. I think it was a drug house. And it was just a situation poorly kept, and I just reached out to the guy who owned it, found him online and was like “Hey, man. I live next door. I like this house, I’d like to buy it from you.” And it just turned out to be a situation where they were kind of a hassle for him. So we bought it, got some new renters in there and it worked out. But I definitely had to pursue him.

Theo Hicks: Did you use the same contractors on that deal that you used in your first deal?

Nathan Britten: Most of them. They’re not general contractors, but I just know a lot of people that do a lot of that type of work. As for bigger companies, I’d say ‘Hey, man. Do you know anybody that can do this?” And then they would refer me to someone that way. But for the most part, it’s kind of the same crew; a couple of different changes, but kind of the same crew.

Theo Hicks: So those contacts – that was from your insurance shop?

Nathan Britten: I’ve grown up in Oklahoma City my whole life, and my dad was in sales, so he just knows a lot of people around town… And that’s kind of how I came into contact with other people. And then they were nice enough to say “Hey, yeah. This guy’s great for this. Go ahead and use them.” It wasn’t really interfering with their business; he was one of their subcontractors,

Theo Hicks: Circling back to the rental really quick. So you call the guy, was he “Yeah, I’ll sell it to you right away”, or did it take some convincing?

Nathan Britten: Oh, it took some convincing. And I really kind of overpaid for what I thought was market, but it was a deal I saw long-term value in. I knew there was a commercial development going into the end of the street, and really that was my main driver. I was like, once this actually gets approved, then everything on the street – it’s really going to increase the value. So I was like “Well, I’ll overpay now for the market value, and I’m going to hold it for a long time, and I’ll be covering my holding costs anyway…” So yeah, it made sense to me.

Theo Hicks: That was my next question – so eventually he agreed to sell it. How did you determine the price? You said it was a little bit over the market. So a two-part question – how did you figure out the market, and then where did that over-the-market price come from? Was that just what he wanted?

Nathan Britten: I’m not extremely educated in real estate. So there’s a lot of terms, and outside factors, and equations, probably that I’m not familiar with… What I always boil it down to is, okay, what’s our average price per square foot around here of what sold recently, and then what’s on the market below that? And I’m not scared of an ugly-looking house, where nothing works. I think the two that I’ve done are some of the worst that you can do, as far as keeping the existing structure, and not just knocking the thing down and building it back up. So that’s never deterred me at all.

So I really just look for the worst house in the neighborhood, and if the price per square foot is right, then what I’ve done in my past is basically use a construction loan to do the costs. And then I know that my after renovation value is going to be enough to get my equity, and I’ll be set that way. So I boiled it down to price per square foot in the area and tried to find the crappy ones, and then go from there.

Theo Hicks: And what about the rehab cost? Do you typically know that before you buy? Or is that something that’s more narrowed down after you put the property under contract? Or is it not until after you buy it?

Nathan Britten: I can ballpark it before, depending on the projects that are needed. A lot of stuff you can research online and make a couple of calls to your contractors, and if you have the right people come out and inspect it beforehand, you’ll know exactly what you’re going to do before. And I try to jam in as many people as possible. Realtors hate me, because I try to jam in as many people as possible in that inspection period, and I try to extend the inspection period for as long as possible, so that way, I’m basically risk-free in my evaluation of this house, and I can just basically have all my guys come in and bid it during the inspection period. So that’s my plan about it.

Theo Hicks: Yeah. And then the construction loan, the down payment – is that just money you have saved up from work?

Nathan Britten: Yeah. I’ve got saved up from work and we sold our business, I had some funds there… And I just always lived pretty cheap as it is, so yeah. And I’ve got pretty good banking relationships as well around here, so been kind of flexible with me on down payment stuff as well. So it’s really just — if you find a good banker that can do that kind of stuff for you, that’s really, really valuable.

Theo Hicks: Okay, Nathan. What is your best real estate investing advice ever?

Nathan Britten: I could go basic and say buy low, sell high, but… I guess figure out the lowest barrier of entry, with the highest ceiling at the end of the project; that’s probably what I would say, especially just starting out. And anybody who invests in real estate kind of has the same mindset of “I want to make money in a way that’s passive. I want to make money in a way that is a little bit unconventional.” So the end goal, I think, for most people is making money. So if you’re just starting out especially, just find that lowest barrier of entry with the highest upside… So that’s the expanded buy low sell high.

Theo Hicks: Alright, Nathan, are you ready for the Best Ever lightning round?

Nathan Britten: Let’s do it.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:18:34][00:19:17]

Theo Hicks: Okay, Nathan, what is the Best Ever book you’ve recently read?

Nathan Britten:  Recently read… I kind of went back into the archives a little bit and re-read How to Win Friends and Influence People, Dale Carnegie. And that’s not necessarily real estate focused, but the practices in there of dealing with people – you have to deal with a lot of people in real estate and just in life in general, and learning how to understand people and how to treat them, that’s key.

Theo Hicks: If your business were to collapse today, what would you do next?

Nathan Britten: So if insurance collapsed… Yeah, I think I would probably partner up with my family and we would probably start a real estate empire. I’d just go full bore at it.

Theo Hicks: What is the Best Ever way you like to give back?

Nathan Britten: Probably my favorite was Big Brothers, Big Sisters. Great national organization, still really involved in Oklahoma. It’s just awesome giving back to kids that haven’t been really been given a fair shot, for whatever reason, and being able to mentor them, and just be there for them to talk to them. Really cool, really rewarding.

Theo Hicks: And then lastly, what’s the Best Ever place to reach you?

Nathan Britten: Probably my cell phone. 405-802-9930.

Theo Hicks: Alright, Nathan, thanks for joining us and walking us through your journey from entrepreneurship degree in college, to insurance, to real estate. We talked a little bit about how to navigate getting into real estate while you have a job. So if you have a flexible job, then you’ll be able to work on things like flips during the day. If you don’t have a flexible job as a nine to five, and you’re not like Nathan, you [unintelligible [00:20:52].23] at the desk, then you have to put in time after hours, put in overtime, have property management. But if you’re like Nathan, you don’t like nine to five, and you’re young, and you can take risks, then you could just not work at all and go straight into real estate.

We talked about a few of his deals; his first deal with a short sale, a kind of live and flip that he sold for two times what he had into it, and his next deal was a rental that was actually the property next door. So I don’t think I’ve talked about this in a long time, but a really good way to find off-market deals is to buy the property, whether it’s a single-family or massive apartments, buy a property on that same street, because you kind of already have that credibility from owning something there. So they can look at this property –  and I’m sure in Nathan’s case, seeing a dump turned into a really nice property, they’re more willing to sell to someone like that than some random person they’ve never met before.

So he kind of walked us through his business plan with the construction loan, bringing as many people as he can during the inspection period to make sure that the rehab costs are super accurate, having good banking relationships to get those good loan terms, and then to determine the offer price using the average price per square foot on recent sales. So the sales comparable approach, in a sense.

And then lastly, his Best Ever advice was for those looking to get started, find that lowest barrier of entry, so that $30,000, $50,000 house that’s in horrible condition, because it has not only the lowest barrier of entry, but also the highest best potential exit, and the most upside. And then he gave us his phone number; if you want to learn more about him and his business, talk to him, text him.

So Nathan, thank you for joining us. Appreciate it. Enjoyed our conversation. Best Ever listeners, as always, thank you for listening. Have a Best Ever day, and we’ll talk to you tomorrow.

Nathan Britten: Awesome. Thanks, Theo. I appreciate it.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2294: How to Buy PreREOs With Jorge Newbery #SkillsetSunday

Jorge is a returned guest who was previously on episode JF1342. Jorge owned about 4000 apartments across the country and a natural disaster happened and caused him to lose everything he had and put him millions of dollars in debt. Then in 2008 when he saw that many Americans were losing their homes he decided to create a company that could help them by buying mortgages from banks in pools. Today he will share what a PreREO is and why he focuses on this.

Jorge Newbery Real Estate Background:

  • CEO of preREO LLC, AHP servicing LLC, and a partner in Activist Legal LLP
  • 30 years of real estate experience
  • A previous guest on episode JF1342
  • Portfolio consist of 10,000 purchased defaulted mortgages, owned 4,000+ multifamily units, and brokered thousands of properties
  • Based in Chicago, IL
  • Say hi to him at: www.preREO.com 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Local investors have advantages because they can see the work that is needed and typically have a local team they know and trust” – Jorge Newbery


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today I’ll be speaking with Jorge Newbery. Jorge, how are you doing today?

Theo Hicks: Good, thank you. Thanks, Theo, for having me on the show.

Theo Hicks: Absolutely, thanks for joining us again. So Jorge a repeat guest; make sure you check out his other episode, which is Episode 1342. So today is Sunday; we’ll be doing a skillset Sunday where we’ll talk about a specific skill set that our guest has, and as you can tell by the title, we’re talking about how to buy pre-REO’s, not REOs but pre-REO’s on the internet. So Jorge, can you tell us, first of all, what pre-REO’s are and then how you can buy those from your house on the internet?

Before we get into that, Jorge’s background… So he is a CEO of pre-REO, as well as AHP Servicing, and is a partner in Activist Legal. He has 30 years of real estate experience, a portfolio of 10,000 purchased defaulted mortgages, he has also owned over 4,000 multi-family units, and brokered thousands of deals. He is based in Chicago, Illinois and the website is prereo.com. So Jorge, do you mind telling us just a little bit more about your background and what you’re focused on today?

Theo Hicks: Sure, I’ll give you a brief history. About 16 years ago I owned about 4,000 apartments across the country, a natural disaster devastated my largest holding which was 11,000 units in Columbus, Ohio, and it gutted me financially; I ended up losing everything, and over 26 million dollars in debt. That story created a huge amount of challenges for me at that time of my life; actually, enough that I wrote a book about it called Burn Zones.

But I rebuilt myself through a company called American Homeowner Preservation, and this was 2008 when the financial crisis was devastating America and millions of families were at risk of losing their homes… And I saw that many of these families were going through the same things that I was going through. So I started a company called American Homeowner Preservation. And what we started doing was purchasing the defaulted mortgages at big discounts from banks and other lenders, and when we could, we would share those discounts with the families in the form of affordable modifications so they could stay in their homes. So that’s what American Home and Preservation has done. We bought over 10,000 mortgages in the last decade.

But when we bought from banks, we’d often buy pools, and those pools will include some that are occupied and some of them were vacant. Sometimes we got lucky on the vacant ones; we could find the homeowner and we’d pay them cash for a deed in lieu and we’d sell the property. So that’s great. But other times we could not find the family; maybe the homeowner was deceased, or was divorced, and no one could agree on what to do, and we would end up having the fore-close on a vacant home. So we’re the mortgage holder, there’s a property owner, but they’re not living in the home, and it’s sitting there vacant.

Now, in many cases there are great challenges; the returns often on that component of the population and often times was not that good, and I’ll tell you why… As a mortgage holder, if the property owner is not taking care of the property, the mortgage holder needs to, and that  includes anything from cutting the grass to shoveling the snow, to boarding up the property… And sometimes code enforcement, the local city will go out there and say “Hey you need to bring everything up to code. The roof is leaking.” So we have to do it; we don’t own the property, but we’d have to pay for that work.

And then in extreme cases like where I am in Chicago, if the property became a nuisance because people kept breaking in there and whatnot, then the city would actually require that we posted a night watchman. So every night we’d have to pay for a security guard to guard the property. And obviously, that becomes extremely expensive. And we’re still just sitting on a vacant property that’s losing value, in many cases, because it is deteriorating.

So in my mind I was saying “How do we rectify this? We have homes that could be rented out and generating income, but we don’t own the property, so what can we do?” And I guess the opportunity and the challenge is that the situation I described for AHP is the same for all the other hedge funds and mortgage investors across the country that do this nationally; they all have similar situations with a portion of their vacant properties.

So the solution that we came up with is pre-REO. And people say “What is a pre-REO?”. A pre-REO is a first mortgage that’s in default, that is secured by a vacant property; and actually, it could also be secured by a tenant-occupied property, but by and large, is by a vacant property. So what we offer is for hedge funds and other holders of these mortgages to put them on pre-REO, the local investors can bid to buy an interest in that mortgage, and that interest will allow them to follow a strategy that we’ve come up with, which is to work with our law firm Activist Legal to continue the foreclosure, number 1, so they can eventually get title to the property, but also to appoint a receiver, which is typically a local real estate agent who can repair and rent the property while it’s in foreclosure.

So it’s not yet owned, but the court will allow it, because it has been abandoned in many cases, to appoint a receiver to repair and rent the property and start generating income while the foreclosure is continuing. So that is the strategy that we’ve come up with, and so far we are getting a good reception.

Right now we have hundreds of properties on the platform, I anticipate by the end of the year we’ll have thousands. So it’s just a huge demand from lenders, and now we’re trying to reach out. One of the reasons I’m on the show is to let buyers know about the opportunity. It’s in many cases a fantastic opportunity for local investors to buy these at significant discounts to what they would buy REO’s.

Theo Hicks: So from your perspective, the deals that are on there are notes that your company owns, as well as other companies that do the same thing, that have the same issue with a portion of the vacant deal. So someone already owns these notes already, right?

Theo Hicks: Correct.

Theo Hicks: Okay. So from my perspective as a client, as a person who wants to buy these, I go to your website — I went to your website and saw that info on there. What types of things do I need to do in order to figure out how much I should pay for these things, if it’s worth paying for this…? What’s the due diligence that I need to do on my end?

Theo Hicks: Sure. Because it’s vacant, it is truly destined to be an REO in almost all cases. It would be rare that a homeowner would pop back up and say “Hey, you know, I want to pay off my mortgage, or re-instate”, or something like that. So in time, there’s a high likelihood that these will become REO. So I think investors should look at it as “What do I really think this property is worth as an REO?” And as is, where is.

And our guidance to sellers is to price it at 75% of the REO value. So they think the property is worth 200k, offer it at 150k. So there’s a $50,000 equity that’s there to be captured by going through this process. And the sellers – the sale to them is “Hey, you get your money a year or more early, you’re going to save all the legal fees, all the taxes, insurance, boarding up cost, night watchman, all that stuff is gone.” And for the local investor, they’re going to put a tenant in there who could be paying them, call it a thousand a month or something like that during that year, so they pick up $12,000, plus they do the repairs while it’s still being foreclosed upon. And when it’s foreclosed upon, they can choose to either sell it as an REO or to keep renting it.

Theo Hicks: So that offer is to you and these hedge funds, right?

Theo Hicks: Correct. Right now the offers all go to us, and then we share them with the hedge funds. But ultimately, they’re making the decision on “Hey do we accept it? Do we counter it? And how do we respond to this?” So to be clear, all the asking prices on there are simply just that – they’re asking prices; you can offer more, you can offer less, and we do see both of those. We see people who are offering full price, people where there are maybe five or six bids, but they’re all 10% or 20% low, which means that maybe the hedge fund opinion of values may be higher than it should be, and vice versa. There are some times that somebody is selling for a little bit more than what the asking prices are. So pay what you think is fair, offer that. Right now, we’re highly attentive to trying to get these things sold to prove out the models. So we’re trying to broker… In some cases, in the end we’re almost on the phone between the buyer and seller to try and bridge the gap to a price that makes sense.

Theo Hicks: Okay. So if I submit my offer, you mentioned that your company, for the pre-REO, has a system that I can use. So that system is up to the actual foreclosure; then it’s in my hands, right? So you’re saying that you help the second I take over that note to the foreclosure, and then the main thing in between there is appointing the receiver.

Theo Hicks: Appointing the receiver. You, for instance, could choose “Hey I know a friend who is a real estate agent. They are really reliable, I want them to be the receiver.” That’s fine. But the court will have the attorney propose to the court that that agent is appointed as a receiver.

Theo Hicks: Why aren’t the hedge funds appointed the receiver?

Theo Hicks: Because this is very local; we’re in Chicago, so when we’re having to pay for these repairs on properties I know we’re not getting in best prices. The local person will maybe have their own crew or have their own relationships and contacts where they can get stuff done at a better price, done faster; they can also be there watching “Hey this is what the work is, and you’re getting the bid for this.” That makes sense. And besides, we’re a thousand miles away from the bid and we don’t really know; we get photos and sometimes people — they always think it’s a bank or a hedge fund,
“They’re not going know the difference whether it’s 2000 or 3000, so bill them 3000.” We got this clean-up bids sometimes for like $3,000 and $4,000. I’m thinking, if I had a small crew, I’d be out there with the dumpster and get it all done for 500 bucks. And then they say “We’re bonded, we’re insured, and that’s why we’re $4,000.” Sure, that’s important, but the local investor can always do these things better. Also, selecting tenants, making sure they pay…

So I think what pre-REO is trying to bridge is the local investors absolutely, in this case, have the advantage. They know the market, they can watch the work get done, so they are doing that portion of the work and they’re adding value because they have transactions as a result. The hedge funds can never compete with a local investor in that regard.

Theo Hicks: Yeah. Plus, they’re not real estate investors either.

Theo Hicks: They’re not. We got offers on our REO’s, there are always people sending us the photos of like the worst thing in the house, making it look as bad as possible… And again, we are thousands of miles away sometimes so we don’t really know the difference. So local guys can say “Hey this thing is worth $300,000.” Or it’s worth whatever the number is, and if somebody is crying about a little repair that needs need to be done, hey I’ll get that done and they should be paying full price.

Theo Hicks: I’m not very familiar with this. So appointing a receiver – is that something that always happens? There’s no risk of the court say “Well no, you can’t do this, from my perspective.” Who are the receivers?

Theo Hicks: Sure. So that typical receiver is appointed on an office building, a hotel, a property that’s generating revenue, and if they’re not paying the mortgage or the other debt then, the lender can request that court to appoint a receiver to collect the rent, pay the expenses on that type of property; even they put him at sometimes retail stores or whatnot. But those receivers are often times attorneys or other high-priced professionals, and it would not work to use that type of receiver for a single-family residence.

So we were like struggling with who do we use, and who’s going to make sense here… And the receivership is very much akin to property management, with a couple of extra reporting steps with the court; so a local real estate agent makes a ton of sense. And they are doing it — maybe collecting rent, maybe 10% of the rent collected, and that’s okay, but I think what the agents are really looking for is hopefully some of these ends up being listed once they are foreclosed, they’re going to want to sell it, and then I’ll get the listing; so they’re building a pipeline of future listings. In turn, the receivership is usually high cost; we’ve made it affordable for this segment of the market, single-family residences and other small properties.

And then the other part is if real estate investors just call the local attorneys and say “Hey, appoint a receiver on a single-family”, it’s going to be “I’ve never heard of that.” So we have one firm [unintelligible [00:14:35].17] which I’m a partner in, which facilitates default services nationwide; so all of these we recommend that you go through Activist Legal, and Activist Legal will co-counsel with the local attorney in their network to complete the foreclosure and to get the receivership appointed.

And you’ll think “Well, how much is the receivership?” To appoint a receiver, estimated hours maybe a thousand dollars in legal fees. When the receivership is completed, maybe a couple of hours and maybe $500. And your question, which is a good one, “Is this definitely going to work? Is the court definitely going to appoint a receiver?” And the answer is we expect that they will, but we don’t know. There may be some judge who just says “I don’t get this. It doesn’t make sense to me. I’ve never seen it before.” We haven’t run into that yet; we’ve been able to so far convince judges that this makes sense. And the reality is if a judge is going to look at it from a public policy point of view and say “Is it better to leave a home vacant for a year, or better to appoint a receiver and have a tenant in there? Which is better?” It’s clearly to have it occupied; if it’s vacant it either is or could be of blight on the community, so it’s just so much better to have it occupied. The neighbors would appreciate it. So it does make sense, but we do anticipate at one point or another we may have [unintelligible [00:15:41].18] We’ve had this concern enough as we keep going to different jurisdictions to prove out the concept; if a receiver  could not be appointed, our fund would buy the asset from the pre-REO buyer. We expect that to happen one in a hundred times; it hasn’t happen yet. And if it does, then we simply know that in a jurisdiction we can’t do it, and we’ll keep trying. It makes sense, so we expect at some point the judges will all be on board with this.

Theo Hicks: Another question I have from a very limited knowledge of the foreclosure process – I know it’s usually not always the exact same length from when it is initiated to when it’s actually completed, so how do I know when looking at a deal what spot in the process we are at?

Theo Hicks: That’s a good question, because if there’s a sale date next month and you already have a judgment, then you’re just going to say “Skip the receiver, I’m going to get the deed to this thing in a month or two.” So we are trying to provide information on our site; it’s not where we want. Sellers – it always seems like they have to go to the servicer, go to the attorney and get the current updates. So we are trying to improve that. If a property is of interest, and you think of bidding on it and that’s important to you, which it should be, then before you bid, say “Hey, what’s the status of the foreclosure?” And someone will get you that information.

Bear in mind though, the way we’ve structured pre-REO is accepting the ones that are towards the end of foreclosure. If it’s kind of mid or earlier, then it’s going to be months if not years in some cases, so it does make sense to appoint a receiver. And the passage of time, which usually negatively impacts the returns of a mortgage holder using pre-REO, where you’re generating rent during the term for the foreclosure, then the passage of time is no longer a negative drag on your returns.

Theo Hicks: So if I have a receiver, and I get fixed up, I can put someone in for rent before? That makes sense. I was kind of confused. I saw on there in your website, that you could do loans on this as well.

Theo Hicks: Yup.

Theo Hicks: So I put the down payment, obviously I’m paying that loan, because I’ve got an outgoing payment, but with a receiver, I fix it up, I put a tenant in it, the tenant could pay me before I actually own the property.

Theo Hicks: Correct. Now, a big asterisk to all that. The receiver needs to coordinate the work, so the court’s going to allow the receiver to do the work, and they can hire contractors. So you couldn’t actually do the work yourself; you could coordinate it through the receiver. You could tell the receiver “Hey, I recommend that you use this contractor.” Ultimately, you’re the one funding the work. And the rents that are collected would need to go to the receiver, they need to go to the servicer, and then they come back to you. That way it’s fully documented for the court and there’s always a record if they ever ask. In the end, we accomplish what you’re just describing.

Theo Hicks: So you said that rents go to receiver, and then who is this servicer? Is that you?

Theo Hicks: Yeah. But that’s the AHP servicing.

Theo Hicks: Okay.

Theo Hicks: So almost all the states in this country require that a licensed servicer is the one that usually collects the mortgages, interfaces with the bar, facilitates foreclosures… So AHP servicing is a national servicer; we can fill that role. In fact, in pre-REO you can say “Hey, it’s a great way to generate business for AHP servicing, [unintelligible [00:18:29].07] and you’re right. But also, without those two components, it would be very difficult to replicate. Because otherwise, you’d have to go to a servicer, go to a law firm and try to put these pieces together, and that I think would create a challenge. So here I’ve created the roadmap, and the companies and resources that you can utilize along the way, so you just follow the steps for the particular pre-REO that you’re working on.

Theo Hicks: So you say this is pretty passive compared to other strategies. Is that like entirely passive? But it sounds like it’s passive, because a lot of the steps – kind of communicating with the receiver, it sounds like once you’ve bought the deal and then sending the money out for the loan… So those are passive?

Theo Hicks: Yeah. I don’t know if I’d say very passive. You still have to be the quarterback, maximize your success. You want to be very involved [unintelligible [00:19:13].24] you’re right, you’re having to work through others to help execute the strategy.

Theo Hicks: Alright, Jorge. This is very fascinating stuff. It’s from the perspective of buying this, but also just from your perspective in identifying this need and starting a business. Of course, we couldn’t focus on it that much, but I think we did get a lot out. Is there anything else that you want to mention about buying pre-REO’s on the internet, or anything else before we wrap up?

Theo Hicks: No. I think we’ve covered most bases. You mentioned the financing – we provide 75% of the money, so the local investor just needs to come up with 25%. We’ve tried to make it as similar to doing a normal real estate transaction, except here you’re just buying earlier in the process, at a greater discount. So I think we covered all the bases. I appreciate the question, and thanks for having me on today.

Theo Hicks: Absolutely. Thanks for joining us and talking about how to buy pre-REO’s on the internet. So if you want to look at actual live deals, prereo.com. And there you can kind of click and see some details about those deals.

Overall, just to summarize what the process is, you are buying the first mortgage that’s in default, as secured by a vacant property, from a hedge fund or some other company that’s already bought that. And then you being the local investor will be able to add more value to that deal than the company that’s thousands of miles away.

Once you buy the note, which you said that the starting offer price would be 75% of whatever that value is, then you request that the court appoints a receiver, and then this receiver, which your company helps find, will be the person who can coordinate the renovations on that vacant property, putting a tenant in that vacant property, so you are able to make money before you actually foreclose on the property. That sounds like the overall strategy. Obviously, there’s a lot more that goes into it than that, but that’s the overall strategy.

Jorge, thanks again for joining me. It was great talking to you. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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JF2293: Applying Data Analysis To Find Undervalued Market Opportunities With Stefan Tsvetkov #SituationSaturday

Stefan has been a financial engineer for 10 years. Now he uses financial engineering knowledge in the real estate market.

His data analytics company, Envvy, helps real estate investors find market inefficiencies and high margin opportunities. Many investors focus on demographics, taking into account population growth and job growth, yet many seem to overlook the local real estate market’s historical pricing. If the market is overvalued the way many were in 2007, the investments can be susceptible to a dramatic price drop.

Stefan Tsvetkov  Real Estate Background: 

  • Financial Engineer for 10 years 
  • 3 years of multifamily investing experience
  • The portfolio consists of a 3-unit & 4-unit property in NJ and a duplex in NY
  • Based in New Jersey
  • Say hi to him at: https://www.linkedin.com/in/stefantsvetkov/ 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“Markets that are undervalued could perform really well afterward” – Stefan Tsvetkov.


TRANSCRIPTION

 Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any fluffy stuff. And first off, I hope we’re having a Best Ever weekend. Because today is Saturday, I have a special segment for you called Situation Saturday.

Well, we have a situation, and I think everyone is in this situation in some form or fashion. We are navigating the pandemic as real estate investors and entrepreneurs. And today’s guest is a financial engineer, and he’s going to help us answer the question, “Is the current real estate market overvalued?” So with us today is Stefan Tsvetkov. How are you doing Stefan?

Stefan Tsvetkov: Doing good. Thanks, Joe, for having me.

 Joe Fairless: My pleasure. I’m grateful that you’re on the show. A little bit about Stefan, and then we’ll get right into it. He’s a financial engineer, he’s got three years of multi-family investing experience. He’s got a portfolio in New Jersey, a three-unit and a four-unit, and he’s got a duplex in New York. He’s based in New Jersey. Again, his focus is he’s a financial engineer, he’s based in New Jersey. So first, Stefan, will you give us a brief background about yourself? Tell us about what you’re focused on, and then let’s go right into the real estate market.

Stefan Tsvetkov: Yeah, of course, Joe. As you mentioned,  I’m a financial engineer, and I’ve been doing that for ten years. But in the recent three years, I’ve been investing in multi-family, mostly New York City, basically. So that is my private expense. So I’ve been mainly doing two to four-unit private investments, so not raising capital, not syndications, not things like that; just personal investments on my end.

I have a data analytics company, Envvy Analytics, and that’s some of the work I’m going to talk about here, because basically, we do corporate analytics, we do different markets, market analysis, things like that. So that is some of the focus. Essentially, applying some of my technical, financial, engineering, or data analysis skills to the real estate world.

 Joe Fairless: I love it. I am always looking forward to having conversations with people who look at the real estate market from an objective analytical standpoint and learn what they’ve discovered. So please tell us, what have you discovered?

Stefan Tsvetkov: So the one thing I wanted to draw people’s attention to is investors and syndicators really like to look at different demographics trends; you know, where job growth is, population growth, and things like that. But one thing that I feel is overlooked is where do valuation stands.

So if we have a given market, everybody and investors would pick specific properties around the world, and that’s a great strategy, it’s an excellent strategy considering real estate is an inefficient market. But again, do we know where the real estate market is standing in those areas? Is it overvalued, is it fairly valued, etc? We don’t, usually. At least if I was feeling myself, I’ve never had a sense of this. So that is like part of this study.

So it was inspired by finance, for sure. For example, there is a guy, John Hussman – he is a PhD, he runs the Hedge Fund, and he’s got a metric that would predict, sort of would correlate to subsequent drops in the stock market. And some of you know the main index there over there is the S&P500. So he had a metric that would predict a 91% correlation to subsequent drops in the stock market. Now, one would not have the timing right etc. etc, but again, that is a measure of “Is at this point in time the market overvalued?” And that performed better than price-earnings ratios that would be the usual most common metric over there. So that’s one thing that inspired me.

A second thing that inspired me is before 2007, so in 2005, 2006, there was a guy in Massachusetts, his name is Ingo Winzer. He was on CNN at that time. So he was basically speaking that certain markets, not the whole markets, that certain markets are dangerously overvalued. He was speaking about markets in California, in Florida, etc. So, here was doing that in 2005; he was later again on TV in 2006, and it was pretty much the same story – specific cities substantially overpriced.

So one didn’t have to wait until 2007 to know this, one doesn’t have to wait now, and it’s not really overvalued now to this extent… But these are some things that inspired me. So I wanted to share with your listeners some of my findings;  I thought could be interesting and useful to everyone, pretty much, as an investor.

So in 2007, markets that were overvalued, for example California or somewhere in Florida, they were around 50% — let’s say Arizona was 55% overvalued, Nevada was 49% overvalued. And here, when I say overvalued, the measure that seems to work best – it’s really a simple measure; it is [unintelligible [00:07:54].11], price income ratios, takes an average or whichever metric on that, and then a percentage deviation from that at the current point of time, and that gives us a valuation.

For example, if the historical price income ratio in California has been 8, let’s say, the prices [unintelligible [00:08:12].09] or something like that. Supposedly, that’s not the correct number. And that is currently standing at 10 – okay that would be a 25% overvalued market. So this measure is the simplest way to do it.

 Joe Fairless: And just so I’m tracking correctly – when you say the price, I understand income, but income is household income? And price – is that single-family homes?

Stefan Tsvetkov: Right. So again, that’s not going to be a commercial multi-family, correct?

 Joe Fairless: Got it. Alright. So we’re talking single-family home prices, and household incomes.

Stefan Tsvetkov: Correct. Well, that would be FHFA prices. So Federal Housing Finance Agency. I believe they have some small multi-family in there. But it would be more like single, small multi-family.

 Joe Fairless: Okay, so under five units?

Stefan Tsvetkov: Yes, correct.

 Joe Fairless: Okay.

Stefan Tsvetkov: So that’s a different topic. Now, back to the commercial multi-family – that’s always driven by different factors. I did a study on that; there is still high correlation to commercial, so it’s still fundamentally the same asset. It’s not to say that okay, because [unintelligible [00:09:09].11] is priced differently because the appraiser is different – it doesn’t relate matter. It’s still fundamentally the same asse, it’s still driven by similar dynamics, by sort of the household incomes in different areas, etc. So the correlation to that was over 95%, or something; it’s really close.

 Joe Fairless: Just to make sure I just heard you correctly – did you just say that correlation with commercial is 95% to what you’re finding with the single-family residential?

Stefan Tsvetkov: Okay, so if FHFA, that includes single-family, and I believe includes some small multi-family in it – so FHFA home prices versus what I have, I just am looking at the slide right now, versus CoStar commercial sale index, that had 97% returns basis [unintelligible [00:09:54].26] on returns basis would be less. But yeah. So kind of over the long run, the two should be in line. It’s of course a different asset, it’s priced differently, we know the differences of that in terms of commercial versus residential.

 Joe Fairless: Got it. Okay. So, what you’re talking about now is primarily residential, but there’s likely a high degree of correlation with commercial.

Stefan Tsvetkov: Correct. And thanks for clarifying that. But absolutely, it’s primarily residential. So it would impact more listeners who are purchasing one up to four units, I would say, the most.

 Joe Fairless: Got it.

Stefan Tsvetkov: From there, in 2007 the markets like specifically California, Arizona, Nevada, and Florida, those were the four most overvalued markets. Basically, 49% up to 68% they were overvalued. So that was super much.

 Joe Fairless: This is 2007 that you’re talking about, right?

Stefan Tsvetkov: Absolutely, 2007.

 Joe Fairless: Okay.

Stefan Tsvetkov: The metric that is how deviation from price income ratio, historical price income ratio – so this metric showed 83% correlation with the actual drops that happened post-2007. That is the analysis that I did; that for me was super useful finding for my own investment, because I felt “Okay, that’s really really a good way to know what could happen, at least once a peak in the market gets reached.” So markets like the ones I mentioned that are overvalued, they have substantial drops like 45% to 56%. And then markets which were not undervalued, they didn’t. So that was very interesting.

So I would say if one defines an overvalued market with a greater than 10% deviation from its historical price income ratio, in those terms… So what happened is that the median price drop then was 22%, and then the median variation was 26%, so it was like pretty close. And then if we take fairly valued markets that would be let’s say between 0% and 10%, they had a much smaller drop, of 11%.

And the most interesting thing — and I’m going to relate to where I see things today, but the most interesting thing was markets that were undervalued. And when I say markets, that’s at the state level. So markets that were undervalued, for example, at that time – Texas was actually an example. So Texas was 5% undervalued in 2007. So the drop that happened post the peak was only 4% at the state level. So for all states that were undervalued, which I think were about 12 states at that time, the average drop was 4%, but [unintelligible [00:12:19].18] would have the biggest real estate price drop in US recorded price history, and yet if markets were undervalued within this measure in those terms, they dropped only 4%.

Now 4% was also the median income drop in the US at that time. That’s interesting – so actually, in valuation terms they basically didn’t drop. So there was a drop in income, but not pure in valuation terms. So that was for me a very big finding, because that was indicative of if we have markets that are undervalued now. Let’s say we reach the recession – in June was the official declaration for recession.

 Joe Fairless: Yup.

Stefan Tsvetkov: Markets could go [unintelligible [00:12:56].19] and I am not specifically very sure at all, but again just saying in the event we reach the peak a year from now, two years from now, ten years from now, whenever that is… So markets that are undervalued at the state level at the time, I don’t think they are going to drop much.

 Joe Fairless: And then when there is a recovery, they don’t have as far to make up, because they were undervalued during the worst of times.

Stefan Tsvetkov: That is correct. And Texas would be a great example. So it was actually undervalued, and then it was in fact among the very top performers afterwards.

 Joe Fairless: Yeah. I bought a single-family house in Dallas, Duncanville specifically, in 2009 for $76,000, and I sold it in October of 2019 for $175,000, or something like that.

Stefan Tsvetkov: Well, we know the fundamentals for Texas – it’s a great market, it’s population growth, etcetera. It’s absolutely outstanding. But I would say markets that were undervalued – they could perform really well afterwards as well. There could be a reason that they were undervalued because of genuine weakness, so that can be as well, and they can have subsequently — they’re undervalued but they always stay undervalued, they sort of have weak performance. So that’s also possible.

 Joe Fairless: So the big question is, what’s undervalued right now based on this metric. Right?

Stefan Tsvetkov: Yeah, absolutely. Most of the US states are actually undervalued. The only overvalued states right now are the following – Idaho. Idaho is the only super sharply overvalued; I had like 22% overvalued. And there are certain cities that are more overvalued than others. Boise, Idaho is, I believe, like 33% overvalued.

 Joe Fairless: Oh, man. That stinks. I just did a passive investment in Boise.

Stefan Tsvetkov: Oh, really?

 Joe Fairless: I’m not actively buying there. My company isn’t, but I passively invested in — I think it was Boise, or somewhere in Idaho, for sure.

Stefan Tsvetkov: Okay. But look, another thing to look at… Actually,  this only matters once the peak gets reached. So if it takes five or ten years, your investment in Idaho is going to be among the best performing investments, chances are. Because through the peak, real estate has super big momentum.

Another thing that I’ve seen like in real estate markets – there is autocorrelation. So if returns were high last year, they may be high this year. In fact, I think like most states, they have like 70% autocorrelation, and things like that. So you can get the next year return to be high if it was high last year. Stuff like that. So again, if you invested in Idaho, that not really necessarily a mistake just because it’s overvalued. It’s going to be the strongest performer, it’s going to continue being the strongest performer until it reaches a peak in the cycle, and at that point, the subsequent drop would be probably in line with the valuation.

 Joe Fairless: Alright. Idaho… Where else?

Stefan Tsvetkov: So you could exit at the right time, you know?

 Joe Fairless: Well, I’ll just hope that they do. I’ll share this with them and mention this to them. But as a passive investor, I have no control over when the exit happens.

Stefan Tsvetkov: Absolutely. Okay, I understand. This is what I see now. There a few other places now — I would not be too worried, but the strong performing markets are just mildly overvalued. So if we take like Nevada, Colorado, Arizona, I see a 12% to 17% overvalued. And then the states of Washington, Texas and Florida are like 10% to 11% overvalued. Now, Texas or Florida – okay, those are like the big markets, the best markets, I would say. You know, they’re like truly outstanding. With that said, again, if they are 10% or 11% overvalued, is it not the time to invest there? No. They are the best markets, they will grow the most for these years. It’s just sort of a number to keep at the back of one’s mind, that in the end, if this number gets higher – from 11% it may reach 30% at some point, or something like that. We never know. So at the peak of cycle, that would be something to look for, to watch for, because drops tend to correlate the most to that. Now, those are the overvalued states, actually.

 Joe Fairless: So how’s Idaho compared to Texas? What are the numbers? 23% to what percent?

Stefan Tsvetkov: Yeah, Idaho 22%, Texas 11%.

 Joe Fairless: Okay.

Stefan Tsvetkov: And 11% is a normal thing, a normal market; it’s not a big deal. It’s a strong performing market, there is a lot of competition; people who are buying very much there, obviously.

 Joe Fairless: In 2007 what was the most overvalued — we’re saying market, but really it’s state. So what was the most overvalued state in 2007?

Stefan Tsvetkov: Yes. So that was very different. So that was California, 68%.

 Joe Fairless: Wow. What was around 22% in 2007?

Stefan Tsvetkov: Around 22% were many states at that time. For example, New York state was 24%.

 Joe Fairless: What was around 11% in 2007?

Stefan Tsvetkov: Okay, 11%, I see Vermont.

 Joe Fairless: I don’t want investments in Texas to be associated to investments in Vermont. That doesn’t give me the warm and fuzzies. [laughs]

Stefan Tsvetkov: Again, honestly, personally, I think I’m a supporter of big states, big investments, those are the strongest markets. I’m not going to debate that by mere valuations. It’s just at the peak of cycle, that’s the only time that it’s going to matter. Those are the markets that are going to perform the strongest, and that’s it.

 Joe Fairless: And when you say the peak of the cycle, how do you define the peak of a cycle? Because right now, a lot of real estate investors would be saying we’re going through some tough times currently.

Stefan Tsvetkov: Well, that is a good question. I’ll use again 2007 as an example. So that would be the peak of cycle would be a very different date in every single region, in every single state or county would be a different date. So in some places it happened in the second quarter of 2007, in some places it happened in 2005 in fact.

 Joe Fairless: But how is it defined?

Stefan Tsvetkov: It’s just purely prices reaching a peak and having a substantial drop afterwards, or certain drop afterwards that maybe takes two to five years to reach to the bottom.

 Joe Fairless: Got it. So we really don’t know what the peak is until after it’s happened for some time, and then we have to go back and say, “Oh, well that was the peak a year ago, or two years ago.” Right?

Stefan Tsvetkov: Absolutely. Yeah. We would not know. So there’s no timing, prediction at all. For example, if I say Idaho is overvalued, there are no timing predictions to — does it need to drop if it’s overvalued? No. It can stay like that for a while. And in fact, there are different scenarios that overvaluation can even resolve. So one is price correction, but that’s not the only one. We could have a reduced price growth; that would be the second scenario, for example. Of course, it’s  overvalued, so because of that, in the future is going to experience comparatively less growth, just so that incomes catch up.

And let’s  say the third one – prices may even continue to be super super-strong, but income experienced a sort of super growth, so they are even stronger. And then in the end incomes and prices catch up. And even though let’s say Idaho is overvalued, then it gets resolved and it’s normal.

So there are different scenarios, it’s not really that. It’s just what I’ve seen and to my strong senses, if we reach a peak at some point, that’s the thing that I’m going to personally look at in terms of where prices are going to go. And it’s the most predictive metric at points of change in the market cycle, I feel.

Now the metric – this is just price/income ratios, it sounds simple; it can actually improved. I’ve been working on some improvements that reflect housing shortage. That seems particularly useful at the county level or specific cities. Because cities – it’s very interesting, the way that people speak about places like San Francisco for example. San Francisco is really expensive. I can dig deep, and it’s as if [unintelligible [00:20:54].24] drop there because it’s really expensive. But that’s not how it works.

 Joe Fairless: Supply and demand.

Stefan Tsvetkov: Right, it’s supply and demand. And the fact that San Francisco is highly unaffordable does not make it overvalued. So there are places that have experienced certain housing shortage, that have become shifted upwards in their affordability, so to say. That’s what happens in big cities. So they have been previously much more affordable, prices to income have been let’s say five times, and at some point, they’re maybe fifteen times. Now that happened gradually, that happened with insufficient housing, due to population growth, etcetera. But at that point of time, once it’s already at fifteen, the affordability, well that’s a place that’s not affordable. But now it’s going to be gauged on it being overvalued or not, based on how affordability changes. It’s not going to be just because it’s absolutely not affordable that’s going to drive if it’s overvalued. It’s going to be if it’s unaffordable relative to certain historical levels on some, let’s say, like a moving window of time, let’s say something like that. So that’s it.

So that can be improved. I’ve worked [unintelligible [00:22:07].26] it reflects that, I feel that’s even more useful, because then you have pretty much most of the drivers of real estate included in that – you have incomes, you have population, you have housing supply… So it becomes pretty comprehensive. I feel one needs to have a shorter time window to get, I believe a very high 88% correlation when they use like a five-year window, when including housing shortage as well. But I feel it’s not so safe. The simple measure that is here is very powerful. It worked really well then, and I feel it would work at a future point as well.

 Joe Fairless: I’m grateful that you came on the show and talked about this and your findings. We need to wrap up really quick. What’s one thing a listener should do with this information, who is an investor and looking to identify where they’re going to invest next?

Stefan Tsvetkov: One thing they should do — if they are risk-averse, so if they want to be protected from a price drop within the markets they are investing in, they can reach to me or they can do these similar calculations themselves and basically determine markets that are currently undervalued, if they want to be protected from a price drop in the event we reach peak.

So if they do invest in markets that are undervalued, it’s going to be a very slow likelihood that a price drop happens there, let’s say at the state level. Now, within specific small geographies, it is possible that a drop happens, because it’s very difficult to predict how people are moving from one city to another, etc. But I would say people who are risk-averse should invest in well-performing markets, so markets that have good price performance, which is nevertheless currently undervalued, to be protected from a price drop.

 Joe Fairless: We talked about the overvalued states and you said most of your states are undervalued, but I don’t think I asked you what state is the most undervalued? What are the top three?

Stefan Tsvetkov: The top three currently are Illinois, Connecticut, and Arkansas.

 Joe Fairless: Huh. I don’t know about Illinois and Connecticut and people investing there…

Stefan Tsvetkov: I would not suggest one should invest there just because they are undervalued. Those are the markets that always have weaknesses, and that’s obvious, and I know Connecticut clearly has all the demographic weaknesses at its disposal. So I would not suggest that. I would say markets that are undervalued, but they performed well. So if we take for example Indiana, they are 6% undervalued, but they are 27% above the previous peak in 2007, so they have done well in the market cycle. So that would be my focus in that sense, for small investors.

Again for people who are doing big project syndications etc. I do believe the big markets are the best. One would have to kind, of course, be somewhat cautious at some point, if it does become more overvalued. I would say for now it’s still at good levels in terms of overvaluation.

 Joe Fairless: That’s helpful. Thank you, Stefan. How can the Best Ever listeners learn more about you?

Stefan Tsvetkov: Thank you. Well, they can reach to me on LinkedIn, Stefan Tsvetkov on LinkedIn, or they can send me an email at stefan.tsvetkov@yahoo.com. So that’s the best way to reach me. I have a YouTube Channel, I run also a Meetup series, it’s called Finance Meets Real Estate, in New York City. So those are some ways to get to me.

 Joe Fairless: Stefan, thanks for being on the show. I hope you have a Best Ever weekend. Talk to you again soon.

Stefan Tsvetkov: You too.

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JF2292: Denny’s To Real Estate Investor With Dwan Bent Twyford

Dwan started as a broke, single mom who had been fired from Denny’s. She now heads up “investors Edge University” –  A company that specializes in training new and seasoned investors in a wide range of real estate investing techniques through live workshops, weekly webinars, a member site, coaching, and seminars.

Dwan Bent-Twyford  Real Estate Background:

  • Full-time real estate investor who started out as a broke, single mom who had been fired from Denny’s
  • Manages “Investors Edge University”
  • Portfolio consists of over 2,000 flips
  • Based in Denver, CO
  • Say hi to her at: www.dwanderful.com 
  • Best Ever Book: Real estate podcasts

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Stop over-preparing, and just go for it” – Dwan Bent Twyford


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today we’ll be speaking with Dwan Bent Twyford.

Dwan, how are you doing today?

Dwan Bent Twyford: I’m doing so good. I’m excited to be here.

Theo Hicks: Well, we’re very excited to have you. Thanks for joining us. Looking forward to our conversation. A little bit about Dwan’s background—she’s a full-time real estate investor who started out as a broke single mom, who had been fired from Denny’s. She manages Investors Edge University and has done over 2,000 flips. Based in Denver, Colorado, and you can say hi to her at her website, dwanderful.com, which I had said before we began, amazing website title.

So, Dwan, do you mind telling us some more about your background and what you’re focused on today?

Dwan Bent Twyford: Well, I really started off really truly as a broke single mom. I got married, and when my daughter was only eight months old, just eight months old, her dad and I had an unexpected split, and I was sort of faced with that decision. “Do I go back to work? Do I try to do something for myself?” What was my thing that catapulted me. And I always tell people – because so many people that listen on your podcast, they’re looking for real estate investing. I was just specifically looking for any job I could do from home and raise my daughter. And as I went searching, real estate investing found me. And I rehabbed my first house. I used to move in, rehab them while I was living there, sell them, move, sell them, move, and that’s how I did it for years and years and years.
Then I started flipping houses, which completely changed my life. And then as things progressed, people started having me teach, and start doing workshops and seminars and writing books, and then here we are today, I’m still doing deals, and podcasting myself, and just trying to educate. My whole goal is teach, teach, teach, teach, teach. Because I tell everyone, “Listen, if a broke single mom like me with no education, no nothing, could literally have been fired from 15 jobs ahead of that, can become a millionaire real estate investor, everyone can do it.”

Theo Hicks: Absolutely. So I want ask a question about the live-in fix and flips. So would you buy them all cash, or would you do the owner-occupied type of loan?

Dwan Bent Twyford: Oh, Lord, let me tell you… [laughs] Now, you have to remember — I mean, you don’t know this. So when I first, first, first started, this was like 30 years ago. So back in those days, and I know people are going to be like, “What? She’s that old?” Any kind of job, any kind of anything, everything was in the classified section of the newspaper. So I was looking in the papers, and going to all these meetings and jobs, and a lot of it was multi-level marketing and things like that. So I happened to meet some people at one of these, and they were investors and they said, “Well, we fix up houses then resell them.” So in my naive mind, I thought, “Wow, I could decorate houses for a living. I love to decorate. This is going to be so easy.” So I had no technology. I would drive to the courthouse, I would handwrite all the foreclosures, use those big city map books, take my child and go door-knocking with a baby on my hip, looking for deals.

Once I found my first deal, I had no idea what to do. I had no experience, I had no real estate license… I literally made a deal with this woman – a deal on a handshake and a hug; that was kind of it – I would move in, because I couldn’t afford to live here and do this. I’ll rehab this house, and when it it’s all done, we split the profit on it. And I did it 100% using credit cards; I lived on full credit cards. I made $22,000 on my first deal, which at that time—$22,000 is a lot of money now, but 30 years ago, that was the largest amount of money I’d ever seen in my entire life.

So my first few deals – I would knock on doors, find the homeowners, and they would move out and I would move in and fix it… And we would just make deals. And I look back, I’m thinking, “Oh my god, what was I thinking?” I would never let one of my students do that now. So I didn’t even have my deals really papered up. It was really by the grace of God that they all worked out; nobody ever sued me, or tried to keep the house, or didn’t want to follow through on it.

So I then started wholesaling, because it was getting harder to find deals, and moving in and out… I was not exposed to hard money lenders yet. We still didn’t even have a RIA in South Florida, so I didn’t have any resources. So I discovered wholesaling, so I started finding and flipping them, finding them and flipping them. So my first few deals, I really worked the deal out with the homeowner, which I would totally not recommend any person doing it that way. If my students did a deal like that and didn’t pay for that thing with debt, I would murder them.

Theo Hicks: Yeah.

Dwan Bent Twyford: It is crazy how I started off.

Theo Hicks: So while you were fixing up the houses that you were living in, at the same time you were still door-knocking, finding more deals and then—

Dwan Bent Twyford: Finding the next one.

Theo Hicks: But the ones you couldn’t do, then you would wholesale those.

Dwan Bent Twyford: Yes. So the first three years, I strictly moved in, rehabbed myself, I fixed them up myself, sold it, moved to the next one. I did that until my daughter got into kindergarten, and I thought, “Okay, I can’t keep moving around now,” and then I actually discovered wholesaling, because a REIA group had started. I heard people talking about flipping houses and I thought, “Well, I do know how to find them. I know a lot of people now, so I’m just going to find them and flip them.” So at that point, I jumped into wholesaling.

And you know, my first year, Theo, I wholesaled 75 houses my first year, because I was a working machine. I was living in these houses, I’m working like day and night, day and night, trying to get them rehabbed. For about the first three years, I just moved and fixed , moved and fixed, and then started wholesaling like a crazy woman. And then, when I would rehab after that, I started using hard money lenders. So I would rehab one, flip a few, rehab one flip a few, and kind of did both simultaneously for even still today.

Theo Hicks: When you say flip a few, you mean wholesale, right? You’d flip the contract.

Dwan Bent Twyford: Wholesale. Yeah, I would wholesale.

Theo Hicks: That’s why I was confused for a second Okay, got it.

Dwan Bent Twyford: I like the word wholesale, too. By the way, all these TV shows have everybody talking about flipping. I feel like a lot of people don’t understand wholesaling anymore, but I still to this today – we rehab a few, and we flip as many as we can still today, because I love wholesaling.

Theo Hicks: So when you originally were looking for deals, you were doing door knocking. How are you finding deals now, and how are you obviously teaching clients how to find deals? What’s the best way right now in 2020 to find deals?

Dwan Bent Twyford: Right now this sounds like a super old-fashioned way, but I still to this day put out those bandit signs. So we find those “I buy houses cash” signs, I buy those, and what I started doing about five years ago is as I would be out sort of driving for dollars, I would see all these vacant properties. Because as you know, once the house is vacant and the bank takes it to foreclosure, that house sits vacant for about two years. And so I started putting my bandit signs in the yards of all these vacant houses. So it’s not on the street corner, it’s not on the telephone pole, it’s not littering and not trespassing; you just stick them in the yards of vacant houses. And then in any given neighborhood, you put a sign in every vacant house that there is, and everyone suddenly thinks you bought the entire neighborhood, and now you’re the go-to person. And people will call you and call you and call you and call you. So even though it’s 2020, I still like to go put signs in the yards of vacant houses. It’s quick, I can get 50 signs out in a couple of hours, and they’ll work for me for months.

Theo Hicks: What’s the message on the bandit signs?

Dwan Bent Twyford: I have a couple. One is obviously just “Cash for your house.” I have one also says “Facing Foreclosure? No equity? No problem”, because a lot of people don’t have equity and we like to take subject to’s. And then I also have some that say, “Owner Financing, No Money Down”, because a lot of the houses that I find, I have people deed their properties to me as a subject to, and then I owner finance them back out, [unintelligible [00:11:20].09] turning them into rentals. I have a lot of owner finance deals going on all the time.

Theo Hicks: I was talking to someone the other day that does the same thing, and that’s a super fascinating strategy.

Dwan Bent Twyford: So good. I tell you what, you can make so much money, so, so, so much money owner financing deals, and especially – -just any market, because there’s so many people that had a bad thing or had some bad credit or has something and the banks don’t want to lend them any money. But whatever that was, they’ve fixed it and resolved it and they’re working, and they really want to own a house again. So owner financing is one of our top ways that we make money.

Theo Hicks: So you buy the house and then sell owner financing, or you buy a house with seller financing and then seller-finance it to someone else?

Dwan Bent Twyford: Yeah, the homeowner deeds it to us, and then we have the deed, the power of attorney, we put it in a Land Trust, we do all those things like that, with the homeowner knowing that we’re going to do that; they sign [unintelligible [00:12:11].25] on that deal and then we let them know that in somewhere in the next 5-7 years, we will get that house refinanced. So their name comes off of it, so they’re free to buy something else later.

So I find a homeowner in distress, they deed the house to me, and then I find a person out there that wants to own a house and I owner-finance it to them. So I basically become the bank; they pay me, I pay the bank. And then we give them five or six or seven years to fix their credit or whatever they need to do, so that they can actually turn around. They don’t purchase at that point, they actually just do a simple refinance on it.

So I get it from the homeowner, I find a new homeowner, I finance it for them, and the homeowner, if they are on the mortgage, I have the deed, I have the ownership and I offer it back out over here as owner financing.

So this person over here has to come up with a down payment, [unintelligible [00:13:03].26] have a good credit, and as they’re making the payments on this owner financing, after a few years they’re able to actually just do a refi, which is easier to qualify for than a brand new purchase. So it creates a win-win for all three of us, because this homeowner that deeded the house to me, every month that goes by and the payment is being made, it’s helping reestablish their credit from all those late payments that they had. I’ve got this house and I’m in the middle, and I have the money, and it’s coming in, and I’m paying everything.. But this person over here is also reestablishing their credit, so they can refinance and own the home outright.

Theo Hicks: As I would imagine, it can be a really good strategy now with the COVID things going on for sure. Maybe you’re able to do even more.

Dwan Bent Twyford: People are literally like, “Here, take my deed, take my house. I’m moving back in with family.” I have people that are inundated with homeowners that are just giving them the houses and walking away.

Theo Hicks: I was talking to someone yesterday too, who does the exact same strategy with actual restaurants and stuff.

Dwan Bent Twyford: Yeah.

Theo Hicks: So it’s definitely a super fascinating strategy. Another question I have is obviously you teach people, and you have different mastermind groups and consulting. How are you doing this now that you can’t actually go and do it in person? Is it just all virtual and are you finding it’s more difficult to do the things over the internet than in person, or was it a pretty smooth transition?

Dwan Bent Twyford: So it hasn’t changed a lot for me, as we do a lot of live workshops for the REIA groups around the country. So obviously, there’s no workshops at all right now, because hotels aren’t letting anyone book the ballrooms and things, but our teaching and our strategies have always been online. But if you are one of my apprentice students, I would talk with you, work with you, with your paperwork, tell you all the things to find a deal. I would help you work with the homeowner, work with the bank on short sales, or whatever. So we partner with people, we split deals with them and such. So none of that has changed for us. We’ve been doing that for 10 years.

Theo Hicks: All right, Dwan, what is your best real estate investing advice ever?

Dwan Bent Twyford: Honest to God, I know it’s going to sound really, really simple… I’ve been teaching workshops now for over 20 years. I find the biggest thing I find when I’m talking to people in the audience face to face is they say, “Well, I need to take one more real estate course. I need to learn this. I need to learn that,” and they keep using the excuse, “I need more education” before they’ll jump in and do their first deal. And I feel like people need to get past that fear and get past thinking that they might not know what to do, and they need to just jump in, and have someone like me that guides them along so they don’t make a bunch of dumb mistakes, and stop overpreparing. Because people get stuck in this, “I have to have an LLC, I have to have this. I have to have that. I have to have 10 more hours of training. I’m not ready. I’m not ready. I’m not ready.” So I think people need to “Stop.Doing.That,” and just go for it. I would knock on doors with a baby hanging on my hip, with no knowledge whatsoever, and I was able to make it. So if I can do it, they can certainly do it.

Theo Hicks: Alright, Dwan, are you ready for the best ever lightning round?

Dwan Bent Twyford: Oh, I am.

Theo Hicks: Okay.

Break: [00:16:07] to [00:16:49]

Theo Hicks: Okay, Dwan, what is the best ever book you’ve recently read?

Dwan Bent Twyford: I have to be honest with you. Recently, I have not been reading books. I have become a podcast addict. So I listen to yours, I listen to many, many, many, many real estate podcasts all the time right now. So I’m trying to get in as many people’s ideas and just all the things, I’m just absorbing it like a giant sponge.

Theo Hicks: If your business were to collapse today, what would you do next?

Dwan Bent Twyford: I don’t know. If my real estate business were to collapse as far as investing in things, I still would do something where I would help homeowners that are in distress… Because I was that broke single mom, I also lost the house in foreclosure, and I know how that process is so devastating. So I would still somehow work with people in trouble and still try to help them find their way back out.

Theo Hicks: What is the best ever deal you’ve done?

Dwan Bent Twyford: Wow, I have so many 1,000s of deals. I have one deal specifically that I don’t know that it was financially the best deal, but it was one of those deals that was extremely rewarding. I had met a woman, at that time she was actually about my age. I thought she was you know, an older lady. [laughs] She was in her 60’s. But she had a house that was completely paid for, she was doing fine, she was retired, and unfortunately, her son became a crack addict, and talked her into refinancing her house. He was literally coming into her house and taking her TV and selling it, her furniture, and selling things. And by the time I met her, she had not eaten for three days. And her son just controlled her and manipulated her and had her living in her house with a chair and a bed. It was just a really tragic situation.

And I was like, “You know what, I’m gonna step in over and above. I’m going to help you and you’re going to get away from this son of yours.” And I took her, I found her family, I made arrangements for someone to help her and take her. I went and got her, I bought her house, I drove her to the closing. The money, I wired it to her sister, put her on a bus and sent her over to Tampa with her sister, and helped her escape this terrible trap she was in with her own son, and I had him arrested.

And at the end of the deal, her sister called me several times after thanking me that I had rescued her out of this really weird, dysfunctional relationship she was in. And that was one of the deals that stuck with me forever, because it’s so weird to go to someone’s house who has not a bite of food, there’s not even a cracker in the cabinet. And I was just so devastated about that. So that’s one of my favorite deals, because I don’t know, it just made such a super big impact on that woman’s life.

Theo Hicks: Yeah, that’s probably the best ever, best ever deal stories I’ve heard, so thank you for that.

Dwan Bent Twyford: Thank you.

Theo Hicks: I don’t want to ask the other question, which is what’s the worst deal, so I’ll go to the next question, which is what’s the best ever way you like to give back?

Dwan Bent Twyford: I am just a big volunteer on anything. I work at the church, I work with [unintelligible [00:19:45].22] I mentor these young girls. I go to the schools in my area, and I teach and talk on finances, and just to try to teach the kids. I say “Listen, you don’t have to grow up and get a job and get married and save a pile of money and buy a house. There’s way more exciting ways to buy houses.”

I really like working with the teenagers. Weirdly, I love teenagers, and I like working with them and showing them the options that are out there. I was raised in Ohio, so I was grew up with “Work in a factory, get married, have kids, and that’s what you’re going to do.” And after six weeks in a factory, I thought, “Lord have mercy. If this is my life, I can’t do this.”

So I like working with the young people and like, “Listen, forget this path. Let’s go over here and have way more fun in your life.”

Theo Hicks: And then lastly, what is the best ever place to reach you?

Dwan Bent Twyford: Oh, so easy – dwanderful.com. So it’s obviously a play on my name Dwan, so dwnaderful is wonderful.

Theo Hicks: Perfect, Dwan. Thank you for joining us and providing us with your best ever advice and your starting point. So the biggest takeaways for me – I really like your unique marketing strategy where you make bandit signs, messages from “Cash for your house,” “Facing Foreclosure? No equity? No problem,” and then your “Owner Financing, No Money Down.” And then rather than just sticking them on random street corners or high traffic street corners, you’ll actually put them in the yards of vacant properties. So you’ll put your messages in the yard of every vacant property in one neighborhood, and everyone thinks that you own all these houses, and you  bought all these houses, and so you’re the go-to person, and so your phone blows up. And you do this once and then have calls for months.

You also talked about your double seller financing strategy, where you acquire a deal through seller financing and then you, in a sense, resell it or re-contract it back out, seller-financing to someone else. That’s been a very good strategy for you and your consulting clients, and now it’s probably going to be a very powerful strategy moving forward in the next few years.

And then lastly, your best ever advice, which was not using the excuse that you need more education, which is why I always like to focus on the first deal with people that I talk to every time, even though it’s more of a story, and not technically tactical advice. Whenever you hear someone’s first story, 99 times out of 100, the person just kind of figured it out, and they didn’t really know what they were doing and it worked out, or it didn’t work out, but they’re still investing today. So just hearing that and realizing that you don’t need to have encyclopedic knowledge on real estate to get started is always good, always inspiring.

So thank you, Dwan, again for joining us.

Dwan Bent Twyford: Thank you, guys.

Theo Hicks: Great conversation. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Dwan Bent Twyford: God bless.

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JF2286: Buying Businesses & The Land With Nigel Guisinger

Nigel started investing in 2008 when he bird dogged a mobile home park for a family friend and from that original deal, he was able to cut a nice profit that he then turned into a handful of foreclosed condos. Fast forward, today, Nigel has 160+ units in three states. His main goal is now to buy businesses that have real estate to help him compound his buying power.

Nigel Guisinger Real Estate Background:

  • Full-time investor, and likes to focus on buying businesses that also have the real estate to compound his buying power.
  • He started investing in Real Estate in 2008
  • Portfolio consists of 160+units in 3 states, office condo, 9,000 sq ft of commercial space, 4.2 ac of development land, two appliance stores, laundromat, home building company, and a single-family house
  • Based in Springfield, Missouri
  • Say hi to him on Instagram @nigelguisinger
  • Best Ever Book: Relentless by Tim Glover

 

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Best Ever Tweet:

“Real estate does not appreciate in value” – Nigel Guisinger


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today we’re speaking with Nigel Guisinger. Nigel, how are you doing today?

Nigel Guisinger: I’m doing great. Thanks, Theo.

Theo Hicks: Awesome. Well, thank you for joining us. Looking forward to our conversation. A little bit about Nigel – he is a full-time investor and likes to focus on buying businesses, but also have real estate so he can compound his buying power. He started investing in 2008 and his portfolio consists of over 160 units in three states, an office, a condo, 9,000 square feet of commercial space, 4.2 acres of development land, 2 appliance stores,  a laundromat, a home building company, and a single-family home. He is based in Springfield, Missouri and you can say hi to him on his Instagram account, which is just his name, Nigel Guisinger. So Nigel, do you mind telling us some more about your background and what you’re focused on today?

Nigel Guisinger: Absolutely. So I grew in Salem, Oregon, and went to a public school, didn’t have anything really special, did some private school when I was little, and that taught me to get into thinking for myself and getting into thinking about wanting to be an entrepreneur. From the time I was little, I knew I want to be my own business owner, I wanted to kind of forge my own path. Started out with selling rocks on the beach at six years old, seven years old, to kids who could have just picked them up and skipped them, and I’d go pick them up at low tide and sell them back to them. So that entrepreneurial spirit has always been in me.

I went to Oregon State, before that I went to Germany for a year as an exchange student. At Oregon State I got my degree in German, not in business. And then met my wife, got married, got into the construction supply business; while all of my co-workers were buying boats and nice houses and everything, I stacked cash from ’04, ’05, ’06 up until 2008, 2009 when the market fell out. And then I went in and started buying foreclosed condos from banks directly, and then bought some apartment complexes, and then realized that some of my customers were beginning to hurt, which is similar to what’s going on now… So the result is they needed an equity partner. So I came in and I was able to buy things like a homebuilding company, a glass company that did 27 million dollars of business and I didn’t have to pony up any cash. And I also got the warehouse, I ended up owning the building that was next door to them because they had the options on that. So I look at things and how I can both grow a business and buy real estate.

That kind of brings me to today – I ended up flipping a couple of apartment complexes; I’ve never flipped houses but done apartment complexes and rehabbed those. I like that sweet spot of a million dollars to five million dollars, both on the purchase price and on the ARV, that way I’m sticking out of what any newbie can do, but also stand out of what the institutional guys can do. So I like sitting in that sweet spot. But the new thing that I’m really passionate about right now is buying businesses of baby boomers that is either home services or critical services, essential workers, to get people back to work and to keep these businesses that were closed down due to the Coronavirus, or because we’ve got five million baby boomers that are trying to exit the market, there is an opportunity. So that’s something that I want to capitalize on. So right now, doing that, and helping people look for business and giving advice on how to do that so we can get this economy going.

Theo Hicks: So when you’re buying these businesses now, are you just buying the business, or is it the purpose of buying the business and the real estate that they’re in?

Nigel Guisinger: So ideal situation is a business where you’re buying the business and buying the land. So one of my business models which is something that I think anybody can pick up right now is there is a bunch of baby boomers who want to exit the market, if it’s due to COVID if it’s due to whatever choices that they have; they’re just tired of the grind, right? Well, they own these businesses and they have a substantial amount of equity, but then they also own the building that they’re in. So you can utilize owner financing on a deal where you’d buy the business on contract from the existing ownership, or if you use a SBA loan to maybe put 10% down.

I did that with an appliance store where the total buy was 1.8 million dollars for the land and the business. I used an SPA loan, we got a $500,000 purchase price on the business, 1.3 million dollars on the land, I put $50,000 down for the 10% requirement for the SPA on the business, the owners carried 100% on the land, that gave them enough to pay off the property. I ended up getting the piece of property that was worth, after we did the work to it, 3.2 million dollars, and you’ve got a business that did four and a half million dollars last year in gross revenue, with an 8% EBITDA.

So it’s a win-win all around; all the people who work for him, still employed. In fact, we grew that company; there are more service desks, there are more delivery guys, there are more employees, people are getting more salary, everybody wins in that. The seller’s got an annuity basically in the form of the land, because they were carrying the contract. The SBA paid them a big chunk of money at the beginning, which we’re making payments on that. And then because of that, we were able to cash flow, make sure that we could hire more employees, more vehicles, give raises, add insurance, things that they had never had before, right?

There’s a lot of opportunity for this, so I’m really passionate about how to get people who maybe don’t have something, to get something. How do you go from being that employee that has never had it, to having that business? That’s what I’m passionate about right now.

Theo Hicks: Perfect. Let’s dive into details on this particular deal you were just talking about, just so we can pull out the strategies that people can replicate this. So I understand most of what you said, so I might ask some follow up questions. But let’s go back to the very beginning. So I want to buy a business and the land from a baby boomer.

Nigel Guisinger: Yes.

Theo Hicks: Where do I go? Am I just googling it? How do I find these businesses?

Nigel Guisinger: Sure. So every day you drive past businesses, unless you decided to shut yourself in completely. But you’re driving past a business — I guarantee within this week you’ll drive past of business in your town, wherever you are, that has a baby boomer; somebody who’s between the ages of 60 and 70 years old that has been in that business for a long time. In this example it was called Walt’s Sherwood Appliance. A great business, had been around for 25 years, by Tom and Carol Vincent. Amazing people, I can’t say enough positive about them; they’re involved in the chamber of commerce, they’re involved in their church, they were involved locally for kids sports, everything that you’d want in a business. [unintelligible [00:09:46].24]  whatever everybody thinks of when it comes to that, that was these guys; they were amazing, they were givers to their community. So there are ample businesses like this, but the problem is they’re getting old, and they got tired. That doesn’t mean that they couldn’t do the job anymore, they wanted to continue to do it, but they wanted to also be able to enjoy the fruits of 25 years of labor. They wanted to go to Hawaii, they wanted to go to Alaska on cruises, they wanted to go do whatever they wanted to do. They didn’t want to just hang up their business because they got tired of it, because they have enough integrity and they cared so much about their employees that they couldn’t just wrap up the business.

And you’re going to find that a lot of business owners, no matter what the mainstream media is saying right now, the facts are business owners actually care about their employees, at least all the small guys that I know care about their employees. They would continue and they do continue fighting it out right now when it would be easy to give up. They do that solely for the people that work with them, because you’re in and out with them every single day in the grind. So Tom and Carol cared about one thing and cared about one thing only. They wanted some money, right? But they were fine, because they have done well. But what they really wanted more than anything was to make sure that their employees were still employed, that I’d keep that business going. They didn’t care about the name, they didn’t care about who was running it, they cared that the people who work for them still had a job. Because they didn’t want to just take theirs and get out and bounce on everybody else. So over the course of about a year – it took a while – we talked about buying the business, and I found out that they owned the land, and I found out what their needs were. They didn’t need a chunk of cash all at once, because they wanted to go to Hawaii this month, they wanted to go to Alaska the next month, they wanted to go down to the coast another day, they wanted to go to up to the mountains another week. They didn’t have to be a chunk of cash, they needed a constant cash flow, which is just something that you get in normal real estate.

So what we did was we found a creative solution on how to do that. We established a value based on the real estate off of what they were paying, and then in addition to that, we found out what the value of the business was. We were able to figure out what the value of the business was based on their P&L and balance sheet, and then based on what they’re paying for rent for that area, we created what would that loan amount look like if I went and got a normal loan through conventional terms.

So once we’ve established the baseline of where the prices need to be, we re-engineer those values based on that total price; the business plus the land equals X. Now what they care about is the total deal, so now based on tax strategies and based on what we need to do, we maneuver those numbers so that they get what they need when they need it for a chunk of cash that they mitigate their tax expense, and then they get an annuity over a period of time. So that’s what we did.

Theo Hicks: And an annuity – is that cash flow, payments?

Nigel Guisinger: Cash flow they get every month. That’s right. So when people get old — you’ll see that some people want real estate, and what that does is if I bought an apartment complex and it was paying me $2500 a month and that $2500 a month, if a paid pure cash for it was $300,000, I could do an essence buy an annuity for the same amount from an insurance company, and they would control the asset but they’d pay out the annuity amount every month. You can create your own by buying the real estate from somebody and making payments to them. It’s called owner carry finance, but instead of going in and saying “Hey, I want you to carry this note for me, here’s what I’m going to do for you. I want to give you an annuity.” It’s the same thing, it’s just termed different.

The language that we choose to use when we negotiate these deals is really really important, because if we say “Hey can you do me a favor and carry a note for me?” That’s not the same as me saying “Hey you know what? Theo, you’ve got a need for a certain amount of money every month, so why don’t I give you that amount of money every month and you give me your assets?” Right? So that’s an annuity; there’s a difference. It’s the same exact aspect, but the language that we’re choosing to use encourages them to say “Hey, wait a second, we’re partners on this”, not
You’re doing me [unintelligible [00:13:38].12] by being the bank for me.”

So this is truly a partnership, because I’m paying them every month and they have a vested interest to make sure the business still survives. So when something’s difficult and I don’t know how to do it — because I don’t have the experience that they have; they have 25 years on me, right? So what do I do? I just call them up, “Hey, by the way, this happened, what would you do?” They have a vested interest to make sure that we succeed. That’s what happened in this case.

And then here about a year ago, an incident happened where the need to refinance and have a big chunk of cash occurred. As a result, we actually ended up after three years refinancing Tom and Carol out of that note; they got paid off, and we put in permanent financing for them. Because we had a partnership — I still get to call Tom and Carol every week, I still get to ask him questions. It was just that they had a need for something and I had a need for something, and we were able to fulfill those needs by refinancing out. But that partnership and that friendship still exist, and today it’s a thriving appliance store in Sherwood, Oregon and in Canby, Oregon, and we have a dozen or so employees, and nobody makes minimum wage, and everybody’s got better services than what they had. I think it’s turned out really well; it was a win-win for everybody.

And in the end, I’ve got a great piece of property, and I’ll end up selling that business one day to somebody else and probably do the same thing, because we have the obligation as business owners to reach out our hand and help people up. And right now — I saw a stat here… Two weeks ago I was in Breckenridge, Colorado with GoBundance, and there was a stat that said 1,900 businesses that do a million dollars of revenue close up every single day in this country. And if we look at that, 1900 businesses every single day just wrap up, that do over a million dollars… That’s just money coming off the table. All you have to do is ask, “Hey are you willing to sell? Instead of hanging it up, why don’t you call me and why don’t we cut a deal?” Because they’re going to walk out with nothing. So you can create terms, you can get in… Why do we have to wait for banks? JP Morgan said that they’re not going to lend on stuff. Why do we have to give the money to the banks? Why don’t we as small business people step it up and come in and say “You know what? Let’s buy this out, let’s create an annuity, and let’s really bring up some people who have been held back, that maybe aren’t accessible to financing, and carry those notes?” Because there are owners right now are walking away getting absolutely zero, and it is millions of dollars that they leave on the table.

So my encouragement for everybody on this podcast is I hope that people can look creatively to see what are ways that we can get real estate, and think creatively to get that, while at the same time helping out our economy, keeping jobs, and really growing the market, which is what’s needed right now in this country more than ever. And specifically, one of those awkward areas of town that you’re not normally in. Those businesses are getting thumped; and if people just stepped up and say “Hey, let me carry the torch for you”, you’d have that owner that says “Hey, I want a dog fight with you” and it’s always a winning ticket. So it’s made me millions of dollars, it’s made owners that were going to walk away with nothing millions of dollars… It’s truly a win. The only people who don’t make any money in my deals are the banks.

Theo Hicks: Alright, Nigel, what is your best real estate investing advice ever?

Nigel Guisinger: That number one piece of advice that I was given was from my grandma. And I hear this all the time, that people think that this isn’t true, but she told me one thing and she said “If you want to make more money in real estate than you can even imagine, you’ve got to accept one absolute truth. That absolute truth is real estate it does not appreciate in value. What you think of as appreciation is actually a measure of inflation.” So if you can invest so that you’re cash-flowing, that’s where you make your money. The people who make their money long term in real estate understand that what they’re doing is they’re actually pegging a certain amount of money in a certain date, and they’ve paused time. Because the three weapons to negotiate are price, rate, and duration. And if you can pause time, you win every single time.

Theo Hicks: Perfect. And that’s actually one of our three unbeatable laws of real estate investing, so we cannot agree more, Nigel. So are you ready for the best ever lightning round?

Nigel Guisinger: Absolutely.

Theo Hicks: Alright.  First, a quick word from our sponsor.

Break: [00:17:53][00:18:34]

Theo Hicks: Okay Nigel. What is the Best Ever book you’ve recently read?

Nigel Guisinger: I just read Tim Grover’s Relentless. It’s a story about basketball players Michael Jordan and Kobe Bryant, but from the perspective of there are closers, there are cleaners. And guys like Kobe Bryant and Michael Jordan, they are cleaners. I consider myself a cleaner.

Theo Hicks: If your businesses – since you got a lot of them – if all of them across the board were to collapse today, what would you do next?

Nigel Guisinger: I love this question, because one of the challenges I think that would be awesome is to see if you can go from zero to hero in 365 days. And I think I’d be a millionaire in 365 days, because what I’d do is I’d go knock on the door of every single business that I saw they haven’t opened up from Coronavirus, and say “Hey, this business was a legitimate business before. Are you willing to jump back into it? You’ve got the know-how, I’ve got the motor, let’s do this, let’s fire this thing back up.” And I would find somebody in this town today that would carry on that, and 365 days from now I’d be a millionaire again. And I think anybody can do that, too.

Theo Hicks: Can you tell us about a deal that you’ve lost money on? How much money you lost, and then what lesson you learned.

Nigel Guisinger: Sure. I got a big hit, probably bigger than most of the people that are on the show. Never lost any money in real estate, but on a business, I had an appliance store where we thought that we had cloud back up, we paid for primary back up in a [unintelligible [00:20:00].11], found out that our server provider wasn’t doing what they needed to. We had to go through insurance because they lost their accounts receivable. That was 2.2 million dollars; it was expunged, just like that. I thought that we had enough insurance to cover that; I only had a hundred thousand dollar policy, they only had a million-dollar policy. That one cost me seven figures. So make sure that you are checking your insurances regularly, that you have adequate coverage… Because the size that we were had enough insurance, but then five years later when we grew from $350,000 to $9,000,000 of revenue I hadn’t revised what my aging was. And back, then my aging was at a hundred thousand, and it was up to 2.2 million dollars.

So if I could go back, my number one thing is make sure as you grow your businesses, that you’re sitting down with your insurance providers. If you’re going through hypergrowth, peg out where you think you’re going to be in six months and in a year; if you’ve got goals to get there, make sure that you’re doing it… Because the other guy had insurance, I had insurance, it was no fault of our own, and a million bucks plus got wiped. And that hurts. But I went and made another million bucks, so…

Theo Hicks: There you go. What is the Best Ever way you like to give back?

Nigel Guisinger: My number one thing that I’m doing right now is — I call it a passion project, it’s called yoursmallbusinesshub.com. I teamed up with one of the other guys from GoBundance to help new investors and help people who want to buy businesses buy businesses. Basically, folks who have never done it, they don’t know how to underwrite a deal in business; maybe they know how to do it in real estate, but… How do we do this? One of the things that I feel obligated to do because I know how to do it is to help underwrite and be that secondary check for people.

So we’ve got a website called yoursmallbusinesshub.com. We don’t sell anything, we just help people buy businesses, and in the right situations, we’ll actually team up with people and co-buy businesses with people. If they want to be the operator, we’ll help get that deal done. And it has been great so far, we’ve helped buy a couple of hundred businesses and keep probably 30-40 million dollars in the economy, which is awesome, not losing that to attrition.

Theo Hicks: And then lastly, what is the Best Ever place to reach you?

Nigel Guisinger: The best way to reach me is just through Instagram. I’m just @nigelguisinger. I have a hundred percent commitment to if you send me a message, I will respond back. I think it’s important. I post about some of the apartment rehabs I’m doing, some of the businesses that I’m doing, but most of all, if you send me a message through Instagram, I promise I will respond back every single time.

Theo Hicks: And that Instagram handle again is his name @nigelguisinger. So Nigel, I really appreciate you coming to the show. I always enjoy having conversations with people that are doing something that I don’t know anything about. So essentially, your strategy has been to buy businesses as well as the underlying real estate, with the combination of your own money, small business loans, and then seller financing.

And obviously, right now this is something that is very relevant, and you mentioned that during the lightning round that if your business ever collapsed, you would just go to these businesses that you can clearly see aren’t open right now, or maybe just re-opened and are struggling and maybe you just don’t know that they are, and try to work out some sort of deal by determining how much the real estate is worth, plus what the value of the company is worth, plus figuring out what their goals are, whether it’s a chunk of cash or an ongoing cash flow, and try to figure how to make a deal [unintelligible [00:23:40].28] This is a little complicated, so make sure you check out his website yoursmallbusinesshub.com, as well as take him up on his offer to talk to him on Instagram if there is a business in your local area that you want to consider buying; maybe he can help you out determine what the value is and how to come up with a solution. So Nigel, again I really appreciate it. Best Ever listeners as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

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Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

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The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2281: From Shadowing To Full-Time Investor With Jon Schoeller

Jon is a real estate investor out of Charleston, WV. Over the past 4 years, he has flipped over 150 houses with his partners and he has an additional 100 in his holding company. He owns, operates, and partners in 8 different businesses. His passion is teaching others how they can reach financial freedom while doing what they love. 

Jon Schoeller Real Estate Background:

  • Full-time real estate investor, co-owner of multiple business, and financial coach
  • Has been in real estate for 3.5 years and 13 years in business, coaching for 6 years
  • Portfolio consist of 115 flips and over 100 rent-to-own 
  • Based in Charleston, WV
  • Say hi to him on Youtube at Jon Schoeller
  • Best Ever Book: The subtle art of not giving a F

 

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Best Ever Tweet:

“Networking, don’t just shake hands, get around successful people and stay around them” – Jon Schoeller


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the Best Real Estate Investing Advice Ever show. I’m Theo Hicks and today we’ll be speaking with Jon Schoeller.

Jon, how are you doing today?

Jon Schoeller: Good. I appreciate you having me on.

Theo Hicks: Absolutely. And thank you for joining us. A little bit about Jon’s background — he’s a full-time real estate investor, a co-owner in multiple businesses, as well as a financial coach. He’s been in real estate for three and a half years and business coaching for 13 years. His portfolio consists of 150 flips, as well as over 100 rent to own. He is based in Charleston, West Virginia, and you can say hi to him at his YouTube channel, which is just his name, Jon Schoeller.

Jon, do you mind telling us some more about your background and what you’re focused on today?

Jon Schoeller: Yeah, so I guess real quick, to clear up one thing, I haven’t been in business coaching for 13 years. I’ve been in business for 13 years. I’ve probably been coaching people or helping people with their finances and business for six years now. But yeah, I got started when I was probably 21, 20-21 with my first company, it was a moving company. The funny thing is actually just on my Instagram story yesterday somebody asked if I ever had a full-time job or a W-2 job. And yes, I had several before I turned 21; at Burger King, and Arby’s, and a golf course, and as a mover for another moving company, and a dishwasher… And I got fired from all of them. I was not a very good employee. And I tried to go to community college to get my business degree, because I knew I liked business, but I was very poor in school. I just couldn’t pay attention, couldn’t sit still.

So I was working for a moving company at the time. They were a startup and they were behind on payment. They weren’t managing it very well. They probably hadn’t paid me for two months at this time. And one of their contracts said, “Hey, Jon, we like you a lot. If you go get your own truck, we’ll give you this contract.’ And I took the gamble. I borrowed $5,000 from my best friend at the time, still my best friend and I went bought a truck a couple states away, brought it back, pulled it up the door; it was a mattress company that the moving company was delivering for. I took that contract, and then slowly took pretty much every other contract as they slowly died off, the other company, and built that into a pretty sustainable and pretty substantial moving company. I ran it for about nine years. I sold that to a friend.

I traveled around the US, around the world really, but around the US, living with my wife, who was a nurse and who was doing travel nursing. I was in mini-retirement; that was not sustainable for my mindset and how I can’t sit still; I need to feel useful. It didn’t matter about the money, if I had money or not. I needed something to work on. I had always researched real estate a little bit. I started diving into it more. I tried to dabble in it while we were travel-nursing, but we were travel-nursing in places like Maui, Palo Alto, California, San Francisco, LA… And I had money—we used to joke, we had money, but we didn’t have Maui money.

So from there, we came back home and she applied to [unintelligible [00:06:15].22] school. She got into nursing [unintelligible [00:06:18].02] school, we went backpacking in Thailand and Europe in the meantime. We knew she got accepted here in Charleston, West Virginia, I researched the market before we came. I ran across a few flippers; Steven Andrew, my now partner, was being one of them. I asked if I can meet up with them just to talk one day; that led into me asking if I could shadow him for a couple days. I went in one day to shadow them, never left; three and a half years later we have flipped 120 homes together. They were operational before I got there; they had flipped about 30 or so home before I got there, so 150 in total. We have 100 homes that are rent to own, and we’ve just grown from here. And we have several employees and an office space, and now the thing that is holding us back—well, not really holding us back, but the next step to grow is we’re looking for more private money so we can keep buying more deals.

Theo Hicks: Perfect, Jon. Thank you for sharing your background. Let’s talk about the rent to own first. So most people know what rent to own means. Do you maybe want to explain exactly how you are doing it? Because I know that some people have different rent to own strategies… So what’s your strategy? You find a deal and then you decide that you’re not going to flip it, you’re going to rent to own it… What do you do at that point?

Jon Schoeller: So like I said, I have two partners, Steve and Andrew, and the rent to own part of this business was Andrew’s brainchild. When Steve and him got together, he brought those into the company and we’ve grown it to what it is now. And like you said, there’s multiple ways to do rent to own; it’s also called a land contract. It depends on where you’re at and what you want to call it. It’s interchangeable for the most part, until you get down to the nitty-gritty.

But yeah, you’ve got a couple ways – you can just do straight rent to own if you actually own it outright. You can do a land contract that way too, where you just basically let somebody give you a down payment on a house that you own outright, and you let them essentially pay payments to you, and you give them a year or two to refinance. If they don’t refinance, then you have to move on to the next one, depending on how [unintelligible [00:08:12].23] you are, and you collect another down payment and do the same. Now, the goal was to get them to refinance.

The other option, which we do a lot of, is where you find a house and you can’t flip it, there’s not enough equity, it won’t work for that area, whatever the case may be, and you take over the mortgage and taxes of the original seller and you assume all that responsibility, and then you in return find a buyer to come in and essentially do the same, but for a margin. So if you agreed to buy the house from the first seller for $50,000 and cover their mortgage at $400 a month, you need to turn around and find another buyer for $70,000 and $700 to $800 a month, and there’s your spreads and that’s how you make the money on these deals.

Now, everything I just said is way easier said than done. There’s some legality to it, there’s some complications to it, there’s always the possibility of the bank calling the note, which you should not ever have to worry about if you are paying the bank on time, no reason to call loan due if the bank’s happy. So you do need to have all your ducks in a row to do this. I call this a more advanced strategy. This is not something I tell most people to get started with. I usually steer them towards wholesaling or flipping to get started, or even a small rental portfolio or multifamily. But this is just something that kind of just grew organically, and we’re in a very good area for it.

Theo Hicks: Perfect. So you will rent to own out your properties, as well as you will acquire properties. I actually hadn’t heard that second one before. It’s kind of like a rent to own wholesale type deal, isn’t it?

Jon Schoeller: Yeah, it is like a rent to own rent to own.

Theo Hicks: Yeah. [laughs]

Jon Schoeller: Well, it’s essentially what’s called a land contract where the current mortgage is still in place from the first people. Again, the definitions vary state by state. There is a set definition for them, but people just call them different things. Most people when they think of rent to own, they think their money that they pay each month is going towards the potential ownership of the house, and they’re buying that directly from the owner themselves. But the way we do it, a ton of other people do it, too. In fact, Andrew learned from a guy that has thousands of them. So we’re not the only ones doing this. It’s nationwide. But you do have to be careful because some states are not as lenient as others.

Theo Hicks: Let’s talk about your coaching business for a second. I want to talk about it from the perspective of someone who’s listening, who has some experience in real estate and wants to start teaching others. So they don’t want to have a coach, they want to be a coach; maybe walk us through the conception of your coaching business. Did it just kind of happened organically, or did you set out to say, “I want to start coaching,” and that’s how it started?

Jon Schoeller: A little bit of both. So with 13 years of business experience and my passion for teaching and just educating others, I just do it anyway. Anytime somebody asked me a question, I help. And after a while, you’ll notice you’ll get more and more and more questions, which means that’s your demand. And anytime there’s a demand, you want to give us a supply; that’s how businesses are created. So I knew I had a demand there, so I offered my services.

Now, this is very part-time for me because of how busy I’m. Jon Schoeller Consulting – initially, the idea of that was to do that full-time, just go business-to-business. Well, that’s kind of how I came in with Andrew and Steve, and that grew into a full-time partnership to doing that full-time, so I really couldn’t take on dozens of clients. I have multiple now, but I have to know you’re serious and want the coaching. I’m not as expensive as some of the guru’s, but I’m not cheap either. I know the value I bring and I know if you listen to me, your ROI will be through the roof. But I need to know that they’re serious.

I used to charge $50 a phone call and then $200 to help you for a month, just because it was side money. Well, I don’t want to sound arrogant, but eventually, you don’t need that side money as much anymore; your time becomes more valuable. That’s how everybody should grow and how I tell everybody to grow.

So now if somebody wants it, they have to pay for it. And it could be one consulting call and it could all lead to a six months checking basis to get your business off the ground or corrected. I also come in hands-on on some businesses and I help them straighten out the books.

My strength is finances and strategizing with money. Next would probably be marketing and relationships. And then after that, brand awareness and stuff which could fit inside of marketing… But my main strength is finance. That’s what I teach the most. And I do just coach people on their individual finances. So I call it finance and business coaching all in one. And if you want to do it, you need to just tell people that that’s what you’re doing; people won’t just assume you’re doing it. You need to tell people that you’re doing it. What you charge will be very arbitrary.

Theo Hicks: So a few follow-up questions there… So you said that, it kind of started off where people would ask you questions and then you would be happy to help, you’d answer them. Then you started getting a continuous increase in questions, and recognized that as a demand, and then the supply would be your coaching.

So I kind of want to get more specific, because if I wanna to start a coaching program, obviously I need to have this demand. So where were these questions happening? You weren’t just walking on the street and some random person was like, “Hey, Jon, how do I invest in real estate, or how do I start a business?” So this thing’s on social media? And then where are these people coming from, that are asking these questions originally?

Jon Schoeller: Yeah, so like I ended my last statement with, you have to let people know. That can be as simple as a Facebook post. Just make sure that you have some credibility. Look, if you only been in business on your first business for three months, I’m not saying you don’t know anything, but there’s a lot to learn out here. I probably know about 20% of what somebody that’s 40 that has been doing this longer than me. You can constantly be learning, but you need some sort of wealth of knowledge before you start steering people, especially when you’re talking about their livelihoods. Because at the end of the day, that’s what you’re coaching. If you’re teaching people about their finances or about their business, this is their livelihood. And if you give them the wrong or incorrect information, you could cost them years of their retirement or years of their life of investing in a business and steering it in the wrong direction.

But yeah, social media is huge. I’m all over Instagram and YouTube and Facebook, and I’m constantly giving free advice. And if you give value, you will receive value. And I’ve always believed that. Gary Vaynerchuk talks a lot about that. So I’m constantly giving the advice. And then of course, it’s all general advice. Like, I can tell people to save money, but they don’t know how to save in their specific situation. I can tell people to contribute to an IRA, but they don’t know how to contribute to an IRA for their specific situation.

So by giving away information, I’m still not giving away all of it, because everybody needs their own individual advice. So people who are scared to like, “Oh, if I’m not going to give this information out for free then I’ll never have clients.” That’s not the way it works. Clients have individual needs, and that’s why they come to you. They don’t come to you because you gave general advice. The general advice shows that you have credibility and you know what you’re talking about.

Theo Hicks: So you got to a point you’ve got people wanting to hire you as a coach, you said that now since your time is very valuable, you can’t just take on everyone. So what types of things do you do to screen people to make sure that they actually are serious?

Jon Schoeller: So the first thing I say to somebody is email me, and usually you can knock out about 90% of inquiries just that way, because people won’t take the action to actually email you. The next thing I do is a follow-up email. So I’ll ask questions in that email and I see how long it takes you to respond. So if you send me the email, great, I’ll write back, and I’m somebody who’s very diligent about responding, to my timelines. I don’t know if I’ve ever missed an email for more than 24 hours… Unless, of course, I might go on vacation or out of service or something. But I get back to you. And if it takes you a week to respond to me, you’re not serious.

And look, there is outside circumstances like, “Hey, I got in a car accident right after I messaged you.” So then of course. But if you’re just willy-nilly just answering emails a week later, you’re not going to stay in business very long. So I need to know that you’re serious, and that would be the first advice I would give them back. And sometimes I do that; free advice right away – respond quicker to your clients and to the people you’re networking with. People want diligence, they want you to be on time and punctual.

So once they respond to that second email, I will offer them a service of a consulting call; the consulting call does cost – I usually say like 100 bucks or something like that. That’s an arbitrary charge. I used to charge nothing for consulting. But then sometimes I would set up a call like this at six o’clock and nobody shows up. My time is valuable, so if you don’t show up, at least I have $100 for my time. And it also keeps you accountable. If you pay $100, when you’ll show up, you’ll probably get more value out of it. So I do charge for the consulting call. I give a ton of value in that consulting call. I’ve solved many people’s problems just in that consulting call, which cost me money in the long term. But I do that. And then we just start from there – if you need one more in-depth call, or if you need something like weekly calls for six months, and that’s the call that determines that.

Theo Hicks: Very, very interesting. All right, Jon, what is your best real estate investing advice ever?

Jon Schoeller: Networking, and let me dig into that for a second because I know that that term is very general and overused. Don’t just go shake hands; get around these people and stay around them. I would not be where I’m at today if Steve and Andrew did not accept my invite to come shadow them and I did not reach out to them. So credit on both sides. But if I was not with those guys and asked to shadow them and I didn’t stick around in the beginning for as long as I did, I could be down to two flips, four flips instead of the 120 and the over 20 something that my wife and I have invested on personally.

So get around the people that are doing what you want to do. If you keep talking about it with somebody not doing it, y’all will do that inevitably. Get around the people that are doing exactly what you want to do and stay around them, whatever that takes.

Theo Hicks: All right, Jon, are you ready for the best ever lightning round?

Jon Schoeller: Okay, let’s do it.

Theo Hicks: All right.

Break: [00:17:52] to [00:18:16]

Theo Hicks: Okay, Jon, what is the best ever book you’ve recently read?

Jon Schoeller: It’s hard to say a best ever book, but the two that I suggest lately – because I feel like a lot of people get stuck in their own head, including myself… But there’s two books, I have to beep out both of them, because it’s on a podcast, but it’s The Subtle Art of Not Giving a F*ck and Unf*ck Yourself. Both books are phenomenal. A lot of us carry with us a lot of baggage from being young, or we were picked on in school, self-consciousness issues, we’re not good enough, imposter syndrome, where even if we are good enough, we don’t think we are… You’ve got to get that stuff out of your head. I work on this on a daily basis. I’m not perfect at it, but I think that people read those books and should read them at least every six months or so, or read through the notes. It really helps you get out of your own head and get out of your own way. Because at the end of the day, sometimes we’re our own biggest obstacle.

Theo Hicks: If your businesses were to collapse today, what would you do next?

Jon Schoeller: Impossible. They might collapse in the way they look today, but you have to be able to maneuver, you have to be able to bend with the market and move, and that goes for any business. Now, I say impossible because I don’t want to think of that. I guess it is possible. But you need a quick plan B and you need alternate sources of income if you have a business, and that’s something you should be constantly working to. Look – at first, when you start a business, you’re all in, and you should be; you should be completely focused on that.

Another great book is The ONE Thing. Stay focused until you have mastered that thing, and then move on to another one. But you should eventually build alternative incomes and diversify yourself. So if one business were to collapse, you have something else to lean on until you can build that back up again, or move on. But you just need to be constantly malleable with the market and the changing times.

Theo Hicks: Tell us about the best ever deal you’ve done.

Jon Schoeller: The best ever deal we’ve done is probably under contract right now. I don’t want to get ahead of ourselves, but it’s going to be our largest profit I think to date, on a flip. Some people see these profit margins on every flip. But we’re in an area where it could be $80,000 to $100,000 for us, and we’re in an area where that’s few and far between. Our average margin is $30,000 to $40,000 per flip; that’s why we have to do so many. It’s not because of our lack of expertise or our skillset. That’s just the market and how it dictates what you can make around here… Because a medium house around here is 150k grand. If you’re in California, you’ve got to put out $500,000 to $1 million or $2 million. Of course, you’re going to see how our margins, but you’re not going to do 120k usually. So it’s going to probably be about $80,000 I think. [unintelligible [00:20:42].06] extra time because the guy squatted in there… It was a foreclosure auction, but it came out amazing. It’s one of our best before and afters to date, and it’s going to be a good payday.

Theo Hicks: What about the worst deal you’ve done? Maybe a deal you’ve lost money on, and then what lessons did you learn?

Jon Schoeller: So I am fortunate that I’ve never lost money with my personal investments. But we have lost some within the company. And I believe that we’ve left $20,000 on the table before. And what did we learn? Whoa, what didn’t we learn?

This was a couple years ago and the house sat for a little while. But we trusted multiple contractors, we paid contractors ahead of time, we trusted a new project manager too early… It wasn’t so much what we did wrong, I guess, — well, I guess you could say that. We didn’t manage correctly. We trusted what people would say to us and the people that didn’t have any skin in the game for us, and they bit us, and that cost us timeline, it cost us budget, missing material… You name it, we went through it.

And it’s not the only house we’ve lost on. If you’re watching this, if you flip 120-150 houses, you’re going to lose eventually. Now, we’ve lost on a very small percentage. We’ve never lost any investor money, we’ve always made them whole. We’ve done all of our deals on private money. We’ve never touched bank or private money, so we’re very proud of that, and the fact that an investor has never lost money with us in almost six years, three and a half, almost four of me being a part. But yeah, we’ve lost money… And sorry, that might have been too much detail for what you’re asking, but I was just wanting to give some detail.

Theo Hicks: What is the best ever way like to give back?

Jon Schoeller: Teach others; each one, teach one.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Jon Schoeller: Youtube or Instagram. Youtube, like you said, it is Jon Schoeller, just my name, and then on Instagram, you can find me that way too, but I’m The Frugal Investor on Instagram.

Theo Hicks: Perfect, Jon. Thanks for joining us today and walking us through your background of where you started with your moving company, all the way up to your real estate business today. We talked about your rent to own part of the business and how you follow two rent to own strategies. The first one is for someone to rent to own a property that you own and let them give you a down payment and then monthly payments after that for a certain number of years. And then at that point, they have to refinance or you get to keep all that and then you refresh and do it with someone else. And the other one, which I thought was very interesting, is you find a house and then you rent to own it by taking over the mortgage and the taxes and you’re giving the down payment, and then you find a buyer who will also rent to own it at a higher rate, si it’s kind of a rent to own rent to own strategy, and then what you make is that margin between the down payments and the monthly payments. And so you said that this is a more advanced strategy, but still very interesting nonetheless.

And then we talked a lot about your coaching and how it started organically, where you were out there giving out free information on Facebook, on YouTube, on Instagram, and eventually from this content, people would ask you questions, you would answer the questions, and more and more questions came in the more you did it, and then you identified that as a demand, and then the supply was [unintelligible [00:23:44].13] your coaching business.

So the way to generate interest in your coaching business would be to create free content, but you said you’ll give away general advice for free, and then that’s what builds your credibility. And then they see that and then they’ll work with you to get more specific, individual advice, and that’s where the money comes into play.

You mentioned that—and I actually really liked this, and I totally agree… That when you see if someone’s serious or not, you just say “Email me”, and then most of them never ever even do that. So that kind of eliminates most people right there. And then when they do email you, you’ll send a follow-up email with some general questions and then you’ll see how long it takes them to respond. And if it takes them a week to respond, you also know they’re not serious. And then the third phase is to offer them a consulting call for an arbitrary amount, say $100, to see if they pay that. And then from there, you’ll have a better understanding of how serious they are, and then that could be the one call, it could be another call, it could be a multiple month type of deal. But yeah, I totally agree with this, and that’s why a lot of people get confused of “Why do you give away so much great information for free?” It’s because, well, most people aren’t going to take action on it. You kind of mentioned that with the email.

And then you also said it’s very important before you start a coaching program to actually be knowledgeable on the subjects that you’re going to teach, because people are putting their livelihoods in your hands, whether it be their mental livelihoods or their financial livelihoods, and you need to make sure you’re actually able to follow up and take care of them.

And then your best ever advice was to network. So get around people who are doing what you want to do and then do whatever you can to stay around them.

So, Jon, I really appreciate you coming on the show. Best Ever listeners, as always, thank you for listening; make sure to check out Jon on YouTube and Instagram. Have a best ever day and we will talk to you tomorrow.

Jon Schoeller: Thank you, Theo.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2279: Investing Out Of The Country With Evie Brooks

Evie Brooks (Atlanta, GA, and Veracruz, Panama) is an elite Real Estate Investment Educator, Keynote Speaker, Investor, Coach, Mentor, Entrepreneur, and former Advanced Trainer for “Rich Dad Poor Dad”, who now specializes in “All Things Panama”, including real estate and organic, sustainable agriculture investments. 

Evie Brooks Real Estate Background:

  • Full time investor and former advanced trainer for  “Rich Dad Poor Dad” 
  • 24 years of experience in domestic and global real estate
  • Currently investing in 13+ countries and 30 U.S. states
  • Based in Atlanta, GA
  • Say hi to her at: www.eviebrookspanama.com  
  • Best Ever Book: Who Stole My Pension 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Utilize the funds that you have in pension plans, IRA’s, & 401ks, in real estate” – Evie Brooks


TRANSCRIPTION

Evie Brooks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever show. I am Theo Hicks, and today we’ll be speaking with Evie Brooks.

Evie, how are you doing today?

Evie Brooks: I am good. How are you doing?

Theo Hicks: I’m doing well, thanks for asking. Thank you for joining me. A little bit about Evie — she’s a full-time investor and former advanced trainer for Rich Dad, Poor Dad, which is probably the number one best ever book we get on the show and probably for most real estate investors. So everyone knows who the Rich Dad, Poor Dad is. She has 24 years of experience in domestic and global real estate, and she’s currently investing in over 13 countries and 30 US states. She is based in Atlanta, Georgia, and her website is http://eviebrookspanama.com/.

So, Evie, do you might telling us some more about your background and what you’re focused on today?

Evie Brooks: Real Estate just runs through my veins. It is what I do. It’s my playground, my sandbox, if you will. And I accidentally stumbled into it right out of college. I was supposed to go to law school and ended up pregnant my first semester and was so sick I could not complete that journey, and ended up in real estate as a fallback and I’ve never looked back.

I stayed in corporate America for four years in asset management and property management commercial. And then I went out on my own and that has been my focus ever since. I started of course domestically, locally in my home state in Georgia, and then I expanded throughout the United States. And then I started doing international once I started teaching with the Rich Dad, Poor Dad Organization. And I started in Costa Rica. The big crash happened in 2008, I held on until 2012 and then I moved over to Panama, and it has been a whirlwind ever since that time, and looks to continue to be that way for many years to come.

Theo Hicks: Thanks for sharing that. So we’ve talked to people on the show before about investing in their own backyard, we’ve talked to people before about investing out of state, but it’s not every day, we get to talk to someone who is investing out of the country. So you kind of mentioned you started doing this during your time with Rich Dad, Poor Dad and traveling around, but can you get more specific as to why you decided to transition to investing out of the country? Why did you decide to not strictly stay in the states and invest? What’s the benefit you saw?

Evie Brooks: Well, when I was teaching with the Rich Dad Organization, initially, I was teaching domestically and they had an opening to teach in Costa Rica and Latin America, and I immediately jumped on it, because I love being there. It’s tropical, it’s warm, the ocean, water… So I immediately jumped on that opportunity and I started teaching the international investing portion of that training program in Costa Rica as an elite trainer.

In my very first trip, I purchased property myself, I started my first project, I ended up with over 750 acres total in Costa Rica, with projects that we were doing in Costa Rica because of the experience of international investing and the opportunities. So we really tapped into, for that market, the expat market; people from not just US, but North America, Canada as well, but all around the world; people that are looking for (and still) a Plan B or investments outside of their country or tax breaks and things like that. So that’s how it all started.

Theo Hicks: So you were teaching a course on how to invest internationally. So you applied the course to yourself and then—

Evie Brooks: Absolutely.

Theo Hicks: Okay, that makes sense. So can you tell us about your first deal? You said it was 200 plus acres of land. How did that come to be? So you land in Costa Rica for your training and then you have the land. Can you tell us about the steps in between?

Evie Brooks: Well, the first project that I purchased was only about 25 acres, and that was the first trip there. And then when I realized what the opportunity was going to be with that, I found a one acre parcel right on the ocean. I mean, just right on the front of the ocean. So I bought that one. And then I found another just raw piece of land that was 750 acres, and it was a huge undertaking because there were not even roads to get back to the land. So we had to bring in the roads and the utilities and the telephone poles and all that kind of stuff. So ultimately, we ended up with an over 700 acre master-planned community that we were developing in Costa Rica, until the big 2008 crash. And that was an interesting time.

Theo Hicks: So for that first 25 acre deal, are there real estate agents in Costa Rica? Is that how it works, or is it through some other avenue that you find these deals?

Evie Brooks: Yes, but not along the lines of what we think of as real estate agents in the United States. They don’t have the MLS, and it’s kind of like anybody can just stick up a sign “I’m a real estate agent” for the most part, especially at that time. So I wasn’t looking for real estate agents. I had my Costa-Rican attorney who worked for our company full-time, that would go with me, and we would just start looking for land. I do this everywhere I go, whether I’m on vacation in Belize or in South Florida, I’m always looking for real estate deals. So that’s what we were doing, and we found this big piece of property that we realized would be an opportunity for a large expat community, with all the amenities and things like that and that’s how it came to pass.

Theo Hicks: And you mean you’re literally in a car, just driving up and down the street with really no plans but just looking?

Evie Brooks: Exactly.

Theo Hicks: And then do you see the land or are there signs that are up?

Evie Brooks: There are signs. Of course, they were in Spanish and I didn’t speak Spanish. Just poquito, just enough to get by. But my real estate attorney was Costa-Rican, and so she was taking me everywhere she knew. She knew the market. She knew what we were looking for and so we were just out seeking for treasure.

Theo Hicks: That’s awesome. And so all of the deals you have done, have they been found through this method or are there other ways you’re finding deals too, like the word of mouth type of talking method?

Evie Brooks: A lot of word of mouth, of course. Everybody knows what I do and they’re always sending me opportunity. Now that didn’t happen initially right out of the gate. But as I became now known and people knew what I do and became an instructor for the real estate with the Robert Kiyosaki Organization, of course, I get referrals and recommendations all the time. But to this day, I will still take a whole day and just go drive — let’s say, I want to purchase land on Lake Lanier in north of Atlanta; I’ll just go out and start driving and all the little fingers up and down the roads behind where all the [unintelligible [00:09:08].06] are looking for a local treasure.

Theo Hicks: How do you fund these international deals? Is it through syndication, are you raising money? And then if you are, how does the process for raising money internationally differ from raising money in the US? Is it easier? Is it harder?

Evie Brooks: Well, we did a 506 Reg D for our Costa Rica project, and it was a US 506 Reg D but the project was actually in Costa Rica. I am not doing syndications at this point any longer. It’s so intense for effort, work legalities, rules and regulations… That the stuff that we work with now, I have connected with some of the largest developers, most well-known financially stable, financial debt-free developers in Panama, and have worked with them over the last eight years to put together owner financed type situations for our particular investors.

Most of the Expat type of investors that we’re looking are just looking for investments $200,000-$300,000, $1 million or just looking for a retirement home, a vacation home, that type of thing. So we’re now doing these large developments like the one that we did in Costa Rica… And I also did another one up in North Dakota, that I still have right now that we’re working on, but in [unintelligible [00:10:20].05] So it depends on the project itself and how much funds are required and needed, but I haven’t done a syndication since we did the Costa Rica project.

Theo Hicks: I’m sorry, I should have asked this earlier, what is an expat?

Evie Brooks: An expat, an expatriate; people from around the world that’s looking for a reason to leave their country, either on a resident basis or even change their citizenship or getting dual citizenship because of the benefits that’s associated with that. So you have people all around the world, even more so now after Coronavirus, than what we had before. We’re just getting swamped with people that’s like, “Okay, I was supposed to retire in two or three years, I was furloughed, I’m not going back, we’re ready to get out of here. We want to go somewhere else where the cost of living is less, the standard of living is comparable to what we’re used to, the taxes, we’re not going to have to have these taxes before we get our citizenship,” those kinds of things.

Theo Hicks: Perfect. So can you maybe give us an example of one of these expats who are using you to — let’s do an investment deal. So they’re trying to invest out of their country. Give us an example of how this works. How much money are they putting down? How does the seller financing structure work? What’s your ongoing involvement? Or is it just upfront, then you’re done? Can you maybe just walk us through a sample deal so I can get a better understanding of how this works?

Evie Brooks: Okay, first of all, with my clients, I’m never done. If somebody invests in a deal that I am involved with, as well as — typically, all these projects I’m invested in as well… But they’re going to get in or get out or they’re going to hold on to it for a period of time, or they want to rent it… We are all things Panama. We do everything from A to Z; from helping them getting their citizenship, their residency, finding a car, getting their legal visas, or their citizenship process… Now, of course, we’re not attorneys, so we can’t do that, we don’t provide financial advice. But we’ve got our power team in place and we can send them to the appropriate people to make sure they’re not getting taken advantage of; because we’re green guys, people see us coming and they see dollar signs. And so we’ve vetted all of these people.

But as far as the financing programs, with the deals that we’ve put together, you can get bank financing internationally, but it’s gotten a lot tougher, especially since the Dodd-Frank laws and the money laundering issues and all that kind of stuff. So it’s a long process and you pay more for the money internationally if you’re not a citizen of the country. So we started working with our developers. And every project is different, even with the same developer. You might have a project in the city and then another project out on the Gold Coast on the ocean that’s two hours away and they’re going to have two completely different structures. But the bottom line is you can put down 10%, 20% or 30% in a particular project, the owner will carry the financing for anywhere from 5-10 years. If you roll out and buy another one of their properties, then they will in some cases finance the first property to the second buyer, or they will always give them the option to do owner financing when they roll into their new property. So people are like, “I’m not ever going to get to a place where I’m stuck and I have to have the funds to pay this principal balance off.” It’s interest-only payments every single month, and those interest rates — in the last year we’ve had one particular project that we had three quarters of 1% interest, interest-only. So a penthouse on the ocean is less than $250 a month.

Theo Hicks: Like 0.75.

Evie Brooks: Yes, 0.075, it is three quarters of 1%. The average right now is about 4% for developer financing, but back in the day when the interest rates were higher, we would pay 7% interest rate. Then once a year, during the duration of the time that you own that property, you’re going to pay a principal pay down, which typically is somewhere between 5% and 7%. So let’s say you owe $200,000 on a property after you’ve put down your 30%, and that 30% was paid over three years, okay? So you have a $200,000 balance, you’re going to pay 5% per year or $10,000 per year principal pay down, one time per year. So it’s interest only each month, and then a principal pay down. Now there’s all kinds of different options and opportunities. Sometimes there’s a lease to purchase option. It depends on the project, the developer and the timing. I will say that with Coronavirus and everything it’s happened we might have some pretty interesting opportunities and promos coming up in the near future.

Theo Hicks: So you’re in a lot of countries, and it sounds like you’ve been to a lot of countries. I was reading your website beforehand and you’ve done a lot of talks in other countries. What would you say is the one hidden gem country, whether it’s someone living there or investing there, that — obviously, if someone has probably heard of this country before, but maybe not a country that they would expect to be a good place to either live or a place to invest; maybe it’s the same place, maybe it’s here a hidden gem for a place to live, maybe it’s a hidden gem for a place to invest… But what’s your answer for that?

Evie Brooks: Well, if I were emotional only and that’s what I was looking for, I would go to the Caribbean. There’s no question about it, because the crystal blue, beautiful ocean water and the sand and just the views. But I can never think like that. I’m always thinking bottom line.

Panama is absolutely, unequivocally in my opinion, the best place, and the reason why is Panama is on a tear. And the reason why is when the Panama Canal expanded in 2016, four years ago, for the supertankers to come through, the flow of money coming into that country has just been obscene. Now, you add to that the new Cobre copper mines that have started mining the copper, the copper mines are projected over the next 40 years to actually bring in more revenue than the Panama Canal. And when you look at what’s happened in Panama since the crash of 2008, the GDP has been obscene.

In 2009 it was the lowest that it has been, all the way up until we got hit with Coronavirus, and we don’t know what it’s going to look like on the other side of that. But it was 4% in 2009, all the way up to over 9.5% over the years between 2009 and 2020.

So it’s all about the opportunity, the bottom line, the growth, projections, those types of things. And can people come there and have a career? Can they come there and start a business? Can they come there and have the tax deductions that they’re looking for? So I’ve looked at many different factors that people are looking for, and we can just check off the box on just about everything in Panama.

Theo Hicks: Okay, Evie, what is your best real estate investing advice ever?

Evie Brooks: My best real estate investing advice ever is to utilize the funds that you have in pension plans, IRAs, 401(K)’s and there’s ways to do this, in most cases, not in every case, in real estate… Having that underlying asset, especially in an international country, you’re just setting up protection for that [unintelligible [00:17:07].28] plan and those retirement funds.

I’ve never personally had an IRA or 401(K). And I know that sometimes you ask what is the best book you read recently and I’m going to tell you, it’s Who Stole my Pension? by Edward Siedle and Robert Kiyosaki. It just came out on the first of this year. And what’s happening with pensions and IRAs, 401(K)’s around the world is astounding right now, and if people really understood that, you just need to protect that money. And I have never had a 401(K) and an IRA because I’ve always been in control of my own funds, and my own retirement, and I’ve built a far greater retirement by doing this instead of putting it into a 401(K) or IRA type of structure.

Theo Hicks: Okay, are you ready for the best ever lightning round?

Evie Brooks: Okay, let’s do it.

Break: [00:17:56] to [00:18:38]

Theo Hicks: Okay, Evie, well, you’ve already answered the first question, which is what’s your best ever book, and that was Who Stole my Pension? So the next question is, if your business were to collapse today, what would you do next?

Evie Brooks: I have two answers for that. I’ll really go and start all over in real estate again, in a realistic term. If I was just living in La La Land, I’d do what I wanted to do as a child, which was being a marine biologist.

Theo Hicks: Nice. Tell me about a deal you lost money on, maybe the most money, and then why did it happen? And then what lesson did you learn?

Evie Brooks: The deal that we lost the most money on by far was the Costa Rica deal because of the crash of 2008. No doubt about it. We lost as a group of investors, we were 506 Reg D investors, we had 63 investors, we lost over $13 million. I personally lost over $750,000 in that deal.

And the lesson that I learned was never, ever, ever to do an investment in a tourism only country. But again, I will never go to a country where vacation and tourism is the number one stream of income or the only real opportunity. Now, I said earlier that I’d love to be in a Caribbean country like Grand Cayman, but it’s tourism. That’s all they really have to offer. But I would never invest there because of that experience and having lost what we lost. And it wasn’t just the financial loss, it was the emotional stress of having to deal with that.

Theo Hicks: And do you apply that same logic to domestically as well, you won’t invest in a city that’s dominated by tourism, or is it just internationally?

Evie Brooks: You know, I’ve always thought about investing in the big cities, even downtown Atlanta, New York, places like that, and I never have, and I’m going to tell you how grateful I am right now. I’ve always been in the suburbs, because like I told you earlier, I love water. So I’m always investing where I’m on the water, like Lake Lanier in Atlanta, for example. In Florida, I was in Fort Myers, Cape Canaveral area. So I’m always going to areas where there’s water, and boy, am I thankful right now, because everybody’s racing out of the major cities to get to the suburbs right now.

Theo Hicks: Yeah. On the other end, let’s talk about your best ever deal. This could be best ever in regards to the most money or best some other way… But what’s the best ever deal you’ve done?

Evie Brooks: Absolutely, unequivocally the agricultural investments that we’re doing where you’re basically in an AG deal where you don’t have to hold the [unintelligible [00:21:01].13] personally. You’ve got somebody else doing it, you do a reverse Co-Op with a large, very renowned farming company. We are working with several of those from different areas; Colombia, Panama, Mexico, Peru… And you have the ability to get into what I’m now calling one of the greatest buzzwords of all time, which is [unintelligible [00:21:22].14] And when we stop and think about what’s happened with the Coronavirus, food was the greatest — and toilet paper… [laughs] It was the biggest demand that we saw; and you saw the shelves just empty off and people were terrified that they were not going to be able to get food. And it’s not a fad, people are going to continue to eat every day always from now on, and as the population continues to grow, there’s going to be a big demand for that.

Although it’s not as challenging and exciting, because it’s not hands-on, you forget it, you make the investment and wait for your returns from the produce production to come in. It is absolutely, in my opinion, one of the best investments that we can have, especially for that safety net that we’ve been talking about with what’s happening in our world right now.

Theo Hicks: What is the best ever way you like to give back?

Evie Brooks: I work with a number of different organizations, but I like to work with the Salvation Army and then American Breast Cancer. Also, different patriot companies that help those wounded warriors that have been hurt and cannot continue to function and have a normal life.

And then my biggest thing is I love educating; educating other people and teaching people about the real estate investment strategies and how they can actually, personally, control their financial futures through real estate if they really understand what they’re doing.

Theo Hicks: Well, on that note, what’s the best ever place to reach you to learn more about the international investing, the agricultural investing and more of the teachings that you have?

Evie Brooks: Well, if you go to eviebrookspanama.com – and there’s a little 11 minute video; if you watch that, I do offer a free one hour mentoring session with you. You have to watch that video, because we want to make sure it’s right for you and it’s right for us. And then we’ll do that one hour just to kind of evaluate, is this a path that you should take, that you need to take, that you’re ready to take? And then from there, we’ll proceed into whatever it is that you’re looking for, what your goals are.

We also do a three-day, four-night VIP tour in Panama. And that is an intensive boot camp, boots on the ground, educational program that we do. And we also discuss that in that video, and you can find out more about that there. And we do offer a one-third discount for that if you come through the video.

Theo Hicks: Perfect. Well, Best Ever listeners, just make sure you take advantage of that one hour session. So, Evie, thank you for joining us and walking us through your, in my opinion, unique investment strategy of investing in other countries, in agriculture… I’m definitely going to have to check out that video, because we’ve only been able to talk about this in 20 minutes, and I know it’s obviously a lot more in-depth than that.

But you talked about the reasons why you started investing out of the country. We talked about your first few deals. I really liked your driving for dollar strategy that you apply everywhere, but you had the Costa Rican attorney who knew the area very well, and you just got in a car and drove around looking for land, and you got a 25 acre deal, and then a one acre deal, and then the 750 acre deal through that… And then now you’re getting your deals through word of mouth, obviously.

We’ve talked about the way these deals are financed. That’s seller financing, interest only, one time a year principal paydown. And then you talked about the hidden gem being Panama. Obviously, in your website name you talk about the video about Panama, the private tour of Panama, and then your best ever advice was to leverage the IRA, 401(K) type funds and then use that to invest in real estate.

So thank you for joining us. Again, I really enjoyed this conversation. I always like talking to someone about something that’s again, unique and new, and something that I don’t know anything about. So that’s always fun.

So Best Ever listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.

Evie Brooks: Thank you so much.

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JF2275: Fast Growth With Dan Perez

Dan is fairly new to real estate investing and yet has already accomplished owning 27 rentals, 5 flips, and also a limited partner in a 32-unit complex. He shares how he initially started from developing proof of concept to building a team and process that have enabled them to scale in a short time period. 

Dan Perez Real Estate Background:

  • Full-time corporate tax accountant for Qualcomm
  • Started investing in 2018
  • Portfolio consists of 27 rentals, 5 flips, and a partnership in a 32-unit complex
  • Based in San Diego, CA
  • Say hi to him at: danieljperez562@gmail.com 
  • Best Ever Book: Tax-Free wealth

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Stay consistent, keep underwriting deals, keep learning because when the right opportunity comes, you will be ready” – Dan Perez


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’re speaking with Dan Perez. Dan, how are doing today?

Dan Perez: Doing great, Theo. Thanks for having me on.

Theo Hicks: Awesome, well thanks for joining us. A little bit about Dan. He is a full-time corporate tax accountant for Qualcomm and started investing in real estate in 2018. His portfolio consists of 27 rentals, 5 flips, and a partnership in a 32 unit apartment complex. He is based in San Diego, California and you can say hi to him at his email, which is danieljperez562@gmail.com. So Dan, do you mind telling us a little bit more about your background and what you’re focused on today?

Dan Perez: Definitely. Yes, my wife and I live in San Diego, California, and we primarily invest out of state in Indianapolis, Indiana. We started at the end of 2018 and we’ve really grown since then. We went into real estate investing primarily for rental properties, but based on the market we’ve also taken down a couple of flips over that amount of time.

Based on the amount of capital that we have available to us, we actually used the BRRR method to start out using other people’s money to invest in rental properties, buy them, fix them up, add some value and appreciation to the property, so that we can refinance the money out and continue to scale. Our goal going into this was to allow us a bit of financial flexibility moving forward. We plan to have kids in the next couple of years, and our whole goal in real estate was let’s generate some passive income to help us out down the line, if one or both of us would like to stay home and raise our kids, or just provide another opportunity for us; we figured this would be the fastest way to get us there. And as you mentioned, we’re not only in Indianapolis with single-family rental properties, but we are also limited partners in a 32 unit apartment complex in Kansas City, Missouri, which is going well, and our goal moving forward is just to keep generating passive income.

Theo Hicks: Thanks for sharing that. So your first deal, did you use other people’s money?

Dan Perez: For our first deal we actually used a Home Equity Line of Credit on our primary residence. We actually did that on our first three properties; what we did is we want to have a proof of concept where we can work out the kinks and also just be ready for anything that maybe we didn’t think of going into this investment journey. And for us, after going through 3, potentially even 4 deals with our own money, what we did is then we were able to take our concept and pitch that to other investors to give them some comfort around, “Hey, here’s what Dan and Kelly are doing, it’s working. They’ve worked out some of the kinks.” You know you can’t figure out everything on your first couple of deals… But at least we were able to give them a level of comfort that says “They know what they’re doing, their process works, they’re going to get better and better with each deal. We’re ready to invest with them and they’re also making a good return on their investment.”

Theo Hicks: So you said you started in 2018 and you owned 25 rentals and then 5 flips. That’s like 32 and it has been 2 years, so what is that? 16 per year? So one per month. So I’m just curious, are you doing multiple deals at once now? Have you always been doing multiple deals, or did you do one at a time upfront first, and then did multiple deals?

Dan Perez: So at the end of 2018 where we actually spent most of our time was building out our teams. We’re both very meticulous in how we put together what we’re doing, our process and procedures, and then also we’re extremely picky about who we surround ourselves with, because we know that could really make or break what you’re doing in the investment market.

So for us, what we did is we spend about 3 or 4 months just building out our team, meeting people, calling other investors, asking them who they worked well with, who they didn’t work well with, and why. Because everyone works differently with their vendors. So for us, at the end of 2018 we actually didn’t even take down our first deal, it actually happened at the beginning of 2019. But just the amount of time and effort we put into building our team allowed us to scale at a fairly quick pace.

We actually picked up — I believe it was 20 or 21 deals in 2019, and we were doing multiple deals at once. So the first few we took a little while; we had to get comfortable with our teams and we had to figure out, “Okay, how quickly do we want to go?” Because we do have W2 jobs as well. So we didn’t want to take on too much at once. But once we had our team built out and were familiar with their processes, I think our busiest month we took down 9 properties at once and all 9 had rehabs going on. So that was probably our busiest month, it was august of 2019. But by that time we were comfortable with our team, they knew how to work with us, and it was difficult at times but we got through it.

Theo Hicks: How much money did you make have when you first started, that you used for those first 3 deals?

Dan Perez: So we had a home equity line of credit, I believe it was $180,000 to $200,000. But the house is in Indianapolis; you can pick up some solid three-bed, one-bath properties that need some work in the range of $40,000 to $55,000 in 2019; the prices have grown up a little bit since then. So that gave us the ability to take on those homes and the rehabs with our own money. So that is the beauty of the Indianapolis market – it’s very affordable to get into the market, and the rental rates are strong as well. So it is very conducive to having rentals.

Theo Hicks: Yeah. So if that for the first 3 to 4 months you focused on building your team… Who did you bring on? And then since you weren’t actively doing deals that time, and you hadn’t done a deal in the past, what type of things did you say to them to bring them? Or did they just say, “Yeah, I’ll work for you.” Or did you need to sell to them, in a sense, on your ability to actually do the deals, since obviously, they get paid whenever you actually do deals?

Dan Perez: That’s a great point you bring up. It was difficult with some of the vendors I was reaching out to without having done a deal. It is difficult sometimes to get people’s attention, because there are so many investors reaching out to agents, wholesalers, property managers on a day to day basis. A lot of times if you haven’t done a deal, some people  quite frankly do tend to not take you seriously, as compared to if you have done a deal or two. So keeping that in mind, I tried to respect that; I know everyone is extremely busy, and so if they didn’t have the time to work with me at that given time, so be it. I would have to move on. But at least I would try to pick their brain a little bit and say, “Here are a couple of questions. Can you at least help me to answer them or point me in the right direction?” So if I at least got them on a call, I wanted to make the most of that time with them.

But when we started out, I tried to keep my calls as short and succinct as possible, because I did not want to waste their time upfront. I knew as a new investor I could come off with doing so. So what I did is I had a list of vendors that we wanted to bring on to our team, starting with the property manager, deal finders, agents, and wholesalers. We needed to find someone that could provide insurance for us; contractors are in an extremely big one when you are using the BRRR method.

So we wanted to start with our core solid team, and what I did is I just had a generic set of questions that I would ask each, to figure out who worked well with us, who didn’t. But I think what I actually gained the most value was speaking with other investors, who are my competitors as well, in the Indianapolis market… Just saying, “Who’s working well for you?” Because I think that’s where you’re actually going to get the most honest feedback. What I’ve found is anytime you call a vendor, they tend to have pretty good answers for you. And everyone sounds good over the phone, but you get the most honest feedback from the investors that are actually working with these vendors.

Theo Hicks: And then it sounds like the other person on your team is your wife you said?

Dan Perez: Correct. Yup.

Theo Hicks: What advice do you have on making sure that that goes smoothly?

Dan Perez: That’s a good question, Theo. For us, what we did is we said we’re going to segregate the duties, so that we’re not stepping on each other’s toes, but also so we’re not duplicating work. The point of us going into this together is one, we both really enjoyed real estate. But the other thing is we want to make it as easy and seamless for us as possible, so it’s not necessarily a burden. It’s supposed to be as passive as possible, which takes time and effort, but with the two of us, I think it has honestly allowed us to scale a little quicker than maybe if you’re going in on your own.

So what we did when we started out is we said, “I am going to be more on the acquisition site, and managing the property managers, managing the day-to-day rehabs.” Whereas Kelly was going to be more on the back end; she’s a corporate controller, so she’s managing more of the finances, the re-finances on our properties, which is a huge undertaking. She’s managing the books, she’s working with our CPA’s, she’s doing a lot of the business side on the back end. We always joked that I get all the glory up front, and I get the Facetime with all the fun people, and then she’s on the back end doing the difficult task. But it takes a lot of pressure off me and allows me to scale with the deals that we’re taking on.

Theo Hicks: And do both of you have full-time jobs that are structured 9 to 5? Or do you have some flexibility that allows you to work on the business during the day? Or is it just all at night and weekends?

Dan Perez: I would say that our jobs are pretty structured; with both of us being in accounting, I would say our typical hours are about [8:30] to [6:00], or [6:30] at night. So we’re working about 50 hours a week. But what we do is with us being in San Diego, our team being on East Coast time, we’re able to wake up early in the morning, get the necessary emails. We prioritize any emails that we need to get out immediately, we get those out the door before we start our day jobs. And then we tend to sync up with our teams during our lunch break. And then after work, even though our team is probably home and eating dinner with their family, we’re catching up on other emails that maybe weren’t as urgent. So we do fit it in around our day jobs, but in the morning is typically when we get the most done.

Theo Hicks: And how are you finding your deals? You mentioned the agents and the wholesalers – are they the ones who are solely sending you your deals? So MLS and then wholesalers?

Dan Perez: Correct. When I started out, I was looking at Redfin I would say 30 to 45 minutes a day. One, just to see what deals are out there. But two, I was practicing my underwriting, trying to get comfortable with the rent rates in certain neighborhoods. Figuring out what the ARV’s might be, because that’s extremely important for using the BRRR method. So for us, looking at Redfin, looking at Zillow, figuring out rent rates and what homes are going for, I felt like it gave me a competitive advantage, because now I can look at a map of Indianapolis or any market that I’m looking at, I can more or less tell you if it’s a good deal or not upfront.

Now of course things can come up in due diligence, but at a high level I can usually run a real within 2 to 5 minutes and say, “Yes, this is one that we at least want to look into.” But after doing this for 6 to 8 months, and I became comfortable with it, my team started pretty much sending me every deal. I no longer have to look at Redfin or really go on any sites. My real estate agent will send me deals that he knows meets our criteria, and then we’ve made good relationships with wholesalers in the Indianapolis market, and now they send us deals that they know we will take down. And I think that that all goes back to we built the relationships upfront, and we say what we’re going to do, we act on it; we don’t drag our feet. If we liked a deal, we say “Yes, this works for us.” And we deliver on it. I think that the Indianapolis wholesalers now respect us for that, and they know that we will take down deals if we say that we want it.

Theo Hicks: But for your first deals, did you have those yourself on Redfin and Zillow?

Dan Perez: Correct. I would say the first 5 or 6  deals I found on Redfin. I sent it to the agent we were working with at that time, saying we’re interested. He helped us draft up the purchase agreement and then we worked with our contractors and our inspectors to get in there, do due diligence. You might need to go back and forth with the seller a little bit, based on new information that became available during the inspection, to get it to a price that now works for you. And then from there we would close on the deal and start the process. But yes, the first couple were deals that I was just looking all over Redfin, Zillow, Trulia, and I reached out to my agent and said, “Can we please draft up an offer?”

Theo Hicks: Alright, Dan, what is your best real estate investing advice ever?

Dan Perez: I would say my best real estate investing advice would be to stay consistent and take action. I think a lot of people think that taking action only means putting in offers and buying properties, but there are other ways that you can take action. You can really build your team, build your network, you can learn. I know with COVID going on right now sometimes the deals might slow down. So I would say stay consistent, keep underwriting deals, keep learning, and when the right deal pops up, you’ll know that it’s a great deal to take down, and you’ll be ready for it.

Theo Hicks: Alright, Dan. Are you ready for the Best Ever lightning round?

Dan Perez: Let’s do it.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [15:27] -[16:08]

Theo Hicks: Okay Dan. What is the  Best Ever book you’ve recently read?

Dan Perez: Tax-Free Wealth by Tom Wheelwright.

Theo Hicks: If your business were to collapse today, what would you do next?

Dan Perez: I would figure out what I or my team did wrong, figure out how we can fix it, and I would go right back to doing the same thing I am now, picking up rental properties.

Theo Hicks: What is the Best Ever deal you’ve done? Either in terms of money or something else?

Dan Perez: I would say it was actually one of our first couple of deals. The agent we were working with identified a deal, more or less right up the purchase agreement for us. By the time I got into the office at 9 in the morning, it was in my inbox. I signed it, we had it under contract about an hour later. We were all into the property for $59,000 and it’s renting for $1,025.

Theo Hicks: Something I forgot to ask you earlier… Have you visited the market?

Dan Perez: I have. I’ve been three times and I’m actually flying out in a week.

Theo Hicks: Okay. And then on the other end, tell us about a time that you lost money on a deal. How much you lost and what lessons you learned.

Dan Perez: Fortunately we have not lost money on a deal. But I would say our most unsuccessful deal was a deal that we went into – it was a larger property that we were looking to flip. It was with an agent we were working with in the beginning, that we’re no longer working with. We went into this property as a flip, so we did very nice finishes on this property; it ended up not selling or even getting offers anywhere close to what would work for us. So we actually had to pivot and turn it into a rental property, which we’re not making the rental numbers that we would hope to, but we’re still cash flowing a small amount each month. We will look to either flip it in the future, or figure out another strategy with it. But I would say that that was the deal that went the most in the wrong direction of the deals we’ve done so far.

Theo Hicks: What is the Best Ever way you like to give back?

Dan Perez: Speaking to new investors, hands down. I love talking with new investors, helping them underwrite deals, helping them learn the market, helping them build their team… Whatever I can do to help give back. I had a lot of experienced investors that really took me under their wing when I was first starting out, and Kelly and I like to give back by having quick calls or Zoom sessions with newer investors and try to provide as much guidance and knowledge we can to them.

Theo Hicks: And then lastly, what is the Best Ever place to reach you?

Dan Perez: The Best Ever place to reach me would probably be on Instagram. It’s @paperrouteinvestments. I tend to check that pretty frequently. And if people have questions I’m happy to give back to them and help however I can.

Theo Hicks: What types of things do you post on the Instagram page?

Dan Perez: We’re still building it out, but for now, we’ll post our properties that we’ve purchased, the areas that they’re in… Sometimes I’ll post the other interviews that I’ve done with different companies. So we try to post things here and there. I’m still getting better at that; I would say it’s probably one of the weaker parts of our investment journey right now, but in the future we’re going to work to build it out. Maybe post some case studies on BRRR deals that we’ve done, and anything that can provide value to people.

Theo Hicks: Awesome, Dan. Well, thanks for joining us and walking us through your journey of how you were able to build up this rental portfolio while working a full-time job, with your wife of course. So you went over how you’re funding your deals, especially with the HELOC on your home. And then you did that to create a proof of concept with your own money, and then you were able to pitch that to other investors for the rest of your deals.

You mentioned that you didn’t just jump in right away and do deals. Instead, you focused on building the team first, building that foundation, which is what allowed you to scale so quickly. And you mentioned that the best way to find these team members and to pre-qualify them is to reach out to your competitors, other investors, and see who they’ve worked with in the past and if they worked that well, and then ask them why, to make sure that you [unintelligible [00:19:42].29] with them.

You gave us some tips on working with a significant other, which can be really be applied to just business partners in general… Which was making sure you’re segregating the duties, you’re not stepping on each other’s toes, but you’re also not replicating the exact same things; as you mentioned, the breakdown of duties between you and your wife.

You mentioned how you were able to spend time on the business while working a full-time job… So waking up early, working during your lunch hours, and then working at night. And then finding deals upfront, you were finding your deals online, Zillow, Redfin, but you were also looking at those deals to practice underwriting as well. Those were your first 5 deals. And after that your team members, the agents, and the wholesalers you’ve built a relationship with would send you deals, because you were known to not drag your feet and would do what you say you’re going to do.

And then lastly your best ever advice, which was to stay consistent and take action, and realize that action isn’t just putting in offers. Action is learning, action is networking, action is building a team. Those small steps that are ultimately leading you to doing a deal. So Dan, thanks for joining us. Best Ever listeners, as always, thank you for listening, have a Best Ever day and we’ll talk to you tomorrow.

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