JF2165: Tips for Navigating 2020 | Actively Passive Investing Show With Theo Hicks & Travis Watts

Today Theo and Travis will be diving deeper into one of Travis’s blog posts called “Tips for Navigating 2020”. Theo will be asking Travis questions to dive deeper into this topic to help you become better investors.

We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

 

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JF2163: Anesthesiologist To Real Estate With Leslie Awasom

Leslie is the Co-Founder and Director of Operations of Xsite Capital Investment LLC. He is originally from Africa and in 2008 started as a healthcare provider and eventually found his passion for real estate. Leslie shares the lessons he has learned through some of the mistakes he has made during his journey.

Leslie Awasom Real Estate Background:

  • Co-Founder and Director of Operations of Xsite Capital Investment LLC
  • 3 years of real estate investing experience
  • Bought first property in 2017 and in 2019 invested in a 192-unit apartment
  • Based in Hanover, Maryland
  • Say hi to him at: https://www.xsitecapital.com/ 

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Best Ever Tweet:

“Always be ready for changes because things don’t always go as planned” – Leslie Awasom

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JF2162: Knowing Enough To Be Dangerous With David Ounanian

David grew up in a middle-class family with the mentality to go to school to get a degree and find a job to work for the rest of your life. He actually started out doing really well, having a corporate job, working remote, and making six figures but living paycheck to paycheck. He soon realized he was trapped in the rat race and wanted to get out. He shares how he went about escaping his 9-5 within 2 years and the process he followed. 

David Ounanian Real Estate Background:

  • Founder of Transform St. Louis, LLC
  • Full-time investor and agent
  • 3 years of real estate experience; 7 years as an agent
  • Portfolio consists of 12 properties using the BRRRR method and flipping 3-4 properties a year
  • Based in St. Louis, MO
  • Say hi to him at: https://www.transformstlouis.com/

 

 

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Best Ever Tweet:

“If you’re not investing in real estate, then you’re probably not hanging around people who are investing in real estate.” – David Ounanian

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JF2161: Two Losses and One Big Win With John Stoj #SkillsetSunday

John has battled with failure throughout his journey to starting a successful business and has gone from having a business to completely losing it 2 times over. He shares how he pivoted and took those lessons to implement it into a business providing food to universities. He gives advice on how he scaled his business and eventually sold it for a profit.

 

John Stoj Real Estate Background:

  • Spent 14 years on Wall Street from 1992-2006 
  • Raised $300 Million for a distressed hedge fund
  • Has started and grown multiple businesses
  • Based in Atlanta, GA
  • Say hi to him at  www.verbatimfinancial.com  

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Best Ever Tweet:

“First thing you need to think about when it comes to scaling is, what do you want to do, what do you want to make and what can you make?” – John Stoj

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JF2159: Creating Software For Landlords With Laurence Jankelow

Laurence is the Co-Founder of Avail, an all-in-one software solution designed for DIY landlords. He initially was handling his real estate investment process with excel spreadsheets and after a while, both he and his partner figured there must be an easier way to be a landlord. They searched for different software and found that the majority of the ones out there were made for bigger landlords, so they decided to create their own for the smaller landlords. 

Laurence Jankelow  Real Estate Background:

  • Co-founder of Avail, an all-in-one- software solution designed for DIY landlords
  • Long-term real estate investor with a passion for 3-unit multi-family properties
  • Portfolio consists of two 3-units and 1 Car wash
  • Based in Chicago, IL
  • Say hi to him at: https://www.avail.co/ 
  • Books: measure what matters

 

 

 

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Best Ever Tweet:

“You make all of your money essentially on buying the right properties” – Laurence Jankelow


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. My name is Theo Hicks and today I’m speaking with Laurence Jankelow. Laurence, how are you doing today?

Laurence Jankelow: I’m doing well. Thanks for having me on. How are things going with you?

Theo Hicks: I’m doing great. Thanks for joining us, looking forward to our conversation. A little bit about Laurence’s background – he is the co-founder of Avail, an all in one software solution designed for do-it-yourself landlords. He’s also a long-term real estate investor with a passion for three-unit multifamily properties; current portfolio consists of two three-units and a carwash. He is based in Chicago, Illinois, and you can say hi to him at his website, which is avail.co. So Laurence, do you mind telling us a little bit more about your background and what you’re focused on today?

Laurence Jankelow: Absolutely. So my background– thanks for mentioning the three-flats. I’ve been a real estate investor for a while; the portfolio, it shifts and changes. Before I got into that, I had started down the finance track after college, now probably 15 or so years ago, and started with business in risk consulting, did that for just under five years, going from company to company, just taking a look at their operations in using data analytics, would try to help them determine where they can improve their business. From there, I went on to Goldman Sachs and did somewhat much the same for their portfolio managers and supported their hedge funds, alternate investments and private equity groups. I did that for so long that at some point, I wanted to try to get out of corporate America. So I tried to do the Rich Dad Poor Dad strategy, which was start building up some passive income through real estate, and almost worked my way through those quadrants; I can visualize it in that book now… I added the real estate and then eventually I thought, “You know what, the recommendation is to become a business owner.” So I started to think about, “Do I want to take my real estate from the six units to 1,000 units, or do I want to do something different?” and at that time, I saw that the way I was managing my rentals was totally ineffective, and I saw an opportunity to leverage software to make it better, and found that the best path for me was to quit my job at Goldman and focus on building a business around providing landlords of my size software that they otherwise didn’t have access to.

So that’s what I focus on now at Avail, is providing the tools and process and education for smaller landlords; those with nine or fewer units, to help do the day to day tasks of being a landlord and including listing syndication, to finding tenants, screening renters by hooking into TransUnion for credit reports, background checks, letting the tenants pay their rent online, drafting and signing leases online, those kinds of things. I spend a lot of my time just evolving that software.

Theo Hicks: So you mentioned that this company grew out of your own inefficiencies in management. So do you mind walking us through what those inefficiencies were, and then for each of those, how you were able to use software to solve those problems?

Laurence Jankelow: Yeah, it’s actually almost embarrassing now when I think about what I used to do. The person I started Avail with, Ryan and I used to share Excel files back and forth, and we’d make an Excel file where I’d merge cells together and paint them, and that would be our rental application. We’d print that out, we’d hand that to tenants, and that was how we screened them; we didn’t even realize that we should be pulling a credit report or eviction checks and those kinds of things… And it all evolved from that. At some point, we realized, “Hey, this is not working. Excel doesn’t make sense.”

We went looking online for software that would do what we wanted and we saw stuff like Yardi, which was really powerful, but Yardi’s really designed for a landlord with 1,000 or 10,000 units, which I’ve got six, Ryan had two, and the starting price of Yardi’s something like $10,000 a month. So that’d be more than our combined gross rents; it didn’t make sense. So we felt like if we wanted to solve these problems for ourselves, that there’s probably a business to be had here for others of our size. So that’s what we set out to do, really targeting, helping landlords with nine or fewer units, I’d say.

Theo Hicks: Perfect. So you had all these issues with your property, you went online to see if you could find an existing software, and there were software out there but they were too much, too much money or it’s for these larger buildings, whereas you wanted to find something for smaller. So take me from there to the start of the business. Did you and your business partner just sit down together and say, “Hey, here’s all the pain points of smaller landlords,” and then, “Okay, so here’s the different software that could potentially resolve those. Okay, let’s focus on these [unintelligible [00:07:17].27] ” How does the process of creating this type of company work?

Laurence Jankelow: Well, creating a company is pretty hard, and I think we didn’t realize that going into it. Everyone tells you it’s really hard, and then it’s something you don’t really acknowledge till you do it. But we started this in 2012; that’s when we quit our jobs. We quit with nothing but an idea on a napkin. We felt that we didn’t want to work on it while full-time. It wouldn’t really go anywhere if we had a full-time job elsewhere, and it wouldn’t be fair to our employer or ourselves to let our dream sit on the side. So we quit and we started day one, and then what we tried to do is find an engineer to help us build it, and you can imagine, we couldn’t find an engineer who wanted to build our dream for free or for equity, which was worth nothing at that point.

So Ryan and I decided we were going to have to build it ourselves, and we had no experience in that. So we ended up having to roll up our sleeves, we taught ourselves to code. In 2012 to 2014, I essentially wrote the first 500,000 lines of code that allowed us to syndicate listings to Zillow, or Trulia or hit the TransUnion API to get a credit report or those kinds of things… And we spent that first two years fumbling around, I’d say, trying to figure it out, really took that just do what it takes mentality. End of 2014, we felt like we had a pretty good product and we started getting traction, started getting customers, started hiring our first employees, really started seeing it as a business and starting to grow, and then from 2015 to 2020, we really saw some growth,. We’ve now got 600,000 landlords and tenants who use our system for the everyday purposes of being a landlord.

Theo Hicks: Wow. So what did you do for money in those two years while you were doing all that fumbling around, as you said? Did you have money saved up ready?

Laurence Jankelow: Yeah. Ryan and I consider ourselves to be super privileged in a way. I was at Goldman Sachs and he’s at a different investment bank. So we had some savings, not as much as you would assume you get out of investment banking, particularly because we were just coming out of the financial crisis of 2008. So we didn’t really get bonuses those couple of years, but we had enough where we could each put $20,000 into starting the business, and that $20,000 was essentially, for us to live on for those years. So those two years were very much the ramen noodles years, but we at least had something to feed ourselves. But I don’t look back on it as regret. I feel like we’ve learned a lot. I think learning how to code was probably one of the greatest achievements for me. It completely changed how I think about almost everything I encounter now.

Theo Hicks: Did you self-teach yourself on Google or did you take courses?

Laurence Jankelow: Taught myself. This is probably a popular programming language for anyone who does this, but it might not resonate with some of your listeners. I taught myself Ruby on Rails, I downloaded a tutorial, and essentially that tutorial just walked me through creating my own Twitter from scratch, and replicating that. What was awesome about it is you really start to realize, “Look, I’m getting stuck at this point. There’s no one to help me, and I can either give up or I can spend four weeks trying to solve something that a real engineer could probably do in two minutes,” and you spend those four weeks trying to solve a two-minute problem, you tend to grow by leaps and bounds, I’d say. That’s what happened for me, and I feel like that just fueled my hunger for learning more and attacking harder and harder problems.

Theo Hicks: Wow, that’s awesome. Did your business partner write any code or was it all you?

Laurence Jankelow: I’d say I wrote 95% of it, and Ryan did do 5%, but Ryan also had a really challenging task for him as well. So while I was writing that code, he had to convince a bank to allow us to pull money out of any account in the United States, essentially, to do withdrawals. Tenants want to pay their rent. So yeah, we have to get approvals from those tenants. It has to be super documented. So he had to work on convincing a bank and figuring out that process of what that has to look like, how does it meet regulations, all those things. He had to convince TransUnion to allow us to pull credit reports and sensitive data on people, and we’re not famous, we don’t have a pedigree to go and earn these things just by nature. So he really had a lot of convincing yet to do. So I applaud his efforts on doing that. It sounds impressive for me to go write 500,000 lines of code, but honestly, for him to convince people to take a chance on us for those other pieces – much more impressive.

Theo Hicks: So you said around the end of 2014, some of the code or the software was written, you started getting customers and hiring employees, and then flash forward six years, you’ve got 600,000 landlords. So you got your code written, the banks allowed you to pull money out of anywhere in the US, TransUnion allowed you to pull credit reports. How do you find your customers?

Laurence Jankelow: That’s always been a challenge for us. Our customers are the smaller landlord, nine units or fewer. So they’re not listed in a phone book. It’s not like I can go find them somewhere and oftentimes, they don’t identify as landlords. I didn’t either when I was at Goldman. If I went somewhere and people would ask me what do I do, I’d usually tell him I work at Goldman Sachs or I would not even mention Goldman because at that time, and even now, there’s just a lot of animosity maybe towards some of those investment banks. So I tell them, I work in finance. I would never mention I’m a landlord. So it didn’t resonate with me as that’s who I was as a person. So that’s always been a challenge, and so what we’ve had to do is figure out where are landlords going, looking for help, and I think in some ways, we’re lucky because they go to the internet for that.They’ll go to Google and they’ll search for ‘what should I do if my tenants’ rent is late’ or ‘how do I get a credit report on a tenant?’ or– I’m in Chicago, so this resonates with me, ‘how do I get a Chicago standard lease agreement?’, and we put out so much educational content that they’ll often find us through those Google searches. We tend to think of our product having a sixth arm in a way or sixth major service, which is the educational component, and we spend as much time on our educational piece as we do on any other part of the product. So they’ll typically find us by– it’s commonly called inbound marketing; that way.

Theo Hicks: So you didn’t pay for any Google Ads. It was all just SEO. You said you figured out what these type of people will be searching for on Google, and then you just wrote those articles, and then eventually, over time, people started finding your blog posts, and in theory, from your blog post, they found your service.

Laurence Jankelow: Yeah, our go-to market strategy has evolved a lot. So it started off with content marketing, which is geared at some of those keywords that they search for organically, and we don’t have to pay for it, but it did evolve. We do pay for high converting keywords now. We can recognize which ones are likely to be profitable for us. So we do pay for those now, and then we continue to pay for those. But by far and large, most of our customers are coming from some of that educational content.

Theo Hicks: Who is writing your content? Is that you and your business partner or is it somebody you hired?

Laurence Jankelow: Well, that’s also evolved. 2012 to 2015, 2016, Ryan and I pretty much wrote most of it. Around 2015 we hired some writers to help us, and you could see a huge improvement in the quality of writing when we hire people. The hard part is oftentimes you’ll find a writer and they don’t know much about landlording and Ryan and I just knew so much about it. So then the challenge is how do you impart a lot of that learning to the writer so that they can write really high-quality, effective content? Because last thing you want to do is put out 2,000 words of dribble. It has to add value, it has to solve a problem for someone.

Theo Hicks: How does your company make money?

Laurence Jankelow: That’s actually interesting. So our software is free. You can have unlimited number of units and use our software for all the features. So tenant screening, listing syndication, the leasing, payments, all that’s free. We do have a premium tier. So if you need a little bit extra, then it’s $5 per unit per month and extra meaning something like you want to set up automatically fees. So if a tenant is more than five days late, it automatically charges 50 bucks. On the free tier, you’d have to log in and manually do it. So there’s a whole bunch of things like that, that push someone into the premium tier or the plus plan as their business evolves, and they need more automation.

Theo Hicks: So the only way you make money is on that premium tier, subscription-based model?

Laurence Jankelow: We have a bunch of ways; that’s our largest way.

Theo Hicks: Okay.

Laurence Jankelow: We also make some money on some of the transactional stuff. So when we pull a credit report, tenants will oftentimes pay $55 for the credit report. Now the benefit to them [unintelligible [00:15:05].09] so it doesn’t hurt their credit report, and then they can also share it with other landlords, so that a tenant isn’t having to pay $55 for this landlord and $55 for another. They can pay it once and share it with any landlord, even though it’s not on our system.

Theo Hicks: Was the premium model the plan from the get-go, and then also, obviously curious, how do you know what’s included in the free plan and what to include in the premium plan?

Laurence Jankelow: That’s evolved a little bit, too. So initially — our pricing has changed a little bit, but we tend to think of breaking the tiers down by landlords who have essentially one unit, and those who have two or more, and tailoring the plans to them. So although the plans are both for unlimited units, we tend to see that landlords with one unit on the free plan or landlords with two or more are on the premium plan, and the reason for that is just how you think about your rentals. For Atlanta with one unit, oftentimes, they’re an accidental landlord or it’s just something they have, and then maybe they’re dabbling, they’re not sure if they want to be real estate investors or not. But folks with two or more units tend to be more deliberate. They didn’t just happen to become a two-unit landlord or more. So they may view themselves as a business a little bit more, and realize that tools and software are part of business, part of how you reduce expenses and maybe push up income. So for that reason, those folks tend to want a little bit more out of the software, a few more features and are also willing to pay. So we bifurcate it that way.

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

Laurence Jankelow: So many things to choose from here… I guess, I would start with– because we tend to focus on novice landlords or new landlords… Best real estate investing advice is when you buy the property. So one obviously, if one of your life goals is financial independence, then getting a rental property is great to do that, but you make all your money essentially, on buying the right properties. And if you’re looking into getting into it, you should really buy properties that are going to be cashflow-positive for you. There’s a tendency if you’re a first-time rental property purchaser to purchase in a manner where it’s akin to if you were buying a single-family home or something that you’re going to live in, and oftentimes those are emotion-driven. Here, you really want to focus on the numbers. So buy a rental property where the gross rent covers all of the operating expenses and the debt payments and has enough of a return where that’s your best usage of the cash, I would say. And if that property isn’t that, you put the cash somewhere else or in another property,

Theo Hicks: Okay, Laurence. Are you ready for the Best Ever lighting round?

Laurence Jankelow: Yeah, let’s do it.

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

Break [17:31:04] to [00:18:29]:06]

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

Laurence Jankelow: Well, I mentioned Rich Dad, Poor Dad, but that’s from a long time ago. So recently, the best one for us is Measure What Matters, and that’s essentially about a goal-setting framework that was developed maybe 30, 40, 50 years ago at Intel, and it’s essentially a structure that you can use to set up goals and how you measure the success towards that goals. And just for me at Avail, that was a pivotal moment for us adopting that framework and setting goals. And even if it’s not Avail, if it’s with your rental properties, you should set goals for the rental properties and how you want to measure them. So the key takeaway from that book is the measurement of those goals and making sure you have something that has a strict KPI in that measurement.

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

Laurence Jankelow: Great question. Well, I’ll probably start another one. Once you get bitten by the startup mosquito, you tend to want to get bitten more. So if Avail fail today, man, you’d have to take a hard look at why I failed, because I think we’re doing all the right things. But I would start the next one. I don’t know if it would be real estate, but I’ve got some ideas around investing in stocks that are similar to what we do for real estate, but for a stock investor. I think you’d have to keep going and keep building. Once you’re a builder, always a builder.

Theo Hicks: What’s the best ever way you’d like to give back?

Laurence Jankelow: I’ve got two kids, a six-year-old and a four-year-old, both little girls, and for me, I try to teach them some things. One of the things that we try to do now that’s really small is we take the little red wagon and we go around our neighborhood and we use one of those little claws to pick up trash. We walk around the neighborhood and we pick up trash and we try to fill up a trash bag every so often just to clean up the area.

As far as real estate, I try to participate in online communities. I feel like there’s a lot I’ve learned just from the six units, but then also, from seeing how our 200,000 landlords manage their properties there’s a lot that we’ve learned, and I try to take the knowledge we’ve gotten there and I try to push comments out. We have our own community on our website that I try to get it to some of those Facebook communities where you see a lot of landlords trying to interact and figure out what to do.

Theo Hicks: What’s the best ever place to reach you?

Laurence Jankelow: You can learn anything and everything you want about what we do at our main website avail.co, but I also like people reaching out to me directly. I’m always happy to have a conversation. So if anyone wants to do that, they can reach me at my email laurence [at] avail.co. I encourage anybody to do it. I’ve done a couple of podcasts now and not one person has reached out to me and that’s disappointing.

Theo Hicks: Best Ever listeners, make sure that you reach out. I might have to email him just to make sure someone reaches out, but I think one of our Best Ever listeners will reach out especially after listening to this episode; very powerful. I really enjoyed the conversation.

I stopped taking notes in the middle of it, and was just asking questions. It was so fascinating to me how you’ve been able to build this business and learn how to code and go from really having no idea how to write software, how to run your own company to having 600,000 customers; that’s great to hear. So definitely worth re-listening, just to hear his process from quitting with an idea on a napkin, to learning to code, to his business partner working with banks to figure out how to let them pull money from any bank, and working with TransUnion to pull credit reports, to finally 2014 when you started getting customers.

We talked about how you were able to get customers through content, so through your thought leadership. It was always great to hear because we talked about that on this show a lot. Then you mentioned eventually you ended up evolving to paying for stuff, but that’s like a theme, where you start off doing everything yourself and eventually it evolves into being able to outsource some things. And then your best ever advice was if you’re gonna buy real estate, realize that you make money on the front end and that needs to be cashflow positive.

So Laurence again, I really appreciate you coming on the show, I learned a ton, and I’m sure the Best Ever listeners will as well, and if they have more questions, take advantage of him giving you his email address. It’s not every day that our guests do that. So Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you soon.

Laurence Jankelow: Thank you so much.

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JF2158: When Is The Best Time To Get Into Multifamily With Theo Hicks & Travis Watts

Travis was a previous guest on our show, in episode JF2064 . He is a full-time passive investor who is now going to be joining me, Theo Hicks, in future weekly episodes to help educate you on the dozens of topics in real estate investing. So be sure to subscribe and stay tuned in for future episodes from this new series.

We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

Click here for more info on PropStream


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’m speaking with Travis Watts. Travis, how you doing today?

Travis Watts: Hey, Theo. Happy to be here, doing great. How about you?

Theo Hicks: I’m doing great. So me and Travis are going to start doing weekly podcast episodes. So today, we’re gonna talk about a blog post that he wrote. We’re not sure exactly what we’re going to talk about every single week. It’ll be blog posts, it might be similar to what me and Joe used to do for Follow Along Friday, but overall, no matter what we talk about, it’s going to add value to you and your real estate business.

So a little bit about Travis. I’ll read his bio today, and maybe I’ll read it every single time; I’m not necessarily sure yet. But Travis is a full-time passive investor, he has been investing in real estate since 2009 in multifamily, single-family and vacation rentals. He’s also the director of Investor Relations at Ashcroft Capital, and he dedicates his time to educating others who are looking to be more hands-off in real estate i.e. be the passive investor. So Travis writes a lot of great blog posts for the blog. So if you just go to the blog and you– I’m sure you can just type in Travis Watts, you’ll see his blog posts. The one we’re gonna talk about today is his post about when is the best time to get into multifamily, and like the answer to most questions in real estate, it depends.

So in this blog post, Travis went over a few anecdotes of his where he got started in a new investing niche during a time when the market was not doing very well. So the excuse is, “Oh, well, the market’s not doing well, maybe I should wait,” and then on the other hand, when the market’s doing really well, we’ve also got an excuse that says, “Oh, well, maybe it’s too late. Maybe I need to wait for the market to stop doing as well so I can get in at the right time.” So clearly, no matter what position you’re in, you can always have a reason why you should invest, and you can always have a reason why you shouldn’t invest, no matter what state the market is. So that’s essentially what the blog post is about. So I wanted to bring Travis on to dive deeper into this, because the two examples he gave was one, in 2009, when obviously the entire economy collapsed, and he bought his first piece of real estate in 2009. So right at the end of the crash, when it just started to pcik back up – so perfect timing there – and then he transitioned from single families to multifamilies in 2015, when as he mentioned in his blog post, there was a lot of political uncertainties that people thought would result in the economy collapsing again, there being a massive meltdown… And then now, fast-forward four years later, we’ve got the Coronavirus. So I wanted to ask him — because he said in his blog post a common question he gets from investors is “Is this the right time to invest in multifamily apartments?” I’m sure right now that question comes with the baggage of, “Well, what about the Coronavirus?” So when you get this question, Travis, what do you say?

Travis Watts: You hit the nail on the head. There’s the whole post. So enjoy… [laughs] But no, it’s so true. For those that don’t know, I spend my weeks in these 15-minute phone calls, these Q&A phone calls. Folks reach out to me through LinkedIn, BiggerPockets, Best Ever, Facebook, Instagram, whatever… And I’m happy just to network with folks, but one of the most common things I get is whatever the current event is in the news, it is a distraction from them taking action a lot of times; for those getting started, I should say. But even those experienced, it is such a common question, phrased in different ways. Should I invest now? Is 2020 the right year? Are we at the top of the market? Back in March, is this the bottom when we had the stock market collapse? There’s all kinds of this stuff. So I guess to summarize all that, there’s a lot of noise out there. Of course, the news and the media is always there to distract people, to instill fear and uncertainty, and as a result of that, it makes you want to stand still, myself included. There’s plenty of times where again, back in March, when the market just collapsed 30%, I think, holy crap, is it going to go down 60%?Is this the big collapse we’ve all been waiting for? So it puts you in that freeze, but you have to learn to ignore the noise and to sink into the facts and to decide for yourself.

This is highly individualized investing in general. Nobody can make a decision for you. It just really comes down to you, your risk tolerance, your comfort, your knowledge, your network; there’s a lot of factors there. But yeah, that’s the big picture summary of what the post is all about, is finding out for yourself is it the right time for you?

Theo Hicks: Do you have a lot of people that you talk to who are more hesitant than usual, because of what we’re going through right now? And then you said to focus on the facts. So if someone talks to you and says, “Hey, I’m afraid to invest right now,” would you say what you just told me, or would you get more specific with them to figure out, identify, specifically what it is that is holding them back? The reason why I’m asking this is to zoom back a little bit, because again, this is a podcast, we want to add value. If you’re out there and you want to raise money from people, these are the questions you’re going to get. This is the resistance and obstacles you’re gonna have to overcome. So that’s why we’re bringing Travis on here, so he can let us know, “Hey, I’m involved in speaking with these passive investors. I know what they want. I know what they don’t want. I know what’s holding them back.” So you can use the information we talk about here to help you overcome those obstacles… But yeah, let’s take it from there.

Travis Watts: Yeah, this is why I love the Q&A format when I do these calls. I never know who’s calling for what type of conversation, but to your point, it’s a lot of Q&A to the person I’m speaking with. So you’re trying to uncover what is that belief system or how much education do they have in this particular niche or space, and I try to be as much as I can be a resource for people. So a lot of times what I’m doing, especially for those just getting started, is referring them to education sources.

You wrote an amazing book with Joe, The Best Ever Apartment Syndication Book, things like that. So here’s a 400-page book, very dense, packed with knowledge, and here’s what happens… Let me explain this from a higher level. So in order to make a decision, you need to feel a certain level of certainty. So how do you get a certain level of certainty? So if you reverse-engineer that, it’s usually through education. It’s through seeing it done. It’s through networking with people who are doing it. People ahead of yourself, mentors, coaches – I’m huge on this stuff – and then also self-educating through books.

I think Robert Kiyosaki coined this – when your education goes up, your risk comes down, and I think the more you understand about a niche or a sector or an asset class or just real estate as a whole, the more you build the case for why that may be a good asset class to be in, in general.

I went crazy in 2015 with self-education and reading books and finding mentors and all this stuff, and really the takeaway from that was that it built a case for me to feel very certain on what my next step was going to be. Because quite frankly, when I first heard the word syndication, I thought A, too good to be true; B, probably some scam, these kinds of things, because I didn’t have any certainty around it. How could I? I didn’t know anyone that’s invested like that before. I’d never even heard of this before. So as far as I knew, it was some Ponzi scheme or something. But the more I surrounded myself with people doing this, the more I read books on this, the more I joined real estate meetup groups and we discussed this, and I watched webinars and YouTubes and I went nuts, I started figuring out that, hey, this does actually make a lot of sense; this is a very real thing. And as I stepped in to take the first step in my first deal, I had to sit back about six months, and I had to see it for myself. I had to actually see distributions coming in, and reporting and make sure this was the real deal, and then I just fell in love with the concept. I continued my education in the space, but not to the extent I did in 2015. That’s what led me to a level of certainty and belief that this was the right thing for me at the time. But sometimes bridging that gap is a process. For many people who maybe don’t want to read or don’t like conferences or attending groups, that learning curve could possibly take a lot longer.

So that’s what I try to advocate to folks is just educate yourself in the space, and I think you’ll build your own case as to why it may be a wise thing to do and the timing is up to the individual.

Theo Hicks: Yeah, and one thing that we talked about a lot on the blog and we talked about this in the book you mentioned and on the podcast is the two things that you need in order to be ready to move into multifamily syndications, for example… And you focused a lot on the education piece, but you mentioned from your perspective in passive investing — you didn’t just say, “Okay, I’m ready,” and then you invested in 20 deals at once. You mentioned how you did that first deal, and then you waited in order to gain that experience and get that feedback to tell yourself, “Okay, well, I learned all the things; I learned the theory. Now let’s see in practice. Does the practice line up with the theory? Is this not a Ponzi scheme? Is this the real thing?”

So I think obviously, when you’re passively investing, the experiences that you gain is a little bit different than when you’re actively doing it. But I thought it was interesting that you still mentioned that you wanted to hit on both of those. First, the education piece, and then second on the experience piece. Now, something else you mentioned in this blog post– I guess this is transitioning a little bit into active investing, but you did the single-family first and then you went into multifamily. So do you think that you needed to start off in that single-family realm in order to get into multifamily? Or do you think that you would have been able to educate yourself on multifamily, skip that step of single-family homes and go straight into multifamily? Because again, the topic of this is the best time to get into multifamily. So do I need to have some real estate experience first, or can I just go from nothing to reading books about it, podcast, mentors for a while and then jump straight in multifamily, or should I start somewhere first?

Travis Watts: That’s a great question. Another common question, too; you’ve got people all over the place. So I guess, if you would ask me in 2009 when I got started in single-family, “Hey, what about apartment investing? What about being a partial owner of an apartment complex?” I probably would have had some belief of, “Well, I’m not a multi-millionaire. I’m not a billionaire. I don’t have 30 years of experience in real estate. How could I possibly do that?” I had all these limiting beliefs like that. Come to find out, as I invest now full-time in private placements and syndications, most of the investors, in my experience, are doctors and dentists and lawyers and attorneys, and they didn’t come from a single-family background. There’s certainly a sector of us that did, and I think that helped, again, build the case for why I would want to be in multifamily.

There was a lot of pros and cons. I made some great moves in single-family, did some great things, but I also burned myself out. I also realized I hate managing tenants. I also realized I’m not very handy. I also realized– there’s so many things I didn’t like about it. So I wanted to– by the way, for those listeners that may not know, I was working an oilfield job, which was 100-hour work weeks, 14-hour days, away from home. So I’m doing that on top of scaling or trying to scale a single-family portfolio. And every property that I acquire, it’s like the light at the end of the tunnel is closing in. That’s how I saw it mentally and I thought, “Oh my god, this is not sustainable, number one, and I’m gonna burn myself out,” and that’s exactly what happened. So that was my 2015. My 2014-2015 was my burnout in single-family, but it taught me some critical lessons in it. It was like a stepping stone; I’ll put it that way. I feel like personally, I needed that education, and those pros and cons to realize that “Okay, really what I should be is a passive investor, because I love real estate and I’m passionate about cash flow and the tax advantages, and just the concept is there and it’s such a great asset class to me, but I hate being in the business of real estate personally.” This is where it’s so personal. That’s not the right answer for a lot of people, but for me it was.

So this gave me an outlet to be hands off, to be passive, to still get the advantages of real estate, but not have to be in the business of it, and it provided me scalability. Whether I had one syndication investment or 100, it’s pretty hands-off, all in all. So again, that was personal, that was self-reflection, I went through those motions. But a lot of folks are career-focused. They’re just busy professionals who say, “Look, I’m a dentist. I’m not going to pivot my career and start being a fix and flipper. I’m not going to do that, but I would like to park some capital somewhere, and maybe the stock market isn’t my favorite choice, or I’m already heavily allocated there. Let me look for some alternatives.” So to my surprise, that’s a lot of people in this sector.

Theo Hicks: So it sounds like most people either start off in active and then say, “Well, this is a lot of work. I’d rather do something else,” and then transition into passive. and then the other one would be professionals like doctors, lawyers that you mentioned who just start and stay as a passive investor. Do you ever see someone who wants to be an active investor and starts off as a passive investor, and then transitions into active, or is that something that’s pretty rare?

Travis Watts: No. Between 2015 and 2020, this whole sector has exploded with education and conferences and resources and books and all this stuff. I didn’t have a lot of that in 2015 to go off of, and so now what I hear a lot is exactly to your point, is like, “Hey, one day, I’d like to be a syndicator myself, but quite frankly, I don’t know anything about this other than I went to a conference and heard about it. So I’ve got some capital right now, I’d like to put that to work in a syndication. I’d like to see how it works. I’d like to ask my questions. I’d like to see it firsthand. And then as I’m educating and growing and learning, end up doing my own deal down the road.” That’s huge. I don’t know percentage-wise, but yeah, there’s a lot of those conversations that I have as well.

Theo Hicks: Yeah. One of the ways that we say that you can break into the active syndication route is to start off as a passive investor, because again, the things you need are education and experience, and it’s like catch-22, because in order to raise money, you need to have experience, but in order to get experience, you need to already raise money. So a good way to get into syndication is just to passively invest.

Now, I’ve got another question. So again, this is for you personally. You started off with single-family, you’ve had your 100-hour week job, and I’m assuming from both of those things, you were able to become an accredited investor, because to get the multifamily on the passive side, you need to be accredited. So I know the answer’s going to be, “It depends per individual,” but maybe walk us through if you talked to someone who really wants to get into multifamily, they really liked the idea of passively investing, but they’re not accredited. What would you say to someone like that?

Travis Watts: That’s a very common question that I get all the time. So here’s the thing – I had this illusion when I first got started that everything out there is only for accredited investors. Because you hear that thrown out there so much – accredited investors, accredited investors. So you start tp think “Well, I’m not there yet, I guess I just can’t do this.” Well, false. The majority of people in the syndication space, as you know, are operating under a 506(b), and a lot of those groups, not all, but a lot, are able to accept 35 sophisticated investors that may not be accredited in each of their offerings. Now, again, not every group will do that, but it’s an option to them as legality, if they choose to do so. So point being, a lot of groups you can invest with when you’re not accredited.

Second, there’s another regulation, Regulation A. So again, unlimited amount of sophisticated. So there’s all these different things, and these crowdfunding platforms. Outside of the syndication space, you’ve got publicly-traded REITs, Real Estate Investment Trusts, and the stock market… So I always use that example to paint the picture. If you’re interested in passive income and hands-off investing, there’s a lot of different outlets for you, including, if you’ve got 10 bucks, you can buy a share of a REIT in the stock market that delivers X amount of percentage per year. So you can literally get started in this journey with 10 bucks. So don’t feel like, “Well, I don’t have 100,000 to invest. Oh, I’m not accredited yet.” There’s plenty of opportunities out there in the space. But let’s touch on the other part of that question that you asked.

So I was an extremist. When I got started in 2009, I didn’t have a whole lot of money. Quite frankly, I had been saving since I was 15 and working. I had some money set aside for college that my parents had saved, but I ended up getting a scholarship, so I didn’t actually use that money. So I coupled the two, and that was my downpayment for my first property. Now from there, I started doing house hacking. So I actually had a roommate that was paying my mortgage. So I’m living free there. So now I’m starting to save more and more; then I end up getting this oilfield job that pays way more than what I was making at my other job, but I never changed my lifestyle for many years. So it’s this FIRE movement mentality, Financial Independence, Retire Early, in that, I was making decent money, I was living off nothing like ramen noodles like college students do, and all of that savings in between, I was pushing it into real estate. So it’s just next property, next property, and fix and flips, and vacation rentals, and house hacking and save, save, save and work, work, work. So yeah, I built a nest egg to the point that I could participate in all of these types of offerings as an accredited investor. But that was extreme, and I did that in as short of a timeframe as I could, and thank god there were things that were luck, like the market.

No one knew, by the way, when you’d said 2009, great timing… In hindsight, yes, but at the time, there was so much negativity around me. It was, “What if this thing drops another 20%? This house could go even lower next year.” I mean, there was all that fear, because no one knew it was the bottom. No one ever knows when it’s the bottom, until we can look back ten years later and go, “Oh, well, clearly, that was the bottom.” So I just had to go to the facts, man. I just had to say, “Look, this house, three years ago, sold for $165,000. Today, it’s $95,000, and the government’s giving out an $8,000 tax credit for first-time homebuyers. Facts.” So I crunched the numbers, I ignored the noise. I thought, “Well, that makes sense,” and if I get a roommate, that’ll actually just pay my mortgage. So it just makes a lot of sense. So that’s what gave me that certainty to get started despite the news, the media and my peers, and even my own family was telling me to rent. I had to ignore it, It was tough, but that’s what you have to do sometimes.

Theo Hicks: When you talk to people – and again, this can be a specific number or you can give me an average or a range, but when you talk to someone who’s [unintelligible [00:21:56].12] I guess, and they say that, “I’m ready to get started in investing,” what would be the typical amount of time for getting from that point to actually investing in a deal?

Travis Watts: Good question. Well, you have to start building relationships; it’s a relationship business. So you’ve got to find groups that align with your philosophy, your interest, the types of deals you want to be in. With the example of the 506(b), usually there’s not a set timeframe to that regulation, but usually, it tends to be like a 30 day or whatever, 60 days… Because you’ve got to have the relationship first. They can’t just submit a deal to you same day that they meet you. So usually, that’s 30-60 days later. “Oh, now we have a deal. Oh, I remember speaking with you a couple of months ago”, and then that deal isn’t probably going to close for one, two or three months after that. So I mean, you’re looking at multi-months before you’re probably in a deal, and then another month or two after that until distribution starts. So yeah, there could be a six-month timeframe.

What I always advocate people do is even if they feel ready, even if they feel certain and they’re like, “I’m ready to do a deal today. I gotta hit the wire button”, just keep continuing your education, keep networking, keep reaching out to other groups, keep learning in this process. Because you may find, after say two, three, four months, you stumble across some self-storage, and you decide, “Hey, I like self-storage a lot more.” So you don’t want to jump into the very first thing you see in here, and then six months later, learn a thing or two and go, “Ah, I’m in a five-year commitment now. I wish I hadn’t done that investment.”

I made a couple of those mistakes with a couple of operators that I first invested with without track record, without experience, that were local to me, and it sucked. I don’t know how else to put it, but it was one of those realizations as I kept continuing my education that a year later, I’m thinking, “Wow, there’s so many better operators out there. There’s just better deals, but I’m stuck. These are illiquid investments.” So you want to take enough time to not only feel certain and ready to find the right partnership for you.

Theo Hicks: Last question. So if someone’s listening to this and they say, “I’m ready. I want to get into multifamily,” specifically right now in their in their car, what’s the first thing that they should do immediately right now in order to take action towards actually getting into that first deal?

Travis Watts: I would say, know your criteria. I always come back to that first. It always starts with you as we’ve been talking about on this show. So do you want to be in A Class, B Class, C Class, multifamily, self-storage, mobile home parks, first-lien notes… There’s so many things that you can invest in. So know what it is and know why that asset class.

So I did a ton of research before I got started in 2015 on B and C Class value=add, multifamily apartments. That was my niche. And then I wanted to find — for example, another piece of my criteria is monthly distributions when possible. It’s not a deal-breaker, because that’s not the industry norm. Most people do quarterly distributions. But to me, this was going to be my income. This was turning into my own salary that I had created, so I wanted to be paid monthly, not quarterly; it’s just a personal thing. But to some other folks, they may not care. They may be investing with a self-directed IRA that they’re not going to touch for 30 years. Who cares about quarterly versus monthly? But for me, it mattered.

Then what I would do from there is say, “I know my criteria, I know what I want”, I would go networking and seeking those groups,” and that’s where I’d partnered up eventually, thank God, with Joe Fairless, because all the deals aligned with my criteria. I thought, “Holy crap, that checks every single box I’m looking for,” and that’s the key. You want to find those types of partnerships.

Theo Hicks: Perfect, Travis. Well, thanks for coming on. I hope you enjoyed it. I’m sure Best Ever listeners’ got a lot of it. Just to quickly summarize what we talked about… Again, the main topic was the best time to get started in multifamily, and the answer is, well, it depends. If you have that certainty, as you mentioned, which comes from a combination of education and experience.

So we talked about really, there’s all different types of paths. You can start actively in single-family homes or fix and flipping, and then transition into multifamily actively, and then transition into passive investing. You can start as the passive investor, you just start with multifamily, but it really just depends on what your goals are and where you’re at. You mentioned that it is possible for people to go from passive investing into active investing, because that’s a great way to gain experience without having to do large multifamily deals by yourself. If you’re not accredited, that’s okay. There are still opportunities for you out there to work your way up to the point where you are accredited.

Something that I really liked that you said was when you are ready to invest, make sure you don’t just stop what you’re doing, and then wait six months or a year until a deal comes, but to keep educating yourself, because you might find that a different asset class or a different niche entirely is more conducive with whatever your goals are.

And then the first thing that you should do right now if you are interested is to define your criteria, and then define why that is your criteria. So you can write that down. Obviously, it may take a little bit of time educating yourself on what the criteria is, and this is definitely an evolving process, as you mentioned, which is to continue to investigate these things until you actually invest. I think we really hit on most of the things that people need to know to get into multifamily. Anything else you want to say before we conclude the episode, Travis?

Travis Watts: I guess, just in conclusion, I don’t know if I already said this or not, but the point is, everybody has an opinion, but the only opinion that matters is yours when it comes to choosing your future, where you want to go, what you want to do. So try blocking out the noise, essentially; go inside and just decide what’s right for you.

Theo Hicks: Alright, Travis. Well, thanks again for joining us. Looking forward to our talk next week. Best Ever listeners, as always, thank you for listening. Have a best every day and we’ll talk to you tomorrow.

Travis Watts: Thanks, Theo.

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JF2157: 8 Apartment Syndication Lessons From Tools Of Titan | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, will be going over 8 key lessons he learned from the book Tools of Titans by Tim Ferris. 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

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TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air a Syndication School episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we’ve offered some free resources for you. These are free PowerPoint presentation templates, Excel calculator templates, PDF how-to guides, some resource to help you along your apartment syndication journey.

All the past Syndication School episodes as well as free documents are available at syndicationschool.com, and in this episode, we are going to go over some of the top apartment syndication lessons from Tim Ferriss’ book Tools of Titans.

So we’ve actually referenced this book before on the syndication school when we talked about the concept of 50-50 goals, which I will briefly reiterate later on in this episode, because that is one of the lessons, but in addition to that, we’ve got seven other lessons that we took from the book, Tools of Titans. A really big book, but it’s written in a way that allows you to go to a specific type of person. It’s got a really good index, and it’s got really good searchability. It’s the kind of book that you can read front to back, or you just read it to get little tidbits, little pieces of advice that you want to get from the Titans, the billionaires, the icons, the world-class performers, and maybe by Tim Ferriss. I have a blog post on this, but the blog post was written geared towards passive investing. So I wanted to take these same lessons and apply them to you, who is an aspiring apartment syndicator. So again, these are eight lessons; let’s jump right into it.

The first one is to ditch conventional marketing. Essentially, what Tim Ferriss means here is that the traditional conventional way of advertising, those days are gone. He says that if you want to breed substantial results for your marketing efforts, you need to think outside the box; you need to be creative. He talks about how the traditional way is the hard sale, whereas now it is better to abandon that super aggressive approach and be not more passive, he says, but more elegant and more subtle. So a perfect example of this would be providing free content to potential customers. So as opposed to a straight-up going from meeting someone to asking them what you want, add value to them first. That’s a lot more subtle and elegant way to, in a long term, create and breed better results, as opposed to as Tim Ferriss mentions the conventional way, which is the super hard sale, and both in person as well as in your copy. So maybe a good first step would be to, for example, take some writing course. So there’s the Udemy who has a lot of good courses. You can take a copywriting course to figure out what’s the best way to create copy that is able to attract customers without turning them off by being overly aggressive. So Ferriss swears by this method of subtle and elegant advertising as opposed to the super-aggressive approach. That’s lesson number one.

Number two is to not fear fear. So rather than avoiding unpleasant feelings, foreign feelings, he says that it’s better to actually embrace those. He says that, for example, the fear of taking some risk. Of course, it’s good to take calculated risks, but if you let your fear dictate your actions, then you aren’t going to take really any action at all because there’s always some excuse we can come up to ourselves to tell us why we shouldn’t reach out to that broker property management company or why we shouldn’t get into apartment syndication in the first place.

He says that if your behaviors are often dictated by fear, be more mindful about the emotions that you’re giving your energy to. So just your standard mindset advice, which is just to be aware of your fears. I was interviewing someone today and a good exercise she says was to journal. Say, for example, you have some thoughts that’s keeping you from taking action. Let’s say taking action from, I don’t know, reaching out to a broker – so journal and write down specifically what that thought pattern is in your mind and that’s resulting in you not taking action, and then ask the follow-up question – Is this true? Do I have evidence to support that this thought is true? Do I have evidence to support that the outcome I’m afraid of is going to happen? If that outcome that I’m afraid of actually happens, what is the result of that? Is it the end of the world or will I actually learn from it and grow from it? So that’s the point, I think, Ferriss is making here is that– as Trevor McGregor says, “There’s no failure. There’s only feedback.” So don’t be afraid to fail, because when you fail, you’re going to learn a valuable lesson that as long as you apply that lesson moving forward, you are better for it. So that’s number two – don’t fear fear.

Number three, and this is very, very important for apartment syndications, is that qualifications don’t matter. So the idea that you need to have this massive amount of knowledge on a specific topic or a specific industry in order to take action doesn’t sit well with Ferriss, and he says that as long as you have a passion, then you’re going to be able to get through any obstacles. But a big obstacle from people starting in apartment syndications is “Well, I don’t have the knowledge or the education or the experience. There’s something I’m lacking that I need before I can go out there and do big deals and raise money”, and while it’s true to a degree, it’s unlikely that you’re gonna go from graduating high school or college with no relationships, no knowledge whatsoever of multifamily, and then do a 500-unit deal with $20 million raise. Sure it’s possible, but there’s also on the opposite of the spectrum is don’t spend years and years of years educating yourself on something and saying that “Well, I can’t do anything until I’ve reached some arbitrary point of knowledge.” So have your bases covered, but as long as you have that passion, as long as you have that drive, and as long as you have at least some foundation set up, what Tim Ferriss believes is that failure– you ultimately not reaching your goals is something that’s just not going to happen. So he thinks that passion and drive is more important than having the right qualifications.

Something else he doesn’t necessarily talk about here is that you can hack this qualification process by bringing on team members who have that experience. Finding that product management company that has that experience, finding that mentor that has that experience. So again, ultimately, you do need to have that education part covered, which is what you’re working on right now, but you don’t need to spend ten years educating yourself on apartment syndications before you do your first deal. So that’s number three.

Number four is to become comfortable with public speaking. So he talks about how a lot of people have a fear of public speaking; maybe one of the biggest fears. But Ferriss believes that there is a strong connection between being successful and being a good speaker. So a thought leadership platform is a perfect example. Let’s say you’re already super successful; then by you getting good at public speaking, you can inspire other people to follow in your path. So obviously you might not be a master, but as you become more and more comfortable with what you’re doing with the apartment syndications, make that thought leadership platform. Get out there and share your advice with other people even if you’ve done one deal. It’s huge that you’ve done one deal, but even when you’re in the process of doing your first deal, that information is going to be valuable other people. So focus on that as opposed to focusing on how scared you are, a public speaker.

That’s Joe’s big piece of advice is that whenever you are public speaking, as opposed to focusing all of your attention on yourself and how you feel your anxiety and fears of speaking, focus on the audience and adding as much value to them as possible. Another really good way to get better at public speaking would be to take some course. So I took the Dale Carnegie public speaking course, and at the end of the day, once you have that training, it’s very difficult to be afraid of doing a normal talk in front of people because of the different outlandish, goofy things than if you do in front of a complete stranger. So they make you go through these exercises where you humiliate yourself, not in a gross way, but you act and you say completely absurd, outlandish things.

One of the exercises was you had to go up there and sing the “I’m a little teapot” song while doing a teapot thing and singing it in a really high pitched voice. Then everyone’s sitting in a circle and you act like you’re a mountain troll or something, and you say the fee-fi-fo-fum thing. Some girl got so into it; it was really funny, but it shows you that if you’re able to do something like that, then you’ll be able to stand in front of people and have a normal talk as opposed to having to do the little teapot, I guess is the point. So Dale Carnegie; you can look that up. It’s pricey, but again, just think of it as an investment. So that’s number four – become comfortable with public speaking.

Number five is to ask these stupid questions. So you’d think that this would be only relevant to passive investors, but this is also relevant to you, for a longer learning process; and this could be literally asking a mentor or a property management company or a broker stupid questions, or it could be you asking yourself stupid questions to make sure you actually know what you’re talking about. Because at the end of the day, it doesn’t really matter what you’re doing, there’s nearly an unlimited amount of information that you could discover, and the more information you have, the better decisions you’re gonna be able to make. So if you’re interviewing a bunch of property management companies, don’t be afraid to ask them a question that you deem to be stupid. It is going to provide you with information that you need in order to make the correct decision on who to invest with. So there really isn’t a stupid question when it comes to interviewing people, and at the same time, if by asking yourself what might seem like stupid basic questions and then seeing if you can answer them, it’ll also promote growth. Because if you realize, “Well, hey, I actually don’t know the answer to that question. So now I need to go out and get the information,”  and even if no one’s going to ask you that question ever, you’re still gonna have more knowledge and get closer to mastery of a specific subject, and then ultimately, more mastery of the apartment syndication strategy as a whole. So that’s number five – ask the stupid questions.

Number six is to not sell yourself short. This is where that 50-50 goals comes into play. So it’s easy to think that you are not progressing. You set a goal for yourself to do apartment syndication for the year and then you don’t do that goal, and then in your mind, the year was a complete failure. Keep in mind something that Joe always says that he got from, I believe, Tony Robbins…. It’s that you think you can do more in a year than you can actually do, but you think you can do much less than you can actually do in five years or in a decade. So this is a very long-term strategy. Real estate is a long term strategy. It’s not a get rich quick scheme. So if you end up not achieving your quarterly goal or your yearly goal, try not to stress out about it so much and instead use the 50-50 goal approach, which was from this book as well, and it says, “50% of the success of a goal is actually achieving that defined outcome.” So if your goal is to do an apartment syndication, then half of your success is if you actually did that deal, but the other half of this it says, “Did you learn anything during that process?” So let’s say you didn’t achieve your goal of doing an apartment vacation in your first year… What did you do that got you closer to doing an apartment syndication? Who did you meet? What piece of education did you gain? Do you have a team built? Have you spoken with people about raising money? Have you attended some– I guess you can’t really attend much stuff now, but have you taken a lot of online courses or have you been listening to a lot of podcasts to determine if you actually made progress towards doing apartment syndications. Did you create some process or system that you’re going to take with you for the next 10, 20 years in your journey? So half of it is the defined goal; the other half is actually the systems and the information and the people that you gained along the way. So that’s number six – don’t sell yourself short.

Number seven is to find an uplifting community. So it’s technically impossible to do anything in life by yourself. Even if you’re in a cave by yourself, eventually you’re gonna have to interact with someone to get food or water or whatever. But obviously, we’re not in caves here, but the whole point is that no matter what you do, you need other people, you need help from other people, and this is especially true for syndications. You need your team to help you manage the deals, to close on the deals, to fund the deals… But at the same time, you also want to have another team of people who are doing what you are trying to do or have already accomplished what you are trying to do, and surrounding yourself with a community of people that align with you, align with your goals, align with your values. A fellowship of sorts, where you’re doing the more technical stuff with your property management company, your broker, and then you’ve got your other team where you can talk more abstract, long term strategies, get tips and different processes and things that work for them. Overall, have people that you can talk to that have similar interests, similar goals, similar values. So this is your core group of people that you can rely on.

Then lastly, and this is pretty straightforward, but you got to show up. At the end of the day, none of the other things are gonna matter if you don’t actually take action and show up. So this is the glue that holds all the other lessons together, is that you have to show up to do marketing. You have to show up to overcome your fears. You have to show up to be a public speaker. You have to show up to ask questions, to find a community. You have to take action. You have to, every single day, do something that is bringing you closer and closer to whatever your goal is.

So those are the eight lessons from the Tools of Titans book that we took away and again, there’s this based of a blog post, but it’s not written towards syndicators, so I thought it’d be great to go over today’s lesson. So to summarize is ditch conventional marketing, don’t fear fear, qualifications don’t matter, be comfortable with public speaking, ask stupid questions, don’t sell yourself short, find an uplifting community and show up.

If you do these eight things, you’ll be well on your way to becoming a syndication titan like those who are interviewed in the Tim Ferriss’ book. So that concludes this syndication school episode. Thank you for listening. Make sure you check out some of the other Syndication School episodes about the how-tos of apartment syndications. Make sure down all those free documents; that’s at syndicationschool.com. Thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2156: Institutions vs Entrepreneurial With William Walker

William has experience from both the institutional side of real estate investing and his personal experience of the entrepreneurial side. This unique perspective allowed William to dive into the differences between the two and some of the lessons he has learned from each to help him be more successful.

William Walker Real Estate Background:

  • Co-owner of 4M Capital Real Estate Investment
  • 5 years of real estate investing experience
  • Portfolio consists of 1650 units, built & sold 10 single-family homes
  • Based in Nashville, TN
  • Say hi to him at: www.4mrei.com 

Click here for more info on PropStream

 

 

Best Ever Tweet:

“Sometimes knowing what not to do is very beneficial” – William Walker


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-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, William Walker. How are you doing, William?

William Walker: Doing well, Joe. Thanks for having me.

Joe Fairless: Well, I’m glad to hear that; it’s my pleasure. A little bit about William – he’s the co-owner 4M Capital Real Estate Investments, his portfolio consists of 1,650 units, he’s built and sold approximately 10 single-family homes, he’s got five years of real estate investing experience. So how did he get to this point within five years? That’s one question I want to ask. He’s based in Nashville, Tennessee. So with that being said, William, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

William Walker: Sure. I’m originally from Nashville, didn’t come from any real estate family or multi-generational company type deal, but started getting into real estate in 2014, really studying the business and trying to learn as much as I could. Through college, I studied accounting and finance and continued to learn real estate just whenever I could, educating myself, getting involved, going into meetings, that sort of thing.

In about 2016, I had acquired two rental properties, single-family and I positioned myself to get into a group within the organization I was working for at the time, Ernst and Young. I started out as an auditor, CPA route, but moved into their transaction real estate practice in 2017 in Atlanta, Georgia. Got a lot of great experience there and worked on some larger multifamily acquisitions from a consulting standpoint, doing things like commercial appraisal, quality of earnings analysis and due diligence. When Mid-America purchased Post Properties in 2017 – it was about 20,000 units – we were very involved in that acquisition, and that was a great learning experience for me.

Another big part of my background was getting involved in a coaching and networking mastermind for multifamily and just getting around operators that weren’t in the institutional level that I was used to seeing from my corporate days, but more boots on the ground, putting deals together. So that was a great experience as well. It was key to some of the relationships that I made in those groups to where I am today.

Joe Fairless: A lot unpacked. First, what coaching group are you referring to?

William Walker: It’s ARI Mentor. It is ARI Mentor.

Joe Fairless: ARI Mentor. Okay, is that Dave Lindell?

William Walker: Yes, that’s correct.

Joe Fairless: Cool, and you mentioned that it was interesting to see the difference between non-institutional, more boots on the ground investors compared to your EY experience where it’s very institutional and working on an acquisition of 20,000 units. I’d like to learn more about some things that you have learned from more boots on the ground that perhaps, institutional players could either implement or it’s just interesting to from your institutional experience.

William Walker: Yeah. The best way I can describe it or how I’ve described in the past, with the institutional side, it’s more of a top-down approach and very future-oriented and projection-based. As you know, there’s all kinds of assumptions that go into a multifamily model, and when you’re dealing with that larger portfolios, I think a lot of the underwriting and decisions are made on data you have and just fine-tuning those models for maybe 100 to 200 basis point yield difference. But in more the boots on the ground, the entrepreneur level, I would say it’s more of a bottom-up approach, and you’re really looking at more of an operational side of things, and what’s this property going to take to run today. If I took over today, where would I deploy troops? Where would I deploy capital? Construction’s a big thing that a lot of people, I think, in the finance world don’t necessarily know well. Maybe they have national averages that they can plug into the model, but I think really getting on-site and understanding construction and understanding where you can save money and where you can be taken advantage of is critical, and that typically, from my experience, wasn’t learned at the institution side. More on the entrepreneurial, boots on the ground side. I’d say more so managing the asset.

Joe Fairless: Thank you for that. It was a poorly worded question and you answered it very well. So I appreciate that.

William Walker: Oh, thank you.

Joe Fairless: So let’s talk about what you just said – knowing construction well, where you can lose money or save money, and you tend to see the entrepreneurs, local owners, just non-institutional groups and guys and gals do that better. What are some specific examples that you can talk about?

William Walker: Specific examples that I could talk about is cap ex. That’s a big thing that– it’s one of the largest assumptions going into an acquisition and I think it’s very rarely talked about. So coming up with a number that you know is going to enable you to execute your value add plan and knowing that you can get those renovations done for that cost and breaking that down on a painful detail is very important. Again, if you’re not really plugged into construction, you’re not communicating with GCs regularly, you’re not involved in projects like roofing or replacing 200 windows or any of the things that go into these value add renovation plans, then it’s difficult to know– okay, can I really execute my plan with this cap ex amount of money, have reserves left over? And I think those are things that are really learned from getting experience on job sites or talking with GCs constantly… And maybe some of the more private equity guys side of the business were doing that, but I just didn’t see that a lot on the institutional side. So not that you can’t still execute a successful acquisition and plan, but I think when you break out and you’re putting together money and raising deals on your own and doing it more on an entrepreneurial scale, and you don’t have quite the budgets that Mid-America has or Cortland has, then it’s very important to one, be able to know your cost, know that you’re not being taken advantage of and they’re doing a lot more work than really needs to be done because contractors want to do more work. Sometimes knowing what not to do is really beneficial.

And then, just working with GCs, it’s difficult to find good general contractors that you can trust. You can give them enough lease to work and not get into trouble or have change orders all over the place. So it’s a dance with the construction side of the business and that’s in the 60s, 70s, 80s built space. That’s one of the biggest components, I would say, to running a successful plan, is executing that construction in a cost-effective way and with minimal overspend.

Joe Fairless: It’s interesting when you mentioned knowing what not to do is as important as knowing what you need to do. Do you have an example of that, that you could just drill down a little bit?

William Walker: Yeah, real specifically, I can think of when we were pricing window replacement on – I think it was 150 units, 160 units – and we were walking the property with the window contractor that we were going to have install on the property, and he was telling us all of these different things, that we got to replace the window seal and redo this and redo that, and my partner at the time was just giving an example of “What if we just did this, as far as not replace the window seal and pop it in from the back?” and it was a dumbfounded look, and I’m not sure if he just didn’t think of that or he wasn’t expecting someone to know… But basically, it cut the work in half on replacing a window, and you extrapolate that over 150 units, call it four windows a unit, it’s a big cost saving. So that’s what I mean when knowing what not to do… Because sometimes a GC will look at a job and they might do more than what’s absolutely necessary.

Another recent example I could provide was we were doing a simple turn at a property we own, and our maintenance supervisor was thinking that we needed to replace the subfloor based on one little area, and instead of ripping up the toilet, ripping up the flooring and the sub-flooring, we cut out a piece of the flooring and replaced that subflooring, and then laid over our floor and it wasn’t brand new, but it probably cut our costs in half, if not more… And just did daily decisions like that, that are hard to catch from afar. Within big projects, there’s decisions made on the ground a lot that are difficult to come up with if-then scenarios to anticipate every time, and just having that construction knowledge to be able to make that right call and say, “No, we don’t need to do this. We can do it a different way and save a lot of money,” is very important… And coming back to that capex budget and maintaining that budget and getting the work you need done.

Joe Fairless: You studied accounting and finance in college and then you were an auditor shortly thereafter, it sounds like, and then you moved into transactions with real estate. How did you get this background in construction and knowing it well? You seem to really go back to hey, this is a part of the business that you’ve got to be an expert on. So how did you get that expertise?

William Walker: That was really developed through my partner who’s stronger in that areas than myself and learning through some of the acquisitions we’ve done over the past several years. Growing up, I started working from an early age for my dad at different types of work like that, doing some work with your hands… So I think it was instilled in me, and something that I wasn’t scared to get involved in and doing it; I was e comfortable doing it, from a labor standpoint, but really just getting involved in some of these transactions… I was also involved with a couple of partners doing some single-family builds, as you mentioned, in Nashville, and on one of those projects, I inserted myself as a project manager. I wasn’t swinging hammers or executing on the labor side, but what I was doing is scheduling and coordinating all of the different trades to come in and build that house, and that gave me a really accelerated understanding of once you start tearing down drywall, okay, what are the components of the house or the apartment unit. Once you start breaking down behind the drywall, it really opens people’s eyes and it becomes a lot easier to visualize “Okay, how is this built?” and take that moving forward. But there’s a gradual stepping stone type deal, just one project after another, getting involved in construction, not necessarily executing, but getting involved, getting on-site, understanding what’s going on, that sort of thing.

Joe Fairless: Five years, almost 1,700 units, and approximately 10 single-family homes being built. How’d you do that in such a short period of time?

William Walker: Well, I definitely didn’t do it by myself. I had some good partners. I had some people that I was lucky not to partner with along the way as well. Going back to– sometimes it’s things you don’t do or knowing what not to do. So surround yourself with the right people being relentless, and I think educating myself when I finally did get opportunities to get deals done and put them together and be a part of that, knowing what I’m talking about and being able to add value in any way that I could.

Joe Fairless: So let’s talk specifics. What’s the largest deal, unit-wise, that you own?

William Walker: That would be the 208 units that we acquired in December. It was 80% occupied, got it from a longtime owner who had built the property, fully paid it off, fully depreciated it and it needed some real good TLC.

Joe Fairless: Where at?

William Walker: That’s in South Georgia. Columbus, Georgia.

Joe Fairless: Okay, and you are not there, you’re based in Nashville. So first off, you said you have a business partner who’s stronger at construction than you are. Who’s on the team and what are their primary roles?

William Walker: Morin Miles is my partner who’s leading the charge, but we have a property management company that manages our internal properties; we don’t do any third party. There’s approximately 49 people working operationally across the properties in management, maintenance, sales, regional managers. We also have a construction company that’s headed up by an individual who is a construction expert, supervisor. He manages all the cap ex projects across our portfolio, and we’re working with two virtual assistants that help us as well, but we’re pretty lean and mean. We work virtually as well, to a certain degree. We have a controller that sits in Nashville and helps us with our financial reporting and tax preparation, and we’re trying to build more of an office in Nashville, but with our current economic and health situation, that put a little bit of a kink in the chain on building a presence in Nashville from an executive standpoint and building out that back-office support, but we’re still communicating and working virtually and able to carry on.

Joe Fairless: The largest is 208. If you can just quickly go through some other large deals that you’ve got. I just want to learn more about your portfolio.

William Walker: Yeah. Starting July 2018, we bought a 160-unit property in Georgia, and then we went on to buy close to a little over 1,400– 1,490, I think, was the final number, by that next year. So I had a really big year in 2019, but I ran through those acquisitions of the 160 units, bought a 58-unit that was at auction, all-cash transaction. The next one was a 108-unit in Atlanta, Georgia. After that, we bought a portfolio with an 88-unit and a 107-unit property that were real close together; 70s built. Closely after that, we closed a four pack of deals. That one was 165 units in Georgia. Another was 172 units in Indiana. Another 88-unit complex, a 50-unit complex that was all purchased together. I’d say we’re opportunistic. We’re not so big that we’re going to scoff at something under 100 units. But in order for us to buy a smaller property, it’s really gonna have to make sense and be a juicy one as we say, and probably have somewhat of a presence in that market already where it’s not a huge burden on management, it can be absorbed in our current management infrastructure in that market. The largest deal that the company has done in the years past has to be 270 units.

Joe Fairless: Okay.

William Walker: 272, I think it was.

Joe Fairless: When did you exit that one?

William Walker: 2019, we sold 1,100 units and picked up about 1,490.

Joe Fairless: So I’d love to learn more about what you’ve learned from buying units between 50 to 100 size properties. Some people stay away from those; you and your business partner do not. So what are some things to keep in mind that we should be aware of when we’re purchasing that size of property?

William Walker: The stereotype, I guess, that the smaller ones can be more difficult than the larger ones; that’s definitely true. In the 50 unit that we purchased – that’s the smallest one we’ve done – there was some HUD issues that we had to jump through all kinds of hoops. It was a mom and pop owner, their records were poor, they weren’t in compliance with HUD, HUD hadn’t been doing inspection… So we had to coach the seller through getting all of this information; we had to deal with HUD. This was back during the government closed down of last year as well. So that’s the latest.

But I would say the smaller properties can be more difficult to run because you don’t have revenue to cover a full-time staff or cover that overhead. So a lot of time is spent on those units. If you don’t have that larger management presence, if you have a couple hundred units in the market, and you have a property a mile down the street, that’s a completely different conversation than saying, “Hey, I want to move into a new market and buy this 50 unit property. By the way, I’m five states away.” That might not be a winning solution. I’m not saying it can’t work, but that would be my best advice.

Joe Fairless: How does it work? If you don’t have that three miles away… You just said, “It’s not a winning solution, but I’m not saying it can’t work.” So how could it work?

William Walker: It would work if you bought it off-market in a distressed situation at a very good price per door, and it didn’t really matter because you had enough room in that deal to execute the plan, hire somebody to manage it and still make money on the back end.

Joe Fairless: Got it. What are some ways that you found effective to find those 50 to 100 unit deals?

William Walker: Working with brokers that aren’t necessarily on the national platform. The guys that are not new to the business necessarily, but maybe have a smaller brokerage shop and aren’t doing the national marketing blast with the CBRE’s and the Cushman & Wakefield to the world. Typically, they’re attacking some of those smaller type units in secondary and tertiary markets.

Joe Fairless: How do you find those local brokers since they’re not on the national stage?

William Walker: It’s a combination, I think, of networking, trying to get our name out there, tracking deals that have been closed and seeing who the brokers were on those deals, and getting in touch with them that way. But I think it’s getting out there. Being in this business is very much to me a long term game, and it takes a little while to build a reputation. I think a lot of people get in it and within six to 12 months, you never hear from them again. So in my eyes, there’s almost a testing period where you’re not really taken serious by any of the brokers until they know you’ve either closed the deal or they’ve seen you come around for more than 6 to 12 months kind of thing… And also with brokers, they go in and out of the business as well. But I just go back to just network as much as you can. I’m more involved in operations and acquisition to the business nowadays, but in the beginning, when I was first getting going and cutting my teeth, I would talk to anybody I could find, go to any event I could find and build those relationships. And over time, when you’re able to look back and say, “They remember meeting you a year to a year and a half ago,” and you can call back on those same people and refer to deals that you’ve done and ask them what they’ve been doing and what have they got coming up kind of thing, it completely changes the conversation from cold calling a broker that you have no prior relationship with, you’ve never met before, and telling them that you want to buy an eight-cap deal in this market and you’ve got the money to do it, kind of thing. So I think it just takes time and diligence and persistence and networking.

Joe Fairless: What software program, if any, do you use to track the deals that have closed and see what brokers were representing the seller?

William Walker: We use ActiveCampaign for CRM management tool; it’s one of the tools we use. And then good old fashioned Excel spreadsheets. I definitely have many spreadsheets and lists tracking different deals that we’re interested in, and try and be selective and instead of taking a shotgun approach; maybe more of a rifle approach and really being targeted about who we’re speaking with, who we’re building relationships, which deals we’re targeting that maximize our game plan, and what we believe is we’re best suited for in our competitive advantage, if you will.

Joe Fairless: So ActiveCampaign, to the best of my knowledge, is a CRM that reminds you to follow up with people and sends out messages. What I was referring to is, how are you getting that information to put into ActiveCampaign? So tracking deals that have closed and seeing the brokers that represent them. Is it just speaking to other people and talking to them, or do you have some software subscription, or what?

William Walker: Yeah. We’ll call brokers that we’re talking to. We see closing announcements that are passed out and going to the Secretary of State website, obviously, where all real property information is saved and stored in public record. A lot of research is done there.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

William Walker: Hang in there. Sometimes when you’re on the bull, you get the horns, but get back up and time heals all wounds in real estate if you can hold on long enough.

Joe Fairless: Spoken like a person from Nashville. Thank you for that analogy. We’re gonna do a lightning round.

William Walker: Be conservative in your underwriting [unintelligible [00:23:10].23]

Joe Fairless: I want to ask you a follow-up question regarding your bull by the horns thing, but I’m gonna ask it in the lightning round. So first, you ready for the Best Ever lightning round?

William Walker: Yes.

Joe Fairless: Alright.

Break [00:23:24].03] to [00:24:22].13]

Joe Fairless: Alright, William. So on that note, what deal have you lost the most amount of money on?

William Walker: Knock on wood, haven’t lost any money on any deals yet. Looking for some wood to knock on right now.

Joe Fairless: What’s a mistake you’ve made on a transaction?

William Walker: I would say, maybe not doing the deal. I was a little conservative on one that I should have pulled the trigger on. I got hung up on a delinquency charge that I thought I might have to pay to an HOA board. But looking back, I should have done that deal.

Joe Fairless: You can’t think of a mistake you’ve made on a deal?

William Walker: Maybe not requesting an updated survey from the attorney when I should have. So we had to do a rush charge on the new survey, [unintelligible [00:25:03].11]; that’s something I can think of.

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

William Walker: Anonymously. I typically look for opportunities that pass me by and do what feels right. An organization that I’ve donated to lately that I think is a great cause is Operation Underground Railroad.

Joe Fairless: How can the Best Ever listeners learn more about you and your company?

William Walker: Through your typical social media platforms. Instagram is my one of choice. And through our website, at 4mrei.com.

Joe Fairless: That will also be in the show notes link, the website URL. William, thank you for being on the show, talking about the importance of knowing construction and capex projections and giving some specific examples; one of them being replacing the subfloor– No, no, no, just a piece of the flooring, and cutting costs in half at least just through that, and you mentioned other examples as well. And then talking about the importance of partnerships, as well as talking a little bit about the 50 to 100 unit transactions and what to look for from a team, and if you don’t have the other properties in those areas, then here’s what you do need in order to make the numbers work off-market, good price per door, and then you’re going in a good basis. So, thanks for being on the show, really appreciate it; I enjoyed our conversation. I hope you have best ever day, and talk to you again soon.

William Walker: Thanks, Joe.

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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JF2155: Sales Skills to Improve Your Business With Bill Kurzeja

Bill started his career in the military serving 8 years working his way up to Sergeant and is now the Owner and Founder of Professional Success South, a sales training and business consulting firm, he is also the co-host of a podcast called “Get Focused with Bill K and Gina Faye”. During Bill’s conversation with Theo, you will learn Bill’s principles in communication and sales to improve your business.

Bill Kurzeja Real Estate Background: 

  • Owner and Founder of Professional Success South: a professional sales training and business consulting firm
  • Started his career in the Military with 8 years of service working his way up very quickly to Sergeant where he learned discipline, leadership and the importance of clear, effective communication.
  • Started as a salesman in the automotive industry and quickly worked his way to GM.
  • Bill now follows his passion in training and coaching, specializing in the basics of communication and how paying attention to details will build a strong foundation.
  • Co-Host a podcast called Get Focused with Bill K and Gina Faye
  • Say hi to him at https://professionalsuccesssouth.com/about-us 

Click here for more info on PropStream

Best Ever Tweet:

“The biggest fault that people run into is the lack of preparation and not understanding how important it is.” – Bill Kurzeja


TRANSCRIPTION

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

Bill Kurzeja: I’m doing great. How about you?

Theo Hicks: I’m doing great as well. Thanks for asking, and thank you for joining us. I’m looking forward to our conversation, and we’re gonna be talking about sales and communication skills. So Bill is the owner and founder of Professional Success South, a professional sales training and business consulting firm. He started his career in the military with eight years of service, working his way up very quickly to Sergeant, where he learned the discipline, leadership, and the importance of clear, effective communication. He then transitioned into sales in the automotive industry and quickly worked his way to GM. Now, Bill follows his passion in training and coaching, specializing in the basics of communication and how paying attention to details will build a strong foundation. He also has a podcast he’s the co-host of, called Get Focused with Bill K and Gina Faye, based out of San Diego, California. You can say hi to him and learn more about his business at professionalsuccesssouth.com Okay Bill, do you mind telling us a little bit more about your background and what you are focused on today?

Bill Kurzeja: Well first, I want to thank you for having me and it’s really exciting to be on such a great platform with you guys. It’s interesting, I focus obviously in sales, real estate being sales, investing being another concept and avenue within that realm… And I really apply what we do, what we teach and train to all aspects of life. So teaching sales, people tend to get the connotation of “I have to deceive someone in selling”, where that is not the case. Communication is key, and the ability to communicate in order to convince and help people make a buying decision. So what we focus on and what I’ve learned over many years of working with people in many different realms of sales and products, is that it’s all the common theme. The consumer has a question, they’re searching for a result for an answer, and if you can clearly, first off, understand what they’re looking for, their wants, needs, thoughts, desires, you can communicate the solutions to those questions, which helps them make that decision and that purchasing decision or that investment or anything along those lines.

So that’s what we do, is really dive in, focus into what is the mindset within whether it’s just an individual or a full company of 100+ employees, how are we communicating to our consumer and also how we are communicating internally? It’s such an overlooked part of the mindset of a business that we need to be able to communicate all the way through our business. And while serving in the military, it’s in a matter if you were the newest enlisted soldier into the unit or if you were the commander of the entire unit, there had to be a clear line of communication of what the mission was and what we needed to do to accomplish that. So taking those principles and applying it to your business or to your life and how you approach things really helps accomplish the mission through clear communication. So that’s really what we focus on.

Theo Hicks: Okay, thank you for sharing that. So I think a good way to structure the conversation would be to do an introduction into these principles that you discussed, and then maybe after that, we can go into some of the more unique principles that maybe most people don’t know about. So if you could condense your top five sales principles, communication principles, what would those be?

Bill Kurzeja: Great question. So my top five principles in sales would be – the consumer comes to us already interested in whatever product it is. Whether you’re selling a vehicle, a home, investments, they’re approaching you already with the interest in that product. So one of the things you want to focus on is that relationship. So you really want to establish a bond, a trust, and how do we do that? We do that with first your body language. So if you’re an open body language, that’s a form of nonverbal communication, the client is going to feel welcomed, and that’s key. So we want to feel safe as people. So if they feel safe with you right off the bat, there you go, you have step one.

Now you’re starting your verbal communication… Whether verbal I consider through call, text, email, so on and so forth, or face to face… And you want to speak with confidence, and the way you portray confidence is to answer questions and to ask questions. So obviously, you get over the meet and greet part of it, but then you dive into so what brought you here, what is it about it you like, what is it about it you have questions about, and the more you can answer those questions, the more confidence that consumer has in you, that trust, and then you can move on to the next step of really presenting whatever that product is and those features and benefits… Whether it’s an investment, “Go with this investment, over this amount of time, this is the return you’re looking at…” And since you set the steps first, what you’re telling them now is extremely more valuable and believable, because they have that confidence in what you are saying and that trust in you.

And then you lead right into the timeframe, the closing and all those steps ahead of time make the closing that much easier. I call it setting the table. So if you set your dinner table properly and it looks beautiful, when that meal gets served, it tastes that much better, because you have everything led up to that point in time.

Theo Hicks: It’s actually funny that you say that; this is more of an anecdote to talk about setting the table. I was talking to my wife last night about room service, and how typically for room service at hotels, it’s just the restaurant food, but I don’t know what it is, but it always tastes different when you’re sitting on your bed than when you actually get it served at a nice restaurant with a nice ambiance, the music and the waiter and the tablecloths and the silverware. So that’s what that reminded me of you talking about setting the table and how the context of what you’re doing is really important.

Bill Kurzeja: It’s the groundwork. It’s something that we talk about on a daily basis with any other product. If you’re building a building, you need a strong foundation. It’s the same approach within sales. You need a strong foundation, and that’s your meet and greet in your interview right at the beginning. Like I said, it doesn’t matter what the product is or what type of service you’re presenting; you need to have a strong foundation to build upon.

Theo Hicks: So changing gears slightly, what would you say are some of the biggest mistakes that you see people make, besides just doing the opposite of those four principles we just went over? What are some of the more common things that people do that are not setting themselves up for success when it comes to sales and communication?

Bill Kurzeja: Well, the biggest things are in the preparation prior to ever having that encounter, and that is sitting around and thinking that the consumer is going to come to you, the clients’ going to come to you, and it’s just going to be, “Oh, here’s the product. Here we go.” So the biggest fault that I see – and this is along the lines of any line of work – is the failure to prepare. Back to serving in the military, all we did from the time we woke up to the time we went to sleep was prepare, prepare, prepare. You never practiced for wars so much in your life as you do when you’re serving in the military. So that when the time comes, you’re not thinking, you’re reacting. So to me, the biggest fault that people run into is that lack of preparation and not understanding how important that is.

Theo Hicks: What are some of the things that we can do, because it sounds like you’re saying you need to practice. Sports analogies, military analogies, really anything that you do, unless you’re some savant, you’re not going to be able to just wing it. So what are some tactical things that I should do in preparation for one of these types of encounters? So let’s say, for example, I don’t know, just a simple real estate example, I’m a real estate agent and I’ve got an open house the next day, I’ve got people coming in… What should I be doing? Should I be reciting things in front of the mirror? What are some tips you have for that?

Bill Kurzeja: Well, when it comes to having the confidence in order to communicate, absolutely. I wear a suit and tie every day of the week and I practice and speak to myself while getting dressed. Tie my tie, hello, welcome. Just normal, common, everyday conversation that builds confidence, so that when the time comes and you’re actually face to face with someone that’s a total stranger, you don’t [unintelligible [00:11:57].20] your words, you don’t hesitate… Because all those little hiccups [unintelligible [00:12:02].23] because here we are, we’re taking ourselves especially in an open house situation, those consumers are coming into this home, and not only are you trying to present yourself for that home and that showing, but those people are also looking to probably sell a property of their own, or looking for a real estate agent to help them purchase, maybe not that house but a different home, and what is the best way to earn their confidence, and that is to have confidence. And the only way we can have confidence is to practice it.

So the night before, obviously, do to the normal research of the demographics of the area, what type of consumer should we be expecting, where is the school districts, how are they rated, so on and so forth; that’s the obvious and easy thing. But practicing that conversation, normal conversation with whether it’s a significant other, your children… I constantly go back and forth with my kids not only for my benefit, but I want them to be able to go out in the world and effectively communicate with everyone, whether it’s their  teacher, so on and so forth. So that back and forth gives that ability, and then that confidence that they know what to say and how to say it when the time comes.

Theo Hicks: Okay, thanks for sharing that. What are some tips you have on overcoming objections? So I’m an investor, I’m sending out– let’s say I’m driving for dollars or I’m door-knocking to find leads, and I get to a house and I don’t know them, they’re a complete stranger; they’re not really coming to me, I’m going to them. What are some tips you have for me to get them to sell me their property?

Bill Kurzeja: Are you asking in the line of “I want to buy that property from them”, correct?

Theo Hicks: Exactly.

Bill Kurzeja: So again, it comes down to in order to get to that question – so that’s the stake at the end of the day, that’s the meal, getting them to say, “Yes, we will sell it to you.” You need to lay that groundwork and find that information out ahead of time because, just like you said, overcome the objection– the objection obviously is, it’s a cold call. They have no intentions of selling at this point in time, nor do they know you or know that you’re going to knock on their door. So you need to overcome that with your lead off, with your conversation of, “Hello,” and what I would personally do is pay attention to walking up to the door, what does the house look like, what’s the surrounding area, maybe what’s the neighborhood… You have to find a common ground. So whether it’s current weather, or if it’s wintertime and you’re in the north-east, talking about what the winters are like, and wouldn’t it be nice to not have to deal with this, so on and so forth… Because if you can find that hot button– so for example, if you knocked on my parents’ door, they’re at a point in their life, they’re in the north-eastern part of the country, and they’re teetering on that edge of wanting to move to a warmer climate so they can get out more. You need to ask questions to find out where they are and what they like and don’t like, and then focus in on those… And “What if I could accomplish that for you?” And then you lead into the big finale of looking for the purchase at that point in time.

Theo Hicks: Okay, Bill, besides what we’ve talked about so far, what is your best ever communication or sales or leadership or discipline or really anything that you specialize in advice?

Bill Kurzeja: Listen. I know we’ve all heard the analogy, especially in a sales world. We have two ears and one mouth, use them accordingly, but I cannot stress that enough. What I have experienced and witnessed throughout my career, and it’s just sales and this is just meeting people on the street – they’re telling you exactly how to win them over. You just have to listen, and you have to hear, and then use that information and apply it back. So if there was one thing that all of us could do better at, that’s listening.

Theo Hicks: Yes, and I think, to play off of that, that’s why that preparation you’re talking about is so important because I think most people when they get nervous, it’s because they’re not prepared, and when they’re nervous, they just talk and talk and talk and talk and are afraid of awkward silences and things like that. So easier said than done, but I think that in order to implement that best ever advice, you definitely have to set the table, as you said earlier. So thanks for sharing that. Alright Bill, are you ready for the Best Ever lightning round?

Bill Kurzeja: Yeah, let’s go.

Break [00:16:34]:05] to [00:17:33]:08]

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

Bill Kurzeja: Extreme Ownership by Jocko Willink.

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

Bill Kurzeja: I would start a new one.

Theo Hicks: What would that new business be?

Bill Kurzeja: I would start a business of teaching and educating young adults.

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

Bill Kurzeja: By volunteering and working with our men and women who have served, and helping them learn how to transition from the military into the civilian world.

Theo Hicks: Typically, we ask about what your best ever deal is. So I’m going to change it up a little bit and ask you for either yourself or one of your clients, what is the best ever deal that they’ve done, regardless of what the product was?

Bill Kurzeja: So the best ever deal is doubling your sales goal. So I deal with a lot of companies that sell multiple products, and taking that number and duplicating it over last year’s number. So take something like February’s objective and doubling that in 2020 over 2019.

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

Bill Kurzeja: The best ever place to reach me is professionalsuccesssouth.com.

Theo Hicks: Perfect. Alright Bill, I appreciate you coming on the show and giving us your advice on sales and on clear, effective communication. So you talked about how sales really applies to all aspects of life, and that communication is the key to sales to convince and actually help people make a buying decision. It’s not about tricking or lying to anyone, or whatever negative connotation people have about sales… And you said that the theme of sales is that the consumer has a question and they’re searching for an answer, and your goal is to understand their thoughts and needs, wants and desires in order to communicate that solution to them.

Something that I really liked what you said is that when you’re thinking of communication, most people are thinking about me or my business communicating with the consumer, but it also applies to internal communication within the company. This was just very important. We didn’t necessarily get to talk about a bunch, but I think the concept we talked about applied to the consumer can also apply to the business.

We went over the top principles for sales communication. We took the context of the consumer comes to you and they’re already interested in the product; your goal is to focus on the relationship to establish a bond and trust, and the four steps were – one is a non-verbal body language.

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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JF2154: Understanding Your 401k and LLC Management With Jennifer Gligoric

Jennifer is the Co-Founder and COO of Leafy Legal Services, she has a great backstory, going from homeless to owning her own company. Her goal is to protect investors who are growing their business and to prevent them from getting sued and losing it all. She gives tips on what you should do to protect your assets and how to utilize your, LLC, to invest in future deals and she also shares how you can utilize your 401k to your benefit.

Jennifer Gligoric Real Estate Background:

  • Co-Founder & COO of Leafy Legal Services and co-host on Leafy Podcast
  • 20 years experience in real estate
  • From Galveston, TX
  • Say hi to them at: https://www.leafyassets.com/

Click here for more info on PropStream

Best Ever Tweet:

“Treat your real estate investing like a business” – Jennifer Gligoric


TRANSCRIPTION

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

Jennifer Gligoric: I’m doing great. It’s really wonderful to be on the show.

Theo Hicks: Absolutely, and thank you for joining us. I’m looking forward to our conversation focused around the legal aspects of real estate. So Jennifer is the Founder and COO of Leafy Legal Services, based in Galveston, Texas, and she has been helping entrepreneurs and real estate investors get started for over the last 20 years. She has a very harrowing back-story; she found herself homeless as a teenager and managed to put herself through college and become a successful business owner despite the odds against her, and she attributes her success to a mindset of abundance and paying it forward as the means to happiness. If you want to learn more about Jennifer and her company, you can go to leafylegalservices.com. So Jennifer, before we get started, do you mind telling us a little bit more about your background and what you’re focused on today?

Jennifer Gligoric: Yeah. Well, I actually have a pretty long background. My background started in crisis intervention for businesses. Well, I say that… I worked as a young kid. My mom had the longest-running employment agency ever type here in Houston, Galveston Metroplex. So I was the kid that would set up the secretaries that had cigarettes hanging out of their mouths, because that’s how they did it back then, instead of my [unintelligible [00:04:10].17] typing tests and things like that. So I already knew how to interview for a job, how to do the paperwork to get a job, which, if you’re a parent, teach that to your kids. They’re not teaching it in school, and I gotta say that that’s pretty critical. So I already knew how to do basic secretarial stuff and that, but the money was in sales. The money’s always going to be in sales. So I was very driven by the money. So I went into telemarketing and sales, and long story short, I ended up into crisis intervention for businesses.

With a heavy background in HR, I would get in and they would hire me to fix their widgets or, “Oh, we need more brochures. Our pitch is crap, redo it,” and then I’d get in there and it was never that; it was always HR that was tanking the company. They were hiring people at the wrong rates, putting them in the wrong positions, having them do the wrong things. So that was my career, is going in and fixing companies, but really I was fixing small business owners, teaching them how to be better managers, teaching them how to have better systems, how to hire people they can trust and let run to take a break every now and then.

Many small business owners, you ask them, “When was the last time you took a vacation?” or real estate investors, and they just give you this blank look, because they really are always working. Well, that’s not good. Some of your biggest breakthroughs in life are when you take a little bit of a break. You’re just going to run yourself into the ground and you’re going to drive everybody around you nuts when you do that.

About a decade ago, my specialty turned into helping companies scale using entirely remote workforces, but top talent; not $3 an hour VAs, people that had left the corporate world, and for whatever reason, they needed to be at home. Sometimes they wanted to raise children at home, sometimes they survived an accident that they were never meant to survive, or an illness that would’ve kill them five years ago, and they can’t be in commute. And I thought what’s better for the environment than helping people not clog up our roadways, adding to carbon emissions, to not having to build and do this sprawl. People can stay in their own houses. And it’s better for the local communities, it’s better for local businesses, and it’s better for the economy as a whole.

So I did some big scale-ups. I actually met the person I brought on to be my CEO because he hired me to scale up a very large digital marketing firm, and during that time, he was a real estate investor; I was getting into real estate investing because we were dealing with the likes of Than Merrill, Kevin Harrington; we were working with people that were putting them on stage, we were working these huge events, and scaling up very large, well-known marketers. Our first company, we took from three people to 221 people in 21 countries within 18 months, and that’s the power of virtual workforce when you don’t have the ridiculous overhead that you have with offices and everything else, and when you’re hiring the right talent; that’s also key.

Then about three or four years ago – I lose track of time – I was tasked to scale an asset protection law firm. Having already been in the real estate space, and working with some of the top names, it was a natural fit, and as I did that, I realized, “Wow, there is just a lot better way to do it. It can be a lot more cost-effective,” and I have a love of real estate investors and entrepreneurs that are just starting out, but also, there are people that grow and they start getting 10, 12, 13 houses, and they’re getting them all in their own name, and then they lose everything because of one lawsuit. So we have a mission to help unburden the nation’s court system from these vexatious lawsuits, which really piss me off. The idea that someone’s making money by suing other hard-working people really grinds my gears. So if I can stop that and make it very difficult for those people to operate, I want to do that.

So then we started Leafy Legal, and now we have this amazing team. We have attorney relationships across the country and we have the best paralegals with 98% of our clients are real estate investors; the other 2% are entrepreneurs, and we help them hide their assets, protect their assets, have the right structure in place so that they’re operating compliantly and legally, and they’re able to scale in structures that are meant for real estate investors, and then we help them tie that into some incredible estate plans. Plans that are made for people who are young and working, not something you slap together for 50 years from now or if you ever pass away. And then we help them become their own bank and think about money differently by having solo 401ks or SDIRAs. So that’s what I’m doing and I love it.

Theo Hicks: Okay. So let’s focus on the first part first, which is the asset protection and you mentioned how it really grinds your gears about the fact that people make a living off of suing other people. So what are some of the top tips, top strategies that people can start implementing or should start implementing, that maybe most people don’t necessarily know about? What are some of the hidden gems?

Jennifer Gligoric: Well, I think that most people know they’re supposed to have an LLC, at least, but yet they’re still doing things in their own name, and their name is on the LLC. Well, if your name is on an LLC, I can look it up. It’s public record, I can see that you’re a member of that. You want to operate using anonymous structures, and then you want to hold your assets in structures that are not tied to you. You want to have an asset holding company that has arm’s length agreements away from you; that you’re holding in another structure, and the way you operate and you do business and where you hold your assets are two separate places that someone can’t get to.

Theo Hicks: Okay, because I know when I was making an LLC for a property, I was like, “Well, I can just google the LLC, and then my name comes up,” and I don’t understand how that protects me. So can you explain that process for us from A to B? So I create an LLC, and then what am I supposed to do?

Jennifer Gligoric: Well, you’re supposed to go to a company that helps you create an agent trust that is listed on the LLC so your name is not a part of it. You are a beneficiary of that trust, which is a private document, so that’s not filed with the state. So [unintelligible [00:10:41].24] the name that you can find on the state is the name of your anonymous LLC, and you can do it in almost any state. Real estate investors, what you’re going to hear of most, you’re going to hear of Delaware, Wyoming, Nevada and Texas; those are the top four. Most real estate investors, if they’re any bit savvy, you’re going to live events and you’re talking to asset protection people, it’s going to be one or if not all those states. So we create entities in any of those states.

The way you scale your business depends on a couple of things. You need to write down “This is where I live, this is where my homestead is, my house, and this is which state or states I have property in, and this is where I want to grow my business, and this is what type of real estate investing I want to do.” Depending on your answers to all five of those depends on what structure is best for you and it’s different for everyone. Because there’s a million different ways to skin a cat for someone, depending on of course, your budget and where you’re looking to scale and what you’re looking to do.

Theo Hicks: Okay. So I have my agent trust, and then I have the LLC that I buy a single-family home with. Do I use that same LLC to buy all my properties, or do I always create a new LLC for each property?

Jennifer Gligoric: No, you want to use your fundable entity, which I’m assuming is that LLC that you’re trying to create a professional borrow profile with that’s not tied to your social security number, as your professional entity. If you’re still buying in an LLC, but everything’s tied to your personal social security number, you’re defeating the purpose of why you’re using an LLC for that, and a lot of people do that.

So a fundable entity is an entity that you create with the idea that you’re going to have your own credit and you can walk into a bank and you can get a fundable business line of credit up to $500,000, a million dollars, and it’s not tied to your personal credit, and that’s something you need to work on. So we help people create fundable entities, and then your operating company is your anonymous LLC. And then when you get that property, you immediately want to transfer it out of your name and into a trust.

Theo Hicks: Okay, perfect. And then the other thing you worked on was about, you said, being your own bank, and you talked about the 401k. So do you want to walk us through that process as well, if I want to get started being my own bank today?

Jennifer Gligoric: So if you have a solo 401k, you cannot have any employees. So that’s very important; you don’t qualify for this. So this is a specific financial instrument that is available to self-employed individuals who do not have employees, but you are allowed to cover a spouse. And in 2020, you can make a contribution up to $57,000 into your solo 401k, which is five to ten times the normal contribution limit that is for a normal traditional 401k.

For the solo 401k products that we use, you can roll everything but an IRA into a solo 401k. The reason that you want to use a solo 401k if you’re in real estate investing is that you can be your own bank, you can loan money to yourself on your own favorable terms. Because you’re your own bank, you have to pay yourself back; you have to pay it. You have to make the payments, you have to make the payments back on time, but you’re keeping all the interest. You’re also the one that has checkbook control on this. So unlike being pigeonholed by someone else controlling the 401k, say, the reserve, the mutual funds you’re allowed to invest in, these are the stocks you’re allowed to invest in, and here are these limited amount of products you’re allowed to look at, with a solo 401k, you can invest in real estate, you can hold a property in the name of the solo 401k, you can give yourself up to $50,000 or half the total value of your solo 401k, whichever is less (because the cap is 50) and then you can take that money however you need it. So let’s say someone comes to you and says, “I want to start a marinate business, and I just need $10,000, but they want to charge me 13% interest.” Let’s say your rate’s 3%, you charge them 6%, you’re keeping all the extra interest, and now you’re investing in the business.

Theo Hicks: Okay. So I get the 401k to not only buy my own properties, but I can use it to invest in someone else’s properties.

Jennifer Gligoric: That’s right. You can do it in other properties. There are certain restrictions on it. It’s not just the gamut of what you’re spending money on, but considering what is left to a regular W-2 401k, it seems like you can do whatever you want. So there are some prohibited transactions and we have a list of those, and prohibited persons, but for the most part, you can pay off high-interest loans, and then use that same payment at favorable rate and then you keep the interest for yourself. You can bypass UBTI tax and unrelated business tax by using a solo 401k, which is a huge tax benefit. You can invest in other types of businesses, you can invest in Bitcoin. A lot of instruments are available for you that are not available. So it’s very powerful. I was on the Chris Naugle show, the Risky Builders, and he does a money show and he’s like, “Stop having your money sit on the couch,” and I’m like, “Yeah, it’s just eating Cheetos, getting fat doing nothing. You want to make your money work for you,” and that’s a mindset too. That’s the difference between that poverty mindset and then the mindset that really rich people have. They think about money differently, they use money differently. That is not a scary thing for them. They’re like, “Oh, heck, yeah, I’m gonna use that instead of this other one.” But we are given so many fear tactics on money throughout our lives that gives us limiting beliefs. “Pay everything off; you don’t want to have any credit card debt, you don’t want to have any debt at all; you just want to buy everything and pay it off.” And then you go to get a loan and you have this credit score of 820 or 840, and you can’t get anything over $3,500, and you’re like, “How come?” Well because you’re a professional consumer who they’re not going to make a penny out of. So the 80 algorithms that they track you with have said, “You’re not someone that they’ll give money to.” And then you’ll see 680 walk in, and that person walks out with a $200,000 line of credit. Because your credit score is meaningless; it’s your borrower behavior. So when you start to change that and you start using a fundable entity and you start thinking about things different, you have a better structure. With your real estate business, you’re protecting your assets. Those are borrower profiles that are tracked, that are very attractive for banks and lenders; tier one banks and lenders, which is the ones you want.

Theo Hicks: Okay, so we’re gonna cite everything you’ve said so far because I’m sure a lot of that stuff is definitely best ever advice and I’m gonna have to listen to this again because this is a lot of new information and I don’t know how much I can grasp, but I’m sure it’s normal in a 15-minute fitting… But besides what you’ve said so far, what is your best ever real estate investing advice?

Jennifer Gligoric: Treat your real estate investing business like a business. Don’t shirk in the very beginning by getting your entity and everything set up and protecting yourself. So it is a business that you plan on being successful. Because of that, you need to protect yourself because you’re a successful business person. The people who do that ahead of time and get things set up, and they don’t skip step A and go all the way to step F, those are the people that are less likely to lose later on, and they’re more than likely to get respect with different institutions and the people that you work with, and you’ll be more successful.

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

Jennifer Gligoric: Okay.

Break [00:18:31]:03] to [00:19:27]:09]

Theo Hicks: Okay, Jennifer, what is the best ever book — well, I usually we say recently read, but what’s the best ever book to learn more about what we’ve talked about today? We’re changing that up a little bit.

Jennifer Gligoric: Okay. To learn about what we talked about today, go to my website, leafylegalservices.com; you get a free ebook and it tells you all about it.

Theo Hicks: Leafy Legal Services free ebook.

Jennifer Gligoric: Yeah, that’s right.

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

Jennifer Gligoric: I would just keep the podcast. I have a really good podcast that I’m doing. I would probably monetize the podcast more, and I would keep my same team, because they’re amazing. I’d figure out a way to keep my same team. I don’t know; I’d just morph it.

Theo Hicks: What’s the podcast called?

Jennifer Gligoric: Leafy Podcast.

Theo Hicks: Boom, Leafy all around.

Jennifer Gligoric: Yeah.

Theo Hicks: What deal did you lose the most money on, and how much did you lose?

Jennifer Gligoric: Oh, it was a contracting deal, and the most I’ve ever lost was over $150,000. And the reason I lost it — and it was contracting with work with a client, and I lost it because I stayed working with someone that I kept thinking, “They’re not really going to screw me over. They won’t really do this to me. Look at how hard I’m working for them. Look at what I’m doing,” and I was waiting for months for them to be a different person than what they were showing me they were consistently, on a daily basis. Because they would give me these little hints of “they’re not evil”, and I think, “Oh God, you’d have to be evil to screw me over like this,” and the thing is they gave me every single red flag and I needed to go with my gut and I should have cut the cord a lot sooner. So my advice now is when you know it’s rotten, it smells rotten, it looks like rotten, cut the cord. Don’t wait for someone to automatically be a better person than they’re showing you that they are.

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

Jennifer Gligoric: Through work in jobs, like helping people with work in jobs, and then I give back– because I was homeless, so I give back to the homeless shelter that helped me so much – Covenant House. So anytime I can, I’m willing to help them.

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

Jennifer Gligoric: leafylegalservices.com. You just go there you can set up an appointment with me. If you want to talk to me, I give a free consult to anybody. I just want to help people.

Theo Hicks: Perfect. Best Ever listeners, make sure you take advantage of that. Alright Jennifer, I really appreciate it. I don’t think I’ve ever learned as much in 15, 20 minutes as I learned today about asset protection.

Jennifer Gligoric: I get that a lot.

Theo Hicks: So first, you broke down your background and you’ve definitely done a lot. You started as a young kid working with your mother’s company and you talked about the skill sets that you learned, learning how to interview and do basic secretary work that you recommend parents teach their children because they’re not getting taught in school. You went to telemarketing sales, transitioned to crisis intervention for businesses, which is where you ended up meeting your CEO, and you talked about all the different companies that — basically, you’d go in there, you’d help them know how to run a business.

Jennifer Gligoric: Yeah, and that’s what I do now. Even what I’m doing with asset protection right now with real estate investors, many of them, I’m just helping them run their business better. All of these structures – yes, it’s money and it’s a structure, it’s boring, la-la… But once you get it set up and your accounting gets set up with it, the right structure will streamline a lot of things for the investor and protects them, and therefore it allows you to be safer to make more calculated risks, and that really can springboard you not only, but then the money things that we teach them as well. So yeah.

Theo Hicks: Yeah, we’ll definitely have to bring you back for a Skillset Sunday class. I wanted to talk about that today, but we ran out of time. So maybe we can bring you back for another episode to talk about how to scale a business more step by stepwise.

So then we talked about the asset protection, and go back and listen to what she said, but you want to make sure that you’re not creating LLC with your name on it. So you want to create that agent trust that is listed on the LLC, which is a private document that people can’t get access to and see your name. You talked about some of the top states for asset protection – Delaware, Wyoming, Nevada and Texas. You went through some questions that you need to ask yourself to determine what the best asset protection structure is for you – Where do you live? Where do you want to invest? What types of property do you want to invest in?

We talked about the fundable entity so that you can start working on building up a reputation so that you can get a line of credit that’s not tied to your personal name or personal credit. We moved on to talking about the solo 401k which helps you be your own bank. We talked about how it’s for people who are self-employed who don’t have employees, but you can cover your spouse contributions up to $57,000 a year. You can roll everything into that IRA, you can loan yourself money, and then you can pay yourself back and keep the interest, and then you have complete– well, not complete; there are some restrictions you said, but you have complete checkbook control. So you can invest in real estate, you can hold a property in the name of the 401k, you can take a loan against your 401k, and then use that to buy real estate, invest in other business, buy Bitcoin, you said, and you bypass that UBTI tax.

You briefly touched on the mindset and about limiting beliefs of thinking that “Well, I need to pay everything off and have this really amazing credit score, but then going into a bank and I can’t get a loan because I’m a professional consumer”, and the algorithms say, “This person cannot get money.” Whereas someone comes in with a credit score that’s 200 points less than yours and they get a massive loan… And I like what you said – the credit score is meaningless; it’s all about your borrower behavior.

And then you gave your best ever advice, which is to treat your real estate investing like a business and set up the asset protection from the beginning and have the mindset that I am a successful investor who needs his asset protection from beginning, and by doing so, you’re protecting yourself, but you’re also getting the benefits of getting more respect from different people you want to interact with. So that’s just brushing the surface of what we talked about.

Jennifer Gligoric: You take the best notes. That is incredible. That is amazing. You must have been so good in school.

Theo Hicks: I did okay. I appreciate it. I’m gonna do a podcast on the best ever way to take notes in an interview.

Jennifer Gligoric: Seriously, that’s great. That is like the bestest. I love that. I love that thoroughness.

Theo Hicks: Well, I appreciate it, and I appreciate you for coming on the show and giving us all this solid asset protection and being your own bank. Just really solid, just personal advice as well, with the limiting beliefs; I liked that as well. Best Ever listeners, as always, thanks for tuning in and listening. Have a best ever day and we will talk to you tomorrow.

Jennifer Gligoric: See you later.

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JF2153: Canadian Market With Natalie Cloutier

Natalie works with Transport Canada full-time and is a part-time real estate investor. She started investing in 2014 building her first home from the ground up with no money down. If you are curious about the Canadian market this episode will give you some insight to how she invests in Canada. 

 

Natalie Cloutier Real Estate Background:

 

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Best Ever Tweet:

“Real estate investing is not easy, you have to be willing to put in the work and hustle.” – Natalie Cloutier


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks, and today we’ll be speaking with Natalie Cloutier. Natalie, how you doing today, and how did I do with the pronunciation?

Natalie Cloutier: You actually did it perfectly except for my [unintelligible [00:03:15].22] you know. It’s fine…

Theo Hicks: How do I pronounce your first name?

Natalie Cloutier: It’s Natalie; it’s fine.

Theo Hicks: Okay, perfect. So how are you doing today?

Natalie Cloutier: Good, how are you?

Theo Hicks: I am doing great. Thanks for asking. So before we dive into our conversation, a little bit about her background – she started investing in 2014, building her first home from ground up with no money down. She currently works for Transport Canada full-time, currently holds 13 doors, most being new builds with one BRRRR, based in Ottawa, Canada. You can say hi to her at a robnatbuildingwealth.ca. So before we get any further, do you mind telling us a bit more about your background and what you’re focused on today?

Natalie Cloutier: Sure. So my background is I come from a family that did a lot of these new builds, and that’s where I learned most of what I do today. My husband and I both met in college while we were studying Architectural Technology, and that’s how we got started. We bought a condo, decided it wasn’t for us, and then we decided to build our own house using no money down, which is a special kind of loan that we can talk about later, and then we house hacked that and we kept going with that same special recipe. Over time, we’ve acquired a total of 16 units, but we sold three last year, and right now, there’s not much going on. We’ve just finished our first BRRRR and we are getting ready to build a fourplex in the next few months. So that’s where we are today.

Theo Hicks: Well, thanks for sharing that. So let’s talk about that no money down new build loan. Can you tell us about what that loan program is?

Natalie Cloutier: Sure. It’s funny because it’s a loan that not a lot of people know about, but my parents got us into it because they were doing that type of loan about 30 years ago when they first started. They built four houses in four years. It really is called an auto construction loan. So what it allows you to do is to use your labor as your downpayment. So instead of putting the traditional 20% down payment, you can do a lot of the work yourself in order to save that money, and the bank will consider that your down payment.

So just to give a quick example with easy numbers, let’s say, the blueprint of the house you want to build was valued at $100,000. The bank will say, “Okay, well, we’ll loan you 80% of that value, and it’s up to you to build it for that amount.” So they give you progressive draws as you progress in the construction, and you build it with that amount. If you go over budget, well, it’s up to you to cover that cost, and if not, if you actually come in under budget, well, you can just pocket the difference. So it really allows you to get started with a house that’s at 80% of the market value with no money down, and then by house hacking it, you can add value and refinance and do the traditional financing that other investors do, but that’s the gist of an auto construction loan.

Theo Hicks: Is this something that just Canada does or is this in the US as well?

Natalie Cloutier: You know what? That’s a great question. I’ve been trying to figure out if that happens in the US. This is something that’s typical to a local credit union that we have here. I haven’t found them in other banks. They do do it, but it’s usually comes with a lot more strings attached. It’s a little more complicated than that, but this credit union is really great. You can do it in the States, but I usually tell people the best way to achieve it is through a private lender and treat it as you would a BRRRR. Instead, just build with a private lender and you even get a private lender that will give it to you in progressive draws. So you only pay interest on what you borrow as the construction progresses, and then when the construction is over, then you can refinance and get your money back and get your mortgage in place. The only thing I would say about investing with new builds is that you need a specific market that really works. So it has to be a market where the cost to build will be less than the cost to buy. So if you’re in a market where you can get a house for 150k, chances are it’s going to cost you more to build it. So then it’s not really worth it. Here in Ottawa, the values, especially lately in the past few years, values have been going up a lot, so it’s been really advantageous to build a property because you know that the market value to buy the same house or building will definitely cost you more than it does to build it because the building costs are always about the same. No matter the market, a house will always cost you about the same amount. So yeah, you need a typical market to make it work, but it’s a great way to do it, especially in a high market when it’s very hard to find deals. This is our way to take control of our investments and create our own deals.

Theo Hicks: How do you find out if you’re in a market where the cost to build is lower than the cost to buy? I guess you need to find those two metrics. So how do I find those two metrics?

Natalie Cloutier: That’s a great question. You can probably just talk to an appraiser in the area and you can get their take on it, but usually, you know there are some parts– let’s say you’re in an older market. I don’t know, I’m just– I’m gonna stay Canadian here… But let’s say you’re in Saskatchewan in a rural part, where houses are going for really, really cheap. Well then if you can buy a single family home for $100,000 or less, it’s going to cost you way more to to build it, so then you know it’s not worth it. But if you’re somewhere in Vancouver, where houses are like a million and you go somewhere you can find a piece of land for like $100,000, the price to build a house is probably going to be about $350,000. So you know that then that’s worth it. These are extreme examples. If you’re in a market where you’re not too sure, then just have a set of plans done, get it valued by an appraiser and then you’ll know if it’s worth it for you or not.

Theo Hicks: Perfect. Thanks for sharing that. So after you build these properties, what do you use them for? Have you been consistently house packing every property, or are they used as rentals? Are you flipping them?

Natalie Cloutier: They are all rentals. Our strategy, we call it build and hold. So we’ve done one house hack, where we still live in today, but all the rest, we have just done build and hold. There’s three that we sold last year just because the market was really high, and these were underperforming properties, so we decided to get rid of them and use the money towards better cash-flowing properties. But most of our units are small multi-families, maybe duplexes, fourplexes and we’re holding them for as much as we can. We’re trying to build up our cash flow so that I can join my husband full-time in the business. He’s full time since 2018. He’s building, he’s doing a lot of the work himself, so it’s not like he’s not working or retired. He just replaced a job with another job I guess, but I would like to get there with him as well one day. So our main focus right now is long term, build and hold and cashflow.

Theo Hicks: Perfect. Do you mind walking us through on one of those deal that you sold, the numbers? So how do you found the land or the house that you knocked down to build, the cost of building, why you built that specific type of property, what you rented it out for, and then what you sold it for?

Natalie Cloutier: Sure. Gotta find one… So this one, we found a lot — we were just driving around and  there was a sign on the street; so it was an MLS listing. We were interested in it because it was a smaller lot on a little busy road, and I think a lot of people weren’t interested in it because we’re outside of Ottawa, so we’re about 20 to 30, 40 depending on where we’re building exactly; we’re in the outskirts of Ottawa, so usually when people move outside of the city, and they’re looking for a vacant lot it’s because they’re looking to build that dream home on a quarter-acre property or more. So we’ve had a lot of success finding these smaller lots that nobody really wants that are maybe awkward, that could have an issue building on. So they’ve been really great for us.

This specific lot, there was a small garage on it that needed to be torn down, and there was also an old well, and it was between older homes that weren’t really nice to look at. So we bought the property. I think the land was– we bought it for $45,000, which is really good because in our area, everything goes for over $80,000 for a vacant property. So we bought that and we built a single family home, two-story. I don’t have the numbers for construction in front of me; this is back in 2017. I believe we built it for about $220,000 give or take – don’t quote me on that – and that includes the land, and… It might have been more than that. But anyways, somewhere around that and we rented it for $1,700 a month, but it wasn’t a good cash-flowing property. I think we cashflowed maybe $100 a month, but we ended up selling it last year. We sold it for– what did we sell it for? We sold it for $308,000. Yeah, it’s $308,000. So it was a good flip property if you look at it that way. It wasn’t our intention to do it, to sell it within a year or so, but we made a good profit on that one.

Theo Hicks: Thanks for sharing those numbers. Switching gears a little bit here, I guess a lot of it… So your husband works in the business full-time, and then you are working full-time, so what are some tips you have for other investors who are just starting out, and they are working a full-time job while also trying to grow a business that is big enough to replace their full-time income? What advice would you give that person?

Natalie Cloutier: Well, you know what, we’re still figuring that part out too. So it’s a lot of work. Real estate investing is not easy. You’ve got to be willing to put in the work to hustle. The best thing I would do is just make sure that you have a business plan in place. One thing that we’re actually struggling with ourselves is separating the roles and responsibilities of who does what, and it’s something that it’s really important to do, because you can find yourself fighting over the little details that is a waste of time. You’re fighting because he’s doing that, when typically it’s my job or whatnot…

So I think it’s really important to separate the roles and responsibilities so you can avoid conflict and so that you can be on the same path together. But mostly, I would probably say too– the hustle is good, but take the time to relax and celebrate the small victories, because if you work yourself to the bone like we have… We’ve done this in the past, we’ve worked crazy, busy hours, and at a certain point, it does affect your health, both physically or mentally, and it’s really important to take the time to celebrate and relax, and make sure to give yourself some business hours, too. After a certain time, you’ve got to shut off the computer, shut off the emails or shut off the rehab, or else you’re just going to slow yourself down. It’s going to be harder for you to achieve your goals. So I think finding that balance is a real challenge that honestly, I’m still figuring out myself, but I think that’s a few things that we’ve learned along the path, so hopefully that can help some people.

Theo Hicks: Oh, yeah, I think it definitely well. Okay, what is your best real estate investing advice ever?

Natalie Cloutier: I would say, write down a mission statement for your business; it’s different from a goal. A goal can usually change and probably will change as an investor, but if you have a mission statement for your business, that mission statement should bring you back to your core every time you’re faced with a tough decision.

Just an example of that, recently, we were shopping for our first BRRRR. We almost bought a fiveplex that probably would have cashflowed about the same as the duplex BRRRR we ended up buying instead… And the only reason we were looking at is because we wanted to be able to say that we added five extra units in our portfolio in one shot, when really that wasn’t the important thing.

What’s important is not the number of units you have, but the cashflow they generate. So our business mission was really just to provide a great service to our tenants and a great quality product, too… So we ended up going back to our CMA and realizing that that fiveplex, there wasn’t much — it was a lot of [unintelligible [00:14:56].17] units; it was a lot of value add to it. So we went back to “If we can’t give a good quality product and good quality service, then the duplex was a better choice”, and in the end, I think it was, because the numbers made a lot more sense with the duplex than the fiveplex did. So have a mission statement and think about cashflow and not number of units.

Theo Hicks: Are you ready for the Best Ever lightning round?

Natalie Cloutier: I think so.

Break [00:15:20]:07] to [00:15:58]:04]

Theo Hicks: Okay. What is the best ever book you’ve recently read?

Natalie Cloutier: So this is a Canadian book, but I think there’s a lot of value to it, even if you’re in the States, and it’s called The Secrets of the Canadian Real Estate Cycle by Don Campbell. This book was really helpful because it helps us get into the mindset of preparing for market downturns. It talks about how to think about as a strategic investor, and think of stuff that’s going on in the market and how to predict how the next cycle is going to come up or when it’s going to come up, and we’ve got a lot of value from it, and I think I’m actually going to read it again, because I think the second time I’ll read it, I’ll get a little bit more out of it… But I definitely recommend that book.

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

Natalie Cloutier: Oh, God. I think that I would repeat the same steps we’ve been doing, focus as a passive investor and try to– I’m a big believer of lowering your personal expenses and FIRE movement and trying to get your financial independence. So I would do the same thing all over again, because I think that it truly is the best way to get back on track. I would make sure that I learned whatever mistake I did make to get my business to collapse. I will write down notes, I will make sure that I’ve learned from it and I won’t repeat it. But definitely just keep focusing as a passive investor. I think that’s just the best route to take.

Theo Hicks: If you don’t mind, tell us about a deal that you lost the most money on. How much you lost, and then the lesson you learned?

Natalie Cloutier: There’s not really anything that we’ve lost a lot of money on, but I can say that the deal where it was the least lucrative, I guess, is the first property we ever bought, which was a condo. We bought it right out of college, and we learned that a condo outside of a big city does not appreciate very fast; however condo fees do. So condo fees kept going up and we learned that there’s a lot of back-story to that property, but we rented it where the cashflow was negative $300 a month, and then when we did sell it this year – we sold it on February 1st – it sold for maybe 20 grand more than when we bought it six years before. So yes, we had paid down our capital and we did end up walking away with some money, but definitely wasn’t worth the time and effort we had put into those six years. So that’s one property that we’ll try to never repeat again.

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

Natalie Cloutier: Sure. I love that question. So there’s two ways we love to give back. We love to encourage local businesses, and we do have this one charity where we donate to regularly. One way that we encourage local businesses is by hiring just all the local trades. We don’t go outside the big city. We stay in the local trades in the town and we order all our lumber and materials from the local lumberyard.

I also give these welcome baskets to our tenants when they first move in and I try to incorporate little baggies or gift cards or business cards from local businesses, especially if it’s for tenants who are outside of town and they come in and they get this basket with all of local businesses. It’s a nice welcome community feel.

The charity that we like to donate to is an animal rescue charity. So again, a local couple about my age, they rescue and rehabilitate domestic and exotic animals, and they go across country and telling people about  responsible pet ownership. And we’ve helped– we’ve donated their flooring when they moved into their new facility, we’ve helped paint, we’ve helped to raise money for them on certain occasions, and it’s a great charity that really holds true to us. So that’s one charity that we absolutely love to donate to.

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

Natalie Cloutier: The place I’m the most active on is Instagram. My handle is @rn.properties. I also just started a blog recently and that’s robnatbuildingwealth.ca.

Theo Hicks: Perfect. Well, thank you for joining us today and walking us through your journey and providing some of your best ever advice. A few of the big takeaways for me is this no money down new build loan. I never heard of that before. It’s called the auto construction loan that you get through a local credit union, and essentially you are able to use your labor as the down payment instead of putting 20% down. So the bank will loan 80% of the cost, and then as long as you can build it for 80% of the cost, then you don’t have to put any money down. If you go over budget, you had to pay it, but if you go under budget, you get to keep the money. You talked about your advice for new builds, which is to find a market where the cost to build is lower than the cost to buy, and so you can get that through talking with local appraisers in the area. You also walked us through an example deal that you bought, and then you gave us some advice on working full-time while also trying to become a real estate investor, and that was to make sure you have a business plan in place, make sure you are separating the roles and the labor that needs to be done so you know who does what, and then making sure you take the time to relax and celebrate the small victories.

And then lastly, your best ever advice, which was to make sure you write down a mission statement for your business, which is not the same as a goal; a goal will change year over year, month over month, maybe even day over day, but a mission statement will always stay the same, and it’s the thing that you go back to whenever you are in a sticky situation. So again, thank you for joining us today. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

Natalie Cloutier: Thank you so much 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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JF2150: Using The Radio To Close Deals With Chris Arnold

Chris is the co-founder of COSA Investments, a wholesale company in Dallas, TX. He has 15 years of real estate experience and has closed over 2,500 deals using the radio. He shares his very own process he utilizes when creating radio ads for his business. 

 

Chris Arnold Real Estate Background:

  • Co-Founder of COSA Investments, a wholesale company in Dallas, TX
  • The founder of Arnold Elite Realty and The Multipliers Mastermind
  • He has 15 years of real estate experience
  • Has closed over 2,500 real estate deals using the radio
  • Based in Tulum, MEX
  • Say hi to him at: www.wholesalinginc.com/reiradio  
  • Best Ever Book: the big leap

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You buy your radio time like you buy your real estate at a deep wholesale price.” – Chris Arnold

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JF2147: Ideas Into Software With Dan Moore #SkillsetSunday

Dan is the Co-Founder of Vaporware, he helps entrepreneurs take their software ideas to market in four main industries; healthcare, human resources, real estate, and tech. Dan will give you some good ideas on how to approach creating new software.

Dan Moore Real Estate Background:

  • Co-Founder of Vaporware
  • Helps entrepreneurs take their software ideas to market in 4 main industries: healthcare, HR, real estate, and IT.
  • Has helped 40 clients in the past 6 years
  • Based in Raleigh-Durham, NC
  • Say hi to him at https://www.vaporware.net/

Click here for more info on groundbreaker.co

Best Ever Tweet:

“One of the biggest mistakes is assuming that people will find new software and will love it.” – Dan Moore


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-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, Dan Moore. How are you doing, Dan?

Dan Moore: I’m doing great. Thanks, Joe.

Joe Fairless: Well, I’m glad to hear that and you’re welcome. Best Ever listeners, because today is Sunday, we’ve got a special segment called Skillset Sunday. So today we’re gonna be talking about if you have a software idea in real estate and you want to bring it to life, then – well, you’re in the right place because Dan is the co-founder of Vaporware, and he helps entrepreneurs take their software ideas to market in real estate among other industries. He has helped 40 clients in the past six years do that. He’s based in Raleigh, Durham, North Carolina. So first, how about, Dan, you give us a little bit of background about your company and then we’ll go from there?

Dan Moore: Yeah, absolutely. So we founded originally back in 2013, started consulting full time in 2015, and really found a need for entrepreneurs and intrapreneurs inside of larger companies to take their ideas to market and really test them out before they spend a whole lot of money and a whole lot of time on something that people wouldn’t be willing to pay for and wouldn’t help them. So if you’re inside of a company, you might be optimizing or modernizing a tool that you already have or a process that you have, anything that you’re doing in spreadsheets or something like that is really a good opportunity to bring in custom software and really solve those problems.

So we’ve worked with a variety of companies across all sorts of industries and have seen all sorts of expertise and approaches to bring products to market, but we figured that there’s a much better way to do so by quickly testing a market with just an idea or some light designs and the right kind of survey questions and that kind of thing, as opposed to jumping in and just building it and then hoping people will come to the software in the future.

Joe Fairless: Okay, so you test it out first to see if the idea has merit and then you build if it does.

Dan Moore: Absolutely, and there’s a whole bunch of different ways to test. So commonly, we do what we call smoke tests, which make it seem like there’s a whole lot more there, but we don’t actually deliver that value. We’re just really watching and analyzing if people are interested in the way that we’re talking about the product or the value that we’re talking about getting out of the product to see where people are most interested, instead of just surveying and asking where they’re interested because their behavior is often very different from–

Joe Fairless: Will you give a specific example for a smoke test?

Dan Moore: Yeah, that’s a great question. So not one that we did, but one of the most popular examples of this is how the Uber taxi company got their name. So they ran Facebook ads all along the way back when before they were the huge company that they are today, with different variations of names and value propositions, and if you clicked on one of those ads, it actually didn’t go to a website or a product offering or service offering at all, but all that they did was choose different names. So they watched and saw whoever and what were people’s behavior of which ads made the most sense, and then tailored the service and the branding and the name around that. So we’ve taken that concept and applied it to all sorts of areas in the product development world for custom software.

Joe Fairless: Okay. What’s some real estate software that you’ve created?

Dan Moore: We’ve done a lot of work in the property management space. There’s a huge wave of prop-tech companies trying to make it big and disrupt that industry overall. We’ve really had a great impact with the service providers and different optimizations around turnaround time for apartments and multifamily housing and stuff like that.

Joe Fairless: Okay. So are you able to give case studies or anything just to bring that to light a little bit?

Dan Moore: Yeah, we have a couple of case studies on our website. So one in particular was a startup out of Raleigh, North Carolina as well, that focused on the turnaround time of as soon as an apartment vacates, it was taking some larger companies several months to repaint and upfit and refresh that unit, just because of the communication flow. They’re a company called Service Connect, and we helped them figure out where their market was. So do they go after the people doing the upfit or the property management companies? What benefits and what language do they talk about? How do they optimize that process? They do a lot of analytics and reporting for very large scale operations, and tying into management systems like MRI and Yardi and stuff like that, and focusing on all those vendor relationships, and… Not like a marketplace approach where you can choose what vendor, but you already have relationships. It’s just optimizing that communication stream and making sure that people are in the right place at the right time, kind of thing.

Joe Fairless: So if someone who’s listening has an idea for real estate software, they come to you, what’s the process?

Dan Moore: That really depends. Since we’re a pretty small operation, we’re five people, experts at what we do — not trying to farm out software development or design work where a lot of our competitors lie, but we’re experts and like to think and walk through all the high-level problems. So if someone has an idea and comes to us with a solution in mind already, we can work with that and we can translate that, since we’re the ones actually doing the work and helping them deliver that end solution to market. We can plan that out, prototype it, do all those tests like I was talking about, and actually develop the software itself.

We can also help them take a step back and look at other solutions that are already out in the market and help them make trade-off decisions between what is their core value proposition. So one of those first steps that we do is walk them through the popular architecture framework called the business model canvas. It’s a single page document on how to communicate your idea really quickly and really deeply to different people. So it’s a lot of high-level strategic work that goes into the beginning of it to make sure that the product you’re building is the right fit for where that idea is.

Joe Fairless: In your experience, where do you see people who don’t go through that process make the biggest mistake?

Dan Moore: There are tons of mistakes to make. I think the current average of new startups going to market is nine out of ten fail within the first year. So they don’t deliver, they don’t gain traction, something like that. So in our experience, we wrote a whole book on this and we call it The Tips and Pitfalls to Avoid an MVP. So MVP is a term in our industry called the Minimum Viable Product. It’s what we call that first version that you’re taking to market to learn about your market and your audience of what you’re trying to deliver. So one of the biggest mistakes is just assuming that people come to the software and will find it and will love it. So really looking for that product market fit does require a lot of work on the product side, on the development of the software, but it also requires a lot of work on developing the right audience and the right market as well. So we call that customer development and figuring out who that audience is, what value proposition can you give to them… I think on your website you have a great video of value add investing. It’s that same approach, it’s like you have to really focus on that value and add something to that relationship for your customers. So being able to position the software that you have and the product that you have that you’re delivering in a way that really connects to somebody is vital, and a lot of people miss that.

Joe Fairless: What’s the cost?

Dan Moore: Great question. So it completely depends on features and stuff like that. We actually take a unique approach in that you have two main models in software development. You have fixed bid, which are someone lays out a cost and says, “Hey, I’ll deliver all this for this dollar amount.” They go away for a few months and come back and give it to you, and then you have time and materials, that comes up with an hourly rate or weekly rate or something like that and continues working until you say stop. We take a hybrid approach where we base all of our pricing on time and materials, but we cap it and understand each investor’s appetite for risk. So how much are they willing to invest to solve the problem really helps with analyzing that cost-benefit analysis. So if someone comes to us with $20,000, and says, “Hey, I really want to see what this next step is. I want to see if there’s a market opportunity here for ten times that,” we can work with that. At the same time, we work with some larger organizations that invest $250,000 or half a million because of what they’re able to accomplish, and they already have their entire investor team bought into the idea initially; they just want to be able to deliver on that idea.

Joe Fairless: Anything else that we should talk about as it relates to having an idea and building out an application or software to deliver on that idea?

Dan Moore: Yeah. I think really understanding the problem, what the value of the idea is, is important, and then realizing that software doesn’t have to be difficult. It’s a black box for a lot of people. If you focus on the value of solving that problem, you can ignore or take shortcuts on pretty much everything else. So with open source technologies today and other providers that are out there, you don’t have to build a custom invoicing system in order to deliver a new product to market. You can get there with someone else’s code and someone else’s services as long as you bundle them together in the right way, and then focus on your key value proposition.

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

Dan Moore: They can go to vaporware.net that’s the best way, and of course, you can reach out to me personally at dan@vaporware.net.

Joe Fairless: Best Ever listeners, if any of you have an idea for a software or an app, well now you know one way you can bring it to life. Dan, thank you for being on the show. I hope you have a best ever weekend. We’ll talk to you again soon.

Dan Moore: You too. Thanks, Joe.

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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JF2140: Unique Ways to Increase NOI with Shopping Centers With Alan Schnur #SkillsetSunday

Alan went from owning apartment buildings and hundreds of homes to now focusing on shopping centers. He decided to sell his portfolio of apartments and single-family homes because of all the work and challenges to scalability. Now he is able to scale and have a model of “set it and forget it” when it comes to dealing with fortune 500 companies and shopping centers.

Alan Schnur previous episode: JF1978

Alan Schnur Real Estate Background:

  • Alan has bought and syndicated more than 2,000 units and managed more than 7,000 units
  • Owns numerous medical, office, warehouse buildings, shopping centers, and custom builds multi million dollar homes
  • Based in Houston, TX
  • Say hi to him at www.gr8partners.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“For me, shopping centers are more scalable and more of the “set it and forget it” – Alan Schnur


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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, Alan Schnur. How are you doing, Alan?

Alan Schnur: Hey Joe, I’m doing great. How about you?

Joe Fairless: Well, I’m doing great as well, and looking forward to our conversation. A little bit about Alan – he has bought more than 2,000 units via his company’s syndication platform and managed more than 7,000 units. He owns numerous medical office, warehouse buildings, shopping centers and custom-built multi-million dollar homes, based in Houston. Today, we’re gonna be talking about unique ways to massively increase NOI with shopping centers. So first, Alan, do you want to get the Best Ever listeners a little bit more about your background, and then we’ll roll right into the topic at hand?

Alan Schnur: Sure. Thanks for the background on me, Joe. Again, thanks for having me today. What can I say – I’m a New Yorker, I spend a lot of time in New York. Actually, I worked in the World Trade Center in 2001, and I was fortunate enough to have left the building the day before on a business trip, and that 9/11 event really changed my life in many ways. I worked in the 101 floor, and the company that I worked for lost 700 out of 1,000 people, and I lost 40 out of 44 teammates; spent a week by myself in Portland when I was trapped, trying to figure out what I was going to do next with my life after that event, and it brought me to Houston, Texas. And I stayed in the commodity business for a good 10, 15 years, and I was turning everything around at that time in my life, and I wanted to create multiple streams of income. So I started buying single-family houses. Believe it or not, I bought one a month for ten years straight. So I woke up one day, I had around 150 houses and a successful commodity firm. So I decided to sell the firm, double down on the houses which I did, so I had a few hundred houses, and then by then, the world started to turn; not only with the houses, but in the commercial real estate business around 2010. So I looked around and I saw that apartment buildings were on sale. So for a five year period, every 90 days, me or me in a syndication, purchased an apartment complex, and I woke up five years later and I realized I had around 2,000 apartment units, and I grew out a property management firm too where we managed around 7,000 units and 1,000 houses, and life was good. I was just looking for something a little more easier. Sometimes we get involved in this real estate dream, not realizing how much work it really is.

So I had an epiphany one day; I woke up and I said, “You know what, I want to slow down a little or–” not necessarily slow down, Joe, but figure out how I can scale. It was a little hard for me to scale with the multifamily. It was taking up a lot of my time and the stuff that I was managing. So I sold it all. So I’ve successfully syndicated, founded, started, grew, cash-flowed, held on to, and I bought around $50 million of apartment buildings during the downturn and we sold everything for around $80 million. I took my share and I got into the triple net leasing business, the commercial aspects side of real estate, which I’m sure we’re about to start talking about. For me, more scalable, more enjoyable, I like dealing with Fortune 500 companies, getting leases signed that go for 5 or 10 or 15 years; set it and forget it as much as possible when it comes to real estate. So what can I say? So after I got rid of all the housing, I really jumped into buying warehouses, storage facilities, building multimillion-dollar houses, and most importantly, that’s made the biggest difference in changing my life over the last five years, I started buying shopping centers – don’t believe the hype, ladies and gentlemen – started buying shopping centers; awesome cap rates, even better at borrowing the money, nice good spread there of 400 or 500 basis points, and dealing with Fortune 500 companies where the leases go for a long time. So that’s really a quick background on where I am and where I started, Joe.

Joe Fairless: So apartment buildings and exiting out along with those homes got you a chunk of change that you clearly had some money going into it in order to buy a house a month for a very long period of time.

Alan Schnur: Well, you know what, I got a little creative at the time, or I want to say early 2000s. You pick up houses for $20,000, $30,000 a pop here in Texas in the surrounding areas. So yes, I did whatever it took.

Joe Fairless: What was the average purchase price would you guess?

Alan Schnur: $35,000 a house. Maybe fix it up for $5,000. I cash-flowed them for a long time for a good decade, and then woke up one day and realized that I’m gonna have to either sink another $10,000, $20,000, $30,000 into each house to bring it up to true market value; these were all rentals. Or — I just started selling them off in tranches, and that’s how I built it. I’d buy ten houses at a time, hard money, borrowed money from friends and family, or money that I was making, do five or ten houses at a time, and then go get some commercial bank loan on those houses. So it’s like the shell game, I kept moving the ball. In this case, I kept moving the same money into the next five or ten houses.

Joe Fairless: Okay, so you sold those and you sold the apartment buildings and you got a chunk of money, and then you went into triple net leasing, which as you said, was more scalable, more enjoyable. The perception that I have, and we’re going to be talking about this, is yes, more scalable, more enjoyable, but less profitable. So let’s talk about that.

Alan Schnur: Okay, so let’s talk about a few different ways of making money in this triple net commercial leasing business. Well, I have a few choices here. You could buy something empty and pay an empty price, if you know what I mean. Maybe buy 10, 20, 30 cents on the dollar, because if it’s empty, there’s no net operating income. So someone’s going to sell it to you per pound, per price. So let me back up a second. So buy an empty warehouse. I just did one recently; I bought a 35,000 square foot empty warehouse relatively really cheap, like 10, 20 cents on the dollar off of an auction, and put a Fortune 500 company in there. So now it’s cash-flowing, it’s got at net operating income… And when you have these Fortune 500 companies and they’re healthy and the piece of real estate’s healthy, you can really start talking about trading that  stuff that at a 6, 7, 8 cap rate on the net operating income. So it’s a really great way of getting ahead in life. I can’t specify this enough. If you can take something broken, fix it, put a good tenant in there, figure out how you’re going to cash flow it, and then cap rate it out, you can really be off to the races and running.

Joe Fairless: Someone who’s listening to this thinks, “Well shoot, I have access to auction sites and sale sites, and I see a distressed real estate all the time, but when Alan talks about bringing in a Fortune 500 company, that’s where I have a block where it’s like, well, I don’t know, any Fortune 500 company contact people.” So what are your thoughts on that?

Alan Schnur: I know we have limited time here, so let me move the same example to the shopping centers… Because I find that question posed to me many times in the shopping center business, and it’s really just fear and intimidation. Well, how am I going to fill this spot if the tenant goes out of business or doesn’t pay their bills and leaves? It is quite different than the housing business where we can just stick up a sign and see if we can catch people driving by, which still does work in the shopping center business, but we rely more on national brokerage firms, the Colliers, the Marcus & Millichaps. There are specific firms in your area of town that do nothing but lease. It’s an awesome profession to be in. It pays out 3% to 6% commission on the life of the lease for the broker. So the broker is really incentivized to go out and get a tenant for you, and you’ll also find that a lot of these brokers are representatives of these Fortune 500 companies. So as bad as you want to bring them into your space, they’re looking for your space to create a transaction for both parties and get paid.

Joe Fairless: Okay, so what are some ways to make your space desirable for those types of companies?

Alan Schnur: Let me give you an example. I just got back from ICSC. It’s a shopping center foundation group. It’s a national group here in the United States, but it’s actually worldwide. So there was a few major meetings every year with ICSC, and it’s also nationally. So we just had our Texas meeting literally last week in Fort Worth, Dallas, and what you find is every brokerage shop and every retailer that’s interested in Texas will show up at this convention. And on the second day of the convention, for example, all the retailers actually set up a table; it’s very cool. So you have Starbucks, maybe you have Chick-fil-A, you have a major grocer, you have new franchises that are trying to break into Texas. So they all set up their table, and in this particular situation, there was around 100 booths set up for these retailers. So let’s just say, I have some vacancy here in Texas, which I always have a spot or two for a lease… I literally will walk up with a flyer, say, to Starbucks and say, “Hey, I’m on Westheimer in Houston, Texas. This is my block. This is the specific information about the shopping center. Would you folks be interested in taking a look at it?” and you’d be surprised, they move so quick. They know exactly where they are, they pull up all their data, and you’re probably going to start exchanging some drone footage of the property.

For example, I had a very successful meeting with Little Caesar’s pizza. I recently bought a shopping center here in Pasadena, Texas, and it comes with an outparcel, which is another way of making money with commercial real estate and shopping centers. This outparcel was a bonus when I was buying the shopping center.

Joe Fairless: For anyone who’s not familiar with an outparcel, what is it?

Alan Schnur:  Sure. An outparcel is a piece of land. Maybe it’s like an outlier in your parking lot, or maybe even take a piece of your parking lot that backs up to a major road, and that’s exactly what this situation was. It backed up to the corner of the shopping center where two major roads intersected. So if you see me here holding my hands or if you’re listening, just picture yourself, you have a parking lot and two major roads meeting and you own the parking lot. Well, you literally can take a piece of that parking lot and build an outparcel, build a pad site for some retailer to come in.

I’ll give you even another example. I recently did this with Krispy Kreme Doughnuts and another shopping center that I have in College Station. It’s a TJ Maxx shopping center, but what’s really cool is the parking lot is huge, and we took a portion of the parking lot that lies up to this road, and we did a 20-year land lease with Krispy Kreme’s. So we took the outparcel, we just took 40 parking spots that nobody was even using, and we just built up a square, if you want to say that, and a foundation, and Krispy Kreme Doughnuts came in, they built their own structure, they’re running their own business, under the intention that we signed a lease for 20 years at $8,000 a month, with me as the owner of the property, sure. So they’re fully responsible for everything.

Joe Fairless: So monetizing 40 parking spots that you weren’t getting money for anyway, and people weren’t parking their cars anyway unless it was probably some overnight people who weren’t permitted to be there.

Alan Schnur: And let me break it out into money. What that really means by taking that 30 or 40 spaces, which was bringing in absolutely no income into the shopping center; $8,000 a month, I don’t have to take care of their property, times 12 months is $96,000, and this is trading at an 8 cap, which is high, so 0.08– I don’t have my calculator, I’m gonna say it’s around $1.2 million of value we just added to the shopping center just by creating an outparcel in a parking lot, by a busy road. And that’s another way how you create value and money in retail shopping centers.

Joe Fairless: What type of approval process is typically required to get an outparcel?

Alan Schnur: Well, first of all, if you’re the owner of the shopping center, you have to make sure that you do have the approval; you have to look at your leases. For example, I have another shopping center that has a specific national chain doctor’s office in it, and it specifically says, “You cannot block our view from the street.” So you really have to look at the easements and you have to look into the leases and you have to work with your attorneys. So for sure, I’m gonna abide by the lease and play by the rules and not put something up in front of that doctor’s office, but just maybe 100 feet down or 200 feet down, I can. So you just have to check your P’s and Q’s and see what you can do and what you can’t do, and all the leases.

In this particular situation, it wasn’t really blocking anybody. It was just a far off, distant hard corner. Back to the Pasadena, Texas example that we started talking about with the Little Caesars – so I’m pretty excited, because Little Caesars, that will easily generate $9,000 a month on a land lease, and they’re talking about $1.5 million in valuation just on the outparcel there. So again, outparcels, great advantage, great opportunity to create extra income for your shopping centers.

Joe Fairless: Okay, so outparcels is one. What are some other ways to increase NOI with shopping centers?

Alan Schnur: Well, when I buy shopping centers, I’m really looking for a 20% vacancy or even more, 30% vacancy, because they really trade on a true net operating income number. So if no money’s coming in for the spot, then you shouldn’t be paying for the spot, and that’s how I run my business here at GR8 Partners.

Let me give you a real simplified way of understanding this. When I was starting out in shopping centers, I like to start off small and then work my way up big. I started off buying around 10,000, 12,000 square foot shopping centers, and let me just keep the math easy. Let’s just say there’s six storefronts, and say they’re 2,000 square feet apiece. The first shopping center I bought was 50% vacant. So I had three tenants, 2,000 square feet apiece. So I bought that shopping center for around a million dollars. I put 30% down, so call it $300,000 down, and I valued each slot at $333,000 apiece, just simple math here. So that’s the million dollars that I paid. I hired a leasing agent, the same way I just explained it a few minutes ago. Over a 12 month period, we found three more tenants, and not only did we find three more tenants, we found national tenants. So we went for the mom and pops, who may be a pizza place or a dry cleaners, to an AT&T. We put in a national hearing aid company, and the third one I believe, was a Taco del Mar. So now I’ve got six tenants, and one side of the shopping center is worth $333,000. The other three slots are going to be worth $333,000. So all of a sudden now, on an NOI number, not only did I just pay a million dollars for the shopping center, but I doubled the value of the shopping center. So now it’s worth $2 million, and I actually did do that and I actually did sell that. So that’s a way of filling up your shopping centers and making extra money by filling up your vacancies. Makes sense, right?

Joe Fairless: It does make sense. Why wouldn’t other people do that who were competing for the same property?

Alan Schnur: I have this philosophy, the evolution of a real estate investor, a little older and wiser, just recently turned 50 and been doing this for 20 years, and I went through the same processes as every body. I started buying the houses, I started buying the apartment buildings, and then I started buying the triple net leasing stuff. Everyone wants to go through the pain, they feel like they’re not ready or they’re intimidated about filling up their shopping centers, but I can tell you, here in Houston, having a lot of property management experience, the average C Class apartment building will turn 60% to 80% every year or you’re going to lose your tenants. To me, that’s more scary… The credibility of the tenants and not paying their bills and things breaking, compared to why not do the shopping centers, why not do the triple lease? The money’s more dependable. If something breaks on triple net lease, the  tenant’s paying for it. If taxes go up, the tenant’s paying for it. If insurance goes up, the tenant’s paying for it.

Joe Fairless: I think the hesitation that most people have is, one is just becoming familiar with how to assess opportunities with shopping centers, how to run the numbers, what pitfalls to look for and just the learning process, but then combine that with the second thing, which is, I just don’t know if I can find quality tenants or enough of them because I personally don’t know business owners who would rent from me. Whereas I know that apartment owners don’t think “I’m buying 100 unit property, so I know 100 different people who would rent from me.” I mean, clearly, that would be a ridiculous thought process, but I feel like that’s a mental block for people outside of just learning the process and learning how to do it. It’s just, are there really enough tenants to rent my space if the space is currently vacant already?

Alan Schnur: Yeah, I hear you. I agree with you, 100%.

Joe Fairless: I’m not saying that’s a legitimate reason. I’m just saying those two reasons combined are what allows you to buy more property.

Alan Schnur: Here’s what I’d say to that to help someone get over the fear, or to answer that question. The first thing I would say is, look, there’s a lot more building going on when it comes to apartment buildings and housing right now than retail shopping centers. We went through this lull over the last five years in retail shopping centers. Another reason why things weren’t being overbuilt. Ask yourself a question – when you’re driving down the road right now, how many vacancies do you actually see in shopping centers? We don’t see too much here in Texas right now. So part of the argument would be, there’s a lot less space available to build shopping center strips on roads. Every other block has a new 300-unit apartment building here in parts of Houston, Texas. So when I’m buying shopping centers, I’m looking for core areas of a community, I’m looking for density, where there’s a lot of population, and I’m looking for a high car traffic count. So you can just think of those three things that I just said.

Joe Fairless: How do you quantify those three things?

Alan Schnur: Well, I quantify it– when I’m looking to buy a shopping center, I like to buy shopping centers that have 30,000 to 50,000 cars going by every day. I like to buy near a hard corner where it’s just absolutely buzzing in traffic like you wouldn’t believe it. I like to buy shopping centers where there’s so many people you can’t help but do your dry cleaning there, or go food shopping there or stop off and pick up a Starbucks.

Joe Fairless: How do you quantify that third one – the so many people part?

Alan Schnur: Okay, so we call that population density, and there’s plenty of services out there. I use CoStar a lot, and we’ll get a one-mile radius, a three-mile radius and a five-mile radius of houses. So we’re looking for a good 30,000, 50,000, and even goes up to  — a five-mile radius, we’ll go up to 50,000 people. So you want to have a lot of people if that’s the business you want to be in.

Joe Fairless: For the one mile radius, what’s too low?

Alan Schnur: Well, you’ve got to be careful with the one-mile radius because there’s day time population. Maybe there’s an area that you’re thinking about where people drive to work and that’s what people do; they work in that area, and then there’s households and there’s household incomes. So the daytime population is important. I just finished doing an analysis on a property in California. The daytime work population was 200,000 people, but only 25,000 people live in the area. So you’ve got to take that into account, who are going to be your tenants. You’re probably going to do a lot of restaurant business, maybe fpr  lunches where people are going to go eat and drink coffee, as opposed to maybe you don’t want to put a grocer in that area; and then you do want to look at the household income.

What we focus on at my firm is we’re really buying shopping centers, Class C and Class B. We’re really looking for the household incomes are anywhere from $40,000 to $75,000. We like the discounters for tenants. Some of the tenants I have, for example, are TJ Maxx or a dry cleaners or a grocers or an AT&T or T-Mobile, something where people have to go to this neighborhood center to do their business.

Ask yourself a question, Joe. How many shopping centers will you stop off at in one day? People say it’s a dying business, but there’s people that just absolutely want the experience of shopping. There’s people that have to go and drop off their dry cleaning. Even doctors and dentists, they’re moving out of medical buildings and they’re setting up their cosmetic dentistry in a shopping center strip or an ER clinic, setting up in all these shopping center strips. So again, these neighborhood centers that our people are always going to be drawn to; they just have to, they can’t live without it.

Joe Fairless: Anything that we haven’t talked about that you think we should before we wrap up as it relates to increasing NOI with shopping centers?

Alan Schnur: So another thing that’s really cool about shopping centers is rent bumps are built into the leases. It’s really common. Let’s say I’ve got Starbucks. It’s really common for their rent to go up 1% to 3% every year, and most likely you signed a five-year lease with them. So you’re looking at a 15% increase over the life of that five-year lease, which, when you’re working out your NOI numbers, that’s a huge increase. It’s not that hard to just buy, hold and bank off of rent bumps, and turn around and make 50% on the shopping center when you sell it a few years later; and then of course, we’re always looking for cap rate compression. Maybe bring in some better names, like I mentioned earlier.

We’re in a situation right now, where we have a 40,000 square foot grocer paying a rent rate that’s so low, it’s ridiculous, and they’ve been there for ten years, their options are up and now we’re talking to national names right now that will pay triple the price. So just by going from 50 cents a square foot to a buck 50 a square foot, you literally can increase the value of your shopping centers by millions of dollars.

Joe Fairless: What a fun conversation. I love talking about stuff that I’m not currently focused on, with people who are, and hearing about your approach. So, Alan, thanks for talking to us not only about ways to increase NOI with shopping centers, a couple of examples, building outparcel, have those rent bumps built into the leases, but then also what you look for with shopping centers, and you gave four things – 30,000 to 50,000 cars driving by, having it on a corner, having a population density that fits what you’re looking for and pay particular attention to daytime work population versus people living there, and then the household income being about 40k to 75k, plus the other stuff we talked about. So I really enjoyed it, Alan. Grateful you were on the show, and I hope you have a best ever weekend. Talk to you again. Oh, wait. Actually, last question. How can people learn more about what you’re doing? I apologize for forgetting that.

Alan Schnur: Listen, we syndicate. We have lots of partners in our deals, and you could find us at gr8partners.com. There, you can find our portfolios and what we’re up to and read about us. We’re always looking for new partners. We’re always looking to share what we know, and that’s one way of reaching me.

Another way to reach me is I have a book out, it’s on Amazon. It’s called the Cashflow Mindset. It’s really about lots of stories that we talked about today and ways of making money in real estate, the cashflow mindset. It’s also on audible.com. And I always do this, people think I’m crazy, but my phone number is 713-503-5908. If you’re interested in getting involved in commercial real estate, send me a text.

Joe Fairless: Alan, thanks for being on show. Have a best ever weekend. Talk to you again soon.

Alan Schnur: Bye, Joe.

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JF2139: Lessons From Owning Dozens Of Companies With Bart Rupert

Bart has 14 years of real estate experience and currently runs a merger and acquisition firm called Stone Peak Alliance. Bart has founded and has been able to grow about 30 companies and he explains how it isn’t really that hard to do. Bart’s perspective will challenge how you are viewing your business.

Bart Rupert Real Estate Background:

    • He currently runs a merger and acquisition firm called Stone Peak Alliance 
    • 14 years of real estate experience
    • Portfolio consists of 7 rentals, 1 commercial, and has also flipped multiple properties
    • Based in Denver, CO
    • Say hi to him at: www.spartansalliance.com

Click here for more info on groundbreaker.co

 

 

 

Best Ever Tweet:

“The biggest lessons you will learn as an entrepreneur is failure” – Bart Rupert


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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, Bart Rupert. How are you doing, Bart?

Bart Rupert: Good, Joe. Glad to be here.

Joe Fairless: Well, I’m glad that you’re glad to be here, and I’m glad you’re doing well. A little bit about Bart – he currently runs a merger and acquisitions firm called Stone Peak Alliance, he’s got 14 years of real estate experience, his portfolio consists of seven rentals, one commercial property and has flipped multiple properties, he’s based in Denver, Colorado. With that being said, Bart, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Bart Rupert: Sure. I think that primarily what I’m doing today is mergers and acquisitions and helping other people learn how to buy and sell companies for a living. It turns out that 88% of all new wealth is created through the sale of a small business or through real estate, and within that focus, we often find that the real estate and the business transactions go together. So what I’m now working on having sold my own companies, grown several to very large successes, is working with individuals to be able to help them do the same thing through a defined set of processes and techniques to help demystify some of the acquisition process and the sale process just the same way we’ve done with real estate.

Joe Fairless: What companies did you sell?

Bart Rupert: There’s been quite a few across the portfolio, and a number that we’re still holding today, but primarily what I’ve done is groups within some degree of leveragability or flip. So you look at technology companies, you look at Software as a Service companies, things that we’ve done within different emerging industries like energy or renewables that have been able to explode pretty rapidly; those have been a lot of the sweet spot.

For my own companies, I’ve started a number of different technology companies, grown and sold those, and even involved a lot of different transactions for other people that have either sold to Fortune 500s or large groups on that front. So we grew a healthcare company from $8 million to $75 million upon the exit. We grew an organization from $22 million to over $115 million upon the exit. But primarily, what we do day in day out, is work with entrepreneurs that have a vision for their company or an exit strategy in mind, and utilize what we call the boost technique to get them the most value upon their exit.

Joe Fairless: Okay. Well, I would love to talk about the boost technique in a moment. Just so I’m clear on your companies that you sold, I’d love to learn more about that, and then we can talk about what you’re focused on now with how that’s evolved. You said you started a technology company?

Bart Rupert: Yeah, I’ve actually founded almost 30 companies.

Joe Fairless: Oh gosh, okay. Well, it’s a 30-minute interview, so we won’t have time to talk about all of them then. You founded 30 companies…

Bart Rupert: It’s actually not that hard once you get the system down, and particularly when you take on partners, what you find is that you want to be able to use different techniques that we really look at from an acceleration perspective, to either fail the companies really quickly or find out where their successes are and promote their successes. So the idea is that within a 60 to 90-day period, after really getting out there and trying some of the ideas and processes we’ve got deployed, you want to say that company’s not gonna work in the way that I had intended it so I need to pivot it or you need to find a way to say, “Look, it’s just not gonna work at all. The timing’s not right, the luck is bad; just fail and move on,” because you either want to get to the point where you fail a company or move it into a multimillion-dollar success on the path. The way I look at it now is to an exit, because the vast majority of–  the value as an entrepreneur that you can create isn’t from salaries and from running a company, it isn’t from stepping into the risk zone of 10% of all new companies that are created are successful. It’s getting to a point very quickly where you can see the success, recognize the success, and sell it to be able to recognize a multimillion-dollar exit.

Joe Fairless: Of the 30 or so companies that you founded, what’s been the most profitable for you?

Bart Rupert: It’s tough to say, because profitable I would now equate to the one resource you can’t ever get back, and that’s time.

Joe Fairless: Let’s talk about money though.

Bart Rupert: Looking at it from strictly a financial perspective, when we were able to grow the company from $8 million to $75 million and do the exit there, that was extremely profitable. So it took a good amount of time.

Joe Fairless: So it started at $8 million. So does that mean you bought it when it was at $8 million?

Bart Rupert: That’s correct, and it was a minority interest; it wasn’t majority on that.

Joe Fairless: Got it. That makes sense. So when you said you founded 30 or so companies, this founding also mean you bought a stake in a company?

Bart Rupert: So that number is much higher. The companies that I founded have not grown over $100 million dollars, but the companies that I have bought into or leveraged the purchase process to be able to go through and take a stake in, those were the ones that had the larger exit.

Joe Fairless: Okay. I mean, that makes sense.

Bart Rupert: So between the two, I’ve probably– if you look at founded plus bought into, it’s closer to 100 companies.

Joe Fairless: Wow. So of the 30 or so that you founded, what was the most profitable?

Bart Rupert: Let’s see. Well, there was a technology company that I started and I originally had some partners and then eventually bought them out, but I started that one many years ago, I’d say, almost 20 years ago. It was a technology company, and we did backups of files; this is back when you had dial-up and things like that. It was a pretty new concept, nobody knew how to do it. Everybody was dealing with tape libraries and such, and we actually moved that to what was before the cloud to the Internet, and started off with DSL and dial-up and things like that, eventually got it to the point where we had large customers on tier ones like Vanderbilt University, University of Colorado, brain imaging scans, we got HIPAA compliance, went International… So that was a good growth mechanism, and it allowed us to get a ton of money out of that organization.

Joe Fairless: Wow, what was the name of the company?

Bart Rupert: Circadian.

Joe Fairless: Circadian. And then on the opposite end of the spectrum, you were talking about, hey, fail within 60 to 90 days or prove the business model or pivot. What are a couple of failures that you’ve had, if any, of the companies you founded?

Bart Rupert: I think I’d start off by saying, if any entrepreneur tells you they haven’t failed, then they’re either lying to you or not really in the game. I think arguably, the biggest lessons that we’ll learn as entrepreneurs is failure, and there’s so many different gambits of what that looks like. I would say, primarily within failure, it’s focusing on too much of a micro-level, and not seeing the big picture. If you get too wrapped up in something like the operation of a company or the promotion of a certain brand or just the advertising and marketing, you’re not going to see the other elements of it. There’s an operational element, there’s a sales element, an advertising, all of that’s got to be looked at more holistically. So really, it’s where I started to see, instead of looking at operating the business day in day out, what I’d like to do is look at managing or orchestrating the operation of the business, to be able able to work with the individuals that have their own individual skill sets that they’re experts in, that they can turn around and tune-up in fine detail… But I’m looking at the big picture of where it’s going to go and strategically how to position it. Because when you get too laser-focused on a particular aspect of your business, you almost always miss other elements, and those other elements are what are going to allow you to expand it to double that growth next year, to increase the profitability, to get it to the next level, and you need to be able to do that as a business owner without emotional tie in one element of the business, without it becoming a favorite if you will. You’ve got many ways– just go out there and be very ruthless with how you assess your business and look at it. Its goal, its job is to produce profit for you, and you’ve got to know that profit is what pays your salary and everybody else’s and allows you to be successful, but what’s more than that is that’s going to be the main metric when you go to sell it later on.

Joe Fairless: Yeah, and I want to learn more about the boost approach that you mentioned, because I imagine that factors into what you just said. Just to close the loop on maybe a lesson learned on a company that you founded that didn’t go right, what specific example of a company you founded that lost money and it didn’t go according to plan?

Bart Rupert: That’s a great example. So we had an organization that did training services, and we had successfully sold an organization that did online training or CD-based training at the time – this is many years ago – and we’re looking at another organization that was doing online and promotion of that, and years prior too, we’ve had great success by creating the best product in the industry. So literally, everybody that went and checked out the product line saw that it was the very best, they bought the product, we made a ton of money and sold the organization.

Years later, we thought the same strategy would work. We didn’t adapt to the new market, we didn’t adapt to the changes. There had been online organizations that had come out offering training programs, things that you could do in your own home that were maybe not as good as what we created, but they were far more plentiful. So what we had done is replicated our success from before by looking at, okay, let’s just create the best quality product, the best quality training solution, and we didn’t pay attention to the fact that all of our competitors were really leapfrogging us in terms of the delivery of that solution, the affiliate marketing, the ability to get that in front of others and… Think of it like Udemy today – very cheap online training, very easily accessible, and we got crushed by that. We absolutely got crushed because, again, we were laser-focused on one thing, which is quality of the product.

If you’re listening to this, you’re thinking, “Well, is that bad to focus on the quality product?” No, you need to; that’s great, but you need to have somebody that owns that, so that you can look at the big picture and be like, “How are my sales doing? How’s the adoption doing? What’s the feedback I’m getting from the market?” and if it shows that I’m not growing as quickly as I should or I’m really not getting as much traction, or the people might love it, but nobody knows it exists, you’ve got a real problem.

So we got very, very laser-focused on that, and it ended up not working out, because the competition outpaced us. Think about the old Bill Gates and Steve Jobs conversation, to where, essentially, when Steve Jobs finally found out that Bill Gates had his own product, the Microsoft Windows operating system, and he’d already gotten around the IBM platform, they were at this debut where Bill Gates had shown the world this product called Windows on the IBM. And Steve Jobs was sitting there contemplating and he shook his head and he looked at him and he goes, “Well, you won’t win, because we’re better than you,” and Bill Gates looked at him and he goes, “You just don’t get it, do you, Steve?” and he pointed to the fact that it was on the IBM, and he goes, “That doesn’t matter.” So he could see that, like, “You might have a better product, but it’s completely irrelevant, because my product is on the most popular hardware on the globe.” And we’ve seen the result, and arguably Apple’s made a phenomenal comeback due to Jobs and Jobs had a big lesson learned, but I had to, unfortunately, experientially, learn that same lesson, is that you can get laser-focused on one thing like, “Hey, I’ve got the best product.” It’s irrelevant if it’s not out there in front of people.

Joe Fairless: Let’s talk about the approach that you all take to help an entrepreneur determine if they have a business that is going to continue to thrive or has potential to thrive or they need to pivot or they need to go back to the drawing board. What is that boost approach that you mentioned earlier?

Bart Rupert: Two different things here – one of which is around the success or failure of an organization as you’re growing it; the other is around the sale of an organization. So the boost technique is specific to how you sell a company. What I would say to anybody that’s out there, if you’ve got a business, if you’re looking to buy a business and flip it, whatever your status is in that whole ecosystem, eventually you’re going to want to sell your business if you own a business. If you don’t own a business, you could buy one, but if you’ve got one, as you go to sell it, arguably, we’d all want to make the most amount of money possible. So over 90% of the businesses that are out there for sale right now are what I would call listed in the wrong way. They’re being done in a way that will minimize their chance of success, and unfortunately, the brokers out there give this process a bad name, because they’re lazy, and I say that as one of them. I would say most of my peers out there are lazy, which is why we just mop the floor with them. When it comes down to — if you’re presenting a business and you’re only focused on things like fundamentals, you’re missing the big picture. You’re not telling the potential buyer what it is that they really need to hear to get emotionally invested in that business. It’s all about how you tell the story. When I say tell the story, I’m not saying make anything up or do anything that it’s not accurate or ethical. It just comes down to how you’re actually going to describe what the business does.

So for example, let’s take that online backup business I talked about – if I go out there and listed that business to say, “Well, this is an online backup company. It backs up files, it makes $3 million in profit per year and it’s got x number of customers.” Okay, well, that’s factual. Do people really care? Probably not. But if I go in and tell the story in a different way and say, “Hey, this is a business that has literally rescued Vanderbilt University from audits, from financial repercussions and from data loss within patient records. This is like an insurance policy. This thing is recurring revenue like an evergreen tree that’s out there in the forest. It’s never going to go away. People always need their data and we see ourselves essentially as perpetual insurance agents… And oh, by the way, here’s how much money we make doing that. Here’s how fast we can close a client. Here’s why our technology stack is so much more powerful.”

Joe Fairless: Sold…

Bart Rupert: You don’t talk about– people who have software companies, they talk about features. Don’t talk about features, guys. Whether you’re selling to a customer, whether you’re selling your company, that’s the last thing you want to do. Talk about benefits, talk about value, talk about it through the lens of something that has an emotional tie to it. And it’s the same thing with property. This isn’t the house that I’ve got for sale. This is a legacy for a number of families; for potentially famous families who have actually experienced x, y, z as part of their life journey here. It’s a far more engaging way to present it, and that is at the core of the boost technique, because we’re able to regularly get 20% to 40% more from a company than anyone else.

I’ll give you an example. There’s a very no-frills company we’re representing right now. It’s a construction company. They do HVAC, and arguably, that’s not very exciting. So there’s not a great tremendous story you can tell around that, but there’s always a story with every business that you can tap into. We’ve been able to leverage our boost technique to get what is a valued company that values right now on fundamentals that enter in $50,000 and we’ve got an NOI that we’ve got executed that we’re going to close in the next 90 days for a $2 million offer. So that’s well over 100% more value on that business, which exceeds the 20% to 40% standard. But if you do the technique, if you follow the process of what I’m describing, you can get at least 20% to 40% more value from a company.

A couple of other tidbits around how to do that – you don’t just represent it the way every other broker does in America. That’s how you get the success rate which Morgan Stanley publishes success rates, the IBBA does as well; it’s 8% to 12%. So Joe, if you think about that, 8% to 12% of businesses that actually want to sell their business that engage experts like Morgan Stanley actually succeed. That’s paltry, that is pathetic. If you think about it, what job could you ever do where if you’re successful 8% to 12% of the time, that’s a massive success. These companies run press releases when they get above 10% because they think they’re so fantastic. We regularly close 60% to 80% of the groups that we represent because we just do things differently. You don’t just take a bit of data on the company and the fundamentals and list it; nobody really cares. In fact, most buyers, they don’t really understand that unless they’re doing this every day. But if you can take a company and really broadcasts that story, do it in a way that’s very visual, very professional, has a lot of colors and interaction to it, and focuses on the things that a buyer would care about emotionally. Now you’re on the right track to be able to get at least 10% to 20% more value out of it, and then there’s other things that you can do that are more sophisticated or technical like tax advantages or structural benefits around how you set up your corporations that allow you to get far, far more out of it.

Joe Fairless: It’s interesting; what you’re talking about for positioning a company for sale is apples to apples comparison or apples to apples applicable to positioning a property for sale–

Bart Rupert: Exactly, right.

Joe Fairless: –because it’s one thing to talk about the features, it’s also a different thing to talk about the benefits, and especially applicable to single-family home for sale properties. I think that’s probably even more relevant than, say, a commercial property, but still, it could all be applied in focusing on the emotional benefits. Do you all do anything with companies from a structure standpoint, prior to sale, or from a process standpoint? So actually help them become more profitable or help them optimize something within the system?

Bart Rupert: Yes, we do, and we’re one of the few that focus on that because we believe it’s so material to the success of an organization. So for example, we’ve got something we offer called the instant savings program and we do this for the clients we take on where we’ll go through and find ways to renegotiate their existing contracts, because that’s part of what we do is what we call asymmetric negotiation, and we will get their contracts locked in at far lower costs. We can often save them 20% to 40% on their operational costs within 30 days just through some of the tactics and techniques and processes we’ve deployed for everybody else we work with; that can result in– it depends on the size of company, but in some cases, we’ve saved people 5% or more percent in profit in their organization. So if you think that most companies are sold on a profit multiplier, and then it’s just a negotiation around what that multiplier is, and then you think that we’d be able to come in and add, say, 5% or more percent to the profit margin… Think about a company that originally was looking at 10% margin, that’s what they’ve been operating on for years, if we can move them to 15% and the multipliers off the profit, we’ve literally increased the value of that company by 50%, and we’ve done that within 30 to 60 days.

So we view it as an absolute necessity to be able to go through it and do that structuring. Plus, that’s not even where you can get the most lift, and this all goes into the boost technique. You can get a lot of lift into the structural elements of how you set up corporations as well. So for example, you can set it up to where there is not just one entity that does everything from an LLC or an S-Corp or C-Corp perspective. You can have a scenario to where you’ve got an LLC that collects all the revenue, but doesn’t own the assets; an LLC that holds all the employees, but doesn’t collect any revenue other than leasing those employees back to the primary company that’s collecting the revenue; and you can have another company that holds all the assets. Not only does that structurally protect you from a corporate perspective, but there’s extreme tax advantages if you do it correctly that are all legal, that are out there. It’s just very, very few people are taking advantage of it. If you structure that before you actually get a letter of intent on the company, then you can boost the value of that whole thing, or at the very least, sell it for the same price and get the owner double-digit percentages more out of the business by saving them on tax liability. And further, if you take that to the next level, you can even get into more complicated processes that we look at.

Very, very few people in the United States have ever heard of what’s called a nested C-Corp, but there’s advantages to being able to say you’re going to own something, say, at an S-Corp level, but having an aspect of the business that produces revenue or profit embedded within that organization or fully owned subsidiary that’s actually a nested C-Corp. Now a C-Corp, if you turn around and sell that company, it faces double taxation, which is not good for the owner. But if you essentially have all the taxation done on the revenue that it generates at just the C-Corp level without the sale, you have a lot of tax advantages, particularly if you, as the owner, are in the upper tax brackets. So you save a lot of money while the company is generating money. You grow that for a couple of years if that’s your goal, and then when you turn around and flip it, there’s a specific technique you can do. It’s like a tax equity flip in a way, but there’s a certain thing you can do to be able to make sure the value of the business is not taxed twice, like it typically would at the C-Corp level, to get the best of both worlds.

Joe Fairless: Have you ever come across a potential new client of yours who has a business, it is not profitable, but they come to you and say, “Bart, I want out, I want to sell. My business has gotta be worth something”? If you have come across that scenario, how do you approach it?

Bart Rupert: There’s two ways we go about that. I would say for me, personally, I don’t deal with a lot of those anymore; I used to… Because I’m typically focused on much larger transactions these days. But I work with a lot of people, teaching them strategies to buy and sell companies on their own, and these are folks that I directly coach and mentor and I’ve got a program that does that. So those guys do those types of deals all day long, and they’re very successful at them, because a lot of them want to take that company that’s plateaued or distressed and grow it to be able to get a multi-million dollar exit, and it’s actually a very easy way to get into this business in a very low-risk way. I mean, you can do it without a lot of capital.

So the way we would typically do that is one of two ways. We’d either just go in and buy the business, because it’s not that much capital, it’s not hard to do. We’ve got access to financing here. Like right now, I need to place about $100 million dollars in different companies, so I’m looking for things to buy. So that’s not a big acquisition for us, we just pick it up, and then we add it to our portfolio, we’d work with the owner that would be within our team and grow that for a period of two to three years. We’d look to at least 10x the amount of value we get out of from what we paid, and then we’d flip it. And we’d have them use our techniques, we’d have them use our acceleration systems to be able to grow it very, very quickly, and learn all the lessons in a very short period of time that took me two decades to figure out through a lot of failure, so they don’t make the same mistakes.

The other way to do it is you can actually keep that business owner on as a partner. You could say, “Look, I’ll take on a certain percentage, maybe a minority percentage,” if we believe in that owner, “but you need some guidance, and so we’re going to rewrite your operating agreement where we’re going to come in as coaches and we’re going to have a vote, if not a majority vote on what it is you do and how you do it. We’re gonna bring in our systems and processes to help you get there,” and then everybody wins. It’s a great win-win scenario, because the existing owner gets far more out of it over time. They stay employed, they get to grow the company, they get new skill sets. The person or people coming in to help them, they’re able to be part of that journey as well in that venture, and everybody exits for a whole lot more money.

Joe Fairless: Anything that we haven’t talked about that you think we should as it relates to positioning a business for sale, and also any type of relevant information regarding that?

Bart Rupert: Yeah, I would say that buying businesses and selling them – because that’s what I do for a living – it’s very misunderstood. There’s a lot of people out there that feel it’s complicated, it’s difficult, and it is; there’s elements to it. But just like anything else, it’s a system, it’s a process. Everybody that’s listening to this is familiar with buying real estate and what real estate transactions look like, and we’ve all heard about flipping houses. I would say, just equate this to flipping houses, except it’s flipping businesses for a living. The difference is typically when you fix a house or flip a house, you’ve got to go in, buy it and then do maybe $30,000, $50,000, $100,000 worth of repairs, upgrades, renovations to be able to flip it. The great thing about businesses is that’s not always the case. We can flip businesses within 30 to 60 days. We can go in, take a business on, add 3% to 5% more profit to it, and turn around and flip it. So if that’s appealing to you, I would invite you to look into it. I’d invite you to reach out to us. We can give you some sample techniques on how to go about using that… Or see if you wanted to work with them on that type of stuff with us, because we’re looking for folks that are eager to work with as partners and take these opportunities on, because there’s literally more opportunities out there today than any one group can handle.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing?

Bart Rupert: They can check out our program at www.spartansalliance.com. If you have questions, you want to know more about it, reach out directly. We’ve got somebody in our team by the name of Austin, and you can reach him at Austin@spartansalliance.com.

Joe Fairless: I had a lot of fun talking about this stuff, and I’m grateful that you were on the show. So Best Ever listeners, we’re making this Situation Saturday episode. So you’re listening to this on a Saturday. Well, if you listen to it on the day it comes out, you’re listening on a Saturday.

Bart, thank you for being on the show, thank you for talking about how to prepare our business in order for it to be sold, and then how to position it during the sales process. Ultimately, we are all entrepreneurs who are in real estate, so this is applicable to us whether or not we do sell a business, because certainly, we can apply your techniques to selling properties. Thanks for being on the show. Hope you have a best ever weekend. Talk to you again soon.

Bart Rupert: Yeah, thank you, Joe, and I just want to say, I really appreciate what you’re doing. I’ve been honored to be part of this and keep it up. I think there’s a lot of people out there they get tremendous value from your podcasts.

Joe Fairless: Thanks a lot. Appreciate it.

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JF2138: Building A Legacy With Terry Moore

Terry Moore is the Co-owner of ACI Apartment Consultants Inc. and is the author of “Building Legacy Wealth” from San Diego California. Terry shares his beliefs and thoughts on how to build your legacy. He works with many investors in helping them change the way they think to ensure they build a legacy worth leaving.

 

Terry Moore Real Estate Background:

  • Co-owner of ACI Apartment Consultants Inc.
  • ACI has closed more than 4,000 escrows
  • Author of “Building Legacy Wealth – How to Build Wealth and Live a Life Worth Living”
  • From San Diego, California
  • Say hi to him at: www.sandiegoapartmentbroker.com 
  • Best Ever Book: Love and Money by Roy O Wilson 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“I help people become abundance thinkers” – Terry Moore


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks, and today we’ll be speaking with Terry Moore. Terry, how are you doing today?

Terry Moore: It’s a great day in the neighborhood, and I’m glad to be here with you.

Theo Hicks: Yep, and I’m thankful for you joining us today. A little bit about Terry – he’s the co-owner of ACI, which is Apartment Consultants Inc, which has closed more than 4000 escrows. He is the author of Building Legacy Wealth – How to Build Wealth and Live a Life Worth Living. He’s from San Diego, California, and you can say hi to him at his website, sandiegoapartmentsbroker@sandiegoapartmentbroker.com. So Terry, before we begin, do you mind telling us a little bit more about your background and what you’re focused on today?

Terry Moore: Yes. I’m one of those rare people who love what I do; it’s a calling. It started out as a job, became a career and became a calling. When I was about 40 years old, I finally figured out some of the themes in my life, and part of what I love about this is that I get to help real estate investors make the most important financial choice of their next decade. I help people buy or sell, primarily, San Diego County apartments, and to some extent, single tenant triple net. So for more than 50 years, I’ve been helping adults make smart choices about money, and in the last 20 years or so, I’ve been paying a lot more attention not just to wealth building, not just wealth management, but more important issues like legacy. So I’m an income property broker in San Diego County and my focus is legacy. It’s great, Theo, that you and I and thousands of our listeners are wealthy, but more important is, to what end, and we’ll try to talk more about legacy with passing time.

Theo Hicks: Sure, thanks for sharing that. Well, let’s just jump right into that. So first maybe just differentiate the difference between ways of building a wealth as opposed to building a legacy. Is there a difference between those two? Are those two different things or are they connected?

Terry Moore: Sure. So the guy with the widget factory who gets wealthy, he’s built wealth. You leave a legacy whether you’re the richest person on the planet or the poorest pauper. The legacy is what people do and or say and or think because of your influence. So when a dad yells at his kids, that leaves a legacy. When a mom helps a neighbor, that leaves a legacy. Legacy of the lessons that people learn is they watch you live out your values. So regardless of your wealth, you’re creating a legacy. The focus of my life in this part is not just to help people become wealthy. For 40 years, I’ve helped people become wealthy. We’ve had a couple of hundred people who become millionaires and probably more than 50 who become multimillionaires, but now that I’m [unintelligible [00:06:19].23] and I have some silver hair, I recognize that there’s a lot of things more important than wealth, and the virus and the recession have gotten us all thinking about things more important than just money. I hope that you haven’t had a live event in the last year where somebody you care about has been threatened by an accident or cancer or the mafia have stolen the favorite grandchild. But lots of us eventually recognize that an inheritance is just the stuff. The inheritance is the dimes, the dollars, the deeds. The legacy is what people say and do and think because you were here. So everybody has a legacy, not everybody gets wealthy. In my day job, I help people become wealthy, and I want my clients not just to leave a big stack of net worth. More important, I want them to have a life that’s worth imitating.

Theo Hicks: So do you mind walking us through how that plays out in your day to day? So obviously, you’re working with clients to buy real estate and you focus on helping them find the proper deal, but what’s the part of your process that you implement that helps them and teaches them how to build a legacy as well?

Terry Moore: Well, in one sense, if they were paying attention, their parents or their grandparents or their rabbi, their pastor, lots of folks — there have been a variety of mentors and heroes that have lived lives or talked about lives worth imitating, and my job as their guide… I don’t pick what they’re going to do, I don’t pick what property, but as their guide, I help people live out their values and their integrity in ways that benefit others.

So maybe more tangible –  the way you deal with a tenant makes a difference. What you will and what you won’t say in negotiating is part of the legacy. I think of rental ownership as face-to-face capitalism. Not everybody gets to play, but the rental owners, by definition, are leaders; by definition, they are impactful people. If you get to decide when somebody gets new appliances or when their rent goes up or whether or not they get a concession when they get laid off, that makes you a very influential person.

A lot of people that I serve are financially independent. They don’t have to go to work next week if they don’t want to, but they have a big influence on the people around them. They may not have a way of working on their staff, but they influence where people live. So the people that I serve are in the richest 3% of the world’s population. They’re impactful people whether they recognize it or not, and I invite people to think about not just how do we help you get the best price when you’re buying or how do we help you get the most money when you’re selling, but instead, how do we make it something where you do great things and the people around you also gain at the same time? A different way to say it is I invite people to become abundance thinkers. Folks who have a zero-sum game mentality, I’m not much value to them. I can help them transact business, but I don’t have a lasting influence in their lives. But instead, I try to empower wealthy people to create values for those around them. That sounds good esoteric, but essentially, I help people buy and sell apartment buildings, and we do it in a way that’s not grinding the other side, but forgive me for saying this, blessing the other side.

Theo Hicks: So is it like when you first meet someone, is there a requirement that you have for working with someone, like they have to be thinking in this way, or is it something where you’re having a conversation with them to say, “Hey, here’s a list of things that you should be doing if you want to leave this positive legacy”? I’m not sure if that’s a good idea [unintelligible [00:10:23].16].

Terry Moore: Here’s the brutal reality. I serve folks of political party A and political party B. I serve folks who are of every religion, and if you take the outrageous claims of Jesus, seriously, yay, hooray, I’m glad to work with you. Alternately, if you think Buddha has the monopoly on spiritual insight, that’s fine. I’m glad to serve you. So I don’t work with only people whose worldview matches mine. I don’t have to agree with my clients and need to understand them, but essentially, if people think that I’m a crazy religious zealot, they don’t hire me, that’s fine. God bless you, have a nice life. Who’s next? The folks who think that my history will enable them to do better are inclined to hire me, and some people do and some people don’t. Whether they agree with me on my worldview is immaterial. My job is to serve them with excellence, and maybe they’ll buy some of my crackpot notions and maybe they won’t. My job is to be the servant. The clients that I most love dealing with don’t necessarily share my worldview, but they do the right thing. Plus one more, they do have some version of people benefiting from dealing with them.

Theo Hicks: You mentioned in your background introduction that you’ve been doing this for 50 years and in the last 20 years, it’s been the focus on what we’ve been talking about for the majority this conversation, which is the legacy aspect. Did something happen to you? Was there an event in your life that made you start to think this way 20 years ago?

Terry Moore: That’s a great question; it is an hour-long answer. The short version was 40 years ago, I made a life choice; I became a person of faith, and a couple of years ago, I was on a bike on a triathlon. I’m the oldest and probably the slowest triathlete that you know, but I was minding my own business in San Diego thinking, “Boy, this is a triathlon, so I have to kind of go slow start”, and the short version is I spent two days and night in hospital. I fell off the bike and I could have easily woken up dead. And that was a startling event, and since then, there is a phrase that stuck with me, and it’s Psalm [95:12] – Teach us to number our days, that we might gain a heart of wisdom. Theo, you and I have no guarantee of mortal life tomorrow.

There’s a fellow named William Carey, and he had a prayer at one time and he said, “I’m not afraid of failure. I’m afraid of succeeding. It’s something that doesn’t matter.” The book of essentialism talks about picking the very few things that really matter and going for gusto for those few things and skipping lots of confetti. So with passing time, I’ve gotten a greater focus trying to put what little time, what little chips I’ve got left on the things which will matter after I’m gone.

So it’s been a gradual process for a long time to then focus on trying to help my clients succeed, and with passing time, it’s not just how do we make you wealthier, Theo; instead, it’s how do we make you wealthier and invite you to consider being a blessing, creating abundance, adding value to the people around you? I understand you’re going to engage with me because you think you’re going to get wealthier. I get that. People read my book because they want to know how to build wealth. I wrote the book because I want them to think about something more important than just material wealth. Money is a great slave; it’s a lousy master.

Theo Hicks: Alright, Terry. What is your best real estate investing advice ever?

Terry Moore: See more deals. The best folks that I serve do not have to be sold on a deal. The best folks that I serve see lots of options, and they look for ways to limit the risk, but it starts with you don’t get two deals a year. I had a conversation ten minutes before we started with a guy who’s got a quarter of a billion dollars worth of real estate, and he looks at a couple of hundred opportunities every year. So he knows how to recognize a good deal and that’s the starting point. The second piece is, how do you minimize the risk on the good deals?

Theo Hicks: Perfect. Alright, Terry. Are you ready for the Best Ever lightning round?

Terry Moore: I hope so.

 

Break [00:15:12]:04] to [00:16:12]:09]

 

Theo Hicks: Okay, so what’s the best ever book you’ve recently read that’s been, in some form, related to this idea of building a legacy?

Terry Moore: There’s a book called Love and Money by Roy O. Wilson. He did a study of young presidents’ organization families, a couple of thousands of them. When the money transferred from the first to the second generation, most of the families blew up. They sued each other or they lost them in income-producing property, and by time of the transfer from the second to third generation, 97% of them lost the main asset for the family; they had sued each other. So Love and Money talked a little bit more about legacy and what it takes to be able to transfer to your kids – the values, not just the money, but the values that created the wealth.

Another book that I’ve recently read was called Righteous Mind, and that was insightful because it talked about how people with different worldviews, different political views, understand the world differently, and how hard it is for people, figuratively speaking, from Mars to communicate, figuratively speaking, with people from Venus, and how to be effective. We need to stretch with what our listeners hear, what’s inside their skin and how they perceive it. They could be ethical people of the other political party who understand the world differently, and our job is to find a way to help them understand and trust to understand them.

The third thing that I’ll mention is a classic – The Seven Habits of Highly Effective People and one of those ideas early on is you need to understand before you can be understood. Another idea in that book was, begin with any end in mind. What is it you want to accomplish? If you know [unintelligible [00:18:15].25].

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

Terry Moore: I would cry, I would hug my wife, I would buy the RV and start reading the rest of the next hundred Pulitzer Prize winners that I have in mind to do.

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

Terry Moore: I’m a person of faith. So we give time, money and prayer to make it easier for people to understand our worldview and at least consider it. But on memorial days, I go to Mexico and build a house, and on most memorial days, I pay for somebody to go with me, and the group that I’m part of has now built more than 50 houses in Mexico for folks. Some of them share our faith and some of whom don’t. But if you and I were to go to Mexico and you went with me, you would hand over the keys to Mrs. Garcia or Mrs. Lopez or Mrs. Rodriguez and she would cry and you would cry, and you wouldn’t remember Mrs. Rodriguez, but she would always remember you, and that’s one of my favorite ways to get back.

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

Terry Moore: The phone number is 6198891031.

Theo Hicks: Perfect, and that’s your office number or your cell phone number?

Terry Moore: That’s my cell.

Theo Hicks: Well, thank you very much for sharing that. Best Ever listeners, definitely take advantage of that because this was a very, very thought-provoking interview. I really enjoyed it. I really like your mindset, your worldview towards building wealth, and really the biggest takeaway in what we talked about was that it’s not about the money, it’s more about, as you mentioned, having a life worth living, but also leaving a legacy. And when most people think of legacy, they think of leaving dimes, dollars and deeds, but it’s more than just that. It’s about your interactions with people, what you’ve said, what you think, and how that influences other people, and you gave lots of examples of that – the way that you help others leave that type of legacy, why you transitioned into thinking this way. So I really appreciate you coming on and sharing this with us. It’s been a very insightful interview. I know Best Ever listeners are going to get a lot from this; I sure did. Appreciate you coming on here again. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Terry Moore: Thanks, Theo. You’re a gentleman, a scholar and drinker of fine wine; be a blessing.

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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JF2134: Focusing on Processes With Matt Larson

Matt has 14 years of real estate investing experience and is the Owner of Real Estate Matt Education and Easy Street Property Investments. Matt shares some of the reasons why he has been able to double his business year by year for almost a decade.

Matt Larson Real Estate Background:

  • Owner of Real Estate Matt Education and Easy Street Property Investments
  • Full-time real estate investor with 14 years of experience
  • His team has completed over 4000 real estate transactions
  • Currently renovates 35 homes per month, and manages 1400 units
  • Based in Davenport, Iowa
  • Say hi at www.realestatematt.com 
  • Best Ever Book: How I Raised Myself from Failure to Success in Selling

Click here for more info on groundbreaker.co

Best Ever Tweet:

“We are very process-oriented.” – Matt Larson


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, today’s host and today, I’ll be speaking with Matt Larson. Matt, how you doing today?

Matt Larson: I’m doing great. Thanks for having me.

Theo Hicks: Yeah, absolutely. Thanks for joining us. Looking forward to our conversation. A little bit about Matt – he is the owner of RealEstateMatt Education and Easy Street Property Investments, he’s been a full-time real estate investor for 14 years, his team has completed over 4,000 real estate transactions, currently renovates 35 homes per month and manages 1,400 units, based in Davenport, Iowa, and you can say hi to him at realestatematt.com. Matt, before we get any further, do you mind telling us a little bit about your background and what you’re focused on today?

Matt Larson: Yeah, absolutely. So I grew up in a small town in Illinois; I literally got out of high school, didn’t really know which direction I was going to go, tried college for a very short period of time, ended up making it to the college route. I went back home to my small town where I’m from and worked in a machine shop, and I just did that from 19 to about 30 years old, a little over 30, and then at 30, I got into real estate. I read a book on real estate, and this was in 2005 at this point. I started my real estate career in 2005 at the peak of the market, and started there and did a ton of deals when ’08, ’09 hit; I really went full time at that point and just did several hundred deals in a very short amount of time and just have taken that momentum all the way through until where we’re at today.

Theo Hicks: Perfect. So thanks for sharing that. So you’ve done over 4,000 transactions, you renovate 35 homes per month and you manage 1,400 units. So is your business plan buying, renovating and then renting these out?

Matt Larson: Yeah, I do a little bit of everything and have for years, but I do some wholesaling, I do some retail fix and flips on occasion, but ultimately, I use all of the wholesaling income and flipping income to buy rental properties, and I own several hundred rental properties in my own portfolio, and then we also sell turnkey as well. So anything that I sell, I continue to manage, which is why we have our own management company, but the real end goal is just monthly cash flow and ongoing income without having to continue to do the work. But I’ve got a very automated system – we have about 40 people in my office because of the volume we’re doing. So the company runs without me. I do less than five hours a week in the real estate company. I use a lot of virtual assistants. I built my staff out in order to meet for me. So my role in the company now is I just look at the high-level KPIs and I let the company run.

Theo Hicks: I definitely wanna dive into how you’re able to run a massive company by spending 10 hours per week, but first I want to just dive a bit more into the business plan. So what type of rental properties – are they single-family homes, duplexes, apartments or is it all over the place?

Matt Larson: It’s a little bit all over the place. Primarily, it’s single-family homes, but we do a lot of duplexes, triplexes and fourplexes; that’s probably 90% of the business, and then the other 10%, I do some bigger apartment complexes on occasion and some commercial real estate, but that’s really a very small portion of what it is that I do. Primarily, single-family homes, duplexes, triplexes and fourplexes.

Theo Hicks: So you’re doing about 35 deals per month, correct?

Matt Larson: Correct.

Theo Hicks: So what does your funnel look like? So I guess, at the bottom – it’s like, we do 35 deals; so how many deals coming in, how many deals are you underwriting, how many deals are you offering on and then obviously you are closing on 35?

Matt Larson: Typically, my marketing is 5,000 direct mail pieces a week, plus another 3,000 cold calls a week, and then we also do another 2,000 to 4,000 text messages a week, plus all my natural marketing that we do. I have 15 to 20 company vehicles that are wrapped in my We Buy Houses and company name are always on the street at all time; 15 to 20 of those on the street. I also bought my own dumpsters about a year ago. So we have all of our dumpsters in front of the property say We Buy Houses, so that generates leads as well. But that’s the front end marketing; that brings in hundreds of leads every single week, and then from there, my lead manager and her virtual assistant that works for her, they sort out those leads, get rid of any leads that just don’t make sense, and then take those leads and discover what that property is worth and what our offer would be, then that offer goes to my acquisitions guy, and then he then calls the homeowner and makes the offer and goes and looks at the property if they’re somewhere in the ballpark. So we talk to a lot of sellers in order to get to that five to ten houses every single week.

Theo Hicks: You said 5,000 direct mailers per week, right?

Matt Larson: Correct, yep.

Theo Hicks: Okay, so you got 3,000 cold calls, 5,000 direct mail, 4,000ish text messages, how?

Matt Larson: Well, I got a big team. So again, I have about 40 people that work for me between my investing side, project management and property management. So we’ve just got a very finely tuned machine. I’ve been doing this 14 years, closed over 4000 deals.

So one thing that we’ve done that probably sets us apart is we’re very process-oriented. We literally figure out the best route to get a process done and we document that process very detailed – every single step, every word that we speak, every single step to get the process done, and then we hand off that process to a virtual assistant in a lot of cases. We have seven virtual assistants that work for us along the whole process of everything that is what we do. So it might sound like a lot, but it’s really not that labor-intensive if you’ve got a really good system that’s dialed in, step by step process… And then we run everything through Podio. In my particular Podio system, which I think is one of the keys to my business, I’ve got over $100,000 invested in the customization of my Podio program. Everything speaks to each other; we literally run the entire company in Podio, from project management to maintenance to acquisitions to dispositions and everything in between, and I have an 18,000 square foot warehouse that I build a mini Lowe’s in. So we buy product at about 80% below what a Lowe’s or Home Depot price would be for the average person walking in off the street, and that communicates through Podio as well. So we’re very, very streamlined, very process-driven, and that helps us do the volume that we do.

Theo Hicks: That warehouse is for when you manage properties like maintenance and renovations and stuff?

Matt Larson: Yeah, it’s only for us. We don’t sell out of there. We don’t offer any of that stuff for sale. It’s just our own use, mostly for renovations, and then the maintenance company uses those materials as well.

Theo Hicks: I’m sure this is an impossible question to answer, so maybe give us a general ballpark… So you started 14 years ago, you’re doing about 35 homes per month. Was it something that every year the business doubled, or was it one year just a massive increase? I just want to wrap my head around year over year from start to now, what the business looked like. Maybe three years, maybe. I don’t know. Every year is probably aggressive.

Matt Larson: It’s a great question. So in year one, I did 12 deals, year two, I did 10 deals, by the end of year three, I had about 35 deals done. I was still working a job at that time, 2008 hit, I leave my job, I go full time into real estate, and I start hiring people early on. So when my business really doubled — in ’08 to ’09, I did 52 deals. 2010 hit, we had some serious momentum from the foreclosure crisis that was going on, and then by 2012, I had started building my staff. I had a personal assistant; that very next year, my income doubled, the number of deal flow doubled from when I hired my first personal assistant; added a bookkeeper, added a project manager, and then from there, I would say every year it doubled – 2010, 2011 doubled, 2012 doubled, 2013 doubled, and then from there, it’s tapered off. But by 2013, 2014, I was doing 20 to 25 deals every single month. So we’ve been at that 20 plus deals a month for almost a decade.

Theo Hicks: Thanks for sharing that. You know exactly how many deals you’ve done every year, I like it.

Matt Larson: Yeah.

Theo Hicks: And you have a process-oriented mind as well.

Matt Larson: Yep.

Theo Hicks: So going back to the 10 hours per week, I know that you’ve already mentioned [unintelligible [00:11:56].03]   all the processes, but for someone who is maybe just starting out or has a couple of properties and they’re at the point where they’re doing, maybe not 35 deals per month, maybe 35 deals per year, maybe 10 deals per year, but they only want to work a few hours per week. What are the one or two main things that they should start doing right away?

Matt Larson: This is a great question, and I hope everybody really listens to this; this will set you apart. So first thing you do is everybody’s good at something and everybody’s terrible at something, and you want to focus all your time doing the things that you love to do or that you’re amazing at.

So there’s some parts of the business that you just do because it’s out of necessity, it needs to be done, but you’re not good at it, you’re not efficient at it, you don’t enjoy it, you’re miserable doing it. What you do is take out a piece of paper, draw a line directly down the center of the paper, and on the left side, write down every single thing that you do in the business, and you can do this day to day; you don’t have to sit down and do it all at once. Just carry a piece of paper with you, go about your day and every time you get to something that you don’t like or you’re not good at, write that down on the left side of the piece of paper. And then do that for a week, you’ll have that side filled.

And then the right side, you write down everything that you’re amazing at or that you love to do, and over the course of a week, you’ll have that side filled. Then the left side of the paper becomes your interview sheet for your first– I like virtual assistants, I’m very big on virtual assistants. You can do this business virtually; you can run the whole company virtually. Again, we’re all quarantined right now and it’s shelter in place, but it didn’t change my business at all. I haven’t been in the office since October of last year anyway. So you have this left side, you need to create that as your interview sheet and start outsourcing that work to a virtual assistant, somebody that you can go to upwork.com, interview and hire somebody for $3 to $6 an hour, and that work will save you about 25 to 30 hours a week.

So imagine getting up and having an extra 25 to 30 hours a week that now you can go spend the stuff on the right side of the piece of paper, the stuff you’re good at and you love to do. Now imagine if you were spending an extra 30 hours a week on that stuff, your income is going to drastically improve… But at the same time, your happiness level will too, because you’re not going to be doing the things that you hate to do or that don’t pay you well, that you’re not good at, all that stuff. That’s what I would do; that’s day one. The cool thing about virtual assistants is you can hire somebody for 10 hours a week or 20 hours a week or whatever it is. You don’t have to keep them busy full time in the beginning.

Theo Hicks: That’s solid advice. I hope I didn’t jump the gun and get your best ever advice. I’m gonna just jump on that right now and maybe get your second piece of advice. So Matt, what is your best real estate investing advice ever?

Matt Larson: Again, because I’m very process-driven – discretion is the enemy of duplication. So anytime you leave discretion up to anybody or yourself, it’s never going to build a repeatable process, but one of the things you should do is every single process in your company, you should document step by step. Here’s what I do first, here’s what I say, here’s what I do second, here’s the script that goes with that… And every single thing in the whole business can then be transferred to anybody that you eventually hand that off to. It’s the way to build a system and a process to help you exit the company if you ever decide that you want to keep the company going, but you don’t want to do the day to day stuff.

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

Matt Larson: Let’s do it.

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

Break [00:15:22]:05] to [00:16:13]:03]

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

Matt Larson: Well, one book that I’ve read multiple times that I absolutely love that I recently just read was a book that was written about 100 years ago. It’s called How I Raised Myself From Failure to Success in Selling. It’s an amazing book on sales; very easy to read, very good everyday advice, even 100 years later now.

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

Matt Larson: If my business would collapse today, I’d start over again, I’d hire a virtual assistant and I’d be back to where I am now within two years.

Theo Hicks: Besides your first deal and your last deal, what’s the best ever deal you’ve done?

Matt Larson: I did a commercial deal once where I bought a Buffalo Wild Wings and bought it and flipped it and made 700k.

Theo Hicks: Wow. What about, on the flip side, what’s the deal you lost the most money on and how much did you lose and then what lessons did you learn?

Matt Larson: Oh man, a few years ago, I bought a duplex, totally underestimated the renovation, and by the time I sold this thing, I lost $60,000. So I wasn’t being detailed enough on the renovation and that one deal helped us refine our whole renovation process and systems.

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

Matt Larson: There’s a local business called 180. It’s an amazing company, it’s a nonprofit charity, and they take people that are getting out of jail or addiction or prison, and they put them up in their own housing that they’ve bought– and it’s almost like a halfway type house, but their graduation rate and their success rate’s like 99%. So I donate a ton of money to that group. It’s an amazing group and they’ve done a lot of cool things for our community.

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

Matt Larson: The best ever place to reach me is Instagram, and that is @realestatematt, and I do answer anybody that messages me. It’s really me; because all my business runs on autopilot, I do spend some time on Instagram helping people. So if you’re following me, see some cool stories, I’m always teaching stuff, but Instagram is the best place @realestatematt.

Theo Hicks: Alright, Matt. Well, thanks for joining us today; very powerful interview. I think people are gonna get a lot from this, especially those who want to reduce the amount of time they’re spending in their business. You definitely offered a lot of solid advice on that.

I think the two biggest takeaways I got was that right side, left side piece of paper; very practical, something everyone can do right after this episode is over. So just summarize, take a piece of paper, put a line in the middle, everything you like doing or good at in the business is on the left side; everything you don’t like doing or not good at or the right side. You can know do it at your desk or a running document that you create during your week. So you can say, “Okay, during the week, these are all the things I’ve done; I like doing these, I don’t like doing these,” and then on the left side, which has things you don’t like, that’s your interview sheet; those are the jobs you want to outsource first to a virtual assistant. That’ll save you a lot of time, and you can use that time to work on the things that are on the right side, which are things you love.

The second big takeaway was the importance of process. So you said discretion is the enemy of duplication. So you want to make sure that you’re documenting step by step very specifically, every single step in a process. You gave us an example of how you’re doing 45 deals per month. You’ve got your cold calls, your direct mail, your text messages, and so I’m sure for all those, you’ve got a document that says specifically what to say in the cold call, different responses that you usually get and how to respond to those, what to do for direct mailers, different text messages. So I think if people who do those two things, it will definitely reduce the amount of time that they’re working in their business. So definitely take advantage of that advice, everyone. Matt, thanks again for joining us. Best Ever listeners, as always, thanks for listening. Have a best ever day and we will talk to you tomorrow.

Matt Larson: Thank you.

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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JF2128: Investing As A Insurance Agent With Stacee Evans

Stacee is an insurance agent who bought her first rental in 1996 and slowly started to buy rentals and sell them. She has bought and sold 10 rentals and currently has 3 active properties that she rents out and 1 AirBnB. While living in California, she bought a house sight unseen in Houston, Texas, and shared the specifics of how she found it, the mistakes, and lessons she learned. 

Stacee Evans Real Estate Background:

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The reason I want to learn more is because of all of the mistakes I have made” – Stacee Evans


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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, Stacee Evans. How are you doing, Stacee?

Stacee Evans: I’m doing great. How you doing today?

Joe Fairless: Well, I’m glad to hear it. I’m doing great as well. A little bit about Stacey – she works as an insurance agent, she invested in her first property in 1996, she’s bought and sold about 10 or so properties since then, and she currently has three rental properties and one Airbnb. She’s based in Los Angeles, California. So with that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Stacee Evans: Sure. So I started accidentally like quite a few people. Bought my first house to live in at ’94, a couple of things about the house I didn’t like, I didn’t want to raise a family there. So I just ended up saving money so I could do the down payment on my next one, turned my first one into a rental, the market went up, took out a home equity line of credit, bought another one, and then another one. Somebody called me and said, “Hey, I’ve got a friend that wants to move to Vegas. I don’t even live there. You want to buy a house and rent it out?” Did that, went up… Just got lucky on all the timing, didn’t know what I was doing, didn’t really know anything about tenant screening. I learned the hard way, made a lot of those mistakes, and then in the last few years, I learned how to learn, I would say. So I did a lot of research, listened to a lot of podcasts, read a lot of books, I started taking it a little more seriously. It’s not my main job, but it’s been a nice side job, especially lately; a nice way to make a lot of money. It’s nice to have a cushion, and I really enjoy it. So far, it’s been great, and I’m now at the point where I’m helping other people. People see my success and I love helping out and giving back that way as well.

Joe Fairless: I’m glad that you do, and I’m glad that we’re having this conversation. It sounds like there’s some lessons that can be shared that you’ve learned. It sounded like you took a more concerted effort fairly recently towards educating and doubling down on focusing on this. If that is correct assumption or if I interpreted it correctly based on what you said, what took place that made you want to take it to another level?

Stacee Evans: Well, for one thing, I really enjoy it. I do like my job, it’s a day job. I’m 40 hours a week, just the normal, and I’ve been there for many years. So I’m getting to the point where it’d be nice to have the option to retire and to be able to live off my real estate. So I might get to that point and keep working, but I’d like to have that and have the freedom and then have more money to do things that I’m more passionate about and just give back and help other people.

Another reason that made me want to learn a little bit more is because of all the mistakes that I’ve made. So it’s given me the courage and the knowledge to have a little bit of information. I live in California; last year, I did a major flip in Texas. It was a house that was almost burnt down, and I did it from living in California. I had actually bought the house sight unseen because I missed out on so many, and I learned how to do that through books and podcasts and forums… Basically, when you’re out of state, it’s all about building your team, and with a lot of hiccups, it worked out great. So it was nice to have that under my belt, and moving on to more things, which is just great for me.

Joe Fairless: Well, let’s talk about that deal in particular. I would love to learn more about the details of it. Can you tell us how you found it, what did you buy it for, what did you have to do, hiccups that you came across, all that good stuff?

Stacee Evans: Sure. So I bought it from a wholesaler. These numbers are [unintelligible [00:06:25].00] they’re going to be within a couple thousand. I bought it for $67,000.

Joe Fairless: Where in Texas?

Stacee Evans: It was in Houston.

Joe Fairless: Okay.

Stacee Evans: Beautiful neighborhood. Of course, I drove by. Like I said, I found it through a wholesaler, but this was probably maybe a total of 30 people. So I was referred to someone, used them, referred to someone else, referred to someone else. I had a lender; this was actually brought to me by a contractor that was looking at other ones who hooked me up with the wholesaler. He told me the ARV, the after repair value would be about $210,000. The contractor said he could do it for $95,0000. It ended up where the contractor took longer. It did come in, as he said, with the $95,000. A little bit of the work wasn’t great at the end, but I ended up selling it as soon as I went to go put it on the market; I thought it was going to be $210,000. My real estate agent said, “Let’s start it at $229,000 because the market’s pretty hot,” and I trusted her. I had three full-price offers within a few days; I couldn’t believe it. I did have to take a little bit of money off at the end. I expected the financing to be the hardest part, and because of good credit and access, the money was simple to get. At the last minute I ended up not using hard money lending, ended up paying cash for everything by using some money that I saved and getting extremely low-interest rate loans. I did part of it on credit cards; it was 0% loans for 18 months with a 3% fee, and then once it was–

Joe Fairless: How’d you come across that credit card?

Stacee Evans: I had the credit cards. I do a lot of credit card churning where you buy stuff on credit cards, everything and then you pay it off at the end of the month and you get all the benefits. I called one credit card company and I said, “Can you increase my limit?” and it was $12,000. They’re like, “Yeah, we’ll give you $60,000.” Are you kidding me? So it was just all kinds of things like that. At the very end, as I was finishing up, there were so many issues with the house. There was a little bit of bumps in the road with the contractor; it took a longer time. He did finish it, it looked great, but there was just a few things that weren’t great, and the buyer was going to back out.

Part of the money that I got was a friend of mine who’s a mortgage broker, and I called him and I said, “Can you do a HELOC for me?” He goes, “Yeah, just sign this piece of paper.” It was a low-interest loan; wasn’t even official, just sign up for the house. So I wanted to pay him back, and then I took out another low-interest credit card loan. So by the time I was about to close, I’d had everything paid off. So I had no more loans, because I was going to turn it into a rental… And then I called my realtor and I said, “Where’s the cancellation?” and she goes, “You’re not going to believe it; the buyers are buying it.” So it ended up going through. I had all this money and now I’m doing more deals.

I bought a house last month [unintelligible [00:08:59].21] Kansas City. I have an amazing team there. I’ve got a local bank there, a lender; it’s all about the team. I’ve got a rehab company, I have property management, I got a real estate agent. I’ve never used property management before. I’ve always managed everything, but these are a little low rent houses, so it’s nice to branch out and do something different, and then to rely more on other people so that I can scale up, which is my next plan.

Joe Fairless: On what you said regarding the churning credit cards and getting the benefits paying them off at the end of the month – when you got your approved credit limit from $12,000 or $16,000, whatever the number you said, to $60,000, how do you access that money to then buy real estate?

Stacee Evans: I just called a couple of my credit cards. I have a lot of credit cards that have zero balance because I don’t really use them. I only use whatever is going to give me–

Joe Fairless: I know, but–

Stacee Evans: So I called the credit card; they send me offers all the time. “We’ll give you a 0% cash [unintelligible [00:09:56].02]

Joe Fairless: Sorry, I’m not asking the question correctly. I understand getting the credit increased. I’m wondering about how do you actually get those dollars and buy real estate? Is that a check that you receive? Because you can’t swipe the card to buy a property.

Stacee Evans: Right. So I call them on the phone and then within two days, they just transfered it into my bank account.

Joe Fairless: Okay, so it’s a cash advance.

Stacee Evans: Correct, with 0% interest.

Joe Fairless: With 0% interest. Okay, got it. So I want to make sure I’m wrapping up the $67,000 house before we move on. So you bought it for $67,000. How much in total did you put into it?

Stacee Evans: The rehab was $95,000. I don’t have the spreadsheet in front of me with the exact expenses, but I had insurance, I had utilities, I flew back and forth a few times… So I counted all of that in, obviously on my taxes when I looked at my profit. Off the top of my head, I want to say it was roughly another $20,000 with everything, which included going back and forth. And then after I sold it, there was, of course, realtor fees and all of the closing cost fees.

Joe Fairless: What did you sell it for?

Stacee Evans: It sold for $229,000, but we did have to take $8,000 off, because there was a couple of items that weren’t done properly. So I did that as a credit for the buyer.

Joe Fairless: Okay, so $229,000 minus $8000, minus $20,000, minus $95,000, minus $67,000, not including any of those other miscellaneous things, that’s around $39,000 profit. Does that sound about right?

Stacee Evans: I subtracted all of the interest from my loans, because I did take a couple of low-interest loans. The credit cards had a 3% fee, so I subtracted that. So it was probably about another $10,000 off of that. It ended up being pretty nice at the end of the day.

Joe Fairless: You live in Los Angeles?

Stacee Evans: Correct.

Joe Fairless: This property’s in Houston. It’s almost a six-figure rehab. How did you manage the process and what would you do differently, if anything, if you were to do this type of deal again?

Stacee Evans: I managed it by relying on the people that I had there. It ended up that the wholesaler who sold me the house was absolutely amazing. I was having some issues with the rehab, and when he sold me the house, he goes, “I’ll do whatever you need during the rehab,” and when he said that, he performed just incredibly. He would go to the house, send me videos. So he was almost–

Joe Fairless: What’s his name?

Stacee Evans: His name is Colby, Colby Samson.

Joe Fairless: Colby Samson. Props to you, Colby Samson.

Stacee Evans: Oh, amazing. And he would check on me every week or two. I told him– I said, “I’m new.” I want to say that I did jumped in — even though I had spent a lot of time studying and learning and realizing how to do this, it was scary, and I don’t know that I would say I 100% knew what I did, but the first thing that I would do is – I wrote the one check to the contractor for the initial $30,000, and in my mind, I kept doing worst-case scenario. Okay, if he runs off with the money, I’m down $30,000; I can get through it; here’s how. I never really believed that it was going to work until the very end, and my goal was to come out even. I go, “I just want to come out even; I want to do my first flip,” and when I profited so much, I was over the moon, because it was something completely different from what I’ve ever done.

Joe Fairless: Good for you. There’s a lot of resourcefulness and educated risk-taking involved here and also some leaps of faith.

Stacee Evans: Oh, big time leap of faith. Yes, I did have the money and the access to it that if it went south because I kept doing worst-case scenario, I’d be okay, I wasn’t going to lose everything. But it was scary.

Joe Fairless: When did you complete that flip? How long ago?

Stacee Evans: It was last August of 2019.

Joe Fairless: Okay, and you just completed that less than a year ago, you found an outstanding wholesaler, you found a good contractor, it sounds like, correct?

Stacee Evans: I’m not going to say that, because his communication’s–

Joe Fairless: Okay, average? Below average?

Stacee Evans: He got it done; his communication ended up not being that good, he kept dragging it out, he was running out of money, he wanted me to pay him before it was done…

Joe Fairless: Oh, man. Okay, alright, alright. Well, you found a contractor that you wouldn’t use again, but eventually got you to the finish line.

Stacee Evans: But the house did look beautiful when it was done.

Joe Fairless: Okay. But you have some team members that were discovered that hey, they’re really reliable.

Stacee Evans: Absolutely.

Joe Fairless: What made you leave that area, since you’ve already established some connections that were really helpful, and then go to a completely different state in Kansas City?

Stacee Evans: So my experience is rentals. I’ve had a lot of rentals and I have some right now, and it was pretty much just looking for an area that has a good price to rent ratio. I was a little nervous about just Houston, because it does flood, the insurance is very high, the taxes are very high. So it’s not as good of a return on investment. So I was looking at other areas for that. I’m looking a little more in the long term. I’ve been doing this for so long. I’m looking at the end game, so if I can get some rentals, have a little bit of steady income, pass them on to my kids… So Texas was just a little bit too scary for me for rentals, personally. So I just wanted to find an area that’s going to give me a nice bit of return.

Joe Fairless: How did you become introduced to Kansas City?

Stacee Evans: I actually did a lot of research. I had a mentor that I paid that just gave me a few one on one sessions over the Internet, that taught me how to analyze different areas, how to look at the employment, if the population is going up or down… You want to make sure that when you are looking at a certain area, that the companies that are in the area are diverse, so you don’t have a situation like Detroit had where one company goes out of business and then everything collapses, and you want to look at the income of the people, that their rough estimate is three times their income from the rent, and then just the price to rent ratio where the price of the house is not going to be so high compared to the rent that you won’t make a profit. Where I live in California, the price of the houses are so high that you’re just buying it for appreciation here, but not really for income.

So an easy way to do it is if any of your listeners are trying to figure out how to find an area, you can literally just google ’10 best cities to invest in for rental houses’, and then you just analyze data. There’s a lot of public websites to analyze the data, and look at their average income. I like the area because the schools were decent. So a lot of the areas that I looked in other cities, all the schools were bad, and you want people that have families. So, so far, so good. I’m dealing with a very small local bank there and they just give you the money for the house and the rehab, and then they start out with just interest only for six months, and then instead of having to roll it out or refinancing it, they’ll go principal and interest, and the prices are so low that I’m just putting the 20% down. I’d rather do that than try to do 100% financing. I’m a little more comfortable having more equity.

I know there’s a lot of schools of thought where you buy it and you rehab it and refinance it, you get all your money out and go to the next one, but because of my last deal, I have so much cash that  I’m able to do that and just keep a little money in each deal.

Joe Fairless: Now, earlier, you said that you’ve learned some hard lessons. What’s the story of a hard lesson that you’ve learned?

Stacee Evans: My hardest lessons were all about tenant screening. I had one story where I had a house in Vegas, and they weren’t able to pay the rent, and I got an extremely long, detailed email about how the girl couldn’t pay the rent. She put on her application; she was a dancer. So I’m thinking my little kid has dance teachers. Apparently, she worked at a brothel, she was getting diseases, she lived in a house with her ex-boyfriend and her husband and they were out of work and they were fighting, and I got a whole detailed thing; she couldn’t pay her rent. Actually, that ended up being okay, because I served her the notice to evict her. She called me; she goes, “We just can’t afford it,” and she moved out, and she left it a little messy, but it wasn’t too bad. The worst story is, on another tenant screening, I was in a situation where I wanted to rent my house out and I didn’t know what costs–

Joe Fairless: The first one?

Stacee Evans: This is another story. So I probably should have with this one. I’ll condense it, but I had somebody that wanted to run it; everything didn’t check out completely, I didn’t have criteria for running out for my effective tenants like I do now. I rented it to her and all she did was complain about everything and get the city to come out for one item after another. And after she moved out, she sued me and it was a year and a half lawsuit. She didn’t get anything out of it because my documentation was so good, but it was very stressful. So the biggest lesson that I learned is tenant screening.

Joe Fairless: Well, thank you for mentioning that, because let’s talk about your comment about your documentation was so good, because that will certainly be helpful for pretty much every Best Ever listener to learn what about your documentation helped you successfully defend yourself in that lawsuit.

Stacee Evans: So for every issue that she had, she would send me an email, I would reply to her email and I would tell her how I’m resolving it, and then she ended up trying to get a few people to testify for her in court, and she would go to the city Inspector and I would contact the city Inspector, and the inspector would say, “Oh no, we know she’s just trying to get money out of you.” She had about four, five people she was trying to get on her side, and they all came to my side. So she was saying that I wasn’t taking care of the air conditioning and I was sending the technician out over and over, and he said, “Well, her dog is so big and she won’t clean the filter, so he’s blocking it.” So it was pretty much just item after item; then and she said that her kid was getting sick from mold, and I had a doctor that has a mold company and I sent her his credentials. I said, “I’m gonna have him come out there. He can test for mold, he can look at your kid,” because she went and got her own mold testing company, and when I went on Yelp, this company had all bad reviews and they weren’t certified. So I said, “I’m going to send this guy out. He’s legit and he’ll even look your child,” and she goes, “I don’t want anyone that you refer,” and it was just documentation after documentation, and we ended up going to court. We didn’t have to, but by the time we were going to bring everything in, I presented documentation for everything she complained about, had my cell phone text messages, and I had all my emails. So the biggest expense of that was the attorney fees, and insurance covered a lot of that.

Joe Fairless: How much were the attorney fees?

Stacee Evans: I actually don’t know what they ended up being because the insurance covered that. I had to pay about $8,000 of it for an attorney to get my insurance company to cover it because my company didn’t want to cover it; my insurance company. I would guess over $100,000, because it was a year and a half of a lot of work.

Joe Fairless: Wow, and stress on your part; unnecessary stress, right?

Stacee Evans: Extreme stress. Oh, yeah. This is one thing that I learned in life is when something like that happens, [unintelligible [00:21:01].14] happen to you, you get it. So I take 100% responsibility for it. I didn’t know about tenant screening, or kind of did, but I didn’t have strict criteria; you either fit it or you don’t; if you fit it, then everything checks out, you get it; if you don’t fit it, I’m not taking a lot of excuses. I didn’t check out her employment, and I didn’t check everything out the way I was supposed to. So I look at that now that I’m not stressed out about it is a lesson learned.

Joe Fairless: The documentation, fortunately, that you had that back and forth documented, with not only just it documented, but also it sounds like you were providing solutions to her issues during the time, and it’s one thing to document stuff, but it’s another if you’re documenting it and that documentation shows that you’re looking to resolve the issues.

Stacee Evans: Yeah. Well, I mean, I knew that she was trying something. I didn’t know I was gonna get sued but I–

Joe Fairless: How much was she initially suing you for?

Stacee Evans: I don’t even remember the amount. I want to say $300,000 or something, and it was for just emotional distress. It wasn’t even for anything specific.

Joe Fairless: Gosh. Well, I’m glad you shared that story, because we’ve talked about the lessons already, and it’s a risk that we take as landlords, even if we’re not self-managing because in your case, you were self-managing. There’s always some way that something like that could– eventually, some resident could eventually sue a landlord, whether it’s self-managed or through a third party. Yeah, there’s certainly a high degree of confidence that that would get dismissed if it’s especially a third party that you have managing the property, but nonetheless, I imagine it was jarring when you first heard about that.

Stacee Evans: Oh, yeah. For sure.

Joe Fairless: Based on your experience as a real estate investor, what’s your best real estate investing advice ever?

Stacee Evans: Well, that’s a good question. I would say, at this point, and I should have been doing this all along, is to consistently learn, read books, talk to other people that are doing what you want to do, listen to podcasts, and do every single thing that you do with 100% integrity. It’s not a win-lose situation, ever. You always want to help everybody out, and just be nice to the people around you, and if you can add value and help them, you don’t even need to get something in return for it. It makes you feel better and it’s just a better way to do business.

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

Stacee Evans: I’m ready.

Joe Fairless: All right, let’s do it. First,  a quick word from our Best Ever partners.

Break [00:23:31]:07] to [00:24:24]:03]

Joe Fairless: Best ever book you’ve recently read?

Stacee Evans: I am going to say that best recently was The Book on Tax Strategies; I believe that’s what it’s called. It’s by Amanda Han and Matthew MacFarland. I read that book; the main thing I got out of it was you can’t have your accountant just find all your deductions; you have to take responsibility for yourself and saving lot of money on taxes.

Joe Fairless: Best ever way you like to give back to the community?

Stacee Evans: I work with a couple of groups that help feed the homeless, and I’ve been out there with them and I see it firsthand, and I also help out a lot of young people and some older people with financial advice in real estate, but I’m always happy to share any knowledge that I have.

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

Stacee Evans: I don’t have a website or anything, but I am on BiggerPockets, so you can find me there. That’s probably the best way I would  respond to messages, and I love to talk to people, keep learning from them and have them learn from me.

Joe Fairless: Stacee, thank you for being on the show. Thanks for talking about some lessons learned from tenant screening, as well as when you get sued what you better have ready to go in order to defend yourself, and that’s documentation that shows that you were attempting to resolve each of the issues. So it’s not a he-said-she-said thing. So thanks for being on the show. I hope you have a best ever day and talk to you again soon.

Stacee Evans: Thank you for having me.

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JF2127: Cross Collateral Deals With Matt Deboth

Matt served 8 years in the Marine Corps as a force recon marine and has 9 years of real estate experience with a portfolio consisting of 174 rental units and has 25 flips. He shares how he uses cross collateral financing to help him acquire more properties with little to no money down. 

 

Matt Deboth  Real Estate Background:

  • Served 8 years in the Marine Corps as a force recon marine
  • 9 years of real estate experience
  • Portfolio consists of 174 rental units and flipped 25 rental units
  • Currently rehabbing a 48-unit apartment in Des Moines, Iowa
  • Located in Des Moines, Iowa
  • Say hi to him at: www.TripleHoldings.com  
  • Best Ever Book: Titans by Rockerfeller

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“One tip that will help you grow your business is to bring value to brokers without looking for something in return.” – Matt Deboth


TRANSCRIPTION

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

Matt Deboth: Good, good. How are you?

Theo Hicks:  I’m doing great. Thanks for asking, and thanks for joining us today. Looking forward to our conversation. Before we begin, a little bit about Matt – he served eight years in the Marine Corps as a Force Recon Marine, he has nine years of real estate experience, portfolio consists of 174 rental units, and he’s flipped 25 rental units. He’s currently rehabbing a 48 unit apartment in Des Moines, Iowa. So we’ll definitely talk about that. Also located in Des Moines, Iowa. You can say hi to him at tripleholdings.com. So Matt, before we dive into that 48-unit deal, would you mind telling us a little more about your background and what you’re focused on now?

Matt Deboth: Yeah, I spent eight years in the Marine Corps. I was on my last deployment to Afghanistan, I was ready to get out, didn’t really have a plan or knew what I was going to do, I started reading a ton of books like Rich Dad Poor Dad, investment books, I decided to give real estate a try. So while I was on my last deployment, I was scooping the MLS, I found a 20-unit apartment building, contacted the realtor, the realtor told me, “Hey, the seller is interested in owner financing,” came back, talked to the owner face to face, worked out a deal, I ended up getting out of Marine Corps in end of August, closed September 1st, and essentially, I house-hacked a 20 unit apartment building. From there, I started buying all these houses off the MLS, because it’s a good time to buy all these foreclosures. I buy them, flip them, rent them out. I was doing that for a while, and then eventually I got tired of the single-family houses and started going to apartment buildings, and that’s primarily where I’m focused at now, is value-add apartment buildings, usually 24 units or more, usually a mix of at least half two-bedrooms.

Theo Hicks:  So you house-hacked the 20-unit. What were the seller financing terms? Maybe walk us through that negotiation and how did you even determine what would be a good price, since you were so new?

Matt Deboth: Well, I’ve done my research. I realized how to use Microsoft Excel, how to run all the numbers… And the seller couldn’t sell it because the market was bad, nobody in town is really buying large multifamily like that… His terms were $50,000 dollars down. I think it was 12.5% interest for three years, and the first six months were interest-only payments. And even with those crazy terms, it was still cash-flowing like crazy, and I was living there rent-free. So to me, it was a good deal. Plus I bought it at the bottom of the market, had a ton of equity into it about a year and a half later. I purchased it for $500,000; a year and a half later, I think it appraised at $950,000, and then about a year ago, it appraised for $1,150,000. So it’s been one of my better deals I purchased.

Theo Hicks:  After the three years, did you refinance it into a loan to pay back the first owner?

Matt Deboth: I did. I had to pay him the payments up for the first 18 months ,and at month 19, I walked into the small hometown bank and threw it all on the table and said, “What can you guys do for me here?” They helped me out, they got me, I think, at the time, 5.25% was my interest rate.

Theo Hicks:  Okay, and so after that, you said you transitioned into buying single-family foreclosures; you’d buy them, fix them up and then rent them out?

Matt Deboth: Yeah. At that time, you could throw a dart at the MLS and hit a foreclosure and get a good deal. So I was buying them like crazy. I was cross-collateralizing them with the 20 unit apartment building. Sometimes I’d have a little bit of cash to put into them. I was doing all the sweat equity myself, getting them ready to flip, getting renters in there, and then I would refi out… And I was doing the BRRRR method before I think the BRRRR method wasn’t even coined or I didn’t even know what it was at the time.

Theo Hicks:  Okay. And then after that, how many deals did you do before you decided to transition back into multifamily?

Matt Deboth: I think, at the time, I was around 30 houses I had done. I sold off about half of them and I currently have about 14 single-family homes I’m holding on to.

Theo Hicks:  Okay, and then what was the first multifamily deal you did after buying all the single-family homes, and maybe walk us through that deal the way you walked us through that 20 unit?

Matt Deboth: The next big deal I bought was a 17-year-apartment building in the same town. It was actually owned by my property manager, who was going through a divorce. He wanted to get rid of it, I was in the time to buy… I had a ton of equity in that first 20 unit building, so I used that as cross-collateralization for the down payment. I think I paid $425,000 for it at the time, and it just appraised about 30 days ago for $750,000. So I get a lot of equity in that. I’m gonna use that to roll over to another project here soon.

Theo Hicks:  So when you say cross-collateralization, are you saying that you went to a bank and rather than give them money, you put up your 20 unit as collateral?

Matt Deboth: Yeah, in these larger deals, and even when I first started off in these houses I was doing, I had so much equity into it that instead of doing a refinance cash out, I would leave all that equity on the books in the property, which helped me out a lot, because it keeps my mortgage payment low, my debt to income is low, it keeps my DSCR (debt service coverage ratio) high. So the banks love that because they’re in a better position, and I use that equity in property A to finance a down payment for property B, and then as soon as property B is stabilized and on its own, usually within six to 12 months, I’ll refinance that so the two properties are not tied together anymore. That way you don’t have a house of cards; in case you lose one building, you’re not losing them all. So it’s usually a short time, usually between 6 to 12 months that they’re actually tied together on the same mortgage.

Theo Hicks:  That’s very interesting. So it sounds like this cross-collateralization strategy is very low money down, if you can find the right deals and force that appreciation… Because it sounds like you used this 20-unit deal to buy a lot of different deals, and then you just refinance once you’ve added equity to the other deals. Is that what you did? Is that your strategy?

Matt Deboth: Yep. The only deal I’ve ever really had to put money down to these multi-families is that first 20-unit; I put $50,000 down and that was part of a savings that I had from deployment. It’s on a credit card and peer to peer lending. But everything else I bought from then on out has all been zero money out of my pocket. And I’m not buying deals that are at 3, 4, 5 cap. They’re all value-add, they have a ton of equity in them already, they’re a distressed seller, they need a little bit of rehab, the banks love them… So it’s a pretty good money down strategy. I haven’t had any problems with it yet. I don’t see that many things since I’m buying on actuals and cash flow and not proforma.

Theo Hicks:  Then that’s huge. So let’s talk about the 48-unit deal. So before I go into detail, is this another deal that you’re using cross-collateralization on, or did you put money out of pocket for this?

Matt Deboth: No, I cross-collateralized the 22-unit building to buy this. So I purchased it for $2.5 million, 100% financed and the bank also financed $1.2 million for the rehab.

Theo Hicks:  And it’s 100% financed because of the cross-collateralization, right?

Matt Deboth: Yeah, I had to use the cross-collateralization for the purchase price, but the building appraised– can’t remember. I think the building appraised for about $3.8 million. So I had a ton of equity into it for after repair value that the bank pretty much gave me the repair costs to put into it. So I’m using that right now to rehab the entire property. And as of right now, I think our rents are going to be about $100 more than what we’ve forecasted, so that’s just icing on the cake for the deal.

Theo Hicks:  So the $2.5 million purchase price, and then the bank gave you $1.25 million in repairs?

Matt Deboth: Yes.

Theo Hicks:  Okay. So correct me if I’m wrong, but 50% of the purchase price, you’re using that amount to repair the property. So does that take a while to do? That’s a long process?

Matt Deboth: Yeah, it will. It’ll probably take about 18 months. It’s one property, but it’s four 12-plexes. So we’re just doing it one building at a time. That way, we have the other three buildings paying rent, we still got cash coming in. So we’re just– as soon as one building is up and ready, rehabbed, we’ll rent that out, see what we can get for actual on rents, and then we’re going to move to the next building and go from there. Just do it chunk by chunk, instead of kicking everybody out and trying to do everything at once. Especially now with the market the way it is, nobody knows how this whole Coronavirus is hitting everything, so we’re just taking it slow and doing it step by step.

Theo Hicks:  How did you find that 48-unit?

Matt Deboth: I had a broker bring it to me; a broker that had brought me a few other deals. He had been working this one for a while. The seller never wanted to sell, she was just dead set on holding, and I think one day, she just randomly called him and said, “Sell the place. I’m tired of dealing with tenants.” So he knew I was in market for something that size and that price range, and I was the first on his list.

Theo Hicks:  Why were you the first on his list?

Matt Deboth: Networking. I had already done about $4 million with the deals with him in the past. I would talk to him on a regular basis, probably two, three times a week. I’d referred him multiple times; he’s got a couple of good clients from me. I think it’s just networking and staying in a circle, keeping in front of him the whole time, telling them what I want, and he knows I’m a closer; I’m not retrading on deals, I had the financing already in place for something of this size and he took it serious. Is that how you’re finding all of your deals now through these broker relationships, or do you have another method for generating leads? Mainly brokers. I’d say my next biggest one is just networking, meeting people that want to sell. I’m not doing any direct mailer or anything like that. I’m just going to real estate meetups and talking to people, trying to get out there and see what value I can add to other people, and then it turns around and gifts you with things like other deals and stuff. I don’t buy everything that I come across, but I definitely try to hook people up with other buyers that I know that are looking to buy stuff.

Theo Hicks:  Are you still having a pretty easy time finding these value add deals in this market?

Matt Deboth: It’s a little tougher than it was a few years ago, but they’re out there. Obviously, they’re not gonna be blast on the MLS or LoopNet, but there are definitely a lot of brokers out there with pocket listings that they’re trading at a decent price. I think the networking part is how you get those good deals though. They’re not gonna be blasted all over the internet for everyone to see; they’re going to be in that broker’s pocket and–

Theo Hicks:  For someone who wants to start the process of building that trusting relationship with a broker so that they can receive those off-market value opportunities, what’s the first thing that they should do, or what’s one thing that you do immediately to get the ball rolling on that?

Matt Deboth: I’d say, bring them value. If you can bring somebody value without looking for something in return, they’re gonna look at you higher than somebody who’s just wanting to get everything they can out of them. Network constantly, meet people, get out of your comfort zone, just start shaking hands. Oh, I don’t know now with the Coronavirus… Don’t be shaking everybody’s hand, but get out there and just meet people and go to real estate meetups.

Theo Hicks:  When you say bring value to brokers without looking for something in return, do you have any examples that people could follow?

Matt Deboth: Yeah, if you know somebody that’s looking to sell or buy and they’re in a certain niche, and you know another realtor that’s in that niche, look them up, see what you can do, don’t try and get something as far as a commission or a finder’s fee or anything into it. Just try and help people out. That’s probably the best way, I think, to meet people in this industry.

Theo Hicks:  Yeah. If you don’t know anyone who’s buying or selling, you can use the going to real estate meetups. That why people are there for – to find deals and things like that. Alright, Matt, what is your best real estate investing advice ever?

Matt Deboth:  I would say, network. Get out there, meet people, go to real estate meetups, get on websites, forums, constantly interact with people, get uncomfortable, educate yourself as much as you can.

Theo Hicks:  Alrighty. Are you ready for the Best Ever lightning round?

Matt Deboth: Let’s do it.

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

Break [00:15:22]:04] to [00:16:17]:08]

Theo Hicks:  Alright. What is the best ever book you’ve recently read?

Matt Deboth: That’d have to be Titan, the story of John D. Rockefeller.

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

Matt Deboth: I’d start over. I’d start hustling, start from the bottom again and try to get to the top.

Theo Hicks:  We talked about a lot of your successful deals. Is there any deal that you lost a lot of money on, and if so how much, and what lessons you learned?

Matt Deboth: I haven’t lost any money on any deals, but there has been a few deals where I thought I had lowballed them quite a bit, but then they accepted my first offer so then I started second-guessing myself. And then one deal, in particular, I went to the closing table and realized I probably could have got it for about $100,000 less, but at the time, I was too scared to go any lower, because I knew if it went to market, it would be gone and it’d be out of my price range.

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

Matt Deboth: Probably attend meetups, educate people, get on the forums like BiggerPockets, help people out as much as I can, try to get people educated into real estate.

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

Matt Deboth: I’m on Instagram @MattDeboth, Facebook, LinkedIn, BiggerPockets and tripleholdings.com.

Theo Hicks:  What types of things are you doing on Instagram?

Matt Deboth: I’m just posting some deals that I’ve got, some rehabs stuff that we’re doing. I’m not as active as I probably should be on it, but I’m trying to get out there and reach people, and I meet a lot of people who have questions and I try to answer them, do some zoom calls with them and just help them out.

Theo Hicks:  Well, Matt, thanks for joining us today and sharing your story, your journey and what you’re doing today. I think the biggest takeaway, at least for me, and I’m sure for most of the listeners is this – a very low money down cross-collateralization strategy. Obviously, I’d heard of it before, but I hadn’t heard about it in this way. I haven’t heard about this rinse and repeat process. So you buy one property– for you, it was this 20-unit building that you bought for $50,000 down. It was an owner financed property, and you said that you bought it for 500k and it appraised for over a million dollars a few years ago. And then after 19 months you refinanced, got out of that really, really high-interest loan into a new loan, and then you created a bunch of equity in that property, and then you used that equity as the downpayment for another property, and you kind of rinsed and repeated. So after 6 to 12 months, you refinanced. They had to be value-add deals, so you can add value and force appreciation, and then you refinance so that those properties are connected, and then you got that collateral to use for another property. So it sounds like you’ve really just had $50,000 out of pocket upfront and were able to do all of these deals.

Matt Deboth: Correct.

Theo Hicks:  We talked about all different deals you’ve done – the 17-unit deal that you did, then we talked about your 48-unit deal that you did, all with cross-collateralization. We talked about how you’re finding your deals. Number one source is through brokers. Then you gave us some tips on how to get brokers to send you their off-market deals. One was to do deals in the past. You had done $4 million for the deals with this particular broker before he brought you the 48-unit deal. Speak to them; you speak to them three times a week, and then bring them value without looking for anything in return, and the best way to do that is to refer them people.

Matt Deboth: Yep.

Theo Hicks:  You also mentioned that your other way to find deals is through networking. So attending real estate meetups, browsing the forums and things like that, which was also your best ever advice, which is to network and also to get uncomfortable, and you gave the example of not a deal you lost money on, but a deal that you could have made more money on, but you were too afraid to get outside your comfort zone and offer something really, really low. So I think that’s really good, solid advice, as well as the cross-collateralization strategy. So again, Matt, thank you for joining us. Best Ever listeners, thank you for listening as always. Have a best ever day and we will 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.

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.

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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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JF2126: Questions to Consider With John Bogdasarian #SkillsetSunday

John is a returning guest from episode JF1308. He is the President of the Promanas Group, a real estate investment firm and he has a book called “Do the work once, get paid forever: How Smart People Invest in Real Estate.” In this episode, John shares different questions you should be asking yourself when you’re looking to invest.

John Bogdasarian Real Estate Background:

  • President of the Promanas Group, a real estate investment firm
  • Began with nine initial investors, has strategically guided the firm to serving more than 300 investors today
  • Recently published his first book “Do the Work Once, Get Paid Forever: How Smart People Invest in Real Estate”
  • Based in Ann Arbor, MI
  • Say hi to him at https://promanas.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Don’t focus too much on the deal, because you have no idea, it could look like the best thing in the world. I can make anything look like anything on paper.” – John Bogdasarian


TRANSCRIPTION

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

John Bogdasarian: I’m good, Theo. Thank you.

Theo Hicks: John, thanks for  coming on the show again. John is a repeat guest; this is Sunday, so we’ll be doing  a Skillset Sunday where we talk about a specific skill that our guest has, and how you can apply that to your real estate business. Before we get into that skill – John’s biography. He is the president of the Promanas Group, a real estate investment firm. He began with nine initial investors and has strategically guided the firm to serving more than 300 investors today. He recently published his first book, “Do the work once, get paid forever. How smart people invest in real estate”, so definitely check that out.

Based in Ann Arbor, Michigan. You can say hi to him at Promanas.com. As John said in the beginning, it rhymes with bananas. So John, before we get into the skill, do you mind telling us a little bit more about your background and what you’re focused on now?

John Bogdasarian: Yes. Essentially, my background is real estate agent, to real estate broker, to commercial broker, to developer, and now pretty much purely private equity. So what we do today is we act as the equity source for developers that have projects teed up and ready to go. We go in,  we put another layer of due diligence over the top, and then we write them a proposal and say “Yeah, we wanna be your equity under these circumstances”, and they 99 times out of 100 say “Great. Awesome. We don’t have to think about raising money.”

And then the value that we’re kind of creating to the investor side of the equation is that we do have a whole other layer of scrutiny that comes over the top of the deal, obviously, but we also negotiate structures where there’s very little dilution in the deal itself. Investors’ dollars come back first, and some type of a preferred return comes back to them first… So what we like to say is that we’re giving investors the best possible chance of getting solid double-digit returns in real estate, with the least amount of downside potential. And that’s kind of the unique proposition in what we do today.

Theo Hicks: Okay, thank you for sharing that. So this skill is going to be for passive investors… We’re gonna talk all things passive investing. To start off, you mentioned that you are the equity source for developers. Are they developing multifamily, are they developing office, or is it kind of just a combination of all types of developments?

John Bogdasarian: Yes. [laughter] We have condominium projects, we have hotels, we have office buildings… We have not developed ground-up and industrial property, but we’ve purchased millions of square feet of industrial properties, again, using investor capital. So I think we’ve done pretty much almost every type of asset class. The only thing we haven’t really done much of is retail, but other than that I think we’ve seen pretty much everything.

Theo Hicks: So as a passive investor, I’m looking at your deals that you have available… Give me some tips on what I should be looking for… Because again, I’m not sophisticated. I don’t know about development, or hotels, or office buildings… I just know that  I’ve got a lot of money and I wanna get, as you mentioned, the best possible chance to get a solid return with the least downside. So how do I as a passive investor determine if a particular deal I’m looking at fits that criteria?

John Bogdasarian: Yeah, it’s a great question. That’s the question I’ve had thousands of times over the last ten years… And that’s basically why I wrote the book. It’s titled “Do the work once, get paid forever”, which used to mean to me “Put your money to work for you, get enough passive income.” Maybe owning apartments, or whatever it is, so that you can get paid forever and you don’t necessarily have to show up to a 9-to-5er job if you don’t want to anymore.

But I took that same philosophy and I said “Well, how does an accredited investor figure out how to do that?” If I’m a doctor, or I own my own business, whatever it may be, I don’t have time to make all the mistakes John made in his career, or somebody else, and figure out how to get to that point.

The book really answers that question, and what it says is it says — so you don’t have to buy it or read it, because it’s written like a third grader; I’m not really a writer… But it has this conversation where it says “Out of all the investors I’ve worked with and had conversations with, the most intelligent ones, the most sophisticated ones ask their questions more about me, the person they’re investing with, than they do about the specific deal that I have sent out to them.” So the book really is designed to say “Alright, you’re a potential investor, but where do you go?” So how do you find people that have good deals ready to go? What is a PPM and a subscription agreement? What does a typical deal structure look like in that subscription agreement?

So really, I think most people can read this thing in about two hours, but it’s sort of how to start out, how to find the right partner to invest with? What’s the philosophy behind it, why is this person doing this? What kind of due diligence can I do on this person and/or this deal? What are the various types of real estate investments I can get into?” So it’s not as detail-oriented as, say, Sam Freshman’s book Principles of Real Estate, which is like a textbook… But that also won’t tell you how to find people that know what they’re doing; that just tells you how to become a syndicator.

So this is really designed to say — for instance, you ask, Theo, “Where would I go? What would I do? How do I find deals to invest in?” So it gives you some tips. Like, when you’re driving around in your town, do you see cranes in the air? Or if you’re visiting a city, do you see cranes in the air? And people are going to hot places, right? And I don’t mean temperature-hot. You’re not going on vacation in Milan, Michigan, or wherever. You’re gonna go to Denver, Nashville, Sarasota, mountain towns maybe… And there you’re gonna see developments going up.

So the developers’ names are all listed right on the signs; just making note of them… Get online, send them an email and say “Hey, do you ever consider taking on investors?” That’s one way to find potential deals. Maybe you won’t get into that deal that’s going on right now, but people are always looking for money for deals… And it even explains why people are looking for money for deals. Because one of the things that I always thought about was “Why would this guy take on investors and make them money? Why doesn’t he just keep all the money himself?” It just doesn’t work like that. It’s impossible. You can’t possibly move fast enough or do enough. And plus, having started out at zero myself – a very good upbringing, but zero money… I don’t have any money, so how am I gonna go do this? I had to take on investors. And now my whole mindset is “We like making people money. It’s fun.” And it’s not all about the money, it’s about taking care of people and giving them access to things they don’t have access to, and whatever. So there’s a pretty good digression for you.

Theo Hicks: That was great. So you gave a lot of questions that passive investors should be asking, and you mentioned how they’re answered in your book, you gave a few examples why are people looking for money for deals, and then you gave an example of how to find people who have good deals. You gave the example of cranes in the air… What are some other examples of ways that I can find people to invest with?

John Bogdasarian: I’ll tell you, as dumb as it is, you’re in your doctor’s office; you’ve gotta be there anyway, you’ve got a few minutes… “Hey doc, I appreciate you taking a look at (whatever it is you’re getting checked out) my arthritic knee. I’m just curious, have you ever invested in any real estate deals? Do you know anybody locally who puts these kinds of things together?”

You can do Google searches and try and find developers and contact them and do that, but the internet is kind of a strange place for that. You now have, as  you’re aware of, I’m sure, the investment portals, where you’ll see all these deals on there. “Oh, this one will make you 18%, this one will make you 13%. This one will make you 16%”, and you can just point, click, ship and invest money in these deals. Well, I don’t like that disconnect. I’ve been strongly opposed to people investing through those portals… Because we have talked to all of them, and we’ve talked to them about getting our deals on their sites, and we don’t do it because we don’t like the process. The disconnect between the developer, sponsor and the money creates too many problems.

For me, when I started out, it was all friends and family. That’s it. It’s all friends and family. Who else is gonna give me money? At the time  — how old was I…? I don’t even know how old I am now. I guess I was like 39 or 35… Anyway, so I don’t know that many people. So I had to go friends, family, people in the community… And you better believe that that deal structure was exceedingly weighted towards the investor, as opposed to the deal sponsor, syndicator, developer. And we’ve kept that same philosophy throughout, because — I now have just over 400 accredited investors participating in deals with us, and while I don’t know all of them anymore (that’s impossible), pretty much everybody I know or deal with on a day-to-day basis is invested in my deals. So for me, that’s a  system of checks and balances. It says “I don’t ever wanna do something just to create fees and make money and fly around in my private jet, and all these people have lost their money.”

I think when you get onto these portal sites, that’s a problem. People can just throw them on there… It’s just different to me. I think it’s way better in real estate. Real estate is so unique. Everyone’s trying to create a system whereby it’s a robo-advisor, and your deal fits into this format/formula… And that’s the whole message – don’t focus on the deal, because you have no idea. It could look like the best thing in the world. I can make anything look like anything on paper. And most of the deals we put out, to be perfectly honest with you, experience something major throughout the development process. A major challenge or setback that we did not anticipate or could not foresee. So I think if you have the right person running it, then they have the ability to create solutions and even opportunities out of these things that happen throughout the process. If you have the wrong guy, who’s just interested in the fee, and he doesn’t really have a whole lot of experience of knowledge or understanding, you’re gonna get soaked and the deal is gonna go under.

So again, I’m probably answering more than you asked, but I steer clear of advising people to do the portals… But you could do Google searches on people in your area, you can read news articles… Most people have a local real estate publication of some kind. Ours is called Cranes here. You’ll see people in there, mover/shakers. Don’t be afraid to call them up, look at their website, see if they take on investors… It’s what I call prospecting. You’re just looking for good people… Usually, you’re gonna get  it  all word of mouth. These are what used to be referred to as country club deals. So if you’re a member of a country club, if you’re an accredited investor, chances are you associate with other people who are accredited investors, and chances are you know people that are in deals; they just don’t talk about it, or run around promoting it. So you have to ask. You have to say “Hey, have you ever invested in real estate deals? Do you know anybody good who puts real estate deals together?” Ask that ten times and I guarantee you’ll have some opportunities in front of you.

Theo Hicks: Okay, so we hit on the prospecting aspect, how to find these people. So once you find them, you did mention a few things to look for – favorable returns to the investors, as opposed to a bunch of fees and stuff for the sponsor… And then avoiding those types of investor portals because of that disconnect. What are some other specific questions or specific things I should be looking at as a passive investor once I’ve found a handful of potential people to invest with?

John Bogdasarian: I think people have different reasons for doing things, but motivation in and of itself boils down to a handful of categories. If you wanna understand motivation — people tend to do things for recognition. They want awards, they want recognition, they wanna feel like they’re important… People will also do things for a sense of contribution, contributing to the community… “I’m creating something good here. I’m doing whatever.” Money is a motivator for people. “I’ve gotta pay the bills.” When I started out I had to do deals; I’m now in a position where I don’t have to do any deals. So when I question motivation, that’s the question I would ask “What’s your motivation for doing this? Why are you putting this deal out and taking on investor capital?” It seems like a lot of work and a lot of time, energy, and it could potentially be stressful.

Funny story – I have probably 20-30 heart doctors invested. We probably have 70-80 physicians in our group at this point, but we have a number of specialists, and a number of them are heart doctors. A few routinely perform emergency open heart surgeries… And one of them in particular was sitting in my office and said “Boy, I just don’t know how you can do it.” I’m like “Do what?” And he said “I just don’t know how you can work with other people’s money. That’s gotta be so stressful.” And I’m like “Doc, half your patients could die. [laughs] I don’t wanna do what you do… No way. I’ve gotta come out and tell the family “Sorry, he didn’t make it.”

Anyway, so I thought that was funny, but it is true – there’s a certain amount of pressure associated with generating returns for people, especially when you know them intimately, and you eat Thanksgiving dinner with them.

So gauging someone’s motivation I think is probably the most important, and I think you’ll get  a sense of whether or not you’re dealing with somebody honest at that point in time. Also, I wouldn’t be opposed to having somebody review the private placement memorandum if you’re not familiar with them. If you’ve read a number of PPMs and you know what they’re all about, then fine; it should be pretty simple, and spelled out very clearly in terms of who makes what, when, and how it works… But if it’s complicated to you at all, have someone else look at it. Find a legal guy to review it for you and give you the nuts and bolts; at least the first couple times get some of that third-party evaluation done.

Theo Hicks: Alright, John, is there anything else that we haven’t talked about already as it relates to a passive investor getting started, growing, scaling their passive investing business that we’ve not talked about yet?

John Bogdasarian: Not that I’m aware of. I think mostly for us it’s unique to the person. What I find interesting is — let’s say we’re putting out a deal and we’re raising 20 million in capital. Well, most of that will get spoken for pretty quickly off of our existing list, and it won’t even get questions on it. So people will just send an email and say “I’m in for 200k” or “I’m in for 500k” or whatever. So we’ll fill most of our deals, probably 70%-80% of them with existing investors. But every single time there’s gonna be at least 15-20 that are on our potential investor list, that have never invested with us before, that wanna have a conversation about the deal and they ask very specific questions.

Oftentimes those questions are never the same. One person might be focused on the city that we’re developing in, we’re building in. Another person might be highly focused on how much money I make, and my team, and how we get paid. Another person might be focused on the asset type, and they might think hospitality is a dead sector. Or condominiums are over-built. Or whatever. It’s almost like no two will be the same, but they’re all focused on one thing.

So by definition, I kind of think they’re focused on the wrong thing, because if I address this issue for this guy over here, and say “Well, here’s why we like it, and here’s whatever, and here’s this and that”, the reality is they’re not necessarily asking the questions that they should be asking… And that’s more about the track record of the deal sponsor, the track record of the developer person, whatever it may be, the contractor, what kind of due diligence do you guys do… There’s gobs of questions I would ask, and I think one of the most revealing – one more little tidbit – is “Tell me about some of the deals you did that didn’t work out, or weren’t gonna work out, and how did you address those concerns?” I think that gives you a few more things to focus on.

Theo Hicks: Well, John, again, I really appreciate you coming on the show and sharing your wisdom on passive investing. A lot of great content here. I’m just gonna quickly summarize some of the main takeaways. We first talked about how to analyze deals, and you kind of quickly shifted it from – well, you’re not necessarily looking at the deal itself; the most intelligent investors are focusing on the person who’s actually sponsoring the deal, as opposed to the deal… So we went into the details on how to find these people.

You said “Did you see cranes in the air? Find the developers’ names and reach out.” That was unique; it’s something I hadn’t heard of before. Also asking people who are other accredited investors; for example, when you’re going to the doctor’s office, ask them who are they investing with. And you gave a few other examples as well.

We talked about things to avoid, which is those investment portals, because of that disconnect between the sponsor and then the investors.

You mentioned a lot of things of what to look for when you’re screening sponsors… Something that I hadn’t heard stated this was asking them what their motivation for doing deals is, and based off of what they say, you can gauge if you can trust that person or not. And then also asking about specific deals that they did that did not work out… So again, John, I really appreciate it. Thanks for taking the time to speak with us today.

Best Ever listeners, make sure you check out his book. Again, that’s “Do the work once, get paid forever. How smart people invest in real estate.” The website is promanas.com. Again, thank you, John. Best ever listeners, thanks for tuning in. Have a best ever day, and we’ll talk to you tomorrow.

John Bogdasarian: Thanks, Theo. I appreciate it. Thanks for having me on the show.

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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