JF2098: Have A Best Seller Book With Steve Kidd #SkillsetSunday

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Steve is a 3rd generation minister and the best selling author who has coached 600 people to also become a bestseller. Steve gives ideas on how to get your book to become a bestseller.

Steve Kidd Real Estate Background:

  • 3rd generation minister
  • Best selling author and coaches others on becoming best sellers
  • Has helped over 600 people be best selling authors
  • Based in Oswego, OR
  • Say hi to him at bestsellersguild.com 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“You need to have a very specific marketing campaign that will market your new book.” – Steve Kidd

JF2097: Insight in Development Deals With Preston Walls

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Preston is the CEO and founder of Walls Property Group, he currently manages a portfolio of 70 buildings valued over $300MM. Preston shares his experience through starting in residential to now development deals. Joe asks Preston to explain some different challenges he has faced in the development world so you can be better prepared if you choose to venture on this path.

 

Preston Walls  Real Estate Background:

  • Founder & CEO of Walls Property Group
  • Currently manages a portfolio of 70 buildings valued over $300MM
  • 16 years of real estate experience
  • Located in Seattle, Washington
  • Say hi to him at: https://wallspropertygroupre.com/ 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“It was helpful to move forward with something in the face of somebody you respect and trust pointing out the reasons you should not do it.” – Preston Walls

JF2096: Going From The Medical Field to Investing With Victor Leite

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Victor and his wife both started off in the medical field and started to feel burned out after working 70hr work weeks for 5 years. They both decided to leave their jobs to go backpacking and upon their return, they decided to purchase their first home and discovered it would need a lot of work. This started their journey into real estate investing, and now they have a business with 17 investors. 

 

Victor Leite Real Estate Background:

  • Entrepreneur and investor who owns multiple rental properties
  • Portfolio of rentals includes a mix of single-family homes and multifamily properties
  • Manages a high volume Fix & Flip investment group, they successfully completed over 100 rehab projects in 2019 – mostly with funds from private individuals
  • Based in Virginia Beach, VA
  • Say hi to him at https://www.lvrinvestments.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Difficult roads often lead you to beautiful destinations.” – Victor Leite

JF2093: Bad Decisions To Good Decisions With Will Harvey

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Will is a Principal at CEO Capital Partners and recently left his W2 job to do real estate full time. He shares a great story of how he had a life of making some bad decisions in college related to alcohol and because of a great friend he was able to overcome this and now is a successful investor. 

Will Harvey Real Estate Background:

  • Will Harvey is a Principal at CEO Capital Partners
  • From Ashburn, Virginia
  • He started in real estate in 2016.
  • Personally owns over 1.5MM  in real estate mixed between rentals and Airbnbs
  • Recently left his W2 job to do real estate full time.
  • Say hi to him at : www.wealthjunkies.com  

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Seek advice from qualified people.” – Will Harvey

JF2091: CEO of Real Estate Tech Company Groundbreaker Jake Marmulstein

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Jake is the co-founder and CEO of Groundbreaker Technologies, a real estate technology company that he created to help solve the problems he was having when he was investing in real estate. In this episode, you will learn some ways to use technology to improve your real estate investing experience.

Jake Marmulstein Real Estate Background:

    • Co-Founder and CEO of Grounderbreaker Technologies, Inc
    • Over 6 years of real estate technology experience
    • Based in Chicago, IL
    • Say hi to him at: https://groundbreaker.co/ 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“One practice that has really helped me grow is by getting outside of my business by helping other entrepreneurs.” – Jake Marmulstein


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, Jake Marmulstein. How you doing, Jake?

Jake Marmulstein: I’m doing great, Joe. Thank you for having me.

Joe Fairless: Well, it’s my pleasure and I’m glad to hear that. A little bit about Jake – he’s the co-founder and CEO of Groundbreaker Technologies. They are the sponsor of today’s episode, as you are well aware, and he has over six years of real estate technology experience, he’s based in Chicago. We’re gonna be talking about using technology to your advantage, solving problems with technology, and then also pitfalls when creating a real estate business that he’s seen from a back-office operation standpoint, among other things. So with that being said, first though, Jake, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Jake Marmulstein: Sure. Thank you for the introduction. So Groundbreaker and my background blend together because when I was working in real estate investment, I realized that managing investors in the current way that we’re doing it, at the REIT that I worked in, we were doing institutional scale investments in distressed hotels, and I was doing all the underwriting and packaging of the materials, and then having to get on investor calls and answer investor questions. So through that experience, I realized that the process was pretty manual and there was a large lack of technology, and I wanted to make it better and couldn’t find solutions in the market to address these problems. So that’s where Groundbreaker came into play with my background. And ever since, I’ve been working with real estate syndicators to help them get their business into a digital realm, where they can manage things in a more automated and streamlined way.

Joe Fairless: So you were working at a REIT that was buying distressed hotels, and you said you were responsible for– I think you said underwriting, as well as answering investor questions. What type of questions would be asked by an investor when looking at these types of opportunities?

Jake Marmulstein: The investors would want to know some of the basic things like – what’s the minimum investment amount? Why this asset? Talk to us about the demand generators in the market and the competitive set. Some of the things that you would assume that they would already read in the pitch deck, but maybe they never even looked at what you sent them.

Joe Fairless: So answering those questions would be one aspect of it, and you mentioned that– okay, you saw that there was an opportunity to build technology to address what you were seeing wasn’t automated, but could be. So how does a solution like Groundbreaker help with that process if they’re not reading it in the first place? Is it, “Hey, you’ve got a place to log into and now, here it is right in front of you, and it couldn’t be more obvious that you should check this out”, or are there are other ways that this provides a solution for the challenges that you came across?

Jake Marmulstein: Yeah, this is only one small aspect of it. I remember spending a lot of time also moving files into different folders and organizing the backlog that was our database of information, and not having it all in one place, and managing several different Excel spreadsheets to keep track of contributions and distributions and investor data and the conversations that we had with investors, and having that all really based on Excel in an internal server.

So there’s a wider, larger problem of data storage and just the access to the information that we use to operate the business that causes the problem. But with regard to this specific one, Groundbreaker has a offering memorandum builder inside of it, so you can create your offering and have it live on the internet, and that means that we can track people getting access to the system, logging in and looking at the offering. So when we go to them to call the investors and look at the list of individuals that are most likely to invest, we can pick the people who’ve already looked, and we know for those who haven’t looked, where they’re at, so we can moderate the conversation and maybe they might be a different priority in our list of investors to call, but we go into the conversation with the information that they didn’t actually check out the deal yet.

Joe Fairless: I know that when you look at the backend, back-office operations that need to be present when you create a real estate business – when you talk to others, a lot of times they’re missing some things or they don’t know what they need to have included whenever they create a real estate business. Can you talk about some of the backend office operations that are needed in order to have something up and running?

Jake Marmulstein: Absolutely. So a lot of people are great at finding good opportunities, good deals, because that’s what most people get excited about is the deal. Let’s find that deal and let’s find that great opportunity to invest in and be able to pull the trigger. But before you can scale a real estate investment business appropriately, you may start out with a simple Excel spreadsheet and PowerPoint with a group of friends and family who know you and trust you. But when you want to scale beyond that, you’re going to need to have systems in place to get across your track record and do everything in a compliant way, manage data and track everything. So having a website helps to create transparency about your brand and who you are, and a lot of people spend way too much money and time on the design of a website and that holds them back.

I also find that people will pay a lot of money for operating agreements and getting their entity set up, and it will come out of pocket tens of thousands of dollars before they even have the chance to make any money. So that’s where a lot of people stop, is on that basic stuff. So you need to have your operating agreement in place and your entity in your bank account, and having a website helps you to create a track record and show the history of what you’ve done, and it builds trust and familiarity with you, so that you can have access to new investors, and when people refer business to you, there’s a place for people to go to get information on who you are. So I think all of that helps. And then if you’re able to attach an investor portal into there, which is what Groundbreaker would be able to provide, you have the chance to catch those leads, let them sign up, and then give them access to your deals. So it will create an infrastructure for you as a business, to be able to build trust, do things the right way in a compliant manner and operate in a system that can scale.

Joe Fairless: With Groundbreaker over the years, what are some major things that have evolved since the beginning?

Jake Marmulstein: In terms of–

Joe Fairless: In terms of the product itself.

Jake Marmulstein: In terms of the Groundbreaker product?

Joe Fairless: Mm-hm.

Jake Marmulstein: Sure. So when we started, we were just a fundraising tool. We allowed people to create an offering and share it with investors. And people told us that they wanted to have a private investor base that they could manage in a CRM system, where they could take notes and keep information logged, and upload reports and share information and be able to distribute funds. So we built all of that functionality, and then we made distributions electronic so you can send funds through direct deposit to investors’ bank accounts through the software, and that’s been a huge improvement.

We also have been able to make it easier for people to find information by having the CRM and having all of the information from every investment, every report, K-1, in the same place; so you don’t have to manage different systems to keep track of this data. Groundbreaker can act more like a headquarters for the business, and I think that has really helped a lot of people who might be relying on email or Dropbox to house the data, and so it still creates that problem of inefficiency when information is in different places.

Joe Fairless: What’s been the biggest challenge for getting more customers? Obviously– well, not obviously, but I’d say most businesses, they want more customers. So there’s always gonna be a challenge to getting more and more. So what’s been your biggest challenge in getting more customers?

Jake Marmulstein: Well, I think initially, the challenge was just the realization from the market that this solution is the future and the need for it. I saw it pretty early on that every real estate investment company would, at some point, have an investor portal, and as more companies adopt, the companies that don’t adopt are in a position of weakness. So that’s the market moving and getting in there– identifying the need for an investor portal to be able to offer transparency to their investors in a way that’s never been available before. So as the market gets more educated, Groundbreaker’s here to provide that service, and I don’t see any challenges outside of just getting the word out about what we do and people being educated about why they need to get on board with the solution, because there’s definitely enough companies out there managing things the old fashioned way. They’re not happy with the way that they do things, but they don’t know that there’s something else better out there that they could do.

Joe Fairless: Let’s talk about you as an entrepreneur because as real estate investors, we’re all entrepreneurs in varying degrees. At least, that’s my belief. What’s been the hardest day for you as an entrepreneur?

Jake Marmulstein: That’s a great question. I don’t think there is a hardest day, Joe; I think there’s a lot of hard days. It’s like a rollercoaster ride; some days you feel great and happy in what you’re doing, and some days you really question why you’re doing it. But maybe, I could say when I moved to Chicago and took on the current investors that are helping to help me grow Groundbreaker, that was a really hard day, because I moved from living in Puerto Rico in 2017, and seeing the sun every day, to moving to Chicago in the middle of winter in January. I didn’t have a place to stay, and I was staying in an Airbnb, and I was questioning whether I’d made the right decision or not, because I could see myself taking a major sacrifice in terms of what I wanted and the lifestyle that I wanted to live, because I enjoyed Puerto Rico very much, and I could see myself living there… But making a sacrifice to be able to grow the business and realizing that as an entrepreneur this was a lifestyle change that I was willing to take so that I could achieve something greater and that one day, with hard work and determination, this decision would pay off.

Joe Fairless: Mentally or rather emotionally, in that time period, what do you do to help yourself emotionally? You mentioned your thought process, “Hey, this is why I’ve gotta do”, but did you do anything to help emotionally keep you in good spirits during the dead of winter in Chicago, which is probably the coldest place that I’ve ever been to? It’s miserable, quite frankly.

Jake Marmulstein: Yes, and you’re currently in Ohio, right?

Joe Fairless: I am, but Chicago with that wind and the winter just puts tears on my face involuntarily, and then they freeze on my face; it’s just miserable.

Jake Marmulstein: You should have been here for the polar vortex.

Joe Fairless: Oh, well, I’d rather just hear about it through you. But anything emotionally that you did to help keep your spirits up? And I ask this, because I’m interested in you, but more importantly, for all the Best Ever listeners, if they’re going through something where they take a leap, then maybe what you did to help you emotionally just get through it could be something they could use, too.

Jake Marmulstein: So here’s what’s helped me as an individual get through some of the challenging parts in my life, and it comes from understanding that I’m making a choice for something that’s greater that I believe will pan out in the future, that the sacrifice is necessary to get there, and that if I work hard and I power through, it’s going to be okay, it’s going to be worth it, and I’ll be looking back at the moment, happy that I made that decision.

So there’s a lot of optimism, but then also knowing that I’m putting myself outside of my comfort zone and leaning into that and saying, “I’m outside of my comfort zone and I know this is uncomfortable and I know it’s hard, and this is where growth happens,” because I want to grow personally from anything that I do. Whether it’s true or not, I’m thinking that I’m going to grow, and there’s a good example of that… When I was in college, I went and I lived in Spain, and I didn’t speak any Spanish, and I didn’t know anybody, and I knew that that was an uncomfortable situation, and I had to learn Spanish and find out how to live as a adult in the free world… And that took me a lot of suffering, also mentally and emotionally, to be able to get to a point where I was comfortable. And then this is the same situation. When I moved to Chicago, I didn’t know anybody. I just knew that I would grow from the adversity.

Joe Fairless: It’s embracing it and knowing that there’s something empowering about what you’re doing, and then having the faith to say, “Okay,” as you said, “This is where the growth happens.” That’s so powerful knowing, whether that’s true or not, but if you believe it to be true, then most likely, it will become true that you’re going to grow through the experience and regardless, you’re gonna be better off. It might not be exactly what you thought it would be, the end result, and that’s something I also got from Tim Ferriss… He talks about whenever you enter in the new venture, identify regardless of if it is successful in whatever quantifiable way that you think it should be successful, regardless of that, find ways that you will be better regardless of the actual success of the project. And that way, you’re still going to get something out of the experience, whether or not it’s the actual results you intended is another story.

Jake Marmulstein: A hundred percent. You described it really well. I also– when it was winter, and it was very rough emotionally because of not seeing the sun and not having people to spend time with, I ended up going to the gym a lot, and I think that balancing that positive self-talk and long-term thinking with healthy physical habits to regulate your body and your mental state are necessary.

Joe Fairless: Yeah, and that could easily go the opposite direction easily for someone. If it’s really nasty outside, you stay inside and you do not go work out, and then you gain a bunch of weight.

Jake Marmulstein: Yeah, and you tell yourself as you’re running to the gym, “This is challenging and I hate it, and I love hating it, because it helps me grow.”

Joe Fairless: What a mindset to have, and it can only help us when we think about things that way. Anything else that you think we should talk about as it relates to as an entrepreneur, just some things you’ve learned, or also we talked about pitfalls when creating real estate business, spending too much time and money on a website when you don’t have the other aspects taken care of, or using technology to your advantage based off of your experience working with the REIT, buying distressed hotels? Anything else before we wrap up that you think we should talk about?

Jake Marmulstein: Yeah, I’ll share with folks this last tidbit. I think that it is sometimes really hard to focus on what you’re building when it’s all about what you’re building and it’s all about you. So something that really helps me to remind myself of what I’ve learned and what I’ve been able to do and how I’ve grown as a person is really getting outside of my business, and that’s how I give back. I give back through helping other entrepreneurs and advising them and helping them to think about their ideas.

When I do that, it reminds me of what I know. And even though some days are tough and I don’t get what I want at Groundbreaker, when I can help somebody, it just proves to me how much I’ve learned and what an impact I can make, and I can see it through the impact I make for somebody else. So that’s just something to keep in mind for all of you out there who might be frustrated with your own business, and in a way that you can give back.

Joe Fairless: Service many leads to greatness. I’m really grateful that you mentioned that. You’re probably wondering if I was gonna ask you your best real estate investing advice ever, or best ever advice, but I’m making this a special segment on the weekend. So that’s why I didn’t ask it. I’m glad that you mentioned it proactively. How can the Best Ever listeners learn more about Groundbreaker?

Jake Marmulstein: The best way is to go to groundbreaker.co. We took a lot of time to work on our website and share as much content about us as possible. So you can learn about us at groundbreaker.co.

Joe Fairless: Jake, thank you so much for being on the show. I hope you have a best ever weekend. Talk to you again soon.

Jake Marmulstein: Thank you, Joe.

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JF2090: Marketing With Groundbreaker Director Ed Cravo

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Ed Cravo is the Co-Founder and Director of Marketing at Groundbreaker Technologies, Inc. He shares his journey into marketing and shares how Groundbreaker can help investors in their personal business. Ed explains how they can help you do more deals with less work while saving you money on operations and banking. The Groundbreaker software lets you streamline your fundraising, relations, distribution payments, and reporting in one easy-to-use tool.

Ed Cravo Real Estate Background: 

    • Co-Founder and Director of Marketing at Grounderbreaker Technologies, Inc
    • Over 4 years of real estate technology experience
    • Based in Chicago, IL
    • Say hi to him at: https://groundbreaker.co/ 
    • Best Ever Book: Drive by Dan Pink 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The ease of use is such a big deal for us” – Ed Cravo


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, Ed Cravo. How are you doing, Ed?

Ed Cravo: I’m doing great, Joe. Thanks for having me. Looking forward to not getting into any fluffy stuff.

Joe Fairless: That’s right. Well, you know the drill then. Best Ever listeners, you know Ed and his company Groundbreaker, because they’re a sponsor of today’s episode, as you are well aware. I’ve gotten to know his team through this process, and I know you’re gonna get a lot of value from this conversation.

So first off a little bit about Ed – he’s the co-founder and Director of Marketing at Groundbreaker Technologies, he’s got over four years of real estate technology experience, he’s based in Chicago. With that being said, Ed, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Ed Cravo: Absolutely. So I started my career in marketing right out of college, joined a search engine optimization company, and I started doing sales there, but just learned the entire marketing business as well, moved on to founding my own marketing company after that. In that marketing company we serviced real estate clients, construction clients, e-commerce websites, etc., and then shortly after that, it was a growing agency, but learning a lot, picking up a lot of skills, shortly after that I joined Jake at Groundbreaker and just started focusing on marketing and sales, and that’s been the story since the last four years.

Joe Fairless: Okay. So what was Groundbreaker when you joined?

Ed Cravo: Groundbreaker, when I joined, was already a software as a service company for real estate investment companies. What it did, and it’s the same mission, the same thing it does today, it helps real estate syndicators automate their day to day activities around fundraising, investor relations, reporting, etc, and elevating their brand as well and giving their investors an investor portal where they can gain access to their data and their investments.

Joe Fairless: How has the product evolved over the four years since you’ve been on the team?

Ed Cravo: That’s a great question, because it has actually evolved a lot. The goals are still the same, but what we learned– we were probably the first company to come out with the solution, and it was a bit more than four years ago; I joined a little bit after the company had already gotten started. What we learned over the first couple of years was that ease of use was extremely important, and as syndicators would provide the software to their investors, it was really important that their investors just loved it at the first try, so that they kept coming back, and that wasn’t always the case in the early days.

So we’re actually on the second version of the software, which we are relaunching or have relaunched most of it already or continuously improving on, and our biggest focus was how can we make this as easy as possible to use, how we can make this easy on the sponsors, how we can make this easy on the LP ambassadors… So that’s why it has evolved a lot. We try to do all of the things we’re doing, but with less clicks and less complication.

Joe Fairless: What are some specific examples of what it used to be from a use case standpoint and what you’re doing now to improve that process?

Ed Cravo: Things are easier to reach now. So for example, in the software, there’s this big search bar at the top – this is on the manager side – and if you want to create a new contact, you used to have to go to your contacts section and then click the plus button and then start filling information in. Now you can just click in the search bar and type ‘create contact’ and the option to go directly to that final location where you add the contact comes up. Same thing for creating new entities, for creating new distributions. So you can still navigate to all the different sections, but now you can navigate to everything by just typing what you want to do at the top. So that’s one specific example, but overall it’s just the user experience as well. Instead of having to click three or four different places to get somewhere, now you can get there with less clicks, less of a learning curve.

Joe Fairless: What are some of the responsibilities that you have with Groundbreaker? You said you’re the director of marketing, you’re the co-founder. What does that mean in terms of a day to day for you?

Ed Cravo: That changes over time.

Joe Fairless: I bet.

Ed Cravo: Yeah… But when I first started four years ago, what I did was I would help new clients get onboarded, as in I would deploy their platform, I would make sure that their logos were in the right place, etc, but at the same time I was doing marketing. I was getting the website set up so that we could start to drive a lot of search engine optimization traffic, which was our big focus in the early days. And that was in the beginning.

Nowadays, I’m mostly trying to develop our inbound marketing in all sorts of ways, whether that’s growing our blog, whether that’s establishing a partnership with you guys, or even setting up for the Best Ever conference, that and the entire thing set up, so that we can come in and try to perform our best while there.

Joe Fairless: You joined an SEO company out of college and you were on the sales team. What did you learn from that experience that you’re applying in your current role?

Ed Cravo: One thing that I didn’t mention with your previous question is also sales. So I have, at times, done too much marketing, to the point that we had enough leads that somebody needed to step into sales. This was years ago. So I jumped into that as well. So I think the things that I learned there, the biggest one was, how do you get a website to the first page of Google for a specific keyword? And that was the most valuable thing I learned earlier on, and of course, that’s an evolving art and science, search engine optimization, but I would say that was one of the biggest, most valuable things I learned early on, that I have applied to Groundbreaker and to any work that I do with marketing.

Joe Fairless: Let’s take a step back and let’s just talk about — is it fair to refer to your service as an investor portal?

Ed Cravo: Yeah, that’s one part of it. Investment management or syndication automation would be fair as well. It’s just we’re building different tools to automate a lot of those day to day activities, but the investor portal is a big part of it. That’s one of the things that our clients are able to give to their LP investors.

Joe Fairless: So let’s just talk about it in that context for just a moment, because I think a lot of the Best Ever listeners think about what you do in terms of an investor portal, and then there’s things underneath that that correspond to the investor portal. So with the investor portal, I can tell you personally, I was not on board for having one for our company because I was concerned about the transition from getting investors in our current deals from nothing, just email updates and no portal, and we would do one-off email responses when they asked to look at distribution histories, and we would manually change their information, whether it’s they moved or whether they just got a different bank account, we’d have to work with them on that… And we would do all that manually.

And I was against it initially, for a long time, because I was concerned with the transition period, because I thought it’d ruffle a lot of feathers with our investors, because now they have to have access to a new website with login information, etc. So what do you say to a syndicator who has those concerns whenever they’re talking to you about jumping on board with Groundbreaker for that solution, for a portal, but they get the same concerns I did?

Ed Cravo: Yes. “What’s this busywork that they’re trying to push on me? Why do I need this?” etc. It’s a really great question. I think we’ve seen the market move. I think 2015 is when we first started to say, “Okay, here is this technology we have.” We were trying to do something else with it at first, but then we started to talk to some real estate syndicators and tell them, “We can give you this in white-label, what do you think?” Some of them were interested and some of them bought it. They cashed in the early days to be able to use this technology. It wasn’t as streamlined to offer as it is today. What we’ve seen over time is that — this is a classic market adoption curve is what we’re seeing. First, there’s that under 2% of the market adopting a new technology. They’re called the innovators or early adopters. And the innovators and early adopters, what they want is they want the latest and greatest. They want the coolest toy, because they think that that’s going to give them a leg up in their competition; and I’m speaking in broad terms here, not just about our technology, and it is true.

The innovators and early adopters are often able to get a leg up on their competition by being the first ones to come out with something that the market’s going to demand later. They’re the first ones and people start talking about them, and maybe in this specific context, the innovator or early adopter, one of your LPs is sitting at dinner with some high net worth friends. And what do high net worth individuals talk about at dinner? Well, many times they talk about what they invest in, or their latest and greatest investment, or their latest and greatest call in the stock market, etc. So they might, at that point, pull up their investor report and be like, “Look, I invest in real estate right through this portal. This is how it works,” and show them right then and there on a tablet or phone. And those are the early innovators.

Joe Fairless: Yeah.

Ed Cravo: The early majority is the next section of the market, and you can look this up on online market adoption curve. The early majority is a big chunk of the market, and that’s where we find ourselves in today, and that’s when the actual LP investors are beginning to ask the syndicators for a portal saying, “Hey, I have a portal with this other syndicator that I work with. Why don’t we have a portal? I’d like to have a portal so I can log in and download my documents, I can log in and see my distributions, what’s coming, what’s past, etc.” So I think, right now, we’re in the market phase where the LPs are beginning to ask for it, and the syndicators themselves are starting to look for it.

We’ve seen the conversation online on LinkedIn, at the Best Ever Conference, where this is a point of focus now in our mind, and I believe it’s pretty clear that as the late majority comes in and the laggards come in – those are the later stages of the adoption curve. Pretty much every real estate syndicator out there is going to have some online experience for their investors. So yes, it’s all about timing, like you said, and yes, it may be a hassle to do it in the beginning, but I think it’s going to become a question of, is this even a choice anymore? Can I even continue to grow my business without these tools that are helping my competitors advance, that are helping the other companies grow faster, it’s helping them do more deals, spend less time, just give their LP investors a better experience in general. Can I afford not to have that? We don’t think that the answer is going to be, “Yes, I can afford to not have that,” for very long.

Joe Fairless: Thank you for sharing that thought process and the market adoption curve. I did a quick Google search, and I was following along with you as you were going through it. I’m actually proud that we’re in the early majority, and that’s when we jumped on board; that we weren’t in the late majority or the laggards. But exactly what you said, LPs started coming to us and saying, “What’s the login to the portal? How can I get access to it?” I’m like, “Well, we don’t have one right now.”

From a general partnership standpoint, as you said, it’s helping the competition with their business. So why not allow it to help us with our business? So I get that, eventually, it’s not even going to be a choice. You just need it. Let’s go back to the root of the question though, that I asked, and that is the transition period that could be painful for limited partners and general partners. So can you talk to us about what that transition period looks like, tactically speaking, and how you make it as pain-free as possible?

Ed Cravo: Absolutely. So without a doubt, introducing a new platform to a new group of people may cause a little bit of pushback, or you may feel that there’s going to be a little bit of pushback. So it’s important to do it right. It’s important to get it right, to plan it appropriately. So the way that is done right now with Groundbreaker is that we call it white glove onboarding. And what that means is that you have a customer success person on our team that is providing you and your LPs with the documentation, the instructions and the training that they will need in order to be able to make this transition over to the new platform.

So where they’re coming from is they’re coming from receiving emails and needing to make phone calls to you to get updates, if that was the case or if you’re providing updates to them via email. So they are still going to be able to receive emails from the general partner, but those emails may be done in an automated fashion through the platform, or they may be done in a scalable fashion (not completely automated) through the platform as well. But in the early days, it’s about training the LPs on how to use the platform, and it’s about training the GP and the GP team on how to not only use the platform, but communicate with the LP investors.

So in our case, specifically, we’re providing our GP clients with the documentation, with the training material that they can pass on to their investors, and then we’re supporting them throughout that entire process. But that brings it all back to the point that I was saying earlier where ease of use, ease of adoption is extremely important for this specific purpose, for that transition period. Let’s face it, many LP investors may not be the most tech-savvy. We’ve got a lot of LP investors who are extremely tech-savvy, and we’ve got a new wave and a new generation of LP investors who are extremely tech-savvy coming into– beginning to manage the family money or the money that they’re making themselves.

So it’s all about being able to offer that high touch support early on if needed, but primarily being able to offer something that does not need that much support in order for somebody to figure out how to use as well.

Joe Fairless: What’s something a competitor of yours offers currently that you do not offer and why?

Ed Cravo: In terms of functionality?

Joe Fairless: Yeah.

Ed Cravo: Let’s see. So Juniper Square is a well-known competitor of ours, and they offer a very robust waterfall modeling functionality. And at this point, we do not have anything as robust, and the reason why is because we just have not caught up with them on that yet.

Joe Fairless: Has there been a big need?

Ed Cravo: Well, everyone does distribution to waterfall. So there is a need for it, and the question is, will people trade the ease of the functionality? There’s still a way to do it through Groundbreaker. It’s not as automated, it doesn’t calculate as automatically, but there’s still a way to do it by uploading the distributions. Now the question is, are people trading the high-end functionality for the price or the price for dealing with the current workaround, which we are saying, “Hey, we’ll get this, we’ll make this better and better. Join us now so that we can grow together”?

Joe Fairless: What’s been something that has surprised you about the users as they experience the platform, whether it’s they spend more time here, or they really focus a lot on certain components of it that we didn’t think were going to be as important, but now we moved our efforts into development into that area – anything like that?

Ed Cravo: I may not be the best person to answer that question, and I do have an answer, but I’m not sure that it’s exactly what we’re asking here, because I’ve already said it, and it’s that the ease of use is such a big deal. Early on, we were really the first ones out there and we were like, “This works. It’s great.” Through the phone, you could almost see their eyes light up. Through the phone, you could almost see that. That was three or four years ago as we gave a demo. But then we just realized ease of use is more important here than any other technology we’ve seen in the past, because of the work that’s been done with the LPs.

Joe Fairless: Taking a giant step back, what’s your best real estate investing advice ever?

Ed Cravo: Oh, my best real estate investing advice ever would be to probably not listen to me on that advice because I’m not — I’m a technology and marketing person.

Joe Fairless: So let’s talk about that. So let me rephrase. Based on your background, as a technology and marketing person who works in real estate, what’s a tip or a piece of advice you have for someone who is focused on technology and marketing in real estate? Just whether it’s an SEO tip, or — you already talked about product adoption curve, which is really interesting, but what’s something based on your background?

Ed Cravo: Okay, now that’s much easier for me to answer. Thank you for rephrasing so that even I can understand it. So I would say two things. Biggest one– so this is specifically for the GPs out there that are trying to attract more LPs or trying to close more deals with LPs – it’s transparency. We’ve learned a lot about transparency recently with one of our mentors. Todd Caponi is the author of the book, The Transparency Sale, and it’s just such a powerful state of mind and mindset to have to be transparent… Because not only is that going to help you gain the trust of your LPs, but it’s also going to help you put forth the best offer that you possibly can. Because if you’re going to go out there and be 100% transparent about everything, you’re not going to go out there until you are comfortable with that being 100% transparent.

A couple of years ago we started learning this, and it’s just changed the way that people respond to us. It’s changed the relationships that we’ve built by just being brutally honest, brutally transparent with everything. It’s really made people build a better relationship with us. So I think that’s huge, even for PPs as well as they’re starting to build their businesses, they’re starting to expand and work with more LPs, is by figuring out “How can we be as transparent as possible with everything we’re doing?”

The other one I’d tack onto that from a marketing perspective is to figure out how you can be omnipresent. How can you be so present in the different channels, in the different watering holes that your audience is in that they can’t ignore you? If your audience is listening to podcasts, how can you be on the podcast? If your audience is reading BiggerPockets’ forums, how can you be on the BiggerPockets’ forums? Figuring out where your audience is, and then from there, making sure that you are present in those environments has served us really well at Groundbreaker.

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

Ed Cravo: Absolutely, excited for it.

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

Break: [00:22:12]:07] to [00:22:58]:09]

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

Ed Cravo: Best ever book I’ve recently read– not that many books, but I read very closely into them, maybe 10, 12 a year, and the recent one would be Drive by Dan Pink. It’s all about motivation. What motivates us? It’s so cool, because it really dispels a lot of thoughts you would assume about motivation, and they start out with an example about motivation in monkeys in the lab, and the author Dan Pink says, “This is the physics equivalent of letting the ball go and the ball flying up instead of falling down.” So they reveal this entire third driver of motivation. I don’t know if they call it specifically intrinsic motivation, but it’s all about intrinsic motivation.

It shows us that, sure, we are all motivated by rewards; that is undeniable. But there’s this entire third area of motivation, and the first one is just your basic human needs, and then there are rewards, and then there is this intrinsic motivation, which is people’s motivation to just be better. It’s people’s motivation to reach for mastery and become better at what they do, and it’s extremely powerful. Ever since reading the book, I see it everywhere. We actually included it in our hiring process from now on. We look for intrinsic motivation; it’s the number one characteristic that we look for every time we’re hiring. So I highly recommend it; very exciting, very eye-opening book.

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

Ed Cravo: About what I’m doing specifically, groundbreaker.co. We try to keep that very updated; that’s .co.

Joe Fairless: There’s also groundbreaker.co/joe, and you can get a free pitch deck template for all of you Best Ever listeners out there, and that will be very helpful for you as well.

Ed, thank you so much for being on the show and talking about your background, talking about portals. I know that’s just one component of your company, but the platform that you all have, and then addressing some reservations people might have about entering into this space if they’re just general partner, and as you said, eventually it’s not even going to be a choice; you just need to do it. So you might as well do it now, whenever you’re earlier on in the company, than later… Because the earlier you do it, the better off you’ll be, and I can tell you from experience, that’s definitely the case. So thanks so much for being on the show, Ed. I hope you have the best ever day. Talk to you again soon.

Ed Cravo: Thank you so much, Joe. Thank you for having me.

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JF2089: House Hacking to Commercial Property With Tiffany Alexy

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Tiffany bought her first property while in college by house hacking and has continued to house hack continuously and is currently in her fourth house hacking property. Tiffany shares a story of bad luck when she decided to venture away from house hacking and into flipping. She talks about a combined strategy of house hacking and BRRRR with her office property

 

Tiffany Alexy Real Estate Background:

  • Began investing in real estate at 21 y/o with a 4 bedroom condo that she lived in and rented the other 3 rooms
  • Today, owns 10 units of commercial and residential properties
  • Started her brokerage firm, Alexy Realty Group in 2017
  • Based in Raleigh, NC
  • Say hi to her at https://www.alexyrealtygroup.com/
  • Best Ever Book: Ninja Selling by Larry Kendell 

 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“Be creative” – Tiffany Alexy


TRANSCRIPTION

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

Tiffany Alexy: I’m doing great, thanks. How are you?

Joe Fairless: I’m glad to hear that, and I am doing great as well. A little bit about Tiffany – she began investing in real estate at 21 years old, with a four-bedroom condo that she lived in and rented the other three rooms. Today owns 10 units of commercial and residential property. Started her brokerage, Alexy Realty Group, in 2017. Based in Raleigh, North Carolina. With that being said, Tifanny, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tiffany Alexy: Sure. As you mentioned, I started investing in 2011. I purchased my first property as a senior in college, and I ended up house-hacking it… And that’s kind of what got me jump-started into my real estate investing career. I lived there for a couple years, and then I moved out, rented that one out  completely, and just kind of repeated the process, and have been doing so ever since about 2011.

Joe Fairless: What do you mean by “repeated the process”?

Tiffany Alexy: So after I rented that full unit out, I bought another one just across the street. It was a 3-bedroom/2,5-bath, and I lived in one bedroom and I rented out the other two… So I just continued house-hacking. I actually still house-hack today.

Joe Fairless: So the first one was a four-bedroom condo; the one across the street was a 3-bedroom?

Tiffany Alexy: Correct.

Joe Fairless: And you bought the first one, and then you got a loan and bought the second one, correct?

Tiffany Alexy: Correct.

Joe Fairless: And then what did you do after that?

Tiffany Alexy: I just kept doing it again and again, so now I’m in a three-bedroom townhome where I have my own room, and then I rent the other two bedrooms out.

Joe Fairless: Wow. How many properties have you purchased to do it.

Tiffany Alexy: I’m on my fourth.

Joe Fairless: You’re on your fourth – okay, cool. So you got  your first two that we talked about, and then you did it again, which was a – what?

Tiffany Alexy: It was a townhouse.

Joe Fairless: The third one was a townhouse. How many rooms?

Tiffany Alexy: It was a three-bedroom, and I rented one out. The roommates that I had at the time had access to the third room, so we used it kind of as a home office.

Joe Fairless: Okay. And then you’re on your fourth…

Tiffany Alexy: So I had one remaining in that one. Exactly.

Joe Fairless: And how many bedrooms is your fourth one?

Tiffany Alexy: It’s a three-bedroom as well. Same situation – I live in one and I rent out the other two.

Joe Fairless: Okay. And over how many years have you done this?

Tiffany Alexy: I started in 2011.

Joe Fairless: Oh, alright. I can do that math… [laughs]

Tiffany Alexy: So it’s been almost ten years. [laughs] Yeah, and there were some situations in between where I didn’t house-hack, but for the majority of the time I have been house-hacking.

Joe Fairless: Okay… So talk to us about the loans  that you’re getting on each of these four properties.

Tiffany Alexy: They’re conventional, owner-occupied financing. The first one I had to put 25% down, because it was one of those condo situations where there were a lot of investors to own the units, so it didn’t qualify for Fannie/Freddie financing… The Wells Fargo, Bank of America, the larger banks wouldn’t finance them. So I went through BB&T on the first one, and I had to put more down because of the investor concentration, essentially.

Joe Fairless: What about the next one?

Tiffany Alexy: The next one was the same situation – it was another high investor concentration, so I put another 25% down on that.

Joe Fairless: Okay. And when you say “high investor concentration”, will you elaborate on what you mean?

Tiffany Alexy: Sure. It just means the majority of the condo units owned in the neighborhood are investor-owned. So it’s not owner-occupied.

Joe Fairless: Okay. Even though you’re getting an owner-occupied loan.

Tiffany Alexy: Correct. I believe the rule is if it’s over 50% investors in the actual subdivision, then they require some additional steps.

Joe Fairless: Okay… I hadn’t heard of that.

Tiffany Alexy: Yeah, it’s called non-warrantable.

Joe Fairless: Non-warrantable, okay. Cool. So there would be an advantage to not have non-warrantable in the loan, because them you’d be able to have less money into the property, right?

Tiffany Alexy: Yes, and that’s exactly what happened with the second two of the townhomes. So the rules don’t apply with the townhomes. So my third – I was able to put 10% down, instead of the 25%. And then the one that I have now, I’ve put 3% down.

Joe Fairless: Wow. You’re getting better. [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: How low can you go.

Tiffany Alexy: Exactly.

Joe Fairless: What is the reason why you were able to do 3% on this fourth one?

Tiffany Alexy: I don’t know, it was just a loan program. Conventional was going down as low as 3%.

Joe Fairless: Okay. Same lender on the 3% and the 10%, the last two?

Tiffany Alexy: No, different lenders.

Joe Fairless: Who did you get on the third one, and who did you use on the fourth?

Tiffany Alexy: The third one was First Citizen, and the fourth was Benchmark.

Joe Fairless: How do you find your lenders?

Tiffany Alexy: Honestly, they find me. It’s just word of mouth, networking, pretty much just organically.

Joe Fairless: Okay. So thinking back with benchmark, for example, what is the first time you came in contact with the point person that you ended up going with at Benchmark?

Tiffany Alexy: With Benchmark I actually found out about them through a client. I was helping a client purchase an investment property, and his lender was put in contact with me, because I was his agent… And I really liked the lender, because he was very communicative, always responsive, super on top of it. And my client got a great rate, so I was like “Okay, I’ll keep you in mind for the next one.” And it just kind of worked out that way.

Joe Fairless: Okay. You’ve been doing it for approximately nine years… What are some things that have gone wrong?

Tiffany Alexy: Oh, a lot has gone wrong… So I will tell you about a situation where I got in a little bit over my head as far as a flip. I purchased a 2,600 sqft. duplex in Ayden, North Carolina, which is about 15 minutes South of Greenville, where East Carolina University is. And you see HDTV and you think it can be easy… It’s not the case. I bought it from a wholesaler who had the contract on the property and was selling the contract. For that reason, I got it super-cheap; it was like 28k for this duplex. It needed a lot of work. I actually had FaceTimed my contractor through it, and she gave me an estimate of about $100,000 in work.

At that point I was like “Okay, that’s still not too bad, because I’m in for 128k, and it could rent for about $700/side.” So the numbers on that weren’t too bad. The only thing is the flip took a year. There were a lot of delays, just because it’s 2,5-hours away from me, so I didn’t have a lot of time to drive to the property and check on my contractor and make sure that he was running according to schedule.

Everything was just delayed. Windows took seven months to come in, and then one came in and it was broken, so we had to send it back and get a replacement… It was just a disaster. So after about a year I got a call from the town of Ayden fire department that it had actually caught on fire.

Joe Fairless: Ohhh… After a year, prior to you renting it out, after you’d completed the flip almost?

Tiffany Alexy: Exactly. So the flip was a little more than halfway done, and it just completely torched one side. It didn’t burn down, but the entire interior of the better side was gone. It was just up in flames. So that was kind of a learning experience, and at that point I was like “I don’t wanna put another 100k into this project. It’s never-ending.” We couldn’t even have utility to the property, because it has to pass inspection in order to turn on the utilities.

So it wasn’t an electrical fire. What I found out later was that somebody had broken in and had a party, they lit candles, and just left. They’d broken through that broken window.

Joe Fairless: Dang! They got in through the window that took seven months to arrive, that was broken, that you were waiting on a replacement?

Tiffany Alexy: Correct.

Joe Fairless: And then they burned the house down as a result of it.

Tiffany Alexy: Yeah, so that one was boarded up, and they just took it off.

Joe Fairless: Okay… Insurance?

Tiffany Alexy: So everything that could have gone wrong, went wrong. Yes, I had insurance, thank goodness. So I was able to get that money, and I was done. So I basically broke even, which is a lot better than what could have happened.

Joe Fairless: What was the insurance process like?

Tiffany Alexy: It had to be a vacant policy, because there was nobody living at the property. It was one that I had to renew every couple of months, because it was a vacant policy, and it was more expensive because of the risk associated… Which, obviously, for good reason.

Joe Fairless: Yup. Thank goodness you had that policy.

Tiffany Alexy: Yes, I’m very glad I did that.

Joe Fairless: What was the check amount that they cut you for the fire.

Tiffany Alexy: It was 67k.

Joe Fairless: Okay… So they cut you a check for 67k, and you bought it for 28k… What did you end up doing with the property?

Tiffany Alexy: I actually essentially just gave it to an investor I know, that was in the area. He was my property manager at the time as well, and I just wanted to wash my hands of it. So I sold it to him for $10.

Joe Fairless: Okay. [laughs] So you had put in 28k, and you got a check for 67k… So you had about 42k in profit. However, that doesn’t factor in paying the contractor, and holding costs and all that… So you’re saying essentially the 42k was wiped away? It was about that, it wasn’t anything more…?

Tiffany Alexy: Correct. It was between 40k and 45k.

Joe Fairless: People always ask “Well, why would someone give a house away? What are the circumstances?” Here’s a circumstance. You gave it for ten bucks.

Tiffany Alexy: Oh, absolutely. Yeah, it was just one of those where I didn’t wanna continue dumping money into it. I was busy with my brokerage at the time and I just didn’t have the time… And he was local, 10-15 minutes away from where he was, so it made sense for him, because he could get the property for very little, and essentially his money in would be all the repair costs, and then he could rent it.

Joe Fairless: Okay. And how long ago was that?

Tiffany Alexy: That was last summer. I sold the property to him in July.

Joe Fairless: Well, you “sold” (in air quotes), right? Ten dollars… [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: And have you kept up with him and the status of the property?

Tiffany Alexy: No, I actually haven’t.

Joe Fairless: Aaagh…

Tiffany Alexy: I need to follow up with him and see what’s going on, see how he’s doing.

Joe Fairless: You haven’t talked to him since you got the $10 bill from him?

Tiffany Alexy: No. He sent me a referral or two, but I haven’t asked him what he’s done with the property.

Joe Fairless: That is a challenge, and thankfully you had insurance. I think that’s a big takeaway, having insurance on the vacant property. If presented a similar opportunity in the future, what choices would you make that are different from the choices you made on this deal?

Tiffany Alexy: First of all, I wouldn’t have bought it…

Joe Fairless: Why? Why wouldn’t you have bought it?

Tiffany Alexy: Well, I bought it sight unseen. That was my first mistake. Not necessarily that buying sight unseen is a mistake, but it was in a market that I didn’t know, and I just thought, “Okay, well, it’s 28k. Even if it goes South, it’s so cheap…” So I put it under contract sight unseen, which typically is not that big of a deal, especially in North Carolina, because you have the due diligence period, so you can still back out… But once I was under contract, I felt kind of obligated to purchase it. And not out of anything that anybody else was doing, it was just kind of my own feelings. So that was the first mistake.

The second mistake – I didn’t get a home inspection. It was primarily because I knew that it would need a lot of work. It was essentially gonna have to go down to the studs and be completely redone… So at that point I was like “Well, I don’t need a home inspection. I know that it’s gonna need a ton of money and a ton of work, so I might as well just save that money.” But what I didn’t know was the joists had been rotted out because of termites, so essentially it was about to go 20k over budget to replace the joists. And that’s what was partially why it took so long as well.

Joe Fairless: Windows and termites.

Tiffany Alexy: Exactly.

Joe Fairless: Thank you for sharing that.

Tiffany Alexy: Of course.

Joe Fairless: Those are takeaways that are applicable to a lot of people, and I’m grateful that you mentioned that. What else has gone wrong?

Tiffany Alexy: With that deal or with other deals?

Joe Fairless: With another deal.

Tiffany Alexy: That one was essentially my one and only flip experience. Everything else that I have has been buy and hold. So on the flipside, I’ll give you an example of one that has worked out really well. I currently have an office – it’s in Cary – and I kind of did a double strategy on this. We talked a little bit about house-hacking… If you’ve heard of the BRRRR method, which is the Buy, Rehab, Rent, Refinance, Repeat – I kind of combined the two on this office that I have, and it’s worked out really well.

Essentially, I bought it similar in a way to my owner-occupied properties. It’s just an owner-occupied office, because I was using it for my business. I’ve found it a couple of years ago, it was listed for 175k, and it needed a lot of work. These buildings were built in the late ’70s, so it was just really old, and hadn’t been touched since then. It still had a wood-burning stove in the main lobby area, that was connected to the chimney.

Joe Fairless: Well, that’s got some character.

Tiffany Alexy: Yeah. For sure, it does have character. Orange [unintelligible [00:16:59].03] carpets…

Joe Fairless: [laughs] Even more character.

Tiffany Alexy: Textured wallpaper… Exactly. So it was kind of an ugly duckling, but there’s not a whole lot of inventory as far as office goes here, so I snapped it up and paid the asking price. I’ve put in about just over 40k in work.

What I did was added the chair molding, the [unintelligible [00:17:23].26] put in luxury vinyl  plank floors, repainted everything… It has a lot of that intricate dental molding, it’s got that thick crown molding, and that was a pain to pay somebody to paint. So it took a lot of paint for that… But I essentially just redid everything, including the bathroom, and I rent out a couple of the other offices. So it’s got technically four office spaces. I use one. One of the other offices I rent for $500/month.

The upstairs is kind of an oversized office. I rent that for $650. And then the last office, that is not my own, is the largest one, so I turned it into a conference room. I use that for my clients, but I also rent it out on a website called LiquidSpace, which is similar to Airbnb, but it’s for office space… And it’s just like an hourly rate.

So between all that, I got it rented, and then I refinanced. So I was able to pull out most of my initial equity, because it got reappraised for 250k.

Joe Fairless: Awesome.

Tiffany Alexy: So it worked out really well for me… And of course, there’s a higher monthly payment, but because it’s tenant-occupied, I’m essentially breaking even on the payments.

Joe Fairless: Bravo! What tenants do you have in there?

Tiffany Alexy: It’s a digital marketing company and a software company.

Joe Fairless: Okay. What’s the square footage of the overall space?

Tiffany Alexy: It’s just under 1,400 sqft.

Joe Fairless: Alright… And how did you find the digital marketing and software company?

Tiffany Alexy: The digital marketing company – funny enough, I used to do property management, and they were one of my property management clients. And the software company – I believe it was just Craigslist, because I had posted a couple different ads online about the office space.

Joe Fairless: Okay. And the 40k in updates that you did – what was your role in those updates? Was it the money person, or were you the one overseeing it, or were you doing it?

Tiffany Alexy: All of the above. So I was the money person–

Joe Fairless: Oh, you did it?

Tiffany Alexy: Yeah. I hired a contractor, so I didn’t do the work myself… But I helped with the design process, picked out everything, I put up the money… So yeah, I was pretty involved.

Joe Fairless: Okay. What’s something that you learned from that experience, overseeing the contractor?

Tiffany Alexy: It’s definitely to have a contingency. I went in knowing that we were gonna go over budget, just because it always happens… But it turns out that there was a bay window in the back, in the conference room, and it was actually sagging, because it didn’t have a foundation… And this was something that my home inspector actually didn’t catch.

I kind of had two options. I could add a foundation to it, or I could just tear the bay window out and make it a regular window… So what I ended up doing was just tearing it out, because it was cheaper that way, and just putting a normal window in. But of course, my contractor had to reframe and tear out the actual bay that was sticking out… So that was another 5k that I was not anticipating…

So it’s definitely to have a contingency fund always over budget, because there’s always gonna be things that you will not know ahead of time.

Joe Fairless: How much should we over-budget when we put together a plan?

Tiffany Alexy: I usually just add 10% to the overall total.

Joe Fairless: Okay. So in this case, those 40k – what did you initially budget? Was it 40k, or was it 35k?

Tiffany Alexy: I initially budgeted 50k.

Joe Fairless: But you said you put in 40k, so–

Tiffany Alexy: Yeah, we still came in under.

Joe Fairless: You were under? Wow…

Tiffany Alexy: Yeah. So initially what I was thinking was 50k.

Joe Fairless: Okay…

Tiffany Alexy: So it worked out. But I always think more.

Joe Fairless: What caused it to be under?

Tiffany Alexy: There were a couple little tradeoffs… Let’s see. Upstairs, I initially was gonna put the LVP flooring, but I decided to go with carpet instead. One, for soundproof, and then also there were stairs that were a little bit narrow, so I didn’t wanna put the hard, slippery flooring, just in case. So I ended up putting carpet upstairs. That saved some money.

I got some quotes for the exterior, and I used a different contractor for the exterior, which saved me some money as well, because he actually was doing the office next door, so he was able to give me a better rate.

Joe Fairless: Okay. And how did you come in contact with that contractor?

Tiffany Alexy: The person who owned the office next to mine actually just sent me an email and said “Hey, I’m actually getting work done on my office. This is the guy that I’m using. He’s willing to help you out”, because he knew that I was doing work to my office as well.

Joe Fairless: Okay, cool. Good timing, and nice people, connecting the dots. Well, taking a step back, based on your experience, what’s your best real estate investing advice ever?

Tiffany Alexy: My best real estate investing advice ever would be to be creative. Situations where the office happens, everybody that hears about what I did with it – they’re kind of astounded that I did it, but it really wasn’t anything groundbreaking or magical; it was just a matter of me moving in and being creative and renting out the extra spaces that I didn’t need. So it’s creativity and efficiency, really.

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

Tiffany Alexy: Sure.

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

Break: [00:22:43].03] to [00:23:26].29]

Joe Fairless: What’s the best ever resource that you use in your business, that you couldn’t live without?

Tiffany Alexy: Oh, gosh… So I would say the book Ninja Selling, by Larry Kendall.

Joe Fairless: Great book.

Tiffany Alexy: I read this book many times. I’m actually re-reading it again. It’s a great resource for those who are in sales, or sort some sort of sales-driven career, but who aren’t necessarily wanting to brand themselves as that salesperson, if that makes sense.

Joe Fairless: I highly recommend that book. One of the big takeaways I got from that book  is – using the example of a real estate agent – a real estate agent could do a very good job with a client, and then five years later, when that client goes to sell the house, they might not be the first person their client calls, because they’re just not top of mind. So it’s important that we have to be top of mind in a relevant way on an ongoing basis with our customers, in order to continue to earn their business.

Tiffany Alexy: Absolutely.

Joe Fairless: What’s the best ever deal you’ve done?

Tiffany Alexy: The best ever deal would be one of my rental properties on [unintelligible [00:24:38].18] It was one that I purchased — it was an estate sale. It wasn’t a great deal, but I knew that if I rented the rooms out individually, I could make more money.

I purchased it for 145k a couple of years ago, and I rented it out for $1,800 at the time. Since then, I’ve done renovations to it, and I actually bumped the rent up, so now it rents for $2,300.

Joe Fairless: Wow. And what would it rent if you just rented the house, not the rooms?

Tiffany Alexy: Probably closed to $1,600.

Joe Fairless: Huge difference. How much more work is it from  a management side?

Tiffany Alexy: It’s really not that much more work, and the way that I market it is I calculate how much per bedroom it would be, and then I give a slight discount. These tenants at $2,300 – the last tenants were at $2,100, but with the last tenants I had marketed it at $2,300, but they all came together; so it was four tenants, and I said “Hey, if you all sign a lease right now, then I’ll give it to you for $100 off. So between that, and then they signed a two-year lease, I ended up giving it to them for $2,100. But that’s still a huge difference from the $1,600 it would rent for otherwise.

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

Tiffany Alexy: My first actually hosts monthly get-togethers, and we always do it at local restaurants, or coffee shops, and I like to just support other local businesses with my marketing dollars, because we’re all in it together.

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

Tiffany Alexy: The best way would be Instagram. My Instagram handle is just @Tiffany.Alexy.

Joe Fairless: Thank you so much for being on the show. What a fun show, where I learned a lot, and there’s a lot of helpful information for people who are doing the house-hacking, and the type of financing to get, people who are doing commercial properties, and a case study for the office that you have, lessons on a fix and flip… I mean, you really covered a lot of asset classes today. [laughs]

Tiffany Alexy: Yes, I did.

Joe Fairless: This show has got a little something for everyone, so thank you for that. Again, I enjoyed our conversation, and I hope you have a best ever day, and we’ll talk to  you again soon.

Tiffany Alexy: Thank you 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.

JF2088: Pros and Cons of Securing A Supplemental Loan | Syndication School with Theo Hicks

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In this Syndication School episode, Theo Hicks, will be going over the pros and cons of securing a supplemental loan. These episodes are to help you become a better syndicator so we hope you enjoy the help and let us know by sending us a message. 

 

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.

Click here for more info on groundbreaker.co


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hi Best Ever listeners, welcome to another episode of the Syndication School series, a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks. Each week we air two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy, and for most of these episodes, we offer a free resource to you. These are free PDF how-to guides, free PowerPoint presentation templates or free Excel calculator templates, some free resource to help you along your apartment syndication journey. So all of the past free documents as well as past Syndication School series episodes can be found at syndicationschool.com.

In this episode, we are going to talk about the pros and cons of securing a supplemental loan. So on a previous Syndication School episode, I had gone over how to actually secure a supplemental loan, but I didn’t go into the pros and cons. I briefly mentioned how it’s different than a refinance, but I wanted to do another episode that went in depth into the pros and cons of securing a supplemental loan compared to, say, a refinance or a sale, because the supplemental loan falls into the category of when the passive investors in your deals receive a large chunk of capital back or a large chunk of money back. Obviously, one of those is the supplemental loan, another one is a refinance, another one is when you sale. So if passive investors receive all or a large portion of their equity back at sale, at a refinance and/or at securing of a supplemental loan. So in this episode, I wanted to just highlight what a supplemental loan is again, go over the pros and cons of the supplemental loan and then also briefly talk about why Joe and Ashcroft prefer to secure supplemental loans.

So first, what is a supplemental loan? It is a type of loan that is subordinate to the senior indebtedness. So it’s the fancy definition of a supplemental loan, but basically what it means is that the senior debt, which is the original debt used to acquire the apartment community, so the agency loan that was put in the property, that is the senior debt, and that must be paid first by the general partners.

The supplemental loan is a separate loan that is obtained, and then it is paid after the senior debt is paid. So year one, you pay your monthly debt service for the agency loan, and let’s say you secure a supplemental loan at the end of year one – you’ve got a new loan now. So the way that it works is you pay the same debt service you paid before first, and then the next portion of the cash flow goes towards paying the debt service on the new supplemental loan.

Now, a supplemental loan is only available if the original debt is a agency loan, so Fannie Mae or Freddie Mac. Those are the two that offer the supplemental loans. You’re not going to be able to get a supplemental loan on any other loan but those two. That doesn’t mean that you can’t take out equity in different ways, but the actual word supplemental loan only applies to agency loans, and it can be secured at 12 months after the origination of that original loan or the most recent supplemental loan.

You can’t get your first supplemental loan until after 12 months, and then you can’t get another supplemental loan if available for another 12 months after that, so 24 months after the first loan, and then supplemental loans are not the same as a refinance because a refinance is replacing the original debt with a new loan. So that agency loan is paid off entirely and then a new loan is put on the property for a refinance. Whereas for a supplemental loan, the original agency loan is still in place and an additional supplemental loan is also put in place. So there’s two loans, as opposed just one.

So let’s go over the pros. So there’s five benefits of getting a supplemental loan. The first is that it converts the equity created in the property to cash that can be distributed or used for further capital improvements. So the entire purpose of a supplemental loan or refinancing or selling is to access the equity that is created, and supplemental loans is one of the ways to do that. So you buy a property, you increase its value, and one of the ways to tap into that value without having to sell or get a brand new loan is to do a supplemental loan.

Another benefit of this supplemental loan is that it closes quicker and has less risk than a refinance.  So now we’re going into why the supplemental loan might be a better option than refinancing. So first, supplemental loans require less due diligence and underwriting than the refinance. So for a typical supplemental loan, the lender is gonna order an appraisal, a physical needs assessment, which is a property condition assessment or inspection, as well as reviewing the previous 12 months of financials. Whereas with a refinance, the same is required, but there’s also additional full underwriting of the sponsor and more due diligence required. So basically the same due diligence you did when you initially acquired the property will be done again by the new lender, but since you’re getting a supplemental loan through the same lender, all that has been done. They just need to make sure that nothing has changed during the first 12 months. So obviously, it’s faster because you have to do less due diligence, and there’s also a little bit less risk, because you’re not necessarily guaranteed to get that refinance, whereas you’re more likely to get the supplemental loan again because you’re getting it through the same lender that you’ve got your first loan. So that’s number two.

Number three is that supplemental loans are also less expensive. So since they’re faster and they require less due diligence, they’re also going to be less expensive, with lower closing costs compared to the refinance. Number four, the increased LTV that comes from a supplemental loan helps make assumable debt more attractive to a buyer. So what does that mean? So securing a supplemental loan increases the loan to value on the property, and the loan to value being — an 80% loan to value means that the bank hold 80% of the property value as debt, and then you have 20% in equity. So normally, agency loans are more stringent on their LTV requirements, and are capped at around 70% at origination, which means that they will lend up to 70% of the purchase price, and then you, as the general partner needs to put down the remaining 30%. And then as you implement your value-add business plan, you increase the value of the property. And when you increase the value of the property and the loan amount stays the same, then the LTV actually is reduced. So let’s say you buy a property for a million dollars, you put down $300,000 and the bank puts down $700,000. Let’s say you double the price of the property to $2 million. So the value of that property is $2 million, but the debt is only $700,000. So the LTV was originally 70%. Now it’s cut in half to 35%, and it’s calculated by taking that $700,000 divided by that $2 million number.

So now you’ve got the 35% LTV. Now generally suppplemental loans allow for up to 75% LTV. So going back to our $2 million example, now that the property is worth $2 million, the bank is willing to lend up to $1.5 million. So since they originally loaned $700,000, they loan you $1.5 million. The difference between the two is $800,000. So you could technically secure a supplemental loan for $800,000 and have an LTV of 75% as opposed to the 70% LTV at purchase. This allows you to increase the leverage. So now you’ve got 75% leverage as opposed to 70% leverage, which allows you to pull out more equity, but it also allows a potential buyer to assume the senior and supplemental loan with less money down. So as opposed to having to put down 30%, they can put down 25%. So the higher the LTV, the less money a buyer who’s going to assume that debt has to put down to obviously buy you out of the deal.

So if you’ve got 40% equity in the deal and  a 60% LTV, then they’re going to have give you 40% to buy the deal from you they assume the 60% loan. But if it’s 75%, then they need to put down 25% and buy you out and assume that 75% LTV loan. So overall, higher LTV makes an assumable debt more attractive to a buyer, and that’s accomplished by doing the supplemental loan, because it allows you to push up that LTV from 70% to 75%.

Then the fifth benefit is the ability to secure multiple supplemental loans. So I mentioned this a little bit earlier – so I get my first loan on May 13, 2020 from Fannie Mae, and I can get my first supplemental loan on May 14, 2021. So 12 months after the first loan. Now, Fannie Mae limits the supplemental loans to one, unless the loan is assumed, and then the person who assumed that loan gets another supplemental loan; so they can get their one supplemental loan as well. But for Freddie Mac, they allow unlimited supplemental loans as long as the most recent supplemental loan was secured 12 months or more before.

So I buy my property and I close and I get my debt on May 13, 2020 through Freddie Mac. I can get my first supplemental loan on May 14, 2021. I can get my second supplemental loan on May 14, 2022, or later, and I can keep repeating that process over and over again as long as obviously the LTV requirements are met. So those are the five benefits.

What about some cons of the supplemental loan? Obviously, it increases the debt service. So since you are taking out more debt, then the debt service, the monthly mortgage payments on the property increases. However, this is going to be the same case for refinance as well obviously. So it’s not just if you do supplemental loan, it goes up or if you do refinance, it doesn’t. Additionally, since these are amortizing loans versus interest only, monthly payments tend to be a little bit higher, even at lower interest rates. So there’s not gonna be an interest-only supplemental loan. You’re gonna have to pay principal and interest, so it’s gonna be a little bit higher compared to an interest-only refinance type of situation.

Another potential con is they’re only available through the agencies. So you can only get your supplemental loan if you’ve got Fannie Mae or Freddie Mac debt on your property. So only having two lenders available limits your ability to have lenders bid against each other to offer the best terms, but because both lenders are government-backed entities, rates are already generally going to be lower than private lenders. So it’s not that big of a deal, but the con here is that unless you have a Fannie Mae or Freddie Mac loan, you’re not gonna be able to secure a supplemental loan.

Number three is there’s limited flexibility with exit strategies. So agency loans are ultimately sold to investors as bonds. So they’re securitized and then sold to investors as bonds. So because of this, it adds a hurdle to the exit of the property. So a loan assumption [unintelligible [00:15:42].16] that the terms of the existing loan are better than market at the time of sale, so this is not gonna be a problem. So if your loan has a lower interest rate than the market interest rate at the time of sale, then it should be fine. But if the market rates are lower at the time of sale, a defeasance fee is going to be required to sell the property free and clear, which is a type of prepayment penalty, and this fee is typically paid by the seller. So if you want more information on defeasance and yield maintenance and prepayment penalties, check out everything you need to know about prepayment penalties on Syndication School. What it’s saying is that, sure, your loan can be assumed by a buyer, but if you need to actually sell the property free and clear and get out of that loan, you’re most likely going to need to pay a prepayment penalty, especially if you secure a supplemental loan.

Then number four is that interest rates can be higher. So the spread on floating rate supplemental loans tends to be higher than the spread on the same type of loan on the senior debt, making the supplemental loan’s interest rate higher. For fixed rates, senior and supplemental loans, the rate fluctuates with the market at time of origination. So compared to refinancing, you’re probably gonna have a higher interest rate. So these are the four cons.

Now why does Ashcroft Capital secure supplemental loans? Well, because they’re great tools for deals that have long term agency financing on them, because it allows Ashcroft and Ashcroft’s investors to get rewarded for executing the business plan by adding value to the property. So as I mentioned, typically agency loans are more stringent on their loan to value requirements, compared to private bridge types of financing. Those are normally capped at around 70%. But as Ashcroft continues the business plan and the overall value of the property increases, that LTV shrinks below the original 70%. I’ve already given an example of that by saying if you buy a property for $1 million at a 70% LTV and increase the value to $2 million, that LTV is now 45%; and since you can get a supplemental loan at 75%, that creates an opportunity to obtain a large amount of money back for investors.  So those are the pros and cons of supplemental loan. That is what a supplemental loan is, and that is why Ashcroft Capital prefers to secure supplemental loans.

That concludes this episode about the pros and cons of securing a supplemental loan. Until next week, make sure you check out some of the other Syndication School series about the how-to’s of apartment syndications. Make sure you check out some of the free documents we have available on there. All that is at syndicationschool.com. Thank you for listening and I will talk to you soon.

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.

JF2087: How To Find and Qualify an Executive Assistant | Syndication School with Theo Hicks

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At some point during your journey into real estate investing you will want to hire some help. In this episode, Theo Hicks will go over how to find and qualify an executive assistant that will help you in your business.

 

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.

Click here for more info on groundbreaker.co


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of The Syndication School series, a free resource focused on the How-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy, and for most of these series, we offer some free resource to you. These are free PDF how-to guides, PowerPoint presentation templates and Excel calculators. These free documents will help you along your apartment syndication journey. All of these free documents, as well as past Syndication School series, can be found at syndicationschool.com.

Today, I wanted to talk to you about finding what might potentially be your first hire, and that is a executive assistant. So in this episode, we are going to focus on how to find an executive assistant as well as how to qualify an executive assistant.

Now, I was interviewing someone on the podcast about a month ago, and I believe he was involved with a VA servicing company, or he started it… I think he started it, a VA servicing company. So he helped businesses find virtual assistants for whatever they wanted to do, and one of the questions I asked him besides when to hire a VA – is  what do you have them do? So I wanted to quickly talk about that really quick, because he had a very interesting strategy that he thinks people could do right away today to figure out what types of things they can have their first hire, their first VA, their first executive assistant do.

So the exercise is very simple. What you do is you pull out a piece of paper and you make a vertical line right down the middle. So you’ve got a column on the left side and a column on the right side. On the left-hand side, you write down every single thing that you either aren’t good at doing or that you don’t like doing, that you currently do in your business, and on the right-hand side, you write down everything that you like doing and are good at doing in your business as well.

So on the left-hand side, you have the things you don’t like or are bad at. On the right-hand side are the things that you’re good at or you do like, and this is something you can do either one time, just sit down for 10 to 15 minutes and write it all out, or it’s  something – and this is probably the better approach, you can walk around with this piece of paper or take notes on your phone and then write it on a piece of paper at night throughout the week. That way you can track, okay, during the week, here are the 50 different things that I do. I’ve got 10 things on the left-hand side that I don’t like to do, that I’m bad at, and 40 things on the right-hand side that I like to do and then I’m good at. And that is going to be your document that tells you what you should outsource first.

So all the things on the left-hand side are what you should be focusing on outsourcing to other people first, and all the things on the right-hand side are what you’ll have more time to focus on once you’ve actually outsourced the left side things. So I would definitely recommend doing the exercise. I really like that. It’s very practical and something you can do right away. So once you’ve got that exercise done and you know what you don’t like doing or what you’re bad at, then you know what types of things you could have your executive assistant do.

So let’s start off by first talking about how to find an executive assistant. So we’ve got four different ways to find your executive assistant. Number one is to use your social network and ask for recommendations from people that you already know. Obviously, the best way to find really any team member or someone to invest with, someone to work with, someone to be involved with is through recommendations, through someone in your current network. So if you like that person in your current network and they refer someone to you, you can assume that you’re going to, most likely, like that person as well. So you should provide a few details of the position to people in your social network or anyone in particular that you know has contacts with executive assistants, and then obviously, give them some contact information so they can contact you if they are interested. So these are things like LinkedIn, Facebook or people that you already know in the real estate industry. So that’s one way, is just someone in your current social network.

Number two is to use Indeed, ZipRecruiter or similar websites to post the position. So just create a job listing and post it to an online job listing website. You can customize the job listing to suit your needs, and it can even be down to the preferred location of the candidate. So if it’s something that you want them to come to your home office, then obviously you’d want them to live near you. Or if you don’t really care, these types of websites give you lots of customized features to select different types of characteristics you are looking for.

For these sites, unlike Facebook and LinkedIn, which you already probably have an account, you’re going to need to set up an account on these if you don’t already have one; and then once you have your account, once you have your job listing, just like if you’re posting a unit for rent or have a property for sale, be prepared to receive a lot of contacts. So that’s why you’re going to want to focus on understanding exactly what you want this executive assistant to do and who you want them to be, and that, in part, comes from doing that left side/right side exercise, because you don’t want to waste time talking to a lot of people who could easily have been screened out if you would have created a better job listing. So make sure you know and narrow down the scope of the position before you post to a place like Indeed or ZipRecruiter. So that’s number two.

Number three is you can just consider hiring a staffing agency. So there’s a lot of companies out there whose sole purpose is to find employees that you need. So for example, I know in a previous job that I got, I got it through a staffing agency. So a business goes to a staffing agency and says, “Hey, I have a job opening, here are the requirements for the job, here’s what I’m looking for. Go out and find me someone,” and then the staffing agency goes out and finds someone, interviews them, pre-screens them, and then if they are a good fit, they will pass on the information to the business owner. So in this case, you would go to a staffing agency, tell them the scope of the position you’re looking for, for an executive assistant, a staffing agency will go out there and find multiple people, interview them based on the criteria you provided them, and then if two, three, four people makes sense out of the 50 people they talked to, then you’ll just be speaking to those four people, as opposed to having to talk to 50 people if you were to do it yourself.

Some of these staffing agencies also do temp-to-hire situations. So something where you don’t have to hire them full time right away, they can work for you temporarily as a test and if you like them, you can hire them. If not, you can go ahead and find someone else through that staffing agency. But the major pro of the staffing agency is that most of the candidates will come pre-screened already, as opposed to you having to do all of that on your own.

Then the fourth way to find an executive assistant – and this will be more if you need someone immediately; you don’t have a few weeks or a few months to go through the hiring process with a thing like Indeed or ZipRecruiter or through social media or through a staffing agency, but you need someone working for you next week or tomorrow – then you can use a website like Fiverr or Upwork and just hire a virtual assistant in the meantime.

So let’s say you do your left side, right side exercise, then you realize that, “Man, I really don’t like doing this one thing and I don’t want to do it ever again. I’m just completely done,” then you can go on a website like Fiverr, create a posting for that particular thing. Maybe it’s you don’t like scrubbing lists or something for direct mailing campaigns. Well, you can find someone on Fiverr to do that for you. They’re gonna be a lot less expensive than hiring a full-time executive assistant, and you’ll be able to get them on your payroll, in a sense, immediately.

So those are the four ways to find an executive assistant. Now, what types of things do you ask them when screening them once they’re actually found. Now, obviously, it’s going to be very specific to your real estate niche. So an executive assistant who’s working for, say, an apartment syndicator might be a little bit different than an executive assistant who’s working for a wholesaler or fix and flipper, or someone who just sends out a lot of direct mailing campaigns. So obviously, you’re gonna want to add to this list specific questions on whatever niche that you’re in.

You’re also going to want to add specific questions based off of the result of your left side/right side exercise. So if there’s ten things you don’t want to do or you don’t like doing, you’re not good at doing, and you want an executive assistant to those ten things– well, obviously, when you’re talking to them, you’re going to want to know if they are actually capable of doing those things, but besides those two things, these are a few general questions that you can ask a executive assistant regardless of what real estate niche you’re in, or regardless of whether you’re in real estate or in some other line of business.

So the first question is  what software programs have you used in the past and how would you describe it your computer skills? Obviously, we live in the age of technology. So an executive assistant who’s doing administrative tasks is going to need to know how to navigate a computer. Especially if you are doing really complicated real estate strategies like apartment syndications, there’s a lot of different softwares and programs that they will have to use, rather than having to do everything manually. Maybe a system you’ve already put in place that you want them to take over. Well, if you don’t have computer skills, then it’s not going to be a good fit. Again, assuming that you want someone that has good computer skills.

Number two – describe a time you had to adjust a schedule due to unforeseen circumstances. So executive assistants are typically responsible for managing the schedule, the calendar of the person they’re working for, and if you need to change something on your calendar or if someone needs to reschedule something with you, how are they going to handle that situation? Can they handle that on their own or will they need you to be involved in that? Because at the end of the day, the purpose of the executive assistant is to make your life easier. So if you have to be involved in tasks you don’t want to be involved in, like scheduling, then it defeats the purpose of having an executive assistant.

Number three – what are your strategies for managing your time when dealing with multiple urgent tasks simultaneously? So asking about their ability to multitask – because again, being an executive assistant isn’t a job where you do the same thing every single day. Things that come up that are higher priority, so how do they prioritize things? How do they make sure they get the higher priority things done first, while also addressing other things that need to be done at the same time?

Next question – describe a time you identified a problem and proactively created and implemented a solution. So again, very similar to the second question about describing a time you had to adjust a schedule due to unforeseen circumstances. The purpose of the executive assistant is to make your life easier. So if they’re able to identify problems and fix problems without you even being aware of it, that’s gonna make your life a lot easier, as opposed to them finding problems and then needing you to actually fix that problem. Obviously, there’s gonna be cases where they can’t fix everything, but there are times where they should be able to do that on their own.

Next – how would you deal with an angry person demanding to speak with an unavailable executive, or wanting to speak with you, who’s unavailable? So if someone calls the executive assistant that’s really upset, how do they handle that situation? What are their communication skills like? What are their people skills like? Can you give me an example of when this happened in the past? This is especially important if you’re doing things like cold calling. Whenever I talk to someone about cold calling, they always say, “Well, most of the time, they don’t answer, and if someone does answer, it’s oftentimes they’re angry with you, they get mad. And then there’s other times where obviously, we make a deal.” So if you’ve got an executive assistant who’s screening phone calls for you, most likely, eventually, they’re going to speak to someone who’s angry. So how do they handle that?

Next – what do you believe an executive assistant brings to a company? So just getting an understanding of what their expectations are of an executive assistant. The next question – how do you anticipate the needs of an executive? So again, making the executives’ lives easier, making your life easier by anticipating things and being proactive as opposed to reactive.

Next – why do you think you’re well suited for this position in particular? Pretty self-explanatory.

Then lastly – what do you enjoy most about administrative work? So all those questions, at the end of the day, are trying to accomplish – one, are they capable of doing what you need them to do, and then two, are they going to be able to make your life easier? That’s really the two questions you need to have answered. Are they capable of doing what you need them to do, and by hiring them, is your personal life, is your business life going to be easier? Also, getting an understanding of what their expectations are of the position. So you can get understanding of what they’re going to do once you actually hire them.

So just to finish off the episode, I wanted to go over — I’m not going to read it in its entirety, but I do have a sample posting that Ashcroft Capital has used in the past for finding an executive assistant. So obviously, Ashcroft Capital is an apartment syndication business. So some of the wording will be a little bit different based off of, again, your particular real estate niche. But at the same time, the structure of this, I think, can apply to all positions, and then obviously, a lot of the stuff in here can be used as well.

So the way that the job posting is structured, it starts off with a bio of Ashcroft Capital, and then it goes into a bio of them as an executive assistant. So these are the characteristics that we want to see in our executive assistant. The third is the responsibilities of the executive assistant, and then the fourth are the requirements. So obviously, in the bio, you want to put the name of your company, what your company does, some of the statistics of your company, and then also in that section is what you’re hiring for. So it says, “We are hiring an experienced, reliable, task-oriented executive assistant to a co-founder of our company. The executive assistant will be responsible for performing a number of business, as well as personal administrative duties. This is an ideal position for a well-qualified candidate to get in early and grow alongside of a powerful and entrepreneurial investment firm.”

Basically, just summarizing the entirety of the other remaining three sections. So who will you work for, what do you need you to do, what’s the benefit to you? Boom, boom, boom.

So the section two is the ‘about you’ section. So this is a paragraph that describes ideal characteristics of the executive assistant. So it reads, “You are a highly motivated professional and capable of managing your workload and prioritizing tasks in a fast-paced environment. You take initiative and think through questions that might be asked and proactively address them before they are asked. When it comes to completing your tasks, you’re consistently reliable. You’re a self-starter and can start and can work autonomously. You want to be a part of something special. You want to a career, not a job. You want to work with a small, but dynamic team that is accomplishing big things.” So as you can see, in that ‘about you’ section, that corresponds with a lot of the questions that you’re going to ask during the interview process.

Next are the responsibilities. So whatever responsibilities you want them to do, make sure you list those out as well. So for example, completes projects or special assignments by establishing objectives, determining priorities, managing time, gaining cooperation of others, monitoring process, problem solving, making adjustments to plans.

And then lastly, the requirements– so obviously, read these just so you have an understanding of what the requirements were for the executive assistant role that Ashcroft Capital is hiring for, because again, you don’t want to hire just anyone. You want someone who has experience, who has certain skills, and then you’re also gonna want to mention the pay.

So requirements, “This is primarily a work from home position, but might require working from an office one or two days a week.” So are they capable of doing that? Two is polished, written and verbal communication skills. Three is at least five years of being an executive assistant. Now this, obviously, is going to depend on where you’re at in your business, because at this point, Ashcroft has 22 properties, 8000 units worth over $900 million, so they could demand someone who had experience.

If you’re just starting out and looking for a executive assistant, you’re probably gonna have a hard time hiring someone who has a lot of experience, but you might be able to. So this part’s really up to you. Then lastly, experience in real estate finance and/or legal is preferred, but not required. So ideally, they have an understanding of the base understanding of finance, in general, if they’re gonna be working for a real estate company… But at the end of day, that’s not a absolute requirement, especially if they are a solid executive assistant and are able to learn on the fly.

Then the last requirement would be, how do they actually apply? So for this listing, it says, “When you apply, please provide a cover letter with your resume,” and then it has a salary of $45,000, plus the opportunity for up to $25,000 in bonuses… Just to give them an idea of how much do you pay an executive assistant.

So that concludes the episode. Now you know everything you need to know about hiring, finding, qualifying an executive assistant, and also, you learned the left side of the paper/right side of the paper exercise for actually figuring out what you would need an executive assistant to do.

So thanks for listening. Until next time, make sure you check out some of the other Syndication School series about the How-tos of apartment syndications and check out some of the free documents we have as well. All of that is available at syndicationschool.com. Thank you for listening and I will talk to you tomorrow.

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JF2086: The Many Ways Investors Handle COVID-19 With Scott Westfall

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Scott started his real estate career while in college managing properties for others and eventually found a passion towards real estate and began helping others through his own company called CGP Real Estate Consulting where they help identify, purchase, and operate investment properties. Scott works with many investors through his company and has seen how many different ways investors are handling situations during the coronavirus pandemic.

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“Real estate is a business, and if you can take the emotion out of it and go into it with a solid business plan, you should be able to weather these uncertain times” – Scott Westfall


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 Scott Westfall. Scott, how are you doing today?

Scott Westfall: Doing well, Theo. Thanks so much for having me on.

Theo Hicks: Oh, absolutely. Thank you for joining us. I’m looking forward to our conversation. Today we’re gonna be talking about the Coronavirus, how it’s affecting Scott’s business, how it’s affecting investors that he works with, the business, some of the challenges they’re facing, and then things that they are implementing to solve those challenges, and that hopefully will help you during this time as well. But before we get into that, a little bit about Scott – he is the owner of CGP Real Estate Consulting, ten years of real estate experience, six being a realtor, based in Virginia Beach, Virginia. You can say hi to him at cgprealestate.com. So Scott, before we dive into the Coronavirus, can you tell us a little bit more about your background and what you’re focused on now?

Scott Westfall: Yeah, certainly. So I got into real estate and then business, learned it from the inside out. In my freshman year of college, I met a couple who had just inherited a real estate brokerage that was focused on vacation rentals and property management and sales at the oceanfront in Virginia Beach.

Through college, I did maintenance and contracting and project management with them. When I graduated in 2014, I got my real estate license and became the full-time property manager and really vacation rental manager for 120+ properties. I did that for about three years, and through that experience, I got to work with individual and large investors. I got to learn really what makes landlords and investors successful and what mistakes they can make. Through that experience, I came to a point in 2017 where I felt it was time to take the experience and the knowledge that I had and do something a little bit different. I saw a need growing in Hampton Roads for a different service in real estate, and I knew I was passionate about helping others build wealth through real estate. So I decided to put my license in my LLC’s name, CGP Real Estate Consulting, and today we are focused on being the leading expert in area in identifying, purchasing and operating investment properties in Hampton Roads.

Theo Hicks: Perfect. So identifying, purchasing and managing, correct? Those are the three–

Scott Westfall: That’s correct.

Theo Hicks: Perfect. So now that we’ve got our three categories to talk about today, I think the first one we should talk about is managing, and then we’ll work our way back. So how has management changed during these past few months with the Coronavirus pandemic, and maybe also tell us some of the major challenges you’re seeing investors face, and then the types of advice you’re giving them to address those challenges?

Scott Westfall: Yeah. So I would actually break it down into two subsets; really standard yearly rentals, and these presented their own difficulties, and then really a lot of investors I work with, with short-term rentals, vacation rentals, and they’re facing a whole different set of challenges.

So with the yearly rental is really, in Virginia Beach, in April, we only saw out of 60 tenants, four or five paid late, and as a management company, we gave those tenants really to the end of the month to pay their rent without charging a late fee, and made sure we communicated with them upfront.

I have some individual investors who are self-managing their properties, who have had tenants who are unable to pay rent because they’ve been furloughed, and those owners have fortunately been lucky enough to contact their mortgage companies and put things in the rear, so that they’re not missing out right now. And really, a lot of them have still charged late fees,or  are saying they’re charging late fees, but are being very lenient with the whole how they’re going to repay the rent that they owe back. So we can talk more about yearly rentals…

On the short-term rental side of things, those owners are freaking out a little bit. It looks like the summer, which is a bulk of their income here in Virginia Beach and Norfolk, really anything on the beach, seems to be non-existent or very spotty, and so I think those owners are starting to scramble. We’ve seen owners who have gone to just switching these fully furnished properties to long term rentals. They’ve really gone for yearly, and then we’ve also seen some people who are just holding out, waiting to see what happens, hoping to make the best of the summer. I think that right now, conversations we’re having is how can you get creative with your property and still continue to produce income and not let it sit vacant through the rest of this year.

Theo Hicks: So it sounds like, at least, from your circle, of the standard yearly rentals, it sounds like April was maybe, a little bit worse than most months, but nothing too crazy. I’m just wondering, do you have any expectations for May collections and maybe even into June? What do you expect to happen during those months? Then maybe based off of that, also what types of things should investors be doing now if you do believe that collections are still going to be lower during those months?

Scott Westfall: Great question. So I would say that my colleagues were definitely more concerned about May and definitely June, just depending on how long this goes. I would expect that we see the numbers of late payments or non-payments in May to increase, and really the reason that I would say that is because of the feedback we’re getting in communication. I think that would be my biggest piece of advice to every landlord out there, would be to communicate with your tenants and find out what their situation is; let them know that you’re not out to get them, but you also need to plan and protect yourself, and I think knowing where your tenants are will really set you up to prepare for what’s coming in May in June.

Theo Hicks: So just calling tenants, putting notes on their doors. I was talking to someone and it sounds like self-managers are gonna have a little bit easier time communicating because they can actually go out and do it themselves whereas people that have property managers have to rely on their management company to do that, because they don’t really know their residents. Is that what you’re saying too – it’s easier to communicate with the residents and get that feedback that you need if you’re a self-manager, and then how do you ensure you’re able to get that feedback if you aren’t a self-manager?

Scott Westfall: That is a great question. I would say that it definitely does depend on your property manager, and if you do have a property manager, how much communication you’ve been in there with him… But you’re correct in the assumption. Self-managing owners have definitely had an easier time and a closer relationship with their tenants, and getting that information and feel from where their tenants are.

From the management side, we, as a company, have really tried to stay on front of it and have a lot of resources to use to communicate with tenants and to communicate quickly and efficiently. So to that point, how many of them are responding? That is a question. So if you are an owner that is with a property manager, I would say continue to contact them and put the pressure on the tenant to respond and let you know where they are at this time.

Theo Hicks: Perfect, and then switching to the short-term rentals, because when I first started doing these COVID interviews, I felt like everyone I talked to was doing short-term rentals. So I’ve heard some very interesting, creative ways that they’re using their short-term rental properties to continue to make some income.

So you already mentioned people are– they’re switching them to long-term rentals, or they’re just holding out and waiting… Because from all the short-term rentals people I’ve talked to, May, June, July, August are the money months. So what are some other creative things you’ve seen people do to make sure they can bring in some income on their short-term rentals?

Scott Westfall: One interesting one up front that we’ve seen down here is we’ve actually had an influx of people from the North East who have rented the short term rental properties that have been available for March through May, for two months, and have come down in quarantine here, which has really been an interesting thing. But going into that, there is very much an emerging market, at least here in Virginia Beach, for a lot of these vacation beach destination towns for increased service monthly rentals over the summer. So it’s maybe transitioning, and it would be more than what you’d get as a standard yearly rental, but not as much as you would make with nightly rents throughout the summer, but if you can find somebody who’s willing to come and have a whole month-long beach vacation for $6000 when you were making $9000 that month, I think that is a good way to offset it. So looking for people who are looking to spend their summer months at the beach for an increased rate is good option.

The other option too is in real estate, you have price, location and condition, and if there’s no demand, you’ve got to have to use your price lever. So see where the market is at and test the market and see where you start to get inquiries, because there are still people out there looking and hoping to take advantage of the summer being a little bit empty to be able to have a less expensive vacation.

Theo Hicks: Perfect. Okay, so let’s transition into the other two things you focus on – identifying deals and then actually buying deals. So maybe tell us the general feel from the investors you work with. Are they more interested in buying deals right now, just waiting to see what happens, or selling their portfolio?

Scott Westfall: That’s a great question as well. Right now, the demand is more than ever. Real estate investing, in general, has just become so mainstream. So I have not seen the demand slow down. The demand has been there, and it’s the supply across the nation that’s been low, and has continued to remain low. So I feel like it’s been a tightening of supply, but the demand has stayed the same when it comes to investors looking to put their money into real estate right now.

Theo Hicks: It sounds like the demand for the buying is still there, and obviously if the supply is tightening, then people aren’t actually selling. So my next question would be, you focus on single-family homes, right?

Scott Westfall: Yes, single-family, and really smaller multifamily, so 4-units.

Theo Hicks: And then using those as rentals, correct?

Scott Westfall: Correct. Yes, sir.

Theo Hicks: Perfect, okay. So I want to buy a duplex right now. What are some of the main changes that I need to make when underwriting these deals?

Scott Westfall: I think that building into your models and your projections when you’re looking at properties, building in that vacancy rate and even making that vacancy rate a little bit bigger, planning for these unexpected times of no income… I think that what I’ve learned in my experience in real estate is that real estate is a business, and if you can take the emotion out of it and go into it with a solid business plan, you should be able to weather these types of things. So first thing I would just say is tighten up how you are analyzing deals and what you’re being very specific on what you need to cash flow moving forward.

Theo Hicks: Perfect, and then last question would be, people always say that when there’s times of economic uncertainty and people don’t really know what’s gonna happen, and typically once that ends, there’s going to be great opportunities to make some money. So if you had a crystal ball– and again, you don’t have to be perfect here, you can be very general if you want to, but it can be just one thing if you want it to be, or it can be multiple– some of the biggest opportunities in real estate investing that you see in the next, let’s say, six months to a year.

Scott Westfall: The first one is going to be is – on the short-term rental side, whoever can look ahead and see what the renters want, the demand is going to come back, but it’s going to look different, and whoever can look ahead and get ahead of that is going to be successful. So apparently, if you own a short-term rental, get ahead of it, start to think about what it’s going to look like after, because the demand is going to surge back.

In regards to just investing and identifying properties and looking forward, I think the supply is going to increase, but again, the demand is the same. So being patient and being prepared financially for a deal to come. Can you ask me that question one more time, Theo?

Theo Hicks: Yeah. So in the six months to a year from now, what do you think is going to be the next big real estate investing opportunity?

Scott Westfall: Man, that’s a great question.

Theo Hicks: What does your gut tell you?

Scott Westfall: My gut tells me that it’s going to be more of the same, and I think that investors will need to be wiser when they make choices about what properties they’re purchasing. I think there will be tightening on the lending side, but again, there’s going to just still be more of the same people wanting to put their money into real estate, because real estate is a solid long-term investment. Where we are specifically, I would say that, again, more of the same – we’re such a huge military area where it’s very cyclical, and we’re a little bit different than the rest of the nation in that regard.

Theo Hicks: Perfect. So is there anything else as it relates to the Coronavirus and real estate investing that you want to talk about before we wrap up?

Scott Westfall: The last thing I’d say then is that real estate, again, is a business, and if you have a solid business plan going into it, you can weather the storm. I know that it’s tough right now. If you are a homeowner in Hampton Roads or an investor in Hampton Roads and you’re looking to get creative with your property, to figure out how to make it through this storm, and then to continue to be successful moving forward, visit my website, www.cgprealestate.com. I’d love to hear from you and hear how you are handling that.

Theo Hicks: Perfect. Well, Scott, thank you very much for joining us today, and Best Ever listeners, make sure you take advantage of Scott’s offer. Just a few of the big takeaways I had today is you told us how your business is broken into three buckets. You’ve got identifying properties, then buying properties and then managing properties. You mostly focused on managing, because I think that’s where most people are facing challenges today with the Coronavirus.

So you mentioned how it was different for your standard yearly rentals and your short-term rentals, that you do think that May and June are probably going to be a little bit worse than April, most likely… Again, no one can really predict the future, but most likely based on the current trends, May and June collections are going to be a little bit more difficult than April… Therefore it is very important that you are communicating with your residents, so that you know specifically what their situation is, so you’re prepared and you’re not waiting until the end of May and realizing that no one’s paid rent that month. So that’s one big takeaway.

Second was if you’re a short-term rental owner, a lot of them are freaking out, but making sure that real estate, as you mentioned, is a long-term play. So sure, you might not be getting any income right now, but you do believe that demand will come back for short-term rentals, and that whoever is able to predict what that new demand will be like are going to be able to set themselves up for success.

Then lastly, when it comes to identifying and buying new deals, it’s very important for you to make sure you’re underwriting a larger vacancy rate for unexpected times of no income like today.

So Scott, again, really appreciate you coming on the show today and being willing to talk about some of the challenges you’ve seen other people facing in real estate investing. I know it’ll be a value add to the listeners. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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.

 

JF2085: Fake it Till You Make it With Aaron Fragnito

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Aaron is the Co-Founder of Peoples Capital Group and the Host of New Jersey Real Estate Network. Aaron is someone who developed a plan to become a real estate investor and went after it right away. He shares his journey from no experience to a realtor, wholesaler, flipper, and now syndicator. He shares some of the mistakes he made with management companies and how he is able to keep his 4 core investors even when he was making mistakes to now 30 investors.

 

Aaron Fragnito  Real Estate Background:

  • Co-Founder of Peoples Capital Group (PCG)
  • The host of New Jersey Real Estate Network
  • A Licensed NJ Realtor and a Full-time real estate investor.
  • He has Completed over 250 real estate transactions, totaling more than $40M, Fixed & Flipped over 50 houses, wholesale 100+ properties, and Manages an 8 Figure Portfolio of Private Real Estate holdings
  • PCG Works with qualified investors to create passive returns through local commercial real estate.
  • Say hi to him at: https://www.peoplescapitalgroup.com/
  • Best Ever Book: Mel Robbins books

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I am always educating” – Aaron Fragnito

JF2084: Raising Your Performance With Robert Glazer #SkillsetSunday

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Robert is the founder and CEO of Acceleration Partners, a global performance marketing agency, and his newsletter is read by over 100,000 leaders each week. Robert also helps others build their capacities and raise their personal and professional performance. You will learn the four elements that he teaches others to help raise your performance.

 

Robert Glazer Background:

  • Founder and CEO of Acceleration Partners, a global performance marketing agency
  • Helps others build their capacities and raise their personal and professional performance
  • His newsletter is read by over 100,000 leaders each week
  • Based in Needham, MA
  • Say hi to him at https://www.accelerationpartners.com/ 
  • Author of Elevate: Push Beyond Your Limits and Unlock Success in Yourself and Others

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“What are the three most important things that I can do today that will move me towards my goal” – Robert Glazer


TRANSCRIPTION

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

Robert Glazer: Hey, Joe. How are you?

Joe Fairless: I am doing well, and welcome to the show. Best Ever listeners, first off, I hope you’re having a wonderful weekend. Because today is Sunday, we have a special segment for you called Skillset Sunday. By the end of this conversation you will have a model for how to raise performance in your life, and maybe understand certain parts that are out of alignment. With us today to talk about capacity building and what the four elements of it are is Bob.

Bob is the founder and CEO of Acceleration Partners, a global performance marketing agency. He helps others build capabilities or capacities and raise their personal and professional performance. Based in Massachusetts. With that being said, do you wanna give the Best Ever listeners first a little bit about your background, then your focus, and then let’s roll right into capacity building?

Robert Glazer: Sure. My background is that of an entrepreneur, eventually… I started two businesses actually, 13 years ago; Acceleration Partners has gone on to become a 180-person global marketing services firm. We work with a lot of enterprise clients and help them build partnership programs. That’s  my day job.

My night job is I’ve always renovated, knocked down, tore down places that we’ve lived along the way, and done some real estate stuff on the side as well… But one of the things that I started a couple years ago was an email to my team every Friday about ideas around getting a little bit better. I thought I’d start sending it into the weekend; it really wasn’t about work, it was about improvement. We were growing a lot, and I felt like we would need to keep our team growing [unintelligible [00:04:45].28]

That email that I started sending to 30-40 people – they started sharing it with colleagues, friends and families, and a couple years later it was 100,000 people in 60 countries. That led me to — it’s called Friday Forward today. That led me to sort of look at the themes of these and why these notes were having an impact on people I hadn’t met, a lot of the changes I’d made in my life, and also how we had invested in people holistically, and they’ve grown with the business, and that all led to the same four elements of capacity building. It was the same pattern I had seen in my life, in those situations, and across every high-performer I had met.

Joe Fairless: Hm. Well, that’s phenomenal, to have an email that gets sent out to 100,000 people… And I wanna talk to you about your business, and then we’ll talk about what I teed up earlier… Because I’m personally curious about your business.

With that email, real quick – what’s your open rate?

Robert Glazer: It’s tricky… I think that opens about 30, and that’s what I can track. I know a lot of them are reposted in Slack channels and are sent through companies… So that’s the individual open rate from a percentage… But each one sometimes — I can see that it might be forwarded even 500 or 1,000 times.

Joe Fairless: That’s incredible. So you have 30,000 people at minimum opening up the email that you send out.

Robert Glazer: Yeah. It’s indicated on LinkedIn, when I was one of the first people to join their [unintelligible [00:06:07].18] program. I have 180,000 members of that series, so it also goes to all those people on Fridays as well.

Joe Fairless: Wow. In addition to the 30,000.

Robert Glazer: Yeah, in addition to the emails. I don’t know the exact reach, but at this point it’s over 100,000…

Joe Fairless: Yeah, it’s safe to say that, and you’re definitely covered. Alright, well I do wanna learn more about your company first, and then we’ll roll into the other stuff. So when I’m on your  site, I click “How can we help you” and then “What we do” and it’s affiliate program evaluation… So what exactly do you do for companies?

Robert Glazer: We help brands set up these affiliate or partner programs, where they partner with the people that you normally buy advertising from. People that have influence, audiences, otherwise… And instead of paying them for the advertising, they agree on a percentage or an outcome that they would have, and we track the whole thing, and then they’re paid on a successful completion. So for the company – you’re actually paying your marketing after you get a sale.

Amazon’s got one of the biggest affiliate programs in the world. You think about a lot of the podcasts that I’m on – you put a link to my book, you could join Amazon’s affiliate program and get 8% of everyone who buys my book off your site after listening to the episode. That’s what an affiliate program looks like.

Joe Fairless: Right, so that’s an affiliate program. I think a lot of people know what an affiliate program is. But what do you do exactly?

Robert Glazer: We help build and manage those programs for really large brands. Programs that have hundreds or thousands of partners in them. They’re very resource-intensive. So we’re out there recruiting and managing, and we’re an agency that focuses on helping global brands like eBay, Adidas otherwise build those programs.

Joe Fairless: Okay. So you find the affiliate partners and then you manage the payment and the structure for how they’re compensated…

Robert Glazer: Yeah, we work with a software that handles the actual payment… But yeah, we would help design the strategy, and incentives, and stay in touch with them every day… Most companies can’t support a program with 10,000 partners, that runs seven days a week, and people need stuff 24/7, so we built a company to do that.

Joe Fairless: Got it. And what’s your fee structure doing that?

Robert Glazer: We usually charge a fixed + performance. We can track exactly the performance of all these programs, but the determinant of our team sizes, how big the program is, what countries they wanna be in, where they want language coverage… So there’s some basic costs for setting that up. So it’s usually a hybrid model of a fixed fee + upside in the performance of the program.

Joe Fairless: Okay. And the last question on that is “What is the threshold in order for you all to work with a group or an event or an organization?” Because listeners of this podcast might not be the CEO of Coca-Cola, but they might have a very large following and they’re looking to host something where they could use these types of services.

Robert Glazer: Yeah, so we always say, people can reach out to us. We have a network of people that cover stuff that may not be a right fit for us; most of the companies we’re working with are doing in excess of 10 million in sales online, and that starts to have the kind of economics where the types of programs that we run make sense, where they really want kind of a half-time person at least kind of setting up and running that program.

Joe Fairless: Got it. So let’s talk about capacity-building and the four elements of it. I’m just repeating words, “capacity building” – I don’t even know what it is…

Robert Glazer: Alright, well I can give you the long answer and the short answer.

Joe Fairless: Okay…

Robert Glazer: The long answer – it’s the method by which individuals seek to acquire and develop the skills and ability to consistently perform at a higher level in pursuit of their innate potential. And the short answer is just actually how you get better.

Joe Fairless: And also it sounds like the seeking part is important, too.

Robert Glazer: Yeah, it starts with — so it’d be helpful to run through the four elements…

Joe Fairless: It would.

Robert Glazer: And these go in a specific order. So the first is spiritual capacity. And that is not religion, but it’s about understanding who you are, what you want, and the standards you wanna live and operate by, personally and professionally. This really manifests itself in understanding your core values, in even your purpose (your Why) and you’ve gotta know where you’re going and what your compass is. And I think to me – and we just did this for two days with a bunch of leaders in our company, and a lot of epiphanies on how people can really understand their core values; at lot of things start to make sense to them about  why things are working on not working in their life, and feel good or don’t feel good. So that’s sort of the direction…

Intellectual capacity for me is what you want, and then how do you get it. This is how you learn to improve your ability to think, learn, plan and execute with discipline, things like having a growth mindset, being proactive, setting short and long-term goals, establishing routines and habits and having accountability. It’s really the discipline piece of going after what you want.

Physical – we understand that more. I lift a weight every day, for a few weeks, and eight weeks later I can lift more weight. The same is true in all of these things – it’s more of an intellectual exercise than a physical. Physicals – your health, well-being, physical performance, how we get sleep, managing stress, embracing competition, building resilience… And then the last one is emotional capacity. That’s really  how you react to challenging situations, your emotional mindset and the quality of relationships around you. If the first three are really about you, emotional is like how you interact with the rest of the world, which is people, and also things that you don’t control. For instance, if it’s gonna rain tomorrow, are you someone who is stressed, looking at your weather app and moaning that it’s gonna rain tomorrow, or do you just bring a freakin’ umbrella and move on with the day? It’s a very different use of energy. People who are able to focus on controlling what they can control, and not the things that they don’t control.

Joe Fairless: Okay. So I understand each of those – spiritual, intellectual, physical, emotional… Now, what do we do with this information?

Robert Glazer: This is the premise behind my latest book, Elevate, and talking about how to identify them, and some exercises in these things. So if we’re starting with the beginning, kind of give you an example of each one…

Spiritual – if you can’t articulate your core values, there are some exercises on how to do that. It becomes the most important thing if you can say “These are my core values.” You can put them on the desk as decisions, opportunities, partnerships, other things that come in front of you; if you’re able to use that as a litmus test, your decision-making will get so much better.

Joe Fairless: Yeah, I understand that.

Robert Glazer: So that’s the one thing you can do in spiritual. I’ll give you an example or two in each one. Intellectual – two things I think are really important. To me, it’s the sort of goal-setting alignment. I think a lot of us do goal-setting. We do one-year goal-setting, and we kind of hit them all… They just may not be the right things. One of the things I’ve really learned, that I’ve seen with people, is they reverse-engineer their most important goals. They take a five or a ten-year goal and they turn it into their one-year goal, and then their quarterly pieces, and the things that they wanna get done, and then they constantly realign around that, so that they’re getting the things done that are most important to them.

Also, really establishing for most people a morning routine or habits where they get up in the day, they don’t watch the news, they don’t check their phone… They sit down, they read, they write, they think, and they focus on “What are those three most important things that I can do today? Because those are towards my quarterly goal. If I get my quarterly goal – done. I’ll be towards my annual goal.” These are the people who are getting the big things done, where other people are getting lots of things off their checklist done, but aren’t really moving any of the big things forward.

On the physical side I think we’re all pretty stressed out, more than we need to be. We’re using our fight or flight mechanism all day long. One of the tips is finding some sort of event that you wanna do, whether it’s a 5k, or it’s a Spartan, or it’s an Olympic triathlon, and just paying the deposit fee. I have found that that is one of the single greatest motivators to force people.

They have gym memberships they don’t go to, or whatever, but signing up for something, and maybe something they haven’t done before, and that physically challenges them – they sign up, they’re forced to do the work, they feel better, they accomplish that,  and then they’re like “Huh… I can do that. Maybe I should sign up for a harder one.” This sort of interplay between physical and emotional to a resilience of – you do something you don’t think you can do, and then it changes your psyche about what you can do next.

Joe Fairless: When someone signs up for a Spartan race, why do you think giving that deposit is more incentive for them to reach their goals, versus a gym membership in January that they sign up for to be physically fit, as you mentioned? Because a lot of people don’t follow through with the gym membership.

Robert Glazer: The motivation actually wanes… So you sign up for the gym and you pay the money, and then the motivation kind of wanes.

Joe Fairless: Oh, yeah. Yeah.

Robert Glazer: I think the reverse is true in these cases, where as the deadline looms, and that obligation looms, you feel really more committed and you have something  specific that you’re working for. So goals need to be specific, measurable. There’s the SMART acronym: Specific, Measurable, Attainable, Realistic and Timely… And there’s something about paying for the thing and just committing to do it that covers all of those… Because I have the time, I know what it is — for example for me, one of my core values is health and vitality, but I also like doing different things, and I like trying new things, so I merge those.

So by picking an event every year that’s a challenge, but that also me doing it results in training for four months that makes me healthier – it’s kind of one of those examples of alignment where I’m kind of getting everything that I want… Versus joining the gym can feel like the accomplishment, rather than going to the gym each day.

Joe Fairless: Yeah, it’s a great point.

Robert Glazer: And the crazy thing is the actual value to me, other than the psychological value of finishing that race that day, the value is actually in all the training, it’s not in the day. It’s all the work that has to go into getting there.

Joe Fairless: And emotional capacity?

Robert Glazer: So there’s a couple tricks here… One we did this week with a group that I find super-helpful is to make a list of three different types of relationships. One of the ones that you need to develop in your life for personal or professional success – which are the ones that are really productive, but you’re not giving a lot of time to, and you wanna double down on… And the third is the ones you need to start walking away from, and that your asset allocation is off. Spending more time with your underperforming assets.

I think a big trick I learned is that you don’t have to break up or have a whole thing, you just need to apply less time. When you put them in front of you and you say “Oh, Joe is a guy I wanna get to know, but I haven’t invited Joe to do anything in months”, and I look at that list and I say “Joe, let’s grab a drink next week.” And now suddenly Joe is on my schedule. I think that’s a really easy way to start shifting your relationships away from ones that maybe have run its course, towards ones that can help you get to where you wanna go… And surround yourself with the right people. The Jim Rohn quote – if you are the smartest person in the room, it’s probably time to switch rooms.

Joe Fairless: Mm-hm. And when you made that list for the whole audience, who are the people you listed as you wanna walk away from?

Robert Glazer: So I actually was leading this exercise… I have done this in the past, other people have done it, but – it was professional relationships, it was personal ones, where I was like “I like the people…”

One of the interesting things is that as you hone in on your core values, you start to see where you have philosophical mismatches with people, where you’re like “That’s a nice person, we just don’t see the world the same way.” And that’s why we keep bumping into these things. I’m giving myself permission to just not tell them we should catch up again next month if I don’t really mean that.

A lot of people, I would say, those lists had a lot of family on it. They had a lot of relationships in their family that were just draining to them. The definition of an energy vampire is someone you feel worse after spending time with. You actually walk away and feel worse, rather than energized.

And look, for some of those, those are close family relationships. What they’re not saying is “Oh, I’m never gonna talk to this person again” or “I’m gonna blow it up”, but like “You know what, it’s time for me to maybe move my hand away from the candle a little bit and put it elsewhere.”

Joe Fairless: When someone is going through this process and they’re reading Elevate, your book, or they’ve read through it, what is — you know what, you answered earlier; there is a specific linear process, so spiritual would be first then.

Robert Glazer: Yeah, I can give you [unintelligible [00:18:35].24] what happens when you’re really weak in one, or otherwise… But there’s a lot of people out there, or probably a lot of listeners, where if they don’t have clarity on the spiritual capacity, they actually may be really good on intellectual, physical and emotional. They are achieving at a high level, doing all this stuff, running a million miles an hour, doing really well at something that fundamentally doesn’t make them happy. They’re living someone else’s definition of success really well, they sort of achieve, but aren’t happy… The whole notion of the alignment in this framework is that if you’re getting what you want most, it should provide a deep sense of achievement. I know a lot of people who are doing really well in things that don’t make them happy at all.

Joe Fairless: When you have this conversation with groups and people, what are some objections or challenges that they come across when trying to really deep-dive and embrace this and act on it?

Robert Glazer: I don’t think there are any holistic ones. I talk a lot about morning routine, a lot of time there’s parents in there, and we modeled this [unintelligible [00:19:36].26] the last two days… Because there were a lot of these parents with little kids and they’d say “I get it. I get what you’re saying. Get up in the morning, don’t be reactive, don’t turn my phone on the news… But I’ve got kids that are in my room, they’re screaming, all this stuff…” And we tried this, because [unintelligible [00:19:50].16] They got up in the morning, they got out of bed, they did not turn on their phone, they read for ten minutes, they wrote for ten minutes, and they just sat quietly for ten minutes. Then we all did a workout for half an hour.

Then we all came back, got breakfast and started the day, and everyone’s like “I feel so much better today. I woke up, it wasn’t crazy, I was focused on offense…”

And to people with kids, I said “Look, it’d be lovely to have an hour and do this and get up earlier”, but if your kids are waking you at [5:45], obviously you’re not psyched to get up at [4:45]. What I’ve challenged everyone in this group and in previous groups is get up 15 minutes earlier — if your kids are your alarm, get up 15 minutes, earlier, make your coffee, write something in the journal… Have that 15 minutes, see how you feel. They have all told me it is a massive difference. And again, waking up to someone coming and yelling at you – it’s just not a great way to start your day.

Joe Fairless: And if it’s 15 minutes in, how do you divide up the 15-minute chunk of time?

Robert Glazer: You could even break those same things up…

Joe Fairless: Okay, five, five and five?

Robert Glazer: Yeah, five, five and five. This notion of habit stacking… So if you have coffee every day and you’ve never written in a journal, and you just say “Look, I’m actually gonna buy something like the five-minute journal, which takes five minutes, and I’m gonna do that journal while my coffee is brewing. I’m gonna go down, turn on the coffee, I’m gonna take minutes to just write, check in for the day, and then my coffee is done.” You’ve actually combined something that you’re already doing.

Joe Fairless: Anything that we haven’t talked about as it relates to capacity-building that you think we should, in this conversation?

Robert Glazer: Just only that I think we all get out of balance in these areas. They’re really interconnected, and it’s important to sort of be aware of that. So take physical as an example. If I am really stressed, I’m not getting a lot of sleep, I’m exhausted – that affects my ability to learn, the intellectual capacity, it affects my discipline, I’m less patient with people, so it affects my relationships because I’m sort of cranky… So I think it’s just a little bit of an awareness of sometimes where we’re off. These things always go out of balance… But you meet someone at the party and they can tell you their core value and their core purpose; they have long-term goals, short-term goals, a morning routine, an accountability group, they’re exercising, they’re getting a good amount of sleep, and they’re eating well, and they have really great relationships in their life, that are positive, and they’ve eliminated a lot of bad people in their life. Most of those people are gonna be crushing it.

You’re not gonna meet a lot of people that are doing all those things and floundering throughout life… Versus — I joke in the book about this archetype Steve. You meet Steve, and Steve doesn’t know what he wants, the thinks he can’t learn anything, he’s drinking too much, eating too much, exhausted, he’s pissing everyone off… How many of those people are really doing well. So I think you can see when you look at the two extreme examples… I just think that these are not new concepts. I would just bucket them away to make them accessible to people, because I think these four things cover virtually almost all aspects of self-improvement.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing? And I’ll put a link to Elevate, to purchase that on Amazon, as well.

Robert Glazer: Yeah. If you’re interested on the business side, AccelerationPartners.com. Or you can google that. Friday Forward, my podcast, and my book are all robertglazer.com.

Joe Fairless: Thank you so much for talking to us about capacity building, spiritual, intellectual, physical, emotional… You got into details within each of those. I enjoyed a lot of it, in particular the emotional part, where you’re creating that list of three types of relationships – I think it’s something that we should all do and check in with ourselves on. How often do you think we should do it? Six months?

Robert Glazer: Look, if you keep it, for a lot of people — there’s a tool I have on the site called “The Whole Life Dashboard” that lets you build this for your morning routine… But I think you keep that in your peripheral vision. So as you’re going through each week, you see your lists. To me, the three of each is just a starter, but ideally you’d have it longer… And as you’re scheduling your priorities in that stuff and you’re looking across it, suddenly you start scheduling these people into your priorities. That’s why I try to create this one-page document that keeps all these important things in my periphery, so when I’m doing that morning routine I’m kind of reprioritizing every day.

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

Robert Glazer: Thanks again.

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.

JF2083: Understanding Loans With Christine DePaepe

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Christine is a renovation loan division manager VP of mortgage lending at Guaranteed Rate INC. She has been actively involved in the mortgage industry since 1996 and her goal is to help those who may not have a large sum of money to invest in properties themselves without some additional funding. She shares her wealth of knowledge around the different types of loans available for many investors.

 

Christine DePaepe  Real Estate Background:

  • Renovation Loan Division Manager VP of Mortgage Lending at Guaranteed Rate INC.
  • From Chicago, Illinois 
  • Actively involved in the mortgage industry since 1996
  • Over the course of a 20+ year career has originated: Conventional, Fannie Mae Homestyle Renovation, FHA, FHA 203k, VA and VA renovation, commercial, Jumbo, new construction and Jumbo renovation. 
  • Noted by the Scotsman Guide in the top 20 FHA Volume Originators for 4 years consecutively
  • Guaranteed rate presidents club member for 7 years consecutively 
  • Say hi to her at: www.rate.com   

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I love the 203k program for people buying in areas that are up and coming because it has the lowest down payment” – Christine DePaepe


TRANSCRIPTION

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

Christine DePaepe: Great. Thanks for having me.

Theo Hicks: Absolutely, thanks for joining us. I’m looking forward to talking about mortgages today. She is the renovation loan division manager, VP of mortgage lending at Guaranteed Rate, from Chicago, Illinois. She’s been actively involved in the mortgage industry since 1996, and over the course of her 20+ year career she has originated all types of loans – conventional Fannie May HomeStyle Renovation, FHA, FHA 203(k), VA, VA Renovation, commercial, jumbo, new construction and jumbo renovation.

She has been noted by the Scotsman Guide in the top 20 FHA volume originators for four years consecutively, as well as a member of Guaranteed Rates President Club for seven years in a row. You can learn more about her at rate.com/christinedepaepe. We’ll have a link to that in the show notes.

Christine, do you mind giving us a little bit more about your background and what you’re focused on today?

Christine DePaepe: Yeah, thanks for asking. Really, today we focus on a lot of renovation, new construction, helping buyers get into properties with a little bit lower down payment for investing… And by doing that, we’re trying to help people that don’t have as much capital as some of the major investors get into properties and start their portfolio.

Theo Hicks: I’m familiar with the 203(k) renovation loans on the residential properties… What types of opportunities are there for the 5+ properties when it comes to getting a renovation loan?

Christine DePaepe: On the 5+ properties – I refer those out to my partner and we can do up to 30 units. So if you’re buying commercial property, they will be able to help renovate the individual units… So we have to look at the total of purchase price plus what they’re looking for on the renovations to come together with “Will it work?”, future value… There’s a lot that goes into it, but we can do up to 30 units.

It’s private money, so it’s gonna be a lot different than the FHA loan or the HomeStyle Renovation loan, but we will definitely have an outlet for any of the listeners who have questions on that.

Theo Hicks: Okay, so you specialize in the residential renovation loans.

Christine DePaepe: Right, I specialize in the residential. What we’re trying to do is obviously help investors who want to buy properties. We have it available for long-term holds… Or we kind of use our FHA programs. Those are owner-occupied, but the caveat is that FHA only requires you to live in them one year. So what we’re seeing is by educating the buyers they can get into a four-unit property with 3,5% down, which is very low for four units, as long as they live there for a year. After they lived there for a year, they’re not required to stay in the property. They can then rent out the unit they lived in and have a cash-flowing property.

And again, with 3,5% down, it opens up a lot to people who otherwise would not be able to do this. Because on your conventional 4-unit, you’re looking at 20% to 25% down, and most buyers don’t have that, who are trying to start their portfolio.

Theo Hicks: So if I do a FHA 203(k) loan on a property, I live in it for a year, I move out and I wanna use it as a rental property… If I wanna do another 203(k) FHA owner-occupied loan, can I just do that, without doing anything to my existing loan, or is there something I need to do first before going to do a new one?

Christine DePaepe: FHA only allows you to have one FHA loan in your lifetime, unless there’s expanding family or a job transfer. So you can’t continue to use the program like that. I have had in the past — if there’s an equity pick-up over a couple years, they can refinance into a conventional program, and then let’s say a couple years later they wanna try to do an FHA again; that is allowed. But it’s not gonna  be consistently allowed, in terms of just keep churning.

More so, if you wanna do another property, you’d have to do a different program, probably conventional, but that requires a higher down payment.

Theo Hicks: Is there a rule of thumb of how many times you can rinse and repeat the FHA loan? Is it 2, is it 3?

Christine DePaepe: Well, FHA only allows one FHA loan as a client. So as a borrower, you can only have one encumbered FHA loan. So really for the investment, if you’re buying it and you’re living there for a year, you can only do that once with the FHA program… Because it’s such a low down payment, it’s 3,5% down, so they  don’t allow multiple churns, meaning you can’t keep doing it every year. You can do one to start, and then if you want to do another property, with a renovation program you’d have to do a conventional, and that requires a larger down payment. So we would talk with the clients to see if it would fit their needs, if they wanted to do another one, but it would be a larger down payment.

Theo Hicks: Okay, so just to confirm – I can do one; even if I refinance my existing FHA loan into a conventional loan, I still can’t do another one. I have to go conventional.

Christine DePaepe: No, if we are able to do that, then yes, you can. As long as you are out of the FHA loan, which I have done for clients – I got them into a conventional – and then they’ve used the FHA program again. If we get you out of the FHA loan, then you can go ahead and do another one. That is correct.

Theo Hicks: Okay, so you can have one FHA loan at a time, basically.

Christine DePaepe: Correct, yes.

Theo Hicks: Okay. So if you get an FHA loan and you refinance that property or you sell that property and you get rid of that FHA, then you can technically do that.

Christine DePaepe: Then  you can do another one, correct.

Theo Hicks: Okay.

Christine DePaepe: And on the FHA 203(k), they also allow for mixed-use, which is very unique, because most mixed-use is considered commercial. So when I say mixed-use, I’m not talking anything greater than four units, I’m talking four units or under. So if you have a store front that houses an insurance office, and then you have 2 or 3 residences above, as long as you’re buying the property and you live there for a year, then you can put 3,5% down on that mixed-use property, which is very low for a mixed-use property.

You need to live there a year — you can either do move-in ready. If the property doesn’t need work, that’s fine; we can still use it on my FHA program at 3,5% down. But if  the residences above need updating, you can use our renovation money only on the residential units, to fix them up and gain more rental cashflow… And you need to live there a year. And again, after a year you can move out, and then you have a cash-flowing property.

So the key is just trying to help people who are willing to move into a property for a year, with a super-low down payment, start to build their portfolio of property.

Theo Hicks: Yeah, this is exactly how I got into investing. I didn’t do the 203(k) loan because I didn’t know about it at the time, so I paid for renovations out of pocket… But I did do the FHA loan 3.5% down, and got into a duplex, lived there for a year and then ended up selling the property.

So what are the major differences, besides obviously the renovation aspect of it, between the standard FHA loan and the 203(k) loan? Is it just doing renovations, I get the 203(k) loan, and if I’m not I’m doing FHA? Are there any differences in the rates, amortization, anything like that?

Christine DePaepe: So the FHA regular is for single-family, up to four units, as well as the mixed-use. They don’t do investment properties, second homes, or anything like that. It’s only primary residence. And there is a difference in the rate on the construction, which is the 203(k), because of the risk, there is gonna be about a 1% difference. So if the current FHA rate is at 3% on a move-in ready property, we’re probably at 4% on construction. And again, it’s just due to the inherent risk of construction. They have a building. But when it’s done, we can always do the Streamlined FHA Refi, and we can get a lower rate and payment if the market indicates that, at the market rate at the time the construction is done.

Theo Hicks: Okay. And another question I had is something that I’ve always been confused about, so maybe you can clear this up… PMI. If I get an FHA loan, will I have PMI forever, or will it eventually go away?

Christine DePaepe: That’s a great question. FHA changed their guideline on that. I don’t know the exact year or month, but it was in the past couple years. FHA — now PMI will never go away, unless you put 10% down. Now, remember, the minimum requirement is only 3,5%, and that’s what most people are doing. But in the cases where someone’s like “Well, I wanna put 10% down”, PMI stays on the property for 11 years, and then it’s automatically canceled. But if you do not put 10% down, it’s on forever, and that’s not a good thing. So those are definitely loans that we’re always reviewing 2-3 years out, to see if they’ve picked up enough equity to get them out of an FHA loan, to get rid of the PMI… Because it is on for the life of the loan.

That’s only new in the past couple of years. Prior to that, the PMI always fell off around year 11, automatically. So that is definitely a change in the FHA program.

Theo Hicks: So even if I put 3.5% down and then in 11 years I have 10% equity, I still have to pay the PMI.

Christine DePaepe: That’s correct. And PMI falls off with 20% equity on conventional loans, and they used to on FHA. But FHA now has it for the life of the loan.

Theo Hicks: Okay. So for a typical client who does an FHA loan, lives in it for a year, keeps it, rents it out, what’s the next loan that you recommend giving them? And then let’s do two scenarios. One where it’s gonna be a more turnkey property, and then one where it’s gonna be a property that requires renovations. And we’ll keep it 1 to 4 and mixed-use.

Christine DePaepe: Normally, if you’re gonna use FHA and you wanna do a long-term hold, I recommend doing the 3 or 4-unit. You wanna get the most property you can. After that, if we can’t refinance them out, which normally we can’t that soon – it’s not gonna have enough equity to go into a conventional loan – I would say most of my clients then had a two-unit conventional program, because on the two-unit conventional you can put down 15%… And that’s either for move-in ready, or renovation. So that would be the next step. They don’t normally go back to a three or four, because it steps up to 20%-25% down, and that can be a little bit too much… But some people are willing to do the two-unit, and that’s a 15% down.

Theo Hicks: And then for that, since it’s conventional, you said the PMI will fall off after 20%.

Christine DePaepe: Yeah, on the conventional — so if you go into that at 15% and have MI, the PMI will go away. I think it’s a minimum of five years, and then you just put in for the PMI to be eliminated.

Theo Hicks: So we order an appraisal to determine the value of the property at that point?

Christine DePaepe: No, if they’re on a very low rate and they don’t  wanna refinance, they call the servicer direct and say “Hey, I’d like to have my property reevaluated”, and the company will do a reevaluation to see if they can get rid of the PMI for them.

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

Christine DePaepe: I evolved the 203(k) program for people buying in areas that are up and coming, because it has the lowest down payment, so it’s the least amount of cash out. I love that program for a buyer looking to move into something with a low down payment. When I meet with people, a lot of times they don’t have the capital, but they understand how important it is to invest in real estate… So we just educate them about the program and how buying in maybe an up and coming area you can gain a lot of equity.

They’re not for established high-end areas, because you’re trying to get into an area that is just up-and-coming with this low down payment… And FHA has lower loan limits, so we also have to watch that, depending on the area. Now, some areas have much higher loan limits, so we always have to go by the county. So that’s another thing I do wanna point out – the county dictates what we can do for each borrower; so when the borrowers call, because I’m licensed in 42 states, I first have to identify “Okay, what county are you looking in?” and then I help them understand the loan limits that they’re gonna be using, so they can buy their property. But if you were to say the best advice, I would say a four-unit or a three-unit and use the low down payment that’s available.

Theo Hicks: Alrighty. Are you ready for the Best Ever Lightning Round?

Christine DePaepe: Sure.

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

Break: [00:15:40].24] to [00:16:24].27]

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

Christine DePaepe: Best ever book I’ve recently read… You stuffed me on that one. Let me take a pass on that one. Let’s go to the next question.

Theo Hicks: How about best ever resource you use to stay up to date on your area of expertise?

Christine DePaepe: We just do a lot of internal training at my company. We have a lot of educational within our company, so I take a ton of training. Recently, I took a lot of VA training, because we have VA renovations, so I really needed to get in tune with that whole process. So just internal training. I’m always reading what’s going on and training myself, and I train other people… So it’s more about just I’m always reading what’s going on in the industry – what changes, what things are happening… Like we just talked about FHA – for years and years and years PMI went away, and then boom, FHA makes a change… So I have to keep up on that and the guidelines.

Theo Hicks: So I typically ask “If  your business were to collapse today, what would you do next?”, but I’m gonna change it up a little bit and say “If for some reason the FHA program just went away tomorrow, what would you do next?”

Christine DePaepe: I always try to stay with niche products. They have reverse mortgages out there, commercial, I love jumbo renovation… So I’m really in tune with everything different. I think there’s a lot of value when you understand just not the everyday mortgage. I do the everyday mortgage, but it’s really great to specialize in something; it just brings a lot of people to you, because of the specialty.

Theo Hicks: Okay. The next question – I’m gonna change it up a little bit, too. This may apply to you, but based on your experience, what’s the main mistake that investors make that result in their FHA or FHA 203(k) loan getting foreclosed on?

Christine DePaepe: That is a great question. What I see is when people call me they don’t even realize they shouldn’t do it. So one thing I look at is the total loan applications. Recently — I will give an example. A woman had never purchased a home, and she was (I would say) in her mid-50’s, and she was very honest; she was like “I don’t know what I’m doing, and I don’t have a lot of money.” So that right there concerned me, because she wanted to buy a four-unit major gut rehab; when I say that, we’re talking the property was maybe 150k and she was looking to do 250k worth of work… Without a lot of reserves, it’s a little nerve-wracking, because a reconstruction of that property is probably anywhere from 6 to 10 months… And we can only finance six payments. So my concern was she was gonna use every resource she had in her assets to put down on the property, and when the six months ran out, she would have to make this mortgage payment.

So after talking to her and explaining about that, she would have been a prime person that I think some loan officers maybe would not have really done the kind of diligence and education I did… And we both realized it wasn’t the right move. I’m like “This may not go well, and they will take your home. They definitely will foreclose if you can’t move forward with  your payments.”

So she bought a move-in ready where there’s no timeframe to not have your rent being paid. I think that’s the one thing on these four-units that people should understand. The first six months no one’s gonna live there on most of these rehabs. Now, some are just cosmetic, and we can get them done in 3-4 months, if they’re just gonna do kitchens and bathrooms… But some, they’re doing everything – new plumbing, new electric, kind of making it an effectively new home.

The cosmetic ones are easier, but gut rehabs – we’re definitely not in the home for six months. So it’s definitely important that they have a little bit of capital. The low down payment is great, but they should have a little bit of reserves. They require that on FHA, three months reserves. Then we try to roll in payments.

So where things can go wrong is when they don’t realize — they think, unfortunately, with HDTV and all these rehab shows, “I can do a whole rehab in 30 days”, and that’s a mistake. It’s not really reality.

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

Christine DePaepe: Oh, I love to give back to the community. We do a lot with Guaranteed Rate. We have a foundation and we give back to the community. We all contribute, we all help… I do a lot of work in my community as well. That’s just something I’ve always done. I definitely have a heart for kids, and we do a lot with women shelters and helping women with children that need to start over, so we give back in those ways.

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

Christine DePaepe: Well, my office phone goes to my cell phone, because I don’t  ever like to miss a call. I basically work and I’m available every day, especially on weekends and nights… Because you’re seeing a trend in the workplace where people are more in open [unintelligible [00:20:55].03] environments and everybody can hear each other, so people don’t really like to talk when they’re at work, so I make it a point to always be available at nights and weekends, where they’re more comfortable talking about their finances.

I’m at 773-848-4144.

Theo Hicks: Well, Best Ever listeners, definitely take advantage of that. You said you cover 42 different states, so it’s most likely that she’s in the state that you’re at… So if you’re looking to get into real estate with the FHA or the FHA 203(k) loan, definitely take advantage of that.

Alright, Christine, great content. I really enjoyed our conversation. It’s bringing me back to when I was looking at my first property, it’s very nostalgic… Just to quickly go over what we’ve talked about – there are renovation loans for 5+ units. You will refer people to someone who works with units up to 30, and it’s private money, so it’s obviously gonna be a little bit different, but your focus is on the FHA loans.

The FHA loan – it’s gonna be owner-occupied; you have to live in there for one year. The major advantages is a 3.5% down payment, and a good strategy would be to buy it, live in it for a year, move out and then rent it out. If you’re capable at some point of refinancing it or selling the deal, then you can use the FHA loan again, but you’re only allowed to have one at a time.

Christine DePaepe: Well, we also have the HomeStyle, we haven’t touched on that a little bit… I did wanna bring that up, because our HomeStyle Renovation program is for long-term hold rental properties, and it’s for single-family/townhome/condo. We don’t do multi-units. But what we’re using that for are investors who buy a house and just wanna do some cosmetic updating to increase the rents, and they don’t wanna use their own funds. So that program is 20% down.

But if you’re buying a house for example for 300k and you just wanna update it to get a higher rental rate, you can get our money, 50k to 70k, to update it. Then they’re holding them to not pay capital gains for a couple years, and either they’ll flip them or they will repay them. But those are for investors. They don’t have to live there. It’s 20% down, but we’ll give them the money to do the renovations.

So if they’re buying for 300k, doing 75k of repair, we use that as a 375k start point, they give me 20%, and I give them back 75k to do the cosmetic updates. That’s been a great program as well for some of my actual true investors who do long-term holds.

Theo Hicks: Okay, and that’s the HomeStyle Renovation Loan.

Christine DePaepe: That’s correct. It’s also available for owner-occupied multi-units, but those have larger down payments. So I just fit the needs to whatever the buyer is trying to do. Basically, it’s a phone conversation to see what they’re trying to do, how is their credit… That’s another thing I work on. A lot of people do not have any idea how to help their credit scores, or what they’re doing wrong, or what’s affecting it… And we have a software that will help the indicated scores, if there’s something wrong that I can identify; it’s very easy for us to help get everyone ready to purchase, get their credit corrected etc. So I think it’s a totality of everything. You can be very good at mortgages, but it’s the whole package – reviewing the file, finding out their goals and strategies, reviewing the credit, what can we do to make their credit score better…

You want a 760 credit score, that’s really what you want nowadays. That gets  you the best rate and programs available… So that’s what everyone’s goal should be. Hopefully, everybody’s using Credit Karma, because that’s a  great app to monitor your score.

Theo Hicks: Perfect. We’ll make sure they get that Credit Karma to check that out as well. So we also talked about the major difference between the FHA and the 203(k) loan, besides obviously the renovation portion of it, is the 1%(ish) difference in the interest rate.

You also talked about PMI and how that has recently changed… And now the PMI will never go away, unless you put down 10% upfront for your FHA loan. After 11 years it will be canceled. Then after FHA, some of your options would be to get a conventional loan. You mentioned the two-unit conventional program that allows you to put down 15%, and that’s a move-in ready or a renovation loan. And I believe you said the PMI expires on that after five years… Correct?

Christine DePaepe: Yeah, on the 15% down that’s correct.

Theo Hicks: Okay. Then we talked about the processes. You call whoever’s servicing your loan and then ask them to have that property reevaluated to see if you’ve reached the equity limit.

Your best ever advice was to use the 203(k) loan program in an up-and-coming area, because it is the least amount of cash out of pocket. Then you talked about how there are gonna be some loan limits based on whatever county you lived in.

Then during the Lightning Round you talked about one of the biggest mistakes you see people make with these types of programs, that result in them either getting their property taken away, or if you stopped them, they would have gotten their property taken away… And that is them just falling into the HDTV trap of thinking that everything can be done in half an hour of their time.

You’ve also talked about the reserves that are needed, and you only give out six payments, and things like that. So again, Christine, I really appreciate it. Lots of great information about these loan programs. It’s a very good episode for people who are wanting to get into real estate and don’t necessarily know how.

Thank you for joining us. Best Ever listeners, thank you as always for listening. Have a best ever day, and we’ll talk to you tomorrow.

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JF2081: Time Management in Finding Deals and Investors With Charles Seaman

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Charles is a managing member and Senior Acquisition Manager of Three Oaks Management LLC. In this episode, Charles explains why it was important for him to focus on what he enjoys and finding his niche in the market. He shares the value of building relationships with investors and spending as much or if not more time doing this as you are finding deals.

 

Charles Seaman Real Estate Background:

  • Managing Member and Senior Acquisition Manager of Three Oaks Management LLC
  • He actively works to locate high-performing multifamily real estate deals throughout the Southeast region of the United States.
  • Owns 92 units in GA
  • Based in Charlotte, NC
  • Say hi to him at www.3oaksmgmt.com 
  • Best Ever Book: How to Win Friends and Influence People 

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Best Ever Tweet:

“As much time as you find looking for deals, you need to spend equal time in building relationships with investors.” – Charles Seaman


TRANSCRIPTION

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

Charles Seaman: Great, Joe. Thanks a lot for having me on, and I’d like to say a big hello to the Best Ever listeners.

Joe Fairless: Yeah, I’m looking forward to our conversation. A little bit about Charles – he’s a managing member and senior acquisitions manager of Three Oaks Management. He actively works to locate high-performing multifamily real estate deals throughout the South-East, and he’s got 92 units in Georgia. He’s based in Charlotte, North Carolina.

With that being said, Charles, do you wanna give the listeners a little bit more about your background and your current focus?

Charles Seaman: Yes, absolutely. Prior to June of last year I lived in Brooklyn, New York, and I had the fortune of working for a commercial real estate investment for 14 years. During that time I was able to learn a lot, from acquisitions, to negotiating, leasing properties up, managing them… So I was able to pick up a lot of good skills, that have served me well in the multifamily syndication business.

I was there for 14 years, I hadn’t really done any investing on my own. I dabbled into single-family for a little bit, but I decided that it wasn’t really for me. And I said “You know what, I like these larger commercial and multifamily deals better”, so I said “How can I get into them?”

The one difference was the guy that I worked for had his own capital supply, whereas I didn’t. So I knew I had the skill and the expertise, I just didn’t have the capital, and that’s what really turned me onto syndication.

For all the Best Ever listeners out there, as I was just joking around with Joe before we started, it was Joe’s influence that really exposed me to syndication for the first time in my life.

Joe Fairless: So I met Charles in 2014 probably, maybe 2013, somewhere around there, when I was living in New York City and I did a class once a month or something on investing… And he attended. It was probably you and maybe three other people or so? [laughs]

Charles Seaman: Yeah, it’s probably between that on the high side, three on the low side, but it was a nice little group there you had.

Joe Fairless: Yeah. But you were reliably consistent with attending. You were one of the people who always attended, and you now own 92 units in Georgia… Tell us about that.

Charles Seaman: Sure. So it was a two-year process to get to that point. I started really learning about syndication and taking action with it in 2017. And between that point and the 92-unit deal I looked at probably somewhere between 150 and 200 deals, and there was a lot of brokers that were involved, a lot of underwriting, a  lot of hours, and ultimately what it came down to — there were a few things that I would say really helped me get to that point. One is focus. I think the problem that a lot of people have is that they don’t have focus. And I was guilty of that too when I started in this business, because I was looking at properties in a lot of different areas… And instead of really having a target area, one month I looked at a property in Ontario, another one I looked at a property in Indiana, and another one in Kentucky… Twice in Kentucky, actually. But the challenge with that is by not having focus you’re constantly spreading yourself a little too thin, especially just starting out.

So last year – actually, I guess 2018 now – around Thanksgiving time my partners and I decided to choose a target area, and that helped give us a little bit of focus, and also to really hone in on the types of properties that we were looking to buy. So gaining focus and clarity helped a lot, and that was a major step.

Another thing along the way that was really helpful was building good relationships. And again, that was something that I probably hadn’t thought as much of at the beginning. Initially, a few months after I started looking for multifamily deals to syndicate, I found a decent one in Ohio, but the only challenge was I didn’t have a sponsor. And for anybody listening that’s not familiar with that term, a sponsor or a key principal is somebody that’s going to sign on the mortgage for you… Which means if you’re taking out a mortgage on a seven or eight-figure asset, the lender wants to make sure that they’re giving it to somebody that has the net worth and the track record to back that up.

So it was a case where I found a deal, but didn’t really have any relationships with people in that class, that would sign on the loan for me. And it’s not the type of thing that you’re gonna call somebody out of the blue and say “Hey, Mr. Sponsor, would you sign on this seven-figure loan for me [unintelligible [00:07:14].04]” It doesn’t work, because nobody’s gonna lend you their professional track record and their reputation without personally knowing who you are and having a relationship.

So from that point on I went out and I built relationships with sponsors, and now my partners and I have  a couple that we have really good relationships with, so it’s helped us a lot. It actually ties into how we got our first deal, so we’ll get into that in just a minute.

The other thing in terms of relationships and network as far as business is related – investors. As much time as you spend finding deals, you need to spend an equal or greater amount of time finding investors. So between those things, that’s what really helped me get to the first deal, and then the relationship with one of the sponsors we had, actually the one that sponsored that 92-unit deal for us – he also bought the deal for us.

What happened is he knew that we were actively looking for deals, and we had looked at a few with them, we submitted offers on them, but for one reason or another we didn’t get accepted. Either somebody else had a higher offer, or any number of different reasons. So we had looked at a few deals over the course of a couple months, maybe even a year with him. He knew we were actively looking, and he came across this 92-unit deal [unintelligible [00:08:20].20] He’s very familiar with that area, because his primary territory is the Atlanta market… And he wasn’t really looking for himself, because he’s doing 200 and 300 and 400-units. So the 92-unit one, as big as it may sound to somebody who hasn’t done a deal, it’s on the smaller side when you get more experienced.

So he thought of us, and he sent it over to us and said “Listen, do you guys wanna take a crack at it?” So we looked at the numbers, we went through the underwriting and everything checked out, so he said “Okay.” He gave us the greenlight, and… Lo and behold, he found the deal, he brought it to us, and actually wound up sponsoring it, so it was a really good relationship that helped us out a lot.

Joe Fairless: How do you structure that from an ownership standpoint on the general partnership side, with a sponsor like that?

Charles Seaman: Sure. When you have a sponsor — and I’ve heard of sponsors taking anywhere from 10% to 50% of the GP, really depending on two things. One, their own personal preference, and two, how much you’re really expecting them to do. So if all you’re looking for them to do is just really sign on the loan dots, then some may go as low as 10% or 15%. In our case, our sponsor took 35%, but he did do a good amount for us. He helped us out from 1) bringing us the deal and consecutively signing on it, and he also owns his own property management company which is based in the Atlanta market, so we actually wound up hiring that. So he was very helpful to us, and he was a great partner to work with, so we were glad to have given him that 35% of GP.

Joe Fairless: Oh, absolutely. Found the deal, sent it to you all, signing on the loan, and has a management company that’s overseeing it. Worth every percentage point, that’s for sure. Very fair for you all, as well as for him

Charles Seaman: Yes, I would agree with that.

Joe Fairless: And that Ohio property – where was it in Ohio?

Charles Seaman: That one was in Northwood, Ohio, which is right outside of Toledo. And if I remember correctly, I think it was a 96-unit deal. I know that for a while you were dabbling in the Ohio market. Do you still [unintelligible [00:10:18].26]

Joe Fairless: I live in Cincinnati, so that’s what I was wondering… So when you had that deal identified, tell us how those conversations went when you spoke to potential sponsors who ended up not moving forward with you.

Charles Seaman: So the first thing I did with them was simply introduce myself. Having a background working for a commercial investment for 14 years, I said “You know what – nobody’s gonna really do anything like that for you, unless they know who you are”, so I said “Let me just start casually build some rapport with them.” And then after we’d lighten the mood a little bit, I would say “Listen, I have this deal… This is something you might be interested in.” So I sent it over to two or three people that actually expressed some interest, but either they didn’t wind up getting back to me, or they replied politely that they had no interest, which in retrospect I don’t blame them, because if I was in the position to sign for somebody and be a key principal on their loan, I wouldn’t wanna do that either, unless I was confident that they could actually perform. The last thing you wanna do is lend your professional reputation to somebody, that you worked very hard to build, and then realize that you didn’t do due diligence and they went out there and did a poor job and ruined it for you.

Joe Fairless: Yup. How did you find the people that you were reaching out to? None of them said yes, but I just wanna know what your approach was.

Charles Seaman: I actually got them through referrals. I got them through SEC attorneys and I got them through other people that I met at different real estate networking events… So I probably came up with maybe 5 or 6 of them initially, and there were two or three that expressed mild interest [unintelligible [00:11:48].13], but I’d say it was a good teaching point.

Joe Fairless: Interesting. That’s an interesting lead generation for co-sponsors or people signing on loans, SEC attorneys. Very logical. I don’t know if I’ve heard of that. Maybe, I don’t know, but it makes a lot of sense. Now, they didn’t say yes, but my follow-up question is have there been any sort of business transactions or any other business or anything evolve as a result of those conversations?

Charles Seaman: There actually has. One of the particular people that didn’t wind up doing anything on that deal is one of the sponsors that we have a really good relationship with nowadays, and generally speaking he has enough trust in myself and my partners that if we find a deal – obviously, he’s gonna do his own due diligence and vet it anyway, but he would usually be willing to sponsor just about anything we bring, because he knows that we really vet it pretty good.

Joe Fairless: And that was from an SEC attorney recommendation?

Charles Seaman: Yeah, that’s correct.

Joe Fairless: That’s pretty cool. I hadn’t thought about that. It’s a low-hanging fruit. So the 92-unit – how long have you owned it?

Charles Seaman: This one we own since September 5th, so a little over four months.

Joe Fairless: What’s the business plan?

Charles Seaman: The business plan is a 2 to 5-year hold. We were pretty fortunate that it was 98% occupied from the time we acquired it, so it was already a cash-flowing property… And we’re not looking to go in there and do any significant value-add, but the biggest value-add is really through operational efficiencies. A large part of what we’re doing is just implementing stricter collecting procedures, and having more available management. The seller had part-time management, they had a manager in the office about maybe 15-20 hours a week. We have a full-time person at 40 hours a  week, so that ways it gives tenants a different impression. One, it lets them know that somebody’s available if they have a concern, and two, it’s also somebody there on the property to oversee it, and have a set of eyes and ears on the property.

Another thing we did is just enforce stricter collecting procedures. The previous owner was very lax  with collections. A lot of the tenants paid, but whether they paid by the 3rd of the month or the 28th of the month didn’t seem to make much difference. So the first month we went in there, we had to file 19 eviction warrants, which was a pretty hefty amount on a 92-unit property… But what we did is we re-educated the tenants to let them know “Listen, we expect you to pay by this 5th. If you don’t pay by the 5th you’re gonna have a late fee, and if you don’t pay by the tenth, we’re gonna file an eviction warrant.”

So by the second month, in October, that went down. We were able to drop it to seven eviction warrants. Of those 19, only six of them actually wound up being evicted. Most of them caught up. And lo and behold, by December we were down to two eviction warrants. So litlte bit little, it’s going in the right direction. The rent is being paid in a more timely fashion, which is good, and we were also able to increase market rents in October. So for anybody listening, you can’t go in there and just raise rents on existing leases, but for people that go in there and move in as new tenants, you can start them at a higher rate. And for people renewing their leases, you can do the same thing.

So we realized that the rents were under-valued in comparison to the sub-market, so we implemented a $70 increase, of course, for various unit types, on October 1st.

Joe Fairless: From a collections standpoint, what are some things you’ve learned that have helped you with that process?

Charles Seaman: The biggest thing I would say from a collections standpoint is just being strict. You can’t be too lax with collections, because if you give somebody an inch, they’ll take a foot. And that’s just human nature. So if the tenants have a clear expectation that “Listen, guys, we expect you to pay by the fifth, and if not, you’re gonna have an extra $50, $75 fee. It’s amazing how many of them pay, especially when you have a C class asset, where a lot of them don’t have that $50 or $75 to pay.

Joe Fairless: Okay. Based on what you’ve seen so far in the four months, what’s been the biggest challenge?

Charles Seaman: I have to say, we’ve been pretty fortunate, knock on wood… It’s been pretty smooth so far, so I can’t complain.

Joe Fairless: There’s been a challenge, there’s been something that’s been unexpected, where it’s like “Oh, really?!” There’s gotta be something.

Charles Seaman: The biggest challenge was actually prior to closing – raising capital.

Joe Fairless: Okay.

Charles Seaman: A lot of people had told us that it’s harder than you think it is, and it’s one of those things that you don’t realize until you actually get in the driver’s seat and do it… So one of the things we do – my partners and I wrongly assumed that just because we know a network of people that have money, that we’d be able to easily go out there and raise money. We jokingly said amongst ourselves it was a very humbling experience… Which it was. But it also taught us that we have to be more diligent. We wound up completing the race, but it did take a lot more effort and a lot more diligence than we thought.

There were certain instances where we would send our brochure to different people that would be potential investors, and they’d tell us “Okay, I’ll take a look at it”, but the obvious scenario is that it’s not as important to them as it is to us. So you really have to  follow up and really be diligent.

So what we’ve done since then – we made sure to  make an effort to go out there and start expanding our network, and also increasing our investor database, so that way we’re constantly cultivating investors, as opposed to just really contacting them cold when we have a deal.

Joe Fairless: What are a couple of effective ways that you’ve found to identify new investors?

Charles Seaman: The biggest way that we’re actually knowing is our social media at this point. My partner, Adam, is a lot more video-friendly than I am, so he posts videos on Instagram and Facebook, and probably YouTube I’d say, at least every day, if not more than once a day a lot of times.

Myself – I’ve actually been doing it on Bigger Pockets, I use LinkedIn a bit… I’m kind of old-fashioned, so I do it through articles in written communication. I haven’t quite gotten in touch with modern times and started doing a ton of video.

Joe Fairless: [laughs]

Charles Seaman: So a lot of my stuff is on Bigger Pockets. That’s where I’m finding a lot of success personally. And one of the things I’ve done is I’ve been very active in the multifamily forums. So what I do is generally if I see something that I can provide value to, I do. A lot of the times people that post on those forums are relatively new, and what I’ll do is I’ll usually answer their questions and give them some insight.

I do it for two reasons. One, because I genuinely enjoy that and I do like helping people, and two, it usually works out well, because what happens is people that are more experienced than oftentimes passive investors will see that and then they’ll come to me and contact me and say “Listen, I saw you comment on such-and-such post. I’m a  passive investor. Would you be interested in talking?” And then from there it opens up the dialogue and we can start communicating and building relationships, so that way when we have future deals, we’re able to present them with those deals.

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

Charles Seaman: Be persistent, don’t quit. Oftentimes that’s very cliché. People are right around the corner from success and they don’t realize it. And what I’d say – especially in syndication there’s a lot of money, but there’s a lot of work involved, and there’s gotta be a lot of work before you see a lot of money. So I say don’t get discouraged by that; just have a realistic expectation, and know that you may have to work your butt off before you really start making the money. But eventually, as the money starts coming in and you start systemizing it, you’ll be able to put yourself and your business in a better position and live a more favorable lifestyle, where you’re not constantly working like an animal.

Joe Fairless: A book that addresses that is Three Feet From Gold. I love that book. I highly recommend that everyone reads it. Have you read that one, Three Feet From Gold?

Charles Seaman: I haven’t, but I’m gonna have to check it. That’s a good suggestion.

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

Charles Seaman: Sure!

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

Break: [00:19:36].07] to [00:20:16].00]

Joe Fairless: Alright, Charles, what’s the best ever book you have read recently?

Charles Seaman: Best ever book I’ve read… I’m gonna give you two, actually. One is a pretty common one – Rich Dad, Poor Dad. I’ve always been a big fan of Kiyosaki. I think he has a gift of taking complex things and putting them in laymen’s  terms. And the second one I’m gonna say is actually not a real estate or finance book, but it’s How To Win Friends And Influence People by Dale Carnegie. That’s my favorite book of all times. I think it has a lot of common sense principles that need to be reinforced on a regular basis, and people need to implement it in their everyday lives.

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

Charles Seaman: The biggest mistake that I’ve made was assuming that people I knew with money would wanna participate and invest in our deals. So I didn’t do as good of a job at finding investors as I should have, which is why I learned that mistake the hard way, that you need to always be actively marketing for investors.

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

Charles Seaman: They can follow me on social media. Probably the best way to get me is actually on Bigger Pockets, but they can also reach me on LinkedIn, and they can search me by name on either one of those, Charles Seaman. Or they can also check out the website 3OaksMgmt.com.

Joe Fairless: Charles, thank you for being on the show, thanks for talking about your 92-unit deal, the challenges you had prior to that, what you learned from it, getting your co-sponsors or really the people signing on the loan in place first, having the SEC attorneys provide you with leads, and then ultimately partnering up on the next one, the 92-unit that you found via one of your connections, and the partnership.

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

Charles Seaman: Joe, thank you very much for having me and thank you very much to the Best Ever listeners.

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JF2080: Medical Real Estate Investing With Colin Carr

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Colin is the Founder and CEO of CARR, one of the nation’s leading providers of commercial real estate services. He has personally completed over 1,000 transactions and has been in real estate since 2000. Colin goes into medical real estate investing and what it looks like in his business. 

 

Colin Carr Real Estate Background:

  • Founder and CEO of CARR, one of the nation’s leading provider of commercial real estate services
  • Has been involved in commercial real estate since 2000 and has personally completed over 1,000 transactions.
  • Licensed real estate broker in ten states
  • Based in Denver, CO
  • Say hi to him at https://carr.us/

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“I like to help healthcare providers maximize their profitability through real estate.” – Colin Carr


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, Colin Carr. How you doing, Colin?

Colin Carr: I’m doing great.

Joe Fairless: Well, I’m glad to hear that, and a little bit about Colin – he’s the founder and CEO of CARR, one of the nation’s leading providers of commercial real estate services. He’s been involved in commercial real estate since 2000, and has personally completed over 1000 transactions. He’s a licensed real estate broker in ten states, based in Denver, Colorado. So with that being said, Colin, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Colin Carr: Yeah, absolutely. Well, first of all, thanks for having me on. Excited to be here. My background is exclusively real estate. I started managing apartment complexes when I was 19 – mid-rise, high-rise, rural; moved to Denver in my early 20s, kept managing apartments for a few years, got into brokerage, few years after that did Walmarts, Wendys, Blockbusters, a lot of national retailers, moved into other aspects of office, industrial, investment, healthcare, and then started a firm about 12 years ago, and we are now operating in about 40 states, and we touch a couple thousand transactions a year and have a pretty good pulse in the market.

Joe Fairless: What’s your personal area of focus right now?

Colin Carr: I’m the CEO of the company and I oversee over 100 agents. We have a healthcare division, we have a commercial division, an investment division and a senior housing division. So I oversee our agents’ best practices, and I do a lot on the investment and development side.

Joe Fairless: Alright, so I was typing as quick as I could… Healthcare, senior housing, and I know I missed a couple. What are some others?

Colin Carr: Yeah. Commercial, and then just an overall investment platform as well.

Joe Fairless: Okay. So when you say commercial, I think of senior housing facilities as commercial real estate. So what’s commercial? How is it defined here?

Colin Carr: So we would differentiate commercial being corporate uses, CPA’s attorneys, architects, oil and gas, financial services. So everything that we do is commercial real estate. We have a just traditional commercial division that also touches those focuses of commercial tenants and buyers, and then we actually have a senior housing division and then an investment division as well.

Joe Fairless: Okay, when I hear investment division, I think, ‘Well all of these are investments.” So how is the investment division different from senior housing investment or healthcare facility?

Colin Carr: Great question. Our investment division is going after investors that are looking for income-producing properties, and we’re helping them on the buy side, the sell side, the due diligence side. So our commercialization is corporations, helping them with their real estate. Our healthcare is helping healthcare providers with their real estate investments, income-producing properties with savvy investors looking to grow portfolios, acquire, dispose of, etc, and then same thing on the senior housing side – it’s investors, developers, operators. So a lot of these overlap though, there’s investment deals happening in all those sectors, and it’s a lot of overlap.

Joe Fairless: Which division is your least profitable?

Colin Carr: That’s a great question. All of our divisions are profitable, which is great. Senior housing is our newest one, so we’re touching a couple of dozen deals in that sector right now in a handful of states, but that’s our newest division that’s only a couple years old. So still got a great expertise there, but that’s one of our newer platforms.

Joe Fairless: What are some reasons why you created a new division for senior housing, and how do you hit the ground running in order to grow that quickly?

Colin Carr: So senior housing came to us because people knew how much healthcare work we do. We help a couple of thousand health care providers each year with their real estate. So we touch a lot of deals there, and so there’s a lot of investors and a lot of developers that are involved with medical office buildings, complexes, and they want to get into the senior housing game. So we get a lot of people that try to come to us for advice in that world, but that’s how senior housing came to be. It’s just very ancillary and complementary to our healthcare world.

Senior housing is an interesting niche because it’s not just the real estate component, it’s the operations, and really the operations drive the value, as you know. So that’s a world that just takes a little bit longer to get into. Whereas a lot of profitability, a lot of opportunities, the amount of product that’s needed in the senior housing market is one that literally cannot be met over the next 10, 15, 20 years. So there’s a huge opportunity there, but there’s more complexities too, with compliance and operations and licensing. So it’s a little bit different world.

Joe Fairless: From a broker standpoint, why is it harder to get into because of operations? This is my ignorance showing, but I wouldn’t think that you all would be involved in the operations part. So it’s like, alright, you’re selling a property, so why does it matter that the operations are really important with senior housing?

Colin Carr: That’s a great question. So to understand how to value a senior house facility, you’ve got to understand the operations, and you’ve got to actually get in there and get under the hood and figure out how the property is being run, because the operations are what drives the income. Whereas if you’re looking at an apartment complex or a multi-tone office building, you can look at a rent roll, and it’s pretty clear to figure out what’s happening. There’s so many different variations of senior housing facilities, and there’s a lot of concepts of, “Is it government subsidized?” There’s so many different facets of senior housing, and there’s different revenue streams in addition to just “What do they pay per month for that room? What are the other services that are provided?” So to understand or read a senior housing facility, you’ve got to understand how it’s operated.

Joe Fairless: And is that as simple as hiring one person or bringing on one person who knows the industry, and then he or she can train your team, and now you’re off and running, or is it more involved than that?

Colin Carr: It’s really more involved than that. It’s a skill set that takes, in my opinion, years to really understand and learn, and I’m not trying to make it larger than it is or more complex than it is, but there’s so many nuances. Is it independent living? Assisted living? Is it memory care? Is it a skilled nursing facility? Is it Medicaid? There’s so many aspects to that world. And then on top of that, from a buying and selling side, the facilities don’t get put onto a commercial MLS or listing service predominantly, unless it’s a really challenging property that is less than desirable.

Whoever controls the listings controls the opportunity. So it’s not one that you can get on to an online database and preview 15 facilities and see their income statements and rent rolls and balance sheets. You can’t do that. So you got to understand how to evaluate them, number one, and then you’ve got to figure out who controls the opportunity,  number two.

Joe Fairless: It makes a lot of sense how you got into it, given your connections with healthcare. So can you talk about your healthcare business or division and what’s a typical transaction look like?

Colin Carr: Absolutely. So our primary healthcare division represents healthcare providers. So dentists, physicians, veterinarians, and we help them with every aspect of their real estate interests. So finding land, developing properties, new locations, relocations, a lot of lease renewals… And in doing so, we work with a substantial number of landlords, large REITs, developers, and we work with a lot of owners trying to figure out how to make their properties more valuable, how to increase occupancy, etc.

Joe Fairless: What’s a recent transaction that comes to mind, or a recent deal, whether you’re finding the location or the actual property itself, or selling it? …just something that we can talk about.

Colin Carr: So an owner purchases a building, wants to attract healthcare uses, gets us involved in the process, figures out where’s the deal got to be priced at, what we have to do to make it attractive to healthcare providers, is it a viable healthcare option… And then if we can assist them in that process of bringing them numerous buyers, we can create a lot of opportunity out of changing a property from an office use to a medical use, etc.

Joe Fairless: What are some questions that you ask the owner during your due diligence process to determine if that office can be used for medical?

Colin Carr: Some of the initial stuff– we go through all the zoning, we go through those concepts, but really it’s does the owner have a desire to invest heavily in the process? Medical office is a very attractive asset class of property. Markets go up and down, the economy changes, it will correct; everyone knows that. So if you’re an owner, you’ve got to look at it and say, “Who do I want on my property?” You want a franchise that maybe has thin or no margins, and they’re just trying to buy a market share to see if they can later sell, and it’s not really a long term viable option.

Are you concerned if you have a retail center and you’ve got a bunch of apparel and soft goods, and you can pull up their income statements and realize these guys are losing money quarter after quarter, and what’s going to happen when you lose the 20,000 square-foot Forever 21 store that doesn’t renew and how do you backfill that with four or five other people and who’s going to backfill it? Or do you look at a medical opportunity and say, “You know what, even when the market goes down, that dentist is not going to decide to start a landscape business. Or the plastic surgeons, they might tighten the belt, they might trim some staff, they might work four days versus three days a week, but they’re probably not going anywhere, they’re probably not gonna change industry.”

So we do a lot of education with landlords on why it makes sense to invest more money into a healthcare deal. Why if you can lock down a ten-year deal, the tenants are gonna go in there and pump a couple hundred thousand dollars into the space; they’re more invested, they’ve got more skin in the game – why that makes sense to stretch further to make that deal, and why that deal, even though you might have to put a little bit more money into it or invest more, why that deal actually ends up being a safer investment for you.

You put more money in, so some people would say, “Well, no, that’s more risky,” but you’re securing a more valuable blue-chip tenant in a lot of scenarios. So we do a lot of education with landlords and developers on why they want these deals, and then you get the right tenant, they sign a ten-year lease, they’ll probably be there for 20, 30 years. So you can literally do a deal and not always – there’s definitely changes, – but a lot of times, you put that thing to sleep for a couple of decades.

Joe Fairless: You mentioned asking the owner, do they have a desire to invest money into it, but then you talked about how the tenant will put in a couple hundred thousand to get it to fit their exact needs… So what is the owner putting money into the property to do, versus a tenant?

Colin Carr: Good question. So the tenants put a lot of their own money into the spaces because landlords are typically not going to front the entire cost of the buildout or the finish. We do ask the landlords to contribute as well. We’re looking for both sides to be invested in it. So a traditional office deal or industrial deal or retail deal, the landlords are going to put money into the space to attract good tenants.

A lot of times on the healthcare deals, we ask them to put in a little bit more than they would for a traditional office use or retail use, but we, in turn, put in more money than the traditional user as well, and a lot of times we’re doing longer-term leases, and we’ve got a much lower default rate. Most of our healthcare uses have less than a 1% default rate, so it’s a more secure investment. So we ask the landlords to put more money in because our clients are putting more money in, and they’re willing to do longer-term leases, and they carry a higher success rate, lower default rate with them.

Joe Fairless: Is the landlord putting in money prior to getting a tenant?

Colin Carr: Typically, we tell them, “Don’t touch the space on a healthcare deal until the actual healthcare provider or tenant shows up”, because you think they want that type of lighting or ceiling or walls or bathroom, and then they want to change the location of the finishes… So we don’t like landlords to put money into spaces. A lot of times, landlords will try to put into a vanilla shell format or vanilla box, and we don’t want that, because they’re going to upgrade it almost every time. So that’s another way for landlords not to waste money on vacant spaces. Wait till the tenant shows up, don’t spend money in advance.

Joe Fairless: Is it usually 50-50 on improvements or what?

Colin Carr: No, it’s usually a per square foot basis that comes into line with the lease rates to where some landlords say, “Hey, I’m not going to put in more than one year of total rent into the deal” if it’s new construction and they’re financing the money, and they’re going to turn around and sell it in a couple of years. They might put in two, three, four years of rent into that initial space. So it depends. Is it first generation? Is it second generation? Are they a long term owner? Are they gonna try and sell it? Is it the cash they’re putting into it, or are they going to finance it? So it just depends on who the owner is and the structure, but typically, on most healthcare spaces, it’s between one to two and a half years of total rent usually gets put into the concession package of TI allowance, free rent, stuff like that.

Joe Fairless: So for someone listening to that, and if they’re thinking, okay, so, in a medical transaction, where you bring a health care provider, if I’m a landlord, I’m gonna have to put in, on average, one to two and a half years of total rent that I receive. So I’m not making any money for one to two and a half years. Why would I ever do that? You mentioned it already, long-term, but is there anything else that we should be thinking about where it’s like, “Oh man, the first two years are gone. I’m not making any money.”

Colin Carr: A lot of landlords are going to finance that tenant improvement allowance and a lot of lenders are going to be more prone to give money for that tenant improvement allowance, especially if it is a healthcare use and a long term lease. So there’s definitely owners that want to put cash in upfront and not go to the bank, but if you’ve got a loan on the property already, which most landlords do, most lenders are going to give money for that tenant improvement allowance to secure that tenant. So at that point, it’s [unintelligible [00:16:25].25] game.

The other thing that comes into play too is for the landlords that are willing to put money into the space, they’re going to typically capture a higher lease rate, which means the property is worth more. So whether you look at it as having a long-term owner, that’s fine, but most people are always looking at “What’s my exit strategy?” and so the higher the lease rate, the better the cap rate, the higher the property. A lot of landlords are looking at properties, “Hey, if I could buy this property, and let’s just say it’s getting $20 a square foot for rent, and if I were to put a little more money into it and get a healthcare use in there, I could maybe get $23 a square foot in rent. Well, $3 a square foot on a six cap or seven cap, all of a sudden my property’s worth 200 grand more, 800 grand more, whatever it is, depending on the size of the property.”

So it’s a numbers game of “Can I put more money into this space to attract better tenants, longer-term lease, and then a better cap rate, because it’s stronger credit tenant, lower default rate, and then can I raise the value of my property?” So that’s the game – if you’ve got a property and you’re normally getting local mom and pops retailers or short term office leases, and you can attract the long term healthcare use, you can raise the value of your property substantially by getting healthcare in there.

Joe Fairless: What’s been one of the more challenging transactions you’ve personally worked on?

Colin Carr: How many hours do we have for me to run through that list? Almost every commercial deal we do has some–

Joe Fairless: A specific one. I’m looking for a specific example that you can tell us a story about.

Colin Carr: Man, that’s a great question.

Joe Fairless: It could be a recent one. I’m just looking for a story from you about a transaction where there was a challenge, you overcame it, and here’s some things we can learn from it.

Colin Carr: I would say, a specific deal I’m thinking of right now is, you find a landlord – and this is a specific deal – they bought a building a number of years ago, the tenant had an above-market lease rate when it was purchased, annual increases push the lease rate up 3% every year, and then you come to the lease expiration date, and you get ready to do a lease renewal, and the landlord is 100% set on not reducing the lease rate because they don’t want to discount their cashflow and discount the value of the property… But the deal is way over market, the tenant’s not going to stay. So you end up in an arm wrestling match with the landlord, and they’re assuming that the tenant’s not going to move, but the tenant has to move, because they can’t pay that type of rent.

So the landlord has come to grips with the fact that they didn’t do good due diligence upfront and it was an above-market lease rate, and they can’t capture and maintain that rate moving forward. And once that lease is over and that tenant moves out, they’re going to have to come to market with the real deal for the next person. So that’s a traditional deal, that’s what I’m thinking of right now, is “Hey, you’re 20% above market. I know it looks good on paper, I know you bought it thinking it was a great cash flow, but it’s not real.”

So it’s kind of a pro tip – you’ve got to make sure that you’re not dealing with inflated rents that are not renewable in the future, and if you lose that tenant and you have to go to market, you’re gonna have to come up with a real deal.

Joe Fairless: What a great piece of advice mentioning that… Because if I go to look at deals, and I see an office building and the seller says, “Hey, the market is X amount of dollars, but I got you even better at Y.” I think, “Ah, that’s awesome. This is gonna be a better deal than I’ll get it anywhere else, because I’m getting better market rents,” but as you said, there’s some pitfalls to that when the lease expires.

So then what I would need to do in order to make sure that the deal still makes sense is determine what type of market demand there is for that type of tenant, and if there’s a whole lot of demand for that tenant, then — I guess, I still shouldn’t assume that I’ll be able to get above-market rents upon the lease renewing, but at least there’ll still be more tenants to fill in if this one leaves.

Colin Carr: Absolutely. You’ve got two sides of the coin. You got, “Why the lease rate’s below market?” and “Is that really the lease rate?” They say, “Well, this is a below-market lease and you’re gonna be able to bump it up on a renewal.” “Well, alright, show me that you’ve achieved that the last couple leases you’ve done and show me where the market’s at, so that I have the track record that you’ve been able to do that.”

The other side of the coin is, “Hey, look at these lease rates. They’re capturing premiums, and these are a lot higher than our competing properties in the market or other comps.” And the question is “Is that sustainable in the future? Do I need to discount that value and underwrite it differently?”

The same concept applies with – you get a property as a 100% leased, you’ve got to put a vacancy factor in there and assume that you’re gonna run a vacancy over time and on average. You’ve got to put a 5% or 10% vacancy factor in there. So yeah, there are definitely pro tips as far as if it’s below market – why? If it’s above market, why? I think really the question comes down to what’s sustainable, and that’s where you’ve got to tap market experts to give you that advice and just make sure that you’re doing your due diligence.

Joe Fairless: Based on your experience as a real estate professional, what is your best advice ever for real estate investors looking to purchase, or in the industry of buying healthcare, or having commercial properties that cater to healthcare professionals?

Colin Carr: My advice would be just find the people that are the most likely to bring you those tenants. So when you’re talking about buying a medical building, and you’re talking to the seller, look at what they’ve done as a track record, because that’s a great indication of hopefully what you’ll be able to accomplish as well, too… But it’s really easy just to talk to the selling party and let them give you all the information, all the play by play. But at the end the day, they’re not going to be the ones to try bringing you the new people for your space, or helping you to renew those people. So I would say, find an industry expert like a company that represents healthcare tents and buyers, and then ask them, “What would be your objections to bring in your clients to the center? What would we have to do to attract your clients for the property? Do you think the market can sustain these lease rates? What type of TI allowance do I need to do to put into these deals?”

Get a perspective from the other side of the table with someone who’s not involved in that transaction. Not the listing agent, not the seller, but talk to somebody who is viably going to bring you an option or bring you a tenant for the future and get their perspective on it, because it’s going to be very different than what the seller’s selling you, trying to sell you the property.

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

Colin Carr: I am.

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

 

Break: [00:22:55]:04] to [00:23:38]:03]

 

Joe Fairless: What’s a bad piece of advice that you’ve received over the years?

Colin Carr: Thinking the market’s not going to change. Thinking that, “Hey, we’ve got this the last five years, it’s gonna continue to be that way”, and just not realizing the market is gonna shift.

Joe Fairless: What’s a best ever resource that you use in your business that is really helpful for you, whether it’s an online resource, an app, some website, something like that?

Colin Carr: The same answers two times ago – talking to the market expert who’s not involved in the transaction to give you an independent third party perspective on how viable is this location, this space, this deal, this price, and how would you critique it for your clients if you bring us a tenant or buyer for this?

Joe Fairless: What’s been one of your favorite transactions that you’ve done?

Colin Carr: Favorite transactions… I would lump them together as beginning deals in the business, grinding out the dirtiest, lowest-priced, worst location industrial deals you can possibly imagine, and just learning how to put together a deal, learning how to treat people, learning how to figure out how to solve problems, and just thinking back to the worst property you’d ever want to go to, and then getting that deal done and making no money on it whatsoever, but realizing you found a way to make a win… And at the end the day, even though it was a down and dirty property, the tenant was happy to be there, and learning how to do deals.

Joe Fairless: How do you not make money when you transact a deal, even if it’s a bad deal and a bad area?

Colin Carr: As a broker, you’re paid usually upon– it could be a per-square-foot commission, but a lot of times it’s a percentage. So I’m thinking of the 1,100 square foot machine shop industrial deal with a $4 lease rate, where you spend months on a deal and you make a couple hundred bucks or something like that, where you look at your time and you’re like, “Wait a second, I think I ‘ve made $1.50 an hour on this deal.”

We’ve got monster success stories of making a ton of deals, and that’s great, but honestly, it’s the deals that you learn to cut your teeth on, and even the ones where maybe, you lost some money, but you learned a lot. Those are my favorite because that’s the foundation you build upon.

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

Colin Carr: I love sharing information and helping people take what I’ve learned, and then help them become more successful… Because that’s really what I’ve done over my career – I’ve had the benefit of picking people’s brains, asking the exact questions you’re asking now, getting their insight, and then taking a lesson that a guy took 20 years to learn, and then he shares it with me and saved me all the heartache and pain. So doing the same thing of taking my information, the skillset, the contacts, introducing people to those same people, those lessons, and then helping them to build upon the foundation that I’ve laid, which is really the foundation of hundreds of other people before me.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Colin Carr: Website is carr.us, and in the upper right hand corner, you can find an agent. So if you want to talk about the viability of a deal or get a perspective from us before you buy a property or invest in and pick someone’s brain, our team, our agents are happy to do that. We do it every day. They won’t charge you for it. They’ll just give you free advice and give you their thoughts, and you can get in touch with someone locally that could give you a lot of information that could help you to process.

Joe Fairless: You’re a wealth of knowledge. It’s so nice talking to people who are so knowledgeable about what they do, and it is very clear that you know your industries that you’re in, and it’s just fun. I love talking to people like you. So thank you for being on the show, talking to us about the four divisions of your company, talking about how you got into senior housing as a result of being in healthcare, and then going deep into healthcare in particular, from an investor standpoint, and what to look for. So thanks for being on the show, really enjoyed it. I hope you have a best ever day, and we’ll talk to you again soon.

Colin Carr: I appreciate that. Thanks so much.

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JF2079: Money in Low Income Housing With Johnny Andrews

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TTJohnny was an emergency room nurse turned real estate investor. He was able to build his portfolio to 114 single family homes with his brother in 7 years while working full time. He focuses on lower-income housing and shares why property management has been a key part of his success in this niche.

Johnny Andrews Real Estate Background:

  • ER nurse turned real estate investor.
  • Currently owns 114 single-family homes with his brother
  • Was able to create his portfolio in 7 years while working full-time as a nurse
  • Based in Baton Rouge, LA
  • Say hi to him at john@redstickbrothers.com    

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Best Ever Tweet:

“Management, management, management. If you’re not hands-on in management, and you don’t stay on top of your game, it will bite you in the butt in the end.” – Johnny Andrews


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, Johnny Andrews. How you doing Johnny?

Johnny Andrews: I’m living the dream man. Thank you for asking.

Joe Fairless: Well, I’m glad to hear that. A little bit about Johnny – he’s an ER nurse turned real estate investor, currently owns 114 single-family homes with his brother, and was able to create his portfolio in seven years, while working full time as a nurse. Based in Baton Rouge, Louisiana. So with that being said, Johnny, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Johnny Andrews: Yeah, man. I would like to amend that number… Just signed a purchase agreement on another six more this weekend. So we’re going to be at 120, and I’m pretty excited about it… But I just want to do amend that number. Basically, this is my full-time gig now. I was working part-time as a nurse and I got injured in November of last year, so I can’t be a good nurse. I just get to ride around with my cane and crutches at the moment. My main focus is single-family homes in the Baton Rouge area, and the bulk of them all lower-income houses. We’ve got a bunch of Section 8, but we cater to a crowd that’s working class, and it’s done very well for me and my brother.

Joe Fairless: Well, we’ll go with what you’ve acquired so far. So in seven years, you acquired 114. That is 16 a year, which– it’s weird that math, it would seem like it’d be more a year, but 16 homes a year times seven years, 114. So what have you and your brother been doing to acquire so many homes? I heard you when you said they were lower-income, so I believe that means they’re also a lower price point, but can you just talk about your business?

Johnny Andrews: Yeah, man. So I think in 2006, 2007, I was working like a dog in an emergency room, not making too much money, and I knew there would be something different, there’s got to be something else out there. So I was looking at some houses. I was going to buy one for $100,000, put some money into it and flip it. And this might sound a little hyperbolic, but the housing market seemed to crash overnight, and I would have gone bankrupt if I would have bought that house. So I ended up not doing anything, and a couple of years passed, and I just was looking around for houses. I saw houses around me that were selling for $30,000, $40,000 of a rent, and between $700 and $900 a month. So everybody thought I was crazy. Nobody wanted to do anything with me. Everybody tried to talk me out of it. So I went and bought my first one by myself.

Joe Fairless: How much was it?

Johnny Andrews: I think it was 33k. I put a renter in it for $750 a month, and at the end of the year, I had a pile of cash. For me, I was making $45,000 a year. A third of that is a pile of cash to me. So somebody had four more houses. I went to buy these four houses. I told my brother about it. My brother’s like, “Let’s do it.” So we pulled the $25,000 that we saved up our entire lives together and we bought those four, and we’ve just been rolling ever since. It was a struggle at first. What I’ve learned about the low-income housing is that it’s management, management, management. If you’re not hands-on in the management and you don’t stay on top of your game, it will bite you in the butt in the end. So we ended up starting our own little management company, too. Now, we don’t manage anybody else’s properties, but we have an office in the area and we do our own management.

Joe Fairless: Did you ever try to hire that out to a third party?

Johnny Andrews: Oh, yeah. We learned our lesson.

Joe Fairless: [laughs] Crash and burn?

Johnny Andrews: Yes, we did, man. We did. My ability to explain – it sounds smooth, but it didn’t go smooth. We bought them from someone who was turnkey. So we bought from him, he’d managed it for a discounted rate. He would find the properties, fix them up, turnkey, here you go, we’ve got renters in them. Well, we didn’t do our due diligence, and these were nightmares, and they were terrible homes, they were empty. Our collections were in that low 60%. We were barely making the taxes and the mortgages.

So the only way we could avoid bankruptcy was we bought a tax sale house on the main drag in Baton Rouge, put a sign out front and took over our own property. We took them from them. At that time, we had 19 of them, and my mom is coincidentally retired; she used to run hospitals. So she does her books and she’s in the office, and ever since then, it’s been a fantastic move on our part to open up our own office and do our own management.

Joe Fairless: What must you enjoy doing in order to be successful managing these types of properties?

Johnny Andrews: I like the people. I like my tenants. I grew up in Baton Rouge. I like the culture. I like the area. Some of them are my tenants, and not only that, they were also my patients. So I have a relationship with a lot of them. I like helping out. There’s a lot of single moms. We have a lot of Section 8 properties which are my favorite, hands down. I love Section 8 properties. And just being my own boss, working with my brother, working with my mom is fantastic. I couldn’t imagine my life without doing this actually now. I’m glad I stumbled into it.

Joe Fairless: With Section 8, you said you love it. It’s probably because you get the payments on a consistent basis, but then there’s the flip side of that, as I know you’re much more aware than I am, of if you get an inspector who is having a bad day, then that could hold you up for a long period of time, or if there’s a grudge. Have you experienced any of the bad side of Section 8?

Johnny Andrews: I didn’t know inspectors could have good days. [laughter] So I have definitely experienced it, but I have the inspectors’ phone numbers. We talk, we communicate… And it’s hard at first to establish a relationship, because there’s a lot of carpetbaggers and scalawags that go in and out of these neighborhoods, and that are truly skullduggerous landlords. And they’re bitter, probably just like police officers, sometimes; they think everybody’s a criminal. But they finally over the years– I’ve developed a relationship with them, but don’t get me wrong, they will still break me in half when they have to, but I have good properties and I have good tenants. So the last five inspections I had, I didn’t have to do anything. So it hasn’t been terrible the last couple of years.

Joe Fairless: What’s been the biggest challenge that you’ve had within the context of managing lower-income housing?

Johnny Andrews: On our cash clients, collecting rent in a timely manner. I would say, maybe, 25% to 30% of our cash clients pay rent between the 1st and the 5th. Again, not being hyperbolic, it is crazy. We get the bulk of them between the 10th and the 15th, but a lot of that has to do with when the government sends their social security checks or disability checks out. Our cash clients, they make it complicated, but the hardest thing we’ve ever had to deal with was in the 2006, they had a gigantic flood, North Baton Rouge, and it flooded 20 of our properties, and it was awful. Those people were in a bind, and we were in a bind, but we pulled through… But collecting money from the cash clients is very hard. I went to eviction court today, by the way.

Joe Fairless: Okay. What are some tips that you have for solving that?

Johnny Andrews: Oh, you have to stay on top. You abide by the lease and force them to abide by the lease. I think that a lot of the landlords’ take what they can get in the area that I am in, and if you sign the lease, and you say you’re gonna pay between the 1st and the 5th and you don’t, we file evictions. Over the last few months or years or however long we’ll have to work on it, we’ll get the bad ones out and get the good tenants in, and right now, we are doing fantastic. Of all those properties, we have two vacancies. That’s it. I’ve never had anything like that. This has been an amazing year and a half.

Joe Fairless: If someone were to buy homes at that price point and work in similar areas that you’re working in with your properties, what are some tips that you’d give them before they start out?

Johnny Andrews: Subway is hiring. No, I’m joking. You have to stay on it. You’ve got to be hands-on. You got to be willing to knock on doors, and you have to hold people accountable. And finding a decent management company in such a labor-intensive market is really, really hard. I’m under the impression it might be different in other parts of the country, but where I am, you need to be the one knocking on the doors. They need to know who the owner is. That’s just what I’ve experienced.

Joe Fairless: So that’s not a scalable model, or is it?

Johnny Andrews: No, I wouldn’t think so. We have to be geographic, and that’s just where I’m willing to go. The good thing about it is the cashflow will allow me and my brother to diversify, which we’re looking forward to doing. Just right now, we bought a big package in October of last year that we’re trying to get settled in, and once I get settled in, we’re going to start broadening our wings.

Joe Fairless: Why diversify? I know I’m going against what I was just saying, where it’s not that scalable, but on the flip side, I’m going to be devil’s advocate for myself… Why go into other things if you’ve clearly had success with this?

Johnny Andrews: Of course, we’re going to continue to expand to doing exactly what we’re doing, where we’re doing it, but it would also be nice to have other income streams where we don’t really have to worry about too much. If we could put up a pile of money together with me and my buddy or families and maybe buy an apartment complex in a higher-end area, maybe even in another city somewhere in Florida, somewhere in Oklahoma or Kentucky and have a property management company run that bad boy, I’d like that a lot. Plus, I like staying busy, so that’s why I’m gonna keep doing what I have around. I live a mile from my office; it’s fantastic.

Joe Fairless: What’s a typical day look like for you?

Johnny Andrews: I lay in bed at night, wondering how I’m gonna pay all my bills. Then I wake up really early in the morning, and I make my rounds, I check out all the properties that might be vacant or where I sent somebody to go clean, or maybe I set my maintenance man to go patch some holes or hang some doors. I go check out all the stuff that was done the day before, and then I go in the office, check my Dropbox answer my emails, and then I just feel phone calls all day long. As soon as I get off with you, I got to go check out a tree fall on the house last night. So I got a bunch of properties that’s just got to babysit constantly.

Joe Fairless: How do you and your brother divide responsibilities?

Johnny Andrews: Well, my brother is in the oil business and he’s pretty busy. He runs a company. If we have to get financing or if he needs to wrangle emails or– he does office stuff every once in a while, but I’m the hands-on guy. He’s still running a company right now. We’re not to the point where he’s going to come on full time.

Joe Fairless: Okay. How much on average, factoring in expenses and vacancies and your gas to go knock on their door and all that, how much on average does a home of yours make per month?

Johnny Andrews: Cash flowing, between $250 and $275.

Joe Fairless: Okay, got it.

Johnny Andrews: I have a secretary, I have a full-time maintenance man, I’ve got some expenditures… And then these are all C class home, so it’s a lot of maintenance.

Joe Fairless: So that $200 to $275, does that factor in those other expenses, or you’ve also got to factor those in too?

Johnny Andrews: No, no, no, that’s what I put in the savings account.

Joe Fairless: Okay, about $250 a house?

Johnny Andrews: Yeah.

Joe Fairless: Okay.

Johnny Andrews: $250 to $275. Yeah, some really good ones out there do better than that, but across the board, that’s what I’m averaging.

Joe Fairless: Okay, got it. It’s a very profitable business, because 250 times 12 times 114, $342,000 a year. What would you say the homes are worth right now?

Johnny Andrews: On average $38,000 to $42,000.

Joe Fairless: Are you getting financing?

Johnny Andrews: Yes, sir.

Joe Fairless: What kind of financing do you get on it?

Johnny Andrews: Five year balloons, 20 year amortization. We don’t really have to put too much down anymore, because I have an investor that lets me borrow. I buy in cash, do some work to it, go to the bank and finance it, so I don’t have to put money down. And it’s all on a 20-year. We would love to have all this under one big portfolio loan. We’re in a process to try to figure out how to do that. We’re in the infancy stages in knowing what we’re doing. You’ve got to bear with me on that one.

Joe Fairless: Yeah, I get it. So the elephant in the room that probably is keeping you up more so than the bills and stuff, which they are obviously making money, so I know that was tongue-in-cheek a bit… But it would be the five year balloon, because that’s probably the biggest financial focus of yours, I would imagine, is getting these out of the five year balloon payments.

Johnny Andrews: Yes, sir. It’s still really not that bad, because if the banks ever come to it, they don’t want to take over 114 homes, especially where ours are. So we’ve got leverage, and we’ll make it work, I’m sure. We’ve already had to resign on the dotted line. So it’ll be not that stressful, I guess.

Joe Fairless: Okay, and what has been one of your favorite properties and why?

Johnny Andrews: How about favorite package? Because we’re buying packages now.

Joe Fairless: Sure. Yeah, package. Alright, cool. Let’s go with that.

Johnny Andrews: Okay, I guess in October of last year, we came across 38 houses from a couple of guys out of California that just got in over their head, and my brother and I were able to buy these. These are all ten year old houses. It had every appliance, central air and heat, planned houses, only ten years old. We bought all 38 of these for $1.1 million. Out of pocket, $250,000 for the down payment, which my brother and I had to squeeze together, by the grace of God, and some blood banks, we were able to do that.

Joe Fairless: [laughs] Sell your plasma. You get more money for that.

Johnny Andrews: Yeah, it’s good to know man [unintelligible [00:15:51].01].

Joe Fairless: My roommate in college would do that on a weekly basis or as frequently as he could.

Johnny Andrews: We would save money too back when I was in college; we’d go give blood, and then go to the bar. [unintelligible [00:16:00].10] so much to get drunk. Three beers and we were laying out in the grass to cool off. The good old days.

Joe Fairless: [laughs] That’s $29,000 a door. That’s pretty good. $1.1 million– Yeah, 38 homes, right?

Johnny Andrews: Yes, 38. It is absolutely amazing. Our cash on cash return is 70%. I got lucky. I was severely injured in November. We bought the houses in October, and I was working part-time as a nurse to pay the bills, and I guess I lucked out. I picked a good time to get hurt, because me being able to buy those packages, I now can afford to not be a nurse anymore, or work a second job. Not that I couldn’t before, but now I could comfortably do it, keep the lights on and my wife won’t leave me. So it’s been a blessing, this last package, and we’re super proud of it, and we got very lucky. The timing was impeccable.

Joe Fairless: So that one, you and your brother got the down payment out of your own pockets.

Johnny Andrews: The only time we ever did it.

Joe Fairless: The only time you did it. Okay, so now the business model for you, if I heard you correctly, is you borrow from one investor, then you do the work, and then you refinance it with the bank so that you have no money in.

Johnny Andrews: Yes, sir. That’s exactly what we’re doing.

Joe Fairless: Does the money for the rehab come from the initial investor who’s fronting the money to buy?

Johnny Andrews: No, sir. We have cash reserves just from our business, from cashflow, and we don’t take money out. We live very frivolous lives.

Joe Fairless: What are the terms for that one investor who you’re borrowing money to buy the homes?

Johnny Andrews: I don’t want to say it out loud because everybody listening is gonna be jealous, but it’s only 6%.

Joe Fairless: Okay. Any points?

Johnny Andrews: Nothing. 6%.

Joe Fairless: There you go. Yeah, so if the property takes you, say, six months to do a refinance, then it’s six months annualized. So really, you’re paying them 3%?

Johnny Andrews: That’s it. Yes, sir. The longest we’ve ever held any money for him was probably 60 days. We’re so lucky. I embarrassed myself for about six years trying to get him to do it, and finally, he did and I love him for it.

Joe Fairless: What do you mean by that?

Johnny Andrews: I wanted to do it this way. I wanted to be able to buy houses cash, because I know it gets better deals. I just didn’t have access to it. So I kept begging the investor to just lend me. He didn’t want to do it. He didn’t want to do it, he didn’t want to do it, and then finally, he sat me down at breakfast one day, me and my brother, and said, “Okay, I’ll give you $250,000. You can do whatever you want with it,” and then we got the $250,000 and we immediately paid him back within a few weeks and we just kept rolling since then. It’s how we built up to [unintelligible [00:18:33].03] we were able to do that way.

Joe Fairless: Wow.

Johnny Andrews: Yeah, we got really lucky. We’ve got some good people in our lives, that’s for sure; couldn’t have done it without them, or it would have taken a lot longer.

Joe Fairless: Well, based on your experience as a very hands-on real estate investor, which I love talking to hands-on investors, because just completely different perspectives from people who are not, what is your best real estate investing advice ever?

Johnny Andrews: Just stick with it, and the numbers don’t lie. You’ve got to be consistent, have a plan and stick to that plan. Know that sometimes you’re gonna have overages for your remodel and sometimes things will be a lot cheaper than you thought, but you need to stick to your plan and absorb and talk to anybody you can that does this, whether it’s somebody that’s been doing it for 30 years or whether they’ve been doing it for 20 minutes, everybody has something to offer, you just got to listen. Read that book Rich Dad, Poor Dad. It got me started on it. Not so much real estate, but it just gets you in the right mindset. Just stick to a plan and always listen to advice. Just try to get knowledge from investors or builders or whomever.

Joe Fairless: So you mentioned that numbers don’t lie. I do remember you mentioning the turnkey seller that you’re buying from, it ended up being 60% of collections, and I can guarantee that you did not think it would be only 60% of collections. So if a Best Ever listener is considering buying it from turnkey provider, what are some questions that knowing what you know now, you’d make sure you would ask him or her, the turnkey provider?

Johnny Andrews: All the questions I had were all answered concisely and precisely. I didn’t put my eyes on the property. I didn’t crawl under the house and climb in the attic. I just saw the numbers that coincided with a picture. I didn’t get my knees dirty and my fingernails dirty looking around at the product, and I should have, especially in the market that I’m in. I guess I can understand if you’re buying $200,000 homes in Orlando, where snowbirds are moving to, but where I am, in particular, you have to go look at the houses and make sure there weren’t termite damage, make sure that it’s not the 80 year old galvanized pipe. And then when they say they did a roof, they did a roof; just don’t take a man at their word. You’ve got to go check. That’s what I would recommend, in my situation.

Joe Fairless: Noted, and thank you for that. So I’m putting myself in someone’s shoes who is looking at turnkey properties, and they’re likely not the type of person who is going to want to and/or have time to go get under the house that they’re potentially looking at, and that’s why they’re using a current turnkey provider. So perhaps for them, they could pay someone locally to go look at it for them and just give an objective perspective on the area. So we just wouldn’t take the turnkey providers word on face value. Instead, we’d have an objective third party go physically look at it and just give a report on the area itself.

Johnny Andrews: I could never argue with that. Yeah, having a relationship with a broker or a realtor out there… Maybe you can take pictures and you could send them that– and you said objectively can look at something. That would be fantastic actually. I think you talked me into doing it.

Joe Fairless: [laughs] No, no. You keep getting [unintelligible [00:21:49].16]

Johnny Andrews: You’re pretty good, Joe.

Joe Fairless: No, it makes for more entertaining interviews. So you keep being the hands-on. I like it.

Johnny Andrews: I got your back man. Call me. I’ll have tales from the hood every three weeks for you.

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

Johnny Andrews: I am, man.

Joe Fairless: Alright, let’s do it.

Break: [00:22:12]:07] to [00:22:55]:03]

Joe Fairless: Alright. What’s the best ever resource that you use in your business? Something that you couldn’t live without because it really helps you get the job done.

Johnny Andrews: MLS, actually. The MLS that everybody and their brother uses. I find fantastic deals on the MLS.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?

Johnny Andrews: Buying sight unseen. I’m gonna stick with that one, even though we talked about it. That clearly bit me in the butt fairly significantly.

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

Johnny Andrews: I’m not as quick with my ambitions as I should be. No, I’m joking. My brother and I, we give to his church and his school for his son a lot of money. I wish it was less, but it’s a really good school and they take really good care of his two kids. I don’t have any kids, so I live vicariously through him. And then I’ve been a nurse forever. I love people. I’ve been taking care of people for a long time. I guess that’s how I give back. Just being me.

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

Johnny Andrews: They can email john [at] redstickbrothers.com or call me at 225-227-2512, and I’d love to talk shop. I would enjoy it immensely.

Joe Fairless: I enjoyed this conversation. Thank you for talking about your business model, how you are buying packages of homes, the financing from the equity. Well, actually, I guess it’s the double debt. One is you do a loan from a private investor, then you refinance it out and you put a longer-term loan on it once and you cash out the original investor. And the tips that you have for managing lower-income properties, as well as the focus for where you see the financing headed and how you’re looking to get ahead of that with a larger loan that encompasses all the property. So thanks for being on the show. Hope you have a best ever day and talk to you again soon.

Johnny Andrews: Yes, sir. Thank you, Joe.

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JF2078: REIT Investing With Minesh Bhindi

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Minesh started negotiating and selling real estate at 16 years old with his dad and since then he has helped his investors purchase £20m with this strategy. At a young age, he feels he was able to negotiate great deals because he had no fear of losing a deal. He discussed a useful strategy he used before the 2008 crash. Minesh shares his current strategy of focusing on REIT, real estate investment trust that helps him create cash flow.

Minesh Bhindi Real Estate Background:

  • Started negotiating and selling real estate at 16 years old, with his dad, they pioneered a unique no money down transaction in the UK
  • Helped investors purchase over £20m with this strategy
  • Based in London, UK
  • Say hi to him at http://perfectportfolio.com/ 

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Best Ever Tweet:

“It’s very important with any investment to get the fees down as low as possible.” – Minesh Bhindi


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, Minesh Bhindi. How you doing, Minesh?

Minesh Bhindi: I’m fantastic. Thanks for having me on the show, Joe.

Joe Fairless: My pleasure. Anytime I have a chance to have anyone on with a fancy accent, I always welcome the opportunity. A little bit about Minesh – he started negotiating and selling real estate at 16 years old with his dad. Since then, he has helped investors purchase over £20 million worth of real estate with this strategy. It’s a unique, no money down strategy transaction in the UK. So we’re going to talk about that. So with that being said, Minesh, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Minesh Bhindi: Sure. One thing I’ve just got to correct – the £20 million of property was actually between the first few years of being involved in real estate. So between when I was 16 and 18 and a half, 19, something like that. Since then, we’ve really brought out the idea of no money down investing into the UK back then. Since then, I’ve made a transition to investing with REITs and really leveraging time and lifestyle with real estate as well by using REITs, using options to control a sizable amount of real estate and also get a very, very good return. So that’s been my transition over this period.

Joe Fairless: Okay. So let’s talk about how you started, and the unique no money down transaction that you did early on, and then we’ll talk about what you’re doing now.

Minesh Bhindi: Sure. So when we started, what you could do back before the 2008 market crash was you could buy a property and you could, in essence, do an instant remortgage on that property. What that allowed you to do, in essence, is negotiate a really great deal, and then on the day of completion, you’d buy the property with cash, and then instantly remortgage it at the true market value; that, in essence, gave you a cashback back, and that was really how I got involved when I was 16.

I was watching my dad negotiate deals. One day, I was just watching him and he got off the phone and he said, “What are you smiling at?” and I said, “That looks easy to me. I don’t know why you think it’s so hard.” So luckily, instead of telling me to screw off, he said, “Well, show me,” and then I had to prove it that I could do it. And very quickly, I started getting really good deals because I didn’t have a fear of being attached to any deal. I didn’t know this back then, but evaluating in hindsight, I just didn’t have fear, because I knew that if this deal didn’t happen, I still had to go to school, I still had to do my homework.

So very quickly, I was starting to getting better deals with a lot of people that were in the consortium that my dad was negotiating deals for. Then at 18, I was negotiating a block in London’s Canary Wharf neighborhood, which is the financial district of London pretty much, and there was just a deal that was just really, really good and I decided to get involved myself. So that’s when I bought my first properties. And it was three properties in that development, out of the 18 that we were negotiating.

I got a £68,000 cashback on the day of completion and a quarter of a million pounds in equity. So that’s really what we were doing, and to get into that deal, it cost me £500 per property. So it was a £1,500 total just to put a reservation down on those. So that’s sort of what we were doing back then, and it was pretty easy to do, and obviously, it partly led to the financial crash that happened in 2008, that everyone knows about. It was a part of the pot when it came to the cold storm that caused that.

Joe Fairless: Okay. So since that strategy is gone, no longer doing that…?

Minesh Bhindi: Yeah, it would be very tough for anybody to do that right now.

Joe Fairless: So what are you doing now?

Minesh Bhindi: So [00:06:45].12] little light bulb had gone out in one of the apartments, and so I said, “Well, the spare light bulb’s in the cupboard. Just change the light bulb,” and he refused to do it. He said, “On the contract, it says that I need to call you.” I didn’t have a management agent at this time, because the way that we were buying property, we were buying them for capital growth, as well as cash flow. So you’ve got a very sensitive balance when it comes for that part of the strategy. I understand if you’re buying, for example, single-family homes, you’re really aiming it to be in certain parts of the state as a cash flow strategy. So it might yield you 20%, but really, from a capital appreciation perspective, it’s not going to do much. Whereas we were trying to do both in London.

So I had to drive 11:00 p.m. on a Saturday night to go change a light bulb for a guy, while being a multimillionaire, while having a property portfolio, etc, etc. So at that point, I was very, very frustrated and angry on the way there, and on the way back, I decided that this wasn’t for me anymore, and I needed to find a better way of doing it. A lot of people that I was around were involved in real estate, but weren’t doing the things that I had to do back then, like go and change light bulbs at 11:00 p.m. at night. So I made a decision. I was like, “Okay, I’m going to go to zero net cashflow. I’m going to hand all these properties over to a management agent and go figure out a better way of doing it.”

So I started speaking to people, started understanding what they were doing, started understanding what I was missing with real estate, and then I discovered REITs, and then I discovered how to use REITs. We were already doing options when I  was trading the stock market, so I just came into it as a combination of things, and implemented the strategy that we have, that we use on gold and silver and in the stock market over to real estate… Which is amazing to me, because most people don’t even know that’s possible.

Joe Fairless: Please educate us on how you use REITs to get that cash flow and also get the upside on your investments.

Minesh Bhindi: So a REIT is a real estate investment trust, and in essence, how it works – it’s a company with managers who are solely purposed on making you money. They have got to return you an ROI so that they continue to receive your money and other people’s money. So what they’ll do is they’ll focus and they’ll say, “Okay, I’m going to buy residential property in New York, and I’m going to set up a REIT.” So now, if you want to get involved in a residential property in New York, you put money into the REIT, they’ll go and buy the property, manage the property, deal with all the headaches of the property, and then give you a dividend at the end of it, which is your cash flow return. So that’s, in essence, a REIT.

Now what I like to do is I like to invest in REIT ETFs. ETFs are exchange-traded funds. In essence, these are funds that have a diversified portfolio of a particular asset class. So while a REIT is a particular asset class, is real estate, an ETF is going to go, “Alright, there are residential REITs, there are healthcare REITs, there are commercial REITs, there’s all these different types of REITs; we need to invest in everything.” So for me, one stock purchase diversifies me into eight different real estate sectors, across 154 different real estate holdings. With one purchase of a stock, it cost me 0.12% of a yearly fee. I’m in a fund which has $64.2 billion in it. So you can imagine the negotiating power when it comes to going and finding a deal.

This is the other advantage of REITs that most people don’t realize. If you’re an individual and you go in and try to negotiate a deal that you’re trying to, hopefully, hold on to, because it depends on your next year’s income, versus REITs or an ETF that goes in with $64 billion behind them, which one’s going to get a better deal? It’s very simple.

The most important thing about REITs and REIT ETFs is that these are managed by full-time nerds, accountants, lawyers, and statisticians that are looking at the market all across the USA and trying to identify what the best investment is. And the reason for that and why they will never slack, unlike you and I– I remember, I’ve gotten into deals, and then I’ve had to admit that this was a bad deal. Well, if I was them, I’d have $100 million pulled from my fund. So they don’t have the slack that we do as retail investors. So as a result, since inception, they’ve had an 8.48% compounded growth rate, with a 4.52% dividend.

Now, that cash flow on the dividend side isn’t as much as what you would expect if you were buying single-family homes, for example, somewhere around a 20% cashflow. However, you’ve got none of the work, you’re doing zero effort into actually doing this, and you’ve got a completely diversified portfolio across the entire USA. So from a stability perspective and from a freedom perspective, it works. The best thing about it is, I’m currently traveling in Bogota, Colombia, and my entire real estate portfolio travels with me on my iPhone. I don’t have to worry about it. I don’t have to do anything with it. It’s continuing to generate me money, and all I’ve got to do is know when to get in and when to get out and what to really invest in.

On top of that, we have our options strategy which allows us to generate an extra 12% a year of cash flow. So you’ve got the compounded growth rate since inception of 8.48%, you’ve got the 4.52% a year dividend that’s coming in and you’ve got a 12% a year cash flow by utilizing options, and the entire yearly fee for holding this fund and for having all these nerds do all the work for you is 0.12%. That’s what I do now.

Joe Fairless: What are the tax benefits, if any?

Minesh Bhindi: Well, you’re still going to pay up the gains tax. If you sell, you still got that, depending on what country you’re in… And I don’t really like talking about tax. That’s something that you’ve got to talk with a CPA about. But really, it’s very, very similar to having your own real estate portfolio.

Joe Fairless: Got it. So REITs do pass the appreciation through to their investors?

Minesh Bhindi: I would highly recommend you guys speak to your CPA to confirm that.

Joe Fairless: I know, I understand that. But generally speaking, it’s not really a tax strategy question, it’s just black and white question. Generally, do you know if REITs pass depreciation through to investors?

Minesh Bhindi: I’ll have to confirm that, and simply because I’m based in London, so I’d have to speak to the CPA.

Joe Fairless: Yeah, a little bit different. Well okay, so what tax forms– and it probably is completely different from US so, but I’ll just ask… What tax form do you receive at the end of the year to show your gains or losses?

Minesh Bhindi: I’ll have to confirm that as well.

Joe Fairless: Oh, okay. Alright, because then–

Minesh Bhindi: Simply because these are publicly listed rates. So, in essence, you’re investing through a broker account. So it’s not a private equity situation.

Joe Fairless: Right, got it. Because one component of it is taxes, and with private investments like syndications, investors in the US, they’ll likely get a K-1, and that K-1 will probably show a loss, although no guarantees, because the depreciation is passed through, assuming that the operator passes the depreciation through… And then it gets recaptured whenever it’s sold. So it’s not all sunshine and rainbows, because then you eventually have to pay it, but it’s just years down the road, whenever you actually sell the deal. But then there could be a 1031 option, so that the passive investors could continue to defer that. So I was just wondering if there’s anything like that with REITs, but that’s fine. We can—

Minesh Bhindi: Yeah,  I think it’d be different, simply because– and I’m not familiar with syndication structures, so forgive me on that, but I think it would be different simply because the return is reflected in the price of the stock, as it’s a publicly-traded stock. So I think it would be slightly different in that sense. I’m not sure with a syndication whether you get full title ownership of the property through a syndication or not, but with a stock, you’re not getting that; you’re getting the ownership in the stock.

Joe Fairless: Got it. So what are some ways that you’ve optimized your approach investing in REITs that you weren’t doing at the beginning?

Minesh Bhindi: Wow, okay. So before, what I was trying to do was – I was trying to purchase multiple different REITs, trying to guess the market. It’s like trying to pick a stock, and you’re going in there going, “Okay, I want New York real estate. I want Detroit real estate. I want healthcare here. I want commercial real estate here”, and unfortunately, that is just like picking a stock. Obviously, different REITs have different risk structures and things like that, and then you’ve got to get involved like you’re picking a stock, which I don’t want to do, simply because for me the goal is lifestyle. For me, the goal is to be able to travel, look for opportunities in different places, like I am right here in Colombia, and still manage my portfolio, and still enjoy life, and I don’t want to be reading returns papers, etc, etc.

So what I eventually did was transitioned from finding individual REITs to investing in a REIT ETF, and anyone can go and purchase a share of that – the symbol is VNQ – and that really was the set-off point for me in terms of really coming up and solidifying not only my investing with REITs, but also the Property Profits For Life strategy that we teach, too.

Joe Fairless: So for someone who’s never invested in a REIT, what are some questions they should ask about the REIT prior to investing to pick the right one?

Minesh Bhindi: Number one, it’s got to be diversified into at least five different real estate sectors for me. Number two, it’s got to have–

Joe Fairless: And is a sector meaning an asset class, or a market, or what?

Minesh Bhindi: Yeah, like a market. So for example, there’s healthcare REITs, there’s hotel REITs, there’s industrial REITs, etc, etc. So at least five of them. It’s got to have at least 5 to 50 different real estate holdings. So you might be in a healthcare REIT, but you’ve got to make sure that there’s more than one building that they manage, so that it’s diversified. And then really, you’ve got to look at the provider. And that’s why, to make it really simple for people, out of all the research that I’ve done and what I do with my money, VNQ is the best one. It’s the biggest one. It’s the best one. It’s the one that’s used by most billionaires, hedge funds and private family offices. So you can go do your own research, but really, we’ve done it all for you.

Joe Fairless: All roads lead back to that one, based on your research?

Minesh Bhindi: Yeah, exactly.

Joe Fairless: Alright, cool.

Minesh Bhindi: One other thing… One other thing I’m gonna mention is the yearly fee, because really, the yearly fee is very important. People don’t realize it. If you’re paying a 2% yearly fee, versus a 0.12% yearly fee, just get a compound calculator out and work out what that’s going to cost you over a period of 20 years. It’s very important with any investing to get the fees down as low as possible, and that’s really my message… And that’s why VNQ is one of the best – because it’s got so much economies of scale. The fees are almost nothing,

Joe Fairless: And that is the Vanguard Real Estate Index Fund.

Minesh Bhindi: Yes.

Joe Fairless: What else should someone know about investing in REITs who’s never invested in REITs, that we haven’t talked about already?

Minesh Bhindi: One of the main things is that the REITs are a lagging indicator to the stock market, in my experience. So what might happen is you might say, “Okay, the stock market’s going down and REITs are going to go down,” but what you’ve got to realize is that property moves at a much slower pace than the stock market. You can’t just sell in and out of property like you can a stock. So it’s important to be much more patient with a REIT than a stock.

Anyone who’s had experience with the stock market at all, you’ve got to be able to react on the fly. But with the REIT, it’s important to understand how the REIT’s going to perform, it’s important to understand when you get into a trade, it’s important to understand what type of parameters you set for that trade, and then have patience. If you start reacting to a REIT the way you react to a stock, you’re gonna cost yourself money.

Joe Fairless: One benefit of REITs is the liquidity, right? You can bounce in and out with a couple pushes on your phone?

Minesh Bhindi: Yes, but the problem with that is that you shouldn’t really be trading in and out that often. With everything that we do at Perfect Portfolio, we want to invest long term. So we want to be long term investors in real estate, long term in the stock market and long term in gold and silver, and that’s how we approach it. The real thing that we do is hold these assets long term, they’re going up over the long term. It’s a great time right now to be involved in real estate, especially until 2035-ish; it’s going to be fantastic.

Then for the short term cash flow, we use options to do that, and we use a simple option strategy to get that working. What we really specialize in is helping people actually execute. We’ve now coached people in 46 different countries, and our job isn’t really to give you a massively creative strategy. I firmly believe, after almost 20 years of doing this, it’s not about the strategy, it’s about doing it that matters. So that’s what we do. We coach enough people around the world to understand how to make someone successful with this, if they’re serious and committed as well.

Joe Fairless: You mentioned 2035, 15 years from now. Why’d you mentioned that number, not five years from now or 12 or 20 or 3?

Minesh Bhindi: To put a range on it, because that’s what you’ve got to do to hedge yourself nowadays. I would say somewhere between 2030 and 2035-ish. And that’s simply because we’re entering the prime spending years of the millennial class right now. They’re just about turning 30, they’re about to receive tons of inheritance funds, and that’s going to go into real estate. That doesn’t mean there won’t be a correction, but any pullback in real estate will be a buying opportunity until 2035.

Joe Fairless: You mentioned earlier, you’re a multi-millionaire. I heard that correct, yes?

Minesh Bhindi: Yes.

Joe Fairless: How did you make most of your money?

Minesh Bhindi: Through actually doing deals. Obviously, I have a business that teaches people how to invest as well, that did pretty well at the beginning, and then what I realized – the mistake that I made with that was that before, when I started, when I was buying physical real estate, I was spending a lot of time actually on the education side of the business, and not enough on my own investing. It just happens like that when you’re traveling for two weeks out of every month. So this time around, after 2010, when I started what was first known as Gold and Silver For Life, before we merged everything into Perfect Portfolio, was that I didn’t want to do that. I didn’t want to sacrifice my own investing for any business, not just an education business, but any business. So now, we will only work with 155 people per year, and if we get those 155 people by March this year, for example, we won’t take any more until next year; it’s as simple as that. So my main focus now is my own investing and my own portfolio, but I also have, obviously, an education business, and it’s not a charity.

Joe Fairless: What deal did you make the most money on?

Minesh Bhindi: Oh, wow, I can’t say that there’s one deal. I don’t think I’ve ever had a really big– well, obviously I’ve had purchases which had a sizable amount of money, but then it was trumped by following my own strategy and the accumulation over a period of a year; it trumped any one particular deal that came in. And that’s what I like to tell people – it’s not about one deal, it’s about how are you going to do this for the next 20 years.

Joe Fairless: Okay, just pick one though. Just any deal that you made a decent amount of money. I mean, it doesn’t have to be the most. We don’t have to know exactly first place, but what’s the deal that you made a lot of money on?

Minesh Bhindi: First deal I ever did was a £68,000 cashback on day one, with a quarter of a million pounds in equity; that was a pretty good deal. There was another deal that we did 200k on on the day of completion. It’s just these sorts of things, but however, I do want to stress that the setup of my businesses and my investing made it so that these were momentary periods of celebration, because the consistent growth of the business and the investment portfolio outperformed any short-term momentary hikes that we had, basically.

Joe Fairless: On the flip side, a deal you lost the most money on?

Minesh Bhindi: The deal I lost the most money on wasn’t actually a real estate deal. I lost $100,000 in three day. That was in the stock market, before I really figured out how to invest in the stock market properly. I was over-leveraged on a position and it did not go right. So I was down $100,000 in three days. That’s the most painful one that I remember.

Joe Fairless: That would be painful, and I imagine that is etched in your memory. Well, we’re gonna do a lightning round, but first, what’s your best real estate investing advice ever for real estate investors?

Minesh Bhindi: Understand what the goal is. There’s a lot of people that are very attracted right now to the ego side of “I want to own 10,000 doors”, for example, or etc, etc, “I want to own 50 buildings.” Figure out what the goal is first, because I think there are a few people in the world, but I don’t believe that everyone that’s involved in real estate is truly in love with the actual property. I think most people want the security, want the freedom and want the future that successful real estate investing can give you.

I don’t think they’re attached to the actual property. So understanding the goal and what you’re doing it for is very important, because then you can find the right strategy, then you can decide, “Okay, do I want to get involved with REITs? Do I want to get involved with a syndication plan? Do I want to go and buy this myself? Do I want to do the work for that?” You can go and decide what you want to do. So understanding the goal of what you’re truly in it for, and not just because someone’s saying you need to earn 3,000 doors, I think that is the number one most important thing that you can do.

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

Minesh Bhindi: Sure, let’s do it.

Joe Fairless: Alright, let’s do it.

Break: [00:24:39]:03] to [00:25:22]:06]

Joe Fairless: What’s a best ever research tool you like to use when identifying investment opportunities?

Minesh Bhindi: ETF.com and TradingView.

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

Minesh Bhindi: I’m involved in a bunch of different charitable things, but I don’t want to talk about those.

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

Minesh Bhindi: They can go to perfectportfolio.com. I’m sure you’ll have a link in the show notes anyway, so they can click on that and come take a look at our trainings. Again, what we specialize in is actually helping people generate results over and over again. So once you’re a client, you get access to a weekly coaching call for life, without any other cost for that. We’re really looking for friendships and client relationships, rather than just trying to get as many people in as possible. So yeah, come and have a look, see what we have, see if it’s right for you, and then we can go from there.

Joe Fairless: Minesh, thank you for being on the show talking to us about REITs, why you champion REITs, and your journey that’s gotten to this point, and some things to look for when you’re selecting a REIT, as well as the REIT that you like, VNQ. So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Minesh Bhindi: It’s been a pleasure. Thank you so much.

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.

JF2077: Coronavirus and Asset Protection With Brian Bradley

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Brian Bradley is a returning guest from episode JF1811. He has been in law for over a decade and in this episode, he wants to help you understand the best ways to protect your assets and also give some advice specific to today’s coronavirus pandemic.

Brian T. Bradley Real Estate Background:

  • Asset Protection Attorney for Investors, Self-Made Entrepreneurs, Business Owners, High-Risk Professionals, and Affluent Families
  • Sets up systems and strategic teams for our client’s asset protection and wealth management
  • Based in Portland, OR
  • Say hi to him at https://btblegal.com/
  • Best Ever Book:

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Plan before you need it, don’t wait till after an attack happens.” -Brian Bradley


TRANSCRIPTION

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

Brian Bradley: I’m doing great, Theo. Thanks for having me back on and I look forward to jumping into a little bit of a different talk about asset protection today.

Theo Hicks: Absolutely. So as he just mentioned, he is a repeat guest. So if you wanna check out his first interview and hear his best ever advice and the best way to protect your assets, check out Episode 1811. So this is going to be a Skillset Sunday. So we’re gonna talk about a specific skill that will help you in your real estate investing journey. So we’re going to talk about all things asset protection, and more specifically, we are going to talk about how the advice that Brian can give today relates to the Coronavirus. So before we dive into that, Brian, do you mind giving the Best Ever listeners a reminder about your background and what you’re focused on today?

Brian Bradley: Yeah. So a little background about me – got into law and practice of law around 2008 back when the economy tanked, and I just had to sort of jump into court and figure it out how to sink and swim on my own. So I spent the first three years just purely in court, representing clients for free, which was a great experience. So I got more trial experience and litigation experience in those first three years than most people have in 25 years of experience, just because if you’re representing people to organizations for free, who’s not going to use you?

So then that just trickled down into – well, I like money, I like financing, I like investing on my own, and I got tired of seeing problems walk in the door when it was too late. So I started incorporating asset protection into my practice because I wanted to help people keep what they have and have a stress-free life, knowing when something bad were to happen or negligent happened, that they can sleep soundly, a little bit better, knowing they have the system and teams in place beforehand. So I started building a secondary portion of my practice around asset protection, but higher levels of asset protection for investors and doctors and real estate investors, higher net worth clients, generally around that million-dollar net worth mark or more, or for people who are trying to be full-time investors and how to scale them up to that protection level down the line. I just wanted to get ahead of the problems for people so that they know that there’s solutions for them.

Theo Hicks: Perfect. Thanks for sharing that. So one of the questions I have for you is about lawsuits that you see coming down the line for business owners and investors due to the Coronavirus. So maybe we could talk a little bit about that, but more specifically, in addition to that, maybe you can mention some of the things that people haven’t done that they should have done leading up to this moment that is the result in them being affected by these types of lawsuits.

Brian Bradley: Absolutely. It might be a little long-winded answer to cover some of that, but I’ll try to jumble through it without boring anybody. But it’s a great question and it’s obviously a really big topic, and it’s a really polarizing issue, but people are gonna have to go to work and have to invest at some point, and whenever these regulations start getting lessened, you’re just gonna have to do it the right way. So the key in any crisis is first, you’re gonna have to weather the storm; and what’s obvious is that if income goes down without expenses going down in the same amount, then you’re gonna start depleting your assets. You’ve gotta have some control over your expenses. What’s also critical though, is your assets, and especially your hard assets like real estate, because they give you the ability to subsidize and reduce income to ride out of that crisis. So the last thing that you need is to have a creditor attach a lien or tell you how you’re going to use that asset, when you potentially need to use it to ride out a bad crisis.

So the sad thing is that we now also have to add the liability and cause of COVID-19 to the list of things that investors and business owners need to start planning for. So you want your assets and equity safe. You want to protect your future and your legacy. You didn’t spend all your time building this for it to just go away, but a lot of us just don’t know how to do it. It’s a common pattern that pandemics and recessions or fear of recessions bring on substantial increases in lawsuits. Just look at how many lawsuits were filed in 2008 to 2010 during that recession.

So what we’re looking at through legal bar associations and the litigation arena is a really big concern of a substantial rise in what’s called casualty claims and employee claims, and there’s going to be supply chain disruptions and that’s going to cause projects to not be completed, or just money not be available to pay… So you’re gonna have those lawsuits coming there through breach of contracts, and inability to perform… A lot of other breach of contract claims and administrative claims and internal liability claims of businesses.

For example, we have general liability claims that alleged negligence for failing to protect a customer, or invitee or a tenant, especially if a death is involved, and that can be extended to a family member, not just that individual employee or guests. So what we’re talking about is also a potential rise of casualty insurance claims for negligent acts, and we’re also preparing for a possibility that the insurance industries may experience what’s called negative coverage. So as some carriers are already excluding COVID-19 from general liability coverage because it’s been classified as an epidemic and global emergency, so that gives them that wiggle room out. So that’s going to put you on the personal liability hook because of the World Health Organization classifying COVID-19 as a global health emergency. That’s also going to affect your employer’s liability coverage, and you’re most likely not going to be able to use that as coverage in an event of an illegal incident happening.

So all this makes asset protection and preventative planning even more important, because you don’t want to wait around for something bad to happen. You can’t be ahead of the game; you want to protect yourself before something bad happens and mitigate the risk. So what asset protection does, in this case, is it creates the legal barriers that you’ll need. It levels the playing field if you ever were attacked, and what you need to do as investors or syndicators, landlords or general partners or high-risk professionals like doctors or if you have a high net worth, is talk to an asset protection attorney and start practicing conservative methods of protection and be preventative. Plan before you need it; don’t wait for after an attack happens.

So a breakdown of a few steps that you can take are to recognize if your income is reduced and your expenses aren’t. That’s going to shorten the amount of time that you can meet your obligations, like paying bills and paying payroll and things like that. So next, you need to take steps to protect your hard assets, because those are critical to giving you the ability to weather any storm. You can’t afford, like I said, to let a creditor decide how to use those assets. You need to be the one deciding what you need to do with them.

The final step is to create a plan. So first, you need to reduce your expenses quickly and efficiently, but don’t handicap your business to the point that you’re not even going to be able to give yourself a chance to evolve and thrive. You don’t want to deplete yourself of revenue coming in to actually have a business that can function. So these first few steps you can do on yourself.

The second step is legally securing your assets and protecting them from having a claim attached to them, and that’s asset protection – that involves legal professionals. So some good questions to think about and ask yourself are – do you have employees that are located or traveling to areas where there’s been documented and diagnosed cases of COVID-19? Most likely everyone’s going to say yes to that. Does your business increase the probability of employees exposed to infected individuals? Most likely, yes. Do your employees work in close proximity with vendors or other partners who have given employees a greater potential to contract COVID-19? Potentially, yes. Most likely, yes.

So if your answers to any of those or all of those are yes, then you need to come up with a potential contingency plan on how you are going to manage your business to mitigate these risks. You’re going to have to think about these and talk to some experts and start making a plan to go forward to stay in compliance with the federal guidelines in your state and local guidelines, so that you can decrease these negligent claims. At the end of the day, you want to be able to keep doing business, but you need to keep doing business smartly.

Theo Hicks: Well, thank you for all that. That was all great information and I appreciate how you broke down it. Because I was gonna ask you, “Well, what’s the next step?” So you told us that. “What’s a question to think about?” Well, you told us that too. So I guess my follow up question would be – so you mentioned those three steps, which is, number one, to determine if your income is reducing more than your expenses are, step two is to protect your hard assets so that you’re able to decide what you can do with them, and step three was to create a plan to reduce the expenses, but making sure you’re not handicapping your business. So steps one and three, you said that people can do on their own. Step two, you need to find someone. So how do you find this someone, and then also, can you just find anyone who does asset protection, or is there a certain question that you should be asking these types of people to make sure I’m finding the person who is the right fit for me?

Brian Bradley: That’s a great question. So you’re not going to go to a general estate plan attorney, like someone who just is drafting revocable living trusts and wills, and medical directors, because that’s not asset protection; that’s just traditional estate planning. So you’re going to want to find an attorney who specializes and specifically does asset protection, which is using asset protection trusts, LLCs, business organization type of structures, but specifically to protect your assets.

You just want to find out what percentage of their business is purely asset protection, or are they just dabbling in and then dipping their toes in it? I really wouldn’t want to recommend someone go to a person who does 20% of their practice as asset protection, because they’re not going to be really familiar with the language and the liability and how to mitigate all the risks properly. You want to go to someone whose main focus of their practice purely is asset protection, and then what type of clients do they have. Do they have clients similar to your level of assets that need to be protected, your specific circumstances? If you’re a doctor, how many doctors do they have? If you’re a real estate investor, how many real estate investment clients do they have? What kind of different systems do they use for each? Or are they just trying to sell you one size fits all systems? Nobody’s one size fits all, everybody has a personal issue. So everything has to be created personally.

So I would just say, ask those type of questions and make sure you go to a specialist, just like you would a doctor. You’re not going to go to a general doctor for brain surgery, you’re going to go to a brain surgeon.

Then one of the things we were talking about back before we started recording was the potential recessions and what to do, and it ties into COVID-19 because people have no idea. Are we going to go into a recession or not? I can’t tell you, I don’t know. Half my wealthy clients think that there’s not going to be a recession. Some of them do. Some of them are over panicky and conservative. I see a mix, so I can’t really tell you personally what I think, because I see a different spectrum of opinions… But I’d say it’s just human nature to panic when things are uncertain. But the first thing is just stay calm, don’t make rash decisions based off of news clips.

We’re in a geopolitical instability, but there’s nothing new. We also have things going on with oil in Saudi Arabia, trying to push a lot of cheap oil to hurt Russia out there and take them out of the market. Combine this with COVID-19 and Corona, and we have a really crazy, poisonous geopolitical cocktail going on. So even when you think the world and economy is on fire, like it was just a little bit of time ago, what did we just learn? We can throw a monkey wrench in it for things that we have no idea who saw COVID-19 coming. Then all of a sudden, the economy’s on hold; no one’s working.

So the issue is just be proactive, protect your assets beforehand, even when times are good. And when times are potentially bad, and we see recessions, to recession-proof our assets, one, talk to your financial advisor. Diversify – that’s a great thing, but diversification doesn’t protect your assets. You’ve got to put them into mechanisms like asset protection trust that we talked about in the past, or business organizations, or combining the two of them together to actually give you the protection that you need. It’s not a matter of if a claim is against you, it’s a matter of how collectible you are. So that’s something that you can control, is your collectability. No matter if there’s a recession or good times or bad times, that’s something that’s in your control.

Theo Hicks: Perfect. Then going back to those steps that you can take. So create a plan, reduce expenses, but don’t handicap your business. I’m assuming you work with real estate investors, correct?

Brian Bradley: Oh, yeah. Most of my clients are in real estate.

Theo Hicks: Okay. What types of expenses do you see them focusing on reducing the most?

Brian Bradley: Right now, their biggest concerns are potential financing issues or supply chain issues. Most of them are all business as usual, especially the syndicators and large developers, and my clients that have apartments. Honestly, I haven’t had a single client that hasn’t been able to collect a rent check yet, and we’re not really seeing anyone slow down. Every one of my clients– and we have, I think, overall in the whole system, over 3000 clients, and I haven’t had anybody yet say that they’re having an issue building or collecting rents. So what they’re looking at is just potential supply chain issues with current developments, and what they can potentially do to alleviate that concern right there. Some people are talking about force majeure arguments, and that’s not really going to work. That’s like acts of God, and trying to use COVID-19 as a pandemic as an act of God. That’s going to be a state by state argument, but even those are going to potentially fall through. That’s a whole other episode of a conversation right there – a dive into force majeure as a legal argument.

So I would say other steps that they would do is just practice social distancing, making sure that tools are clean, worksites are safe… Whenever you’re sending out an employee to go, just make sure that you’re sending them out with the equipment that they need, to make sure that they potentially mitigate the contact that they have with COVID-19, and then start working on your supply chain, making sure you stay ahead of it… Because one of the things with  litigation is always, “Well, what did you do to mitigate your risk?” So you’ve got to be planning on this down the line. So that would be maybe talk to your contract attorney on that and come up with some alternatives to your supply chain in case it gets disrupted.

Theo Hicks: Perfect. Is there anything else as it relates to asset protection and the Coronavirus that we haven’t talked about already that you want to mention?

Brian Bradley: Not really about the Coronavirus, specifically, but there is one principle I think real estate and any investor needs to understand. It’s just about legal authority over practical authority, because this is what it comes down to when you ever do get sued… And just the reality is that a judge can do and does do whatever a judge wants, whether you have an LLC or LP. Yeah, they’re governed by state statutes, but those state statutes don’t transfer to other states. So you hope that everything works out in theory.

For example, I have a Nevada LLC and I’m being sued in California – you would hope that those internal shields would hold up, but theory and practicality don’t really ever work out. Practical authority is the power a judge actually has to make decisions, and judges have very, very broad powers and they have a superpower called the court of equity, and they can reach into your assets and seize them, place some liens on them, foreclose them, ordering sheriff’s sales, clearing title… There’s a lot of things a judge can do, and the problem is judges even without legal authority do these things all the time, and even if it’s in direct contradiction to statutes and case law, especially when they’re exercising their magic power, the court of equity.

So the solution to this really is to just try to level the playing field and then hindering the judge’s practical authority over your assets, so that they can’t circumvent the legal process. And you do that with just preventative and strong asset protection planning and having asset protection trusts in place and different layers of protection. So that would be my last caveat of why we really care – the legal system’s messed up. It’s not what it was 30 or 40 years ago. Things we did 30 or 40 years ago don’t apply today, because we’ve had this massive litigation shift by attorneys being able to take on clients commission-based for a percentage, which wasn’t allowed in the past, and attorney advertising, which wasn’t allowed in the past… So it turns the legal field into a business and an industry with a billion-dollar (B) market point. So we just need to realize the system’s not what it used to be anymore, and you need to protect yourself against the dysfunctional system now.

Theo Hicks: Thanks for adding that. So if the Best Ever listeners want to learn more about what we talked about today, learn more about the services you have to offer, what should they do?

Brian Bradley: They can jump on my website, www.btblegal.com, and I have lots of educational videos on there, and pamphlets and brochures to browse through. They can just email questions to me brian [at] btblegal.com. I do free consultations, just because I’d rather have people get educated on what their liability is, and different options; even if you don’t use from me. Most people are afraid to talk to lawyers because they don’t want to pay a consultation fee when they want to shop around, and I just find most people just become google lawyers and are getting bad advice, because they’re not getting advice. So just start reaching out to lawyers and don’t be afraid to contact them, and most lawyers will do free consultations, and that’s what I do, just to educate people.

Theo Hicks: Best Ever listeners, make sure you take advantage of that. Brian, I really appreciate coming on the show today and talking to us about asset protection and Coronavirus. From my perspective, one of the biggest takeaways is that obviously, right now you want to try to do what you can to weather the storm, but at the end of the day, the people who are going to do fine or better during this time are the ones who, as you mentioned, were proactive and protect their assets when things were all fine and dandy, when everything was going smoothly, as opposed to trying to do it now.

So you talked about a few steps we can take – creating a plan to reduce expenses, because obviously if income goes down and your expenses don’t go down, that’s where people get into trouble… But really, as I said, at the end of the day, it sounds like the assets need to be protected. So I guess, do that now, while you still have the chance, because as Brian mentioned, he expects there to be an increase in lawsuits coming down the line, which is typical for recessions and pandemics like this. So Brian, again, I really appreciate you taking the time to talk to us today about this asset protection advice during the Coronavirus.

Best Ever listeners, as always, thank you for listening. 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.

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.

JF2076: Selling Million Dollar Real Estate With Cynthia Cummins

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TRANSCynthia is the owner of Kindred SF Homes and she has 33 years of real estate experience. The houses she deals with have an average price point of $1.5 million which can create high emotions and interfere with your decision making. She shares what has helped her sell multiple million-dollar homes through a process of creating, nurturing, and continually finding new ways to build strong relationships which in return create valuable referrals.

Cynthia Cummins Real Estate Background:

  • Owner, Kindred SF Homes. 
  • From San Francisco, California.
  • With 33 years of experience in Real Estate. 
  • In the last 3 years, she’s sold $80M in San Francisco Real Estate
  • She has a popular blog called Real Estate Therapy where she writes about her passion, Secrets about how transaction and transformation meet in real estate.
  • Say hi to her at www.realestatetherapy.org  
  • Best Ever Book: Lincoln and the Bardoe

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Having a bigger vision for people and a longer-term view is what makes all the difference” – Cynthia Cummins


TRANSCRIPTION

Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m your host, Theo Hicks, and today we’ll be talking with Cynthia  Cummins. Cynthia, how are you doing today?

Cynthia  Cummins: I’m doing really well, Theo. Thanks for having me on today.

Theo Hicks: Oh, absolutely. Thank you for joining us, I’m looking forward to our conversation. Before that, let’s give a little bit of background on Cynthia. She’s the owner of Kindred SF Homes and is based in San Francisco, California. She has 33 years of real estate experience, and in the last three years she sold 80 million dollars in San Francisco real estate. She also has a popular blog called Real Estate Therapy, where she writes about her passions and secrets about how transaction and transformation meets in real estate. You can check out her blog at RealEstateTherapy.org.

Cynthia, before we begin, can you tell us a little bit more about your background and what you’re focused on now?

Cynthia  Cummins: I have been selling residential real estate in San Francisco for more than 30 years, which is kind of shocking to me as I say that out loud. I went into the business thinking “Oh, I’ll give this a try”, and now here I am, three decades later, still doing it.

I woke up this morning, I have a significant listing that just debuted this week. It’s a 4,5 million dollar Victorian, here in one of the nicest neighborhoods in San Francisco, and it is what I’m waking up with every morning – thinking about it, worrying about it, strategizing about it. So this was on my list for today.

And what I’m trying to do is follow my own advice about thinking about that listing and the work I have to do around it in a more holistic way, so that I can give myself a break from all the worrying and the craziness that can go along with it.

Theo Hicks: So let’s talk about that. It’s not every day that people have a multi-million-dollar listing and I definitely wanna talk about more the tactics stuff. We can take a step back and  talk about this advice that you have, about approaching real estate in general or specific projects in a more holistic way… So do you wanna walk us through what that means, how that looks in your day-to-day life?

Cynthia  Cummins: Okay… So I’ll kind of think about the listings that I have on my plate right now. There always seems to be a theme around the listings that I have at any one time, and the theme right now is people who are in the middle of huge transitions, moving from one stage in their life to another after owning a home for many years… And it is like lightning has struck their whole being. Everybody who’s doing this is kind of in bits and pieces, and trying to move forward in a very courageous way. The stakes here in San Francisco are so high… I don’t even know what the median house  price is right now, but I think it’s around 1,5 million. So just to show up, we’re talking about big numbers… And with big numbers come big emotions, and I have to figure out always how to manage my own as I stand and hold space for my clients to go through what they’re going through. I don’t know — did that make sense?

Theo Hicks: Totally. And actually, I can completely relate to what you’re talking about right now, because me and my wife were actually going through the same process from moving across the country for a new job. So yes, it’s definitely very stressful, but I would imagine the stakes are a lot higher when we’re talking about price values that are 4-5 times higher than we’re looking at…

So what’s been the conversations like? For example, you’ve got a person who’s going through this huge transition… Maybe talk specifically about the one you’re having right now; you’re listing it for 4,5 million dollars; I’m sure it takes a long time to prepare and sell a house that large, and that comes with extra stress on their part as well… So what are some of the things that you are doing with them, saying to them, to help them try their best to alleviate this emotional stress from, as you said, having their whole entire being struck by lightning?

Cynthia  Cummins: The “struck by lightning” phrase came to me because every now and then I will pull out a deck of Tarot cards and look at them, just for fun, to see what they might say… And there’s a card in the Tarot deck called “The Tower.” The Tower is actually an image of a tower being struck by lightning, and people sort of falling off the ramparts, and the thing is aflame… And it’s a really scary card. If you get that card, it can make you feel really nervous. But it is such a  great metaphor, because really, when you’re struck by lightning, all kinds of possibilities open up, and it maybe means that yes, this is really uncomfortable right now, but you’re heading for something new and something that’s really gonna serve you better.

So when I’m talking with my clients who are in the middle of having their tower dismantled, leaving one home for another, or leaving one part of the country for another, retiring, getting a divorce, whatever the situation is, I try to help them keep their eye on the fact that yes, this is really uncomfortable; it takes a lot of work, it takes a lot of focus, but you’re moving towards something that is going to improve your situation, usually.  You’re heading for something that’s going to be better.

Theo Hicks: Yeah, I really like that metaphor. Moving to more specifics on this deal – or you could talk about a different large deal like this, because I was browsing through your website and saw that you do deal with these multi-million-dollar deals… From your perspective, besides the more emotional side of the deal, what else is different between these larger deals and the smaller deals?

Cynthia  Cummins: Well, I must say that everybody, whether they’re selling a million-dollar condo or a six-million-dollar house in Hayes Valley here in San Francisco, their house is big to them. So it doesn’t matter what the price point is, everybody’s concerns are really similar. So I repeat it again and again. But I think that for everybody, but especially in this higher price range, when you are a wealthy person and one’s idea of luxury begins to change… Luxury becomes meaning. When you get to a certain point in your life, everything’s Jake, you’ve got a good job, you’ve got good income, the family is fine, you aren’t thinking so much about survival as you are thinking about the quality of your life, and is there meaning in your life. So that’s going on with these multi-million-dollar sales.

At the same time, that person is also concerned with really nitty-gritty stuff, like “Is there a powder room on the main level, and if there isn’t, how am I going to get one?”

Theo Hicks: Okay, that’s something else I wanted to talk to you about… So let’s say  I’ve been an agent for a few years, and I want to eventually build up to the point where I’m representing clients in higher and higher price ranges. What are some of the things  I should start doing today, so that in 5-10 years from now I am where you are?

Cynthia  Cummins: I think that there are all sorts of resources and coaches and guides for how to build one’s business, how to try and aim for a higher price point, and that sort of thing. There’s all sorts of different approaches to marketing. But the thing that I keep coming back to is that pretty much 95% of my business comes directly from sphere, from word of mouth, from referrals by past clients. From the beginning and still, my whole focus is on serving that client, doing my best to build a relationship with whoever I’m working with, so that they feel completely seen, held, and like I’m looking out for them. And I am looking out for them.

Then I go out of my way to continue to nurture that relationship after the closing, after the transaction. And I’m also always looking to tell them the truth; for example, just in the last two weeks I have talked four different sets of buyers out of writing offers on properties. They were gung-ho to proceed with writing an offer on a property, and I made a point of telling them why they shouldn’t do it. So I think having this bigger vision for people, and a longer-term view is what makes all the difference.

If you do a great job for someone and they feel like you really got them and you listened to them and you spoke the truth to them, then they will tell everyone they know about you, the agent… And especially whenever somebody sends me a referral; whether that referral transacts or not, I immediately send a gift to the person who referred them. That might take the form of a gift certificate for food delivery service, or I’ll drop off a couple of bottles of wine, whatever it is. I acknowledge that in a physical way immediately, and that helps keep me top of mind.

Theo Hicks: Could  you give us a few examples on some of the things that you do once the transaction is over to continue to nurture that relationship?

Cynthia  Cummins: Well, I always circle back immediately to be sure that all the logistics have been handled. For example, if somebody’s moving into a condo complex, I wanna make sure that they’ve connected with the homeowners association to get all the information that they need to reserve the elevator for their move-in date, and stuff like that… So it begins right then. And then afterward I make a point of circling back every few months with a phone call. I also send out newsletters, I send a link to my blog to people if I think there’s a topic that might  interest them… And then I’ll have little client events every now and then… So just continually finding a way to touch base with people.

One form it takes is touching base with my clients not to talk about real estate necessarily. Just to connect as a human being, and then the real estate just comes along with that.

Theo Hicks: Alright. Now for the money question – you can apply this to investors, or agents, or just in general… What is your best ever advice?

Cynthia  Cummins: I actually have two answers for you. The first one goes like this – real estate is a lot like sex; you want to get lots while you’re young.

Theo Hicks: I think that’s the title of the episode there, so thank you for that. [laughter]

Cynthia  Cummins: But [unintelligible [00:15:00].01] I think it’s to always remember that it’s a home. This is for residential real estate, and residential real estate happens to be one of the best investment vehicles for the ordinary person, because there’s so much value that comes with owner occupancy… But it’s a home, not a house, primarily. First of all, it’s shelter, it’s where you live, it’s where you die… It’s the sanctuary, it’s the place where you raise your family, where you rest, it’s where you’re at home… So first and foremost, a piece of real estate that you’re gonna live in is a home, and then it’s a house. It’s important not to let the details of the transaction get in the way of making it a home.

Theo Hicks: Alrighty. Are you ready for the Best Ever Lightning Round?

Cynthia  Cummins: I am. I’m kind of excited. We’ll see how I do.

Theo Hicks: You’ve talked about lightning in the beginning of the episode, so it’s only happened we have a Best Ever Lightning Round.

Cynthia  Cummins: Okay…

Theo Hicks: But first, a quick word from our sponsor.

Break: [00:16:15].10] to [00:16:55].06]

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

Cynthia  Cummins: This has nothing to do with anything, but the best thing I’ve read recently is Lincoln and the Bardoe by George Sanders. That is a novel. I love to read for pleasure, so that was a real pleasure.

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

Cynthia  Cummins: [laughs] Oh, I think I would go to move somewhere where it’s really quiet and beautiful, and I’d get a job working the counter at a diner.

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

Cynthia  Cummins: Well, the first thing that popped into my mind was not necessarily the best deal, but it was the most lucrative, and that was selling a 17-million-dollar este in Atherton, CA.

Theo Hicks: The next question is what deal did you lose the most money on, but I’m gonna change it up a little bit and say “What deal you did had the greatest difference between what the property was listed for and what it actually sold for?”

Cynthia  Cummins: Ha-ha! Well, things in San Francisco tend to sell at or over their asking prices, but I had a condo for sale that I personally had developed with my then husband, and we had a buyer for it who was willing to pay — I forget what the price was. Like 1.7 million, or something like that… And there was some negotiating that went on… This buyer got a close look at the neighbor in the building, who was not the nicest person ever, and after a couple of months the buyer withdrew from the contract. So we put the place back on the market, asking 1.5, and the morning of our debut, Tuesday’s broker’s tour, was 9/11. We eventually sold the property for (I think) 1.2. But that was just some bad timing… But it’s okay, we survived.

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

Cynthia  Cummins: I like to listen and hold people in positive regard, and where I can, I like to tell them the things that are going to help them feel supported, and courageous, and happy, and I also wanna tell them, if I can, what’s getting in their way; trying to help them see that.

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

Cynthia  Cummins: You can get in contact with me via email, cynthia [at] cynthiacummins.com. And then there’s my realestatetherapy.org blog site, or at my retail real estate website, which is kindredsfhomes.com.

Theo Hicks: That’s actually funny, when I read that, for some reason I thought it was single-family; I didn’t connect it to San Francisco. So thank you for sharing that for me.

Cynthia  Cummins: [laughs] Yeah, I meant to do that… I’m kidding.

Theo Hicks: Exactly, it’s got dual meanings. Alright, Cynthia, I really enjoyed this conversation. We started off deep, talking about your holistic way of thinking. You said that you identified themes around your listings in certain periods of time, and right now people are in the middle of huge transitions in their lives, and you used the metaphor of the Tarot card of the tower being struck by lightning, and the clients that you’re representing, the theme is that they’re being struck by lightning… And some of the things that you do to help with this emotional burden that they’re going through is to let them know just like strike by lightning is that it opens up a lot of possibilities. Sure, it’s gonna be uncomfortable, it’s gonna take a lot of work, and focus, but it can open up something new, and you reinforce that they are moving towards something that is going to improve their situation.  I really liked that approach.

Then we moved into talking about the differences between small and larger deals. You did mention that regardless of how low or high the prices, it’s still a home. The concerns are generally gonna be similar, but when you’re dealing with these larger deals and wealthier people, the idea of luxury changes, because it’s less about survival and more about finding meaning and quality in their home… And that there’s obviously still a concern with the nitty-gritty; you gave the example of the powder room on the first floor.

We also talked about what agents can do; agents who are just starting out, or have been doing it for a long time and want to increase the price ranges that they’re dealing in… And you said that 95% of your business comes from word of mouth referrals. Then some of the tactical things that you do is you will send someone a gift if they’ve referred you to someone, even if that doesn’t result in a deal or anything.

You said that your whole focus is on serving the client and building relationships so they feel like and actually are being looked out for. Then you talked about some of the things that you do after the transaction is closed to continue to nurture and grow that relationship, make sure all the logistics are handled… You gave the HOA example.

Circling back, the phone call – it’s not just talking about real estate, but trying to connect on a human connection basis. Sending out a newsletter, your blog, client events, and then just telling the truth; your example was you’ve recently talked four clients out of writing offers on deals, for reasons why it probably was not going to work for them… You told the truth, rather than just making something up, so you can get the deal done.

And then my favorite part of the episode, the best ever advice, which is gonna be the title, the quote of the episode: real estate is a lot like sex – you want to get lots while you’re young. Obviously, saying that the earlier you get it, the more time you’ll have to grow that portfolio and the value of the property.

And then also, to always remember that the property is a home first, and then it is a  house or an investment or something else. Ultimately, what it comes down to is it’s a shelter, it’s where you live, it’s where you raise your family, it’s where you sleep, it’s where you ultimately die.

Cynthia, again, I really appreciate you coming on the show. I really did enjoy this conversation. Make sure you check out her blog at realestatetherapy.org. Pick her up on her offer to send an email to ask her questions, especially if you’re an agent and want to  learn how she does what she does. That was Cynthia, at CynthiaCummins.com.

Cynthia, again, thanks for joining us. Best Ever listeners, thank you as always for listening. Have a best ever day, and we will talk to you tomorrow.

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JF2075: Part-Time Real Estate Investor Benefits With Erik Schaumann

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Erik is a part-time real estate investor who began in single-family rentals in 2012, and since then he has bought 12 homes and is involved in multiple limited partnership deals and has a portfolio of $1.7M.  Erik has been able to leave his W-2 by being a part-time investor and has continued to be a part-time investor because he has recently traveled the world with his family. He shares with you what you should be asking yourself when it comes to leaving your W-2. 

 

Erik Schaumann Real Estate Background:

  • Part-time real estate investor
  • Began investing in single-family home rentals in 2012 while he was living overseas in Brunei, working for Shell Oil Company
  • Over his investing career, he has bought 12 homes and sold 3
  • Is currently invested in multiple LP syndication deals with over $1.7 million in AUM
  • Because of his REI passive cash flow, he was able to retire from his oil company job after 20 years and travel the world with his wife and 6 children
  • Based in Orem, Utah
  • Say hi at etsenterprisesllcATyahoo.com and www.8suitcases
  • Best Ever Book: 5am Revolution  

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Best Ever Tweet:

“Be realistic in what you are going to need, what’s that final number? Be realistic, don’t overshoot it because if you leave your job there are always ways to make money” – Erik Schaumann


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, Erik Schaumann. How are you doing, Erik?

Erik Schaumann: I am great, thanks.

Joe Fairless: Well, I’m glad to hear that. A little bit about Erik – he’s a part-time real estate investor. He began investing in single-family home rentals in 2012, when he was living overseas, working for Shell. Since then he’s bought 12 homes, sold three, also has multiple limited-partner ownerships in deals, and in total owns 1.7 million in his real estate portfolio, which is a combination of his limited partnership stakes, as well as the single-family homes that he owns.

Based in Orem, Utah. With that being said, Erik, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Erik Schaumann: Yeah, thanks. It’s great to be on your show, Joe, and I appreciate being able to talk to your Best Ever listeners. As you mentioned, I started investing in 2012. I was living overseas… And living overseas, I was working for Shell, so we had some income available to invest; we started investing in single-family homes through a turnkey provider. We invested in one, and then another, and then another, and it just snowballed until we got to 5-6. Then we sold two, and we bought four… So we had some nice equity gains. Those original houses were in Phoenix, and Phoenix in 2012 was the low point, and as it came back up… So we were able to sell two and buy four.

I’ve listened to your podcast for a long time, and you have so many professional investors that started companies… I’m kind of the small fish in the big pond, I’m just  a part-time investor. But those investments, the home investments gave us a passive income such that the company I worked for – I left Shell at the end of 2017, and we were able to travel. So we traveled full-time as a family, we literally went around the world.

Then when we were done traveling, after 18 months, I came back, and now I’m just working in a  small business, helping my mom literally with her business… And I haven’t needed to go back to work for an oil company, because we’re essentially living off of the passive income that our real estate investments provide.

So we’ve been successful in that regard, to give us the income we need to leave the rat race and leave the 9-to-5 and come back and do something that’s helping other people in a way that I wasn’t able to do before.

Joe Fairless: One tricky part with human nature is that when we achieve a goal, then we want to have another goal that we achieve, therefore we’re constantly reaching for something bigger… And the downside to that is when someone has a W-2 job and they’re looking to exit out, and they have a number in mind, and then they hit that number, they might think “Oh, well I don’t know if that’s actually do what I want it to do for my life, so I’m gonna wait, still have this job and make that number larger.” How did you think about that process prior to leaving your W-2 job to be like “Okay, you know what – I’m good, our family’s good. We’re gonna just do this thing.”

Erik Schaumann: It’s a great question, because we really did go through that type of thought process. I was working for Shell, I was overseas, I was making great money, and it was pretty easy money honestly, because it was 9-to-5, and it’s a big company… I did what I did, and I did it well, but they paid me really well to do it. And we got to the point where I literally said to myself “When is enough enough? When is my 401K large enough, is my real estate portfolio large enough? I can always build more, but when is enough enough?” For us, it was a timing issue, because we were at a point where we loved to travel, and my son had graduated from high school and he had taken a gap year, so he was still at home with us…

And my daughter was in college, but she was in a position where she could take a gap semester, and we kind of hit it right at the point where we could all travel as a family together again… And we took the leap. We did some financial planning, we said “This is what our cashflow will be over time”, and we decided that we’re doing it. And I left Shell. I was lucky to leave at the right time.

The other thing that plays into this situation for me was I left Shell at a time when I was offered a nice severance package… So it would have been financially better to stay  with Shell and keep working, of course, but at the time I was able to leave, I was able to leave with a nice severance package. So there was a severance to walk away, our investments had come to the point where we were comfortable, we have six kids, and timing-wise we were able to all continue traveling as a family, with my daughter back with us… And it was the last time that would be able to happen. So a number of things came together to make it such that we were comfortable taking the leap.

Joe Fairless: You have a portfolio of homes, and you also invest in apartment syndications… Why not focus on one, versus the other?

Erik Schaumann: All of my homes have been with investment money that was not retirement dollars… And when I left Shell, I took not just the severance, which was after-tax money, but there was some retirement money I had as well… So I decided to take that retirement money and I realized I could have put it into some homes, but I decided to just kind of take another route and diversify a little bit… So that’s when I found these limited partner/syndication deals. It’s with Ashcroft, actually.

Joe Fairless: I know Ashcroft.

Erik Schaumann: Oh yeah, you’re familiar.

Joe Fairless: [laughs]

Erik Schaumann: So it was just that chunk of retirement money that I decided to put into these other syndications.

Joe Fairless: But the Phoenix home(s) you sold – they did well; they got a chunk of cash, and you were familiar with homes, and you had the teams (I imagine) already in place. So why not just continue to do that?

Erik Schaumann: A couple of reasons… Number one, the houses did do really well, but from a cashflow perspective they haven’t panned out quite as well as I hoped. And I guess when I say that – they haven’t done as well as the paper said they were gonna do. You get the proforma from the turnkey, and they give you a number, and they say “Yeah, cash-on-cash you’re gonna probably do 7%-8%”, and I just never found that to be true. So I was looking for something different. That’s not to say I won’t buy more single-family homes, because I probably will, but I just wanted to try something different.

Joe Fairless: Any deals you lost money on?

Erik Schaumann: I haven’t actually lost money, but the worst deal I did was when I decided “You know what, these turnkey guys – they’re great, but I think I can do a little better.” So I went to Indianapolis and I answered an ad… I don’t know if you’re familiar with the Indianapolis market…

Joe Fairless: Not very.

Erik Schaumann: Okay. There was a guy [unintelligible [00:10:18].22] in Ocean Point, which was a bit of a fiasco. And I turned out much better than many investors. I got some class C properties from him, and I was used to dealing with class A and class B with the turnkey, but the numbers on the class C looked much better. You’re buying for 40k and you’re renting for $650-$700/month. I got the properties, but after a while — it’s kind of when Ocean Point went South, and they stopped communicating, and I just got nothing, so I had to change property managers… And that was major headache. When I finally got the new property manager on, I come to find out the renter that’s in my property is a criminal… He was wearing an ankle bracelet when they rented to him. We finally got him evicted, but he had done $17,000 in damage to the house. He had run it as a drug house, so I had to do all these renovations… And the changes and the rehab that had been communicated to me just wasn’t quite accurate, so I had to spend additional money to rehab it, to put it into a place of actually being able to be rented.

So that took some time to make that back. Those properties are now rented, and they’re cash-flowing pretty well now, but all that costs that I had to put into it and the major headache was not a fun thing

Joe Fairless: How has your thought process evolved when looking at new opportunities from when you first started investing?

Erik Schaumann: Definitely you need to look at other people who are investing with the person you’re thinking of going with. So I did do some due diligence — I didn’t go to Indianapolis, but I sent my mom, actually; I sent her to Indianapolis to meet these guys when I bought the homes… And they put on a pretty good show, but I never really talked to anyone else who was their customer; I didn’t ask for any references, I didn’t do that back-side due diligence, and that’s something I would definitely do again… And I have done in other deals as I’ve tried to do, is get some customers who are already working with them and find out what their opinion is.

And then also, I don’t think I’ll go into the class C market again. The numbers do look really nice, but you are dealing with renters that are in a much different situation, and it can be difficult.

Joe Fairless: For a high-income earner having a W-2 job, who wants to put together a plan to exit out, travel with his/her family, just like you, your wife and your kiddos did together, what are some suggestions you would have to him/her as they’re putting together their plan?

Erik Schaumann: A suggestion would be time travels a lot quicker than you might think. So when you’re starting out, it’s easy to think that you wanna get to the place faster than it really takes, but actually once you finally get to that place, you look back and you think “Oh wow, that seemed faster than it was.”

When we started investing in 2012, we knew it wasn’t gonna be immediate that we’d have a portfolio of nine homes. But little by little, you buy one house, and then you buy another, and then you buy two homes a year, and then you buy three homes a year, and if you have a five-year plan or if you have a ten-year plan, and ten years just feels like it’s gonna take forever to get there, when you start out it does feel like forever… But by the time you actually reach it, you just turn around and say “I can’t believe how fast that passed.”

So be realistic about how long it’s gonna take you, but don’t get discouraged if it seems a little longer than you want in that moment, because it’s always gonna be a little bit farther away than you think when you’re starting… But also recognize “Guess what – time flies, and it’s eventually gonna come.” So don’t get discouraged.

And the other thing is, like we said, be realistic in what you are going to need. What’s that final number and what’s that final amount of cashflow that you think you’re gonna need? Be realistic, don’t overshoot it, because guess what – if you leave your job, there’s always ways to make money. You may not make as much as you were going to, but you don’t necessarily have to be 100%  passive cashflow, able to do everything you wanna do when you leave… Because there’s gonna be opportunities along the way to make some more money and to supplement what you’re doing.

Joe Fairless: That’s a great point. I certainly was guilty of that whenever I had my W-2 job, and I was wanting to transition out. I was making 150k base salary at the time, and I was like “I’m just not going from 150k to zero, and then zero in perpetuity until I create a business.” I didn’t think at the time I could make money doing certain things that related to what my W-2 job was, it just wouldn’t be as much. So you don’t have to go from 100% to 0%; you can go from 100% to 25%, and then go from there.

Erik Schaumann: When we were looking at “When is enough enough?”, when I was working for Shell, we were saving towards our kids’ college, we were saving towards our own retirement… We were trying to be really frugal in what we did, and we were saving  a whole lot of money… And when you leave, you stop saving all that money, but that means you don’t have to earn that money to save it, either.

Joe Fairless: Yeah… [laughs]

Erik Schaumann: So let’s say you’re saving 20%-30% of your salary… When you stop saving 30% of your salary, that income is not necessary anymore.

Joe Fairless: Yup.

Erik Schaumann: So it sure would be nice to keep putting money in our 401K, but that’s the reason we left, is that I wouldn’t have to work to earn that money to put in the 401K. I’m letting the 401K work by itself, and we’re living with less, but our time is what I have instead of money.

I talk [unintelligible [00:16:04].24] all the time, and when we talk about traveling now, we think about  “Well, what do we have more of – time or money?” When you have more money than time, you buy the expensive, direct flight. But when you have more time than money, you can buy a cheaper flight, that takes longer to get there.

Joe Fairless: Any other suggestions for people who are looking to do something similar, or observations about your experience that would be helpful to share?

Erik Schaumann: Yeah, when we started full-time traveling as a family — there’s so many people who are doing it, and there are so many blogs out there that can give you advice and can give you some inspiration. It’s really nice to meet other people who are doing the same thing as you. And it seems like a very exotic thing to do – and I don’t deny that it is – but there’s just a community of people who are there to give you support and to help you out. So while we were traveling, some of our best experiences were just the people we met down in Guatemala, and down in Santiago, Chile, and when we were out in Bali, and Spain… All these people that we get to keep in contact with. There’s just some real joy that comes from that. So that’s one thing to think about.

And then another thing to think about is if you choose to leave your W-2 9-to-5, you just have a lot of time. There’s a lot of time to do other things. You may think like “I just wanna sit on the beach, with a drink in my hand, and the waves at my feet”, and that’s fantastic.

Joe Fairless: For half  a day… [laughs]

Erik Schaumann: For as long as you’re at the beach. But then you come home, [unintelligible [00:17:30].17] home temporarily in Orem, but then we’ve put our kids back in school, so I just have time again to think. You continually need to reinvent yourself. I’ve kind of spent a year doing something, and now I’m gonna need to reinvent myself to do something else… Which is an exciting challenge, but it’s also something that you need to think about. It’s not just once you leave work, and travel and  passive income – that’s not gonna be the rest of your life. There’s other things that you’re gonna need to think about.

Joe Fairless: How do you make sure that you remain sharp from a personal development standpoint?

Erik Schaumann: Well, I listen to a lot of podcasts, I try to educate myself that way. I have taken on something — when I came back and started to work at my mom’s company, that kept me sharp in terms of learning new things. I’d never worked for  a small business, so I had to learn all of these tricks and tips about working in a  small business, and advertising, and all the things that we do for sales.

So I think it’s just making sure that I’m doing things that keep me learning and keep me educating myself, so I’m always doing something new.

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

Erik Schaumann: My best real estate investing advice ever would be if you want to invest in SFRs through a turnkey provider, just find one that you trust. Find one that is gonna do what they say they’re gonna do. Actually, I’m working with Done For You Real Estate in Utah – they over-communicated, they showed me all the books, they showed me exactly what they were making… And it was just something that you could latch onto and say “Okay, these guys are gonna do right by me”, which is not what I got from the bad deals I did. So I didn’t learn at the time, but I have learned since – find someone that you really feel like you can trust.

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

Erik Schaumann: Yeah, let’s go.

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

Break: [00:19:25].03] to [00:20:10].21]

Joe Fairless: Alright, best ever book you’ve recently read?

Erik Schaumann: The book that has changed my behavior the most was the 5 AM revolution by Dan Luca. I really enjoyed what he had to say, and I started waking up at 5 AM.

Joe Fairless: Okay. That’d be a  huge game-changer. How long ago did you read it?

Erik Schaumann: I’ve read it about  a year and a half ago, maybe  a little more; maybe two years ago. There’s just a lot to get done in the morning, and I’ve really enjoyed the time in the morning.

Joe Fairless: On average, how many days a week do you wake up by 5 AM? And I know your wife is sitting in on this interview, so she can fact-check it.

Erik Schaumann: Definitely Monday through Friday I wake up at 5 AM every morning, and then Saturdays and Sundays I give myself to sleep-in.

Joe Fairless: And what’s sleeping in?

Erik Schaumann: [7:30] or 8.

Joe Fairless: What time do you go to bed during the week?

Erik Schaumann: I try to get to bed by 10, but [10:30] stretches it.

Joe Fairless: What deal have you made the most amount of money on? Probably the Phoenix deals, right?

Erik Schaumann: Yeah. The first home I bought in Phoenix in 2012. I paid 95k for it in 2012. I’m putting it on the market next month for 240k. So that’s been a fantastic house.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?

Erik Schaumann: A mistake on a transaction has been not following up well enough with the property manager to just really understand what’s being done. Often they have a clause in there that says if it’s more than $500, we’re just gonna do it right away. And sometimes you can have a hand in that and say “Wait a minute…” So just kind of letting them too much without checking has been a problem.

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

Erik Schaumann: I love being near my alma mater, BYU. I like to go back and do presentations for the students, telling them about  my career… I work with a church youth group here, so I love to work with the young men… And then while we were traveling, especially in Guatemala, we did some work with some non-profits and built some houses, and did some gardening projects… I really liked working with the locals down in Guatemala.

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

Erik Schaumann: The best way is to email me. I’m at ETSEnterprisesLLC [at] yahoo.com. And if anyone’s interested our travel blog was 8suitcases.com.

Joe Fairless: 8suitcases.com. Erik, thank you so much for being on the show, talking about your and your family’s journey, how you all have got to this point, some investments that did not go well, what you learned, some investments that have gone well, what you’ve learned, and the variables that were in place in order to stop having that W-2 job, and moving forward into travel and spending time with your family, how you wanna spend it, and having more of that… Because it’s pretty much the main question that most people have, is “How can I spend the time how I want to spend it?” That’s ultimately what we wanna do, whether we verbalize that or not; that’s basically what it boils down to.

I’m really glad we had this conversation. I hope you have a best ever day, and we’ll talk to you again soon.

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.

JF2073: How To Calculate Class A and B Return Projections | Syndication School with Theo Hicks

Listen to the Episode Below (00:22:44)
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In this Syndication School episode, Theo will first review the difference between Class A and Class B investors. Afterward, he will share with you how to calculate the projected returns for each class, and to follow along with Theo you can download his free excel document below.

Free Class A and Class B document

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. 

 

Click here for more info on groundbreaker.co


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy.

For the majority of these episodes we offer a free document. These are free Excel template calculators, free PDF how-to guides, free PowerPoint presentation templates, some sort of resource that will help you along your apartment syndication journey. All of these free documents, and past free Syndication School series are available at SyndicationSchool.com.

In this episode we are going to talk about how to calculate the returns to limited partners when you have a two-tiered path of investment structure. What does that mean? Well, generally when people get started as syndicators, they offer one investment tier to their investors, and it’s either a preferred return only, a profit split only, or a combination of the two, with the most common being an 8% preferred return, and then a 50/50 or a 70/30 profit split.

Now, as you gain more experience, or even at first, you might decide to offer two investment tiers – class A and class B. Our episode is focusing on what are the differences between class A and class B. I’m gonna do a quick refresher on that, talking about the advantages and disadvantages of each, and then I’m gonna talk about how to actually calculate the return on investment and the internal rate of return to investment tiers.

For this episode, I’ll be giving away a free document. It will be a  calculator that will allow you to automatically calculate the ROI and the IRR based on the steps I discuss in this episode. So I’ll talk more about that free document here in a little bit.

First, let’s just do a refresher on class A and class B. Class A, investors sit behind the debt in the capital stack, which means that when all expenses are paid, including the debt, the next cash goes to the class A investors. Class A investors are offered a preferred return that is generally higher than the preferred return offered to class B investors.

On Ashcroft deals, the class A preferred return is 10%. Class A investor have virtually no upside upon disposition or capital events, nor do they receive a split of the ongoing profits. So they are getting the 10% or whatever the preferred return is, and then that is it. But in order to be taxes the same as class B investors, they do get a very small piece of the upside, that varies from deal to deal… So they do get a small piece of the upside for tax purposes, but overall they’re not given a large upside in the deal.

In Ashcroft deals the class A tier is limited to 25% of the total equity investment, and the minimum investment is $100,000. So the reason why is because let’s say year one the project cash-on-cash return is only 7%, and you may say “Oh, well I can’t pay my 10% preferred return then.” Well, if only 25% of your investors are offered a 10% preferred return, then you can hit that preferred return of 10% to that portion of investors. I’m not sure exactly how that math will work out, but as long as these class A investors aren’t making up a large portion of your investor pool, then you don’t need to have a 10% project cash-on-cash return to distribute 10% to the class A limited partners.

Now, of course, other syndicators may offer a different preferred return, or have different equity percentages or different minimum investments. That’s just what Ashcroft does currently, and I just wanted to give you an example.

Class B investors sit behind class A, so all expenses go out, including debt, and then class A investors get paid, and then class B investors get paid with what’s left. But they sit in front of the general partners generally in the capital stack, so they get paid before the GP is paid.

Class B  investors are offered a preferred return that is lower than the preferred return offered to class A investors. On Ashcroft deals that return is 7%, compared to that 10% for Class A. If the full preferred return cannot be paid out each month, or each quarter, or each year, depending on what the payment frequency is, then it accrues over the life of a deal.

Class B  investors do participate in upside upon disposition or capital events. On Ashcroft deals the split is 70% of the profits up to a 13% IRR, and then 50% of the profits thereafter. The Class B  minimum investment for Ashcroft is 50k for first-time investors and 25k for returning investors. Actually, now that I’m thinking about it, I think that Ashcroft recently reduced the class A minimum investment to 50k. [00:09:04].21] and really all other types of tiers offered. Syndicators may offer different preferred returns, profit splits, different minimums for these class B investors.

So since class A investors are in front of class B investors in the capital stack, they are paid first, plus the class A investors are offered a higher preferred return, therefore the class A tier is a deal for investors who prefer a stronger ongoing cashflow… So they’re more likely to get this cashflow, and it’s higher than what it would be if they were class B.

Since class B investors are sitting behind the class A investors in the capital stack, they are paid what is left over after the class A have received their preferred return. So if the full preferred return isn’t met, it accrues and is ideally paid out upon disposition or a capital event. So class A investors are offered a lower preferred return, but they do participate in the upside upon disposition or capital events like  a supplemental loan or a refinance… So the overall return over the life of a deal is higher for class B investors, compared to class A.

Class A is gonna get 10% a year, or whatever that percentage is, class B might get less than their preferred return year one, maybe 5%, but maybe eventually their cashflow goes up to 9% or 10%, but then they’ll get a massive 20% return on investment at sale over the life of the investment. It’s really at the end where they surpass the class A investors.

So the class B tier is ideal for investors who want to maximize their returns over the life of the investments. And if I’m the person who wants both – if I want strong ongoing cashflow AND to participate in the upside, typically that passive investor will be allowed to invest in both. So if you have a passive investor that wants to do both and you’re offering class A and class B, they should be able to invest a portion in class A and a portion in class B. So that’s what class A and class B are, as a reminder.

Now, how do you calculate the returns? I recommend downloading the document and having it open right now in Excel, but I will assume that you don’t have it open, and I will do  my best to explain exactly how to calculate. At the end I will discuss in more detail how the free document works. So the first thing that you need to know in order to calculate the returns to class A and class B investors are 1) total equity investment. So this is the total amount of money that you as a syndicator raised from investors for the deal, because that’s what’s gonna be their capital account and that’s what their return is gonna be based on… And then assuming it’s a five-year hold, you need the project-level cashflow; that’s income minus expenses gives you the NOI. NOI minus debt service gives you the cashflow. So you need the cashflow for year one through year five, as well as the sales proceeds.

Basically, you have year zero a negative amount of money technically, because that’s what the investors are paying, and then year one, year two, year three, year four, year five you’ve got your cashflow coming in positively, and then for the sales proceeds it’s just the profit remaining after all expenses are paid at sale. If you’ve downloaded the simplified cashflow calculator, it should be as easy and copy and pasting these figures into this model. As a reminder, the sales proceeds is the sales price minus the debt owed to the lender, minus any closing costs you need to pay for, minus any other costs associated with the sale, like disposition fees, broker’s fees… And then what’s remaining is the total sales proceeds. So that’s one bucket of numbers that you need.

Next you need to determine what the structure is going to be for class A and for class B. So for each, you need to know what the preferred is going to be, and what the profit split is going to be. So for the purposes of this document, the preferred return to class A is 10%, and the profit split is zero. For class B the preferred return is 7% and the profit split is 70%.

Now, the next step is to determine what that preferred return amount looks like for class A and class B. Basically, for class A you need to determine of the equity investment which portion is class A. To keep things simple, in this calculator it’s just set at 25%; obviously, you can go in there and manually adjust it if you want to. Class B is set at 75%, but you can go in there and manually-adjust it, if you want to.

So you’ve got 25% of the equity investment, you multiply that by the preferred return percentage of 10% to get the preferred return amount. Same thing for class B. So Class B  you take 75% or whatever percent of the equity investment, multiply it by the preferred return, which is 7%, and you’ve got the preferred return amount owed.

Now, if you remember, class A is paid first. So when you’re looking at your year one cashflow number, you take your year one cashflow and you subtract the class A preferred return amount completely out of there. And then what’s left over is what goes to class B investors.

Now, let’s say that year one you are able to cover the entire preferred return amount to the class A investors, but the cashflow that’s remaining is not enough to cover the preferred return owed to the class B investors. Obviously, they’re still going to get paid, but it’s not gonna be full. So in the sample cashflow calculator that you download it shows that the class B investors only get a 3% return on investment year one, as opposed to 7% preferred return that they’re owed. Every time that happens, for every year that happens, you need to track how much of the preferred return is actually accruing. So if they’re given a 3%, then they’re owed an additional 5%. So that’s going to accrue.

Now, for this particular document the way I have it set up is that it accrues and then it is paid out at sale. I’ll talk about how that happens later, but it’s not gonna be paid out the next year, it’s gonna be paid out at sale. If you want to have it paid out the next year, you’re gonna have to do some manipulations to the cashflow calculator.

Basically, you repeat that process for each year. This is how it works in this cashflow calculator. Let’s say at year two you take your full cashflow  for year two, you pay your class A investors their preferred return if the remaining amount is greater than the preferred return owed to the class B investors. So class B gets their full 7%, so the profits remaining after the 10% is paid to the class A, after 7% is paid to class B, that extra cashflow is going to be split. In this case, 70% goes to class B and 30% goes to the general partners.

Now, typically, profits are considered a return of capital, preferred return is considered a return on capital. So whenever capital is returned to them, then their capital account reduces. Now, in Ashcroft deals the preferred return is always gonna be based on the original investment, and then the general partners will catch up at sale. So what that means is whenever the class B investors are receiving a profit split, you need to track that so that you understand “Okay, after five years I’ve returned a  total of $15,000 to investors from this profit”, because they’ve got $15,000 in profit, therefore they’ve been returned $15,000. Therefore at sale, I’m gonna return them their full equity minus that $15,000 they’ve already received.

Basically, the two things that you need to track whenever you’re paying out your class B investors is if they’re not receiving their full preferred return, how much is accruing that year, and then number two, if they received a profit split, how much profit do they make, because that’s something you need to track, because that’s considered a return of capital.

So you repeat that process for years one, years two, year threes, year four and year five. When you do that, you should have a total class A accrued preferred return number, and a total return of capital from the profit split for the class B investors.

Obviously, if you aren’t able to distribute the full 10% preferred return to the class A investors, then the same concept applies… But since they’re not receiving a split of the profits, you only need to focus on the preferred return accrual and not anything about them receiving a return of capital, because they’re not.

Alright, so now you sell the deal and you have your sales proceeds calculation… So you’ve already copied and pasted the sales proceeds into the cashflow calculator… So now you need to determine which portion of the sales proceeds goes to class A, and which portion goes to class B. If you remember, class A is in front of class B in the waterfall, so class A gets their equity back first. That one’s pretty simple, because class A did not get a return of capital, so they receive their entire equity investment back. So the sales proceeds are a little bit less.

Next is the money that goes back to the class B investors. If  you remember, they’re owed three things at sale. First, they’re gonna be owed their equity back. So the equity they receive is going to be their total equity investment minus whatever capital they’ve received thus far as profits. So if they’ve received $15,000 in profits, it’ll be their total equity investment originally, minus $15,000 which is returned.

The second thing that’s returned to them is the preferred return that they’re owed. So whatever the total accrued preferred return number is, that is also owed to class B investors. So it’s the equity owed, plus preferred return owed. Lastly, it’s going to be the profit split. So whatever is left over after the class A is paid, class B has received their equity investment back, class B has received their accrued  preferred return, the  remaining profits are split 70/30 between the class B investors and the general partners.

Now, if you have some sort of tier structure where it’s based on IRR, and once there’s a 13% IRR it drops to 50%, you’re gonna have to do that calculation on the back-end, because that’s not what this does. This is just a straight-up profit split, just to keep things simple.

So the remaining profits are multiplied by 70%, and that also goes to the class B investors. So if you’re got profits of class B investors, plus preferred return owed to investors, plus equity to class B investors. So now you have a total proceeds to the class A, which is just their equity investment, and a total proceeds to class B.

Now what you wanna do is you wanna create a data table so that you can do your IRR and your ROI calculations. The ROI calculation is pretty simple – it’s just their initial equity investment divided by the money that they’ve received each year; so year ones, two, three and four it’s just the cashflow they’ve received… So for the class A it’s always gonna be 10%, for class B it’s gonna be ideally 7%, maybe lower at first, and maybe eventually higher… And then same thing for year five, but this actually includes the sales proceeds as well, so it’s gonna be a number that’s ideally over 100%. Then you can average all those to get your annualized cash-on-cash return.

Then for the IRR calculation, it’s just an Excel function where you basically do =IRR and then you highlight year zero through year five, and then it’ll give you what the IRR is.

Now, let’s talk about how to use this model. On the document that you’ll see there are a few locations that you need to input data. Basically, everywhere you input data, it’s gonna be in red, to make it very simple for you.

So you need to input the initial equity investment year one, two, three, four and five, project-level cashflow, the total sales proceeds for project-level, and then the preferred return percentage and the profit split for class A and class B. Once you input those numbers, it’ll automatically calculate year one through five cashflow for class A and class B, as well as the return on investment and the internal rate of return. So it’s essentially a very simple calculator.

And again, where you get the equity investment year one, two, three, four and five and sales proceeds numbers from – that comes from your simplified cashflow calculator that you gave away a while ago now. So if you wanna find that, go to SyndicationSchool.com to download that document.

That concludes this episode of Syndication School. Thanks for listening. Make sure you download your free calculator for calculating class A and class B return projections. Check out some of our other Syndication School episodes and those free documents as well.

Have a best ever day, and I 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.

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.

JF2072: Facebook Marketing During The Coronavirus With Tristen Sutton

Listen to the Episode Below (00:21:07)
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Tristen is a certified Facebook digital marketer who is also a consultant for Facebook. He teaches businesses how to effectively use Facebook and Instagram ads. In this episode, he shares many different strategies to increase your leads and how to correctly target the higher conversion client.

Tristen Sutton Real Estate Background:

  • A consultant for Facebook and a certified Facebook Digital Marketer
  • Teaches businesses how to effectively use Facebook and Instagram ads
  • Based in Houston, TX

 

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Best Ever Tweet:

“Make sure you know who your target market is and always put a call to action in your ads.” – Tristen Sutton


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks, the host today. Today we are speaking with Tristen Sutton. Tristan, how are you doing today?

Tristen Sutton: I’m doing good. I’m staying safe, sane and sanitized.

Theo Hicks: The three S’es, there you go. Well, today we are going to be talking about marketing, and more specifically we are gonna talk about the things you should be doing from a marketing perspective on Facebook, Instagram, social media, during the Coronavirus pandemic. That’s gonna be the topic of discussion today.

Before we get into that, a little bit about Tristan – he is a consultant for Facebook, and he’s a certified Facebook digital marketer. He teaches businesses how to effectively use Facebook and Instagram ads. He is based in Houston, Texas, and you can say hi to him at TristanSuttonConsulting.com.

Tristan, before we start talking about marketing during the Coronavirus, do you mind telling us a little bit more about your background and what you’re focused on today?

Tristen Sutton: Absolutely. I’m a marketing strategist, like you said, based out of Houston, Texas, and I work with small business owners, and specifically real estate agents, and teach them how to use Facebook advertising to expand their brand, generate leads  and increase open house attendance. I’m a licensed [unintelligible [00:04:18].10] instructor, so the course I teach, Ads University, provides real estate agents five hours of [unintelligible [00:04:24].29] along with an actual training, so they learn how to market for themselves. I’m really passionate about helping this niche out.

Theo Hicks: Perfect. Do you work with specifically real estate agents? Do you work with investors as well, or is it specific to the agents?

Tristen Sutton: Actually, yes, in some of my classes I’ve had several investors attend the course, and they said the things that I’ve taught them in that course has helped them get more leads to some of the properties they’re selling and investing in.

Theo Hicks: Perfect. Obviously, the Coronavirus has impacted real estate in general… Let’s maybe focus on real estate agents first, and then we can talk about investors second… Unless you think that the lessons apply to both. I’ll leave that up to you. So let’s start with agents. Maybe first tell us some of the biggest things that are changing right now, or maybe the most important things that agents should be changing when it comes to the way they’re advertising on Facebook and Instagram and other social media platforms.

Tristen Sutton: Great question. Really what I want agents to understand right now is that it’s a pay-to-play strategy. Posting and hoping on your profile or your business page isn’t gonna get you the leads you need to get to the transactions that you want. We’ve gotta stop using a blockbuster strategy in a Netflix reality, and realize that Facebook suppresses your posts, so you need to put money in some advertising if you wanna reach your target audience.

The second thing would be understanding that Facebook changed the rules. So a lot of the targeting that used to be available for agents is no longer there. That doesn’t mean the platform is obsolete now, you just have to be strategic with your retargeting. So getting people to watch your videos or click on your links, regardless if you’re a buyer or a seller agent, and then retargeting those people… Just like when you click on a website and then all of a sudden she follows you around on Instagram and Facebook – that’s what we need to be able to do to make sure we get our transactions for the  year.

Theo Hicks: So agents can’t just have their Facebook page that they have and just post free content to people, and hope to get leads that way? They need to actually create a paid advertising campaign on Facebook?

Tristen Sutton: Right. So if anyone’s listening right now, look to your Facebook business page, and look at your last 5-10 posts. You’ll see that, regardless of how many likes/followers you have, less than 5% of those people ever saw your posts. It’ll be at the bottom  left, and it’ll say “Page Views” or “Content Views”, and then you’ll realize that “Hey, if I have 1,000 followers but only 20 people saw my post, I can’t grow a business or sustain a business with that kind of reach.” So if you wanna use this platform, you have to adapt with it and realize that to reach the people you want or need, you’re gonna have to put some behind it now.

Theo Hicks: I know that Facebook has different types of paid campaigns… One’s pay-per-click, and then there’s a different one. Is there one that you advise people to use over the other? Is pay-per-click better than just paying per campaign?

Tristen Sutton: No, there are several different objectives. There’s approximately 9 or 10. The four that I recommend for realtors is the reach objective, traffic, which drives people to your website, video objective, which gets people to watch more of your content, and then the last one would be Event RSVP – so if you have open houses, seminars, workshops, anything where you need bodies in a room, run that type of ad. That goes for the agents and the investors as well for the workshops they do.

Theo Hicks: Okay, so you said Reach Ad, Traffic Ad, Video Ad, and RSVP Ad. So I think that Event RSVP and Video are pretty self-explanatory… What is Reach Ad and what is Traffic Ad?

Tristen Sutton: So Reach Ad is more of like a digital direct mail campaign. This is gonna show your content, your face, your brand to as many people as possible in your market or your farm, but it’s not optimized for clicks or cost. So there’s none of that going in. This is more of an advertising play versus a marketing play… Marketing is lead generation, and things like that.

So you can spend at the time of this reporting maybe $5 a day and reach maybe 3,000 a day on their phones, tablets and computers, as long as they have a Facebook or Instagram account.

The Traffic one is optimized to show your ads first to the people most likely to see your ad and then click on your website. So those are the two that a lot of agents use  because they wanna get their brand out there. But then they wanna drive traffic to their listings, or the lead capture sites, things like that.

Theo Hicks: Perfect. And the Video is just a video ad. And then RSVP is advertisement for a specific deal?

Tristen Sutton: Right. So with Video Ad most people don’t know the strategy – you use the video ad to warm up a cold audience. People do business with who they know, like and trust, so the easiest way to do that right now is with video on social media. So you get someone to watch maybe a 30-second video and then on the back-end you can go on Facebook and say “Hey, everybody that watched this video that I’ve just sent out on their phone, retarget everyone that watched at least 50% or more.” Because if they watched half of it, they’re halfway interested, they’re halfway familiar with your brand, and you’re gonna get a much more higher conversion with people that are already familiar with your brand than a cold audience.

Theo Hicks: Yeah. And then the RSVP?

Tristen Sutton: I encourage everyone, whether you’re an investor and you’re hosting workshops, or an agent hosting open houses, seminars, things like that – create a Facebook event page (it’s free). It’s kind of like the Facebook’s version of Eventbrite. You put your information, your picture, a registration link in there… But you can  run ads to drive traffic to that event page, and spend maybe $3 to $5 a day and reach hundreds if not thousands of people. It encourages people to RSVP, and you can use that event page as an incubator to put testimonials, keep content in there… And really, that event page now – you’re using it as your way to do a virtual open house.

So if you can go to your house, social distance, do a video of it professionally on your phone, put the video in that Facebook event page, and now as you’re driving traffic to it, people get to virtually tour the home from the comfort of their home, and then they may schedule an appointment and say “Hey, once this is over…” or “Hey, can I schedule a tour in-person?”

Theo Hicks: What about the actual content of these ads? How has that changed during the Coronavirus?

Tristen Sutton: Hopefully people are doing more video, but unfortunately, people aren’t able to go to the barbershop or the salon, so they may be a little apprehensive about putting their face out there…

Theo Hicks: Seriously…

Tristen Sutton: Right now my beard is out of control. But right now video is still king/queen on social media, and it’s the best way to connect with your audience and the best way to get in front of them. And you don’t have to do long video. You can do something along 15 seconds, 30 seconds, never longer than a minute for an ad. Now, if you just wanna post videos, Facebook favors three minutes. But for ads, I recommend 15-30 seconds. And it doesn’t take long. Introduce yourself, identify your audience, identify a pain point to provide a solution, and then give them a call to action, “Click call or send a message”. That’s it, that’s all it takes.

Theo Hicks: So from these four types of ads, is this something where you wanna have one Reach ad, one Traffic ad, and then one Video ad, and then just continually push those? Or is this something that you refresh every day, every week, every month…?

Tristen Sutton: Great question. I wanna preface that with everyone’s situation is gonna be a little different… But a Reach ad – that’s more branding, so that’s something you just keep on going, and maybe just change your image maybe every 30 days. That way, people in your market area are gonna be familiar with you because they’re gonna see you all the time.

Traffic – that’s gonna be depending on what you’re driving traffic to. Are you driving traffic straight to your listing? Obviously, you’re gonna move those properties, so you don’t need to keep those up if you don’t have the inventory. Or if you just have a general lead capture form, you can always drive traffic to that open house, obviously only when you have a property to tour. So you may not have those going at all times.

And then the Video ads – that’s another branding strategy, so you can always have that going. I recommend leaving ads running for 30 days once you optimize them, to make sure that you’re getting the traffic and the clicks that you want.

Theo Hicks: Perfect. And then – I guess this applies to both agents and investors, but is there anything that applies to investors as it relates to marketing on Facebook  during the Coronavirus that we haven’t talked about already?

Tristen Sutton: 99% of the people I work with are agents, so I don’t have the full aspect of what the investor needs… But regardless, everyone is at home right now, staring at a phone, tablet or computer. So if you know that you have an opportunity, you can reach them right now. And ads are cheaper, because a lot of the large corporations have kind of backed away. Facebook is saying “Hey, we need to still keep this revenue going”, so your money goes a lot further. You spend $5/day and you may reach 800 people now, and on some variables you can reach maybe 1,200 to 1,800 people from the same $5. So now is the time, because you have the access to their attention, it’s where everywhere’s spending time right now, and it’s inexpensive.

Theo Hicks: So basically, everything we’ve talked about so far is what people should be doing… On the flipside, what are some of the biggest mistakes you see people making right now? And this could be as it relates to actual paid ads, or it could just be content that people are pushing out on Facebook or social media in general.

Tristen Sutton: Oh, man… A handful of things. Get quality graphics. It doesn’t have to be a $500 or $1,000 flier image, but use something like Canva.com and just make — crisp, quality graphics are gonna represent your brand. If that’s not your ministry, you can user Fiverr (fiverr.com) and just spend maybe $20 to get a nice, professional-looking graphic.

Videos – people are using videos that are too long. Like I said, you wanna be between a 15 and 30-second timeframe. If it goes longer than that, people’s attention span isn’t there and they’ll scroll past it.

Always put a call-to-action. I always see something like an ad that says “Hey, we have this beautiful 4-bedroom house for sale.” Okay, now what do you want me to do? Do you want me to call you to talk about it? Do you want me to email you? Do you want me to go to the website? Always put a call-to-action, and then just be very concise with your messaging and your advertising, too. Make sure that you know who your target market is, and you stick with that.

Theo Hicks: Perfect. Okay, Tristen, what is your — typically we say “best real estate investing advice”, but we’ll just go with “What is your best ever marketing advice?” And something that you obviously haven’t talked about already.

Tristen Sutton: Stop boosting. Stop hitting that little blue Boost button. Because typically what happens is people don’t typically have a strategy. So my top marketing advice is before you launch any kind of advertising or marketing campaign, write your strategy down. Who do you want to see that ad? What do you want them to see when they see that ad? When they click on the ad, where do you want them to go with it? What do you want to happen?

Most people just say “Hey, I just did a live video tour of this home I have listed. Let me just spend $50 on a boost” and just shoot it out there. And then it’s like “Okay, well who did you send it to?” “I don’t know, I just hit the blue button.” So have a strategy before you spend any money.

Theo Hicks: Would you say Facebook is the best platform for marketing for real estate professionals? I know in your bio it said Instagram as well. Is Instagram just not as good as Facebook?

Tristen Sutton: I’ve actually seen better results with Facebook between my advertising and my clients’ results. Instagram is more of a show and tell, Facebook is more of an engaging opportunity. Plus, Facebook is Instagram’s daddy; they own them. Facebook has 1.6 billion people logging in every day, versus 600 million with Instagram, at the time of this recording, of course.

Theo Hicks: Okay, Tristen, are you ready for the Best Ever Lightning Round?

Tristen Sutton: Let’s go!

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

Break: [00:15:48].14] to [00:16:35].09]

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

Tristen Sutton: I’ve recently re-read The Millionaire Next Door. It just kind of puts everything in perspective about how to live below your means and invest in your opportunities that are going to yield you money, like real estate.

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

Tristen Sutton: I’d probably go get my real estate license and [unintelligible [00:16:53].05] since I know how to market it. [laughs]

Theo Hicks: So I usually ask “What’s the best ever deal or the worst ever deal you’ve done?”, but I’m gonna change it up a little bit. I know that you give talks on marketing… What is the most unique group of people you’ve spoken to?

Tristen Sutton: I would say it was probably one of my first trainings; it wasn’t real estate related, it was just general business owners… And it was just a lot of individuals that didn’t even know how to use Facebook. Some of them didn’t even have a Facebook business page. So where I’m coming in expecting just to train them “Hey, this is how you generate leads”, it’s like “Well, hey, let’s set up a Facebook Ad account, or a Facebook business page for you, and upload your picture.”

So I would say my first training to general business owners who did not know much about social media.

Theo Hicks: Yeah, it is interesting that we’re living in an era right now where the younger people have always had the internet, and the older generation didn’t. [unintelligible [00:17:44].20] massive disconnect between — you give an iPad to a 5-year old and he can do everything. If you give it to a 7-year old, they can’t do as much as the 5-year-old. It is interesting.

Tristen Sutton: Very much so.

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

Tristen Sutton: Of course, I’m a speaker and trainer, but when this pandemic came, I just started reaching out to business organizations, real estate organizations, and started just offering free resources, and  training. I did a Facebook Live and shared it with a bunch of business owners and agents, that “Here’s the tools I’ve used to still market my business. Here’s my lighting setup, my camera setup, all the above.”

When I heard that restaurants were crashing, I did a free training for restaurants where I was saying “Hey, here’s a 30-minute crash course how you can make sure you stay in front of your audience and still get those to-go orders or pick-up orders, so you can still keep your doors open through and after this.” So just giving some free advice and training to those in need.

Theo Hicks: Yeah, there’s actually a bread vendor that just rented a van and just drive around the different hot spots for half an hour increments, and people will still drive up there to do their bread. I thought that was interesting. Kind of like that for restaurants, too.

Tristen Sutton: You know, one of my phrases is “Pivot or perish.”

Theo Hicks: Exactly. Alright, and then lastly, what is the best ever place to reach you?

Tristen Sutton: I wanna do a 2 for 1. So they can text to get a free Facebook Ads workbook to teach them how to set up their own. They can text “freeguide” to the number 31996. That would give them access to the website. It’s a workbook, and we all win.

Theo Hicks: Perfect, Tristen. Well, thanks for joining us today and thanks for giving us your advice and wisdom on Facebook marketing and how it relates to real estate agents and real estate professionals in general during the Coronavirus pandemic.

We talked about how it’s transitioning from — I like your little sayings… “Posting and hoping”, to the “Pay to play” strategy. If you go to your Facebook  business page, you can see that if you aren’t doing paid ads, then you’re getting very low engagement on your posts… And it’s because of the fact that Facebook has kind of changed their rules on that.

We talked about the four different types of ads – the Reach ads, the Traffic ads, the Video ads and the Event RSVP ads.

Something you also mentioned is that when you’re making advertisements for videos, you  wanna make sure that they are between 15 and 30 seconds, never longer than a minute. Then when you’re making content, you want that to be 3 minutes. That’s kind of the sweet spot. And when you’re making these ads, once they’re optimized for 30 days, you mentioned that some of the biggest mistakes people are making for advertising is poor graphics, so make sure you get high-quality graphics. Videos that are too long, as I already mentioned. Not having a call-to-action, and then not having concise messaging and concise targeting of an audience.

And then your best ever advice was to 1) stop hitting the Boost button, and then also make sure that before you  start a strategy, you write it out. Who do you want to see the ad, what do you want them to see, and then what do you want them to do once they’ve actually engaged with the ad.

Again, Tristen, thank you for all that advice and thanks for joining us. Best Ever listeners, as always, thank you for listening. Stay safe, have a best ever day, and we will talk to you tomorrow.

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JF2071: Marketing During The Coronavirus Pandemic With Jessie Neal

Listen to the Episode Below (00:19:44)
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Jessie has 6 years of social media and digital marketing experience with a focus on Facebook pay-per-click ads. Jessie shares what type of message you should be marketing out during this pandemic and also some general advice that helps investors find more leads. 

Jessie Neal Real Estate Background:

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Best Ever Tweet:

“Consistency, be consistent with your message, with your postings, however, you’re helping people, be consistent. ” – Jessie Neal


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I am Theo Hicks, and today we are speaking with Jessie Neal. Jessie, how are you doing today?

Jessie Neal: I’m good. As I said, I haven’t had a haircut in six weeks, but we’re trucking along.

Theo Hicks: Yeah, I’m sure everyone listening can relate to that. So today we’re gonna be talking about marketing – social media marketing, digital marketing – and some of the things that are changing with it during this Coronavirus pandemic, as well as long-lasting digital marketing techniques you guys can apply once all this is over.

Before we get into that, a little bit about Jessie – six years of social media and digital marketing experience. He’s an expert in Facebook pay-per-click ads, creator of Attacking the Stack, from Fort Mitchell, Kentucky. You can say hi to him at swiftreilease.com/attack.

Jessie, before we get into the Coronavirus stuff, do you mind telling us a little bit more about your background and what you’re focused on today?

Jessie Neal: Yes. I went to school for computer programming and web development, and learned really quick when starting my own business as an entrepreneur that websites didn’t matter unless you could get them traffic. So real quick I had to learn what are the best traffic sources out there; I bought a million courses online and tried to figure it all out, and eventually I ended up getting trained from Facebook themselves six years ago. I got really good with PPC ads for traffic. They did better and were more affordable than your Google ads, your Google PPC. Over the years, that’s changed a lot, and here recently, with the new housing category, all real estate ads have to fall into, we really had to get creative around October and November, to figure out how in the world are we gonna supply leads for our clients and for our own in-house wholesale company the easiest way possible, without really breaking the bank.

We developed  a custom software and a system we call “Attacking the stack”, so what we focus on right now is how do we get around the housing category. Our software has API access to Facebook – hopefully nobody from Facebook hears this… [laughs] But our clients send us a [unintelligible [00:05:09].04] that’s been skip-traced, with all the motivation in the list, obviously. We upload it in our system, Facebook hashes out that list as potential clients, and then we’re able to run whatever ad we want to those people.

We know there’s motivation, it gets us around the housing category, we know we’re targeting very specific people that we’re looking for. But at the same time, we wanna pull all of the low-hanging fruit out of a list, because sometimes Facebook can take some time, and it’s expensive. So what we do is we also do text and RVM through our custom software, and then after that whatever doesn’t come from Facebook, text or RVM then goes  into a long-term email sequence for follow-up, until they’re ready to become a lead.

So our goal is how can we affordably for any investor just starting out that only has less than $2,000 of ad spend to spend on marketing, period – how can we get them anywhere between 80 and 100 motivated seller leads a month. So that’s what we do. It’s really effective. We kicked that off at end of November, and we’ve picked up quite a few clients. It’s killed in-house. We’ve got over 721 motivated seller leads in our own in-house, at [unintelligible [00:06:15].12] CRM right now, from using the exact same strategy… So we’re doing pretty good.

Theo Hicks: Nice. So we were talking about this a little bit beforehand, but how are the leads that are being generated by these Facebook advertising campaigns changing, or how have they changed during the Coronavirus pandemic, compared to six months ago?

Jessie Neal: So we’re actually seeing an increase in leads, and we’re actually seeing an increase on the investor side. Obviously, when you’re using an absentee vacant list you’re looking for out-of-state owners who own multiple properties in a local area that you’re trying to pick up… So now we’re seeing a lot of nervous newer investors who may have only been doing this for a couple of years, that maybe own 4, 5, 6 properties, even as much as 13 properties all throughout Ohio,  that are looking to liquidate, because they don’t know what’s going on. So we’re actually getting a lot of those leads coming in… And a lot of normal leads. People who are like  “Hey, we’re done with this investment property” or “Hey, we can’t finish this flip”, and are willing to negotiate to liquidate right now.

The only problem that we’re seeing in all of this is leads are increasing, but with banks and hard money lenders having all kinds of problems, and holding on to money, and then your title company is slowing down, and you can’t get enough done on the backend. So it’s slowing everything down, even though we’re seeing an increase in leads. We’re still waiting to see whether or not that’s a good thing or a bad thing.

On the lead gen side I think it’s freakin’ great, but obviously, if a lead goes cold because you can’t close on it in 14 days, or three weeks, or whatever, then that can cause a potential problem.

So that’s the main good and bad that we’re seeing during the Coronavirus… But we’re still doing business in-house. I’m still doing lead gen, and we’ve actually seen an increase in clients coming on board since all of this, so it doesn’t really scare me at all.

Theo Hicks: So you mentioned that these Facebook ads during this time are better targeted towards out-of-state owners, right?

Jessie Neal: Correct. So if you’re doing any kind of marketing, I would focus on out-of-state owners that own properties in your area. Find people that own more than 30%, 40%, 50% equity, that own the property for more than five years… More than five properties, more than five years, more than likely they’re probably looking to liquidate.

Theo Hicks: Is that something that I can target on Facebook?

Jessie Neal: No, you can’t. That’s our little trick – you can do ListSource, you can use Propstream, whatever software you wanna use. I’m not trying to put a plug for another company or whatever, but… You download your list, get it skip-traced, and pull your motivation from your list. Then we actually target that list on Facebook. Facebook has the ability — because we have API access, we can actually run Facebook ads just to people on the list. If you were doing this on your own, you probably won’t be able to do it from Facebook; you might be able to get away with it once, but your best bet would probably be to pick up a texting platform or an RVM platform and reach out… Or if you’ve got a cold call team, I would start cold-calling those types of lists immediately. You’re gonna have really good luck with them.

Theo Hicks: Perfect. Out-of-state, five years, more than five properties – that’s kind of the major things you target, using the listing services you mentioned, correct?

Jessie Neal: Yeah, Propstream, ListSource… There’s a ton of ways you can get property data. You can go to county records if you don’t wanna pay for a service. I’m a big fan of paying for a service; it saves time.

Theo Hicks: Since you mentioned that you’re in the wholesaling business yourself, I wanna shift gears slightly a little bit and ask you — first, for some context, are these single-family homes, duplexes, 100-unit apartment communities? What types of properties are we talking about here?

Jessie Neal: Yes, we’re talking single-family homes, smaller multifamily, two-units; on the occasion you  might get somebody with a smaller apartment package… But I would focus on single-family homes. You get a bunch of investors that 2, 3, 4, 5 years ago bought 5-6 properties in the area, have been using them for rentals, and now with the whole “Hey, we can’t charge rents, so this is all done”, people are getting scared, so they’re dropping everything.

Theo Hicks: That was my question… So if I’m in the market to buy a single-family rental right now, how am I creating my rent assumptions?

Jessie Neal: I don’t do rent assumptions… [laughs] So I wouldn’t know. On the lead gen side – I can help you there. But I guess if you’re gonna buy some rentals and hold on to them, you’re probably gonna wanna make sure that you’ve got enough cashflow to be able to keep your current tenants in there until this is all done.

Theo Hicks: So you flip them?

Jessie Neal: I’m a part [unintelligible [00:10:26].05] They’re the ones that actually do the wholesaling, and then Freedom Real Estate group, which is our umbrella, has their own turnkey company and has their own property management company. So I don’t know a whole lot about how that works; they’re the ones that actually got me into the real estate game, out of the medical field.

Theo Hicks: Okay, perfect. So you’re the marketing guy.

Jessie Neal: Yeah, totally marketing. Anything that has to do with lead gen, social media promotion… But I can speak highly on the in-house portion; it doesn’t just work for our clients, we actually use it ourselves.

Theo Hicks: Perfect. I actually talked to someone earlier today about Facebook advertising as well, so I don’t wanna repeat the things that he talked about. I wanna change it up a little bit. Let’s talk about not paid advertising, but just content that people are pushing out as real estate investors in general. What type of messaging should they be using during the Coronavirus?

Jessie Neal: Messaging that’s actually going to keep people calm and help people. As an investor, you need to be showing solutions in how you’re actually helping people, and letting them know that you’re not in this for the dollar. Obviously, we’re all business owners, we’re all entrepreneurs, we’re trying to make money, but we do that by providing real solutions for real people, that are struggling with real problems.

So I would show “How are you doing that”, and go live with it; get as many testimony videos as you can surrounding that topic. It’s probably gonna help you… Especially when all this calms down, people are gonna realize that you’re genuine, and it’s gonna help you long-term for your business.

Theo Hicks: What about just general digital marketing advice for once all this passed? What are some things that from your perspective you see that investors are doing that are really big mistakes, that are holding them back from getting more leads using online marketing?

Jessie Neal: Consistency. Be consistent with your message, be consistent with your postings, whether you’re doing paid ads or not. If you don’t have enough money to do paid advertising and you’re just posting on a page and posting in groups, whatever you’re doing, whatever your message, however you’re helping people, be consistent. Be in there every day. And if you can’t be in there every day, then you need to hire a virtual assistant or have somebody that’s going to help you be consistent.

It is really hard in today’s atmosphere, with everything being social and mobile, to really stand out in the crowd. The only way you’re gonna do that is by being consistent. You may not see results 4, 5, 6 months down the road with some organic traffic, but if you’re consistent over the other guy, then 8 months or a year from now people are gonna remember who you are, because you’re still around.

Theo Hicks: What types of posts do the best? Video? If so, how long? Pictures with caption?

Jessie Neal: It depends on your strategy. Realistically, in today’s market people would rather watch a video that’s entertaining and educating and helpful, than a  post. But in the manner of consistency, do both. It’s really hard for some people to hop on a video and think of something to say every single day. If you can’t, at least do a video once or twice a  week and then post something. Post anything. I don’t care if it’s text, I don’t care if it’s image, I don’t care if it’s a podcast, audio… But do something, every day.

Theo Hicks: Okay, Jessie, what is the best real estate investing advice ever? You can answer that, or you can do your best social media marketing advice ever.

Jessie Neal: Hm, best social media marketing advice ever… Facebook is complicated. Learn it. If you don’t want to hire somebody, Facebook has a bunch of free training that you can take. Learn it. Learn their groups, learn their social postings, learn how to run your business page correctly, get on there and learn paid advertising… It will highly impact once you figure it out and learn it correctly; it will highly impact your business.

Theo Hicks: Perfect. Are you ready for the best ever lightning round?

Jessie Neal: Let’s go, come on!

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

Break: [00:14:06].10] to [00:14:54].10]

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

Jessie Neal: Best ever book… Obviously, I’m in marketing, and I’m real big on not spending thousands of dollars on copywriting, and hiring a copywriter. I like to learn that kind of stuff myself, best headlines and stuff… So there is a book right now “Copywriting Secrets” by Jim Edwards. Anybody who’s an entrepreneur on Facebook – I’m sure that Russell Brunson and all of them have targeted you… But I’ve just picked it up, I’m three-quarters the way full, and I’ve paid for copywriting courses, and I’m telling you, for a free book (I’ve paid $7 for shipping) it has some of the absolute best advice that I’ve ever read. So I hate to do a plug for Russell Brunson and Jim Edwards, but it’s a fantastic book, man. I’d say pick it up, seriously.

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

Jessie Neal: On the real estate side what would I do? I don’t see lead gen ever collapsing, but let’s say that it does… I would go and open up my software system that I own and I would pick another niche, and I would run $1,000 in Facebook ads and pick up clients tomorrow for whatever the new niche is.

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

Jessie Neal: Okay, that’s a good one. We’re obviously in Fort Mitchell, KY, and I’m actually from the Cincinnati, Dayton area, and I’m part of a group called Hope Over Heroin… And we have a drug rehab for men called Heritage House. So all through the summer I donate quite a bit of time, being their media and marketing director. I show up on site, hook up LED screens, and do all their media, all their on-site marketing – lights, sound, everything. So anyone who’s hearing this, it doesn’t matter if you’re nationwide, everyone knows somebody who’s struggling with addiction, you can go to HopeOverHeroin.com, or you can go to Cityonahill.com and look for the Heritage House link, and we take guys for free; you don’t have to pay.

So that’s how I give back, by helping both of those organizations financially and with my time.

Theo Hicks: I typically ask what the best ever or the worst deal is, but I’m gonna change it up a little bit – what is the worst marketing campaign you’ve ever seen?

Jessie Neal: Oh, Lord… I’m friends with a guy out in California by the name of Billie Gene. He has some courses called Billie Gene is Marketing. And back in the day, when we were both kicking it off, he had the worst ad I think I have ever seen in my life. It was back when the “Got Milk?” commercials were going on, and it was a picture of his face on a cow, and it said “Got leads?” And it bombed. It did horrible. But it was funny. Big ol’ black dude’s head, Billie Jean as marketing, “Got leads?” on the head of a cow. He ran it for  probably three weeks, spent a few thousand dollars and didn’t get anything from it. No traffic, no engagement whatsoever. So by far that’s probably the worst ad I have ever seen on the internet.

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

Jessie Neal: Best ever place to reach me – other than my cell phone, you can find me on Facebook. You can go to Swift REI Leads on Facebook. Just search us. Reach to me on messenger. Or you can go to the website that I think you have posted, the swiftreileads.com/attack. I reach out to everybody who fills out that lead forum personally.

Theo Hicks: Perfect. Jessie, thanks for joining us today and giving us some of your best ever social media and digital marketing advice. A lot of practical things that people can do right now during the Coronavirus pandemic, but also things that people can do in the future, once all this passes.

Just to recap, some of my biggest takeaways – number one, if you are looking for leads right now, the best person to target are out-of-state owners who’ve owned the property for more than five years and have more than five properties. You mentioned for your service you’re able to take a list of motivated sellers and actually target them on Facebook, as opposed to me having to send them direct mailers, or cold-call them myself.

We talked about from a content perspective during the Coronavirus, making sure that you’re providing messaging that’s keeping people calm, and actually trying to help people, so providing solutions to people, and kind of how you’re going through this from what you’re doing, as well as doing as many testimonial videos as you can

We’ve talked about general mistakes that people make when it comes to advertising on social media, and it was really just a lack of consistency; inconsistent posting frequency, inconsistent messaging… You wanna make sure that you’re there, doing something every single day. The best types of posts really vary on what you can do, and the industry that you’re in, but you mentioned it is good to post a few videos every single week, but overall, you just need to do something every single day.

And then your best ever advice is that Facebook is very complicated, but you  need to learn it, and there’s a lot of free training that you can find on Facebook to make sure you’re taking advantage of their marketing as much as possible.

Again, Jessie, thanks for joining us today. Best Ever listeners, as always, thank you for listening. Make sure you check out Jessie’s website, SwiftREIleads.com/attack. Stay safe, have a best ever day, and we’ll talk to you tomorrow.

Jessie Neal: Thanks, guys.

 

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.

JF2070: Three Factors to Consider for Property Coverage With Sean Harper #SkillsetSunday

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Sean is the CEO of Kin, an insurance company built from scratch on modern technology. Today you will learn three factors to consider when determining the right coverage for your property; covering the property for the right amount, why it’s important to get flood insurance and he shows how you can see if your insurance company is spending its revenue on claims or other expenses to make sure they take care of their customers.

Sean Harper Background:

  • Co-founder and CEO of Kin, an insurance company built from scratch on modern technology
  • Realized the homeowners insurance industry was still being managed in a way that NO other consumer financial products are managed today
  • Leads a team of 100+ employees to help educate and cover their clients 
  • Based in Chicago, IL
  • Say hi to him at https://www.kin.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“50% of flood losses happen outside of FEMA designated flood zones” – Sean Harper


TRANSCRIPTION

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

With us today, Sean Harper. How are you doing, Sean?

Sean Harper: I’m well. How are you?

Joe Fairless: I am doing well, and – a little bit about Sean. He’s the co-founder and CEO of Kin, which is an insurance company built from scratch on modern technology. He’s based in Chicago, Illinois. He leads a team of 100+ employees to help educate and cover their clients. Today we’re gonna be talking about three factors to consider when determining the right coverage for your property. This is a Skillset Sunday; I hope you’re having a best ever weekend.

First, Sean, how about you give us a little bit about your background, and then we’ll roll right into the three factors?

Sean Harper: Sure. I’ve been doing online financial services stuff for a long time; my co-founder Lucas and I both have. We really sort of stumbled into this insurance stuff when we started buying real estate ourselves. There were a lot of things about the real estate process that are pretty anachronistic, stuff that operates less efficiently than it could; insurance was one of them… And we were just scratching our heads at how manual and how much paperwork was involved, and how much back-and-forth… When there are other areas of financial services where it’s much more automated.

Think about getting a credit card, for example. You don’t need to talk to anyone; you just get the offer on the website and you click, and then you’ve got a credit card. So that’s what we’ve been building… It requires a lot of technology to do that, and most of the tech is around having — the core of every insurance company, bank, or whatever is actually a software platform. So all this software to do the underwriting rules, the accounting, the payments, the price and all that… So we had to build that, and then we had to build a really good system for understanding from public data sources and some private data sources, and even some machine learning, to understand the traits of the home. Because of course, we’re not there. We can’t see the building. So we needed a machine that’s really great at pulling data in, so that it does understand the building. It’s pretty fun, we’ve learned a lot about buildings… [laughter]

Joe Fairless: What have you learned?

Sean Harper: You know, it’s funny – the details are really important. One thing that really surprised me was even a simple trait of the building – think about square footage – is actually really hard to know. We’ll talk about a single-family house for a second. You could ask the MLS, you could ask the property tax site, and then you could actually take a picture of the home from above, from an airplane, and use the area times the number of stories you know it is to calculate it… And you’ll end up with three different answers.

Joe Fairless: Yeah.

Sean Harper: You could ask the person who lives there, and you could ask the person who lived there before them, and they’ll give you two different answers. And that’s just for square footage, which really should be a simple thing. Then you start trying to ask people what the quality of their cabinets and appliances are, or how old their HVAC system is, or what the pitch of the roof is… And the details get really complicated. There’s a lot of ambiguity.

Joe Fairless: How do you navigate that?

Sean Harper: We know that no data source is gonna be perfect for this stuff, so we try to  have redundancy and we try to have objectivity. One thing that insurance companies have always done is they’ve always relied on the user and/or broker to tell them about the building. And sometimes they know, and sometimes they’re honest. But there are also times when they know and there are times when they are dishonest. The first part, the objective sources that we use – they’re not always perfect, just like asking the user isn’t perfect… But at least they’re objective. They’re not skewed in any way. Versus if you start asking somebody who knows, that if they tell you they have a newer roof, for example, that they’re gonna end up with cheaper insurance – well, that creates a really big incentive for them to tell  you they’ve got a newer roof. And people do what benefits them; maybe they’re not being dishonest, maybe they’re omitting something.

So that’s a big part of it – we try to rely on sources that are objective… And then the other is we try to have redundant sources. In that example I gave you before, of square footage, if those three data sources are all pretty close, then you have a high confidence that it’s accurate. If there’s a huge spread between them, or maybe two of them more or less agree but the third one doesn’t, that tells you something about it as well. So having multiple data sources that are calculated in different ways, that can be used to cross-check against each other, is pretty important, too.

Joe Fairless: That’s a good lesson for anything where you have conflicting information… Even if it’s a he said/she said thing, well what are the objective sources saying that took place? And then are any of those objective sources redundant, or aligning with each other? And if so, then you go that direction with the answer.

Sean Harper: Yeah, absolutely. Having some tie-breaker is really nice.

Joe Fairless: Yup. Let’s talk about the three factors to consider when determining the right coverage for your property. What’s number one?

Sean Harper: Number one is you really wanna make sure that you’re covering the property for the right amount… And it’s really easy to get drawn into trying to find the cheapest insurance, because no one wants to pay more for insurance… But a lot of companies, especially a lot of insurance agents, will try to fudge essentially the insured value. So you might have a home or a building that’s legitimately worth 1.5 million dollars, and you’ll get an insurance quote that looks really good… And if you look under the hood, you’ll see that they’re only ensuring the building for 1.2 million dollars.

So that’s really important, is just to figure out how much the coverage costs you relative to the amount that’s being insured, and to make sure that the amount that’s being insured actually does cover the property… Because it’s not likely that something happens to your property, but if it does, you definitely don’t wanna be short on your insurance, because that could create a big problem; it could wipe out your equity.

The second one is  — a lot of people don’t realize this, but most property insurance, commercial or residential, doesn’t include some really important hazards… And the biggie is flood. A normal homeowner’s insurance policy, or a normal commercial – it can go either way; it could include it or it couldn’t. You really wanna make sure that you’re buying flood insurance… And that’s true even if you’re not in a flood zone.

Mortgage banks will usually enforce that you get flood insurance if you are in a FEMA-designated flood zone… But the problem is that FEMA drew those flood zones a long time ago, and things have changes. The types of weather that we get change, the sea levels have risen, and then also things get more built up, it can create flood dynamics… If everything’s paved over near you, there’s no ground for the water to soak into, so it makes floods more likely. And you can see some really bad situations. If you go to Houston, there are neighborhoods that still haven’t really rebuilt fully after Hurricane Harvey, which was two years ago, and that’s because people didn’t have flood insurance. So 50% of flood losses happen outside of FEMA-designated flood zones. And the really tragic thing is that if you’re in one of those areas, buying flood insurance actually doesn’t cost that much.

Joe Fairless: If you’re in a non-FEMA flood zone.

Sean Harper: If you’re in a non-FEMA flood zone. Because it’s not that likely that you’re gonna get flooded, but that’s why you buy insurance. You buy it for the stuff that’s not likely, but would be really crappy if it did happen.

Joe Fairless: What are some other things besides flood insurance that most property insurance doesn’t include?

Sean Harper: The other biggie is earthquake. If you are in an area where earthquakes happen, that’s usually not covered by a normal policy… And then there’s sort of a subset of this where the deductible will be different. Oftentimes now if you’re in a place where there is a lot of wind and hale, you’ll end up with an insurance policy that has a second deductible. So it might be a thousand-dollar deductible. But then there’s an asterisk next to it that says “Well, unless it’s wind, or hale loss… Which, that’s a pretty common type of loss.

Joe Fairless: Sure.

Sean Harper: It’s a very common insurance claim. And those deductibles could often be a lot higher. It’s very common. They have a $1,000 normal deductible, and a $10,000 hale deductible on even just a normal house.

Joe Fairless: Okay. And number three?

Sean Harper: Number three – this one gets a bit esoteric, but it really helps if you can look at the financial statements (which are all public) from your insurance company. They actually have to file their financials with their state regulator…

Joe Fairless: I can already tell this is gonna be less than half of a percent of any person who’s getting insurance, based on that, so far.

Sean Harper: Absolutely. But it’s so easy to do. What you’re looking for is you’re looking for how much of their revenue they spend paying claims, versus how much of the revenue they spend on their overhead. What you wanna see is you  wanna see an insurance company is spending most of the revenue that they get paying claims… Because that’s what you as a user care about. And because insurance can be really hard to compare, the last thing you want is your insurance company spending a little bit on paying claims… Maybe they argue with you a lot when there is a claim, or try to short-change you, and then they’re spending the rest of the money on corporate jets and fancy buildings and everything else for them.

Joe Fairless: Well, not having studied financials of insurance companies before, what percent would be considered high, versus average, versus low?

Sean Harper: That’s a really good question. For property insurance, the average is about 30% is spent on overhead and 70% is spent on claims. There’s actually a lot of variance. You’ll find companies that are 40/60, you’ll find companies that are 20/80. And usually, the ones that have the lower expenses are also the ones that have better customer satisfaction, because they’re not nickel and diming you when you have a claim.

Joe Fairless: What are some insurance companies that stand out in a good way in that regard?

Sean Harper: Some of the best insurance companies are regional. We’re very regional; we’re focused in just a handful of big states. One that is a national carrier, more on the personal insurance side, that does really well on that, is USAA. But it really is hit or miss. It’s not always the big brands that are the most efficient. In fact, some of those are the least efficient.

Joe Fairless: And what are on the opposite side? USAA is on the good side; what about the opposite side?

Sean Harper: I don’t wanna say that. That’s mean. I don’t wanna pick on anyone.

Joe Fairless: It’s just facts.

Sean Harper: [laughs] I’ll leave that as research for the user.

Joe Fairless: Where should they go to research that? Where is an easy place to look at that?

Sean Harper: The easiest is to just go to whatever state you’re in, search for their office of insurance regulation. Where I live, I just google “Illinois office of insurance regulation.”

Joe Fairless: Anything that we haven’t talked about as it relates to the three factors to consider when determining the right coverage, that you think we should?

Sean Harper: Those are my top three.

Joe Fairless: Well, how can the Best Ever listeners learn more about what you’re doing and get in touch with you?

Sean Harper: Kin.com is the easiest way.

Joe Fairless: Sean, thank you so much for being on the show and talking to us about the three factors – one, make sure we have the right amount; two, make sure that we have the right hazards covered, taking a look at flood and earthquakes in particular, and three, taking a look at the public financial statements of the insurance companies, and seeing what proportion of revenue is paying claims versus overhead.

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

Sean Harper: 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.

JF2069 : Improving Your ROI Through Energy With Scott Ringlein

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Scott is the Founder and CEO of The Energy Alliance Group of North America, who was raised as a farmer, educated as an engineer and trained in the auto industry. In this episode, Scott goes into some details on what you should be thinking about when it comes to reducing your energy cost and improving the efficiency that can help improve your ROI. 

 

Scott Ringlein Real Estate Background:

  • Founder & CEO of The Energy Alliance Group of North America
  • From Ann Arbor, Michigan
  • Raised as a farmer, educated as an Engineer and trained in the auto industry.
  • He Suddenly Lost his job after 20 years of working as a Chief Engineer in the Auto-Industry.
  • He Has been the Technical Advisor to the U.S. Dept of Energy in 2009 and 2013
  • Developed and executed global strategic business plans to secure incremental business with sales revenues of $250+Million.
  • Managed a 50+ member international design and development program team.
  • Say hi to him at : www.energyalliancegroup.org
  • Best Ever Book: Credit Secrets

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Investing in efficiency conservation and renewable energy solutions definitely help the bottom line. They can generate cash from day one.” – Scott Ringlein


TRANSCRIPTION

Theo Hicks: Hi, Best Ever listeners, and welcome to another episode. I am your host, Theo Hicks, today, and I will be speaking with Scott Ringlein. Scott, how are you doing today?

Scott Ringlein: I’m doing super, thanks Theo.

Theo Hicks: Good, and thank you for joining us. I’m looking forward to our conversation. Before we begin, a little bit about Scott – he is the founder and CEO of the Energy Alliance Group of North America. He’s from Ann Arbor, Michigan. I made a joke about going to Ohio State, but he is a Spartan fan, so there’s no issues there…

He was raised as a farmer, educated as an engineer, and trained in the auto industry. He suddenly lost his job after 20 years of working as  a chief engineer in the auto industry. He was the technical advisor to the U.S. Department of Energy from 2009 to 2013. He has developed and executed global strategic business plans to secure incremental business with sales revenues of 250 million plus. He has managed a 50+ member international design and development program team, and  you can say hi to him at energyalliancegroup.org.

Scott, before we go any further, do you mind giving us a little bit more about your background and what you’re focused on today?

Scott Ringlein: Yeah. Like you referred to, I was in the automotive industry  for almost 30 years, and then in 2008 with the collapse of the automotive industry, along with the financial market and everything else, I was one of literally thousands in the state of Michigan that their career in automotive abruptly ended, and I had to find a different path.

The first thing I did was I got an office at a local incubator in Ann Arbor, and hired an executive coach, kind of got a feel for “Okay, what are some of my skillset? How can I apply it to this new world out there?” I started my first company in 2009, called On Point Business Planning Solutions. I did strategic planning for startups.

One thing led to the other, I got asked to come and work for the Department of Energy in the Obama Administration on the American Recovery Act. I did that for a couple of years. That was my first introduction to the energy field, the efficiency. At the wrap of that in 2011 I started looking into the field and funding tools that were out there, and that was really the a-ha moment.

I started the Energy Alliance Group in 2012, and since then we focus on large-scale industrial-commercial energy efficiency conservation and renewable energy projects. And not only are we working in that field, but we also help clients bring in the funding to do it, identify the technology solution, and then get into the incentives and tax credits that are out there that make it all happen.

Theo Hicks: Okay, thank you for sharing. Let’s start with where you are now with the Energy Alliance Group. You mentioned that you work with these large industrial and commercial people. Is it the owners of the actual properties you’re working with?

Scott Ringlein: Yeah.

Theo Hicks: Okay. So some people listening to the show do own commercial real estate, industrial real estate, other people own smaller portfolios, single-family homes… So I want to know if you could let us know some of the opportunities there are at these commercial sites, at these industrial sites for energy conservation, and then the cost savings that are associated with that. Once you say that, we can  figure out how this can apply to us as real estate investors. So what are some of the things that you identify when you’re working with a client?

Scott Ringlein: First of all, in regards to the real estate side of things, a lot of our clients are commercial building owners, but they’re also multifamily. So we do a lot of multifamily. We don’t do a lot of just single-family home; they’re gonna be a multifamily home or apartment complexes.

But first and foremost, investing in efficiency conservation and renewable energy solutions definitely help the bottom line.  They can generate cash from day one. So the first question that most will have is “Hey, how  can that be?” It’s all about the financial side of the transaction. So while you have to have a technical solution, typically that’s the first approach. “Oh, I should do lighting, I should do this.” Well, that’s all good, but you really need to look at the transactional side with the funding mechanism, whether it’s gonna be cash or some type of investment dollars or whatever. But that’s really what drives what can be done, and then how do you achieve cashflow-positive from day one.

The thing that most people don’t realize is there is a vast amount of money out there for doing these specific things, and there’s moneys out there that you can get 25-year term, fixed rate, non-recourse funding to do it. So when you’re looking at roofs, and windows, and insulation, and HVAC systems which are capital-intensive, don’t have a big return, you have to use these types of funding mechanisms along with what we call the cherry-picking, where you have a high return, like lighting and controls… Mix them together and now you can do a whole building, rather than just individual pieces of it to improve its efficiency, make it a better building, make sure that it’s financially healthy for the owner, but then provide a much better place for the tenants… And that’s really important also.

Theo Hicks: Okay, so you talked about there’s the larger projects you can do, and then the smaller, higher return solutions. Could you just maybe list off some of those higher return solutions?

Scott Ringlein: Yeah. Certainly controls and lighting are the first things that people should be looking at. And you can’t do one without the other. Old lighting technology and putting them on controls just doesn’t work. You can’t dim a lot of the old technology out there, so you’ve gotta do both at the same time. But then you’re managing when it’s on, how long it’s on, and then also you’re installing a lighting system that’s gonna operate 50% to 70% less.

Then from there you’re gonna get into your HVAC, hot water generation – those are more capital-intensive, but you’re also going to see a better return on investment. The more capital-intensive are when you’re getting into roof replacements, window replacements, insulation, doors, stuff like that. Typically, you’re not gonna get very good terms from a financial standpoint, and you’re just not gonna see these big, huge reductions in your utility cost. They have to be matched together with something that’s going to bring a pretty big return, with something that really doesn’t get a good return, but they go hand in hand. Why would you replace an HVAC system on a commercial building if you have windows that are either single-pane, or maybe they’re dual-pane, but they’re leaking. That’s just not a really good investment, because any of the efficiencies in reduction and utilities you’re gonna get – it’s still going basically out the window.

Theo Hicks: Okay, thanks for sharing that. I’ll make a statement first – I know on Joe’s deals they do green energy programs. They’ll get a consultant to come in who will look at every single opportunity that there is for conserving energy. Some of them have ROIs of like 30 days, other ones have ROIs of 100 years… So this sounds familiar.

Let’s talk about how to get the money. I’m assuming for things like control and lighting – those are things that a multifamily investor can budget for and pay for out of pocket or raising money… But you did mention that people will get financing for the more capital-intensive projects, like roof replacements, insulation doors… So are there specific companies that provide financing for these types of programs?

Scott Ringlein: Yeah.

Theo Hicks: So how do I find these people?

Scott Ringlein: Probably the biggest program that’s going on right now across the U.S. is the PACE program. That’ an acronym for Property Assessed Clean Energy. It started in California back in ’09. It’s now in about probably 35 to 40 states. Basically, it’s no different than the property tax assessment structure that’s used for improving roads, or building libraries or sidewalks. Whoever benefits from it is the one that takes on the assessment.

So in the case of a building, you own it, you raise your hand and you say “Hey, I wanna use this program and take on a property tax assessment that’s going to improve my building in these three categories: efficiency, conservation and renewable energy measures.” The amount you can get is based on the value of the property, and then do you have any debt against it – so there’s restrictions on loan-to-value and stuff like that. But typically, you can get 20% to 30% of the value of the building to do these improvements.

Because it’s a property tax assessment, one, on your balance sheet it’s an expense, it’s not a debt. And two, because it’s property tax assessment, it’s secured by the property itself, not the owner. So it’s non-recourse. And say you’re gonna sell that assessment – you can get up to a 25, some places 30-year period; it transfers with the property.

To give an example –  you go in and you buy a commercial building that’s tenant-based, and it needs a lot  of stuff. So you’re buying it cheaper, because it needs a lot of improvements. You can use the PACE program to make the improvements without any out-of-pocket cash. It’s paid through the property tax system; it’s set up so that the reduction in maintenance and utilities – that savings is gonna be greater than the cost over the assessment period. It’s not secured by the owner, so it’s not gonna show up as a debt, or affect their credit rating… And then if you sell it in five years, it just transfers with the property along with the improvements.

So in that case, your investment is the building, you’re using other people’s money to improve it, now you can get better tenants, you can draw higher lease rates, and you’re not bogged down by “If I sell, I have to come up with this money to pay off this assessment.” It just transfers with the property. So the only thing you’re focused is on your initial investment.

Right now that’s one of our go-to programs that we’re utilizing for a lot of the projects that we do. It can be used for new construction in some states, you can use it for multifamily, you can use it for non-profits… Every state is gonna be different, but certainly it’s something that everyone should be looking at.

And then for the listeners — you asked, “Okay, where do I find out about this?” So there’s a non-profit based in DC, and it’s called PACE Nation. If you go to PaceNation.org, you can click on your state and you can find out whether or not the state has it… Because it’s a state law, first of all. But then it has to be approved by the tax collector, because property taxes are collected locally, so they have to create these PACE districts.

All that information is out there, lots of resources out there about how it works, the benefits of it, lots of white papers… And then, for the non-believers, lots of case studies of projects that are being done or have been done. And then you can talk to people like ourselves, that can at least guide you through this process to kind of get you started.

We work anywhere in the U.S, but we wanna hook you up with somebody that’s gonna be local, and they’re really gonna know the ins and outs of the program in whatever location they are. And this is a program that’s not only being used by the U.S. It’s now in Canada, it’s in Europe, and other countries are looking at it to improve buildings, which are finally being considered infrastructure, like roads are.

Theo Hicks: Okay, thank you for sharing all that. So your company would be someone that would be a consultant of sorts, that would work with PACE on my behalf as an owner of a commercial building, correct?

Scott Ringlein: Yeah, we would come in and basically — we’re gonna come in, we’re gonna work on the financials first… You need a budget, you need to understand how much is available. Then we do the assessment of the building and identify, as you mentioned before with Joe – we’re gonna identify everything that qualifies under the program. Then we’re gonna take that and narrow it down to what you need versus what you want. Everybody wants all the fancy stuff, but there’s certain things that  you need. Get that down to that, and now we have a scope of work. We would manage everything after that – identifying the technology, bringing in the companies to get it done, handle any of the incentives that you would qualify for, whether they’re local utilities or maybe state or federal tax credits, and do the entire thing for the client.

Theo Hicks: And then when I’m working with a program like PACE, for example, I’m assuming that once I close — is the money access through a draw program?

Scott Ringlein: Yeah.

Theo Hicks: Okay, so for that draw program they wanna make sure that the dollars are being used specifically for the energy conservation solutions, and not anything else.

Scott Ringlein: That’s correct, yeah. There’s a checks and a balance that’s in there. Also, some states — we’re based in Michigan, and any project greater than $250,000 there’s also an annual audit and verification, to make sure that “Hey, the program’s working. You’re following the maintenance requirements”, and stuff like that. It’s a pretty well thought out program. And again, it’s giving access to funding that typically you just can’t get, especially the terms that you’re able to get through the program.

Every program has its nuances, but for the most part at a high level that’s really what it is. You’re able to use your property value and the property tax assessment system that’s literally been around since the 1700’s to actually improve your building.

Theo Hicks: Perfect. Alright, so I wanna get your best ever advice, but I want you to gear it towards someone who is wanting to get started in this. So what’s your best ever advice for the first thing someone should do that wants to get started with taking advantage of these cost savings that come with these types of programs?

Scott Ringlein: Get educated. Listen to these shows,  go out to places like PACE Nation, learn about it, and then don’t be afraid to call others for help. That’s what we do for a living. You do what you do for a living. Don’t try and do something that you don’t have a lot of experience in. Because what we see is that they try, they fail, and then they just go back to what they were doing, which is really costing them money.

Something I wanna point out – this is the best advice ever, honestly, Theo. The moneys that you’re going to spend – you’re already spending it. Today you’re spending though on utilities and maintenance. All we’re doing is say — if you’re spending $100 a month on utilities and maintenance, we’re gonna take 90 cents of that, improve your building, and then we’re gonna put 10 cents of it into your pocket every month. That’s how it works. So you’re already spending the money.

Theo Hicks: Perfect. Alrighty, Scott, are you ready for the Best Ever Lightning Round?

Scott Ringlein: You bet. Bring it on.

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

Break: [00:20:45].04] to [00:21:31].15]

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

Scott Ringlein: Credit Secrets.

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

Scott Ringlein: Go find a job… [laughs]

Theo Hicks: Can you tell us about one of the projects you’ve worked on that resulted in the greatest cost savings?

Scott Ringlein: Actually, it’s the one we’re working on right now. It’s a million square foot facility. We are replacing 3,600 light fixtures, exterior and interior, installing controls. Their return on investment in year one is nearly 70%.

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

Scott Ringlein: Through charity. I’m a big fan of doing good and doing well. A couple of years ago I actually got a trademark for a charity program called Kilowatts for a Cause, where through a solar installation – the profits of the operation of it actually go to a charity that’s selected over a 20 to 25-year period.

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

Scott Ringlein: The Energy Alliance Group, that’s our company name. The website is energyalliancegroup.org.

Theo Hicks: Alright, Scott, thank you for joining us today. I know a lot of the Best Ever listeners are gonna benefit from learning about these programs, and I’m sure they’re gonna enjoy the cost savings as well. Just to quickly summarize what we’ve talked about… You’ve talked about the energy conservation programs that relate to real estate, and that you want to focus on what you can do on the transactional side. What you can do right away, so that you can start generating cash or cost savings from day one, which involves understanding how you’re going to fund these projects. And then the fact that what most people don’t realize is that there’s actually a lot of money out there that you can get, so that you don’t have to get it through your traditional lender, or going out of pocket. There’s 20-year fixed-rate non-recourse loans.

We talked about the PACE program that’s available in most of the states, and that works like a property tax assessment. We talked about the amount of money you can get, up to 20%-30% of the property value. It’s considered an expense, and not debt, and it’s secured by the property and not the owner, and then it also transfers with the property. So the benefits are different from a traditional loan.

You walked us through an example of how it would actually work, and if people want to learn more about this PACE program, there’s  a program called PACEnation.org.

You walked us through some of the solutions – you  said controls and lighting, you talked about HVAC and hot water, roof replacement, insulation indoors, and how a lot of these things are tied together. You don’t wanna replace your HVAC if you’ve got really bad windows. You don’t wanna replace your controls if you’ve got really old lights…

We talked about  your company and how you essentially go in there, determine everything that can be done, and then based on that what you need to do, create a scope of work, and then you manage the process from there, finding contractors, things like that.

And then lastly, we went over your best ever advice for people who are interested in reducing their energy costs. It was to get educated, so go to a place like PACE Nation to learn about the program, don’t be afraid to call others like you for help. It’s probably not the best to do this on your own, because it’s a pretty unique and specialized type of solution.

Then something you mentioned that I really liked is that you’re already spending the money on your utilities and maintenance, so why not spend less money on  a loan of sorts that will make improvements to the property that reduces your utilities and maintenance costs.

Scott, thanks again for joining us today. Best Ever listeners, as always, thank you for listening. Have a best ever day, we’ll talk to you tomorrow.

Scott Ringlein: Thanks, Theo. I surely appreciate it.

 

Website disclaimer

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

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

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

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

Oral Disclaimer

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

JF2068: Experience Investor Danny Randazzo Shares His View During The Coronavirus

Listen to the Episode Below (00:25:23)
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Danny is a Managing Partner at Passiveinvesting.com and Author of Wealth Lessons for Kids. He is also a multi-return guest and can be found on previous episodes JF1447 & JF1684. As you know, the Coronavirus has been impacting several investors and In this episode, Danny goes into how he is handling his business during this pandemic. 

Danny Randazzo Real Estate Background:

  • Managing Partner at Passiveinvesting.com 
  • Author of Wealth Lessons for Kids
  • Became a millionaire at 29
  • Controls over $225M in real estate
  • Based in Charleston, SC
  • Say hi to him at: https://www.passiveinvesting.com/

 

 

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Best Ever Tweet:

“Over the past year, I have really had the opportunity to work “ON” the business instead of “IN” the business.” – Danny Randazzo


TRANSCRIPTION

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

Danny Randazzo: Theo, I am doing great. Thank you so much for having me on. I am excited to be back, and hopefully add some value to the Best Ever listeners.

Theo Hicks: Yes, and I think you’ll be able to add value, because we are going to talk about some of the challenges that Danny is facing during the current Coronavirus pandemic. For context, everyone, we’re recording this on the 29th of April.

Before we get into that, a little bit about Danny’s background. He’s a managing partner at PassiveInvesting.com. He’s the author of Wealth Lessons for Kids. He became a millionaire at age 29, and controls over 225 million dollars in real estate. He is based in South Carolina, and you can say hi to him at PassiveInvesting.com. Great website URL, by the way. Did you just find that right away, or did you have to pay [unintelligible [00:03:58].27] for that URL?

Danny Randazzo: We invested in that URL for an undisclosed sum of money, but it has been tremendously worth it when you think about the brand that you and Joe have really built around Best Ever. For us to have PassiveInvesting.com is a huge piece when we talk about what we do in the multifamily syndication space.

Theo Hicks: Oh yeah, I bet. Before we get into some of the challenges that you’re facing with the Coronavirus, let’s catch up, and you can tell the Best Ever listeners what you’ve been up to the past year. So maybe start and say how much you controlled a year ago, and then how many deals you’ve done, any developments that you’ve done in the past year, and then I can ask some follow-up questions on that.

Danny Randazzo: Perfect. Over the past year – and I’ll add in these first four months or so into 2020 – so between 2019 and today, we’ve acquired 120+ million in multifamily assets across the South-East U.S. If you go back and listen to my first episode of kind of how I got started, I wanna say it was episode 961, but Theo, maybe you can correct me if I’m wrong there… It’s been an incredible journey. Over the past year it’s really been the opportunity to work ON the business, instead of IN the business, if you will.

So a couple of high-level and strategic decisions that we made leading into the beginning of 2019 was to solely focus on multifamily and really tighten in on our scope and hone in on our specific property types and property locations. What that allowed us to do was be looking for really good deals in very specific  market and investment criteria in order for us to best serve our investors with great investment opportunities. And having that very specific focus and strict investment criteria has really allowed us to be successful and has carried us through that 2019 period into today, where we really focus on buying assets that are 150 units or greater, built 1990 or newer, in excellent markets like Charlotte and Raleigh, North Carolina, and Greenville, South Carolina, that are priced between 30 and 60 million dollars.

Having that focus has allowed us to acquire about 120 million in multifamily over the last year, and we’re slated to continue that growth in 2020, and as we continue through, to finishing the year.

Theo Hicks: Perfect. Thanks for sharing that. So let’s transition into talking about Covid. One thing that I’m curious about — so you do have a business partner, and I know a lot of people when they talk about finding about business partners that complement each other… I was wondering, so during a time like this, how are you and your business partner deciding what’s the best line of action? Maybe tell us what these conversations are like. Does one person have more control over certain aspects of the business right now, or are you both coming to these decisions together? I’m just wondering what that communication is like.

Danny Randazzo: Yeah. In terms of the business itself, we have a full team of people at PassiveInvesting.com. You have myself and two other managing partners, Dan Handford and Brandon Abbott. And then we have a director of design – that’s my wife, Caitlin, who helps with our value-add projects. We have Brian, who is the director of asset management, and he brings many years of experience. He worked with Aimco, overseeing over 175,000 units under management… So he brings a ton of experience to our asset management team. And then we’ve got Melissa, who is our director of marketing, and Ann, who’s our director of investor relations.

One thing that I always hone in on is the value of a team. Investing in large multifamily properties to have a successful business that buys hundreds of millions of dollars of properties, you need to have a strong team around you. So it’s not just two of us, it’s not three of us, it’s a whole team of people… But we, again, spend time investing and working on the business over the year of 2019, and even into today, where we are allocating roles and responsibilities so we’re not falling behind, and we’re always being proactive in 1) managing our current portfolio, and making sure investors are very well informed and up to date as of the current happenings in the economy, and just in the country in general, with the Covid pandemic.

One thing that was really important to us as a group was making sure transparency and information is always shared with anyone who invests alongside of us in these projects… And putting your money to work is a huge commitment. And then if you have an operator or a general partner who may not be sharing or may be giving quarterly updates, or all of a sudden distributions are stopping because of the Covid pandemic, and you don’t know why, that would be a red flag to me. I’d be asking a lot of questions of that operator.

So one thing that we always really strive to do is just overcommunicate things… And I’m pleased to say that in the month of April our portfolio collections average greater than 96% for April income, and we were able to pay out monthly distributions exactly as planned, from our performance.

So it really speaks to the quality of our management teams on-site, at each property, the quality of our resident base, just having very strict renting criteria in terms of qualifying a potential applicant, making sure that their income, their job history and their credit score are solid to live there… And then number three, it’s having a great property, in a great location, where you know people want to live and choose to live.

So having that team absolutely made it such a smoother process going through the Covid scare. I could not imagine being a single shingle, single-person operation at that time, where 1) you’re trying to manage the asset, 2) you’re trying to communicate with investors, 3) maybe you’re doing some marketing to keep your sales funnel or business funnel going – that would just be very overwhelming in a time like Covid… So to really highlight what we’ve done, Theo, we’ve had a great team in place and we’ve been building that team over the years to get to where we are today. I think one tip for the Best Ever listeners – if you are a single operator and you want to own a lot of single-family properties, or you wanna own thousands of multifamily units, you need to have a strong team around you… So I would heavily invest in building that team.

Theo Hicks: Thanks for sharing that. Let’s transition into something else. How have your underwriting standards and your due diligence process changed on the deals that you are looking at, that you are doing, over the past few months? Because obviously, you did 120 million dollars in acquisitions over the past year and 3-4 months, a year and a half… So obviously, you’re still doing deals, so I’m just curious what changes you’ve made to your underwriting process, to your due diligence process during this time when you don’t really know what rents are gonna be a month or two months or three months from now.

Danny Randazzo: Yeah… Two huge things that stand out to me. Number one from an underwriting perspective is your debt service assumptions. Currently, what has happened since the middle of March through today, the volume of lenders in the marketplace lending on multifamily properties like your size that we look at (150+ units) has drastically been reduced. A lot of CMBS, private lenders, bridge lenders, life companies have hit the pause button in their business. These lenders don’t just lend on multifamily assets, but they also lend on hotel projects, retail shopping centers, restaurants, other things like that… So I would imagine they hit pause in their business to see how their collections would be in terms of servicing their current debt on their balance sheet without needing to give out more loans and increase that debt and increase that volume of servicing.

So the debt underwriting assumption is a huge thing right now. It is a challenging time in the multifamily space to do value-add deals with bridge or private lenders. So one thing I would just encourage the Best Ever listeners to be is very cautious on what type of debt is feasible today. And hopefully, over the coming weeks and months, the lenders will stabilize. We are seeing some good indications that people will be getting back into the business, kind of unpausing, now that Covid has kind of settled in and the hysteria has died down a little bit.

So hopefully, some of these lenders come back into the game and force the agency lenders Fannie and Freddie to be a little bit more competitive. Over March and April of 2020 Fannie and Freddie increased their spreads in rates, because they were really the only lenders doing business, and there was a huge demand from buyers looking for new deals, or buyers looking to refi existing properties… So the rates went up.

We are seeing good signs that rates will stabilize, but if you are looking at an 80% occupied property that requires a couple million dollars in cap-ex renovations, I would be very inquisitive about what type of debt you’re gonna get. Is a bridge loan feasible? What sort of commitment can that lender give you? So that would be a huge thing for underwriting, is get your debt right, because the debt will kill the deal before closing, potentially, or it’ll kill the deal after closing, if the debt is not right.

Number two, it’s really that stabilization time period that we’ve updated in our underwriting. So even if we have a very strong property, with very strong occupancy, fundamentals, and job growth and population growth projected, we’ve done some minor adjustments to our underwriting to be even more conservative with the impacts of Covid. People may not move around as much, potentially, so that could impact occupancy. People could be moving back in with relatives, giving their apartment up for a couple of months if they’re laid off or furloughed… So those are just some considerations.

Our investment philosophy is to always be conservative when we’re underwriting a deal. So if we can increase the vacancy rate in which we are expecting the property to be at, it gives us a lot of comfort and cushion in the investment business plan to ensure that we can maintain the occupancy at the property and be able to run and stabilize the asset, given we don’t really know what’s gonna happen with Covid over the coming months.

Theo Hicks: Maybe you could quickly give us an example of what you mean by change in vacancies… So what have you been typically underwriting, and what are you underwriting as vacancy now? I know it’s gonna be very market-specific, so if you can just give us a ballpark…

Danny Randazzo: Yeah, in terms of a ballpark, let’s say if you were historically underwriting deals at 93% occupancy, when you close and maintain, and let’s just say the property has on average maintained a 94%-95% occupancy rate over the last few years, I would adjust and look at the occupancy with maybe a 7% drop. So maybe you’re looking at 85%, 86% occupancy at  the property, just to give you a level of comfort… And maybe you underwrite that to only remain for the next six or twelve months… And then we can kind of comfortably say in 6 or 12 months the market should be back to normal, so we’ll then assume a 93% occupancy once we stabilize.

Theo Hicks: Thanks for sharing that. Obviously, you’re director of marketing, so you guys are still actively looking for deals… Over the past 3 months or so, have you seen more owners wanting to sell, less wanting to sell, or has it been the exact same?

Danny Randazzo: I would say over the last two months, really when Covid broke in early March, the deal volume has kind of slowed down, where sellers may not be able to sell if they have huge pre-payment penalties with their in-place debt. Number two, buyers may not be able to buy because the interest rates have gone up, the volume of lenders has gone down… And a lot of investors, even if you think about it, whether  you invest with friends and family and private investor money, or if you go with private equity or institutional equity, a lot of those people have kind of just said “We’re gonna pause, we’re gonna see what happens over the next 60-90 days in the marketplace before we make an investment decision.” And while that makes sense in theory, I think there’s still good deals to be done.

We’re in the process of closing an active acquisition right now, which has been a fun learning process for us, going through due diligence with Covid… But I think there’s still really sound investment opportunities out there, and the biggest scare to me is just having money in the stock market when it goes up and down by 20%-30% in a day, which I think would give people a  lot of heartburn, potentially.

Theo Hicks: Okay, and what about from your investor relations standpoint, or whoever is responsible for finding new investors? Are you finding more people interested in investing in apartments, or less, or the same?

Danny Randazzo: Yeah, as the stock market continues on this rollercoaster and really scares a lot of people, we’re seeing a reasonable increase in investor interest. A lot of people are looking for stable investments that 1) are a secure place to store your equity, where it’s not gonna go anywhere overnight. You’re investing in a physical, real asset. It’s not a fictitious piece of paper or an internet technology-based thing. This is a  real asset. You can go there, you can see it. It’s not gonna go anywhere.

Number two, it’s investing in multifamily for the cashflow. So having great cashflow-producing assets — I always think about Benjamin Graham, the mentor and coach to Warren Buffet, educating about compound interest. So if you have money sitting on the sidelines, not doing anything, you’re really technically losing money, because you have the opportunity cost to invest that money, while it may be at a good rate of return; that would b an opportunity cost to sitting on the sidelines.

So if you sit on the sidelines for one year, where your money is not compounding, it really ruins the future value of that equity when you think about what it will be valued at in 30 years if it compounded at 6% or 7% interest year over year.

So having money and having a safe place to put it, like multifamily, is one reason why I invest. Of course, monthly cashflow is great, and the tax advantages that come with multifamily as opposed to really zero tax advantages coming from active investing or from the stock market – it’s just another plus that kind of is a good indicator for my family and my personal wealth to be invested in these assets.

Theo Hicks: Perfect. And then the last question, I guess more on a personal note – what types of things are you doing to make sure you stay sane, stay emotionally grounded during this Covid time? Because it’s pretty crazy out there. I’m just curious, do you have like a ritual you do every night before you go to bed, or what types of things are you doing just to kind of relax?

Danny Randazzo: I love to read. When I was growing up, through high school, I was never a big fan of reading stories or the required school books… But in high school, I stumbled upon Rich Dad, Poor Dad, and other investing books, and real estate books, and I love to read those books. So I stay pretty in-tune and mentally sharp by just reading more.

I’ve got four books that I’m working on right now, simultaneously. One is a shorter story that is less than a hundred pages, and I am about halfway through it. I’ve got another longer book – it’s the story of Jim Clayton, First a Dream. It’s an excellent kind of autobiography story about his Clayton homes, the mobile home manufacturing company, but they are so much more than that, and I’m loving that book right now. I’m almost finished with it.

And then I’ve got two other books that are on my nightstand. So that’s what I enjoy to do. It keeps me sharp, it keeps me sane, and it gives me great ideas for us to implement at PassiveInvesting.com.

Theo Hicks: Alright, thanks for sharing that, Danny, and thanks for joining us today again, and sharing some of the — I don’t wanna say ‘challenges’, but things you’re going through right now with Covid, and some of the changes you’re making to your business. We talked about your underwriting changes, we’ve talked about marketing, and more investors coming in… Overall, really solid advice.

As Danny mentioned, he’s been on the podcast before. He hit the nail on the head with his first episode number, it was 961. So if you just go to joefairless.com and go in the Search function and you type in Danny Randazzo, he’s got his own full page of content on our website, from all the interviews he’s done… So make sure you definitely check that out, so you can learn more about how he’s gotten to where he is, and then you can learn more about him and his business at passiveinvesting.com.

Danny, thanks for joining us today. Best Ever listeners, thank you for listening. Have a best ever day, and we will talk to you tomorrow.

Danny Randazzo: Thank you, Theo.

 

Website disclaimer 

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

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

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

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

Oral Disclaimer 

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

JF2065: Hard Work Niche Deals With Karl Spielvogel

Listen to the Episode Below (00:22:29)
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Karl has done over 200 real estate deals focusing on the more difficult deals that no one likes to deal with because there typically is less competition, harder work, but a bigger reward. Some of the deals he likes are multiple heirs, title issues, excess proceeds, and partition sales.

Karl Spielvogel  Real Estate Background:

  • Real Estate Investor in Charlotte
  • Has done over 200 Real Estate Deals.
  • Specializes in Niche Deals/ Solving messy situations that lead to big profits.
  • Examples of niche: multiple heirs, title issues, excess proceeds, and partition sales: Some of the Profits from these deals have been 243k, 228k, 163k, etc..
  • Say hi to him at : www.UnclekarlsMastermind.com 

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Best Ever Tweet:

“These niche deals are a lot of work, but the profits are very high per deal. ” – Karl Spielvogel


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 Karl Spielvogel. Karl, how are you doing today?

Karl Spielvogel: Doing great.

Theo Hicks: Great, thank  you for joining us. Looking forward to our conversation. A little bit about Karl – he is a real estate investor in Charlotte, NC. He has done over 200 real estate deals and he specializes in niche deals, solving messy situations that lead to big profits. Examples of niche deals would be multiple heirs, title issues, excess proceeds and partition sales. Some of these big profits from these deals is $243,000, $220,000, and $166,000. You can say hi to him at UncleKarlsMastermind.com. Karl, do you mind sharing a little bit more about your background and what you’re focused on today?

Karl Spielvogel: Yeah. When I first got involved in real estate, I owned some Subway sandwich shops and I was getting tired of that, and a buddy of mine said “Hey, there’s this course from Ron LeGrand.” He took me to that and I started learning and getting involved in that. I did real estate from 2000 to 2008, I did pretty good, but I went from (I thought) being a badass and lost everything in 2008 and became a dumbass, and then I did a used car business with my ex-girlfriend, another mistake, and then I got back into doing real estate again about four years ago.

We have about 5.5 million in assets right now, and we owe about 2.5 million. We like to do a lot of deals, like getting multiple heirs, partition sales… We also do land, we do variance, subdividing assemblage, anything that’s difficult. We wanna stay away from the stuff where somebody’s getting 20 postcards… We’ve found that by diving into these niche deals – they’re a lot of work, but the profits are very high per deal. We’re not a volume type person. We do maybe 3-5 deals a  month, but they’re typically bigger deals.

Theo Hicks: Of your portfolio of 5.5 million dollars, what is the main niche that you focus on? I know you talked about a lot of them, but what’s the main one, so they can dive into that one?

Karl Spielvogel: Well, we find most of our deals through tax delinquents, foreclosures, vacant properties, and then we use our GIS system. We’ll find some land that can be subdivided, we’ll look for a small lot that we’ll buy and get for cheap, and get a variance and make it buildable… We’ll look for a house next to a land, and then we subdivide the land off… But most of our stuff just comes by looking at the tax delinquents, the vacants, the foreclosures, and using the property look-up. That’s our main source. Then after that it’s about diving deep and solving the problems.

Theo Hicks: So you’ve got the tax delinquents lists, you’ve got the foreclosure lists, you have the vacants lists. What’s the next step?

Karl Spielvogel: Let’s say we’ve got the tax delinquents lists. We’ll typically skip-trace it, or we go out and knock on the doors… For example the tax delinquents – what we like to find is we like to pull up the tax delinquents and see if the people are passed away, because those are the best ones. Or if the house is vacant… So we look into that stuff and then we dive deep into it.

We even have one deal where there was six different people passed away; it was a vacant house. It had 23 heirs. We put it all together. We’re into that deal for about 65k and it’s worth 200k. So we dive deep into them, that’s how we get the big deals.

Theo Hicks: Let’s do an example. Let’s talk about the 23 heirs, 65k all-in price, worth 200k. How did you find it, and then how does that even work? How do you buy a deal with 23 heirs?

Karl Spielvogel: Well, we started out — I was basically driving for dollars. We had a property that we were looking at… I was driving by, and the grass was cut, but something looked funny about the house. I don’t normally do this, but the house didn’t look lived in, for some reason. So I jumped the fence, and went up and looked in the windows, and noticed it looked basically vacant. I noticed that the electric meter was missing.

After that, we pulled up our county GIS system, pulled up the owners, and found out that they haven’t been paying taxes for four years. Then we skip-traced them and found out both owners were deceased. After that, we started building the family tree out.

We built this whole huge family tree out, and then  we started calling all the heirs… And most of them didn’t even know they were heirs to a property. Basically, we just called them all up, told them they’re heirs to this property, that we wanted to buy their shares out, and then we just made deals with all of them and got them to sign.

It was sort of funny – we threw a little barbecue in South Carolina, where most of them met me. We went down and got everything signed there. One guy was a semi-homeless guy. We tracked him down in Chicago… But we just basically called everybody and signed it, and then we ended up owning the property.

Theo Hicks: You guys are like private investigators.

Karl Spielvogel: We’re more private investigators than we are anything else.

Theo Hicks: How are you funding these deals? Are you raising money? Is it your own money?

Karl Spielvogel: Yeah. Well, my business partner uses IRA money. We use private funds… We could always use some more (hint, hint). But private money and our own funds. Because we’re buying stuff with messy titles, we have to pay cash, and then we straighten the title out afterwards.

Theo Hicks: So I’m not sure you can answer this question or not, but — you own 5.5 million assets, you owe 2.5 million. Obviously, some of that is equity created. But of the equity put into the deal, what portion is yours and your business partner, and what portion is private money?

Karl Spielvogel: That’s a good question. I really don’t know. Probably private money is maybe 20%-25%. The rest is our money that’s invested in it, and my partner’s Roth IRA money.

Theo Hicks: Okay. So Joe does apartment syndications; they buy apartments that are stabilized, have some cosmetic changes, so it’s pretty easy to get the projections and present those to investors. How does that work for deals like this? It seems like the profit margins are so large, it seems like there’s a bit more risk… So what types of returns are you offering, and how are you calculating these returns?

Karl Spielvogel: For the private money, you mean?

Theo Hicks: For the private money, yeah. Or even for yourselves, I guess.

Karl Spielvogel: Yeah, for the private money we’re anywhere from 8% to 15%. Typically, people are loaning us money on the ones once we clear the title. But we’ve got people that will loan us money on the bad titles, because they know that we can clear it; that’s typically around 15%.

But most of these deals we’re in for very little money. That deal that we’re into 65k – that includes renovations and everything. What we do is we typically have people deed us the property upfront, when there’s a multiple heir situation, and they get paid later. We’ll pay them anywhere from 0 dollars to 500 upfront, our own money, and then when we clear the title, they get the rest.

So we’re getting into these deals for very little, because a 23 heir deal – who’s gonna buy a fraction of that? They know we’re the only game in town, so they’ll sign us over the property, typically for no money to $500, and they get paid when we clear the title.

Theo Hicks: Okay, so it looks like your most profitable deal was the 243k deal. Let’s talk about that one, kind of similar to this 23-heir deal. How did you find it, and then how much did you buy it for, how much money did you put into it, and how much is it worth, and what did you do with it?

Karl Spielvogel: That property – a birddog called us up that we know, Gerald. He does some work for us. He said “Hey, there’s a property that’s vacant. Some squatters in it, the guy passed away…” So we got it from a birddog. And the first thing we did was pulled it up — it’s in a very good area, and these squatters had moved in. So I’m like “This could be a huge deal.”

So the first thing we did was we built a family tree. Actually, for this one, even though we didn’t own it, I hired a genealogist, so we built a family tree. What happened was the wife passed away first, so her side was out… So the husband passed away, and when he passed away, his share would have gone to his brother. Well, his brother died in an airplane crash in Crete in 1973, so then it would have gone to his two sons, Jack and Louis. So they were the rightful heirs to the property.

So we skip-traced — we couldn’t find them, we couldn’t find them… We did so much investigation on this deal… I went to the funeral home where the guy was buried, I got the book everyone had to sign in, I called everybody there, and one of the people there told me that the mom from the two boys had remarried a police officer outside of DC. So we spent nine months just working this deal, trying to figure it all out, trying to find Jack and Louis.

Well, one night after probably ten beers, it sort of clicked that maybe the mom had changed her name when she got remarried, and Jack and Louis had a different last name. So then we had our genealogist do some more searching, and she found where the lady – I don’t wanna say their names – got remarried to the police officer outside of DC. Then we skip-traced the kids and found them.

Now, there’s a lot of other problems, too. There was a code enforcement letter, it was going for sale for taxes, and there’s also a niece that had a lease for a dollar a month, which we ended up buying that out. So it’s really important once you track these people down that you set the table.

Also, because he had passed away without a will, there was estate issues. So basically, we called the guys up, we said “Hey look, there’s a property in Charlotte, you guys are the rightful heirs, but there’s a whole bunch of problems. There’s squatters in the property, there’s code enforcement, there’s estate issues, and it goes to sale for taxes in two weeks. We can offer you $35,000.” “This is found money, first of all, and normally we’d negotiate, but since there’s so many problems, we’re gonna sell it to you for $35,000.” So we bought the property for $35,000, and then we had to wait nine months in North Carolina — we didn’t wanna open the estate, because were afraid there’d be claims and stuff, so we waited…

He had to be passed away for two full years, so we had to wait nine more months. We were totally into it in the $50,000 range. We did a couple little minor repairs to get it off the code enforcement list, paid out bonuses and everything, and we sold it for $310,000. So our net on that deal was $243,000, but it was a lot of work. We were basically private investigators, tracking down heirs that their names had changed. That’s how we ended up getting that deal.

My partner even a couple times said “Give up on it, give up on it.” I’m like “Nope, I’m gonna get this. I’m gonna figure it out”, and we got it done two weeks before it went to sale for taxes.

Theo Hicks: Wow, that’s a crazy story. I bet you have a lot of stories like that.

Karl Spielvogel: Yeah, everything from guns pointed to our head while knocking on doors, to being threatened by motorcycle gangs… It’s crazy.

Theo Hicks: Before getting into the best advice ever, what’s the craziest story you have?

Karl Spielvogel: The craziest story… I’m trying to think here. There’s so many of them, I can’t even think. This was sort of a funny; this will take a little time, but there’s a piece property that — again, I don’t drink anymore, but I used to drink a lot. So I was drinking at the bar, and my bartender said “Hey, my mom is going into foreclosure. Could you help her?” I’m like, “Yeah, we’d like to talk to her.” So I met with her, and she owned a piece of property in the county of York. It was surrounded on two sides – this piece of property – by the city of Tega Cay. Tega Cay is a very rich area, and if I could annex the property into Tega Cay, then it would be worth a lot of money, versus being in the county.

So I went and met with the city manager, and I said, “Hey, can you annex this piece of property into the city of Tega Cay? Because I wanna build some houses on it.” And I’ll never forget what he said. He said “Son, we’re not gonna do that.” I’m like, “Why not?” He goes, “Well, we’re building a baseball field. We’d like to buy your property, but we don’t really need it.”

So I came down and met with him, he said “I can give you maybe 85k, maybe 90k on this property.” I was like “Okay, well that’s a little bit low…” During the time we went back and we did a short sale on it. From 65k, we ended up getting it for 50k. So I went back to talk to the city manager and said “Hey, let’s negotiate on this property. Your price is a little bit low, but let’s talk.” He goes “Well, now I can only give you 65k for it.” I’m like “Why?” He said, “Well, that’s all we have in our budget. I can only give you 65k.” I was like, “Well, wait a minute… Your price went down. Let me ask you a question. You’ve just told me you have no jurisdiction. It’s in the county.” He goes, “Correct.” “You said you’re not gonna annex it”, he goes “Correct.” I said “Then I can open a freakin’ goat farm.” And he crossed his arms and said “Well, I guess you could…”

So what we did is we went and rented goats… You can actually rent goats. We went and rented three goats for two hours, and we had goat cupcakes, we had a big banner “Uncle Karl’s Goat Farm Coming Soon”, we had Goat Farm T-shirts printed up, we had a little party out there and we did this whole thing about how we were gonna open a goat farm in Tega Cay. We did a Facebook live… I even sent them emails saying “Hey, we’re getting ready to open a goat farm.”

We were just silly. We filmed a Facebook live, we had some neighbors come over, and we did this little whole production. We had a little ribbon-cutting ceremony, and had a little golden key made up… We got pictures; I’m gonna send you pictures. That day we got a $100,000 offer for the property, closed in seven days. So we ended up selling it for $100,000, closed in seven days.

So I guess the moral of the story is that — we positively extorted the town of Tega Cay. So that was probably the craziest deal we ever did.

Theo Hicks: Oh, man, this is very entertaining. I’m sure I could talk to  you for hours about some of these stories… So based on all these experiences, what is your best real estate investing advice ever?

Karl Spielvogel: Two things – focus on niches. We do a lot of land, a lot of stuff too, but find some niches that not everyone else is doing, learn those, and then also be relentless on your deals. I could tell you story after story where we were relentless… But also, pivot. Most of our deals we got stuck, and we were done, we couldn’t get them to go through, and at the last minute we pivoted. I could tell you crazy stories, like — we mailed out chocolate bars one time to this lady who kept telling us no, no, no… We said “Hey, you’re missing out on a sweet deal. Please give us a call.” She called us, we got the deal, two days before the foreclosure.

So you’ve always gotta be persistent, learn the niches, and then take that step back, pivot, and also collaborate. We spend a lot of time at our office, talking to people, trying to figure out how to put these crazy deals together, with multiple heirs, and partition sales, and buying liens and judgments.

So I would say that the persistence, pivoting, and learn niches.

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

Karl Spielvogel: Yup.

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

Break: [00:16:52].24] to [00:17:55].03]

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

Karl Spielvogel: I like Traction, because my business is so disorganized and messed up… I’m trying to straighten it out, so it’s more organized and streamlined. So I’d say Traction is probably one of the best books.

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

Karl Spielvogel: I would go back in, because I’ve made a lot of great connections… I would go back to everybody — because I lost everything in 2008.  I’d go back to say “Hey, I’m starting over…” I have the knowledge, I have the know-how, so I’d just reach back out to all my business partners… Because you don’t need money for what we do. We’ve just gotta find the deals, and we can go out and start doing the exact same thing. Going back after tax delinquents, foreclosures, using our property look-up system, and that kind of thing. That’s how I’d start back over.

Theo Hicks: So besides that $243,000 profit on that deal, what has been your best ever deal?

Karl Spielvogel: We did a $228,000 deal on a vacant house that was owned by a defunct corporation; they had a divorced couple, the wife had the rights to it. It had a $750,000 lien she thought was attached to it, but it wasn’t attached. So that was our second-best deal ever.

Theo Hicks: What about a deal that you’ve lost the most money on?

Karl Spielvogel: I was really stupid… I went off a Zillow value, and I put it under contract, and I had two partners with no money, and we ended up losing about $32,000, and I got sued… And had to settle a lawsuit. So that was being really stupid; not even a rookie would go off a Zillow. I just was trying to hurry and not paying attention, and I was just stupid.

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

Karl Spielvogel: I’ve got a phone to call: 704 777 77777. That’s our office number. Leave a message. That’s probably the best way to reach me. Or send a friend request on Facebook. We’ve got Uncle Karl and Friends, or Karl Spielvogel. Or let me give you my personal number – 704 995 5385.

Theo Hicks: Well, Karl, this has been a very interesting conversation. I was muted while you were talking, but I was laughing a ton at your stories. Very entertaining, very interesting, and definitely all of the different stories and examples you gave hit on your best ever advice, which is focus on niches obviously, be relentless on your deals, pivot when you need to, and then obviously, when  you’re doing these kinds of complicated deals, to collaborate with people to brainstorm what to do.

Just to go over some of the examples you gave – there’s one that had 23 heirs, that you bought for 65k, that was worth 200k. Driving for dollars, you just found out that it was vacant… Both owners were dead, you build out a family tree, you called the heirs, made deals with each of them, even put on a barbecue to get that deal done.

You talked about your best ever deal, with a $243,000 profit, where a birddog calls you up, he found a vacant property where the owner passed away. You had to hire a genealogist and it took you a long time to find who the rightful heirs were. Then you talked to the about all the different issues and offered them 35k to buy that property because of these issues. They ended up selling it to you. Based off of the rules with the estate, you had to wait two years after the original owner had died, so nine more months before you could sell the property. You sold it for 310k.

And then my favorite, which is the goat story, where you found a property through a bartender. The property was surrounded by a very nice area, that you wanted to get annexed into the area, and the city manager said no, because they’re building a baseball field, and offered you money for it. Then he comes back with a lower offer, and you did your Goat Farm production, something [unintelligible [00:21:22].10] That same day you got a 100k offer that closed in seven days.

I’m sure you’ve got plenty more of this type of stories. I’m sure you’ve got some content on that on your website…

Karl Spielvogel: We have a podcast, Uncle Karl’s Crazy Real Estate Stories. And also the mastermind group, Uncle Karl and Friends Mastermind Group. It’s only $149/month and we dive into details on how we do these kinds of deals.

Theo Hicks: Yeah, and [00:21:51].15] because as he mentioned in his best ever advice, a lot of people are focusing on the single-family rentals and apartments. And while that’s obviously a great investment, if you do have the time and you are relentless,  you  can focus on these niches where there’s really no competition at all, it sounds like. It just takes time, takes effort, it takes some creativity… And you can make a lot of money, without having much competition in today’s market. So definitely take him up on that offer.

Alright, Karl, I really appreciate it. Again, very entertaining interview, I really enjoyed it.

Karl Spielvogel: Thanks for having me on, I appreciate it.

Theo Hicks: Absolutely. Best Ever listeners, thank you for listening. As always, have a best ever day, and we will talk to you tomorrow.

 

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JF2063: Tax Strategy With Dusty Rollins

Listen to the Episode Below (00:27:33)
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Best Real Estate Investing Crash Course Ever!

Dusty is the Owner and Founder of Oxford Business Services, an income planning, and tax strategy expert. He helps people save on their taxes as well as retirement planning. Dusty explains 5 things you might be missing by not having a tax strategy. 

 

Dusty Rollins Real Estate Background:

  • Owner and founder of Oxford Business Services, an income planning, and tax strategy expert
  • Helps people save on their taxes, as well as retirement planning
  • Based in DeLand, FL
  • Say hi to him at https://www.dustyrollins.com/bestever 

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Best Ever Tweet:

“A tax strategy is like a good chess player, it is 3 or 4 moves ahead of an amateur.” – Dusty Rollins


TRANSCRIPTION

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

It is Sunday… And because it’s Sunday, we have a special segment for you called Skillset Sunday. Today you will learn five things you might be missing by not having a tax strategy. Do you have a tax strategy? If you don’t – well, here’s five things you might be missing.

With us today to talk about that – Dusty Rollins. How are you doing, Dusty?

Dusty Rollins: I’m excellent, Joe. Thanks for having me.

Joe Fairless: Well, I’m glad to hear that. It’s my pleasure.  A little bit about Dusty – he’s the owner and founder of Oxford business services. He’s an income planning and tax strategy expert based in DeLand, Florida. He helps people save on their taxes, as well as he focuses on retirement planning. With that being said, Dusty, do you wanna give the Best Ever listeners a little bit more about your background and your current focus? Then we’ll get right into the five things.

Dusty Rollins: Perfect, Joe. Thanks so much for having me on the call. I’ve gotta tell you, I love the name of your show, Best Ever. If I could have a quick segue – I have a son who’s ten years old and he’s special needs; he’s got a little bit of a learning development delay… And he loves waffles. So just about every morning he has waffles, and every morning he says “These are the best ever!” [laughter] But it’s every single morning, they get better and better and better.

Joe Fairless: That’s awesome. What a great mentality!

Dusty Rollins: Exactly, I love it. So I couldn’t help but think about that with the title of your show. But I got into taxes kind of backwards. I didn’t set out — I’m not trained as an accountant, and I didn’t set out to get in the field. I got into my own business, and actually my initial business experience was in real estate investing in Atlanta, in the go-go years… The early 2000’s, when you just couldn’t make a mistake in real estate. Any idiot could make money, and I did. So that was kind of my initial foray into business, if you will.

Then as my business began to grow, the taxes began to be more and more of a big issue. And I knew I had a sense; I loved strategies, I loved the thought process, I knew there’s always more than one way… So I knew there were these strategies that I could save on my taxes, and I also knew that the advisors I was using weren’t gonna get me there. So that  kind of began a self study to learn how to best set up your tax strategies, no matter what kind of business you’re in… And real estate is a very tax-favorite industry.

So as I was doing that self-study, then other friends, other business owners were saying “Well, can you do this for me? Can you do this?” and that kind of just led me into doing the tax strategies as a business. And one of the things that I think is interesting about that, or one of the advantages I have now is I tell my clients or prospects when I’m talking to someone – make sure that your advisors have front of the check experience. And what I mean by that is if your whole life you sign the back of a check, meaning a paycheck – nothing wrong with it; the majority of America does that, and I did it for actually a very short time early on in my career… Nothing wrong with it, but there’s a different experience we have when you’ve signed the front of a check. When you’ve put that money out, you’ve put your family, your own financial well-being at risk to pay other employees, to pay the vendors… There’s another level. So I think it’s important to have advisors who have that front of check experience.

Joe Fairless: Yup, been there, I know what the clients are going through… So you can speak from experience. Let’s talk about the five things we might be missing by not having a tax strategy. And before we talk about those five things, what is a tax strategy?

Dusty Rollins: Great question. One of my favorite sayings – I don’t know if it’s good or not – is your CPA is not doing what you think they’re doing. So the overall big mistake I see business owners make is they kind of default their taxes. The term I use a lot is “Oh, my CPA handles that.” And unfortunately, the way the business model and the business structure of taxes are done, your CPA is probably handling some of your accounting work, and then your tax preparation, which means at the end of the year they fill out the forms, they put the numbers in boxes and help you discover how much money you owe, and then they say “Okay, now you’ve gotta pay the IRS.” And often if that business owner goes to that CPA and says “Well, this is how much I owe… How can I pay less? How can I owe less? Is this the absolute least amount I have to pay?”, I think they teach this in their training school somewhere, the CPA will say “Well, you make what you make, you pay what you pay.”

So the difference, that next level of tax strategy is it’s kind of like playing chess; I don’t actually play chess, but I know that a good chess players is 3-4 moves ahead of an amateur chess player… Whereas checkers, you’re just doing a jump. The next jump, the next jump… But chess – you’re playing 3-4 moves ahead, and that’s what a tax strategy is. Tax preparation is checkers; you just fill out the forms to keep you out of jail… And you need to do that; don’t stop doing that. But the chess part is the tax strategy, where you’re figuring out moves, you’re figuring out what you’re wanting to do, so that you can pay the least amount legally required tax-wise.

Joe Fairless: Okay. So what’s the first thing that we might be missing.

Dusty Rollins: So the number one — and again, geared toward real estate investors, which I’m assuming a lot of your listeners are…

Joe Fairless: All of them.

Dusty Rollins: All of them, there we go… One of the big things is the new Trump tax law change over the last few years. A lot of the people said “Oh, this is a tax cut for the rich”, and I always like to say “It’s not a tax cut for the rich, it’s a tax cut for the business owner.” So what I mean by that is you can have a doctor who is making half a million dollars a year on a W-2 income, meaning they work for a hospital or for an employer – that doctor is probably paying more in taxes than they did before the Trump tax cuts. But if you take that same doctor and he/she is a business owner, they  could pay considerably less in taxes.

So for the real estate investor what’s really important is understanding that now even more so you’re in the small business realm. So even if you don’t have another business outside of real estate, real estate can open that portal to the tax savings.

So here’s the big one. Number one is to take full advantage of section 199A. It’s called Qualified Business Income (QBI). If you qualify, you get an extra 20% deduction on that small business income. The problem is for most real estate investors what they need to watch is the way they 1099. So there’s a way that if you don’t give a 1099 to the people who provide services for your company, then you might lose deduction. Did that make sense at all?

Joe Fairless: It does.

Dusty Rollins: So that’s number one, is really making sure you’re handling the 1099s correctly, which will give you the maximum deduction allowable under section 199A.

Joe Fairless: What’s the most common mistake when handling the 1099s?

Dusty Rollins: Not doing them. [laughs] Because there’s massive penalties for not doing them. It’s not like not filing the tax return, it’s not on that level… And it gets a little bit complicated, but if you’re not doing it properly, or at all, then you might not be able to take the full 199A deductions.

Joe Fairless: Okay.

Dusty Rollins: Any other questions on that? That was number one.

Joe Fairless: No more questions on that.

Dusty Rollins: Perfect. Number two is real estate professional status. What’s important to know here is if you have passive losses, it’s sometimes hard to take them if you only have earned income. So what the IRS has said is if you have the passive income, you can take the passive losses. So the real estate professional status means you worked at least 750 hours a year as a real estate professional. Now, a lot of people take this and don’t work those hours, or they kind of fudge that a little bit… So one of the things to watch that I’ve seen is there are some cases where a W-2 worker, so a person who has a full-time job, also claimed that they’re a real estate professional status, meaning they’re working about 15 hours a week in real estate, and the IRS didn’t like that.

So one of the things to watch for if that’s the case, and you have a spouse, and the spouse doesn’t have a full-time W-2 job, there’s a natural fit there. But that’s just an area — because it can be very lucrative tax savings-wise if it’s handled properly… But I see it mishandled a lot.

Joe Fairless: What’s an example of how that can be beneficial, dollars and cents? You gave a really good example with the 500k doctor on number one… But how about number two?

Dusty Rollins: Let’s go back to a doctor, just to stick with the —

Joe Fairless: Sure.

Dusty Rollins: …because everybody thinks they’re rich anyway. So a doctor couple, who are clients – he had a very high W-2 income, and they had a lot of rental properties, investment properties… So before they talked with me, they weren’t declared real estate professional status, so they couldn’t take some of the losses. What we did is we set up a clear plan — and the IRS always wants a Why, and they want everything clear; so that’s a free one there, not even part of the five. So we clearly showed where this lady – in this case, the doctor was the husband, the wife was not a doctor – was able to qualify, because she legitimately spent 15 hours or more a week managing the properties.

So by getting that status, we were able to open up and take a number of losses, and in their case it was an additional 35k a year in tax savings.

Joe Fairless: Wow. Okay.

Dusty Rollins: And the key point – she didn’t have to start doing it. She was already doing that work, she just wasn’t classifying it correctly.

Joe Fairless: Okay. Number three?

Dusty Rollins: Number three is cost segregation. A lot of your real estate investors will know this… You know how when you know something so well, you assume everyone knows it… We just keep running into people that don’t know it. So what cost segregation does is one of the magics of real estate is that you can have positive cashflow, and yet still not pay any taxes on it up to a degree, because of depreciation. So what depreciation is saying is the IRS understands that yes, you have positive cashflow, but your property is in essence decaying every year.

So what they do though is they make you depreciate the value of the property over a certain schedule. So it can be 27,5 years, 30+ years… There’s different schedules, depending on the type of property. So again, if you’re depreciating a property over 27 years, that’s a much smaller yearly depreciation.

Cost segregation is a study you do, and what it does is it goes through and takes out the different parts — so it says “Your light fixtures and different parts inside the property depreciate differently.” So your life fixture is not gonna last 27 years, right? It’s gonna last five years. So it’s a little bit complicated; you need a professional,  I believe. You can kind of do it on your own, but it’s really hard… And I don’t do them either, but we work with teams that do it. And then you can accelerate the depreciation… Let’s say massive parts of the property – if you can accelerate it to a 4-5 year period, then you get a much bigger deduction each year. Does that make sense at all?

Joe Fairless: It does. What is your response to someone who says “Okay, I hear you, Dusty, but isn’t cost segregation just kicking the can down the road, because eventually it’s gonna be recaptured?”

Dusty Rollins: Yes, that’s a great question. There’s a lot of different answers to that. One would be though that I would rather have the cash now, meaning the tax cash back, than in 27 years.

Joe Fairless: Yeah, the time value of money.

Dusty Rollins: The time value of money, and then opportunity cost. So now, instead of leaving that tax cash in the IRS coffers, if you will, 27 years from now, let’s use it now to go buy another property to go build more wealth, and then the time value of money will capture it down the road.

And then there’s other things though about depending on when you sell it and how you sell it, and if you ever sell it, and how you transfer it… There are other ways, that again, the magic of real estate when it comes to taxes can help you alleviate. Did that make sense? I feel like I got in a little bit of a wormhole there.

Joe Fairless: Yeah, it’s a big wormhole, because there’s a lot of different variables, and different permutations of how that could look… But yes, time value of money I think is the main reason why a dollar today is better than a dollar in five years.

Dusty Rollins: Correct.

Joe Fairless: It just makes a lot of sense. Okay, number four.

Dusty Rollins: So number four is — again, there’s three levels of taxpayer. Number four is slightly more complicated, in terms of this… There’s three levels. Level one is the W-2; we’ve kind of talked about that. But that’s a W-2 – an employer pays you the money, they take out half the tax over the time for your withholding for the government. When it comes to the tax code, you’re basically screwed. There’s like three deductions; you don’t have many plays when it comes to the tax code. So that’s level one.

Level two is a business owner. And again, all of your listeners who are involved in investment  real estate are in essence business owners in one way, shape or form… So that opens up the portal to a lot more tax strategies. And those strategies center around writing off your mileage, the cost segregation, like we just talked about, personal things that you used as a business being deductible.

Level two is the realm of deductions and write-offs. But there’s a level three, and this is where not many business owners, even really smart ones that  have good advisors – not many business owners go to this level. I call it the elite level. It’s kind of like the Navy SEALs level. And that’s where you’re actually partnering with the IRS to help you build  your wealth. Now, all of your libertarian clients just had chills go up their spine. [laughter] It’s a partnership where you sleep with one eye open, and it’s not a surrender type of partnership.

What I mean by this is the government uses the tax code to drive behavior; so that’s why at various times some politician will suggest we do away with the mortgage interest deduction on your house. And all the mortgage people and the real estate agents, that industry, the realtors – they get up in arms, because they feel like if you take that deduction away, you’ll hurt home sales, thus hurting mortgages. So whether they’re correct or not is another discussion, but the government definitely uses the tax code to direct behavior.

So what level three (elite level) is is when what you’re wanting to do to build your wealth and protect your family and leave your legacy – when that lines up with what the government wants you to do, and are willing to give tax breaks for, then there is real magic. Did that make sense at all?

Joe Fairless: Yeah, it makes sense, but by partnering up with the IRS — and I’m not taking it literally, so I’m not going down that path, but… That seems to be pretty general, not specific. Because I could say that “Well, as a real estate professional status, I’m essentially partnering up with the IRS, because I’m going towards the direction that they want me to go to maximize benefits.” By being a business owner, I’m doing what the IRS is wanting me to do, because I’m a business owner and I’m getting those deductions… So what’s the actionable item here, other than the concept?

Dusty Rollins: Sure. Well, real estate as a giant umbrella is — the IRS wants you to go into real estate. If you look at the Forbes 400, the top people, they either made their money in real estate, or after they made their money went into real estate. So it is dripping with lucrative tax advantages, like we’ve just talked about. But when you have tax-free exchanges and you can accumulate and pass over, you can have the magic of depreciation, where you’re getting positive cashflow, but the property is actually depreciating… So real estate is absolutely a giant area.

I’ll give you one caveat. When you get on a high level of real estate — I knew a couple guys in Atlanta that did major deals, and they would get tax credits. So a municipality would give them tax credits to go in and build mixed-use real estate; a lot of times it would be nice apartments and condos, a little bit of commercial underneath, and then mixed in with a little bit of low-income housing, properly done… But they would get tax credits, and if they didn’t need those tax credits for that project or for that company, they could actually sell those tax credits on the market, usually for a slight discount… And then that way, somebody else who needed those credits could buy them. So that is a way, again, where “partnering” with the government to build the wealth you  want anyway.

Another area, that’s not directly real estate related is ESOPs (employee stock ownership plans). Those are where the government is saying “As a business owner, if you’re gonna help out your employees, give toward their retirement, help give them some ownership, then we’re gonna reward you  with some ways to save on taxes as the business owner.” Now, you’ve gotta set them up correctly, or they don’t work unless you’re a really giant company. But ESOPs are another good way where you can build that wealth, and you’re “partnering” with the IRS.

Joe Fairless: Okay, cool. ESOP planning. We won’t go do deep into that type of plan, but what are some general guidelines that you’d give for a listener who does not have a Fortune 500 company, but is looking to implement this and get some tax advantages.

Dusty Rollins: Sure. On this level you need a couple things. You need a business, you need to have some employees (usually, it’s over ten employees) and you need to have a tax bill. You need to pay a fair bit in taxes. And largely, a part of that is because to make it worth everyone’s time to set it up and to operate it properly.

If you have somebody who’s just the sole operator, they have zero employees and they don’t pay that much in taxes, then the ESOP is probably not something they need to really pursue heavily… But if they have the employees and they have a big tax bill – and a big tax bill, in my mind, would be basically 100k+. At that point you can really start to get some exciting strategies going under the ESOP realm.

Joe Fairless: Number five.

Dusty Rollins: The last one would be to get a second opinion. One of the things we find — one of my new clients is a chiropractor, and we were doing a tax plan for him, and as we were looking over it, we saw that his previous accountant of 18 years who had retired had put one of his rental properties on the wrong form… Just for no apparent reason, just some kind of mistake that we never actually figured out why they did it, but we were able to amend it. But he put it on the wrong form, and by doing that, it cost the client over $1,200 in extra taxes.

And again, you say “Well, that’s not that much”, but the client only paid the CPA $800/year to do his taxes, so the CPA was making these errors… And the reason I said 18 years and retiring was because a lot of times these guys get into kind of a rhythm or a system where they’re just filing year after year after year, so if they make a mistake one year, it just kind of keeps going. And it wasn’t a mistake — the IRS is not gonna hound you to refund your money, so it’s not a mistake that would be legally problematic, but it took in this case $1,200 out of his pocket that he didn’t need to pay.

So I think the fifth or the overarching thing is to really look at getting a second opinion, make sure that you’re getting that tax strategy in place, and not just handle it by default.

Joe Fairless: What are some questions you should ask him/her in order to see if they qualify to give you a second opinion?

Dusty Rollins: Someone else or your own CPA a second opinion?

Joe Fairless: Someone else. Let’s assume we’re good with the CPA, but we wanna get that second opinion. How do we qualify the second opinion person?

Dusty Rollins: Great question. I would say, again, start with how do you handle your clients, and if they immediately start talking about tax preparation – “Here’s how we do the forms, we get this to you ahead of time” – if they immediately start there, they’re probably not a tax strategist mindset. If they start with “Well, we first need to look at where you’re at, ask you some questions about what you’re wanting to do, and then make sure all the strategies you’re taking advantage of.” That starts to help  you see — if they start talking tax strategy first. Did that make sense?

Joe Fairless: It does.

Dusty Rollins: And then a key thing too, if you go back to your CPA — because invariably, when we work with the client, we don’t even want them to fire their CPA, we just wanna do a tax plan to help make sure they’ve got all the strategies available… But when they go back to their CPA with our strategies, their CPA will go “Yup, yup. Yeah, we can do that.” The client will call me up and say “Well, if we can do all that, why weren’t we doing all that?” I’m like, “I don’t know, don’t ask me that. Ask them.”

So that’s some place you can start. If you really like your CPA and you think they’re doing a great job on the tax side, ask them “Am I taking advantage of every strategy possible?” and see what their responses are.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and get in touch with you?

Dusty Rollins: If they go to dustyrollins.com, and I think the link will be in the show notes… DustyRollins.com/bestever. It’s a page there just for your listeners, Joe. One of the offers – I have a book called “The taxpayer manifesto”. If they go to that page, they can get it a completely free copy of the book shipped out. No credit card needed, just send me a mailing address and I’ll mail you the book.

Joe Fairless: Outstanding. Thank you for that, thank you for sharing with us five things we might be missing out on by not having a tax strategy… And it’s not only things we’re missing out on, but you talked about some practical ways to implement those five things. So you didn’t just leave us hanging, and I appreciate that.

Dusty Rollins: [laughs]

Joe Fairless: Dusty, thanks so much for being on the show. I enjoyed our conversation. I hope you have a best ever weekend, and we’ll talk to you again soon.

Dusty Rollins: Thank you, Joe. Take care.

 

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JF2058: Three Perspectives Towards Coronavirus With Jonathan Greene

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Jonathan has had 30 years of real estate experience, as an agent, investor, and also a life coach. Jonathan mentions there is a possibility of a second wave of coronavirus and because of this he will be extra careful before jumping in and buying up new real estate. Because of his three unique career paths, he was able to share three separate perspectives on the current market

Jonathan Greene Real Estate Background:

 

 

Best Ever Tweet:

“Now is the best time to work “on” the business since we can not spend as much time working “in” the business.” – Jonathan Greene

JF2057: Short Term Rental Funding Long Term With Avery Carl

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Avery is the CEO of The Short Term Shop and is in the top 1%  of real estate agents and a short term rental expert. Avery and her husband are focusing on short term rentals to help grow their long term rental properties. Five of their short term rentals funded for 19 other properties. In this episode, she will be sharing their story and how they grow their portfolio with this strategy.

Avery Carl Real Estate Background:

  • CEO of The Short Term Shop brokered by eXp Realty
  • Top 1% real estate agent and short term rental expert
  • Bought her first rental property at 26 and has scaled to 24 doors
  • Has connected investors with over $125 million in cash flow short term rental investments
  • Based in Pigeon Forge, TN
  • Say hi to her at www.theshorttermshop.com  
  • Best Ever Book: Ego is the Enemy by Ryan Holliday 

 

Best Ever Tweet:

“For people looking to bootstrap and cash flow, self-management remotely is a totally doable option and is really the way to go.” – Avery Carl

JF2056: Scaling a Business Nation Wide With Eachan Fletcher #SkillsetSunday

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Eachan founder and CEO of Nestegg, a platform for property management and maintenance that makes being a landlord refreshingly easy. Eachan is a returning guest from episode JF1980, where he shares the ways technology can make your property management easier. In this episode, he is going to share how you should best go about scaling your business to be nationwide.

 

Eachan Fletcher Real Estate Background:

  • Founder and CEO of Nestegg, a platform for property management and maintenance that makes being a landlord refreshingly easy
  • Worked as the CTO and VP of product at Expedia where he built and led multiple teams, developed award-winning products
  • Has been interviewed previously on the show, that episode will release on February 3rd, 2020
  • Based in Chicago, IL
  • Say hi to him at https://nestegg.rent/ 
  • Best Ever Book: anything written by Steven Pinker

 

Best Ever Tweet:

“There’s a difference between getting bigger and being scalable.” – Eachan Fletcher

JF2052: Syndication Website Design With Todd Heitner

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Todd owns a company called Apartment Investor Pro, a company that builds websites for apartment investors. Todd gives different items to keep in mind when creating your own website which includes; back end, front end, hosting, and increasing traffic. 

 

Todd Heitner Real Estate Background:

  • Has been building websites for real estate investors for the past 15 years
  • His business, Apartment Investor Pro, takes the pain out of setting up a website for your multifamily investing business
  • Based in Roanoke, VA
  • Say hi to him at www.apartmentinvestorpro.com

 

Best Ever Tweet:

“When choosing a website designer you want to focus on communication. Make sure you choose someone who is easy to communicate with and can understand your goals and vision.” – Todd Heitner


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 Todd Heitner. How you doing, Todd?

Todd Heitner: I’m good. How about you?

Joe Fairless: I’m doing really well and looking forward to our conversation. This will be especially helpful for all you apartment investors out there, and I know there’s a lot of them who listen to this show. So first, a little bit about Todd – he’s been building websites for real estate investors for the last 15 years, and he has a company called Apartment Investor Pro. Told you it’d be relevant to you, apartment investors. He takes the pain out of setting up a website for your multifamily investing business. We’re going to talk about components of websites and marketing funnels. So even if you don’t work with him, you’ll still get a lot of value from our conversation. But ultimately, we’ll be talking about his business as well, and ways he differentiates himself from others. He is based in Roanoke, Virginia. So Todd, with that being said, first, do you want to give the Best Ever listeners a little bit more about your background, your current focus and then we’ll dive right into it?

Todd Heitner: Okay, sure. I guess on a personal level, my wife and I have been married for 18 years. We like to travel a lot. We just actually got back from a trip to Asia. We were there for a couple of months. That was really cool. We’re quite like you said, I started building websites for real estate investors about 15 years ago, more recently focused more on the multifamily side of it, especially apartment syndicators. We saw a need where people were struggling to get their website up and running and just tried to find ways to simplify that process, speed it up so that people don’t have to agonize over that for weeks or months, so it’s that’s basically it.

Joe Fairless: Okay. First off, why did you shift your focus to focus on apartment investing websites?

Todd Heitner: I saw that there was more of a need there. I was doing single-family investors first. There’s already a lot of options out there, I guess, with the single-family side; there’s quite a few services out there. We were around probably, about the longest with that, but there’s a lot of competition. And also I saw that I got into that as helping somebody that– he teaches people how to invest in apartments. So I helped him with developing websites for his students, and I saw there was definitely a need there. Nobody else was really offering that, and so it seemed to make sense to try to expand that and help more investors.

Joe Fairless: Cool. Okay. So if we’re creating a multifamily– and this is primarily multifamily syndication, it sounds like.

Todd Heitner: Yeah, primarily.

Joe Fairless: So if we’re creating a multifamily syndication website, what are the components of the website that must be included?

Todd Heitner: For one thing, it starts with having a good domain name. I always recommend people, especially for syndication, get a domain name that matches your business name. If it’s Premier Investments LLC, then get premierinvestments.com.

Joe Fairless: Some people don’t do that? That seems like 101.

Todd Heitner: Yeah, and it’s a different mindset from a single-family investor. So I think some people coming from single-family investing might get  ibuyhouses.

Joe Fairless: Oh, yeah. Okay.

Todd Heitner: So a lot of people realize the need for that, but just in case, I always recommend that. And also always go with .com. You don’t want to have to explain that. Okay, no, it’s a .net or whatever, because people are still going to type in .com, and end up on somebody else’s website. So before somebody really gets too attached to a business name, I would suggest seeing if the domain name’s available because, again, that’s going to be part of your brand. So you don’t want to get set on a business name and then find that somebody else has a domain name, then you’ve got to try to come up with some other domain name that doesn’t really match your business as well.

Joe Fairless: Or if there’s a competitor in the space that has that and then you don’t do that research and you get a cease and desist letter from the competitor who’s a trillion-dollar real estate fund or something… Which, true story, has happened to someone who I know. After he got the website up and his branding up, he got a cease and desist from the original company that was his name, and he had to just pivot. So that’s part of the process you need to go through too.

Todd Heitner: Yeah, it definitely pays to do your research and get that first. I would get that locked in and then move forward getting the business name, setup, and everything. Another important part is the web hosting. With our service we include that, but otherwise, you just want to make sure it’s a fast, reliable web hosting service because people don’t want to wait on a slow website to load. Any hosting service you use, you want to make sure there’s good support there, because sooner or later, there’s gonna be some issue with your website and you need to have some way to get help with that.

Joe Fairless: Please quantify fast and reliable for someone who’s trying to look it up on their own.

Todd Heitner: Well, one thing that’s really helpful is actually, there’s several tools. First, search for “web page speed tests”. There’s several different sites that will do a speed test, and they will give you a rating to show how you compare. But within just a few seconds, you want your page to load. There should be something there almost immediately. At least, the headline or some content that people can start reading.

Joe Fairless: But that’s testing it after it’s up. But in this case, ideally, we know it’s going to work the first time and then we test to validate it later. So what do we research prior to actually putting it up?

Todd Heitner: You can look at reviews online, see what other people are saying different current web hosting companies. You do have to be careful about that because a lot of them are biased, because people are affiliates for these different services, and so they recommend whichever one’s paying them the most. So you do have to make sure you get some unbiased reviews.

Joe Fairless: This is showing my ignorance in this area, but I would think there’d be on web hosting, an option you can pay for the hosting that will be the Cadillac, or it will be the Lamborghini of hosting, and each service — like GoDaddy, for example. What do they have–

Todd Heitner: That’s true. They usually have a lot of plans that you can choose from.

Joe Fairless: Okay, so that’s my question.

Todd Heitner: Because if you go with the cheapest plan, usually it’s shared websites on the same server as you and you’re at the mercy of how much traffic they’re getting and what they’re doing on their websites, because they might be doing something that slows down your websites. And there are different plans. The one that I recommend, if people are using WordPress, there’s a company called WP Engine, and they are really fast. They have a lot of stuff in place to keep your website running fast. So it’s a little bit more expensive, but it’s reliable. They have good support and it’s fast. So that’s what I’d recommend.

Joe Fairless: Okay, cool. Like it. Alright, so web hosting, domain name… And we haven’t even got to the actual components of the website, that’s consumer-facing. That’s good. I love that we’re talking about the inner workings of it. What else should we keep in mind?

Todd Heitner: Of course, there’s the design and development side of it, and that’s something where I’ve seen people go a couple of different routes. They’ll either try to build it themselves using some online website builder like Wix or Weebly or something. The problem with that is you waste a lot of time. If you’re trying to get started in apartment investing, that’s not really the best use of your time, because it seems like, oh, it’s not that big of a deal, let’s build up our website, but it can take weeks or months sometimes. I was talking with one person, he said he built his own site; it took him 10 months to actually get it live. He’s trying to do other things too at the same time. It’s just not the best use of your time really, especially if you’re not a designer, it can get over your head.

The other route some people go is hiring designers. There’s big companies you can use or there’s– some of the people use services like Fiverr or something like that, where you just find a designer and hire them. Just some things to be cautious about that, that sometimes it looks really good, it looks really cheap, but communication could be an issue because you may be dealing with someone in another country, English isn’t their first language, and you can have a lot of back and forth, a lot of miscommunications, misunderstandings, things like that.

Then there’s the content side of it too. I think a lot of people underestimate writing the content for their website… Because you do want to get the wording right, and you want to come across with the right impression. So that’s something too, you can either write it yourself if you’re decent with writing or you can hire people to do it. But whoever writes it needs to really understand your business, and that can be a little bit tricky to explain to someone else who maybe has no experience with real estate investing or multifamily investing. It can be a challenge, but you can find people out there. It’s just one of the things to be aware of that you can take a little bit longer than you might think when you’re going into it.

Joe Fairless: And what about the different types of pages that should be included on an apartment syndication website?

Todd Heitner: You need, first, basic general information about what you do, how you help your investors, how you can help their investments, what you can do for their investments, but also you want to have just a general contact form, of course, so people have a way to get in touch with you. But then also an investor profile form is really important, something that a potential investor who is interested in investing with you can fill it out and give you, of course, their contact information, but also are they SEC accredited, how much do they want or have available to invest, have they ever done anything like this before, so that you can capture that information and be able to follow up with them. That’s really vital for that type of business.

It can be good to have an About Us page that has your team, yourself and your other team members. That can really add some credibility, because people want to know who they’re doing business with and like to see a face. Because these websites can be cold and impersonal, I guess. So if you have pictures of yourself and your team members, that can really go a long way with the credibility side of it.

Joe Fairless: What about getting people to the website? What tips do you have there from a marketing funnel standpoint?

Todd Heitner: It is a good idea to have a landing page… If you’re going to do any paid marketing, especially, that you can send people to, that just captures their name and email, so you have a way to follow up with them. But just some ways to get people to your site – you can use social media, that’s one thing that’s free, you can build up a following with that, or there’s some paid options like pay per click advertising; there’s a few different avenues of that. Google Ads, is one of the bigger ones. There’s search advertising, so people that are actively searching for a certain phrase, or certain things online, you can have your ad come up for that. There’s also display advertising, is another type of pay per click advertising. So that’s where your ad shows up on different websites, and you can target websites based on the topic that they’re based on. So you can target investment websites, for example, for your ad to show up.

Another way is Facebook advertising; you can advertise there, because there’s so many people are on Facebook. So you can have your ads show up there. And again, with these, you pay each time someone clicks your ads. There’s no base price, there’s no minimum or anything; you’re just pretty much putting your budget and you pay based on how many people click your ad.

Joe Fairless: What are some mistakes you see people make when it comes to building out their website? So I went back to the website stuff after you were talking about the marketing funnels.

Todd Heitner: Of course, one thing I touched on was trying to do it themselves when they haven’t done it before, and it can kind of get over their heads. I guess, sometimes you can try to get everything perfect and never actually get your website live, which can really hold back your business, because a lot of times people wait to do their marketing and wait to get investors until the website’s live, but then they get stuck on some of these parts, like writing the content or other things like that.

So you don’t have to get it perfect, but you just want to get it to the point where it looks professional. I guess that’s another aspect of maybe not doing it yourself, too. Sometimes you might spend all this time on it and do your best, but it may not really be up to par with other syndicators, so that can be an issue, too. Or you’re trying to cut corners, trying to save money, you’re going with the cheapest designers and cheapest web hosting and things like that, you can end up with a site that doesn’t work very well. Also some of those Do-It-Yourself type systems– I found a lot of people run into limitations with that. They realize, “Okay, it’s great for getting something up initially, but now that I want to expand it a little bit, there’s no options for that.” You can’t add on these other features that you need. So I guess, looking at the long term goal of where you want to go with a website, and making sure that whatever platform you’re using will support that.

Joe Fairless: Okay. I noticed on your website, you’ve got four pricing plans. Just walk us through each of those four, will you? And just some of the things to keep in mind for each of them, and the price for anyone who’s not on your website right now.

Todd Heitner: Sure. So we do have a starter plan. That was something we introduced just for someone who know they want to get into multifamily, but they’re not quite ready to invest a lot in or don’t have a lot to invest right now. So it’s just a low-cost way to get your website up and running, something to represent your business so that you can have something to put on your business cards. It does look professional and everything, and that’s the idea, but it just has one design option, and you can customize that. People can go in and tweak it themselves, but it’s limited on the customization that we do on it. Because I’ve been to a lot of events where people hand out business cards and you go to their website, and it’s just like a “Parked at GoDaddy” page or a Coming Soon page. That’s why we started that plan. You can have that up and running. I mean, you can be–

Joe Fairless: What do you do when you come across that?

Todd Heitner: Since I do websites, sometimes I’ll ask, “Hey, do you want to get a website?”

Joe Fairless: Yeah. That’s a perfect client for you.

Todd Heitner: Yeah, yeah, because it looks unprofessional. You’re giving people business cards and you don’t have anything there. So that’s basically it. It still comes with one design option. Our current pricing is $397 for the setup on that and then $49.95 a month. So that it gives you something to get started and you can always upgrade from there. That’s the thing you can always– as your business grows and you have a little bit more to invest in it, you can always just pay the difference and upgrades to another plan.

Our most popular is the pro plan. It has four different design options. Besides apartment syndication, there’s also mobile home park syndication, self-storage syndication, and also even for owner-operators, ones that aren’t trying to attract investors, but just need something to represent their apartment investing business. So the pro plan is that. It’s $997 and then $99.95 a month, and it does include a little bit of customization; we’ll help you do some basic customization on it, and then it goes up from there.

There’s an executive plan… The main difference is it has a custom design that’s unique to your site. That’s one thing with all of these, starter and pro. They have a pre-made design and pre-written content. So those things that slow everybody down, like trying to come up with the wording and all that, you don’t really have to worry about. You can change it, of course, if you want to, you can go in and tweak things, but we tried to make it where you don’t really have to if you don’t want to or don’t have the time right now. But then as it goes up, the executive plan has a custom design so it’s unique to your site.

The diamond plan has also unique content, too; it’s written just for you. We help with customizing a lead magnet, something you can give away on your site… Basically, setting up your marketing funnel with that plan.

Joe Fairless: Anything else that we haven’t talked about as it relates to tips that our listeners can take away from this conversation to help them make better decisions when they’re building out their website?

Todd Heitner: Yeah. I think one thing maybe is recognizing why it’s important to have a website, just the credibility that that gives you, especially if you’re starting out, but really, at any level; it says a lot about your business. In fact, one of your podcasts, I think one that Theo Hicks did, he was talking about how important it is having an online presence, because potential investors will Google you to see what they can find, and if they can’t find you, they aren’t going to trust you… Because you do expect any business to have a website; that’s a basic thing. So when people search and they don’t find anything, it really hurts your credibility in their eyes, but having a website really does a lot for that.

And it does open up options. You can also automate things with your business, you can set up a marketing funnel where people sign up for something for free, and you put them into CRM or an email marketing system like ActiveCampaign or MailChimp or something like that. You can have a series of emails go out to people automatically, and that makes sure people aren’t falling through the cracks, but also, they get a consistent marketing message that builds that relationship on autopilot. So really, the website is a hub for all of your marketing.

If you have a podcast, or down the road maybe people will have a podcast or they want to write blog posts or anything like that, really the website ties that all together, it gives these people a place to go to. Actually, I want to ask you a question, if you don’t mind, because when we were at Michael Blank’s event, he put you on the spot, and said, “If you started over, and you had only $1,000 and a laptop, what would you do?” And you said you would start a podcast, and he asked if you would have a website and you said, “Yes, I would.” And I was just curious, could you explain to me your perspective? What would be one of the first things you would do if you were starting out from scratch?

Joe Fairless: Yeah. I think 99% of the people already know that. It’s nothing groundbreaking; we need websites. The year’s 2020, so you have to have a website. People are gonna search you on Google, you have to collect emails to build a database, which will then translate into more investors in your deals. Alright, my friend, so how can the Best Ever listeners learn more about what you got going on?

Todd Heitner: Well, they can go to our website, apartmentinvestorpro.com. We have a demo site there. So if people want to see that and see what it looks like, some of the features, they can do that. I do have a free resource too for anybody that’s maybe interested in setting up their own website. It’s a seven-point checklist for just things to go through; some of the things we talked about, but also some of the resources like the hosting and other stuff. That’s at apartmentinvestorpro.com/checklist.

Joe Fairless: Oh, cool. You’ve been holding out on us. That’s what I was looking for. Something like that that you talk about. But it sounds like you went through the majority of this stuff, right?

Todd Heitner: Yeah, I did. It just has maybe some specific companies that I’ve used, things like that. Resources for finding stock photos to put on your site, different things like that, where you can find some of that stuff.

Joe Fairless: Cool. Well, what’s the website to find best stock photos?

Todd Heitner: Well, there’s several, but I use Adobe Stock photos; they have a subscription service. There’s a lot, but I like– they seem really professional looking. They look a little bit better than, I think, than some of the others out there.

Joe Fairless: Todd, thank you for being on the show and talking to us about website building for apartment syndications and the components of them, some mistakes that people make coming out of the gate, and how to avoid those mistakes. So, really appreciate it. I hope you have a best ever day. Talk to you again soon.

Todd Heitner: Okay, thanks a lot. I appreciate it.

JF2051: Real Estate Tribes Approach During The Coronavirus With Travis Smith

Listen to the Episode Below (00:18:42)
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Travis is the CEO of Tribevest and shares the story of how Tribevest came to be and explains how they are being impacted by the coronavirus pandemic. He also shares what he is noticing in other tribes and how they are approaching the market. 

Travis Smith Real Estate Background:

  • Founder and CEO of Tribevest
  • He is a partner in several investment groups that invest in single-family rentals, multifamily, and commercial real estate
  • From Columbus, Ohio
  • Say hi to him at: www.tribevest.com

 

Best Ever Tweet:

“When everyone is panicking and selling, our tribes are pulling capital together, so when the time is right, they will be able to take advantage of great deals.” – Travis Smith


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 Travis Smith. Travis, how are you doing today?

Travis Smith: Good, Theo. Thanks for having me; glad to be here.

Theo Hicks: We’re glad to have you and thanks for being here, looking forward to our conversation. As everyone knows, we are in the middle of the Coronavirus pandemic, so we’re going to be talking about that today with Travis, how it’s impacting his business, his thoughts on it and what he is doing to combat it. But before we get into that, let’s go over Travis’s background.

He is the founder and CEO of TribeVest, which he will talk about here in a little bit. He is a partner in several investment groups that invest in single-family rentals and multifamily and commercial real estate. He is from Columbus, Ohio and his website is tribevest.com. So Travis, do you mind telling us a little bit more about your background and then what you are focused on today?

Travis Smith: Absolutely. TribeVest, first of all, just a little bit about the platform. We’re really a collaboration platform for investor groups. You can think of us as an operating system and a banking platform designed for real estate investors to come together, assemble, form and bank together, and ultimately do more as a result of pooling resources and pooling capital. So I’m really excited to talk about that. A little bit of my background – I come from the FinTech space, so digital banking and payments processing was where I came up, and then in 2017, 2018, came full time being the founder of TribeVest.

Theo Hicks: Okay. So do you mind elaborating a little bit more? Give me an example of what I have — I don’t know, $500,000, and I’m interested in investing in real estate, how would I use TribeVest to use that capital?

Travis Smith: Yeah, let me go back to the beginning, which is very relevant today. TribeVest was born from the last global crisis, the financial crisis, the Great Recession in 2008 and 2009. My brothers and I, we were on a fishing trip, quite frankly one that we couldn’t afford, and we were seeing the world changing around us. In fact, my uncle, who we had all looked up to and admired because he had a great job, worked for HP, was traveling the world, and after the Great Recession kicked in, he was laid off and was unemployable at the age of 55. It made us realize that everything we had been told to go to school, get good grades, get a good job and retire and die gracefully wasn’t going to work for us. We always saw real estate as a way to hack wealth without having to give up our day jobs, but we had that same problem that we all have – to break into private markets, to break into real estate, you need capital, lump sums of money that we just didn’t have.

On that fishing trip over a few beers, we had a breakthrough. We said, “Listen, guys. Let’s quit talking about doing real estate deals and address the problem right in front of us – lack of capital.” And in that moment, we said, “Let’s each agree to a manageable and monthly contribution of $500 each.” That was a stretch for us back then, but it was manageable, and between the four of us that was $2,000 a month, $24,000 a year, and that was how we broke in. One investment led to another led to another and led to another, and we look back and we’ve realized that by forming and funding that investor group, that tribe, we unlocked a future we could have never dreamed of, and over time, we were changing our future.

About three years ago, people started to notice, and they said, “Wait a minute, you’re investing in what type of deals? How are you doing this?” Then they would say, “Well, wait a minute, I have a tribe. We have shared financial goals. Can you help us form an investor group too?” And that’s when we thought about it, and said, “Is there a market here?” And of course, we realized, we looked back and we thought, “Gosh, what would we have done differently?” and we would have done a ton differently. Ultimately, that’s how we came up with our initial product, that now hundreds of investor groups are using to form and fund whatever their venture.

Theo Hicks: Okay. So your website’s like a fishing boat in a sense, where people come together who want to collaborate on some particular venture deal, let’s say, a real estate deal… And so they all just put their money together on that platform and then go off on their own to buy the deal? I’m confused on that aspect.

Travis Smith: No, I’m glad you’re clarifying this. Right now, we are deal-agnostic in that most of our tribes and our customers are coming with a pretty good idea of the deal they want to get done, whether it’s a single-family rental down the road that they’re putting together with their neighbors, or they’re participating in a multifamily syndicate, or a commercial deal syndicate, or whatever, it literally could be anything and that’s a fun thing to get into on what our tribes are investing in. But really, they bring the dream, they bring the deal or what their goals are, and we’re helping them facilitate. I think it’s important to point out here, Theo, and maybe you’re picking up on it – what we’re doing is nothing new. We’ve been surviving and thriving as a tribe since the beginning of time, and certainly in real estate, since the beginning there too, people have been coming together, forming groups to get deals and bigger deals and more deals done.

So we didn’t invent the idea of tribe investing, but what we are providing that was missing out in the marketplace, was a neutral third-party platform that took the burden off the members of the group, especially the initiator. It was always trying to figure out how to market the tribe and the deal and, “Hey, this is my deal” and “Come on in”. And now there’s a platform that takes the burden off of everybody, where the initiator could come in, build a vision and a mission for the group, and then share that out to prospective members and invite them in to collaborate, co-create, “Are we aligned?” Then we’re just as proud of the groups that go on to achieve awesome deals as we are the ones that never get going, because we feel like we’ve done our job.

When we are looking back at our initial tribe, when we said, “Hey, what would we do differently?” one of the big things was, “I wish we would have taken more time to align and qualify and agree on our expectations.” We always say more important than the rules are the rules upfront – the how much, the how long, then what, and what if; all those things you don’t necessarily want to talk about or you feel like you don’t really need to – well, you do, and TribeVest helps you do that in a very fun and systematic way.

Essentially, what we’ve done is we’ve mitigated emotion by making sure that you’re taking care of those things upfront. I think you’re picking up on it. Our main value here is we keep the relationship the main priority – more valuable than any of the deals you’re going to be getting done. It’s more valuable than any of the deals or anything are those relationships. Anybody that’s been around long enough or been in the business long enough would have a hard time arguing that.

So this platform is designed for you to come in, align, assemble, agree, and then all those other things that are out there, but we’ve just streamlined them. We made them super easy, we’ve automated. You can file for your LLC in all 50 states. A really unique thing, at least for business partnerships, is once you have your EIN, your LLC, you can open up an FDI business bank account online with your partners, and have access to this tribe view dashboard with all your documents, all your banking activity, your balance. You can propose deals, you can discuss those deals, vote on those deals. So just a true collaboration platform that happens to have the entity formation and the business banking part of it too.

Theo Hicks: Thanks for sharing that. I understand a lot better now what you guys are doing over there. So your company name is TribeVest, so you obviously have a massive network, a massive tribe. I want to transition now to talking about the Coronavirus. So what are the people in your tribe thinking about this right now and how did things affect their investing, their jobs? You mentioned that a lot of people who do this are also working full-time day jobs? So can you just walk me through where your head’s at and where your tribe’s head is at currently?

Travis Smith: My tribe aside, what are we seeing out there across our network and our community is really interesting. I think one of the things that we’re seeing is, we’ve seen a surge in registrations, just over the last three weeks since this happened, and we’re attributing that to a couple things.

First, I think people are thinking about ways to connect with people they care about, and knowing that we can’t do that physically, we can’t do that or get together and socialize in person, we’re figuring out ways to leverage technology platforms that bring us together, and TribeVest also does that. My brothers and I, our tribe, not only is it the reason why we’ve been able to build wealth and be in the position we are, but it’s also our most favorite thing we do together. We’re spread all over the country and it’s what brings us together. It’s the reason why we’re talking on a weekly basis. So just an interesting thing that we’re seeing is this surge in registrations.

I think the other thing that we also empathize with is there’s this mass consciousness happening right now. It doesn’t happen all the time, and usually, it happens during these moments of crisis, especially global ones, where we’re all in similar situations and observing the same news and have the same fears, and it’s an incredible time to rethink your future. Like my brothers and I, during the last financial crisis, we didn’t want to be a slave to our paycheck, we didn’t want to be dependent on our 401(k) on Wall Street, and everybody we knew that was independently wealthy and had true financial freedom was investing in real estate, but we didn’t know how to start.

That’s one of the main things, Theo, that TribeVest enables people to do. It gives people the ability to start; you can form with people you know, like and trust. So there’s confidence and safety in numbers, and then being able to pull capital in a manageable and monthly way, is super powerful.

So one of the things that we do is, even before you form your LLC, or before you open up a business bank account, before you formalize, we give you the ability to start contributing capital in parallel together. So I’m putting $500 a month or $1,000 a month into my personal FDIC savings account. But, Theo, you’ve agreed to that too, and so has Sue and so has Jeff, and we all log into the same dashboard, and we can see collectively how much capital we’re pooling, so that when opportunity does knock, when a deal does come across our table, we have capital and we can answer the door and the opportunity.

So that’s one way that our tribes are taking advantage of it. While everybody else is panicking and selling, our tribes are pulling capital in a manageable monthly way so that when the time is right, they’ll be in a position to take advantage of great deals and build wealth that way.

Theo Hicks: Is there anything else as it relates to your business, your dealings and the Coronavirus that you want to mention before we sign off that you haven’t talked about already?

Travis Smith: Yeah. I think we touched a little bit about it – from change comes opportunity. And the winners of the next year, two years or three years, whatever this is going to look like, are going to be the ones that have capital and are able to reinvest or invest in different opportunities that come from this change. No doubt, we don’t know what this is going to end up looking like, but things have changed, which again means there’s opportunity. So just keeping that mindset and always looking to grow for that opportunity.

Theo Hicks: Perfect. And then where can people reach you to learn more about TribeVest?

Travis Smith: Tribevest.com. They can follow me at @TribeTrav at Twitter. We’ve also built a landing page for your audience at tribevest.com/bestever, and we’ll have special information for them there.

Theo Hicks: Perfect. Well, Travis, thanks again for joining us today and telling us about your platform TribeVest, as well as your thoughts on the Coronavirus. So just to summarize – and I’m pretty sure I fully understand how TribeVest works now – it’s a collaboration platform for investor groups. You call it the operating system and banking platform designed for real estate investors to pool resources and capital. Basically, I, me and a few friends have an idea of a business idea, or maybe we just have a particular deal that we want to do, we don’t know exactly how to get started, we can come to TribeVest and they can help us with all of the things that we need to do to set ourselves up for success including, it sounds like, strong focus on creating an upfront business plan with the correct rules, the correct expectations and the correct vision, and basically help us facilitate that deal.

You mentioned how the idea was born from the 2008 recession, and that you realized that you needed capital to break into real estate. So rather than focus on finding deals, you focused on ways to get capital, and you and your brothers each agreed to do $500 per month, and that’s how the business started. Then what you also mentioned, that I really liked, is that the one thing that’s more valuable than the deals and really anything else are going to be the relationships. You try to focus on that a lot at TribeVest.

Then more COVID-related, you mentioned that you’re seeing a surge in registrations over the last three weeks and you attribute that to number one, people needing ways to connect virtually because they can’t do it physically in person. And then also, the fact – and this is a very true point – that everyone’s really in the same situation; the news is the exact same for everyone, it’s always about Coronavirus. So everyone has the exact same fears, which means it’s a great time to rethink your future and what you are going to be doing once this eventually ends, and that the winners of the next few years and after this ends are going to be the ones that have capital to invest in the different opportunities that come from this change. Obviously, that starts with, as you mentioned, the most valuable thing, which is your relationships and your network.

So again, Travis, thanks for joining us. Best Ever listeners, as always, thanks for listening. Everyone, stay safe, have a best ever day and we will talk to you tomorrow.

Travis Smith: Thanks, Theo.

JF2049: Seven Deadly Signs to Say No With Alex Talcott #SkillsetSunday

Listen to the Episode Below (0:21:19)
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Alex is a returning guest from episode JF2021. Alex is a managing partner at Seacoast Financial Planning and a partner with Lexdan Real Estate. In this episode, he shares seven deadly signs to say no in business, a deal, or a partnership to make sure you avoid headaches.

Alex Talcott Real Estate Background:

  • Managing Partner Seacoast Financial Planning
  • Partner with Lexdan Real Estate
  • Teaches finance and business law at the University of New Hampshire business school
  • Previously shared his Best Ever Advice in episode 1923
  • Based in Durham, NH
  • Say hi to him at lexdanre@gmail.com 

 

Best Ever Tweet:

“Don’t say yes to every $50k that you have in the door and say yippie. Talk yourself out of business from time to time to be one of the good guys. ” – Alex Talcott


TRANSCRIPTION

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

Alex Talcott: I’m doing great. I’m on the campus of University of New Hampshire’s business school. We’re at peak fall foliage, being in a better place, talking to a better person. How are you doing, Theo?

Theo Hicks: I’m doing great, I appreciate that. I was just talking to my mom today about the fact that I love Florida, so I don’t get to see the seasonal transitions, and I miss the colorful trees, so I’m kind of jealous.

Alex Talcott: Oh, you’ve gotta come up. The numbers aren’t great for cash-flowing value-add real estate up here so much. So it would be a pure vacation; you probably wouldn’t be able to write it off as a business trip.

Theo Hicks: I’m sure you’ll find a way. But Alex is a repeat guest; if you haven’t done so already, make sure you check out his previous episode, which is 1923. You’ll actually hear me interview Alex, so I get to interview him again.

Today is Sunday, so we’ll be doing Skillset Sunday, and we’re going to talk about the seven deadly signs that you should say no. So we’re gonna knock out as many of those seven deadly signs in detail as possible, but we will list all of those. Before we get into that, Alex’s background – he is the managing partner of Seacoast Financial Planning, as well as a partner with Lexdan Real Estate.

As he mentioned in his intro, he teaches finance and business law at the University of New Hampshire Business School. As I mentioned, he previously shared his best ever advice on episode 1923. Based in Durham, New Hampshire, and you can say hi to him at LexdanRE [at] gmail.com.

Alex, before we get into these seven deadly signs, could you quickly share with us your background and what you’re focused on now?

Alex Talcott: Yeah, absolutely. I started out as  financial services attorney; I’m now on the proactive producing financial planning side of things. I have a private real estate investment partnership that focuses on single-family cash-flowing properties in the South, and then we’re also limited partners on a variety of different apartment syndicates, including one in Jacksonville, Florida, with Ashcroft Capital, that I look forward to actually visiting this winter.

I spend an awful lot of time in my teaching, and spending time with the family… It all started for me in education, actually, as a religion major in college up here in New Hampshire. As somebody who’s always studied religious studies, and ethics and everything, I wanted to have a little fun and do these seven deadly signs, as opposed to seven deadly sins… Signs that  you should say no, because – another religious reference point – Moses got folks out of Egipt, but not into the Promised Land, and for a lot of investors and entrepreneurs saying yes is what gets you out of Egypt, saying no is what gets you the Promised Land. That’s an insight that was shared with me by Dan Sullivan, a strategic coach. So I was glad to prepare this list for you.

Theo Hicks: I’m looking forward to hearing it. So these are the seven deadly signs you should say no… You should say no to a deal, to hiring someone, to working with a potential vendor… In general, whenever there’s a decision to be made, here are the signs that you should say no. First, let’s go through quickly just a list of seven, and then we’ll jump back into the list to go over some of these in more detail.

Alex Talcott: Yeah. Number one,  a question that I had with somebody who was soliciting me for a hedge fund investment – how much do you  know about finance and investment? Not to be modest about my background, but the person clearly hadn’t even googled me or checked me out on LinkedIn. There was zero preparation. This was a representative of a pretty small up-and-coming organization. So anything that glaringly, off the bat says that you have done zero to prepare is a disrespectful thing.

Number two, low asset under management with too big a minimum. So people who are getting in way over their heads, kind of swinging for the fences too soon.. Or people with a straight face who have big minimums, but just straight up poor cash-on-cash returns that they’re even advertising. Sometimes the numbers are just blatantly bad.

Number three – basic mispronouncing of words… Straight up using a term wrong, or just saying the word wrong more than once or twice, that it’s not a slip, but it’s clear that you have superficial knowledge; you haven’t really talked this through with anyone who’s called you out on it.

Number four – referring to a real estate market as up and coming, or “the next…” without any data to substantiate it.

Number five – a lack of quantitative evidence that more things are happening, or more things are good to come, or “Is Texas over?”, or are you really gabbling in that past returns as an indicator of future success, sort of a thing.

Number six – just not sharing a periodic reminder or disclosure that the one thing that you’re doing on your webinar, or the one thing that’s the basis of your business – if that’s the one thing that you have to sell somebody, then you are not that prospect investor’s fiduciary. You’re certainly not their fiduciary financial advisor, so… We’ve gotta remind people that if we have one opportunity that we’re presenting them with, it might not be for all people, at all the times.

Number seven – a tired recitation of qualifications that are just very average. Is “very average” an oxymoron? I don’t know. The marketing major from a not-so-great school, or [unintelligible [00:06:35].19] that winds up with a sociology major with a 3.2… You might be a wonderful person, capable of great things, but… I don’t know about you, but for my health and my wealth, anyone new I’m bringing into my situation has to be excellent. So those are my seven.

Theo Hicks: Can you go over number six? I’m kind of confused of what that means. Do you mind just going over that one in a bit more detail?

Alex Talcott: Absolutely. Now, who needs more small print, who needs more disclosures? The notion of hitting people with voluminous pages, ostensibly in the consumer’s interest, but how many of us do or can read through all that stuff…? [unintelligible [00:07:12].03] by quantity, but I’ve just run into a lot of situations where I’ve seen people who are in real estate investing, or wealth management, and unfortunately they say the quick yes to the easy sale. I don’t know how many people I find who might be in a pretty good asset situation, but actually income-qualified for a Roth IRA. There are just certain tax advantages that you should be going for.

Sometimes people skip, I find, to real estate or accredited syndication investing before they own some other basics. So for me, real estate is awesome, it’s not a cure-all, and I really think it’s important for people to have somebody who they’re working with to help them out with emergency funds, and cash reserves, finding dual purpose dollar opportunities by way of a Roth IRA if eligible… I don’t t think people should be making their entire path to financial freedom as one that is being mapped out by way of real estate.

Theo Hicks: Okay, so this is basically saying that if you find someone who’s saying that– if you find someone who says that real estate is gonna cure all of your problems… Is that what you mean? Or not including disclosures about… Sorry, I’m still kind of confused about what this one means.

Alex Talcott: It’s a big one. It’s probably, of the seven, the one that is just not like a quick thing. It really comes down to ethics, and deciding what is in your best interest. Because increasingly, the fiduciary standard in wealth management, one that the Department of Labor has been working through for a few years, the Securities and Exchange Commission has been focusing on it more… They kind of picked up the slack at looking at not just for qualified retirement plans, how about for the entirety of investor relations that a series six or seven financial advisor would have with a person… What does it mean to be on the same side of the table as somebody who they’re working with? What does it mean to do something in another’s best interest? That’s a very high bar, because what people do we encounter in society who are required or expected to act in our best interest? …when we order a sandwich at a  shop, and we ask for Mayo on it. They don’t take a look at our girth and evaluate whether that’s appropriate for us or not…

But you put certain levels of trust with different individuals and different professionals, and I have observed some real estate investors for whom their investor relations representative with a turnkey operator, for example, might be in fact the only person who’s remotely a financial professional who they’re talking to. They might be do-it-yourselfers with TurboTax for their tax returns, they may have an app on their phone, they may not have a financial advisor who is retained to give them best-interest advice…

So I think it’s really important for people who are representing real estate investment opportunities, even if they’re not required by law to hold themselves up to a fiduciary standard, to recognize that the people who they’re working with might be using them or thinking of them as a really important resource for their wealth.

Theo Hicks: Okay, I understand that now. That’s definitely a big one. The other one that kind of jumped out to me – number seven, you said “Someone going over their qualifications, and those qualifications are pretty mediocre. Like, I had a 2.7 in college, and I went to this specific university and got a degree in finance, but as you mentioned, that university isn’t a well-known, respectable college… So is that something that if they have that low GPA – just using this example – they didn’t go to a prestigious university… Is the issue them talking about that and thinking that that’s something that makes them qualified the issue? …or is just them having a low GPA, not going to a prestigious university the issue?

Alex Talcott: I’ll go with both. I might have also called number seven “The first five minutes of a webinar”, where you have sometimes a team of 2-3 folks who are introducing themselves… And what it seems to me is that what people are most getting across is not even that they’re credentialed, but just that they’re normal… And part of the way that maybe they show their ethics is that they’re relatable.

So when somebody says that they live in a suburb and they have two kids, I’m like “I don’t know, I’m not familiar with that area. Is that an impressive suburb that you’re living in? Should you live in the town over? Should you have three kids, or four kids, or one kid? What’s the right number?” So I’m not trying to be hyper-critical or even an elitist, quite the contrary.

My students who I’ve thought at a state school, and I also teach at a community college – oftentimes I help them take a look at their resumes that they’re putting forward towards internships and job opportunities, and I’m showing them that “Hey, if you’ve worked at Applebee’s for four years, that might actually be an impressive credential”, because the millennial generation has the reputation of being flaky.

But if a place has kept you gainfully employed for four years, you must show up on time and have other high character. So that actually might even be something where if you tell me how many covers you take care of a night as somebody who hasn’t worked in the service industry… I don’t know, any number that you show me is gonna be like “Wow, you juggled a few balls in the air.” That can be rather impressive.

So I guess a part of what I’m saying there is not just giving the filler credentials. People wanna be relatable and seem like a normal guy/gal. I guess that’s kind of cool… But I would personally much rather have an uneven representation of “Hey, here’s what makes me really great. Here’s the role that I play on this complementary piece. Here’s the thing that I do, that nobody else does or can do.”

Theo Hicks: Exactly.

Alex Talcott: There’s one group, for example, that I like, where one guy is like “Yeah, I’m really into drones. So when we check out apartments, I’ve got the model 659er, and I fly her over here.” So this guy is taking a level of visual documentation of properties that they’re scoping out. That really stands out to me. So for that guy, I don’t need to hear all the generic stuff, I just need to hear the really wonderful stuff that gives me an impression that this is not just one of the many teams right now. Because we’re in a position right now where — I don’t know about you, but my inbox is full with deals. Deals are still being found, even in markets that are hot and have been hot for a long time.

So the ones you should say yes to, the ones you should say no to on the basis of your jockey not your horse – well, let’s find out the unique and interesting things about the various jockeys that are out there.

Theo Hicks: That makes sense. So it’s more about knowing what qualifications, what characteristics, what experience you had that are important, as opposed to just saying things that you think other people wanna hear.

Alex Talcott: Yeah, because I’ve heard a lot of people say “I’m a marketing major, so…” and he trails off; they don’t finish the sentence, sort of a thing. And it’s almost like “So what?” So at this point, there are a lot of credentials that are for the buying. If you want it, not only can you go out and get it in society, but oftentimes the government will subsidize your ability to go do it, whether or not it’s a great choice. So kind of showing what you did given an opportunity, showing that you did that was different or new or excellent, is really something that I think should come across wherever possible, anytime you’re presenting yourself. “Here’s what I know, here’s what I really know, here’s what I enjoy doing, here’s what I do in a way that other folks aren’t doing… So just trust me, and don’t even bother listening to those other webinars or checking out those other emails, because you know that we’re gonna take ownership of this thing in this way.”

Theo Hicks: The other one that I really liked was — number four was referring to real estate markets that are up and coming without having any data, and number five was lack of evidence that more things are good to come. I think number four is something that I see more; someone’s trying to present a deal to you in a market, and then you ask them why the market is really good, and it’s kind of just generic slogans, as opposed to specific data. Having an engineering background, I really like diving into the data on these things, creating crazy Excel tables and things like that.

Alex Talcott: Yeah, it’s like, how do we know that [unintelligible [00:14:45].28] because you could tell the story of one new company moving to town and bringing this many jobs or what have you, but there’s a lot that are coming or going. And even if you’re saying a number, sometimes it reeks of qualitative evidence, more than something that’s quantitative of firm.

Theo Hicks: And what about number two, low asset under management, with a big minimum? Can you go into more detail on that one?

Alex Talcott: Oh, yeah. I had somebody start a hedge fund, and out of his basement sort of thing, with $400,000 in assets under management… And going for a minimum from 25k — “We’re gonna be raising it to 100k.” And I asked “How with a straight face are you gonna ask somebody for 100k when you’re managing 400k?” I almost can’t even put into words why those are inappropriate or crazy in terms of what that would incentivize or what that would evidence the person not being ready for prime time, or what have you… But sometimes those numbers are totally out of whack.

But on the other end of the spectrum, I had a conversation with somebody with a fund in Southern California recently, who has a million dollar minimums, and is just showing super low percentage cash-on-cash return. This isn’t a matter of conservative under-promising, over-delivering, it’s just… I cannot imagine tying up that amount of money for that kind of lowered expectation. It’s just unbelievable.

So there’s certain  deals to say no to because there are a lot of great deals out there, a lot of great numbers, a lot of great projects and a lot of great people out there. So it just kind of tells us  — so much of the capital for so many of the deals right now are coming from the Coast of California, it’s where I am here in the North-East, and just how deep those pockets are in some places, such that the luxury of not going after great returns because people are overly-passive passive investors…

I’m actually working on registering a trademark right now for an approach and a process known as aggressive passive investing… Because usually you have this notion of aggressive investors, who are HGTV flipping… And that’s not me, I can’t swing a hammer… But I’m not so passive about my investments that I rely on just one or two relationships and then send them my and my partners’ money when we have a bit of extra scraps saved up. We’ve found that we’re able to go to markets, to invest time in getting to know people, and not be cutting into our returns in that silly manner of, you know, hop on a plane and go visit Apple headquarters to make sure they’re still open if you hold them directly or indirectly in your 401K. For us budget travelers, we can hop on a [unintelligible [00:16:58].18] stay in a Holiday Inn, and get to see great properties and get to know great people. So we’re carving out a pretty interesting space; we’re very aggressive about finding those passive investments to say yes to.

So as vigorous I am about saying no to the bad deals and the not-great people, I am investing some time and some capital in finding when to say yes. As an attorney by trade, too many of my attorney friends are all nervous Nellies and are all about no. I’m the kind of attorney who likes to get to yes.

Theo Hicks: Alright, Alex, we’ve gone over most of these… Pick one last one you wanna go over before we close out.

Alex Talcott: I don’t know if I have a favorite that I’m like “Oh my god, I can’t believe this didn’t pique Theo’s interest on the next level…” But okay, I’ll be a snob  on the basic mispronunciation of words, because this is something that really does transcend real estate. I’ve seen a presidential candidate endorse his very good friend, and he says [unintelligible [00:17:48].17] And I’ve seen people talk about their great affections for some town, and they mispronounce the name of the town. Ah, man, that’s brutal. That just shows that people haven’t thought through the idea all that much and they haven’t talk about it with other folks, nobody has called them out on not really knowing what they’re talking about… I just think that as a Malcolm Gladwell thin-slicer, that’s one of those things where I’m like “Oh, that’s evidence that other details might not be being owned here.”

Theo Hicks: Yeah, a lack of attention to detail, for sure, with that one.

Alex Talcott: Yeah. The most basic details, that are like, “Oooh, what’s going on here…?”

Theo Hicks: Alright, Alex, I really appreciate you coming on the show and going over these seven deadly signs that you should say no. For all of these you went over examples, so I’m just gonna go over the titles. One was zero preparation, two was having low assets under management, but having some sort large minimum that’s out of proportion to the assets they have under management, three was basic mispronunciation of words, four was referring to a real estate market or referring to something as up-and-coming, the next big thing, without having any data to back that up, five was lack of evidence that more good things are to come… Number six, which I’m still kind of confused on, but I’m gonna go back and listen to this, that we actually talked about… It’s basically just not having a high standard.

Alex Talcott: Yeah, exactly. Don’t say yes to every 50k that you have in the door and say “Yippie!” Talk yourself out of business from time to time to be one of the good guys.

Theo Hicks: And then lastly, number seven was someone’s going over qualifications that are very average. You’ve called it “The first five minutes of the webinar”, where they just tell you how normal they are, rather than going over the qualifications, the parts of their background that make them unique for this particular opportunity.

Again, Alex, I really appreciate it. Where can people learn more about you, contact you? Where do you wanna send people?

Alex Talcott: AlexTalcott.com redirects to my financial planning page. AlexTalcott.com will get you to Seacoast Financial Planning, and then we have a new email inbox for real estate conversations. We’re not seeking outside investors or soliciting in any manner, but we enjoy getting to know good folks who we might invest in, and that’s lexdanre [at] gmail.com, if you have something interesting I’d like to learn about.

Theo Hicks: Perfect. And Best Ever listeners, before you email him, make sure you do not fall for one of these seven deadly signs… Especially number one.

Alex Talcott: Thank you. And guess what, Theo, I’m saved by the bell. Do you hear that?

Theo Hicks: Yeah, I hear that. There you go. Alex, I appreciate you taking the time today. Best Ever listeners, thanks for tuning in. Have  a best ever day, and we’ll talk to you soon.