JF2421: Realtor Challenges & Business Growth with Jordan Nicholas Moorhead

JF2421: Realtor Challenges & Business Growth with Jordan Nicholas Moorhead

Jordan is a Real Estate Investor, Host of the Austin Real Estate Investing Podcast, and the owner of the Moorhead Team. He has been an entrepreneur since he was a kid and got into real estate investing before he got a realtor’s license. He focuses on growing his business, investing in real estate, and helping others get started in real estate. In total, Jordan and the Moorhead Team have acquired 29 units along with syndications. In today’s episode, Jordan will go into the details about single families, multi-families, turn-key, and his real estate background.

Jordan Nicholas Moorhead Real Estate Background:

  • Full-time realtor and investor
  • 5 years of real estate investing experience
  • Portfolio consist of 25 units and 3 syndications
  • Based in Austin, TX
  • Say hi to him at: www.themoorheadteam.kw.com 
  • Best Ever Book: The Lifestyle Investor

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Best Ever Tweet:

“It’s very hard to find houses for people to buy. It’s very easy to find people who want to buy houses.” – Jordan Nicholas Moorhead

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JF2418 - Using Diverse Background and Personal Superpowers

JF2418: Using Diverse Background And Personal Superpowers In Real Estate With Hemal Badiani

Hemal spent two decades traveling between three continents as he provided management consulting services to several fortune 100 companies. Several years ago he decided to hang up his traveling boots and join the financial world, which led him to real estate. He was both a passive and active investor, and now his portfolio consists of close to 600 apartments. His focus was multifamily syndication, and now he’s expanding to other classes as well. Thanks to his diverse background in business and management, Hemal was able to scale his company into a billion dollar business very quickly.

Hemal Badiani Real Estate Background:

  • Sr. Vice President in the Financial Space
  • 8 Years of real estate investing experience 
  • Portfolio consist of actively sponsoring or managing close to 600 apartments
  • Based in Charlotte, NC 
  • Say hi to him at: www.exponential-equity.com 
  • Best Ever Book: Indestructible 

 

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Best Ever Tweet:

“A vision for a million-dollar company is different from a vision for a billion-dollar company ” – Hemal Badiani.

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JF2407: Find Your Real Estate Passion with Kristen Ray

JF2407: Find Your Real Estate Passion with Kristen Ray

Kristen is a Family Nurse Practitioner from Baltimore. She discovered her passion in real estate with an apartment complex. Real estate helped her get through the education for nursing. She balanced being a practitioner and real estate investor. Being able to get into real estate it became her passion and decided she wanted to focus on this field.

Dr. Kristen Ray Real Estate Background

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Best Ever Tweet:

“Let some money work for you. You don’t have to always work for your money.” — Kristen Ray


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, Dr. Kristen Ray. Kristen is joining us from Ellicott City, Maryland. Kristen is a family nurse practitioner and a real estate investor. She started in 2011 and her portfolio now consists of over 150 units. Kristen, welcome.

Kristen Ray: Thank you for having me.

Ash Patel: Thank you for being here. Before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Kristen Ray: Sure. Thank you for the intro. I’m a Baltimore native, so I’m from the Baltimore area. My background, as you stated, my formal training is in nursing. I got into real estate in 2011, after becoming an accidental landlord. So long story short, for all you ladies out there, you may be able to relate. I had a six-month-old baby, I was in school for my master’s, my great grandfather passed away and left some properties. Those properties got handed down to my brother and I; we thought about selling them but decided to keep them. Fast-forward, two years after that, I went back for my doctorate degree. I didn’t want to take out student loans as most people don’t, and decided to use those properties. I leveraged them to pay for my degree. That was the moment when I realized I was doing everything wrong. So here we are today, a few deals later and a few years later, and I’m still here.

Ash Patel: How many properties did you guys inherit?

Kristen Ray: Four.

Ash Patel: Okay. Single-family homes?

Kristen Ray: Yes.

Ash Patel: And near where you live in the Baltimore area?

Kristen Ray: Yes.

Ash Patel: Okay. And they had tenants in them?

Kristen Ray: Yes. And those same tenants are still there today.

Ash Patel: Wonderful. So that’s what gave you the real estate bug. You mentioned you were doing things all wrong. Explain that to me, please.

Kristen Ray: Well, in terms of looking at finance, there’s always the work hard and save your money.And yes, while that has some truth to it, there are also ways to amass wealth and other ways to amass cash when you need it. This was evidenced by the leveraging I did with the properties.

Ash Patel: Was there a moment where you just got your first rent check? Or did you have a moment where there was just an epiphany, where a light bulb went off, and you’re like “Whoa”?

Kristen Ray: That was it. When I got the check at closing after we did the refinance, that was my lightbulb moment. Because I said, well, essentially the tenants are paying for me to get my doctorate degree. I didn’t have to take out loans, I didn’t have to look for scholarships, I didn’t have to do whatever it is a lot of people do to get money to get capital to use for that purpose… Rather, I used an asset that was cash-producing, that appreciated, so I had some equity there, and it’d still cash-flow afterward. So essentially, someone else paid for me to go back to school to pay for my education.

Ash Patel: That’s a great way to look at that. So you started in 2011 when you inherited those properties, and now you have 150 units. How did you start out on your own, besides the inherited properties?

Kristen Ray: So after those properties, I was at school obviously, and I was also doing some additional homework in the real estate sector to see what else can I do to continue this, because I really like it. So I went out and decided to get another property on my own, and went through the rehab – the whole BRRRR method, basically. And I realized it was a very taxing process. I wanted to be able to have a certain amount of cash flow and to be able to scale my portfolio, but I knew having 100 gingerbread houses was not my preference. So I started looking into commercial real estate and larger deals.

Ash Patel: So going to school for a PhD wasn’t enough, you were also learning real estate. Explain to me the multifamily process. Was it just the one single family that you acquired?

Kristen Ray: It was actually a duplex.

Ash Patel: Okay, and then what was your next deal after that?

Kristen Ray: My next deal after that – I did a few wholesale deals, and my next one was the apartment complex.

Ash Patel: And you were very passionate about real estate at this time.

Kristen Ray: Oh, absolutely.

Ash Patel: So you’re all in… Tell me more about the apartment complex.

Kristen Ray: It’s 146 units in South Carolina; myself and my partners, we acquired it almost a year ago today, this [unintelligible [00:05:18].22] right before the pandemic hit.

Break: [00:05:22][00:06:28]

Ash Patel: Who’s your partner? I don’t need a name, but how’s your partner involved in the business is my question.

Kristen Ray: Oh, okay. He’s also a syndicator. He also has a portfolio of multifamily properties and single-family properties.

Ash Patel: Okay, so you didn’t just go from a duplex to a 146-unit apartment building, did you?

Kristen Ray: Essentially.

Ash Patel: Oh, you took the fast track. Okay. How did you find that 146-unit building?

Kristen Ray: Well, the lead came in through my partner. I met my partner through networking back when we could network in person, pre-COVID.

Ash Patel: And what’s your involvement in this? Are you 50/50 partners?

Kristen Ray: No, we’re not 50/50 partners, but I’m a general partner in the deal.

Ash Patel: Okay. And then how many syndicators are in this deal? Or how many investors rather?

Kristen Ray: Passive investors, I believe 60-ish investors.

Ash Patel: Okay. A lot of these came from your partner having a track record in syndication?

Kristen Ray: Yes. That was definitely helpful when we spoke to investors about investing.

Ash Patel: Okay. And you’re still a full-time nurse practitioner?

Kristen Ray: Not quite full-time, but I do still practice.

Ash Patel: Okay. How do you balance the two?

Kristen Ray: Well, I don’t practice as much… I do practice a certain number of hours to keep my licensure; that I’ll always keep, because I’ve worked very hard to acquire it. But my primary focus is real estate.

Ash Patel: Okay. In this syndication, what was your direct involvement? Did you help find investors? Did you do investor relations? Did you help identify some of the issues with the property? Underwrite it? Take me through that.

Kristen Ray: So my role – I helped with the due diligence, underwriting, and also investor relations.

Ash Patel: Okay. What were some of the big things that came out in due diligence?

Kristen Ray: There was some deferred maintenance that we’re still working through. That was one of the big things. Also the financials. The seller didn’t quite keep those in order. But I will say those were some of the larger undertakings.

Ash Patel: What are you focusing on next?

Kristen Ray: That’s a good question. Next – still looking at multifamily, considering an assisted living facility, just from a landlord perspective; I don’t want to operate the business aspect. But I consider myself an opportunist, so I will always have my eye out.

Ash Patel: So you wouldn’t use your background in healthcare to essentially manage the assisted living facility? Or would you be the medical director for that?

Kristen Ray: No, I wouldn’t be interested in that role. I would certainly want to be in a landlord sort of role. Maybe I purchase the building or several buildings, and maybe partner with an operator; that would be something I would consider.

Ash Patel: So what are you doing to find more deals?

Kristen Ray: Oh, Ash, that’s a great question. Like everyone else, I’m keeping my eye out and looking, talking to brokers, talking to other investors… That’s pretty much what I’m doing to try to get leads.

Ash Patel: What’s one of the biggest mistakes you’ve made in your real estate investing career?

Kristen Ray: Not starting sooner.

Ash Patel: What’s your next biggest mistake?

Kristen Ray: My next biggest mistake, I would say, not choosing the right contractor. So that’s very important. That’s probably one of the hardest aspects of the business if you’re doing some sort of value-add, is choosing your contractors very wisely.

Ash Patel: And do you still look for single-family homes or are you only looking to take down much larger deals?

Kristen Ray: I’m open to both. I’ll still build my personal portfolio as well with the syndications. So I’m still interested, but I’m very selective of both. So any single-family or residential properties, I’m only looking in particular areas. I’m very niched down there.

Ash Patel: I have to ask you this question – with you being in healthcare, a lot of medical professionals seem for whatever reason to not know much about real estate investing, or not have the opportunity to learn about real estate investing. Have you found that?

Kristen Ray: I would say somewhat. I have run across quite a few health care providers who do invest in real estate and are very interested. But on the flip side, I have some that I’ve met that are strictly into the stock market. So I usually find it’s one or the other.

Ash Patel: Do you do anything to try to encourage other medical colleagues to get into real estate?

Kristen Ray: Oh, absolutely. I talk to them all the time, I’m networking with them to let them know the kinds of opportunities… Oftentimes, people in healthcare tend to be in a higher tax bracket, so just kind of letting them know, “Hey, there’s a few other ways you could invest your money outside the stock market and maybe get some tax breaks on certain aspects of your income.” And just showing them another way to build wealth. I always tell them, if you don’t find a way to make your money work for you, then you’ll always work for money.

Ash Patel: That’s great advice. I was going to ask you, Kristen, what’s your Best Ever real estate investing advice? I think you just said it, but go ahead.

Kristen Ray: That’s it.

Ash Patel: No, take it from the top. Let’s go.

Kristen Ray: My best real estate investing advice is to let your money work for you. So you don’t have to always work for your money.

Ash Patel: Great advice. Kristen, are you ready for the lightning round?

Kristen Ray: I’m ready, Ash.

Ash Patel: First, a quick word from our partners.

Break: [00:11:50][00:12:26]:25]

Ash Patel: Kristen, what’s the Best Ever book you recently read?

Kristen Ray: I recently read a book called Your Money or Your Life by Vicki Robin. I loved it and I highly recommend it.

Ash Patel: I haven’t heard that. What was your big takeaway from that?

Kristen Ray: My big takeaway from that is your time is much more valuable than money, and that spending your time… Just a different way of looking at how you spend your time.

Ash Patel: That’s a great perspective, and I think that’s a lesson that a lot of us learn as we get older, that would have been ideal to know much earlier. Kristen, what’s the Best Ever way you like to give back?

Kristen Ray: Through youth programs. There are some youth programs that I am a part of and I sit as a board member, to help youth that are at an economic disadvantage, to help them with their educational needs.

Ash Patel: Fantastic. Kristen, how can the Best Ever listeners reach out to you?

Kristen Ray: My website. Please schedule a call. It’s vitalinvestmentpartners.com. Book a call with me. I’m happy to chat.

Ash Patel: Kristen, thanks for being on the show. You’ve given us great advice. I love stories about accidental real estate investors, because that’s how I got started as well. So you went from being a nurse practitioner, studying real estate while also getting your PhD, which is a monumental task… Then you got into doing your own deals, and now you’re into syndications and taking down some large deals. So Kristen, thank you again for being on the show. Best Ever listeners, thank you.

Kristen Ray: Thank you, Ash.

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JF2405 Looking For Unique Transactions and Great Deals With Craig Coppola

JF2405: Looking For Unique Transactions and Great Deals With Craig Coppola

Craig has been representing office owners and tenants for 37 years. 25 years ago, he started acquiring buildings from his own account, making sure the two businesses do not compete.

As Craig’s mentors said, there are market deals, off-market deals, and great deals. Now Craig focuses on finding great deals, and he shows his investors and other real estate professionals how to do the same.

Craig Coppola  Real Estate Background:

  • Commercial real estate broker – specializing in leasing and sales of office projects 
  • 37 years of commercial real estate experience and 25 years of investing experience
  • Portfolio consist of 17 real estate investments
  • Based in Phoenix, AZ
  • Say hi to him at: www.coppolacheney.com 
  • Best Ever Book: Psychology of Money

Best Ever Tweet:

“I get to look for unique transactions, and I encourage everyone to start looking for those” – Craig Coppola.


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to The Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today we’ll be speaking with Craig Coppola. Craig, how are you doing today?

Craig Coppola: I’m doing great, Theo. How are you doing?

Theo Hicks: I’m doing well. Thanks for asking, and thanks for joining us today. Looking forward to our conversation. A little bit about Craig. He is a commercial real estate broker specializing in leasing and sales of office projects. He has 37 years of commercial real estate experience and 25 years of investing experience. His current portfolio consists of 17 real estate investments. He is based in Phoenix, Arizona and his website is coppolacheney.com. Craig, do my telling us some more about your background and what you’re focused on today?

Craig Coppola: You bet. For 37 years I’ve been representing office owners and tenants in the leasing office space and selling office buildings. 25 years ago I started acquiring for my own account. I tend to acquire stuff that’s not competitive with what I do. I sell massive buildings, 50 to 60 million dollar buildings, and do lots of leases. Our team does about 125 leases a year.

In my own portfolio, I’ve just acquired something that [00:02:03].04] founder of our company. I work at Lee & Associates and I’m one of the founders of Lee Arizona. And Bill told me something 20 years ago — and the reason he started Lee & Associates is so that we could acquire real estate on our own account. So Bill says there are three kinds of deals – one, there’s a market deal; two, there’s an off-market deal, and then there’s a great deal. He says “I only look for great deals. If you’re buying in the markets, then you’re paying market prices.” Because I’m in the deal flow all the time, I get to look for unique transactions. I encourage everybody to start looking for those, find something that you want, and then you kind of figure out how to buy it. I like this concept, so I always look at “Is this a market deal? Is it an off-market deal, or is it a great deal?”

Theo Hicks: I like it. What’s an example of — maybe you can walk us through one of the examples of the best deals you’ve done with that approach. What was a great deal and what was unique about it?

Craig Coppola: Well, I’ll give you an example. I just sold a building about 90 days ago. I acquired it, it was an empty building, and I had a user that was looking in the marketplace. So I acquired the building, and during the escrow I put the lease together, signed a 15-year lease with the tenant, and then held it for five years, and just sold it with 10 years left on the lease. I more than doubled my money. So that’s the kind of transaction where we add value to it throughout the process. Buying something that was empty, you could buy it at a cheaper price, and then putting a tenant in it and then being able to hold it, get some cash flow during that period of time. It was interesting, I actually refinanced it and pulled all my cash out. I was dealing with house money afterwards, and then I don’t know, I put a couple of million dollars out after on the sale of it just a few months ago.

Theo Hicks: How did you fund the deal? Was it your own money or was it investor money?

Craig Coppola: I started out with investor money, and now the last four or five years it’s been just my own money. I have not brought any outside investors. As we’ll go through the lightning round the end you’re going to find out my best deal ever is one of my investors with Robert and Kim Kiyosaki. The Kiyosaki’s are investors of mine. So I still have some older investors that I would do deals with. As a matter of fact, during COVID, I raised about 25 million dollars to just go acquire some assets. I haven’t bought anything yet. The market is not where I want it to be.

Commercial real estate takes time. It’s not like the stock market, where the stock market gets repriced every day. In the commercial real estate market — it’s a lagging indicator. So today, what we’re seeing pricing on, owners are still hoping that the market is going to come back, and everything’s going to turn around, and the vaccine is going to create all this new stuff… And those savvy investors are sitting around waiting, “Let’s just see what happens. And when it does, then we can acquire stuff as the market declines.”

Theo Hicks: Something I want to talk about – something interesting was you said you started off using other people’s money, but then you transitioned into focusing mostly on using your own money. I know some people who spend their entire careers just raising other people’s money; obviously, they’re investing on the side, but their main focus is other people’s money. Maybe talk us through why you decided to transition and what benefits you see to using your own money as opposed to using other people’s money?

Craig Coppola: It’s pretty practical. Every time — I have been doing this a long time, and you and I are on a Zoom call so you can see that I’ve lost my hair… I think I lost my hair because I’ve gone through three recessions. And when you have other people’s money, and you’re losing their money, or your investments are going sideways… I just found I can lose my own money way easier than I could lose other people’s money, and I feel a lot better on my own account. So I make decisions a lot easier, I don’t have to report, I can handle it… So for the last four or five years, I just haven’t. That doesn’t mean that I won’t. And if I’m starting to look at acquiring bigger assets than I’m comfortable investing in, then I would use other people’s money. But I just kind of gravitated towards just using my own, because it was easy and I didn’t have issues.

Theo Hicks: That totally makes sense. So you’ve been a commercial real estate broker for 37 years. I know one thing that a lot of people who want to get into real estate say is that “I’m going to go get my real estate license.” It’s like, you sell real estate as a full-time job, you get into real estate, make money from commissions, have early access to deals… But not many people talk about, “Well, I’m going to go and be a commercial real estate investor and do the same thing.” So would you advise someone who is just starting out and they don’t have the money themselves to buy real estate, rather than becoming a residential realtor, becoming a commercial broker? Or would you recommend them maybe waiting and doing that a little bit later?

Craig Coppola: I’m a huge believer in commercial real estate over residential. And now, again, that’s my world, but the two don’t overlap. The people who are buying, fixing, and flipping houses do not do well in the commercial real estate market. I wrote a book How to Win In Commercial Real Estate Investing, and it won a best first-time author book, about 10 years ago.

The reason is acquiring residential is completely different than acquiring commercial. There’s a whole different knowledge curve that has to occur. You’re looking for different items when you’re acquiring commercial, you’re looking at different demographics that you are looking for, and how the properties are built. So if you have a bend for commercial, I love the idea of getting into commercial real estate to learn it and become a full-time broker, and/or part-time, and then learn the business that way. So yes, I would highly encourage people to do that.

Break: [00:07:27][00:08:34]

Theo Hicks: You mentioned before we got on about the importance of presentation to get some tips you wanted to provide people with. Do you want to quickly maybe introduce what you’re talking about why it’s important, and then what your tips are?

Craig Coppola: You bet. One of the interesting things when I talked to Joe is what do you guys do a little bit differently that people don’t ever talk about? And I’ve never seen this on any podcast before… No one talks about the actual presentation. If you think about it, every time you’re going to acquire a property, there are three, four, or five different presentations that you’re doing. One, you’re doing a presentation to people who you’re getting money from. If you’re using other people’s money, you got to go present yourself; and not only yourself, your plan. Two, you have to go get a lender, because not everybody’s buying cash, and they’re going to go get a lender. Three, you have to get the seller. And people don’t think about this – in today’s marketplace, there’s a lot of people out doing the same thing. You’re going to go in and go, “Okay, I’m the real buyer.” And the next guy is going to come in and say, “Well, I’m the real buyer.” So there’s this presentation as to why should the seller accepts your offer over them? And that’s actually a presentation.

Then there are quarterly investor updates. I just said to you that I didn’t like doing the quarterly investor updates. Finally, there’s a fifth presentation that occurs when you sell your property.

People think about it “Yeah, I know I have to go and get a lender”, but that’s a presentation; that’s not just filling out a credit app. And I know I have to sell the property, and I put the brochure together, but these three in the middle can really make or break you.

So I like to say, “Look, start thinking about all of these aspects in the presentation.” Creating a template for yourself; 85% of the presentation is in the first 15% of the time spent. So get it prepared, do it now, and get your template going so you can start making deals that you would not normally make. I thought that was pretty interesting, because when we get a lot of investors to coming in, they don’t think about that. We’ll get some napkin, right Theo?

Theo Hicks: Yeah, totally. I’ve been focusing a little bit on the blog lately too, writing out different things to make sure you’re accounting for in your presentation to investors, ways to present an offer to the seller… But one thing that, as you mentioned, people don’t talk about is the selling of the property. A lot of people focus on the beginning parts of the investment – raising the money, getting the funding, having the experience, finding the deals, and then maybe a little bit on closing; sometimes a little bit on asset management. But in the back end, the selling, which is where the most money is made, is pretty important too. So maybe we’ll pick that one to expand on. What are some of the best practices when you’re doing that last fifth and final presentation?

Craig Coppola: That’s a good thought here. You acquire property, we add value to the property, we either lease it, we renovate it, we make the management changes to it, we make more efficient operating, all of those things. Everybody now knows what you bought the property for. So let’s say you bought the property a million dollars, and now you have it in the market for 3 million. People are like “That’s just what I want.” Like “No, no. Here’s what I’ve done. I’ve owned this property for five years.” So let’s just go back to the one I just sold. I bought the property at 2 million dollars, I put about $650,000 on my own money. Let’s say now I have 2,650,000.

I’ve got the tenant into the building now, and the building’s been renovated. So when I sold it, they go, “Well, you bought it for 2 million.” I go “Yup. And here’s $650,000 that I put in cash.” It was an empty building, so I put in new roofs and new air conditioning units. So we have this upgraded list. So this is just the basis. Now I have cash flow and I have a tenant. So we put together our tenant; here’s our tenant, here’s the credit of our tenant, here’s the cash flow is going to do. So now instead of buying an asset on basic what’s-it-worth-empty, we’re now selling on the cap rate.

So I put together this whole timeline that said here’s all the value that I added at each step of the way. And then I’ve seasoned the building; I signed a 15-year lease, I’ve owned it for five years; there are still 10 years left on it. So it shows that there’s a history of the tenant paying.

And when the investors came in to look at the purchase, there was no question that this was valued at what it was, and that I added value to it. A lot of times people go “Oh yeah, I just got a good buy, and so I’m flipping it to you because I’ve put paint and carpet on it.” That’s not what we do; that’s not how it’s going to sell. Savvy investors will get beyond that.

Theo Hicks: Tactically, what does that presentation look like? When you talk about that timeline of when you bought it, how much you invested into it, and all the other advantages of this property and why it’s valued the way that is valued, and why you set that as the sales price… Is that a conversation? Is that in the offer memorandum? Is it in graphical form or is it written out? How specifically is that communicated to would-be sellers?

Craig Coppola: In the offering memorandum – it’s not in there. But you know the questions that are going to come up. On this property, it had some cracks, and I knew that question was going to come up. I just got a phone call right before this, and our job is to have the answers to those questions. It’s shocking to me how many times people don’t. It’s like, “You bought this, you knew it was cracking. Did you have somebody look at it?” “Yeah, we had the crack, and here’s the report.” “We have this in the parking lot. Here’s this.” “We have this, here’s this.” We’d like to take it down the road, so here’s the offering memorandum, which is the pretty brochures, and the cash flows, and all that. Great. But here’s the next five questions, and if you don’t have an answer… You’ll know in the first five people that you show it to what all the questions are going to be. And the minute you get that question, you go, “Let me get the answer to you.” And then I’ll put it into a cool form. So now I’ve got it for the next buyer, and the next buyer, and the next buyer.
So as we start selling this, it gets better and better as we go, because we’ll have a question that maybe we didn’t think we would get, but we’ll have it, and then all of a sudden we’ve got it. So I just got off the phone with this guy and he was asking me a few questions I didn’t have an answer to on a property we’re selling right now. I was like, “Great question. Let me get that.” Now in my mind, I’m thinking, “Hey, I’m going to go on the Best Ever.” So in my mind, this is exactly what we would be doing.

Theo Hicks: Perfect. I love the idea of proactively being prepared to answer these questions. I love that concept. Alright, Craig, what is your best real estate investing advice ever?

Craig Coppola: My best real estate advice is to buy great deals. If it’s not a “Hell yes!” Derek Sivers says “It’s a hell yes, or it’s a no.” So many people get caught up in “I’ve gotta get velocity and go do that.” My best advice is to buy something. You don’t have to go out and acquire something tomorrow and your money’s [unintelligible [00:15:01].18] in your pocket. I think you can wait and buy something that’s a great deal.

And it doesn’t have to be a great deal today. You’re going to hear it in a minute, the best deal I ever did… Everybody knew [unintelligible [15:14] but I know exactly what was going to happen, and I had this long-term perspective. That really helps when you’re saying “This is going to be not necessarily my best deal today, but it’s going to be over a long period of time.” I think if we start looking at longer than six months for fix and flips, then I think we can look at a bigger, broader range of investment opportunities.

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

Craig Coppola: I am. Let’s do it.

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

Break: [00:15:42] [00:16:19]

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

Craig Coppola: The Psychology of Money by Morgan Housel. It just talks about how people think about money. It’s an easy read. I had a client give it to me who’s really wealthy. And I want to give you a second book. This is geopolitical, but I’ve just loved it so much. It’s called Disunited Nations by Peter Zeihan. It talks about the world and the US not governing it. It’s not real estate but it gives you a good perspective on what’s happening, why what we’re seeing happening in the world, and the psychology of money is great for just thinking about how we think about money.

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

Craig Coppola: Well, I actually created three businesses – the brokerage business, the real estate business, and then I created, 25 years ago, I’m an investor in startup companies, and I have 31 companies. So I have a home office now called Habanero Ventures that owns all of my startup companies. So I’m already set up for that. Angel Investing in startup companies are my favorite thing to do other than commercial real estate investing now.

Theo Hicks: Okay, you built this up, so what is the Best Ever deal you’ve done?

Craig Coppola: Robert and Kim Kiyosaki and I bought six acres of land at the corner of 32nd & Camelback in Phoenix, which is really a great corner. 15 years ago there was a health club on it, a 40,000-foot building, and it had a 17-year lease on it. We did a 15 year fully amortizing loan on it, and we got about 10%, and it grew every year. In the end of we were getting about 20% per year on our money that we invested in it.

So that was a great investment. What made it the best investment – when the lease expired, we now had six acres of land free and clear at 32nd & Camelback. The last two years we’ve put a deal together and we just did a 99-year unsubordinated ground lease on that. Today they’re building 250 senior living housing. But we’ve got a ground lease now that we’re getting over a million dollars a year for 99 years on unsubordinated, in front of any debt. So I think we paid 5.5 million initially, and now we’re getting over a million dollars a year for the next 99 years. It’s a retty damn good deal.

Theo Hicks: Yeah, that’s a great deal. A “hell yes” deal. On the flip side, tell us about a time you lost money on a deal, how much you lost, and what lesson you learned.

Craig Coppola: I lost over $2 million on investing in oil wells. Clearly, I didn’t know s**t about oil wells, and I learned a lesson on that. Look, I know real estate, I know startup investing, I didn’t know anything about oil wells. I thought I could get into the business. So I see this all the time, where somebody gets a nice win in an area, and then says, “Oh, I can do that over here.” Then he sold his practice, built it up, and now he’s a real estate investor and he thinks he knows more than me at 37 years in the business. So stick to your knitting, or learn.

Theo Hicks: That’s solid advice. What’s the Best Ever way you like to give back?

Craig Coppola: Well, I’ve been on five nonprofit boards for 30 years. In the last couple of years, as I get older, I’m [unintelligible [00:19:31].09] down. So we do two things on giving back. One is on our team — I always hire two young folks that we trained for two and a half years. So for 35 years, I’ve been training young people in our business, and then we turn them loose. So I get back that way. Also on these nonprofit boards that I give back.

I’m really committed to our community here in the Metro Phoenix area. So all of the nonprofits I’ve known — I have clients that go build water wells in Africa, but my commitment is to our community. I’m third-generation in Arizona and so all of my time and focus is nonprofit, of course. The big one I’m on right now is St. Vincent [unintelligible [00:20:08].08] the largest one in the world, and I’m on their Council, which is the top five people, and we feed 4,000 meals a day, every day of the year, so it’s kind of cool.

Theo Hicks: That is awesome. The last question, Craig, is what’s the Best Ever place to reach you?

Craig Coppola: Probably the best is just a simple email ccoppola@leearizona.com. Or you can google me. I’m Google-able.

Theo Hicks: Perfect. Well, thanks for sharing your email address, and thank you for sharing all of your advice with us today. I really enjoyed this conversation, I learned a lot. You talked about the three different types of deals, and how you want to make sure you’re doing a great deal.

We talked about some of the psychological advantages, I guess, to using your own money as opposed to using other people’s money. We’ve talked about how you think it’s a really good idea for someone who’s interested in commercial real estate to start off as a commercial estate broker, as opposed to going the residential route, because it’s completely different and  there’s not really any overlap.

You gave the detail on the presentation tips, and then we talked specifically about when selling your property, some ideas around that, and then five different times you’re presenting, and then really just making sure that in each of those steps you’re prepared to answer the common questions. You know what questions to expect, and you have answers for those. Even if you don’t have an answer, tell them you’ll get back to them, find the answer, write it down so you’re prepared to answer that question from other people.

Your best advice, which I also really liked, was that following up with the idea of buying great deals doesn’t mean that you need to focus on the quantity of deals, but more on the quality. The goal of maybe buying ten deals a year could be fine, but I imagine from your perspective it’s better to buy one great deal a year than 10 okay or bad deals per year. So be patient, don’t feel forced to buy something that’s not one of these great deals. As you said, it’s either a “hell yes” or a “no.” Your example of that would be that deal that you did with the Kiyosaki’s and the million dollars per year for 99 years is awesome.

Craig, thank you so much again for joining us today. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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Podcast - Dani Biet-Or

JF2404: Applying The Lesson of 2008’ Market Crash To Current Real Estate Investments With Dani Beit-Or

Dani has been in the real estate market for over 16 years. He started investing back when he lived in Israel and continued with it after moving to the USA in 2004. He started building his portfolio by working closely with Silicone Valley residents who were looking to invest in real estate outside their zip code. 

Addressing the knowledge gaps that his potential investors had helped him gain their trust and secure the investment. Dani is still keen on educating and sharing his knowledge. In this episode, he offers some expert advice that the 2008 market crash has taught him that are still true today.  

Dani Beit-Or  Real Estate Background:

  • CEO of Simply Do It Real Estate Investments, a real estate investment boutique
  • 16 years of real estate investing experience
  • Has invested in and has guided others in the purchase of approximately 5,000 rentals
  • Based in Irvine, CA
  • Say hi to him at: www.simplydoit.net 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I’m not investing for the cash flow, but I want to have that buffer” – Dani Beit-Or.


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, Dani Beit-Or. How are you doing Dani?

Dani Beit-Or: I’m doing good, Joe, thank you for having me. How are you?

Joe Fairless: I’m glad to hear that and I’m looking forward to this conversation. I’m looking to be educated and looking forward to learning more. Dani is the CEO of Simply Do It Real Estate Investments, a real estate investment boutique. He’s got 16 years of real estate investing experience. He’s invested in and guided others in the purchase of over 5,000 rentals. He is based in Irvine, California. So with that being said, Dani, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Dani Beit-Or: Yeah, absolutely. Like you said, I’ve been personally investing for 18 years or so. I started doing it more professionally about 16 years ago. I’m originally from Tel Aviv, Israel. I started investing in the US while being a high-tech employee living in Tel Aviv, and I moved to the States in 2004. I continued investing more for myself and working with others, helping them execute exactly the same concept of buying rental properties in different U.S. metros, primarily nice middle-class single-family homes in places like Kansas City, Nashville, Phoenix, Tampa, Orlando, Dallas Houston, and quite a few more.

Joe Fairless: I’m just doing some quick math… 5,000+ rentals in 16 years. That’s 312.5 rentals a year. That’s almost a house a day. Can you tell us where does that volume comes from?

Dani Beit-Or: First of all, I’d like to be corrected… Somewhere between 4,500 to 5,000. So to be more corrected about it, so maybe 300 a year or so. A lot of it comes from during the 2004, ’05, ’06, ’07, ’08, I would say up until that – that was really hectic years of a lot of purchases. Right now, we’re probably doing less than 300 a year and it’s coming from investors.

I put up a concept, I put up a turnkey operation. A lot of people in this niche, people wake up one morning, usually, I see them when they’re somewhere between 30 to 45, maybe a first kid, maybe a few kids, working… They wake up one morning, a lot of them live in the expensive metros of the West Coast. Not all of them, but other metros around the country. And they’re like, “Wait, what’s going on here? I live in Silicon Valley. I work for one of the more known names in the industry, less-known names in the industry, I make good money, maybe between me and my wife, we’re making four or five, maybe $600,000 a year from Silicon Valley.” It sounds a lot, a big salary, but it’s not going to be super wealthy with that kind of salary in Silicon Valley, with the cost of living. And they’re saying “What do I have? I have my own home, maybe some stocks and retirement accounts. I want to do more. I want to make sure I have something left for myself, or for my kids, some sort of more accelerated retirement plan… Real Estate. A-ha!” They have an aha moment. They heard from a friend, they talked about it…

Everybody talks real estate pretty much all the time. I say everybody, but I see it in a coffee shop, when we were doing that, I walk on the street, and somewhere like going in with my son, I always pick up on those conversations where people talk about some aspect of real estate, almost every time I’m out. So it’s kind of bugging or something that a lot of people talk about. And then they’ll wake up and say, and kind of have an aha moment “I live in Silicon Valley. Real estate around me is 2 million dollars; it’s a reasonable piece of real estate, it rents for $5,000 or $6,000.” Those are crappy numbers. Both the down payment that we need, the cash flow… What cash flow? Horrible cash flow.

The next question is “Okay, I’ve heard about people doing it remotely in other parts of the country, where the numbers are more attractive. How am I going to go about executing this? Where should I go? Who can I trust? I have tons of questions. I have done real estate/I have never done real estate.” So we come in and we try to close that gap of knowledge by helping them address all those questions and concerns, all of them. But they have sometimes they don’t even know the questions or concerns that they have; they will just come up a little bit later. We provide them the mechanism or the infrastructure to invest in such types of properties in different parts of the country.

We don’t just close the knowledge gap and understanding gap, we also help with the execution. Like here’s the team that we’ve set up in Kansas City, or in St. Louis, Missouri, Nashville; vet the teams, we train them carefully, we vet them carefully, they are good with finding properties, they know what we’re looking for, they have clear criteria, we have clear criteria, which market around the country qualifies, which areas within a metro qualify, how to analyze, how to evaluate, all of those – every aspect of the transaction in order to provide them with “Here’s a property you can safely invest in.” And you know what? I have to tell you, Joe, that I didn’t mention it in the introduction… I was here doing real estate on a large scale in the previous crash of 2008. That was before, during, and after. I gained a lot of knowledge and experience in that crash. I always felt I came into the 2008 crash somewhat experienced and I came out super-experienced, or more than I was wishing for, let’s just put it this way.

Joe Fairless: What did you learn specifically? What are a couple of takeaways?

Dani Beit-Or: First of all, the biggest two takeaways that I have are always have cash flow, even if it’s a small one, $100, $150, $250 a month. Cash flow is the buffer. Before I was investing with a potential appreciation and I didn’t care that there was a negative cash flow, because everything was appreciating like crazy, so who cares about $3,000 or $4,000 a year in negative cash flow before taxes when the house is appreciating $15,000 a year. It seems like nickel and dime. Wrong. When everything collapses and you need to — they used to call it “feed the alligator” with money that’s coming into my life from my job and from my work, was covering those negative cash flows every month… And all of a sudden, when the crash came, my income suffered. So those houses that I was feeding, I was having a hard time continuing feeding them, meaning contributing from my own pocket into those houses on a monthly basis. It’s easy when you have one house and it’s $200 a month, no big deal. If you have 20 to 30 of those houses, each one is three, four, maybe $500 a month, or even $200 – it really adds up.

So number one, on my end, I always like to invest with some sort of a buffer cashflow. I’m not investing for the cash flow, I’m investing for the long term, but I want to have that buffer when things happen. So that’s number one.

Number two, the level of analysis on evaluation I do now, meaning now in the past 10 plus years after the crash – it’s a much higher level of detailing from all aspects than before.

I will tell you that before the crash, “The numbers seem okay, the location seems okay.” It was almost like Oh, it looks okay.” Today, I have developed for the past eight years an Excel that I use and everybody in my system use, all the investors, all the realtors. It’s a very comprehensive Excel, easy to use, but comprehensive in the performance, how to financially analyze a property. That’s something that we dive into very carefully. The one thing I realized, since the COVID started, is for the past 10 plus years, since the crash of 2008, I came out of that crash deciding that I need to rebuild my business all over from scratch. Everything has to be questioned. So I really build everything from scratch, including the analysis, systems, processes. Everything.

One of the major conceptual components I’ve used, or the foundation of what I do, is I’ve been planning for the next crash since 2008 or ’09. I’ve been getting ready for it. That means all the decisions about areas, locations, houses, numbers – so many decisions on so many hundreds if not thousands of houses in those years, were based on the idea that the next crash is coming. I feel like always when I say it’s like the next earthquake is coming. The next crash is coming. When? I don’t know.

So I call it the investment formula, the main fundamental is Resilient – resilient metro, resilient houses, resilient areas, etc. That minimizes the noise and the risk of the investment. I’ve been waiting for a time like this to come for more than 10 years. When it hits, I’m talking about March, April, May, when that happened, I started calling all the property managers that I work with, one by one, to say “What’s going on? Tell me what’s going on. What are you seeing?” I started calling in mid-April. Mid-April is the time, all the April rents are coming in and the issues will reveal themselves by mid-April, because sometimes those guys need a few more days to analyze all the rents. And one by one, since mid-April, “Listen. Everything is good. We have one problem here, one problem there. We’re dealing with it, we’ll probably solve it.” “Okay, but May is going to be catastrophic, be ready for May.” “No problem. I’m getting ready for May.” In Mid-may 2020 I called all the property managers. “Tell me what’s going on. I want to talk to the head of the company. I want him to tell me the details.” One by one. “Listen. One more house. Two more houses. Yes, we have some issues. We’re dealing with it. But honestly, we’re really surprised it’s not much more catastrophic.” But wait, June, mid-June, same thing. So month after month. I stopped after July.

Yes. In my world of real estate, with my clients and with all the number of properties that we have, I’ve been planning on resilience for many years. And when the tough time arrived, my decision of resilient showed its strength. Am I lucky? Maybe. But there’s always a lot of decisions starting at 10 plus years ago, planning for this day, the doomsday, so to speak.

I wasn’t thinking of the worst-case scenario all the time. But I was always like “Okay, how is this metro going to survive the next downturn?” That was always my question, always in the back of my mind. We’re now in December of 2020. We are eight or nine months into this situation. Still, do we have properties that are suffering from the COVID situation? Absolutely. The number is so small, it’s almost zero, relative to the amount of properties in our system. It’s not zero, it’s not fun to the one person who has one or two properties in that situation, it’s not fun at all. By the way, I’m one of those people. But it’s all being managed. I really have maybe two or three properties that really suffered for longer periods, two or three months of a tenant staying in without being able to evict. But even those eventually got addressed and taken care of.

I have to admit that from my perspective, planning for this horrific day to come for 10 years, when I have a formula that I follow and this day is coming, and it’s showing that it’s working… And I don’t know if it’s going to hold its ground for a long time; it all depends on what the economy will do.  But I’m speaking to friends, colleagues, peers, and people in the industry that I know, and some of them are doing different types of real estate than I do… And I asked them “How are you’re doing with collections?” Some of them at the beginning say “We’re at 70% collection. We’re so happy with the collection.” Then another one says, “You know what? This month, we’re 80% collection.” I shut my mouth, because we are somewhere between 93% to 94% collection. You never have 100%; you will always be on 95% or 96%, and we are 93% or 94% collection. I’m like okay, “I guess we’re doing much better than the other ones.”

Joe Fairless: I’m going to jump in. Sorry. I have to jump in, because we have just a little bit of time left. This has been helpful to know how you’ve performed during the pandemic, and the reason why is because of the lessons you learned from the crash, those two lessons that you talked about and how you’re analyzing it differently now, or have been over the last decade or so. But I have a couple of questions that I want to fit in before our time is up.

The first question is your client base is most likely accredited investors, based on how you describe them, and that is a client base that is a lot of people’s target audience. So something that would be interesting for, I know, a lot of the listeners, would be how do you attract your new customers? And that is referrals – I’m sure you get referrals so let’s put that aside for a moment. What are other ways that you attract new customers for your turnkey operation?

Dani Beit-Or: I will say that most of my clients could qualify as accredited, but they’re not necessarily accredited investors, but they are well to do in life in terms of their financial standing. They’re not necessarily rich or millionaires, but they’re well to do. Many of them will be able to qualify as accredited.

Now, to answer your question… Remember when I told you that I started my business from scratch? I told myself, one thing I’m going to be bad, horrible at – I’m a horrible salesperson. I am not good with sweet-talking, upselling, and cross-selling. I’m really bad at that. When I came to the States I saw that when you become an expert, you become a knowledgeable person, and you share the information, and you put yourself on a stage and share, people will be attracted to you if you are an authentic and genuine person. I started just doing a lot of events, meetups, I had a club I was doing years back once a month… And I went on stage, and either I have a guest, or I spoke myself, or both… And I just said, “Listen, anybody that comes to one of my evenings as a potential client, even if it’s a free event or a paid event (which I’ve done both), they’re paying with their time at a minimum.” So I’m not going to have someone walk out of that room and say, “Oh my God, what a waste of time. What a sales pitch.” That’s just not me.

I always put up information, and I always try to say, “As a foreigner to this country, I am not attracted to the classical salespeople that are always sugarcoating and going around the bushes, and they’re not direct.” I said, “I’m Israeli. Israeli style is going to be direct. I’m going to be direct.” I’m going to be telling as I see it, and I’m going to be answering without being all vague about the answers. I just put that kind of an attitude out there. Very quickly, I realized people look and say, “Okay, this guy is knowledgeable. He’s genuine. He knows  to answer “I don’t know the answer” and that happens too”, and they start engaging. So that’s kind of how everything rolled.

I still follow the same mechanism, except today it’s more online, different avenues, less physical in the room and some hotel… But I always make sure when I speak, hopefully here as well, I put information, I try to be honest about it, I try to be authentic about it, and give real answers. Because people want answers; they don’t want stories around and around and around and like “What did I learn here?” So that’s the same attitude today, just different vehicles; now more digital vehicles.

Joe Fairless: What are some digital vehicles that you’ve found to be effective in attracting investors?

Dani Beit-Or: I used to do it, now I kind of slowed down a little bit – a weekly Facebook Live session; I haven’t done it for two months for various reasons. So that’s something I ran with for the past two years, every week, on Friday.

Joe Fairless: What time on Friday?

Dani Beit-Or: I used to do it at 10 AM every Friday.

Joe Fairless: 10 AM California time?

Dani Beit-Or: California time. I actually told myself this week that I need to resume it. I have a podcast in Hebrew. The podcast is rated number one. When you’re search in Hebrew for “investment”, it shows up first, so that brings a lot of traffic in. I do have a database that I keep growing. I tried to do YouTube videos, just to put the message out there. Every time I do a Facebook Live session, I record it and immediately I syndicate it myself to all my other channels. It’s the same session being distributed in multiple channels. In the past two years, primarily, probably 80% are referrals.

Joe Fairless: Those tactics are really helpful. I appreciate you talking about that. Taking a step back, what’s your best real estate investing advice ever?

Dani Beit-Or: Right now, I would say ask specific questions and not philosophical questions. A philosophical question for me, and I hear it all the time, “Is this a good time to invest?” That’s for me a philosophical discussion. I don’t know. “Is it a good time to buy this house in Kansas City, or that house in New York, or San Francisco?” That’s specific for me. That for me is something I can tackle. The philosophical people like to speak in philosophical concepts, and that stays on a philosophical level. What is the answer? Who knows..? Try to be more specific. Yes, no rental, yes, flip, this house, that market. Try to be more specific, and then get a specific answer.

If there is a great house and a great opportunity for a flip in Kansas City and the numbers are amazing, would you say no just because it’s not a good time to invest? Well, this one is a good investment opportunity right now. It may not be a good one a year from now.

Joe Fairless: Yeah, thank you for that. I love that advice. If you want a better result, then ask a better question.

Dani Beit-Or: Exactly.

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

Dani Beit-Or: Absolutely.

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

Break: [00:20:25][00:20:46]

Joe Fairless: Alright, Best Ever book you’ve recently read.

Dani Beit-Or: I am less of a reader in past years, more on podcasts. So podcasts… I like to find the experts in their field and not the general ones. Just got listening to someone –I can’t remember her name– on notes. Every session is a case study. So that’s kind of very detailed, into the nitty-gritty. Podcasts are really beneficial, in my opinion, especially when you work out and it’s with you.

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

Dani Beit-Or: Okay, I made a promise to myself a few years back and I still hold that promise… When someone calls me and they’re down on their lucks, something is happening in a negative way in their life real estate wise, I reach out and I try to help. I don’t know if I will be able to help, but in most cases, just sometimes it can be just moral support, sometimes it can be “Listen, to talk to this person; it will help you to talk to this person.”

So for me, the best way to really giving out is reaching out to someone who’s in a bad spot and trying to help that person. I have been in that situation myself and people have reached out. So that’s something that I never expected and was just proof; it was repaid. The karma of the world was repaying me. So that would be my main thing as a good deed. Then the other thing is I really try to put information and knowledge out there for people too, on YouTube and whatever; authentic, real, from the trenches, information, and knowledge.

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

Dani Beit-Or: “My alter ego” online. I call it my alter ego, but it’s my online presence, which is Simply Do It. So if you do Dani and “simply do it”, or “simply do it investing.” My website is simplydoit.net. You’ll be able to find me on YouTube, on Facebook, on websites. So the easiest way to remember, Simply Do It, which is my online presence.

Joe Fairless: Awesome. That’s simplydoit.net, as a reminder. Dani, thank you for being on the show and talking to us about your lessons learned from the 2008 crash, how you’ve applied that to your approach now, and how you communicated that decade-long new approach to those you work with… As well as talking about how you attract investors for your turnkey operation business. Some of them may be accredited, some of them may not be accredited, but just how you approach that. Thanks for being on the show. I hope you have a Best Ever day and we’ll talk to you again soon.

Dani Beit-Or: Thank you very much.

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JF2401: Grow A High-Income Portfolio with Zach Haptonstall

JF2401: Grow A High-Income Portfolio with Zach Haptonstall

Zach is the CEO & Co-Founder of Rise48 Equity, an experienced Multifamily Apartment investor, #1 Best Selling Author of “Success Habits of Super Achievers,” and the Host & Founder of The Phoenix Multifamily Association. His passion for providing knowledge about financial freedom inspires him to provide passive income opportunities for investors and alike to use their time for more meaningful events such as spending time with families. Currently, he has now 420 units across five properties in Phoenix, Mesa, and Scottsdale worth over $48MM. In today’s episode, Zach will be going into details about his journey and challenges as a Multifamily Apartment investor and his advice on how he got to where he is today.

Zach Haptonstall Real Estate Background:

  • Founder & President of ZH Multifamily
  • He is lead sponsor, general partner, and equity owner of  over $35,000,000 worth of commercial real estate apartment buildings
  • Portfolio consists of 308 units
  • Based in Scottsdale, AZ
  • Say hi to him at: www.ZHMultifamily.com  

Click here for more info on groundbreaker.co

Best Ever Tweet:

“As a passive investor, build your presence and get to know your market while investing with people who are local as they are familiar like you.” – Zach Haptonstall


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Zach Haptonstall. Zach is joining us from Scottsdale, Arizona. Zach is the lead sponsor, general partner, and equity owner of over $35 million worth of commercial real estate. His portfolio consists of 308 units. Before we get started, Zach, can you tell us a little bit more about your background and what you’re focused on now?

Zach Haptonstall: Yeah, thanks so much, Ash. I appreciate the opportunity to be on the show. This is actually my second time being on the Joe Fairless show, so it’s always a pleasure circling back with you guys.

I was born and raised here in Phoenix, pretty much lived here my entire life. I had different stints in journalism and healthcare, where I did well and was fortunate, but it wasn’t really my passion. So a few years ago in 2018, I basically went all-in on real estate, and we’ve been very blessed just in the last 24 months. Here in the Phoenix market we’ve actually acquired about 90 million worth of apartment buildings and about 700 units. We have another 110 million under contract, another 600 units. So in the next three to four months, and we’re recording this now beginning of March 2021 – in the next three to four months we should double our portfolio and have over 200 million. So basically, the biggest thing, Ash, is I was just looking for passive income. I worked in health care, it was very hectic, always working crazy hours, and I was looking for passive income. So now that I’ve been able to break into this and develop passive income, my passion is really trying to provide passive income opportunities for other investors, and provide that financial freedom so that they can start to ease out of their job, or cut back, and have more disposable income for doing things for their family. So that’s really what we’re focused on now, is really just serving our investors.

Ash Patel: Alright hold on, my head’s spinning. 2018 wasn’t that long ago, and… 90 million dollars. Tell me the details of that journey.

Zach Haptonstall: I was working in hospice care, I was a co-owner of a hospice organization and a director of marketing. I got burnt-out, so in January of ’18, Ash, I resigned and I sold my equity in that company. I had no idea what I was going to do, I just knew I wanted to create passive income somehow, and get control back of my time. So I lived off of savings for about 14 or 15 months. I made no money through all of 2018, and I didn’t have any connections, no family, money, nobody in real estate. I just started reading books, listening to podcasts like this one, going to conferences, and I discovered multifamily and syndication and decided “This is what I want to do.” So 14 months went by since I quit my job and we closed our first deal. It was a long 14 months, burning through savings, going through the grind, the adversity.

So we bought that first deal 24 months ago, and since then we’ve been fortunate to gain a lot of momentum and been able to scale up and continue to syndicate more and more deals. It was really just a matter of just constantly grinding, networking, leveraging my past network, and then more so just going to conferences and being on podcast things like this, that really helped to grow the business.

Ash Patel: Zach, what was that first deal?

Zach Haptonstall: Good question. It was a 36-unit, it was about three and a half a million, so it was a smaller deal; our plan was to syndicate it. My partner Robert and I each had 25,000 non-refundable in earnest money. We tried to syndicate; we were going to investors and nobody wants to invest, because they don’t know us, we have no background. I go “Crap, we better figure this out.” So I’m just calling all these people I had met at conferences, and we had one lady, her name is Elisa Zang – she did a 1031 exchange and we ended up doing a tenant in common, which is not syndication, it’s a little bit different structure; similar to like a JV. But anyway, that first deal there was just a small handful of us, and we put our own money in the deal. We really wanted to learn the business plan and learn how to execute a value-add plan.

So we did well… We sold that deal in 21 months, almost doubled our money, it went very well. It gave us a lot of momentum, experience and confidence to now start to syndicate, take investor money, leverage their money, and grow their money for them, which we’ve been able to do. So it’s been a good development.

Ash Patel: Your first deal, did you not look at doing something that you could take down yourself? You purposely went out and found a potential syndication deal?

Zach Haptonstall: That’s a good question, Ash, because when I quit the job and I said “Okay, I want to go into real estate” I didn’t know anything about syndication. I didn’t know what the word meant, never heard of it, I didn’t know what it meant in this context anyway. I didn’t know about multifamily. I was looking at mobile home parks. I cold-called over 90 mobile home park owners, trying to buy one on a seller carry with my own money. So that was my mindset. But when I started to learn about scale, and syndication, and leverage, I realized I have this much money, I don’t want to put it all into one deal, because then I’m done; I can’t continue to scale.

So, yeah, to answer your question, I wanted to go bigger and I wanted to partner with other people so that I could put my money to work. That was my goal, to put myself in an uncomfortable situation and a scary situation, so that I’m forced to push my comfort zone.

Ash Patel: So three and a half-million dollars for 36 units. Give me more details on that, please. Was it a value-add property? Was it fully leased? Was it in the greater Phoenix area?

Zach Haptonstall: Good question. Yeah, it was in the Central West Phoenix area, right across the street from Grand Canyon University, for those of the listeners who are familiar. 36 units, it was 26 two-bedrooms, and 10 three-bedrooms, so a great unit mix. It was a value-add deal. This was like a late 60s build, but it didn’t have a chiller and it was individually metered for electricity, which was nice. So our plan was to go in there and do exterior and interior renovation. We actually put all new roofs on all the buildings, we did new exterior paint, we recoated the parking lot, we put new LED lighting on the exterior, we put new exterior cameras.

On the interiors, we renovated 26 of the 36 units. So depending on the flooring, we did new vinyl flooring, some of it had good tiles so we left it, we did new countertops, we painted the cabinets, did two-tone paint, new black appliances… This is really a workforce housing type of deal, that was our demographic. That’s most of our deals; we’re doing workforce affordable housing, but we go in there and improve the exterior and interior. It was a great value-add deal; we bought it for 95,000 a door, and we sold it 21 months later for 148,000 a door. It was a quick turn, and that’s just because, again, we were able to improve it, increase the rents which increased the value, and then sell it for that margin for us to make a good profit.

Ash Patel: That’s a great return for your investors. What are some of the challenges with that Phoenix, Scottsdale area?

Zach Haptonstall: In my opinion – I’m obviously biased, but if you look at national context Fundamental Statistics, Phoenix is the strongest –in my opinion– market in the country. When you look at population growth, number one now for the past few years. Job growth is number two behind Dallas. Rent growth has been number one, depending on which index you look at. So it’s extremely hot, it’s extremely competitive; prices continue to go up as they do nationally, cap rates continue to compress… So the big challenge is trying to find deals that make sense and that pencil. We’ve been able to really develop our advantage with the broker relationships.

The first four deals that we acquired in 2019, Ash, there was no secret – they were on the market, we had to compete, go through a best and final process, and we won them. And through that process, I was able to form very strong relationships with the brokers.

For those listeners who are newer, or maybe you’re passive investors, the brokers in any market pretty much control the market. Most of your deal flow is going to come through there. It’s how we get 100% of our deal flow, through the brokers. So through those four acquisitions, we established rapport, credibility, confidence with those brokers, so that now our last three acquisitions have been completely off-market, no competition; we were the only group. We have five deals under contract, like I said, which equals 110 million; we’re close to getting a sixth. These five deals are all completely off-market; no competition. We are probably getting the first look or probably within a group of three to five groups, getting that first look on almost every deal between 15 to 40 million in the Phoenix market, which is really our sweet spot for value-add.

So basically, to answer your question, the competition is tough; to find the deals that make sense is tough. It’s a needle in the haystack. So we’ve been fortunate that we’re active, we’re in front of the brokers constantly, we’re local, so we can act quickly, and we can strike quickly on these deals. That’s what gives us an advantage.

Ash Patel: I’ve seen amazingly low cap rates in Phoenix. What kind of cap rates are you buying these multifamily units for?

Zach Haptonstall: Right now, as of March 2021, this is a four to a four and a quarter cap market. A lot of people think “That’s crazy. Why would you do that? You’re overpaying.” I understand, a four cap is low and it sounds low. But you have to understand the dynamics of the market and these deals. Most people need to realize a cap rate is a fraction; the cap rate is the net operating income divided by the purchase price. When we’re buying a deal, that might be a four cap here in Phoenix, we’re looking at a lot of different factors. In order for our deals to pencil, we of course have to have the value-add upside, where we can go in and we know that we can renovate units, renovate the exterior, increase the rents. That’s a given, we have to have that element for it to work. But in addition to that, we also have to have what we call loss to lease, meaning that the rents are currently below market. So the current rents at the property are already below market, meaning that if that lease expires, then I can renew that lease right now, without doing anything to the unit, and immediately increase it anywhere from $50 to sometimes $200. We’re looking at the loss to lease plus value-add.

There are other components too, which I’ll get into. But when you have those things, you have to realize that these cap rates may be artificially deflated. If their net operating income is very low, because they’re 85% occupied, or half of their tenant base has rents that are below market, that’s going to make your cap rate very low. And because of the market, you’re going to pay the market price per door.

I personally secret shop all the comps. So I drive to all the comparable properties, I walk in there, I get the rents, I tour them, I get the square footage, the price per square foot amenities, what do their finishes look like… So what we do is we say, “Okay, we’re going to take this property to this finish.” Meaning new interior floors, new quartz countertops, new cabinet doors, LED lighting, etc, everything interior. When I’m shopping comps, we’re looking for deals that have that same interior finish, and we’re looking to see what rent they’re achieving.

When we’re projecting our pro forma rents, we’re saying, “Okay, we’ve already seen in the market, in this immediate area. We can achieve these renovations.” And that’s what we’re modeling to take it to. We might buy a deal at a four cap, Ash, but within a year or two, that deal could easily be a six or a seven cap, because we’ve immediately started to push up that NOI. That’s where the returns really start to become lucrative for the investors, which is our goal. So yeah, cap rates are always an important discussion, but you have to understand the market and what’s going in the cap rate.

Ash Patel: Zach, the secret shopping – do you do that posing as a tenant?

Zach Haptonstall: It’s a good question. So initially, when I first started, I was acting like a tenant. I would say, “Hey, my wife and I are looking for this. What do you have?” And I’d go on tour. But I started asking all these questions like, “Is this a chiller or individual HVAC? What are your RUBS or utility costs?” They kind of look at you funny, like why would a tenant be asking these things?

So about a year ago, I was talking to another experienced syndicator. He’s like, “Just tell them you’re buying a deal down the street.” That’s what I do now; for the most part, I’ll just go in there and say, “Hey, I’m Zach with Rise48 Equity, we’re buying an apartment down the street. Is it okay if I ask some questions? I’m trying to do a market survey.” Surprisingly, most property managers are totally fine with it. They’re used to getting calls for market surveys and things like that, and they’re fine to tour you.

Ash Patel: What kind of debt are you putting on these loans? Or what kind of debt are you putting on these properties, rather?

Zach Haptonstall: Good question. So we have a blend of agency and bridge financing. We’ve done seven agency loans, which were all Freddie Mac. In regards to agency, for this market the best loan product is a Freddie Mac floating rate, as opposed to a fixed rate. The reason for that is we have a couple of deals that are fixed-rate, meaning your interest rate does not change over the 10-year term. However, Freddie Mac really nails you on the back end with the prepayment penalty, known as yield maintenance or defeasance. So we actually have deals right now that we could sell in less than 24 months and achieve a 2x multiple for investors, but we cannot sell them right now because our yield maintenance is so high; that’s the fixed rate.

The floating rate means that your interest rate is floating over an index, depending on the loan, LIBOR or SOFR, just depending. What you do is you buy a cap. You buy a cap so that the interest rate cannot go above that. The appeal of the floating rate is that after 12 months, you can sell the property and you only have a 1% prepayment penalty for a Freddie floater. That’s our ideal agency product.

The other product that we’re doing is bridge loans. A bridge loan means that the lender is financing your rehab dollars, and you have a lower debt service coverage ratio requirement, which is important. We have a couple of deals under contract right now that we’re doing these bridge loans on, and the bridge loan terms right now are just amazing, Ash. These are three-year terms with two one-year extensions. So it’s a three plus one plus one, so three to five years. Three years of interest only, non-recourse; we’re getting 75% LTV, and we’re getting 100% of our cap-ex financed. And our interest rate, we’re getting quoted at a 3.4% to 3.5% interest rate for a bridge loan.

The idea with these is to go in, do your value-add in year one or year two, and then in year two or year three you can either sell it, or you can do a refinance, return a big chunk of capital back to investors, and then refinance into an agency loan, a 10-year term, hold it, and continue to cash flow.

Ash Patel: What kind of down payments are you having to put down on these?

Zach Haptonstall: Typically, we’re around anywhere from 25% to 35% would be the max. So 25% to 35%. We’re looking at 65% to 75% LTV, loan to value.

Ash Patel: What’s the difference between a 25 and a 35%? down? What determines that?

Zach Haptonstall: It really just depends on how the property is performing. So you have what’s called a DSCR, which stands for debt service coverage ratio. For easy math, I’ll say it this way – an agency like Freddie Mac, they require typically (in this market anyway; this is considered a standard market) they consider what’s called a 1.25 debt service coverage ratio. What that means is that if your monthly mortgage, for easy math, is $100, then the property needs to be producing at least $125 per month.

When you have a higher debt service coverage ratio, you can get a higher number of loan proceeds. Whereas if you’re not producing a lot of NOI, then you’re going to be limited. For an agency loan, you can be in the 60% LTV, meaning you could be 30% plus downpayment. That’s what makes it tough in a market like Phoenix, because it’s getting so expensive, that a lot of these loans are debt service restrained, because you’re paying X amount of price for a property that needs to have some type of renovation done in order to skyrocket the NOI. Whereas with the bridge loan, they have lower debt service coverage ratio requirements, and they’re designed for these renovations, going in there, renovating it, quickly increasing the value, and then selling or refi’ing it. It really just depends on the purchase price that you’re paying into the NOI, Ash, and that’ll determine what your down payment will be and how much loan proceeds you can get.

Ash Patel: Earlier, Zach, you mentioned that the prepayment penalty is significant. What are those prepayment penalties?

Zach Haptonstall: It’s a good question. Yield maintenance is a very tough calculation. I could not even tell you how to calculate it right now. It’s basically a number that’s tied to the LIBOR index. And as interest rates go down, which everybody expects them to continue to stay low for the next few years, your yield maintenance or defeasance prepay will go up. Yield maintenance basically means that Freddie Mac, whatever their yield was going to be or whatever they’re going to make over a 10-year term, they’re going to make that from you regardless of how long you own it.

Ash Patel: That’s a significant penalty.

Zach Haptonstall: It’s a significant penalty. To give you an idea, we have a deal, Villa Serene. We bought it for 17.5 million back in 2019, 18 months now. Right now, our prepaid penalty if you want to sell it is 3 million bucks. It’s insane. So we are basically waiting until the third quarter, so we can keep pushing the value up to get our purchase price high enough to absorb that prepay and still get our investors at least a 1.8 to 2x multiple in about two years… Which is still going to blow the projections out of the water, because typically we underwrite for five years. We’re going to do very well on those two deals, don’t get me wrong. We’re going to hit a 2x probably within 30 months or less on both of those. But if we didn’t have that yield maintenance, and if we were more experienced in the beginning, we could have achieved that probably in 18 months. So going forward, we’re not doing any more of that fixed-rate yield maintenance; we’re doing the floating rate, which is simply, you have what’s called a 12-month lockout, you cannot sell the property for 12 months after buying it, and then after that, it’s only a 1% prepayment penalty on the loan, which is very minimal. So that’s agency, Ash.

For these bridge loans, what we’re seeing is that the bridge loans will allow you to sell at any point. You could buy it and sell it six months later. Their prepay penalty is also very friendly to us. It’s simply 18 months of interest. Whatever they would have made over the first 18 months in interest, you have to just pay that to them. If you hold it for six months, and you sell it, then you have to pay them 12 months of interest as your prepayment penalty. So it’s not bad at all. In a growth market like Phoenix, you want to have flexible prepay, so that you have flexible exit plans, depending on what you want to do, whether that’s a refi or a sale.

Ash Patel: And how long do you lock your rates in for? Or are all of them floating?

Zach Haptonstall: If you do the fixed-rate, it’s locked in for 10 years with Freddie Mac. That’s the fixed-rate loan; but that has the nasty prepay with the yield maintenance. That’s where they get you, because people are like, “Oh, I want to guarantee my interest rate. I can model that out.” With a floating rate agency and a bridge loan – they’re both interest rates that float over an index. But you buy what’s called a cap. So you’re buying a cap, it’s typically depending on the deal – 20 to 40 grand, you underwrite it into the deal into the model, and that’s paid at closing. So basically, your interest rate will not exceed that amount. So that’s how that works.

Ash Patel: Okay. What’s been your biggest challenge with scaling your business?

Zach Haptonstall: I think the biggest challenge right now is keeping the cost of construction and materials down. In Phoenix, there’s just a lack of supply, for example, of stainless steel appliances, and we’re doing stainless steel appliances in most of our renovations. So in a couple of months here, we’re going to be doing at least 30 to 40 units a month, we’re going to be renovating, across our portfolio. We’ll own about 1,300 to 1,400 units and a few months… And that’s our biggest thing, is making sure that our supply chains are in good shape. We can get appliances and all the other materials – flooring, countertop, cabinets, etc. we can get them on time and on a budget for the supply chain. In addition to that, making sure that our construction crews are renovating on schedule, and are staying under budget. We’ve really been extremely conservative with our renovation budgets by building in a lot of contingency and a lot of cushion. We’re telling our construction crews, “This is your budget”, when internally, we might have two or three grand per unit on top of that, just in case they go over.

That’s really the biggest challenge when you’re scaling and you’re doing value-add – you have to be renovating units, you have to be adding value to the property by renovating it. And labor continues to go up, things like that. So we’re always wary of that, we’re very conservative when we stress test our deals with these models, so that we can make sure we’re staying on schedule and on budget.

Ash Patel: So, Zach, historically low cap rates, historically low interest rates – does that come into play? Does that worry you that if something changes in the market, you’re holding a tremendous amount of assets and you may not be able to dispose of them the way you had hoped?

Zach Haptonstall: It’s definitely a good question and it’s a valid question. We’re always concerned about that and we always keep that in mind. That’s why we have such a conservative stress test for these deals. We’re extremely conservative. In our model, we’re saying that we’re going to hold each deal for five years, and exit in year five or year six. In our model, we’re assuming that right after we buy the deal, there’s going to be a recession or an economic downturn. We’re assuming that rent growth is going to drastically decrease, that vacancy is going to increase, and that expenses are going to increase. And if the deal still pencils and meets that stress test, then we’ll do the deal. Because in our model, we’re assuming that there’s going to be a recession right after we buy it. We can execute our business plan, hold through the recession, sell in year five or year six, and achieve those returns… When in reality, we’ve been blowing those numbers out of the water and selling 18 to 24 months, and matching or exceeding the return we were telling investors over five years.

So you just have to be conservative. You can’t get too aggressive with these deals and with the underwriting; you can’t get caught up in it. We have not won a marketed deal on the market, Ash, in 18 months. August 2018 was the last one we even won a deal. We keep getting second and third place because, in our model, we cannot go to the purchase price that these other groups are paying. They’re getting bid-up on the market, these best and final bidding processes. Just like I said, in a few months when we close these deals, it’ll be our last eight acquisitions were all completely off-market with no competition. That’s probably the main reason they actually work, because we’re not getting bid-up on the price.

Ash Patel: And what are some of the different ways you’re finding these off-market deals?

Zach Haptonstall: It’s all broker relationships, 100%. The brokers that we performed with were probably in the top one to three groups for the top four to five brokers. So we’re getting a first look at a lot of these deals. We perform with the brokers, they know that we can execute, and they bring us the deal. When they have a good deal, they bring it to us first. They say, “Hey, what do you think?” and we act quickly. I cannot stress the importance of acting quickly.

There’s been a few deals just in the last month or two, that it was us and like two other groups. But the other groups – one was in Canada, for example, the other one was in California. Well, you call me – I’ll get out there right now. I’ll be there in an hour to tour the asset. I’ll go shop the comps for the rest of the afternoon. We’ll get a CoStar report, we’ll get a debt quote from our lender the next day, we’ll fully underwrite it, and we’ll be able to make an offer within 24 hours, and we’ll pounce on it.

There was a deal we won four weeks ago, where the group offered around 500k more than us, but we just beat them to the punch. We toured it, we underwrote it, we made the offer sooner, and we already have accepted LOI by the time they were getting ready to schedule their tour. So it was too late for them.

Ash Patel: That first-mover advantage is a real thing. What else do you do to nurture the relationships with the brokers, other than moving fast?

Zach Haptonstall: Good question, Ash. So let’s say you’re newer… And this is what I had to do. In the beginning, I didn’t know any brokers; I’m a younger guy, I was terrified, and I was intimidated by the brokers. You get nervous, because you feel like you don’t belong or do you feel like you’re wasting their time… And you have to remove all that from your mind. So if you’re trying to get into this, then you need to understand that these brokers – they want to tour the deals, because they want to show their seller that they’re getting a lot of volume and a lot of activity. So what I do all the time, – I do this regularly; I just did it last week – if there’s a broker you haven’t talked to in a while, or maybe you’ve never met them, and you know that they’re one of the top brokers, you need to go to the websites of all these brokers… Like CBRE, NorthMarq, Berkadia, Marcus, and Millichap – all these top national broker companies, go to their website, they usually have something where you can sign up for their deals. You can put in your market, whatever… They’ll send you all the marketing deals that they have, and you’re going to start seeing a blast of these deals. Then you need to start calling or emailing these brokers and say, “Hey, I’m so and so; this is our background, this is our business plan. Can I tour?” What I do, Ash, is I constantly crank tours with brokers. I’ll tour deals that I have no interest in buying. I know it’s a crappy deal in a crappy area, but I’ll look through the offering memorandum of the broker, I’ll get some familiarity, and I’ll show up – and I always look professional, I always wear a tie; I’m not saying you have to do that, but that’s what I do. I always look professional, I have a notebook, and my partner and I will go through and tour this asset. We’ll be taking pictures – deals that we don’t even care about, we’ll act like we care. I’ll even ask hypothetical questions to demonstrate my knowledge of the asset, so that the broker knows that “Hey, these guys look legit. They came in, they understood, they look prepared.”

Then a day or two later, I’ll get back to the broker and I’ll just be like “Hey, Mr. Broker, thanks for the tour. I really appreciate it. It was great to see you again. We’re going to pass on this one; we can’t get to your price because of these reasons.” And you give them feedback, that’s all they want. You have to understand, these brokers, 99% of the time, hear “No”, constantly. They’re just trying to get a commission, they have no guarantee check. So you have to constantly crank the volume with them, stay in front of them, and just give them good feedback, so that they don’t feel like they’re wasting their time. If you tell a broker “no” within a day or two and you give them a good reason, then he’s going to be a lot happier than if you just never hear from you again. Because he’s going to be like, “Well, that guy’s not serious. I’m not going to waste my time sending him the deal.”

So I’m constantly staying in front of the brokers, and as I’m walking the property I’m just trying to feel them out. I’ll talk about our criteria like, “Hey, we’re looking for 15 to 40 million dollar deals, with value-add, in these areas, 80’s build.”

And if I’m interested in the deal, then I use that time to try to kind of get into their mind of how I can get an advantage. I’ll usually do the entire tour, learn about the property etc, and then as we’re done walking into the office or the parking lot, I’ll just start to say like, “Okay, so what do you think for terms, Mr. Broker? How much earnest money? Do you think they’re going to be open to a 10-day inspection or 14 days? What does it take to win it? What’s the process?” Things like that. So you just establish that rapport. And yes, I make a point of regularly touring deals with brokers, simply to stay in front of them and then stay on top of their minds.

Ash Patel: Very interesting. I love it. Zach, what’s your Best Ever real estate investing advice?

Zach Haptonstall: Oh, the Best Ever real estate investing advice… That’s a tough one, Ash. I think that you need to understand the market. If you’re a passive investor, I think you need to invest with people who are local. I know a lot of people are not local; I’m not saying you can’t succeed, but I think if you’re getting into it, maybe it’s a new sponsor for you, or you’re not familiar with it… I think being local and investing with somebody who has experience in that market is very critical, because for every investor that’s investing in Texas and they live in Florida, and they’re doing well, I can tell you about five investors who are in a different state, and they’re not doing well. Because they simply don’t have proximity and they don’t have the market knowledge. I think it’s very important to have some type of presence in the market and also invest with somebody who has experience in the market.

Ash Patel: Good advice. Zach, are you ready for the lightning round?

Zach Haptonstall: I’m ready, Ash. Let’s do it.

Ash Patel: Good. First, a quick word from our partners.

Break: [00:30:40][00:31:02]

Ash Patel: Zach, what’s the Best Ever book you recently read?

Zach Haptonstall: I just finished it; it’s like the second time in the last few weeks, and I’m going to read it again. It’s called How to Own Your Own Mind by Napoleon Hill. He’s the guy who wrote How to Think and Grow Rich. This is more of an expansion on those principles, and it goes pretty deep. He’s interviewing Andrew Carnegie, the steel industry tycoon. I think the book was written in the 1920’s, or 30’s, or something, but it’s very interesting. I do audiobooks, Ash. I listen to books when I’m at the gym. But it’s very interesting how a lot of the things he’s saying – and it’s almost been 100 years now – are very relevant. You wouldn’t know that it’s old or outdated. I like that book.

Ash Patel: What was your biggest takeaway from that book?

Zach Haptonstall: There are a couple of things. I think this is a pretty common theme in books that are self-help books. It’s about visualizing what you want to do and then taking the action to achieve it. So How to Own Your Own Mind by Napoleon Hill is all about action and how over the generations and the centuries, there is a formula. If you can envision it, be positive, be determined, take action. That’s the best lesson.

Ash Patel: What’s the Best Ever way you like to give back?

Zach Haptonstall: The Best Ever I like to give back… We’ve done How to Feed your Starving Children, I helped with that and donating. We help out at our church. Grace and I want to go on a mission. We were going to do it last year and then COVID hit… And that’s a big thing. As far as the real estate context, I’m always happy to help new people who are trying to get into it, because I went through the grind and I know how hard it is. So I’m always happy to share any of my contacts. I have a truly abundance mindset, so I don’t view people as competition. I’m all about competition, healthy competition. So I like to just give back; people always call me just to kind of pick my brain and I try to help them on their journey.

Ash Patel: Yeah, that’s a great outlook. Zach, how can the Best Ever listeners reach out to you?

Zach Haptonstall: Yeah, you can just go to our website, it’s rise48equity.com. You can email me at zach@rise48equity.com. If you go to our website, you can set up a call with me. If you’re a passive investor looking to invest in deals, I’m happy to educate you on this market and establish a relationship. If you’re trying to get into it on the active GP side, I’m happy to give you any advice, tips, or resources that I have. So yeah, go to the website or email me and we’ll get back to you quickly.

Ash Patel: Zach, thank you for being on the show today. You’ve got a great story. In just a few short years you’ve used some great tactics to take down a huge portfolio. I loved the secret shopper program, the relationship-building with the brokers… You’ve accomplished a lot since 2018. So thank you again for sharing all of your advice and have a Best Ever day.

Zach Haptonstall: Thanks so much, Ash. I really appreciate the time.

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.

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JF2394: On Investor Relations and Strategic Marketing Initiatives and Business Operations with Charlie Stevenson

Charlie is an experienced business founder and passionate leader with a history of working in the marketing, travel, hospitality, and real estate investment industries. He is the founding partner of Akras Capital, a company that provides investment opportunities for those seeking passive income. He is currently scaling a real estate investment business focused on multifamily assets in inland growth markets across the US. Charlie is actively involved in the communities he resides, and serves as the local chapter leader for GoBundance, a Nationwide men’s and women’s group that supports “healthy, wealthy men and women leading balanced and epic lives.” In today’s episode, Charlie will be going into details about his journey in real-estate. He will share some challenges on investor relations and their strategies in business and marketing.

Charlie Stevenson Real Estate Background:

  • Founding Partner of Akras Capital
  • 3 years of multifamily investing
  • Portfolio consists of 4 properties totaling 450 units
  • Based in Boulder, CO
  • Say hi to him at: www.akrascapital.com

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If you try to go alone, you can go fast. But if you go together, you can go far. Go together and create a team. Don’t try to do it alone.” – Charlie Stevenson


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Charlie Stevenson. Charlie’s joining us from Boulder, Colorado. He’s got four years of multifamily investing, and his portfolio consists of 450 units. Charlie, welcome to the show.

Charlie Stevenson: Thanks, Ash. Good to be here. Thanks for having me.

Ash Patel: Yeah. Tell us more about your background and what you’re focused on now.

Charlie Stevenson: Yeah. I kind of fell into real estate investing after a decent career in kind of serial entrepreneurship. After graduating college, I actually started an adventure travel company with my brother and best friend, because we love to travel, and we moved out to Italy and lived there for four years, building an adventure travel company, taking American students on trips to ski in the Alps and sail on the Greek islands. That was a blast, but it was a risky endeavor. You never knew exactly if the business was going to work out or not. So after returning to the United States and starting another business, and that one failing, I got into the corporate world. After meeting my wife and several years in the corporate grind, we both looked at each other on our honeymoon and said, “Let us take a break. Let’s quit our jobs, let’s go do what we really love to do, which is travel and spend time with family.” So literally, she quit her job as a finance investment professional in Boston, I quit my job as a travel industry director, and we bought some backpacks, and kind of like you, we went and traveled all over the world. We spent 14 months cruising around Southeast Asia, we were in Russia for a bit…

While we were there, we rented our condo in Boston, Massachusetts, which we bought for ourselves. We rented it out to a pharmacist and his beautiful young family. I kind of had this epiphany –while we were riding the Trans-Mongolian Railway across Russia with our good friend who’s now our business partner– that “Holy cow, this thing is cash-flowing. We’re making a grand a month just maybe replacing a washer and dryer every three years or something like this.” So we said, “Boy, if we had five more of these things or 10 more, we could do this continually. We could just keep traveling and spend time with family and live the dream.” That was kind of when the idea hatched; our friend and now business partner said, “Hey, I know you guys just realized this. I realized this about 10 years ago.” She’d been buying multi-families in Boston already. So she’s like, “Let’s combine forces, the three of us, and figure this out.” So we decided to form Akras Capital (that’s what it is now and began buying a small portfolio of small multi-families in Washington state, where I’m originally from.

Through that experience –using our own money, we just self-funded everything– we learned how to do it, we reinforced the experience that my other partners had, we utilized my two partners’ experience as Chartered Financial Analysts. They already knew how to underwrite stuff. I was just kind of a travel guy, I was having fun building the business. They were the ones that knew how to use the spreadsheets at first. So we began buying some bigger stuff. We actually went to the Best Ever conference, Joe Fairless’ conference a few years back, met some new partners and they introduced us to the world of syndication. We began buying much larger assets, starting with a 300 unit down in Orlando, and then another one over in Dallas, and it’s just kind of gone on since then.

Ash Patel: What did your portfolio look like before you partnered up with your now partners?

Charlie Stevenson: Before we partnered, it was one condominium in Boston, Massachusetts. My wife and I owned it; that was it, a single door. Our other partner had several units that she had a long-term leasing strategy on, one multifamily, and had a couple of condos that had Airbnb strategies in place.

Ash Patel: When you formed this partnership, did you all combine assets? Or did she keep her existing assets and did you keep yours? Or did you put it all under one umbrella?

Charlie Stevenson: No, we kept them totally separate. In fact, we sold our condo in Boston, because it generated a lot of appreciation, there was a lot of equity. So we actually sold that to generate some deployable capital. We used that as part of the money just to fuel the growth of the business and acquire our first multi-families in Washington.

Ash Patel: Okay. And then once you formed this company, where did your capital come from, to take on more deals?

Charlie Stevenson: So like I said, we use some of our own savings. We had savings in our own bank account, there was cash, we had IRAs built up from years and years in the corporate world that had decent size, and we used that money, converted it into self-directed IRAs. In doing that, essentially, had more deployable capital; so we used our own money at first, and then as we grew our portfolio and as we leveled up our experience and began taking on larger assets in the syndication space, we used external capital from private investors, private equity.

Ash Patel: Okay. So Charlie, we’ve been on a pretty good run. How many years have you been doing this?

Charlie Stevenson: Akras Capital was founded in 2017. So four years.

Ash Patel: Okay, so you’ve benefited from a great real estate environment. Give me an example of a deal where you lost money and learned a lesson.

Charlie Stevenson: That’s a good question. I was thinking about it… We’ve been really careful and intentional about making our investments. So far, of the investments we’ve made, the deals that we have acquired, and some of the disposition, we haven’t lost any money. So we certainly had components of the business plan that didn’t have the same performance that we had expected or projected; perhaps there was some kind of a natural disaster we had to handle that affected performance of that particular component of the business plan… But overall, when we’ve dispositioned assets or with existing assets that we’re operating, the returns have been at or above projection. So we’ve been really thankful for that.

Ash Patel: What was a natural disaster?

Charlie Stevenson: In Dallas Fort Worth, about a little less than a year ago, actually, in the fall of 2020, there was a tornado that went through the center of the city; actually several of them. One of them landed about a mile and a half from one of our assets. There were just intense winds that kind of tested the structural integrity of our roofs. We had to go through basically pausing the business plan while we mitigated that risk and handled the insurance claims and all that kind of thing. That was one particular example of components of a business plan, like the interior and exterior renovations being put totally on pause while we handled that situation.

Ash Patel: Okay, what are some of the challenges you had dealing with investors or acquiring investors?

Charlie Stevenson: Dealing with investors – I think in this environment, we’ve had such a great run. The economy has done so so well over the course of the last decade; it was the longest growth period in modern economic times. There’s a lot of capital out there. And because there’s a lot of capital, there’s also a lot of other operators, like ourselves, bringing deals to the market. Different operators have different ways of underwriting and different levels of conservatism in the way that they underwrite assets and underwrite the performance of business plans for assets. So you see a wide range of a spread of returns. Especially with the more retail investors, the folks investing maybe 50, 100, or $150,000, I think that some of our peers are putting deals out there that have very, very, let’s say, high expectations for return that may or may not be achievable. But what that’s doing is it’s setting the bar for return expectations with the retail investors very high.

When we underwrite our stuff, it’s not often that it has at this current stage in the market, it has really exciting returns that cannot compete with people that have lower than true value add business plans with their underwriting if that makes sense. So expectation setting has been kind of one of the challenges, I think.

Ash Patel: What are your typical returns on your deals?

Charlie Stevenson: Pre-COVID we were aiming for 17% to 22% as an IRR, kind of our floor for investing any deals, and 9% cash on cash return, and hopefully it’s higher than that. That still is the floor for any investments we do, but we’ve been setting expectations with investors that returns are now for a true value-add business plan are ranging probably between 13% to 17%. But of course, past performance is no guarantee of future results. I have to say all that for compliance stuff, otherwise my partners will not be happy with me. But yeah, I’d say 13% to 17% for the typical run-of-the-mill, large multifamily asset running a value-add business plan. Hopefully, that goes up, but we’re seeing cap rate compression, so it might not.

Ash Patel: How do you mitigate that?

Charlie Stevenson: How do you mitigate the changing of returns?

Ash Patel: Lower returns.

Charlie Stevenson: One way that we’ve done that is we focus on investors that have lower return needs, and institutions that have lower return needs, and that group is excited about a 13% to 17% IRR; maybe an investor that’s been in the market for two or three cycles. A 30-year veteran of investing is excited about anything that’s a multiple of what the treasury is returning. We’ve got an investor who’s a portfolio and fund manager for three decades and he looks at anything relative to the Treasury. So an 11% return is 10x over the Treasury so he’s very excited about that, because he sees higher returns than that as maybe a little riskier.

Ash Patel: How do you find those investors that are looking for a little bit lower returns?

Charlie Stevenson: It might not be that they’re looking for lower returns, it’s like they’re looking for a blend of different characteristics in a return profile. So a return, the actual ROI is one component of an investor who’s maybe a little bit of a higher net worth investor. But also liquidity needs are one particular need. Also, things like tax liability mitigation is another need. So if we’re approaching a high net worth investor who is okay with a 13% or a 10% return, they have other particular interests and needs that are more important to them than that actual return. They don’t care so much about cash flow, maybe they’re more of a five-year or 10-year hold appreciation, total-return-focused investor.

How do we find them? Well, a lot of it had to do with starting with our own personal networks. My two partners were in the financial industry for years and years in Wall Street, in Boston, and New York. So certainly, there’s a lot of folks in our colleagues within our past experience that we can tap on who has an interest. Also, attending conferences, like the Best Ever conference was a great way for us to meet higher net worth investors, or just investors in general. We love all investors, whether they’re retail or high net worth, we want to work with all of them and support all of them. I’m not saying we only go after one. Other ways – we network, essentially. There’s also a lot of referral that happens. One person refers us to a network of their friends, who all have large capital deployment needs.

Ash Patel: Charlie, can you tell me about your last acquisition?

Charlie Stevenson: Sure. Yeah, so our last deal was an interesting one. Like I said, we had a portfolio in Washington state, a smaller multifamily asset. This one was a 12 unit, a little bit of an older asset that was outside of Spokane, Washington, right next to Eastern Washington University, which is a large public university; directly across the street from it. It was unique in that regard because it was a great location and had no difficulty leasing it up. We actually found the deal with a wholesaler, which is kind of a unique deal provider. It’s different than a commercial broker. They find the deal, they get it under contract with a direct relationship with the seller, they trade a contract assignment fee that’s built into the agreement, and then when you work with them they essentially charge you that assignment fee, you then get assigned the contract, and then own it.

So that deal was great. Cap rates are pretty decent in Washington State, or at least in that region of Washington State. So we got it for $500,000 for a 12-unit, which is a great per unit price. It was cash flowing in a really nice way. A wholesaler said that cashflows like a hog, and I’ll never forget that phrase, because that was funny. We ran a typical value-add, like most of the BRRRR strategy on it; fixed up some of the interiors, some of the exteriors, forced some appreciation by moving the NOI up and getting the rent and the tenant base stabilized, and then we just dispositioned it. It’s set to close in like a week or something like that for 818,000. So, ultimately, we made about $300,000 on it, of which we’re 1031 exchanging that into another asset in a new market that we’re focusing on.

Ash Patel: What were the rehab numbers on that?

Charlie Stevenson: That’s a great question for my asset manager, who is my partner, Christina. I focus on business systems, capital raising, and investor relations. But I can kind of like… Let me think about this for a second. It was around 50,000, I think; $75,000 in total to do the repair cost, maybe a little bit less.

Ash Patel: How did you manage those rehabs? Was it a property management company?

Charlie Stevenson: Yes, we have a strong property management company in place there in Washington State. A team that we work with with a few of our assets. We also had a DC team that we worked with to get in there and help out.

Ash Patel: Washington State has some pretty unique tenant laws. Have you had any experience, positive or negative, with that?

Charlie Stevenson: From a positive perspective, I think it’s incumbent upon us as a multifamily operator to make sure tenants are really well protected. So I really do appreciate Washington’s progressive stance on taking care of tenants. That said, I think that the landlord-tenant balance has to be really managed, it should be fairly equalized, so that a good landlord can take care of their tenants and also take care of their assets and run a business plan. In Washington state, with COVID happening, a lot of some of the more progressive policies, like rent control and eviction moratorium, were accelerated. COVID — the federal level came in and accelerated some of that imbalance between landlord and tenant rights. That’s part of the reason we’re actually dispositioning our portfolio in Washington State and moving to states that have more landlord-friendly environments, business environments.

Ash Patel: So there’s a bit of a negative impact there?

Charlie Stevenson: There was. I’d say that while that market, I think, still has a lot of room to go and there’s still a lot of opportunity for investors, it was getting in the way of our hyper-growth, strategic positioning. We wanted to be able to move a little more quickly and that wasn’t allowing us to enact our business plans at the rate that we wanted to. So it had some impact on our strategy.

Ash Patel: And is there a specific example you can offer on how those laws impacted your business model?

Charlie Stevenson: Certainly, we need to have tenants that are taking good care of the asset. It’s sort of an unwritten and written rule on the lease that people that we bring in to provide them with housing should take good care of the asset. We had no situations where there were tenants that were from the previous ownership that had been not staying up on their rents, they hadn’t been taking care of the asset, and not taking care of some of the maintenance that needed to be handled. So we found situations coming into the ownership of this asset where some of these units needed to be totally removed or remodeled. And because of the current federal moratorium on eviction, we couldn’t do that at first. The tenant eventually left on their own accord, kind of skipped in the middle of the night, which was actually thankful. But if we wanted to get them out so we could take care of a pretty terrible bathroom mold issue, we couldn’t have done that at that moment in time because of the eviction moratorium.

Ash Patel: Got it. Charlie, what’s your Best Ever real estate investing advice?

Charlie Stevenson: My Best Ever advice is kind of philosophical. There’s this men’s group that I’ve heard of called GoBundance. Something that I really learned working with them was if you try to go alone you might go faster, but if you go together, you’ll go far. So it’s an ancient or African proverb that says, go alone and go fast, go together and go far. That’s been truly one of the hallmarks of our success in the business, is by pairing up with two other folks, my partners, who have a lot, frankly, more experienced than I am, [unintelligible [00:18:18].07] in the room, and can work with me. I can do what I’m good at and they can do what they’re good at. We can combine forces and really go a long way. I do see a lot of investors who go the lone wolf route, and maybe they get a project going a little more quickly, but ultimately, I see that we can have a lot more distance in the end. So yeah, go together, create a team, don’t try to do it alone.

Ash Patel: That’s a great philosophy and a great outlook. Charlie, are you ready for the lightning round?

Charlie Stevenson: Let’s do it.

Ash Patel: Alright, first, a quick word from our partners.

Break: [00:18:50][00:19:12]

Ash Patel: Charlie, what’s the Best Ever book you’ve recently read?

Charlie Stevenson: I use this book regularly and it sits right in our library. It’s actually the Best Ever Syndication Book. It’s kind of a handbook for us. We’re getting ready to put some offerings out there to our investor networks for some assets we’re looking to acquire, and the first thing I do is I open up that book and I look at the 25 or 30 questions that an investor will ask during the webinar process. That just gets me ready to go. So it’s a book that I read for the first time years ago, but it’s a constant reference, which is Theo’s and Joe’s Best Ever Syndication Book.

Ash Patel: Awesome. I’ve got that book sitting on my shelf. It’s on my list of things to do. So, thanks for that advice, I’ll get around to it.

Charlie Stevenson: Do it. There is good advice in there. Yeah.

Ash Patel: Charlie, what’s the Best Ever way you like to give back?

Charlie Stevenson: Giving back is something that is really important to me. Something that my dad really instilled in my brother and I. The way that I find that I can contribute the most value is at my university back in Boston, there is a venture accelerator that works with students who are undergrads and also alumni who are getting businesses off the ground. Back in 2010, when I was starting my adventure travel business, I was one of their first ventures, I was really lucky. It’s called Northeastern University’s IDEA Venture Accelerator. They gave me a ton of resources, a ton of advice, assigned me a mentor, and helped me to work through the process of starting and launching a business. That experience was so impactful to me that I now am part of that same organization, not as a venture, but as a mentor. Now I go in and I help out young organizations and growth ventures that are doing this very same thing. I coach a digital yoga platform, a travel business, and a couple of other things. I meet with them on a monthly or bi-weekly basis, I help them organize their business plans, their revenue models, all kinds of stuff. It’s fun, it keeps me young and keeps me thinking in an innovative way.

Ash Patel: Very cool, Charlie how can the Best Ever listeners reach out to you?

Charlie Stevenson: I think probably the best way is just go to our website at akrascapital.com. There’s a whole different bunch of ways that you can reach out to us. There is an Ebook you can download, which will collect some information. You can reach out directly to me and book a meeting with myself or one of my other partners to talk about what Akras is doing. We’re always looking for limited partners to come in, and also small institutions who want to invest with us. So certainly reach out, and happy to be a resource and build a relationship.

Ash Patel: Charlie, thank you for being on the show today. Thanks for all the great advice. You started out with the travel bug, accidentally got into real estate, and now with Akras Capital you’re doing syndications and building a giant portfolio. So thanks for sharing your story today.

Charlie Stevenson: Thanks, Ash. I appreciate it.

Ash Patel: Have a Best Ever day. Thank you again.

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JF2373: Maximizing Profits By Optimizing The Turnover Rate With David Grabiner

David started his real estate career back when he was working as a hospital administrator in the Democratic Republic of Congo. He was looking for financial freedom and the ability to live and work wherever he wanted.

David partnered with his father, and they started a real estate business together. By the time he went back to the United States, his company has already had an impressive portfolio. To acquire these properties, they followed a simple recipe that worked: save, pay the 20% down payment, rinse and repeat. They now mostly work with small multifamily units, but they also work with commercial properties.

 

David Grabiner Real Estate Background:

  • Full time multi-family real estate investor
  • 6 years of real estate experience
  • Portfolio consist of 137 multifamily units and 14 commercial units
  • Based in Chattanooga, TN
  • Say hi to him on Instagram @Diy_landlord
  • Best Ever Book: Never split the difference – Chris Voss

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Normally, what hurts the revenue and increases expenses is when you have inefficient turnovers” – David Grabiner.


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. This is Ash Patel, and today I am speaking with David Grabiner from Chattanooga, Tennessee. David has six years of real estate investing experience and has acquired 137 multifamily doors and 14 commercial units. Let’s figure out how he did this. David, welcome.

David Grabiner: Hey, Ash. Thank you so much for having me on the show. I really appreciate it.

Ash Patel: Yeah, I want to hear the story. Tell me, six years ago, how you got your start.

David Grabiner: Oh, wow. Let’s go back six years ago… I was working in The Democratic Republic of Congo as a hospital administrator. Not where most people start their real estate investing career… When I was over there, I was like, “Okay, I want to get into real estate investing as a way to financial freedom.” That’s what I was looking for, financial freedom; to basically live wherever I wanted, do whatever I wanted and be financially free. Real estate was that vehicle. I started to look in the Chattanooga market because I had lived there before, and saved up some money and bought a quadplex. That’s basically how it started all those years ago.

Ash Patel: And you did this while you were in Congo?

David Grabiner: Yes, I did. I partnered with my father who still lived in the Chattanooga area. We were 50/50 partners. He would get the loans in his name, I would spend my nights looking on the MLS, trying to find deals, and going over them, and making sure they’re a good deal. I would send them to my dad, “Hey, this is a good property. Let’s go for it.”

So the first property we got was a quadplex for 125,000. We put about 25,000 down. At the time it was renting for 450 a unit, now it’s renting for about 650 a unit. But that was the very first deal.

Ash Patel: So I’m going to rewind a little bit. As a hospital administrator, what brought you to Congo, or how did you end up there?

David Grabiner: I grew up as a missionary kid. I grew up in Zambia, went to high school in Kenya, I met my wife in Kenya. She’s from Argentina, and her parents had a hospital in the Congo; they started a hospital. So after college, after working around the Chattanooga area for a while, they wanted us to come help in the hospital over there. My wife’s a nurse, and I had an MBA in Healthcare Management, so I went over there to help them.

Ash Patel: So MBA, hospital administrator, but you chose real estate to fulfill your dream of financial freedom.

David Grabiner: Yeah.

Ash Patel: Did you not think your corporate career would take you there?

David Grabiner: No. And I realized — I liked working in the hospital in Africa, and that environment, and it’s more like a family business, and that freedom and flexibility… I did not like from before my corporate jobs, I did not like having to punch in and punch out and that sort of thing. I knew — when I moved back to the states and decided to do real estate full-time, if I came back and I decided to do hospital administrator, I’d have to just go wherever the job was and I would just have to follow that career wherever it took me. That did not really entice me. I wanted to be free as soon as possible, and so real estate really let me be free a lot sooner than trying to work a high-paying job and saving up the money and put it in the stock market or something like that.

Ash Patel: How old were you when you purchased this four-unit, and then how old were you when you quit the whole corporate gig, hospital administrator gig?

David Grabiner: I was 29 when we got the first property, and then three years later I quit and moved back. Really, we moved back to be closer to my dad, he had some health issues, so it kind of accelerated the process and that kind of pushed me overboard to jump into it quicker than I thought I normally would have. But within three years, and now I took over managing them all myself, so there was some extra income there. It wasn’t a passive cash flow that was enough necessarily for me to quit after three years, but the passive income combined with me managing my own units and that savings of a management fee – now that was enough for me to become completely full-time in real estate.

Ash Patel: So for three years you’re essentially remotely managing this unit, along with the help of your father?

David Grabiner: That’s right. And he had a full-time job. It wasn’t just that one unit; in three years we built it up to 24 units.

Ash Patel: Wow. So the whole time you’re in Congo, you’re acquiring additional units?

David Grabiner: Yes,

Ash Patel: Tell me the challenges of that.

David Grabiner: Obviously, the one would be financing. Now, fortunately, we were able to get them in my dad’s name, and I didn’t have to put my name on the loan. We had an agreement that we structured at the beginning and that we signed and everything… But really, it was more about trust; we have complete trust in each other and in our decision making, and how we have the same goals. I was very fortunate to have that. Not a lot of people have that even with their parents where they could completely trust them with their finances, but I definitely can with my father and he can with me.

So that was definitely a challenge, but it was overcome by, obviously, my connection with my father. But really, it was a good time to be buying properties, they were easier to find, I could find them online, I could do all of that. My dad was managing them pretty well, even though we had a full-time job. We weren’t maximizing them, but it was going decently well. We had this part-time maintenance guy that was helping out as well. So it was going decently well, but nothing compared to when I started doing it full-time. That’s when it really took off. Actually, the information in the intro is a little bit old. I’ve got 170 multifamily units now, and I’m about to close on two other commercial deals as well in the next month or so. So by the time this comes out, I’ll probably have about another 10 million worth of commercial property.

Ash Patel: So by the time you hit the States, you already had a great portfolio, and you were able to dive in full-time, manage them. Were most of your acquisitions up until then fully rented, or were they value-add?

David Grabiner: It was really, really just basic stuff. Yeah, they were mostly rented, we would buy them, save up our money 25% down, just really generic. Just save, save, save, buy a property; save, save, save, buy another property. Nothing fancy, just buying properties off the MLS. Or some of them were off-market, because listing agents started bringing them to us. That’s one strategy that I employed really early that did help me grow, was we started going directly to listing agents, and didn’t use a buyer’s agent.

Ash Patel: These are in the Chattanooga area?

David Grabiner: All in the Chattanooga area.

Ash Patel: Alright. So you come back to the States. You’ve quit your job. Tell me how you hit the ground running and dove into managing these complexes. What were your challenges then, and what type of things did you implement to maximize returns?

David Grabiner: Okay. Obviously, I didn’t really have any experience managing properties, but I did have experience talking to people and managing people, and I kind of realized — and I have a numbers background for my MBA, and I like accounting… I still do my own accounting for everything. So what I realized is I need to increase revenue and reduce expenses… And normally, what hurts revenue and what increases expenses is when you have a turnover or you have inefficient turnover. So I started focusing on making sure my occupancy got really high, and that when things got vacant, that I would turn them really quickly. That’s really where I focused. I didn’t focus on trying to make the rents as high as possible, because sometimes that increases your vacancy. But what I focused on in my market was when someone moves out, I’ll raise the rents. I’ll raise them a little bit on people on there, but I’m really just focused on trying to keep paying tenants in there.

I had to develop systems and figure out how I’m going to market these units quicker, so that they read quicker. Before it was just like, “Okay, let’s just put it on Zillow and see what happens.” At that time, I think we were just using Cozy, because it was free. We were using Cozy to do the rent collection, and our marketing, and stuff like that, but it would take too long. Then I started saying “Okay if I put this on Facebook Marketplace, I’m getting way more leads. Okay, put this on Zillow, Zillow is also good.” But I started doing all those things and started really focusing on the reduction of vacancy, and the time something was vacant. And then I also implemented a property management software called Buildium. Before we were using spreadsheets, which was fun but it took a lot of time. Buildium definitely streamlined it.

Ash Patel: Are most of your holdings smaller four, sixes, eights, quads, twos?

David Grabiner: Well, now the majority, number-wise, is actually small multifamily or medium multifamily packages. So I have three separate streets of duplexes. They have like 10 or so duplexes on them. So I have one street with 10, another with 11, and other ones with 12, and I just own that whole street. And two of them are private streets, so there are no other properties on them. It’s just my properties. Then I have a 35 unit apartment complex. Then the rest is kind of spread out. Then I have another 18-unit that we just got. I forgot about that. So the majority of the properties now are small multifamily, but we started with just a quadplex here, a duplex here, that sort of thing.

Ash Patel: And then the commercial, tell me all about that.

David Grabiner: So commercial, I kind of jumped into — an opportunity just arose from my connection with another investor. He brought a deal to me and I was like, “Man, that’s a nine cap, and it looks like a solid property. It’s going to be cash flowing.” So that’s really how I jumped into that. There are unique sets of challenges for commercial versus multifamily, but really, I just looked at it as an opportunity to get an asset that provides consistent cash flow, because that’s mostly what my goal is, is cash flow investing. The right commercial property does that. Now this whole pandemic, that sure put a lot of question marks and a lot of stress on that. But so far, it’s actually been good and I think there is actually a strong opportunity in a commercial. I don’t want to tell too many people about that, because they might start seeing that and start running over there… Because everyone right now is running to multifamily. All investors, whether they’re new, whether they’re big, whether they’re small, everyone wants multifamily investment, because it’s seen as such a safe, great investment. They’re kind of ignoring the triple net, commercial strip retail centers, and stuff like that. That’s not very popular right now. And even the lending on that it’s not very popular; the banks don’t really want to lend on that, which is probably why it’s not as popular among investors. But I think that’s going to come back strong, and those assets, if they’re a good assets, and you get them for a good price, when the lending comes back then the cap rates are going to go back down and the value is going to go up.

Ash Patel: What was that first commercial property that you bought?

David Grabiner: The first one I bought was an office space, and we still have that. Then the second one shortly thereafter was a strip center that has a Planet Fitness, a CVS, a Pizza Hut, a Subway, and two other small shops in it. Both of those came through my networking with other investors.

Ash Patel: So in terms of managing residential tenants versus commercial, talk about that.

David Grabiner: Yeah, commercial is great when it comes to management, you know… Oh, man, it’s so easy. I had a 42,000 square foot commercial center bringing in 30,000 a month in revenue, and it takes me 30 minutes a month to manage. It’s a couple of entries here in my software, maybe an email here or there, and that’s it. So easy. I think about that when I’m thinking about scaling, like, “Okay, I could really scale, managing myself a lot more big commercial deals than I can scale multifamily.” Because multifamily is so management-intensive… It really makes or breaks a property. I’ve seen so many properties sell for much less than they should because they had poor management. I’ve seen people buy properties that I managed before, and take them over, and it went down, even though they use professional property managers.

I know the difference that good property management is, so that’s why I’ve just, in my own model – this doesn’t work for everybody – I’ve just kept my management of multifamily in-house and that’s why I only buy in my local area. But with commercial, I’m happy to buy all around the Southeast, because if I can just get there in a day, I can definitely manage commercial… Because my commercial property – I hardly ever go by and see it; there’s no need.

Ash Patel: You’re still acquiring multifamily?

David Grabiner: Yes, I am. It’s a good deal.

Ash Patel: Okay, so you’re just chasing deals?

David Grabiner: Essentially, yeah.

Ash Patel: Tell me more about the office building, how many units are in there?

David Grabiner: It’s kind of weird. It can be broken up into different ways.

Ash Patel: Okay. And was that fully rented when you purchased it?

David Grabiner: Yes, it was. Now, we are about to have a knock-on effect from the pandemic where tenants are not renewing their lease this coming year. Their lease is up and they realize that “We don’t need all this space.” Fortunately, last year didn’t affect us, hardly at all. But this year, we’ll see what the effect is going to be.

Ash Patel: Is that more of a suburban location? Or is that in the city center?

David Grabiner: No, it’s not in the city. It’s kind of the outskirts of the city, near the airport of Chattanooga.

Ash Patel: Yeah. I think you’ll be surprised, there’s a huge demand for suburban office space with the pandemic. A lot of people are getting tired from working in their home office, they just want to get out of their house. A lot of larger corporations are allowing their employees to find an office closer to their house, versus coming to their city center corporate headquarters. So I think you’ll be pleasantly surprised and you shouldn’t have much of a problem trying to fill that.

David Grabiner: It is true. We did have one tenant move out because of the pandemic and another one moved in, and she was like, “I just need a workplace,” for her and her mom. She and her mom share it, and it was just like a one-room office, and they’ve been paying rent just fine. So you might be exactly right. But I do always get a little bit concerned when it’s like, “Okay, someone’s not renewing the lease. Now we’re going to have to lease it up.”

Ash Patel: So 14 commercial units… Tell me what they range in. We’ve got the office building, the class A shopping center… I’m assuming you have a whole bunch of properties in between those two.

David Grabiner: At the moment, I just have those two commercial buildings.

Ash Patel: Okay, so it’s 14 units total?

David Grabiner: Yeah, exactly, and those two commercial buildings. Then I’m under contract for another A-class… But this is like a really A-class office building in a smaller market. It’s not in Chattanooga; for people who know it, it’s in [unintelligible [00:17:19].24], which is another town just outside of Chattanooga. A good-sized town, but it’s not Chattanooga. Then I got a commercial strip center under contract out in Oakland, Tennessee, which is just outside of Memphis. So those are the two deals that we’ll be closing here in the next month.

Ash Patel: Cash on cash returns… When I think triple net class A strip mall, I’m assuming the returns are much lower than a value-add office building or multifamily. Is that the case?

David Grabiner: If you’re looking at the cash on cash return right now, every market’s different and every multifamily asset class. But let’s just say, on average – because some markets are really low. But let’s just say you can get multifamily at a six cap. Most people would be like “Oh, I can get multifamily at six cap. Yeah, we want that. That’s a good cap for multifamily.” You’re seeing threes and fours in the hot markets. But right now, I’m buying A class, commercial property, great tenant mix, everything, and I’m getting it at just over an eight cap. So the cash on cash return, in the beginning, is better. There isn’t necessarily the potential upside like you can do with multifamily. With the multifamily it’s more, “Okay, I can come in, I can do this, this and this and this.” The commercial is a little bit slower, “Okay, when can I increase rents? Maybe I’ll get a new tenant in, we’ll get up rents.” But it’s not as high of a spike, normally, unless you buy a property with a lot of vacancy. But this one happens to be pretty much full. So that’s the difference.

Now, the cap rates, if they just go down though, when the lending comes back then there’s a lot of upside. But the initial safe cash on cash return is more there in commercial right now than it is in multifamily.

Ash Patel: So with your commercial, you had a Planet Fitness. That’s your anchor tenant?

David Grabiner: Mm-hmm.

Ash Patel: Who else is in that strip mall?

David Grabiner: CVS.

Ash Patel: Okay. How many years do they have left on their lease?

David Grabiner: That’s always a thing with mult– So just some advice to people out there. If you’re going to get into commercial, it’s all about the leases. And it’s different than multifamily. Multifamily, a lease is pretty much at lease; you look at it, whatever. You’ll get that tenant out in a year if you want, or renew their lease. But with commercial, you have to read those leases, because there are so many details in there, and there are no specific guidelines. It’s like the wild wild west. A lease can say anything if it’s a commercial lease, at least in Tennessee.

So Planet Fitness – unfortunately, they had some issues with the pandemic in the beginning and they couldn’t pay rent for two months, so we let them not pay rent. We got a deferral from our bank so we didn’t have to pay our mortgage. They put it at the end of the loan, which was nice of them to do for us. Then Planet Fitness asked if they could have a year to pay back those two months, spread it out over a year. We said, “Yes, you can, if you sign another extension.” So they signed their extension early. We got them 10 years, they’re locked in for 10 years now on Planet Fitness.

CVS has only got three more years on their lease, and I contacted them and said, “Hey, are you going to renew?” This was even before the pandemic, but I was like, “Do you want to leave early, and we let you out early and you just pay a portion upfront? Do you want to renew now for a discount, anything?” And the head of CVS real estate was like, “We’re not making any decisions this far in advance on the property.” I was like, “That sucks.”

So it’s unknown what’s going to happen. I do know, it is fortunate because we get to see their gross sales at that location; it’s part of the lease. We get a percentage of their gross sales, which is an amazing bonus that’s built into that lease. So here in March, I’ll get to see their gross sales for last year and I’ll kind of have an idea. Like two years ago, they did really good, and if they did really good again last year, maybe it’s an indication that they’re going to keep the store open. But I’ll know…

Ash Patel: Do you have something to compare those numbers to? Do you know what other CVSs coming at for gross sales?

David Grabiner: Well, I actually haven’t looked at what other CVSs are doing for gross sales. I have the historical numbers on this property.

Ash Patel: Year over year numbers.

David Grabiner: Yeah, the year over year numbers are growing and growing and growing. I would say that’s a good market, where your numbers are growing and growing and growing. In addition, I assume –and I don’t know, maybe I’m wrong– that they have a benchmark on the gross sales. So as soon as it goes up above a certain point, that’s when we start getting a payment. I’m assuming they knew what they were doing when they put that benchmark in there. Last year, they were well over the benchmark, so we got a return of it,

Ash Patel: You get a percentage of any revenue over that amount.

David Grabiner: Yep.

Ash Patel: Great. So with your triple net leases, what are your landlord responsibilities? Because I know a lot of people assume triple net is just straight mailbox money. But like you said, they’re all different. So in this case, what are you responsible for and what are your duties?

David Grabiner: Yes, so it’s all about the leases. People call it triple net and it might not be. Sometimes the landlord’s responsible for the AC, sometimes the tenants responsible for the AC. Sometimes the landlord’s responsible for the parking lot, sometimes the tenant is responsible. The roof, the structure, whatever it is, can vary depending on the lease. Now, fortunately, at this location, it’s a pretty good lease. The tenants do payback for repairs. So we still do them, we still take care of the parking lot. If there’s a roof leak, we’ll fix it, we’ll repair it, we’ll repair the outsides, but they pay back over time. What we do is they make an estimated payment to cover all the common area maintenance, and to cover the taxes and insurance. They pay their share of the taxes and insurance too, and they pay for the management fee, even though the management fee comes to me for managing. It’s a great situation. But that’s not always the case with every triple net; it depends on the lease. But in this instance, yeah, they pay an estimated payment every month, and then at the end of the year, I do a CAM reconciliation and I send them “Hey, this is all I paid for. This was the insurance taxes, CAM, everything.” And they paid more, I send the money back to them. If they didn’t pay enough, they send extra money to me for the shortfall.

Ash Patel: I think that’s so important for people to realize, because again, I think they assume triple net literally means “I never get to hear from my tenant and I just collect a check every month in the mail. But in reality, a lot of triple nets, if something happens with the roof, you’re getting a call. Granted, you’ll get reimbursed for whatever expenses you incur. When the parking lot is old or needs to be restriped, you’re getting the call, you coordinate the subcontractor to come out and do all the work, and again, you get reimbursed on the back end. But there is a fair amount of management that can occur with a triple net… So thanks for sharing that. That’s a great point.

David Grabiner: Yeah. If someone’s really looking for mailbox money, then they would be looking at what’s called an absolute net; some standalone CVSs, Walgreens, single-tenant. They sometimes will take care of everything. They literally take care of everything and they just send you a payment. But normally, the cap rates on something like that, that has a good lease on it, that doesn’t expire in the next three years, the cap rates are going to be very low on something like that. That’s really for old people who are just looking for a place to put their money and aren’t trying to be aggressive.

Ash Patel: Yeah, great point. So McDonald’s and Starbucks are single-tenant. You’re right, that’s how they work. It’s pure mailbox money. But I’ve seen those cap rates in the threes and fours, that’s rough.

David Grabiner: Exactly. Three and four; you’re not really making any returns on that.

Ash Patel: So in the future, what kind of commercial deals are you going to look for? Would you get away from the triple net and maybe do some with gross leases? Some smaller mom-and-pop shopping centers?

David Grabiner: Yeah. You’d be surprised, even in big deals there’ll be some gross leases in there. What I like about triple net is the security when the taxes and insurance go up that you’re not having to carry that cost. When you purchase a property, taxes can go up quite a bit, especially if it hadn’t been sold; that’s at least how they do it here in Tennessee. So taxes can really change, but with triple net you kind of have that security that if that goes up, you’re not bearing the cost of that, the tenants are. So that’s the nice thing about it. But it’s got a good cash flow potential. I wouldn’t turn it away just because it’s a gross lease. I would just have to make sure that I put in my underwriting that I’m taking into consideration when the taxes go up, what are my taxes going to be. When my insurance bill might be higher than the previous guy because it’s on a higher valuation, what are those numbers going to be?

I looked at another office building, and that’s why I ended up not buying it, because it worked at the current numbers. But I know with the new appraise tax value and the new insurance costs, it’s not going to work.

Ash Patel: That’s a great point. With your two tenants, the CVS and the Planet Fitness, CVS is a corporate lease.

David Grabiner: Yeah.

Ash Patel: Is Planet Fitness an individual franchisee? Or is that a corporate lease as well?

David Grabiner: It is a franchisee, but they have 100 locations or something like that; 90 locations. It’s a very large one. All the other tenants in there actually are franchisees as well, like Pizza Hut and Subway. But CVS is the only corporate one.

Ash Patel: So can you tell our audience the difference between a corporate lease and a franchisee lease?

David Grabiner: Yeah. A corporate lease is guaranteed by the corporation. So really the only way that they get out of that is if the corporation itself files for bankruptcy. That’s very unlikely in the event that CVS is going to file for bankruptcy. Even if something was going to happen, it’s going to be like Rite Aid where they get bought out. Then when Rite Aid gets bought out they closed all those pharmacies, but they still pay the leases until they’re done, because they’re still honoring those leases. If it’s a franchisee, like Pizza Hut and Subway, if that franchise goes bankrupt, well that’s it; you don’t have any recourse against Pizza Hut. Even though it says Pizza Hut on the building really, it’s mom-and-pop pizza doing business as Pizza Hut. So really your lease is just with that LLC, and if that LLC goes bankrupt, well, you’ve got no recourse against the corporation.

Ash Patel: Do you have personal guarantees on your lease?

David Grabiner: Some of them have personal guarantees. It’s interesting in office space, obviously, we’ve got personal guarantees on that. But some of the leases I’m taking over have personal guarantees. I haven’t had to lease-up any of the big commercial space yet, so it will be interesting what I work out with. I would get personal guarantees, obviously, but I still think about “Okay, what terms am I going to put in the lease?” Because you can do whatever you want. I’m reading all these leases and trying to hold different ideas from all the leases I see.

Ash Patel: Yeah. So a great example of different types of lease backers – you have the corporate guaranteed lease where they can’t get out of it unless they declare bankruptcy. You have a franchisee lease, but in my book that’s almost the same as a corporate-backed lease with your case, because this person owns dozens of gyms, and the only way they can get out of the lease is if they declare bankruptcy as well, assuming that all of these are in the same LLC. If not, if this person has a personal guarantee, they still have to declare bankruptcy to get out of your lease. Then just your typical franchisee LLC lease, if they don’t have a personal guarantee, it’s quite easy for them to shut down that LLC, and they’re essentially out of the lease. So a great lesson here to be learned about who’s actually signing that lease in a commercial real estate setting.

David Grabiner: Yeah, and also making sure… What happened to me actually with our Pizza Hut – just to bring up another interesting point – the franchisee had 23 locations and then they sold to another franchisee that has 123 locations, and it’s growing even bigger. So it was a bigger franchisee taking over a smaller one. But they sent all this legal documentation “Okay, we’re taking over this. We’re getting a bank loan from Wells Fargo”, and they sent all these terms that they wanted to change. Some of it was requested by Wells Fargo, like you need to inform the lender if they’re in default; you need to give the lender the opportunity to cure their default for them, you need to do all these things… And I just said no. It was just so interesting. I’m like, “No, I don’t think I want to do that.” Wells Fargo is asking for it, but I don’t have any reason why I have to do that. I don’t need to put any more onus on me to do more steps. So I said no, and I sent it back to them, and they said, “Okay, fine.” They took all that language out. [laughs] It was really an interesting situation that just because it is a big corporation or it’s a big conglomerate, or it’s Wells Fargo, or whoever it is asking for these things, you don’t have to change a lease; you don’t have to make amendments to anything if you don’t want to when you have a lease in place.

Ash Patel: Once the lease is signed, it’s solid. Would you consider selling this building now, since you re-upped the Planet Fitness lease?

David Grabiner: Yeah. I probably would sell it for the right price, but because of where I’ve seen cap rates go for the short term, I don’t think it’s there on the cap right now. I would wait until it goes down to a seven cap and then I would sell, because it’s going to get down there. I got this killer deal on this; we got it for like a nine cap just over a year ago. It was just a really good deal that I just happened upon, honestly. But when things go back to normal with the lending and when the cap rates go back down to six or seven cap in commercial, then I probably would think of selling it, and 1031-ing it into something else.

Ash Patel: Was this listed on LoopNet or MLS?

David Grabiner: No. It was not.

Ash Patel: How did you acquire this property?

David Grabiner: I bought a six-unit for my sister. She wanted to get multifamily, I said, “Okay, I’ve got the perfect property for you. It’s a great starter property.” I did everything for her. I found it, I negotiated it for her, I found her the lender… She was in Alaska, and she didn’t do a single thing. I even signed for her, got the power of attorney to sign at closing… Everything, I did everything. And the seller shows up and he’s like, “So what are you getting out of this?” I was like, “No, I’m just helping my sister. I manage it for her, everything.” She did nothing.

Ash Patel: She’s a passive investor.

David Grabiner: Technically. [laughs] But she completely owns it. But she’s got a good situation there. I’m just trying to help my sister get into multifamily investing, because it was a great property, and it’s been a great deal for her.

Ash Patel: So the seller is talking to you.

David Grabiner:  The seller is going like “You can make money on this. You can’t be doing things for free. You can’t be doing this.” I get talking to him, and he has a bunch of units, and we have about the same amount of units… He’s a little bit older than me, but kind of close in age, and we kind of just hit it off… I get his number, he gets my number and then we talk and text… And then he calls me and he’s like, “Hey, I have this deal under contract.” One of his other partners backed out, so I was able to jump in. He got it under contract because he had this connection with the broker who was in another city, and before they listed it they asked him if he wanted it, he said yes, and he got it under contract. He didn’t bring me in until someone else dropped out, so it was kind of like a rush at the end for me to do my due diligence, because we’re already under contract, we’re in the due diligence period… I’m like, “Well, I’ve got to make sure we’re secure on this.” But it really worked out for me, because I was able to jump in and take over all this other equity that was supposed to be coming in.

It’s turned out great. I mean, we manage it together, we work really well together, and then he’s brought me this other commercial office building; it actually came from him as well, and he brought it to me. So it’s all about networking. Sometimes you’ve got to do something for free in order to make that connection.

Ash Patel: Yeah. So doing a favor for your sister really helped you out.

David Grabiner: Oh, yeah. Majorly.

Ash Patel: David, what’s your Best Ever real estate investing advice?

David Grabiner: Be courageous and be determined. I don’t feel like I’m smarter than anyone else, or I’ve had any other advantages necessarily than most any other average American. I didn’t have a bunch of money to start, I wasn’t making a lot of money. But one thing I’ve done consistently is just going for deals, be courageous and be determined to get them done.

Ash Patel: That’s a great story. David, are you ready for the lightning round?

David Grabiner: Let’s do it!

Ash Patel: Alright. First, a quick word from our partners.

Break: [00:33:52][00:34:34]

Ash Patel: David, what’s the Best Ever book you’ve recently read?

David Grabiner: I think everyone needs to read this – I need to reread it, actually – it’s Never Split The Difference by Chris Voss.

Ash Patel: Yep. What was the biggest takeaway from that book?

David Grabiner: Say no, literally. That book has made me hundreds of thousands of dollars, and given me even more courage to be like — when someone asks for something, say no in a polite way, and then starts the negotiation from there.

Ash Patel: Awesome. David, what’s the Best Ever way you like to give back?

David Grabiner: I’m actually starting this program, it’s called Homeless to Homeowner. I am buying single-family homes, rehabbing them in partnership with the city of Chattanooga, who’s paying for half the rehab costs, because I’m agreeing to rent them out to low-income individuals, and then I’m putting homeless people in them. At the same time, I require those homeless people to enroll in a program that helps teach them financial literacy and helps them move towards being able to become a homeowner, with the idea that they can then buy that same home that they’re living in.

It’s a brand new program and idea that I just started this year. I just have one house and I just got the first homeless person in there. She’s super excited. My goal is to have 10 of those this year, and 100 within three years. It’s not something I’m doing because it’s going to make a lot of money. It’s still going to be profitable, not the most profitable thing I can do, but I really have a heart for the homeless population. I already put a lot of them in my rental properties, but I wanted to take it to the next step, so that’s why I started this thing called Homeless to Home Owner.

Ash Patel: That has to be a great feeling, seeing them progress. David, how can the Best Ever listeners reach out to you?

David Grabiner: On Instagram, @diy_landlord is my Instagram. I post on there at least twice a week, and I’ll answer any DM questions that you want to shoot me over there.

Ash Patel: Fantastic, David. Thank you so much for your time. You’ve got an amazing story.

David Grabiner: Thank you, Ash. I appreciate it.

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JF2372: Generating Off-Market Deals Through Broker Relationships With Chad Sutton

Chad quit engineering because it pigeonholed him into a very narrow career path. Real estate, however, offered him plenty of opportunities without limits. His family had a real estate business, and he followed in their footsteps.

He started by acquiring a 35-unit multifamily property. It was an off-market opportunity, and the business took off from there. Since then, Chad has taught several classes on how to approach real estate brokers and leverage your perceptual position into getting off-market deals even if you’re a first-time investor.

Chad Sutton Real Estate Background:

  • Full-time real estate investor, formerly Aerospace/Mechanical Engineer
  • 2 years
  • Portfolio consists of 138 units, 5 properties
  • Based in Nashville, TN
  • Say hi to him at: www.thequattroway.com 
  • Best Ever Book: The Honey Bee

Click here for more info on groundbreaker.co

Best Ever Tweet:

“What you really have to do is build that perceptual position” – Chad Sutton.

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JF2364: How To Go From A Commission Chaser To A Problem Solver With John Chin #SkillsetSunday

John cut his teeth as a traditional real estate broker. He escaped the “hamster wheel” of chasing sales thanks to a mentor who put him on the fast track to investing. That paradigm shift made him see licensed agents as problem-solvers for homeowners rather than just salespeople.

Now John teaches real estate agents how to leverage their license into creating 8-10 various income streams as opposed to relying on commission alone. In this episode, he talks about his lead intake process that helps licensees make the most out of their leads.

John Chin Real Estate Background: 

  • John and Ron are the founders of Investor Agent
  • Together they have done 2,800 rentals and flip properties (mostly short sales, foreclosures, and REOs)
  • Closed over $260 Million in residential investments
  • He currently manages over 470 cash flow rentals
  • Based in Orlando, FL
  • Say hi to him at www.investoragent.com 

Click here for more info on groundbreaker.co

 

 

Best Ever Tweet:

“You’ve got to look at your listing as just one tool in your tool chest. It’s not the main driver of your business ” – John Chin.


TRANSCRIPTION

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

John Chin: I’m doing awesome, man. Thanks for having me again.

Theo Hicks: Yeah, no problem. Thanks for taking the time to speak with us. And today being Sunday, we’re going to be doing a Skillset Sunday. We’ll talk about a specific skill set that can help you in your real estate business, and we’re going to talk about how you can go from being a real estate agent who chases commissions to being a real estate agent wolf. John’s going to explain what that means, where the word wolf comes from, because he told me a really funny story before we got on. I want him to tell again where it came from, to have this concept hit home for you. Before we get into that, a refresher on John’s background.

He is the founder of InvestorAgent, and InvestorAgent has done 2800 rentals and flips, mostly short sales, foreclosures, and REOs, closing over 260 million dollars in residential investments, and currently manages over 470 cashflow rentals. He’s based in Orlando, Florida, and the website is investoragent.com. So John, do you mind telling us a little bit more about your background and what you’re focused on today?

John Chin: Yes. I cut my teeth in traditional residential real estate brokerage. Then, like a lot of us who end up in the investment business, where we’re flipping houses, buying rental properties, building cash flow portfolios, and serving investors to do the same thing, there was a pivotal relationship in our past – we met somebody, and they kind of set us on a fast track of doing deals, and kind of got us off of that. We call it the sales hamster wheel, where you are in perpetuity unemployed and chasing the next closing or closings. So I was fortunate enough to have that kind of relationship, and pivot the trajectory of my real estate career to actually doing deals, and then using my license as a way or just a tool to solve problems for sellers. So it’s kind of a paradigm shift.

That whole wolf story came from Pulp Fiction, where we kind of liken ourselves to one of the characters in Pulp Fiction, Mr. Wolf. Anybody who’s listening who saw that movie, there was that accident in the back of the car, they ended up at Quentin Tarantino’s character’s house, and he was going through the roof, he was upset because he had a dead person in his garage… So the boss guy sent his problem solver to the house to fix that problem, and his name is Mr. Wolf. He shows up in the tuxedo at the front door, and he says, “Hi, I’m Mr. Wolf. I solve problems.” And he comes in and cleans up the whole situation. So that’s what we kind of do for sellers.

I think the biggest paradigm shift I had that helped me transform from being somebody who just tried to chase more closings and more listing and buying commissions, to somebody who was actually building wealth, was the paradigm shift from being a salesperson to being a true problem solver for homeowners or property owners. This means that you go from only being able to make money one or two different ways as a licensed salesperson, to actually being able to make money maybe eight to 10 different ways on a property, while solving problems for homeowners that are a little bit more flexible, that most licensed agents can’t do. So you end up making more money, you end up getting more deals for yourself, and you end up solving more problems for sellers.

Theo Hicks: Perfect. Then you were talking about in order to start this process of solving the homeowner’s problem is to properly doing the seller intake. You talked about a form that you have, that people use. Can you explain at what point of the process is this used? Is it when I find a lead? And then maybe tell us what people usually do if they’re not doing seller intake.

John Chin: If you get into the mind of a traditional licensed agent who’s working what we call the retail business,  that’s all they do exclusively – they work with buyers and they work with sellers. When you talk to a homeowner in that space, what you’re trying to do is turn that phone conversation into a listing presentation or an appointment at the seller’s house or at your office to list their property. And to do a CMA form a lot of times, you do your formal listing presentation… Basically, how I can help you sell your house as quickly as possible, for the highest net proceeds as possible, that’s kind of the goal.

Everybody heard the expression, if you’re a hammer, everything looks like a nail. Well, everybody looks like a nail to a licensed commission salesperson who’s just trying to do that all day. So we bring in this process like the number one thing that helps you shift from being a commission earner to being a problem solver dealmaker is when you do that initial intake call a little bit differently.

So if you just do this one thing really well, number one, you’re going to look a lot different to that seller… Because most people aren’t coming to them as an advisor/consultant capacity. What they’re really trying to understand from that seller, “Look, you’re at point A right now and you’re trying to get to point B in your life, and your house is a mechanism to help you get there.” That’s the difference, the way you’re looking at that situation with the seller, as opposed to somebody who says, “Okay, I know you’re just trying to sell your house as quick as possible, for as high proceeds as possible.” That conversation looks different than the former. So if you do a proper, what we call a lead intake consultation with the seller… And this is the template that we use. I’ll kind of walk through what we’re trying to accomplish in that template. But it’s just a different line of questioning.

If you follow that line of questioning in a specific chronology or a specific order, then number one, you’re going to sound like a consultant, a lot different than most agents, because you’re really trying to get deeper into the life situation of the seller. Then the house just becomes a tool or a mechanism to help them get from point A to point B.

Theo Hicks: That makes sense. Let’s talk about this lead intake consultation form. So just explain, if you’re on the phone with the seller, do just read straight through it? Or is there I guess a script that you do? Or is it like, if they say this, then you say this, like a logic tree type of deal? How does it tactically work?

John Chin: Okay, so it’s a worksheet. And I always have a paper copy printed up, and it’s a front and back worksheet. So I literally can just print one up and I can fill out the front and I can fill in the back. All of the students that we work with, our trainees and our licensed agents that we support, they literally fill this out, take a picture of it, the front and the back, and then they can send it off, and now we can huddle to figure out how to best solve a problem or turn that into a deal. Or maybe it’s a better short sale listing, or maybe it’s a better traditional listing… But the sheet helps you get there, to that if-then prognosis, if you will.

So to answer your question, you just start at the top of the sheet, you go down and you just fill in the blanks. Now, the blanks just prompt you of the type of information you want to ask. As you get skilled at using the sheet, the second and third-level type questions will follow the answers you get from just the blanks. In other words, the sheet serves as a wedge for you to get what we call first-level answers from these sellers.

For example, I could ask you, “Why are you selling the property?” and someone says “Well, because I just evicted the tenant. The place is kind of trashed, and I want to get rid of it now”, for example. Well, then I don’t just stop there, even though the sheet just prompts me to find out why they’re selling. What I want to do is then go second and third level, because that’s where the juice is, that’s where you get the real nuggets that are going to help you find out what the true problem is for that seller, and help you monetize that deal.

In that situation, it would prompt me then to not just leave it with that answer, but then for me to ask, “Well, tell me about that experience with your last tenant. What happened there? How’d you end up getting that as a property, as a rental?” So all kinds of solutions come out of the info you get when you go second and third level with the sellers.

It’s a huge paradigm shift, because most people want to just get facts. And a lot of investors too, they want to just get facts, because they want to get to understand is there equity in this house? Or is there no equity in this house? They just want to go for the jugular and they take five to 10 minutes, because they’re spending more time qualifying than they are actually trying to solve a problem for somebody.

So that’s the benefit of what we do as licensees are. We have so many tools in the tool chest; you’ve got to look at your listing as just one tool in the tool chest. It’s not the main driver of your business, for example. That’s the major shift from people who are on the hamster wheel to actually evolve into problem solvers and dealmakers. But you could almost look at this sheet as a marriage between what cash investors who are looking for motivated seller leads, what they do on the phone, combined with what your typical licensee does on the phone with the seller.

You combine the two because they both offer unique solutions that they both bring to the table. But even your cash investor who talks to motivated sellers – they’re a hammer too, because all they’re trying to do in most cases, they’re trying to find out how much equity you have, build rapport, and then make a lowball offer and throw a bunch of spaghetti against the wall with maybe 15 to 20 sellers to get the deal or the discount they want. Well, if you’re a licensee and you take a consultative of approach, you can monetize maybe three or four of those out of 15 or 20, as opposed to just one out of 15 or 20. That makes sense.

Theo Hicks: Yeah. So is that where the eight to 10 different ways of making money comes from? You’re going to have a higher success rate? Or are you saying that there are eight to 10 different ways to make money on a particular deal?

John Chin: Both. So the former is what we emphasize, because of the latter. In other words, because you’re able to solve a problem a few different ways with the seller, there could be two or three ways to make money with the seller. Now there’s only one ideal way that’s a happy marriage or medium between what they’re trying to accomplish in life and the profit motive you may have as a real estate professional. So you want to find that one highest and best answer, if you will. If you’re able to have multiple ways to do that and there’s a highest and best answer, then to the latter point there, you can take more leads and turn more leads into deals.

So if you’re concerned, like a lot of us are, about our lead generation spend… Because you know, depending on where you are on the spectrum – if you’re a cash buyer, you’re spending anywhere from low competitive market $50 to $100 per paid lead, up to $200 or $300 per paid lead. If you’re in the retail sales space, you’re spending anywhere from 20 bucks a lead, five bucks a lead, on up to $100 or $200 a lead, too. So if you’re in a business that you’re trying to scale, and you’re sensitive about your lead gen cost, then you want to take as many of those leads and monetize as many of those leads as possible. Well, if you’re a hammer and you only have that one solution, whether it’s on a cash buyer side or on the listing side, you can’t monetize many of those leads. So it’s both.

Theo Hicks: Got it. I wanted to circle back to that… But I first want to hit on what’s actually on the form. I don’t want you to walk us through every single question, but what are some of the ones that are pretty unique, that maybe people don’t typically think about asking?

John Chin: Okay, let me give you the overarching philosophy here. We call it the four Ps. When you’re using the form, what the form does in two pages with about 50 different questions, or lines of questions, or fields that you have to fill in – what that does is it actually just answers or addresses four Ps that we’re trying to uncover. The first two Ps – and I’ll break them down, because it’s an acronym for four different things that you’re trying to uncover. The first two Ps you get done in the first few minutes of the phone call, and that’s “Is it a property type that I can deal with?” In other words, if you don’t do vacant land, then you don’t have solutions for vacant land or commercial properties, then you want to qualify that right upfront. It’s kind of a knockout question.

Second thing is, “Are you talking to the person,” that’s the second P, “who has control of that property? Are they entitled to the property? Or are you talking to a friend of the owner?”, for example. So you have to not waste your time and obviously address those right up front. Those are the two easy ones.

The second two Ps are a little bit more in-depth. And the sheet – it does a couple of things. Number one, because of this line of questioning, it allows you to build rapport with somebody by virtue of your seeking to understand them with a line of questioning they’re not used to from commissioned salespeople. You build rapport with them and it helps you agitate some pain and urgency, because you have to break this inertia of them doing nothing with their property, to get them to act… And that involves people getting emotional, and getting into what we call that negative fantasy that keeps them up at night when they’re worried about what this property, if they don’t get rid of it, is going to do to them in life.

The second two Ps are pain and profit. That’s what really takes up the bulk of the sheet. The magic behind the methodology is the profit is self-evident, it’s obvious. If I want to find out what kind of profit potential I have on this as a dealmaker, then I’ve got to understand what the cashflow opportunity is, are they willing to leave the loan in place, for example, on a subject-to acquisition? Is there potential, because they don’t need to sell it right, now for us to lease option it? What would the spread be between what market rent is and my carry costs on the property if I was going to structure something like that for a cash flow deal, for example?

So the profit potential, that line of questioning gives you permission and helps you build rapport naturally, and gives you the actual facts that you need to determine if there’s profit potential from a cash flow perspective and/or equity position.

Then the other P is pain, or urgency. The questions are designed so that you want to agitate the pain to build the urgency to get them off the couch, for example, to actually take action, whether that’s getting the property listed or getting it under contract. You have to agitate that pain, because if you’re going to get a deal, people only leave equity or cash-flowing deals if they’re making an emotional decision, so you have to stir the emotion. And that’s where I think people fail the most.

Our typical lead intake is going to take anywhere from 30 to 45 minutes, assuming we know the first two Ps we have checkmarks with – they are in control of the property and it is the type of property that we want to deal with, that we can monetize. If we know those first two Ps, then the rest of the conversation should take about 30 to 45 minutes if you’re doing it correctly. I’ll tell you that when it relates to the pain portion of the questionnaire, the type of questions that elicit that pain and agitate the emotions to get them to take action – I’ve asked somebody what they want to get for their property on the front end of the phone call, and I’ve compared it to what I can get them to sell their property for at the end of the phone call. It’s like a 10 to $15,000 difference, just by virtue of making that pain front of mind for them.

I’ll give you an example, coming back to your initial question, what are some questions on here that maybe somebody doesn’t ask; or maybe they do ask, but they don’t take it third level. So for example, somebody says they just inherited the house. You’re going to see a lot of that; we have two million houses in the probate pipeline with the boomers dying off right now. There’s a lot of heirs or siblings that don’t want to contend with those properties. If you’re talking to somebody, for example, who just inherited a house, they’re in another state, and they’re trying to unwind the legacy of this property owner, their deceased family member, or parent… And they’re telling you that that is how they have the property. Then what I’m not going to do is just leave it there. I’m going to say, “Well, what happens if you can’t sell it? Who’s helping you with this probate case, or to help liquidate all these assets?” And then they’re going to tell me — I’m going to uncover more of their pain and more of their situation that is going to be more agitating to them. So it’s not even the questions on the sheet, it’s kind of the mindset you have. The sheet gives you permission to go second and third level to agitate pain, to get them to take action.

Theo Hicks: Very interesting. You mentioned that once this sheet is completed, then what are the next steps? It sounds like for you, you have people that use this and they can kind of come back to you and your program and talk through it. What about people who don’t have access to this? What should they do once they’ve finished out their intake?

John Chin: That’s a good question. So as you evolve as a licensed agent, [unintelligible [00:18:55].07] having somebody you can link into that can help you put all this information together into a practical solution. I’ve never had that question before, because the people that we work with, we work with on a consistent basis. They’re around the country; so I don’t want to get into a pitch here, but… If you don’t have somebody that can help you put those tools together, I guarantee you the way you find them is you can just do on Google and find people who are spending big money for leads like this, that have dealt with sellers in urgent situations. So if you’re a licensee and you want a quick low-hanging fruit way to find those people, you can go to your local REIA meetings and find somebody who helps people with different deals, that does coaching programs. They’d gladly get on the phone with you to help you unpack one of these after you finish it, so that you can get their feedback on how to do it. Because a lot of times, they’ll either provide the funding for it, or they want to JV with it, or there’s an incentive there to turn into a deal, and to take you by the hand and walk you through that process.

Another way to do it is to go on Google and just type in “sell my house cash,” and you’re going to see all the people who pay big money for Google AdWords to be found by sellers who you’ve already started working with. You can collaborate with that person, and they’d be happy to do it, because the incentives are there to partner with you on a deal. I’d say that those are the two easiest ways to do that.

You could also just look at the mail you get at your own house. A lot of people get direct mail from people who will pay cash for houses. Or just google cash for houses in your local area and you’ll find people who market in your geography that want leads like this, that will partner with you. So I would say lean on somebody like that.

If I was in that situation, and I had one of these done… By the way, I’ll walk through the structure of the type of information you’re getting without going into the exact questions… If I had that already done and I could take a picture of it, the front and back of that sheet, and send it off to that experienced cash investor or that deal maker, and then I jump on the phone with them, they have everything they need right there to unpack the deal. Because I’m actually collecting more information than chances are they’re even getting on their intake phone calls.

Theo Hicks: That makes sense. I’m glad we talked about this, because I think this clearly applies to real estate agents, but as you kind of mentioned a few times, it really applies to anyone who’s talking to owners and attempting to get them to sell their house. So that applies to anyone who’s generating off-market leads.

Some of the big takeaways that I got is – first of all, this is kind of obvious, but making sure that right off the bat on the phone call, you’re asking the questions that will automatically let you know if you’re talking to the right person and if this deal meets your criteria. That way, you’re not going to waste time in the meaty part of the conversation which is the profit potential, and then the pain and urgency.

It sounds like, in a sense, you’re trying to tap into what would make them motivated to sell the property, or why they’re motivated to sell the property. It’s most likely going to be some emotional reason, that’s going to be an emotional decision, which is what’s going to help you not only get leads, but get the best types of deals. And then overall kind of shifting your paradigm from just intaking a bunch of facts and then leaving it there, as opposed to approaching and saying, “Hey, you said you’re at point A and you want to get to point B. Let’s figure out how we can use your house to get to that point.” And then going through a solid seller intake form, but not just relying on those questions only, but using those questions to catapult into the second level and third level questions. You kind of gave us an example of that.

Then you talked about how can you create this form, and then once you have this form, how do you know what to do with it? Well, you really need to find someone who’s the expert. I like the advice you gave, you can just Google “sell my house cash,” and you’ll find all the companies that are trying to capture these leads, and you can work with them. So John, is there anything else want to mention before we sign off?

John Chin: Yeah, I’ll give you one last juicy tactical nugget. It’s the setup of that phone call. So literally, when you first talked to that seller on the phone, my question is have you ever worked with a licensed professional who takes more of an advisory approach to solving problems as opposed to only listing houses? Right off the bat, that sets a different tone with you. So they say, “Well, no, I haven’t.” Because they never have. “Well, let me tell you what I do. I solve problems for sellers, in various situations, various scenarios, in various life situations, whether it’s divorce, or they’re missing payments on their house, especially in today’s environment. Sometimes listing your house isn’t the best thing. My intent with this phone call is to get as many of these puzzle pieces on the table of information about your situation where you’re trying to go and what you’re trying to accomplish, so that we can together put our heads together and figure out how to put these pieces together to get you from point A to point B. So with your permission, I’d like to ask you some questions about your house and your situation, and then we’ll be able to solve this problem for you. Is that fair?” That’s the intent statement that we use to set up that actual phone call. Then you have permission to go into everything, because they know what you’re trying to accomplish now, and you clearly are different than your competition.

Theo Hicks: Yeah. Instead of just going straight into the questions. That totally makes sense; making sure you have that solid intro to set the foundation for the conversation. Thank you for sharing that, John. Well, alright Best Ever listeners, thank you for listening. You can learn more about john at investoragent.com. Thank you for tuning in. As always, John, thanks again for joining me today. I enjoyed our conversation. Have a Best Ever day and we’ll talk to you tomorrow.

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JF2357: Attacking Old Goals With New Methods With Matthew Faircloth #SkillsetSunday

Matthew is a returning guest from episode JF1432 and today he talks about figuring out new ways to accomplish old goals. Matt has been a full-time investor for 15 years and in that time has successfully completed projects involving dozens of fix and flips, office buildings, single-family homes, and apartment buildings.

Matt Faircloth  Real Estate Background:  

  • A full-time investor for 15 years 
  • Completed dozens of flips, office building, single-family, and apartment deals
  • He started with a 30,000 private loan and has completed over $40 million in transactions
  • A previous guest on JF1432
  • Based in Trenton, NJ
  • Say hi to him at www.DeRosaGroup.com

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Move forward with faith and take action” – Matt Faircloth


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, Matt Faircloth. How are you doing Matt?

Matt Faircloth: I’m awesome, Joe. So great to be with you today.

Joe Fairless: Well, I’m glad to hear that, and I’m looking forward to our conversation. Best Ever listeners, because today is Sunday, we’ve got a special segment for you called Skillset Sunday. And first off, a little refresher about Matt, and then that will help tee this up. So Matt’s a full-time real estate investor. He’s completed dozens of flips, but also now focuses on office buildings, commercial real estate, apartment deals. He just had a rather large closing that he and his team done. Yeah, woohoo, nice work on that! And that actually leads into our conversation.

The conversation and the outcome of this conversation for you Best Ever listeners is to learn about some ways to have some stretch goals and to try new methods to reach old goals. So maybe you’ve been trying to reach certain goals, you have not achieved them – well, we’re going to talk about the thought process to take to try new methods to reach those same goals that you’ve been trying to achieve. So with that being said, Matt, what’s the best way to start out this conversation?

Matt Faircloth: Well, I’ll tell a little bit of the backstory to lead us up to the point where I hit that pivot where I said “Okay, I can stretch myself, or I can keep doing what I’ve been doing.” So let me give you a one-minute background story. So my company, as your business is too, we are regionally focused on specific territories. We are not a company that will buy anywhere in the continental United States. That’s not what we do. We are focused on North Carolina and Kentucky. That’s it. So a deal came up in a market we had been shopping in North Carolina, in Winston-Salem, and it came across our plate… And we have been a company that’s been able to put together say, I don’t know, maybe $5 million to $8 million transactions. In the apartment building world, that requires an equity raise of somewhere in the two to three million dollar range. We’ve gotten pretty good at that. So I’ve got a really good mechanism down for raising two to three million dollars for a real estate transaction, to the point where I can repeat it over and over again, as often as I need to, for deals. And we had built a pretty good wheelhouse of doing it.

So this deal in Winston-Salem comes up and the numbers work, everything checks the boxes, the location is phenomenal, everything’s awesome about it… And it’s an $18.5 million purchase, which is more than double anything else we’d ever put together before. 336 units, so more unit count than we’ve done, more equity we need than we’ve ever done, more loan amount than we’ve ever done, more everything.

Joe Fairless: What was the highest amount of equity you’d raised up until that point? On one deal.

Matt Faircloth: Just over three. Like three and a half.

Joe Fairless: Three. Okay. And how much was this one requiring?

Matt Faircloth: We’re doing this a little differently… This one is a total of $12 million in equity, but because the bridge debt world has changed and it’s very hard to get construction dollars from banks, what we’re doing is we’re going in with the Freddie floater product, which is a floating rate mortgage, lower loan to value, and we’re going to raise construction dollars as we need them during the process. So we don’t have all the money we need at closing, we’re going to get it as we go, which is an interesting process as well.

Joe Fairless: So in total 12… But how much to close it out?

Matt Faircloth: To close the deal. Eight.

Joe Fairless: Eight? Okay.

Matt Faircloth: To close the deal. Yes.

Joe Fairless: Got it. So a significant jump from three to eight, and ultimately 12. Okay.

Matt Faircloth: Right. There was some faith in there, and just crossing my fingers and knowing, “Okay, listen. I’ll just get in and do it.” That was the crossroads that I was at, Joe. It was the fork in the road to say, “Okay, do I tell my team that worked very hard to find this deal, do I say, “You know what, guys? A little too big, we probably should refer it to a larger outfit that can take down something like this, that has a long track record on taking down something like this.” And that conversation did come up. Are we okay? Do we want a stretch like this? And we decided to take it on and to go for it and we’ll figure it out. And that’s really what you and I were talking offline about, it’s about the growth that happens when you get into something where you’re not exactly 100% sure how you’re going to make it happen. But you got to move forward in faith that it’s going to work out. You’ve got to take action, too. But I decided to go for it and just had the confidence that me and my team would figure it out. I was just crossing my fingers.

And what’s interesting, Joe, is what happened was we put it under contract, and we tried the method, amd we went, “Okay, let’s go raise money.” Well, I used my method that I know to raise two to three million dollars. I did that, and guess what? We raised two to three million dollars.

Joe Fairless: What are the things that you do to raise two to three million like clock–

Matt Faircloth: There is a number of emails you need to send out to enroll people in your webinar. What we’ve been able to do is develop a pretty good magnet of people that reach out to us, that say “Hey, I want to invest in real estate with you.” So you call the last couple months worth of folks that called in… So the hot leads, if you will – we phone call those folks. We came in and we sent out two announcements to a webinar, and saying “Okay, we’re having a webinar.” We had 300 people show up on the webinar. Not show up, they registered. Because you know how these things go, right?

Joe Fairless: Yup.

Matt Faircloth: So they registered for the webinar. They watched the recording, and everything like that. Just webinar, and then present the whole deal, and then send out the recording, and that with some phone call follow-ups, in our world has been what we needed to do to raise two to three million dollars.

Joe Fairless: How many days in advance do you give them notice that there will be a webinar?

Matt Faircloth: We give them a week’s notice. About a week, a week and a half. And we just did a general presentation on the deal. “Hey, guys. This is what we’re going to talk about. Here’s the deal, here’s this, here’s that, here’s the opportunity, and everything like that. It was just here “Here’s everything.”

Joe Fairless: And you said phone calls, too. So you called the hot leads, but do you only call them? Or do you call everyone in your database? How do you approach that?

Matt Faircloth: We don’t call everyone in our database. That’s the two to three million dollar method, Joe. We didn’t call everybody in our database. We’ll talk about them…

Joe Fairless: Okay. Alright, alright. Cart before the horse. Okay.

Matt Faircloth: It’s okay. I love it. We can talk about the newly-discovered and soon to be patented $8 million methods that I had to come up with. [laughter] But the two to three million dollar method is you call your hot leads. Because I’ve had people that called me up that they were hot, and I didn’t have a deal.

This is a true story. I’ve never told you this story, but it’s a true story. A guy called me in August, and he was like, “Okay, I want a deal. Ready to go.” This isn’t this August. This was August a couple of years ago. And he said “I want to invest with you. Find me an opportunity.” That’s great. “Okay, listen. Hang out. I’m going to go find you an opportunity, my friend.” So October comes around. And not just for this person, but we put a deal under contract and I did my hot lead method and called back through my hot leads that had called the last couple of months… I had called this person up that called in August, and you know what he said?

Joe Fairless: “It took too long.”

Matt Faircloth: No, “I gave that money to Joe Fairless.”

Joe Fairless: Oooh… [laughter]

Matt Faircloth: I swear to God, it’s what…

Joe Fairless: So you did take too long.

Matt Faircloth: I said, “Well, it’s in good hands.” That’s what the point of that story is – that when people call, they’re not just shopping. Sometimes they’ll tell you this, “Well, I want to invest in a year or two.” But a lot of times when people call, they’re looking to place capital now. And if you don’t have something that’s available now… And it’s okay that you don’t. But if you don’t have something available now, they’re likely going to go — below Matt Faircloth’s name on the list is somebody else. And so if I don’t have anything at that time, they’re likely going to keep going. And that’s what he did. And God bless, he had money he had to put to work. And he did, and he put it to work. It’s in good hands, and all that. So I was happy for him. I said “Great. Joe’s a friend. That’s great.” But it’s that call the hot lead method that these folks hopefully have not gone somewhere else by the time you’d launched that webinars, so you let them know about it ahead of time; that was my two to three million dollar method. Then you do the webinar. Then you email everyone the recording to the webinar, and then you do a follow-up phone call to folks that were on the webinar.

Joe Fairless: So only those that were on the webinar that you were doing follow-up phone calls, for the first method.

Matt Faircloth: Yes.

Joe Fairless: Okay. Got it.

Matt Faircloth: Then you also had some sort of means for them to do a soft commit on a webinar. For us, back then, it was a Google doc saying like, “Hey, this is my name. This is if I’m accredited or not. And this is how much money we want to put in [unintelligible [00:11:02].00] list, whatever.” And that Google Form was the soft commit that they did. And that right there, given the database that we have, will get you two to three million bucks, and we had gotten pretty good at that. And also, the presentation on the webinar was solid enough that we could produce that. So we did that for this deal, and then we got two to three million dollars. And I said, “Oh, okay. We’re a quarter of the way there. That’s great. So now what?”

And we called that database again, and called the folks that are on the webinar again, and had another webinar, the same webinar, we just did the same show again. We had 50 people sign up this time instead of 300, because a lot of our database had already seen the first one, so why would they want to go to the second one? So we got it up a little bit. And my team and I, we had to drop back and punt and have a huddle up. We’ve got to try something different. So again, we’re in the middle of Corona, crazy, COVID, potential recession, all this other kind of stuff right now… So what we realized is some investors are looking for something that’s a bit of a hedge, or want to know a little more detail about the deal that has to do with how the deal is recession-proof, or how it’s COVID-resistant, and everything like that. So we said “You know what we’re going to do? We’re going to do a webinar that’s just on that – how is this deal COVID resistant and recession-proof” That’s an interesting conversation. So we came up with those bullets, and we came up with a way tighter webinar. The first webinar, the one with the 300 people, went two hours. That’s another mistake. That’s too long a webinar. With the presentation, with Q&A, it went two hours.

Joe Fairless: What’s the right amount of time?

Matt Faircloth: I think that you should be presenting the opportunity in 30 minutes or less. And then another 30 minutes for Q&A, and then wrap it up.

Joe Fairless: Got it.

Matt Faircloth: People are busy, man. Get to the point, don’t spend too much time on the fluff or on spending 10 minutes introducing your team and everything like that. Just get going, because people are busy, and you want to respect that. So we tightened it way up and did a 30-minute thing on COVID and the recession. Now, we had a way bigger turnout for that one, because people were curious about that.

Joe Fairless: So this is a third webinar?

Matt Faircloth: Yes.

Joe Fairless: This is the third webinar about the same deal. Okay.

Matt Faircloth: About the same deal, but we did two things. We cranked up our email activity. I went to my assistant and I was like, “I want you to do an email every other day. Just stay on people’s radar.” Because again, maybe we needed to just kind of — given everything going on… And maybe just to raise a lot more money, you’ve got to kind of scream and yell a little bit louder.

Joe Fairless: Were you concerned about people unsubscribing from your list as a result of that?

Matt Faircloth: Sure. And I’m sure they did, and that’s okay, because if they really are not that concerned — if they really don’t want to hear that much from Matt, then that’s okay, they unsubscribed. And I think it’s a risk you have to run if you’re going to wave your hand in the air. I think list attrition is something that happens all the time, if you use your list; not that you have to email every day, but if you email every couple of days or once a week or whatever, you’re going to have attrition. Because people just might not want to hear what you have to say. And you can’t make that a reason why you don’t send emails, I don’t think.

Joe Fairless: And how long did you email every other day?

Matt Faircloth: We did that toward the last 30 to 45 days of the deal. We were every other day emailing. And what we did – we took snippets of the COVID webinar… And I’m jumping around a little bit. We did a COVID webinar, and we did a tax savings webinar, because we’re doing a cost segregation study. We’re hiring Yonah Weiss, if you know him… We’re hiring Yonah to do the cost seg.

So we realized that some investors know what cost seg is, and some investors know how it helps, other investors don’t. So I interviewed my CPA and took some video clips from him, took video clips from an interview I did with Yonah, and I took those two video clips and assembled them into a dozen emails that we sent out on a drip campaign about what is depreciation and why is it important. We had one couple invest in this deal, they came in later, after we started this cost seg conversation… They had sold a business and the wife was filing taxes as a real estate professional. And we saved them $200,000, because they put a significant amount of money into the deal; they were able to pretty much save every nickel that they were supposed to pay in income tax; it got deferred through cost seg and through the negative K1. Incredible. What a difference we get to make in this business. So I touted that in the email, obviously…

Joe Fairless: I remember reading it.

Matt Faircloth: Yeah. Leaving the personal information out. Think about the tagline on that one. We got a big open rate on that email, because it’s interesting, “Wow, $200,000. That’s crazy.” Now, it takes a specific investor under specific circumstances to get those savings, but it’s still at least a good conversation.

So we started thinking outside the box on ways to get people’s attention. And I think that lesson learned, a few lessons I got out of this whole thing, was to raise a lot of money you’ve got to get a lot of attention. And people care about different things. So some people cared about the hedge, about like, okay, recession and COVID-proof. That webinar got over 100 registrants.

Joe Fairless: And it was the third one.

Matt Faircloth: Yeah. So my registrations went up…

Joe Fairless: Right. From the second one.

Matt Faircloth: …because we had this conversation. Yeah. And Joe, we had people that had gotten in after the first webinar. They increased their investments after that one, because [unintelligible [00:16:06].09] “I like what you guys are doing.” “I see what you guys are doing.” We had one guy go from 100k to 200k because they saw that we had really thought this thing out. And we had a lot of new investors come in.

But the biggest thing was being willing to have conversations with people in a manner that they cared about. “Yeah, I care about taxes; that’s my main thing.” And realizing that people that invest in real estate, they may want all the different things that real estate offers, but likely they want one thing or two things, and the other stuff is all just gravy. So we got connected to what people really want out of what syndicators can offer, so we pumped out emails that spoke to those specific conversations.

We also got a lot more personal. I got each of my team members to record a three-minute video and talk about what you love about this deal. And I got one of our investors, who is one of our larger investors, to record a three-minute video on what he loves about this deal. A lot of our investors are doctors, so he was in his scrubs, the mask, and everything, talking about what he loves about DeRosa Capital 11. So through all those efforts, we were able to clear a benchmark.

Joe Fairless: What are the categories of things that people care about? You mentioned you pivoted with the COVID-resistant, and recession-proof, and tax savings… What are they?

Matt Faircloth: Well, let’s go COVID-resistance beyond what that really is… Because people say, “I want something that’s recession-proof, or whatever.” What do you really want? You really want security. So I think that we as syndicators – and this is to your audience – if they’re able to address the security question on “Is my money safe?”, that’s really what they want to know. So if you can explain to them in their language how their money is safe – and in today’s world, that means are you recession-proof? Are you COVID-resistant? People ask the same security question. Maybe they’re asking in a different language, where they’ll say, “What kind of collateral do I have?” These are folks that have done a lot of private loans, but have never invested in equity, so they want to know, what kind of security do I have in your deal? What kind of collateral do I have? I don’t have a mortgage on the property; what do I have? So you explain what equity and ownership in an LLC gives you. So that was one conversation. Security.

And then the other thing is general taxes. Folks that earn a lot get it that it’s not about how much you make, it’s about how much you get to keep. So that tax level conversation is something that some investors don’t care about. Interestingly enough, anyone with an IRA was like, “Next, let’s talk about security. I don’t want to talk about taxes.” Because they know that the IRA does kind of defends them against that already. You have to watch who you’re talking to. If they have an IRA, don’t even bring up the tax savings, because they really can’t take advantage of it. So we went there; we tried some of the things ongoing to our personal story. Other people care about the market, because like, “Tell me why Winston-Salem, North Carolina is a great place to invest.” There were some folks that cared about that, too, so we did some e-blasts on why the markets amazing. So to answer your question, Joe, people also want to know why should they invest with you, the syndicator, and why should they invest in that market, and then why should they invest in that particular deal. And typically, it’s in that order that they want to know it. You can answer those questions in that order, and then there’s the security and the tax questions that come on top of it, too.

Joe Fairless: So I’m on your list, and I got 15 emails in the month of September. So it looks like you were doing it…

Matt Faircloth: We were busy.

Joe Fairless: ..,every other day. Yeah, you were busy. Every other day in the month of September, basically. Did you take a look at what your subscriber list was before and then what it was after, and just see what type of unsubscribe rate you got from that?

Matt Faircloth: What attrition we had. It’s good to know. I wish I could tell you that.

Joe Fairless: So it wasn’t a red flag with your team, like, “Hey, Matt… We can send out another email, but you realize we’re going to lose 20% of our database? Because yesterday we just lost 20%.” It wasn’t anything like that?

Matt Faircloth: No, I don’t think so. I don’t believe it was, and I don’t think that we lost anywhere near what folks would suspect that you would. Because at end of the day, people just auto-delete, skim through it, and everything like that. They tend to just look past emails, sometimes they go through the effort of unsubscribing, but at the end of the day, it does take a little bit to unsubscribe from something, versus just taking the time to delete. It’s not a big deal, you can just delete the email.

Joe Fairless: I ask that because I think some people would be concerned about the investors that we brought on to the list – it’s so precious, because we’ve worked so hard to get them, and then I don’t want to send them all these emails. But in your case, it worked. And that’s a surprising lesson that I learned from this conversation, in addition to other lessons, too.

Matt Faircloth: I have an admin that was sending out those emails, and I know she would have flagged it. And I’d be willing to bet that it was very low on attrition. If you give me one second, I’ll give you the number on what it was, because I’m able to log in here while we’re looking. You know what it is, Joe – I hope I can use this word when you show… People worry too much about pissing people off, and everything like that. And I think obviously, once folks are investors, you really don’t want to do that, but I’m thinking if people worry about from a marketing perspective about shouting too loud or anything like that… We obviously don’t want to be bold or audacious or too over the top on things, but at the end of the day, I think that we’re also looking to get noticed. And when you get noticed, it’s okay that some people are like, “I don’t want to pay attention to that guy.” So we lost about 4%.

Joe Fairless: That’s nothing.

Matt Faircloth: Yeah. Regular attrition is less than that. Maybe 1% or 2%. But we lost four during the lifecycle of that campaign. It’s okay, people are going to do that. Sorry, if I went there, but I think that people worry too much about ticking off people on your list. Because at the end of the day, if they’re just on your list out of general curiosities, they’re likely not going to do much with you if you email them a lot. If you email them a lot, they’re either going to get interested or they’re not. If they’re not interested, but they want to see what else Matt has to offer in the future, they’ll probably just delete the email and wait till the next one comes around.

I’ll tell you one thing – it did confuse some people that were already in the deal. “Hey, why are you still emailing me? I’m already in this opportunity.” So you can’t just do a general shotgun email everybody. You’ve got to watch to see who’s on your email list. Take the folks that have already…

Joe Fairless: Segment it.

Matt Faircloth: Yeah, we learned that one. People were getting confused. “I’m in, man. You already have my [unintelligible [00:22:28].02] thing. Why are you still emailing me?” We had to watch who we’d already emailed. We also took out people that had roundly said they weren’t interested, just out of respect. So we’ve learned that you’ve got to segment, you can’t just literally blast everybody.

Joe Fairless: This has been a productive and such an educational conversation because of you and what you’ve shared with us. Thank you so much for that, Matt. Before we wrap up anything that we haven’t talked about, that you think we should, as it relates to this topic?

Matt Faircloth: I think that you and I got into the nuts and bolts and all that, which is awesome, because I think your investors are going to get lots of great nuggets. I think the big thing for them to take home, in general, is that if you don’t stretch yourself, you’re not going to grow. There’s a book called The Way of the Superior Man; it’s good for everybody. But The Way of the Superior Man – there is a chapter in that book that talks about being okay with a little bit of fear. And people sometimes won’t engage in change or won’t engage in growth because it makes them a little bit afraid.

What I’ve learned through reading that book, and just by living my life – that if I’m not a little bit afraid, a little bit scared about where I’m stepping, that I’m not stretching myself enough. Because fear is the indicator that I’m beyond my comfort zone. And I was a little afraid of this deal, of being able to take it down, and what happens if I don’t… But because I move forward anyway, I was able to bring things to the next level in my company, and I think that a lot of people don’t realize that the only way you’re going to grow, is by feeling the fear and acting anyway. Getting into it and jumping in and figuring things out. And hopefully these nuggets here on how to raise your equity game, too. Yeah, I agree, this has been an awesome interview.

Joe Fairless: Yeah. And regarding the faith and being comfortable with fear, I’m coming at it from a logical perspective too, or standpoint, because you had a lot of pieces in place that gave you the confidence to be comfortable taking a couple of steps, really, that are beyond where you had been. Whereas if someone’s starting out, then they’re looking at a $9 million equity raise, then that fear is very healthy, because they don’t have those pieces in place that you had already had.

Matt Faircloth: You would say reasonable steps.

Joe Fairless: Reasonable steps. Right.

Matt Faircloth: But you’ve got to know that the possibilities are there somehow. So I’m not saying “never invest in real estate before you go take down a $9 million equity raise and figure it out.” Again, don’t hear what Joe and I are saying the wrong way here, audience. I think you understand you’ve got to take reasonable steps forward into growing your business, and that a little bit of fear is good. A lot of fear is probably a sign that you probably shouldn’t be stretching that far. So you’ve got to find that even marriage where it’s outside your comfort zone and it’s a little bit of uncertainty; that’s healthy. But too much of it is probably a sign you’re not ready. You’ve got to know the difference.

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

Matt Faircloth: They can get a hold of us at our website, which is derosagroup.com. Everything’s out there – copies of my book can be purchased, you can connect with us, you can learn from us, you can invest with us. Everything’s out there.

Joe Fairless: Matt, a pleasure, as always talking to you, and learning about what you’ve learned… I can be educated too, I love learning this stuff, so thank you for sharing that. I hope you have a Best Ever weekend and talk to you again soon.

Matt Faircloth: Thanks Joe, 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.

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

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JF2351: CPA Guiding Entrepreneurs To Wealth With Noah Rosenfarb

Noah Rosenfarb is a full-time investor who counsels entrepreneurs that are looking for ways to enhance their wealth while working less, living more, and enjoying abundance. He has 20 years of real estate investment experience and believes that owning fractional pieces in large assets is an excellent tool to create multiple passive income streams.

Noah Rosenfarb  Real Estate Background:

  • Full-time investor
  • 20 years of real estate experience 
  • Portfolio consist of 3,500+ doors plus 500,000+ feet retail office space
  • Based in Parkland, FL
  • Say hi to him at: www.linkedin.com/in/noahrosenfarb 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The key is having a map so you will know where you are, where you wanna be, and how you’re going to get there. ” – Noah Rosenfarb


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, Noah Rosenfarb. How are you doing Noah?

Noah Rosenfarb: Awesome. Glad to be here.

Joe Fairless: Well, I’m glad to hear that, and glad that you’re here. A little bit about Noah. He’s a full-time real estate investor. He has 20 years of real estate experience. His portfolio consists of 3,500+ doors, plus half a million square feet of retail and office. Based in Parkland, Florida. So with that being said, Noah, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Noah Rosenfarb: Sure. So I’m a third-generation CPA, and I started my career in accounting, much like my father and grandfather… But I broke away and decided to start a family office. And that family office business has evolved over time where we serve really successful entrepreneurs in everything that they need to have it all in their lives. So we focus on their financial success, of course, but also on their personal success and making sure they’re living the life that they want. And a large part of that is creating predictable income. So we started investing with our clients in multi-family assets and other asset classes over 20 years ago, and it’s just been a great run, and it’s a lot of fun. The real estate portion of my business is a substantial part of our business portfolio, and expecting it to continue to grow.

Joe Fairless: To start a family office, do you have to have money?

Noah Rosenfarb: The way I started was I was really a wealth advisor, and kind of transitioned to a family office for affluent divorced women. That was the niche that I had. So I was neither divorced, nor a woman, but I built that family office. I sold it in 2014 to another registered investment advisory firm, and then I focused on creating a family office for successful entrepreneurs because they were more like me. So I’m an entrepreneur, I own other business interests, I have a large real estate portfolio, and I was really looking for what I needed for my family. I wanted somebody to help me with creating passive income and managing all my finances, but also making sure that I’m training my kids –who are now 13 and 10– about money, and our family business, and what’s important. And then in philanthropy, we have a lot of activities that my wife and I do both with time and money, and orchestrating that… So I wanted to build the team around me. And then it just made sense when friends were coming to me that I had a place to bring them as well. Now we’ve got about 50 families of entrepreneurs that we’re serving, and we invest together in real estate, we invest together in private debt, we invest together in royalties, and of course, in stocks and bonds as well.

Joe Fairless: So many interesting ways to take this conversation… And I hope we can get to a lot of them. First off, affluent divorced women, that was your focus. Why was that your focus?

Noah Rosenfarb: So prior to that, when I was a practicing accountant, one of my areas of expertise was testifying in divorce court about how much money people made, and how much their businesses were worth. And what I noticed was oftentimes, in New York, in New Jersey –which was where our practice was based– we had about 200 million a year worth of assets that were changing hands between the control of one spouse to the control of the other spouse. And the clients that I was working with that were predominantly homemakers, whose husbands were hedge fund managers and entrepreneurs in Manhattan, they really didn’t know what they were supposed to do with this newfound responsibility of managing their assets. And because I had all of the expertise and experience to help them through their divorce litigation, I recognized that there was really an opportunity post-divorce to start managing all the financial aspects of their life that they used to rely on their husband for – taxes, and bill payments, and estate planning, and insurance, and investments. And so I saw that opportunity and I left the accounting firm to build a family office geared towards affluent divorced women.

Joe Fairless: And what are some core things that you were teaching a new client right out of the gate, that perhaps they weren’t aware of? You mentioned something just now, but if you can elaborate on that, I’d love to learn more.

Noah Rosenfarb: Yeah, I think the hardest transition and the reason that we tie my experience from working with these affluent divorced women to my core focus in entrepreneurial families –especially around the time when they sell their companies– is that transition is very similar. You go from having a network of people, and a whole system in place where things are very reliable; your income seems reliable, because it’s coming from your company or it’s coming from your spouse. Your network of friends and family is pretty solid, because it’s either based around your business, or it’s based around the relationship that you have with the core family that you built. And then once that fractures, whether it’s because you’ve sold your business or because you’ve gotten divorced, you need to recreate that predictable income stream, and that’s really scary.

People like to think that when you sell a business and 25 million hits your bank account, that you go out and celebrate that night. Most people can’t sleep that night. And it’s not because they’re excited, it’s because they’re terrified. They don’t know what to do. And so we’ve developed that expertise of helping coach people, and train them, and educate them about what they could do with cash, and how to redeploy it to create predictable income, so that they can focus their attention on the other areas of life that are often more important to them… Whether it’s supporting noble causes, or creating family bonds that are unbreakable… Whatever it is that becomes important to that entrepreneurial family or that homemaker. Whatever it is, we want them to focus on what’s most important to them, and usually, it’s not figuring out how to create predictable passive income.

Joe Fairless: Going along the lines of the personal success aspect of things that you currently help your clients with, the successful entrepreneurs – you’ve just mentioned creating family bonds that are unbreakable. What is your advice for affluent parents? You’re a parent, you’ve got a couple of kids, you said… So what’s your advice to your clients when they ask you”Okay, Noah, I want to give my kids more than what I had growing up, but I don’t want to spoil them. How should I approach this? What are the best practices based off of what you’ve seen other clients do?” What is your answer to that?

Noah Rosenfarb: Yeah, it all becomes partly age-appropriate, partly culturally appropriate, and partially where you are environmentally. So families that live in affluent neighborhoods and send their kids to private schools, where other children have vacation homes and spend summers in Europe, and travel in private jets – what’s expected or reasonable in that environment is totally different than entrepreneurs that live in rural or suburban areas that aren’t affluent. And they’re driving their pickup truck, and nobody knows they have 20 million bucks. So we have to kind of match the environment with the expectations of how to educate children. Then we also have to look at a family’s core values, and understanding what’s important to that family. Why is it that they want to create wealth? Why is it that they’re driven to go out and create more, to buy more, to do more, to succeed more? And usually, what we find out when you start having those conversations is that there’s often part of someone’s childhood that’s driving them to behave in a way that wants them to accumulate wealth; that’s often kind of the fear-based that some people grew up with, which is kind of my situation… I grew up with a single mom that struggled to put food on the table and never really had enough money for us to do the fun things in life…

And on the contrary, my father who was a practicing accountant. When we’d go spend a weekend with him, if it was a rainy day, we’d go bowling in the morning, and go to the movies at night, and go out to dinner… And all of a sudden, just as a nine-year-old kid, I started to realize that having money meant having choices, and that I wanted to have those choices in my life. So that drove me in a certain direction.

For other families, it’s really their own sense of higher purpose and the noble causes that they want to support, and they want to give back to a certain area or a certain community, and that’s what’s driving them. So it’s understanding what’s motivating the family. What’s the story behind it? How do we share those stories? How do we share those values? And then what are the systems and processes we put in place to make sure that the family can act accordingly?

What I like to say is that when families make gifts to their children, they want to be able to do it with an open heart, and also with the expectation that their child is going to make them proud with how they use that gift. And unfortunately, for a lot of affluent families, they start transitioning wealth to their children because their accountants and lawyers tell them it’s efficient, and they can escape taxation, and unfortunately, that’s really a terrible motivator that creates really poor outcomes.

Joe Fairless: It makes sense. I just personally love the approach that you took. You didn’t have a direct answer, because it’s specific to the family and their situation based off of, as you said, age, culture, where you are environmentally… What do you mean by that, where you are environmentally, by the way?

Noah Rosenfarb: Like I said, if your kids are going to a private school and their friends fly in their own plane… Like, I’m hearing in South Florida there are a handful of private schools here where it’s not uncommon for parents to own a private island in the Bahamas, or to have a 100-foot yacht, or to fly on their own private planes. So if your children are in that environment, what’s expected of them and what’s expected of the parents is very different than when your kids are in a public school environment with kids of all socio-economic backgrounds, and maybe even getting an iPhone in fourth grade might be seen as somewhat flaunting your wealth.

Joe Fairless: I get it. Okay. I was taking environmentally literally, which I shouldn’t have. Alright. So I would love to learn just a couple of tactical things that you’ve seen, that have been helpful with raising kids and gifting them money or not gifting them money. So if you can just pick a family, a situation — obviously, we’re not looking for names… But just a couple of tactical things that families that you’ve worked with have done that have worked for them. It might not work for everyone listening who has kids and are affluent, but just a couple of tactics.

Noah Rosenfarb: I’d say one thing that I’ve done with my children based on the education and training that I’ve had, is I’d leave them responsible for as many expenses as I feel confident that they can make comfortably. So for example, when my son has to buy sneakers, we pay $60 and he pays whatever over that he wants. And that just makes him decide if he wants to spend $150 on sneakers, then $90 has to come out of his savings. If he wants to get sneakers for 60 bucks, it doesn’t cost him a thing. That’s a pretty simple way to help children start developing money habits where they have to value $1.

Another example might be talking with your children specifically about your family, and your family dynamics, and your family goals.  So my family does a retreat every year with a professional facilitator that comes in and helps us identify what are the strengths and weaknesses in our family, what are the opportunities and threats, how do we collaborate together to improve our family dynamics and make sure that we’re growing together as a family instead of growing apart? I encourage that for most families as well, especially — when the wealth is obvious, then there becomes a different set of expectations than when the wealth is hidden. And I think when wealth is hidden, it often also leads to unintended outcomes, because mom and dad hold on to their wealth well into their 80s or 90s and until they die, and then a pile of money gets left behind for their kids without ever having the responsibility, without ever having any insights from mom and dad as to what they wanted to do with it. And that’s what’s led to this description of shirtsleeves to shirtsleeves in three generations. That proverb exists in China, they call it rice paddy to rice paddy. In Holland they call it clogs to clogs. So this is a unique feature of humans, is that without the training and education of what it took to create the wealth, it’s going to disappear.

Joe Fairless: And just for anyone who wasn’t following along, it’s the first generation makes it, second grows it, third loses it. Is that basically it?

Noah Rosenfarb: The second kind of spends it, and by the time it gets to the third, it’s gone.

Joe Fairless: Oh, I was giving the second generation too much credit.

Noah Rosenfarb: Yeah. And unfortunately, the statistics are that 70% of people that inherit money, spend it all. And that happens for the second generation. So if you’re lucky enough to be in the 30% that transfers wealth to the next generation, to that third generation, 70% of them lose it as well. So you only have about 9% of families that are able to transfer wealth beyond their grandkids.

Joe Fairless: Family retreat – talking about a family dynamic and having a facilitator. What would you say? Less than one-tenth of a percent of Americans do that? I’ve never heard of that before.

Noah Rosenfarb: It’s very rare. But in my business, we use the entrepreneurial operating system, which is written about in a book called Traction, invented by Gino Wickman. Some people use other similar systems like Rockefeller habits, which was created by Verne Harnish… But all of these systems for business process and business process improvement are all designed around having a plan, having a strategic plan.

Early in my career, I started actually in my college fraternity by developing a strategic plan for our fraternity when I was our fraternity president. And that led to us having the largest house on campus, and we implemented the plan that we created. And when I graduated and got into the working world, I started helping small businesses create and implement their own strategic plans. I was the professional outside facilitator. And I helped these companies scale and go from 10 million to however many million, and have big exits. I did it in our accounting firm, I helped my dad grow his firm from two and a half million to 15 million before he sold it…  And the key to that process was having this map of knowing where you are now, and where you want to be, and how you’re going to get there. Oftentimes, families fail to operate on that same type of professional level.

For the families that we counsel, their family business of just running their family money – that’s a bigger business than 96% of the companies in America. Because only 4% of businesses in America ever get over a million in revenue. And when you think about these affluent families that we deal with, they all have a million dollars of revenue coming into their family. So that family business happens to be quite significant. And they need a plan for what are they going to do with that, how are they going to grow it, and a lot of that is designed around the family dynamics… Because if mom and dad aren’t really clear about how they want their wealth to impact their lifestyle and to impact the legacy they’re creating, the default setting is not a good one.

Joe Fairless: I love this conversation. I could talk to you about this a whole lot, but I know some listeners are also interested in your over 3500 unit portfolio of multi-family, so let’s talk about that. I’m on your LinkedIn profile. I see it says “We bought our first two-family home in 2000 and have slowly built our portfolio to over 3,500 units.” Okay, wow. First off, props to you for that. Those 3,500 units that we’re referring to, is that you’re the only general partner on those? Or a general partner on all of them? Or you also considering limited partner roles in that 3,500 units?

Noah Rosenfarb: Yeah. I’m going to give you two answers to that question. One’s an interesting answer. The non-interesting answer is I’m engaged in the operations and management of those 3,500 units, but we have LP investors in all those deals. This year, we’ll add 1,100 doors. I control all the equity. I have an operating partner that runs the day to day operations. But from a structure standpoint, what’s somewhat unique is we’re never the GP. Our operating partners are the GP, and then our operating partners pay a business that I own in Puerto Rico a consulting fee for helping to put the deal together. And because I’m a sophisticated tax planner, that Puerto Rico company has a 4% percent corporate tax rate, and the Puerto Rico company is owned by my Roth 401k plan. So all of my promotes and all my sponsor fees, they all get taxed at 4% and go into my Roth 401k plan, never to be taxed again. So then when I take that money in my 401k plan and I go and invest it in private debt, or other private real estate, I never pay tax on my profits, and I’ll take all that money out tax-free in my retirement as well.

Joe Fairless: That is interesting. And you are right, there’s a short and a longer version. That’s pretty cool. I won’t try to delve into that tax structure, because I’d be out of my league, and you already summarized it… But I am interested in the general partner role a little bit. So you said you are not the general partner, you have operating partners? Did I hear that right?

Noah Rosenfarb: Correct. So our platform is called Invest With Our Family, and what we do through our family office and through my individual relationships, is we gather capital that we’re going to bring to an operating partner who’s identified an asset, diligenced asset, lined up the financing, has the improvement plan, has already decided that they want to make an acquisition… And whether they’re going to come up with five or 10% of the equity, we’re going to bring the other 90 or 95% as a single check.

We make the process simpler for that general partner, because they only have to deal with us as sophisticated investors, being one point of contact. And then we do all the investor relations. We work with our investor base, we send them our quarterly updates, we send them the distributions, our operating partner just gives us one wire, and then we distribute it out, we deal with all the K1’s to our individual investors, we deal with all the questions they have that come up over time, and we leave our operating partner to focus on what they do best, which is sourcing, diligence-ing, acquiring, and managing properties.

Obviously, what happens from an economic standpoint is that in most of our deals, we’re doing heavy value-add in growth markets, and what we’re looking for are opportunities to create infinite returns where our operating partner is able to attract high loan-to-cost bridge financing at reasonable rates. We go in with the equity, they make their improvements. Hopefully, within a year to two years, we’re able to do a cash-out refinancing and return most of the principal to us as investors, and then when we get into the promote, we’re going to share that promote together. They’re going to receive 100%, they’re going to pay our Puerto Rican business half of that for the work that we’ve done to bring the capital and manage the investor base.

Joe Fairless: Got it. Getting high loan-to-cost bridge loans, and trying to get a cash-out of all your equity within a year or two is challenging, I imagine. What have been the results of the last couple of deals that have gone full cycle? Which it doesn’t sound like you take deals full-cycle, does it? Because you want the infinite returns, right?

Noah Rosenfarb: Correct. We just refinanced an asset that we acquired in Dallas, a 600 unit multifamily complex. We bought it with a large defeasance, so we took over the existing loan. It was about a seven and a half million dollar penalty if we refinance. So we got a nice discount when we acquired it. I think we paid 53 million, and the building was worth, call it 61 or 62, at the time. But we just basically got the discount for the defeasance fee… And we operated that asset for, I think it was about four years. We generated, let’s just say, about a 30% return on our invested capital through dividend distributions of cash flow. And then this year we were thinking about selling it, with COVID. We decided to do a recap. So we recapped it. We got back 170% of our initial investment. So now we’ve basically doubled our money in five years. We still own the asset; we’re going to be able to generate about a 10% return on initial invested capital each year while we continue to own it… And if we were to sell it today, we’d get another, let’s say 150% of our investment.

Joe Fairless: That’s a winner.

Noah Rosenfarb: So it’s a great investment. Yeah. That 200% return, none of that was taxable. The 10% yield that we’ll get should be tax-protected. So there’s really not a huge advantage to go and try and get that other 150% and then incur the cap gains tax. We might as well just keep owning it.

Joe Fairless: How many deals are you currently a part of? You and your group.

Noah Rosenfarb: We’ve done a total of 35 transactions. I think we’ve exited maybe nine or 10 of them. So we had an exit in Arkansas, we had a portfolio that we bought early in the cycle. It was a pretty new, class A, 300-and-something-unit building… And we generated a nice 13% or 14% IRR on that hold. It was a low-risk asset when we bought it. At the front of the cycle, we were buying more A properties, and then as we got later in the cycle we’ve done more value-add. We had an interesting value-add in Decatur, where we actually own about 1000 doors in Decatur, Georgia, right outside Atlanta. We were early there; I would say in 2015 we bought a property for $35,000 a door. We put in another 10k or 12k in the renovation, and then we recapped it, we got out all of our money plus a little bit more. We owned it another three or so years and then we sold it and made 4X our money over the hold.

Joe Fairless: What deals lost the most amount of money, if any?

Noah Rosenfarb: So we haven’t had a realized loss yet. We have two shopping centers in our portfolio, both of which are grocery-anchored. So the grocery tenants are doing fine, but the other tenants in the complexes are not doing well. One is in Texas, one’s in New York, I think. So we’re just kind of waiting to see what’s going to happen.

We also bought an asset in Chicago in 2014. We had a single tenant. So we were able to buy that building from the bank for a particular reason at the bank’s note. We got a good deal on the acquisition price. From a cash flow standpoint, we were going to be able to get back about 60% of our capital before the single-tenant would have to renew their lease. So the strategy was, if this is a massive failure, we’ll get back 60% of our money over six years, and we’ll lose whatever equity we put up. Or if the tenant renews, it’s going to be a home run and we’ll 3X to 5X our money. And if the tenant does something in between, we’ll kind of see how it shakes out. It ends up that tenant renewed two of the three floors. We have a $4 million reserve for tenant improvements and fit-out… And it remains to be seen; what’s going to happen with that asset? I don’t know. We got 60% of our money back already. It’s still a good asset in a good neighborhood. It’s a suburban office, Oak Brook, Illinois; it’s a nice, affluent suburb, right around the corner from a high-end Mall. Are we going to rent that floor out? My guess is yeah. At what price? Who knows. Are we going to have to renegotiate with the bank? We’ll see.

So I think the beauty to me of real estate is that your loss is always limited to your equity. But it’s not going to be 100% of that equity if you’re getting distributions from existing tenants and existing cash flow. So you’re always every year that you kind of survive, you’re reducing your equity exposure and your potential risk of loss. But your upside, in some ways, is infinite. So I like the risk-reward profile of these assets. As the cycles moved, we’ve transitioned where we’re focused. For the last three or four years we haven’t bought anything other than value-add workforce housing, and I don’t see that changing while interest rates are low.

Joe Fairless:  We’re going to do a lightning round, but first I’ve got to ask you the money question, and then real quick, if you can answer that… And then let’s go into lightning round. Based off of your experience, what’s your best real estate investing advice ever?

Noah Rosenfarb: Figure out what you’re good at. So I started buying these two-family houses, and I was not a good landlord, but I’m a really great aggregator of capital and great investor relations professional. So I’ve found my sweet spot, and that enabled me to scale quickly.

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

Noah Rosenfarb: Of course.

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

Break: [00:28:18][00:29:06]

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

Noah Rosenfarb: My wife and I like to focus on three causes. It’s Jewish causes, we’re a Jewish family, and there’s this old saying, if Jews don’t support Jews, who will? We support education and food security. The most fun experience we had – my son, for his Bar Mitzvah, instead of having one of those lavish parties, he decided to pack 18,000 meals for our local food pantry.

Joe Fairless: Wow. What is the Best Ever tool that you use in your business? It could be software. You mentioned the book Traction, so we’ll remove that from the set… But what’s a tool that you use?

Noah Rosenfarb: My phone never leaves my side. It’s a blessing and a curse. But having the ability to access information and communicate with people on a real-time basis can’t be beat.

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

Noah Rosenfarb: Probably the best is to connect with me on LinkedIn or Facebook, or visit my website freedomfamilyoffice.com or investwithourfamily.com.

Joe Fairless: Noah, I enjoyed our conversation. Thanks for being on the show talking about the family office business that you are in, how you partner with operators, the structure, and then the type of deals that you’re focused on. Appreciate you being on the show. I hope you have a Best Ever day. Talk to you again soon.

Noah Rosenfarb: Thanks 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.

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JF2350: The Art Of The Follow-up With Sterling White #SkillsetSunday

Sterling is a multifamily investor specializing in value-add apartments in Indianapolis and other Midwestern markets. With just over a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Today, Sterling will be going into details about one of his most powerful sales tool, the follow-up.

Sterling White  Real Estate Background:  

  • Full-time real estate investor and author of “From Zero to 400 Units”
  • Over a decade of experience
  • Previous episode – JF1236
  • Portfolio consists of 400 Units
  • Based in Indianapolis, IN
  • Say hi to him at: https://www.sonderinvestmentgroup.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The art of the followup separates the newbies from the pros” – Sterling White


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. And – well, it’s Sunday. Because it’s Sunday, we’ve got a special segment for you called Skillset Sunday. And here’s the skill that you might not have, or if you have, then props to you, but I bet we can hone this skill. And this skill is the art of the follow-up. And who’s going to teach us his way of the art of the follow up, which has been successful for him and others he’s spoken to about it? Mr. Sterling White. Sterling, how are you doing my friend?

Sterling White: Alright. Welcome, everyone. Strap in your seat belts, bring your bags with you, because we’re going to be dropping tons of golden nuggets and bombs. So I definitely appreciate being on here again, Joe. It’s always great catching up with you.

Joe Fairless: And a little bit about Sterling, just as a refresher – he was on episode 1236, titled What To Do When A Deal Falls Through, Situation Saturday. You can go listen to that, episode 1236. Just a refresher real quick. He’s a full-time real estate investor and author of From Zero to 400 Units. He’s got over a decade worth of experience. His portfolio consists of –imagine this– 400 units. He’s based in Indianapolis, Indiana. So with that being said, we’re talking about the art of the follow-up. How should we begin the conversation to frame it the correct way?

Sterling White: Yeah. One thing I love – we’re in essence triple S, because it’s Skillset Sunday with Sterling. So I love trple S’es. [laughter] And I would say is this was by far the absolute game-changer for me with the follow-up, and for individuals to know that this is really what separates the newbies from the novice, the novice from the amateurs, amateurs from the pros, and absolute mastery is just this one segment in itself.

Joe Fairless: Well, I’m in. And before we started recording this, we were talking about a couple of different angles to take with this conversation… And you mentioned the art of the follow-up, and you mentioned that it’s a mindset approach, first and foremost, and then you get into the tactics. And I loved that. So can you talk about just how we should think about following up with people?

Sterling White: Yeah, I would say is… How I’ve shifted it — and this is more so on the acquisitions, or you can say in general we’re relating to acquisitions… It’s that even when you’re buying, you’re still selling. So it’s a sales process. And many of the times, let’s say you’re taking the direct to owner approach, or you’re touching base with a broker. Let’s say we’re taking the direct to owner approach, because that’s the path that I go. 95% to 99.9% of the time that owner is not interested when I first reach out. So first, it takes six to eight attempts just to get in contact with them, they’re not interested, and now it takes additional follow-ups to now catch them at the right timing… Because I really want to touch and follow-up, because I spoke with someone the other day, and they said, “I’m doing direct mail, it’s not working.” And I asked them, “How many times did you do it?” They said “Once, Joe.” One time.

Joe Fairless: And that’s not going to cut it when you’re introducing yourself to someone for the first time, right? You’ve got to have multiple ways of having them get to know you, and you get to know them.

Sterling White: Exactly. And also, on top of that, is I like to call it the value-based follow-up. So now I’m going to get into some tactics. So you can keep following up with an owner with the same approach, saying now you’re interested in selling, now you’re interested in selling your property. Or you can go the extra mile and – this is one I’ll use, I’ll send out random birthday cards. And on the birthday card, it says, “I may have caught you a little bit sooner, a little bit later, but just want to ensure I got you.” So there’s that.

And then also, I’ll reach out to them and say, “Hey, we’ve got local meetups here that are in Indianapolis and thought you would be a great speaker to share your story, considering you’ve had success in the industry.” So all these different ways – and this is one quote I like to use, it’s “Creativity follows commitment.” If you’re committed enough, you’ll be creative as a way to stay top of mind. Because if not, you follow with the same message, and they’ll say just put me on the Do Not Call List.

Joe Fairless: We might bounce a little back and forth on getting into the weeds and then talking more high-level, but I want to ask about one of the things you just mentioned… When you say to an owner, “Hey, I want to profile you. I want you to share your story at a meetup that I host”, how many owners have taken you up on that?

Sterling White: Zero. At this point in time, it’s been zero. And of course, I started implementing this right as COVID happened, so that also affected things… But why this comes into consideration? I’ve at least gotten some engagement from them. That’s the main thing. Of course, if they say “Yes, I’d be interested”, then I would set it up. But it’s more of those things that’s just to open up the relationship again. Because many times these individuals just go ghost, and I don’t hear from them again. And then that’s when I start to get creative as a way just to touch them. And then from there, they say, “Yeah, I’d be open to it.”

One of the owners I got in touch with, he said, “Well, I’m a little bit nervous, but I enjoy doing things that are out of my comfort zone.” And then we started a conversation from there. So it’s just really just staying top of mind. So one, building the relationship, and then also, it’s timing. This was one individual, it’s going on for about two and a half or three years now, of which I’ve been following up with that individual… And it’s just about timing; they’re still not ready to sell. And at that right moment in time when I follow-up – there we go. I’m the one that first comes to mind.

Joe Fairless: How many have you got engagement from with the random birthday cards?

Sterling White: It is very low. I would say the percentage in terms of sending out, I would say…

Joe Fairless: Just the total number of people, would you say.

Sterling White: Four to five.

Joe Fairless: Four to five?

Sterling White: Correct.

Joe Fairless: And these are multifamily owners?

Sterling White: Yeah, these are multifamily property owners. And I’ll send these out after I’ve had some conversation with them. It’s just not one of those just direct mail campaigns where they are not familiar with me at all.

Joe Fairless: Okay. I thought you were about to say “I’ll send them out these random birthday cards after I’ve had some drinks” or something like that. I was like “That makes sense. If you’re sending random ones, you might as well make a party of it as you write these out.” [laughter] The four to five that you’ve had an engagement with, what did they say?

Sterling White: It’s just more of “Hey, you got me a little bit too soon, but I do appreciate the card.”

Joe Fairless: [laughter] And what’s your follow up there?

Sterling White: The follow-up is, “I just want to ensure I got you covered, and yeah, anyway I could be of value to you…” So I’m re-engaging the conversation. And it’s also a pattern interrupt, too. You get a random birthday card, they’re like “What is this?!” And I know one guy that actually sends — and yes, this is going to be hilarious. He sends potatoes. Yes, potatoes. And he had one of his clients reach back out to him and said, “Did you send me a potato?” He’s like “Yeah, I sent you a potato. But now that I’ve got you on the phone now…”

Joe Fairless: Oh, gosh… Oh, man. Huh… When you get these leads, what system are you using to track the leads? And this person responded to the birthday card, this one responded to the share your story meetup…

Sterling White: So I have a CRM that I use. And for everyone who’s on here, ECRM is different. There are tons that are out there. I do a lot of outbound communication, so there’s one that’s Mojo Dialer that some people use. I use close.com, which is very simple for me to use because I like things to be super simple. And it’s more for individuals that are doing quite a bit of volume in terms of calls. So that’s what I use in terms of a CRM, and I keep everything tracked in there.

Joe Fairless: Got it. close.com, “Turn more leads into revenue.” I’m on their website. I haven’t heard of close.com. So close.com – is that your main CRM? You send out emails through that, you track your leads, you track engagement… Like a Salesforce type thing?

Sterling White: Yeah, it’s the same exact thing. I’m unsure if Salesforce you can actually make outbound calls. And one thing I’ve heard about Salesforce is it can get very clunky and very convoluted. So that’s why I ended up going with this. And yeah, you can track everything. I can have the KPI, so I can understand if we make this amount of calls, this is where the conversion rate to appointments is. And then we can reverse-engineer from that and say, “This is how many LOIs that we can get from this amount of appointments”. And then from those LOIs, this is the amount that converts to an actual contract.

Joe Fairless: But a lot of the stuff we’re talking about, or you’ve been talking about, aren’t phone calls, they’re mailing stuff out. So are you also doing cold calls?

Sterling White: Yeah, cold calls are my primary channel. The direct mail and those that I was mentioned to you are more of just a way to follow up.

Joe Fairless: Ah, yes.

Sterling White: And the thing with my list is — so I target apartments 75 to 200 units. So I’m in Indianapolis and other Midwestern markets, so it’s very niche. So a primary touchpoint is calls. And then also we even get creative on top of that, but in essence, we just use direct mails as a way just to keep following up, versus just using a text message, or a call, or an email.

Joe Fairless: Okay. So you use direct mail to keep following up. You said earlier that 99% of the time you call the owner the first time, they’re not interested. So it takes six to eight attempts to follow up with them.

Sterling White: Six to eight attempts just to get in contact with them.

Joe Fairless: To get in contact with them. For them to say “Hi, Sterling.” Or “Leave me alone, Sterling.” Or “I’m interested.”

Sterling White: “I’m not interested to sell my property.” Or “I would sell it for above market, or top dollar, or the right price”.

Joe Fairless: Right. Okay. Let’s talk about the other ways then you’re following up. One’s a random birthday card. Another is to share your story. You said it takes six to eight times. So what are the other things you’re doing?

Sterling White: Personal visit, by far my favorite one. It definitely takes some, for lack of a better word, big cojones when it comes to this, just dropping in on the owner completely cold. But if you’re committed enough, you’ll figure out a way, and this comes down to your why. I have big why’s and I’m willing to do things like that. So that’s one.

And then also, there’s another channel if I’ve had difficulties getting in touch with someone – one way I’ve done, this was 120 units here in Indianapolis, in which I had not very much success in terms of getting in touch with the owner… So what I did was I use a database such as beenverified.com. I’m not affiliated with them, I just use them. So I typed the owner’s first and last name in there, and then I ended up getting a relative, which was the daughter. So I reached out to the daughter on Facebook, strictly business, everyone that’s on here, and just asked “Hey, looking to get in touch with your father relating to this property”, and was able to get their number directly.

Joe Fairless: Wow. Did she asked how you got my info?

Sterling White: Sometimes you’ll get that, but not from that. She probably just saw I was very handsome and said [unintelligible [00:14:20].25]

Joe Fairless: Oh, man. [laughter] That’s an interesting approach because it connects you with the owner through a loved one. What a warm referral that is. The loved one might be saying, “This creepy guy randomly reached out to me, dad. I’m going to give you his info, but then you call the cops right after.” But either way, she’s still talking to her father about you. And assuming that he loves his daughter, there’s some to be said about that.

Sterling White: Yeah, and it’s all just… Gosh, where was I going to go with that? It’s just really the habit of going the extra mile –which is a principle from Napoleon Hill– is I feel in those cases such as this example, people hit these specific barriers when they’re looking to get in touch with an owner… Whether they’ve made these multiple follow-up attempts, they’re not properly getting through, they’re getting in touch with a gatekeeper, can’t get through to the gatekeeper to the direct decision-maker… By going the extra mile, I feel — because people stop at that, and then when you go above and beyond, that’s what really separates you from those. Because I closed on a deal where I’ve actually sent it over to the brokers and said, “Hey, could you help me out with this lead? Because I haven’t had much success?” And then many of them just said, “No, we haven’t had any contact with them.” I went the extra mile to do some more skip tracing, ended up finding one of the operators having a unique last name. They were in Florida, I said, “Well, let me just give this person a call. They’re in real estate.” It turns out they were one of the people who actually put the syndication together close to two decades ago, and then started the conversation. Fast-forward, we closed on it. The brokers reached out to me and said “How the heck? I had so much difficulty getting in touch with that person.”

Joe Fairless: That was 120 units?

Sterling White: That was 156 units.

Joe Fairless: That was 156.

Sterling White: That was another property.

Joe Fairless: The 120 units you got through the beenverified daughter and dad connection?

Sterling White: Yes, correct. I didn’t close on that. That was just one that ended up going the extra mile was  a way to being creative as a way to get in touch with the decision-maker. Because many people just say, “Ah, this property is not going to work. It’s too difficult. Let me move on to another one.”

Joe Fairless: Why didn’t that one work?

Sterling White: Their price. And I’ve shifted away from those. It’s built in the early 1970s, C-class property. It needs quite a bit of work. And I’ve shifted my model more towards 1980 to 2000 construction, with less deferred maintenance.

Joe Fairless: So the random birthday cards, meetups to share your story, personal visits…

Sterling White: Rubik’s cube, many people know me for this. This is by far one of my favorite ones outside of the personal visit, is a Rubik’s cube. I’ll send it to them, direct mail, with a small note that says “Hey, let’s figure this out.”

Joe Fairless: How many conversations has that resulted in?

Sterling White: I would say more so about 15 to 20. And there was one –because I follow up right after I send the Rubik’s cube– is the owner, I had him on the phone, and he said “My wife cannot figure out this damn Rubik’s cube. So she’s in the back, working on the Rubik’s cube, and he’s speaking to the guy who sent it to him. So all these different channels are just a way to just keep pinging the person to stay top of mind. So once they do the transition from not interested to being interested, you’re the one that comes top of mind.

Joe Fairless: And you’re able to track that in close.com, like, “Okay, sent them this Rubik’s Cube, I did a personal visit.” Do you track all that stuff? Or just the phone call results?

Sterling White: I track more so the phone call results. I do include in the notes the various touchpoints. But in terms of tracking, “Hey, this converted to this,” that is something to actually implement. But right now it’s more so just the calls.

Joe Fairless: Do you have a process that you follow, where you do it in a certain order, these things?

Sterling White: In terms of a certain order, is if I send a letter of intent out to someone before the actual contract and I don’t hear from them, that’s when I will send the Rubik’s cube. And then if I have gotten in touch with…

Joe Fairless: Oh, real quick. A letter of intent… I assume that means that you’ve got financials from them, or are you just writing it up based off of what you believe to be the financials?

Sterling White: I have gotten financials — that does vary. I have actually recently sent an LOI to an owner. What I did was I just normalized; so they were able to provide me the rent roll, I normalized the expenses, and then I submitted an LOI just as a way to follow up.

Joe Fairless: But at that point, if they’ve sent you the rent roll, you’ve already engaged them.

Sterling White: Yes, correct. This isn’t a blind Rubik’s cube. Is that what you’re–

Joe Fairless: Yeah. Okay. Noted. So the Rubik’s cube is in place after you’ve had some sort of engagement with them. But the other things, like skip tracing an owner – you clearly haven’t talked to them because you have to skip trace them. Beenverified, same thing. Personal visit, I imagine, that’s in the same category. Meetup, share your story, same thing. So with those in particular, do you have a certain order in which you follow up?

Sterling White: Yeah, the first channel will be the birthday card. That’s one. So the birthday card is the go-to in terms of the subset, but also in terms of like a process. Because some owners are at different stages. So we have this owner, I know that they’re in Indianapolis, I’ll do a personal visit. And then I’ll follow up with a personal handwritten letter from myself as a way, “Hey, it was good to meet you.” So in terms of like an actual process of the direct mail, primarily is the happy birthday card. But outside of that is — it’s not “Okay, we’re going to do this campaign, we’re going to do this campaign, and this campaign.” We do have occasions that we do a campaign on the go to all of the owners that have expressed interest, but in terms of a process.

Joe Fairless: What would that be? All the owners who have expressed interest,  what does that campaign look like?

Sterling White: The campaign will be something along the lines of a handwritten letter. So that’s one. And then also there’ll be – myself will send an email out to them that says, “Hey, going to be out in the neighborhood, would love to put my hand in your hand.” So that’s what we’ll do if after a month we haven’t had an engagement with a specific set of owners. We’ll say, “Hey, this is a campaign that we’re going to use on all 25 or 30 of these individuals.”

Joe Fairless: I love hearing about this. Anything that we haven’t talked about, that you think we should, as relates to the art of the follow-up?

Sterling White: I would just say for everyone, this is one thing I learned… Love him or hate him, hose of you are on here –  Grant Cardone… So I’ve gotten so much valuable information in terms of just the sales in itself… Because I’m a believer that sales is everything, and not just in business, but even in life. But through this, the follow-up is some people just don’t have realistic expectations. The majority of the time, people don’t even make the attempt, whether that’s direct mail, or cold call, or whatever channel they’re using. And then they quit after the second, third, or fourth time, not knowing that on average it takes between six to eight attempts just to get in contact with the person. That’s just the get in contact, give them your pitch, and them many a time they’re not even interested. And now it’s, even more, follow ups after that.

Joe Fairless: What are your thoughts about someone who sends the same (let’s just call it) postcard or brochure to that contact six to eight times? Good or bad?

Sterling White: You’ve got to be creative, because they are getting tons of other direct mail. So by someone doing that, it’s better than nothing. And the good thing is that they’re consistent. But if they’re able to switch it up of some sort… Because that yellow letter that they have that was handwritten that they’ve sent maybe two to three times, if they send a red one in a red envelope, that could be the one that hits and triggers that person, “Oh, I’m actually going to pick this one up and actually take a look and call this individual.”

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

Sterling White: You can visit me on Instagram, @sterlingwhiteofficial, and also visit sonderinvestmentgroup.com. [unintelligible [00:22:33].11] here to be a value to everyone who’s on here. Just remember, keep being awesome.

Joe Fairless: I loved our conversation as always. I love the creativity that’s put into action. A lot of people have… No, I wouldn’t say a lot of people have a lot of creative ideas to move the business forward, because that’s a unique skill set, I believe… But not only do you have creative ideas to move the business forward, but you also execute on them and follow through [unintelligible [00:23:03].12] the follow-up, like we talked about. Breaking through the clutter and then executing on that on a consistent basis.

And also, as you said a couple of times, setting expectations with yourself and with your team, that it is going to take six to eight times just to get in contact with them. And we’re talking about owners in this circumstance, but I imagine that’s applied to others as well. Thanks for being on the show, Sterling, I enjoyed it. I hope you have a Best Ever weekend and talk to you again soon.

Sterling White: Oh, yeah. Have a great one, everyone.

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JF2349: Single Family Or Multifamily With Lee Kiser #SituationSaturday

Lee Kiser was on a previous episode JF1694 so make sure to go listen to get his best ever advice on that episode. A little bit about Lee, he is a principal and managing broker of Kiser Group, and today he will be sharing with you which option you should focus on, single vs multifamily investing. 

Lee Kiser Real Estate Background:

  • Principle and Managing Broker of Kiser Group
  • Before starting Kiser Group, Lee was the top producing apartment broker in Chicago at his brokerage
  • Previous guest on JF1694
  • Based in Chicago, IL
  • Say hi to him at: www.kisergroup.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Going for single-family or multifamily will depend on your goals & what you are trying to accomplish” – Lee Kiser


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. And well first off, I hope you’re having a Best Ever weekend. Because today is Saturday, we’ve got a special segment, Situation Saturday. And here is the situation. You’re trying to decide between single-family or multifamily. What are you going to do? How do you decide if you’re going to start or continue with single-family or do multi-family? And with us today to talk us through a thought process for how to decide between the two, Lee Kiser. How are you doing Lee?

Lee Kiser: I’m doing well. How are you, Joe?

Joe Fairless: I’m glad to hear that, and I’m doing well as well. A little refresher about Lee. He’s been on the show, Episode 1694. You can go listen to his Best Ever advice on that episode. So we’re going to stay focused on the topic at hand today. A little bit about Lee. He’s a principal and managing broker of the Kiser Group. Before starting Kiser Group he was a top producing apartment broker in Chicago at his brokerage. He’s still based in Chicago. So let’s talk about it… Single-family versus multi-family. What are your thoughts?

Lee Kiser: Well, my thoughts are it really depends on what your goals are with investing and how much you want this to be sideline versus primary business. And pros and cons… Pretty much, the pros for doing single-family are the cons for doing multi-family, and vice versa, in my opinion.

Joe Fairless: Like what? What would be some pros for single-family?

Lee Kiser: Well, how much cash do you need to make an investment in a rental property? And not always, but most typically, single-family homes are less expensive and usually have higher leverage available, meaning you get a higher loan relative to your acquisition price than our apartment buildings in the same area markets. And I’m not talking about a two flat versus a single-family, I’m talking about a multi-unit, a six flat or larger versus a single-family home. And if you’re buying it for investment reasons and renting it out, a single-family home, you can most likely get 80% leverage on that from a lender. Depending on the local rules with lenders, you may be able to leverage it higher than that… Which means, if you can get that loan for it, then how much cash do you need? How much equity do you need to use to buy it?

Versus an apartment building – right now, typically, the highest you can get is 80% leverage. Right now with COVID and recent changes, it’s really 75%. And if you’re a newer investor, you’re probably going to suffer on your loan-to-value there some more. So you probably look at 70% loan-to-value, which means you’ll need 30% of your acquisition price for the cash to buy the deal. And typically, that’s just simply a lot more cash when you look at the price of the building, and then the leverage available. A lot more cash that you would need to buy an apartment building. So a pro in my mind for single-family is the con for multifamily, is how much cash you need to buy an investment property.

Joe Fairless: Okay. And I don’t think it’s any secret that you and I are both focused on commercial real estate. So we do have a dog in the fight. And it is tough to be unbiased… But I’m going to do my best to be unbiased, because I have invested in single-family homes, and I assume you have as well. So let’s just keep on the pros section of single-family homes. You mentioned less cash. You mentioned higher leverage. What about better discounts? Because you’ve got less sophistication from the seller standpoint, than larger properties.

Lee Kiser: Yeah. To me Joe, the discounts all have to do with supply and demand. And for the last decade, multi-family has been in pretty high investor demand; there’s more demand than supply. The big econ 101, duh… That means it’s going to be a higher price, and therefore a lower return. So I would say relative to the single-family market, yeah, that’s another pro for investing in single-family homes, is that there’s more of an equilibrium between supply and demand, which helps keep valuations more in check, theoretically, meaning you could get a better return sometimes from a single-family home investment. But I think that’s isolating that particular issue in a vacuum… Because I think when you look at some of the pros of multifamily, which we haven’t gotten to yet, then it begins to mitigate that return as a potential pro for single-family… But the pro for single-family is – yeah, there’s generally not as much demand for it as multi-family. So relative to valuation, it’s probably cheaper.

Joe Fairless: What about liquidity? I no longer own single-family homes, besides for personal reasons; but as from an investment property standpoint, I don’t own any single-family home investment properties. I sold them all in October 2019. And when I decided to sell them, they were sold in about three months. There was only three of them, but it was quick, it was easy. I worked with a real estate agent who happened to be my sister, and sold them; liquid, nice, done, moving on. Apartment buildings, if I want to quickly sell three apartment buildings I’m a general partner on, it’s more complicated. So what about liquidity? Would that be a pro on single-family homes?

Lee Kiser: I think liquidity, if you’re looking at a single asset, I would agree. Or if you have a portfolio of assets, but you’re marketing them individually when you’re exiting, then yeah. I think – back to that old supply and demand topic we just talked about previously, you’ll be competing with a lot of other single-family homes on the market, but there’s also a large demand. And it’s simply making the right matches. I think if you own a large enough portfolio of single-family homes, and you’re only interested in exiting as a portfolio, I think you’ll find it may be more difficult than exiting an apartment building.

Joe Fairless: That makes a lot of sense. What would you say that number is, of homes in a portfolio where then it’s like you’re starting to actually to be harder to sell than an apartment building because of all these homes that you’ve got?

Lee Kiser: Sounds like you’re asking me what a con is Joe, and I just want to make sure I’m following the lead, correct?

Joe Fairless: Oh, fair enough. You got me.

Lee Kiser: So I wish it were that easy to say, “Okay, here’s the threshold. And if you have more than five, it’s going to be more difficult.” Now, one of the con is management. And to understand the con, you have to look at the pro. So in multi-family, you have several units under one roof, it’s all one location, and you have multiple tenants. And that is what is attractive to an investor, and that’s also what makes that property easier to manage. You have one mechanical system, you have one person who’s going to do your maintenance and repair, one location to send them. It’s simply a more efficient management. Contrary, if you look at a portfolio of single-family homes, then the geographic concentration of those would be very important if they were a grouping, and you’re looking at a portfolio and an investor to take out everything.

When it’s scattered-site, meaning over a large geographic distribution, then I think it is a different equation. If you had five single-family homes you’re trying to sell and they’re in the same county, but they’re in five different towns or five different areas, it’s a very different equation than if you had 10 single-family homes in a three-block radius. And I think that’s more important with your question. So it’s not really a number, but there are other factors involved.

Joe Fairless: That is such a good point. I hadn’t thought of it in the way that you described, because basically what we’re saying –or what you’re saying, and I completely agree– is if you do single-family homes, here are some benefits for doing so, but don’t have too much success if you want to exit out of this portfolio in a way that attracts a lot of buyers… Unless you want to sell them individually off. Or unless you’re concentrating in a specific area. It’s almost like you can acquire and do well, but don’t do too well unless you follow this specific model of buying.

Lee Kiser:  Yeah, and management. That’s something touched on briefly here. In some ways, the management of single-family is easier. So I guess we’ll consider that part a pro… Which is usually you can structure leases that the majority of the upkeep can be put on the tenant. So mowing yards, making minor repairs around the house. So in some ways that management can be shifted to the tenant. But in many ways, it cannot be. Major systems — a gas forced air furnace, or a boiler if it’s an older home, that’s not something that the tenant is going to accept responsibility for, because it’s a capital expenditure that’s going to be a landlord’s expense. And when you think about it, you have one heating plant for a 30 unit building, for 30 houses you have 30 heating plants. And usually, it’s not a system replacement. Usually, it’s a repair item, but that’s still beyond the scope of the tenant or the responsibility of the tenant, so you’re having to send someone in. And it’s simply probabilities. What is the probability that you’re going to have an issue with a heating plant during the winter? What is it? A 10% probability? So you’ll have a 10% probability that your boiler at your apartment building is going to have an issue. But if you have 30 houses, it’s statistically proven, “Okay, you’re gonna have three houses that have a problem.” So it’s budgeting for that and then it’s managing how that gets repaired, who is set. So again, those are things to consider,

Joe Fairless: Before we move into the pro category for apartments, any other pros that you can think of as it relates to homes?

Lee Kiser: No, and I guess that’s why I do what I do for a living.

Joe Fairless: [laughter] Well, you started off the conversation by saying, “Do you want this to be a sideline thing or a primary business?” Which goes to or alludes to the point of a pro for homes is that it can easily be a sideline thing.

Lee Kiser: Yes. So that is a pro. It’s much easier to do on the side, and for some of the reasons we mentioned – some of the management can be transferred, some of the responsibilities can be transferred to the tenant, it’s cheaper usually to get into… So yes, it’s much more of a side business, and I guess that is indeed a pro.

I think another pro may be typically people who are able to buy an investment property kind of already established themselves to some degree, and statistically, higher probability that they actually live in a home. themselves. So I think perhaps it is an understanding of the tenants’ experience and how to run that home or market it, lease it, run the management because you’re more familiar with what that occupant might actually need, because you personally identify. So I guess maybe you call that [unintelligible [00:15:19].12] I guess that’s a pro as well,

Joe Fairless: I like that. You’re better set up for success because you’ve got first-hand experience, or you know others who have it. But most likely, you’ve got first-hand experience if you have lived in a home. Let’s talk about the pros for apartments, because – could you use that same logic to apply for apartment buildings if you have lived in apartments? Or does that not translate?

Lee Kiser: It doesn’t translate as well, because there’s so much going into renting an apartment building, that as a tenant, you’re never aware.

Joe Fairless: True that.

Lee Kiser: Yeah, apartment management can be very complex. And it really is a big thing. That sounds like a con. It’s not to me, because every market we participate in has an industry of third-party management companies for apartment buildings, and some very reputable companies, and if you can hire that service, where you’re probably not going to be able to hire it for a single-family home. So I would say that if that’s the question you’re asking versus me just going off on the pros that I have…

Joe Fairless: Yeah. That makes sense. What are some other pros?

Lee Kiser: We talked about cash needs… But the interesting thing – yes, you’ll need more cash to buy an apartment building. But it’s a whole lot easier to raise that capital from fellow investors for an apartment acquisition than it is for a single-family home. So going out and syndicating or raising that capital, if you have the right plan for the building is typically fairly easy, because there are a whole lot of people who don’t have the option of buying a building themselves, but they have enough cash that they want to invest in something, and their options are going to be very similar to yours – “I’m going to go buy an investment house, or I want to buy a building. If I can’t buy a building, who do I know who is?” It’s in my opinion a lot easier to raise that cash for multifamily acquisition.

Another thing that is really important is occupancy. And let’s flip the coin around and instead call it vacancy. So you own a single-family home and you rent it at a level that you know covers all of your expenses, and for one reason or another you lose your tenant. What is your vacancy rate? It’s 100% vacant. And until you can find a replacement tenant, as the investor, you shoulder the cost of the entire operation.

In a multi-unit building, certainly, occupancy is always a critical component of how you run the building and manage it. But when you inevitably have vacancies, it’s typically much easier to handle, because the costs are spread over multiple units versus just one. And you can actually have a percentage vacancy, and make your decisions on where rents need to be, and how you need to lower them, or how aggressive you can be based on how close to your income need your current revenue is. If you’re 10% vacant, but yet still completely covering all of your expenses, you may want to be aggressive on the rents on those vacant units when you’re marketing them to see where the market is and what the tolerance is for rent for that unit type.

Conversely, if you’re 10% vacant and you know that your second installment tax bill is coming up, you don’t have the right cash in the account right now, whatever, you may also decide, “Let me be less aggressive on those rents, let me lower them, let me get that filled.” But you’ve got that flexibility and it’s spread across a number of units. My main point is that losing a tenant does not affect you nearly the same way in a multi-unit building as it does in a single-family home.

Joe Fairless: And then I would also say a pro would be you make more money on apartment buildings relative to the amount of time that you put in, compared to being focused on single-family. So if I’m focused on single-family for five years, and I’m focused on multifamily for five years, I would be confident in saying that it is highly likely –assuming that both focuses are conservative and a value-add approach– that the multi-family investor is going to make a disproportionately greater amount of money than single-family home investors, because you’re dealing with higher dollar amounts, and cap rates, and being able to increase value through forced appreciation… Versus just some single-family approaches that some of you can add value through force appreciation, but you can’t do it at scale.

Lee Kiser: I think scale is the keyword, I was going to say. It’s an economy of scale question. And multifamily provides an immediate economy of scale. That’s the entire concept. Back to the boiler – am I going to heat one unit with this boiler? One home? Or am I going to heat 30? It’s almost the same size system. So there’s an automatic economy of scale. But you made an interesting comment, Joe, and that was that multi-family makes more money. And I think that’s a question of how you measure that. And by the way, I agree with you. Multi-family makes more money. It’s harder to get into for some of the reasons that we’ve described. But the reason people do it is because it’s more lucrative. But it also depends on how you measure that. And my favorite measure is cash on cash.

So yeah, people will talk about cap rates and they’ll talk about all kinds of ways to measure it. For me, it’s how much cash am I going to put into this investment, be it a home, or an apartment building, or a senior housing center? Any investment. How much cash am I going to have to tie up in this? And at the end of the day, after I’ve paid all of my expenses, and my mortgage, how much cash am I going to have left as profit? And what is the percentage of that cash against what I actually tied up to buy it? And I think when you run that analysis that you will see significantly higher cash on cash returns in multifamily than you do in single-family investments.

Joe Fairless: Anything else that we should talk about as it relates to pros for single-family homes or pros for apartments that we haven’t talked about before we wrap up?

Lee Kiser: Well, I guess this is a pro for single-family and it’s a warning for multifamily investing. The way you determine whether or not something is a good location. So a pro for single-family is you probably know the neighborhood, you probably know the schools, because you probably have some degree of experience with this yourself. And your criteria for deciding whether or not a house is a good investment, you probably have more intuitive knowledge about it. I think that’s a pro.

The con is you may not have that specific knowledge about a multi-family investment from a location standpoint, but you can’t approach it the same way. You need to learn how to determine whether a location is good for multi-family. And the criteria is not whether or not you would live there personally. It’s not an emotional thing. It’s access to public transportation, it’s access to employment, it’s the amenities that the building has relative to its price points, and it’s understanding the demographic of the location and the needs of apartment renters to determine whether or not that’s a good location. So I’d say it’s a con most people don’t start with that knowledge and they only see the investment through the lenses of whether or not they would personally live there, and the pro for single-family is, yeah, you probably have something in your experience silo that gives you an intuition about that location. That’s the only other thing that just came to mind.

Joe Fairless: This was a great conversation. It was great hearing your thoughts. How can the Best Ever listeners learn more about what you’re doing and how to get in touch with you and your company?

Lee Kiser:  Go to our website; everything that you would need to know is there and it’s easy to contact us through it. The name of the company is also my last name. People commonly misspell it. So it’s Kiser, not Kaiser, and the URL is kisergroup.com.

Joe Fairless: Lee, thanks for being on the show, talking to us about the pros of single-family home investing and the pros of apartment investing. I think we did a good job of being as objective as we could be… So I’m patting myself on the back and I’m giving you a virtual high five, because for two apartment investing people I think we did a good job of laying out the case for single-family homes too. I hope you have a Best Ever weekend and talk to you again soon.

Lee Kiser: Thanks for having me on again Joe.

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JF2342: Military Couple Powers Through Real Estate With Lindsey Meringer & Amanda Schneider

Lindsey Meringer and Amanda Schneider are the power couple of the month with Lindsey being a green beret and an operator in the 10th special forces group, and Amanda was also in the military and later decided to become a full-time real estate agent. They began their journey into the world of real estate in 2016 and currently have a portfolio of 5 single-family rentals, a triplex, and working on growing their portfolio even more.

Lindsey Meringer & Amanda Schneider Real Estate Background:

  • Lindsey is an operator in the 10th Special Forces Group (Airborne), a green beret
  • Amanda is a full-time real estate agent
  • They started their real estate journey in 2016
  • Portfolio consists of 5 single-family rentals, a Triplex, and currently working on a duplex to turn into a 5 unit
  • They have added 11 doors in the past 12 months with 14 overall with the goal of reaching 20 by end of 2020
  • Based in Colorado Springs, CO
  • Say hi to them at: www.TheVeteranREaltor.com 
  • Best Ever Book: The One Thing

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Both mentorship and your community is important.” – Lindsey Meringer & Amanda Schneider


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today we’ll be speaking to two guests. We have Lindsey Meringer and Amanda Schneider. How are you two doing today?

Amanda Schneider: Great! Thanks.

Lindsey Meringer: Doing great. Yeah. How are you?

Theo Hicks: I’m doing well, thanks for asking and thanks for joining us today. A little bit about their background. So Lindsey is an operator in the 10th Special Forces Group (Airborne) and is a green beret, and Amanda is a full-time real estate agent. They started their real estate journey in 2016 and their portfolio consists of five single family rentals, a triplex, and they’re currently working on a duplex that they’re going to convert into a five unit. So they’ve added these 11 doors in the past 12 months, with 14 overall, and their goal is to reach 20 doors by the end of 2020. They’re based in Colorado Springs, Colorado, and their website is www.theveteranrealtor.com.

So starting with Lindsey, could you give us some more information about your background and what you’re focused on today?

Lindsey Meringer: Yes, so I grew up in a small farm town, and that kind of life has helped us a lot in where we are today, in that I have a very extensive construction background, from roof framing, I worked in a finished cabinetry shop, so pretty extensive in the construction world, and I’ve been able to leverage that into real estate; joined the military in 2010 and since then, Special Forces… I’ve truly been all over the world from Africa to the Middle East and Europe and just kind of living that life as we’ve been W-2 entrepreneurs, and just pushing forward.

Amanda Schneider: Yeah. I was also in the military, and then I came out to Colorado Springs to be a contractor for the military, and that’s when I met Lindsey. And I had read the book Rich Dad Poor Dad, which kind of made me realize how lucrative real estate could be as far as that passive income.

So when Lindsey and I started dating in 2015, we had taken a road trip and we called it our all-or-nothing road trip… That if this worked out well for us, we were probably going to get married and move on with our life. If not, we were going to break up. So during that road trip, we listened to a ton of real estate podcasts. I think we may have even listened to Rich Dad, Poor Dad on that one, too. So that kind of spawned our investing from there. We got married and the next day we went looking for our first house together.

Lindsey Meringer: Yeah.

Amanda Schneider: Yeah.

Theo Hicks: Perfect. So I kind of want to talk about this duplex deal. So you are currently working on a duplex, and then the plan is to convert it into a five-unit. So maybe walk us through from the conception of the deal to where you are standing as of today.

Lindsey Meringer: Yeah, I think part of the conception – it is important to start at the beginning, because one little piece of advice I’ll give is to please trust your wife. We had a search setup, we were looking for multifamilies, and we look at zoning applications that are single family, zoned R-4, looked for potential… And I had actually trashed this duplex on the search, because it was a really expensive duplex. She messaged me and said, “Hey, I found this great duplex,” and it was zoned R-5, and it was 3,300 square feet. And she actually got me to kind of look into it more and it ended up having a lot of potential as a project.

So we went and  looked at it, and saw a duplex split level, and they had actually at one point converted a porch, done trusses over it and enclosed it; it has like these couple of weird storage areas next to a two-car garage and then a detached one car. And that porch has an outdoor patio area. So when we walked into it, we’re like, “You know what, this would be a really great conversion to four smaller units. We can break off the back of the property and we’re going to end up with a two bed, two bath; a two bed, one bath; a one bed, one bath and two studios.”

Theo Hicks: So from a manager’s perspective, it sounds like Lindsey saw this deal and was like, “Ah, nah, I’m good.”

Lindsey Meringer: “Nope.”

Theo Hicks: And you saw it, and  I guess — you saw it separately and thought that it was good. So what was it about the deal that made you interested in it?

Amanda Schneider: Well, Colorado Springs is an exploding market and we have tons of investors here. So we have five single families, so we’re like, “Hey, we really want to break into the multifamily.” But it’s so tough here, because we have lots of cash investors that are just coming, they’re paying over market value… So we wanted to find a creative way that we could possibly make a multifamily out of either like a single-family or a duplex or something. So we had a specific search setup where I would go on MLS and specifically search for properties that were zoned for more than the actual doors that were on that property. So that’s really what appealed to me.

Yes, it was priced a little high as a duplex, we did negotiate a little bit, we got the price down a bit… But I just saw that we could turn this into five units, and I just thought about the potential. And it’s in a really up and coming area of Colorado Springs, so that was another huge draw for me.

Lindsey Meringer: Yeah.

Theo Hicks: Could you maybe walk us through how you financially analyze a deal like that? How do you know how much you can pay for a deal that you’re going to ultimately convert into something completely different?

Lindsey Meringer: We just analyze everything as an end state, and the numbers work or they don’t. We had two contractors walk it. So there is actually some hiccups with this that we can talk through… But as far as the base analyzing of it, we just looked at rehab costs and conversion costs, funding fees, lending fees and then what we could rent everything for on the backside, and if the numbers made sense, they made sense. So even though it was kind of a big project and thinking outside the box in the use of the property, the base analyzing of it was pretty straightforward.

Theo Hicks: Sure. So if you don’t mind, walk us through some of these hiccups that you just mentioned.

Lindsey Meringer: Well, I think one thing to highlight before the hiccup is kind of creative way we financed it. So as opposed to using hard money, I went around to a ton of local commercial banks and just talked to the head of lending and all of them and told them the way I wanted to go about this, the vision I had for the project. It was great, because I got that face to face time and that recognition. But then I found a great local bank that was willing to be super creative with lending. So what we actually ended up doing is doing a commercial loan on the front, kind of as a hard money lender at a one point and 7%, which anyone who’s used hard money knows that would be an incredible hard money rate. But the way the lending works on it is the same principle. It’s an interest-only loan on the front side, and then we have residential on the backside. We’re doing four units, we’ll cash out, refi, roll it into a residential, and then down the road, we’ll pay out of pocket and just convert the single-car into a fifth and make it a commercial property.

So it’s been kind of fun learning a lot with this in the funding application to it, and kind of the way the fiscal tie in. But then yeah, with hiccups. We had a contractor that we ended up going with – we get a call one day that he is backing out. Then the next day, the plumbers and electricians back out. So yeah, we’re a month in and I had done all the demo myself just to save some money, so we were back to ground zero.

I had a great commercial contractor come in, he’s become our contractor for all our properties now. But he was like, “Yeah, this $78,000 property, a rehab is more like 140k.” So that was kind of a little bit of a heartache. But we’ve managed to push through it and we’ve kind of brought that budget down a lot as we’ve worked through and gotten creative. And the numbers on the backside with the rental are still so great that even that heartache and that raising the cost of rehab – we’ve still managed to make it work as a pretty solid deal.

Amanda Schneider: Yeah, and one thing I wanted to add too is there were some other things that this original contractor — it was ultimately our fault, because he had never done such a big project for us. So we just had faith that he could. But he was not versed in what it takes to convert something into more than a duplex. And the city, even though the lender looks at four units and under as residential, the city does not; it looks at it as commercial. So it also took a couple weeks of Lindsey calling around to different departments within the city to make sure we could do what we wanted to do. Do we need a development plan? If we need a development plan, that was going to be 15k… There was so much more that we had no idea that we had to do in this conversion.

Lindsey Meringer: Yeah.

Theo Hicks: Just going back a little bit… We talked about your search on the MLS – you’re looking at things that are zoned above what they actually are.

Amanda Schneider: Yes.

Theo Hicks: Is that something that anyone can do, or is that something that you need to have access to the MLS? So you need to do it through an agent?

Amanda Schneider: To make it the easiest, access through the MLS is the easiest. You could find an address, you can look it up on the county assessor’s website and see what is zoned. So I guess theoretically, if you found something on Zillow and you were just curious, you can always find that on the county assessor, and I would assume every city makes that public knowledge.

Theo Hicks: Yeah.

Amanda Schneider: But obviously, using the MLS is much easier, because I can just set up a simple search.

Theo Hicks: Alright. Something else I wanted to talk about too is maybe some tips, some advice on people who want to get into real estate investing with the person that they are married to. What are some pros and cons of that?

Amanda Schneider: Yeah.

Theo Hicks: Well, we may be a bad example, because we truly see eye to eye on most things with real estate. I thing that’s the thing, is we truly share this passion as our way forward in life. Our whole life revolves around real estate; granted, I’m still in the military, but if I’m not actively at work or deployed or something, I’m working on a job site or analyzing future deals… So sharing that common bond is absolutely crucial. I think we’ve heard plenty of stories through podcasts where the husband wants to buy a house, an investment property, and the wife isn’t on board. And I think the biggest thing that happens there is that nothing happens. They never take that leap.

Amanda Schneider: I would say the one thing that maybe we butt heads about sometimes is the fact that Lindsey does have all of this background knowledge about construction, but I’m kind of a type-A personality, so I like to have control and I like to know a schedule and a timeline. So sometimes I get to the point where I’m questioning a little bit too much about the subs that he’s running.

So one thing that I would say for advice is to find your lane and then stick within that lane, even though it can be really hard. So I do a lot of the finding of the properties and the finance, figuring that out. And Lindsey runs the subs, meets with them. He does that part of it. And that has worked really well for us, is not trying to get in each other’s lane… Because Lindsey can also freak out about some of the financing, where I know our way forward and how we’re affording things… But when he goes and looks at our bank account or something, he’s like, “Oh my gosh.”

Lindsey Meringer: Yeah, because I see the day-to-day and I’m pretty sure we’re broke all the time.

Amanda Schneider: Yeah. So just kind of just defining your own lane and staying in it.

Theo Hicks: Sure. So once you have these lanes defined, does that mean that Lindsey has the final say on everything related to his lane, and then Amanda has the final say, or do you guys still come to these decisions together? Or are they completely separate?

Lindsey Meringer: Yes and no is the answer to that. I’ve learned she is a genius with finances. She’s so organized. So in things like that, I’ll voice my opinion if something sounds super strange. But for the most part, I just have complete faith in her. When it comes to stuff on the building and design side, then sometimes I’ll just make the command decision, but a lot of times it’s really us looking at things together and making that kind of functional decision. But I would say the only thing that is truly just mostly hands-off is the financial. I really just trust her.

Theo Hicks: So Lindsey, you mentioned that you’re still in the military. Are you still working a separate job full-time? You said you’re a contractor for the military. Are you still doing that? Are you a full-time agent, or are you full-time in the real estate business?

Amanda Schneider: No, I’m a full-time agent and then we property-manage all of our properties, so I kind of do a lot of that, too.

Lindsey Meringer: Yeah.

Theo Hicks: So what happens when Lindsey is deployed, who takes over his duties? How does that work?

Amanda Schneider: Well, it’s been okay so far, because we haven’t really purchased the property that would need a full rehab when he wasn’t here. And that’s really where I rely on him the most, I would say.

Lindsey Meringer: Yeah, I’m currently in the process of a medical board for medical retirement from injuries, so I’m non-deployable now. So we’ve been fortunate in that. And I think that’s why we started in 2016, but we’ve added 11 doors in the past year, is because I’ve been here, and we’ve been able to approach everything together.

The first couple of years—we’re pretty much experts in the VA loan at this point. We got four properties under the VA loan, or five, I guess, now. And we would do one and then when I’d redeploy, we’d do another one, and then I’d deploy and redeploy and do another one. So we just kind of spaced it around deployments. But now that I’m home, we’ve been able to accelerate.

Theo Hicks: Perfect. Okay, starting with Lindsey, what is your best real estate investing advice ever?

Lindsey Meringer: Definitely the people around you, both mentorship and community. And there’s that rule, the sum of five, I think it is. You had a gentleman on your podcast, Nick Giuliani; I talk to him every single day, just for motivation. He’s farther along than I am and kind of chasing them at this point, but we bounce stuff off each other. We’ve surrounded ourselves with like-minded investors; there’s a couple of buddies that I have in special forces that are investors, and we do meetups and everything. And we’re just so driven every day by their social media posts, their text messages, everything. If we got down on ourselves a little bit or a little frustrated, we just look at our community around us and are immediately reinvigorated to go.

Amanda Schneider: And then I would say, don’t be afraid of doing your first deal or doing additional deals, even if you don’t have money, because you can make it work. And that’s one thing that just this last year has taught us. We’ve found, other than what Lindsey said about approaching the commercial banker and being able to use some of the equity from our other houses, we’ve also been able to borrow some money from our IRA creatively, and we’ve just found ways to make it work. If you find a deal and it’s amazing, you’ll find a way to make it work.

Lindsey Meringer: Yep.

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

Lindsey Meringer: Let’s do it.

Amanda Schneider: Yep.

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

Break: [00:17:36] to [00:18:28]

Theo Hicks: Okay, so for each of these questions, we’ll start with Lindsey and then we’ll do Amanda. So what is the best ever books you’ve recently read?

Lindsey Meringer: So I’m a big podcaster. But if I went for books, The ONE Thing is my book.

Amanda Schneider: Yep. And mine is going to be Profit First. It’s not really a real estate book, but it’s just an entrepreneur business book overall that teaches you how to make sure you’re also getting a profit from your business from the beginning.

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

Lindsey Meringer: So that’s kind of easy for me, because I do for now do W-2 entrepreneurship. I’m in the military. And then as I Med board out, I’m transitioning into the space world here. So I will have a full-time career.

Amanda Schneider: Yeah. And I would say, I can’t imagine my business completely collapsing, but if the real estate market collapsed, I think I would just shift my focus towards working foreclosures, short sales, things like that. I would keep grinding, because I can’t imagine doing anything other than real estate.

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

Amanda: That would be a couple properties ago… Security, Colorado, 80911 – there’s a report recently it’s the number one appreciation real estate market in the country. And then we bought a house there; it was next door to another house that we actually lived at. I found the guy, he was out, moving stuff out of his house. I just approached him, asked him what was going on.

Long story short, we were able to work a deal where they could leave the house in the condition it was in. The yard was full of stuff, they just needed to get out and get [unintelligible [00:19:49].23] for some security reasons. And the return on that was in the 20% range, but we have turned $57,000 into that, into about $145,000 in equity in a one year period. So it’s been pretty incredible.

Amanda Schneider: Yeah. And the one thing I would just add to that deal is that we were also able to get the sellers to cut us checks at closing that equaled about $15,000 towards our contractors. That was just part of the deal, too, which was pretty sweet.

Lindsey Meringer: Yeah.

Theo Hicks: Nice. What about on the flip side? Have you guys lost money on any deals? If so, how much did you lose and what lessons did you learn?

Lindsey Meringer: So we have not. Fortunately, a bunch of our first deals were VA loans, which gives you a super low barrier to entry. And then the Crestone property, the duplex conversion, the rehab budget has close to doubled, but we will still not lose money on that property, the numbers are so good. So knock on — I don’t have any wood around me, but we’ve been pretty fortunate.

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

Lindsey Meringer: We started about six months ago doing host home providing for intellectually and developmentally disabled persons. And it’s been stressful at times, but extremely rewarding, and that is something that we love doing.

Amanda Schneider: And then I’m part of an organization called Angels of America’s Fallen. It supports children of any kind of first responders/military that have passed during their service. It provides them up, until the age of 18, with extracurricular activities, so we donate a lot of money to that every year, we participate in their yearly gala, including volunteering for that.

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

Lindsey Meringer: So I’m kind of a child at heart, so on Instagram, I’m Calvin J. Hobbs. You’ll see a picture of me, Amanda, and our dog. Then on Facebook, I’m just my name Lindsey Meringer.

Amanda Schneider: Yep. And you mentioned my website at the beginning… So the  https://www.theveteranrealtor.com/. You can message me there, but then I’m also on Instagram as @the_veteran_realtor.

Theo Hicks: Perfect. Lindsey and Amanda, thanks for joining us today and giving us your best ever advice. A few of my biggest takeaways – I like the idea of when you’re in a really competitive market and you want to get into multifamily, rather than buying a multifamily, trying to find something that you can convert into a multifamily or into a commercial property.

You mentioned how Amanda has access to the MLS, and you search that, looking for properties that are zoned something that is higher than what the property actually is. So something zoned R-5, that’s a duplex; R-4 that’s a duplex. So that’s the deal you guys are currently working on. And even though the renovation costs have increased because of this conversion, because of the strength of the market, you’re still be able to make money.

We talked about how you’re able to secure some pretty creative financing, and that was by simply going to local banks and talking to all the heads of lending about your vision for the project.

We talked about a few tips about starting a business, growing a business with your significant other, and making sure, as  you both share in the passion for real estate, realized that it is kind of your financial driver, in a sense. And then make sure that you’re defining what each of your roles are, and then whoever is the best at that thing is the person who’s the ultimate decider if you guys don’t agree… Or you can just follow Lindsey’s advice, which is that you always trust your wife, and let her do everything—no, I’m just kidding.

Lindsey Meringer: Hey, happy wife, happy life is a motto that I live by.

Theo Hicks: Exactly. And then lastly, your best ever advice – Lindsey’s was about mentorship and community, both in person and online for that motivation. And then Amanda’s was not being afraid to do a deal, do more deals without necessarily knowing exactly where the money will come from, because we’ve been able to make it work. If it’s a good deal, the money will follow. So thank you both for taking time out today to speak with us.

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

Lindsey Meringer: Thank you so much.

Amanda Schneider: Thanks.

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JF2341: Starting Off Fast With Chris Thomas

Chris Thomas is a full-time short-term rental investor with two and half years of experience and quickly built a portfolio of 257 rentals, and managing 70 others. He has a great story of what hard work can get you in a short time period. 

Chris Thomas Real Estate Background:

  • Full-time short term rental investor
  • 2.5 years of experience
  • Portfolio consist of 257 rentals, 70 managed
  • Based in San Diego, CA
  • Say hi to him at www.getchristhomas.com 
  • Best Ever Book: Build to Sell

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Never lose money on a deal. Reverse engineer every deal to make sure you minimize your risk.” – Chris Thomas


TRANSCRIPTION

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

Chris, how are you doing today?

Chris Thomas: Man, I’m fired up. Man, we should have done this interview a long time ago.

Theo Hicks: Well, we’re finally here. I appreciate you taking the time to join me today. Chris is at one of his rental properties right now. So a little bit about Chris — he is a full-time short-term rental investor with 2½ years of experience. Portfolio is 257 rentals; 70 of those are managed for other people. He is based in San Diego and his website right now is http://www.getchristhomas.com/, but it might be different when this airs, and so it’s either that or the one that’s in the show notes below.

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

Chris Thomas: 100%. I’m from East San Diego, North Park. So born and raised in North Park, San Diego. And pretty much what I’m doing now is—I come from the corporate world, I’ve been through two failed startups, to being back at my family’s house, in a bad situation, to now having a ton of Airbnb rentals and just absolutely crushing it.

Theo Hicks: Awesome.  2½ years when you started investing, right? 2½ years ago?

Chris Thomas: Correct.

Theo Hicks: And so obviously, corporate world, tried the startups, back at home. Tell us about the process of selecting real estate in general, and then tell us why short-term rentals.

Chris Thomas: Great questions, Theo. Hey, man, let me tell you, it was first of all out of desperation. But I’ve always wanted to be a real estate investor since I was like eight years old. That’s crazy, right? I knew I was going to be into something, into business, and I knew that the way to get rich when I eventually became more than an adolescent was being a real estate investor. So I saw this opportunity for Airbnb rentals and I saw how much it got in, I didn’t have any money. I saw that this opportunity was booming, so I started my venture by getting investors. That’s how I started.

Theo Hicks: So you got into real estate because you wanted to do it since you were a kid. For Airbnb, you saw the growth potential, the profit potential… So you mentioned raising money. Had you done real estate at all upto this point?

Chris Thomas: Never. I never did real estate. I did sales calls for a loan company when I was like 17 years old making sales calls. But I didn’t even know what I was doing at that time. But I’d always wanted to be in real estate since, gosh, 18 years old, by actually knowing what it can do for you. I just didn’t have the mindset for it or the know-how.

Theo Hicks: So how did you raise money then? Who did you go to and then how did you convince them to invest with someone who’s never done this before?

Chris Thomas: Great question, man. Hey, let me tell you, I was fully transparent with these investors. How do I reach investors? I manually reached out to these investors via LinkedIn, 500 messages via LinkedIn. I didn’t have LinkedIn premium or none of that crazy stuff, and for 48 hours straight, I think I had four hours of sleep between two days, and I was literally sending out messages to 500 investors and their tagline was “investor”. And I reached out to 500 people, 40 of them reached back out to me saying, “What is it? Tell me about it.” And then 11 of them moved forward and got 3-5 rentals each. And I was in debt, $40,000, I had -13 cents in my bank account. And then just imagine a couple weeks later, that I had 38K in my bank account from all these rentals I was doing. And then I was making 11K every month after that, managing their rentals. So it’s incredible man, I was—imagine I was on welfare; I had the yellow card here in California, and transitioning into managing rentals.

Theo Hicks: What did your message say? Was it the same message to all 500 people or was it custom?

Chris Thomas: Each message was custom. Because with LinkedIn, if you copy and paste messages, it goes up under their spam. So I had to manually say, “Hey, Theo, I saw that you liked this article. I like that article too.” So I made it relevant, boom. So I went in there, searched their profile, looked at stuff that they like and said, “Hey, I like that, what he said too here. I don’t know if you’ve noticed, but I’m in the Airbnb rental space and I’d love to pick up a rental for you.”

Theo Hicks: Okay.

Chris Thomas: And I’m new to this; I told these people, “This is my first time doing this, but I know there’s an awesome opportunity. But here I’m working with my buddy who already has a rental.” So I used that leverage that my buddy already had a rental in San Juan Capistrano and that I’m managing it.

Theo Hicks: There you go.

Chris Thomas: So I had some leeway.

Theo Hicks: And then they’ve reached back out. What was that process like? Was it just immediately boom, ready to go? Was there some additional courting? Walk us through what happened after that. How long it took, was it a lot of back and forth, did they want to talk on the phone, meet in person?

Chris Thomas: It was all phone. So most of them were here in California, some in Arizona. So the nature of the initial conversation was the vetting process, do they have an LLC, how much capital they have, how much capital that they have in their business, to show financials to potential property managers and owners, to make sure that they have the financials to back up, about 2-5 times the rent. So it was that vetting process.

Once we got through that vetting process, some were like, “Meh… I don’t know,” typical sales. And then to some of them were like, “Let’s do it. You’re going to do everything?” “Yes, I’ll do everything. I’ll manage everything. I’ll set everything up, and all you’ll see is the money going to your account, and all you have to pay me is $500 to $750 a month.”

Theo Hicks: Is that a percentage or is it just flat fee?

Chris Thomas: Flat fee; that’s for paid for cleaners and all this other stuff that goes into the business. So they’re paying $750 per rental, Theo.

Theo Hicks: Okay.

Chris Thomas: So per rental that they had, they paid me $750 per rental. So that was pretty cool. That’s how I raised capital, just finding people with money.

Theo Hicks: Okay, so you’ve got the money now. At what point in the process did you start looking for deals and how did you find them?

Chris Thomas: Good question. So how did I start looking for deals? Within eight months, I had 20 plus rentals myself. So I had 20 plus rentals, and I just went to the same places that we already had rentals in; smartest way to do it, right? We’re already in the building. So I just went back to them with another LLC, like, “Hey, my company – I would like to get three more rentals or four more rentals,” depending on the building that we’re in. So I went to the rental. So check this out. I went to the best places that were performing the best for my clients, and I just went to those buildings and got rentals in those places.

Theo Hicks: I’m ki