JF2092: From IT Sales to Multi Family Investing With JP Albano

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JP started in IT sales and later found an interest in multifamily investing. Today he owns 70 units in Houston, Tx, and 165 units across the metro Atlanta area. His first deal was partnered syndication, where he learned a lot of lessons that he implemented in his journey forward in acquiring multiple properties. He shares some of the lessons he learned from a deal where he lost over six figures.

 

JP Albano Real Estate Background:

  • Owner, of JP Albano
  • He started in IT sales and later found an interest in MultiFamily investing.
  • Today he owns 70 units in Houston, TX, and 165 units across the metro Atlanta area which are currently undergoing successful repositioning.
  • Resides in Serenbe, Georgia
  • Say hi to him at https://www.jpalbano.com/

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Best Ever Tweet:

“Partner with a more experienced person in a group and seek to offer value in some way.” – JP Albano


TRANSCRIPTION

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

JP Albano: I’m doing wonderful. I’m so excited to be here, Joe.

Joe Fairless: Well, I’m glad to hear that and I’m glad you’re doing wonderful. A little bit about JP – he started in IT sales, found an interest in multifamily investing because he wanted another way to provide for his family. Today, he owns 70 units in Houston, Texas, and 165 units across the metro Atlanta that are currently undergoing repositioning, so we’re going to talk to him about that. Based in Serenbe, Georgia. Did I say that right?

JP Albano: You got it, Joe.

Joe Fairless: Serenbe, Georgia. So with that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

JP Albano: Absolutely. So background, as you mentioned, has been IT sales; I got into multifamily as a way of trying to figure out how I can generate – I’m doing air quotes, but passive income. I’m still waiting for the passivity to kick in, but what I didn’t realize is number one, how much I would enjoy pursuing multifamily deals, and just how incredibly rewarding it is to work in an industry where everybody wants to partner and everyone wants to get things done. Compare that to my sales career, it’s a bit of an uphill battle. You’ve got customers who don’t want to talk to you, competing partners that want to sell competing products… So it’s a refreshing place where I can come into it and pick up the phone and call people and welcome the opportunity to partner and grow and build together. So where we are today, we look at assets that are B and C class. We do the value add. like everybody else.

We have a different spin on multifamily than most people. We really want to dial-up and change the way multifamily is done today by adding up higher levels of customer service, and really treating the people that live there with more dignity and respect than they’re otherwise getting today, and we’ve got a whole business model around how we do that. We look for properties that are 250 units in size, across a variety of markets here in the south and southeast.

Joe Fairless: Okay, so up to 250 or 250 plus?

JP Albano: 250 plus.

Joe Fairless: Okay, have you closed on a 250 plus?

JP Albano: No, the biggest we’ve got right now is almost 100 units. Well, we’ve had a 100-unis and a 60-unit, so in total, that’s the 165. But the biggest we have so far is a 96-unit.

Joe Fairless: Okay, biggest is 96. So why aren’t you focused on other 96 units?

JP Albano: It’s a great question. In order for us to really demonstrate our ethic and our core values for our business here at significant lifestyle communities, to demonstrate that customer service level, we really need to support the staff, and we found that in order to do that, we need properties that generate enough revenue to support the payroll “burden”, and 250, that’s the sweet spot.

Joe Fairless: Okay, so you’ve got 70 units in Houston and 165 across the Atlanta area.

JP Albano: Yes, sir.

Joe Fairless: What came first of those two?

JP Albano: The Texas properties.

Joe Fairless: Texas properties. Okay, tell us a story about the Texas properties.

JP Albano: So my first deal was really more of a key principle or limited partner in a deal. The idea going into that was that I was going to get some experience or at least talking points that I can use to leverage that with brokers and get access to more deals. What I found that is 1) it gave me more confidence, but 2) it didn’t really necessarily lead to more door openings; maybe it did, maybe it didn’t. But my real, real first deal for the Best Ever listeners here is a 28-unit property in Houston, Texas, that me and three other gentlemen, we pulled down, we syndicated. That was our first deal that we really did on our own. We syndicated the deal on top of that. Talk about baptism of fire. There’s a lot of learning opportunity there and a lot of growth that happened. What really got me excited was the personal development that came from that; coming from most people when they’re getting into active real estate investing, getting rid of a lot of limiting beliefs, the idea of “asking people for money” instead of looking at it as providing opportunities for people to get great returns; just going through all those sorts of things. But that was about a $2 million acquisition price. We raised about $700,000. We got a number of friends and family with about $20,000, $25,000 or so, and the property is currently undergoing a really successful repositioning. We had some battle with a third party property manager that seemed like he was saying all the right things and doing the right things. The problem was they weren’t really delivering. So that was a really good learning opportunity that came out of that.

Joe Fairless: Okay, please elaborate.

JP Albano: Yeah, sure. So we had a property where our business plan was to go in and renovate the units, increase the rents, the normal stuff. The problem was we weren’t getting tenant showings. People weren’t biting on the higher rent increases, our renewals were falling through, and we had very little visibility into what the current third party PM was doing. We had a portal that we can log in, we could see leads, but they use a different system outside of that to actually nurture the leads. So we couldn’t see that. So as far as we could tell, we’ve got people putting emails and phone calls in and no one really following up.

Then we found ourselves in a funny spot where we tried to move away from them and suddenly realized that that size property, 28 unit, is a funny place. It’s not small enough for the single-family people to want to care about, and it’s not big enough for the bigger real property managers to wanna deal with. So we almost were forced to take over property management ourselves, which we ended up doing. So we bought some big boy property management software, which we’re moving the rest of our portfolio into, and one of my partners who’s local to the deal took over the day to day management. I’ve gotta say, it’s probably one of the best things we ever did because in a matter of, I want to say, two to three weeks, we got all of our vacant units rented up, and we have a waiting list for our property.

Joe Fairless: You said the first deal you did was at 26 units. Did I write that down correctly?

JP Albano: Yeah, this one we’re talking about right now was 28 units.

Joe Fairless: 28, sorry. 28 units, and you syndicated it…

JP Albano: Yes.

Joe Fairless: So how much equity did you raise in the syndication?

JP Albano: The total raised was about $700,000 to $800,000 if I remember correctly.

Joe Fairless: Okay. What was the purchase price?

JP Albano: It was a $2 million purchase price. So we also raised money for the capital improvements and there was an extra, above ordinary closing costs.

Joe Fairless: Okay. Do you know about how much the legal fees were to syndicate that?

JP Albano: It wasn’t that bad. I want to say it was between $8,000 and $12,000. Yeah, it wasn’t awful.

Joe Fairless: Okay, cool. So with that deal, it was you and how many partners?

JP Albano: It was four of us total. So three other gentlemen.

Joe Fairless: Okay, and how did you split up your roles and responsibilities?

JP Albano: That was a good learning opportunity as well. That when we split up pretty much evenly amongst ourselves. Everyone got 25% from an ownership standpoint. As far as responsibilities go, we didn’t really define who would be doing what, we just had the understanding that each of us is going to contribute in whichever way was possible or wherever we need help; that sort of mentality. It worked out fairly well. As time went on, we saw that the property required a lot more care and feeding than we were expecting, simply because we were under the impression that our third party PM that we were paying money for was gonna be managing the property, but the reality was we were working on the property almost every day for the first four to six months.

Joe Fairless: Okay, so that was your first deal. Do you still partner with those same three other people on deals that you’re working on now?

JP Albano: We are still in communication on other opportunities as they come up. Absolutely, yes.

Joe Fairless: Okay, so what’s the last deal you bought?

JP Albano: Last deal we bought was – oh, this is an interesting one… This one was in October, it was a 57-unit in Hapeville, Georgia, which is a city inside of Atlanta. It’s just north of the airport in Atlanta.

Joe Fairless: Okay. Did you have the same three partners on that one?

JP Albano: No, that was a different deal, different opportunity. I partnered on that one with my current business partner, Matt Shields, on that one, and a few other friends and family. We did not syndicate that one, we just raised money from about eight other people because we bought the property for a song.

Joe Fairless: Okay, got it. So it was a joint venture then.

JP Albano: Exactly, exactly.

Joe Fairless: Okay, so you had a joint venture on that one. So tell us the business plan on that, and first off, how’d you find it?

JP Albano: That property was interesting. My real estate coach, Bill Ham, had notified me. He knew I lived in the area, and he knew that there was something that I and my team could take down. He was at the same time closing, he found himself in a situation where he was closing two properties at the same time. This one would require a lot more work, so he was a little disinterested in it. So his offer was, “Hey, pay me a finder’s fee and you guys can have the contract.” So that’s what we did. We call it a unicorn, really. It was an original owner for 60 years. You wouldn’t even tell this property existed, because when you get off the highway to get there, it’s down the street of a dead-end road. So unless you venture down the street a little bit past the trees, then you’re greeted by this oasis of a smorgasbord of different houses.

The gentleman that was running it previously, was running it as a weekly rental property, again, for the last 60 years. Rents for about $100 a week or $400 a month, and this is in a submarket where a one-bedroom apartment was average rents are $915. So we saw an opportunity to increase the rents, not necessarily to $400, but somewhere in the $500 to $600 range. We had a variety of challenges around not having actual financials. This was the definition of mom and pop. So things were written on carbon copy paper. There were no systems in place, there was very little documentation, so we had to underwrite that with really good finger in the air assumptions on things and being very aggressive with respect to what losses we can expect, things like that.

I can happily say so far, knock on my thick  Sicilian head, that things are turning out a lot better than we ever anticipated. There’s been a tremendous amount of demand for that type of housing. People have the ability to pay weekly because frankly, these people are in a financial situation where they just can’t manage their money well enough to be able to do monthly rents. And they like the area, they like the job opportunities that are there. They like being close to Atlanta. We have a waiting list and we haven’t even advertised any of the property.

Joe Fairless: With that deal, what’s been something that surprised you in a bad way about it?

JP Albano: In a bad way? I would say that– I guess I didn’t recognize or realize that the people that do live there — well, I feel like they’re trying to do their darndest best. A lot of them have sorted and troubled histories and backgrounds. I’m not surprised. I think there might be a few registered sex offenders that live there. So as a family man and a father of two children, two girls, I should say there’s that part that doesn’t sit super well with me, but at the same time, they are human beings. I’m sure that they have atoned for their sins in the legal system. So that’s probably how I would answer that question, Joe.

Joe Fairless: What deal have you lost the most amount of money on?

JP Albano: Oh, it’s a good question. So this was a deal that, as of last Monday, I should say that I learned that the deal was dead. It’s been dragging on for almost a year now. It was a 300-unit student housing property that I was part of the earnest money and due diligence contributor in the GP team; that was my contribution. The team that was running the deal lost the contract. It’s through a variety of mishaps, not being able to raise the capital, some shaky business with the loan, with the deal sponsors themselves. It’s a story for another day, but yeah, I lost a six-figure amount of money on that deal. Pretty sad.

Joe Fairless: I’m sorry that happened.

JP Albano: You know what the good part about is, Joe? It’s a good story to tell to other people in my community and other investors and show them, hey, bad things happen. And it’s okay because you grow from it, you learn from it, you make the best of it and you try to learn from those things, and that’s how I really moved on past it. Honestly, it doesn’t really bother me anymore. It’s just more [unintelligible [00:14:05].18]. It was more of a giant waste of time than anything else, and that’s really the biggest sucky part of it; just a waste of time, for no reason.

Joe Fairless: I get that. So knowing what you know now, if you were presented a similar opportunity somewhere else–

JP Albano: Oh, yeah.

Joe Fairless: –what questions would you ask, now that you know what you went through?

JP Albano: You ready? How much of your money, Mr. Deal Sponsor person or Mrs. Deal Sponsor person, are you putting in the deal? How much of your skin is in this game? And that was the problem; they didn’t have any skin in the game.

Joe Fairless: Got it. So they worked with partners. Those partners did put up the earnest money, they did not, deal fell out of contract, partners who put up earnest money lost money – is that basically what happened?

JP Albano: Exactly, exactly.

Joe Fairless: Got it. That’s a big question to ask. Any other questions? Because let’s say they say, “Oh, I’m putting in 50k of my own money.” Anything else you would ask about that?

JP Albano: I would, yeah. “Let’s also do a personal guarantee on that.” I would be comfortable with that, the personal guarantee, and also understanding how much they are on the hook for as well, and I think that’s fair. And maybe even hashing out a plan, a go-forward plan. Let’s say there’s a couple of partners in the deal and JP is being asked to contribute 20 grand or 30 grand for some due diligence stuff, whatever. “Okay, guys, what happens if we lose the 20 grand? Is everyone gonna contribute $15,000 or some amount of money to help recoup the cost?” I think that’s a fair way of doing it, and just having that conversation about, okay, what happens worst-case? Because those go down; it’s part of life.

Joe Fairless: Well, let’s reverse the focus, and let’s talk about the deal you’ve made the most money on.

JP Albano: That’s lining up to actually be this 60-year-old original owner property.

Joe Fairless: Well, let’s talk about money in the bank, as of this moment, out of all the deals that you’ve done. So the most amount of money in the bank you’ve earned from a deal to date. What is that?

JP Albano: That’s a hard one to answer because all of the money in the deals coming out of them are anywhere from $500 to $1,000 of distribution, which I’m extremely appreciative, Universe, but it hardly is that a number where anyone’s going to crash their car or hit repeat on their smartphone.

Joe Fairless: By crash their car, they’re crashing it because of excitement.

JP Albano: Actually, they’re staggered, they’re staggered.

Joe Fairless: Okay, I was wondering why they’d– that’s a lot of money. Okay, I’m gonna end it on a high note; go find the tree. [laughter]

JP Albano: The funny part about it, Joe, is I’ve been doing this for a number of years and I totally recognize this as a long, long haul game. I’m sure you’re in the same boat, and I’m okay with the very, relatively speaking, small returns right now, because I’m building something that’s going to be bigger than myself and bigger than the partners that I’m working on it.

So I see that there’s a lot of upside and a lot of impact that we can make on the people that we affect and touch in our communities and our investors’ lives as we make amazing returns to them. So that’s the part I’m more excited about right now, and the financial part will catch up to me later on.

Joe Fairless: On the 96-unit, for example, $500 to $1000 a month – I assume it’s from the 96-unit because it’s the largest one, but correct me if I’m wrong.

JP Albano: Yeah.

Joe Fairless: Was there not an acquisition fee? Is there not any–

JP Albano: Oh, yeah, you’re right. Yeah, you’re right. There was, actually. So the fee we got was a $30,000 split from that. So you’re right. Thank you for prompting my memory on that.

Joe Fairless: Okay. So you got probably like–

JP Albano: My portion was 30k on it.

Joe Fairless: Oh, well, there you go. Who needs 30k? Yeah, 30k is nothing, right?

JP Albano: I’m so good at spending money on building this business and scaling out a team that it’s really not.

Joe Fairless: Fair enough. Well, let’s talk about you’ve got the portfolio and you’re focused on finding another acquisition that’s twice as large–

JP Albano: Yes, sir.

Joe Fairless: –as what you’ve acquired, and you said at the beginning of our conversation, that you pride yourself on higher levels of customer service. Will you elaborate on how you deliver on that with the community level?

JP Albano: Yeah, that’s a great question. There’s a couple of aspects of that. One is really making people feel like they are part of a community, and I know that’s an often thrown around term, community and belonging and stuff like that. We’re building a business where that is a core, core function of our membership coordinators. The people that are greeting the prospective members and the people that want to express interest in living there.

For example, we have our people go out of their way to introduce a prospect to any other members of our community that might share similar interest, because you really want to show them that, hey, there are other people just like you that live here as well. Isn’t this wonderful? You want to learn about, ask questions about the people that are expressing interest in living in that community. And what I found is when I’m doing my secret shopping, going to different apartments, I can count on maybe one hand how many times a leasing agent actually asked my first name or even what brought me in today. The first question out of their mouth is usually, “When can you move in?” or “When do you need the unit by? How many bedrooms?” It almost goes without fail, and so I don’t feel that the industry is really delivering on this idea of excellent customer service. Especially in the workforce class housing product, where blue-collar people, hard workers, they’re honestly not used to being treated like if you were a resident at the Ritz Carlton. I don’t know if it has to be that extreme, but that’s just the direction that we choose to operate our business on. So it’s a tremendous opportunity there.

Joe Fairless: So a couple of questions that the person who greets the prospective resident asks out of the gate… What are some other tactical things that if a Best Ever listener’s listening to this and they want to implement something, what are some tactical things we can do?

JP Albano: Very basic questions, greeting them with a smile, standing up and maybe instructing your staff to be able to make it clear that they are excited that someone came in and is inquiring about your property. So asking the basic questions, what’s your name, greeting them by that name, showing a warm and caring welcome, ask them what brings them there today, and then easing into the topic rather about what brings you in and what answers can we provide to you about our community that you want to know about it.

Because reality is 80% of a person’s decision to move into your property is made when they pull up; that’s the whole curb appeal thing. The rest of the experience is either going to move the needle further in the direction of yes or it’s going to dissuade them from wanting to live there. So I just see a lot of properties falling short on that.

The other part of it too is really if your leasing agents are speaking with a prospect and Mrs. Smith walks by, and then in your conversation with this prospect you learned that they like gardening or they like dogs or whatever, have the leasing agent to go out of the way and introduce Mrs. Smith to this prospect. “Hey, Mrs. Smith, I wanted to introduce you to JP. JP here loves gardening.” What that shows you is it shows the prospect that, hey, this is a community that I can fit in, I can get plugged in right away and really have a sense of belonging. I think that’s what’s missing in multifamily housing today.

Joe Fairless: Once they are in the door, and they say, “I love to rent,” and they do rent, do you have anything within your system that delivers on that customer service aspect, that may be outside of — or when you were talking about it, were you really thinking about that initial interaction and impression with them?

JP Albano: Yeah, the initial interaction and impression is the biggest part, because they’re really just not going to get that anywhere else. At least not that I have experienced thus far.

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

JP Albano: If you’re early in your (we’ll call it) active investing or real estate investing career, you really need to show that you can close deals with brokers to win deals. It’s a very competitive market. So you’ve got two options, in my opinion – either buy a small property and you grow bigger over time. Eventually, you’ll gain credibility and the experience to show that you can close deals, and incrementally growing the unit size and your account a bit at a time.

Alternatively, option two is you partner with a more experienced person or group. Maybe you seek to add value in some way, offer help to raise capital by introducing your friends and family to them so they can start to build relationship with those deal sponsors. I guess, in a short time, you’ll start being part of the general partnership pool and you can point to those deals while you build up your investor base, allowing you to have more street cred, if you will, with those brokers, and give you the opportunity to really scale your business and scale your real estate career a lot faster.

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

JP Albano: Bring it.

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

Break: [00:22:45]:03] to [00:23:33].10]

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

JP Albano: Neighborhood Scout.

Joe Fairless: What do you use it for? Neighborhood research? [laughs] As soon as I asked that question, I was like, “Oh, that’s a dumb follow-up question,” but will you elaborate a little bit?

JP Albano: Glad to. So Neighborhood Scout is a great first pass tool to use to help get a sense of what a neighborhood or a market looks like where a property’s located without physically being there. Especially if it’s a market that you’re unfamiliar with, it’s a great way to get a sense of what the crime rate looks like, what the schools look like, what’s the median income… All the basic things you want to know before you make a decision if it’s worth to go physically there and visit this property.

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

JP Albano: Becoming Supernatural by Dr. Joe Dispenza.

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

JP Albano: So I’m an accountability coach with the Jake & Gino group. I enjoy helping students, I’m super passionate about real estate and also growth and personal development. So I like helping get them into the game. I also really enjoy pointing people in hopeful directions around health-related issues, as I’m very passionate about bio-hacking and health and fitness.

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

JP Albano: Check me out on jpalbano.com.

Joe Fairless: JP, thank you for being on the show. Thanks for talking about how you’ve built your portfolio, how you’ve partnered with others, some lessons learned on that 300 student housing project for what to do, questions to ask, and then just your overall approach to business. So thank you for being on the show. Hope you have a best ever day. Talk to you again soon.

JP Albano: Thank you so much show. I really appreciate you.

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JF2082: Four Decades of Raising Capital With Ken Holman

Listen to the Episode Below (00:22:49)
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Ken has over 40 years of real estate investing experience and has done all types of real estate deals like self-storage, industrial properties, golf courses, retail lots, and apartments. Ken has had to raise money multiple times and during this episode, he shares some advice on how he raises capital and the insights he has learned over the years.

Ken Holman Real Estate Background:

  • President of Overland Group and National Association of Real Estate Advisors
  • 40 years experience in real estate
  • He has brokered, developed, constructed and owned over $500 million in real estate assets
  • Experienced in owning commercial, industrial properties, self-storage, golf courses, retail, and apartments
  • Based in Salt Lake City, UT
  • Say hi to him at: https://overlandgroupinc.com/ 

 

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Best Ever Tweet:

“Make sure every deal you do is a good deal. Don’t settle for mediocre projects because you’re anxious to get started.” – Ken Holman


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 Ken Holman. Ken, how are you doing today?

Ken Holman: I’m great, how are you doing?

Theo Hicks: I’m doing great as well, thanks for asking and thanks for joining us. I’m looking forward to our conversation. A little bit about Ken – he is the president of Overland Group and National Association of Real Estate Advisors. He has 40 years of experience in real estate; he has brokered, developed, constructed and owned over 500 million dollars in real estate assets. Experienced in owning commercial and industrial properties, self-storage, golf courses, retail and apartments.

He’s based in Salt Lake City, Utah, and you can say hi to him at OverlandGroupInc.com. So Ken, do you mind telling us a little bit more about your background and what you’re focused on today?

Ken Holman: I’d be happy to. I guess the primary thing that I’ve been involved with over the years has been apartment development. I think I’ve done a dozen or more large apartment projects, ranging anywhere from probably 150 units up to 440 units. Along the way, that’s led to other opportunities. We’ve done several retail projects, mainly Dollar Store type investments… And built a golf course, done some other industrial and office properties. But the core business has been primarily apartments, and also self-storage projects.

What we’re doing today is we’re building an apartment project in St. George, Utah. 116 apartment units. We’re really excited about that. We raised about six million in investment capital on that real estate syndication… And we are doing a couple deals over in Mesa, Arizona. One’s a 580-unit self-storage project. We raised about 2,5 million on that project. It started construction this week, so we’re excited about that.

We’ve got a 240-unit apartment project we’re doing over there, and a 100-room hotel that we’re doing also in Mesa. We raised about 15 million, which has been fully-subscribed, on the 240-unit apartment development… And then the hotel – we haven’t started that raise yet, but… That’s what our company does.

We’re a fully-integrated real estate company. We do brokerage, construction development, capital raising through our syndication, and also property management. So we try to cover the whole gamut of real estate projects, from beginning to end.

Theo Hicks: Thank you for sharing that background. I think a lot of our listeners are gonna be interested in some of your money-raising tactics. You talked about a six-million-dollar raise, a 2.5-million-dollar raise, a 15-million-dollar raise… Do you mind giving us a few tips? Firstly focusing on someone who’s just wanting to get started raising money. And we’re gonna also talk about some tips on scaling to being able to raise over 15 million dollars for a deal.

Ken Holman: Yeah, that’s a big deal actually, to be able to raise that much on a single project… But I started out with my first deal being a little family Dollar Store that we were gonna build in Thermopolis, Wyoming, of all places. I needed to raise $150,000, and I started thinking “Okay, how do I do this?” You get a little reluctant going to family and friends, and trying to beg money from them… So what got me started was I had a self-directed IRA company approach me and ask me if I would give a presentation to them on that particular little family Dollar deal.

So we went over to Boise, Idaho, of all places, and gave a presentation, and walked out of there with 150k in commitments… And I thought “Man, this is pretty fun.” That was a cool way to raise equity capital, so we started getting pretty familiar with how to do self-directed IRAs. Then that branched into self-directed 401K’s, then we developed our expertise in doing 1031 tax-deferred exchange deals.

Then we started getting a reputation for being able to raise discretionary income, and that’s how it all began… It just started evolving. In fact, I don’t know that there’s anybody else out there doing this, because it’s a pretty sophisticated model. But we can take people with discretionary investment capital, with 1031 exchanges and with IRAs and 401K’s, and marry them all into a single project. It gives us a capacity to raise a lot of investment capital that way.

And then we’ve tied in with a couple money-raising funds that really love our projects… And that’s just expanded our capacity to be able to raise equity capital. So it’s been kind of a fun ride, and you’ve gotta have some good people around you to be able to put those deals together… But I think we do, and we’ve developed a really nice product.

Theo Hicks: That was another question I was gonna ask you, it was about your team… But I do wanna ask one follow-up question. Well, I guess two. One will be quick. So we talked about how you’re able to take 1031 exchange investors, IRA investors, 401K investors and wrap them into a single project. You mentioned that is very sophisticated… Just very quickly, if someone wants to do something like that, where can they go to learn more about how to do that process, or is that something they should talk to their securities attorney about? What advice do you have for that kind of person?

Ken Holman: I’ve had to educate some securities attorneys and some 1031 intermediaries on how to do this… So I don’t know that you can go to one single source and get some guidance on how to do it. I’ll give you a quick overview of how it’s done, but that’s where the secret sauce is. That’s why I want everybody who come to our company to be able to do that.

LLCs have the ability to sell basically units, ownership interests in the LLC, and you can bring in investor capital that way. Self-directed IRAs and self-directed 401K’s – the same thing; they can buy units or ownership interest in LLCs. But 1031 tax-deferred exchanges don’t have the ability to do that. They have to do like-kind exchanges; so you’re selling one investment property and buying another investment property.

We see a lot of people with smaller single-family homes, duplexes, fourplexes, that are kind of tired of doing management themselves and would like to get into bigger projects that have more potential, and the possibility of higher returns… So often we see them sell their assets and 1031 into one of our deals. I usually limit the amount of 1031 capital to basically the value of the land. So they can 1031 into the land that we’re acquiring or have acquired, and then we marry that all into what’s called a tenant-in-common agreement, or some people call it a TIC agreement.

TIC agreements in the past have been a bit of a dirty word for 1031 investors, just simply because they’ve been mismanaged, or you get somebody in there that doesn’t know what they’re doing. In our case, it just becomes the mechanism that we use to blend the 1031’s with the LLC investors. So that – you’ve got more than I tell anybody else almost.

Theo Hicks: [laughs] I really appreciate you sharing that with us. Okay, so my other question is you mentioned that one of the reasons why you’re able to do a sophisticated process like this, able to raise so much money is the team. Let’s say I’ve got a business and I’m ready to bring on my first team member; who’s the first person I should bring on?

Ken Holman: That depends… You’ve gotta have a good acquisitions person. That usually is me. I like to handle the acquisition side of our business. And then the supporting cast… I’ve got a son who’s a CPA, and he runs our accounting and our investor relations department, and he and I team up on the development side… So you’ve gotta have somebody that understands acquisitions, somebody that understands development… Reporting is a big deal when you’re raising investment capital. And I didn’t understand that early on, and that’s probably one of the bigger mistakes that I made – I just raised the money and thought “Okay, we’ll do this deal and I will tell everybody when it’s done and we’ll get going, and we’ll make distributions as the project stabilizes.” And we did that, but I have found that investor communication is a real key.

You’ve gotta keep them informed and let them know what’s going on every step of the way. If you do that, they begin to trust you and you develop a relationship with them where they not only wanna do one deal with you, they wanna do several deals with you. So that’s been a side of the business my son Mike brought into the program.

And then because we also do construction, you’ve gotta have a good construction team. Our model is we don’t try to self-perform all of the scopes of work on a construction project; we just oversee the whole project. So we do project management, project engineering estimating and superintending. So we put our superintendent on a project, but we don’t try to self-perform all of the sub-trades. That’s made it so we can move around the country and work in almost any state, which is really good. We’ve been in probably seven or eight states now that we’re licensed in, which is good.

Then you need a securities attorney, and there are different types of securities attorneys, frankly. There are some that throw more roadblocks up than actually are helpful in getting  the private placement memorandum done. And/or they’ll make the private placement memorandum, which is called the PPM, so darn difficult, and with so much legalese in it that it scares away the investors.

So you’ve gotta be able to work with a securities attorney that understands investing and how to work with investors, so that you get all of the disclosure in there that you need to, but you’re not putting so much difficult language in there that it scares people away.

And then obviously you need to develop several sources of fundraising. That includes doing your own webinars, things like what we’re doing here today. Also, any other funds that like to invest with you… And they’re out there, but they’re also looking for really experienced people. So they generally won’t work with a newbie right out of the gate.

Theo Hicks: Perfect. Okay, Ken, so for someone who wants to  be in your position and have been involved in over 500 million dollars in real estate transactions, what is your best ever advice?

Ken Holman: Oh, my gosh… Best ever advice maybe is two or three-fold. One, make sure that every deal you do is a good deal. Don’t settle for mediocre projects because you’re anxious to get started. That would be number one. Number two, do what you say you’re gonna do. When you’re raising equity capital, do the very best you can to inform them on what they need to do and how they need to do it and what your timeframes are, and then work really hard to stick with those.

And then I guess the last piece of advice is communicate. Just keep them informed every step of the way; whether you’ve got good news for them or bad news for them, make sure you’re always there, telling them where you are and what you’re doing, and if it’s bad news, just be straightforward with them and let them know where you’re at. They’d rather hear that than not hear anything.

Theo Hicks: Okay, Ken, are you ready for the Best Ever Lightning Round?

Ken Holman: Oh, my gosh… I guess. Let’s try it and see what happens. I  may fail, but you never know.

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

Break: [00:16:36].23] to [00:17:20].15]

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

Ken Holman: What did I really like right now that I’m reading, I’m kind of excited about is a book called “Start With Why” by a guy named Simon Sinek. He talks a little bit about how great leaders motivate and inspire other people, so that’s been kind of a fun book to read.

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

Ken Holman: I’ve been in this business 40 years,  man… I’d retire. I’ve had some people already tell me I should retire, but I’m having too much fun, so I don’t see any reason to stop yet. But if my business were to collapse, I’d probably take a little time off, buy a new suit, and then I would probably get started again, doing exactly what I’m doing… Because I’ve learned how to do it, and frankly I’m pretty good at it, so… I think it’d be possible to do it again.

Theo Hicks: What deal did you lose the most money on? How much did you lose, and then what lessons did you learn moving forward?

Ken Holman: Well, I’ve been in the business enough years that I’ve been through more than one real estate cycle, and probably the hardest real estate cycle that we dealt with was back in the Resolution Trust Corporation days, when the 1986 tax reform act happened… And they didn’t even have what was called passive losses; they didn’t have those. But the losses that you generated in real estate through depreciation, you could write off against ordinary income. They disallowed all of that; it completely changed the business. 5,000 savings and loans went out of business, and we really struggled with properties. During that era, occupancies went from 90 down to 50, and we lost some properties back then, as did everybody else. Some of the big players went out of business… So that was just not a good era.

Today I see this Coronavirus and I see a few things happening, but what we’ve got going on right now in terms of its impact on the real estate business is just not that great compared to what some other downturns have had… So that’s my worst situation; it’s a long answer to a short question, sorry.

Theo Hicks: I didn’t know about that, so thanks for sharing that. So what is the best ever way you like to give back?

Ken Holman: I have two or three ways that I give back. I’ve been a member of Rotary International for a long time. I was one of the founding members of my club here that we formed, and they have a program called the Paul Harris Fellowship, which is with the Rotary Foundation, and you can contribute money to that, and then that goes into all sorts of humanitarian efforts.

I also contribute to a humanitarian program with our local church. And then I’ve helped organize several Blood Drives with the American Red Cross, which has been cool.

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

Ken Holman: Probably the easiest place to reach me is on my email address, which is kholman [at] overlandcorp.com. You reach me there at any time and Natalie, my assistant, just keeps on top of that, so we’re pretty good at responding when we get emails.

Theo Hicks: Well, Ken, I really appreciate you coming on the show today and sharing your advice, and I also appreciate you sharing your email address. So Best Ever listeners, make sure you take advantage of that. It’s rare that a guest with this much experience gives away his personal email address… So make sure, again,  you take advantage of that.

Just to summarize some of the biggest takeaways that I had – you kind of gave away your secret sauce a little bit about raising capital…

Ken Holman: Don’t tell anybody, okay?

Theo Hicks: I promise I won’t tell anyone. So you wanna relisten and listen to that. You also gave us some advice on what to do to get to the point of being able to raise such large amount of capital, and sort of how you started with a small $150,000 raise, and obviously are up to 15+ million dollar raises… It sounds like it is just slowly stepping your way up and gaining reputation, and as you do more and more, you learn more, you know more, and you attract more and you attract more people to you, assuming you’ve been successful.

Ken Holman: Yeah.

Theo Hicks: And then also you  mentioned how you eventually were able to work with funds as well, so I’m sure that was also helpful.

Ken Holman: Yeah.

Theo Hicks: You broke down the different team members that someone would need to do what you do, and then you gave your three-fold best ever advice for someone who wants to grow  up to doing 500 million dollars’ worth of transactions. Number one, make sure that every deal you do is a good deal, so don’t settle just because you’re anxious to get started into your first deal. Number two is to do what you say you’re going to do in raising capital; whatever you say that you’re gonna do to your investors – make sure you stick to that. And then number three was to communicate with your investors. Keep them informed every step of the way, with the good news and the bad news. They’re rather hear the bad news from you than not hear it until it starts affecting their money.

Ken, again, I really appreciate you coming on the show and joining us today. Best Ever listeners, as always, thank you for listening, have a best ever day, and we will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

JF2074: Ashcroft Underwriting Adjustments During COVID-19 | Syndication School with Theo Hicks

Listen to the Episode Below (00:14:41)
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Theo is back with another Syndication School episode and this time he is going over how Joe and his team at Ashcroft Capital are making adjustments to how they underwrite future deals during this pandemic. 

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.

Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we offer a free resource that will help you along your apartment syndication journey. All of these free resources, as well as free Syndication School episodes can be found at SyndicationSchool.com.

In this episode we’re going to go back to talking about the Coronavirus. We took off about a week or so, and we’re gonna jump back into it because today I want to talk about some of the changes that Joe and Ashcroft Capital are making to their underwriting of value-add apartment deals during and then probably after the Coronavirus pandemic.

The purpose of this episode is going to be to outline the four main changes that Ashcroft Capital is making to the underwriting of new deals currently, and then for the — I won’t say foreseeable future, but at least for maybe the next few months after the Coronavirus pandemic is over.

Overall, the underwriting changes really need to be on a deal-by-deal basis, because different markets have different rules as it relates to Coronavirus. This means that the economy is being impacted differently… But there are a few items – four items in fact – that Ashcroft thinks are important to consider.

First is going to be year one operations. It should be expected that there will be an increase in things like vacancy, bad debt and concessions throughout 2020. And then once things settle down a bit and the economy reopens, it is also possible that some residents will no longer be able to afford living at the property. So the two things – number one, some of the income loss items, like vacancy, bad debt and concessions. When you’re making your assumptions, you should be projecting that they will be higher than usual. Based off of the T-12 or current market rates, you can’t really use those for vacancy, bad debt and concessions right now, because it’s a different environment, and once the Coronavirus ends, it will also likely be a different environment.

Secondly, once the economy reopens, the residents that are currently living at that property – so if you buy a property now, once rent repayment programs are ended, or rent delays are ended, evictions are allowed again, maybe expect to have to evict more tenants than you usually have to, because they’ve just been living there and maybe paying partial rent, or just doing what they could… But once it’s over, they can no longer pay the full amount. That’s year-one operations.

Number two is rent growth. The rent growth for 2020 in the vast majority of markets is projected to suffer, as unemployment rises. But the silver lining is that most of any rent lost in 2020 is expected to be recovered in 2021. From my understanding – I believe I’ve talked about this in one of the episodes – the rent growth is supposed to suffer; rent growth isn’t gonna go negative, it’s just going to be less. I’m pretty sure the most recent calculation I saw was about 1.3% percent, as opposed to 2%, 3%, 4% we’ve been seeing for the past decade or so.

Apparently, this dip is supposed to be temporary… So this dip in rent growth to the 1% range is temporary, and then in 2021 it’s supposed to go back to what it has been before. Obviously, when you’re underwriting a deal, the year one rent growth and year two rent growth should reflect the immediate area and the demand in the market. So obviously, you don’t wanna just use the 1% average. You wanna figure out “Okay, what do the experts think will  happen to rent in this specific market in the next two years?” And then probably be even more conservative and assume that it might be less than that. That way if it’s better, great. If not, then you’re still able to hit your returns to your investors.

Where does this information come from? Your management company. We’ve talked about the importance of your property management company, how to find a property management company, so you can find all that information at SyndicationSchool.com.

Number three is going to be debt. As of right now, most private lenders – these are basically the bridge lenders; the ones that do the 2-3 year renovation type loans – are taking a pause from lending. But lenders that are still active are being extremely conservative with their loan proceeds and terms.

I talked in a previous Syndication School episode about JP Morgan Chase, for example, has changed their lending criteria; this is for residential loans, I understand that, but it’s just an example of a lender becoming extremely conservative. They’re only lending to borrowers with a credit score of 700 or more, and who can put down 20% or more. So that definitely limits the pool of people who can get residential mortgages.

Similarly, other lenders are doing the same for commercial loans. I think one of the biggest changes is the reserve amounts that are required. Now, the agencies are lending, but they are also being conservative on their underwriting and requiring large upfront reserves for debt service payments. So the reserve requirements are changing. Typically, you create an  upfront reserves account called an operating account for unexpected things that happen at the property, but now in addition to that you need another upfront amount of reserves that are a lender requirement.

So more conservatives proceeds should be underwritten, and the underwriting needs to include these upfront reserves, as they will  impact the equity required to fund. So you’re gonna need to raise additional money now from your investors, even though the cashflow is not going to be going up. Typically, if the deal is cash-flowing $100 per door and you need to raise X amount of money, well now that deal might be cash-flowing $75 per door and you need to raise even more money from your investors. That’s why if you’re looking at deals right now, you’re gonna have to negotiate a lower purchase price because of these new lending criteria, and the rent growth, and the year-one operations that I’ve talked about previously.

So what does that mean more practically? Make sure that you ask your lender or your mortgage broker about the new loan-to-value requirements, the new upfront reserves requirements, and other terms that you need before you submit an offer on a deal. So you need to have an understanding of whatever lender you’ve been using or you plan on using, what are the terms of the loans they’re offering, what are the LTV terms, how much money do you need to put down, how much money do you need as upfront reserves, what are the interest rates, what’s the amortization? Is there anything that I need to  know that’s changing, so that I can underwrite my deals properly? Because if you don’t know what the debt is going to be, it’s gonna be impossible to submit correct offers on deals.

And then lastly, for value-add deals, depending on the deal, many owners are pausing their interior renovation programs until the market is restabilized… So when you’re underwriting a deal, it may be wise to assume that the value-add program does not start until the overall market stabilizes.

Now, this is something that’s gonna be obviously up to you, depending on the state you’re investing in, or the local area you’re investing in, if construction is considered an essential service, if construction companies are still working, things like that… But you need to think about “Okay, I plan on going in there, renovating all these units and doing all these exterior upgrades”, but what are the typical ways that you renovate interiors? Exterior renovations are likely fine, assuming that business is essential in your state, but interior renovations is the one that might be delayed because of the fact that residents aren’t able to move out right now.

So again, to summarize, the four changes that Ashcroft are making – and again, these four points came straight from the director of acquisitions at Ashcroft Capital – is the year-one operations. Things like vacancy, bad debt and concessions should be assumed to be higher, at least during year one. Rent growth should be assumed to be lower than  previous years, so whenever you’re underwriting your annual rent growth increases, or even when you’re determining what your rent premiums are going to be, you need to have a detailed conversation with your property management company to determine how to calculate that. So annual income growth is typically 2%-3%. You definitely wanna be underwriting maybe a 1% or 1,5% at least for year one and year two… And then when it comes to rent premiums, again, you have to see what’s the demand for those units in the immediate area? What are the prices on the newest leases in that area? It can’t be leases from a year ago or six months ago, or really even two months ago. It needs to be probably within the last few weeks to a month – what are the rents being demanded for those specific units?

Number three is debt, so making sure you have a conversation with your lender, so you know exactly what types of terms they’re offering on their loans now, including what sort of upfront reserves requirements are needed.

And then lastly, for the value-add deals, understanding that you’re likely going to need to delay any interior renovations until the market restabilizes and Covid is gone, because you’re not allowed to evict people, tenants are probably moving a lot less because of the Coronavirus… So those are four things to keep in mind when underwriting deals.

Obviously, if you are out there underwriting deals, I’d love to hear from you what you’re doing, so we can maybe add to these four points. So if you have any advice, any things that you’re doing differently when underwriting, please let me know by emailing Theo@JoeFairless.com. And of course, anyone who reaches out and I include their information – obviously, it won’t be in this episode, but I’m gonna turn this into a blog post, so I  will definitely give you a contributor status for the blog post, since you contributed to underwriting advice to the document.

That concludes this episode. To listen to other Syndication School series about the how-to’s of apartment syndication and check out some of our free documents, please visit SyndicationSchool.com.

Thank you for listening, have a best ever day, and I will talk to you soon.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

 

JF2073: How To Calculate Class A and B Return Projections | Syndication School with Theo Hicks

Listen to the Episode Below (00:22:44)
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In this Syndication School episode, Theo will first review the difference between Class A and Class B investors. Afterward, he will share with you how to calculate the projected returns for each class, and to follow along with Theo you can download his free excel document below.

Free Class A and Class B document

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

 

Click here for more info on groundbreaker.co


TRANSCRIPTION

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy.

For the majority of these episodes we offer a free document. These are free Excel template calculators, free PDF how-to guides, free PowerPoint presentation templates, some sort of resource that will help you along your apartment syndication journey. All of these free documents, and past free Syndication School series are available at SyndicationSchool.com.

In this episode we are going to talk about how to calculate the returns to limited partners when you have a two-tiered path of investment structure. What does that mean? Well, generally when people get started as syndicators, they offer one investment tier to their investors, and it’s either a preferred return only, a profit split only, or a combination of the two, with the most common being an 8% preferred return, and then a 50/50 or a 70/30 profit split.

Now, as you gain more experience, or even at first, you might decide to offer two investment tiers – class A and class B. Our episode is focusing on what are the differences between class A and class B. I’m gonna do a quick refresher on that, talking about the advantages and disadvantages of each, and then I’m gonna talk about how to actually calculate the return on investment and the internal rate of return to investment tiers.

For this episode, I’ll be giving away a free document. It will be a  calculator that will allow you to automatically calculate the ROI and the IRR based on the steps I discuss in this episode. So I’ll talk more about that free document here in a little bit.

First, let’s just do a refresher on class A and class B. Class A, investors sit behind the debt in the capital stack, which means that when all expenses are paid, including the debt, the next cash goes to the class A investors. Class A investors are offered a preferred return that is generally higher than the preferred return offered to class B investors.

On Ashcroft deals, the class A preferred return is 10%. Class A investor have virtually no upside upon disposition or capital events, nor do they receive a split of the ongoing profits. So they are getting the 10% or whatever the preferred return is, and then that is it. But in order to be taxes the same as class B investors, they do get a very small piece of the upside, that varies from deal to deal… So they do get a small piece of the upside for tax purposes, but overall they’re not given a large upside in the deal.

In Ashcroft deals the class A tier is limited to 25% of the total equity investment, and the minimum investment is $100,000. So the reason why is because let’s say year one the project cash-on-cash return is only 7%, and you may say “Oh, well I can’t pay my 10% preferred return then.” Well, if only 25% of your investors are offered a 10% preferred return, then you can hit that preferred return of 10% to that portion of investors. I’m not sure exactly how that math will work out, but as long as these class A investors aren’t making up a large portion of your investor pool, then you don’t need to have a 10% project cash-on-cash return to distribute 10% to the class A limited partners.

Now, of course, other syndicators may offer a different preferred return, or have different equity percentages or different minimum investments. That’s just what Ashcroft does currently, and I just wanted to give you an example.

Class B investors sit behind class A, so all expenses go out, including debt, and then class A investors get paid, and then class B investors get paid with what’s left. But they sit in front of the general partners generally in the capital stack, so they get paid before the GP is paid.

Class B  investors are offered a preferred return that is lower than the preferred return offered to class A investors. On Ashcroft deals that return is 7%, compared to that 10% for Class A. If the full preferred return cannot be paid out each month, or each quarter, or each year, depending on what the payment frequency is, then it accrues over the life of a deal.

Class B  investors do participate in upside upon disposition or capital events. On Ashcroft deals the split is 70% of the profits up to a 13% IRR, and then 50% of the profits thereafter. The Class B  minimum investment for Ashcroft is 50k for first-time investors and 25k for returning investors. Actually, now that I’m thinking about it, I think that Ashcroft recently reduced the class A minimum investment to 50k. [00:09:04].21] and really all other types of tiers offered. Syndicators may offer different preferred returns, profit splits, different minimums for these class B investors.

So since class A investors are in front of class B investors in the capital stack, they are paid first, plus the class A investors are offered a higher preferred return, therefore the class A tier is a deal for investors who prefer a stronger ongoing cashflow… So they’re more likely to get this cashflow, and it’s higher than what it would be if they were class B.

Since class B investors are sitting behind the class A investors in the capital stack, they are paid what is left over after the class A have received their preferred return. So if the full preferred return isn’t met, it accrues and is ideally paid out upon disposition or a capital event. So class A investors are offered a lower preferred return, but they do participate in the upside upon disposition or capital events like  a supplemental loan or a refinance… So the overall return over the life of a deal is higher for class B investors, compared to class A.

Class A is gonna get 10% a year, or whatever that percentage is, class B might get less than their preferred return year one, maybe 5%, but maybe eventually their cashflow goes up to 9% or 10%, but then they’ll get a massive 20% return on investment at sale over the life of the investment. It’s really at the end where they surpass the class A investors.

So the class B tier is ideal for investors who want to maximize their returns over the life of the investments. And if I’m the person who wants both – if I want strong ongoing cashflow AND to participate in the upside, typically that passive investor will be allowed to invest in both. So if you have a passive investor that wants to do both and you’re offering class A and class B, they should be able to invest a portion in class A and a portion in class B. So that’s what class A and class B are, as a reminder.

Now, how do you calculate the returns? I recommend downloading the document and having it open right now in Excel, but I will assume that you don’t have it open, and I will do  my best to explain exactly how to calculate. At the end I will discuss in more detail how the free document works. So the first thing that you need to know in order to calculate the returns to class A and class B investors are 1) total equity investment. So this is the total amount of money that you as a syndicator raised from investors for the deal, because that’s what’s gonna be their capital account and that’s what their return is gonna be based on… And then assuming it’s a five-year hold, you need the project-level cashflow; that’s income minus expenses gives you the NOI. NOI minus debt service gives you the cashflow. So you need the cashflow for year one through year five, as well as the sales proceeds.

Basically, you have year zero a negative amount of money technically, because that’s what the investors are paying, and then year one, year two, year three, year four, year five you’ve got your cashflow coming in positively, and then for the sales proceeds it’s just the profit remaining after all expenses are paid at sale. If you’ve downloaded the simplified cashflow calculator, it should be as easy and copy and pasting these figures into this model. As a reminder, the sales proceeds is the sales price minus the debt owed to the lender, minus any closing costs you need to pay for, minus any other costs associated with the sale, like disposition fees, broker’s fees… And then what’s remaining is the total sales proceeds. So that’s one bucket of numbers that you need.

Next you need to determine what the structure is going to be for class A and for class B. So for each, you need to know what the preferred is going to be, and what the profit split is going to be. So for the purposes of this document, the preferred return to class A is 10%, and the profit split is zero. For class B the preferred return is 7% and the profit split is 70%.

Now, the next step is to determine what that preferred return amount looks like for class A and class B. Basically, for class A you need to determine of the equity investment which portion is class A. To keep things simple, in this calculator it’s just set at 25%; obviously, you can go in there and manually adjust it if you want to. Class B is set at 75%, but you can go in there and manually-adjust it, if you want to.

So you’ve got 25% of the equity investment, you multiply that by the preferred return percentage of 10% to get the preferred return amount. Same thing for class B. So Class B  you take 75% or whatever percent of the equity investment, multiply it by the preferred return, which is 7%, and you’ve got the preferred return amount owed.

Now, if you remember, class A is paid first. So when you’re looking at your year one cashflow number, you take your year one cashflow and you subtract the class A preferred return amount completely out of there. And then what’s left over is what goes to class B investors.

Now, let’s say that year one you are able to cover the entire preferred return amount to the class A investors, but the cashflow that’s remaining is not enough to cover the preferred return owed to the class B investors. Obviously, they’re still going to get paid, but it’s not gonna be full. So in the sample cashflow calculator that you download it shows that the class B investors only get a 3% return on investment year one, as opposed to 7% preferred return that they’re owed. Every time that happens, for every year that happens, you need to track how much of the preferred return is actually accruing. So if they’re given a 3%, then they’re owed an additional 5%. So that’s going to accrue.

Now, for this particular document the way I have it set up is that it accrues and then it is paid out at sale. I’ll talk about how that happens later, but it’s not gonna be paid out the next year, it’s gonna be paid out at sale. If you want to have it paid out the next year, you’re gonna have to do some manipulations to the cashflow calculator.

Basically, you repeat that process for each year. This is how it works in this cashflow calculator. Let’s say at year two you take your full cashflow  for year two, you pay your class A investors their preferred return if the remaining amount is greater than the preferred return owed to the class B investors. So class B gets their full 7%, so the profits remaining after the 10% is paid to the class A, after 7% is paid to class B, that extra cashflow is going to be split. In this case, 70% goes to class B and 30% goes to the general partners.

Now, typically, profits are considered a return of capital, preferred return is considered a return on capital. So whenever capital is returned to them, then their capital account reduces. Now, in Ashcroft deals the preferred return is always gonna be based on the original investment, and then the general partners will catch up at sale. So what that means is whenever the class B investors are receiving a profit split, you need to track that so that you understand “Okay, after five years I’ve returned a  total of $15,000 to investors from this profit”, because they’ve got $15,000 in profit, therefore they’ve been returned $15,000. Therefore at sale, I’m gonna return them their full equity minus that $15,000 they’ve already received.

Basically, the two things that you need to track whenever you’re paying out your class B investors is if they’re not receiving their full preferred return, how much is accruing that year, and then number two, if they received a profit split, how much profit do they make, because that’s something you need to track, because that’s considered a return of capital.

So you repeat that process for years one, years two, year threes, year four and year five. When you do that, you should have a total class A accrued preferred return number, and a total return of capital from the profit split for the class B investors.

Obviously, if you aren’t able to distribute the full 10% preferred return to the class A investors, then the same concept applies… But since they’re not receiving a split of the profits, you only need to focus on the preferred return accrual and not anything about them receiving a return of capital, because they’re not.

Alright, so now you sell the deal and you have your sales proceeds calculation… So you’ve already copied and pasted the sales proceeds into the cashflow calculator… So now you need to determine which portion of the sales proceeds goes to class A, and which portion goes to class B. If you remember, class A is in front of class B in the waterfall, so class A gets their equity back first. That one’s pretty simple, because class A did not get a return of capital, so they receive their entire equity investment back. So the sales proceeds are a little bit less.

Next is the money that goes back to the class B investors. If  you remember, they’re owed three things at sale. First, they’re gonna be owed their equity back. So the equity they receive is going to be their total equity investment minus whatever capital they’ve received thus far as profits. So if they’ve received $15,000 in profits, it’ll be their total equity investment originally, minus $15,000 which is returned.

The second thing that’s returned to them is the preferred return that they’re owed. So whatever the total accrued preferred return number is, that is also owed to class B investors. So it’s the equity owed, plus preferred return owed. Lastly, it’s going to be the profit split. So whatever is left over after the class A is paid, class B has received their equity investment back, class B has received their accrued  preferred return, the  remaining profits are split 70/30 between the class B investors and the general partners.

Now, if you have some sort of tier structure where it’s based on IRR, and once there’s a 13% IRR it drops to 50%, you’re gonna have to do that calculation on the back-end, because that’s not what this does. This is just a straight-up profit split, just to keep things simple.

So the remaining profits are multiplied by 70%, and that also goes to the class B investors. So if you’re got profits of class B investors, plus preferred return owed to investors, plus equity to class B investors. So now you have a total proceeds to the class A, which is just their equity investment, and a total proceeds to class B.

Now what you wanna do is you wanna create a data table so that you can do your IRR and your ROI calculations. The ROI calculation is pretty simple – it’s just their initial equity investment divided by the money that they’ve received each year; so year ones, two, three and four it’s just the cashflow they’ve received… So for the class A it’s always gonna be 10%, for class B it’s gonna be ideally 7%, maybe lower at first, and maybe eventually higher… And then same thing for year five, but this actually includes the sales proceeds as well, so it’s gonna be a number that’s ideally over 100%. Then you can average all those to get your annualized cash-on-cash return.

Then for the IRR calculation, it’s just an Excel function where you basically do =IRR and then you highlight year zero through year five, and then it’ll give you what the IRR is.

Now, let’s talk about how to use this model. On the document that you’ll see there are a few locations that you need to input data. Basically, everywhere you input data, it’s gonna be in red, to make it very simple for you.

So you need to input the initial equity investment year one, two, three, four and five, project-level cashflow, the total sales proceeds for project-level, and then the preferred return percentage and the profit split for class A and class B. Once you input those numbers, it’ll automatically calculate year one through five cashflow for class A and class B, as well as the return on investment and the internal rate of return. So it’s essentially a very simple calculator.

And again, where you get the equity investment year one, two, three, four and five and sales proceeds numbers from – that comes from your simplified cashflow calculator that you gave away a while ago now. So if you wanna find that, go to SyndicationSchool.com to download that document.

That concludes this episode of Syndication School. Thanks for listening. Make sure you download your free calculator for calculating class A and class B return projections. Check out some of our other Syndication School episodes and those free documents as well.

Have a best ever day, and I will talk to you tomorrow.

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JF2064: A Passive Investors Perspective During The Coronavirus With Travis Watts

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 Travis is a full-time investor and the director of Investor Relations at Ashcroft Capital. Travis has written some articles on our blog to help investors during the Coronavirus pandemic we are all going through today. As a full-time passive investor, Travis gives his perspective on what he is seeing in the current market and what he is keeping an eye out for. 

Inflation article

 

Travis Watts Real Estate Background:

  • Full-time passive investor
  • Director of Investor Relations at Ashcroft Capital
  • In 2009 he started investing in multi-family, single-family, and vacation rentals
  • Based in Denver, Colorado
  • Say hi to him and grab a free passive investor guide at Ashcroft Capital

 

 

 

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“There is always a silver lining, there will always be opportunities that pop up. Look at this as an opportunity to educate yourself” – Travis Watts


TRANSCRIPTION

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

Travis Watts: Hey, Theo. I think I know you from somewhere, don’t I?

Theo Hicks: Yeah, I think I know from somewhere as well. If you guys don’t know, Travis is the director of investor relations at Ashcroft Capital. That’s how I know him. I met him at our first quarterly meeting. I’m looking forward to our conversation, because I haven’t been able to have a long conversation with him yet, so I’m looking forward to getting some advice… Just like you guys are looking forward to it as well.

A little bit more about Travis – he’s a full-time passive investor, as well as the director of investor relations at Ashcroft Capital. In 2009 he started investing in multifamily, single-family and vacation rentals. He’s based in Denver, Colorado, and you can say hi to him at AshcroftCapital.com. You guys should all be able to spell that by now.

Travis, before we begin, we’re gonna be talking about the Coronavirus today. Travis has some really good articles on our blog right now, so we’re gonna talk about one of those in particular, and maybe talk about the other one as well.

Before we get into that, Travis, do you mind telling us a little bit more about your background and what you’re focused on today?

Travis Watts: Sure, I appreciate that intro. So I got started in real estate, as probably a lot of people do, probably the majority of real estate investors – single-family. It kind of led to trying to scale that portfolio up… The problem that I had personally, which isn’t applicable to everyone, but I was working a full-time W-2 job, more importantly a 98-hour workweek job, where I was away from home, completely dedicated to that… And as I started trying to scale the single-family on the side, doing some flips and vacation rentals, things like that, it just got to be too hands-on for me, which — I had to go back to the drawing board, learn how to become a completely passive investor, what strategies and assets and things like that existed… And that’s where I ran into syndication investing in real estate.

I made a complete transition around 2015 through 2016, where I was selling all my single-family, I was going all-in into multifamily and syndications… So that’s brought us to the last 5-6 years. I came onboard with Ashcroft to just help spread education around passive investing and what benefits those can have for certain people’s lives.

Theo Hicks: Perfect. Thanks for sharing that. One article that I really liked was your article about inflation, and how people can benefit from the inflation from printing off two trillion dollars in cash… Do you wanna summarize that article? And then if there’s anything else you wanna talk about as it relates to inflation.

Travis Watts: Yeah, and again, I think that article is out there both on the Best Ever Community – I put it out there I think under my Bigger Pockets as well, things like that… So check it out. But the concept is pretty basic, really. This is a topic we could have talked about a year ago, two years ago, five years ago… And that’s just this idea that the Federal Reserve is printing money, every time we’re going into these crisis situations – 2008-2009, now this pandemic here being probably the worst in terms of what we’re gonna see in money printing… But that’s devaluing the purchasing power of the dollar.

There’s a lot of scary headlines out there that you read, about the mortgage crisis, and just what’s unfolding, and all this scary bad news, but here’s a way to look at it in the light of real estate, whether we’re talking single-family, multifamily, whatever. When you’re acquiring debt, so you’re going out to get a mortgage, you’re hopefully getting some long-term fixed-rate debt, depending on what you’re doing, meaning that you’re locking in a payment every month, that’s gonna be due. Let’s just call it $1,000/month for a owner-occupied home, that’s your mortgage payment. So that payment, on the debt side, is never gonna change for 15 years, 30 years, whatever kind of mortgage you get.

The idea is as we move forward and the Fed continues printing and printing, and the purchasing power of the dollar is going down and down and down, you’re basically using cheaper dollars to pay off that debt. So what is $1,000 in today’s money could be worth $200 down the road in the future. So it’s gonna make it much easier to pay off that debt long-term, and more specifically in terms of investment real estate, where tenants are paying that off anyhow. So that’s what the article is kind of about, from a high-level, for those that may not be tuned in. Yes, the Fed has already printed a couple trillion dollars, and that can quickly escalate to 4, 6, 10. I hear all kinds of numbers out there.

The scary thing to think about is — this is how inflation is created. Basically, inflation is the cost of goods going up year after year after year, so it takes more and more dollars to purchase the exact same thing, years down the road. So the crisis here, in my opinion, if you wanna look at the negative side of things, is we’ve got 2019, four trillion dollars in circulation. That’s like our money supply. So if the Fed’s gonna go and print four trillion dollars as an example, then theoretically we’re gonna have some massive inflation kicking in at some point, theoretically a doubling in price… Maybe not today or tomorrow or next year, but down the road.

So if anything, look at this in a positive light – we’ve got all-time low interest rates; it’s a great time to be refinancing projects, and potentially getting involved with real estate, if that’s something that you haven’t done yet or that you’re currently doing. So a little long-winded… There’s still hopefully some value in reading that article, but that’s the high level.

Theo Hicks: Obviously, it makes sense to get debt, but since I’ve got a $1,000 payment and I’ve got 100k (let’s say) sitting in my bank right now, and five years from now that 100k is gonna be worth 10k… Practically speaking, should I pay down my debt on my properties?

Travis Watts: Yeah, that’s a good question. The way I look at it is “What’s my alternative?” In general right now we have a lot of low interest rate debt for things like real estate, whereas a lot of folks might have at this time high interest rate debt. They might have personal loans from a bank, or credit card, or retail debt… Things they’re paying 10%, 15%, 20%, 25% annually on. That’s what I’d be focused on right now paying down.

And what I mean by alternatives – if you’ve got a 3,5% mortgage today, could that money be better utilized if you were to invest it in something that could produce a higher return? Like a 8%-10% annualized cashflow return. So I’m not giving any kind of financial advice to anybody, but it just depends on your situation, what kinds of debt you have, but certainly for the folks that are saying “I have $100,000 in the bank account. I’m just gonna let that sit and ride for the next 10-20 years as my little reserve account”, you’re most certainly gonna be losing a lot of that purchasing power over that time, so I’d be looking for ways — while safely and conservatively keeping your emergency fund in place, certain months of living expenses (3-6 months is what you commonly hear), I’d be looking at places to park that capital, things like real estate, that are kind of a hedge against inflation, somewhat.

Theo Hicks: Okay, thanks for sharing that. Changing gears a little bit – so you are a full-time passive investor… Most of the people I’ve talked to about the Coronavirus are actively investing, so we talked about rent collections, and making sure they can pay their mortgage payments, and asking how much cash reserves they have… But something that I’d be interested to ask you about as a full-time passive investor is are you still seeing opportunities to invest in right now, or has that slowed down? And if so, what’s your strategy over the next 6-12 months as a passive investor? Are you kind of in a holding pattern, are you still looking for deals? Things like that, if you could talk about that for a little bit.

Travis Watts: Yeah, absolutely. I guess the unique perspective or the benefit of not only being an investor with one group like Ashcroft, but being an investor with 14 different groups is I get invited to a lot of webinars, a lot of conference calls, I get a lot of email updates, I get a lot of “Here’s what we’re doing in terms of Covid” and all this kind of stuff… So I have a bit of a broad perspective on what a lot of folks are doing out there.

In general, this interview is taking place mid-April. This is our first real impacted month. This whole Corona thing got real serious towards the end of March, and then rent was due April 1st. So my opinion here is that a lot of people were already kind of set up and primed to pay their rent anyway. They already had it in the bank, or in their savings account… They were ready to go for April. I’m a little more concerned maybe with May and June, and however long we’re in this lockdown, and the economy is shut down, and things like that.

What I have seen more specifically, to answer your question, with these different syndication groups in general is a little bit of wait-and-see right now. It’s a little too early to start calling the shots, it’s a little too early to start saying “Oh, there’s all these new deals popping up, things like that.” It’s hard to look at a T12 statement and have that make a lot of sense, looking at 2019 numbers, when now we’re in this state where we don’t know what our collections are gonna end up being. So I’m a bit of the same mindset.

I did invest in some recent deal that have closed through the March timeframe, and I think one in April… But at this point I’m focused more on making sure I have adequate cash reserves personally on hand, in case things pop up; capital calls, whatever. Or best-case scenario, I just hoard a little bit of cash and then maybe by late summer there’s some deals popping up that make a lot of sense to get involved with, and we’ll have the cash to do it.

So that’s kind of where I sit. It’s a little bit of sit-and-wait probably through April and May, and hopefully we’ll know a whole lot more in June, and hopefully the numbers start making sense again, and the economy starts reopening. But we’ll see. Who knows.

Theo Hicks: Exactly. So definitely wait and see right now. So you mentioned that you’re getting a lot of communications from either deals you’re investing in with all types of sponsors… Do you mind walking us through, as a passive investor, what types of communication you’re getting from syndicators? More specifically, maybe tell us what a good communication looks like at a time like this, and maybe some things that you see and it’s kind of making you worry when you consider a bad communication.

Travis Watts: Something I’d talk about on the podcast is why I like syndicate groups that not only distribute monthly distributions, but hand-in-hand they report monthly. I think in a time like this it means a lot. No one wants to sit here 3-4 months to wait on an update to see how their property is doing.

Some groups to this point that are quarterly that I’ve invested with have literally sent out one communication since this whole thing started to unfold… And I don’t appreciate that. I’m all about transparency and proactiveness, communication… So what does that prompt investors to do? Call. Email. Just bug you to death. So why don’t you just get the information out?

What am I seeing is a lot to do with helping the tenants, helping educate how they can file for unemployment if they’ve lost their jobs, how they can maybe get on some kind of payment plan and maybe make a half payment on the first and a half payment on the 15th, resources for companies hiring in the local area… There’s obviously some businesses somewhat thriving right now. It’s kind of a weird word to use… Amazon’s hiring, grocery stores are hiring… There’s a lot of opportunities. I invest mostly in workforce housing, B and C class properties, so a lot of these folks are in an income range of 30k to maybe 60k/year household income… So a lot of opportunities are available for folks like that, depending on the area where your property is located.

So in general, that’s the communication I’ve been getting – let’s wait and see how collections pan out, and here’s where we are as of today, and how does that compare to the previous quarter. Look,  I don’t need a communication every day, because it doesn’t make a lot of sense, but I think at least a monthly communication is ideal. A lot of groups have been doing webinars, Q&A calls, things like that… And I think that goes a long way as well in a crisis situation like this.

Theo Hicks: Another article that you wrote on the website – and I’m sure it’s on LinkedIn and your Bigger Pockets profile as well – is about the mortgage crisis. Do you mind talking about that for a little bit?

Travis Watts: Sure. That one’s a little more technical. I think there’s a lot of key elements that are just probably better read through the article itself… But basically, what you’ve been hearing a lot in the headlines is things like this mortgage forbearance, or people aren’t paying their mortgages, they’re not paying the rent… Well, the thing is there’s a chain effect here. It starts with, let’s say, the homeowners saying “I’m not gonna make my mortgage payment”. But then what a lot of people don’t understand is that mortgages are often sold. And they’re sold, they’re wrapped up into collateralized mortgage obligations, investments basically that people can invest in, where you’re investing in different tranches, and things like that…

So you’ve got the bank or the lender, you’ve got the tenant, and then you’ve got the investment, then you’ve got the investors behind the scenes there… And it’s like “Who’s left holding the bag here?” That’s kind of what the crisis is – trying to figure out what kind of stimulus is coming for who exactly; it’s gonna start with probably the person that’s supposed to be paying their rent or their mortgage, and then it’s gonna go as a trickle-down effect. But it could completely implode parts of the lending industry… So it really is a crisis in a sense, but… Anyway, there’s much more detail that’s probably better found in the article… But yeah, that was another recent one that I’ve just put out.

Theo Hicks: You don’t have to answer this question if you don’t have to, because I’m putting you on the spot, but I did read recently that Chase changed their mortgage criteria… So they’re only lending to people that have a credit score of 700 or higher, and then 20% down payments… Which seems to be one of the first residential lending institutions to make changes such as that.

I guess my question would be “Do you think that that is gonna be an opening for other lending institutions to also change their lending criteria?” And if yes, what kind of effect do you think it’ll have on the overall real estate market?

Travis Watts: Yeah, I’m happy to give a high-level overview… And that’s kind of how that article ends, that I wrote – what are the practical takeaways here? Well, if you’re selling a home, it may be a little bit harder, for obvious reasons, to get a buyer, just because people aren’t getting out as much, or they  may not be in the investment market space as much right now… But more importantly, to your point, someone who’s qualified. So which lenders are still lending? And if they are, like you said, I think that banks are gonna be tightening up quite a bit right now… Obviously, to lower their risk. They don’t want any defaults, and there’s probably a lot of defaults coming their way.

In fact today – maybe yesterday – was the earnings report for a lot of banks, and they’re in a bad place right now. They see a bit of a grim immediate future here, at least talking through the next quarter. With all of this mortgage forbearance, and people not paying, and unemployment spiking… It’s a tough time to be a bank.

If you’re buying – to your point – you may have to have a little bit better credit, you may need to put a little bit  more down… If you’re selling, it’s a little harder to find a qualified buyer… Obviously, that’s gonna have an effect in the residential space, of course, 100%. But in no way, shape or form, in my opinion, are we talking about something similar to ’08, ’09 housing real estate crisis. That’s not exactly what’s happening this time.

Theo Hicks: Thanks for sharing that. Is there anything else you wanna mention as it relates to the Coronavirus and real estate that we haven’t talked about already before we hop into the lightning round?

Travis Watts: There’s always a silver lining to this stuff. Even ’08, ’09 — yes, it’s bad news, and there’s negativity everywhere, and nobody knows, and where is the bottom, but there’s always going to be opportunities that pop up… Not only in the syndication space, in the publicly-traded stuff… Look at this as an opportunity to 1) above all, educate yourself. This is a really great time to educate yourself. Figure out what your goals are… And it’s a great time to get started. As you alluded to in the beginning of this podcast, I got started in 2009. Well, that was not quite the absolute bottom of the market, but it was pretty near and close to it. And riding the way up over the next decade is helpful, for a lack of better words. It wasn’t the perfect time to get in, but it was a pretty decent time… So just hopefully you can keep your job, and your income, and your business running through this. Hopefully the stimulus money can help soften the blow on that front, and then wait and see what opportunities can come over the next 6-18 months or so.

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

Travis Watts: Let’s do it!

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

Break: [00:19:48].09] to [00:20:50].16]

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

Travis Watts: I think you just said the title of it – it’s the Best Ever Apartment Investing Book that you and Joe wrote. That’s actually a really great book that you guys wrote. I actually just bought that the other day and gave it to someone who was looking to be a GP themselves.

One that’s kind of a classic, that I’ve recently re-read is Awaken the Giant Within, a Tony Robbins book. I don’t even know when he wrote that. Probably in the ’80s. But man, is it just timeless; great insight and info for self development.

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

Travis Watts: What would I do next… I’m trying to make this as short as possible, but I’ve always been a huge advocate of the FIRE Movement (Financial Independence, Retire Early), which has a lot to do with reducing your expenses and overhead, making as much money as you can make, and investing that into things that produce passive income. I would stay on the passive income route, I would just look for an opportunity to make as much income as I could, and put my focus back there again.

Theo Hicks: Do you mind telling us about a deal that you’ve lost the most money on? How much you lost, and the lesson that you learned.

Travis Watts: Yeah, I invested in something I clearly didn’t know that much about. It was a distressed debt syndication fund. Sometimes I experiment outside of real estate; that was one of the first big experiments I did. I put maybe — I don’t even know; there were two funds, and I put maybe 175k in, and lost (to date) maybe 40%-50%. It could be a lot worse… It’s in a receivership now, so who knows what that will end up being… But it was a rough ride.

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

Travis Watts: The best ever deal was actually in the single-family space during — I think it was like 2014 to 2015. I bought a house from a bank, I paid 97k for it. I didn’t do anything to it. I just rented it out as is, and I sold it two years later for 215k.

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

Travis Watts: My time. Week to week I take calls with all types of people, not only investors, but people looking to house-hack, or do a fix and flip, or become a GP, sometimes an LP… I just love sharing experience, talking through things, handing off resources… I just mentioned the book you wrote with Joe – I gave that as a resource to someone just last week… So just sharing my time.

I just wish that there had been more people in my life when I got started, that I could have reached out to, to say that classic “Hey, let me pick your brain for 30 minutes.” I give people that opportunity.

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

Travis Watts: Probably email. Travis [at] ashcroftcapital.com. Or ashcroftcapital.com/passiveinvestor. I’ve got a free passive investing guide there and it connects you with me if you’d like to jump on a phone call as well.

Theo Hicks: Perfect. Best Ever listeners, make sure you take advantage of that, and make sure you check out the two articles that we talked about today. The first one is “How inflation can benefit you over the next decade”, and the second one is “The Mortgage Crisis: Will You Be Affected?” As Travis mentioned, the Mortgage Crisis one goes into more technical detail on that.

Besides those two articles, the one other main takeaway that I got was you talking about the types of communications you’ve been getting from different sponsors… You’ve got some people who haven’t reached out at all, some people that are reaching out a little bit too much. The sweet spot is monthly communication, letting you know what’s going on at the property and being transparent and honest.

I think that is it… Travis, it’s been nice talking to you. Best Ever listeners, as always, thanks for listening. Have a best ever day, and we will talk to you tomorrow.

Travis Watts: Thanks, Theo.

 

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JF1829: Syndication Tips #1 Lessons Learned from 155 Unit Syndication | Syndication School with Theo Hicks

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Moving further away from the Syndication process, Theo is now diving into different stories from himself, Joe, and different guests on the podcast. Today, we’re hearing about a deal that taught an investor a couple of valuable lessons (creating alignment of interest and raising money before or after the deal). Hearing their experience and learning from it, can save you from having to learn those same lessons the hard way (like this investor did). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners. Welcome to the Syndication School series, a free resource focused on the how-to’s of apartment syndications. As always, I am your host, Theo Hicks.

Each week we air two podcast and video episodes – every Wednesday and Thursday – that are typically a  part of a larger series that’s focused on a specific aspect of the apartment syndication investment strategy. For the majority of these series we offer some sort of document, PowerPoint presentation template, Excel template, some sort of resource for you to download for free. All of these documents and Syndication School series can be found at SyndicationSchool.com. Of course, all of it is free to listen to and to download.

Moving forward, we’re most likely going to be focusing on standalone episodes. Series 1 through 21 went through the entire apartment syndication process from start to finish, from essentially having no experience and no education, to selling your first apartment syndication deal on the back-end of the business plan.

Moving forward, we’re going to focus on, again, standalone episodes that either go into more details on a specific step, so examples of how to find deals, how to raise capital, how to find team members… Or case studies on actual deals that were done by actual syndicators. We’ll keep the names anonymous, of course, on those case studies.

This episode is gonna be one of those. We’re gonna go over a case study of a deal, a 155-unit syndication deal in Texas, and specifically we’re going to go over the three takeaways that the syndicator learned from this particular deal.

I think – and I hope you think this as well – that these types of episodes are going to be very powerful, because these are not theoretical. These are people who’ve actually done a deal, they’ve gone through the entire syndication process, then they sat down and evaluated what they did good, what they did wrong, what they want to do better the next time, and then are sharing those lessons with people who haven’t done a deal before. Obviously, lessons that are pulled from actual experience are very important for those who want to replicate that individual’s success… So let us jump into this case study.

This is a 155-unit deal. It’s this investor’s third syndication deal. They had done two deals previously, so obviously they learned lessons from those deals as well… And we’ll go over those lessons in future Syndication School episodes. But first, a lesson from this 155-unit deal that this investor learned was that you will go further by playing to your strengths.

Again, this was this person’s third deal, but on their first deal they did all of it – they found the deal, they underwrote the deal, they performed due diligence on the deal, they closed on the deal, they asset-managed the deal, they put the team together, they secured financing for the deal, they sold the deal on the back-end. They did all of it. Every single role, every single duty that needs to be fulfilled in order to execute the business plan was done by one person. And of course, going through this is a great learning experience. There’s always some sort of silver lining, no matter how thin and how small… But doing everything by himself did not set him up for optimal success for this particular deal, or for the business in general.

In this particular example, this individual was not an expert at all of the duties that I just went over – finding the deal, underwriting the deal etc. One example would be underwriting. This person was not the best underwriter in the world; they knew how to underwrite, they knew what they needed to look at to underwrite, but they were not expert underwriters. They had not spent hundreds and thousands of hours underwriting deals, and like most things, the more you do it, the better you get at it, usually… So he identified the need to find an underwriter.

Now, taking a step back, there are a few different categories of the main GP team. We’re gonna break it down into the money-raiser, the asset manager, and the acquisitions manager. The acquisitions manager needs to be really good at math, really good at underwriting. The money-raiser needs to be really good at networking, and the asset manager needs to be really good at management.

Now, of course, you might be a person who’s really good at math, who’s really good at managing, and who’s really good at networking. Maybe you’re amazing at all three of those. Even if that’s the case, as this person learned, you’re not gonna set yourself up for optimal success if you’re doing all three of those. Sure, if you were spending 100% of your time on each of those tasks, you could do them amazingly… But you can’t focus 100% of your time on all three of those tasks. You can’t spend all day underwriting, because then you’re neglecting raising money. You can’t spend all day raising money, because you’re not out there finding deals. You can’t just be finding deals, because you’re not asset-managing your current deals.

So even if you are amazing at all of these things, you’re still going to want to find a partner, or at the very least find people to work with you as employees, that can cover some of these duties, so that you can focus on the one or two things that you are completely phenomenal at doing, and quite frankly enjoy doing the most.

This investor decided to partner up with someone who had these underwriting skills – as well as other skills – on the second deal. Then on this third deal example it reinforced the need to do this again moving forward, to continue to partner up with this individual… Because, as I mentioned, it allowed him to do what he was good at, and allowed his partner to do what they were good at. Even though they could both do each other’s roles, they decided to split them based off of who was better at which one, and they were able to do a much better job by focusing on one thing and another thing, than one person focusing on both things at the same time.

This allows your business to go a lot further, faster – because that’s the lesson here. Go further by playing to your strengths… Because you’re focused solely on what you are good at. Of course, there’s gonna be overlap between the two roles. This person who had a partner who underwrote also checked the underwriting, reviewed it, and then his business partner also was — if he had someone that could raise money, then they would refer those people to him. But it’s better to have someone who has a lot of experience working on the, for example, underwriting, or working on the asset management, than someone who’s kind of good at it, but is much better at something else.

So the overall summary here is figure out what you’re good at and what you enjoy doing, and if it’s everything – if you say “Oh, I’m good at everything” – then figure out what you’re the best at of those everythings. Focus on that, and then find a business partner or some sort of employee to do the other things that you’re either not as good at, or you don’t want to actually do.

A business partner is probably a little bit better, just because they’re less likely to leave, and they are going to most likely be more experienced than someone who wants to actually work for you. So that’s number one – go further by playing to your strengths.

Number two is do something consistently on a large distribution channel. If you’re a real estate investor, then broadly speaking, you’re in the sales and marketing business. If you’re a fix and flipper, if you’re a wholesaler, if you’re a multifamily syndicator, if you’re a real estate agent, you’re in the sales and marketing business. Maybe buy and hold investors aren’t… But they are, because they’re trying to find deals or trying to close on deals, or trying to find tenants, things like that. So they’re still in the sales and marketing business.

So since you’re in the sales and marketing business, then you need to have some sort of daily, consistent presence online in order to gain exposure and credibility with any of your customers, your clients, or leads… Because that’s what salespeople do – they’re always out there; if you’re in direct sales, you’re actually out there, knocking on doors, getting your face in front of the customer. If you’re in online sales, you’re constantly creating ads to get your advertisements in front of the customers.

So since you’re in sales and marketing, you need to get you, your business, your brand, in front of potential customers. Again, the specific customer depends on whatever investment strategy you’re doing. So if you’re a wholesaler, then it’s fix and flippers or buy and hold investors. If you’re a multifamily syndicator, then it’s investors. If you’re a rental investor, then it’s tenants. If you’re a real estate agent, then it’s people who are looking to sell or buy homes. One way to do this is to tap into a large distribution channel with your content.

We’ve talked about in series number seven the power of the apartment syndication branch. We’re not gonna go into how to actually create this content, what content to create; we’re just gonna say create a thought leadership platform. If you wanna know what a thought leadership platform is, check out series number seven, where we went into extreme detail on all the different types of thought leadership platforms, why it’s important, and how to set yourself up for success.

But one of the steps of this was to tap into a large in-place distribution channel with your thought leadership platform. For example, Bigger Pockets. Bigger Pockets has millions and millions of active real estate investors, so rather than starting from scratch, starting your own blog or your own forum, why don’t you go and post to Bigger Pockets to get your face out there. Amazon.com – you can self-publish your own book and get your name out there. You can do podcasting on iTunes. You can do video blogs, tips or interviews on YouTube. You can create a community on Facebook, or post content on Facebook. You can post content on Instagram, you can post content on Twitter.

Overall, the idea is to find some sort of distribution channel that’s already massive, that’s already used by your potential clients, and rather than starting from scratch, just use that to post your content to. And whatever content you decide to create, whatever distribution channel you decide to tap into, you’re doing this every single day. If you’re doing something like Instagram or Twitter, maybe multiple times per day, and you’re doing it consistently, and you’re doing it on this large distribution channel, of course.

Many people want the shiny object, the golden nugget, the top-secret plan that will let them create massive levels of wealth, and retire on a beach… Anyone who’s reached any level of success knows that that’s not true; there is no secret, special pill you can take that will make you a successful investor. It’s all about the daily grind. It’s about doing things consistently, every single day.

The reason why I say this is because for the thought leadership platform these things take a long time to pick up momentum, to gain a lot of followers, a lot of viewers, a lot of conversions.

I was interviewing someone a few months ago who said that when you are doing a thought leadership platform you need to have a multi-year plan. You want to look at it in terms of multiple years, and not  a few months, not a few weeks. Don’t expect to have a million views on your blog in a few months or a few weeks. Expect to have maybe 1,000 views by the end of the first year, and then double that by the end of two years, and then let the snowball effect help you take off, and launch, and get even more viewers to your content. Again, you need to do it every day, and don’t expect any sort of instant results.

The third lesson from this deal is that there is major power in doing a recorded conference call when raising money. If you wanna learn more about this strategy in particular,  that’s series number 18, “How to secure commitments from your passive investors”, where we went over in extreme details – I believe it was 3-4 30-minute episodes that focused specifically on this conference call. But this is something that you might be saying “Well, obviously I should record my conference call”, but for this person, they did not do that for their first two deals. They just did the conference call, and figured that the people that were serious about investing would attend the conference call, and that they would just invest their money in the deal, the fund would fill up, and he’d be able to close on the deal. He figured that he didn’t really need to do it, and that it wouldn’t help him raise money… But the tip that he learned on his third deal was “Have a conference call with the qualified investors, and then record that.”

So when he was in the middle of raising money for this 155-unit deal, they decided to have a conference call, and unlike the similar calls that they’d done, they decided to record that call. It was very helpful in raising capital for that deal, for two reasons. Number one is that most people in general are busy, but people who are high net worth individuals are most likely even more busy – with personal life, with business, with making money – and that’s why they’re actually being a passive investor in the first place; they don’t have time to do active investing themselves, so they need to have something that is a pre-built system that is essentially hassle-free, that doesn’t take up a lot of their time.

So the expectation in your should be that “They might not be able to make my conference call. If they’re out there doing other things and that’s not allowing them to invest themselves, then what makes me think that they’re gonna be available for a three-hour conference call on this particular day of the week?” So if you record it, it lets them listen to it on their own schedule.

And then secondly, the questions that are being asked are from a group of other investors, which is beneficial to others who are listening but didn’t ask those questions. That basically means that if they weren’t there, and they have questions about the deal that aren’t covered in the investment summary package that they’ll see – because if there’s no recording, then all they’re gonna see is either your initial email or the investment package – they can get answers to questions that maybe they have, that they didn’t have the opportunity to ask, but someone else who’s similar to them asked that question; they listened to the Q&A section on the conference call and had that question asked.

So specifically how to record the call – listen to series 18 on how to secure commitments from your passive investors to learn the logistics of this call. The whole point of this was to say why it’s a powerful way to help you raise more money, and that is 1) it allows people to listen to and learn about the deal on their own schedule, and 2) it allows them to hear the answers to questions that they themselves might have, that aren’t covered in the actual investment summary. Either something that you as the syndicator brought up, or something that another passive investor who is interested in the deal brought up.

Again, the three lessons on this 155-unit case study were 1) You go further by playing to your strengths, 2) Do something consistently on a large distribution channel (for more details on that, series seven), 3) There is major power in doing a recorded conference call on raising money. More information on that on series 18.

Again, this is a standalone episode, so that concludes this series, in a sense. Thank you for listening. I recommend checking out the other Syndication School series we’ve done so far, especially if you’re new. If you’re new, make sure you start at series 1 and work your way through the 21 series that focus on the main body of the syndication process, from start to finish. Make sure you download the free documents that we have available as well, and make sure you keep coming back to listen to these episodes again every Wednesday and Thursday. All of those things can be found at SyndicationSchoo.com.

Thank you for listening, and I will talk to you soon.

JF1584: German Immigrant With Only 2 Suitcases Grows Real Estate Biz To 3,800 Deals with Jack Bosch

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Jack traveled to the US to finish school for a year and go back home. That plan fell through however as he met his future wife and started investing in real estate. Starting with raw land, trying wholesaling, tax liens/tax deeds, eventually moving into commercial and multifamily properties. Hear how he grew from nothing to a very successful investor and apply the lessons to your own business! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Jack Bosch Real Estate Background:

  • German immigrant, in 1997 he came to US with 2 suitcases and a bunch of student debt
  • Has negotiated, bought, sold, rehabbed, as well as owned and managed over 3,800 properties since 2002
  • Currently he holds a large portfolio of properties in land, single family, commercial, and large multi-family properties
  • Based in Phoenix, AZ
  • Say hi to him at http://orbitinvestments.com/
  • Best Ever Book: Turn The Ship Around

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JF1564: How to Fund The Earnest Deposit In A Hot Apartment Market #FollowAlongFriday with Joe and Theo

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Joe and Theo are back to discuss the apartment syndication lessons they learned over the past week.

Theo provides an update on two Tampa apartment deals he is analyzing, which includes a tip for how to find new team members when looking into a new deal.

Joe provides strategies on how to fund the earnest deposit for an apartment deal in a hot market.

 

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. We hate that fluffy stuff, so because of that, today we’re doing Follow Along Friday, where we’re talking about things we’ve learned, or questions that you Best Ever listeners have, and we are addressing those questions and the things we learned; we talked about what we learned, but then how that can be applied to what you’ve got going on… Because most importantly, we wanna make sure that we’re helping you out with whatever you’ve got going on.

Theo Hicks, how do we wanna do today’s call?

Theo Hicks: I’ll hop right into my updates. As I’ve mentioned last week, I am currently looking at two apartments in the Tampa Area. One I’ve already toured and I had underwritten it, and I mentioned last week that NOI that the broker mentioned and that’s on the T-12 were different, and I mentioned that I was going to reach out to a lender to get a quote for debt. Unfortunately, I do not see how I could purchase this property with this specific lender, because the lender said that based off of the NOI that they calculated, which was about $40,000 below what the OM states as the in-place NOI, and they’re only willing to lend up to 3.6 million dollars. So if I wanted to do 80% LTV loan, it’d be 4.25 million… And based on my underwriting, the most I would be willing to pay with these new debt terms would be 4.75 million.

The reason why that’s a problem is because I know that the owner wants 6.5 million. And it’s kind of funny, because when the deal first listed, I looked it up on LoopNet and it said 6.5 million, and then when I went back to look at the price again, it wasn’t there anymore… I asked the broker, I’m like “Was that a mistake, that it was listed? Was that the right price?” He goes, “Yeah, from my understanding I think it was a mistake of them putting it up there. They weren’t supposed to.” But the owner wants 6.5 million for that property. As of now, obviously, if I use the lender that quoted the 3.6 million, it’s gonna be around 55% LTV, and we have to raise 45% in addition to the actual renovation budget.

The broker mentioned that he knows a lender who has some other financing options that I can look at. I’d say right now I’m probably like 10% that we’ll submit an offer on this deal, but I did want to reach out to that mortgage broker and see what options he has… Number one, just to see if maybe he’s got some financing that can make the deal make sense, but also just another relationship to have in the Tampa Bay market, so for future deals, if we hit it off and it seems like he’s a good fit for our business plan, I can continue to reach out to him and get a quote from him, as well as a quote from my broker.

I guess the lesson is that when you’re working on a deal with a broker and you are interested in still continuing to build relationships or have backup team members, just ask them, “Do you know of a mortgage broker? Do you know of a property management company?” and attempt to get something out of the deal… Kind of going back to 50/50 goals – if I don’t end up buying this deal and my goal was just to buy deals, then I would be kind of upset about this process… But I’ve toured this property, I’ve basically formally underwritten the entire deal, with assumptions and renovation costs, I’ve been back and forth with this broker, and now I’ve got a new mortgage broker contact that I’m speaking with this afternoon.

Joe Fairless: What is the alleged reason why the owner is selling?

Theo Hicks: The alleged reason is that they are trying to focus on retail. This is the only apartment that they own.

Joe Fairless: The thriving world of retail, huh? Okay…

Theo Hicks: Yeah…

Joe Fairless: And [unintelligible [00:06:00].02] If it was posted on LoopNet, but then taken down and posted again… It seems like they’re trying to get as many people to be aware of it as possible, right?

Theo Hicks: Yeah.

Joe Fairless: And how long have they been marketing it?

Theo Hicks: For the past three weeks, I’d say.

Joe Fairless: Okay. Well, my guess is — this one, just give it time, and stay in touch with the broker. You know this, but… Stay in touch with the broker, have your price, and then tell them what your price is, and then just let the market show them that the value that they have in their head is not what they’re gonna get. It’s happened multiple times with us, where we have a deal that we’re shown, and in those cases it’s not on the market, and we say “No, thank you. Your price is crazy.” Then they go to the market, and the market knocks the price down, because the initial whisper price was way out of whack.

Theo Hicks: Yeah, that’s how I’m gonna approach it as well. I’ll just stay in touch with the broker, see what’s going on with the deal, [unintelligible [00:07:00].04] and if they sell it for 6.5 million, then maybe I could buy it and make that owner realize that that probably wasn’t the best idea… [laughter] So that’s that deal. I’ll give an update on how that conversation goes with the lender next Follow Along Friday.

The other deal that I mentioned briefly last week – I’ve got a little bit more information on that. It’s a 73-unit in St. Pete. It is the largest apartment building in regards to units on St. Pete Beach. I reached out to do a tour, and the broker responded and said that the owner wants to know if I’m able to pay the price that he wants before touring the property. He wants essentially about 230k-250k per unit for the property.

It’s gonna be a heavy value-add, because in order for the deal to make sense we’d have to probably spend about 10k-12k per unit in interior upgrades. So the plan for that one is I’m gonna underwrite it this weekend to see if we can even get close to 17 million, and then reach back out to the broker if we can be close to that number and tour it next week. If you remember, this is the one that the OM claims you can raise the rent by about $750.

Joe Fairless: Yeah. Well, hey, if you can, then those numbers might work.

Theo Hicks: Seriously, yeah. It’s a really neat property, too. The way that it’s built – I could tell that there’s not a lot of deferred maintenance, and the ongoing maintenance… It just seems like it’s a very solid property, that would be pretty inexpensive to operate. It’s just getting it at the right price, as always.

Those are the two deals I’m looking at, and those will probably be the last two deals that I look at for 2018, unless something else pops up… Because things have been a little slow lately; I haven’t seen a new deal for at least two weeks.

Joe Fairless: And real quick, how’s your Cincinnati portfolio performing? And remind us what you’ve got in Cincinnati.

Theo Hicks: I have 13 units. One is a single-family house that we used to live in, and then we’ve got three fourplexes, and I think we’ve probably turned about 5 or 6 units. On all of them except for one we were able to get higher rents than we were getting before. For one of them, it was vacant for about a month and no one wanted to rent it, and we ended up reducing the rate to below what it was before. But if you include the utility fee that we’re asking for, it’s still technically above what it was before, but the actual rent that’s listed is below what it was before. We’re attributing that to seasonality, because we’re not getting much traffic at all for that unit that was vacant.

And then something else interesting happened a few weeks ago… Do you remember that big ice storm that came through Cincinnati?

Joe Fairless: Big time, yeah.

Theo Hicks: It knocked down one of the trees, and the tree fell on top of the power line, so the power was out a few days at that property. We got a quote from a tree-trimming company to fix the trees at all three properties. Obviously, that was interesting, because I got a bunch of texts from the tenants, asking me what’s going on, so I called my property management company and he talked to every single tenant about it.

Luckily, everything worked out okay. Electricity is back on, he’s working fine… But that was an interesting dilemma, that my property management company solved pretty quickly, so I was pretty happy with how they handled it.

Joe Fairless: Good stuff. As far as my updates – I want to address a question that commonly comes up frequently… And that is “How do I do non-refundable earnest money if I don’t have that money?” This question is really related to how competitive it is in a lot of the markets that you might be looking at to purchase property, and due to that competition, there tends to be non-refundable earnest money day one offers that need to be placed in order to be in the running for a deal, let alone winning a deal.

There are a couple options here, and I’ll tell you how I did it at the beginning, my first deal, which was not non-refundable; it was refundable on my first deal. However, this same approach can be applied to non-refundable earnest money, because either way, refundable/non-refundable, you’ve gotta have the money.

I had spoken to a couple investors who were interested in partnering up with me — and this was before my first syndicated deal, but after I bought four single-family homes… And one of the investors who had expressed interest – I reached out to him and I said, “Well, I’ve got this deal, and it’s $50,000 refundable deposit. I’ve got 30 days before it becomes non-refundable. Will you put that up as the deposit?” He had said he was gonna invest $50,000, so I said then we can just roll that into the deal should we close, and if we don’t close, then he’ll get it right back.

He said, after thinking about it for a little while – and when I say “little while”, maybe a day or so – he said “Yeah, sure, but can you put something down in writing that says if this does become lost, for whatever reason, that you’ll pay me back?” I said, “Absolutely.” Because I’d mentioned I’d pay him back in the conversation… I said, “Yes, absolutely. I’ll put something down in writing.” In that case it was just an e-mail, where I promised to pay him back if I lost the $50,000.

Depending on your relationship with the investor, or how much they want to have it documented, you might need to do a promissory note, or something like that… But I just sent him an e-mail, and that was it. So he put up the 50k, and that allowed me to get the property in due diligence, and then I proceeded.

If it was non-refundable, then it’s the same conversation. You’re simply telling the investor it’s non-refundable day one, so when you put it up, you’ll be investing in the deal that amount. Maybe it’s not the same, but it’s a similar conversation, I should say. If they are wanting to invest in the deal, then that can simply be their investment. If they’re not wanting to invest in the deal and they loan you that money, then it’s basically a  loan, and you’re going to need to have some sort of agreement drafted with them, and then they simply put it up and you pay a certain rate or a certain amount to compensate them.

If you end up closing on the deal, great; you can easily refund that money, plus interest. If you don’t, well then you’re in a tight spot… So borrower, beware here, because it’s non-refundable, you lose the money and you have to pay him back, plus interest, and you don’t have a property. So be careful, and proceed with caution if you do non-refundable day one and you work with someone who you’re borrowing that money from, because you could lose a lot of money… But on the flipside, there are solutions to address this challenge, and that is the solution that I did when I got going.

Theo Hicks: And if they’re going to be an investor in that deal and they put up the earnest money deposit, is there any sort of interest they earn on that, or is it just that rolls over into the deal and they’re like a regular investor?

Joe Fairless: In my case there was not, because I didn’t think of it and he didn’t ask… But if there is a scenario where they ask or you think of it, then yeah, you could pay whatever interest is being generated from the checking or savings account or escrow account that that’s in. We implemented a new policy effective this last deal that we closed, Northern Cross in Fort Worth, where if the investor funded 30 days or earlier than when we’re closing — so if we close on the 30th of January, then if they fund it by December 30th or earlier, then we would pay them interest on their dollars while they’re waiting for those dollars to be put to work in the deal… And it’s just whatever the bank interest is. What was it, 0.4%?

Theo Hicks: 4% annually, yeah.

Joe Fairless: 0.4%, right?

Theo Hicks: Yeah.

Joe Fairless: Yeah, so let’s put that into perspective here – if you invested $100,000, that was $40.

Theo Hicks: Yeah, $33,30 for 30 days.

Joe Fairless: $33,30 for 30 days. We’re not making any money on it really, except for that $33,30 cents, so we’re just passing it along to the investors. And then if any investor funded within that 30-day period where we’re about to close the deal, then we don’t pay interest on that, because ideally we have all the funds in 30 days prior, so we want to reward that for taking place.

Theo Hicks: Another interesting strategy about the earnest deposit that I saw on a Bigger Pockets thread by someone who had just done their first apartment deal – they wanted to make their offer competitive, but they didn’t wanna do the non-refundable earnest deposit from day one… So instead their terms were that it would go non-refundable once the due diligence period was over.

Joe Fairless: That’s pretty typical.

Theo Hicks: Oh, is it really?

Joe Fairless: Yeah.

Theo Hicks: Okay, I didn’t know that. Because I was like, “Well, I don’t wanna do it from day one, so I can just say after due diligence”, but okay, if that’s typical, then I guess it’s not gonna make your offer any more competitive.

Joe Fairless: Maybe… It will make it more competitive than if it wasn’t, but that’s pretty standard, if it’s not non-refundable day one to have it non-refundable after the due diligence period.

Theo Hicks: Okay. Any other updates?

Joe Fairless: Nope.

Theo Hicks: Alrighty. Moving on to the trivia question… The answer to last week’s questions, which — just as a reminder, the question was “What is the city with the highest total share of high-end apartment buildings?” That’s class B+ or higher, and that was per 2017 and the first half of 2018. The answer was Charlotte, North Carolina, with a proportion of 50%.

Joe Fairless: Wow. I would not have guessed that. Well, I knew the answer so I wouldn’t have guessed anyway, because we had it in the Word document, but I wouldn’t have guessed Charlotte.

Theo Hicks: And if you go to our blog and you read “The top 10 US cities with the largest proportion of high-end apartment buildings”, you can see what the top 10 cities are. There’s a link to the actual data and you can see the top 30 or 50 cities, if you’re interested.

This week’s question – and Joe does not have the answer to this one, so he gets to guess – is going to be “What state has the city with the lowest crime rate?” I didn’t wanna do the city, because that’s gonna be impossible to guess…

Joe Fairless: Is it a city of 500,000 or more?

Theo Hicks: No, no, no.

Joe Fairless: Oh, alright… I mean, come on. It’s tough. I’m gonna go with California.

Theo Hicks: Okay. So Joe guessed it’s California. If you comment on the YouTube below or send us an e-mail at info@JoeFairless.com with what state has the city with the lowest crime rate, you will win a signed copy of our first Best Ever book.

Joe Fairless: And let’s see… I’m just trying to determine the definition of a city, versus a town… The population of a city is between 100k and 300k, a large town is a town of 20k to 100k, according to Wikipedia, my quick search… So this city has at least 100,000 people?

Theo Hicks: Yes.

Joe Fairless: Okay, alright. Well, I’ll still say California.

Theo Hicks: Okay. Moving on, obviously the Best Ever Conference is going to happen in February, so we’re a few months away, and each week we’re going to discuss a speaker or a panelist discussion that will happen. This week we are gonna discuss two of your clients, actually, who did their first deals in 2018, their first syndicated deal, Bill Zahller and Kent Piotrkowski. They will be speaking about their first deal on a panel. I’m really looking forward to that one, obviously, because they’re about six months to a year ahead of me… So I’m looking forward to listening to that panel, as well as having a conversation with them after the panel.

Anyone who is interested in becoming an apartment syndicator and wants to know exactly how someone did their first deal, that will be a panel and those are two people you’ll definitely want to hook up with when you’re at the conference.

Go to BestEverConference.com to buy your ticket. Ticket prices go up each week.

Joe Fairless: And then there’s “TAKE5” for a 5% discount whenever you buy your ticket, so make sure to put that in and get your discount.

Theo Hicks: And then lastly, the review of the week for the Best Ever Apartment Syndication Book – if you leave a review on Amazon and send us a screenshot to info@joefairless.com, we will send you the free apartment syndication documents.

This week’s review comes from ReadingFan, and they said:

“So if you bought a house or two as investments or as a flip, and are thinking about upping your game, you NEED to read this book. Chapter 5 will open your eyes as to how much money is on the table, and the rest of the book just takes your hand and walks you step-by-step through the process. I found a lot of material to dog-ear and come back to later (and there’s a picture of that in the review).

Am I confident that I can buy an apartment complex right now? No. I need to get a little more experience under my belt first, but now I feel like I know where I’m going, what I want to do when I get there, and the mysterious path from here to there is now eliminated. That is invaluable.”

Joe Fairless: What a wonderful review. Thank you so much. I’m glad you got the value out of the book and you’re continuing to propel yourself forward to getting a deal done. Thank you for that review. Who was it, what was their name?

Theo Hicks: ReadingFan.

Joe Fairless: Thank you, ReadingFan. Clearly, you’re into self-development based on your name, so I appreciate it. Best Ever listeners, I enjoyed our conversation, good catching up with you. I’m looking forward to talking to you again tomorrow, and between now and then, I hope you have a best ever day.

 

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JF1557: How to Tour An Apartment Community Without Your Property Management Company #FollowAlongFriday with Joe and Theo

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Joe and Theo are back for another round of business updates in today’s Follow-Along Friday.

Theo outlines the process he followed when touring an apartment without your property management company and what you need to send your management company in order for them to help you with your underwriting assumptions.

Joe had a new investment offering call last night and offers tips he’s learned from doing over 20 calls.

 

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TRANSCRIPT

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

Today is Friday, we’ve got Follow Along Friday. Joining us is Theo Hicks, like he normally does on Follow Along Friday. The purpose of Follow Along Friday is to talk about what we’ve got going on as real estate entrepreneurs and investors, and how that can be helpful to you as a real estate entrepreneur and investor.

We’ll kick things off with updates, and we’ve got some announcements on some conferences that I recommend, as well as we’ve got a Best Ever Trivia Question, where we’re giving away a copy of the first book that we wrote.

With that being said, Theo, do you wanna kick it off?

Theo Hicks: Yeah, so last week I toured that 80-unit in Tampa that I was talking about… I didn’t give much information on it the last time, because I hadn’t visited it yet, but today I just wanted to talk about the process that I used, and that you can use too, when touring a property and your property management company cannot come. Because we’ve talked about this a lot, that you want your property management company to help you out with your underwriting assumptions, with your rehab assumptions, and to confirm that, because obviously, they’re gonna be the ones that are managing the property.

A challenge I’ve come across in the beginning is obviously lack of credibility, and your property management company is not going to go see every single property you want to see until you’ve actually done a deal. I’m sure for you guys, if you find a deal, your property management company jumps on it because of how many deals you’ve done, whereas for someone who hasn’t done a deal before it’s a little bit different.

So what do you do? Do you just keep them out of the loop completely until the deal is under contract? Well, that’s not what I did. When I toured the property I went with my business partner this time; it’s actually the first deal that he toured with me… And going into it, my plan was to take as many pictures as possible, specifically of anything that I knew we would need to do some sort of rehab to.

For example, during the tour we saw three different units; one of them had just been updated and turned, so someone was actually in there cleaning it. Another unit was already completely rehabbed, and they were renting it at the moment, so… Those units were basically the same. Then there’s a one-unit that was kind of their standard unit.

At this property they’ve got their base unit, and then they’ve done a few minor upgrades to about ten of the units – new appliances, new floors, new cabinet doors… Well, actually they did a lot. The only thing they didn’t do were new lights, and backsplash, and kind of smaller things.

So I obviously needed my management company there to see the conditions and give me an idea of what it would cost to turn around… So I took pictures of the kitchens, the bathrooms, the floors, ceiling fans, ceilings – because they actually have popcorn ceilings… Essentially, everything that I thought that we would need to address, and then the same with the exteriors.

I took a picture of the monument sign, because we plan on doing a new monument sign if we buy this property. I took a picture of the actual stucco, because we if were gonna paint it… There’s an area for a dog park… So essentially anything on the exterior that I also would wanna touch.

And I went home and I uploaded all those pictures to my computer, and then I essentially created a PowerPoint presentation with side-by-side pictures of the kitchens, the before & after, the bathrooms before & after, the floor before & after, and then exactly what I wanted to do to those. For example, the kitchen – I wanted to put in new cabinets, do new counters, new floors, new hardware, things like that… And then below that a list of everything I needed to do, plus a price.

I repeated the same thing for the exteriors as well, and then sent it over to my management company, where they looked at it and said “All this looks good, except maybe this price is a little bit low, and this price looks a little bit high…”

Joe Fairless: What were those items that they were different from you?

Theo Hicks: One of them was the popcorn ceilings, actually. I had no idea how much that would cost to fix. That’s when you’ve got that weird stuff kind of [unintelligible [00:06:10].01] and repaint it… That was one thing that was a lot cheaper than I thought it was gonna be. They said it’d be about $150/unit, and I thought it’d be like $500/unit.

Joe Fairless: One thing I’ve noticed is residents don’t mind the popcorn ceiling, but owners hate it.

Theo Hicks: Good to know. $150 is not that bad, and if we were to remove it, it’s not gonna change our numbers that much… But that’s still good to know. When you’re done sanding it, it looks really nice.

So I think that is for now the best approach to essentially giving your property management company a virtual tour of the property. Of course, it’s way better for them to come, because you’re only taking pictures of things that you see, whereas they’re gonna see things that I wouldn’t have even noticed.

The first property I toured with them they saw that the railings were too low and they were [unintelligible [00:06:57].19] But this property is a little bit different, because it’s really maintained.

Now, going away from — the problem with this property…

Joe Fairless: Real quick before you get into the problem with the property… Is your management team local to Tampa?

Theo Hicks: Yeah.

Joe Fairless: And do they have units that are in this area already, that they manage?

Theo Hicks: Yeah, they know the area very well.

Joe Fairless: My question is how come they are not already familiar with the property? I wouldn’t think that you’d need to take pictures of, say, the monument sign, and the stucco, and even the interiors, because I would think that they would have already been familiar with the property and had been secret-shopping the property just for market rent comps already.

Theo Hicks: I don’t think this property. The last one they looked at, the 292-unit, they knew all about it. This is a little bit smaller, it’s 80 units, and they knew it was for sale… They know what it should sell at, but I don’t think they’ve actually been to this property before. Now, I know that I’m defending them a little bit, but there are a ton of apartments in this area… Like, a TON of apartments. I’ve never seen anything like it before. So I’m sure if I ask them “Hey, have you heard of this property before?” they’d say yeah, but I’m not sure if they’ve actually been there before.

Joe Fairless: Pros and cons of buying a property with a ton of apartments close by, what would you say?

Theo Hicks: Well, it depends on the actual type of apartments. If it was in an area that had a ton of luxury apartments, I’d be a lot more excited about a property of this size… As we’ve mentioned a few Follow Along Fridays back, you can offer that luxury experience without the luxury cost. But in a low-income area it kind of scares me a little bit, because at the end of the day — and this is something I was gonna get into, that I noticed, and again, this could just be a coincidence and a one-time thing… But when I was looking at the comps in this area, there’s so many apartments that it seems like the rents aren’t based on the square footage, they’re just based on a one-bed versus a two-bed… Because I did six comps, and five of them were essentially exactly what our property is gonna be like once it’s done, and the sixth comp is basically like a market leader, so it’s the nicest property in the area… And all the rents were basically the same, the one-beds and the two-beds, even though the really nice one – the units were way bigger.

So when you look at the dollar-per-square-foot, I think the average for the one-bedrooms ended up being $1.30-something, but for this property, the really nice one, since the units were 200 square feet bigger than all the other ones, the dollar-per-square-foot was something along the lines of $1.10, or maybe even lower. I didn’t know what to even think about that, and I still really don’t know what to think about that.

Joe Fairless: Yeah, pros and cons with being in an area that has a lot of apartments in it already, and people go to an area just to shop a lot of different apartments – a pro is you get more drive-by traffic and walk-ins, because they’re shopping other apartment communities that are next door to you, and then they just go shop yours as well… And then the con is the pricing, because you’re competing with a bunch of other apartments in that immediate area, and that could drive your price down because it’s so competitive.

One solution is to offer a look-and-lease special when you have an apartment community in an area that has a lot of other competition. The look-and-lease special works in the following way – you offer a special to someone who comes in and looks at the property and leases it that day. Assuming that you’re able to get their approval done within that period of time, then if they sign the lease or if they sign a commitment to lease at that time whenever they’re there, then you give them some sort of concession, whether it’s half off the first month’s rent, or something else that you and your team come up with… But you really need to be focused — I’m not saying you, Theo, but just as investors in general, we need to be focused on converting the walk-ins to become residents… Because that’s your advantage, so you wanna play up your advantage as much as possible, so really the key is on that conversion, an increase in that conversion rate. Because then, if you’re increasing the conversion rate, then you’re enjoying all the pros of living in that area, or having an apartment community in that area with other large apartment communities, and you’re mitigating the downside of that.

Theo Hicks: Yeah, and that’s something we would definitely have to implement

at this property if we were to buy it, because there are just so many apartments that, as you mentioned, they’re gonna come and they’re gonna look at ten different apartments, and who knows what they’re gonna do to choose one which one they’re gonna pick. That’s great advice.

Now, the problem with this property is that it’s owned by one of those owner-operators, so something–

Joe Fairless: The management fees…

Theo Hicks: A lot of problems… No management fees, very disorganized T-12, they’ve lumped in cap-ex with maintenance and repairs, so it took a while to pull all those out and actually figure out what the actual maintenance and costs were them renovating units… But usually, for apartments there’s not a price set, it’s just dictated by the market, whereas as this is a smaller 80-unit — not necessarily smaller, but in the grand scheme of things, you know, apartments are 150-200 units, and it’s an owner-operator, so they have a number in mind of what they want, and it’s got a list price… And I know cap rates — I’m not basing the purchase price off of the cap rate, but I was just curious to see what the cap rate would be based off of their purchase price and the in-place net operating income, and it’s 4.75%, in a market that’s 6.5% cap rate. So that’s 6.5 million versus 4.75 million dollar purchase price, and for our underwriting the deal makes sense around a 5.25 million… So the last thing I need to do is hear back from our lender, which — they actually called me right before we went live, so I’m going to call him back to see what the debt quote is gonna be, just a ballpark estimate…

Joe Fairless: What mortgage broker are you going with? Mark Belsky?

Theo Hicks: Yeah. And once I get that, I’ll plug that in my cashflow calculator and get the final number, and if they want 6.5 million and we can only pay 5.25 million, we’re gonna offer 5.25 million and see what happens.

Joe Fairless: You’re gonna offer your best and final price at the beginning?

Theo Hicks: Yeah, sorry, I’m gonna probably start at five. 5.25 is the highest we can go.

Joe Fairless: Hopefully they don’t listen to this episode.

Theo Hicks: They won’t.

Joe Fairless: Like, “Wait a second, you offered 5, Theo? I heard on Follow Along Friday that you’re good for 5.25.”

Theo Hicks: The deal still makes sense.

Joe Fairless: Cool.

Theo Hicks: So that’s that deal, and then I quickly wanna talk about another deal we’re looking at, which is the opposite end of the spectrum of this one. It’s similar size, about 70 units, but it’s in an area where it’s the largest apartment in that area. It’s in St. Pete, which is —

Joe Fairless: Sorry, I’m confused. You said it’s 70 units?

Theo Hicks: It’s around 76 units.

Joe Fairless: Okay. But you said it’s the largest apartment? What do you mean by that? Largest building, largest apartment community?

Theo Hicks: Yeah, number of units.

Joe Fairless: Okay, got it. I thought there was some massive apartment unit that you were referring to. Okay.

Theo Hicks: Sorry, the building with the most number of units in St. Pete Beach. This is an area where there’s no construction whatsoever ever. This is obviously [00:14:17].12] property, but… I’m gonna underwrite it; I haven’t underwritten it yet, I’m gonna do it this weekend, but I wanted to mention it because in the offering memorandum – I’ve never seen this before… They said that the rents can be raised by over $700.

Joe Fairless: Oh, wow… That’s New York City style right there, from a [unintelligible [00:14:33].13] to market rate… Huh.

Theo Hicks: Yes, I’m curious to see where they’re getting that from.

Joe Fairless: Yeah, looking forward to hearing more about that one.

Theo Hicks: I will talk about that one next week.

Joe Fairless: Cool. As far as stuff I’ve got going on, we just had our conference call last night on a deal that we’re buying, and one thing I noticed — so it’s like the 22nd syndicated deal we’ve done, somewhere around there, low twenties… I think I finally figured out the way to prepare for these calls, and I believe this will help everyone listening who also has similar conversations or does similar calls… It might be specific to me, but I’m pretty sure it’ll be helpful for others.

What I did is I have an outline for what I’m gonna talk about, I type it out in detail in a Word document, and then I do research, I find different articles etc, so I’m creating the foundation, and then I think about the flow of the conversation and then I write it down in my notebook, the bullet points, so that I just have talking points, versus me looking at a long Word document that is detailed.

That way, whenever I actually do the presentation during the conference call, it’s more conversational versus robotic. The call went really well last night. I’m looking forward to closing out on that deal. So that’s one thing I thought would be helpful for others who are raising capital for deals, or speaking to investors – just take the approach that I’ve just mentioned.

Theo Hicks: What did you use to do?

Joe Fairless: The part that was missing was writing it down in a notebook, the bullet points. And similar to when I interviewed Tony Hawk – I thought I did a terrible job interviewing Tony Hawk, because I was overly prepared (so I thought), but I think you can be overly prepared as long as you don’t follow all that information to a tee whenever you’re having the presentation or that conversation. I think you can have as much information as you can consume to be prepared, but then go in being focused on the engagement that’s taking place at that moment in time and just trust that you’ve written down the bullet points and you know the things you need to mention… And if you don’t mention it at all, then that’s fine, because it’s more about the engagement and getting out most of the stuff that you need to, versus getting out all of it and being more of in an awkward conversation, or sounding like  a robot.

Theo Hicks: It’s something that people that have never done an investment call before, I bet they don’t understand – it is way different when you’re doing a recording talking to someone like we do right now, as opposed to when you’re just talking to yourself. Obviously, the people are on the phone, but they can’t talk back to you, so you’re talking the entire time… So just the flow is way different. When you’re interviewing someone, they can say something and you can build off of that, or [unintelligible [00:17:36].23] whereas when you’re just talking, you miss something and you don’t really know, because no one can tell you, and if  you’re not making sense you don’t really know, because no one can tell you until later… So that’s good, you make the bullet points and make sure that you’re not doing a script, because people can tell when you’re doing a script. If you just do bullet points and then you speak on that bullet point for a couple of minutes, it’ll flow a lot better and it’ll be a lot more conversational, as opposed to you having a 10,000 word script written out and you read everything out straight from it.

Joe Fairless: Yeah, I believe we have stuff in our Best Ever Apartment Syndication Book about conference calls too, and how to prepare for those conversations.

Theo Hicks: Yeah, we do.

Joe Fairless: Yeah, more information on that… If you wanna dig in there, just look in that section of the book.

Theo Hicks: Good stuff. Moving on, we’re going to mention one of your client’s conferences today on the podcast…

Joe Fairless: Yeah, Dan Handford. He’s got a virtual summit, 40+ speakers; I’m gonna be one of them, I think I’m doing the keynote… It’s a virtual conference, so you can attend from your living room, or your office. There’s also several in-person meetup events surrounding the summit, like watch parties, pre-event meetups, things like that. You can sign up for the virtual summit; it’s Dan Handford’s Multifamily Investor Nation Summit, January 17th and 19th, at apartmentevent.com… Super-easy to remember, apartmentevent.com. But wait to get your discount code, which I’m about to give you, and that is “BESTEVER”. You get $100 off. You can go to apartmentevent.com and sign up for that summit.

Theo Hicks: That’s great that he got that URL, apartmentevent.com.

Joe Fairless: Yeah, smart.

Theo Hicks: Alright, so on to the trivia question. Last week’s question was “What is the cheapest state to live in based off of cost of living factors?” The answer was Mississippi. If you were the first person, you’ll be getting a signed copy of the first book that we wrote.

You’ll also want to answer this week’s question in order to get your book… I’m not sure if we’ll do repeat, but definitely continue to answer these questions in order to receive that signed book.

The question is going to be “What is the city with the highest total share of high-end apartment buildings?” These are B+ and higher apartment buildings, and this covers all of 2017 and all of 2019 through October. So what is the city with the highest total share of high-end luxury, class B+ or higher apartment buildings?

Joe Fairless: So it’s the percent of apartment buildings that are B+? What city has the highest percentage of B+ apartment buildings?

Theo Hicks: Exactly.

Joe Fairless: Is it buildings or units?

Theo Hicks: It was buildings.

Joe Fairless: Buildings, okay. Well, you have the answer again, in this document I have in front of me — I definitely would not have guessed it. Next week we won’t have the answer in here, so I’ll give my guess for future questions. Good luck, Best Ever listeners, on this one… It’s definitely surprising.

For the winners of previous questions – we will be sending those books out in the next week or two. Samantha, my right-hand person on my team – she’ll be mailing them out; we’ve gotta get some copies in our office first. Then I’ll sign them and we’ll get them out to you. So if you won already – it’s coming, we’re on top of it.

And then February 22nd-23rd – you know what’s going on, don’t you, Theo?

Theo Hicks: Best Ever Conference 2019.

Joe Fairless: That’s right, Best Ever Conference 2019. It’s in Denver, Colorado. Go to BestEverConference.com. A speaker that I wanna mention is gonna be there is Julie Lam of GoodEgg Investments. She is going to be on a panel that I will be moderating, about taking the leap from smaller stuff to larger stuff, and how she has done that, with some specific case studies, and some other people on the panel will be speaking about that topic as well.

It was one of the highest-rated panels that we did last year, and we usually don’t repeat panels, but we are going to have the same focus for a panel this year; different people on the panel, but the same focus, because it’s not only inspiring, but it’s a how-to panel for how others got from point A to point B in scaling their business… So it will be beneficial for you to attend and hear that panel, as well as the others that we’ve got going on.

You get a discount of 5% when you enter the code — I forget the code, but when you go to besteverconference.com, right before you click the Buy Now button, there’s a code in that little section there, so you can simply enter that code and you get 5% off your ticket.

Theo Hicks: Yes, I’m looking forward to that panel, because I’m kind of going into the same thing right now. Lastly, if you buy the Best Ever Apartment Syndication Book on Amazon and leave a review, you have the opportunity to be the Review of the Week, read aloud on the podcast. This week’s review is from Chad Eisenhart. It’s a little bit longer, but I really wanted to read it, because he had reached out on Bigger Pockets and was talking about how grateful he was for the book, and I asked him to leave a review on Amazon, and he did, so I’m gonna read his review right now. He said:

“The Best Ever Apartment Syndication Book tells you the exact steps to work on to buy apartments with investor money. As you can see from the attached photos, (he attached a photo of a bunch of post-it notes in his book) I found plenty of actionable steps to implement.

Apartment syndication is a team sport and they do not give you a bunch of fluff telling you it will be easy or quick. They tell you exactly what to do today, and tomorrow, and the next day, and at the sale. I am in the process of reviewing my notes and making my list of what to start on today.

Add this in with their podcast (free) and syndicationschool.com (free) and if I do not hit my apartment syndication goals I laid out for myself, the only person to blame is me. I joined a mentoring program for $5,000 a few months back; not to insult that group, but Joe and Theo’s content deserved my $5,000, not just the $43 I spent on the book.”

Joe Fairless: He posted about that in the Facebook group. Did you see my comment about that?

Theo Hicks: Yeah, “I hope the check is on the way…”

Joe Fairless: Yeah, I mentioned to him in our Facebook group, which is BestEverCommunity.com – free to join and hang out with us and chat… Theo was wanting you to send us the $5,000, but I said “That’s ridiculous, Theo. He already paid $43 for the book, so he can just send us $4,957.”

Theo Hicks: There you go… [laughter]

Joe Fairless: But in all seriousness, thank you so much for taking time to write the review, and I’m glad it’s been helpful. Most importantly, I’m glad it’s been helpful. And that code for the Best Ever Conference is “take5”. That’s also on the website, BestEverConference.com.

Well, good hanging out with you, Theo, as always. Best Ever listeners, nice hanging out with you, too. I hope you got some value from this – I’m confident that you did – and looking forward to talking to you again tomorrow.

 

JF1556: How to Build Your All-Star Apartment Syndication Team Part 4 of 4 | Syndication School with Theo Hicks

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Build Your All-Star Apartment Syndication Team with a Real Estate Investment Attorney

Today, we’re discussing three huge parts of your team. We’ll cover when, why, and how to hire a great real estate investment attorney, an investment property mortgage broker, and an investment accountant. If you haven’t listened to the first parts of this series, you should get caught up there first. Those were episodes 15481549, and 1555. Once you have all of these team members in place, you’re one giant step closer to closing your first apartment syndication.

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Building Your Team Spreadsheet


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TRANSCRIPTION

The Process for Hiring a Real Estate Investment Attorney, Broker, and Accountant

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks.

Each week, we air a podcast series about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will offer a document, a spreadsheet, or some sort of resource for you to download for free. All of these free documents, as well as past and future Syndication School series, can be located at SyndicationSchool.com.

This episode is going to be part four of a four-part series entitled “How to Build Your All-Star Apartment Syndication Team.”

So far, in part one, you learned the six ways to find the various team members, as well as the process for hiring team members number one and two, which are the business partner and the mentor. In part two, you learned the process for hiring team member number three, the property management company; in part three, which was yesterday, you learned the process for hiring real estate brokers, so team member number four.

In this episode, we will be discussing the process for hiring team members five, six, and seven, which are your attorneys, the mortgage broker, as well as the accountant. Then, lastly, we will discuss what order to actually hire these seven team members in.

The Four Documents Your Real Estate Investment Attorneys Will Help You With

Team member number five is going to be the attorneys. In particular, there are two attorneys that you need to bring on your team – the real estate attorney and the securities attorney. Now, the main purpose of these attorneys is to help you with the creation and the review of the various contracts required to complete a syndication deal.

The Purchase and Sale Agreement

There are essentially four major documents that the attorneys will help you create or review, the first being the purchase and sale agreement (PSA), which is the contract between the seller and the buyer outlining the terms of purchase. Usually, how it works is you’ll get a deal, and when you submit your offer, you submit it in the form of an LOI, which is a non-binding agreement that just shows your intent to buy at these specific terms. Then, they’ll review the LOIs, they’ll have either a best and final sellers call or they’ll just select the best offer, and you’ll be awarded the deal… At which point, the process of signing the PSA begins.

Usually, the PSA is going to be created by the seller’s real estate attorney, but make sure that, if you are the buyer, that you have your real estate attorney review the terms of the PSA as well.

The Operating Agreement

Once you sign the PSA, you move on to the due diligence phase and, at that point, you will need to create document number two, which is an operating agreement. Now, there’s going to be two different operating agreements. The first operating agreement is going to be for the general partnership (GP), so it outlines the responsibilities and ownership percentages of the GP members.

If you remember – maybe it was part one – I’m not exactly sure which episode it was – we discussed the fact that the GP is likely not going to be just one single person. There’s likely gonna be someone who is the acquisitions person, and maybe that person also does the asset management, but then someone else does the equity raising, but then maybe that person who’s equity-raising has four or five people helping them raise money, so that’s six people, and they might have two loan guarantors, so that’s eight people on the GP. So you’re gonna need an operating agreement between those eight members to determine who does what and what percentage of the GP do they actually own.

Then you’ll also need to create an operating agreement between the general partnership and the limited partners (LP). That outlines the responsibilities of both parties, as well as how much of the deal the GP owns and how much of the deal the LP owns and how does the compensation work and things like that. Both of these operating agreements are created by a real estate attorney.

The Private Placement Memorandum 

Now, the third document is the private placement memorandum (PPM), which is a legal document that highlights the legal disclaimers for how essentially the LP can lose money in the deal. It includes a summary of the offering, a description of the property that’s being purchased, information on the investment min and max amounts, the key risks involved with the offering, a disclosure on how the GP and LP are paid, as well as other basic disclosures like information on the general partnership and a list of all the risks associated with fee offering.

Usually, these PPMs are going to be at least 100 pages long for a 100-unit apartment building, and it’s jam-packed with a lot of information. This is going to be created by your securities attorney. The first two – the PSA and the operating agreement – are the real estate attorney, and the PPM is where your securities attorney comes into play.

The Subscription Agreement

Then the fourth major document is going to be the subscription agreement, which is essentially a promise by the LLC that is the purchaser of the property – because, typically, you will create an LLC that will buy the property, and then your investors will buy shares of that LLC. So the subscription agreement is a promise by this LLC to sell a specific number of shares to the LP at a specific price, and it’s also a promise by the limited partners to pay that price. This is going to be prepared by the real estate attorney as well.

How Often Will You Create These Documents with Your Securities or Real Estate Investment Attorney?

For these four documents – for the PSA you could probably work with your real estate attorney one time to create a Purchase and Sale Agreement template, and then just have blanks for the property name and due diligence periods and things like that… So you’ll likely only need to do that one time.

The operating agreement – you’re only gonna need to do the operating agreement one time for the GP, but you’ll need to create a new operating agreement for the GP and LP for each deal that you do. Again, that’s with the real estate attorney.

The private placement memorandum – similar to the PSA, you can probably make that once and then just do some slight changes for each deal. And then, for the subscription agreement – again, that’s gonna be prepared for each deal, but you’ll likely have them create a template one time and then kind of pay them for their time to fill in the blanks.

Those are the four documents that those attorneys will help you create.

Advice You’ll Receive From Your Securities and Real Estate Investment Attorney

Other things that attorneys could do for you is to advise you on the best structures for your operating agreements. For the general partnership, they’re gonna advise you on how to structure that, as well as how to structure the LP and GP. And, usually, they’ll send you a questionnaire and you’ll fill it out, and then, based off of that, they’ll create the operating agreement.

They might go back and forth and ask for questions on certain things they don’t understand, or certain things they need more clarification on, and get more explanation on your background, your business partners’ background, what you’re trying to do with the deal so they could help you create the best structure possible.

Then, of course, you can consult with them on an as-needed basis. If things come up legal-wise, then you can call up your real estate attorney and have a conversation with them about that.

Securities and Real Estate Investment Attorney Compensation

Now, each of these documents obviously cost money, and that’s how the attorneys are gonna be compensated. Typically, all of these will likely be made between putting the deal under contract and closing. They might make the operating agreement for the general partnership before you put the deal under contract, but the PSA, the PPM, and the subscription agreement are things that are likely going to be created once you have the deal under contract, so you have to keep in mind how you are actually going to fund these legal fees before you close on the deal because you’re not gonna have investor money yet. So, it’s gonna have to either come out of pocket, or someone else is gonna have to cover it. But you will get reimbursed at closing, so at least you’ll get your money back, as long as you do close.

These are ballpark numbers how much is it gonna cost for these four documents… And, again, it’s basically gonna depend on how complicated the partnership is or how complicated the contract is going to be… Because I’m going to give you some pretty big ranges.

Payment Via Document Fees

For the purchase and sale agreement, it could be anywhere between $1,000 to $5,000. For the operating agreements, I’ve seen as low as $350 and as high as $5,000.

For the PPM, this is the one you’re gonna pay the big bucks. This could be anywhere from a few thousand dollars – but that’s gonna be unlikely – up to $40,000. So you’re gonna be somewhere in the $10,000, most likely. But, if you’re doing a super-complicated deal, then expect to shell out 40k-60k for this private placement memorandum. Maybe a great way to break into the apartment syndication industry is to become a securities attorney and, if you partner up with some investors, you can make a ton of money by creating these documents.

Lastly, the subscription agreement is gonna be similar to the operating agreement, so it could be a few hundred bucks to a few thousand dollars, depending on how complicated the structure is.

Qualifying a Securities and a Real Estate Investment Attorney

In order to actually qualify the attorney — these last three team members, you’re not gonna qualify them and sell yourself to them the same way that you did for the property management and the brokerage, because they’re more providing kind of a service that you just pay them money and they do it for you; you don’t need to win them over with your experience and background. You show them the money, and they’ll create these documents for you.

Ensure Your Securities Attorney Specializes in Apartment Syndication

But there are a few things you wanna do. You don’t wanna just work with just any securities attorney or any real estate attorney. For the securities attorney, it’s really not going to be that big of a deal. You just wanna make sure that they actually specialize in apartment syndications and they specialize in the types of apartment syndication that you’re going to do. The two major ones are gonna be 506(b) and 506(c), which we’ll talk about in more detail in future episodes, but just very high-level – 506(b) you’re allowed to bring on sophisticated investors, so you don’t just need to bring on accredited investors… But you must have a pre-existing relationship with all of your investors. You can’t find someone one Bigger Pockets and have them invest in your deal; you need to know them and prove that you know them.

506(c) is kind of the opposite – accredited investors only, and these investors must be verified by a third-party. And you as a syndicator are allowed to solicit for this money. So you can create Facebook ads, you can post about it on the Bigger Pockets marketplace, you can drop fliers from the sky… You can really do whatever you want with 506(c) in regards to soliciting for money. So those are kind of the major differences between the two.

506(b), again – you don’t need accredited investors, but you must know your investors. 506(c), accredited investors only, but you don’t need to know them, and you can actually advertise for your deals. That’s for the securities attorney.

Make Sure Your Real Estate Investment Attorney Has Experience with Syndications

Then, similarly, for the real estate attorney, you wanna make sure that they have experience making operating agreements and subscription agreements for apartment syndications. You don’t want a real estate attorney that focuses on single-family, for example. Essentially, you wanna make sure that these attorneys know how to do exactly what it is you want them to do and they’re not learning on your dime.

Now, you don’t wanna pay the attorneys until you are for sure going to close on the deal because you don’t wanna spend thousands of dollars on the PPM and the PSA and the operating agreements if you don’t end up actually doing a deal. So what you wanna do is you want to first have an intro call. 30 minutes (it’s usually going to be free) just to qualify them to make sure that they actually specialize or at least have experience in doing exactly what it is that you wanna do (apartment syndications 506(b), for example). But you don’t want to, after that, have them create your operating agreements and PPMs. Wait until you start actually looking at deals and you’ve got a deal that you are interested in buying before reaching out to them and saying, “Hey, it’s go time”, to start creating those documents. So that’s the attorney.

Your Investment Property Mortgage Broker Will Provide Debt and Equity

Next, it’s going to be the mortgage broker. The mortgage broker, as the name implies, is going to provide financing for the deals. That’s their primary focus, and that’s what all mortgage brokers are able to do. Additionally, you might find a mortgage broker who is willing to help you with the underwriting. If you just find a deal that you’re interested in submitting an offer on, you can send them the info and they will provide you with the ballpark loan terms, and they also might actually provide equity.

A mortgage broker that I work with – they provide debt but they also raise money from institutions. As long as you need to raise more than a certain number of dollars, they can help you raise money for that deal, as well.

Compensating Your Investment Property Mortgage Broker

Primarily, they provide financing for deals, but they might have additional services as well. Like the property management company and the real estate broker, in order to earn these additional services, you’re going to need to prove yourself. We’ll talk about that here, in a few seconds, but how they are compensated first – they are usually paid closing costs and financing fees. That’s what comes out of your pocket, at least.

A good rule of thumb for closing costs is it’s gonna be around 1% of the purchase price, and the financing fees are gonna be around 1.75% of the purchase price. In total, around 2.75% – 3% of the purchase price is gonna go towards paying this lender or mortgage broker.

Qualifying an Investment Property Mortgage Broker

Now, in order for you to qualify them, to make sure they’re in alignment with what you need, there’s a couple of questions you want to have answered. And, again, don’t just ask them these lists of questions robotically; try to organically get this information out of them and do some research on them beforehand to see if you can figure out some of the answers to these questions.

How Many Deals Have They Financed? 

One thing you wanna know is how many deals they provided financing on in the last 12 months, to get an idea of how active they are.

What Types of Loan Programs Do They Offer?

Then you also wanna know what types of loan programs that they offer to someone like you, with your background. So explain to them your background, exactly what it is you’re looking to do, and then ask them what’s the best loan program that they have to offer.

Do they offer agency debt, do they offer bridge loans, do they offer interest-only loans? What type of loan-to-value can they provide? What are the loan terms? Three-year loans, twelve-year loans, thirty-year loans? Will the debt be recourse or non-recourse? If you don’t know what those things mean, I will definitely do future episodes on lending and financing and loans, but, for now, if you go to our website, JoeFairless.com and check out the blog, you’ll find different posts on agency versus bridge loans, recourse versus non-recourse… Or even better, just Google “Joe Fairless bridge loans” or “Joe Fairless recourse vs. non-recourse” and you’ll find information on that… But, again, I promise you I will do future Syndication School episodes focused solely on talking about debt.

How Do They Qualify a Deal?

You also wanna ask them how they qualify a deal. What do they need from you in order to qualify you for financing? Usually, if you have a deal, they’re gonna ask you for the rent roll, the Trailing-12 months profit and loss, as well as the offering memorandum and a pricing target, and then they will provide you with a quote based off of that information. Usually, they’re gonna provide financing based off of a loan-to-value or loan-to-cost.

What they’ll do is they’ll use the in-place NOI, or they might do some things differently, like they might use T-3 income (trailing three months income) and then maybe a combination of the 12-month income and the 12-month expenses, or maybe they might use the expenses that you’re going to project, but they’ll use some sort of NOI – they all calculate it differently, as well as the market cap rate, to determine what the value of the property will be, and then they will fund a percentage of that. That’s what the LTV is. An 80% LTV means that they will fund 80% of the property value. If the value of the property is a million dollars, then they will loan $800,000 and you’ll need to come up with the remaining $200,000.

Now, the cost is based off of the value plus the cap-ex costs. If the all-in price is going to be a million dollars, so the purchase price is $800,000 and the renovations are $200,000, and the loan-to-cost is 80%, then they’ll loan $800,000 and you need to come up with the remaining $200,000. Usually, loan-to-cost is for bridge loans, which are these shorter-term construction-type loans for properties that can’t qualify for agency debt.

Now, they might also take the debt service coverage ratio into account. Essentially, that is a ratio of the net operating income to the mortgage payments. They’ll obviously wanna see a net operating income that’s higher than the mortgage payments. The standard minimum is going to be 1.25 for agency debt and around 1.1 for bridge loans. Again, that’s based off of the in-place NOI, or however they calculate the NOI, and they will use that plus the minimum debt service coverage ratio to determine the maximum amount of debt service or monthly mortgage payments that you’ll pay, and then they’ll kind of back-calculate how much money they can lend you based off of the maximum amount of debt service the property can qualify for.

How Much Financing Will You Qualify For?

You’re also gonna wanna ask them how much financing that you will actually qualify for. Ask them how much they can loan to you personally. Again, they’re gonna base this off of the LTV, maybe debt service coverage ratio, but, at the end of the day, they’re gonna need someone to sign on the loan that meets the liquidity, net worth, and experience requirements… Which, if you don’t remember what those are, go back to listen to part one. That’s where I have the conversation about the loan guarantor. The loan guarantor is the person who signs on the loan to help you qualify.

Let’s say, for example, you are buying a million-dollar property and they’re willing to lend you $800,000. You’re going to need to have a net worth of $800,000, as well as experience with a similar-sized deal, and then some sort of liquidity requirements; it might be 10% or 15% of the $800,000. If you don’t meet that, then you’re gonna need to bring someone or someones on to help you sign the loan and then compensate them. Again, I’ve talked about the loan guarantor in part one of this series… But, to determine how much you actually qualify for, they’re gonna ask you to fill out a personal financial statement; you’ll fill out all your financials, credit history, net worth, things like that, and they’ll figure out exactly how much money they can lend you.

How to Qualify as an Investor with an Investment Property Mortgage Broker

Now, in order to win them over and, ideally, have them provide you with better financing, to provide you with estimates on financing when you’re underwriting, as well as, maybe if they’re equity raisers, they’ll trust you enough to have their investors invest in your deal… Here are a few things that you can tell them or that they’re at least going to ask you when you’re talking to them so that they can actually qualify you as an investor.

Who Is Your Property Management Company

They’re gonna wanna know who your property management company is, they’re gonna wanna know the statistics on them. How many units do they manage? What size are these units? Are they local? What type of properties do they focus on? T

What Type of Property Are You Buying? 

They’re also gonna wanna know what your business plan is; what type of property are you buying? Value-add property? What’s the cost gonna be? What’s the number of units? What do you expect to pay for cap-ex costs? Is it gonna be a certain dollar per unit? How much do you expect to pay for exterior renovations? What’s your plan for when you actually take over the property? How long will it take to implement these renovations? How long will it take to increase the occupancy rates? Essentially, what’s your five-year proforma look like? Or seven-year, depending on how long you’re gonna hold on to the property, which is the last thing they wanna know about your business plan – what’s your hold period? Are you gonna hold on to it for one year, five years, ten years, indefinitely? They’ll want to know that as well.

How Will You Fund the Deal?

They’ll also wanna know how you’re gonna fund the deal. How much money are you personally gonna put in the deal and then how much money are you going to raise and then who are these investors and how do you know them?

How Have You Structured the Deal?

They’re also gonna want to know what the LP/GP structure is. Are you bringing on debt investors or equity investors? If debt, what interest rate are you paying them? What’s the balloon period? If equity investors, what’s the preferred return? What’s the profit split? They’ll wanna know all these things.

How Are You Funding Upfront Costs?

They’ll also likely wanna know how you plan on funding the upfront costs, so the costs between contract and close: earnest deposit, due diligence fees, the legal fees I just talked about earlier… How are you gonna fund these things?

What Is Your Experience Level?

They’re also going to want to know what your multifamily experience is because most lenders are gonna have a very vague experience requirement that they can’t necessarily communicate to you during the initial conversations, but… The best explanation I’ve heard is that you need to have experience with a similar deal in the past. If you don’t, then you’re gonna need to have a loan guarantor who does.

What Is the Experience Level of Your Team Members?

And they’re also gonna want to talk about your team members and their experience as well, particularly the property management company… Because they’re going to want to see the contract between you and the property management company to make sure that the company who is managing the property will take good care of it because, again, the lender wants to get paid every month.

What Do Your Personal Finances Look Like?

And then, lastly, they’re gonna ask you to fill out that personal financial statement to determine your liquidity, net worth, credit history, existing debt, things like that, to qualify you for financing.

The Duties of an Investment Accountant

Now, the last team member is going to be the accountant. The accountant will do your yearly taxes. They’ll create the schedule of K-1’s, the tax documents for your investors at the end of the year. Ideally, they help you with ongoing bookkeeping, and then they should provide you with general tax advice, as well as some tax planning services. And then, maybe if this is what you decided to pursue, they could help you with a 1031 exchange on the back-end.

Qualifying Your Investment Accountant

Again, similar to the lawyer, you don’t really need to win over an accountant. Just pay them money, and they’ll do what you paid them to do. But like all other team members, you want to qualify them to make sure they’re a good fit.

Do They Currently Work With Syndicators? 

One important thing to know is if they currently represent apartment syndicators because you don’t want them learning the apartment syndication business plan and the tax benefits for apartment syndications on your dime. They should already know what types of tax deductions you can take, and also know the apartment syndication business model.

How Are Their Fees Structure? 

You’re also gonna wanna know how their fees are structured… A good understanding of exactly how you’re going to be charged. Is there a fee each time you call them or do you put them on a monthly retainer and you can call them whenever? Do these ongoing fees include the tax returns at the end of the year? Is that separate? Do they do bookkeeping, and how much do they charge for that? Things like that.

Who’s Your Main Point of Contact? 

You’ll also wanna know who’s your point person. Are you gonna be communicating back and forth with a partner or will it be a mid-level accountant or will it be someone right out of college? Ideally, it’s at least a mid-level accountant, but even better would be the partner.

What Are Their Tax Positions? 

You’ll also wanna know how conservative or aggressive their tax positions are. That should obviously align with your preferences. If you’re very conservative, then you want a conservative accountant. If you’re very aggressive, you’ll want an aggressive accountant. But if you do get an aggressive accountant, you’ll also wanna know how that info will be communicated to you and whether or not you have the final say of whether you can deny or accept those tax positions.

How Will They Keep Your Information Secure? 

You’ll also wanna ask if they have a secure portal to transfer sensitive files back and forth, which they probably will… But that’s important because tax documents include important information, like your social security number, how much money you make, things like that… If it’s not a secure portal, then you might run into identity theft issues, so you wanna just confirm that they’re not just sending information back and forth via regular e-mail.

Are They Proactive When it Comes to Changing Tax Codes?

You’ll also wanna know how proactive they are with tax planning and how the tax planning services work. Obviously, you want them to be proactive and be up-to-date on the tax code, and then get some information on how tax planning works, and see if that aligns with what you’re looking for.

Do They File Tax Returns for All State and Local Governments?

You’re also going to want to know if they’re able to file tax returns for all state and local governments in the country because you might move or you might change markets and you still wanna work with this accountant and not have to start over with someone else.

What Are They Expectations for You?

You’ll also wanna ask them what they expect of you, just to set expectations earlier. What do they expect you to send them, when do they expect to send it to you, how do expect conversations to go? Things like that.

When Do They Send Out K-1’s?

And then lastly – this is a big one – you’ll wanna know when they will send you the investor K-1’s. A big thing that you’ll hear from passive investors is that the syndicators either don’t send the K-1’s on time or the K-1’s are incorrect. We pride ourselves on sending the K-1’s by March 31st each year. You’ll just wanna confirm with the accountant when they will get those to you by and what you need to do in order to stay on schedule.

That’s the accountant… Again, really the only way to win them over is just to pay them; whatever compensation structure they have, just make sure to pay them on time. And, obviously, when they tell you what they expect out of clients, you meet that and don’t go overboard.

How to Hire Your Real Estate Investment Attorney, Broker, and Accountant

Lastly, let’s talk about what order to hire your team members in. Again, your team members are gonna be a partner, a mentor, a property management company, real estate brokers, attorneys, mortgage brokers, and accountants.

Here’s the best path forward for someone who has none of these — but, at the end of the day, it’s really up to you. This is just what I found to be the best way because, again, if you remember, when you’re trying to win some of these people over to your side, you’re leveraging the experience of other team members. So, if you don’t have that team member yet, then you’re leaving a lot of leverage on the table. Here’s what I did.

Start with the Mentor

First, you wanna start with a mentor. Start very high-level. Find a mentor who’s an active apartment syndicator, who is successful; they’re doing deals that at least meet their projections and, ideally, exceed those projections. Then, from there, you should work on finding a business partner.

Next, Add a Partner

With the mentor, you’ll learn a lot about apartment syndications, and then you’ll learn what you like and what you’re good at and what you suck at. Then you can find a business partner to complement your strengths. Once you have a mentor and a business partner, next is to work on getting verbal commitments from investors, which is going to be the focus of the next series. The next series in the Syndication School is gonna be all about passive investors. I’m not sure how many parts it’s gonna be yet, but it’s gonna be a long one.

Find a Property Management Company and an Investment Property Mortgage Broker

Once you get your verbal commitments from investors, next is to start reaching out to property management companies and mortgage brokers. Then once you’ve got your property management company and your debt lined up and your equity lined up, a business partner and a mentor, that’s when you start looking for real estate brokers because, at this point, you’re ready to start looking for deals.

Hire Your Real Estate Investment Attorney and Investment Accountant Last

And then, lastly, as you’re looking for deals or after you find a deal, you can start reaching out to attorneys and accountants.

That concludes this series. In this particular episode, part four, you learned the process for hiring these final three team members, which are the real estate and securities attorney, the mortgage broker, and the accountant, as well as what order to actually hire these team members in.

To listen to part one through three of this podcast series, which is “How to Build Your All-Star Apartment Syndication Team”, and to download your free team-building spreadsheet document, as well as other Syndication School series about the how-tos of apartment syndications, make sure you visit SyndicationSchool.com.

Thank you for listening, and I will talk to you next week.

JF1555: How to Build Your All-Star Apartment Syndication Team Part 3 of 4 | Syndication School with Theo Hicks

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Building Your All-Star Apartment Syndication Team and Hiring a Real Estate Broker

Today, Theo will cover another important part of your apartment syndication team, finding and hiring a real estate broker. This team member will most likely be your best source for deals, so getting in with a good broker is HUGE for your syndication business. Learn how to choose a real estate broker, and don’t forget to subscribe to the Best Ever Show on iTunes.

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Building Your Team Spreadsheet


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TRANSCRIPTION

How to Choose a Real Estate Broker

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks.

Each week, we air a two-part or four-part podcast series about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will offer a document, spreadsheet, or some sort of resource for you to download for free. All of these free documents, as well as past and future Syndication School series, can be found at SyndicationSchool.com.

This episode will be a continuation of the four-part series entitled “How to Build Your All-Star Apartment Syndication Team.” In part one, which is episode 1548, you learned the six ways to find your prospective team members, as well as the process for hiring the first two team members, which are a business partner and a mentor. Then, in part two, which is episode 1549, you learned the process for hiring the third team member, which is a property management company… And, in this episode, which is part three, we will be discussing the process for hiring a real estate broker.

By the end of this episode, as well as the previous two episodes, you will learn how to find and hire a business partner, a mentor, a property management company, and a real estate broker. In the next part, part four, we will discuss the final three team members, which are your attorneys, your mortgage broker, and your accountant.

The free resource for this four-part series will be a Building Your Team Spreadsheet, which is a spreadsheet that allows you to log your various team members and make sure you are hiring everyone that you need. That is available for you to download for free, either in the show notes of this episode or any of the other three parts, as well as at SyndicationSchool.com.

The Process of Hiring a Real Estate Broker

Let’s get right into it: the process for hiring a real estate broker. First, what is a real estate broker’s responsibility? Well, primarily, they do five things… And these are the five things that all real estate brokers will do.

Source Deals and List Your Property for Sale 

Number one is they will source deals with the purpose of wanting to represent the owner of the property, and to list that property for sale to the public. These are considered on-market deals, which are deals that are listed by a real estate broker. There’s an offer memorandum created, and it’s mass-marketed to the entire population, I guess, technically.

Set up the MLS 

Now, this is slightly different than for single-family residents, because when you are investing in single-families or in smaller multifamilies, typically you’ve got a real estate broker or agent who’s representing you, and then they’ll set you up in the MLS. The deals on the MLS are listed by a different broker, so there’s two agents involved – your agent, and then the selling agent… Whereas for apartments, the more likely scenario is that you are going to reach out to a ton of brokers. You’re gonna work with 5, 10, 15 different brokers, and if you end up submitting an offer on one of the deals they have listed, then they are likely going to represent you. So, a little bit different that single-families or smaller duplexes and fourplexes, where an agent is representing you as a buyer, and then the seller as well. For apartments, it’s usually the one broker representing both parties.

Create an Offering Memorandum (OM) 

Another responsibility is they create the offering memorandum (OM), which we briefly mentioned. This is the sales package that the broker puts together that essentially highlights the investment. So it’s got information on the market, the property, the financials, things like that.

Manage Contracts and Agreements 

They also help the owner of the property when the listing is live to the signed contract. They will work with the owner between the time the property is listed for sale, and between the time the contract is signed, with things like confidentiality agreements, scheduling and conducting the property tours, answering potential buyers’ questions, and things like that. They will also manage the offer process, so from offers to contracts being signed. They’ll schedule the calls, the offer date, and they’re the ones that accept the offers and relay those to the owner. They’ll coordinate the best and final sellers call, and essentially everything that is involved in the offer process, they will help manage that.

Close the Deal 

Then, once the contract is signed, they are responsible for ensuring that the deal makes it to the closing table, and then also as you’ll repeat that process for you in the back-end. So if you buy a property from broker A, then they will be your point person for getting the property to the closing table, and then 5-10 years later when you sell the property, you’ll likely use that same broker to list the property for sale.

Those are the five primary responsibilities that, more or less, every single real estate broker will do. Now, there are additional services that a real estate broker will provide to you once you’ve proven yourself worthy of the services. Those are – most importantly, they are a great source for off-market deals… Again, on-market deals are deals listed by a real estate broker to the public; but at the same time, since real estate brokers are sourcing deals, before putting it on market, they might send that deal to a list of premier investors or people they know can close, and bring them the deal first to see if they wanna take a look at it, see if they wanna buy it, and if not, they’ll put it on the market.

Most of the rest of this podcast will be a conversation on how to get brokers to send you those off-market deals, which involves winning over their trust and portraying yourself as a credible, serious person who can close on a deal. We’ll talk about how you can do that here in a few seconds.

How to Choose a Real Estate Broker Based on Market Advice

Another additional service a broker could provide is offer advice on particular markets, and submarkets within that market, and neighborhoods within that submarket, as well as help with deals. The deal depends on the situation. If you are working with the same broker who’s listing the property, then they can definitely help you to an extent with the deal, but at the end of the day they want to sell that deal, so trust their information, but also verify that what they’re saying is correct and it’s not biased because they wanna sell it. But if you happen to find a real estate brokerage who’s also a property management company, and you bring that property management company on, then whenever you’re looking at deals, you’ll have the eyes and ears of a broker to kind of review the deal with you, in addition to your property management company reviewing the deal.

That’s one example where they could help you with the deals, but again, if you’re working with the actual listing broker, do not take everything they say at face value. Trust what they say, but you wanna verify that what they’re saying is correct.

Hiring a Real Estate Broker Based on Opinion of Value and Commission

They can also provide a broker’s opinion of value (BOV) when you’re ready to sell, or considering selling. After you buy the property from a listing broker, and every year or two you should get a broker’s opinion of value, or at least determine what the value of the property is, to see if it makes sense to sell – ideally, your broker will help you out with that.

They could also invest their commission in the deal. This is what actually happened for Joe’s first deal that he did – the real estate broker invested a portion or all (I can’t remember which one of those is true) of their commission into the actual deal. This is great because it provides alignment of interest with your investors, because if the listing broker is investing on the deal, then the perception is that it’s a really good deal, because why else would the broker put their money in the deal.

And then lastly – and I kind of already mentioned this – they could potentially fulfill the role of another team member. For example, my property management company – and most property management companies are also going to be brokerages, too… So the property management company I work with, the wife is the president of the management company, and the husband is the president of the brokerage… So I kind of get to rely on both of them whenever I’m underwriting a deal; they help me check my assumptions, or tour the property with, but at the same time, since he’s a broker, he’s also out there looking for deals, so every once in a while he’ll send me deals.

Then there’s another brokerage that I talk to who also has an equity raising arm of their brokerage. They have the ability to help you raise funds for your deals as well, as an example of how they can fill another team member role.

My Process of Hiring and Finding a Real Estate Broker

So how do you find your real estate broker? I discussed this in part one, which is episode 1541, and I talked about the six ways to find your team members… But here’s exactly what I did to find my real estate brokers in Tampa. A little bit more specific, since I mentioned in part one finding these team members – whether it’s a property management company, a broker, a mentor, an attorney – there’s really only a certain number of ways to find them, and it’s going to be very similar, a few iterations… But I wanna provide an example of exactly what I did to find my real estate brokers in the Tampa Bay market.

Research, Research, Research 

First, obviously, I created a list of Tampa brokers, but exactly how I did that is I googled “top Tampa Bay real estate commercial brokers”, and essentially went through 10-20 pages of Google, and whenever a website came up, I would open it up in a tab, and by the end of it I had 20 tabs open of potential brokers to work with.

I also searched for commercial brokers, real estate brokers, multifamily brokers on Bigger Pockets, and created a list of a handful of people there. Then I did the same thing on LinkedIn. Now, LinkedIn is gonna be a little bit harder, because there’s gonna be a lot of results… So I started doing it, I got through a couple of pages, and realized that most of the people that I came across worked for the companies that I already had opened in a Google tab. So I just used Google and Bigger Pockets, but LinkedIn is another source you could use as well.

Contact the Brokers and Get on Their Lists 

Once I created my lists – I created the name, the website, the e-mail and the phone number… And I contacted the local team. For some of these brokers – they’re national brokerages, and I needed to make sure I actually found the Tampa Bay office, instead of just reaching out to the general phone number or general email address. And then obviously, for the Bigger Pockets or LinkedIn I would have reached out to the actual individual via direct message.

And here’s exactly what I’ve said to every single person, and I had a 100% response rate… This is exactly the email I sent to every single person. I said:

“My name is Theo Hicks, and I’m reaching out because my business partner and I are actively seeking multifamily opportunities in the Greater Tampa Bay Area. We both have previous apartment experience. I work with a 400 million dollar apartment syndicator, helping him with investor relations, co-authoring an apartment syndication book and managing a consulting program with over 80 active apartment syndicators, underwriting hundreds of deals in the process.

I also own a portfolio of multifamily assets in Cincinnati, Ohio. My business partner has a background in raising equity, we have our equity, debt, and management lined up, and now all we need is a deal. With that said, I was wondering if you could have one of your directors contact me, so that we can discuss our company’s investment parameters and business plan in further detail, as well as learn more about CBRE Tampa.”

Obviously, that last sentence is gonna change based off of the company and based off of the person that you’re reaching out to. I believe for this one I was reaching out to the office manager, so I asked her to direct me to a person that could help me.

Now, what’s important to include in your opener, and which I included here, is number one, you want to let them know what types of real estate you’re looking at and where; I mentioned I’m looking for multifamily in the Greater Tampa Bay Area. Also – and this is probably the most important – is to let them know about your experience; I let them know that I work with an investor, I’ve had investing experience myself, I work in a consulting program, I’ve written a book about this… And then I also talked about what pieces I already had in place. I mentioned how I already had equity lined up, I already had debt lined up, I already had a property management company lined up… So I wasn’t just reaching at random because I just randomly thought “Hey, I’m gonna start reaching out to brokers.” No. They read my statement and realize that I’ve put in effort, I’ve talked to investors, I’ve talked to mortgage brokers, I’ve talked to property management companies, I’ve got everything lined up and now I’m just ready to find a deal. All of this shows that I’m serious, educated and credible, and that I will have the ability to close on a deal.

Work with Qualified Commercial Brokers 

Now, you should work with every qualified commercial broker that you find, because again, you want to work with as many brokers as possible, because the more brokers you work with, the more deals you will find. Because unlike the MLS, where all the real estate agents and brokers will post their listings there, most of these commercial brokerages will have their own listings service; their own website has their listings… So it’s not one centralized location for all of them, at least not something that I have found.

So you want to work with all the qualified brokers you can; make sure you get on their lists. Then, obviously, once you find a deal, you’re likely going to work with that listing broker until you close, as well as, again, on the back-end when you sell the property. But ultimately, it’s up to you; you can work with one broker, you can work with as many as you want… You can work with one broker on the front-end and a different broker on the back-end, but this is just kind of the general recommendation of what you should do.

Now, before we get into the qualification process and how to actually win these brokers over to your side, so they start sending you off-market deals, I wanted to quickly discuss how they actually get paid. Real estate brokers are paid via commission, and a good rule of thumb is to expect to pay them or expect for them to be paid by the seller 3% to 6% of the purchase price if the apartment is less than 8 million dollars. If it’s over 8 million dollars, expect some sort of flat fee of around 150k. Typically, the seller is the one who’s paying these fees, so when you’re selling the property and when you’re underwriting the property make sure that you are accounting for this fee in your disposition summary.

How to Choose and Qualify a Real Estate Broker

Now, how do you actually qualify a broker? Your goal of these broker conversations, after you’ve done that initial introduction script that I mentioned – you’ll likely hop on a call with them and have a kind of informal interview of them, and they’ll also be interviewing you at the same time. The goal for you is to determine the broker’s level of experience, as well as their success with apartment communities that are comparable to the types of deals that you actually want to invest in.

If you’re a value-add investor, you want to find a real estate broker who finds and lists value-add deals, because obviously, that will increase the chances of you finding a deal that meets your investment criteria… Because what you’ll notice when you start searching for commercial real estate brokers is that not every single one lists value-add properties, let alone multifamily. For example, you will come across some that really only list retail, or only list offices, or land, or self-storage, but they don’t really focus on apartments… So even if they list one apartment a year, you should probably subscribe to their list, but when you’re interviewing them, the ones that focus more on multifamily (and particularly value-add multifamily) should get more of your attention than a brokerage who lists one multifamily property every year, and most of their stuff is office space.

Here is a list of questions to ask the broker – or at least these are questions you should ask yourself, and then find the answers to them, whether it’s from actually asking the broker or doing some investigations on their website. And again, just like I said in the previous episodes, when you’re talking to them don’t just run down this list and robotically ask them every single question; bring them up more organically, and do some research before you actually speak to them to find the answers to some of these questions first.

How Many Successful Closes Have They Had? 

One thing you wanna know is how many successful closes they have done in the last 12 months, because obviously the more deals that they’ve done, the more experience they have and the more active they are… Which means you have a better chance of finding a deal that meets your investment criteria.

You’ll also want to know of those successful closes what were the average number of units. Again, does that align with your investment criteria? If they’re closing on an average of 20 units per close, and their investment criteria is 100 units, then that broker might not be the ideal fit for you, or at least you shouldn’t spend a ton of time working on that relationship as you would someone who averages exactly 100 doors per sale.

What Percentage of Their Deals Are Value-Add? 

You also wanna know what percentage of the deals they list are value-add, for example, if that’s what your investment strategy is. Ideally, the majority of the deals that they list are in alignment with your investment strategy. If you’re looking for turnkey properties, then the majority of their properties listed should be turnkey, and same for value-add and distressed.

How Long Have They Been a Real Estate Broker? 

You also wanna know how long they’ve been working as a real estate broker, as well as how long they’ve been focused on multifamily. Again, the longer they’ve been working, the more experienced they are.

Where Are They Located? 

You also wanna know where they’re located, which you shouldn’t have to ask them that question. You should be able to find that online, ideally. And more of a requirement, your broker needs to be local to the market you’re investing in, or at least have a team nearby. If you’re investing in a smaller city or smaller market, then they should have an office in the closest big city. It’s gonna be difficult to work with a broker in Chicago if you’re trying to buy houses in Florida. It’s possible, but it’s gonna be more difficult than it would be to work with someone who’s actually local to Tampa because they’ll understand the area a lot better.

How Many Listings or Deals Do They Have? 

You also wanna know how many value-add apartment listings – or whatever your investment strategy is – that they currently have, just to give you an idea of how many potential deals they list and you’ll be able to look at, keeping seasonality in mind. Usually winter, this time of the year, is when these things are the slowest. So if they don’t have a ton of deals listed for sale in the winter, don’t be too concerned; but if it’s in the middle of May and they have no listings, then that should be a concern, or at least a red flag.

What Is Their Typical Deal Timeline? 

Also, you wanna ask them if they can walk you through a timeline of a typical deal, just to get an understanding of how that works… So how long after finding a deal do they usually have it listed for sale, how long from the time the property is listed for sale until they call us to offer, what’s the tour process, do they have an open house that you can go to, do you have to call ahead to schedule, and when you should go to the property, will you be able to see? And then also ask them what the offer process is – is there just going to be a call to offer, and that’s it? Is there gonna be a best and final sellers call? How does the offer process work?

You also wanna know how they actually find their deals. This is more for comparison purposes, so compare the way broker A finds deals to broker B, to see which one you should focus on building a relationship with more. You also wanna ask them what stage the local apartment market is in – is it a buyers or a sellers market? What are the cap rates and how are those trending? Are we at the top or at the bottom of the cycle? …just to gauge their understanding of the actual market.

What Do They Specialize In? 

You also want to ask them what they specialize in. As I mentioned before, the term “commercial broker” means that they could focus on multifamily, retail, office, land, skyscrapers, condominiums… Any commercial real estate that’s not single-family home, or I guess four units or lower, that could be their specialty. Ideally, they specialize in what your investment strategy is, so they specialize in multifamily, or more specifically, value-add multifamily.

How Do They Structure Their Fees? 

You also wanna ask them how they structure their fees – what commission do they charge, and are there any other fees that are charged for using their services? You wanna know if there is anything in particular that they do differently than other brokers in the real estate market, for comparison purposes.

Do They Have a Property Management Company? 

You also wanna ask them if they can provide you with a property management company, mortgage brokers, attorneys, accountants, referrals. Number one, that will obviously give you potential team members to interview, and that’s gonna be great — if they’re a really good broker, then they’re gonna give you really good referrals… But it also gives you an idea of how tapped into the market they are, and how tapped into the big players they are. If they don’t have any property management or mortgage broker recommendations, it’s not really a good sign. It shows they’re likely inexperienced.

Do They Offer On-Market and Off-Market Deals? 

And then lastly, you want to know if they offer both on-market and off-market deals. So are all the deals listed the exact same? So they find them, they create a marketing package, and no one sees it until the sales package is listed, or is posted on their website? Or do they send the deals to a list of preferred investors first, as an off-market opportunity, before listing it on market? When you ask this question, follow up by saying that you completely understand that they’re not going to send you off-market deals until you’ve proven yourself. That’s the transition to the next part of this episode, which is how to prove yourself to the broker, how to win them over, and eventually have them send you their off-market opportunities, or at least increase your chances of being awarded the deal… Because brokers are going to be one of the best deal sources. They obviously aren’t going to send you these off-market deals right away, or really enthusiastically answer your questions until you’ve proven that you can fulfill their need, which is to obviously make money, and then make money by you closing on the deal. So don’t expect off-market deals, don’t expect brokers to instantaneously respond to your questions until you’ve proven yourself worthy to receive those off-market deals. To accomplish this goal, there’s a few things that you can do.

How to Hire a Real Estate Broker and How to Set Yourself up for Success

Here’s a list of things you need to do before you even reach out to these brokers, to set yourself up for success.

Have a Property Management Company 

Number one is to have a property management company, or at least have an idea of who you’re gonna work with. You don’t need to have a signed contract or anything, but have an idea of at least one management company you can work with; having two or three is even better. That way they have an idea of who is going to manage the deal after it’s closed on.

Have a Mortgage Broker or Lender and Passive Investors 

You also want to have a mortgage broker or a lender, so they know how you’re going to fund the deal, and that you are qualified for financing. You’re also going to want to have verbal commitments from your passive investors. That way, they will know how you’re going to fund the loan down payment, the renovations and the other fees associated with closing on the deal.

Have Your Mentor or Consultant Handy 

Lastly, you’re gonna want your mentor or consultant, because assuming you haven’t done a deal before, you’re going to need to leverage their experience, expertise and credibility with the real estate broker. Those are the four things you need to do before you even make your list and start reaching out to brokers.

Bring up Your Relevant Experiences 

Once you’ve done those four things, then when you’re actually interacting with brokers, in that initial conversation – and ongoing conversations – first you want to bring up your relevant experiences… So what have you done in your past that will show a broker that you’re serious about closing on a deal? This could be real estate experience, this could be non-real estate experience, so business success, if you’ve gotten a ton of promotions, you’ve managed this much money in sales… Then you could also obviously leverage your team’s experience as well.

Tell Them What You’ve Done 

Then, of course, you wanna tell them what you’ve already done, just to show them, again, that you’re serious, that you’ve put forth effort already, and now you just need a deal to bring everything together… So who are your team members, who’s gonna fund the debt and what’s the debt going to be, what kind of terms can you get, how much can you qualify for, how much equity can you raise, and if you evaluated the market yet… Things like that.

Build a Personal Connection 

Then lastly, work on building a personal connection with them, because that is the best way for them to trust you and for them to send you off-market deals. Obviously, you wanna do this genuinely. Joe’s go-to question is ask people what’s been the highlight of their week, but a lot of other people will build rapport with brokers by taking them out for drinks, having coffee with them, dinners and lunches, going golfing, things like that. So it doesn’t have to be strictly business, it can be some fun as well.

Winning a Real Estate Broker Over

Now, here are four other things that you can do to win over the broker without having to actually complete a deal. This is after you’ve found them, you’ve had the initial conversation with them, and you’ve told them about all the team members that you’ve brought on already, and your debt and equity… This is what you can do moving forward to start to build that connection with them, that trust with them.

Pay Them a Consulting Fee 

Number one is just to pay them. You can offer a consulting fee of, say, $150 to $200/hour for their advice. Maybe you can say “Hey, can I pick your brain for half an hour and I’ll pay you $100?” Or “Hey, can you meet me at this property and take a look at it? I’ll pay you $200.”

Visit Their Recent Sales 

Another thing you do is to visit their recent sales. This is a very good tactic to show them that you’re serious. Ask them for a list of their ten most recent sales, and then actually drive to those properties, drive around the property; if you want to, you can act like you’re a tenant and actually go into the units, but I personally just drove around the outside of the properties and looked at the exterior conditions, then I went online and looked at the interiors, looked at the rents… I essentially did a very high-level analysis of the property, and then I followed up with the broker, creating a pros and cons list as it relates to how that property compares to the type of property I wanna buy. In doing so, one, it is helping me learn more about the market and the types of properties this broker lists. Number two, it gives them the idea of the type of property that you want to buy, but number three, most importantly, as I mentioned, it shows them that you’re serious and that you’re putting forth effort and you’re not someone that just reached out, had that conversation and fell off the face of the Earth. You’re actually out there, boots on the ground, doing work.

Offer Them Information on How You Fund Deals 

Also, you can offer them information on how you will fund a deal… Not how you find the deal – they’re finding the deals for you – but how you will fund the deal, so how much debt are you qualified for, who is your mortgage broker, how much equity can you raise, how will the compensation structure be for the GP and LP… And again, they wanna know that you can close, so if they know that you have enough money to close, then that’s just one more tick in the positive box for you as the investor, in the eyes of the broker.

Follow up With the Broker 

And then lastly – and this is kind of general, and this could fall into the other categories as well – diligently follow-up with the broker. If they send you a deal, underwrite it right away, and then reply back to them with their feedback within 24-48 hours. Go and visit the actual comps that they selected and give your feedback on those right away. If you do a property tour with them, don’t take multiple days to get back to them with any follow-up questions or feedback. E-mail them right when you get home. If you bring on a new team member, let them know; if you’ve just found a big investor, let them know. Anything that points to you getting closer to completing a deal, let the broker know. Again, it shows that you’re serious, but also, you don’t wanna go weeks at a time without contacting the broker, because then they’ll completely forget about you, so… These are ways to constantly stay in contact with that broker.

How to Choose a Real Estate Broker and What Questions to Expect From Them

Now, we’re running a little bit over, so I’m gonna quickly go over this last section, which are questions that you should be prepared to answer, because obviously, the broker is interviewing you just as much as you are interviewing them… So really quickly, here are the questions that you should be prepared to answer from the broker.

Who is Your Property Management Company? 

Number one is who is your property management company; they’ll wanna know who’s gonna manage the property once it’s been taken over by you, and if they’re credible. They’ll wanna know how many units this property management company manages, what’s the average building size, what’s the biggest building size, what types of properties do they focus on, and are they local? They’ll also wanna know who is your business partner and what their experience is. Essentially, they’re gonna wanna know about all of your team members – business partner, property management company, if you’ve got a consultant or a mentor, anyone else on the general partnership, they’ll wanna know about that.

Have You Purchased an Apartment Building Before? 

They’ll wanna know if you’ve purchased an apartment building before. Obviously, if you haven’t, that’s where you want to leverage your team’s experience – your property management company, your partner, and/or your mentor or consultant, which is why you need those three things, because you’re gonna need to leverage their expertise and their experience.

What Types of Deals and Markets are You Looking For? 

They’re also gonna want to know what types of deals you’re looking for, and they’re gonna want to see you be specific. If you just say “I’m looking for a 100-unit deal”, that’s not specific enough and it’s gonna show them that you don’t really know what you’re talking about. They’ll wanna know how many units, what’s the cost, what market are you looking at, what’s the asset type (A, B, C class), value-add, distressed, turnkey… They’re gonna want to know what age of construction, construction type, roof type, things like that. Be as specific as possible with your investment criteria to show them you know what you’re talking about.

They’re also gonna want to know what markets you’re looking into. Similar to the investment criteria, don’t just say “I’m looking in Tampa” or “I’m looking in New York.” Say exactly what submarkets you’re looking at, what neighborhoods you’re looking at… Again, it shows them that you know what you’re talking about.

How Will You Fund the Deal? 

They’re also gonna wanna know how you’re gonna fund the deal, so that’s the debt and the equity… And then they’re also likely going to ask you if you are willing to sign an exclusive agreement with them, so they can get you the best deals. Now, out of all the brokers I’ve talked to, none of them have said this, but you might come across this, and we always recommend that you don’t sign an exclusive agreement, because then you’re pigeon-holing yourself to working with only one broker, which means you are limiting your lead pipeline.

Overall, when it comes to brokers — you’ve gotta keep in mind that these brokers are likely contacted by investors all the time, so kind of figure out what sets you apart by other newbie investors. And then also, don’t expect for them to send you off-market deals until you’ve proven yourself. And for both of those – what sets you apart and how to prove yourself – have been the sole focus of this episode… So now is time to get out there and assume you’ve got your bases covered, which means you’ve got your team in place, and you can start looking for brokers so you can start finding deals.

That concludes part three, where you learned the process for hiring a real estate broker, and in part four, the final part of the series, we’re gonna discuss the process for hiring the remaining three team members, which are the attorneys, the mortgage broker and the accountant, and then we’re also going to talk about what order to actually hire these team members in.

To listen to parts one and two, as well as the other Syndication School series about the how-to’s of apartment syndications, and to download your free team-building document, visit SyndicationSchool.com. Thank you for listening, and I will talk to you tomorrow.

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JF1549: How to Build Your All-Star Apartment Syndication Team Part 2 of 4 | Syndication School with Theo Hicks

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Building Your All-Star Apartment Syndication Team and Managing Rental Properties

Today, Theo is covering the process of hiring a property management company. This is a huge part of your business. To be a successful syndicator, you’ll need a great property management company that you can count on to do outstanding work without you having to micro-manage. Learn more about managing rental properties, hiring your team members, and more when you subscribe to our free real estate investing classes.

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If your next syndication deal requires debt, equity, or a loan guarantor, I recommend Eastern Union Funding and Arbor Realty Trust, specifically Marc Belsky. I have worked with him for both agency debt and help with the equity raise. Plus, some of my clients have closed deals with Marc’s help.

Find out how he can help you too by calling him at 212-897-9875 or by emailing him at mbelsky@easterneq.com.


TRANSCRIPTION

Find a Team Member Who’s Focused on Managing Rental Properties

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks.

Each week, we air a two-part podcast series – in this case, a four-part podcast series – about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will offer a document or a spreadsheet or a resource for you to download for free. All of these free documents, as well as past and future Syndication School series podcasts, can be found at SyndicationSchool.com.

This episode is part two of the four-part series titled “How to Build Your All-Star Apartment Syndication Team.” In part one, yesterday’s episode, you learned about the four core team members and the three secondary team members that make up your seven-person company team. We talked about the six main ways to find prospective team members, and then we discussed the process for hiring a business partner and a mentor.

This episode, part two, will focus solely on the process for hiring a property management company. Now, just to reiterate, the most important aspect of apartment syndication — I guess the most important aspect of a successful apartment syndicator, is their ability to execute a business plan. The best deal, in the best market, means nothing if you and your team cannot execute the business plan… Keyword there, for our purposes right now, is being “team.” So the team is one of the pieces that will help you implement your business plan, so it’s very important that you find the correct team members.

What Does the Job of Managing Rental Properties Look Like?

For the property management company, their primary responsibility is to manage the property after closing. So, once you’ve closed on the deal, the property management company will replace the old property management company, and they will be responsible for managing the day-to-day operations: fulfilling maintenance requests, maintaining the occupancy, things like that.

Now, additional services that property management companies may or may not provide based off of the company are [unintelligible [00:06:05].08] for the pre-deal, and they might advise you on what neighborhoods and submarkets to look at. Once you have a deal, they can help you confirm your underwriting assumptions… So your expense assumptions after you take over the property – they can let you know if those make sense based on how they’ll operate the property and the market, as an example.

Once you have a deal under contract, they can help you with the due diligence process, helping you manage the inspections and the appraisals that happen, and all the audits of the current owners, find historical financials and rent rolls, and help with finalizing the budget… So finalizing your proforma, as well as your renovation budget.

Once you have the deal closed, aside from their primary responsibilities, they could also help you manage the renovations, help you host residence appreciation parties, help you implement the best marketing strategies, and things like that. Typically, and especially when you’re starting out, the property management company is going to be a third-party. So you’re not going to want to start your own property management company when you’re first starting out because you’ve got a lot of other things to deal with and learn about, and you don’t have time to focus on that particular aspect of the business plan.

But as you grow, and get your portfolio to a certain size, which people differ on which size you should actually bring on your own in-house management company, you can bring the management company in-house and run it yourself, or continue on with a third-party. It’s really up to you.

How Does a Company Make Money Managing Rental Properties?

Now, how do the property managers make money? Well, typically, they will charge a management fee, which is a percentage of the collected income at the property. In general, this could be anywhere between 2% and 10%, but since we’re dealing with apartments, you’re gonna be looking at the lower end of that range, because 10% is for single-family homes, 8% is probably for duplexes… So, once you’re over 100 units, you’re looking at around 5% or lower.

Other ways that management companies might get paid are through various fees – lease up fees, renewal fees, eviction fees, application fees, marketing fees, referral fees… There are a lot of different fees that they can charge. Again, it depends on the management company and the size of the property.

And you might also run into a property management company who is willing to help you manage renovations at a cost, which is the construction management fee; it’s typically a percentage of the total rehab budget, anywhere from 3% to 10%, with the larger rehab budgets falling on the lower end of that range. For example, say a million-dollar rehab and they are charging you 5% – well, then you’ve gotta pay them $50,000 out of that budget, so that’s just 50 additional thousand dollars you should raise at the beginning of the project.

Qualifying and Hiring a Property Management Company

Now, let’s get into the important aspects, which is how do you qualify the property management company? Basically, you’ll use one of those six ways to find a property management company – you’ll create a list, you will reach out to them, and you will — first, what you wanna do is introduce yourself and, when you’re doing so, you want to tell them what you’ve done or what you’re in the process of doing that’s getting you closer to closing on a deal.

So I would call them up and say, “Hey, my name is Theo Hicks. I am from Tampa, Florida, and I am actively working with real estate brokers right now to find deals. I’ve underwritten this many deals. Right now, I’m just looking for a property management company to bring on. Are you willing to spend five minutes to speak with me, so I can learn more about your company? And you can learn more about my business, as well?”

Because, whether you know it or not, this is actually a two-way street; they’re actually interviewing you as well because they wanna be confident that you are able to satisfy their business needs. Their business needs are obviously to make money, and the way they make money is to manage deals, and the way to manage deals is to work with investors who actually can close on deals.

At the same time, they also want someone who has realistic expectations of what a property management company is supposed to do… So you’re gonna have to prove your worthiness before asking them for additional services that I went over, like coming with you to property tours and helping you confirm your underwriting assumptions.

Questions to Ask When Interviewing Those Who Specialize in Managing Rental Properties

Before we go into how you should prepare for this interview, let’s go over the types of things you should be asking and figuring out from the property management company to qualify them. First, how long have they been in business? A pretty simple question.

A couple things about these questions… Don’t just call the property management company and ask all these questions in order like a robot; ask them sporadically, but do your due diligence beforehand and see how many of these answers you can find.

How Long Have They Been in Business?

How long have you been in business – you can find that online, on their website, pretty easily. This is a list of questions that you need to ask either them or ask yourself and find the answers to, whether that be on their website, through someone else, or through them directly… Because, if I was talking to someone and they asked me a question that was front and center on my website, I wouldn’t find them very credible.

So you wanna know how long they’ve been in business because, the longer they’ve been in business, the more experience they have, which in turn likely means they are more credible.

What Areas Do They Cover?

You also wanna know what areas they cover. Do they cover the areas that you’re targeting? Pretty important… But you also wanna know if they are focused on a handful of target markets, or if they are spread out across the nation. Again, not a disqualifier, and it really depends on the size of the company, but if they’re focused on too many markets, then they might not be able to give you the attention you need, and they might not be as big of experts on that actual market because they cover so many and it’s impossible to know everything about every single market.

You also wanna know if they’re actually located in that market. Ideally, they are. Ideally, they say that “I’ve been in business for 20 years. I cover the Tampa Bay market, and that’s where our headquarters are located.” It just makes things easier for you, and it kind of indicates their knowledge of that particular market.

How Many Units Do They Manage?

You also wanna know how many units they manage, so total number of units. If they are, for example, the biggest in the market or at the higher end in the market, that’s a positive because that indicates that they are credible… But, at the same time, you might not get the attention that you want because they’re working with big-time investors and you’re kind of a little fish at this point in time, and you might not get the attention that you want.

On a similar note, you also wanna know essentially what’s the biggest unit they manage, what’s the smallest building they manage, and what’s the average unit count. You wanna make sure that they are able to manage the size of property that you are interested in investing in. So what you will realize is that, when you talk to property management companies, they either specialize in, obviously, single-family homes or smaller multifamily; then you’ll find companies that specialize in that 10 to 50-unit range, buildings that don’t need on-site management. Then you’ll find other companies who specialize in the 100+ unit range, or maybe even 1,000+ unit range, and then everywhere in between.

Do They Align with Your Business Plan?

You wanna find a property management company who aligns with your current business plan. If your business plan is to buy a 20-unit, then you’re gonna want to find a management company who specializes in those smaller multifamilies… But if you were looking at a 100-unit, then that same property management company would not be a good fit. And I’m telling you, when you talk to them, they will try to convince you that they are a good fit, they’ll try to convince you that they’re interested in moving into that market, or they haven’t done it before, but they’ve got the processes in place to do so… But at the end of the day, you don’t want someone else learning on your dime. You wanna find a company who has experience doing that size of a project.

You also wanna know what types of properties they specialize in. Similarly to the unit size, you also wanna make sure that they are able to execute, or at least manage, the business plan that you plan on executing… So, if you’re going to buy value-add apartments, you want to make sure that you find a property management company who has experience with value-add apartments.

How Many Apartments Do They Own, in Addition to Managing Rental Properties?

You also wanna know how many apartments they personally own or their company owns, because that could be a potential conflict of interest. If they own apartments in your market and a unit goes vacant at your property and a unit goes vacant at their property, which unit do you think they’re going to fill first?

How Do They Manage Renovations? 

You also want to have them describe to you what their process is for managing a moderate renovation. Again, this is for value-add syndicators. You wanna know how do they track the work, who are the contractors – are they in-house GC’s? Do they find subcontractors for everything? Who manages these contractors? Who approves the work before the contractors get paid, and then what fees will they charge? Essentially, you want to know what to expect during the renovation process from them, what types of updates that you’re going to receive, who’s actually doing the work, is the work being checked, how much does it cost, how long is it gonna take? Things like that because those are all going to factor into your underwriting – how long is it gonna take, how much is it going to cost.

Then also you want to plan ahead and figure out exactly how to approach your performance reviews with the property management company, and so now you’ll know “Okay, well the work is tracked this way, so I should expect information presented to me in this way”, and know exactly who the contractors are, their in-house contractors, who they’ve worked with in the past, their sub-contractors… “It’s gonna cost me this much, and it should be done within 12 months.”

What Due Diligence Services Do They Offer?

You also wanna know if they offer any due diligence services and what the cost is… So will they help you deal with the due diligence process? Will they perform a lease audit? Will they perform a financial audit? Will they look at the bank statements of the property? Will they help you perform the inspections? Will they walk the appraiser through the property? Things like that. And then you also wanna know how much that costs. Will it be free, as long as you close? Will it be free if you don’t close, or will they charge you money if you don’t close? All things to think about.

You also want to get your hands on a list of nearby properties that they currently manage, so then you can go look at these properties and confirm that they are the type of property they say they specialize in. You can see how well the property is maintained, the area, and kind of get a general feel for the property.

What Trainings Do They Offer in Regards to Managing Rental Properties?

You also could ask what special trainings their managers receive from their company. Again, this one right here is not a deal breaker, but if you’re down to two management companies and one has a very specialized training for their managers and the other one doesn’t, that could be the deciding factor.

How do They Maintain the Property’s Online Presence? 

You also wanna know how they manage the property’s online reputation. I think it’s something like 80%+ of people search for rental homes online, so the first thing that a prospective resident is going to see is likely gonna be the property’s ranking on Google, and Apartments.com, and places like that… So you wanna ask them, are they doing anything to make sure that they maximize that rating? And again, this could be a deciding factor between multiple property management companies.

What Are the Site Manager’s Duties?

You also want to know who the point person is going to be to you. Is the point person going to be the site manager (which is ideal) or is it gonna be some lower-level employee?

You also wanna ask them what they see as the site manager’s duties. What do they expect out of the site manager, and does that align with your expectations of what the site manager should do? You can also ask if you can interview and approve the site manager before hiring them.

You also wanna know what kind of relationship they expect their site manager to have with the owner, so how often do they expect the site manager to contact the owner, and when they do contact them, what types of updates will they provide?

How Do They Handle Maintenance Issues?

Another important thing to think about is what maintenance issues will require approval? Is there a certain dollar amount that, if it’s under that dollar amount, then they’ll just take care of it; if it’s not, they’ll come to you and ask for your approval? And you also wanna know how accessible they will be. If you call them, will they answer? If not, how long do they say they’ll get back to you?

Will They Provide You with a Written Plan for Managing Rental Properties You Close On?

You also wanna ask you if they’ll provide you with a written management plan. Will they provide you with a renovation plan and a marketing plan that they plan on implementing once you’ve closed on the property?

What Fees Do They Charge?

You also wanna ask them about what fees they charge and what is actually included in the monthly management fee… Because, sometimes, you’ve got the management fee and then you’ve got all these other fees built on top of that, but you only accounted for the management fee in underwriting. You also wanna ask them what type of property management software they use. Really, you wanna make sure that they’re using one…

How Long Does it Take Them to Fill a Unit?

You also want to ask how much time it takes to typically do a make-ready. Once a tenant moves out of a unit, how long does it take for them to get that leased again? Depending on the market, it could be a couple of days, or it could be a couple of weeks… You’re going to want to know what the average is in that market and what they are committed to doing… Because, again, the longer the unit is vacant, the less revenue you are bringing in.

What Payment Methods Will Residents Use?

You also wanna know what types of rent payment methods will be available to the residents and make sure that that aligns with the renter demographic. If you’re in a low-income neighborhood, then not collecting cash or not taking cashier’s checks might be an issue… Whereas, if you’re in a higher, more affluent neighborhood, then not having the ability for them to submit their rent via direct deposit might be an issue.

Ask for Important Contact Information

Also, you wanna ask them if they require you to list the property with them upon sale because some property management companies will put that in their contract. You also wanna ask if you can have the cell phone number of the site manager, the regional manager and the national office, just in case you need to get a hold of them… And, if you can’t get a hold of the site manager, you can go up the chain of command to the regional manager, if you can’t get a hold of them, you can go to the national level.

And then lastly, you can ask them for contact information for a few of their current clients who have buildings that are similar to the types of buildings you will be investing in so that you can go to those references and check things out.

Now, again, don’t just go through this list of questions and ask them in order, like a robot, to the property management company. Take a look at this list, do you research to see if you can find the answers to these questions yourself, and the ones that you can’t find, scatter them out naturally throughout the course of the conversation.

Winning Over and Hiring a Property Management Company

Now, as I mentioned, you are not the only person that’s doing the interviewing here. The management company will also be interviewing you because they want to make sure that you are able to satisfy their business needs, which means that you’re able to close on a deal… So there’s a few things that you can do to win the property management company over to your side.

The first one is to be prepared for the interview. There are going to be questions that they’re definitely going to ask you and, if you don’t know the answers, then you’ve kind of ruined your opportunity to present yourself as a credible investor to this management company. That’s why what you do is make sure you know the answers to these questions before you even speak with a management company.

Who is Your Broker?

Number one, who is your broker? Who is your real estate broker? They’re gonna wanna know that you are actually looking for deals at this point in time, and that is accomplished by telling them, “Hey, my broker is John Doe, from John Doe Academy.”

What is Your Experience Level?

Next, they’re going to ask you if you’ve purchased an apartment before, and obviously you haven’t, if you haven’t before; if you have, you have. If you haven’t, this is where your mentor or partner comes into play. If your mentor or partner or someone else on their team has completed a deal before, then you can say, “I haven’t completed a deal before. However, I have a partner who’s done XYZ, and a board member who controls 300 million dollars in apartment communities, so we’ve got that covered.”

What is Your Target Market?

They’re gonna wanna know what types of properties you’re looking for, as well as what markets and neighborhoods. Again, this shows that you know what you’re talking about, if you could spit off and say, “Well, I’m looking for apartment communities built after the 1980s that are 100+ units that have the opportunity to add value but aren’t distressed. That are in Tampa, Florida, Ybor City, Temple Terrace, these particular submarkets.” That sounds a lot better than, “It doesn’t really matter. I’m looking for an apartment in Florida somewhere.” Those two things sound completely different. The first method shows that you’re active and that you know what you’re talking about, and that you’ve done your due diligence and also that they can confirm that they cover the market that you are actually investing in.

What is Your Business Plan?

They’re also gonna wanna know what your business plan is. Again, this will show your credibility and expertise, as well as let them know if it aligns with their specialty. So if someone asks me what my business plan is, I say, “Well, I want to buy a value-add property, take 12-18 months to turn over and stabilize the asset with my renovations, that will probably be about 5k-7k per unit… As well as some exterior renovations. We’ll hold onto the property for five years and then, after those five years, we will sell and rinse and repeat.”

How Did You Hear About Them?

They may also ask you how you actually found them… It’s not really important, but I have heard that some real estate brokers, for example, don’t like it when you say, “I found you on LoopNet”, but again, I don’t think this one here really matters too much… But they might ask you that, so be prepared.

Do You Have Other Companies Managing Rental Properties for You?

They’re also gonna ask you if you’re working with any other property management companies, of course, because they wanna know if there’s competition. They also are gonna ask you what expectations you have for a property management company. So now, after listening to this podcast, you know what their primary responsibilities are, as well as the additional duties, so when they ask you this question, you can explain to them that, ideally, you’d want the additional services but you know that you’re gonna have to prove yourself first… So it’ll kind of start there and start with them just managing the property, as well as the renovation budget, the renovations after close, and then go from there.

How Do You Underwrite Your Deals?

They’re also gonna want to know how you actually underwrite the deals and, more particularly, they’re gonna want to know what assumptions you actually use and are those assumptions going to be realistic. So if you tell them that you do the 50% rule, then you’re not going to look very credible, and they’re probably gonna not want to work with you because, since they’re the one managing the project, they’re gonna want to confirm the assumptions, and if they can’t confirm the assumptions, they’re not going to want to manage the project.

How Will You Fund the Deal?

They’re gonna want to know how you’re gonna fund the deal. That’s the debt and the equity… So what mortgage brokers are you talking to? What types of debt can you get? What LTV, interest rates, recourse vs. non-recourse? Is it a Fannie Mae/Freddie Mac? Is it a bridge loan? What types of debt are you going to get? And then your equity – how much equity are you able to raise? Who’s it coming from? Is it your money? Is it from investors? How many investors? How do you know these investors?

Again, this is gonna show your ability to close on the deal, as well as show if you’ve done your due diligence. If you have no idea how you’re gonna fund the deal, it’s not gonna look too good.

They Could Ask for Biographies

And then lastly, they might ask you for biographies on you and your business partners, so you might want to have those handy; at the very least, have information on your business partners handy. For example, if they ask you, “Well, have you done a deal before?”, you’ll say, “No, but I have a board member who has done a deal before.” Then they go, “How many deals has he done? How long has he been an investor for? Where does he invest?” They might ask you questions like that, so be prepared to answer them.

Visit and Ask About Other Properties Before Hiring a Property Management Company

Besides obviously being able to answer their questions, there’s a couple of other things that you can do as well to win over a property management company. One, which is something you’re already going to do because you asked them for a list of their properties — but I actually go visit those properties in person, and then provide them with feedback. For example, let’s say you get a list of five properties; you go to all five properties, and maybe a few of them are pretty distressed and there’s a couple of issues that are concerning to you, but then one property looks really nice and is exactly what you would want.

Well, you can go back and say, “Hey, I visited the properties. Here are the pros and cons of each and the questions I have. For property ABC, I went there and realized that some of the roof shingles are missing and the gutters were falling down and it looked like it hadn’t been painted in a while and it looked like the lawn hadn’t been mown in a while… What’s going on? Is that management issues? Is that an owner issue? Are they not giving you money? What’s going on there? I also saw XYZ property – immaculate condition. What’s the difference between the owners of those two properties? Why are they so different? Is it the owners? Is it the market? What’s going on there?”

This shows that you’re interested. It shows that you’re actually out there doing things, that you know what you’re talking about and you truly want to learn and put yourself in the best position to complete a deal.

Leverage Their Experience Managing Rental Properties and Get Feedback on Your Proformas

Another one would be for you to send them your proformas for deals that you’re underwriting. Again, don’t expect them to fully underwrite a deal for you. What you wanna do is say, “Hey, I’ve underwritten this deal. Do you mind taking a look at my underwriting assumptions and give me your feedback on them?” Typically, they might not send you a 1,000-word response, but they might give you a couple pointers and tips; you’re just building more rapport.

Follow Up and Regularly Communicate About Your Deals

And then, lastly, and this is kind of overall, is to have timely follow-up. After you do a property tour with them, make sure you follow up and ask them, “Okay, what were your thoughts on the property tour? Can you help me with ABC? Can we create some kind of cap-ex budget? What types of rents do you think we can get? What are your thoughts on the rent comps provided?” But don’t wait a couple of days or a couple of weeks to follow up and ask those questions after the property tour. Show that you’re serious, that you’re putting forth the effort to close on the deal.

And then, really, after completing any task that brings you closer to completing a deal, let them know. “Hey, I underwrote this deal. I’m gonna go visit it in person next Tuesday.” Or, “Hey, I just talked with this mortgage broker and got approved for an additional one million dollars in financing”, things like that.

That is the overall process for hiring the property management company. We talked about what the property management company actually does, how they’re compensated, and we talked about what you need to do in order to qualify a property management company, but also what you need to be prepared for and what you need to do in order to win them over to your side.

Winning over the property management company to your side is gonna be important because all of those additional services that they can provide to you. That would be an immense value to your business. But they’re not just gonna do that for any random person who calls them up on the phone and says they found them on Google and wants to become an apartment syndicator. You have to prove your worthiness, and we’ve gone over multiple tips on how to accomplish that.

Now, as I mentioned, this is a four-part series. Next week will be part three, and we will discuss the process for hiring your real estate brokers. Now we’re getting into the fun stuff, which is how to actually find deals. To listen to part one, and other Syndication School series about the how-tos of apartment syndications, and to download your free team-building document, visit SyndicationSchool.com.

Thank you for listening, and I will talk to you next week.

how to build an apartment syndication team

JF1548: How to Build Your All-Star Apartment Syndication Team Part 1 of 4 | Syndication School with Theo Hicks

Listen to the Episode Below (34:07)
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How to Build Your All-Star Apartment Syndication Team

We’ve worked through finding the best markets for real estate investing, as well as other aspects that lead up to completing your first apartment syndication deal. Today, Theo is covering the first part of building a great syndication team. In this particular part of the four-part series, we’ll hear about the four core team members, who they are, and how to find them. He’ll also cover the question, “Do you need a partner and a mentor?”. If you enjoyed today’s episode, please subscribe in iTunes and leave us a review!

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TRANSCRIPTION

Start Reaching Out to Potential Syndication Team Members

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks.

Each week, we air a two-part podcast series about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will offer a document, spreadsheet, or some sort of resource for you to download for free. All of these free documents and the Syndication School series, past and future, can be found at SyndicationSchool.com.

This week is the start of our second four-part series. This will be part one, and the series is entitled “How to Build Your All-Star Apartment Syndication Team.” As the name implies, we are going to be talking about building your team. If you have followed the previous eight series, essentially we’ve built to the point where you are now ready to start actually reaching out to various team members in order to bring them on and are one step closer to actually looking for deals. So you’ve got your education and experience on lock, your goals are set, market selected… Next step is to start building your team.

In this episode, we are going to go over what the core and the secondary team members are, and then we are going to have a conversation around how you find these team members. Some team members are found a specific way, but in general, you’re gonna find these people in a similar way… And then we’re going to actually talk about the process for hiring two of your team members in this episode; that would be the business partner and a mentor. Over the next three episodes, we will go over the process for hiring the remaining team members.

Why Your Syndication Team is Important

If you remember, in episode 1527, when we discussed the market evaluation strategies. If you remember, we posed the question, “What’s the most important factor in real estate?” Obviously, in that episode we went over how to select and qualify a target market, but what I said is that the overall MSA or city is not as important as the actual neighborhood or submarket, and the neighborhood and submarket are not as important as the actual deal, but all of those things are trumped by the ability to execute the business plan. So the market is not the most important factor, nor is the deal, nor is the cap rate or anything else. The most important aspect of real estate, and in particular apartment syndications, is the ability to execute the business plan. Because, if you can’t execute the business plan, then the best deal and the best market really means nothing.

We said that one way for you to build up your ability to execute the business plan is obviously gonna be your education and experience, but the most important piece is going to be your team… Because, when you are first starting out, you’re not going to know how to execute the business plan properly, and that’s kind of the catch-22 because the best way to learn how to do it is to actually do it, but you can’t really do it until you’ve done it before. So the way to get around that is to surround yourself with an incredible, experienced team who has experience executing the business plan in the past successfully. So that’s what we’re going to talk about over the course of this next four-part series.

Who Are Your Team Members?

I just wanted to start off by mentioning how important your team actually is because your team is gonna be the one that’s gonna be helping you implement the business plan. With that being said, who is on the apartment syndication team? I’ve broken it into two different categories. The first is the core team members – these are people that you are essentially working with on a daily or weekly basis and are pretty heavily involved in the process… Whereas the other team members are more deal-specific or maybe you have meetings with them once every quarter or once a year; those are your secondary team members.

The four core team members are gonna be a business partner, a mentor, a property management company, and a real estate broker or brokers. Those are gonna be the four most important members of your team.

The secondary team members are going to be the attorneys, so the real estate and securities attorneys); as well as a mortgage broker or a lender; and then, finally, an accountant. Essentially, there are a set of companies that you’re going to need to bring onto your team.

In this episode, we’re going to talk about the first two, the partner and the mentor. In part two we’re going to talk about the property management company. In part three we’re going to talk about the real estate brokers, and then, in part four, we’re going to talk about those secondary team members. For this series, there is going to be a free document, of course, and it’s going to be a Building Your Team spreadsheet, so it will be a place for you to log the contact information of all the various team members that you need… Kind of like a checklist to make sure that you’ve got all of your bases covered. To download that document, you can find it in the show notes of any of the four episodes in this series or at SyndicationSchool.com.

How to Find Syndication Team Members

Before we dive into the process for hiring a partner and a mentor, I wanted to discuss how you actually find these team members. Again, for some of them, it’s gonna be a very specific way to find them or you might have a different strategy in mind or have heard of ways to be able to find people in the past… But, generally, you’re gonna find all of these team members through one of six ways.

Through Your Thought Leadership Platform

The first way to find potential team members is through your interview-based thought leadership platform. In last week’s series – it actually was a four-part series, so the previous two weeks – series seven and eight, we discussed the thought leadership platform and the importance of building a brand as an apartment syndicator… And one of those benefits was the networking capabilities of having an interview-based thought leadership platform. You are having a conversation with one real estate professional every week, bi-weekly or once a month, and that person, in particular, could be a potential team member or maybe they know someone who could be a potential team member.

For example, you could make it your goal to try to interview at least one person from each of these four team member categories a month. Maybe one month you’ll interview a potential partner and the next month a potential mentor and the next month a potential property management company and so on and so forth… And you get the dual benefits of having a podcast or YouTube episode, but also you have the opportunity to meet with them, talk with them, get to know them, and see if they would be a good fit for your business.

Again, I’m just talking about how to find these people. We will go into particulars on what to do once you’ve found them in the later sections of this episode for the partner and the mentor.

Via Other Interview-Based Thought Leadership Platforms

Another way to find potential team members is through other interview-based thought leadership platforms. For example, you could listen to this daily podcast, so there’s seven different real estate professionals every week, 365 every single year, so maybe one of those people could be your property management company or a mortgage broker. Right now, our sponsor is actually a mortgage broker, so that’s the perfect example of a way to find a potential team member. Listening to the other podcasts, watching the real estate YouTube channels, reading blogs…

At Real Estate Meetups

The third way is to attend local apartment meetup groups; go there, network, talk to people, figure out who is doing what, and see if they could be a potential team member. I know at Joe’s meetup group, for example, there is a section of the meetup where people get to ask a question or have an ask… So, if you’re at this point in the process, your ask could be, “Hey, I’m looking for a mortgage broker. I’m looking for a real estate broker. Do you have any recommendations?” and build a list.

With the Help of BiggerPockets

The fourth way is through Bigger Pockets. There’s millions of active real estate professionals on Bigger Pockets. You can use the search function… For example, me in Tampa, I’d say, “Tampa Bay property managers”. Compile a list of all the profiles and reach out to them and ask them to set up a phone call to discuss a conversation about potentially bringing them on as a team member. Now, for the Bigger Pockets strategy, I recommend only contacting people that are actually active on Bigger Pockets. If their profile has been inactive for multiple years, or if they don’t have any posts, then that’s not as good as someone who’s actively posting multiple times per day because that’s the indication of that person’s business acumen and work effort and things like that.

Through a Basic Web Search

Another way is simply just to use the internet. You can Google the top property management companies in your market, top real estate brokerages in your market, compile a list of those, and reach out. Give them a call. That’s actually how I found my real estate brokers and property management company – I use Google.

Syndication Team Referrals 

And then, lastly, but most importantly, the best way to find prospective team members is through referrals. The main source of your referrals could be a mentor – we’ll get to that person here later in this episode. Once you’ve found a mentor who’s an active apartment syndicator, who has a track record of success, obviously they’re tapped into the market, they’re tapped into the industry, and they should be able to provide you with connections to the various team members that you need.

Another approach is to bring on a property management company first, or a real estate broker, or a mortgage broker, and all three of those people will work with all the team members that you would need to bring on, so you can ask all of them for referrals as well.

Really, the best way to find these people is through referrals, and those first six steps, except for maybe with the exception of the internet, are kind of essentially referral-based. So that’s how you find these team members.

Again, there’s particular ways to find a certain team member that might not work for a different team member but, in general, those are going to be the top six ways to find your team members.

The Process of Hiring Your Syndication Team

Make of Note of What You’re Lacking

Now, let’s get into the meat of this series, which is the process for actually hiring these team members. In this episode, I’m going to talk about the partner and the mentor. First of all, not every single person is going to need a partner or a mentor. It really depends… For example, for the partner, if you want a business partner, it should be someone who complements your strengths and interests, first of all. And they make up for the areas that you are lacking in.

A few examples – for me, I have a strong operational background. I understand the acquisition process, I am very detail-oriented, and I have the strongest experience in underwriting, as well as managing deals in the back-end… Whereas something that I’m lacking in is access to private capital, the ability (or really the interest) to raise money. So what I did is, rather than attempt to do all that by myself, I decided to bring on a partner for the specific outcome of raising money. So I didn’t find someone who also liked to underwrite or someone who also wanted to be an asset manager; I found someone who was hyper-focused in the one skill that I was lacking in. That’s what you need to do.

Starting out, that might be a little different for you because you might have no experience or no credibility or strength; you actually might think you do… But you’ve gotta be a little creative. Based off of your educational background and your experience background, what do you have to bring to the table? What is it exactly? It’s gonna be something that you are good at and want to do and then, once you’ve identified that, you want to find other people, other partners, to complement what you’re able to do.

Find People Who Fulfill Specific Roles on Your Syndication Team

What do I mean by “do”? What exactly do you need on the general partnership side for the apartment syndication? Because you’ve got your passive investors who are investing in the deal and you’ve got your outside third-party team members who are finding deals for you, they’re managing the deals afterwards, but at the end of the day, apartment syndication is a business and you’re gonna need to have a team of people who are actually fulfilling the roles of that business.

There’s actually five parts to the general partnership. The first part would be someone who funds the upfront costs. This is the person who funds the costs from contract to close, although they’re usually reimbursed; you’re gonna need someone on the team that does that. There’s also gonna be someone that does acquisition management; they’re gonna find the deals, underwrite the deals, submit offers on the deals, manage the due diligence process, secure the financing, oversee the closing process… Essentially, everything from start to close.

You’re also gonna need a sponsor, also known as a key principal or a loan guarantor. This is someone who meets the liquidity, net worth, and experience requirements set forth by the lender, and they sign on the loan. There’s also going to be the investor relations person; they’re the ones who find the investors, secure the commitments once there’s a deal under contract, and is responsible for the ongoing communication with the investors.

And then, lastly, you’ve got the person who’s the asset manager. They’re the ones who manage the business plan and the management company after close. All five of those could be done by one person. One person is gonna be responsible for each; it could be really a combination of those two. And, usually, when you’re starting out, it’s probably going to be at least two GP’s.

For example, you might have one person that’s responsible for acquisition management and asset management; another person is responsible for investor relations. They’re a sponsor and they fund the upfront costs… But, more than likely, there’s gonna be a lot of GP’s. You might have one person who’s funding the upfront costs, you might have multiple people who are finding and underwriting deals, so they’re responsible for acquisition management; you might have ten sponsors to help you qualify for that loan, and you might have ten more people who are helping you raise money for the deal, and then a few people doing the asset management.

Determine Compensation

For each of these parts, there is a general compensation or general percentage of the general partnership assigned to each of these, so that’s how you know how to compensate your partners, as well as how you’ll be compensated. If you remember, in episode 1513, we discussed all the different ways the general partner makes money; that essentially goes into a pot, and if there’s one GP, then they get 100% of that pot. If there’s multiple GP’s, then the percentage of the pot that they receive is based off of the role that they’re fulfilling.

For the person who is responsible for the upfront costs, they’re getting reimbursed; there’s a little bit lower risk so, typically, they’ll receive maybe 5% of the general partnership, or there might be some other agreement that they make with that person, and then they’ll get any percentage of the general partnership. Maybe they get interest rate while the money is being held, or something like that.

For the acquisition management, that is obviously a much bigger role because you’re finding the deals, offering the deals, managing due diligence, and so on. So that is typically around 20% of the general partnership. The sponsor, key principal, loan guarantor, that person who signs on the loan – that could be anywhere between 5% and 20%. Now, why such a wide range? Well, it depends on the risk level of the deal. If it’s a turnkey property, it’ll probably be on the lower end of the range, whereas, if it’s a highly distressed business plan, then they’ll have to give them a little bit more because the risk level is increased.

It also depends on the type of loan. For example, if the loan is recourse, which means that the loan guarantor is personally liable, then you’re gonna have to offer them a little bit more than if the loan was non-recourse, which means they aren’t personally liable, unless a carve-out is triggered.

It also will depend on your relationship with this person. If you have a personal connection, a trusting relationship, with the sponsor, then they’ll likely charge you a little bit less, whereas, if they have no idea who you are, they don’t know your abilities, they don’t know you personally, then you’re gonna have to give up a little bit more of the general partnership to bring them on.

Other examples of ways to compensate this person is you could just give them a percentage of the principal balance at closing. On the low end, that could be 0.5% to 1%, on the high end that could be 3.5% to 5% of the loan balance, one lump sum paid to them. That could be in addition to or instead of the percentage of the general partnership.

Next, the investor relations person. That is also, obviously, very important, and it could likely be multiple people. That could be anywhere between 30% to 40% of the general partnership. And then, lastly, you’ve got the asset manager who would get 20% to 35% of the general partnership.

Qualifying a Potential Partner for Your Syndication Team

Now, how do you actually qualify a potential partner? Here are a few things for you to think about when you are talking to either potential business partners, like straight-up 50/50, breaking this apart 50/50, or when you are bringing on someone for a particular duty, like investor relations or as a sponsor.

Take Their Track Record Into Account

Number one, you’re gonna want to know what their track record is, in real estate and in business, similar to why you need a track record in real estate and in business before becoming an apartment syndicator… And you’re also gonna want to get a little bit more specific and ask them what is their track record on the specific thing they’re supposed to do. If they’re supposed to raise money, what’s their track record on raising money?

Find Out How Much Time They Can Devote to Your Partnership

You also wanna know how much time they have to spend on the business. Do they have a full-time job where they’re working 100 hours/week and they can only dedicate a few hours a week to their duty or do they have a more flexible job that allows them to give their responsibility the attention it deserves?

At the same time, you wanna know, especially if you’re doing 50/50, if they have the same amount of time that you have because that might bring up issues in the future if they’re working 20 hours a week in the business and you’re only working 5 hours a week, or vice-versa.

Consider if They Have Complementary Skills to You

You’ll also want to know if they have complementary skills to you. You wanna know what they’re good at, and what they’re bad at or inexperienced at, and see if you are essentially the opposite. So what they’re good at, you’re not good at or experienced at, and vice-versa.

You also want to know if you have complementary personalities. Essentially, can you get along with this person, or are you both very stubborn? Do you both need to be in charge, in control? Kind of on a more emotional, personal level.

Discuss Your Goals 

And then, lastly, what is your long-term goal? If your goals are too far apart, it also probably won’t work out. If you wanna make a billion-dollar company and they only wanna do a couple of deals before getting out then, again, that might bring up issues down the road.

Now, for the person who’s just starting out – and if you’re a browser of Bigger Pockets, you’ll see a lot of people asking questions about wanting a partner because they are inexperienced… And, if that’s the case, then obviously you’re gonna have to win them over. You’re gonna give them something to add value to them, or else why would they be working with you?

Reaching Out to Potential Partners and Syndication Team Members

A few strategies on how to actually be presentable when reaching out to potential partners who you actually need in order to help you complete the deal, whereas they don’t actually technically need you…

Have Experience

Number one is to have that strong business and real estate background. If you wanna know what that means, make sure you listen to episode 1499 and 1500 where we had a conversation about that. You also wanna make sure that you display your apartment investing expertise. While having a conversation with them, let them know that you know what you’re talking about, basically… Which means that you can answer their questions on what markets you’re investing in, your investment strategy… Essentially, the questions that you’re going to be asked by the property management company, real estate broker, other team members… We’ll go over that in the future episodes.

Add Value

You’ll also wanna bring something that they need to the table. Figure out what they need and help them with that. Maybe you have a particular skillset that they need or maybe you have money, but you need help with everything else… You need to bring something to the table, rather than just wanting to do a deal and that’s really it.

Connect to Them on a Personal Level

Also, try to form a personal connection. I know a lot of people have success wining and dining, going out to the bars for a drink or at restaurants, playing golf, and kind of just building a personal trusting relationship with this person so that they trust you and they’re willing to work with you.

Offer Payment

The last option is just pay them. Pay them money to be your partner. In that case, they’re essentially going to be a mentor, which is a perfect transition to the next section or the next team member, which is the mentor.

Your Syndication Team Mentor

The mentor is going to be a paid consultant, so I’m not talking about someone who is like a fatherly figure to you who you aren’t paying; this is someone you’re actually paying. A lot of people have different opinions on whether or not you need a mentor, and I’m not going to say whether you do or don’t need a mentor. Instead, I’m going to talk about what to expect or what not to expect from a mentor, and when you are ready to actually hire a mentor… And then the decision is ultimately up to you.

What to Expect From Your Mentor

Whether you need a mentor really comes down to your expectations of what a mentor will do for you, as well as why you’ll want to hire a mentor. The four things that you should expect out of a mentor is:

  1.  An active, successful apartment syndicator; they’re currently doing it, they’ve been doing it in the past, they plan on doing it in the future, and they’ve been successful.
  2. You should expect a step-by-step system, as well as the personalized help for you to navigate the grey areas. They should have a system for you to plug into to replicate their success, but you actually have to do the work… And things that aren’t covered by that system, you should be able to talk to them about those grey areas.
  3. A mentor is an ally that you can call on selfishly about anything. Since you’re paying them, you don’t really have to worry about asking them about their day or how things are going for them, because you’re paying them to just talk about yourself.
  4. And then, four, you should expect connections. Again, since they’re active and since they’re an apartment syndicator, they should have connections to the people that you need to help you create your team.

What You Shouldn’t Expect

Now, the two things that you shouldn’t expect… Number one is a knight in shining armor. Don’t expect to hire a mentor and then magically have a multi-million-dollar apartment syndication business in a couple of years. Expect to go in there and actually have to do the work yourself. They’re just gonna give you a leg up. And, lastly, don’t expect that done-for-you system. Again, you’re gonna be doing the work yourself; you don’t want them to do everything for you. Number one, they probably won’t be doing anything for you, and two, even if they did, you’re highly dependent on them and they’re never gonna be able to break off on your own.

What Should a Syndication Team Mentor Do?

Now, what does a mentor actually do for you, besides those four things to expect… 1) Providing you with a step-by-step system; helping you navigate the grey areas. 2) Being an ally to call upon. 3) Connections. 4) Them being the active, successful apartment syndicator…

You will also have the ability to leverage their credibility when talking to team members and to potentially passive investors, as well… Because you’re gonna say, “Hey, on my team there’s a board member who has done multiple millions of dollars in deals; they’ve been doing it for 20 years”, and then, also, you’ve got the potential for alignment of interests. Just the fact that they’re being on your team, you can leverage their credibility, but they also might have some sort of stake in the deal, whether it’s a sweat equity stake of actually working on the deal or they have their own money in the deal. Those are the things that a mentor could do for you.

When Should You Hire a Mentor?

How do you know you’re ready to hire a mentor? And not everyone is at that point right now… The two things that you need to do in order to be ready to hire a mentor – number one is to have the accurate expectations, which now after listening to this episode you actually have those expectations. And number two is to have a defined outcome. What is it exactly you want to get out of the mentorship? You need to know exactly what it is. Is it to find deals, is it to bring on team members…? It just can’t only be an apartment syndicator; it has to be something specific so that you can leverage that person accordingly.

If what you really want are connections, then the expectation is that the mentor should offer connections. So, when you’re talking to mentors, ask them about their connections and then, once you’ve actually hired them, make sure that’s your focus, at least at first.

How to Compensate Your Syndication Team Mentor

Now, how a mentor is compensated is really based on their compensation structure for their program… But I would expect to pay at least a few thousand dollars for a high-quality mentor. But, again, since we’re dealing in a hundred-thousand, multi-million-dollar industry, what’s a few thousand dollars if you’re able to close on a deal?

Qualifying a Mentor

Now, the thing to think about when you’re qualifying this person – number one, are they an apartment syndicator? Number two, are they still active? And three, do they have a successful track record? By successful – did they meet or exceed their return projections on their deals? You don’t want someone who just teaches apartment syndications but hasn’t actually done it before or isn’t still doing it because, like everything, it’s an evolving industry. And, if they were successful in the past, it might have been because something that happened in the future that didn’t affect them because they were buying the deals at that point in time. So make sure that they’re actually an apartment syndicator, that they’re still active, and that they have a successful track record.

Win Over Your Mentor

Now, I did say that the mentor is a paid person, so obviously, your way to win them over to your side is to pay them money… But once you’re actually in their program, there are still a few things that you can do to set yourself apart from the other people in the program in order to hopefully get extra help from them, and ideally, have some sort of stake in the deal… And the best way to do that – and it’s very simple said but harder in practice – is to actually make sure you remain active in their program and actually do the exercises. Once you get into the program, they’re gonna have some system for you, and it’s probably gonna start off by you getting educated and then kind of going from there… Make sure you set time each day to actually perform those exercises. Don’t just pay the money and then disappear. Make sure you’re active, actively asking questions to show that you’re serious about closing on a deal.

And then lastly, you can listen to episode 1507, “How to Break Into the Apartment Syndication Industry”, to learn another tactic for how to win over a mentor. In this specific strategy, it’s technically not a mentor because you’re not paying them money. You’re paying them in a different form… So I would definitely recommend checking out that episode (1507).

That wraps up this episode, the part one of the four-part series about forming your apartment syndication team. In this episode, you learned about the four core team members and the three secondary team members that make up your seven-man team, or seven-woman team, or seven-company team. You also learned the top six ways to find your prospective team members and then, lastly, you learned the process for hiring a business partner(s), as well as a mentor.

In part two, we will discuss the process for hiring a property management company. The fact that we’re dedicating an entire episode to just the property management company should tell you how important they are to your success.

Until then, to listen to other Syndication School series about the how-tos of apartment syndications, and to download your free team-building spreadsheet document, visit SyndicationSchool.com.

Thank you for listening, and I will talk to you tomorrow.

JF1543: Five Step Apartment Syndication Underwriting Training #FollowAlongFriday with Joe and Theo

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Joe and Theo are back with updates on their apartment syndication businesses. Learn the five step process Theo is putting interested underwriters through in order to train them to become expert apartment underwriters. Joe closed on a deal and has one (and maybe two) new deal under contract. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

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TRANSCRIPTION

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

I hope you’re having a wonderful week. Because today is Friday, we’ve got a special segment called Follow Along Friday. Theo Hicks and I talk about our real estate endeavors and what we’ve learned as a result of doing what we’re doing… And ultimately, this is to try and help you improve whatever you’re doing from a real estate standpoint, or enhance it, or maybe pick up some new skillsets. With that being said, how do we wanna kick it off today?

Theo Hicks: Last week I was talking about one of the first team members I wanted to bring on would be the underwriter, and I wasn’t necessarily hiring at the time, but I was just kind of going through my thought process of how I plan on approaching it, and sure enough, the Best Ever listeners are proactive and really enjoyed adding value – what we talked about on this show for really good ways to break into this sort of industry… And I had four people reach out to me, offering to help me with underwriting for free, basically. Everyone who reached out – I really appreciate that.

What I wanted to talk about is a strategy for bringing on an underwriter, or at least the approach that I’m using. This is a process that I created through how I got trained, so it’s a hybrid approach from all the different educational tools and people who trained me and that I used… I just wanted to quickly go over that, just in case anyone who’s interested in bringing on an underwriter in the future can have some ideas of how to actually do that, because especially for apartments, underwriting is pretty complicated; it’s not as simple as someone just being interested, and then you sending them deals and them underwriting them. It takes time to train them, and the question is what’s the best approach to train a person.

Joe Fairless: By the way, this is gonna be really helpful. I know a lot of apartment investors who struggle with this part… And when I say this part, I mean the underwriting process or the amount of underwriting that needs to be done… Either because it’s not something they enjoy, or not something that comes naturally to them, so they want to kind of speed through it, or they just hate the whole process of doing it, or they want to build their business, and ultimately be able to work on their business, not in their business, and they’re looking to scale and they need help scaling. I know many people who have this challenge, so I’m looking forward to having this conversation with you.

Theo Hicks: Absolutely. I would say that this approach is best for someone that already knows how to underwrite, and they just want to actually kind of scale, so they underwrite more deals per week. This approach wouldn’t work for someone who doesn’t know how to underwrite, so maybe we can have a conversation on that later. Well, we talked about underwriting before; this is for someone who knows how to underwrite and has been underwriting deals themselves, maybe one or two deals a week, and their pipeline of deals is so high that they need to bring people on… So here’s the  approach that I used.

I’m not necessarily gonna talk about how to find these people either, because that’s gonna be a whole other topic. I guess I’m lucky that I’m on this podcast; I just mentioned that I’m interested in having someone underwrite for me, and then four people reached out. So here’s the process.

The first thing that I do is I have them convert a rent roll from a PDF to Excel. It seems very simple, but if you’ve seen an apartment rent roll before, it is not in the proper form (usually) when you receive it from the broker. So usually, the broker will get the rent roll from the current property management company, whatever reporting software they use, and then that’s the document they provide. Sometimes they’ll convert it for you; I’ll say it’s probably 50/50. But the reason why you need to convert the rent roll is because you need to have essentially a table with all the unit types, the number of units for that unit type, the market rent and the current rent at the very least, and that’s not the form that the rent roll is in when you get it.

So the exercise is two-fold – number one is for them to get familiar with what a rent roll is, what it looks like, and number two is to gauge their Excel skills. So what I do is I send them a middle of the road rent roll that takes some If statements, some text-to-columns functions and a few other Excel functions that they’re gonna need to know how to use in order to be an underwriter… And I essentially just send it to them and say “Hey, here’s the PDF, here’s what it should look like. Let me know if you have any questions”, and I just wanna see what they do.

For example, one person sent it back to me exactly how I wanted it, another person went above and beyond and created this super-intense spreadsheet that they believe they could just plug in an originally-converted PDF and it’ll just automatically get it to the form that I want, and get it to a form that I’ve never even seen before… So that was quite impressive.

Joe Fairless: The second person sounds like something you would do if you had a project like that.

Theo Hicks: [laughs] Seriously. That guy used to work for NASA, so these are very smart people. I just wanted to see what they would do. I’ve had three people — actually, I’ve sent it to all four of them; one person had an interesting response, but three of them performed the exercise. So that’s step one, a rent roll conversion.

A T-12 conversion isn’t that big of a deal. It’s pretty simple. So if they can convert the rent roll, they can definitely convert the T-12. So the next step is to have them watch my video on how to underwrite a deal. I’ve got a cashflow calculator, and then just a video of me going through the entire process, for them to learn how the underwriting process actually works for an apartment. I’m assuming that they don’t know how to do an apartment deal at all starting out. So that’s step two.

And step three – this is something that I thought of while having a conversation with my business partner… What I’m gonna do is I’m gonna send them five deals to fully underwrite, and ask them to do one deal a week. These are gonna be deals that I’ve already underwritten, so I already know what the final product should look like… And all I’m gonna send them is the T-12, the rent roll, the OM, the cashflow calculator and a how-to guide, and tell them to see what they can do, and we’ll set up a 10 to 15-minute call to discuss the deal each week, to kind of see what questions they had, where they struggled, things of that nature. Again, just to see where they’re at, to get a baseline of where they’re at.

From there, it’s gonna depend on how well they do on those five deals, what the next steps would be, but… Based off of the rent roll conversion and my conversation with them, I expect them to catch on pretty quickly, just because they have strong Excel skills… And really at first all I’m gonna have them do is just input the historical data. So they already know how to convert the rent roll, which means they’ll convert the T-12 as well, so we’ll have them input that data into our financial model, and that will cut my time in half, at least, just on the underwriting model… And I think just that alone will be super-helpful to my business right now, especially when the new year kicks off and deals start flowing in.

So those are the five steps that I’m for sure going to do. The next two things are kind of a maybe; I’m not sure-sure. We’ll see how things progress and how things evolve, but… When I have them do those live deals, I’m gonna do them as well. I’m not just gonna trust that they’re doing it properly. So I’m actually gonna do it myself, and just let them do it as practice and then send me the results and have conversations about it. After that, if they are able to do it successfully every single time, by ten times in a row, then I’ll let them do it without me having to actually do it myself. That’s when I’ll start having the time savings, because I’ll know, “Okay, if they know how to input the data, all I need to do is just kind of quickly do a quick check, rather than actually doing all of it myself and then doing a quick check.”

So five of the ten deals – it might be sooner, it might be later… I’m not 100% sure, we’ll have to see how it goes. And obviously, my longer-term goal is to have these people be able to fully underwrite the deal. That means input the financials, the rents and the expense assumptions, all the income assumptions, input the debt information… The only thing they probably won’t be able to do is the rehab assumptions, but I have an idea for how to potentially get around that… Because I was thinking, how can someone who’s not very familiar with apartments at all understand how to make rehab assumptions.

The idea that I have – because all these people are actually out of market… Because the idea has to be “How can I educate them and train them to at least identify what needs to be done?”, so what I was thinking – and there’s kind of two benefits to this – is to have them subscribe to the broker lists in their submarket and fully underwrite those deals. Underwrite them, visit them in person, visit the comp, perform the rental comp analysis… And the benefits of that is 1) obviously, they’ll have a much better understanding of underwriting, but 2) they’re already forming relationships in that market, that if we want to expand in the future, we already have a foot in the door, because we have someone who’s been actively underwriting deals in that market, boots on the ground, knows the areas, knows the people… And it won’t be easy, but it’ll be an easier transition to that market than a brand new market entirely.

Joe Fairless: I like that. Yeah, it won’t be an apples to apples renovation comparison, or it might not be, but it’s still a great way to (as you said) get them experience, and then also start building a market simultaneously.

Theo Hicks: Exactly. Because obviously, if they’re looking at deals in a different market, with a completely different property type, the renovations there aren’t gonna be the same here. The idea was to have them be able to identify, look at a property and be like “Okay, this is what needs to be done at this property.”

Joe Fairless: Real quick, how to get an underwriter up and running and train them properly, five-step process – what is it?

Theo Hicks: One, have them perform a rent roll conversion exercise; PDF to Excel. Number two is you wanna create a video of you fully underwriting a deal (it’s probably gonna be a video longer than an hour) and have them watch that video. Number three is to send them five deals to underwrite, so one deal per week, and obviously provide them with all the documentation they need to do that. Number four is to start having them underwrite live deals, but only inputting historical data, which you’ll also do. Number five is, after a few successful deals, you can have them input the data without you doing it, so you just check it instead. That’s the five-step process.

Then, obviously, the goal is to have them be able to fully underwrite a deal, and then obviously eventually become the underwriting managers. If you’ve got one stellar underwriter, he can be the person who is the manager, and then have the other underwriters underneath him, so that there’s kind of a barrier between you and the analysts, and he just is the one that sends you off the information.

Joe Fairless: Great stuff.

Theo Hicks: And then another thing that I’ve got going on is we’re looking at a deal right now – another deal in Tampa – a very promising deal… That’s all I’ve got right now. We’re actually touring it next week, so when I come back for Follow Along Friday next week or the following week, I will talk about that and give you an update on that.

Joe Fairless: Cool. With our stuff – let’s see… We closed on a deal in Fort Worth last week, about 400 units, and we already got awarded one deal, and we’re likely getting awarded another deal. It’s coming up, so we’ll know soon. Looking forward to those deals, as well as continuing to execute on our current portfolio, which is the number one priority. I definitely will be going down to DFW for a short trip to go visit the properties, in the next week or so.

And the reason why we didn’t have Follow Along Friday the last week is I had a baby girl, so thanks everyone for all the well wishes. Everyone is healthy – mom and baby, they’re both healthy, and that’s what’s most important. Loving life, and business is going well.

In terms of some  questions that we’ve received from the book, for everyone who’s read the book – we’re compiling questions; we’ve got about six or seven questions that we’ve received, so we’ll be answering those questions next week. I’m referring to the Best Ever Apartment Syndication Book. So if you have any questions that you would like to ask us, that are follow-up from the book, then we’ll be answering them next week, so feel free to e-mail those questions to info@joefairless.com, and we’ll address those apartment syndication questions on next week’s episode.

Theo Hicks: Perfect. Joe, obviously, congratulations on the baby. You look very well-rested.

Joe Fairless: I disagree on that, but thank you, I’ll take it.

Theo Hicks: You look… [unintelligible [00:15:48].09]

Joe Fairless: Well, I’m getting much more rest than Colleen my wife is, that’s for sure, so… Props to her. It’s certainly a learning experience for everyone involved.

Theo Hicks: I’m hoping maybe in like a month or two we’ll have the top ten Best Ever baby tips on Follow Along Friday. [laughs]

Joe Fairless: I will not be the expert for that.

Theo Hicks: Alright, so there’s a couple other things we wanted to discuss today. I’m not sure what it was, but I know that I was definitely sitting in that room with you when we made the prediction of where we thought the Amazon headquarters would go…

Joe Fairless: Yes.

Theo Hicks: I said Atlanta, and I think you said Dallas-Fort Worth.

Joe Fairless: Yeah, I think I said DFW or Chicago, and I think you said Atlanta or something else, but either way, we were both wrong.

Theo Hicks: And we had two opportunities, too. They picked two places, and we’re still wrong.

Joe Fairless: Yeah, yeah…

Theo Hicks: So it ended up being in New York, and Crystal City, Virginia. Those were the two places.

Joe Fairless: Yeah, Long Island City, which is in Queens, just right across the river… One of my good friends, he had an apartment there whenever I was living in New York City. Nice area, really convenient area to Manhattan. And then Crystal City, a city I’ve never heard of before, Virginia, but a stone’s throw away from DC, apparently.

So DC was where it was looking after we had made our prediction, so that doesn’t surprise me. New York City does surprise me. I mean, logically, it makes sense. You’ve got a bunch of talented professionals, there is no work-life balance there… It checks the boxes for what they said they wanted in terms of easily commutable city, deep talent pool, large city, that kind of thing. So it makes sense for both of them.

I thought that Amazon was going to have some more diversification from a geography standpoint… Well, East Coast makes sense, but if they were gonna pick two – which we didn’t know that they would pick two – I thought for sure they would branch out somewhere in the South, South-East; Atlanta, Dallas, something like that. But they didn’t.

One thing I’ve seen is  some reporters writing that the process was a sham, and they shouldn’t have pitted cities against each other, and they should have been more transparent with the process… I mean, I disagree. They can do whatever they want to do, and cities can act however they want to act. It just seems like it’s a sore loser mentality. If your city gets picked, or the New York officials complaining about the process, or the Dallas officials complaining about the process, probably — or excuse me, DC officials and constituents complaining… Probably not, because they got picked the winner.

I think when you don’t get something and you put a lot of effort towards it, then 50/50 goals, right? You don’t achieve the goal, but what did you acquire in the process that will help you moving forward for other things? I’ve read some articles about DFW that they actually approach it that way. “Okay, yeah, we didn’t get Amazon, but what about this process brought to light certain things that we can improve on, like the easily commutable city, where there’s more public transportation?” Dallas isn’t good at that. They don’t have that set up as well as New York City, and not a lot of cities in the U.S. have that as well as New York City.

So it’s an opportunity for improvement, and it’s just a weak, weak mindset when you complain about something that you don’t get, and you start pointing fingers at the group or at the company or at the person who didn’t pick you. I mean, shut up, improve, and use that as a learning experience and quit complaining about that stuff.

Theo Hicks: I agree. So the next item on the agenda is the trivia question of the week. We had a first question last week… Joe, what is the answer? I guessed Denver, of course; I’m for two-for-two – I was wrong with Amazon, and now I’m wrong about this trivia question, too.

Joe Fairless: [laughs] Well, this was apparently a hard one for everyone. It took a lot of guesses, a lot of people submitting answers before the answer was revealed.

The Best Ever question last time was the top five markets with million-dollar homes, which one is not California? And it is Honolulu. Honolulu was the city we were looking for, so congrats to the Best Ever listener who picked Honolulu. You’re getting a signed copy of — I believe we said the…

Theo Hicks: The first book.

Joe Fairless: Yeah, the first book. I’ll be signing that sometime shortly, and will be sending it out to you. This week’s question – what is it, Theo?

Theo Hicks: This week’s question is going to be “What is the top city to live for a career-focused single woman?” The top city to live for career-focused single women – what is it?

Joe Fairless: And it is a surprising answer. Basically, here’s a hint for you. It was none of the top 20 finalists for Amazon’s HQ 2. If you want to think about other cities besides those top 20 finalists, then you’ve got a leg up on what the answer is. So it’s not a city you think, and I came across this — I don’t know how, but I came across this study. Maybe because I have a daughter now, so I’m looking to have her set up for success in a city. It’s an interesting question, and when you have the answer, e-mail info@joefairless.com or reply underneath this video if you’re watching the video… Whatever is the easiest for you, as long as someone on our team sees it…. And put in the city name, and if you get it, then we’ll send you a signed copy of the first book, Best Ever Real Estate Investing Advice Ever vol. 1.

Theo Hicks:  I would have never gotten this right, ever. [laughs] Next, the Best Ever Conference 2019, in February, in Denver. Make sure you go to BestEverConference.com, take a look at the list of speakers. Each week we’re gonna have a quick discussion on one of the speakers and what they plan on talking about.

This week we’re gonna be talking about Sterling White of Holdfolio. He is a multifamily investor and he said that he’s gonna talk about creative methods that can be used when following up to acquire off-market deals. Not necessarily the first point of contact, but what to do to follow up with these people… And somehow, a Rubik’s Cube is involved in this strategy. It’s all I know. He’s gonna give us more information about this Rubik’s Cube strategy at the conference, so you will definitely wanna check that out.

I know that Sterling is very good at generating apartment leads without using the traditional real estate broker route… So I’m really looking forward to hearing about that strategy and other strategies he has to discuss, at the Best Ever Conference in Denver.

Joe Fairless: And then on the conference note, we’ve got a Black Friday sale, and it’s valid up through Sunday at [11:59] PM. That’s gonna be Sunday November 25th. If you’re trying to put this in after Sunday November 25th, it’s not gonna work. The code is “blackfriday”, so go to BestEverConference.com. put in the code “blackfriday”, no space in between, and you get 5% off, plus you get a market evaluation template or spreadsheet and a how-to guide for evaluating an investment market.

Theo Hicks: I’m looking forward to the conference. I know we only talk about one person, but we did confirm that Brian Turner will be speaking at the conference… That’s a cool addition. I’m looking forward to seeing him in person.

Joe Fairless: Yeah, looking forward to that, too. I’ve seen him in person, I’ve had lunch with him, but looking forward to hanging out with him and having him at the conference.

Theo Hicks: And then lastly, and we’ve talked about it a few times – Best Ever Apartment Syndication Book. Pick up a copy on Amazon, leave a review, and you will have the opportunity to have your review read alive on the podcast, but also receive a bunch of apartment syndication free goodies as well. We’re almost at 100 reviews now.

This week’s review comes from JRG, and they said:

“Having been to many workshops and read many books on the multifamily arena, I can say that Joe’s book on syndication is right on the money. There is no fluff here, and no sales pitch for some other program. He gets right into the meat of apartment syndication, each chapter laid out and addresses what you need to know logically and practically. I recommend this book.”

Joe Fairless: Thank you so much for spending time writing that review, I appreciate it, and thank you everyone for hanging out with us today. I hope you got a lot of value from this conversation. Theo, good hanging out with you as always. I hope everyone has a best ever day, and we’ll talk to you tomorrow.

Guest Theo Hicks on Best Ever Show Flyer Apartment Syndication Brand

JF1542: The Power Of Your Apartment Syndication Brand Part 4 of 4 | Syndication School with Theo Hicks

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TRANSCRIPTION

Building a Strong Thought Leadership Strategy

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series, which is a free resource focused on the how-tos of apartment syndications. As always, I am your host, Theo Hicks.

Each week we air a two-part podcast series – in this case, a four-part podcast series – about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we offer a document, a spreadsheet, or some other resource for you to download for free. All of these documents, as well as past and future Syndication School episodes can be found at SyndicationSchool.com.

This episode is going to be part four of the four-part series entitled “The Power of Your Apartment Syndication Brand.” I highly recommend that you listen to the first three parts before listening to this episode because this episode is going to be an accumulation of those three parts and the ultimate, final component of the brand, which is the thought leadership platform.

In part one, which was episode 1534, you learned the primary benefits of creating a brand, as well as why and how to define a target audience for your brand, and then we discussed the first three components of the brand, which are the company name, the logo, and the business card.

In part two, which is episode 1535, we talked about the fourth component of the brand, which is the website. We discussed how to create a website and ways to increase your website traffic and convert your viewers.

Then, in the third part, we discussed the fifth component of the brand, which is the company presentation. We outlined the purpose of the company presentation, how it’s used, and also the seven-part company presentation document. And we also offered a free document, which is a company presentation template for you to use as a guide to create your own presentation, which you can download at SyndicationSchool.com for free.

Now, in part four, as I mentioned, we’re gonna go over the sixth and final component, which is the thought leadership platform. By the end of this episode, you will learn what a thought leadership platform is, how to select a thought leadership platform, the keys to a successful thought leadership platform, the process for developing a thought leadership platform, as well as addressing the objections you’ll likely have to creating a thought leadership platform.

What is a Thought Leadership Strategy?

Lots to go over in this episode, so let’s dive right in. What is a thought leadership platform? Well, the outcome of the thought leadership platform is to attract your 2,000 true fans, which is your primary target audience, which you defined in part one of this series, episode 1534. So, if you wanna achieve massive levels of success in apartment syndication, then a thought leadership platform is an absolute must. As I mentioned in part one, about how important the brand is, the thought leadership platform is the foundation for your brand.

Specifically, what a thought leadership platform is – well, an example is you’re listening to one now, but specifically what a thought leadership platform is, is an interview-based online network where you consistently offer valuable content to your 2,000 true fans for free.

The Benefits of a Thought Leadership Platform

The five benefits of the thought leadership platform are the same five benefits of a brand as a whole, which are 1) credibility – with your thought leadership platform the goal is to become the go-to source for best investing advice and wisdom. If you are the go-to source, you’re a pretty credible person.

Next is education – you can use your thought leadership platform to create your own customized educational program.

Three is networking – you can create and cultivate new relationships with potential investors, team members, and business partners, as well as reinforce existing relationships through your thought leadership platform.

Four is contribution. By having your thought leadership platform, you’re also not only helping yourself in regards to education but you’re also helping others with their education, and since your thought leadership platform is gonna help you grow your business, the investors who are investing in your business will also benefit by being able to find you for investment opportunities and achieve their investment goals.

Then, lastly is the potential for cashflow through sponsorships. Now, we’re not gonna discuss this on the podcast, but if you go to SyndicationSchool.com or the show notes, you can download a free document for this episode, which is “How to Structure Sponsorships on Your Thought Leadership Platform.” It’s a guide to how to essentially monetize your thought leadership platform.

Overall, the purpose of the thought leadership platform is to stay top of mind with and be incredible in the eyes of your 2,000 true fans, your primary target audience, your passive investors, along with the secondary benefits of education, contribution, and the cashflow.

Choosing Your Platform

So how do you select a thought leadership platform? We’ll just use Joe as an example. Joe’s first thought leadership platform was a podcast, which you’re listening to now, and then, from there, he expanded to other platforms, which are a meetup group, a newsletter, a YouTube channel, blog, conference, books, and a Facebook group. All of those are examples of thought leadership platforms, and we recommend that you follow the similar strategy of starting with one and then focusing all of your attention on that and then, once that is a self-sustaining machine, you can grow and expand from there.

Podcast

So pick one of these following thought leadership platforms – a YouTube channel, a podcast, a blog, a newsletter, or a Facebook group. How do you know which one is the best for you? Ask yourself what would you enjoy and prefer doing? Let’s say, for example, that you really like speaking but you don’t like the prospect of being on camera or talking in person because you get stage fright or, I guess, video fright. Well, then your best option would be a podcast.

Blog

Well, let’s say you don’t like to speak but you like to write; or let’s say that you enjoy speaking but you’re afraid to do any sort of speaking or video thought leadership platform because of your full-time job and, if your boss finds out, he’s not gonna like how you’re spending your spare time… Well, then your best option might be a blog.

Meetup Groups

Or let’s say you enjoy speaking and you’re comfortable with being on camera but you don’t wanna actually speak in person; then the YouTube channel would be your best. Or let’s say you enjoy speaking, you’re comfortable being on camera, AND you’re comfortable speaking in person – essentially, you’re a rockstar – then the meetup group might be best for you.

Now, the last two – the newsletter and the Facebook group – you should do regardless because those are places for you to post and share your content. Whether you enjoy or prefer doing those doesn’t really matter; you need to make a newsletter and a Facebook group.

Based off of Joe’s experience and my experience with having over 1,500 episodes for the podcast that generates over 350,000 monthly downloads, as well as creating hundreds of blogs and YouTube videos, writing multiple books, hosting meetup groups for years, hosting two conferences, these are the five keys that we’ve discovered to creating a successful thought leadership platform.

The Keys to a Successful Thought Leadership Strategy

Keep it Interview-Based

Number one is it must be interview-based. Because, remember, one of the main objectives of the thought leadership platform is to increase your credibility, to be perceived as an expert apartment syndicator, as well as to network with investors and team members. The only way to accomplish this is to actually do interviews. So, from a credibility perspective, you are going to position yourself as a go-to resource for the best info, advice, and strategies because you’re going to be interviewing the most successful real estate professionals. As you do that, your audience will grow, as well as your reputation, which will allow you to attract even better guests. When you attract ever better guests, your audience and reputation will continue to grow even more, which will allow you to, again, have that credibility and expertise perception, which will allow you to attract more passive investors.

From a networking perspective, you’re able to speak with people who are active and successful. And, in fact, as I mentioned in a couple of Syndication School episodes before, you’ll be able to network and speak with people that it would have been impossible for you to otherwise. For example, Joe has spoken to Tony Hawk, Emmitt Smith, Robert Kiyosaki, Barbara Corcoran, and the majority of those were before he had done many syndication deals. The reason he was able to do that was because he had a podcast that he posted consistently that had a following of active real estate professionals.

If you think about it in the long-term, if you just do one interview per week for two years, that’s over 100 conversations with successful, active real estate investors. Look at that from many perspectives – from an educational perspective, you’re going to learn the best advice from over 100 people, and then also think about the networking opportunities from speaking to these 100 people, and then having access to people that they know, and it’s a runaway effect from there. So that’s number one – it must be interview-based.

Post Consistently 

Number two is you must consistently post content. Your audience needs to know when to expect new content. If you post new content sporadically, then you’re building less rapport and, therefore, have less loyalty from your listeners, and it also comes with less credibility because you’re not perceived as someone who is consistently posting content. So what you should do is pick a frequency – daily, a few times a week, maybe Tuesday or Thursday, weekly, bi-weekly, monthly, or even if it’s twice a year, pick a frequency and stick to that frequency no matter what, with the only exception being you increasing the frequency. If you started off by posting once a month, then you cannot go to posting twice a month. You must stick to at least once a month but, from there, you can go to maybe bi-monthly, or weekly; then you go to bi-weekly and then you go to daily.

The reason why is because think about something that you really like – pick a TV show or a movie or a sports team. Do they have their games or their TV shows just randomly posted, without the notice of the audience, or are these things scheduled months or years in advance? It’s the latter, not the former. They don’t have random basketball games that you don’t know when it’s gonna happen, and the reason why is because that increases the anticipation because they know it’s coming, as well as their loyalty because, again, they know when this content is going to be coming, so they can plan to listen to it accordingly.

It’s going to be very difficult at first, and this depends on the type of personality you have, but it could be hard at first to stick to your frequency because you’re not gonna have the momentum and the habits from doing it for months at a time, and you’re also not gonna have the motivation from having a large following because, when you first start out, you’re only gonna have a couple people listening to your podcasts or reading your blog… So that’s why it’s extremely important for you to actually create a schedule that’s at least a month out in advance (ideally two months) of the content that you’re going to create.

Essentially, you wanna create an editorial calendar for the frequency of content, as well as the topic. If it’s a blog, what are you gonna blog about? If it’s a podcast, who are you interviewing? Have that calendar.

For example, if you want to post a podcast once per week, then you want to have at least five episodes recorded before launching, so that means you have five weeks’ worth of content. Then, as long as you record one new interview a week, then you always will be five weeks ahead of schedule. So you [unintelligible [00:16:13].07] then schedule out five weeks’ worth of episodes and then, each week, schedule one new episode, and that way you’ll always be five weeks in advance. Another benefit is that you’re increasing your chances of being featured on the New and Noteworthy section on iTunes.

If you want, you can actually release all five of those episodes once a day for five days, so you’ll have ten episodes pre-recorded, released five days in a row, and then do one weekly. If you do that, you’ll increase your chances of being on that New and Noteworthy section, which will give you a huge boost and a huge head start.

Overall, pick a frequency – daily, monthly, weekly etc. – and then create a content calendar that’s at least one month out in advance. So that’s number two, consistent content.

Tap Into the Existing Audience

Number three is to tie into a large built-in audience. Don’t start from scratch. Start by tapping into a platform that already has a large existing audience, and leverage that audience. For example, Bigger Pockets has one million members. iTunes has 70 million monthly podcast listeners. YouTube is used by over a billion people. Various social media sites are used by over 80% of the population, and WordPress is the world’s biggest blog.

So, rather than just simply posting content on your website, tap into these existing networks. But even though you are tapping into this large existing network, don’t expect to see quick results; don’t expect to really see any results for at least six months. And then, to see some results that I guess put a smile on your face, expect to wait at least 1-2 years. Just like apartment syndications, building a brand is a long-term game, but once you’ve posted content consistently and followed these keys for a year, you are going to see results. And maybe even sooner, depending on how well you structure your thought leadership platform. So that’s number three, tie to a large built-in audience.

Create Unique Content

Number four is going to be uniqueness. Tim Ferriss says, “Be unique before trying to be incrementally better.” What that means is focus on creating very unique content specific to you first and then focus on how to grow your audience, rather than trying to focus on what are the best ways to grow your audience and not focusing on what you’re actually good at and what your talents are. Because we all have a unique talent, we’re all unique – we have different backgrounds, areas of expertise, personalities, passions, interests… So you need to figure out what your unique talents are, and then figure out how to incorporate that into your thought leadership platform.

One way to determine your unique talents is to ask other people. There is a four-step exercise called “The Unique Capabilities Survey”, which is from the 80/20 Sales and Marketing book by Perry Marshall. The four-step process is to:

  1. Create a list of five people that you’ve known for at least a year that aren’t family members… Because our family members may not give us the best responses. So create that list.
  2. Ask people on that list, “What is my unique ability and what do I do naturally better than most?”
  3. Categorize their responses based off of things that are mentioned by everyone and then things that are mentioned by at least two people and then, based off of those categories, determine your giftedness zone. This giftedness zone are your unique talents that were confirmed by others; you will use these to create your unique thought leadership platform.

For example, when I performed this exercise, my three responses that were either said by everyone or said by a few people, was 1) I was funny, 2) I was very detail-oriented, and 3) I was personable. So, since I was personable, I decided to start a YouTube channel, and I tried my best to incorporate my humor into that YouTube channel, as well as getting into the weeds with the information I was discussing, so very detail and data-oriented. And, again, I wouldn’t have known what I was best at without asking those people because I would never have said that I was personable or detail-oriented. That’s just me. Maybe you know what you are objectively and don’t need to do this but, still, I recommend doing it just to confirm your assumptions.

Another strategy to either do instead or in addition to implementing and incorporating your giftedness zone is to incorporate your area of expertise into your thought leadership platform. For example, if you have a background in construction, then you can have a thought leadership platform that is about hands-on tips from your experience, and then you can extract what questions to ask others during the interviews.

Let’s say you have a background in direct sales. Well, you can create a thought leadership platform that focuses on sales techniques and how that applies to attracting passive investors or team members or deals. Or, let’s say that you are a marketing executive or, I guess, a marketing manager, then you can do a podcast or a YouTube channel with marketing tips for finding deals or finding residents after you have a deal under contract.

So those are two approaches but, overall, the idea is to make your podcast or YouTube channel or thought leadership platform unique based off of either your giftedness zone or your area of expertise… Or, ideally, both. That’s number four, uniqueness.

Edutainment 

Number five, and lastly, is to educate while you’re entertaining. So who is more famous – LeBron James or Mrs. Wrinkle? The answer is LeBron James, or your answer is probably “Who the heck is Mrs. Wrinkle?” Mrs. Wrinkle was my first-grade teacher. She was a great educator, but the reason why she wasn’t LeBron James status, besides her (I guess) physique, was that she was not an entertainer. People prefer to be entertained more than they prefer to be educated, which is fairly self-evident, but still worth saying. So take this into consideration when you’re structuring your thought leadership platform and ask yourself, “How can I entertain my listeners while also educating them?”

Let’s use Joe’s podcast as an example. Rather than just having a dry interview format that’s the same every single podcast, instead, Joe has some engaging intro and outro music. He also has different types of podcast episodes each week. Obviously, there’s the Syndication School that you’re listening to and then he has his Monday-Thursday interviews, where he just interviews regular guests and then, on Fridays, we do Follow Along Friday, where me and Joe go over our business updates for the week. Then there’s Situation Saturday where Joe has a conversation with an investor about a stinky situation that they were in and how they overcame it. Then, on Sunday, there’s Skillset Sunday, where Joe interviews someone to extract a specific skillset that that investor has and how that applies to real estate.

Also, Joe concludes his episodes with the Best Ever Lightning Round where he asks them questions about their favorite book, their best/worst deal. He also has a name for the listeners – the Best Ever listeners – which is what we use when we introduce each podcast. We’ve also incorporated a trivia question of the week into Follow Along Friday. So those are all podcasts, and then there’s another example – we’ve created a quick for the blog… An engaging quiz that allows people to test their knowledge, rather than just absorbing information.

Those are all just some examples of how to create entertaining content, educating at the same time, so brainstorm some ideas for your thought leadership platform… Either copy Joe’s exactly, which is probably what you don’t wanna do, but it could work; I recommend just using Joe’s as a guide, and then incorporating your giftedness zone and your area of expertise into how to make your podcast or YouTube channel or thought leadership platform entertaining while educating.

A good question to ask yourself after creating content to determine if you’re actually entertaining people is to just ask yourself, “Would my target audience love this content so much that they will feel compelled to share it with their friends?” Because, if your audience is sharing it with people, that’s the ultimate validation of your content. Of course, you wanna track what content was shared the most in order to optimize your content on an ongoing basis.

Those are the five keys to success. Again, those are having an interview-based thought leadership platform. Number two, posting on a consistent basis. Number three, tying into a large built-in audience. Four, uniqueness, and five is to educate while entertaining, or entertaining while educating.

Steps to Developing Your Thought Leadership Strategy

1. Determine Your Goal

Now let’s get into the specifics on how to actually develop your thought leadership platform, which is a five-step process. Number one is ask yourself, “What is the goal?” Well, the goal of a thought leadership platform should be to help you achieve your 12-month goal and long-term vision, which, if you don’t know what those are, listen to episode 1513 and 1514. Based off of those goals, you wanna list out how your thought leadership platform will help you achieve those goals. For example, let’s say you believe your thought leadership platform is gonna help you find deals, build trust and a personal connection with your investors, as well as help you with your education. Well, then you want to create a mission statement that is specific and quantifiable about how it will help you achieve those goals.

For example, based off of those – finding the deal, building trust and personal connection with investors and education goals – my mission statement would be “I will research apartment owners in my target market, invite at least one per month to be an interview guest on my podcast, build a relationship with them, and ultimately purchase their apartment communities in the future.” That covers goal number one.

By interviewing active real estate professionals once a week, including these owners, my target audience will get to know me faster, resulting in a higher level of trust and confidence in my ability to successfully invest their money. So goal number two – build trust and personal connections with investors.

When I stick to interviewing one real estate professional per week, which equates to 52 per year, I will grow smarter. In turn, this will help me execute my business plan. So, goal number three, which is the education.

So that’s the first thing you wanna do – determine what the goal is and create a mission statement for how specifically and quantifiably you will accomplish that goal.

2. Find Your Target Audience

Number two is to ask yourself, “Who is my target audience?”, which, if you’ve been following the syndication school series in order, you should have already done. If you haven’t, go back and listen to episode 1534, where you will define your primary target audience, which is specific demographic information on the type of person you want investing in your deals, which, more than likely, will be your current circle of influence, so people that you already know.

But you also want to define a secondary target audience. We briefly hit on this during episode 1534, but your secondary target audience are people that you want to know, people that could be potential team members or other people that you wanna attract. Let’s say, for example, your goal is to eventually have a consulting program; well, then your secondary target audience could be people who are interested in becoming apartment syndicators. Or maybe the secondary target audience is people who can bring you deals. Those are examples… Again, it depends on what you’re trying to get out of it, on top of attracting passive investors.

Once you have your primary and secondary target audience, you want to add those to your mission statement. For example, Joe’s statement for this part would be “65% of my content is directed at my primary audience, who are 35-65 year-old males who are accredited investors. 35% of my content is directed at my secondary target audience, who are individuals who want to become apartment syndicators.” So that’s number two, who is the primary and secondary target audience.

3. Figure Out What is Attracting Your Audience

Number three is why will they come? Because if you build it, they will not necessarily come. So questions to think about for this particular step in the process are “Why does your target audience need the information you will provide?” What solutions to their problems can you provide with your thought leadership platform? What’s in it for them? How will they benefit? Why will they become a loyal follower of your content and not the thousands of other real estate-related thought leadership platforms? And finally, what qualifications do you have that make you the go-to person for this information?

I recommend writing out a couple of sentences in response to each of those questions, and then take those answers and incorporate them into the description for your thought leadership platform, as well as the name.

For example, “Joe’s podcast is the best real estate investing advice ever because the reason why people will come is to learn the best advice ever from real estate professionals.” His description is “Are you ready for the best real estate investing advice ever? Welcome to the world’s longest-running daily real estate investing podcast. Join Joe Fairless as he talks to successful real estate professionals as they give you their best ever advice with no fluff. Joe controls over 400 million dollars in real estate but started with zero dollars in 2009. He went from buying single-family homes worth $35,000 and moved up to raising money and buying large apartment communities with investors. He has made mistakes, money and friends along the way, so click play now and see why this is one of the top investing shows on iTunes.”

If you break down that description, it starts off with a question that they’re gonna respond with, “Yes, I wanna know what the best advice ever is.” He also mentions that it’s the world’s longest-running daily real estate investing podcast so, again, that’s a qualification. He also talks about what the podcast is actually about and what they’ll be getting out of it by listening to it, which is the best advice from real estate investors, with no fluff. He also discusses more qualifications as to why people should listen to him, which is that he owns 400 million dollars of real estate and he started with zero dollars in 2009. And, finally, he ends with some honesty where he says, “I’ve made mistakes, money and friends along the way.” Again, all of that is to attract that listener and answer that question, which is “Why should I listen to this podcast?” Well, that’s covered by the title and the description.

4. Name Your Platform

That takes us into step four, which is what is the name of your thought leadership platform. Again, ponder those questions from the previous step and create three to five names based off of the answers to those questions, as well as your goal and your target audience, and then ask for feedback from your target audience preferably, or just your circle of influence, and select the most popular name.

For help or guidance on how to create a name, if you’re stuck, I recommend going to iTunes and taking a look at the names of some of the most popular podcasts in the real estate investing industry and using those for guidance.

5. Create Your Flow

Lastly, step five is how will the thought leadership platform flow? Some questions to think about are what will be the specific structure of your thought leadership platform? Will your content be your own, or will it be presented in interview form? …which you already have the answer to – interview form. How often will you create content, which you should know when you picked and committed to your frequency. How often will you create content? How will it start and end? If you’re doing a podcast, how will it start and end? Will it be the same each time or will it be different? How long will the content be? For a blog – are you gonna do 1,000 words, or is gonna be 15,000 words, if you’re feeling bold? Or how long will each podcast episode be? And, will the content be unique, or will it follow a standard template each time? For example, Joe’s got Follow Along Friday, Situation Saturday, and Syndication School, so it’s gonna be unique each episode… And the same thing for blogs. We’ve got blogs based off of interviews, we’ve got blogs based on a specific topic, we do picture blogs, we do blogs based off of questions in the Facebook community…

For example, the flow of a podcast – Joe’s podcast, in particular, one specific type of podcast, it starts off by briefly introducing the guest, then Joe asks the guest to provide more information on their background and what they are focused on now; then the meat of the podcast is asking questions related to their given field. If it’s a real estate investor, Joe asks deal-specific questions. If it’s not a real estate investor, then he asks questions to extract skillsets that might be relevant to investors. Then he asks the money question, which is “What is your best real estate investing advice ever?” Once they answer that question, Joe goes into the Best Ever Lightning Round and then concludes the episode by providing a summary of information provided by the guest.

What you wanna do is you wanna create a similar list of exactly how your podcast, YouTube channel, or thought leadership platform is going to flow. One of the reasons why you wanna do this, besides the fact that you want to determine this information, is that you want to send this info to any interview guests so they know what they’re getting into. As I gave that example structure, the interview guest would know beforehand that it’s gonna start off by them being introduced and then they’re gonna have to give more information on their background and they’re gonna be asked questions about their related field, answer the money question, as well as the questions from the Best Ever Lightning Round.

That’s the five-step process to actually develop your thought leadership platform. Number one is what is the goal, number two is who is the target audience, number three is why will they come, four is what is the name of your platform, and five, how will it flow?

Dealing with Your Objections to a Thought Leadership Strategy

Now, I know we’re a little bit over time here, but I still wanna go over this last section, which is addressing any objections you may have. The top three objections to creating a thought leadership platform are:

  1. I just don’t wanna do it, for whatever reason; most likely because it gives you anxiety speaking or being on video or speaking in-person kind of gives you anxiety.
  2. I don’t have the time to do a thought leadership platform, which is probably the most common, and
  3. I don’t have the money to do a thought leadership platform.

Let’s go over all three of those quickly, as well as what you need to do in order to overcome those objections.

Weighing the Anxiety Against the Benefits

In regards to not wanting to start a thought leadership platform for anxiety reasons or commitment reasons, well think about it from this way – regardless, you’re gonna have to commit to something, you’re gonna have to do something with your life, and do you want that to be a thought leadership platform that could potentially lead to you launching a multi-million-dollar apartment syndication empire, or do you want that commitment to be working a 9-to-5 job that you dislike?

Now, maybe you like your job, maybe it’s some other reason why you don’t wanna do it but, overall, you need to keep in mind that the thought leadership platform is the key to your success, it’s the foundation of your business; it will help you educate yourself and others, it’ll help you build that credibility that you need when you’re first starting out because you haven’t done a deal before, and it will help you and others achieve their financial goals.

So what holds a higher priority in your mind – those benefits or the anxiety or the dislike or whatever it is why you don’t wanna do a thought leadership platform. So which one would you rather have, one or the other? You’ve gotta choose. Do you want the benefits of a thought leadership platform, with the downside of the potential anxiety upfront or would you rather not have that anxiety and continue doing what you’re doing right now? Ultimately, it’s up to you.

Overcoming the Issues of Cost and Time

The next objection is “I don’t have the money”, and the question to ask yourself for that one, as well as to ask yourself if you’re saying, “I don’t have the time” is to ask yourself how have these similar excuses served you in the past? Think of something that you haven’t done in the past because you didn’t have the money or time and what that outcome was. And, to overcome both of those objections, what you wanna do is brainstorm ways to prioritize things in your life in order to accomplish the goal of starting a thought leadership platform. So, if you don’t have any money, a potential solution would be to focus on using free tools for your thought leadership platform and your website. Or, if you don’t have the money to shell out and buy a nice microphone or some fancy video editing software, then just record your interviews with your cell phone or laptop, which you already have.

If your objection is “I don’t have the time”, well, it will take a maximum of 30 minutes a day to create a thought leadership platform if you’re doing weekly or monthly content, so ask yourself “How can I create 30 additional minutes per day?” Does that mean reducing the amount of time you’re on social media or watching TV? Does that mean waking up 30 minutes earlier each day or staying up 30 minutes later?

Now, if you have the money, another solution is to hire team members to reduce your workload. So maybe all you do is the interviews and have team members who set up the interviews, edit the interviews, and post the interviews. Or you can forego all of that and just do all of the content creation on the weekend. So block an hour every Saturday morning. Instead of sleeping in, get up an hour earlier and work on your thought leadership platform then.

These are just a few potential solutions but, ultimately, it’s up to prioritizing your time because everyone has 24 hours in a day – so it’s prioritizing those 24 hours to fit this thought leadership platform into your schedule. The reasons why are, again, because of all those benefits. It’s gonna be the key to your success; you need this thought leadership platform.

Conclusion

Again, I know we went a little bit over time but, to conclude, this is part four of the four-part series about the power of the apartment syndication brand. In this particular episode, you learned what the purpose of the thought leadership platform is; how to select a thought leadership platform; the five keys to success of a thought leadership platform, which is it being interview-based, posting content consistently, tying into a large built-in audience, making it unique, and educating while entertaining.

Then, you also learned the five-step process to actually develop your thought leadership platform. And, lastly, we went over some strategies to overcome any objections that you have. And, of course, the free document for this episode was the Guide to Structuring Sponsorships on Your Thought Leadership Platform so, eventually, you will be able to monetize it with sponsorships, assuming you’ve grown your audience and have followed the five keys and developed your thought leadership platform properly.

Thank you for listening. To listen to parts one through three, as well as the other Syndication School series about the how-tos of apartment syndications, and to download all the free documents we have available, make sure you visit SyndicationSchool.com. Thank you for listening, and I will talk to you next week.

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JF1541: The Power Of Your Apartment Syndication Brand Part 3 of 4 | Syndication School with Theo Hicks

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For part three of this four-part series, Theo will be focusing on your company presentation. If you haven’t listened to Part One (episode 1534) or Part Two (episode 1535), we highly recommend you do so before listening to this episode.

Once you’re caught up, or if you already are, hit play and learn why your investment company presentation is so important. You’ll also discover how to put together a really good presentation to show to your investors and other potential team members.

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Company Presentation Template


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TRANSCRIPTION

Building an Investment Company Presentation

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series, which is a free resource focused on the how-tos of apartment syndications. As always, I am your host, Theo Hicks.

Each week, we air a two-part podcast series focused on a specific aspect of the apartment syndication investment strategy. For the majority of the series, we are offering documents or spreadsheets or some sort of resource for you to download for free. All of these documents, as well as past and future Syndication School series can be found at SyndicationSchool.com.

This episode is part three of a four-part series entitled “The Power of Your Apartment Syndication Brand.” So it’s focused on the branding aspect and the benefits of your brand towards apartment syndications. Now, I highly recommend that you listen to part one and two of this series, because we are going to grow off of those two episodes.

Part one was episode 1534 and, in that episode, you will learn the five primary benefits of creating a brand, which are credibility, networking, cashflow, education, and contribution. You’ll also learn why and how to define a target audience for your brand, which is based off of the 2,000 true fans concept. Then lastly, you will learn how to create the first three components of your brand, which is a company name, a logo and a business card.

In part two, which was episode 1535, the focus was on the fourth component of the brand, which is a website, so you will learn how to create a website, as well as eight strategies for increasing your website traffic, as well as conversion.

The Purposes Behind Creating an Investment Business Presentation

Now, this is part three, and by the end of this episode, you will learn about the fifth component of the brand, which is your company presentation. So we’ll be discussing the purpose of your company presentation, as well as how to create the company presentation, and since this is the Syndication School, you will also be able to download a free document, which will be a PowerPoint template that you can use as a guide to creating your own company presentation.

Now, what is the point of the company presentation? Well, what it’s not is it’s not a pitch book or a sales tool. You don’t want to think about the company presentation as that. Instead, you want to think about the company presentation being a solution to your investors’ challenge, which is them making money, them making a return on their investment. So you’re not really selling them anything, rather you’re presenting them with a solution to their challenge and allowing them to decide whether investing in your deals will help them overcome that challenge.

Now, if you remember – or if you need a refresher, listen to episode 1534, which was part one of this series – I mentioned the five main benefits of creating a brand, and the PowerPoint presentation helps you accomplish all five of those, obviously, but the three main benefits of the company presentation as it relates to your brand are credibility, networking, and education.

Increase Your Credibility with Investors

So, in regards to credibility, this company presentation will be a passive investor’s first introduction to you and your business. Sure, maybe they listened to you before on the podcast, or they’ve filled out the Contact Us form on your website, but this is the first time that you are speaking directly to them. And what you wanna use this company presentation for is to attract the interest and obtain trust from your passive investors because, within your company presentation, which we’ll go over here later in the episode, you’ll have a chance to display your expertise and your team’s expertise, as well as experience.

So, once the potential investor reads through your company presentation, they’ll know all about you and your team, and you will also include additional information in the company presentation which will attract their interest in not only investing in apartment syndications but investing with you in particular. So that’s where the credibility benefit comes into play.

Network with High Net-Worth Individuals

Next it is a great networking tool, and this is something we’ll go over in future episodes when we begin our conversations about actually sourcing verbal interest from potential investors… But this is a presentation that you will send to them as a networking tool; it’s much better than just having a conversation with them on the phone because they’ve already read through your company presentation and they have an idea about you, your business, and your investment strategy… And, at the same time, this is a good networking tool for team members.

Again, rather than talking on the phone with a potential property management company and just explaining your background, instead you can send them this document before the conversation so that they have additional information about you before the conversation, and also they can see information about you and your team’s background and expertise. So it’s a great networking tool.

Educate Your Potential Partners

And then, lastly, it is also going to be educational. When you are first starting out, you are likely going to be raising money from people you already know, and they may not have a high-level understanding of the apartment syndication process, or investing in general… So the company presentation will provide them with a good introduction into the syndication process and why they should invest in real estate, and particularly in apartments.

Now, as you grow, this benefit of education will likely decrease, because, as you grow, you’ll attract more experienced investors who won’t need an explanation of how you find deals and data points like that because they already know.

So those are three main benefits but, again, you also benefit from the cashflow aspect because the company presentation is helping you attract investors, as well as contribution because, as you attract investors, they’re able to invest in your deals and meet their financial goals. So that’s the purpose of the company presentation.

A Template for Your Presentation

Next, let’s go over the meat of the conversation, which is how to create a company presentation. As I mentioned in the beginning of this episode, we will be providing a free document, which could be downloaded either in the show notes of this episode or at SyndicationSchool.com. It’s gonna be a company presentation template, so it’ll be a PowerPoint including information that I’m gonna go over in this episode.

What you wanna do is download that company presentation, populate it with your specific information, and then I highly recommend hiring a designer on UpWork and asking them to design the PowerPoint and pretty it up a little bit. That’s what we did with our presentation, but we’re not gonna give you that one; we’re gonna give you the standard version and you can design it to your liking.

A Table of Contents

So, overall, there are going to be seven components to the company presentation. The first, pretty simple – table of contents where you outline the other six components of the presentation, which are going to be the Meet Your Team section, Why Apartments section, Investment Strategies section, Roles section, Seven-Step Process section, and then an example deal. I’ll go over what all those mean here right now.

The “Meet Our Team” Section with Detailed Bios

The second section is going to be the Meet Your Team or the Meet Our Team or essentially the section where you put the bios of you and your team members. So it’s gonna be your bio, as well as the bios of anyone else involved in a deal that is relevant to your investors. For people just starting off, an important team member will be a sponsor or a board member. For example, if I were to create a company presentation, I would have Joe as a board member because I personally don’t have experience doing a deal, but Joe does, so I’m able to leverage his experience in the eyes of my investors and team members.

And then, also, you might wanna put information in there about your property management company, since they’re gonna be highly involved in the business plan, as well as any partners that you have.

Now, what’s the difference between a good bio and a bad bio? Because not all bios are equal. Here’s an example of a bad bio, that you do not want to put in your company presentation… It’s as follows:

“Joe has invested in real estate for over three years. He is currently the host of a successful podcast, and, in his spare time, is involved in various extra-curricular activities in charitable organizations.”

You probably know why that’s a bad bio, but let’s break it down quickly. The first sentence, “Joe has invested in real estate for over three years”, the only information they’re getting about Joe’s real estate business is how long he’s been doing it. They don’t know how much real estate he owns, how many deals he’s done, what type of deals he’s even doing, what type of real estate he’s investing in, so it’s not specific enough or quantifiable, which you’ll see is gonna be a trend for a bad bio.

The next sentence, “He is currently the host of a successful podcast” – it doesn’t say what the podcast is, you don’t know how long he’s been doing it for, you don’t know what “successful” means… Is that number of downloads? Is that just him doing it consistently? How is that success measured? And they also don’t really know what the format is – is it interview-based? Is it Joe just talking about his day? What’s the podcast even about?

And the third sentence, “In his spare time, he’s involved in various extra-curricular activities and charitable organizations” – again, what does this mean? What are the extra-curriculars? Is Joe just considering staying home and playing video games as being extra-curricular or is he talking about something else? How long has he been involved in these organizations and what are they and how many?

All of those are addressed in a good bio, which is as follows:

“Joe controls over 400 million dollars worth of real estate in Dallas-Fort Worth and Houston. He is the host of the world’s longest-running daily real estate investing podcast, Best Real Estate Investing Advice Ever, which generates over 350,000 monthly downloads. Joe is also on the Alumni Advisory Board for Texas Tech University, and on the board of directors for Junior Achievement, as well as created his own charitable organization, Best Ever Causes.”

Huge difference. Joe is explaining exactly how much real estate he owns, as well as where he owns his real estate, so he’s measuring the success. He’s also explaining how long he’s been running his podcast for, what the podcast is actually about, as well as how many downloads he is generating, which is the gauge for success.

Then, lastly, he explains exactly which extra-curricular activities and charitable organizations he’s involved in, rather than just saying he’s involved in some unknown activities. Based off of that explanation, go ahead and create a bio for you and your team; a good approach is to just list out all of your stats – how much real estate you own, how long you’ve been in real estate, things like that. Then do the same thing for your property management company, your partner, as well as your sponsor, and add that to the Meet Our Team section in the company presentation template.

The “Why Apartments” Section

The third section is gonna be — the company presentation you’ll see is titled “Why Apartments?” but, essentially, this is a section where you want to prove why apartments are the best asset class for your investors to park their money in order to receive solid returns.

In this section, essentially what we have is different metrics that we measure for apartments versus other asset classes and just any metric related to apartments. We include graphs and charts and data tables to get that point across in a visual form.

1. Risk Versus Returns

The first slide that you’ll see is an explanation of the risk versus returns. Essentially, what you wanna determine is how does real estate (as a whole) returns compare to other investment vehicles, like stocks, bonds, mutual funds, retirement accounts, REITs, things like that, as well as how do apartment returns compare to other real estate investment vehicles, like industrial, office, retail, hotel.

2. A Comparison of Different Investment Options

For the first one, real estate versus other investment vehicles, we have a data table that shows the number of down years or negative return years compared to the number of up years or positive return years for real estate, stocks, and bonds. And, as you will see, there are many more years of up years for real estate, as well as much fewer down years for real estate compared to stocks and bonds. So it gets that point across.

3. A Comparison of Commercial Properties

And then next we have a data table that shows how the average apartment returns compared to other commercial property types – industrial, office, retail and hotel – and, at this point in time, apartments have the highest average return over the three, five, seven, 10 and 15-year periods. For all of these, you’re going to want to make sure you’re staying up to date on the current data because some of the things that I’m gonna explain right now might not hold true in five years, so those are things that you wanna either remove or address differently. Also, there might be other data points that are not included or are not discussed that are relevant in five years from now and aren’t necessarily relevant now. So this is not something to be copied exactly, just to give you an idea of the types of things to include in this “Why Apartments?” section.

4. Taxes

Another section is about taxes. Typically, passive investors who invest in apartment syndications, the distributions that they receive are less than the actual depreciation that’s passed on to them so, most likely, they won’t have to pay taxes on their ongoing distributions, and they won’t have to pay taxes at all until the sale of the property. But, depending on the syndicator and you and your investment strategy, you might be able to delay taxes even longer by doing a 1031 into a new deal. Essentially, in this new section, any tax benefits as it relates to your passive investors investing in apartments should be referenced in this section.

5. Home Ownership Rates

Next, we discuss the homeownership rates, so you wanna determine if homeownership is low and decreasing or if it’s high and increasing… Because, the lower the homeownership rate, by default, the higher the rental rate is, which means more customers for you and your company.

For this, we have it represented by a graph that shows the rate of homeownership over time and, as you’ll see if you’re looking at the company presentation, the homeownership peaked around 2005 and has been decreasing ever since.

6. Population

Similarly, you want to also take a look at the population. This is gonna be just kind of the overall snapshot population of the country; is the population increasing? Similar to the decreasing home ownership, if the population is increasing, then that means there’s more renters, which means, again, more customers for your business.

7. Occupied Units

Then, lastly, of course you want to actually look at the rate of renter-occupied units to determine if that number is increasing because, again, if it is increasing, there’s more renters and, therefore, more customers. For this, it’s represented by the number of renter-occupied housing units over time, and it’s been steadily increasing since the early 2000s.

8. Demand Data

Something else that you want to take a look at is demand data. One data point would be the vacancy rate… So how is the vacancy rate for the renter-occupied units changing over time? Ideally, it is going to be trending downwards because, the lower the vacancy rate, the higher the demand, which is going to be a benefit for apartment investors. We have this represented by the vacancy rate over time, and the vacancy rate peaked around 2011 and has been steadily decreasing over time.

9. Supply

Another demand factor to take a look at is the supply, so how many units need to be constructed to keep up with the future projected demand? More than 4.6 million new apartment homes are expected to be built by 2030, and there are nearly 39 million people living in apartments, so the industry is quickly exceeding the capacity. So, it’ll take building an average of at least 325k new apartment homes every year to meet the demand. But, on average, just 240k apartments were delivered from 2012 to 2016. So, from a demand perspective, based off of this data, there are more people than there is supply, which is gonna be a positive benefit for apartment investors.

10. Economic Impact

Also, something else you wanna take a look at is the economic impact of apartments, so what is the total number of renters, how much money are they contributing to the economy through their rental payments, and then how many jobs are actually generated by apartments? So apartments and their 39 million residents contribute 1.3 trillion dollars to the U.S economy and generate about 12.2 million jobs annually.

11. Demand Drivers

Then, finally, you wanna take a look at other demand drivers; for example, changing lifestyles. Today, people are delaying both marriage and starting families and the data to support that is 19% of U.S. households are married couples with children, compared to 44% in 1960. So a huge drop. And there’s 75 million people between the ages of 18 and 34 who are entering the housing market, and the majority of them are entering as renters. From that, you know that the demand for rentals are not going to be going down because people who are delaying marriage and starting a family are more likely to rent than buy.

You also wanna take a look at any interesting demographic data. Currently, ages 55+ account for more than 30% of rental households, and more than half of the net increase in renter households over the past decade came from the 45+ demographic. So, historically, the older you are, the less likely you are to rent; however, that seems to be changing because there is a large percentage of people who are renters that are within that 45+ age demographic.

Then another demand driver to take a look at would be immigration growth. International immigration is expected to account for 51% of all new population growth in the U.S., and immigrants have a higher propensity to rent and typically rent for a longer period of time.

Those are just three examples of demand drivers, but again, that might change based off of the current economic climate in five years.

Essentially, in this “Why Apartments?” section, think of any other timely data point that’s relevant to the current apartment conditions, and make sure that you’re focused on continually updating this section. So that’s section three.

The “Our Investment Strategy” Section

Target Market Metrics

Section number four is going to be titled “Our Investment Strategy.” In this section, you wanna give an overview of your investment strategy. We are value-add investors, so I will be using that as the example for this section. First, you wanna talk about your target market, so what metrics are you using to select your target market, and what are your actual target markets?

1. Employment Drivers

In regards to the metrics, we have six things in this presentation. Number one are employment drivers. We wanna see a low or decreasing unemployment, new businesses, increasing jobs, the job diversity, and things like that because those provide stable income and lower the risks of apartments by keeping the occupancy levels high. So those are the types of markets we look at in regards to employment.

2. Absorption Rate

For supply, we wanna look at the absorption rate, which is the ratio of the number of rental units coming online to the number of units rented in that same period. That rate is used to determine if supply is keeping up with the demand. You also wanna take a look at future population growth, and that should be sufficient to absorb the scheduled future supply. In other words, you’ve got a certain number of apartments available and a certain number of people that are wanting to rent, and there should be a balance between those two numbers, and ideally, there is more demand than there is supply.

3. GDP Growth

Third is the GDP growth. We avoid markets that are nearing a potential bust, which we determine by decreasing GDP, and we also avoid markets with abnormally low cap rates.

4. Cap Rates

This brings us to number four, which is cap rates. In order to achieve our projected returns to our investors of at least 8%, we wanna see that the class B cap rates are not below 5%.

5. Rental Trends

Fifth, our rental trends. We want to see an increase in rent because that indicates a healthy, stable economy with lower risks.

6. Occupancy Trends

Six is occupancy trends. Again, we wanna see a healthy occupancy rate, ideally above 95% in that market, which indicates a growing population that’s outpacing current supply. I guess there’s actually seven points to this section, not just six, because the last thing you wanna have is a map of your target markets. As you’ll see in the company presentation template, there’s a map of the U.S. with different points denoting different markets that we target, as well as their respective cap rates.

The Types of Deals

Another component of the investment strategy are the types of deals that we look at. For this section, since we are value-add investors, we give some examples of the types of value-adds that we do. On one slide, we have a before and after picture of an interior with a list of the types of unit upgrades. For example, “New vinyl plank flooring throughout the unit. Stainless steel appliances. Granite countertops. Tile backsplash. Updated hardware and lighting packages”, things like that.

Similarly, we discuss some of the exterior value-add strategies that we implement – renovating the clubhouse, rebranding with new signage, a dog park, fitness center renovations, adding a movie theater, things like that.

Sourcing Strategy 

Also, we discuss not only what types of deals we do but how we source these deals. We explain the process, which is the 100/30/10/1 process. Essentially what that means is, for every 100 deals sources, 30 are underwritten; of those 30, we submit offers on 10. And, of those 10, we actually close one. That’s an explanation of the funnel and how many deals we look at, and how long it takes to go from looking at 100 deals to actually closing on one of those deals.

Analysis Process

We also discuss how we actually analyze those deals, which is through our comprehensive underwriting process. First, we select a submarket location, next we look at the history of the property, so we wanna look at the age of the construction and the current demographic, as well as the ownership history. We’ll take a look at the T-12 and the rent roll and plug that into our cashflow calculator. Then we take a look at the condition of the property, so we look at deferred maintenance and the quality of the interiors in order to determine an exterior and interior renovation budget.

Competition

Next, we look at the competition, so we perform a rent comp analysis, as well as a sales comp analysis, to determine what the new rents will be after we’ve implemented our value-add program. And then, lastly, we will set our business plan, so we will have a detailed explanation of the types of interior and exterior renovations we will do, the new demographic we expect to attract, as well as our rebranding in order to rebrand the apartment community and the market.

The Structure of the Deals

Then, lastly, we also do a brief overview of how we structure the deals and our investment targets. We look at deals that are at least 100 units, we will secure debt at 70%-75% loan-to-value; the deals must have annual returns that are greater than 8% and a five-year IRR that’s greater than 15%, and we project to hold on the property for five to 10 years, depending on the business plan.

The Roles Section of an Investment Company Presentation

Section five goes over the roles and, if you remember, as I mentioned earlier, as you gain more experience, you could probably remove this section, because your investors will have enough experience to know what their role is and what your role is. But, for now, the two groups that are discussed are the investors and the general partners.

The investors – their responsibility is to fund a portion of the equity for the project, whereas the general partner is responsible for everything else – finding deals, reviewing deals and determining which ones to make offers on, making and negotiating offers, coordinating with professional property inspectors, finding the best financing methods for the property, coordinating with the attorneys to create the LLC and different partnership agreements, traveling to the property in person to perform due diligence on both the property and the market, hire and oversee the property management company after close, as well as perform additional asset management duties, including lender conversations, overseeing the business plan, and ongoing investor communication. Again, you can probably remove that as you gain more experience but, for now, that will be a good overview for your newer investors.

The Process Section

Section number six is gonna go over the actual process, what the overall process is for buying apartments – similarly, this could be removed as you gain more experience because your investors are gonna know the process already… But the seven-step process that we include in our company presentation template is:

  1. Our team finds a property that projects to meet the goals of our investors;
  2. Our team makes an offer and negotiates a sales price;
  3. The offer is accepted and the deal is shared with the investors;
  4. Our team performs more detailed due diligence on the property;
  5. Our team renegotiates the offer based on due diligence (if applicable);
  6. Legal documents are created by the attorney and signed by both the general partnership and the investors;
  7. Finally, the deal is closed.

The Example Deal Section

Now, the seventh section – you might not be able to make this right away, because you won’t have a deal but, once you’ve done a deal, or if you have a sponsor or a board member who’s done a deal, you wanna include an example of what your investors can expect. For example, you want to essentially include all the information that was included in the investment summary you created when presenting that deal, which we’ll go over in future episodes… But, essentially, you wanna include a property description, as well as the unit mix information. You want to include the equity, the amount of money that would be returned at the sale of the property – the projected sales proceeds, or the actual sales proceeds if the deal was sold – as well as yield projections for the entire project.

You want to include an operating income and cashflow statement, as well as a data table showing the returns for a sample investment of, say, $100,000. Then, lastly, you can toss in the actual five-year proforma of the rental income and expense line items. Then you can conclude your presentation with your contact information.

Get the Tools You Need

Now, make sure you go to SyndicationSchool.com or the show notes to download the free company presentation template, which is what I discussed during this episode, and include all of those seven sections. Again, you want to download that and put your data and then have someone professionally design it. The purpose of this company presentation is to build that trust and personal connection with your passive investors before you hop on a phone call with them. Again, we’ll go in a lot more detail on how to actually use this company presentation in the future but, for now, I wanted to discuss how to actually create this so you have it done and you’re able to use it to the best of your abilities.

That concludes part three, where you learned the three primary benefits of the company presentation, which are credibility, networking, and education. And you also learned the seven-section company presentation, and you have a free document to download that goes over all of that as well.

Now, in the fourth and final part, which will be released tomorrow, we will discuss the sixth and final component of the brand, which is the thought leadership platform. To listen to all other Syndication School series about the how-tos of apartment syndications, and to download your free company presentation template document, visit SyndicationSchool.com.

Thank you for listening, and I will talk to you tomorrow.

Apartment Syndication Brand Part Two Flyer with Theo Hicks

JF1535: The Power Of Your Apartment Syndication Brand Part 2 of 4 | Syndication School with Theo Hicks

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Yesterday, we opened the door on the branding topic during part one of this series. Today, Theo gets into the weeds a little more on the topic and focuses on the power of your property investment website when it comes to traffic and conversions. Your website is one of, if not the most important component to your apartment syndication brand. If you enjoyed today’s episode on creating an online brand, please subscribe to the Best Ever Show in iTunes.

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TRANSCRIPTION

How Property Investment Websites Can Lead to Successful Deals

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series, a free resource focused on the how-tos of apartment syndications. As always, I am your host, Theo Hicks.

Each week, we air a two-part podcast series about a specific aspect of the apartment syndication investment strategy. For the majority of the series, we offer a document or a spreadsheet or some other resource for you to download for free. All of these free documents and the free Syndication School series can be found at SyndicationSchool.com.

This episode is part two of a two-part series entitled “The Power of Your Apartment Syndication Brand”, so make sure you listen to part one, which aired yesterday, or if you’re listening to this in the future, is the podcast episode directly before this one. In part one, you will learn the primary benefits of creating a brand as it relates to starting and growing your apartment syndication business; you also learn the one thing Joe wishes he would have done differently with his brand starting out, which was to define a specific target audience and, to do so, we introduced the concept of 2,000 true fans and pursuing selective fame versus general fame.

Then we talked about how to actually select your target audience starting out, as well as talked about the first three main components of the brand, which is your company name, your log and your business card. In this part – part two – you will learn how to create your first website and how to increase your website traffic. So the focus is going to be on the website.

Why Creating an Online Brand Through Your Website Is Important

The website is going to be the most important aspect of your brand. If someone Googles your name or your company name, the website is going to be the first thing that they see, so this is going to be their introduction to you and your company, so that is going to be the most important component because first impressions are everything, and if you don’t have a solid website, then you are leaving a lot of money on the table.

The website is also going to be your main lead generator, as well as your main lead capture source. Leads would be your passive investors, so if it’s the first thing they see, it’s going to be the lead generator, and at the same time – we’ll get into this later in the episode – it’s going to be the main place where you capture information of interested investors.

And then lastly, it is also going to be the source of all of the content you create for your thought leadership platform, which will be the focus of the next syndication school series. So the website – very important.

How to Develop Your Property Investment Website

To create your website, there’s really an infinite number of ways to do this, but I will just talk about one strategy in particular that applies to someone listening who has not done a syndication deal yet. When you’re first starting out, you should definitely create the website yourself because websites are very expensive and it takes a lot of time to create a website professionally. And, if you’re just starting out, you likely don’t have the money to invest in a website, nor the time to sit around and wait for the website to be completed. The best strategy is to start off by making it yourself.

Use a Website Builder

Now, your first websites should be very simple, should not be complicated with a thousand different pages and 20 different tabs on the home screen. What you should do is you should go to a website creator, like Wix, Weebly, WordPress, GoDaddy, or SquareSpace, which offer step by step guides for creating your website. So you’ll go there and it will literally walk you through how to create pages, color schemes, add pictures, add content to the website.

So you wanna do that, and you should also be able to buy a domain name at one of those sources as well. I got mine through GoDaddy, or you can use WordPress, as well. For the domain name, it can either be YourName.com or YourBusinessName.com. It really depends… Or you just do both, like what Joe does. Joe has JoeFairless.com, as well as AshcroftCapital.com.

So if you’re just starting off, I recommend right now going to GoDaddy and buying YourName.com. Even if you’re not gonna use it particularly for your syndication business, it’s always good to lay claim to that, just in case you want to start a consulting business or use it for other purposes. For me, unfortunately, TheoHicks.com was taken, so I had to take TheoHicks.org.

Get the Professionals Involved

Now, as your business grows and your bank account also grows, that’s when you want to actually hire a web designer. So you already have a website established and you can hire a web designer to create a second website while your first initial website is still active and live. In order to hire someone to professionally make your website, you can go to a site like Fiverr or UpWork, Elance, you can Google “web designer”, or the best strategy is to ask for referrals from a website that you really like.

Now, as I mentioned before, and this is why you didn’t create one starting out, but professionally-designed websites are expensive. If you wanna get a cheaply-done website, it might be a couple hundred bucks but, in order to get a great website, it’s gonna run you at least a few thousand dollars. When you create a professionally-done website, it’s really up to you; probably the limiting factor is going to be money… So, once you have the money to buy the website, you should definitely do it. But also, you don’t want to start off by, again, creating a professionally-done website because it takes a long time and you want to make sure you probably have a deal under your belt first, or at least have started putting together your team before focusing on the professionally-done website, because you probably have other duties that are more important and your basic website should do the job.

What to Include On Your Property Investment Website

Now, what do you include on your website? If you listened to part one or if you go to SyndicationSchool.com or the show notes of part one, you’ll be able to download the free document that came with that, which was a branding resources document, which gives tips, pointers, and links to things related to building a website. One of these sections includes 11 examples of apartment syndicators’ websites. So, if you wanna know what to include on your website, the best way to do so is to look at the websites of other accomplished syndicators. I’d definitely recommend checking out that document and spending an hour and click through the different tabs and pages on those 11 sample websites.

A Strong Homepage Can Help You When You’re Creating an Online Brand

Some of those websites are from very accomplished, advanced syndicators and, when you’re first starting out, you’re not gonna have the level of content that they do because you haven’t had the time to create that content yet. So at a minimum, when you’re first starting out, I recommend having these four tabs. Number one is gonna be your homepage, obviously. This is gonna be the first page that they see when they go to your website, so make sure that it is attractively designed. Also, I recommend putting a call-to-action on the front of your website.

Again, the ultimate purpose is to capture the information of passive investors. Everything else that you do is in order to direct more traffic to your website so you are able to convert more people into passive investors. So this call-to-action is going to be an email capture form. Now, when you’re starting off, it’s probably just gonna be very simple and just say, “Input your email to receive my weekly newsletter, or receive updates on my business”, or something along those lines because you haven’t really created any giveaways yet, but ideally, you are offering a free resource in return for their email. So they give you their email, and you give them some sort of free document. We’ll go over what type of document that could be here in a little bit. That’s the first tab, the homepage.

Create a Detailed About Page

Secondly, you wanna have an About Page. You can call it About, or you can have it like Joe, which is Meet Joe, or you can come up with a creative tab that gets the same point across. Obviously, this About Page will have a bio for you, your company and an explanation of what you do.

Great Property Investment Websites Have No-Fluff Blogs

Number three – you want to have a Blog tab. And this is where you’re going to post your thought leadership content, so your podcast, your blog, YouTube videos… Really any content that you create will be posted on this page.

Include a Lead Capture Page

And then, lastly, you wanna have a tab dedicated to lead capture. These are capturing the emails of investors, or if you’re looking for a business partner or a consultant or team members… Whoever’s information you wanna capture, you’re gonna have a page dedicated to that specifically. Again, this is where you capture the information of your investors.

Advancing Your Site as Your Business Grows

So those are the four pages that you want to have, at a minimum, when you are initially creating your website. Now, as you become more advanced, you’re going to add more tabs and pages, and have a better design overall. Using Joe’s website as an example, he has — and again, this is in addition to those four previous components, which is the homepage, the About page, the Blog page and the lead capture page — So he has a page dedicated specifically to the podcast. Again, when you’re first starting off, you probably just have a basic Blog and post everything there, but once you start to add on – you’ve got a blog, and a podcast, maybe a YouTube channel – you’ve got multiple content streams, then you wanna create tabs or pages dedicated to that specific piece of content.

Podcasts and Investor Pages

Joe has his daily podcast, so he has a podcast page where he posts all the new podcasts. He also has a consulting program, so he has the “Work with Joe” page, which is actually not only just a consulting program, but also for passive investors, too. So it’s details on both of those programs, passive investors and the consulting program, as well as a lead capture button for them to input their email if they’re interested.

Links to Your Off-Site Content

Also, his About page is more detailed than just his bio. He also has information about the charities he’s involved in, as well as the press mentions. If he was mentioned or posted content on Forbes or Huffington Post, those logos would be there, as well as links to those articles.

Resources

He also has a Resources tab. This is where all the resources that he offers are located. Specifically for Joe, he has a Passive Investor page, with passive investor FAQs. He’s got a page for content that is specific to apartment syndications, and he also has a My Recommendations page, where he recommends different resources and services that he has used for his syndication business. So really any other resource you can think of would go under this type of tab.

Events and Publications

He also has an Events tab for his conferences and meetups, a Books tab for all his books, and then the most important page, the homepage, which you will have on your initial website, but it’ll be very basic… As you become more advanced, you want to incorporate all of the most important content on your homepage. For example, right now, the homepage features a link and info on our new book, the Best Ever Apartment Syndication Book, which you should definitely buy at Amazon.com. There are links to the two lead capture forms for his passive investors and consulting program, there is a section for the most recent content, so the YouTube videos, blogs, podcasts… And then also, he has the company metrics. Since JoeFairless.com is more focused on the brand, the metrics are information on the consulting program, information on podcast viewers, YouTube viewers, things like that.

Then, also scattered throughout the website, are multiple email capture forms, giving away multiple pieces of content. So rather than just having that one lead capture on your homepage, you want to not only create multiple lead capture forms on different pages but also offer various pieces of free content as well, and make sure that the giveaways are specific to that page. For example, on Joe’s passive investor page, his call-to-action wouldn’t offer something that has to do with fix and flipping, because that’s not relevant.

Other Features of Your Site That Will Help When Creating an Online Brand

Images and Other Visuals

Other things to think about in regards to your website is the pictures that you use… Again, this seems basic and rudimentary, but it’s very important, because you don’t wanna get into legal problems later on. So, when you’re first starting off, you can probably get away with using images from Google Images, but as you grow, you might run into legal issues because you are technically stealing someone else’s image. So any images that you use on your website or your blog, podcast, thought leadership platform, things like that – make sure they’re royalty-free. The two websites that I use for royalty-free images are Pixabay.com or Pexels.com. You’ll be able to download royalty-free images from there.

Tracking Your Metrics

Secondly is tracking the analytics on your website. The best way to do that is Google Analytics. If you don’t track your website’s performance, then you have no idea what is and isn’t working. The best way to determine what is and isn’t working is to look at the analytics on a weekly basis. The three main metrics that we track are the number of page views, the number of unique page views, and the number of new users. We actually track that for the overall website, for the blog specifically, and then, depending on what project we’re working on, we’ll also focus on a specific blog post or a specific page on the website.

Now, setting up your website on Google Analytics is not that difficult. It’s a highly technical conversation and not very interesting, so rather than discuss it on the podcast now, we will be giving away a free document which walks you through, with screenshots, exactly how to set up analytics on your website and create your first custom report that tracks those three main metrics that I mentioned previously, which are unique page views, page views, and new users. To download that, make sure you go to SyndicationSchool.com, or look at the show notes of this episode to download that free document.

Increasing the Traffic to Your Property Investment Website

The rest of this podcast episode, I wanna focus on the best practices for increasing your website traffic once your website is actually created. Because, again, the main purpose of your website, the ultimate purpose is to capture the information of passive investors and convert them into customers. In order to do so, you need to get prospective passive investors to your website. These are eight or so strategies to accomplish that. These strategies come from Joe and based off of his experience growing his website, as well as podcast interviews with people who have been able to grow social media followings of in the six figures, or people who are well-known marketing experts like Neil Patel. Let’s just dive right into this… And again, the goal of all of these are to get people to your website.

Focus on Getting People to Your Site

Number one is going to be understanding what you should focus on starting out. When you’re first starting off, you should focus on traffic first, and conversions later. So focus on getting people to your website, not getting people to fill out your lead capture form. Now, the standard is 10,000 unique visitors per month. You wanna work your way up to 10,000 unique visitors per month before you focus on conversion. However, since we’re syndicators, we don’t need 10,000 customers, so to speak… We need our 2,000-3,000 true fans. So, rather than waiting until 10,000 to focus on conversions, you can focus on getting 2,000-3,000 unique visitors per month before you begin to focus on the conversions. That’s number one.

Use Your Social Media Platforms

Number two, which is kind of broken into multiple components – leveraging social media to increase your website traffic. Starting off, you want to pick one or two channels to focus on and focus on ways to get people from social media to your website. The top sites or channels to use are Twitter, LinkedIn, Facebook, and Bigger Pockets. I wanna go over a couple of strategies and tips for each of those different channels, just because they are different, and things that work on Facebook don’t necessarily work on LinkedIn and vice versa.

1. Twitter

Let’s start with Twitter. One strategy on Twitter is to look up your competition using the search.twitter.com function. Look up other people who are creating similar content as you, and search for their articles on search.twitter.com, and see which profiles share that content. Once you identify those profiles, you can reach out to them via Tweets or via direct messaging and ask them to share your article, too. Because, if they’re already sharing articles in that industry, they’re more likely to share yours as well. This is a little time-consuming because you have to do it manually, but if you focus on this over time, you will see a huge impact on your website analytics because people will be going to your blog, which brings them to your website, obviously.

Something else you could do is to search the popular hashtags for your specific niche: apartments, apartment investing, passive investors, real estate syndications, apartment syndications, multifamily, things like that. Number one, you wanna include those hashtags in any tweet that you send out, but two, it will also help you identify people who are also tweeting those same hashtags, sharing articles in that niche, and top profiles that you could potentially reach out to and have them retweet your articles or your tweets.

Then in regards to what to actually tweet, the best way to come up with content is to repurpose existing content. Again, I know we haven’t talked about the thought leadership platform yet, but if you have a blog and you write a 1,000-word blog post, you could probably pull out at least ten tweetable items from that. So, if you write one blog post a week, then you’ll have at least 10 tweets for that week. Ideally, you’re doing more than that so you have more tweets, but that’s a good start. And, again, we’ll get into the frequency of posting content and everything related to that in next week’s episodes focused on the thought leadership platform. Those are some pointers on how to use Twitter.

2. LinkedIn

For LinkedIn, the pointers are to create your profile based on a specific goal, which, in this case, is to increase traffic to your website. But, not only that, you wanna increase traffic to your website of your specific target audience. You’ve already defined your target audience, so you wanna create your profile with the goal of increasing the number of people from your target audience visiting your website. To do so, you want to focus on the keywords that your target audience is searching for, and include those in your profile. They’re probably searching things like “apartment syndication”, “multifamily syndication”, “apartment/multifamily investing”, “passive investing.” Figure out what main keywords your target audience is using and make sure that those are scattered among your profile because that’s how the search function works on LinkedIn. So, if they type in “passive investing”, your profile will come up.

You also want to infuse your headline with the keywords. So, rather than using the basic headline, which is usually your name and your company name, instead have some sort of tagline that includes those keywords, “apartment investing” and “passive investing.”

When it comes to your profile, the last thing you wanna do is to just copy and paste your resume in there. Instead, you wanna think of your profile as a digital introduction to potential passive investors that you want to impress and make them feel confident in your ability to help them… And a resume is not necessarily going to accomplish that, so focus on including the keywords but also focus on including things that’ll have people perceive you as a credible apartment expert.

And then, lastly – this is probably self-explanatory, but don’t have a selfie as your profile picture. It should be a professionally-done picture, or at least have someone else take the picture. If you have a profile picture and they can see your arm taking the selfie, they’re probably just gonna pass over you. So that’s LinkedIn. Then, of course, you also wanna post any and all content that you have to LinkedIn, as well.

3. Facebook

For Facebook – the best strategy for Facebook is to create a private group that is only available to your target audience. Everyone who is on Facebook knows that, when you scroll through your regular newsfeed, the majority of the content is just noise; it’s cat videos, people posting pictures of their food or going on vacation. And, while that’s all fine and dandy, that’s not helping you or someone who wants to become a passive investor out.

Instead, if you create an actual private group, you can reduce all of that noise and it can be focused exclusively on your syndication business and helping out interested passive investors.

For example, we’ve got the Joe Fairless page; we also have the Best Ever Show Community page for all of the podcast listeners, and then we also have a private group for all of the syndication consulting program clients.

Something else to do on Facebook is to focus on building personal relationships. You don’t necessarily have to have every piece of content or every contact be involving real estate or syndications. Instead, you could send direct messages that are saying “Happy Birthday” or “Congrats on the new job/new deal” or whatever it is. But instead of just posting it on their Facebook page or commenting on something like everyone else, take that extra time to send them a direct message.

Also, you can utilize the Facebook Live function. This doesn’t mean you have to have an hour-long presentation or it doesn’t mean you have to actually interview someone. Instead, you can summarize content that you’ve already created. Let’s say you’ve had a blog post that gives out five tips for finding deals or five tips for finding an apartment syndicator – you can create a video overviewing that same content. Or, if you’re going on a property tour, turn on Facebook Live. If you have a meetup group that you host, you can talk about this next week as well, Facebook-Live the speaker or the Q&A session or the roundtable discussion or just do a Facebook Live video saying “Hey, I’m at my meetup group. Here’s who’s speaking. Here’s what I learned…” Again, the goal is to get people to watch that video and look up your name and go to your website.

Then, lastly – and this will cost you money, but you can do Facebook advertising that targets your 2,000 true fans specifically, which is also a very powerful function. We actually used Facebook advertising for our passive investor site and saw a huge increase in traffic. The Facebook advertising function is very powerful.

4. Bigger Pockets

And the fourth site that you can use is Bigger Pockets. There’s really no tricks here, it just takes consistency. Number one, make sure you set up keyword alerts for things that your target audience would likely include in their posts – multifamily investing, apartment investing, syndications, passive investors, accredited investors, things like that. And then, also, I recommend posting in the forums on a daily basis, at least one time, which would take you maybe two minutes to do. Over time, you will build up that credibility; you can also include, if you have a Pro account, a link to your website… So the more times you post, the more opportunities people have to click on that link to go to your website.

Overall, for a social media strategy, you want to create a calendar that’s 30 days to 90 days. Starting off it might just be a week, but plan out when and what you’re going to post. You’ve got your one or two channels, you set up a calendar to say, “Okay, I’m going to post to Bigger Pockets ten times at 5 PM every day” or “I’m going to go on Facebook Live every Monday at 10 AM.” Create that calendar and make sure that you adhere to that calendar.

And then lastly – and this could be accomplished on really all four of these sites – is interact in the comments section of the top profiles in your niche. On Facebook, join the top multifamily investing groups or passive investing groups and interact in the comments section, as an example. So that is the long-winded number two, which is utilize social media to increase your traffic.

Analyze other Property Investment Websites

Number three is to be better than the competition. Look up what type of content your competitors are creating and recreate that same content, but do it better and more detailed. For example, if you find a blog post with top 10 tips for becoming a passive investor, you can write the same blog post, but give ten better tips, or give 20 tips instead… Because you know that — what I mean by competition, you wanna find someone who’s the market leader in this niche, so someone who’s getting 100,000 downloads to their podcast, or getting 100,000 views to their blog because you know what they’re doing works, and if you replicate what they do but do it better, then it’ll work for you as well.

Create Internal Links

Something else to do throughout your website is cross-linking. You want to link to other blogs and pages on your websites in any new content that you post. A good strategy is to create a piece of cornerstone content – your main, most detailed piece of content that has the most valuable information to your target audience and the blog or the podcast that you want (it has to be a blog, actually) the most people to read. In the new blog post that you create, link to that cornerstone article. Cross-linking is a thing that helps out with your SEO and searchability on places like Google.

Be Patient

Next, number five, I believe, is to not expect results right away. Don’t expect to create a website today and then have 100,000 unique visitors in a month. Instead, a good rule of thumb is to not expect to really see any decent results within the first six months, and don’t expect to see solid, good analytics for at least two years. Now that you know that, instead of getting discouraged after six months, make sure that you’re consistently posting new content multiple times a week on your one or two social media channels.

Maintain the Focus

Next, number six, is to create content specific to your target audience. Again, it seems like a no-brainer, but if your target audience is passive investors, then don’t write blogs about fix and flips. In order to determine what is the best content and the right amount of content, so how frequently you should post, you can do A/B tests. You can, for maybe two weeks, post seven times a day — sorry, not seven times a day; if you want to, that’d be pretty impressive… But seven times a week, and then, over the next two weeks, post twice a week, and then, maybe for the next two weeks, post once a week and see which one results in the highest number of traffic to your website. You may think that seven times a week is the best, but it depends on the target audience because some target audiences only wanna read a blog once a week, whereas others want two blogs per day and you won’t know until you test it out.

Same with the actual type of content. You can write content that’s very valued and high-level, and then you can write content that’s very specific and detailed and see which one performs better with your audience.

Include a Value Proposition 

Number seven is to have an easily identifiable value proposition on your website. On your homepage, you wanna have the call-to-action lead capture form that is, ideally, giving away a free piece of content, so someone who’s visiting your website should be able to instantly identify and locate that call-to-action. That call-to-action should be offering something that is the most valuable to your target audience.

For example – obviously, your target audience are passive investors, so your call-to-action should be very obvious and front and center on your homepage; there should be good contrast between the actual call-to-action section and the background of the homepage. It shouldn’t be surrounded by distracting pictures or other lead capture forms and it should offer something to the target audience that is very valuable to them. Again, “Top 10 Tips for Passive Investors”, and if they type in their email address, they get that sent to their email automatically and you have captured their information.

There’s something else that you also want to do in A/B tests – test different locations of this call-to-action, different colors, different fonts, different wording, different giveaways, and see which ones work out the best. Again, you want to remove anything that is going to distract your target audience from this value proposition. So make sure that’s front and center and not surrounded by anything that’s distracting.

Start Converting and Creating an Online Brand People Know and Trust

And then, lastly, number eight is, once you are ready to actually start converting your visitors, the best way to increase your conversion rate is to create pop-up sliders. What pop-up sliders are is they’re similar to the call-to-action/lead capture form we’re talked about on this episode, but rather than it being fixed to the page, it pops up once they visit a page. So they visit the homepage and you’ve got your initial lead capture form but then you also create something that pops up that they have to click off of in order to remove, which increases the likelihood of them actually filling in their information, rather than them being able to just simply scroll by your fixed call-to-action.

For these, again, you want to 1) offer free content in return for their email and 2) run the A/B tests with different popups, different timing of when it pops up, what pages they pop up on, and the entire pop-up in general (color, fonts, description and the content offered).

Build Your Property Investment Website, Build Your Brand

Those are the eight best practices for increasing your website traffic. This concludes part two, where you learned why the website is the most important aspect of your brand, and mostly that’s because it’s the first thing that prospective investors will see when they look up your name… And it’s also the main lead generator and lead capture source for your business.

We also discussed how to actually create your first website and when to bring on a third-party designer to create a more advanced website. We went over what to include on your initial website, as well as what a more advanced website will look like. We also discussed how to set up Google Analytics on your website, which involves that free document available at SyndicationSchool.com or in the show notes of this episode. Then, lastly, we went over the eight main ways to increase the traffic to your website. Now, a lot of those ways involve creating content, and when you’re listening to it you might be like, “Theo, we haven’t talked about any content yet” or “What is this content you’re speaking of?” Well, that’s gonna be the focus of next week’s Syndication School, where we talk about the thought leadership platform, which is probably the second most important component of your brand, second to the website. Then, we’re also going to talk about creating your company presentation next week as well.

To listen to part one of this series, as well as the other Syndication School series about the how-tos of apartment syndications, and to download your free documents, visit SyndicationSchool.com. Thank you for listening, and I will talk to you next week.

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JF1534: The Power Of Your Apartment Syndication Brand Part 1 of 4 | Syndication School with Theo Hicks

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When raising money, which apartment syndicators are constantly doing, having a recognizable name or brand could make your job easier. Imagine having such a brand that people actually come to you offering to give you their money to invest in your deals. That is 100% possible when you have a highly recognized brand. How do I know it is 100% possible? Because I work for a guy who has done exactly that with the Best Ever brand. Hear our tips on how to build a powerful apartment syndication brand, as well as the benefits of branding.

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“Why would a passive investor invest with you if you’ve never done a deal?” 

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Branding Resources


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Does your next deal require debt, equity, or a loan guarantor? I recommend Marc Belsky at Eastern Union Funding and Arbor Realty Trust. I have worked with him for equity raise, and you can too. See how Marc can help you when you contact him at 212-897-9875 or at mbelsky@easterneq.com.


TRANSCRIPTION

Experience the Benefits of Branding

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School podcast series, a free resource focused on the how-tos of apartment syndications. As always, I am your host, Theo Hicks.

Each week, we air a two-part podcast series focused on a specific aspect of the apartment syndication investment strategy. For the majority of the series, we are offering documents or spreadsheets that are available for you to download for free. All of the documents and Syndication School series can be found at SyndicationSchool.com.

This episode is part one of a two-part series entitled “The Power of Your Apartment Syndication Brand.” Now, actually it’s going to be a four-part series where we will be focusing in the first two parts on the power of the brand. And, in the second two parts, we’ll be focusing on the two large components of the brand, which is your company presentation and your thought leadership platform. But, to start off, we’re going to do an introduction into why you need a brand, and how to select a target audience, as well as the first three components of your brand in this episode. Those are the three things you will learn by the end of the episode.

Why Build a Brand? Real-Life Examples to Learn From

Apple

Now, to explain how powerful and important a brand is, I will start off by going over two examples, because what better way than to discuss real-world examples. Probably the most popular brand out there is Apple, but it used to not always be as popular as it is today. In the early ’90s, they were losing market share to a company called Wintel, which is a partnership between Microsoft Windows and Intel which no longer exists; at the same time, Apple had also tried a new project called the Apple Newton, which obviously doesn’t exist, because it failed… And it was a multi-billion-dollar project. The combination of those two things had the company overall struggling and, in order to turn things around, they didn’t focus on products, they actually focused on their brand.

In 1997, as you are probably aware of, they initiated their Think Different campaign, and that campaign, in combination with the return of Steve Jobs, allowed them to reverse the brand’s negative trend, and now today Apple is worth over one trillion dollars. But there was a moment in time in the ’90s where Apple almost went defunct, and they focused on improving their brand through that Think Different campaign, as well as bringing back the face of the company, which is Steve Jobs, and they were able to turn things around, and now I’m recording a podcast on an Apple computer, and you’re probably listening to this podcast on an Apple phone. That’s one example of how focusing on your brand can turn around a company in this create a trillion-dollar company.

The Best Ever 

An example of it closer to home would be Joe’s Best Ever brand; I’m not sure if you know the story, but he actually didn’t initially start the podcast to create a brand, he actually did it just to make money. At the time, he owned a handful of single-family homes, and he had completed his first syndication deal. But he left his six-figure corporate job and the income that was coming in from those single-family homes and that first syndication wasn’t enough. So he brainstormed ways to bring in additional income, and also, at the same time, he brought on the famous Coach T, Trevor McGregor, who, as you all know, is Joe’s business coach and life coach. Together, they came up with an idea for a podcast.

The thought was, if Joe could build a loyal following, then he could attract advertisers to sponsor the podcast and bring in an additional income stream. Now, [unintelligible [00:08:05].07] the Best Ever brand has blown up to being more than just a podcast. It’s got a blog, a newsletter, conferences, meetup groups, and Joe definitely attributes the success of his company and his ability to control over 400 million dollars in apartments to this point in time where he decided to launch his podcast.

Those are just two examples of how focusing on building a brand can result in building a massive company – in one case a trillion-dollar company, in another case a 400-million dollar company and growing.

Credibility is One of the Biggest Benefits of Branding

More specifically, based off of those two examples and other examples of powerful brands, why do you need a brand as an apartment syndicator? Why can’t you just focus on finding deals and raising money and asset managing? Why do you need to incorporate an entirely seemingly different aspect of a business, which is a brand? Well, first is the brand will bring you credibility as an apartment syndicator. Using Apple as an example, they lost credibility due to the failed Apple Newton project, and that credibility was, in a sense, transferred to that Wintel partnership… But they focused on their brand and were able to bring back Steve Jobs, increasing their credibility and reversing that negative trend.

Similarly for you, you’re not gonna have an existing company that you need to repair the brand for, but as a new syndicator who hasn’t completed a deal, one of the main challenges you’re going to face is a lack of credibility. You’re gonna have a credibility problem in the eyes of different team members you talk to, you’re gonna have a credibility problem in the eyes of passive investors… Why would a broker send you a deal if you’ve never done a deal before, or why would a passive investor invest with you and not someone else if you’ve never done a deal before?

But having a powerful brand in place before you start to reach out to these team members, and before you start to have conversations with passive investors, will allow you to go from being perceived as an unknown newbie to a known expert. So you’ll go from no one knowing who you are, and when they first talk to you, they don’t know about your background or they know that you haven’t done a deal before to becoming someone who is, hopefully, known to them before you actually talk to them, and you’ll also be perceived as an expert.

Building an Online Presence

An example would be if you were to Google “Joe Fairless” – you wouldn’t just see Joe’s LinkedIn page or a Facebook profile. Instead, if you Google Joe’s name, you will come across endless pages on Google of his brand. If you think about it, if you put yourself in the passive investors’ shoes, if you Google someone’s name and all you see is a LinkedIn profile, and then you Google someone else’s name and you see a LinkedIn profile, but then you also see a website, a podcast, a blog, in-person events, who is perceived as more of an expert? Even if the person that only has a LinkedIn profile has done a deal before, the fact that you have such a presence online will give you that extra level of credibility that you would not be able to have otherwise.

So you google Joe’s name and you see that he’s someone who has posted content for over 1,500 days in a row, which is his podcast; they see that he’s someone who is consistently producing and performing. They also see that he hosts in-person events with his meetup and his conference, which gives even more credibility than someone who solely has an online presence… And they’ll also see a variety of other educational content; they see that not only is he successful, but he’s attempting to help other people be successful as well. All those things hold extra weight in the eyes of a potential team member or a potential investor. So credibility is huge.

The Benefits of Branding Includes Networking Opportunities

Forming Personal Connections Around the World

Number two, having a brand allows you to have extra networking abilities. For example, with a podcast, you have the ability to network and form personal connections with your listeners that you’ve never met before, and you’re doing this while you sleep. So you record a podcast episode one time, and someone on the other side of the planet who is listening to it during the day while you’re sleeping, that you’ve never met before, who might be a potential passive investor, is listening to your podcast, getting to know you, and getting to see you display your expertise.

Meeting Future Partners

Also, the brand allows you to meet people that could potentially be future team members. For example, if you create an interview-based podcast, or an interview-based blog, or an interview-based YouTube channel, then you get to go out and pick — rather than calling up a broker and having a regular conversation with them about your goals of buying the deal, instead you can invite them on your podcast, which gives them exposure, and before or after the podcast, you can talk to them about your business.

Networking with Well-Known Individuals

An added level to that is that you’re able to leverage your brand to meet people, in person or just via Skype and having a conversation, that you would not have been able to meet otherwise. For example, in Joe’s first 200 podcasts, he interviewed Robert Kiyosaki and Barbara Corcoran. Without a brand, how would he have met those two individuals? It would have been very difficult. It’s possible, but it would have been very difficult. Instead, he has an in, which is his podcast, that he mentions how many people listen, and that is focused on real estate, and invite them on. They usually say no but, in this case, they said yes.

More currently, Joe has been able to talk to other famous people like Emmitt Smith, Terrell Fletcher (which he actually spoke to and who actually spoke at his real estate conference), and Tony Hawk, among other people. Again, without a brand and without the podcast aspect of that brand, how would he have gotten to talk to Emmitt Smith? How would he have ever had a chance to talk to him unless he ran into him at a grocery store?

In other words, the brand is the most time-efficient networking strategy that has ever existed because, again, you can network with people across the planet while you’re sleeping, and at the same time it’s also powerful because it allows you to interact with people that it would be impossible to do otherwise. So that’s number two, the networking advantages of a brand.

Increased Cashflow is One of the Huge Benefits of Branding

Number three would be direct and indirect cashflow. For Joe, when he started his podcast, the goal was to get sponsorships, so that’s a direct line of cashflow from the podcast. Other examples of more indirect things that come from having a brand would be money made from things like conferences, book sales or consulting programs… Because, if you have a large brand and you have a large following, then there are things that you can sell to them that add value to their business, and it makes you money as well.

And then, of course, since we are apartment syndicators, we make the majority of our money from actually doing deals, so indirectly, we benefit from our brand by doing more deals. We are able to bring on more passive investors, more team members, more partners, find more deals than we would have been able to do without our brand and the credibility and networking and exposure that comes from it. So that’s number three, direct and indirect cashflow.

Why Build a Brand? For the Education and Experience

Number four is education. If you listened to the previous Syndication School series, you will remember that two of the requirements to becoming a syndicator is education and experience, and one way to gain education – which also has other benefits as well – is your brand.

Again, if you have an interview-based podcast, then you’re able to bring on different real estate professionals who are active and successful, and have conversations with them, and ask them really any question you want. So, if you have a particular question about a specific aspect of the syndication investment strategy… Let’s say you wanna know what’s the best way to put together an offering from a legal standpoint, then rather than just calling up a lawyer and asking them those questions, which they’ll probably answer, but an extra level of connection would be to bring them on your podcast and also ask them that same question… Because, again, you’re gonna get the answer, people listening are gonna get the answer, and you’re gonna form a more personal connection with that person, and you’re giving them more exposure for their business as well.

Contributing and Adding Value to Others

That brings us to the fifth point, which is contribution. The first four are more for you, how you’re gonna benefit. But, at the same time, by building a powerful brand, other people are going to benefit as well because – I’m gonna keep using the podcast as an example throughout – if you have an interview-based podcast, not only are you getting the benefits of credibility, networking, potential cashflow and your education, but people listening are also going to learn if they likely have similar questions that you have, and by you asking them, they are learning things that will help them achieve their business goals, and at the same time, since the brand will help you achieve your business goals as well, the people involved in your business – your team members, your passive investors, partners, any clients you bring on, people that go to your conferences, anyone who benefits from your brand – will also have the ability to grow their business, as well.

So those are the top five. There are plenty of other reasons why brands are powerful, but the top five reasons are that credibility factor, the ability to network with people you don’t know (while you sleep), and connect with people that you would likely never meet otherwise. Three is the ability to create a line of direct and indirect cashflow. Four is the education benefits to you, and five is the ability to contribute to other aspiring investors, in this case, the syndication niche… But really, these concepts discussed in this podcast and in the next three syndication school podcasts can really be applied to any business strategy, not even just real estate.

Consider Focusing Your Branded Content to a Single Target Audience

Now, there is one thing that Joe wishes he would have done differently starting out. Obviously, everything’s worked out perfectly fine, but one of the things that he wishes he would have done differently starting out was to have focused his content more. The mistake was not defining a specific target audience; instead, he focused on trying to bring in as many listeners as possible. One of the reasons why he came to this conclusion was after reading Tim Ferriss’ — I don’t know if his most recent book — but it’s his book Tools of Titans. In one of those chapters, he interviewed an economist who brought up the concept of “2,000 true fans.” Now, essentially, there are two different types of fame; there’s general fame, and there’s selective fame.

General Fame

General fame is essentially the type of fame where you are known by everyone. You are recognized by everyone. That would be like a rockstar or a rapper or a very famous actor/actress or a very famous sports star/athlete. I guess another example would be a politician, as well. Now, the benefits of this type of fame is, of course, lots of money, but there are also liabilities, because if you are generally famous, you can’t really do much without being recognized or bombarded by paparazzi or fans, and while that sounds nice to us right now, I’m sure after a couple of weeks of everytime you go to get a burrito from Chipotle, the cashier, the people working there, everyone in line is staring at you and asking for autographs – I’m sure that would get annoying pretty fast. Overall, general fame is pretty overrated, and it’s something not many people accomplish anyways.

Selective Fame

The other fame is the selective fame, and per the name “2,000 true fans”, selective fame is when you are famous to 2,000 to 3,000 hand-picked people. With this type of fame, you’re able to maximize the financial upside while minimizing that downside and the liabilities that come with the general fame… And the reason why this aligns really well with apartment syndications is because you don’t really need hundreds of thousands or millions of people investing in your deals. 2,000 passive investors would be enough. You don’t even need that many, but having 2,000 who are loyal to your brand and loyal to your company will allow you to do any deal you want and raise money for any deal that you want.

That’s why you want to select and define a specific target audience, and these will be the people who will be your 2,000 or so true fans… Because, at the end of the day, the best brands are the ones that only attract the ideal customer, rather than attracting everyone. An amazing brand would have 1,000 people who will buy anything that they create, whereas a brand that has 100,000 followers that only has 1% of people buying some of the things they make is not as effective, is not as good.

Who Are the True Fans?

So who are the 2,000 true fans for apartment syndicators? Well, for example, obviously your “fans” are gonna be the passive investors who are investing in your deals primarily. For Joe, his target audience is, again, defined very specifically, and it is people that are between the age of 35 and 65 years old, that are male, living in or near a large city, and are employed as a business owner, executive, doctor, dentist, engineer, or a real estate investor who is interested in being a passive investor, and they are accredited.

Setting Criteria

Now, these criteria are based on Joe’s existing investor database. As I mentioned, he did not have a specific target audience in mind initially, so once he had done a couple of deals, he went back and analyzed his investor database to figure out what was the common thread amongst the majority of the investors. That doesn’t mean that he won’t take money from people under 35 years old or over the age of 65 or he won’t raise money from females or people that live in small cities or have different jobs… But they have to be accredited. The point is that this is what he focuses on because this is his demographic of the majority of the investors… But again, he does have larger investors that fall outside of this criteria and, of course, he wants to attract these types of individuals, and if they reach out, he will help them invest in his deals.

But, initially, his target audience was, again, undefined, but when he thinks about it, it was advertising professionals, because at this point he had not done a deal yet, and for syndicators that have not done a deal yet, the majority of their investors will come from family, friends, and colleagues. For Joe, since he had worked in the advertising industry for many years, those were the types of people he was focusing on in the beginning.

Now, Joe also has a secondary target audience, who are aspiring apartment syndicators, hence the Syndication School. This is targeted towards people who want to become apartment syndicators, to help them out along the process. 65% of our content is directed towards that primary audience of passive investors, and 35% of the content is targeted towards the secondary target.

Identify Your 2,000 True Fans to Really Experience the Benefits of Branding

Now, who are your 2,000 true fans? You don’t wanna just copy Joe’s… You can if you want to, but you want to make it more specific when you are first starting out because you aren’t going to have access to such a large demographic of investors because Joe has done many deals, whereas you haven’t done any deals at the moment.

Focus on Your Current Networks

So, instead, you want your primary target audience to be hyper-focused based on the networks you already tapped into. This could be your current job. It could be if you are tapped into your college alumni group, if you play [unintelligible [00:25:07].29] sports. It could be people that go to your gym. Friends and family are pretty obvious. Maybe there’s a charity that you volunteer at… Essentially, ask yourself what networks you’re currently tapped into, and based off of the demographic of people, define a target audience with age, gender, location, what they do for work, things like that.

Determining Your Secondary Target Audience

Now, if that primary target audience isn’t big enough, then you can define that secondary target audience, and rather than it being the same as Joe, which is aspiring apartment syndicators, because you likely don’t have a consulting program or the expertise to teach people how to do apartment syndications. Instead, it should be defined as an audience that you want to know. So who are people that you don’t know right now but you want to know, and your brand will be a good way to tap into that network. Overall, at this point, you should be able to define exactly who it is you’re targeting your brand at.

Learn What an Apartment Syndication Brand Is to Better Experience the Benefits of Branding

Now, we’ve talked about what a brand is and where you should target your brand at, but what the heck is the actual brand for apartment syndications? Well, there are six main components of the brand. Number one is a company name. Number two is a logo. Number three is a website. Number four is business cards. Number five is a company presentation, and number six is a thought leadership platform.

In the remaining minutes of this episode we’re gonna focus on those first three – the company name, the logo, and the business card. In the next episode, tomorrow, or if you’re listening to this in the future, the episode after this episode, we will focus on number four, which is the website, and then next week we’ll focus on those remaining two, which are the company presentation and the thought leadership platform.

We will also be offering a free document with this episode, which is a branding resource document which offers tips and links for creating all six of the main components. But we’ll go over most of the tips, and I’ll explain which companies you wanna use, but I would definitely use that resource because you can click on all of the different providers and examples that are listen on there.

Why Build a Brand Name That Includes Your Name?

Number one is the company name. When creating a company name, you have the decision to either incorporate your name or not incorporate your name… Your name being “Theo Hicks” or “Joe Fairless.” For example, Joe started off with a company called Fairless Investing but, eventually, he transitioned to Ashcroft Capital.

They Invest In You

There’s pros and cons of each, and it’s really up to you to decide which option to go with… But when you’re including your name in your company name – Fairless Investing, for example, or Hicks Acquisitions – the reason that’s beneficial is because your investors are not investing in a company, they are investing in you; so by incorporating your name, they’re investing in you AND the company, and it will give the people that look up your company name an understanding right away of “Okay, this is Joe’s business” or “This is Theo’s business.” Whereas, if you have a name that doesn’t incorporate your name, they’ll have to do a little bit more investigating to determine whose company it actually is.

The Cons of Naming Your Company After You

The downside of including your name in the company name is that the business is going to be dependent on you forever, which is eventually going to become a problem, which is why Joe transferred from Fairless Investing to Ashcroft Capital. If you have a podcast, you’re doing conferences and blogs, and you’re obviously doing your syndication deals, and you have meetup groups and newsletters, it’s gonna be difficult for you to do all of that. If your name is in the company name, then, if you’re not the face, people expect you to be the face.

The Pros of Keeping Your Name Out of the Branding

If you don’t wanna be the face of the company for everything, then you don’t wanna include your name. The advantages of that is that you are essentially tapped into a larger team. At Ashcroft Capital there’s partners, there’s underwriters, there’s analysts, there’s directors, and everyone comes up under the Ashcroft Capital name, whereas if it was called Fairless Investing, that would be a little strange for the other people who have important duties and roles in the company. And of course, the company will not be dependent on you forever, it will not be dependent on you being the face for everything.

Again, pros and cons for each. It’s really up to you. The ideal strategy is probably either to start off with your name in the company and then transition, or to just pick one and use that indefinitely.

Keep It Simple

The last thing you wanna know about your company name – it’s probably pretty obvious, but it’s gotta be easy to pronounce and easy to remember. If you have a very complicated name that is hard to pronounce, then you probably don’t wanna include it, because if people can’t pronounce it, then people aren’t gonna be able to talk about it and refer to other people. It’s gonna be hard to say “Hey, I’m investing in this company… I can’t really pronounce the name, but it’s a great company.” It’s not gonna sound as good as “I’m investing in Ashcroft Capital, that’s run by Joe and Frank.” So that’s number one, the company name, so you’re gonna work on that.

The Benefits of Branding Through a Logo

Number two is the logo. After you have created your company name, you can create a logo that incorporates that name. I highly recommend outsourcing this to a designer. You can go to LogoGarden or Fiverr or UpWork to find a designer to create your logo. The process is to obviously have your company name and have a few design ideas of what you wanna incorporate, and if you wanna incorporate a microphone or if you wanna incorporate apartment buildings, have that in mind and tell that to them. Also have two-three color schemes, so red-white-blue, black-green-grey… Have a couple color schemes in mind, and then also fonts as well.

Send that information to the designer and ask them to mock up a handful – maybe five – different logo types. Then, once you have those preliminary designs, ask for feedback; post them to social media, LinkedIn, maybe print them off and bring them to meetup groups, to anyone else who has a good eye for these types of things, and ask them, “Hey, I’ve got these five logos. Which one do you like the best?” Then, based off of their feedback, pick the best one.

Once you have your logo, then the design and the color scheme should be consistent across your entire brand. For example, Joe’s is red, white, and blue, and that is consistent across the entire Best Ever brand: books, meetup groups, podcasts, blogs, newsletters… They all have that red, white, and blue color scheme. So that’s number two, the logo.

Your Business Cards

Number three are the business cards. Before you create your business cards, you also wanna have a website, which we’ll talk about in the next episode, so that you can include that on your business card… But you want to include your company name, your logo, and your website on these business cards, and if you can get business cards from LogoGarden or Vistaprint, and they usually will have a whole slew of designs to choose from and you can incorporate your logo in a custom design.

One thing to think about is the title to put on the business card. People have different opinions on this, but you can put the owner or principal or syndicator… Really, I guess the title is more so for people who are actively involved with residents. For example, for my business card for my properties that I manage, I didn’t put the owner because I didn’t want to be perceived as the owner; instead, I put Project Manager. That way, if I gave my business card to anyone, whether it be a tenant or a vendor, they didn’t look at me as the owner, they looked at me just as someone just like them who’s working for someone else. That way, if they have any questions or pushback, I could just say, “Oh, well, it’s not my decision. I’m just working on behalf of the owner.”

In fact, I actually had my wife be the owner, so whenever we had issues with tenants and they asked to talk to the owner, I would just send them to my wife, and we’d be sitting in the same room, listening to them on speakerphone, and giving her pointers on what to say. But anyways, those are the first three components of the brand, which are the company name, the log and the business cards.

Synthesizing the Benefits of Branding

So, in this episode, you learned the five primary benefits of creating a brand. You learned the one thing that Joe wishes he would have done slightly differently starting out, which is to define a target audience, and to do so, we introduced the 2,000 true fans concept and told you exactly how to select your primary and maybe even your secondary target audience. Then, lastly, we’ve just been over this, which is how to create a company name, logo, and business card. For those three components, make sure you check out the free document which is available at SyndicationSchool.com, or in the show notes of this episode so that you can click on the links to the different providers who will help you create your logo and business cards. That concludes part one.

In part two, we’re going to focus exclusively on the fourth component, which is the most important component of your brand, which is the website. To listen to other Syndication School series about the how-tos of apartment syndications, and to download your free document and all previous free documents, visit SyndicationSchool.com.

Thank you for listening, and I will talk to you tomorrow.

Joe Fairless and Mark Roderick

JF1532: Legal Apartment Syndication Jargon From A Boring Corporate & Securities Lawyer with Mark Roderick

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Mark has been  guest before, but we did our shows backwards. Usually, we’ll have a guest on to give their Best Ever Advice and then come back for a weekend show after that. Well, we’ve heard Mark’s Skill Set Sunday Episode already, now let’s hear his real estate investing story and Best Ever real estate investing advice. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

Mark Roderick: Pretty well, thank you. How are you?

Joe Fairless: I’m doing pretty well as well, and Best Ever listeners, you recognize Mark’s name because — well, one of the reasons might be because you’re a loyal listener; episode 614, titled “How to avoid securities fraud and properly raise capital” – that sounds important. So episode 614, if you’re raising money, then go listen to that one. But we never got his best ever advice and never did a regular episode; that was a Skillset Sunday episode. So today we’re gonna do a regular episode.

A little bit about Mark, as a refresher… His words, not mine – he’s a very boring corporate and securities lawyer. I think those are your words, not mine…

Mark Roderick: They are, yeah.

Joe Fairless: Okay, alright… Unless…

Mark Roderick: Yeah, and very accurate.

Joe Fairless: …my team member might have slipped them in, just to play a trick on me… But okay, they’re yours. Also, since the Jobs Act of 2012, he has spent all this time in the crowdfunding space. He writes the widely-read blog CrowdfundATTNY.com, which provides legal and practical information for portals and issuers… And you can say hi to him at his company website, which is in the show notes. Based in Philly. With that being said, Mark, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mark Roderick: Well, it was a clear blue day when I was born, Joe… [laughter] Do you want me to start there?

Joe Fairless: We could fast-forward a little bit…

Mark Roderick: Yeah, fast-forward a little bit, like to today… So I have always represented entrepreneurs and their businesses, including tons of real estate developers, and in that regard, of course, real estate developers are always looking for money, so that’s one of the things, that I’ve always represented folks raising capital. So when I saw the crowdfunding act on the horizon, I realized this was gonna be the most consequential law of my career, and indeed it has turned out to be. So every since then, for the last five years, I’ve spent all of my time in the crowdfunding space. Crowdfunding is still probably 90+ percent real estate, so I spend 90+ percent of my time doing real estate crowdfunding of various kinds. So that’s my background.

Joe Fairless: I’m gonna take it from a direction a little bit different… So instead of thinking about it from — you call it “real estate developer”, so I believe you’re referring to the general partner, the syndicator who’s putting the deal together… That’s who you usually work with. But what I wanna do is I wanna look at it from the passive investor’s standpoint. So from a passive investor standpoint, when a sponsor reaches out to me about an opportunity, from a passive investor’s standpoint what should I make sure that he/she has in place, so that everything’s on the up and up?

Mark Roderick: Well, probably the most important thing is a successful track record. A person, and I wanna say a guy – even though real estate is a very male-dominated industry, but a person with a successful track record would be the place to start, for sure. A new person on the block, who’s never done a real estate development before, if he’s your brother maybe, or if you have some reason to believe that that development is gonna be successful… But if we’re talking in generality, someone with a track record who is doing a deal that is consistent with his/her track record. So if you have a person who’s spent 20 years doing successful multifamily projects and he’s doing another multifamily project, that’s certainly the place where I would start… And then you wanna make sure, of course, that the project has financing, and all that kind of stuff. But a track record – you invest in people.

Joe Fairless: Track record, got it. I asked a poor question, based on what I was intending to ask. What I intended to ask is from a regulatory standpoint, what should the passive investor look for to make sure that the sponsor is adhering to whatever they need to adhere to, so that it’s actually a security and they’re not getting bamboozled?

Mark Roderick: Well, that’s an interesting question, because from the most cynical perspective, the investor doesn’t care. So if we’re talking about securities laws – and your question is “How does an investor know that the sponsor is complying with the securities laws?”, if the sponsor is not complying with the securities laws, there’s no downside to the investor. In fact, there’s a potential upside, which is if the investor loses money, then he/she has the right to sue the sponsor if the sponsor didn’t comply with the applicable securities laws. The investor doesn’t get in trouble, only the sponsor gets in trouble.

Now, that is a cynical and short-sighted view of the situation, because my experience is that if a sponsor isn’t complying with the securities laws, then he/she probably isn’t doing a lot of other stuff right either… So to now actually try to answer your question, the sponsor should be able to show me as an investor, should be able to explain to me how the offering is being conducted, which securities law cubbyhole the sponsor is relying on. Certainly, I wouldn’t expect the sponsor to be an expert on securities laws. I would expect the sponsor to have a lawyer who knows something about securities laws, and I would expect the sponsor to be able to give me some good-looking, profesionally-prepared documents that illustrate that the sponsor knows what he’s doing from a legal perspective… Because again, if he/she doesn’t, that’s not a good sign overall.

The sponsor should be able to say “Yeah, we’re doing this offering under Reg. D”, for example; that would be a typical thing. Or “This is a Reg. A offering” and the sponsor is not gonna know all the details of what that means, but at least it allows the investor to probe further.

Joe Fairless: Got it. Okay. That’s helpful. So in terms of the good-looking, professionally-prepared documents, what specifically – and I’m sure it depends, but maybe you can go through a couple scenarios – should those documents be?

Mark Roderick: Well, in a typical, professionally well-done offering, there are three documents. One is an operating agreement or an LLC agreement for the deal, if it’s an equity investment, or a promissory note if it’s a loan. And you know, it should be more than two pages long. The second document is a so-called subscription agreement, or I refer to them as investment agreements. It’s a document that the investor signs to actually make the investment. Then the third document – you don’t always see it, but you usually see it certainly in a larger kind of deal – is a disclosure document. That’s the generic term. It’s also called the PPM (private placement memo). That’s the document that describes the deal, hopefully using plain English and without a huge amount of legal boilerplate, and includes all the bad stuff, the underside of the deal.

When the sponsor first pitched you the deal, and they showed you this PowerPoint with how the new building is gonna look when it’s done, and all the beautiful people walking around and so forth – that’s all the good stuff. The disclosure document tells you all the real stuff and all the risks. “Well, we don’t have our approvals yet. Well, we don’t have financing in place yet. Well, all these things…” So the disclosure document, if done properly, is a very important document.

Those three documents are what you would expect to get. If the sponsor says “Well, we didn’t do a disclosure document”, that wouldn’t necessarily be a deal-breaker; it’s sort of an alarm bell, “Hm, why didn’t you?” It’s not necessarily a deal breaker, but in most professionally-done deals, that’s what you would see.

Joe Fairless: What would be the reason why – and you might have to speculate here – the sponsor wouldn’t do a disclosure document, but people do invest in the deal because of the reason given? I guess my question is “What would be the reason given by the sponsor that’s somewhat logical for not doing a disclosure document?”

Mark Roderick: And it is done. Lots of times a deal will get done by a sponsor without a disclosure document if indeed it is the same kind of deal the sponsor has done two dozen times before, and the investors have invested with the sponsor two dozen times before. So there’s a level of trust; this is another not cookie-cutter, because no real estate deal is cookie-cutter. But if there has been a level of trust established in the relationship between sponsor and investor, then that is okay; that doesn’t say anything bad.

Lots of times, as you and your listeners certainly know, in very small deals, the developer 1) may not have knowledge of what the securities laws require, may not have a lawyer; he has a real estate lawyer, but not someone who knows about securities… And/or either can’t afford it, because the disclosure document is the most expensive part of the documentation, or just doesn’t wanna do it. If you’re the investor and you say “Well, it really makes me uncomfortable that you don’t have a disclosure document” and the sponsor says “Okay, I’m gonna go over to Gale over here, because she’ll invest without one.” My response is, “Okay, be my guest. Go talk with Gale.”

So it is usually some combination of those things. On the good side, there’s a relationship, there’s a trust, there’s a track record; on the bad side, we don’t know about the requirement, or we know about it and we just don’t care.

Joe Fairless: Does that open up more liability for the sponsor, if they don’t have the PPM but they have the operating and the subscription agreement?

Mark Roderick: Yes. It opens up hugely more liability. Without going into a whole thing about all the ways that sponsors can be liable to investors, the most likely way that they can be liable is if they lied to investors. “Oh, you told me you already had your approvals.” Now, of course, this only happens if the investors lose money. If we have the kind of real estate market we’ve had for the last eight years, where it just goes up, then all this becomes academic. So an investor loses money, and suddenly his memory conflicts with the memory of the sponsor. The investor says “You didn’t tell me that. You told me you already had approvals. You told me that retail space had already been leased”, and all kinds of things.

The purpose of a disclosure document is so that when the investor says “Oh, you didn’t tell me you didn’t have zoning yet”, you can pull it out and go “Well, actually, Joe, here, on page 21, it actually says we don’t have zoning yet.” That’s the whole purpose of the disclosure document – to protect the sponsor from claims like that. If you don’t have a disclosure document as a sponsor, you are leaving yourself wide open to all kinds of claims by investors… Of course, with the benefit of hindsight at that point, that you were untruthful with them. And if you were untruthful, you’re liable. You’re personally liable to give the investors all their money back. So that’s a big risk. That’s what the disclosure document is all about.

Joe Fairless: When passive investors receive the prepared documents – an operating agreement, a subscription agreement and a private placement memorandum – should they forward that to their attorney to look at? And if so, what should they advise that attorney to comment on?

Mark Roderick: Ideally, yes, they should. But the second part of the question is super-important – what should they advise the attorney? The individual passive investor should not expect that their own attorney is gonna rewrite all those documents, or is he even gonna renegotiate significant parts of the deal. Let’s say the deal has a 7% pref with a 30% promote. The investor’s lawyers should not, in my opinion, be trying to say “Well, you know, it really should be a 7,5% pref, and a 20% promote.” That’s not the purpose of the review.

There are two things that the investor’s lawyers should be looking at. 1) Do the documents accurately reflect what the investor thinks the deal is? So if I’m the lawyer in that position, that’s my question to my client, “What do you think this deal is? You tell me what the deal is, and then I’m gonna tell you whether the documents do that.” And second – and I probably should have put it first in terms of importance – the absolutely most important thing is that the investor does not have personal liability. Let’s say the investor goes to the lawyer and says “I wanna invest $25,000 in this deal.” The absolutely most important role of the lawyer is to ensure that the investor’s liability is limited to losing his $25,000, and that there’s nothing in the documents that in any way — there’s no capital calls, for example; “Well, you put in 25k now, but we can ask you for more money later.” Or the structure of the deal is such that the investor could have personal liability for a bank loan, or anything like that. Those are the two hugely important things, and that’s what the lawyer’s role should be limited to, in my opinion.

Joe Fairless: Is that a real estate lawyer, or should they hire a securities attorney?

Mark Roderick: It doesn’t have to be a securities lawyer; probably not a real estate lawyer. Just a regular, boring, corporate lawyer, really.

Joe Fairless: Another boring lawyer… [laughs]

Mark Roderick: Another boring lawyer. Just someone who knows how to read contracts, basically, and in particular knows how to read operating agreements or limited partnership agreements, but it’s not a super-strange specialty. Any business lawyer should be able to review the documents with those two things in mind.

Joe Fairless: When you speak in seminars or you speak in front of a group, what’s a couple typical questions that you get asked?

Mark Roderick: Well, I have some funny responses to that, but it depends on what the group is. I often speak to groups that include real estate developers, or the owners of crowdfunding portals. Certainly, a question that I get asked a lot by real estate sponsors – there are always two questions in the first conversation. One is “Does this work? Can I really raise money online, in the crowdfunding space?” and the answer is yes. The second is “Is there any special liability that I am taking on by raising money online versus offline?” and the answer is no. So those are the two main questions.

There’s always questions about the technicalities of verifying that investors are accredited, and how much of a pain in the neck it is… And dealing with lots of individual investors, I get asked by investors and reporters “What are the rules for investing online?” and “What things should you be careful for?” and I always say if you’re investing online, only invest through a reputable portal; don’t make your first investment just with some stranger on some website that you found… So those are the questions that I’m asked most frequently.

Joe Fairless: And you gave the answers, too…

Mark Roderick: I did. And that was for free, yeah.

Joe Fairless: Yeah. [laughs] We all appreciate that. Based on your experience in securities law, what is your best advice ever for (we’ll say) passive investors who are looking at opportunities?

Mark Roderick: Well, I will first give the advice that I just gave – go to the best real estate crowdfunding sites, and only invest there. The second thing I would say is unless you’re really a real estate expert yourself and know how to distinguish a good multifamily deal from a not as good multifamily deal – and I’m not that expert; I’ve been representing developers my whole career… But the point is build your own mutual fund of deals. If you start out saying “I wanna invest $100,000 in online real estate” don’t invest $100,000 in one deal. Pick five. And/or buy one of the very high-quality real estate investment trust REIT products that are being offered, again, on the best portals. Don’t buy one with a 12% loan from a broker. Go online and buy one of these very high-quality REITs, which consist, of course, of pools of assets, so you’re not limited to a single asset. So go with quality, and diversify. I think that’s pretty good advice.

Joe Fairless: I think that’s pretty good advice, too. On that note, we’ll go into the lightning round. Are you ready for the Best Ever Lightning Round?

Mark Roderick: Well, I guess I am.

Joe Fairless: I know you are! First though, a quick word from our Best Ever partners.

Break: [00:21:53].23] to [00:22:40].08]

Joe Fairless: Alright, best ever book you’ve recently read?

Mark Roderick: Best ever book I’ve recently read?

Joe Fairless: Yeah.

Mark Roderick: Oh, my gosh… It wasn’t a real estate book. I’m reading a great biography of Joseph Stalin right now. Does that qualify?

Joe Fairless: Absolutely, if it’s the best one you’ve recently read… What’s the best ever challenge you’ve solved as a securities attorney?

Mark Roderick: Boy, that is a great question… What is the best challenge that I’ve solved…? I think I’ve solved or gone a large way towards solving – making securities offerings easier to understand and less expensive. That has been my goal since the beginning of this industry. It will never be completely solved, but I think I’ve taken really big steps in that direction. It is less expensive now than it used to be, and the way I do them – I hope that ordinary investors can understand what they’re getting into. I think that’s very important.

Joe Fairless: How do you walk the fine line of removing some of the boilerplate words in order to make it more common sense and easy to read, versus increasing liability as a result of that?

Mark Roderick: Great question. You should do a show, Joe; you ask good questions. So the two actually go together. The way I do it is typically I just rip out everything that’s there, and start fresh. Legal boilerplate is like barnacles on ships; they never get smaller, it just grows and grows and grows, so you get these ridiculous legal documents that no lawyer ever subtracts, they only add (“Well, what about this…?”) and you end up with things that are so unreadable that I believe they increase liability, because no one could possibly understand them.

Typically, with all my documents, I have just started fresh; I’ve been doing this a long time, I know what’s important, I know the kinds of things that actually happen out there in the real world… So the answer is use plain English, try to write it the way an eighth grader could understand it, and make sure you capture everything important. That’s why I call myself a boring corporate lawyer, because I just take great pleasure in doing that, and writing things that are understandable and clear, but also legally effective… And it really does usually start with just ripping out what’s there.

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

Mark Roderick: One, on a day-to-day basis people call me. I have a very visible internet presence, and someone called me today, for example. A lawyer called me; he represents a broker-dealer getting into the crowdfunding space, and just needed advice. That happens all the time, and I just give the free advice. I somehow feel as if that is part of my role in this industry which has been so good to me, that I give back; I just provide free advice to hundreds and hundreds of people, and I feel good about that. I do feel that in the scheme of things I’ve sort of drunk the kool-aid about the social benefits of crowdfunding and democratizing capital, and bringing capital to the masses, and great deals to the masses, and I think it’s really valuable. I hope when we look back a few years from now and we say “Wow, that was really a good thing”, and I can say I helped, in some small way, I helped build that. That makes me feel good.

Joe Fairless: I love it. How can the Best Ever listeners get in touch with you?

Mark Roderick: Well, lots of different ways. They can go to my blog, which I guess — can people see a link on the screen?

Joe Fairless: Yeah, we’ll have a link in the show notes, but you can mention the URL too, again.

Mark Roderick: Yeah, it’s www.crowdfundattny.com. Or they can type my name in Google, “Mark Roderick crowdfunding lawyer” and they will easily find me, and shoot me an e-mail.

Joe Fairless: Awesome. Mark, this was a fun conversation, and educational… And those are the best kinds, where you learn and you also have fun. I love how we talked about the perspective of the passive investor and what to look for. We took a different slant on things… Three things that it should have in place — well, actually higher-level you want to make sure that the sponsor knows what security law is being used, maybe ask for their lawyer reference… Although if you have the legal documents, which should at least include the operating agreement, the subscription agreement and the PPM, it will have their attorney’s information in there, so you’ll be able to see that… And you talked about many other things from a passive investor’s standpoint, as well as we touched on some from the sponsor’s standpoint.

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

Mark Roderick: Thank you so much, Joe. Nice talking to, as always.

JF1529: Five-Step Apartment Syndication Underwriting Process #FollowAlongFriday with Joe and Theo

Listen to the Episode Below (31:28)
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Theo has been underwriting multiple apartment deals each week and as a result, he shares the 5 step process he created to quickly analyze income apartment deals. Joe is closing on another deal next week and talks about how they were able to benefit by locking in an interest rate early on in the due diligence process. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


TRANSCRIPTION

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

We’ve got Follow Along Friday today, we’ve got a lot to talk about as it relates to what we’ve got going on, and most importantly, how that can help you in what you’ve got going on. With us today, as usual, is Theo Hicks. How are you doing, Theo?

Theo Hicks: I’m doing great, Joe. How are you doing?

Joe Fairless: I’m doing well, and looking forward to it. We’ve got some improvements, some enhancements to this show, and quite frankly, the reason why is to continue to optimize the show as we go… Because that’s the name of the game – you jump in, then you do it, and then you figure out how to enhance what you’re doing. We’ve got two additions to the Follow Along Friday episodes. One addition is a Best Ever Trivia Question. We’re gonna start off with that question, and then we will end with a Best Ever Quote at the end of our conversation.

Here’s the trivia question – we’ll kick this off with a trivia question and then we’ll go into our update. When you know the answer to this trivia question, you can respond in a couple ways, and the first person to respond with the correct answer will get a signed copy of the first book that we wrote, “Best Real Estate Investing Advice Ever Vol.1” So you’ll get a signed copy of the first book, we’ll mail it to you, “Best Real Estate Investing Advice Ever Vol.1”

Here’s the question – a study recently came out, and this study has the housing markets with the biggest increase in million-dollar homes year-over-year, the year ending in October. Four out of five markets were in what state? You know what state is it, Theo?

Theo Hicks: California?

Joe Fairless: California. Number one, San Jose – they had a percent change of 14.3%. Number two, San Francisco; number three, Oakland, and number five, Orange County. So these four markets that I’ve just mentioned have the highest increase in million-dollar homes. Well, one market is not in California. What is that city? So there’s your question. Clearly, I know, you can just google this; I get that, but it’s a fun question to think about. Four out of five cities are all in California… And in fact, looking at the list, seven out of ten of the top 10 cities are in California… But number four is holding strong, not in California – what city is it that has the number four at housing markets with the biggest increase in million-dollar homes? E-mail info@joefairless.com with your answer, or if you’re watching this on YouTube or on our Facebook page, then simply reply below, underneath the video. It will be a race between whoever e-mails or comments below, whoever sends us a reply first, then you will receive a signed copy of the Best Real Estate Investing Advice Ever Vol.1 book, and we’ll mail it out to you.

Theo Hicks: Am I allowed to guess, Joe? [laughs] I’m just kidding…

Joe Fairless: You’re allowed to guess, but I’m not gonna say if you’re right or wrong.

Theo Hicks: Okay. Because I have no idea; I’m just gonna throw a guess. I’m thinking it’s gonna be…

Joe Fairless: And I’m not gonna give you a response. So you just guess, and then I can’t comment, because I wanna make sure I’m not tipping my hand. So what’s your guess?

Theo Hicks: My first guess is Denver.

Joe Fairless: I can’t respond.

Theo Hicks: Perfect. Maybe each week I’ll guess too, and then we’ll see how tapped in I am to the real estate market, or whatever the question is about.

Joe Fairless: You should have some sort of negative consequence for if you get it wrong. We should do something like that. You’ll get punished for getting it wrong.

Theo Hicks: You can make up my punishment, Joe, and we’ll go over it…

Joe Fairless: Alright, something to think about. Okay, what happened this week and what did you learn?

Theo Hicks: So I’ve been underwriting a few deals a week; nothing I pulled a trigger on. I’m starting to get a better grasp of how to optimize the approach. Of course, it’s gonna get way better over time. I wanted to kind of just discuss in detail exactly what I do when I go about underwriting deals… Not necessarily “I input this number, and this number”, but more of the overall process [unintelligible [00:07:29].24]

The first thing that I do every Monday is I go to my web browser, and I favorited all of the listing websites for all the brokers that I’m working with. Of course, whenever they have a new listing, it typically gets sent to my e-mail, but not every single time; I’m not really sure why, but not every single one goes there, so… I think for me it’s a better process, because I can get them all at once.

So I’ll check and I will look for deals that meet my investment criteria. Obviously, I’ll search for Tampa, and then I wanna see deals that are over 100 units, and then typically, for most of them there’s a small description describing what the opportunity is, and I wanna see something about value-add. Not all of them are true value-adds, but some of them are turnkey, or super-luxurious properties, and I don’t wanna do those.

So I’ll do that, and I’ll sign all the confidentiality agreements and download all the documents on Monday; that way I’ve got a list of properties to underwrite for that week. This week there’s only one. Last week there were two, and we’ll see how many are next week. I do know that things are slowing down now that we’re getting towards the end of the year. So that’s step one.

Number two is I will obviously have my schedule, so once the time comes, I will pull up the rent rolls and the T-12’s. Probably the most tedious aspect is taking those rent rolls and T-12’s in PDF form and converting them to Excel.

Joe Fairless: What’s the best to do that?

Theo Hicks: You have to understand the If functions pretty well, because what will happen is on the rent roll in particular — because the T-12 is not that hard; you just unmerge the Merge Cells and that’s really it. But for the rent roll, the problem is they’ll have the different rent codes — so it’ll have the market rent, but then it’ll have Rent, Pet or Parking, and the rent is not necessarily directly next to the name; it might be a couple cells below… So you have to do an If function — you have to organize everything and then do an If function that allows you to put the actual rental amount in line with the rest of the information. That way, once you do that you’re gonna sort it and then delete everything else. I just did it one time, and then I just copy and paste my formula in there… But it’s still frustrating to do, because usually when you unmerge it from PDF, you have to reorganize the entire thing, because all the cells are merged, so it’ll explode out to 20-30 columns, and you only really need like five.

It probably takes about an hour to just reorganize that rent roll, so my first hire ever in my syndication business will literally be someone to just help with underwriting, and obviously right away they won’t know how to do rental comps, how to determine the rental premiums, and how to figure out what the assumptions — or really much of anything… But they definitely will be able to figure out how to do that part of the process, which is just inputting all the data into the cashflow calculator and then sending it out to me, so I can cut my time in half. So that’s the first thing that I do.

Joe Fairless: Would that really cut it in half? Is that how much time you spend on it relative to other things?

Theo Hicks: Just the inputting aspect of it.

Joe Fairless: Okay, okay.

Theo Hicks: And it’s handling the actual financial model, not the in-person visits, and talking to brokers, but just the actual financial model. I think it would cut the time in half, and most of my time would be just doing in-person, boots on the ground stuff, and talking to brokers to better the assumptions on there… But it is really annoying to do the rent roll and T-12, just so everyone knows that. And you’ll have to get actually a paid version of PDF to do the conversion, or else you’ll have to copy and paste it from PDF to Excel, which will probably take even longer. Ideally, they already have an Excel for you, but I’ll probably say it’s 50/50, Excel vs. PDF.

Now, one of the challenges that I was facing was “How do I determine the renovation assumptions and the rental premiums without having to do a full rental comp analysis and without having to visit the property in person?”, because if the deal doesn’t make sense, or at least potentially make sense, I don’t want to spend all that time doing all the extra work. So right now what I do is I just input the proven rents that they’re currently getting, and I input the cost of the rehabs that they spent to get that rental premiums. If they don’t have that, I will go look at their rental comps that they have, and make sure they calculated everything properly, use that rental premium, and then for the renovation assumption I kind of just do it based off of my experience.

Again, I know that this is not going to be the final number that I use. The reason I’m doing that is because I don’t want to be like, okay, I’ve got all the rent roll and T-12 data in there; now I’m gonna go drive to the property, drive to all the comps, schedule a tour, and then realize that the numbers were pretty similar to the proforma and the deal wasn’t making any sense… Because then I wasted all that time.

Right now it’s not that big of a deal, because I’m not underwriting that many deals, we don’t have any deals under contract or under management, and I’m trying to learn the markets… So there is benefits from going through that process, but I’m trying to think down the line, long-term – I’m not gonna be able to do full underwriting on every single deal; I need to find some ways to have steps where it’s like, “Okay, let’s do this, and then if it passes this step, I’ll go onto the next phase.” I figured that that’s the fastest way to make ballpark assumptions, just to see if you’re even close to meeting the returns that you want.

Joe Fairless: What numbers are you looking for?

Theo Hicks: For this process, if I see a 15%-16% IRR or higher, I will pursue it; I assume these are like best-case numbers, and it’s probably gonna go down. If I see a 15%-16% IRR and then an 8% cash-on-cash return annualized over those five years, not including the sales proceeds, I’ll move forward. But if it’s a single-digit IRR and the cash-on-cash return is 5%, then I will not move forward, because it’s only gonna go down after I do my further investigations.

For example, the property that I talked about last week – it had a 18%-19% IRR, and like a 9%-10% cash-on-cash return based off of these ballpark assumptions, but then when I went to the property obviously the exterior renovation budget quadrupled, or I guess went up by 6, whatever that term is. So that obviously radically changed the entire model. But that was something that would have been impossible to know without actually visiting the property in person… So that’s something that really can’t cut corners on. So those are the criteria that I’m working with now.

So if it passes that step, the next step would be to visit the property in person informally, so not with the actual broker… So I’ll drive to the property, drive around on Saturday, drive around the grounds, and then I will go visit all the comps in person, do the same thing… And as I mentioned in the previous episode, what I do is I look at the subject property first, and then I’ll go to the comps  and ask myself “What would I need to do to the subject property to make it look like this?” Then I’ll go back and be like “Okay, ballpark, it would cost X to get it to this rental comp. Here’s how much it’s renting for, so here’s what the new rental premium would be.”

Based off of those tours, I’ll have a more accurate exterior renovation cost, as well as a more clear understanding of whether or not the rental comps were accurate. If they were accurate, great; if they weren’t, then I will go out and find my own on Apartments.com… Or while I’m driving, I also kind of make notes of “Oh, this apartment looks like it could be a comp.” And I also make a mental note in my head that this broker might in the future have comps that aren’t correct. [unintelligible [00:15:00].27] if it’s a one-off thing, or if this is  a consistent thing where they’re kind of just picking comps out of thin air and not really doing their due diligence on them.

So if it passes that phase, which the property that I toured last week did, then I will schedule a formal tour with my property management company. My first tour only the president was able to come, but they have a VP who is like their construction guy…

Joe Fairless: Do you verify the assumptions in the first stage with the management company?

Theo Hicks: No. I don’t verify them until they actually see it in person.

Joe Fairless: Okay.

Theo Hicks: On one of the deals I went and visited myself, and I kind of explained my ballpark renovation assumptions, and they helped me say “Okay, this one looks good/This one doesn’t look good”, but they were actually listing the property, or at least they knew the owner or the broker, so they had a good understanding of it… But maybe that would be something I should add to — before I schedule a formal tour, after visiting it myself and I have my budget, sending it to them… Because I’m sure they know the deal is listed for sale, they know the area, so at least they’ll be able to help me with stabilized expense assumptions, as well as if I mentioned “Hey, I plan on replacing the roofs and redoing the parking lot and adding in a playground. I think it’s going to cost this much. What are your thoughts on this? Is it accurate, is it not accurate?” That’s probably something I’ll actually add, because that will be helpful.

So I’ll visit the property in person with the management company and their construction guy, to get a look inside the units, so we can confirm the accuracy of the information in the OM about what the current conditions are and what the upgraded units look like. And once I’ve seen that, as well as done a more detailed tour of the exterior — we’re not gonna have, obviously, the perfect cost for the interior and exterior, but it’s gonna be the best we’re going to get before actually putting the property under contract and doing due diligence.

At that point, I will go back and update my model again, and if the return projections are in line with what our investor want – 16% IRR, 8% cash-on-cash return – then we will submit an LOI. Which we haven’t done yet. So we’ve been through the first four steps, but we’ve not gotten to step five yet… So I’m looking forward to my first LOI and having more details on that process to discuss on Follow Along Friday.

The main reason I wanted to talk about that is because I’m on Bigger Pockets a lot, and a lot of people ask “What’s the quickest way to underwrite a deal?” My answer is always “There really is no quick way; there’s no 2% or 1% rule for apartments, because it varies so much.” This is the most efficient way that I’ve discovered so far, and I think as time goes on it’s gonna be even more efficient. So if I have certain changes  or tweaks, I’ll definitely make sure I bring those up on future episodes.

Joe Fairless: Awesome. Very helpful, especially since you’ve been on the ground in Bigger Pockets, participating in the conversation, and that’s come up a lot, as you’ve seen, so I’m glad that you addressed it here, because I’m sure a lot of Best Ever listeners have that same question.

Theo Hicks: Exactly. And then as I’ve mentioned before, my first hire is definitely gonna be someone to help me out underwriting. Right now I can pretty easily underwrite two deals a week, and right now the deals that are coming in aren’t exceeding that. I could probably maximally do four a week, without — I won’t say going insane, but… I could probably do four a week right now without making Marcella go crazy with me being in my office all night, underwriting deals. But I think once I have more than four a week, I’m going to work on finding someone. I’m not necessarily sure how I’ll do it right now, but I wanna approach that kind of an entertaining; on Bigger Pockets I see a lot of people saying, “Hey, I’m new to multifamily” and they just want a mentor, or they want to help out some investor to get experience… So I might reach out to one of them and see if that’s something they’re capable of doing. Obviously, I’ll pay them, but — if they wanna get paid, I guess; if they wanna do it for free, even better, but… I think that’ll probably be my first approach.

I know you guys posted a job listing on the college job listing site… So we’ve got UCF right around the corner, so if it doesn’t work out with the Bigger Pockets people, I will definitely post a listing to there.

Joe Fairless: Yeah, we’re hiring an asset manager right now. Is that the job posting that you saw?

Theo Hicks: No, I was talking about when you hired underwriters initially… Way back in the day.

Joe Fairless: Oh, yeah. Got it.

Theo Hicks: [unintelligible [00:19:24].10]

Joe Fairless: Yeah, cool. Good stuff. Very helpful.

Theo Hicks: So those are my updates. What have you got going on, Joe?

Joe Fairless: Let’s see, we’re closing on a property next week; scheduled to close next week, at least. And something interesting is we have a fixed interest rate on that property, and we locked it in about a month ago… It’s at 4.5%, so we have a 4.5% fixed interest rate. If we were to lock it in two days ago, it would be 5%. So 4.5% versus 5% might now seem like a lot, but it’s around $160,000 a year savings. $160,000 a year savings with just half a percentage point.

So what’s the takeaway there? Well, the takeaway is make sure that your crystal ball is nice and polished before you go into a transaction, and… What’s the real takeaway on that? Well, sometimes you’ve got to use your best judgment based on where you think the market is gonna go. The Fed had announced that they were gonna continue to increase interest rates about a month ago, so we decided to lock it in at 4.5%. It was higher than what it had been previously, and we thought interest rates are gonna continue to go up, they did, and boom, we got very fortunate, because now we’ve got an incredibly desirable loan, that can be assumed by a future buyer when we decide it’s the best time to sell…

And that’s the other takeaway – when you lock it in at a fixed interest rate, and interest rates continue to rise, I’ve had some investor ask me, “Well, with interest rates rising, what does that look like for our exit?” Well, it decreases the buying power of buyers who want to buy from us in the future, if the interest rates continue to rise. However, a couple things – one is it’s more desirable to assume our loan, and that actually increases the marketability of our project when we go to sell it, if interest rates are higher than they are at 4.5%… Because then we’ve got a nice loan that can be assumed for a 1% assumption fee.

Then also when interest rates continue to rise, then it decreases the purchasing power of people who are buying a home, and therefore increases the likelihood that you’re going to have renters. And there’s many things that are happening right now… I read something today that said the mortgage applications are the lowest that they have been in four years, since December of 2014, and it’s due to a variety of factors, but one of them is home prices have been going up until recently – that’s one, and two, interest rates are higher than they have been. So what does that do to someone on their mortgage? Well, they’re not gonna be buying right now… So that helps the cause for cashflow from an apartment community standpoint. It does not help the exit, because the buying power isn’t as great, but it helps the operations and the ongoing ownership, and what that looks like from a cashflow standpoint. So if that’s the case, then what’s the plan? Well, the plan is to have longer-term debt on properties, that way you aren’t forced into an exit whenever it’s an inopportune time, and you can hold on to it and cash-flow some pretty good numbers, if you’ve got that fixed interest rate debt and you’re in an environment where interest rates have increased and so people aren’t buying as much, and they’re renting more. It’s something I wanted to mention, because there’s many different things to unpack there, and there’s a lot of different things to think about.

Theo Hicks: What’s the length of the loan?

Joe Fairless: Twelve years.

Theo Hicks: So if someone assumes that at the end of your business plan, would they have to raise the difference between that loan and the purchase price, or would they have to secure a second loan?

Joe Fairless: If someone assumes it, they’re gonna have to pay whatever principal has been paid down up until that point… But with this loan, we have six years of interest-only, so it’s incredible.

Theo Hicks: It’s even better.

Joe Fairless: Yeah, exactly. So there won’t be a difference up through six years.

Theo Hicks: Nice. That’s a great thing to think about, getting that fixed interest rate, kind of locking it in… Does that cost, to lock that in, or do you just say “Hey, let’s lock it in now”, like you [unintelligible [00:24:05].19]

Joe Fairless: You always have a fee that you pay to the lender… So when you do lock it in, you have to pay that fee, whether you lock it in earlier or later.

Theo Hicks: Okay, so I figured.

Joe Fairless: And then completely separate for that, just really quick, an observation – while I was scrolling through my LinkedIn feed the other day, I saw someone who had a screenshot of him being interviewed on a television station… And I forget who was being interviewed by a television station, but it made me think of — and it’s not a knock on this person, because again, I don’t even remember who the person was, but it made me think that when I saw that picture and I saw him being interviewed by the TV station, I thought “Oh, he must be a subject expert in whatever he’s talking about”, and I thought how much on autopilot I was with that thought process, whereas I actually shouldn’t be on autopilot when I initially see someone being interviewed on TV; I shouldn’t initially think “Oh wow, they’re a big-time expert in whatever they’re talking about”, because the television stations aren’t necessarily looking for someone who has deep knowledge in a certain topic. They’re looking for someone who has something that is interesting to their audience and has a way to position that topic so that it brings more clicks to their website.

So I’m going to stop myself from thinking “Okay, this person is automatically an expert” when I see someone on TV or see someone being interviewed somewhere else. I’m gonna just take it with a grain of salt and know that our interests are not aligned; my interests are not aligned with the television station. They have a certain objective, and that is to increase viewership, and I have an objective, which is to increase myself and my personal development and my business… And perhaps sometimes they overlap, because their “increase viewership” angle will align with what I’m interested in, but then other times it might not align. So it’s just something that I thought of and I wanted to mention.

Theo Hicks: And the more you become an expert on a specific topic, you realize how long it takes to become an expert on that topic, and if someone at a news station is very good at news, but when they bring on an expert, how do they know if this person’s actually an expert or not, because they themselves aren’t an expert. So that’s a good point.

Joe Fairless: Yeah. We’ll end with the quote at the — I’ll just say it now, why not…? Oh, one other thing about the trivia question – Theo, if you can help us put this in our notes for future episodes… Next week we will tell you the answer to today’s trivia question; so we won’t leave you hanging, in case you don’t wanna do that Google search or do the legwork, but you’re still curious what city we’re talking about, then next week we’ll state the answer.

Theo Hicks: And you’ll definitely wanna come back to learn about my punishment if I was wrong, too.

Joe Fairless: [laughs] Yeah, I’ve gotta think of that. And with the quote to think about, the Best Ever quote – I’m studying chess right now. I’ve now beat my wife, Colleen, five or six times in a row, after losing a couple times to her, because I’ve been watching YouTube videos and going a little bit vain on it… So this is a quote from Emanuel Lasker – he was a world chess champion for 27 years back in the late 1800’s, early 1900’s. He says “When you see a good move, look for a better one.” It certainly applies to us as real estate entrepreneurs, so think about that one – “When you see a good move, look for a better one.” We’ll roll into the next segment.

Theo Hicks: Great. So the last two things – number one, the Best Ever Conference (BestEverConference.com) in Denver, at the end of February. The third one. We’ve so far got 18 confirmed speakers on the website, so make sure you check that out to see the returning and new speakers. One of the speakers we’re going to talk about today is Mark Mascia. He was a speaker at the first conference, and he was actually one of the features chapters in the first Best Ever book, which we’re giving away to the winner of the trivia question. I believe the chapter was about developing over a billion dollars in real estate, so he’s got a lot of experience.

He actually raises money for his deals, and I remember when I spoke to him last he was either just beginning or had already started — he was in the beginning phases of raising money through 506(c), so he was publicly advertising… And he will use that money to develop commercial real estate, specifically retail and medical. So at the conference he will likely be talking about development strategies, as well as raising money specifically for that 506(c), so strategies for advertising to raise capital… So you’ll definitely want to listen to him talk, as well as pick his brain during the networking sessions if you have any interest in raising capital for any types of deals, and if you’re specifically interested in development or wanted to learn more about development, or how to manage retail medical – I know that they continue to hold on to them after development – Mark Mascia is going to be your go-to guy.

Joe Fairless: He’s a great guy, I’ve had dinner with him multiple times. Adjunct professor at NYU – or he was, I’m not sure if he still is – and experienced commercial real estate investor. You’ll want to hear what he says at the conference.

Theo Hicks: And then lastly, make sure you pick up the Best Ever Apartment Syndication Book on Amazon. If you buy the book, leave a review and send us a screenshot to info@JoeFairless.com. We will send you some free syndication goodies and we will read your review on the podcast.

This week’s review of the week comes from Gimlet. They said:

“This is my fourth read on how to get started in syndications, and this is worth EVERY penny. Joe and Theo walk you through all the details on how to get your business started. Pair this with the tools that are referenced and you have everything you need to lay the groundwork to launch. Just get it!”

Joe Fairless: Well, thank you, Gimlet, and thanks for taking the time to do that review; I really appreciate it. It helps us continue to grow the community.

Thanks again for everyone hanging out with us, I hope you learned a lot. Have a best ever weekend, and we’ll talk to you tomorrow.

JF1522: What To Look For When Visiting Your Management Company’s Apartment Communities #FollowAlongFriday with Joe and Theo

Listen to the Episode Below (38:20)
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Joe and Theo are back with another week’s worth of updates. Theo provides his takeaways from visiting four properties that are managed by his property management company, as well as from touring a 292-unit apartment in Tampa, FL. Joe read two books this week and explains four lessons that he learned and how he has already applied those learnings to his business.

 

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TRANSCRIPTION

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

We’ve got with us today Theo Hicks on Follow Along Friday. How are you doing, Theo?

Theo Hicks: I am doing well, Joe. How are you doing?

Joe Fairless: I am doing well, and looking forward to talking about what we’ve got going on… And most importantly – who cares about what we’ve got going on, but how about how that helps and relates to the Best Ever listeners; that’s really the reason why we do this show… So what do you want to talk about today that can help some listeners out?

Theo Hicks: Two things. One, I went and visited four of the properties that my management company manages this past weekend. As I mentioned last week, I reached out to them to get a list of properties, and they needed to get approval from the owners first. It sounded like they wanted to set up formal tours at the property; it was taking too long, and I realized that they had sent me a marketing package when we initially met, and there was a list of some of the properties they managed.

I wasn’t able to locate all of them just because some of them weren’t named specifically – there were just pictures of them – but I did find four. So me and Marcella drove to those this weekend. It was on Saturday, so no one was in the leasing office. We couldn’t go in there and talk to the managers. But for some of the properties I’m not really sure if it would have worked anyways, because they would have known right away that we probably didn’t wanna live there, just because the properties were in pretty bad condition.

So we went to four of those… One of them was beautiful. That was one property that we definitely could have posed as tenants, but the gates were locked, we couldn’t get in… It was one of those gates, like one of those arms that would go up for each individual person, so you couldn’t sneak in behind… But it was a gorgeous property, so that made me very confident in our property management company’s ability to reposition a property and maintain it.

Joe Fairless: Did they reposition that one?

Theo Hicks: Yeah. But two of the other properties were in pretty bad shape. One of them was actually a condominium… So essentially what we did is we just drove around and took as many notes as possible about the condition. Our main focus was 1) we wanted to see what the condition of the property was, and 2) see if we could notice any sort of renovations that were occurring, that way afterwards we can go back to the management company and ask them questions on if a property is not maintained well, why, and then if we did find a property that we could tell that they’re in the middle of renovations (which they were on one of them), we could get an idea how long it would take for them to complete those renovations. So I said, “Hey, I know this is a four-unit property. How long have you been working on these renovations for and when do you plan to be finished?”, that way I can gauge how long it would take for them to do it on the properties that we buy.

After the trip I would say I was concerned, because one of the properties was really bad. [unintelligible [00:05:42].14] windows, there was construction paint on some of the exteriors… It looked like they were renovating it and then they just stopped.

Joe Fairless: Okay.

Theo Hicks: So I reached out to the management company and I said, “Hey, I went to your properties. Here’s what I really liked about this one specific property, but [unintelligible [00:05:56].27] I feel concerned, because some of those properties are in pretty bad shape.” And what they told me – I know we’ve talked about this before, but…

Joe Fairless: Can I guess first?

Theo Hicks: Yeah, guess.

Joe Fairless: Well, the property management company isn’t the one that brings the money or creates the business plan initially. Ideally, they approve the business plan, but a lot of the times the owner does not get their approval prior to purchasing or agreeing upon the terms with the seller. So once they get the property, they’re set up to fail, because they don’t have the proper funding and support in order to actually execute a business plan, and/or the owner just doesn’t wanna do that; they just bought the property and they just wanna sit on it, and that’s their approach. So what did they say?

Theo Hicks: Both. So for one of the properties — it looked ugly. It looked like they hadn’t painted in a while, they weren’t really maintaining the landscaping, and for that one they said that the owner doesn’t wanna pay for any of that. Because of the area, he thinks that having nice landscaping and [unintelligible [00:07:03].17] property isn’t worth the expensive cost, because he won’t get that back in rent. That was the first one.

Another one you also mentioned was the funding. On the property that looked like it had been hit by a bomb, apparently they’re all condos, and someone owns a fifth of the condos, and that’s who they represent. So he kind of has [unintelligible [00:07:22].17] but they were talking about how it was HOA, and everything has to get approved, and they have no control… At the time I didn’t necessarily believe them 100%, but after I toured this property on Tuesday I definitely reinforced my reason for selecting these people, because they definitely know what they’re talking about.

It was a little bit of both – the first one was that the owner just didn’t wanna do it, and the second one, it was hit by a storm and the owner couldn’t afford to fix anything.

Joe Fairless: Did you ask about insurance on the storm?

Theo Hicks: I did not, no. It’s a good question to ask though.

Joe Fairless: Yeah. Well, it’s getting into the weeds with them, and they might not be able to provide that information. I was just curious.

Theo Hicks: Yeah, but I think it’s still a good question to ask, because you’re kind of probing more to see if they’re actually telling the truth, you know?

Joe Fairless: Yeah. Well, appearances can be deceiving, and there’s always two sides to every story. So if you had spoken or were to speak to the owners, they might have a slightly different slant, they might back them up, or they might have a different story, who knows… But a question that I would want to know is how long they’ve managed each of those properties. Do  you know that?

Theo Hicks: Mm-hm. I had that information. The one that I know off the top of my head is because it was the property that was the most concerning, the one that had been hit by the storm… It was in receivership for two years, because they got it through a foreclosure, and then they were managing it for two years.

Joe Fairless: Okay. What I was looking for is if it’s been a shorter timeframe or maybe a longer timeframe, but you said they’ve been managing it for four years.

Theo Hicks: Yeah. The property was actually owned for two years… Because they were trying to buy some of the condos up initially, too… So that’s what their involvement was; they were in a receivership, and then they either didn’t end up buying them, or they ended up selling them to this guy–

Joe Fairless: The management company?

Theo Hicks: Yeah, because they’re also investors, too.

Joe Fairless: Okay, got it. Well, the only thing I was getting at is sometimes a property management company will have certain standards that they have to live up to, that is dictated by them, and they’ll fire owners who don’t put the money into the properties, because it’s just not a good reflection of their management. And that’s their choice; it’s just up to the team. I’ve seen management companies who won’t work with owners who don’t put money into the properties, and I know some, and then I know some who do. It’s just their preference and how they choose to operate their business, which is totally up to them. Interesting stuff, thanks for sharing.

Theo Hicks: So the two main things I learned – one was actually the third immutable law of real estate investing in practice, which is have adequate cash reserves if the storm comes, literally… So that you can be able to afford to fix anything. The condominium property was a perfect example of how that can spiral completely out of control, and have super-low occupancy rates because people move out, because units aren’t habitable. That’s number one.

Number two is to always have a backup management company in mind. The second I got home, I e-mailed all the brokers I’d been talking to and asked them for management company recommendations. Number one, to have a backup, but number two is another kind of point of contact with the brokers, to stay top of mind.

Joe Fairless: Yeah. And I know investors who have bought into condos in hopes of getting majority control and allocating repair dollars, and it’s just a hot mess… Godspeed  if that’s what you’re looking to do, because it’s tough to buy all of them or buy the majority unless you already have a way to do that. But if your business plan is dependent on being able to control where the maintenance dollars are allocated from the condo board, then that’s a flawed business plan.

Theo Hicks: Yeah. And speaking of hot messes, I did a property tour on Tuesday, a formal property tour. I talked about this property last week, and how I visited it and certain comps, but I wasn’t able to obviously go inside the unit; I was just walking around the community.

So I did that, I went there with the president of the management company. She was able to come with me, and my main goal going into it was just to get a much better understanding of the exteriors… Because before I only had about 500k allocated towards the exteriors, just a kind of placeholder, but I needed to go there with her so that she could look at the property with me and give me a ballpark, even if it was within 20% of what the actual cost would be.

We got there and we did the tour, and afterwards we sat in the car and talked for a while, and then right away that day they sent me their feedback. The owners are pretty well-known in the area, and they’re known for the pump and dump strategy. Have you ever heard of that before?

Joe Fairless: Yes, I have, but please elaborate.

Theo Hicks: Essentially, when they get ready to sell, they do not screen tenants properly anymore. Anyone that comes in, they just put them in the unit to boost their rent roll and to boost the NOI and to get the highest purchase price possible. And this is an assumption, but I’m assuming people that do those types of things also likely don’t keep up with maintenance, because this property has a ton of deferred maintenance.

Joe Fairless: It’s a fair assumption.

Theo Hicks: I believe they’ve owned the property for about five years… And they’ve done a few things – they’ve replaced about half of the roofs, and they’ve replaced 50 of the 300(ish) HVAC systems, but I think that’s all they did.

We went inside two of the model units. The property has three property types: a standard, a premium and then a signature… And they weren’t very nice. The countertops looked like they were spray-painted on, like some sort of coating. The flooring wasn’t nice… You could tell they put in new cabinet doors, but they were hung incorrectly… So it was a perfect example of a pump and dump property.

Fortunately, I had a property management company that’s kind of tapped into the markets, and they recognized the property name right away, so they were able to send me 40 pages worth of information on the property and the owners, and what to expect if I buy the property. The two main things that they said was “Expect to pay at least four million dollars for the renovations.”

Joe Fairless: That’s not $500,000…

Theo Hicks: No. That’s six to eight times more than I expected. And also, they said “Expect to roll over approximately 30% of the units because of the pump and dump strategy. You’re not gonna know for certain what they did to qualify those residents until you the lease audit once you buy the property.” So once I plug in a four million dollar rehab — they want 23 million dollars, and if the rehab is 4 million dollars, then the amount of money I have to raise… There really is no purchase price that makes sense, unless you do some sort of bridge loan, which – I’m not opposed to doing a bridge loan, but the problem is that there’s so much deferred maintenance on the exteriors that it is impossible to make that up in the rents you’re gonna raise… Because most of this stuff is just making the property semi-habitable again.

All the windows are [unintelligible [00:14:18].13] need to be replaced. They have railings on the second floor that aren’t [unintelligible [00:14:22].27] they’re too short; thank god I brought my property management company with me, because I would have not noticed any of that. Most of the roofs are completely falling apart… They have three pools that work, but are hideous-looking, and the landscaping is in very bad condition, and you probably need to [unintelligible [00:14:37].14] And that’s just bare minimum. They also have a playground, barbecue area, dog park, really outdated laundry facilities, clubhouse…

Joe Fairless: Are there rental comps that support significant increases?

Theo Hicks: No. The nicest property on the market, even at those rents, it still wouldn’t make sense. It would be impossible to get this property up to that, because that property was built within the last 5-6 years.

At first I was like, “Oh, I’ll just go home and find a low-ball offer”, but it doesn’t even make sense to submit an offer on this property.

Joe Fairless: You say low-ball offer, but it’s actually an offer based on its current value… Or the value that you place on it, not necessarily a low-ball offer. You probably mentioned low-ball offer because you know what they’re looking for…

Theo Hicks: Oh yeah, I know exactly what they want.

Joe Fairless: Yeah… Those types of deals, where they are looking for a whole lot more – I think I mentioned this last week – than what it should be or what it is worth, just give them time; stay in touch, give them time, and then come back later.

You can also try and do some seller financing, but if they haven’t gotten a reality check yet on their valuation, then they’re likely not gonna be interested in seller financing. It’s just once they get the reality check from the market, then you can come in with seller financing or something else that might make more sense for you.

Theo Hicks: Yeah. If I had to guess, either someone that’s not from this area will buy it; someone from Seattle, or the West Coast, that’s used to $300,000/door purchase price… Like, “Oh, this is 80k/door! I’ll just buy this up before someone else gets it!”

Joe Fairless: Every listener from Seattle just got upset with you, by the way…

Theo Hicks: I’m repeating what my broker told me…

Joe Fairless: Okay, there we go…

Theo Hicks: They were saying how people come in from California and Washington and  buying properties–

Joe Fairless: Oh, now you’re bringing other people into this… Stop it, Theo! The highest number of people who listen to this podcast are in California.

Theo Hicks: Well, I just gave you the opportunity to defend them, so now they’re gonna love you even more… [laughter] So, just quickly, takeaways… One of the main takeaways is it actually reinforced my thoughts on our management company; because again, I was concerned — and you do have a great point about it’d be ideal to have a management company who would refuse to work with owners who don’t maintain their properties, so I do have some backup ones in mind that I’ll talk to, but these people are still at the top of my list, just because of how they treated me during this property tour. First of all, they showed up… I’ve never had a deal before, and they actually showed up and spent half a day with me at the property.

Joe Fairless: Yeah, that’s huge.

Theo Hicks: And they sent me feedback the same day, too. They e-mailed me and they sent me a document that they put together the exact same day, with the rent comp analysis and a high-level renovations quote. They also knew the owner, which means I know that they’re at least semi-tapped into the market and know who the movers and shakers are… And then they also sent me a deal as well, that they’d just recently listed, that fell through because someone’s 1031 just didn’t work out. So that’s what I did this last week.

Joe Fairless: You’ve been active.

Theo Hicks: Yeah, I learned a lot last week.

Joe Fairless: Well, on my lessons learned, I finished two books. One is Outrageous Advertising by Bill Glazer, and the other is Small Giants by Bo Burlingham. Anytime I read a book — well, not anytime; most of the times I read a book, afterwards I take notes on the book, and I put it in a Word document. So I’ve got a folder on my computer that just says “Book Notes”, and then each Word document are my notes on a book. So while I’m reading a book, I’m circling pages and highlighting, and stuff… So I’ve created notes for each of these books, and I wanted to share some lessons I learned from these books, and what I’ve done as a result of learning those lessons… Because I think that’s the key – it’s learning stuff, documenting it afterwards, and then applying it immediately, because if you don’t apply it immediately, then it’s less likely you’re gonna apply it in the future, because you wanna do it when it’s top of mind.

So I’ve got four things – three from one book and one from another book. And one of the things doesn’t apply to my business, but I thought it was interesting, so I thought I’d mention it as one of my four things in total. So three things from Outrageous Advertising by Bill Glazer. Overall, would I recommend the book? Yes, if you are needing help on copywriting or direct response advertising – this would be a good book. Otherwise, I don’t know how valuable it will be for you… But I could get some lessons learned, and here are three of them.

One is to collect testimonials and make a document for that collection of testimonials for the business. He talks about what people say about you is at least ten times more important than what you say about yourself. And I know from my experience in advertising – and this is backed up by research – that word of mouth referrals are the greatest influencer of purchase intent. So if we get word of mouth referrals, some person talking to someone else about your business, then that is going to be the number one driver of purchase intent, compared to other types of ways they hear about you – Facebook ads, meetups, whatever else.

So what I did after seeing how he methodically collected testimonials – and he goes into it a little bit – is I created a form, and I had a team member of mine put it in DocuSign… So I’ve reached out to a couple investors who have invested with us multiple times, and asked them if they would provide a testimonial… And the key here is not just asking for a testimonial; the key is the type of prompts that you give him/her to respond to. What you ultimately want is for them to describe a specific outcome or a specific objection that we overcame. So a specific outcome we’ve achieved for them, or a specific objection that they initially had, and they overcame and now they’re really happy.

For example, a specific outcome is we’ve generated X amount of cashflow for them, or we now have allowed them to earn more passive income and also gain credibility with lenders whenever they do their own deals, because the lenders will see that they’re a limited partner on a larger deal. And maybe they’ve closed on a deal as a result of it. So that’s a specific outcome.

A specific objection is “I’ve never invested passively in a deal before, and now I got comfortable with Ashcroft Capital, with Joe and his team,  and now we’ve invested in multiple deals and it’s great.” And the reason why you do the outcome is because others can see something quantifiable that was achieved. The reason why you do a specific objective is others might have that same objective and when they read this testimonial, then they see that we have addressed that objective.

So that is one thing we’ve done. We’ve already gotten, I believe, a couple back from investors. And I don’t plan on doing it often. I plan on maybe doing it 15 times over the course of a year, because I don’t wanna bombard investors, although I would only ask one investor to do it once; I wouldn’t ask them to do it on an ongoing basis, obviously. So that’s number one.

Theo Hicks: Just a quick follow-up question – what do you do with that document? Do you send it to investors?

Joe Fairless: Good question. Yeah, I should have addressed that. The short answer is I don’t know. I just know it’s valuable to have. I still have to figure that out. Ideally, I put them on the website, on AshcroftCapital.com, and/or JoeFairless.com, but I’ll have to ask our securities attorney to see if we can do that. I don’t know. I’m not sure why we wouldn’t, but I don’t know. I’ll have to ask the securities attorney. I think I should just talk to him about the testimonials I’m collecting and see where I can use them. So I don’t know that answer. It would be a whole lot easier if we weren’t selling securities for our deals, and then I know exactly what I’d do – I’d put them on the websites, I’d have a one-page document, I’d send it out to everyone that reaches out to us… But I just wanna do it the proper way. So that’s number one, a testimonial document.

Number two is, on a related note of testimonials – this is something that does not apply to my business, but it’s something for anyone who has a brokerage or any type of company where you have customers call into, and there might be a time where they’re on hold; instead of hold music, have testimonials be playing while they’re on hold. It’s such a simple addition to a process where someone might not have a good experience because they’re on hold, but at least they’re hearing other people who work with you and who have had good experiences, and so you’re priming them a little bit. I just thought that was a cool little trick that should definitely be implemented for everyone who has that type of setup with their company.

Number three is enter the conversation already in someone’s mind. It’s a powerful statement. Enter the conversation already in someone’s mind. What does that mean? It means basically be relevant to your audience, and think about what they’re thinking about, and then enter the conversation based on what they’re thinking about, because it’s so much easier to have a conversation with someone if they’re already thinking about that topic; so much easier.

So how did we already put this into play? Well, we already put it into play because Halloween just happened, and we wrote a couple articles on spooky things, like “Ten real estate tours turned Haunted House experience.” If you want to see some creepy things from real estate investors who we polled through our Best Ever Community and then wrote a blog post on it, just search “Ten real estate tours turned Haunted House experience Joe Fairless” and you’ll see the article and you’ll see some things that perhaps you’ll want to unsee… But you can’t, because you just looked at it. [laughs]

Theo Hicks: One picture – you know what I’m talking about – is still stuck in my mind.

Joe Fairless: Me too, me too… So “10 real estate tours turned Haunted House experience Joe Fairless” and good luck to you unremembering that one. So that is more of a topical thing that we can do – focus more on what’s top of mind for the customer at this point in time… But then also it’s much more strategic and deeper than that, because we always want to be thinking about “What are their concerns? What are they thinking about? What do they need to resolve in order to move forward?” That is why you and I are putting together the outline for our next book, which will be for passive investors. And that is why we sent out an email to our passive investors and asked them “What would you like to see in this book?” because we wanna know what’s top of mind for them, and that way we can incorporate into the book; it’s not rocket science, but it’s very important and it’s something that is necessary in everything that we do.

Theo Hicks: Really quick, another powerful thing if you’re writing a blog, or I guess even doing a solo video or podcast where you’re explaining some topic… You write a paragraph, and once you wrote the paragraph, you read it and be like “Okay, so if someone’s reading this, what’s a natural follow-up question they’ll have?” and then literally write that out. Like, “Now you may be thinking this…” and then answer their question. That way — obviously, if you didn’t put that transition sentence in there it’d still make sense, but it just lets them know that you’re thinking of them and you’re trying to get inside their mind. I just know psychologically it’s a really powerful writing technique.

Joe Fairless: Absolutely, yeah. That’s great. And just to take that a step further, whatever you come up with there, what they might be thinking about, think about the exact opposite stance, and see if that’s a logical stance, and if so, address that one, too. Sometimes it won’t be relevant, sometimes it will. That’s a great point, I’m glad you’ve mentioned that.

So one, collect testimonials, make a document, then do something with it, because purchase intent – its greatest win is a word of mouth referral. Two, if you’ve got a recording when people call in, have your testimonials recorded there… By the way, there’s a checkbox on the forum that says “Yes, you can use this in any and all marketing materials”, so I wanna make sure they check that. That’s two.

Three is enter the conversation already in someone’s mind, talk about that… So those three were from Outrageous Advertising by Bill Glazer. The fourth one is from the book Small Giants by Bo Burlingham, and I have about a page and a half of notes from Small Giants… I won’t go into most of that, I’ll just go over one thing I learned… But I took away a whole lot from Small Giants. I would recommend that to everyone listening. It’s not a fast read, but he puts in a lot of case studies and it’s pretty interesting.

What I found most interesting in the book is he goes through case studies, and then the book that’s out now – I think ten years later he’s going back and talking about the case studies that were in the original edition, and how those companies have done since then. So it’s pretty cool that you read about what they’ve done during when he wrote it initially, and then in the same book, ten years later, here’s some things that — some companies he said he wrote about failed, and so he had to talk about how they failed, and lessons learned there. So it’s got the benefit of a ten-year fast-forward if you read the latest version.

The whole purpose of the book is to identify how a company can remain relatively small in number of employees, and that’s defined differently… I forget exactly how he defines it, but 5 employees to 500 employees, which some might think 500 is not small, but relatively speaking it is, and with larger companies… And how they thrive. And one of the things he said is – and this is a lesson – “Companies who are small giants are deeply rooted in their communities.” That’s been a focus of mine for the year, but when I read that, it reinforced it. So then the question becomes “What communities am I a part of that I really want to go deep into?” and I have three that I’ve identified, although certainly they can grow. One is Junior Achievement – I’m on the board for Junior Achievement. Two is Texas Tech, and three is Bigger Pockets. Those are the three communities I’m already in, I’m already highly involved, and there’s potential for growth.

My target audience is accredited investors, so there’s potential for growth within each of those communities to grow my accredited investor relationships. So specifically how I acted on something since I read this – I just completed the book this week – I saw that Texas Tech is playing their first exhibition game in basketball against UTEP (University of Texas at El Paso). The game was on Thursday of this week, and they are donating all of the proceeds from that game to the victims of the school shooting in Santa Fe… And I thought “What a great way to contribute to helping those victims”, if I were to donate tickets to the game, so that people in Lubbock, Texas — I’m not going to the game; my wife is due in a week and a half, so I’m not going to the game, but people in the community in Lubbock could get free tickets that I purchase (it’s free to them, I pay). The under-served people get to go to the game, I pay for the tickets, and then the proceeds from that go to victims from a school shooting. So I thought “Let’s do it.”

I bought 100 tickets to the game, $10 each, so $1,000, and they’re being donated to people in Lubbock who are not able to pay or are in a tough position, and those proceeds are going to people in Houston. That’s something that I was initially interested in, in terms of going deep in communities, I had already identified these three, but then this book inspired me to take action immediately, and I will continue to take action.

For example, Bigger Pockets, by the way – I’m gonna be sponsoring their newsletter starting November 22nd; that’s the first day where their e-mail newsletter that gets sent out three times a week, Ashcroft Capital is gonna be sponsoring the top ad in the newsletter. We’re gonna do it eight times over the course of the year, and test ROI and see how that goes. So going deep and big with Bigger Pockets from an advertiser’s standpoint. We’ll see what type of ROI we get from that. Then Junior Achievement – to stay and engage there.

Theo Hicks: Yeah, anyone who’s listening to this can engage in the Bigger Pockets community. I post there ten times a day; it takes an hour, and I cannot tell you how many messages I get from people thanking me for my posts, or people I meet in person saying “Oh, I saw you posted on Bigger Pockets.” Mostly they know me from this show, but I do have people thanking me for the info that I post on the community, and obviously, that’s great to hear that I’m helping people, but you never really know what’s gonna happen in the long run. I’ve been doing it for about a month. I can’t imagine what’s gonna happen after doing it for a full year – the people I’m gonna meet, the relationships I’ll build, the messages I’ll get. So everyone could start with that, and then grow up from there… Because not everyone’s gonna be able to buy the tickets for the basketball game, but everyone can go on Bigger Pockets (it’s free)  and everyone can spend an hour of their day, in the morning or at night, going through the threads and posting on topics that are relevant to you and that you actually know how to answer.

Joe Fairless: Absolutely. And you’re helping others along the way. You’re getting your name out there, but with Bigger Pockets you’re contributing and helping others. And then the only other thing I’ll mention on that – so that was the fourth, and this is kind of a sub-bullet underneath… They recommend doing employee gift matches, at least 2-to-1. So if an employee writes a check to a charity that they are passionate about, then you double that. Theo, I’ll be doing that for you and other team members; so any cause that you feel passionate about, whatever you donate, I’ll double it.

The reason for that is — well, many reasons, but one of them is it’s tough to always do research on what’s the best cause. The person in the book, the owner of the company that they’re interviewing who did this – he said “There’s some causes people donate to I personally wouldn’t donate to, but they have their own reason for doing it… So I write a check and it’s something that shows alignment of interest”, and ultimately, we’re not on this Earth very long, so why not do what we can to contribute and support others who want to contribute?

Theo Hicks: I’ll pick up that Small Giants book. I think it’s relevant to all real estate investors, because we are small giants; most people aren’t gonna have a business with more than 500 people.

Joe Fairless: Yeah. Cool. Those are my lessons.

Theo Hicks: Great. Just to wrap up, make sure you guys go to the Best Ever Conference website (BestEverConference.com) and pick up  your ticket. It will be the third annual conference this year, back in Denver. We’re upgrading to the larger venue in the Opera House, so I’m looking forward to seeing Joe and other speakers up there on the main stage. Each week we’re going to just have some sort of quick discussion about the conference. This week we’re gonna talk about another speaker, back for the third time – Trevor McGregor aka Coach T. If you listen to the podcast, you guys know who Coach T is. Joe, do you wanna talk a little bit about what he might be telling people when he gives his presentation?

Joe Fairless: Yeah, personal development. I don’t know exactly what the presentation is on, too early, but for anyone who attended last year, you know you’ll get value from it. Most of the topics that we cover at the conference – let’s say 97% of them – are very specific to commercial real estate, financing and asset management, those sorts of things… But we do have personal development sprinkled in, as it should be, and Trevor does a phenomenal job there. So when you attend, you will meet him in person, and then also benefit through developing in some form or fashion personally, as a result of hearing the conversation.

Theo Hicks: Yeah. If it’s something that you wanted to get done for a long time but have lacked the motivation, you’ll be able to do that once you listen to Trevor talk, because he has a way of getting you very jacked up and wanting to take on everything… So I’m looking forward to seeing him again and hearing him talk.

And then lastly, make sure you guys and girls pick up the Best Ever Apartment Syndication Book on Amazon, and leave a review, take a screenshot, and send it to us at info@JoeFairless, and we will send you a whole bunch of apartment syndication goodies, and we’ll read your review on the show.

This week’s review comes from Michael Taravella Jr. Michael said:

“I would rate this book 10 out of 5 stars. After doing nothing but reading this past week, I feel entirely comfortable with the process. Joe and Theo did an amazing job of going through the entire process, the costs associated to every step of the process, and who is needed. They provided a perfect roadmap to successfully land a deal. More importantly, Joe and Theo did an amazing job of walking through the paradigm shift it takes to become a successful investor.

They truly are remarkable people and I can’t thank them enough for this book.”

Joe Fairless: Well, thank you for that glowing review, and thank you for investing your time to read it, and now taking action on those tips. I’m very grateful. Everyone, when you buy the book and you read it, please leave us a comment on Amazon, so that we know your thoughts. That then also helps others learn about the book. We’ve gotten many e-mails from people who have sent us the receipt, because we give them a  document… And by the way, if you have the book and you haven’t sent us the receipt, then info@JoeFairless.com, just forward your receipt… And they say “After reading all the reviews on Amazon, I bought the book.” So it does make a difference.

Thanks everyone for hanging out. I hope you enjoyed our conversation, and most importantly, got value from it that you can apply to your real estate business. We’ll talk to you tomorrow.

Best Real Estate Investing Advice Ever Show Podcast

JF1001: A Hidden Wealthy Niche that Involves a Fine Tuned Team

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Condo conversions are tricky, and not for the novice investor. Our guest talks about his team including an architect, and Attorney, contractors, and other individuals that are needed to convert buildings into condominiums. This is a great show that has a purpose to give you a little insight into this hidden niche that has made many people wealthy. Tune in!

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Ricky Beliveau Real Estate Background:

– Owner of Volnay Capital
– Specializes in both buy and hold as well as condo conversions
– Currently have 6 condo conversions in different stages in/around Boston.
– Based in Boston, Massachusetts
– Say hi to him at http://www.VolnayCapital.com

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

With us today, Ricky Beliveau. How are you doing, Ricky?

Ricky Beliveau:  Joe, I’m doing well. How are you?

Joe Fairless: I am doing well, nice to have you on the show. A little bit about Ricky, he is the owner of Volnay Capital. He specializes in both buy and hold, as well as condo conversions. He currently has six condo conversions in different stages in and around Boston, and he is from and based in — well, I don’t know where you’re from, but you’re based in Boston, Massachusetts. With that being said, Ricky, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Ricky Beliveau:  Sure. As you said, I own Volnay Capital and we’re based out of Boston. I started out, I went to Northeastern University, and at Northeastern I actually stuck to a class called Real Estate Finance, and in that class we had to do a paper on some type of real estate investment, and the property that I chose was actually a multifamily building near the college. After graduation and looking through the figures and seeing the opportunity there, that’s what kind of jumped me into the real estate business by buying my first multifamily in 2010.

From that point forward, I’ve continued to acquire rental properties, and about three years ago I made the jump over to the condo conversion side, and doing condo conversions over the past three years, mostly centered in East Boston, which is an up and coming neighborhood, close by to the downtown area.

Joe Fairless: Condo conversions – what do we need to know about condo conversions?

Ricky Beliveau:  The condo conversions market – you’re able to create a large amount of value by taking a single property and splitting that into three individual units, and updating the deeds with the city, and then you’re able to sell those off to individual buyers. By doing that, on what would be a single project, you’re actually able to create three sales out of that one project.

Joe Fairless: From a fundamental standpoint, that sounds great – you buy one and you get three at the end of it. Tell us one deal that you’re working on, and the numbers on that deal.

Ricky Beliveau:  A deal that we just finished up – it’s actually one of the most successful deals that we’ve done to date… The acquisition price of the property was for 650k, and at the time that was about the going rate on the market; it wasn’t that I got a great price on it… It was a pretty good deal on the purchase. The renovation cost on that project was 575k, and the building was 4,300 square feet, so it’s a large property. That brings the total project cost on that into $1,225,000 all-in project cost. The sell out on that was 1.7, so it left a profit after fees of $447,000.

Joe Fairless: How long did that take?

Ricky Beliveau:  We tried to turn it around 10-12 months. That project actually spread over the year mark. We had some issues when we were trying to get started, so it kind of delayed the beginning of the project, but all in we were about 13-14 months on that project.

Joe Fairless: Okay, 14 months worth of work to make about $450,000.

Ricky Beliveau:  Correct. ROI on it was around 36,5%.

Joe Fairless: Okay. What are some challenges that came up in that one that made it take longer than what you projected?

Ricky Beliveau:  When we acquired the property, the property was tenanted, which when you’re getting in the business of doing condo conversions and there’s tenants in place without leases, you can kind of expect that there might be some issues getting the property, relocate those tenants, find them a new place to live and then be able to start the project. That’s what happened here – when we acquired the property, one unit was vacant and two units had tenants. We were able to relocate the top floor tenants into a new apartment, but the second-floor tenants, we were going back and forth for a few months regarding what their needs were. I was finally able to relocate them into one of my rental properties around the corner. Just that process delayed us about 3-4 months.

Joe Fairless: How were you able to eventually relocate them? What convinced them to do that?

Ricky Beliveau:  The property they were currently living in, which was the one we wanted to put under construction, their rent was currently $1,200/month. What we agreed upon to have them moved is I was able to lower their rent to $900/month. Then I also had my guys move them from that property to the other. So with a reduction of rent by $300, as well as me covering moving costs, we were able to finally come to an agreement to have them relocated.

Joe Fairless: What did you propose initially?

Ricky Beliveau:  The initial request was that they don’t have a lease in place and that they would relocate. In this market it’s tough, because as the rents are continuing to rise, a lot of these people are not able to afford in that neighborhood anymore, so it becomes tough for them. We try to really work with the tenants and find ways to find resolutions, instead of having to go to court.

In this case, once we started the negotiations, the first attempt was just to work with them as we had the other units, and find them a place to move and pay for the moving costs and pay for their first month’s rent. They weren’t open to that idea. They were really set in stone that they wanted to stay in that neighborhood in that area. As we went back and forth, an opportunity came up that I had just acquired another building that was a block away, and I was able to use that property as an offering and move them over into that building.

Joe Fairless: Did they ask to have some sort of agreement so the rent wouldn’t go from $900 to $1,900 after year one?

Ricky Beliveau:  We signed them up on a two-year lease, but actually backdated it with the date because of the four months that they had held up the start of construction, so it ended up being a little bit less. I think instead of a 24, about 20 months. So it was a 20 months lease at $900, and then after a year it went up to $990. So I was able to build in a 10% increase after year one.

Joe Fairless: After year one, okay. And if you didn’t have them relocating to that unit, how much would it rent for?

Ricky Beliveau:  That was a third floor, three-bed apartment; we probably would have gotten around 1,600-1,800. It definitely was a financial hit, but when you have approved plans and you’re able to start construction on a property that can create the returns that we just discussed, those are small potatoes in the long run.

Joe Fairless: Yes, a no-brainer. You said there was one vacant and two were leased; one was more challenging than the other, they left… Was that the primary reason why it was held up for 14 months?

Ricky Beliveau:  Yes. That cost us about four months before we could start the demo. So in the end, the project timeline was still around 10 months, but from demo to completion we lost four months in negotiations.

Joe Fairless: What do you have to do when you demo?

Ricky Beliveau:  When we started out three years ago, we would be more selective with our demo. We wouldn’t get into the property and take everything down to the studs. We realized that to create the quality product that we want to and build the reputation that we have, you really have to start from scratch. Demo days — it takes us about 2-3 weeks to demo a property. We’ll send in a team of guys and they will take it all the way down to the studs, remove everything and we’ll start from scratch.

Joe Fairless: So you’re basically building from the ground up, but you have the framework, or the studs there.

Ricky Beliveau:  Exactly, keeping the exterior skeleton of the property, and then rebuilding from there.

Joe Fairless: So you do the demolition, and then what part of the process tends to go, or is more likely to go over budget than others?

Ricky Beliveau:  At the beginning we were seeing more items going over budget than we are now. The recommendation I would make is to really know the numbers and negotiate the prices upfront. When you’re getting into one of these projects, we sub out everything; it’s all subbed out. We hire a GC firm to handle the project, and then the GC firm hires all the subs. So before a project even demos, we’ve already negotiated, and the majority of the expenses of the project are already locked in with those subs. The fact that we’ve done so many now and that we have these long-standing relationships, and that they know that it’s consistent work, we’re able to see those numbers come in much closer to budget than we did when we were first starting. I think having clear cut budgets upfront with these contractors and with the subs is very important.

Joe Fairless: And you talked through at the beginning of the high-level summary of doing condo conversions – creating a large amount of value by splitting them into (in your case) three units, from one to three, updating the deeds with the city, and then selling to individual buyers. Can you elaborate more on the splitting it into three individual units? Explain how the thought process works for someone like myself who hasn’t done this.

Ricky Beliveau:  The actual process of making the switch from a single property into three condos – it really would depend on your state and also on your city. Using Boston for an example, the process is we work directly with our attorney, as well as our architect. Those are the two parties that are really involved. From the architect standpoint, they need to redraw up the documents to submit to the city that will show now what the assessment should be for each unit. Now when the city looks at this property, they need to know what is the size and ownership of each unit. They require an architect to do that section of it, where then they stamp that and they submit that.

The second part is with the attorney. The attorney takes that information and they’re gonna compile that along with the condo documents. Those are guidelines that are set up on behalf of the association, showing the rules and regulations of the building you’re creating. That’s all put together and then submitted to the city. So it’s really a team effort. You need an attorney involved, and you’ll need an architect involved.

Joe Fairless: Where do you spend most of the time managing? Is it the demo, the architecture process or the attorney process?

Ricky Beliveau:  For our condo conversions, I think the most involvement I would have is with the architect. That’s just because we need to meet at the property, and he needs to take exact measurements of the whole space. So we would walk through the property and go through everything and make sure that we’re properly calculating the unit square footage, which is also very important to me on my sellout side – I wanna ensure that we’re properly calculating and that my buyers are getting the square footage that actually is there, and that they’re not paying for something that’s not correct. So I would say working with the architect on his end.

Joe Fairless: How much does that cost?

Ricky Beliveau:  On a project like that we build it into the original budget for the architect. The same architect who does our plans from start to finish, as well as code review and all that – he builds it into his budget. I think it’s around $2,500-$3,000 for his time that he spends on the condo document side.

Joe Fairless: Do you engage either one – the attorney or the architect – before having the property under contract, just to have an idea of what the business plan is and that it is something you can execute on?

Ricky Beliveau:  At this stage, now that I have more experience with these properties, I’m comfortable in making the decision without my architect involved. When I was first getting started I would try to have him come with me to a showing that I thought was a great opportunity, or if I saw a property and I wanted to get his opinion on it, I would try to have him meet me there, as well as my contractor. But now over the years that I’ve been doing this, I’m much more comfortable in making those decisions on my own. So now the process is once I get a building under agreement, I’ll then immediately schedule a time for both my GC and my architect to meet me at the property as soon as possible to start the process of getting the budget together from my GC, and then from my architect get the plan started for the project.

Joe Fairless: With the process of updating the deeds with the city, what type of challenges have you come across that probably are unique to Boston, but maybe some aspects of it can be applied towards other markets?

Ricky Beliveau:  Right. In the Boston market it’s actually pretty clear cut. There  are standard processes followed, and you’re able to do this conversion. I’d say that one thing that your listeners should definitely look into is if they’re going to get into one of these projects, speak to an attorney before you begin, or even before you acquire a property with the hopes of doing this kind of conversion; each market is different. I’ve talked to investors in other markets where the process is not as easy as it is in Boston. You wanna make sure to speak to an attorney and get that information up front, before you’re midway through a project and then you’re having an attorney tell you that that property is not condoable. I’d say do the legwork up front and have those conversations.

Joe Fairless: How do you find the right attorney and architect for this?

Ricky Beliveau:  It’s a great question. I preach to everyone I talk to that networking and relationships is what really makes this business. I try to spend as much time as I can every week meeting with people and networking. That’s the only way you can really know that someone is the right contact – if someone can vouch for them that you really trust. A mentor of mine introduced me to my attorney, my architect I played soccer with in college… Almost everyone in my business that I work with is connected to me in some way, closely in my network.

Joe Fairless: You didn’t do a Google search.

Ricky Beliveau:  No Google searches.

Joe Fairless: If someone doesn’t have those connections, do you have any suggestions? Maybe certain traits or qualifications that your team members have that you would look for if you had to start over in a different city?

Ricky Beliveau:  The first person that I would go to is a real estate agent. If you reach out to a real estate agent who has a large number of listings, or you can pull the data that they’ve been successful and they were one of the top agents in that market, you can then go to them, take them out to lunch and try to ask them to open up their network to you. What you’re offering to them is always a back and forth – you’re saying “Hi, I’m new to this market, I’m new to this business and I want you to be my agent. I’ve done my legwork, I’ve looked into you as an agent.”

If you commit to them that you’re going to bring them business, they’ll then open up the doors to other individuals who could help you out. Obviously, since it’s not a direct connection, you’re gonna wanna do some more legwork before hiring an architect or an attorney, but I think that if you can find someone and get references, and it’s someone who’s very successful in your area, you can’t beat that. That’s what would be my recommendation and that’s what I would do. If you [unintelligible [00:17:38].18] me into Cincinnati and I had to compete with you, I’d go out and find the top real estate agent on the block.

Joe Fairless: I would never compete with you in condo conversions. [laughs] I’d be like, “You win, you win! Mercy, mercy!” Ricky, what’s your best real estate investing advice ever?

Ricky Beliveau:  I would say know the numbers. I think that in real estate now it comes down to the Excel file. I look at the property and the first thing I do is I sit down at my computer and I run the numbers, whether that’s for a buy and hold or for a condo conversion. Before I’m even walking out my door, I have already decided if this is a good buy or not. Obviously, things can come up when you get into the property, but you can know by (I’d say) 95% if that’s going to be a purchase that you’re gonna make before you leave your computer.

Joe Fairless: What are the main inputs?

Ricky Beliveau:  From a condo conversion standpoint, I’m looking at the building square footage… The most important thing from my standpoint is I’m looking at my sellable square footage, so I know that I can sell those condos for a certain price per foot. When I look at a building, if the building is only 1,500 square feet, I know that when I make it into condos I’m gonna lose the common area. There’s gonna be a very small sell-out on that, because the units are very small.

So I’m gonna look at the property and I’m gonna say, “Alright, what’s the total building area?” Usually, you can say about 85% is what you’ll be able to sell, so usually about 15% is a good guessment of common area. So you do 85% of the total square footage – that will give you the sellable square footage. And then since I have a really good grasp of my market, which is also important – knowing where you’re going to invest, I can then take that square footage and I’ll know what it costs me to build with that square footage for my construction costs, I also know what I can sell it at with those numbers, so before I even go see this property, I have a spreadsheet that’s already built out with my profitability.

When I get to the property, there could be things that come up – foundation issues, things that could make me adjust my sheet, but those are all items I’m able to enter in before I even leave my computer.

Joe Fairless: What does it cost to build?

Ricky Beliveau:  Right now we’re running our numbers for [unintelligible [00:19:50].27] renovation at around $150/foot. It ranges. Sometimes we’re under that, sometimes it goes a little over that, but in Boston that’s the calculation we’re using to see if a project is feasible or not.

Joe Fairless: And what’s it selling for?

Ricky Beliveau:  Right now in East Boston the prices have really rose. Now we’re in the high fives, low sixes per foot.

Joe Fairless: High five-hundreds?

Ricky Beliveau:  Correct, yeah. For a property that’s closing 1st May, maybe the average sellout was 573/foot.

Joe Fairless: And then the only other factor is the cost of acquisition when you factor in the costs, right?

Ricky Beliveau:  Yeah, it’s acquisition, and then there’s the other soft costs – there’s the carrying on the interest, the insurance, attorney’s fees… So that $150 is just the cost that would actually go towards the construction of it. There’s still the other soft costs that would need to be added in.

Joe Fairless: Okay. Is there a rough percentage that you use for that?

Ricky Beliveau:  No, I build those out in my analysis. I look at the acquisition price, I know what rates I’m getting from my lender, so I’m able to build that out. I use a 12-month timeline to give myself a buffer, so that I know where my interest will be if it does take me 12 months. It’s always better to overestimate these numbers and then in the end come back extremely happy with your results, than underestimate and then end up losing money.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Ricky Beliveau:  Let’s do it.

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

Break: [00:21:22].24] to [00:22:17].18]

Joe Fairless: Ricky, what’s the best ever book you’ve read?

Ricky Beliveau:  I’m not a big book guy, but lately I’ve been really enjoying the How I Built This Podcast that came out – that’s been really enjoyable the past few months.

Joe Fairless: That’s a book, or a podcast?

Ricky Beliveau:  A podcast.

Joe Fairless: Okay, it’s a podcast on how he or she built the podcast…

Ricky Beliveau:  No, How I Built This is a podcast that interviews some industry leaders – Mark Cuban, the founders of Instagram, for example, about how they got started and how they built their business, and the complications that they had to get to where they are. It really relates to real estate. We’re all looking to build these businesses, build our real estate empires or companies, and listening to these really successful people tell their story – it really translates to the real estate business.

Joe Fairless: Best ever deal you’ve done?

Ricky Beliveau:  We already ran through my last condo conversion, but it’s actually the first building I ever purchased. I currently own it today – it’s my largest rental property. My purchase price was $930,00 and reappraised for 2,2 million.

Joe Fairless: That was your first purchase?

Ricky Beliveau:  Correct.

Joe Fairless: Wow, how did you get the funds for that on your first buy?

Ricky Beliveau:  I used FHA Owner Occupant, and in Massachusetts at the time the max one you could get was $816,000 for FHA, and then actually using the paper that I wrote I went to my mother, who had just inherited some money, and I asked her if she would invest in the property with me. So she gifted me $160,000 to get me started on that first property.

Joe Fairless: And that was a single-family home?

Ricky Beliveau:  No, it’s a three-family property. When I purchased it, it was a nine-bed, three-bath; I lived in one of the units and I got my hands dirty and renovated it and turned it into a 12-bed, six-bath.

Joe Fairless: [laughs] Of course you did.

Ricky Beliveau:  I was able to really drive up the rents and drive up the value. And also, I bought it at the perfect time. Boston in 2010 had really plateaued. From 2007 to 2010 it had almost been dead even, and then right in 2010 is when the market started to explode, and it hasn’t stopped since.

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

Ricky Beliveau:  Right now I’m a member of the Venture Mentoring Network at Northeastern. What that is is it’s startups and college students who have ideas and they’re trying to start their businesses. Right now I’m mentoring a bunch of college students, trying to help them get their businesses going.

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

Ricky Beliveau:  Thinking back, one mistake I made from the start was that I tried to self-manage my rental portfolio. I think that you can’t really deliver the high level of service that these tenants need when you’re doing it on your own, at least from my standpoint. I quickly realized that it was a mistake that I was trying to do that on my own, and I was able to correct that by hiring a management company to take over that for me.

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

Ricky Beliveau:  You can find me on Facebook, Instagram, Twitter, all at Volnay Capital. You can also find me on my website, volnaycapital.com.

Joe Fairless: And I recommend the Best Ever listeners to go check out Ricky’s website, volnaycapital.com. It’s got pictures of the condo conversions, it’s pretty cool.

I really enjoyed this conversation on condo conversions, and other deals, but really we focused on condo conversions – the challenges that we might come across. Definitely a red flag if tenants are there, there likely will be issues. It’s not a deal breaker, but just expect for there to be issues. And then knowing your numbers, talking through how you calculate the back of the napkin math, and then you have your financial model, so obviously going much more detailed. During our conversation you gave really good, high-level back of the napkin approach for how to evaluate deals. Thanks so much for being on the show, Ricky. I hope you have a best ever day, and we’ll talk to you soon.

Ricky Beliveau:  Joe, thanks a lot! This has been great.

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Best Ever Show Real Estate Advice from experts

JF776: How He Raised Over $1MM On His FIRST TWO Syndicated Deals!

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Being new in the deal syndication game, it’s not likely that you would be able to raise over $1 million on the first two deals, but today’s guest did! He gives credit to a few networks that you need to hear about, turn up the volume and learn who you need to talk to!

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Dave Thompson Real Estate Background:

– Full time multifamily real estate investor
– Raised $1 million on his first two multifamily deals
– Over 5 year’s experience in purchasing single family properties before switching to multifamily
– Left full time high corporate position last year to pursue full time investing
– Based in Austin, Texas
– Best Ever Book: The One Thing by Gary Keller and Jay Papasan

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Best Ever Show Real Estate Advice from experts

JF764: How He Rolled His Capex Into a Multifamily Loan and Earned HUGE Cash on Cash Return

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Are you nervous about dumping your capital into fixing up your brand-new purchase? Today’s Guest enters deals very safely as he includes the cost of all capital expenditures into the loan. Hear how he ran into some road bumps but was covered due to the terms of his loan and check out his cash on cash return!

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Mark Walker Real Estate Background:

– Founder & President of Luxmana Investments LLC, which focuses on residential and multifamily investments
– Active real estate investor since 2004; began part-time while holding full-time job in high tech
– Built a multi-million dollar portfolio in less than four years
– Acquired 22 properties with an average cash-on-cash return greater than 20% in the first year
– Own property in four different states
– Based in Denver, Colorado
– Say hi to him at www.luxmana.com
– Best Ever Book: Rich Dad Poor Dad by Robert Kiyosaki

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Best Ever Show Real Estate Advice from experts

JF759: 5 Reasons Why Joe Bought a 296 Unit Apartment Complex #FollowAlongFriday

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Joe and Theo share their thoughts on Joe’s recent investment of a 296 unit apartment complex in Dallas, Texas. Growing rents, gentrification, migration of big companies to the Dallas area, already done for you remodel, and other reasons why sparked the idea to buy this property, tune in and hear the details!

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Want an inbox full of online leads?

Get a FREE strategy session with Dan Barrett who is the only certified Google partner that exclusively works with real estate investors like us.

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JF759: 5 Reasons Why Joe Bought a 296 Unit Apartment Complex #FollowAlongFriday

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Joe and Theo share their thoughts on Joe’s recent investment of a 296 unit apartment complex in Dallas, Texas. Growing rents, gentrification, migration of big companies to the Dallas area, already done for you remodel, and other reasons why sparked the idea to buy this property, tune in and hear the details! Best Ever Tweet: The odds of success increase the more you know about the market. Want an inbox full of online leads? Get a FREE strategy session with Dan Barrett who is the only certified Google partner that exclusively works with real estate investors like us. Go to http://www.adwordsnerds.com strategy to schedule the appointment. Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips: https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

no fluff real estate advice

JF704: When it’s OK to Use a $100,000 Earnest Money Deposit NONREFUNDABLE #situationsaturday

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He aggressively bid on a large Multifamily deal, and won the transaction. Hear the long purchase process that included providing credibility, aggressive offers, and being willing to lose a large deposit. Our guest shares all the ups and downs during the underwriting and purchase, tune in!

Best Ever Tweet:

John Cohen’s real estate background:

– Founder of JC Property Group
– Started in real estate buying tax deeds
– Based in Queens, NY
– In 2014 switched to multifamily and recently closed on a 48-unit syndicated deal in Columbus, Ohio
– Prior to that worked at Marcus & Millichap as a multifamily specialist in Brooklyn/Queens
– Played baseball at Queens College and Mercy College
– Say hi him at www.jcpropertygroupinc.com
– Hear his Best Advice Ever here: https://joefairless.com/blog/podcast/jf345-your-guide-to-direct-mail-cold-calling-and-multi-family-purchasing/

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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no fluff real estate advice

JF675: This Trick Will HIDE Your Assignment Fee #followalongfriday

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Tired of grumpy buyers of your deals that notice how much you are making on the assignment? Today Joe shares a trick that will help you skip the part that discloses how much you’re making. Turn up the volume!

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Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

no fluff real estate advice

JF673: How Speaking Engagements, Education, and Obeying the Market Helped Him Raise MILLIONS For Big Deals

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Today’s guest is not afraid to open his mouth, and at the same time he is a great listener. Hear how our guest is funding huge projects and developments from simply adding value to other investors. He is raising big money, speaking at REIA’s, and helping others along the way!

Best Ever Tweet:

Alex Franks Real Estate Background:

    – Principal of Bowler River Developments
– Closed over $15 MM in single family and commercial deals
– Based in Rock Hill, South Carolina
– Say hi at 8033706189

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

no fluff real estate advice

JF672: Why This Investor Won’t Touch Single Family Homes Now

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Today’s guest is an accomplished real estate investor that purchases multi family properties including large multi family commercial zoned land. He shares his concern for having multiple exit strategies and why single-family resident purchases are not the best investments, hear his Best Ever advice!

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Rod Khleif Real Estate Background:

– Host of “The Lifetime Cash Flow Podcast”
– Participates in Tony Robbins seminars
– Started the Tiny Hands Foundation
– Based in Sarasota, Florida
– Say hi to him at: http://www.lifetimecashflowpodcast.com/

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

real estate advice podcast

JF661: How to Grab Your Bonus Guide! #followalongfriday

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Joe shares how you can get his new book along with the bonus guide! He talks about the Get Motivated seminar which is nationwide and how he extracted goodness from the event. He shares his investments and current deals, tune in!

Best Ever Tweet:

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

real estate advice podcast

JF654: The BUSIEST 24 Hours of an Author, Podcast Host, and Investor all in One #followalongfriday

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Joe takes us step-by-step through a typical day in his life. He shares his routines, schedule, investing opportunities, and his new book. Too many items to list here so press play and take notes, begin filling that calendar!

Best Ever Tweet:

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Best Ever Show Real Estate Advice

JF646: How He STOLE This Deal Off of LoopNet

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Most people don’t try to browse through LoopNet as it’s known to be saturated with high priced multi family and commercial properties… little room for an investment. Today’s guest had his eyes on one, a 22 unit, and got it for a huge discount! It wasn’t that easy though, here are the struggles of our guest and how he prevailed!

Best Ever Tweet:

Bill Manassero Real Estate Background:

– Founder of Old Dawgs REI Network blog and website
– Acquired a 22 unit in Indianapolis
– Served as a missionary in Haiti
– Based in Orange County, California
– You can reach him at http://olddawgsreinetwork.com/

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Best Ever Show Real Estate Advice

JF642: All You Need to Know about Real Estate Syndications #skillsetsunday

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Today’s guest is an attorney who specializes in the creation and legalities of a proper real estate syndication. He speaks of the private placement memorandum and the total makeup of a security. He shares the importance of verbiage and proper documents. He also advises that you need to hire the right professionals to complete the syndication.

Best Ever Tweet:

Gene Trowbridge Real Estate Background:

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

JF640: 8 Creative Ways to break Into the BIG DEALS (Apartment/Multifamily Syndication) #followalongfriday

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You keep asking and now Joe is here to deliver! How to do the large deals! He’s going to go in depth while still hanging on the surface of each creative methods that you could utilize to jump into apartment syndication. Turn up the volume, you can’t miss this episode!

Best Ever Tweet:

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors.

We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

 

Best Ever Show Real Estate Advice

JF619: What You Need to Remember When Putting on an Event #followalongfriday

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Joe shares how to host a free event and get more attendees. He states the importance of being transparent with the attendee’s money. First your events should be free, then later you can charge a very small amount as you gain credibility. Joe shares news about his Dallas apartment community, his new book, and his brother’s military promotion.

Best Ever Tweet:


Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Do you need more leads for your real estate business and a platform to grab more leads?

Danny Johnson has a solution for you, go to leadpropeller.com set up your website for success and get more leads!

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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Best Ever Show Real Estate Advice

JF612: Joefairless.com REVAMPED! Send Us Your Testimonials and Be a part of Joe’s Book! #followalongfriday

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Joe updates us with all his apartment community closings, his brother’s honorable Army advancement, and the new website! Be sure to submit us your testimonials of the show to info@joefairless.com.

Best Ever Tweet:

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

Sponsored by:

Door Devil – visit  http://www.doordevil.com and enter “bestever” to get an exclusive 20% discount on your purchase.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:
https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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Best Ever Real Estate Investing Advice banner

JF603: Why Your Leasing Process Isn’t Effective and How to Change It

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Tenant Turner, it has a ring to it. Today’s guest put it all together, a software and company that can set up your rental properties from scratch. From a vacant start to a cash flow finish, this company will do it all. They will even contact your potential tenant’s current and previous employer, how about that? Turn up the volume!

Best Ever Tweet:

James Barrett real estate background:

  • Co-founder of TenantTurner.com/bestever,
    a tenant lead vetting and scheduling tool for landlords and
    residential property managers
  • James became a landlord in 2009 then again in 2011. After years
    of leasing the old way, he partnered with his best friends and
    fellow landlords to streamline the leasing process with
    software.
  • Based in Richmond, Virginia
  • His Best Ever book: How to Create Products Customers Love by Marty Cagan

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Need financing?

Are you a buy-and-hold investor or doing fix and flips?

I recommend talking to Lima One Capital. A Best Ever Guest told me about them after I asked how he financed 10 properties in one year. They are an asset-based lender with unique programs for long-term hold and fix and flippers.

Cli