by Joe Fairless

JF2660: 3 Ways to Pitch to Partners With Little CRE Investing Experience with Brock Mogensen

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Brock Mogensen went from completing one house hack to an 89-unit syndication. Self-taught and with limited commercial real estate investing experience, Brock was able to successfully pitch himself to partners. In this episode, Brock details how he crafted his winning pitch and the lessons he’s learned diving headfirst into CREI.

Brock Mogensen Real Estate Background

 

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TRANSCRIPTION

Ash Patel: Hello Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Brock Mogensen. Brock is joining us from Milwaukee, Wisconsin. He is a full-time real estate investor and has 10 million dollars of assets under management. Brock has also been syndicating deals for almost three years. Brock, thank you for joining us and how are you today?

Brock Mogensen: Doing well. Thanks for having me on.

Ash Patel: It’s our pleasure, man. Thanks for being here. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Brock Mogensen: Definitely. I got started in real estate a little over three years ago. I started with a house hack, so I bought a duplex, lived in one side, rented out the other, fell in love with everything about real estate, and decided this is what I want to do, I’m going to scale this and make it my full-time thing. From there, I got into syndication, spent some time learning the underwriting side. That was kind of my focus, it still is, and partnering with the right people. About a year after I bought the duplex, we syndicated in 89-unit deal, and have gone on to do five or six more since then. It’s been amazing. In that time, I was able to leave my W2 job and now I just focus 100% on investing in real estate.

Ash Patel: Man, that sounds easy. Hold on, let’s dive into all this. What were you doing before your house-hack? Or what was your full-time job?

Brock Mogensen: I was in a few different roles. I was in marketing, then I was in IT for a while; most of the time it’s like in an analyst-type role. I did have some skills that transferred over. I learned how to use a spreadsheet and kind of the analytical side of the business. Some of those skills transferred over, but nothing in real estate related in my W2.

Ash Patel: What prompted you to start house hacking?

Brock Mogensen: As I grew up, my dad owned two duplexes. Both my parents worked very blue-collar jobs. Growing up, I kind of saw just the power of simply owning four units, the cash flow from four units, what that can change your lifestyle. So it was kind of just ingrained that I was going to buy a duplex out of college, save up some money, and buy a duplex. I never really had the thought in the beginning that it was going to turn into what it is now, but that initial thought of just simply buying one property was always on my mind.

Ash Patel: So you never meant to scale it, it was just to provide some additional income.

Brock Mogensen: Exactly. In the beginning, it was more, I kind of just thought maybe I’ll buy a couple of duplexes throughout my life. But after that first deal, I fell in love with real estate and everything it provides, and I realized I got to go all-in on this and make it big.

Ash Patel: And then a year later, an 89-unit syndication. Give us the details of how that came together.

Brock Mogensen: My thought process was when I initially started researching syndication, there’s a ton of different stuff that goes into syndicating a deal. I knew I didn’t have the net worth, I didn’t have all the money, I didn’t have the investor base, I didn’t have a lot of these big pieces of the puzzle. So I figured, let me learn one piece of the puzzle, then I’ll go out and find partners that might be looking for someone on that piece, that is strong in the other areas. Underwriting, naturally was kind of where I spent some time learning. Once I became proficient in there, six or seven months later, after just doing everything I can, practicing, looking up as much content as I could, I went out, and networked a ton, I connected with one partner that had the same kind of mindset as me, then he brought on one of his other buddies that had much more experience and had been doing it for a while, he just hadn’t syndicated anything… And us three kind of just went from there and did that first deal. They brought the capital, they brought all those connections, and I was more on the analysis side. Since then, our partnership has gone great, we’ve done a ton of deals together, and now I kind of take part in the whole process now. But initially, it was a lot. I figured let me just learn one piece, instead of trying to learn everything in the beginning.

Ash Patel: Alright, you’re doing it again, you’re making things sound easy. Let’s dive in a little deeper. You said “when I started looking into syndications”, what prompted you to look into syndications?

Brock Mogensen: Really, it was this concept of wanting to go bigger. I realized that the way I was going to scale was by going after bigger deals. And obviously, the first thought is I don’t have an expendable couple thousand dollars each year to go out and buy a big apartment building… So I came across this concept of syndication, leveraging other people’s money to go after bigger deals, and just taking a piece of the pie, instead of the whole thing. I came across this subject, it caught my attention, and I realized this is the way I’m going to scale. I’ve started thinking about how do I get into this personally, with my skill set and what I have to bring to the table? What is the way I can get into this?

Ash Patel: Brock, how did you educate yourself on syndications?

Brock Mogensen: It was really just a ton of podcasts and books. I listened to this podcast quite a bit, just going out and finding everything I could out on the internet. I did a few small courses, but never really got into one of the larger mastermind groups… But it was really just going out and putting all the pieces together and pulling information from everywhere I could. There’s so much essentially free information out there just through podcasts and books for people. If you really are dedicated, you can learn it.

Ash Patel: Was part of your to-do list “find partners”?

Brock Mogensen: Yes. Initially, I just wanted to spend some time just learning. Before I started going out and searching for partners, I figured let me at least have an idea and kind of know what I’m talking about before I started sitting down with these people. But as soon as I became pretty confident and understood the process — I was going out and networking a ton and just telling everyone what my goals were. After a while, I connected with the right person and everything went from there.

Ash Patel: Brock, what did you bring to the table? Because you’ve done a house hack, why am I going to partner with you on a syndication?

Brock Mogensen: It’s a great question. It was really me selling these two partners that had much more experience than me that I was going to put in the work. I did all the analysis on the front end, so I was able to talk through, show what I knew on the front end, and then lay out what I was going to bring to the table throughout the entire deal. I took on a lot of the investor reporting, and a lot of the admin duties in the beginning that they saw value in bringing on someone. So you’re totally right, as someone who’s coming into it with just a duplex and not much money in the bank, it’s kind of hard to sell someone that has several hundred units on becoming a partner with them. It’s really obvious you’ve got to learn the ropes first, and then you just got to learn how to sell yourself.

Ash Patel: I love that, man. You did it. You educated yourself and you made it happen. You got the partners, you talk the talk, you put the work in, and did the grunt work, I’m sure in the beginning. What a great recipe for success. So what was your first deal, the first syndication?

Brock Mogensen: The first one was 89 units, a class C apartment in Milwaukee. That was the first big one that we did. There were definitely some learning lessons in there, but it was a good first deal to start out with.

Ash Patel: Is this a deal that the three of you did together or was in the works when you came into this partnership?

Brock Mogensen: Kind of in between. It was a deal that we were looking at for a little while, it fell out of contract, so we all kind of had our eyes on it. But they ended up getting it under contract and I came aboard right after they got it under contract. So it was kind of a mixture. We all kind of understood the deal, but it was just like we were talking about — I had to sell myself on how I can get on the GP team.

Ash Patel: And you spearheaded the underwriting?

Brock Mogensen: Correct.

Ash Patel: How the hell did you learn how to do that?

Brock Mogensen: It was a lot of mostly just practicing. You’ve got to learn the basics of what’s NOI and how to categorize expenses, all that fun stuff. But once you have that base knowledge, you can go buy a spreadsheet online from one of the operators, or you can build your own. But then I’d literally go on LoopNet every day, I’d find a deal that was in the size range I was looking at, and I would just plug numbers in, try to analyze it, some questions would come up, I’d do some Google searches, and there’s a lot of — practicing is the best way, like anything I know; like sports or anything else. The more you practice, the better you’re going to get. So pull deals and just try analyzing and see what happens.

Ash Patel: Just pure hustle and grind.

Brock Mogensen: Absolutely.

Ash Patel: Were your partners pretty impressed with what you were doing?

Brock Mogensen: Yeah, I think on the front end I definitely spent a lot of time really diving deep into everything to show my value, to show my analytical side, and what I was going to bring to the table. Both my partners are more on the sales side, so I think they saw the value in bringing on someone that’s analytical. Those are really the best sort of partnerships that are created. But it worked out.

Break: [00:08:14] – [00:09:47]

Ash Patel: How much did you lean on them for questions? Or did you try not to bother them?

Brock Mogensen: I definitely had a lot of questions. I had all the book knowledge, the podcasts, all that stuff’s great and useful, but it’s a lot different than actually doing it. Actual experience can’t be replaced by anything, no matter how much knowledge you have. The best knowledge is learned by actually doing it. Yeah, there was a ton of stuff as we were going through the process, and after we bought the deal. Some basic stuff, that looking back on it, I didn’t even know, that I was kind of just learning as I went. I had that front-end knowledge. But having partners that already had done these deals and bought big apartment complexes, being able to ask them questions… And the more deals we’ve done, it’s always a learning process. You never stop learning. It’s just a matter of asking the right questions and making sure you understand stuff.

Ash Patel: Brock, do you remember the numbers on that? The purchase price?

Brock Mogensen: Yeah, we were at about three and a half million purchase price.

Ash Patel: Class C. So what was the renovation amount?

Brock Mogensen: We ended up renovating most of the units. That was one of the learning lessons we had on the first deal, was always put more money in your reserve account than you think you’re going to need. We ended up having to pull from cash flow to do some of it, we ended up doing more renovations than we thought, we didn’t quite budget correctly… So that was definitely one of the learning lessons on that property. Now whatever amount we think it’s going to cost for rehabs, reserves, and tenant improvement costs all that stuff, we throw in an extra 20% to 30% in there just as a safety net. Because when you’re holding these deals for five to 10 years – that is usually how long you’re going to hold these types of deals – something in your proforma is going to go wrong. There’s always going to be some water heater you didn’t account for, or something in the roof, there’s always going to be something. COVID comes and you get 10% of your tenants who don’t pay rent; there’s going to be hurdles along the way, so I’d rather have that safety net in there. If you don’t use it, you just give it back to investors at the end.

Ash Patel: So that 20% to 30% buffer comes from investors.

Brock Mogensen: Correct.

Ash Patel: So you’re paying the returns on that money that you’re holding. Can you return that early?

Brock Mogensen: It’s a good question. We haven’t done that yet. We do have some properties where we have a ton in there, and we haven’t used any of them. Potentially, I think we’ll look at that as we get further down the road and if it gets to a certain point where it makes sense to distribute back. But so far, we’d rather stay on the conservative approach and just avoid having to do any capital calls. That’s the worst-case scenario really in syndication is having to go back to investors and ask for more money. So our thought process is we’d rather just have it sitting there, and if the numbers work based on that amount of capital being contributed, then there’s no harm in just letting it sit there.

Ash Patel: Yeah. And in terms of dealing with investors, did you move into that role? Do you interact with investors? Do you try to get new investors on deals?

Brock Mogensen: Yes. I’ve definitely had more and more deals that I’ve taken part quite a bit in the capital raising, and then I do all the investor reporting, so I’m putting together reports every month to send to investors, and tracking the financials. So I take part quite a bit on the asset management side as well… As well as my partners; we’re all kind of contributing to all aspects of the deal.

Ash Patel: Do you attract investors yourself?

Brock Mogensen: Yes.

Ash Patel: How do you do that?

Brock Mogensen: I try to do more and more on marketing, social media, email lists, and networking events, doing everything I can. I’d say our biggest source of investors has been from networking events. We started a meetup here in our state; it’s grown to be pretty big, and we’ve attracted quite a bit of investors through that. We’ve put quite a bit of time into marketing those events, to just bring in as many people as we can into our funnel, let them know what we’re working on, and see if they’re interested.

Ash Patel: Brock, what’s a hard lesson you learned about interacting with investors?

Brock Mogensen: That’s a good question. I think really just being upfront with investors and letting them know where you’re at and not exaggerating things. We’re very upfront about some of the learning lessons we’ve had on deals; we don’t try to hide stuff. We’ll lay it all out there and say, “This is what we’ve learned. We made some mistakes here.” We’ll kind of show some performance on some of our other deals. I think being transparent with investors is the biggest thing instead of trying to hide the stuff that they’re probably going to find out anyways. Be transparent on the front end, and I think that goes a long way in building rapport.

Ash Patel: What’s a hard lesson you learned about having partners?

Brock Mogensen: I’d say dividing work sometimes and figuring out what everyone’s strong suit is. I think the best partnerships are all these people that have different strong suits and kind of come together to create this partnership. If you can divide certain tasks to say “You’re better at this task, I’m better at this one. Let’s just kind of take these paths and go.” Sometimes that can get challenging, because there can be certain tasks where maybe you both think you should work on, but it’s better to just have one person. I think that’s always going to be a struggle, is defining those roles. Eventually, when you get to a point when you can start hiring employees, you can delegate more of those tasks, I think that becomes easier. But on the front end, that can get difficult sometimes.

Ash Patel: Have you read the book Who, Not How?

Brock Mogensen: No. I’ve heard of it though.

Ash Patel: Alright. So if you have partners that have the who not how mentality where they try to offload things, have you run into that where they offload something and you don’t want to deal with it, you don’t like dealing with it? How do you deal with that?

Brock Mogensen: It’s a good question. I would say, in the beginning, that was probably something that happened, where there might have been some tasks… But again, I was kind of coming in, showing myself, saying I’m going to do all these tasks, and do everything. I think in the beginning, there were definitely some things where it’s like, “I don’t really want to do this”, but I know I have to do it, to prove my value. Now that we’ve done more and more deals together, it’s all even. We all put the same amount of work, and have been able to hire some virtual assistants now, so we’re able to delegate some of those tasks. As you’re growing, there’s still going to be stuff you don’t want to do. You can’t outsource everything. So there are those days where it’s like “I don’t really want to do this, but I know I have to do it.”

Ash Patel: So it’s not “Hey, Brock will do it.” That doesn’t linger from the early days. “I’ll just give it to Brock. Brock will handle it.”

Brock Mogensen: No. I would say it’s pretty even now. Obviously, there are certain tasks where it makes sense. Like the reporting stuff and some of the admin stuff where I’m the one that’s kind of manning that stuff. It just naturally makes sense for me to do it, even though it might be more of a mundane task. That’s my role and that’s what I’m doing. They’re bringing in more of the capital, so that’s obviously a huge value-add on that side.

Ash Patel: Brock, what’s the hardest lesson you’ve learned in real estate in general? I’m talking about a tough lesson, a hard lesson, one that beat you down.

Brock Mogensen: I would say, really going back to that first deal we did. We had a few learning lessons there. I think it really changed our business plan of wanting to not necessarily target any C-class properties anymore. We’ve had quite a bit of struggles there, where we didn’t budget correctly on the front end, ended up having to evict much more tenants than we thought, which led to more unit turn costs… Then once we get all that figured out, we’re finally in a good place and hitting our proforma, COVID decides to hit. We have 10 tenants walk in and say they’re not going to pay rent, we can’t do anything about it.

Then we had to kind of go back to the drawing board on that and figure out a way to get out of that. We had to work with some local community programs to get funding to cover some of that. So there was definitely a ton of learning lessons on that first deal. I think it’s just a matter of… There’s always going to be learning lessons on every deal, and just taking that, and making sure you don’t make the same mistake again.

Ash Patel: Yeah, that’s a tough position to be in. It feels like the walls are caving in on you.

Break: [00:16:27] – [00:19:20]

Ash Patel: What were some of the issues with, you said class C properties? Was it the tenants or was it the renovations?

Brock Mogensen: The tenants, I would say. Really, I think it’s just… There”s good deals, I think right now especially, even the C-class deals. The cap rate difference between a C deal and a B deal – really not that much different nowadays. I think, personally, I’d rather pay a little bit more, have a little bit less of a return on a B class deal on the front end, and cash flow, to know it’s just going to be smoother on the management side. Generally, the B class, it’s going to be easier to exit those sorts of properties.

Ash Patel: The $3.5 million property – is that close proximity to where you guys are?

Brock Mogensen: Deal size we’re looking at now…

Ash Patel: No. Location-wise. Sorry.

Brock Mogensen: We’re in the Greater Milwaukee area. My partner’s management company is right outside Milwaukee; an hour radius of Milwaukee is kind of our target zone.

Ash Patel: Got it. What advice do you have now in managing C-class tenants?

Brock Mogensen: Really keeping a pulse on everything in the property, looking at the numbers daily, and having some sort of KPI reports. We learned to really track collections, see and stay in touch with the on-site manager there to understand… We have a call with them each week to understand where are we at, “We’re only at 80% collected, and it’s the 15th of the month. Give us a list of those 10 tenants that haven’t paid yet. What’s the status? ” You really have to keep a pulse, especially in that space where they might not care as much about their credit, so if they don’t pay for a few months, they’re not too worried about it, as long as they get away with it. I think really, the collection is a big part of that, and managing expenses as well. Tracking KPIs every day on a weekly basis, at least, looking at the numbers, and talking to your property management company to make sure we’re doing everything we can to hit proforma – that’s the key, I think.

Ash Patel: Do you remember what the total renovation cost was on that property?

Brock Mogensen: We’ve put at least 200 grand into renovations. In the beginning, we were flipping units and kind of putting in the LVP flooring and everything. Now that we’ve realized there’s not as much of a rent bump there that’s worth it for those costs, we’ve kind of trimmed down some of those unit flip costs, which has helped. But yeah, there were a few other items. We’ve put in new lighting, we updated the camera systems, stuff like that, that we did budget for on the front end. But the unit turn costs are really something that usually are going to be more expensive. It’s going to be, especially now, with supply costs going up, labor costs going up, 5% or 6% a year. You have to account for that and assume it’s getting more expensive than you think.

Ash Patel: I’m glad to hear that you guys pivoted and changed how you renovate the units. If you’re not getting the returns that you anticipated, why continue super-improving properties?

Brock Mogensen: Exactly.

Ash Patel: Yeah, that’s a great lesson. How long is the hold on this property?

Brock Mogensen: We were targeting a seven-year hold on that property. We’re about two and a half years in, so we’ll get a few more years before we start looking at an exit.

Ash Patel: Why seven, versus five or less?

Brock Mogensen: A lot of it has to do with the loan structure. We use agency debt on that. There is a prepayment penalty all the way up until year seven. So even if someone were to come in today and say, “Hey, we will pay you a million dollars more than you bought it for.” If you look at their prepayment penalty, it’s really not going to make sense. That’s I think one of the downsides to working with agency debt, they almost always are going to have a higher prepayment penalty, unless you structure it a different way. But that’s where it really doesn’t make sense. Maybe when we get year five or year six, it might make a little bit more sense if you look at the prepayment penalty. But the 10-year note, at year seven, that prepayment goes away, so we do have a nice three-year window there to sell. But that’s the main thing, is looking at that and deciding when it makes sense. One of the benefits of working with local banks is, a lot of times there’s no prepayment penalty.

Ash Patel: Is that prepayment penalty staired, where it gets reduced each year?

Brock Mogensen: Not in our structure, no. It’s all just based on what’s owed.

Ash Patel: What’s the penalty?

Brock Mogensen: We have to pay out all the interest owed until ,up until year seven. If you look at the numbers and we’re in year three, four years of interest is a lot of money.

Ash Patel: Is that loan assumable?

Brock Mogensen: That is a good route and a good question. Yes, we do have the option to assume it. And we’ve kind of looked at exploring it for some people that have looked at it and made us some soft offers; we’ve kind of tossed that out there. I think most investors don’t like to assume a loan, especially with interest rates having gone down probably 100 basis points. We’re at like four and a quarter, I think, on that deal, right now… They need to get money in the 2% range now, so it’s a pretty big jump down there where a lot of investors are like “No, I want to get my own loans. I know I can get much better terms.” I think that just adds a little bit more hair on trying to sell someone a deal early.

Ash Patel: How much did you have to put down?

Brock Mogensen: That deal, I think our total capital raise was 830k. We did 80% LTV on that deal.

Ash Patel: Awesome. Brock, what is your best real estate investing advice ever?

Brock Mogensen: I think thinking big. A lot of who people get into real estate and just assume the only way to get deals done is to save money and buy a deal. But just think big and think creatively. There are a million different ways in real estate to structure a deal. You can get creative on a lot of these deals, and then get into some larger deals with less money out of pocket than you might think.

Ash Patel: Great advice. Brock, are you ready for the Best Ever lightning round?

Brock Mogensen: Let’s do it.

Ash Patel: Let’s do it. Brock, what’s the Best Ever book you’ve recently read?

Brock Mogensen:  Somewhat recently — I like some of the mindset books. I read 10X Rule. I got it here in my background, actually. I like that book for mindset and kind of thinking big.

Ash Patel: What was your big takeaway from that?

Brock Mogensen: Just that whatever your mindset is right now and whatever your goals are set at, you can think much larger, and just grow how you’re thinking. That really was a huge pivot point for me. Looking back at some of the goals I had three years ago when I was first starting, compared to the goals I’ve set now – they are just so much larger.

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

Brock Mogensen: I would say providing people with the education of learning real estate. I get a ton of calls a lot of times from people and I just explain how real estate works. I talk to my friends about it, show them the basics, [unintelligible [00:24:54].23] and invest in real estate. That’s, I’d say, at this point the way I’m giving back most, is through education. I have some bigger goals down the road, but that’s where I’m at right now.

Ash Patel: Brock happened the Best Ever listeners reach out to you?

Brock Mogensen: Yes. I’ve tried to post quite a bit on Instagram, real estate stuff. That’s just @brockmogensen. My email is brock [at] smartassetcapital.com. Our website is smartassetcapital.com, we have some free downloadable templates there, and some different eBooks.

Ash Patel: Brock, I got to thank you again for your time today. It’s hard to believe that it was only three years ago that you started a house-hack, and now you’re doing syndications. But you worked your way into this partnership, you hustled, you put the grind in. I love your story. Thank you for joining us today.

Brock Mogensen: Thanks for having me on, Ash.

Ash Patel: Awesome. Best Ever listeners, thank you for joining us and have a Best Ever day.

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 by Joe Fairless

JF2656: Expanding Your Comfort Circle: From Youth Ministry to Multifamily with Slocomb Reed

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From youth minister to now commercial real estate investor, Slocomb Reed isn’t afraid to take chances to grow. He’s taken his portfolio from the ground up and now owner-operates over 65 units. In this episode, Slocomb discusses his past deals and how risk taking has paid off big time.

Slocomb Reed Real Estate Background

  • Director of Investment Services for The Chabris Group of Keller Williams Seven Hills Realty, the largest real estate sales team in Greater Cincinnati by number of sales.
  • Began investing in 2013. Went full-time as a sales agent in 2015 while continuing to invest.
  • Portfolio: Owner-operates over 65 units ranging from single-families to apartment buildings with 20+ units.
  • Based in Cincinnati, Ohio
  • You can find him at www.linkedin.com/in/slocomb-reed-b7145b1a/

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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. 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 fluffy stuff. With us today, Slocomb Reed. How are you doing Slocomb?

Slocomb Reed: Doing great. I’m grateful to be here, Joe. Thank you.

Joe Fairless: I’m glad to hear that and I’m looking forward to our conversation. Slocomb is the director of investment services for The Chabris Group of Keller Williams Seven Hills Realty. It’s the largest real estate investment sales team in Greater Cincinnati by the number of sales. He began investing in 2013 and he went full time as a sales agent in 2015 while continuing to invest on his own. In fact, he is an owner-operator who has over 65 units ranging from single families, to hold and flips, to apartment buildings with 20+ units. Based in Cincinnati, Ohio. With that being said, Slocomb, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Slocomb Reed: Absolutely Thanks, Joe. I came to real estate investing as a full-time professional youth minister with a bunch of side hustles. I read Rich Dad Poor Dad in the spring of 2013, kind of in preparation for my wedding actually, which was in May of 2013. I fell in love with the Rich Dad books, read several of them, landed on the strategy of owner-occupying a two to four-family as my go-to side hustle. I didn’t know it was called house hacking at the time, because I didn’t find Bigger Pockets until a year or two later. I fell in love with real estate. We bought a four-family, closed on it on Valentine’s Day of 2014, moved in, it turned out I was a natural at dealing with tenants. I’ve never been handy so that was definitely the first thing I hired out, was fixing toilets and things. But I loved the math of real estate. It looked like a space where there was ample opportunity so I decided to dive full-time into real estate.

It looked at the time like becoming a residential sales agent was the best way to do that. I still think that’s a great move for a lot of people. Plus, a youth minister’s salary is pretty easy to replace. I kept a quarter-time youth ministry gig for a few years after that though, while I was in sales full-time. As I did that and used my experience as a sales agent to become a better investor, to represent investors, and learn about the market, the industry, build my own skills, continued investing, bought my second deal, which was a BRRRR deal, in 2016. I have been off to the races since then.

Joe Fairless: As a sales agent, you learned a lot about investing. What are some things you picked up as an agent? Because I ask that for people who are looking to become a real estate agent and transition to investing full-time. I just wanna hear what you learned.

Slocomb Reed: Becoming an agent gives you the opportunity to think like an investor and analyze deals like an investor, effectively for a salary. It’s a commission but you’re getting paid for getting deals closed, whereas most buy and hold investors are putting out money when they purchase. Part of what they’re putting out is going to you in the form of income. So it gives you the opportunity, when you get investor clients, to do a lot more deal analysis, to get yourself in front of other investors, learn what they’re doing, learn by helping them accomplish their goals. Also, when you have a lot of investor clients, you are in and out of a lot of buildings that you’re showing them, getting the opportunity to see what they think about the condition, what issues concern them, what issues don’t, attending inspections, and asking inspectors questions.

Basically, you get to dive head-first into some of the biggest decisions that real estate investors ever make without having the financial risk of putting your own money into them, and in fact getting commissions for doing it. It definitely accelerates the learning curve, for sure.

Joe Fairless: Do you make less money working with investors than you would non-investor clients?

Slocomb Reed: That’s a great question, Joe. I think the best way to answer that for an agent or a prospective agent is that you should find your niche, you should figure out what it is that you’re passionate about. In real estate in general, whether as an agent, some other service provider, as an investor, one thing that’s really helpful is finding the hard work a lot of people don’t want to do, that you enjoy.

For me, I needed time to swing into working with investors full-time, but I enjoy investors more. On a transaction-by-transaction basis, the most important thing for an agent, especially representing buyers – your ability to earn is not only linked to the purchase prices of the properties that your clients are purchasing, it’s also linked to how much of your time is used up representing your client in that transaction. As you get good at sales, and as you get good at understanding investors and their needs and their goals, I got to the point rather quickly where it did not take a lot of my time to help my investor clients find the properties that they wanted. So I would spend a quarter as much time helping my client buy $150,000 investment property as I would helping a $300,000 single-family owner-occupant homebuyer find their home, because I could dial into the investor’s mindset just looking at the property online; I knew which ones they needed to get into and I know which offers they needed to write. So I could get four times as many deals done in that $150,000 duplex range as I could with a $300,000 owner-occupant homebuyer. More income for me, because that was my specialty and that’s the work that I wanted to do.

Joe Fairless: You did single-family homes. When did you buy your first, we’ll call it, five-plus unit property?

Slocomb Reed: My first five-plus unit property was a six-unit, in April of 2019. I had been using virtual assistants in the Philippines to help me with lead generation. I build out a list that they call, and then they basically schedule follow-up appointments with me with the people that they’ve found to be motivated sellers. They scheduled a follow up call for me for a property like this, the amount that the seller wanted for it, made it a really good deal, so my partner and I took it down.

Joe Fairless: How many purchases had you made, either exactly or approximately, up until that point?

Slocomb Reed: That would be four.

Joe Fairless: Four purchases. Okay.

Slocomb Reed: Two house hacks and a BRRRR, a three family and a BRRRR duplex.

Joe Fairless: Okay. You and a partner on the sixth unit, how did you structure it?

Slocomb Reed: He was a client who I actually met when I was presenting at our local meetup here. This isn’t his Best Ever real estate investor mastermind. I was speaking, he came up to me and said, “Hey, it sounds like you need to be my agent.” I said, “Great.” I helped him buy a couple of things and he was hearing about these BRRRR (buy, rehab, rent, refinance, repeat) deals that I was doing, where I was getting all of my starting capital back, and then some, within 12 to 18 months of purchasing. For him, the math made enough sense that he proposed to me, “Hey, if you can find a deal for us to do together where I get all my money back within 12 to 18 months, I’ll fund the deal entirely and we’ll split it 50/50.” I said, “Yes, please. Thank you.” So I found it, I negotiated it, I did most of the management of it while we owned it, and he funded the deal. We ended up actually selling that one rather quickly. We bought it for 225, we sold it for the equivalent of 325 about 16 months later, without needing to do too much work to it in the meantime.

Joe Fairless: So like 5000 in improvement dollars, or if that…

Slocomb Reed: We probably spent 10 grand in improvement.

Joe Fairless: So all in 235, and sold it for 325. How quick was that turnaround, from buy to sell?

Slocomb Reed: It was about 16 months. We listed it in order to sell it, having owned it for just over a year, so we’ve paying long-term capital gains. But also, while we were in escrow, COVID-19 was announced as a pandemic and all the banks that were underwriting loans, at least in the Cincinnati area, started reconsidering those loans. Our buyer lost his loan, and we had to go back to the market. So we were really trying to sell it after 12 months, but ended up at like 16.

Break: [00:09:34] – [00:11:07]

Joe Fairless: What was the next deal after the six-unit?

Slocomb Reed: The next deal after the 16 was…

Joe Fairless: Did you say 16 or six?

Slocomb Reed: Sorry, six. Only six. My bad. The next deal after the six-unit was a 24-unit on the west side of town that I had actually found off-market for a client of mine who bought it. He’s a non-local investor, he was having trouble finding good management. So I ended up buying it from him about 18 months after he purchased it, and basically paid him what he had in it, and we took over to get it. It was at like 50% occupancy, and some of his tenants didn’t want to pay rent, so we had a lot of work to do to get it up to performing at market. But that was a really good deal for us.

Joe Fairless: Alright. You just bought a 50% occupied property. It’s the largest property you’ve ever bought, by four times. What gave you the confidence that you could turn it around, and then how did you do it?

Slocomb Reed: That’s a great question, Joe. I enjoy expanding my comfort circle, one rung at a time. I probably took on two to three…

Joe Fairless: That’s four; those were four rungs.

Slocomb Reed: I probably took on a couple of rungs of that one. The learning curve was steep to be sure because that was definitely a C-class neighborhood. So we’re talking affordable rents, for sure. There were a lot of things about managing in lower-income areas that I had to learn. But really, what we were looking at was that the deal was good enough on paper. Like what Robert Kiyosaki says, you make money when you buy. And we knew we were getting a good enough deal that no matter how difficult it was to get this place turned around, it will work out for us.

Let me give you an idea of those numbers and you can tell me if there are any more details you want to get into. We bought it for 635, the average rent was around 515 a month, 24 one-bedrooms. We were told that rent would never go above 575 in that area for a one-bedroom apartment like ours. We spent a little under $100,000 getting it totally up to snuff, so in it for around 735. We ended up filling all of the apartments at 650 a month.

Joe Fairless: Wow.

Slocomb Reed: Yeah, when we went for our cash-out refi to finish the BRRRR process. Because it’s a depressed area and there are very few comparable sales, because there just aren’t a lot of apartments in that part of Cincinnati, we were given an 8.6 cap. But even at an 8.6 cap, it appraised for 1.1 million.

Joe Fairless: Wooh, doggies! There we go.

Slocomb Reed: It was a juicy one. Yes, there was a lot of…

Joe Fairless: You said 1.1 million, and you’re all in at 735.

Slocomb Reed: Correct. At an actual eight cap, it would have appraised for one and a quarter. But we couldn’t get the appraiser down from that 8.6. This means it also has a sweet cash flow, because of how high the cap rate is. But yeah, that was a big one for sure, and we knew going into it — we didn’t know that we’d get 650 as easily as we did, we didn’t know that we’d get the 1.1 valuation; we were expecting to be in the high eights, hopefully. But even in the high eights, we knew that we’d have a really nice refinance and we’d have a great property. We actually put it on a 15-year fixed rate mortgage at 4%. Our plan at the moment is to actually let it get paid off and to own it free and clear 15 years from now, because 15 years from now my partner’s younger daughter and my daughter will be graduating from high school. So maybe the coolest phone call I’ve ever had in real estate was calling my parents right after that cash-out refi to tell them that I put a 24-unit apartment building in my daughter’s college fund.

Joe Fairless: Nice. That’s cool. That’s something I know she’ll appreciate, even if she can’t say it now. Or I guess she could say, but even if she doesn’t understand the benefits that will take place as a result that.

Slocomb Reed: I bring her to my projects whenever I can. I’m working on a 26-unit right now, she spent Sunday at Home Depot with me. I was carrying the paint buckets into the apartments and she was carrying the tape. Whenever she gets into a new place, she always says, “Daddy, this house – amazing.” Every time; it’s awesome, it’s adorable.

Joe Fairless: I’d like to get into some more details of how you’re able to turn it around though. Because there’s that 50% occupancy, and I’m glad that we went over the detailed numbers. So that’s what happened, but now let’s talk about the how. How did you go from — and you mentioned “we”. First off, who’s we?

Slocomb Reed: We is my partner and me. It was the same partner I bought the six-unit with. He actually did bring all of the funds to close the 24-unit. Then it ended up being my funds that did a lot of the renovating.

Joe Fairless: How did you do it? How did you get it occupied, stabilized, and get the right people in there, all that stuff?

Slocomb Reed: The first thing here, Joe, is that we got really good debt. I use a commercial mortgage broker here in Cincinnati named Kurt Weill, and he really has his ear to the ground with what local banks here – which ones are hungry to lend to real estate investors and apartment investors, which ones are going to get aggressive and give us really good terms, and which ones are really sitting on their hands and letting the market play out, based on the way that banks run their own numbers to determine what kind of risk they want to take. We were able to get a loan with interest-only payments for one year, and a construction second that covered a lot of that renovation cost. When we took over a 24-unit with 15 tenants in it, and only nine of them felt like paying rent, we had an interest-only mortgage which made it a lot easier to make those mortgage payments with the cash flow from nine of 24-apartments. But also, we had a construction loan with $70,000 of funds coming back to us after we did things like resurfacing the parking lot, replacing all of the original windows and sliding glass doors in these two 1978 12-plexes, and start turning apartments.

Financially speaking, the interest-only debt was really helpful. And the fact that the first 70 grand we spent came back to us from the construction note helped us accelerate that renovation as well. I am doing something similar with a 26-unit right now.

Kind of the steps in that process are 1) establish myself as new management, demonstrate that I respect the current tenant’s homes, and that I expect a level of respect from them that they have not needed to demonstrate before… Because I’m typically taking over from management that’s not as active as we are. The first thing I do is any major capital improvements that are needed. In both cases, this 24 we’re talking about and the one I’m doing now, the first thing is resurfacing the parking lot, getting rid of all the potholes, getting nice, good asphalt, restripe all the spaces, making sure we have enough parking spaces to meet the demand of all of our tenants having cars. In affordable lower-income areas, it’s really important to me that I know I can get tenants with cars… Because having wheels is effectively an employable skill especially when something like COVID happens, a lot of smaller businesses are closing, and a lot of bigger businesses like Amazon and Kroger, the largest grocer here in Cincinnati, are hiring like gangbusters. I want to know that my tenants are the ones who are able to go get those jobs when they get laid off. So resurfacing parking lots is a capital improvement that tenants feel strongly about. It also changes the aesthetics of the exterior a lot. Go ahead and make the property a nicer place to live, and then get the apartments on the market at the higher rent that I’m expecting. And when they start leasing at that higher rent and I know I can get that higher rent, that’s when I raise the rent on the inherited tenants, to whom I have already demonstrated that I’m going to make this a nicer place to live than they had when they moved in.

Joe Fairless: Resurface parking lot… What other things do you do initially to make it a better property that is noticeable to the tenants?

Slocomb Reed: A big part of what they notice, Joe, comes down to communication. We are very proactive in communicating with our tenants. For example, with the 24, when we replace all of the original casement windows and sliding glass doors with insulated vinyl, we made sure our tenants knew that that was going to bring down their electric bills, because these buildings have electric heat and electric air. So they are covering the expense of heating and cooling their own apartments. So not only are the windows and doors nicer, but they’re also going to reduce our tenant’s bills. We introduce it that way when we explain the hassle of having people come into their home and take out their windows, replace them with other windows, and then have to take care of the walls and the pain afterwards.

We did a lot of renovating individual apartments, putting down new LVP, swapping out tubs and vanities, some cabinets, some cabinets we left, and countertops, light fixtures, outlets, switches, covers, paint, of course… Then also, when we had the majority of the apartments renovated and it was time to raise the rent on the inherited tenants, we gave them the opportunity to move into a newly renovated apartment at that same raised rent, which would give us the opportunity to get into their old unit and get that one done, so we can get good rent there as well.

Break: [00:21:20] – [00:24:13]

Joe Fairless: Really quickly, that’s a 24-unit. The 26-unit, which I heard you say you’re doing a similar process that you did on 24-unit… How did you find the 26-unit?

Slocomb Reed: I’ve found the 26-unit through networking with property managers. I connect with property managers for a couple of reasons. One of them is I effectively am a property manager. I am the manager of my own property, so sometimes I have questions, issues that I’m working on, the opportunity to pick their brains and figure out if there’s something obvious that I’m missing within management and dealing with difficult situations with tenants… But also, I am asking property managers about the clients they have who are a pain. The ones who just want the apartments filled all the time and are never willing to fund renovations, or they’re only willing to fund half of what the property or the unit needs in order to command market rent, and then those owners panic when their only half renovated apartment sits empty for too long, so they ask the manager to put someone in below market just to get it filled so their expenses are being covered… I reach out to property managers to ask about those clients of theirs, and whether or not I can make an offer, let the property manager get the commission for representing the seller, and take the manager’s problem properties off of their hands. I take it over, I manage it, they get a juicy commission.

Joe Fairless: I love that. And you closed on a 26-unit with that approach?

Slocomb Reed: Yes, closed on it last month.

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

Slocomb Reed: My best advice ever is to do the thing that you’re thinking about. Go ahead and jump in the pool. Be willing to expand your comfort circle.

Joe Fairless: We talked about how you went from the 6-unit to the 24-unit, so putting your advice into action, and then recently closed on that 26-unit. We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Slocomb Reed: Let’s do it.

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

Slocomb Reed: I love being involved in youth ministry and the church. I also love doing things like hosting meetups and advising newer investors, people who are going where I’ve been.

Joe Fairless: What deal have you lost the most amount of money on and how much was it?

Slocomb Reed: You know, I haven’t lost money on any deals. Basically, I’ve held things long enough to profit on them. I have had contractors steal tens of thousands of dollars on a property. I bought it well enough that I held on to it long enough that it appreciated and I made a small profit.

Joe Fairless: What deal have you made the most amount of money on and how much was it?

Slocomb Reed: The 24-unit that we just discussed would be the biggest numbers, but frankly, I bought my four-family house hack for 170k in 2014, and just earlier this year, it appraised for 500k. When you look at the fact that I bought it on an FHA loan and I paid 170k for it, and now it’s worth half a million, I’m going to call that the most money that I’ve made on any one deal. I still own that, it was a cash-out refi.

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

Slocomb Reed: The best way to get a hold of me would be by email, at slocomb@tlp-management.com.

Joe Fairless: Best Ever listeners, I want to let you know first that Slocomb will be a new interviewer; he is currently an interviewee right now. He will be a new interviewer along with Ash Patel on the show. I’ve known Slocomb for eight years or so…

Slocomb Reed: Yeah, around six or so years six.

Joe Fairless: Six or so years. Okay. Thank you for fact-checking that. Around six or so years, and I know him originally through the meetup that we do here in Cincinnati. I can tell you that I handpicked Slocomb, and I’m grateful that he said yes to do interviews for this show. Because when I hosted that meetup – I don’t really host it anymore, I don’t really attend it often anymore… Slocomb now hosts the Cincinnati meetup. But when I was hosting it and I would be interviewing people in front of the group, Slocomb always would stand up and ask pointed questions that were very insightful, and I knew from that experience that he’d be a great person to interview guests on this show. In addition to that, as you heard through this interview, he is doing larger deals, and he’s doing them in a way that he’s getting hands-on experience, so he knows the owner-operator front and he’s doing them in a creative way too, which I thought would bring another good angle to the show. With that, I’m grateful to officially announce that Slocomb is going to be doing some interviews. I will still be doing interviews, but I’m scaling back the amount of interviews that I do. Ash and Slocomb are going to be doing more.

Slocomb Reed: Joe, I’d like to speak on this as well. I’ll be quick. We met because I put a super clickbaity post on Bigger Pockets to connect with as many investors in Cincinnati as would comment. Those investors were the people who were going to your meetup, and they told me that’s where I needed to be. Joe Fairless had a meetup in Cincinnati in-person, and there was a great opportunity for me to come, learn, ask questions, take notes, meet a lot of people. I met a lot of clients and a couple of business partners in that room. And as you grew that meetup, Joe, I took advantage of every opportunity I possibly could, to basically ride your coattails and build my own business through the meetup that you created. I was very grateful for the opportunity to start hosting that meetup when it was time for you to step away from that. I’m also very grateful to have this opportunity to be helping host the Best Real Estate Investing Advice Ever Show.

The saying “A rising tide lifts all ships”, Joe – in real estate investing, you’re the tide. And I’m very grateful for the opportunity to be one of these ships that have the opportunity to rise with the tide that you’re building through all the work that you’re doing – your podcasts, your books, your meetups. Thank you, Joe. I’m very grateful.

Joe Fairless: I appreciate that. Best Ever listeners, the quality of interviews will continue to be high and probably even higher, so I’m grateful that we’re able to bring someone on like Slocomb. With that being said, Slocomb – great conversation. Looking forward to everything we have together in the future as well. Talk to you again soon.

Slocomb Reed: I appreciate it. Thanks again, Joe.

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 by Joe Fairless

JF2643: The 5 Secrets to Closing Your First Deal with Michael Blank

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Starting off on your first deal can be daunting. How big of a deal should you aim for? How do you build a good team? Where can you find a good network? Host Joe Fairless and guest Michael Blank share their top five secrets to closing your first deal.

Michael Blank Real Estate Background

    • Entrepreneur and investor
    • Helped investors purchase over 9,500 units valued at $445M through his training programs
    • As CEO of Nighthawk Equity, he controls over $200M in performing multifamily assets 
    • Based in Atlanta, GA
    • Say hi to him at: www.themichaelblank.com

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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. 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 fluffy stuff, and we’ve got something for you today. And I’m sure you are wanting to dig in, because you probably read the title of this episode. So I’m going to just tell you right now, The 5 Secrets to Closing Your First Deal. That’s what we’re going to talk about today with Michael Blank. How are you doing, Michael?

Michael Blank: Hey, Joe. I’m doing great.

Joe Fairless: Well, I’m glad to hear that. Five secrets to closing your first deal is what we’re going to talk about. You know, Michael Blank; either you’re a loyal Best Ever listener or you’ve come across him in other circles, but I’m just going to give you a quick refresher and then we’ll get into it.

He has helped investors purchase over 9,500 units valued at $445 million through his training programs as CEO of Nighthawk Equity. He controls over $200 million in apartment communities. He’s based in Atlanta, Georgia. His website, themichaelblank.com, you can go to it, it’s also in the show notes.

So, today we’re going to talk about The 5 Secrets to Closing Your First Deal. And just a quick personal note, that is the most important deal, the first deal. There’s so much power and momentum when you get one deal done, and I know Michael subscribes to that same philosophy, and that’s why we’re going to be talking about this.

So with that being said, Michael, how should we tee this up? What have you found are the five secrets to closing your first deal?

Michael Blank: Yeah, I’m going to use the first one of five. We only go for five, right? But the first one is you’ve got to operate with total integrity. Here’s what I mean by that. You’ve got to stay true to yourself. Integrity means different things to different people. What it means to me is you’ve got to stay true to yourself; don’t try to be someone else… And that includes, for example, looking at your strengths and weaknesses. What are you good at, what do you love to do? …and focus on those things. For example, maybe partner with someone who doesn’t have those strengths.

It also means, obviously, doing what you say. That’s one of our company’s values, is always do what you say, and it’s amazing how many people don’t do that. And the third component real in operating total integrity is serving other people; looking for ways to serve other people. Because I’ve started this whole entrepreneurship thing from more of a financial aspect, like how much money can I make, so I can quit my job. It was financially-driven. There was really no element of service in there. And what we’re doing getting into the syndication business is we’re literally building a multi-million dollar business. It’s a foregone conclusion. But how in the process can you serve other people? How can you serve your passive investors? How can you educate them to this asset class, right?

So the bullet number one for me is operating with total integrity, not only for yourself, but also as you evaluate partners, for example, or support groups, or anybody else. So that’s number one for me.

Joe Fairless: Yeah, and I’m glad it’s number one, because people are smart and people have emotional intelligence, and most people can pick up on if someone is not being true to who they are, if they’re trying to fake something. And I’ve always said, I have a great amount of respect for bands, artists who write their own lyrics. I might not agree with what they’re singing, but man, they’re writing it, and that’s what they’re feeling. That’s who they are. Same with this. Be true to who you are. People might not like it, and they might not agree with everything you say, but most importantly is just be true to who you truly are, versus trying to be someone else. What’s number two?

Michael Blank: Number two, is to follow a specific, proven process. When I got started, and when you got started, there wasn’t a lot out there. There was maybe one person doing a seminar, there was one book. In the meantime though, so many years have gone past by, that there’s actually proven processes out there. So find a specific proven process that has been shown to work – I just call it the dealmaker blueprint – and then just follow that process. You wrote a great book about syndication, you’re outlining steps that lead to a deal. That’s a great process.

So in other words, educate yourself. Don’t do what I did, trying to figure this thing on my own. You’ll eventually get there, but it’s super painful… Versus instead, why don’t you try to follow a process that already exists, that’s maybe worked one or two times?

Joe Fairless: Makes sense. Number three?

Michael Blank: Number three really is purchase large properties, and you probably don’t disagree with me on this. It’s just because that is just they’re more profitable, they’re more stable, you achieve your goal faster, and it’s also more fun. Now, having said that is a caveat, because I’m not necessarily a go big or go home kind of guy. It’s not like that, like, “Well, if you’re not going to do 100+ unit deal, then you might as well not even get started.” That’s not what I’m saying. What I’m saying is you should do the largest possible deal that you can, and normally, that is limited by your comfort zone, by your mindset. I’m not even saying it’s limited by your resources or who you know; it’s actually not the case either. It’s really your comfort zone or your mindset.

There are ways that you can expand your comfort zone, to get into larger and larger deals. So you want to figure out ways to do that, to push your comfort zone so that you can get into the larger deals. Regardless, if you don’t do 100 units right out of the gate, they’re going to progressively get larger anyway. All I’m saying is to really make an impact, you want to do the largest possible deal that you can, because that is the most impactful, and there’s various ways we can do that, which really leads me to point number four, which is to build a team.

Joe Fairless: Before we get into number four – do the largest deals possible, and it’s limited by comfort zone. But what if someone has a comfort zone or a mindset of, “Michael, I’m good. I have a mindset. I want a 250-unit deal. I’m comfortable doing a 250 unit deal, but I only see this sixplex that is available. Should I invest my time and money doing the sixplex, and have there be an opportunity cost where I won’t have the time to look for that 200-plus-unit deal? What should I do?”

Michael Blank: Yeah, that’s a temptation, right? You get a lot of people who have invested in single-family houses that deal with this temptation to just do another house, to just buy another house, flip another house. But like you said, there’s an opportunity cost because for every hour that you spend, on flipping the house, it’s an hour you can’t spend on actually doing what you really should be doing, which is an apartment building deal… Meaning, looking at deals, analyzing deals, talking with investors. So the opportunity cost is enormous. Is a six-unit a lot easier to do than a 250-unit? Yes, that can be true, but it also huge opportunity costs if you do that.

So if you have your comfort zone around a large deal like that, like you did. You somehow develop this confidence that, “Oh my gosh, I can do 176-unit.” So  if you have a confidence around that, you’re also going to have a plan around that. Therefore, you should avoid shiny object-itus of flipping another house or buying a sixplex.

Break: [07:19] to [08:51]

Joe Fairless: Let’s change a sixplex to a 15-unit. Is your advice still the same way for that 200-plus unit, don’t do that 15-unit?

Michael Blank: No, it’s not. It’s really that value of the first deal that you mentioned earlier. I call it the law of the first deal; that’s so powerful, because once you do that first deal, everything changes and the second and third deal basically come to you automatically. People also [unintelligible [00:09:16].27] you that want to invest with you. So, the value of that first deal – it far exceeds any kind of money that you can make. Therefore, the goal is not to do the possible largest deal you can, but the goal is to do a deal. And I kind of give myself 12 months to do it. Twelve months gives you enough time to do a deal that is achievable, but also meaningful, and you’ve got to pick whatever that is for you. If you can’t wrap your head around anything bigger than a duplex because my gosh, you’re only making $2,000 a month, and it’s going to take you a year to pull that off – my gosh, a duplex is the right size for you, because that is far outside your comfort zone.

On the other hand, if you’re a high-income earner, a 15-unit or 25-unit might be a great first deal for you, because it’s not a no-brainer, and it’s going to take you a while to raise the money. On the other hand, you don’t want pick something so big or so specific that it’s going to take you three years to get that deal done. Most people don’t have that kind of runway.

Also, don’t make your criteria so specific. Don’t say, “I want a 45.5 unit in this sub-market, in this city.” Don’t be that specific either. Be a little bit opportunistic. Also, be more open to different kinds of partnerships. For example, do you always have to be the lead operator out of the gate? Or could you be a junior partner, for example? So being a little bit optimistic, but making sure that you get yourself into the largest possible situation you can first in the 12 months.

Joe Fairless: Okay. Segueing into number four, I think, right?

Michael Blank: Yeah, which is building a team. I never understood this in the single-family house, even though I had people working with me and for me. It’s not really a team approach, and it took me a while to wrap my head around that. You understood this right out of the gate, for some reason, Joe. It took me a little while to learn that, but multifamily syndication specifically is a team sport. It’s highly unusual to find just a lone wolf out there. They do exist, but if you study them closely, they take a lot longer to scale their portfolio, because they’re doing everything themselves… Versus if you have joint ventures with two or three partners for example, that one plus one far exceeds two, which means that the joint ventures that work really well are complements of each other. For example, we talked about operating with total integrity; be who you are. What are you strong at doing? “Well, gosh, I’m a numbers guy. I’m very detail-oriented, but I’m kind of an introvert.”

Well, that kind of person would be more attractive to finding deals – finding deals, analyzing deals, making offers, doing the due diligence, possibly managing the asset… But there’s another kind of person in relationship to people. They’re extroverts, and the sight of a spreadsheet makes them break out into a cold sweat. Well, those people are great for raising capital.

So those two, for example, make fantastic partners; unbelievably great partners. So one plus one is by far greater than two, because now one person is focusing on what they love to do and what they’re really good at, and so is the other, and that becomes very powerful.

So building a team is very, very powerful, and also now, it gets you into larger deals, because if I’m like, “My gosh. I’m struggling with finding capital”, but there’s surely someone out there who has the opposite problem. They have a network of dentists or attorneys or whatever, professional athletes, but they don’t have deal flow. But getting with those guys, and now you can raise $1 million or $2 million, and now you’re in the game as well.

But the other thing also is credibility. You need to have a team around you to get credibility with brokers and investors. If I just call them up and I’ve got no track record, they’re going to ask me for proof of funds, they’re going to ask me for my resume, they’re going to ask all those qualifying questions. But if I have a property manager, a lender, an SEC attorney, a CPA, an advisor, and a pigeon—I don’t why [unintelligible [00:12:40].20] I was thinking carrier pigeon… But you have this team behind you, you have a lot of credibility. So point number four is to build a team around you.

Joe Fairless: Let’s go back to the example of the introvert who is really good at underwriting and perhaps finding deals; maybe they’re really good at some sort of system that attracts owners’ interest, and they can find a lot of deal flow in the market. How can that person find the complement to his or her business?

Michael Blank: It’s about networking. I think a lot of people—

Joe Fairless: Where? Where do you network to find those people?

Michael Blank: There’s a variety of lists. Now, with COVID, there’s actually in-person conferences like yours or ours, and now we all have virtual components, probably, to attract more people. So there’s literally conferences that you can join. It’s great way to meet people. There are now meetups that are online as well. There’s different online communities. BiggerPockets has some online communities, we have online communities; you can use LinkedIn to search for specific people.

I remember interviewing one person, we get on these virtual conferences, and they would write down everybody in there on the Zoom call, and they would reach out to them later, and then they would set off one on one zoom calls after that. This was a couple that lived in the UK, American couple, and they raised literally $750,000 and bought property remotely by using this thing.

So you can do this virtually. It’s just a matter of being a little more systematic, and being more intentional when you go out there. You have to know what your strengths are, and who you’re looking for. “Man, I’m a deal finder, I’m a hustler, I can find deals, but I really struggle with finding capital”, then go find someone who’s strength is people and finding capital.

The other one is signing up with some kind of educational programs. There’s a variety out there; we have one as well and when you get into those ecosystems, there’s also a network inside of them. So there’s a variety of different ways that you can meet people, you just have to be intentional about what you’re looking for.

Joe Fairless: Number five.

Michael Blank: Number five is invest in mentoring, and at minimum, a support network of some sort. There’s different support networks. One is a peer-to-peer support network. Those are people that are around you; imagine like a mastermind. These are people that are at around your level, they’re trying to do what you’re trying to do and you’re basically just supporting each other. That’s super valuable, right? That’s part of your support network. And number two, we talked about partners. That’s part of your support network. And the third one is advisors and mentors. And this is very, very powerful. If you study professional athletes or successful leaders, a good number of them have coaches or mentors.

And this is a mistake I made, Joe, is when I got started in both restaurants and apartment buildings, I had no mentors at all. And as a result, it took me 10 years. Well, in the process, I lost over a million dollars, almost lost my house, and delayed my journey by a decade. Imagine what would have happened if I had a mentor back in 2005 when I quit my job; that mentor probably would have talked me out of restaurants and possibly talked me into something like multifamily. Imagine if you and I got started 10 years earlier with what we did; that would be crazy.

On the other hand, you hired a mentor and fast-tracked your success; you didn’t lose a decade and lost a million dollars. In fact, I did a 12-unit deal. That was my first deal. And that was basically me, myself and I doing the best I can, learning on the job… And you’re like, “Yeah, that’s for the birds. I’m going to invest in a mentor” and did a 176-unit.

Joe Fairless: Those are for the pigeons.

Michael Blank: Those are for the pigeons. This is the difference in mentorship. And the thing is, the problem with mentorship is that of course it costs money, and it does. And if you don’t have money for mentorship, then obviously it’s not for you. But there’s a good number of people who have money. For example, they want to invest a certain amount of money in their first deal. “Oh my gosh, should I use this money to invest in a deal? Or should I buy this mentorship program?” Or whatever. And the answer is always the same – investing in yourself is far better than investing any one deal, because the ROI is much, much higher.

So if you’re watching or listening to this and can afford mentorship, then align yourself with someone that you resonate with; and there’s a variety of them out there, everyone’s a little bit different… But if you can do that, what it does is, it kind of fast-tracks your outcome. Number one, it does push your comfort zone, because if you’re working with a mentor who’s done this before, well, they’re probably going to try and talk you out of doing a duplex, and they’re also going to help you avoid the big mistakes. For you, clearly, they must have done something to your comfort zone, because you didn’t come out of the womb going, “I’m going to get myself 176-unit old apartment building.” You know what I mean?

Joe Fairless: Right. When you say “invest in mentoring,” is there a point where the investment is, “Wait a second. That’s way too much”, or would you say, “A million dollars for a mentoring program”, because if that mentoring program teaches you how to do 300-unit plus properties, then you will likely make that back within two deals. At what point is it too much or is it not too much? Is it always just an ROI thought process that, based on your opinion?

Michael Blank: Well, to be specific here… If you do a million-dollar deals, we pay ourselves, let’s say a 3% acquisition fee of these deals, which is pretty normal, and you have no other partners because you’re doing a million-dollar deal. That’s $30,000. A lot of people with some education, especially with a mentor, can probably raise $250,000, $50,000 from five people. That is in the realm of possibility, to get do your first deal. Therefore, if your mentoring program cost $30,000, you get that back in your first deal, not your second deal. But that doesn’t include the experience you get coming through that first deal, it doesn’t include the asset management fees, the equity, and certainly not the profit in 3-5 years when you sell the [unintelligible [00:17:59].22] thing. Therefore, even on your first tiny deal, you already get an ROI, and that doesn’t even count a second or third deal. So it’s a pretty basic kind of math, if you look at it that way.

Joe Fairless: That makes sense. Very easy to think of.

Break: [18:13] to [21:06]

Joe Fairless: When evaluating mentoring programs or mentors (maybe they don’t have a program), you just think, “Hey, that person knows a lot. Maybe I should approach them to see if they’ll be my mentor.” How should we look at evaluating how to pick which mentor to approach or go with?

Michael Blank: That’s a good point. You don’t always have to pay for mentorship either. If you can convince someone to meet with you take your underwing, that’s fantastic. There’s a lot of experienced syndicators out there who would love to mentor someone else.

On the other hand, I’ve found a lot of syndicators don’t want to mentor someone else. Or they wanna teach other people, it’s just not something that they’re passionate about… So you don’t have to necessarily pay for mentors, but either way, you want to look for someone, and there’s really five points that come to mind… One is you do want to find someone who operates with total integrity. I think that’s super important as well as you bring on new partners.

And number two, you want to find someone who has done what you want to do, meaning – they have, of course, done their first deal, but more importantly, because you’re on a path of financial freedom, ideally, you want to work with someone who’s actually quit their job… Because the mindset around actually transitioning from a full-time job to full-time real estate – there’s a lot of mindset things going on, and you’d really like to know someone who has actually started at least a scalar portfolio. So working with someone who does this full time would be something that would be important. Also, you want to work with someone who’s focused on results, and not necessarily a cheerleader. A cheerleader is more like a little bit like a coach, like “Yes, you can do it. Here’s some ways you can hack your mindset.” And that’s useful, but I want to work with someone who’s focused on my results, who really knows how to get results.

And then number four, someone who follows a proven system. I wouldn’t just hire a mentor who just kind of a good guy or a good girl, who’s done this before, but is there a methodology or system that we’re working?

And then number five, what would be important is if I’m going to invest in a mentoring program is I’m investing in an ecosystem, right? So what does that network of peers, what does that network of partners or capital raisers or deal finders – what does that look like? So, when you’re looking at mentorship programs or even just aligning yourself with a volunteer, those are some of the things to consider.

Joe Fairless: I have three comments on that. One, you said you don’t have to pay for mentors. I would argue that is the exception.

Michael Blank: Yeah.

Joe Fairless: Because from my experience, if you’re not paying a consultant, then question number one, question number two, question number three that you send them might go answered, but question number four is likely going to be a slower period of time for them to get back to you. And then question number 5, 6, 7, 8, 9, 10, it comes to a point where unless they’re a family member or a very close family friend, you’re taking, taking, taking, taking, and you’re not giving them much if you’re not paying them. And at minimum, it’s going to trigger some sort of guilty feeling on your part. It’s like, “Man, I keep asking this person all this stuff.”

And the other part and perhaps more bottom-line oriented, is if you are feeling guilty that, “Hey, I’m not giving them anything”, then you might second guess asking them questions, and then your growth is stunted, because you haven’t been giving them stuff. So I would argue there are some exceptions where you don’t pay for mentors, but by and large, in real estate, I think you pay for mentorship, from my experience.

The second thing I want to mention is – I remember listening to Tim Ferriss, and he talks about how it’s great if someone who’s great at something is great at it, but can they teach others how to be great like they are? So you mentioned a proven system as the fourth thing here. I agree, they’ve got to have a system in place where, yeah, they’ve done it before, but they know how to replicate their results. I remember Tim Ferriss specifically talking about that on one of his episodes, and I think that’s a great point.

And then the third thing I want to mention is that you talked about the “invest in the ecosystem.” Whatever value someone thinks they’re getting as a result of the mentorship program and the education, they likely do not understand, because it’s nearly impossible to understand the value of the network of the peer group that they’re going to be plugged into, should there be a peer group within that mentoring program.

So I would say whatever mentoring program you decide on, I would implore you to make sure that there’s lots of others in that group that you can connect with… Because probably, that’s going to be the biggest value of the mentoring program, and it’s the most overlooked value.

Michael Blank: I can’t disagree with anything you just said. So I’ll let you keep talking.

Joe Fairless: Well, those are my three things. So do you have a mentoring program? I know personally, from people that worked with you, that it has proven to be successful for them… But I’d love to just quickly have you talk about what’s an overview of your mentoring program for anyone who might be interested.

Michael Blank: I appreciate that, and again, there are variety of quality mentoring programs out there. The thing that is a little bit different around us is that if you value mentorship, you have the ability to actually work one on one with a full-time syndicator. We don’t have any part-time syndicators. And these people are really hard to find, to attract and to keep, because they don’t really need a job in many cases, and the only reason they’re doing is because they share my passion for helping other people.

Number two, we do actually follow a proven system, which we call the Dealmaker Blueprint, and we’ve had hundreds of people go through that. It’s just—I wouldn’t say cookie-cutter, but it’s a very methodical way to get to your first deal and scale your portfolio. And then not only do we focus on results, we actually guarantee results as well. So the bottom line is look at ours, of course—

Joe Fairless: What’s your guarantee?

Michael Blank: Well, it’s a guarantee that you’re going to do your first deal in the first 12 months—

Joe Fairless: Or what?

Michael Blank: —and if not, we’re going to continue supporting you until you do.

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

Michael Blank: Yeah, we’ve set up a special code to find out more about our mentoring program. If you text the word “Joe” to 66866, we’ll send you a quick link, and you can just check out our mentoring program and see what it’s about. You can set up a call, see if it’s right for you. So that’s a great way to do that. So, it’s “Joe” to 66866.

Joe Fairless: Michael, thanks for sharing the five secrets to closing your first deal. Thanks for getting into the specifics of each one of those, and then also highlighting the mentoring aspect of it, which is, by and large, you know, having that community is one of the most important parts of the process. And quite frankly, it makes the process much more enjoyable when you’re doing it with a lot of other people, versus trying to be a lone ranger. So thanks for being on show, hope you have a Best Ever day, and talk to you again soon.

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 by Joe Fairless

JF2642: How Smaller Deals Can Lead to Bigger Payoffs with David Kislin

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During the 2008 recession, David Kislin’s bank that handled his construction loan filed for bankruptcy. Fearful for the future, his partners backed out of the project causing David to lose half of his equity on the deal, totaling around $6 million. From lessons learned on relying too much on investors to the time saved on more granular deals, today David shares why he believes smaller deals can be smarter deals.

David Kislin Real Estate Background

    • Full-time commercial real estate investor since 1999
    • Primary focus in multifamily, select commercial properties, and land for ground-up development using a mix of personal capital and a small group of high-net-worth investors
    • Current portfolio consists of over $300M properties completed
    • Based in Boca Raton, FL
    • Say hi to him at: https://jeldevelopment.com/

 

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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. 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 the fluffy stuff.

With us today, David Kislin. How are you doing, David?

David Kislin: Excellent, guys. Thank you.

Joe Fairless: Well—

David Kislin: Thank you for having me.

Joe Fairless: I’m glad to hear it. It’s my pleasure. A little bit about David – he is a full-time commercial real estate investor, and he has been one since 1999. His primary focus is on multifamily, some select commercial properties and land for ground-up development. He uses his own money, as well as high net worth investor money. His current portfolio – well, he’s developed over $300 million worth of properties, and he is based in Boca Raton, Florida.

So, with that being said, David, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

David Kislin: Sure, absolutely. I primarily grew up in Brooklyn, Manhattan, the Tristate area.

Joe Fairless: Where in Brooklyn?

David Kislin: Coney Island, right off of Ditmas Avenue. I’m a Russian-Jewish, so that’s where a lot of our family and relatives and friends were. We moved around a lot between Brooklyn and Manhattan, so constantly being surrounded by real estate, and in many cases, beautiful buildings and beautiful structures. I was always interested in the concept of what real estate is, how it works, and the ownership of it, and the stability of it, and the solidness of it, and the concept that you could build something that would withstand multiple generations, especially a ground-up construction. So that always interested me from a very young age.

I graduated Babson College in 1994, and finished with a mix of entrepreneurial studies, international business. Because I was fluent in Russian, growing up in a Russian neighborhood, at that time, the Russian market had opened up, and there was a lot of opportunities. So I spent about 4-5 years in Russia, trading commodities, primarily with Western Europe, China, etc. and really got a nice feel for trading physical products, because you actually had to buy the physical product, move it across borders, get it to your buyer, get payment and all that; it wasn’t just a paper trading process.

Joe Fairless: What were you buying and moving?

David Kislin: What we call is basically things like hot rolled coil or cold rolled coil. These are things that go to the manufacturing of dishwashers, brake pads, HVAC, precursors to the fabrication process. And we would typically handle large-sized containers, whole entire boats; 5000, 10000, 20000 tons of material at a time.

Joe Fairless: Wow. Okay.

David Kislin: And we were under a conglomerate of Swiss companies, because Switzerland has always been a major trading center for physical commodities. By the late ’90s, it became apparent that I wanted to settle down, I got married, and it was just a very natural transition to go into real estate. I had been fortunate enough where I had to put away a few dollars from my earlier years, and I started selectively investing in real estate, in more speculative products, but that’s where my career started. I looked at your questions, and you said, “What was your most profitable deal ever?” and funny enough, it was probably my first deal ever.

Joe Fairless: Really?

David Kislin: Yeah, because it was early ‘99. The stock market had been very very active, and a colleague of mine came to me and said, “There’s a loft in Soho that’s up for foreclosure, and you’ve got seven days.” And the place was in the disastrous condition, absolutely disastrous. So very few bitters came in, we picked it up for a song and a dance.

Joe Fairless: What’s disastrous? Describe that.

David Kislin: Basically, everything is exposed, the flooring was uneven, there was water leaking from the upstairs, the windows were basically broken. So it was just a complete full rehab, you know.

Joe Fairless: It sounds like they did that intentionally on the way out.

David Kislin: It was a rent-stabilized/rent-controlled property that somebody had effectively gotten out of previous tenants legally, but once they took the job over themselves, they decided they were going to do it themselves and it was just a disaster.

Joe Fairless: Okay.

David Kislin: So they got in trouble with the banks, lenders, etc.

Joe Fairless: What did you buy it for?

David Kislin: We bought it for $400,000.

Joe Fairless: Wow!

David Kislin: A 1,600 square foot loft in Soho.

Joe Fairless: Wow!

David Kislin: And we put in about, I would say, $600,000 at that time, which was a nice sum, and we almost immediately flipped it for double that to a famous basketball player who played for the Nets at the time—

Joe Fairless: Nice!

David Kislin: —in six or eight months. So that, unfortunately—

Joe Fairless: Just keep doing that every time.

David Kislin: Yeah, I was like, “Listen, I can do this all day long!” You know, buy something for four, put in 500-600, flip it for two. Sounds good! But by the early 2000s, the market had changed a little bit, and I had decided that I wanted to focus on more value-added… So I did a few smaller multifamily deals in Manhattan, primarily focusing on buying existing properties. And my strategy was relatively simple and very effective, and it wasn’t too uncommon at the time; it’s just about execution… You would buy two properties in the neighborhood, and you would focus on properties in the East Village, the West Village where there’s a high concentration of rent-controlled and rent-stabilized tenants.

Now first, some of your listeners who are not familiar with rent-controlled and rent-stabilized, it’s a legacy law in Manhattan that goes back to the 40s, and a tenant who occupied an apartment in the ’40s or in the ’50s or in the ’60s could be paying an effective rent at that time in the early 2000s of $200 to $300 a month for a two-bedroom apartment that the market rate was $3000.

Joe Fairless: Mm-hmm.

David Kislin: So our strategy was very simple, it’s just that instead of trying to buy out these tenants, which was near impossible, is you would offer them a relocation. So you would buy two buildings, one with eight or 10 units, another building with another eight or 10 units, vacate one building completely, make it basically a vacant building, and move all of your rent-controlled and rent-stabilized tenants to the other building… Legally, obviously; everybody is signing all of the proper paperwork, etc. And what happens when you do that – and we did that on three transactions – is the vacant property becomes very attractive to a developer, and the rent-control rent-stabilized property becomes very attractive to somebody who’s just looking for long-term cash flow. And you distinguish your product and you maximize that value therein. I typically did not take the full route of developing both of those properties, because the exit was profitable enough where I could simply walk away.

Joe Fairless: What are the numbers on one of those three transactions where you bought two buildings?

David Kislin: We were purchasing a four-storey or five-storey building at that time with rent-controlled and rent-stabilized tenants, so the cash flow was pretty low, between the 2.8 and the 3.2 mark. So we would buy two buildings, and then effectively sell the empty building and pay off all of our debt and have a decent gain.

So to your question, the total project size would be between $5 million and $6 million on those projects.

Joe Fairless: Got it. And then when the dust settles, what would you exit at?

David Kislin: At that time we were exiting out at, for a raw vacant property, between the 500 and the 600 mark per square foot, and we were purchasing the properties at the 250-300 mark. But I want to stress to you, that would be the vacant property that we would sell at that price. The rent-controlled property, we would be looking at a very, very small return on investment.

Joe Fairless: Hmm. I haven’t heard that strategy before, and I lived in New York for a decade, and I’ve interviewed a lot of New York City people… And I should have heard of it but I haven’t heard of that before. Are there people still doing that?

David Kislin: People are still doing that, and what you find is it’s not something that’s very attractive to a typical investor, because there’s no guarantee on when your exit is out. So you have to be patient, you have to go through the lawsuits. So that’s why it’s not going to be something that you’re going to go out and raise capital with. I was able to use my own funds and bank funds on a properly leveraged basis to do that. But ultimately, after one or two successful transactions, or actually after the third successful transaction, I felt exactly how you’re saying, is that there’s just not enough opportunity here. There’s just not enough volume to grow your career and make it work. So that’s why we pivoted our business and started doing ground-up construction thereafter.

Break: [9:47] to [11:20]

Joe Fairless: Where did you do that ground-up construction?

David Kislin: Our first project was 519 West 23rd St. It was called the Highline 519, and it was purchased—

Joe Fairless: Is that by Chelsea Market?

David Kislin: It’s 23rd Street between 10th and 11th Avenue.

Joe Fairless: Yeah. Okay, that’s near Chelsea Market, I think.

David Kislin: It’s basically a stone’s throw from the Highline Park, the elevated Park.

Joe Fairless: Yeah. Yep.

David Kislin: So when we bought the property, the elevated Park had not been fully approved yet, but we saw the value in the neighborhood, and Related had already been there with a large rental that had done very well. So we took the route of doing a slightly better design building for what the market was offering at that time – high ceilings, both concrete, Italian finishes, kitchens, etc, and started that project in 2003/2004 and finished it basically towards the end of 2007. But we really only delivered the condominiums in 2008, and that project was considered a pioneering project at the time for that part of Chelsea, because it was a little rough and tumble in that corridor up until that time. Now, it’s a totally different story, clearly.

Joe Fairless: Mm-hmm.

David Kislin: And that project taught me a lot. It taught me a lot about the Byzantine Empire, that is real estate entitlement in Manhattan, and how long it takes things to get approved, and the difficulties in dealing with your neighbors in particular, because you have a lot of older structures, and when you do ground-up construction, you have a lot of issues in the ground movement.

Joe Fairless: Hmm.

David Kislin: So it definitely taught me a lot about all of the inherent risks that as a real estate developer you might not see at first, but you kind of have to be aware of over time.

Joe Fairless: Did it teach you just to stay away from developing in Manhattan and move on?

David Kislin: Unfortunately, no. That was the next project.

Joe Fairless: [laughs] What was the next one?

David Kislin: So the next project was — I had done so well on my previous projects and I had done so well on my strategy with the rent-stabilized, rent-controlled and on the 519… I had hit records as far—

Joe Fairless: How much did you make on the 519?

David Kislin: Our cost basis was about 800-850 a square foot, and we sold out at about 1100 to 1150 a square foot. So we netted out about $3.5 million to $4 million on that project, and the banks provided financing — our equity in it was about that, so we basically got all of our equity back, plus the $3 million, and the bank financed about $6 million of that transaction.

Joe Fairless: Wow! $3 million is more than your very first deal in terms of total dollars.

David Kislin: Yeah, but you know what the old saying is, “Money won is more fun than money earned.” I really had to earn that. Like, the first—

Joe Fairless: [laughs] I’ve never heard that saying.

David Kislin: I just renovated the place, put it on sale, I sold it a week later. When you’re dealing with four lawsuits and you have to wait nine months for the fire department to show up to give you a CFO, and you have buyers who want to walk away from deals and you know—

Joe Fairless: Oh, Gosh!

David Kislin: —just a million things that could go wrong.

Joe Fairless: You loved it so much, did it again. So what was this next one?

David Kislin: So the next one, we decided that we were going to go big style and I was going to go build a 30-storey tower in Tribeca.

Joe Fairless: Wow.

David Kislin: And we hired a starchitect, Ben van Berkel.

Joe Fairless:  What’s a starchitect?

David Kislin: That’s an architect who’s a star.

Joe Fairless: Okay. [laughs]

David Kislin: He or she brings their own reputation. So let’s say somebody like a Zaha Hadid who’s passed away, or Stern, or Norman Foster, or Peter Marino. If you are a real estate developer and you want to sell at the highest possible price per square foot in an elite area, by hiring a world-famous architect, you’ve generated immense amount of publicity, free publicity.

Joe Fairless: Wow. I feel so ignorant because that’s a real thing. I just searched Google for it and surely, starchitect is actually a term people—I thought you just made that up. Okay, fair enough.

David Kislin: No, no.

Joe Fairless: Sorry.

David Kislin: I wish, I would have trademarked it if I made that up.

Joe Fairless: Noted. So you hired someone, a starchitect. Got it.

David Kislin: And we got very ambitious, and we basically went full-throttle on the project, and we received all of the entitlements, and support and we pre-sold almost 20% of the building, even before we started demolition… And then the Great Recession of 2009 happened. And we were still okay, because we had all of our financial stack was in good shape. We had all of our commitments, we had our equity in place. But unfortunately, the bank that provided us the construction loan was a bank called Corus Bank. They’re bankrupt now. They were a bank out of Chicago. And we had a schedule with them, where it was between $90 million to $110 million of total construction costs, and they were prepared to finance everything, and the last $20 million was subject to us hitting certain marks. And they fronted us based on our schedule, I think it was for the foundation, we got about $3 million, $4 million or $5 million into it; I think was like $4.8 million to be exact… And they declared bankruptcy.

Joe Fairless: Hmm.

David Kislin: And the funding stopped, and this is basically the greatest lesson that I ever learned is this – I had three other partners with us on this project. That was the time for us to show up or not show up, and my partners all got scared, decided that they wanted to walk away from the project. So we spent about a year or two marketing the project, and we eventually resold it to another developer, because at that time, it was nearly impossible to get new financing in place, and the only way we were going to be able to finish the project was through five or seven years of litigation, because the Corus Bank would have had to finish their litigation prior to me creating terms for mine. And we just kind of chose to just take a little bump, take our bruises, but walk away with as much equity as we could, and that’s exactly what we did.

Joe Fairless: Hmm. What’s the little bump? How much did investors lose? And how much did you lose personally?

David Kislin: I lost about $6 million personally, and each investor lost an additional, I would say $1.8 million to $2 million. So I would say each of us lost about half of our equity invested at that time.

Joe Fairless: Got it. Okay. How many investors did you have?

David Kislin: We had a total of four investors.

Joe Fairless: Okay. What’s that conversation like?

David Kislin: The conversations?

Joe Fairless: With investors, when you realize that that’s going to be the result. What’s that like?

David Kislin: Basically, you lose friends, and you lose faith in people’s ability to look past a short-term event, which this was in my mind, and it wasn’t going to last forever. And those conversations, if you know you’re at fault, those conversations can go a certain way. But when the whole financial system literally falls apart and everybody suffers, and even your lender has declared bankruptcy, you have to have a certain stomach and be willing to fight through that, and my investors were unwilling to do that.

And that taught me a very important lesson, and that lesson is – sometimes, or many times, you’re better off doing smaller deals, where you know that, God forbid, you can always show up and finish the deal or conclude the deal without being 100% dependent on your investors. And that’s where I pivoted my business thereafter.

Joe Fairless: And what did you pivot it to?

David Kislin: After that – you made the comment, were those conversations difficult? That whole process was extremely difficult, because I’m a real estate developer; I consider myself somebody who adds value to a project, who takes something from a piece of dirt or crappy property and makes it beautiful, and makes it long-lasting and adds that value. Sitting around for almost two years in lawyers offices litigating and fighting… For me, every dollar you spend on the lawyer is $1 less than you’re spending on the real estate, you know what I mean?

Joe Fairless: Mm-hmm.

David Kislin: And that was just completely debilitating and completely just a morale suck. And at that time, my kids were at an age where my daughter was a very good tennis player, and my wife wanted to move down to Florida… So we moved down to Boca Raton in 2011. I liquidated the vast majority of my assets up North and I made a pledge to myself that from now on I would do deals that would be smaller in nature, more granular, but that I would be the primary investor, like I was in my earlier deals, and that the only investors I would bring on in the future would be people who are more silent in nature, are more high net worth, and their investment is limited to their initial cash outlay, and I would never need to come back to them for additional investments. And that’s the way I’ve been structuring my business over the past 6-7 years, and that’s more (almost nine years) and it’s definitely helped me sleep better at night.

Break: [20:47] to [23:40]

Joe Fairless: What’s the last deal you purchased?

David Kislin: So the last deal I purchased was in May. It’s 226 North K Street in Lake Worth beach, it’s a 6750 square foot site, and it’s basically the epitome of an infill granular site. It’s a midblock site. I can build four units which I will be, about 4500 square feet in gross total buildable square feet, three two-bedrooms and one one-bedroom… And we’re looking to basically build it out, stabilize it at a rent roll. Basically, upon completion, our goal is to be at a 10-12 cap after a period of seasoning; we like to season our products anywhere between two and three years. And then we look to sell them at a five or six cap and cash out at that point.

Joe Fairless: You say “we,” who’s we?

David Kislin: Just myself and my employee. I just have one other employee. And my wife I guess as well because she’s an inherent part of the team; she’s also a real estate broker.

Joe Fairless: Mm-hmm.

David Kislin: So it helps in having very close people ensure that the rentals and all that is being processed.

Joe Fairless: What’s been your favorite project while in Florida?

David Kislin: My favorite project is the one I’m finishing right now. It’s 604 Lake Avenue in downtown Lake Worth Beach. I bought a site with the goal of developing a hotel there years ago, and again, it was going to be more of a boutique hotel, 20-22 rooms, that sort of thing. And I spent all the money, I hired all of the top agencies, HVS, and the different hotel groups, and all of the third party reports really, really told me not to do that, and that I wouldn’t be able to justify my investment.

So we took a different approach, we did a very minimal renovation to the property, which is basically new roof, new HVAC systems, and we realized that the property was a former restaurant, and one of the things we didn’t realize, which was a great benefit to us, is that the property has double-height ceiling. So we have net clearance of almost 24 feet. We put it on the market to a restaurant group, and I’m happy to say that a group from New York, a Michelin-rated chef signed a 15-year lease with us.

Joe Fairless: Nice!

David Kislin: The restaurants called Caña. For me, it’s a great project because it really enhances the neighborhood, it brings a lot to that local downtown corridor, and I believe as a developer, when he develops in a certain area, it takes a certain social responsibility with the goal of wanting to improve that. I think too many developers go in, buy property in an up-and-coming area and keep it vacant in the hopes that their property price just goes up.

Joe Fairless: Mm-hmm.

David Kislin: And here, I feel like we’ve done a great thing for the neighborhood and the community at large by bringing this quality of tenant and this quality of build-out, and everybody’s been super supportive. The banks have been super supportive. The local community banks have provided us with the support that we need, which you don’t find that every day… And the beauty of it is, is that it’s a triple net lease. So once the guys in there, I wait for the ACH once a month, and that’s the beauty of a good commercial tenant. So that’s the project I’m most excited about, and we’re in the act of build-out of that now, and we hope to deliver that to the market by February.

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

David Kislin: This is something that I learned really over time – it’s not what you sell it for, it’s what you keep. I think a lot of people in real estate, they look and they’re like, “I need to do a huge transaction, I need to do something big, I need to do this, I need to do that. I need to have four partners and buy the best condo”, or whatever it is.

At the end of the day, if you do a large deal, and on paper it looks like you made a million dollars, and maybe you did, on the statements, but if you needed to have five people around or if it took you four years, that all should play a factor into it.

There’s a really intelligent real estate guy out in Palo Alto, he does YouTube, podcasts, John McNellis, and he came up with this concept, and it’s called ‘Net to Me.’ As a real estate developer, you should always sit down and say, “Well, what am I getting out of this? And what is my ultimate benefit?” Because I’ve learned the hard way that on paper, a deal could look great, but if it takes you two more years to execute it, or if you’ve got to spend 10 hours on that deal every day as opposed to an hour, that directly affects everything, and the stress level and all that. I would say to any real estate guy is put your ego to the side and really think about – it’s not what you sell it for, it’s what you keep.

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

David Kislin: Sure.

Joe Fairless: What deal have you lost the most amount of money on? Was it that $6 million deal?

David Kislin: Yeah, five [Inaudible [28:40]

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

David Kislin: By delivering a well-designed, well-executed product and not compromising.

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

David Kislin: My website. I also have a Twitter account and an Instagram account.

Joe Fairless: Are you tweeting a lot?

David Kislin: Not really.

Joe Fairless: I didn’t think so. [laughter] You don’t come across as much of a tweeter. That’s just me—

David Kislin: No.

Joe Fairless: As a real estate developer, I didn’t see it, you doing that much but—

David Kislin: Ultimately, you would just send me something and I would call you anyway.

Joe Fairless: Fair enough. I’m in your boat. I don’t tweet often, or really ever. Your website is  jeldevelopment.com. Is that correct?

David Kislin: That is correct.

Joe Fairless: Okay, cool. Well, David, thank you for being on the show. Thank you for talking to us about a lot of really interesting transactions. You’ve got some really big league deals that you’ve done or been a part of… And what you learned from that;as you said, “It’s not what you sell it for, it’s what you keep.” So think about the opportunity cost, not only financially, but time and emotion and sanity. So thanks for being on the show. I hope you have a best ever day and talk to you again soon.

David Kislin: Alright. Thanks a lot, guys.

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 by Joe Fairless

JF2640: 5 Tips to Boost Your Online Network and Find Investors with Carlos Reinoso

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In less than six months, and without a social media team, Carlos Reinoso went from 200 to 5,000 connections on Facebook, a growing online network that eventually helped him score an equity partnership over 240 units. In this episode, Carlos shares his best tips on how to grow your online presence, how to leverage your network to meet investors, and how your social media accounts can lead to big deals.

Carlos Reinoso Real Estate Background

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TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel, and I’m with today’s guest, Carlos Reinoso. Carlos is joining us from Atlanta, Georgia. He is a full-time realtor, investor and general partner. He’s an equity partner in a 240-unit syndication, and is looking for additional opportunities.

Carlos, thank you for joining us, and how are you today?

Carlos Reinoso: Oh, it’s my pleasure. I’m doing fine. Thank you so much for having me today.

Ash Patel: It’s our pleasure. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Carlos Reinoso: Sure. So I started real estate back in 1999, officially in Miami, Florida. I did some small fix and flips, and then after that, I decided I wanted to do a joint venture, or I actually purchased five- and six-unit properties, multifamily. So I did that and I purchased my own multifamily, and then shortly thereafter, an investor kind of caught on to what I was doing, and we started a joint venture and purchased another three or four more multifamily units.

Ash Patel: Carlos, were you a realtor this entire time?

Carlos Reinoso: Yeah. Basically, I started back in 1999 in Miami, Florida.

Ash Patel: Were you more on the multifamily commercial side, or were you more residential?

Carlos Reinoso: For the most part in my career, I’ve been residential, and only in the past maybe two or three years have I focused more on multifamily. So I was still selling single-family, but I was purchasing small multifamily units as well.

Ash Patel: And then, how did you go from doing this to becoming a GP in a deal?

Carlos Reinoso: That’s a great question. That’s actually a drawn-out answer, if I may.

Ash Patel: Let’s hear it all.

Carlos Reinoso: I appreciate it. Awesome. I found out about Multifamily Investor Nation, which is Dan Hanford’s group. I had an opportunity to be a co-organizer for one of their deals, just for the multifamily meetup actually. And when I heard about that, I’m like, “Man, that’s a great opportunity.” I was looking to do something like that, and I found out about that through the Joe Fairless book, the Best Ever Syndication book, and I need my own thought leadership platform. Along came this opportunity with Dan Hanford, and I said, “Here it is. It couldn’t get any clearer than that for me”, and I said, “I’m going to sign up for that.”

So fast forward two more years later, and I’ve gotten a lot of social media presence, through Facebook, through LinkedIn, and through the meetup. And what that has done, it’s build that know, like and trust thing, and it’s basically catapulted my opportunities. And recently, someone came up to me — this is actually my second opportunity, but this is one where the deal came all the way into fruition, and we’re actually under contract, and they basically said, “Listen, we’re looking for a GP and equity partner on this deal. If you’d like, we’d like to give you this opportunity.” And again, I jumped at it. I just saw a perfect opportunity to get my feet wet.

Ash Patel: Carlos, what did you bring to the table as a GP?

Carlos Reinoso: That’s an awesome question. So one of the things that I was able to bring was the network that I have. So on just LinkedIn alone, I have over, I want to say like 3,000, mostly investor colleagues, and of those, some will be property managers and others would-be lenders, and stuff like that. So that’s one of the things that are brought to the table.

The other thing is my partner was experienced with an investor platform as well, and he was able to help us out in the investor relation portion of it, when it came to the website. And myself, I also have investor relation experience, because basically, that’s what I’ve been doing for the past three years, is contacting investors, reaching out to them and trying to get involved with them in the multifamily arena.

Ash Patel: Let’s deep-dive into that.

Carlos Reinoso: Sure.

Ash Patel: You contact investors – what’s your goal on that call?

Carlos Reinoso: That’s awesome. Yeah. So my goal really is basically to start a relationship with them. I’m looking for a long-term relationship. We’re just not, “Oh, yeah. Let’s do a deal,” then after that, I’ll never talk to you again. I’ve heard that sometimes that happens, but for me, being in the industry as long as I have, I have a great reputation and it started way back in my first year as a single-family agent; I’ve been building it ever since over 20 years in this industry. Basically, that’s the way I’ve done it, is to talk to investors, let them know we have synergies, and if we have something in common, where I could bring in my expertise.

I also have negotiation experience as well, and I’ve been really good at that in the single-family world. I was really good at that in my own buying and flipping single-family homes, and I also did really well when I was buying those five and six units. So that’s pretty much the way it came about.

Ash Patel: And do you match up investors with people looking for investors? And do you come in as a GP typically?

Carlos Reinoso: Yes, so as far as GP – like I said, I’ve had two opportunities. The first one, it just didn’t work out. The investors were in another state. It was like kind of scattered. Everybody was in a different state. Some people were working a full-time job, so it was kind of hard to do everything together, and we did get as far as almost closing the deal. We got beat out from an investor group that actually was able to put the money hard on day one, and we’re talking in excess of a million dollars. So at the time, the group was just getting established, and we didn’t have that experience to say, “Yeah, we do have the network and the net worth to be able to put a million dollars hard”, and the experience wasn’t there where we felt confident enough to do that. And then the second experience – this one is actually under contract already, when I was brought in on the deal.

Ash Patel: When you get a group of investors together and you approach a deal sponsor, what kind of equity do you get as the person who brought the money?

Carlos Reinoso: Okay, so I think it varies because in the previous opportunity, it was basically an 80/20 split. 80% going to the LPs, 20% going to the GPs, the general partners and limited partners, and in this case, it’s kind of like a similar, but it’s a little different, because it’s kind of like a 0.4 of the overall or of the equity raise actually. It’s 0.4 of the equity raise. So it’s a little different than what I’ve seen in the past. But like I told them when they gave me this opportunity is “You gave me an opportunity to raise capital and to be boots on the ground and do everything I can for the deal. I promise you that I’m going to bring in not only the money, but I’m going to bring in the investors, and I’m going to do my best to make sure that this deal catapults and brings the investors back the returns that they’re looking for in the deal.”

Ash Patel: You are a social media presence, and you’ve got — you’re a force out there. How do you market on Facebook?

Carlos Reinoso: On Facebook, it’s something that I started so many years back that I kind of felt like one day, this was going to catapult. And I’m talking about way back, I want to say like 2007 or so. And I just said, “Man, this is going to be something that in the future is going to be a great place to network and to market, and it’s free. So at the time, I didn’t have a lot of money for advertising. I was basically spending it on different real estate expenses and stuff like that, and then I was like, “How else could I be able to market myself?”

At first, I was like, “Listen, I’m just going to do this with friends and family, and I’m going to keep it tight. I don’t want too many people here, maybe some recent customers, and I’ll build it out that way.” And then one time, I heard somebody saying, “Oh, you know, I’m doing all my marketing and I’m doing great sales on Facebook,” and I was like, “Man, maybe I should really try to grow this.” And before I knew it, I was just responding to everybody on Facebook, I would comment on my post, I would reach out to them, and I went from like 200 total friends to 5,000 in less than six months’ time. I was like, “That’s what it’s all about, free marketing.”

Ash Patel: How did you do that? That’s a monumental move. Did you just reach out to people that were in a similar industry, similar town?

Carlos Reinoso: Well, honestly, I do want to give credit where credit’s due. I’ve been a fan of this show, the Best Real Estate Investing Advice Ever Show, for many years, and I remember it was one of the best places that — I would hear the podcast and I even had the app before, when I used to have Android… And that app was awesome, because I could rewind, I could take notes… And I just remember all the time hearing, “Oh yeah, where’s the best place you can reach out to me? Oh, LinkedIn. Oh, my website. Yeah, reach out to me, and I’ll give you this and I’ll give you this lead magnet, I’ll give you the other”, and I was like, “Man, these people are really cool.” I would reach out to them. I will say, “Listen, I heard your podcast. I’m interested in what you’re doing.” So that was the main way that I was able to reach out to these people.

Secondly, on Facebook, every time you post something, if someone engages you, you want to make sure to engage them back, right? And you definitely want to make sure that you let them know, “Hey, listen. I appreciate you liking my post.” To this day, I still do that. “Thank you for liking my post. Let me know if there’s anything I could do. If either you or someone you know is interested in investing in real estate, definitely refer them my way, and thank you so much again for liking my posts and look forward to seeing more stuff for me in the future.”

Break: [09:45] to [11:18]

Ash Patel: I’ve got to ask you though, now that you’ve got so many followers, do you outsource that, or do you do it all yourself?

Carlos Reinoso: I wish I could outsource it. Right now, it’s basically still me. In the very near future, I’m going to, because I’m going to have to. It does take up a lot of my time, but these days I don’t spend as much time as I used to, but I do post something, reach out to the first few responses, and then get out quickly, because I have people in the Philippines, in Japan, in China, in London—I’m trying to think—Ireland… So we have different time schedules. So sometimes I’ve got to turn off and make sure, because if not — because like in the Philippines, they’re 12 hours behind, so there’ll be waking me up responding to my posts. But as soon as I can, I’ll respond real quick to the first few guests, and then I’ll come back out. So up to now I’m still doing it myself.

Ash Patel: And that’s great. The advice that I give people is, a lot of times if somebody has no social media presence, and they know that they’ve got to get on board, they’re like, “I’m going to hire a VA to do that.” No, no, you can’t. You have to put you out there. It’s got to be authentic, at least in the beginning, until it becomes overwhelming. But man, people need to know who you are. So do you put your personal information? Do you put all of you out there? Or do you keep it business?

Carlos Reinoso: I used to give two phone numbers, my office phone number and my personal phone number. So yeah. I definitely give my business email as well. And to me, I’m transparent. I’m the kind of person that what you see is what you get. You’re either like me, love me or hate me. There’s not a lot of in-between with me. And I’m just open like that.

So I want people to know that I am transparent, that I’m authentic, and that I’m not trying to just sweet talk you into something. I’m giving you my true self at all times. So again, if you like me, great. If you don’t, no big deal. It’s kind of hard not to like me, though, because I’m just so agreeable. I’m not the type of person to argue with anybody. If you look at my posts, anytime somebody posts something, the first thing I’ll say is something positive toward them, and if not, I’ll just pass on. I’ll skip that post, if I don’t think of something positive to say. But I learned that from Gary Vaynerchuk, is always try to give somebody something positive, and also Buddha says, “Try to make the world easier for other people”, and that’s always been my thing. Try to make the world better and try to make people’s day better, and that’s been my philosophy in life.

Ash Patel: Yeah, I love that, and I agree, man. Putting yourself out there is important, because when you’re doing a deal with somebody that doesn’t know you very well or maybe a new investor, they’re going to stalk you on Facebook and really try to deep-dive into who you are. And that’s how you kind of get to know people. Anybody that’s hiring an employee is going to scour all of their social media to find out what’s this person really like? Are they just putting on a good front? So I love that.

Now, LinkedIn is a little bit of a different animal. How do you mark it on that, and how do you get so many followers?

Carlos Reinoso: On LinkedIn, I’ve learned again, along the way — I want to say there maybe four years ago is when I really started to double down… And same format, really. I would see people that motivated me, that inspired me, that were doing the things that I wanted to do, and I would reach out to them and say, “Listen, I love your posts about syndications. I want to learn more. Do you have like a website that I could go check out or learn more about you?” That was one method.

My first possibly two years, I wasn’t really posting a lot on LinkedIn. I was more gathering investors and learning what was working for them, and kind of just feeding off of that. Because I know Joe’s a huge fan of Tony Robbins and I am as well. And he says, “Success leaves clues”, and I believe that. I believe if you look what people were doing to us see that it’s working for them, you don’t have to reinvent the wheel. Just look at what they’re doing, model that; add your own little flair to it, but model that and you’re going to be successful.

So what I started doing after that is I started saying, “Okay, let me start posting.” I started posting about the meetup with Multifamily Investor Nation, and that meetup – just let people know that this guy is not only learning but he’s also giving back what he’s learning. As I learn it, I’m giving it to others. And I think that shows; that transparency comes across, and you can’t fake that. You’re either seeing the authentic me, or you’d be able to notice, I don’t know what that guy is, but he’s not who he pretends to be. And I think you could tell this guy – “He might be goofy, he might be funny, he might be new to this, but he is who he is.” That’s one thing that I pride myself in, being authentic at all times.

Ash Patel: And I love that.

Carlos Reinoso: Thank you.

Ash Patel: You’ve got a busy schedule, man. You’ve got the real thing going on, investors, GP-ing, investing in other people’s deals… How do you manage your time?

Carlos Reinoso: It’s a great question. I time-block a lot. I try to set specific times for everything. And as far as the real estate, I recently resigned from my previous single-family business. Kind of leaving that — I was slowly transitioning away from that, and now I’ve decided I’m just going to hit the ground running 100% in multifamily and in syndications and joint ventures as well.

So that’s helping me to focus more, because I want to go all-in in multifamily. And I know Dan always talks about one of his seven red flags is don’t invest in a syndicator who’s not working full time. So one of the things that I’ve decided to do is do syndication full time. So that’s freeing up a lot of my time. But you’ve obviously got to still make the money, right? So there’s still deals that I’m doing, like smaller deals that are helping me catapult the multifamily side of the business as well.

Ash Patel: Carlos, are there ethical issues if you go to list a multifamily property? Are you allowed to buy it?

Carlos Reinoso: My understanding is it depends. So as a joint venture, I bought my own deals, and honestly, even as a single-family purchase of my own home – yeah, I was able to do both. In real estate, a lot of it is negotiations. So if you can negotiate into the deal, you can definitely do it. And I remember the listing agent when I purchased my home, I said, I’m a principal in the property, which means I’m also not only am I the agent for the buyer, I’m also, let’s say related to the buyer as well… And I remember, they’re like, “You can’t do that, that’s not allowed”, and this and that. And I said, “Listen, trust me. I had the experience.” I’m like, “Not only could you do it, I’m going to do it”. And I said, “If you bring it up again, I’ll just walk away from the deal.”

I was straightforward like that because I knew where I was coming from, and I felt like they were still trying to figure it out and understand how I could do that. But it was totally 100% legitimate, and everything that I did was always by the book. And, yeah, you could totally do it. Just make sure that you let them know upfront, and disclosure, disclosure, disclosure. That’s the name of the game.

Ash Patel: That should provide you a lot of opportunities to find multifamily deals before they hit the market.

Carlos Reinoso: Right.

Ash Patel: Alright, Carlos, I’m going to push back on you for a second… You went from single-family to multifamily. Why not keep going into other commercial? Retail, industrial… There’s got to be opportunities out there from both a realtor perspective and getting syndication deals.

Carlos Reinoso: Definitely. So for me, I like to focus on one thing, and especially these days… Because I’ve been doing so many things, and then I find that you’re not dedicating enough time to one thing. And if you’d read that book by Gary Keller, and I think it’s Jay Papasan… It’s basically, focuse on that one thing, and be the best at that one thing. So that’s what I’ve decided to do now, is just focus strictly on that one thing, and in this case is multifamily. And there’s people that do storage and everything else as well. There’s definitely great profits there, in the self-storage. So I can definitely invest passively in those. But as far as myself, the properties that I want to take down, I want to focus strictly on multifamily, either as a syndication or a joint venture.

Ash Patel: You’re heavily focused on your investors. How do you communicate with them? How do you keep them in the loop?

Carlos Reinoso: So there’s two ways that I go about it. One is a newsletter. Every time I do my meetup on the first Mondays of the month, I try to get an email out to them sometime before the middle of the week. So I have that monthly newsletter, plus the meetup is once a month. And then also, a lot of times, they’ll reach out to me after the meetup, and they’ll try to schedule a time on my calendar to touch base and reach out to me. So I set some time in my calendar on Wednesdays, Thursdays and Fridays, to network with these investors and give them as much wisdom as I can share as possible with them.

Ash Patel: How many people attend your Meetup?

Carlos Reinoso: Right now, we’re slowly growing. We’ve had anything from 24 to—about 36 is the most we had. We had 36 in-person. So I feel that more people would come if it was an in-person meetup, but I like the virtual more because virtually — they all have their own pros and cons… But I like the virtual more because we sometimes get guests from Canada, London, Ireland, and as far as Japan, and other places like that. So I like both, but virtual, I think, it’s the best way to expand that. So it’s been growing virtually.

Ash Patel: Do a hybrid, where the people that are local can come, and then you have an iPad in front of you where you can interact with your virtual audience as well.

Carlos Reinoso: That sounds great. And let me tell you, I tried that once. So I tried it once, and I had to take all my equipment and — you can’t see it here, but I have a green screen behind me. I have lighting here, I have my desk, I have my microphone, I have an amplifier, and I remember taking that to the restaurant. It took me about 15 minutes to set up. I guess it took me a while to promote it. I was late in the game to promote the actual event, and we had more people show up virtually than in person. So what I decided to do is I’m going to do once a month in-person, and once a month virtually. Nut that’s a great idea. It didn’t work for me though.

Ash Patel: Yeah. No, I get that. How often does your newsletter go out?

Carlos Reinoso: Once a month.

Ash Patel: What’s included in that? Is it a personal milestones? Is it just business? Is it industry trends?

Carlos Reinoso: That’s a great question, Ash. Seriously, you do seriously ask great questions. Basically, what goes out there is whatever happened in the meetup, like in this last meetup, I was telling everyone, “Listen, I’m super excited. I’m going to be a guest on the Best Ever Real Estate Advice Ever Show. I don’t know exactly what day it is yet, but as soon as I do, I’ll send you guys out a little email, so look out for that.” Other times, if I have a deal under my belt, and I have a deal that’s in their process, I’ll reach out and let them know about the deal as well. And then anything that I’m doing in the past weeks or during that month, I try to let them know about that through there as well.

Ash Patel: And early on, when you started this networking journey, what are some of the mistakes that you made?

Carlos Reinoso: The networking?

Ash Patel: Yeah… Early on, when you were trying to network with investors, what are some mistakes that you made that you can help other people avoid?

Carlos Reinoso: One of the things that I realized is I would be sending deals out to these investors, and either 1) they weren’t taking me too seriously; or 2) they would get back to me and say different things that I could do to improve. So I realized that I can’t just send a deal to an investor and say, “Oh, here’s the deal. Let me know what you think.” They really want you to analyze the deal, and kind of sell them on it. Because if you can’t sell them on it, it means you’re not sold on it. So that’s one of the things that I learned along the way.

So I would definitely recommend, before you send a deal out to anybody, first and foremost, learn how to analyze your own deals. I still do my own analysis, but it takes me a long time to do it. So I have a partner who it comes a lot easier to him and he’ll have the underwriting completed within a day’s time. It will take me at least a week.

So what I would say is, the more you practice, the better you’re going to get at it… But definitely analyze the deals before you send them to these investors, and let them know exactly why you feel this is a good deal. Don’t just throw it out at them. Digest it, and that way you don’t waste their time either. You might be wasting their time by sending them a deal that’s not even the kind of deal that they’re interested in. So definitely analyze it, get to know the investor and what they’re looking for, take notes on that. So every time I talk to an investor, I’ll look up, “Okay, such and such investor, okay, they only want Class A properties and Class B or Class A areas, and nothing less than $28 million.” So I know not to send them a Class C property, or nothing vintage later than the year 2000.

Break: [23:54] to [26:47]

Ash Patel: What CRM system do you use to track all of that?

Carlos Reinoso: Right now, I’m using ActiveCampaign. It’s kind of pricey. So I just started an ActiveCampaign, but before that, I was using Constant Contact and it’s pretty similar. It’s a good way to make sure that your emails get read, and it also gives people a chance to opt-out for whatever reasons, if they’re getting too much email from you. So that way your email is not flagged for spam, or anything like that.

Ash Patel: Got it. Should people ask for feedback when they’re sending out these newsletters, when they’re talking to investors on the phone? Do you ask, “Hey, what could I have done better? Help me improve.”

Carlos Reinoso: I love that. Yes, I definitely think you should. If you don’t ask, you won’t know how they feel about it. So you might think, “Okay, you’re just not receiving my emails,” and you might go, “Oh, they weren’t interested in my email.” And it turns out a lot of times people have so many emails coming in, that they just never saw your email; and it’s not that they’re not interested, they just never got to see it.

So I think if you reach out and say, “Listen, I sent you an email the other day about, let’s say, this investment that I have right now currently, or about the newsletter, or about this analyzing tool that I found out about, or a CRM I just recently found out about”, then you’re letting them know, and you’re asking them, “What did you think about it? Did you receive it? Any feedback that you could share?”.And then you can use that feedback later, to then share it with other investors and learn, so that you can perfect the art of your email. And then when you’re sending out emails on properties that you’re interested in getting investors for, you kind of have it honed in already by then.

Ash Patel: What is some of that feedback that you’ve received?

Carlos Reinoso: I’ve heard not so often, “Listen, you sent me a property that’s a Class B. I’m only looking for Class A.” “You sent me a property that’s older, I only want the newer properties” or, “You sent me a property that’s newer, and it’s larger than what I could take down. So if you can send me something 50 to less…” Stuff like that is what I’ve been coming across. And for the most part, people were telling me, “I just didn’t get your email. I never saw it. So yeah. Definitely, send it to me again, and let me take a look at it and I’ll get back to you.” So just always double-check with them to make sure.

Ash Patel: Carlos, if you have an investor that’s on the fence, they don’t know if they want to do this, it’s their first deal… What does a conversation sound like?

Carlos Reinoso: It’s funny, I was just listening to another podcast that Joe did with Brian C. Adams. Awesome podcast. I’m definitely reaching out to him today on LinkedIn. It was great. The tips that he was giving were so awesome. And again, this is why you definitely want to go to summits, listen to podcasts, read books, and learn as much as you can. Because you pick up these little golden nuggets, these little nuances everywhere you go, if you’re open to it, right? And like Bruce Lee says, “Be like water. Be able to adapt to anything.”

One of the things that Brian C. Adams was saying is “Before you even send a property out, ask the experienced investors, what did you like about your last investment? What was so good about it that you decided to invest in the deal? What are you looking for when you look for investment deals?” And get their ideas first. Then once you have their ideas, and you’ve gotten enough ideas from these investors, then next time when you send out the emails, send it out to the least experienced investors first and ask them for their feedback.

What you’re going to find as each time you’re going to hone in on that skill and get closer and closer and closer to perfecting the art of sending out deals, and I think you’re going to get better responses from the experienced investors as well.

Ash Patel: Yeah, and I love Brian C. Adams; he approaches everything, just like Gary Vee, from an empathetic approach.

Carlos Reinoso: I learned so much from these guys, and it’s amazing. Like I said before, if it’s not broken, don’t fix it, and if you know that success leaves clues and you see that these guys are having success, they’ve been doing it for many years now, don’t reinvent the wheel. Just do what they’re doing and give it your own flair, but do the best that you can with the information that you’re learning over the years… And take notes. I have copious notes. I always have one of these yellow pads with me wherever I go, because I’m learning from everyone. You could learn from experienced people, and you could learn from rookies, and you can learn from anybody, as long as you’re that empty cup, and you’re like water, always adapting to the cup, if you will.

Ash Patel: What’s the biggest mistake people make when it comes to networking and growing their network?

Carlos Reinoso: Okay, one thing I’ve never liked — and it goes all the way back to junior high, and I remember this, if I don’t know the person, I don’t want him to come across, “Oh, yeah. We’re best buddies,” and, “Hey, Carlos. How are you?” It’s like, “Hold on. Let’s get to know each other first before we get into that really comfortable vibe.” So I think before you get too cozy with someone, even though you feel like you know them, because let’s say they have a podcast or something else, kind of just ease into the relationship and be very respectful and very mindful of their space, and of their time. It’s a key takeaway that I think everyone should focus on.

Ash Patel: Love that. Carlos, what is your best real estate investing advice ever?

Carlos Reinoso: This is an advice that I still give to this day… Definitely read books, listen to podcasts, watch YouTube videos. I have a YouTube channel, if anyone’s interested… And go to summits, go to conferences. Just let these investors know your story, what you’re all about, and what you’re looking to do, and you’d be surprised just how helpful these investors could be.

Ash Patel: Yeah, real estate people are just incredible. I love that.

Carlos Reinoso: They really are the top of the line.

Ash Patel: Yeah. Carlos, are you ready for the best ever lightning round?

Carlos Reinoso: Let’s rock.

Ash Patel: Let’s do it. Carlos, what’s the best ever book you’ve recently read?

Carlos Reinoso: Seriously, Best Real Estate Investing Advice Ever by Joe Fairless. I have it right here at my desk. It really is the book that catapulted me into the virtual meetups. So I definitely recommend that one. Can I recommend one more?

Ash Patel: Yeah, please do.

Carlos Reinoso: Hunter Thompson’s book on Raising Capital as well.

Ash Patel: Carlos, what’s the best ever way you like to give back?

Carlos Reinoso: Through this meetup. Like I said, as I learn, I like to give not like a month later or two years later. The moment I learn it, I’m sharing it with my audience. My audience means a lot to me because no man is an island, and as much as I’m teaching them and showing them, they’re also kind of motivating me to keep it going and inspiring me that it’s not a lost cause, but it’s actually a blessing that I’m sharing with other people, and that’s my best way to give back. It really means a lot to me.

Ash Patel: Carlos, how can the Best Ever listeners reach out to you?

Carlos Reinoso: The best place right now would be LinkedIn. I am going to get a website soon, and I’m working on a deal magnet. Basically, it’s an Ebook that I’m going to be writing about passive investing and raising capital. So right now they could definitely check with me there on LinkedIn at Carlos D. Reinoso on LinkedIn.

Ash Patel: Carlos, I got to thank you for joining us today, telling us your story from 1989 in Miami doing some fix and flips to now just becoming a networking superstar. Thanks for sharing your story today.

Carlos Reinoso: My pleasure. Thank you so much for having me, Ash.

Ash Patel: Awesome. Best Ever listeners, thank you for joining us and have a best ever day.

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 by Joe Fairless

JF2639: How to Plan and Execute Your Multifamily Renovation with Van Sturgeon

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Growing up, Van Sturgeon witnessed firsthand how his parents saved their rental property during a rough economic period through the use of meticulous budgeting and planning. Now, as an entrepreneur with over 30 years of real estate experience, Van uses this knowledge to help people overcome their fears of renovating and rehabbing by helping them break down the details and costs of their project. In this episode, Van shares his best tips for finding good renovation properties and how to create a realistic Renovation Calculator to properly execute your next multifamily renovation.

 Van Sturgeon Real Estate Background:

    • Entrepreneur, real estate investor, land developer, and owns a number of businesses in real estate 
    • Currently owns and manages over 1,000 units in Michigan, Ohio, New Brunswick, and Florida 
    • Based in Toronto & Miami Beach, FL
    • Say hi to him at: www.vansturgeon.com

Click here to know more about our sponsors: Deal Maker Mentoring | PassiveInvesting.com | Follow Up Boss

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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. 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, Van Sturgeon. How’re you doing, Van?

Van Sturgeon: I’m doing very well, Joe. Thank you very much for having me. I’ve been looking forward to having this chat with you.

Joe Fairless: Well, I’m glad and I’m looking forward to having this conversation as well. A little bit about Van and then we can get into it. He is an entrepreneur, a real estate investor, a land developer, and he owns a number of businesses in real estate. He currently owns and manages over 1000 units in Michigan, Ohio, New Brunswick and Florida. He’s based in Toronto, as well as Miami Beach, Florida.

So with that being said, Van, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Van Sturgeon: Sure, I’m a product of the 1960s. I was born and raised in Chicago, to immigrant parents who – we, along with my younger brother, lived in a one-bedroom apartment in Chicago, and like every person, I guess, my parents had dream of owning their own home. They were saving as much money as they can to put toward that purchase, and along the way, they discovered or learned that the apartment building that we were actually living in, had gone up for sale. So instead of actually buying their dream home, they took the less traveled road and decided to become landlords.

So they scurried all their money together and borrowed some from friends and family, put their downpayment and they bought this apartment building.

Joe Fairless: Good for them.

Van Sturgeon: Yeah. And at that time, it was a great, fully occupied building in a nice part of Chicago, but subsequently, things started to change pretty dramatically in the late ’70s. Joe, you’re too young to remember probably, but inflation was crazy skyrocketing, even more so than it is today. Unemployment rate, the economy, everything – it was just a malaise in the economy. That was just a miserable time. And unfortunately, this apartment building, this wonderful building that my parents had purchased, all of a sudden started to experience vacancies. The whole neighborhood started to deteriorate. You had gangs and prostitution and drugs and all that kind of elements started to move into the neighborhood.

Joe Fairless: Where in Chicago? Just for anyone who is familiar with Chicago.

Van Sturgeon: Northside of Chicago. In particular, the Edgewater community, uptown Edgewater community. So I’m sure you’ve got lots of folks listening over there in Chicago, and if they lived there during those times, they’ll know the area, and exactly what I’m talking about.

Anyway, it got so bad that landlords were literally torching their buildings. I remember walking around the neighborhood and there was a number of buildings that were just literally — landlords couldn’t take it anymore, the vacancy, they couldn’t handle it, and they would just be torching buildings, to collect on the insurance money.

And we were in a precarious situation ourselves. Our building was 40%, 50%, 60% vacant at the time. And as a family, this was our sole investment, and we had to do everything that we could to hold on to it. As a result, we did everything on our own, from painting, replacing carpets, to doing the roof work, whatever it required for us to do to be able to cut out that contractor or subcontractor or trades out, we did.

So it was during that period of time that we were able to get through, it was a difficult time. But nevertheless, it was a heck of an investment that my parents made, and they did very well from it. We got out of that period of time, and then I went off to university, graduated, and unfortunately, I disappointed my parents. They had these dreams of having their baby boy be a lawyer or something like that, but I decided that I didn’t want that life, and I got into opening up my own company and being a general contractor.

So out there in Chicago in the late 80s, early 90s, I was out in the hustle, trying to build a business, and slowly but surely, I kept acquiring clients and I kept running into the same people; these real estate investors that are running around, either flipping properties or actually buy and hold. That’s when I got started, in the early ’90s, and started  doing flips. That’s how I got started, and then started acquiring rental portfolio.

It’s been a hell of a ride over the last 30 years. I’ve literally done thousands of renovations and I have opened up a number of successful companies associated with it. I never planned this out, but one thing led to another, so from property management to land development to subdivisions… I’ve done everything that you can think of in terms of renovation, construction and real estate. Right now, I’m at the latter stages of my life. I’m in that semi-retirement stage, and I enjoy coming to podcasts like yours to be able to talk about specifically the issues associated with how do you plan and execute a successful renovation, whether it’s on a single-family or multifamily. It seems there’s a lot of confusion out there.

A lot of folks talk about having a successful trade is to be able to find that deal, and that’s great. You need to have that skill set. But another one that’s even as important is actually being able to execute on that renovation rehab, because [unintelligible [00:05:10].17] properties that require some type of work. We’re looking to buy that diamond in the rough, or that’s ugly duckling that requires some type of improvement on it. And where we are able to pull money out, do that BRRRR strategy, or meet the projections that we have, on the syndication side, maybe go to our investors where we say, “Over the course of 3-5 years, this is what we’re going to do.”

So unfortunately, there’s a lot of trepidation with regards to that renovation side, and that’s why I like talking about it,  because I’ve got, as I’ve mentioned, over 30 years of experience in doing it, and then there’s a right way and there’s a wrong way in terms of the systems and processes, and you need to institute it in order to be able to carry forward a successful renovation rehab on any project.

Joe Fairless: And we will talk about your plan and your execution for renovation for multifamily; if we can stick to multifamily versus residential… That’s what most of our listeners are focused on is commercial real estate or want to be focused on it. But before we get to that, this will tie into or segue into the plan and execution… But let’s say we’re looking at a multifamily property, and we can see that there’s rent bumps that we can generate for the property, because the comps are generating those rent bumps of, say, 200 bucks. How do you think about the renovation process whenever you are initially assessing an opportunity? Not the actual execution of it, but when you’re initially assessing deals, is there something that you’re thinking of that perhaps others who aren’t as savvy with the execution of the renovation process are not thinking of?

Van Sturgeon: Well, every successful investor that I know, or just any successful person in general, needs to establish some sort of a process, a system to be able to go in and quickly evaluate a property and make a decision on whether to move forward to invest the time and effort. Because we come across a lot of opportunities. So do you, Joe. And you can’t afford to spend time evaluating a property, because there’s another five or 10 more that come down the chute for you to look at. Time is of the essence in most cases because of this overheated real estate market that we’re in.

So, with regards to how we process or how I recommend individual process it – we have a checklist and we have sort of like a renovation calculator that we use in order to be able to go in, whether that’s the multifamily side… And also, there’s a lot of wrinkles associated with multifamily, from balconies, to underground parking garages… There’s a lot of wrinkles associated with the cost of getting a capital improvement put in, but we start off using that as a basis to be able to figure out quickly what the cost is going to be associated with turning this investment around or this potential investment around, and then based off that number, then we are able to determine whether we would like to actually spend even more time associated with doing our due diligence, putting an offer in. Does that make any sense? I’m hoping that I answered your question.

Joe Fairless: Yeah, yeah. So what are some things on the checklist?

Van Sturgeon: Well, it starts from the exterior, from the roof, all the way down to the actual common areas and individual suites. It’s an actual checklist with a formula associated with it, whether it’s in linear feet square footage… And we plug that number in to be able to spit out a generalized number. And based on that number, then we can apply that to the overall number of calculations that determine whether it’s something that we should move forward on.

Break: [08:24] to [09:56]

Joe Fairless: What’s an example of a couple line items on the checklist? And I heard you say roof, and I heard you say common areas, but can you just say a couple line items? I just want to get a good idea.

Van Sturgeon: Sure. There’s a line item on the linear feet of countertop. So, based on the type of countertop that you want to repair, whether it’s granite or a Formica top, there’s a unit number there that you entered the linear feet, and then it’ll turn out a number. Square footage on paint – if you entered the actual unit, it’ll spit out a number. Those are the types of things that we try to generalize as best.

Joe Fairless: And how do you get that number, square footage on paint? That’s the square footage of the walls that you’ll be painting?

Van Sturgeon: No. Again, Joe, this is just a rough estimate associated with the cost of paint. So, it would just be on the floor. We’re estimating, I think, a standard eight-foot high floor to ceiling… So, there’s a number assigned to that, the floor square footage. So it would be — on a typical one-bedroom apartment, it would be $500, and we would assign a value, paint and material included. So, I think it’s like [unintelligible [00:10:55].25]

Joe Fairless: Got it.

Van Sturgeon: Yeah, you’re having the same issue as we do, that you’re constantly looking at opportunities. So oftentimes, you don’t want to get bogged down on them, so you need to do an overall assessment, plug in some generalized numbers to be able to see, “Hey, is this worthwhile for me to be able to move forward on actually devoting some serious effort into determining it?” and then that’s when you start to find the numbers.

Now, part of that also is that there’s buildings that have balconies, and there’s, as I mentioned, there’s buildings that have pools, and things of that sort. So those are tougher numbers to be able to figure out in terms of does this is require some repair or renovation, too.

A lot of this is also experience, and Joe, you’ve done this many a times. So there’s a wealth of experience that we draw upon to be able to put out numbers, to be able to get a sense of where you can take this property, and how much this renovation or these rehab’s going to end up costing… That new folks that get into that aren’t able to put a number to, and they struggle with that. and unfortunately, there isn’t a book out there or some type of resource to be able to buy to get to that point.

Joe Fairless: So let’s take a step back… Where do people who do not have an experienced team, where do they fall short as relates to renovations compared to the opposite team?

Van Sturgeon: Well, oftentimes, on the multifamily investor/syndicator sides, especially on the syndication side, your projections that you put together associated with this property is going to eventually generate over a course of a period of time, and is based on those numbers you’ve sold that to your investor group. Those individuals, based on those numbers, through relationships you’ve created with these individuals over a period of time, are the ones that put money toward this purchase.

That relationship is different than the relationship that you have with yourself… Meaning, the amount of money that you put into an investment, if something goes wrong, you’re the only person to blame, versus if you take somebody’s hard-earned money and you look them in the eye and they trust you with their money, to be able to carry this forward, that in itself is even more weight on your shoulders associated with making sure that you care for the renovation process and making sure that it’s successful.

So, as you bring those projections and put those together, the numbers associated with it, you need to start to fine-tune the association with what it is that you’re actually going to do to the property, and what you can’t do. Because we all live within budgets. There’s only a certain amount of dollars put aside in order to make sure that this renovation rehab is successful, and it’s going to reach your projections. That’s when the difficulty comes, especially first-timers, because everything is 10x in terms of moving from a single-family to multifamily. And the cast of characters associated with the individuals that will be part of that also change as well. You’re not going to go to a general contractor driving around in a small little beat-up pickup truck. You’re going to have to elevate and go to fair size contractors that can handle this type of renovation, whether it’s from a 10-unit up.

So as a result, there’s a lot of fear and anxiety associated with making that right move to be able to reach those projections when you’ve done your underwriting and you’ve gone to your investors, and they’ve signed off on that. So those are where, unfortunately, experience is really required to be able to make that determination as to what it is that you can do and you can’t do, and the capital improvements that you’re going to make to be able to get the highest ROI. Oftentimes, I find that these are difficult decisions that syndicators and investors have to make, because there’s only so much money in the kitty to be able to put toward raising the property value. And that’s where folks like myself come in and help in the process, because of the experience that I’ve been able to gather, and be able to help folks through that process and being able to determine exactly what it is they need to do to the property, and the cost associated with that, if that makes sense.

Joe Fairless: What’s something that’s typically underbudgeted for?

Van Sturgeon: Well, oftentimes, I find that there isn’t enough dollars in the actual unit itself, that in particular kitchens are miss—often are not calculated properly. There’s a significant cost involved in upgrading a kitchen, whether that’s not just the cabinetry, but there’s electric needs to be moved around. If there’s an introduction to putting in a dishwasher, there’s plumbing that’s involved… There’s a number of tradespeople that are involved in that whole kitchen renovation that if you walk in thinking that’s going to cost $3000 to $4000, all of a sudden, it comes up significantly more.

Joe Fairless: Thank you for those examples. That’s helpful. What is something that you’ve seen more often than not people get right, from a budget standpoint?

Van Sturgeon: On a budget standpoint, what they get right… Fortunately, I tend to see that there’s a lot of stuff that is—

Joe Fairless: What is more commonly right than the other stuff? What is [unintelligible [00:15:36].28] on than the other stuff?

Van Sturgeon: Typically, these are stuff to be able to calculate; like, it doesn’t take rocket science to be able to determine the cost associated with replacing a carpet or putting [unintelligible [00:15:47].03]. Those types of things, on a supply and install basis, you can easily figure out what that is. Unfortunately, if you really dig into each of those, in particular LVP, if you have an older building, and if you have areas where you’ve got floors that are all over the place, then there’s a cost associated with having to do some type of leveling, that often folks will miss that number. And depending on the area that’s required to have little bit of leveling done, then we can talk about some significant dollars for that.

Joe Fairless: What’s something that we haven’t discussed that you think we should as relates to renovations?

Van Sturgeon: I think that what’s incredibly important in the planning out and executing a renovation process is actually creating a detailed scope of work. And I find that lots of folks that get involved and start that whole process don’t plan it out properly and put that whole process down in writing, and creating that detailed scope of work. In detailing the type of paint, the color of the paint, appliances, toilets – all of those things that, in order to be able to get out there in the marketplace, an apples to apples comparison from contractors or tradespeople, you need to have that detailed scope of work. And it takes time, but it’s something that’s required. Because if you just generically send out, make a couple of phone calls to contractors to ask them to give you to price out work in your individual suite, you’ll have a wide variety of numbers associated with that, and also, you’ll have a number of folks that are not interested in quoting.

Coming from the background as a general contractor myself, I’m bombarded with requests of people to price out their jobs, whether it’s on the residential or commercial side. And I am careful in who I do business with. So I learned right from the beginning that I wanted to deal with professionals associated with all of these types of renovations, because I make the most amount of money in the turns that I do, and the amount of renovations that I do. So I don’t get money getting bogged down on a renovation.

So I’m always looking for professionals who know exactly what they want. And if you don’t have a detailed scope of work where you have identified exactly what it is that you’re looking to accomplish in this particular renovation, then I don’t want to deal with you. And that’s one of the struggles that I find new real estate investors, syndicators, when they’re out there trying to tender their jobs, trying to find contractors to quote on their work, a lot of good quality ones won’t, because they’re not prepared. They don’t have their decisions figured out ahead of time.

And so that’s one of the things that I find in the marketplace, whether it’s a single-family and multifamily. There’s a lack of that detailed scope of work put in there to determine, to make sure that you get exactly what you’re looking for, and you can get good quality contractors who are interested in quoting your work, and also being competitive, that you can look at quotes and compare apples to apples.

Joe Fairless: What is your best real estate investing advice ever?

Van Sturgeon: When I got started – I didn’t realize this, but now looking back, I strongly encourage folks when they get into this, that they, especially in the multifamily side, that they’re acquiring properties for cash flow, because that’s what—that’s investments you’re looking for, and you’re able to pay for improvements and put money aside… But eventually, what you’ll need to do in order to create real wealth is acquire properties that will appreciate, and that’s where real wealth is created. There’s pockets all across North America that have a little bit of both, and that’s one of the recommendations that I’ve found, is acquire properties that cash flow. And the numbers don’t lie.

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

Van Sturgeon: I’m ready. Go ahead.

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

Break: [19:19] to [22:07]

Joe Fairless: What’s something that you do differently from a renovation standpoint, that you weren’t doing, say, five years ago?

Van Sturgeon: Always looking for improving systems and processes. So I’m constantly looking at improving, whether it’s through technology, and there’s been tremendous strides even over the last several years with regards to that. So that’s in the South, where I’ve seen improvement on, is improvement on the technology.

Joe Fairless: What technology are using now that you weren’t using before?

Van Sturgeon: Twilioo is one where your projects are put it in and you can monitor the progress associated with that. There are some proprietary stuff that, in terms of like payment schedules and progress schedules that we have with contractors and trades, that helps in terms of accountability, ensuring that we get what we’re supposed to be paid for.

One of the things that I find, Joe, that I really want to — like, there’s this notion out there that in order to reserve the services of a general contractor like myself, that you need to drop 50% down, and then over a period of time, obviously, you make more payments as work progresses.

But I’m a strong advocate not to do that, in that when you’ve made that type of commitment to a contractor, that you’ve lost all control associated with your renovation project when you put up that kind of money. 50% upfront is an outrageous sum, and the only place that I would be paying that kind of money upfront is when I walk into McDonald’s. McDonald’s requires you to be able to buy your hamburger and you stand off to the side to get your hamburger prepared. None of these guys are a McDonald’s. So I’m a strong proponent of real estate investor syndicators keeping as much of your money in your pockets, maybe perhaps for mobilization and material costs you give them 10% down, but other than that, it’s outrageous. I’ve heard people that have deposits down to 70%. And how do you retain control of your rehab project when you’ve giving that much money upfront?

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

Van Sturgeon: I love being on podcasts like yours. I’ve written a number of articles that have been picked up, and I just really want to bring out the good word on like how to properly successfully plan and manage the renovation, because I find so many folks constantly — every day, I get phone calls from individuals that are struggling, their contractor has skipped out and hasn’t returned to do work or… Just a lot of horror stories out there. In fact, there’s TV shows that are dedicated to these types of horror stories with contractors and tradespeople. So I’m doing everything that I can to be able to get the good word out, and I really am enjoying that process.

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

Van Sturgeon: I’ve got a website, vansturgeon.com that folks are more than welcome to go visit. There’s a wealth of information there. I also have a renovation calculator that folks can download, to be able to sort of accelerate that checklist, and also a calculator, and I’ve been on a number of great podcasts like yours that talks about how to plan and execute a successful renovation. So that’s definitely the place where folks can learn more about me.

Joe Fairless: Van, thanks so much for talking about the renovation process and some red flags. I hope you have a Best Ever day, and we’ll talk to you again soon.

Van Sturgeon: Thanks very much for having me.

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JF2441_ Stace Caseria_ Real estate Investing with Stace Caseria #SkillsetSunday
 by Joe Fairless

JF2441: Real Estate Investing with Stace Caseria #SkillsetSunday

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Stace is the owner of Trust Deep, a branding agency and evergreen North properties. Stace has 20 years of investing experience and currently has four properties: a small apartment building and syndication. Stace was involved in real estate for 20 years at the same time building a career in branding in advertising. Stace got interested in the real estate business when his mother started buying single-family homes and renting them, Stace saw the profit potential and got interested in investing in the business as well. In today’s episode, Stace will share how he started in the real estate business and how he faced challenges along the way. 

Stace Caseria Real Estate Background:

  • Owner of Trust Deep, a branding agency and Evergreen North Properties
  • 20 years of investing experience
  • Currently has 4 properties, a small apartment building, & a syndication
  • Based in Boston, MA
  • Say hi to him at: www.trustdeepagency.com  

 

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“Mindset matters. Change your mindset. Don’t pursue solely transactional relationships.” – Stace Caseria

TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, Stace Caseria. Stace is joining us from Boston, Massachusetts.

Stace, how are you today?

Stace Caseria: I’m doing great, Ash. How are you?

Ash Patel: Wonderful. Thank you for joining us. Best Ever listeners, today is Skill Set Sunday, where we talk about a specific skill set that our guest has. Stace is the owner of Trust Deep, a branding agency, and Evergreen North Properties. Stace has 20 years of investing experience, he currently has four properties, a small apartment building, and a syndication. Stace before we get into your skill set, can you tell us a little bit more about your background and what you’re focused on now?

Stace Caseria: Sure. So I’ve been investing, like you said, for about 20 years. I’ve also been involved in advertising for about 20 years. So the same time that I was building my career in branding, advertising and marketing, I was also building my portfolio of properties. And my focus is right now on my business, but I’m hoping to shift that to real estate in the future, so that I’m handing off some of the duties of my job to the folks who work with me and going out looking for new investment opportunities, and hopefully being able to take a little bit more time to do that and less time behind the desk.

Ash Patel: That’s interesting. A lot of people almost do it the other way – they hand off their real estate tasks and focus on their career, but you’re looking to transition into real estate.

Stace Caseria: Absolutely. And there are things I’m trying to bring over to my real estate practice from my marketing practice. What lessons have I learned helping people build brands, retain customers, build loyalty? How can I translate that to my tenants and how I deal with them? And hopefully, instead of having small buildings in the future, someday I have large buildings, that I can look back on and say, “Yes, I’ve built this business the same way I would have helped the client build any other business.”

Ash Patel: Let’s get into that. But I would love to find out how you got into real estate.

Stace Caseria: So I had graduated college… My mother owned a restaurant at the time, and restaurant – it’s a grueling, grueling occupation, so she was trying to get out of that long hours; health was an issue. So she said, “I’m going to start buying some single-family homes and renting them.” And I saw her doing this and I saw the profit potential, and she showed me, she said, “Hey, this are what my mortgage and expenses are, this is the rent every month; you can do the math, it’s very simple, it works. And it’s not a 9-5 job. It’s not something that needs my attention all week long.”

I saw that and I said, “You know, I’d like to give this a try.” It took me a while to get fully invested in the idea… Like, your parents tell you things, like – of course, in one ear, out the other. It takes you a while to say, “This thing really could work.” So I’ve had properties for the past 20 years, but it’s only recently that I’ve been much more passionate about becoming more active in it.

Ash Patel: So a background in branding and marketing – what attributes do you take to your real estate investing?

Stace Caseria: A business doesn’t really exist unless it has customers… And I’m trying to bring the belief that our tenants are our customers and we have to treat them like we would treat any of our customers. So if I owned a shoe store or a car dealership or a restaurant even, too often I see landlords and investors treat their tenants as a necessary evil, not focusing on them as customers, not saying, “How can I provide better value for them?” When we talk about value-add, we talk about, “Oh, we’re going to put in new sinks or countertops” or, “We’re going to paint the place.” We don’t talk about necessarily adding value to somebody’s life or how to make them enjoy that property more.

So I’m trying to bring over the idea that apply customer relationship and customer service tools and processes, apply that to your investing and treat every tenant like they’re a customer. They are a paying customer, they just happen to live in a building rather than buy a product or service from you.

Ash Patel: I have to ask you, I do mostly non-residential commercial investing, but I still have some residential, and I have the same outlook as you with my commercial tenants. I treat them as partners. My residential tenants – I’m very skeptical of interacting with them, because it almost seems like every time I do, I open up a can of worms. So help me be more at ease with that. Is there a fine line where you can’t get too deep into their issues and fall victim to them pulling one over on you?

Stace Caseria: Sure. And I completely understand where you’re coming from. But let’s pretend instead of owning a building, you owned a car repair service center. You wouldn’t necessarily have to get involved into your customer’s life in order to serve them, but what you have to do is understand their need and you have to make sure that you’ve done everything you can to fix their car and get them on their way. The difference with owning real estate is that it’s somehow more personal to that person, and they’ve taken some ownership of your building because they literally live there. But you have to think of them as customers, and you have to think of them as having real needs that you can meet, without overexposing yourself or without being taken advantage of, and there is a line.

I was having a conversation with a syndicator once, and he asked me a similar question. And I tend to think of my tenants as my aunt or uncle who I would want to do well for, I want to help them. But if they asked me for the shirt off my back or something that’s going to hinder my ability to run my business properly, that’s the line. So I will be as helpful as I can, but I’m not going to give product away. I’m not going to give service away. I’m not going to let someone escape from their responsibilities. I’m going to hold them accountable. But understanding that we are partners in this, the same way any business looks at its customers and says, “We don’t exist without those customers.”

Break: [00:06:40] to [00:08:41]

Ash Patel: What are some things that you’ve implemented, where you see a lot of other real estate investors have failed at, in terms of customer service?

Stace Caseria: A couple of things. In my business, we try to get our clients to survey their customers and there’s a couple of reasons why we do that. First of all, you get excellent intelligence, understanding where you’re doing well and where you’re doing poorly. But it shows people that you care about improving your process. So even if somebody has negative feedback, the fact that you asked for it is helpful. It will change their perception in some small way; it might change it in a large way.

So I’ve begun asking tenants, how are we doing? What things can we improve? And I don’t think that’s novel. I don’t think that’s new. I don’t think I invented that. But actually listening to people and stopping by—so I have a building here outside of Boston that I self-manage… And I try to head out there at least once a month. And I will knock on every door and see if people are home and just ask them how’s everything going? I’m hoping that they say, “Everything is awesome, thank you very much; here’s the rent.” But it doesn’t always work that way. Somebody might say, “Hey, while you’re here, can you come and take a look at something,” or, “This happened,” or, “That happened,” or, “This guy’s parking in my spot,” or whatever it might be. And I don’t necessarily want to hear those things, but I do want to fix those problems if they exist. If I don’t ask that question, the problem still exists; it’s just not going to get resolved. So this works the same – even if you have property management in place, you want your property managers to work the way that you want them to work.

So if you want your tenants treated in a certain way with a certain level of respect, or if you want hold a hard line to them – that’s the thing, you have to get your property managers to work on your behalf. So the same way, when I go in and I’ve got my agenda, the things I need to get from people – you’ve got to get your property managers doing the same thing.

Ash Patel: How do you get them to be as attentive as you are?

Stace Caseria: That’s a fantastic question. This is what we do at our agency. So a trustee—we’re a branding agency, and we help brands identify what their mission is, what their purpose is… But then the important part is translating that to employees.

Recently, we did a branding project for a restaurant outside of Boston, and their issue isn’t so much that the marketing people don’t understand the brand or the mission… It’s difficult translating that down to the kitchen staff or the wait staff. So the same way we created a manual for their employees, I would say to you if you have property management in place, you have to figure out what is important to you, the way you want things run, and not just mentioned things casually to people. You have to codify it, document it, put it on paper, give it to them, make sure they read it, quiz them on it; get them to understand that this is real, it’s not a suggestion.

And this is what I mean about translating processes or procedures over from marketing or running a business, or even working in the corporate world, translating that over to your real estate… In corporate America, we would have a procedure manual, like, standard operating procedures of how we do things. There’s nothing wrong with having that for your property manager. So they probably have a ton of landlords who they work for. And they run the gamut, from people who really care, people who don’t care, people who want this, people who want that. You have to let them know, crystal clear, “This is what I expect from you.” And putting it on paper is the way to do it, checking in with them, the progress every quarter or something like that, holding them to those things… And it’s not just the guy who owns the property management company. It has to filter down if he has people working for him. People who are knocking on doors looking for rent – it has to filter down to those people.

Ash Patel: That is great advice, because there’s so many people who complain about their property management company… But had they implemented some of these systems and quiz them and follow up, the experience could be a lot different.

Stace Caseria: Oh, yes. We can’t expect people to know what our intentions are or our expectations, unless we put those out on paper. I mean, they’re basic things like “I expect rent to be collected on the first. If there’s a problem with the plumbing, they call me.” Those are basic things. But you have to go beyond that and say, “How would another business run?” Whether this was a bakery, or a bowling alley, anything like that – how would they run? They would have a set of procedures on how to get the best work out of their employees.

The same way with a property manager or running a business – you have to say, “How do we optimize what they’re doing?” And it’s not like, “Hey, guys, please do a good job for me”, because everybody wants to do a good job. But what does that mean? You’ve got to be specific about what that means.

Ash Patel: Have there been instances where this customer service mentality has backfired on you?

Stace Caseria: Why do you ask?

Ash Patel: Because I’m still thinking of a lot of my colleagues that are residential heavy investors… And hearing this, I’m sure in their minds are thinking, “No way. I want to interact with my tenants as little as possible.” So I want to hear about how this backfired, and what advice would you give to those people that have just had so many bad experiences interacting with residential tenants? Maybe it’s a class C apartment, where there’s professional tenants that know how to game the system. I’d love to hear your thoughts on that.

Stace Caseria: Sure. So I do have a set of tenants who fit the bill here. And I have to keep reminding myself that for me, this is an investment, and at the end of the day, I leave and come home to my family, but they live in that building. So they’ve lived there far longer than I’ve owned it. So they’ve been there 20 years, maybe 18 years. And they have a feeling of entitlement or ownership to the building. And I will do most things that they request, as long as it still sits within my objective. So they’ve asked for a few things and I’m like, “Okay, fine; we need to make some improvements, renovations, that’s fine.” But when the tenants start to ask for something that makes me deviate from my plan, whether that’s the profitability or time commitment or a nuisance to other tenants, for instance, that’s where I draw the line.

And I’ve had to do that recently and say, “Listen, you’re starting to sound like a homeowner here, which is a good mentality to have, but not here, because I’m the homeowner here.” And so I said, “If you want to own a home, that’s fantastic, but this isn’t it.”

So we had to have a clear understanding. You have to do that dispassionately. I couldn’t get upset with the guy, because he’s going to take it much more personally. But like I said, at the end of the day, I leave and come home. He lives there. He thinks that’s his home. It’s not his house, he doesn’t own the buildings. I do. But he believes it’s his home, and he should feel that way. I do like when people feel ownership of the property; they will take better care of things. But when they cross a line, you have to redraw that line and say, “This is where it is, this is how it is. At the end of the day, I own this place. I’m going to try and make you as happy as possible.”

It’s like the same thing — it’s like you walked into the car dealership and said, “I want this car for free.” Nope, no level of customer service is going to allow somebody to break their rules of good business. So that’s the same thing I would say to people. It’s not about being a pushover or it’s not about letting your tenants walk all over you. It’s about recognizing them as human beings, as people who have hopes and dreams and stuff like that, just like I do. But there’s a line and I’m going to do everything I can to help them until we get to that line.

Ash Patel: Stace, in your opinion, has this mentality helped you retain tenants?

Stace Caseria: Yes, not just retaining tenants… So every year, there’s an annual rent increase. So something I’ve started doing is I use Rentometer to get data on rents in the area. I also do a search of https://www.apartments.com/. So whenever somebody’s lease is coming up and I want to increase the rent, I put a package together and I show it to them and say, “Hey, I’d love for you to stay if you can, but I have to raise the rent. And if you can’t stay, here’s a dozen other places in the area.” Of course, I’m not being selective. I’m showing them a range of places. And my property looks pretty good compared to these other places, given the amount of rent. So I find that to be very useful. The last time I did this with a tenant, his reaction was—he looked at the rent increase and said, “That’s not bad. That’s what I want.”

So this is the same thing other businesses would do. They would tell you, “We have to raise the prices,” but they would tell you what you’re getting for that, they will tell you why they’re raising it. Rather than somebody just saying “Hey, I’m raising the rent because it’s January.” It’s very arbitrary to a tenant. I mean, giving them a reason why and giving them a way out, and saying, “You know what, if you don’t want to live here, that’s cool, too.” Nobody has left since I started doing that process.

Ash Patel: And you go there in person and deliver a rent increase?

Stace Caseria: Generally, I mail them. It happens that I was on the property for something else and I handed it to this guy, and he opened it and read it right there. But typically, I would just throw them in the mail. As much as I’m saying I want to be this great guy, I do want to limit my time out there, because I have other things to do. I have a business to run, I’ve got a family. But if there are times when I need to be there just to make sure that people know who I am and recognize me, and they have a personal relationship with me, I will take those opportunities [unintelligible [00:17:11].06] to knock on doors. If I’ve driven all the way out there – because its outside of Boston; if I’ve driven out there, I’m going to spend the time and knock on doors and talk to people and do what I have to do.

Ash Patel: So with your personality, I feel like your rent increase letter is not the norm. What does your rent increase letter say?

Stace Caseria: It generally will talk about the conditions. So right now, the past year, it mentioned COVID. And I said, “I understand that things are tough for everybody, and if you need help with rent assistance, let me know; I can put you in touch with people .” And that happened with one person that said, “Hey, I could use help paying my rent.” It’s better that — [unintelligible [00:17:44].02] pay his rent, then he doesn’t pay me. So it’ll talk about the economy, it’ll talk about things that are going on in the neighborhood…

I think once there was a new building that was being constructed, saying, “I know that there are other options, there’s this new building being constructed.” Spoiler alert, it was much more expensive to live there than in my place, but I just want to be transparent about what’s going on.

I might also say, “In the past year, I’ve also done these renovations to your apartment, whether I painted or put it in a new carpet or something like that. But Just so we’re on the same page, I’m not doing this arbitrarily in giving you a new carpet because I’m an awesome guy. This is a business for me.” So I want to be human, but I also want to be professional about it.

Break: [00:18:20] to [00:19:00]

Ash Patel: I love that approach. I wonder how few people actually do that. I would envision a lot of people just say, “Hey, by the way, your rent is going up January 1st. Here’s the new amount period.”

Stace Caseria: The problem with that is, if somebody questions it, you need to have a rationale for it. The same way if your cable bill is going up, you want some sort of rationale or this is going to bother you, right? If they said, “Hey, we’ve added 16 new channels and now it’s in HD and you’ve got this DVR thing and—.” They go, “Okay, I’m getting value for this extra increase.” If they just said, “Hey, your cost has gone up. Take it or leave it” you’ll be like, “Why? I need to understand why things are happening.” And if you explain things to people, for the most part, I think people get it. They understand that you’re there; not as a humanitarian, but as a business person.

Ash Patel: That is a great philosophy. How have you used your branding and marketing background to attract tenants for vacant units?

Stace Caseria: I have to say, I’m jealous of people who own new construction, because I don’t have a building like that. But I look at new construction and I say “So what elements are here other than the box that is an apartment? What other things?” So I’m like, “Okay, so there’s branding on the building,” or, “There is signage inside the building,” or they might provide a welcome package to tenants. So I try to do little things like that where I can, to maybe get closer to what the experience might be in a much nicer building; because I’m in the C Class building. But I would love to have a much nicer building, bigger building, newer building. So I’m trying to—

Ash Patel: Bigger mortgage?

Stace Caseria:  Bigger morgage, right. But there are things I cannot provide. It’s an old building, low ceilings… I can’t provide big open concept. There’s no dog park, there’s no swimming pool; I can’t provide those things. They’re never happening; covered parking, never going to happen. But I look for other things that I can do. And I tried to index a little higher in those small things that might have some effect, rather than just throwing up my hands and saying, “There’s no way that I’m going to be able to compete with those other buildings.” But there are things I’ve learned also from the Joe Fairless book about how to add amenities… And it’s not necessarily always adding things like swimming pool or covered parking and things like that; it’s just like small touches that people might appreciate. It sounds so minor when I talk about it, but outlets — the USB outlets [unintelligible [00:21:07].06] I put those in an apartment that I renovated and people were so happy. It’s just a $5 outlet. But looking for small things that will make a little bit of an improvement. Those are things that that I look for.

Ash Patel: Stace, what advice would you give to somebody – let’s say they have 30-40 Classy C units, they’re kind of inundated, they’ve had their fill of tenants stories… How do you get them to reposition their mindset? And what are some practices that they can start doing to get to where you’re at, and build this allure or build an environment where the customers, the tenants all know “Stace is my landlord, great guy.” How do you get somebody who’s been jaded, inundated, to adopt this philosophy? And what specific tasks could they implement?

Stace Caseria: I think before you get to tasks though, with anything in life, mindset matters. You have to change your mindset and you have to understand the relationship not as a transactional relationship, but one where you are providing value and they are providing you with income for the long-term. You have to see people as customers, and you have to see them as your partner.

As you said in your commercial space – you have to see people as partners. So the actual tactic is for somebody who is jaded is I would start with one or two tenants. I always try to start with the biggest problems first, and see if I can solve those. And so if you have somebody who’s a real nightmare – not to the point where you need to evict them, because if that’s the case, then hopefully, they would have evicted them. But see if you can change their behavior toward you by changing your behavior toward them. Call them out of the blue and say, “How’s everything going?” Or send them a letter saying, “I appreciate you being there.” Send them a “thank you” after they’ve paid their rent; that’s going to be odd for a lot of people to receive this thing that says, “Thank you.” And there might be negative consequences to begin with. If someone’s going to say, “Of course, I’m paying my rent, but you never fixed my faucet.” Well, that’s an opportunity to fix the faucet.

But I think once you do that and you show people that you have empathy and you’re a little bit more human, then you can work on the ones that are easier. Start with the hard ones first and get a system in place. Because if you can make a difference with that person, you can make a difference with everybody else.

Ash Patel: That is a great philosophy. That’s one thing that I don’t do, is randomly send “thank you” letters. I host dinners and happy hours for my commercial tenants, but there’s a lot more that I could be doing. What’s your hardest lesson that you’ve learned in your real estate investing experience?

Stace Caseria: This applies to a lot of things in life… It’s not hesitating to make decisions. When you have a decision and you’re pretty sure you know which way you’re going to go… In the past, I’ve waited too long to make decisions. I sold a property last year that I should have sold years before. And I just held on to it for emotional reasons, not looking at the numbers. Because as humans, we make decisions emotionally, we don’t make decisions rationally. I wish we did sometimes. But I held on to this property and I think I was barely making any money each month; it was barely cash flowing. That’s because from the time I bought it to the time I sold it, it had flood insurance, because it was a waterfront property. And flood insurance had gone up 10 times year after year after year. And I kept saying, “Maybe I’ll catch up to this”, and there was no way rent was ever going to increase at the same rate. And I just loved the property being on the water and everything, but I had to realize I should have done this years ago and then just taking that cash and putting it in something else.

Ash Patel: Lesson learned.

Stace Caseria: Hey, something else I wanted to mention before—you said you do happy hours with your commercial tenants. Something that I started doing with my residential tenants is every Thanksgiving I send them a gift card for the local supermarket, because Thanksgiving is an important time with my family. So that’s a way that I can show them some appreciation, and people were blown away the first time they got it; it wasn’t a lot of money that I was sending each person but it was certainly noticeable.

Ash Patel: That is amazing, and simple practices for people to implement.

Stace Caseria: Absolutely.

Ash Patel: Tell me more about your syndication.

Stace Caseria: I’m working with a syndicator now, so I’m invested completely passively in that deal. I would love to transition into syndicating myself, find a syndicator I can work with who might be looking for somebody who brings marketing and branding experience, and sort of have a value exchange there. But I see that as such a powerful force… I know I’m on the Joe Fairless show here… He opened my eyes to this thing called syndication. And whenever I read the book a few years ago, I was like, “This is an amazing thing.” I want to become more active in syndications, and I’m trying to invest in them passively at the moment to sort of understand how they work beyond just reading about them in books; see how they work in real life.

Hopefully, soon I will work with a syndicator and blend my skills, whether it’s how to deal with people or managing the property or helping with marketing and branding of the property itself.

Ash Patel: I think you would do very well using your skill set, your mindset and your customer service practices on a much larger scale. So Stace, thank you very much for joining us today. Your outlook, your mindset – you’ve given me a lot of things to think about, the things that I could do better, very simple things. And for our Best Ever listeners that have a lot of units that they’re inundated with, I think you’ve helped to transition some of that mindset as well. So thank you again for being on the show.

Best Ever listeners, thanks for joining us and have a best ever day.

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JF2439_ Using Green Energy To Increase Cash Flow With Lucas Weismann
 by Joe Fairless

JF2439: Using Green Energy To Increase Cash Flow With Lucas Weismann

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Lucas has been a real estate investor since January 2008. In 2017, he got into solar development.

Lucas got interested in green energy for several reasons. First, he uses it to increase the cash flow of the property. Being able to take advantage of the tax credit is also nice, and the accelerated depreciation plan is very beneficial as well. And while ROI varies depending on the area’s energy and labor costs, he believes that green energy can add value to the property and help real estate investors increase their cash flow.

Lucas Weismann  Real Estate Background: 

  • President of Blue Mustang Investments
  • 12 years of real estate investing experience
  • Portfolio consists of 4 single family rentals, & a 24-Unit Apartment 
  • Based in Denver, CO
  • Say hi to him at: www.w-consulting-group.com 
  • Best Ever Book: Miracle Morning

Click here to know more about our sponsors RealEstateAccounting.co

thinkmultifamily.com/coaching 

Best Ever Tweet:

“Find a local mentor group” – Lucas Weismann.

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 Lucas Weismann.  Lucas, how are you doing today?

Lucas Weismann: I’m doing great.

Theo Hicks: Great. Well, thank you for joining us. We’ve an interesting topic today, we’re going to be talking about green energy, solar energy and how you can use that to increase the value of the cash flow at your properties. But before we get into that, a little bit about Lucas — he’s the president of Blue Mustang Investments with 12 years of real estate investing experience. His portfolio consists of four single-family rentals, as well as a 24-unit apartment. He is based in Denver, Colorado, and his website is https://www.w-consulting-group.com/.

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

Lucas Weismann: Yes, so I’ve been investing in real estate since January 2008, right before the crash. And I have been in solar development since 2017 when I was living out in Bakersfield, California. My schooling was in advertising photography, like boxes of cornflakes and portraits for magazines and that sort of thing. A lot of it was architectural photography. So I’ve had a lot of love for real estate and architecture my whole life, and I’ve been looking for a way to transition to that… And now I get to do that full-time.

Theo Hicks: Great. So we were talking a little bit beforehand about how you kind of use your expertise in green energy in order to increase the cash flow at your property. So can you kind of walk us through maybe how you kind of discovered this in the first place, how you came across this concept?

Lucas Weismann: Sure. I actually discovered how solar works from a friend of mine, [unintelligible [00:02:10].21] who is a solar consultant in California. We met at swing dancing, of all things, in Denver, and he knew that I had some sales experience and wanted me to join. I finally said yes after seven years of traveling around the world teaching swing dancing, and I wanted a place to live that was more permanent. And when I looked into the tax code, I noticed that these guys were focusing on residential real estate, which was great, but that if you were dealing with landlords, they counted as commercial for the purposes of solar, because it’s a commercial endeavor, not because of zoning. And that was the advice of my tax professional. Obviously, anybody looking at tax credits should talk to their CPA and don’t take the advice of a guy they haven’t met on a podcast.

But basically, I looked into it, I started working with some investors and realized that in addition to the tax credit, you could also depreciate the solar immediately in one year, instead of over the normal five years, which is what you would normally do for equipment based improvements if you’re doing cost segregations. Additionally, because of that, you don’t have to do a full cost segregation because of the way that those rules work, so it’s really a nice situation for landlords.

Those tax credits are going to drop down significantly at the end of the year, so the way that I’m focused with Weismann Consulting Group, which is the arm of my business that does the solar – we’re focused in making sure that the solar makes sense for people, whether or not they have a tax liability left, because a lot of landlords have enough deductions that they don’t have that tax appetite.

So the way that we do it is, we either reduce or eliminate the electrical bill. And if it’s a larger property, often there are what are called “demand charges”, where the utility charges you an extra on top of your kilowatt-hour charge, simply so that they have the demand they’re ready for you. If you think about a church, they use a ton  of electricity Sunday morning, Wednesday night, so the power company says, “Okay, well, we’re going to treat Tuesday evening as if it might be a Sunday morning service.” And they have to have that ready capacity.

But with solar, we can knock the peaks off of their peak usage down or eliminate it entirely, depending on how much roof space and some other factors. And by offsetting that expense, you’re reducing your operating expenses, and that increases your net operating income.

Theo Hicks: How much does something like this cost compared to how much they reduce their expenses? So in other words, like what’s the typical ROI you tell people if they were to use solar energy on their property? I’m sure it varies drastically depending on where you’re at, but just kind of ballpark.

Lucas Weismann:  If You’re talking to somebody in New York, Hawaii, or California, where they have the highest energy prices, your break-even on it is ridiculously fast, even with the higher labor prices you have in those states. I would say that if you’re in Wyoming at six cents a watt, it probably doesn’t make a lot of sense, unless you have that high tax appetite.

So my goal is to try to set somebody up for a four-year break-even if they paid cash. In some cases, they can finance with 100% financing, depending on their banking relationships and if their area has C-PACE or commercial PACE funding; that is way more involved than we need to get into here. But in that case, they would basically be lowering their bill, on average by 20%, and financing with little or no money out of pocket. But I like it to be where, assuming we don’t have to build a parking structure and we’re putting it on the roof, you’re looking at a four-year break-even, paying cash upfront, with none of the tax credits. That’s my goal.

Break: [00:05:50] to [00:07:49]

Theo Hicks: Whenever someone reaches out to you or you find a customer, what’s the process you go through to determine what the actual specific break-even is going to be, to make sure that that’s a good fit? What’s that process look like from your end?

Lucas Weismann: So the first thing that I need from them is the address of the property and then their last 12 months of usage and energy costs. And they can send me the last 12 months of energy bills, or in some areas, I can call a hotline, type in the account number for that building and I can get that information.

Once I have the usage and how much they’re paying, I can tell, okay, their energy costs were $24,000 last year, and we need to put on 80 kilowatts of solar; this is the rough numbers for the apartment that I bought back in July. So I was able to look, and at full retail rates, not getting an employee discount or just buying from my first employers that were local mom-and-pop shops, it was going to be about $200,000 of solar. But the tax credit that we qualified for was about $150,000 between the tax credit, the depreciation and local incentives. So for $50,000 out of pocket, we were able to offset $24,000 per year in operating expenses.

Theo Hicks: How do the tax credits work? I know that you said that they’re going to go down, but can you walk us through that process? Is it an immediate thing? Is it just at the end of the year that that’s used? Because you said that you can depreciate it over one year – so it’s just the next year’s taxes, you get that credit back?

Lucas Weismann: So there’s the income tax credit, which is 26%, and then you can also depreciate the contract cost of the solar. So if you’re financing it, you had a choice between the same payments at 10% with zero points or 0% with 10 points. Take the 0% with 10 points, because your tax credit is higher if you need it. So you’ve got your tax credit. You can do an accelerated depreciation schedule if you’re going to hold the property for five more years. Otherwise, just take the straight-line depreciation of 20% per year, and that goes in your next tax return. Does that make sense?

Theo Hicks: That makes sense. And you also mentioned some local stuff, too. So how do I find that? Or is that something that your company does?

Lucas Weismann: That’s part of our consulting process. Our process basically is there’s a pre-consultation where you contact us, let us know you’re interested, send us the address and the usage data, we set up an appointment and we bring a custom solar design using Google Earth and figuring out and give three options for how you can increase your NOI, then you choose which option you like best, and we do it.

So the options we present is usually flat fee consulting, where based on the size we provide a design estimate, vet the contractors, get three quotes, advise which ones to use, and we’ll evaluate and recommend who we think is the best balance of cost and reliability with local contractors.

Or I can work with my contacts at the manufacturers to get the equipment directly from the manufacturers rather than having to have two more tiers of supply chain that increases the price. And that’s good for landlords who have an existing relationship with a local electrician, or they want to do it themselves for whatever reason, and we can just provide the engineering drawings and the supplies. Or we can do the full project management, where we take over the whole process supply the parts, the labor, arrange the permitting, all that kind of stuff. So either one is possible.

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

Lucas Weismann: Find a local mentor group. I live in Colorado, so Investment Club of the Rockies is really good and Invest Success is really good in my area. I’ve done some stuff with Anthony Chara. The apartment mentors in your area – unless you’re really remote, there is probably a  REIA, and you will be able to go further faster if you can find people to work with.

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

Lucas Weismann:  I am.

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

Break: [00:12:08].06]

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

Lucas Weismann: For more advanced people already in the real estate game, I would actually sayThe Miracle Morning; that has had the biggest impact on my life.

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

Lucas Weismann: I would take my sales skills and go raise capital to start another business.

Theo Hicks: I’m going to change this one up just a little bit, because I’m just curious to see what the answer is. So what is the most amount of money that you’ve saved someone – it can be like an absolute number, or maybe like a break-even point – by implementing a solar panel project?

Lucas Weismann: Well, that’s a good question. I believe it was about $250,000 a year. I’d have to look at the numbers exactly, to be sure.

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

Lucas Weismann: I’m pretty involved with a local music and dance education charity called Community Minded Dance. So I’ve taught and arranged dance fundraisers and that sort of thing for them since 2009.

Theo Hicks: Do you have any stories of where the solar panel project was supposed to reduce the expenses by a certain amount or have a certain break-even point, but something didn’t go according to plan and it wasn’t a good deal or wasn’t a good project, a good fit after it was actually already implemented, or do you not have any stories like that?

Lucas Weismann: Yes, I have one, but it had less to do with the solar itself and more to do with change orders. If you know what you want and you get what you’re going, it’s pretty plug and play. We did have a client that was in the construction business, and for his construction yard he wanted the parking covering which adds $1,000 per kilowatt installed of steel, because you’ve got to build the parking structure as well.

And when we went there, we took the measurements, we got them improved, we ordered the steel, we put it in, he decided it wasn’t high enough. The steel company said, “Well, we did what we were supposed to.” Nobody wanted to take responsibility. We kind of ended up having to eat the cost of that to get him two more feet, because he decided he wanted more clearance for taller trucks that he had decided to buy. So that’s the worst that it’s been.

The solar itself is pretty break-even. I have had some issues with one of the funders that I used back in 2017 and don’t use anymore. They just proved hard to deal with, and I actually stopped dealing with them because I used them to fund the house that my wife and I were living in at the time, and they weren’t easy for me to deal with, while I was helping to get them [unintelligible [00:15:20].01] So I said, “Well, I’m not dealing with them anymore.”

But as for the solar itself, as long as we get the right data, it’s pretty plug and play, and it’s a lot more simple than most other projects.

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

Lucas Weismann: The best ever place to reach me – do you advise against giving out cell phone numbers?

Theo Hicks: No, people give out there phnone numbers all the time. Go ahead.

Lucas Weismann: Okay, the best number to reach me at is area code 720-281-9155. And they should send a text.

Theo Hicks: And when they want to learn more about solar energy and the benefits and the tax credits and the reduction in electric bill, where can they go to learn more about that? Can you give them your website, or any resources that you recommend?

Lucas Weismann: A lot of the things that pose as resources really are just sales pitches online. If somebody wants to learn more, I’m happy to take the time to give them an overview of how it works. So the best way to do it is just text me, and based on what their questions are, I can point them to specific resources, because there’s a lot of information out there and it’s not always easy to wade through.

Theo Hicks: Make sense. Well, Lucas, thank you so much for joining us today and talking to us about solar energy – the benefits of solar energy when it comes from a tax perspective, but also your focus, which is more on the reduction or ultimately elimination of the electric bill, with the taxes just being kind of the cherry on top. And so you talked about where this works – it’s better in places where the energy is actually expensive, because you get the faster ROI, whereas you gave a good example, Wyoming, might not have the fastest break-even point. But the goal is four year ROI, assuming that all cash was paid; it’ll lower your energy bill by 20% to 25%.

We talked about the process from your perspective, how you just needed an address and the last 12 months of energy and usage costs and you can go ahead and calculate how much it’ll cost to do the project minus any credits, incentives, reduction in bills and how much it would actually cost you total, and that way you can calculate the ROI. You talked about the three different ways that taxes are impacted – the income tax credit, as well as depreciation – and then your best ever advice, which was to make sure you find a local mentor or at least attend your local REIA group.

So thank you so much again, Lucas, for joining us. A very unique topic. I don’t think we’ve had someone on here talking about it before, at least not recently, so I appreciate that.

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

Lucas Weismann: Thank you very much.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2427 Growing Trust to Build a Better Brand with Stace Caseria #SkillsetSunday
 by Joe Fairless

JF2427: Growing Trust to Build a Better Brand with Stace Caseria #SkillsetSunday

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In this #SkillsetSunday episode, Stace Caseria talks about the importance of trust. You can increase the trustworthiness of your brand by understanding its 4 fundamental parts.

Stace describes how trust works for a real estate professional who’s looking to reach out to a new lead for the first time ever. He also talks about the ways to make a brand or a business sound authentic and how to market your services on a whole different level.

 

Stace Caseria Real Estate Background:

  • Owner of Trust Deep, a branding agency and Evergreen North Properties
  • 20 years of investing experience
  • Currently has 4 properties, a small apartment building, & a passive investor in a syndication
  • Based in Boston, MA
  • Say hi to him at: www.trustdeepagency.com 
  • Best Ever Book: The Speed of Trust 

Click here to know more about our sponsors

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Best Ever Tweet:

“You can’t build trust with smoke and mirrors because eventually you’ll get caught” – Stace Caseria

TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to The Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any fluffy stuff. First off, I hope you’re having a Best Ever weekend. Because today is Sunday, we have a special segment for you called Skillset Sunday. Here’s the skill – this is for real estate entrepreneurs who have a company and real estate brand that you’re looking to portray the trustworthiness that you deserve as a brand. We actually have with us Stace Caseria. He is the owner of Trust Deep, which is a branding agency. He has also 20 years of investing experience. They help brands build trust through their branding with investors. So Stace, would you mind first giving the Best Ever listeners a little bit more about your background and what Trust Deep does, and then we can go from there?

Stace Caseria: Sure, absolutely. As you said, I’m a real estate investor. I’ve been investing in singles and duplexes for about 20 years. I also have a small apartment building here outside of Boston. I’m also looking to scale up and join some syndications as a passive investor, and eventually, someday, I’d like to lead a syndication. But in my day job, I own a branding agency.

We focus on helping brands, business leaders, entrepreneurs find how they can become more trustworthy. Trust is not something you can force, you can’t ask somebody to trust you. You could, but it doesn’t work, though. But there are factors that are within your control, and by understanding the four parts of trust, you can level up on the areas where you might be lacking. All of this is to help you become genuinely trustworthy. You can’t create trust with smoke and mirrors, because you’re going to get caught eventually. So what we do is help brands use different tactics to increase their credibility, their track record, empathy, and alignment of interests. Those are the four factors that go into this thing that we call the trust dynamic.

Joe Fairless: Let’s unpack that one by one. Can you walk us through each one of them?

Stace Caseria: Sure. The first one is credibility. When people talk about trust… First of all, people don’t like to talk about it, because it’s this weird thing. It’s mysterious, as though we don’t have control over it. But once you understand that it’s an emotion just like anything else, we can control it and we can put it in our favor.

So the first factor is called credibility, and credibility is nothing more than speaking or communicating with authority on a topic. Credibility can be created instantly, from the second somebody rolls into your website and they see that you know what you’re talking about. If you’re talking about commercial real estate – well, you’re going to have to understand the lingo, you’re going to have to understand the factors that go into a deal, you’re going to have to understand what’s going on in the marketplace at the moment.

Do you seem credible? Do you have knowledge on the topic? That works whether you’re talking to somebody face to face, or if somebody is looking at your website or your social media, or even if you have a mailing. Credibility comes across in many ways, and it’s something that you can create instantly with somebody, from the second you shake their hand at a real estate meetup and you start talking about a topic. If you can speak with authority on that topic, you have credibility.

Joe Fairless: Okay. Number two.

Stace Caseria: The second part is track record. A track record is the only factor that takes time to build. We tend to think of trust as needing a lot of time to be established, and there’s only one area of trust that actually takes time, and that’s a track record. So you think about, is there a high likelihood that I’m able to repeat the success I’ve had in the past? Can you trust that I’m going to take whatever I’ve learned, lessons in the past, and apply them here? Do I have a repeatable process? That goes into track record.

The track record is your reputation, and this is something that does take a while to establish. Talking with syndicators or investors who are new and they may say “I don’t have a track record in real estate”, but every adult has a track record, because you went to school, you have a job, you have friends; there are people in your life who can speak to your track record.

If you don’t have a track record in real estate, you can borrow elements from the other parts of your life. Also, we know you can borrow the track record of your network. Let’s say you’re raising capital for a deal, and this is your first time. Well, hopefully, you have somebody who’s more experienced on your team, who’s done this before, and so you get a little bit of their track record by partnering with them.

Break: [00:05:34] – [00:07:36]

Joe Fairless: Lots of different ways to partner, that is the beauty of, specifically, commercial real estate or real estate in general. You can partner up with people on one deal and you don’t necessarily have to be married to them through the course of your professional life. You can just do a couple of deals with them, if it doesn’t work out, you move on. Okay, number three.

Stace Caseria: The third one is empathy. Empathy we call the human factor. A lot of people in business will sometimes dismiss empathy as a soft skill, something that isn’t needed in the hard-nosed world of business, and I completely disagree. There is nothing that can build trust quicker than empathy. Empathy is our ability to listen to people, it’s our ability to relate to people, it’s our ability to see people as human and understand their needs, their condition, the space that they’re in. Showing empathy doesn’t necessarily mean you agree with somebody by listening to them, it just means that you understand where they’re coming from. Thinking about somebody who might be a wholesaler, house flipper, or something like that, and they’re talking to a homeowner, and the homeowner says, “I need X amount of money for this house.” The wholesaler is thinking “I can’t give you that much. But let me understand why you need that or why you think you need that, and let’s see if we can figure something out.”

Empathy is not giving in to people, it’s listening and understanding where somebody is coming from. You might find out that you don’t have the ability to make a deal, but at least you listen to that person, because you validated their concerns or their thoughts and you validate them as a person. It is incredibly powerful when we are able to give validation to other people. As humans, we all need that. We’re social creatures, we don’t live by ourselves, we have to interact with other people. Those who demonstrate stronger empathy have more success in business, and they’re able to have a tighter group of people around them who want to work with them and people who are committed to their success.

Joe Fairless: Okay. The fourth?

Stace Caseria: The fourth one is the alignment of interests. This is something I know you’ve talked about in your book, and this is sort of really well aligned with that… There’s a slight nuance to it, but this is the factor that you want the same outcome as somebody and you’re willing to do the same steps to get there. Out of a deal, you may say, “Hey, I want a 20% ROI.” I might say, “Yeah, I do too.” But the way we’re willing to get there might be different. That would mean we don’t have an alignment of interest. I might say, “There are lots of rules and regulations, and we don’t have to follow all of them.” You might say, “No, actually, I plan to follow all of them.” We both have the same outcome in mind, but we don’t have the same commitment to the ideals that will get us there. That’s an alignment of interests.

Alignment of interest is really interesting, for what it does in the scale of branding is that it helps you create deep meaning with people, beyond a product or service. So that’s ultimately what branding is – it’s this connection that we have with a product or service that goes beyond the product or service itself. That’s how we have deep loyalty with a company. It’s because we share meaning, we share a motivation or an intention; that’s at the root of alignment of interests. That is the factor that creates the deepest connection and the chance for you to have loyalty with a customer or an investor. Because ultimately, that’s the goal. It takes five to seven times more effort and money to get a new customer or investor, versus keeping an existing one. At the end of the day, we try to build trustworthiness with our clients to gain long-term loyalty with their customers.

Joe Fairless: I’m thinking about how to try and put all four of these things in an ad, just to help bring it to less philosophical and more tactical. So if I were to send out a postcard to my customer, and let’s say I want them to invest in a deal of mine… Then I’m going to give some examples and you tell me, “You are trying to do way too much in this one ad,” or you tell me “Yeah, that could work.” So if I want them to invest in a deal of mine, and the postcard –which they’ve never received a postcard from me before, we’ll say that– says “We have X amount of assets under management, and we’ve been doing business for X amount of time.” So there’s a track record. I would think track record and credibility are pretty close cousins, because of speaking about authority on a topic… Well, if you have a track record, you can –I would think– speak with authority on a topic. So I would think we’d check both of those boxes with that type of statement.

And then with empathy, something along the lines of identifying a problem that they might have and that I have come across before, and talking a little bit about that as it relates to the business that I’m in, and the call to action, the step I want them to take. So maybe it’s “Hey, I had a full-time job and I was looking for ways to make money, and have my money worked for me while getting tax benefits, etc.” Then alignment of interests mentioning “…and I invest alongside you and the rest of my investors for every deal.” What do you think of that?

Stace Caseria: It seems like you’ve done this before. It’s difficult to do copywriting on the spot, so I give you a lot of credit. That is, in a nutshell, how this formula works. The four factors overlap, and the way you speak and what you say can do double duty.

The first statement that you’re talking about, track record and credibility working together, is absolutely true. The track record is what you were talking about, and the credibility was how you were talking about it. Empathy is about the why – there’s the why in there, your purpose – and of course, the alignment of interest, that one is really easy for you to do the way you did it there. It’s so far from being philosophical; it’s so concrete. It’s like you and I are walking step by step, doing this together. If you lose money, I lose money, but we hope to both gain money together. That’s exactly how the alignment of interest works.

And the four factors don’t always have to be in the same proportions in any communication, depending on the size of the deal, who you’re talking to, who you are, the relationship that you have with people. There are things that you might leave out if that were a repeat customer; there are things that you might include if it was going to a list of people who were first-time investors, versus people who have invested not with you, but with other people multiple times, or the certain needs of that audience. So the four factors come in different levels depending, on a lot of the parameters of a situation or a deal.

Joe Fairless: Okay, that is very helpful. So we probably should have talked about this early on. I’d love to hear your thoughts on this… What makes you an expert on this and how did you come up with these four things that create trust?

Stace Caseria: So I’ve been working in advertising for about 22 years. Before that, I’ve always been interested in people. It seems strange to say, but my wife always thinks this is weird that I will make conversations with strangers, I’ll try to learn about people; I always want to understand where people are coming from. This has been an interest of mine my whole life. I look to see how people relate to each other, and it’s sort of dissecting situations when I’m with people. I take a scientific approach, although I’m not a doctor… But I look at how people relate to each other and I try to understand that.

Another factor is that I like to understand how people make decisions. In my two decades in advertising — we talk about a lot of things in advertising, we talk about engagement, we talk about awareness, we talk about trying to get in front of people… But there’s the thing that we were always missing that I felt — we talk about trust, but we don’t talk about how to build it and we didn’t break it down.

I went through the process of breaking it down, and thinking about situations, relationships I have with people, and say, “How does this relationship work? Why do I have trust in this person here? Why do I not have trust with that person there?” Sometimes you’re having a conversation with somebody and you’re like, “This guy doesn’t really care about what I have to say. He just wants me to hear what he has to say.” So from that, I’m like, “Okay, there’s this thing here where there’s got to be some reciprocity.” He has to care about me a little bit, and I have to care about him a little bit, or we’re not going to get to a point of trust. I’m like, “Okay, so that’s a line of interest merged with empathy”, so I started breaking these things out. I said, “You know what? I might have credibility and I can talk about a topic. But if I’ve never done it before – well, that’s a different thing. I don’t have 100% credibility.” I started breaking it down, like “Wait, credibility is different than track record. Track record is a little bit different.”

There are people who’ve done something over and over again, but they might not be able to communicate to me how they’ve done it or show proof of that. So they’ve got the track record, but they might not have credibility. And these are the four factors. There might be other things, but I’m trying to group these four things together, so that we can make a system to conquer one element of it at a time and build that genuine trustworthiness. There’s a whole conversation we could have about where decisions get made in our brains… Decisions are not made in the neocortex – that’s the new part of our brain, from an evolutionary standpoint.

Joe Fairless: The crocodile brain, right?

Stace Caseria: The limbic system. That’s where decisions get made. And decisions can’t be affected by language, because that part of our brain doesn’t understand anything but emotion. The limbic system controls our decisions and our emotions; it’s the emotional center of our brain. When we try to communicate to people with words – well, it has to first be translated into emotion in that person, and then it can start to register. But when we think about like, “Oh, I made a decision based on the logic of it.” No, that that doesn’t happen; it’s just not biologically possible. There has to be an emotion created before that part of your brain can react to it and make a decision, yes or no.

Joe Fairless: When you’ve spoken to someone over the history of you talking to people about this, and then they’ve taken it and run with it, what are some mistakes that you’ve seen people make trying to implement this?

Stace Caseria: With everything in life — and I was thinking about this before I came up. I was thinking about what we were going to talk about… You can’t force certain things; you cannot force credibility. If I don’t know enough on a topic, I might get partway through the process of a conversation… When people try to sound like they know more than they know, the person that you’re talking to – you run the risk of them actually having the answers and you looking like a fool… Rather than you saying, “I really don’t know all about this. I can find out and get back to you.” People will give you the benefit of the doubt. But if you speak with authority and try to be convincing on something and you’re clearly wrong, you will do more damage than good.

Fake empathy is another problem. We work with a lot of brands, some large brands. In the past, I’ve worked with big brands like Heineken, Delta Airlines, Bose, Panasonic, large companies. Sometimes large companies will have a really great intention to sound human, but they might play it off wrong, and it might come off as disingenuous or not their place in the world. I think as consumers, we’ve become a lot more accepting of brands feeling human, because we’re at a point where we’re much savvier to marketing. So brands have had to come around and say, “Okay, what’s another element that we could tap? Oh, let’s try to be human and understand what people need, rather than telling them what we have to sell.”

Joe Fairless: I love this conversation. This is going to be helpful for the Best Ever listeners who want to take their business to the next level, from a marketing standpoint, and generating leads. Do you have any books that you recommend from psychology or sociology that you’ve come across that you think would be helpful for the Best Ever listeners and myself?

Stace Caseria: I can think of two. The first one is called The Speed of Trust. It was written by Stephen Covey. I think his dad wrote… I think it was called the 10 Habits of Highly Successful People. But The Speed of Trust is fantastic. If this is a philosophical conversation we’re having here, if it sounds too philosophical to your listeners, read that book and you will see how trust turns into dollars and how it saves companies time. It is fascinating when you read that. Here’s a guy who runs a consulting company, and they consult with some of the largest companies in the world, and they see these massive improvements in efficiency. So The Speed of Trust – it’s like a literal title. It’s talking about speeding up decisions, speeding up our ability to work together, speeding up getting to a successful conclusion.

The other book is called Everybody Matters. The guy who wrote it, his name is Bob Chapman. He runs a global manufacturing company and he decided to start treating his employees like they were family members. He says “Everybody who works here is somebody’s precious child, and they’re entrusted to me for the eight hours a day that they’re here.” He’s seen massive growth and productivity improvements by treating people like their family. A fascinating book.

Joe Fairless: I’ll check that out. I’m more interested in the first one than the second one, but who cares about me right? I’m a focus group of one. But I just bought both of them right now — okay, I just bought them. I’ll check them both out. Thank you for those recommendations. How can the Best Ever listeners learn more about what you’re doing?

Stace Caseria: They can go to our website. Our agency is called Trust Deep. The URL is trustdeepagency.com.

Joe Fairless: Thanks for being on the show, talking to us and educating us on the four factors of trust. One is credibility, two is track record, three is empathy, four is alignment of interests… And giving specific examples of how to deliver on that. I hope you have a Best Ever weekend and talk to you again soon.

Stace Caseria: Take care, Joe.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2421: Realtor Challenges & Business Growth with Jordan Nicholas Moorhead
 by Joe Fairless

JF2421: Realtor Challenges & Business Growth with Jordan Nicholas Moorhead

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

Jordan Nicholas Moorhead Real Estate Background:

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

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Best Ever Tweet:

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

TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here with today’s guest, Jordan Moorhead. Jordan is joining us from Austin, Texas. He’s a full-time realtor with five years of real estate investing experience. His portfolio consists of 25 units and three syndications. Jordan, how are you?

Jordan Moorhead: Doing great, Ash. How are you?

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

Jordan Moorhead: My background – I got started in real estate investing actually before I got a realtor’s license. That’s part of the reason why I got a realtor’s license. I owned a fitness business that I started when I was 23; I had some trainers, and I had an admin working with me. We were really helping a lot of people; we had up to 62 clients at one point in time. And I just got bored doing that. Also at the same time, while I was doing that, I said I need to start house hacking. So I bought a duplex. And it just really started from there. I got my real estate license about a year and a half after the duplex. We’ve always just really been into real estate, and it took me until 2016 to get started.

Ash Patel: In Austin, Texas, you guys are absolutely on fire. What is it like being a realtor and an investor in Austin?

Jordan Moorhead: It’s hard for both, absolutely. Probably harder for the investment side. I still invest for cash flow, I’m not financially free yet. It’s very hard to find that in Austin. I’ve found it by taking on really big rehab jobs. The same thing with clients, I’ve found properties that work for the clients that I have, because I work with mostly investors or places that need some sort of rehab done to them. So there’s just not any sort of turnkey rental thing happening here at all.

Ash Patel: So 25 units – what does that consist of? How many single-families or multi-families?

Jordan Moorhead: It’s funny, I should have updated that before we started here. We’re actually up to 29 now.

Ash Patel: Congrats.

Jordan Moorhead: Thank you so much. I started with the duplex, bought a sixplex next, then bought another two sixplexes after that, sold that duplex, bought another two-unit here in Austin. My first single families were actually only about three months ago. So I had 20 units when I started buying single families with a partner in Louisville, Kentucky. Now we have nine single families in Louisville, and I have 20 units between Louisville and Austin.

Break: [00:03:24] – [00:05:25]

Ash Patel: Did you get your real estate license at the same time that you started house hacking? Or did one come before the other?

Jordan Moorhead: House hacking came first.

Ash Patel: Okay. So you had the real estate bug, and then decided to get your real estate license. What’s it like being a realtor in Austin? It’s probably like fishing in a stocked pond; throw your bait and catch a fish.

Jordan Moorhead: Catch a buyer. The hard part is finding the buyer a house to buy. Right now we have point four months of inventory, which means that everything sold at the current rate that it’s selling, everything would be gone in less than two weeks. The average days on market is 33 days, and that’s from listing to close. That means they’re only on the market for about three days. It’s very hard to find houses for people to buy. It’s very, very easy to find people who want to buy houses.

Ash Patel: And what are you doing to find people that want to list their property?

Jordan Moorhead: I’m calling people. I put aside time every day and just call people. Whether they’re rentals or properties that aren’t on the market at all. Maybe somebody doesn’t know they can sell. I just take the chance and call.

Ash Patel: What kind of investing are you looking for in Austin?

Jordan Moorhead: I’m not doing a ton of investing in Austin, because like I said, I’m investing for cash flow. I’m house hacking in Austin and I’m remodeling properties and taking that money and investing in Louisville where I’m from. I’m from Louisville, Kentucky.

Ash Patel: So give me an idea of what cap rates are for multifamily in probably the hottest market in the country.

Jordan Moorhead: They’re somewhere between three and five for all the different classes. So A, B, and C are just right stacked on top of each other.

Ash Patel: So buyers are buying for appreciation more than cash flow.

Jordan Moorhead: Absolutely. I know people who are syndicating apartment complexes here and they say “Hey, we just know it’s going to go up,” and I think they’re probably right.

Ash Patel: So what’s your rate of return? Zero, except for the IRR when you sell. What syndications have you done?

Jordan Moorhead: I’m actually, with you guys – I have one in Dallas, the Vista 121 property.

Ash Patel: Joe Fairless and Ashcroft.

Jordan Moorhead: Yup, with Joe Fairless. I’ve never organized one myself. I’ve invested in three. I’m in the Vista 121 property in Dallas. I’m in one in Tampa Bay, I think it’s Clearwater. And then I’m in one with Todd Dexheimer in Memphis, Tennessee.

Ash Patel: So somebody that does the house-hacking, you’re a realtor, you see deals all the time. What makes you want to invest passively?

Jordan Moorhead: It’s so easy. It’s just great. You get that check every month in the mail. You don’t have to deal with anything. The hardest thing right now too is finding a deal. My thought process is I don’t have to go out and find them, I just get the notifications from Ashcroft Capital that there’s a new deal coming up, and here’s all the information about it, and here are the expected returns. All you have to do is invest with us and you get the return. I know they pay out, because I’ve done them before. I started small, I started with the minimum investment with you guys, and just continued to invest after that because it’s so easy. There’s no headache.

Ash Patel: Yeah, it’s just that mailbox money. So Jordan, if somebody from out of state wants to invest in Austin, how do they find deals amongst the properties that are available? I know it’s hard to find deals. But what’s the best way to go about it? I’m an out-of-state investor wanting to pump money into this booming town.

Jordan Moorhead: I would say, and what I tell everybody, is look for the areas where it’s going to be growing in the next few years. Look outside of Austin. Where’s the path of progress? Absolutely don’t look in Austin. Don’t look at Round Rock, which is right north of Austin, and it’s been hot for a long time.

Ash Patel: Where is that path of progress?

Jordan Moorhead: Really, it’s almost a reverse C around Austin. You’re going South towards San Antonio. It’s growing like crazy. It’s absolutely growing North. And then on the East side, it’s growing like crazy. There’s nothing but land on the East side and they’re starting to develop it. So smaller towns like Manor and Elgin are really growing quickly.

Ash Patel: Would you look to invest in any of those yourself and do house hacks?

Jordan Moorhead: Yeah, we’re looking for one for my girlfriend right now. The house we’re in, it’s a duplex in East Austin. She wants to buy either a single-family or a duplex, and we’re looking in that reverse C around Austin. So Austin is kind of a rectangular-looking town if you look at the freeways. I always think reverse C around Austin. And that’s where the growth is.

Ash Patel: Got it. What are your challenges right now as being a realtor?

Jordan Moorhead: Finding properties for people to buy. If you’re going up against everybody else that’s putting a 50k to $100,000 over list and they’re waiving the appraisal – it’s hard to make that work for an investor where they’re buying based on numbers. They’re typically not going to throw, at least the people I work with aren’t going to put an extra $100,000 into a deal. It doesn’t end up working very well if you do that. So it’s a big challenge to find them. As I said, I’m steering people a little bit outside of Austin where you can still get some positive cash flow and you’ll absolutely get the appreciation, too.

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

Jordan Moorhead: Get started and buy for the long term. My best advice that I give to newer investors is to find something where you can add value. I don’t understand turnkey; I don’t see why you want to buy something you can’t fix it up at all, you can’t raise the rents at all. That doesn’t make any sense to me.

Ash Patel: I agree. Jordan, are you ready for the lightning round?

Jordan Moorhead: Absolutely. Let’s do it.

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

Break: [00:11:16] – [00:11:53]

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

Jordan Moorhead: Lifestyle Investor. I’m actually almost done with it right now. I really like it.

Ash Patel: What did you get out of that book? What was your big takeaway?

Jordan Moorhead: Just to invest to make sure that you’re not working too much and you’re considering your lifestyle when you’re investing. So if you’re investing… Let’s take passive investing, for instance – I think that’s a great way to invest for your lifestyle. It provides you whatever lifestyle you want. You don’t have to sit around and manage your properties all day. So really thinking about the end goal when you’re investing; all passive income is not truly passive.

Ash Patel: Spoken like a true southerner from Austin. This stereotype fits. You’re right. So Jordan, what’s the Best Ever way you like to give back?

Jordan Moorhead: I like to give to charities. There’s a charity that I’ve been giving to, it’s called One Life Fully Lived. A guy named Tim Rhode put it together. It’s just helping people get out of the rut they’re in and develop a life that they can never dream of.

Ash Patel: Got it. Jordan, how can the Best Ever listeners reach out to you?

Jordan Moorhead: Find me on Facebook or BiggerPockets. Really any social media. It’s just Jordan Moorhead.

Ash Patel: Got it. Jordan, thank you for being on the show today. You live in what Elon Musk called the greatest boomtown of our generation. There should be a lot of excitement ahead of you. Thank you for sharing your story with us.

Jordan Moorhead: Absolutely. Thank you, and anybody that’s looking to get started, I think house hacking is the best way to go. But no matter what, find something you can add value to.

Ash Patel: Yeah. Jordan, have a Best Ever day.

Jordan Moorhead: Thanks, Ash.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2418 - Using Diverse Background and Personal Superpowers
 by Joe Fairless

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

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

Hemal Badiani Real Estate Background:

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

 

Click here to know more about our sponsors

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Best Ever Tweet:

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

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 Hemal Badiani. Hemal, how are you doing today?

Hemal Badiani: I’m doing phenomenal and I’m super excited to be here. Thank you, Theo, for hosting me.

Theo Hicks: No problem. Thank you for joining us. Let’s go over Hemal’s background. He is the senior vice president in the financial space and has eight years of real estate investing experience. His portfolio consists of close to 600 apartments that he is actively sponsoring or managing. He is based in Charlotte, North Carolina, and his website is exponential-equity.com. Hemal, do you mind telling us some more about your background and what you’re focused on today?

Hemal Badiani: Yeah, absolutely. I grew up back in India and came here to the United States to study a couple of decades back. That organically led me, after studies, to join a management consulting firm. For close to two decades, I was on the plane across three continents, helping a lot of CEOs build their firms, change direction, bring scale, bring efficiency, bring growth to Fortune 100 firms. Everybody that you could think of, from Disney theme parks to the Vatican, I worked with them.

So a lot of smart people, a lot of competencies and learning from that experience, I decided to hang up my traveling boots and join the financial world local to Charlotte. Charlotte is a great hub for the financial and banking industry. That led me to the real estate side of things, first passively for the first six years or so, and then actively, first in single-family, and  then in 2020 I went into the commercial space.

What I’m focused on now, since COVID started, is really building and scaling my business, bringing all those competencies and experiences from a wonderful set of leaders that I’ve learned, and to build my own billion-dollar business in the commercial real estate realm, starting with multifamily syndications – it’s what we focused on in 2020. Now we’ll be expanding into other asset classes, along with construction and property management on the horizon as well.

Theo Hicks: Thank you so much for sharing that. So lots of very interesting, diverse backgrounds, and lots to dive into there. Let’s first focus on – you mentioned that you were a passive investor for six years. What were you passively investing in?

Hemal Badiani: It was mainly my own portfolio of single-family townhomes, a bunch of land that I bought and hold… It was a classic busy professional scenario there. I was traveling every week and didn’t have anything to think about from an underwriting or active standpoint, so any new stuff, timing the right market cycle, and the right city in the Carolinas. So we just bought stuff as we stashed away cash and savings.

Theo Hicks: So you did that for six years before you transitioned into actively buying single-family homes. Why did you decide to transition to active? Why not just stay passive forever?

Hemal Badiani: Yeah, the whole transition from jumping on the plane and working 80 to 100 hour weeks to where I am with my job right now – it created a lot of space in terms of my week. That allowed me to introspect on what I want to be, how do I build my life, and my lifestyle on my terms. Real estate seemed like a natural choice.

As I was looking at local players in Charlotte and who to partner with and learn from, I found a lot of folks who were doing some creative flipping, creative financing, lending in the real estate single-family space. That’s how I got on that train. The amazing thing was, most of them are solo operators, but my competency and superpower being that I can scale businesses pretty quickly and help people scale businesses pretty quickly.

So in 2019 when I started my real estate single-family business, by the end of 2019 I had 10 employees, five in the United States and five in the Philippines, and we were doing a lot of high-volume transactional stuff, along with some buy and hold and creative finance stuff. That was a wonderful, wonderful confidence in the power of real estate.

Break: [00:05:14] – [00:07:16]

Theo Hicks: I want to go back to what you just mentioned about scaling, as you said that’s your superpower, but something else I thought of, too… You said you were working a lot of hours, then you transitioned into the job you’re doing now, so you had time to think about what you wanted to do and went into the single-family space… For people who are listening out there, do you recommend that people start by passively investing first? Or would you much rather, looking back in hindsight, wish you had gone straight to active investing? Like, is there any benefit to passive investing first, or is it something that you kind of just did because of the situation you were in?

Hemal Badiani: I would say do what makes you happy, and what your true calling is, and what you’re passionate about. It may not be real estate. For the season that I was in, with my kids very young, I was on a corporate ladder, institutionalized to be the next CEO – that was the vision I had. For that, nothing else mattered, except earning predictable returns that real estate provided. So the passive investments are my vehicle.

But when I wanted to change, and when I was in the next season of my life, where I really consciously thought off and got the time to think about what kind of life and lifestyle I want to live, real Estate became one of those things that just was my calling. I knew I could build a business around it, and I could scale, and bring my competency, culture, values, ethics to the table as I’m building this business. That’s why I went into the active space. It wasn’t that one earned more money than the other, or one had more work than the other. It was just where I was in my point of life, and that’s what determined where I wanted to be in terms of my investments.

Theo Hicks: Let’s move to 2019 now. You said that you started the active single family investing in 2019. It started off as just you, and then at the end of the year, you had 10 employees. So as you mentioned, your superpower is scaling, so I’ll kind of leave it up to you how you want to answer this question, but what are some of the top tips or top tactics or things that people need to think about when it comes to scaling their real estate business? Maybe you can answer this question from the perspective of someone who’s maybe just a one-man show right now, but they want to grow their business to a billion-dollar business. What are some tips you have for them?

Hemal Badiani: That’s a fantastic question. I can say these things, from my experience, I worked across the board, it doesn’t matter what business. In 2019 I had my single-family business, which I exited. In 2020 I built my commercial business and we have now five employees and partners, and we going to go to 10 or 12 this year. The same principles work, whatever business you’re in.

But the first thing I believe is to have a clarity of vision. What do you want to be? Most people, when they think about real estate, they think about financial freedom, two or three transactions, or a handful of transactions could get them there. And “Do you really want to build something as a business?” is a question you need to answer. What kind of business? How big? Because that would determine, not only where you make daily decisions, but people who aspire to join your team and join you because of that commitment to that vision, they understand and are aligned to what sort of culture and what sort of end goal you’re building towards… Because the vision for a million-dollar company is different from our vision for a billion-dollar company. The brand, the way you approach things systematically, the systems and processes you institute – all of that is different. So that’s one, and people need to aspire to that.

The second is you really have to carve out what things you do and know your strengths. Figure out how to build complementary competencies around you through the teams that you build, that allow you to focus on what you’re good at, and then start chipping away at what you’re not good at.

For me, I am good at building the business, being the brand, building forward-looking thinking; that allows me to continue to think about “Okay, what’s the next step? Do we need a marketing person? Do we need an accounting person? Do we need HR? Do we need payroll as we build teams? If we go into a new competency, how do we first partner up with someone, learn the ropes, and then go into it?” Those kinds of things – I wouldn’t be allowed to do that, or I wouldn’t have the bandwidth to do that if I’m in the day-to-day activities. I am also underwriting all the things, I’m also looking at lending quotes and all the nuances that go along to make any transaction in the real estate world happen, happen successfully, and execute on a business plan.

So slowly and slowly, as I looked at each role, I said, “Do I have an operational competency and partnership?” That came in first. And then we built an acquisitions team. Now we’re building an investor relations organization that allows us to speak with private equity. Then slowly we’ll go into the marketing etc. So knowing your strengths, really answering very honestly and authentically to yourself what you’re good at, and then complementing that with the right partners is the second piece.

The third piece is finding the people that have two elements. Everything else can be taught. Two elements, to me, are very important – ethics and drive. You cannot teach these. People who can make good tough decisions on behalf of the brand that you’re trying to create, that could sustain itself 20 years from now, 40 years from now, outlast you… And people who are driven; so you’re not just putting incentives and processes, but people who can work and go that extra mile, knowing that you’ve got their back, and then ultimately they’ve got the companies back. Those are things that come a little bit from experiences. Sometimes you can hire good companies that allow you to find employees or partners that allow you to do that… But those three things in my mind – having the right vision, knowing your strengths, complementing with team members, and then finding people who have ethics and drive, are super-important.

Theo Hicks: So right now you’re still working a full-time job in addition to your real estate investing?

Hemal Badiani: That is correct. I believe my first passive commercial investment was April of 2020, just when COVID hit. My intention, I think by the time this podcast will go live, my intention is to quit my job in exactly a year from there and go full time into commercial real estate investing. But for now, I’m a senior vice president for the bank.

Theo Hicks: So how are you able to work your full-time W2 job –or if it’s not a W2 job, just work a full-time job for someone else– while at the same time building up your own syndication business? To someone listening to this who has a full-time job and wants to get into syndication, maybe they’re saying “I need to quit my job today in order to focus on this full-time.” Well, you didn’t do that; you’re obviously doing it part-time or in your spare time, so what does that look like? What tips have you found that allowed you to be successful and build a portfolio of around 600 units while still working full time?

Hemal Badiani: It’s deep work and time management. Every Sunday evening, I sit down and plan two weeks out. Not just next day or next week. Every conversation with an investor that I have, it’s planned at least two weeks out. That’s how they get the calendar invites. I get a little bit of control of any fire drills from a job or business perspective that is going on during the week. Just time management hacks that over a period of time that I’ve been able to do, that allowed me to focus and compartmentalize job meetings versus business conversations that I might be having.

COVID has accelerated that, and I’m hoping everyone takes advantage of that, especially people who work from home. They have a lot of flexibility, they don’t have to travel anymore, most of the meetings are audio-only, some are zoom invites… But you can have certain conversations in the middle of the day while you’re eating your sandwich and can talk to investors. So you really have to work hard and plan for it.

The second thing was deep work. It’s easy to get distracted, overwhelmed with webinars, with conversations on the internet, phone, etc. For me, when I carve out my hour to do anything with regards to the business, the phone, all the channels, everything goes off. It’s one hour of solid productive work, and you’d be surprised if you do that for an hour straight, how many emails, how many responses, how much work you can actually achieve, which seems like a very short period of time, as opposed to doing multitasking… I find multitasking is just sub-optimal for your brain and the work that you’re trying to do.

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

Hemal Badiani: Have a bias for action. As I said, don’t get overwhelmed with a lot of webinars and information. There are 25 different ways of making money in the real estate space. There are different ways of building your business. You possess a different competency and you come from a different season of your life. You’ve got to just start where you are and not worry about all the information that’s going on. Find a good mentor or two, jump on it wherever it leads you. Once you get good at one thing, you can expand and that’s how you grow.

Theo Hicks: Expand that mentorship advice a little bit. You mentioned that when you first got started, you went out and wanted to find the people who are already doing it. What advice do you have? Any hacks you found at finding the right mentor?

Hemal Badiani: The hacks are two, again. Someone who has alignment with your vision and values. If you’re trying to build a billion-dollar business, finding a person who’s not doing that, at least halfway through there, is a no-go. You cannot take advice from someone who’s doing half a million-dollar business, because you’re not going to get as fast as where you want to be. The second thing is to find the doers. It’s hard to decipher, again, from webinars and calls, who is actually doing the work. So you have to dig deep, talk to people, referrals, etc. Understand who could be a good person, who’s actually getting that elbow grease, rolling up their sleeves and actually doing the work, or managing a team that does the work which you want to do. That’s how you really, really learn from them.

Then the third thing is beyond paid mentorship, etc. you’ve got to find that way of providing value to these mentors that is just priceless, that nobody else could provide. That way you forge a good relationship, where it’s not just transactional, and you’re learning from them, and you’re done.

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

Hemal Badiani: Let’s get to it.

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

Break: [00:18:07] – [00:18:43]

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

Hemal Badiani: This one is called Indistractable. Again, it focuses on that deep work and how do you not get distracted with all the social media and some of the things that are being manufactured to get that focus away from your work and into the social media realm.

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

Hemal Badiani: I would talk to people about mindset, all day long. When I was in a single-family, I didn’t have the mindset for commercial. I found a coach that helped me with that. I realized my true potential, thinking about building a billion-dollar business, and I think everyone has the potential to be their best in this form of life.

Theo Hicks: Tell us about a time that you lost money on a deal, how much you lost, and what lessons you learned?

Hemal Badiani: It was a direct to seller deal that we found through a lot of labor pain in a pretty hot market of Texas, a tier-one city of Texas. So we were excited, obviously, that none of the big players could have found it, and we found something.

We quickly got under contract, the earnest money deposit, we had to pay a fraction of that, the whole earnest money deposit upfront; it was non-refundable. We lost about $15,000, because we had to walk away from the property once we did our due diligence. That’s a lesson learned. Most sellers will hide away something or the other, and it’s your responsibility and a fiduciary responsibility to your investors to be very thorough in your due diligence process and be prepared to walk away, even if you lose money.

Theo Hicks: On the flip side, tell us about the Best Ever deal you’ve done.

Hemal Badiani: Oh man, we found this unicorn, the first ever deal… In the last 100 days, we’ve closed three acquisitions, which has been fantastic. The first one of them was a 208-unit in Tulsa, Oklahoma. That one was 60% occupied, again, direct to seller, it was just mismanaged, we had found it at a very steeply discounted price, got the owner to finance some of the note, and has outperformed way, way, way beyond our expectation, to the point where we’ll be able to cash all investors out in 18 months, which is just fantastic. Getting your money back plus 20 plus percent IRR in 18 months. We’re outperforming our projections.

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

Hemal Badiani: Through all things real estate. We are currently running a charity that allows distressed property owners who are tax delinquent or are facing foreclosures – we are helping them out in terms of saving their homes; and eventually, we would be buying — the vision is exponential equity. Our firm would be buying large tracts of land that allows us to plant trees and keep them from getting deforested, and just pay back to the environment and our children and grandchildren.

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

Hemal Badiani: I’m pretty active on Facebook and LinkedIn, Hamel Bardiani, and also exponential-equity.com. My email is hemal@exponential-equity.com. I’m pretty active there as well. I look forward to speaking and connecting with a lot of your listeners.

Theo Hicks: Alright, Hemal, thank you so much for joining us today and providing us with your Best Ever advice. I really appreciate the structure of your responses. I asked a question, and you are like “Oh, here are two things, or here are three things.” You got it in like that list form. It is going to make it very easy for people listening to comprehend and then hopefully take action on what you talked about.

We talked about your transition from passive to active, and I like what you said about it kind of comes down to what you’re happy with, what makes you happy, what you’re passionate about, and what chapter of your life you’re in. You said how you really wanted to become the next CEO, so passive investing made sense. Whereas when you wanted to change your lifestyle, then real estate itself became your calling, and you became an active investor.

You talked about the three tips for scaling, which was the vision, knowing what you’re good at, finding people to do what you’re not good at for you, and then making sure you’re finding people with the right ethics and drive, since those are not teachable. We talked about some of your time management and deep work tips for just really in general, but specifically around you having a full-time job while building your portfolio.

And then your best ever advice about taking action, where you’re at right now, and not getting overwhelmed with having to know every single little in and out of everything. Then about finding a good mentor, you gave three tips on that. Someone who would align with your vision, someone who is a doer, and then figuring out how to add value to that person. Thank you so much for joining us. I really appreciate it. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2407: Find Your Real Estate Passion with Kristen Ray
 by Joe Fairless

JF2407: Find Your Real Estate Passion with Kristen Ray

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00:14:06
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Kristen is a Family Nurse Practitioner from Baltimore. She discovered her passion in real estate with an apartment complex. Real estate helped her get through the education for nursing. She balanced being a practitioner and real estate investor. Being able to get into real estate it became her passion and decided she wanted to focus on this field.

Dr. Kristen Ray Real Estate Background

Thanks to our sponsors

Best Ever Tweet:

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

TRANSCRIPTION

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

Kristen Ray: Thank you for having me.

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

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

Ash Patel: How many properties did you guys inherit?

Kristen Ray: Four.

Ash Patel: Okay. Single-family homes?

Kristen Ray: Yes.

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

Kristen Ray: Yes.

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

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

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

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

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

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

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

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

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

Kristen Ray: It was actually a duplex.

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

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

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

Kristen Ray: Oh, absolutely.

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

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

Break: [00:05:22] – [00:06:28]

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

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

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

Kristen Ray: Essentially.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: What are you focusing on next?

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

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

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

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

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

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

Kristen Ray: Not starting sooner.

Ash Patel: What’s your next biggest mistake?

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

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

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

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

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

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

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

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

Kristen Ray: That’s it.

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

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

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

Kristen Ray: I’m ready, Ash.

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

Break: [00:11:50] – [00:12:26]:25]

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

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

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

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

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

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

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

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

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

Kristen Ray: Thank you, Ash.

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JF2405 Looking For Unique Transactions and Great Deals With Craig Coppola
 by Joe Fairless

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

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

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

Craig Coppola  Real Estate Background:

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

Best Ever Tweet:

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

TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Break: [00:07:27] – [00:08:34]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Craig Coppola: I am. Let’s do it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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Podcast - Dani Biet-Or
 by Joe Fairless

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

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

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

Dani Beit-Or  Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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

TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to The Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever. We don’t get into any of that fluffy stuff. With us today, Dani Beit-Or. How are you doing Dani?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: What time on Friday?

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

Joe Fairless: 10 AM California time?

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

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

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

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

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

Dani Beit-Or: Exactly.

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

Dani Beit-Or: Absolutely.

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

Break: [00:20:25] – [00:20:46]

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

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

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

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

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

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

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

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

Dani Beit-Or: Thank you very much.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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