JF2441_ Stace Caseria_ Real estate Investing with Stace Caseria #SkillsetSunday

JF2441: Real Estate Investing with Stace Caseria #SkillsetSunday

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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Best Ever Tweet:

“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

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

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.

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

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

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

JF2421: Realtor Challenges & Business Growth with Jordan Nicholas Moorhead

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

Jordan Nicholas Moorhead Real Estate Background:

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

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Best Ever Tweet:

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


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

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

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

Hemal Badiani Real Estate Background:

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

 

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Best Ever Tweet:

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


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

JF2407: Find Your Real Estate Passion with Kristen Ray

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

Dr. Kristen Ray Real Estate Background

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.

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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JF2405 Looking For Unique Transactions and Great Deals With Craig Coppola

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

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

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

Craig Coppola  Real Estate Background:

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

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Craig Coppola: I am. Let’s do it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Podcast - Dani Biet-Or

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

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

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

Dani Beit-Or  Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to The Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever. We don’t get into any of that fluffy stuff. With us today, Dani Beit-Or. How are you doing Dani?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: What time on Friday?

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

Joe Fairless: 10 AM California time?

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

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

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

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

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

Dani Beit-Or: Exactly.

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

Dani Beit-Or: Absolutely.

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

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

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

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

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

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

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

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

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

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

Dani Beit-Or: Thank you very much.

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JF2401: Grow A High-Income Portfolio with Zach Haptonstall

JF2401: Grow A High-Income Portfolio with Zach Haptonstall

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

Zach Haptonstall Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

Ash Patel: Zach, what was that first deal?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: That’s a significant penalty.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Charlie Stevenson Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: What was a natural disaster?

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

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

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

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

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

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

Ash Patel: How do you mitigate that?

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

Ash Patel: Lower returns.

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

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

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

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

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

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

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

Ash Patel: What were the rehab numbers on that?

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

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

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

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

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

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

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

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

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

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

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

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

Charlie Stevenson: Let’s do it.

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

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

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

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

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

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

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

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

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

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

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

Charlie Stevenson: Thanks, Ash. I appreciate it.

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

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

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

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

 

David Grabiner Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

David Grabiner: Yeah.

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

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

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

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

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

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

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

David Grabiner: Yes,

Ash Patel: Tell me the challenges of that.

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

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

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

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

Ash Patel: These are in the Chattanooga area?

David Grabiner: All in the Chattanooga area.

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: You’re still acquiring multifamily?

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

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

David Grabiner: Essentially, yeah.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

David Grabiner: Mm-hmm.

Ash Patel: Who else is in that strip mall?

David Grabiner: CVS.

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

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

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

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

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

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

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

Ash Patel: Year over year numbers.

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

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

David Grabiner: Yep.

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

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

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

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

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

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

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

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

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

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

David Grabiner: Yeah.

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

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

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

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

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

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

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

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

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

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

Ash Patel: Was this listed on LoopNet or MLS?

David Grabiner: No. It was not.

Ash Patel: How did you acquire this property?

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

Ash Patel: She’s a passive investor.

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

Ash Patel: So the seller is talking to you.

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

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

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

David Grabiner: Oh, yeah. Majorly.

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

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

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

David Grabiner: Let’s do it!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chad Sutton Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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

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

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

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

John Chin Real Estate Background: 

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

Click here for more info on groundbreaker.co

 

 

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matt Faircloth  Real Estate Background:  

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

Matt Faircloth: To close the deal. Eight.

Joe Fairless: Eight? Okay.

Matt Faircloth: To close the deal. Yes.

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

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

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

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

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

Joe Fairless: Yup.

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

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

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

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

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

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

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

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

Joe Fairless: “It took too long.”

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

Joe Fairless: Oooh… [laughter]

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

Joe Fairless: So you did take too long.

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

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

Matt Faircloth: Yes.

Joe Fairless: Okay. Got it.

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

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

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

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

Joe Fairless: Got it.

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

Joe Fairless: So this is a third webinar?

Matt Faircloth: Yes.

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

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

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

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

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

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

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

Joe Fairless: I remember reading it.

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

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

Joe Fairless: And it was the third one.

Matt Faircloth: Yeah. So my registrations went up…

Joe Fairless: Right. From the second one.

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

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

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

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

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

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

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

Matt Faircloth: We were busy.

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

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

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

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

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

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

Joe Fairless: That’s nothing.

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

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

Joe Fairless: Segment it.

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

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

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

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

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

Matt Faircloth: You would say reasonable steps.

Joe Fairless: Reasonable steps. Right.

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

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

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

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

Matt Faircloth: Thanks Joe, for having me.

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JF2351: CPA Guiding Entrepreneurs To Wealth With Noah Rosenfarb

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

Noah Rosenfarb  Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

Noah Rosenfarb: Awesome. Glad to be here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: That’s a winner.

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

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

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

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

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

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

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

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

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

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

Noah Rosenfarb: Of course.

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

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

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

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

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

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

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

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

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

Noah Rosenfarb: Thanks so much.

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