JF2331: Self Storage During COVID-19 With Kris Benson

Kris is the Chief Investment Officer for Reliant Investments a subsidiary of Reliant Real Estate Management. Reliant was one of the top 25 commercial self-storage operators in the U.S. in 2019. Kris shares some insight on how the impact of COVID-19 has impacted the self-storage asset class.

Kris Benson Real Estate Background:

  • Chief Investment Officer for Reliant Investments a subsidiary of Reliant Real Estate Management
  • Reliant was one of the top 25 commercial self-storage operators in the U.S. in 2019
  • Reliant has completed over $650 Mil in self-storage acquisitions and disposition in the past 5 years
  • Based in Roswell, GA
  • Say hi to him at: www.reliantinvestments.com 
  • Best Ever Book: Calvin and Hobbes box set

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You need to think about how the world is changing around us and where that may impact your strategy moving forward ” – Kris Benson


TRANSCRIPTION

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

Kristopher Benson: I’m doing great, Theo.

Theo Hicks: Great. Thank you for joining us today. Let’s go over Kris’ background. So he is the Chief Investment Officer for Reliant Investments, which is a subsidiary of Reliant Real Estate Management. Reliant was one of the top 25 commercial self-storage operators in the US in 2019, and has completed over 650 million in self-storage acquisitions and disposition in the past five years. He is based in Roswell, Georgia, and the website is reliantinvestments.com. Alright Kris, do you mind telling us some more about your background and what you’re focused on today?

Kristopher Benson: Sure, be happy to. So, Theo my background depends on how far listeners want to hear. But from a professional standpoint, my background really is in sales. I came out of college and did a number of corporate sales jobs, medical device. Most recently my last real job was with Intuitive Surgical, which manufactures the Da Vinci robot. A lot of people know what that is. Incredible company, incredible technology.

I got into real estate about 10 years ago, probably not too dissimilarly than many of us have. I know Joe kind of did the same thing. We bought some duplexes in the town that he lived in, in the county surrounding us. And very quickly realized that that was going to be challenging to scale.

So one, it wasn’t necessarily the management of it, it was more of the people part of it. I really hated it and despised the soul-sucking nature of managing people. So we had just over 20 units at the time, and we ended up making a decision to sell them. And I looked for what was next, and for us we ended up developing a 64-unit apartment complex, just kind of a random call, Theo, that I made to a guy that I hadn’t talked to in 15 years, who owned a construction company, and said, “Hey, I got a little bit of money. I want to get into multi-family. What do you got? Let’s build some apartments.” And that led to a much broader discussion. And we were very fortunate to build out a 64-unit apartment complex in Central New York, not too far from where I grew up. And that was sort of when the light bulbs went off for me, Theo, in regards to understanding the scale of commercial real estate and the potential opportunities that existed there.

So I invested in a number of multi-family projects along the way, and then about four years ago I started looking at self-storage as an alternative investment strategy for us. As cap rates compressed in multi-family, I thought that there was probably another cycle to be had in another asset class… And I started as an investor in Reliant. Then about three years ago, we had a relationship with Todd Allen, who’s the managing partner here at Reliant, and we structured a partnership as they needed some help structuring their equity raising platform.

So as the Chief Investment Officer at Reliant, essentially, I’m managing the equity portion of our business, and then also sit on the investment committee and work with our acquisitions team to find properties and add those to our portfolio. So that’s how I got here today. I’m talking to you from our office in Roswell, Georgia, which is just north of Atlanta, about 20 miles.

Theo Hicks: Awesome. Thanks for sharing that. I definitely want to ask some questions about your role as the chief investment officer… But I do have some questions about self-storage, especially now with… We’re recording this at the end of September, so COVID is still around… I’m just curious, from your experience, from your knowledge of self-storage, is this an asset class that you expect to remain the same? Is it going to go down? Or is it going to be an even more attractive asset class in the next six to 12 months, and then the years ahead?

Kristopher Benson: So I’ll take that in a couple of pieces, Theo. Let’s talk about how the asset class has been impacted from COVID to date. And like you said, we’re recording this at the end of September; hopefully, by the time listeners are listening to this, COVID is headed in a different direction… But as an asset class, we’ve been very fortunate in how we’ve been affected. So I would say the first three months of COVID, the uncertainty in March, April, maybe the beginning of May, nobody was doing anything, right? So if you think about what was happening at the consumer level, people weren’t out, they weren’t essentially renting units; in the self-storage facilities, we saw a drastic decrease in just overall leasing activity. Everyone was just kind of holding tight. And then I think, early May, what’s been interesting is the demand metrics for self-storage didn’t necessarily change. So people still needed it. And what I think we saw is a little bit of pent up demand as we came into the early summer, and July through September have been really strong months. Not only in our own portfolio, Theo; we have 50 properties across eight states, so we’re relatively small in the scale of things. But when you look at the REITs data, the national REITs, they saw very similar trends.

And I think when you look at storage, there are really — we call them the four D’s of demand, D as in demands. So divorce, dislocation, downsizing, and death. Typically, if those things are happening in your life, they’re creating a need for self-storage. And fortunately, I guess for the asset class, pandemics typically create more of that. And then I think you have something else going on, Theo, which no one understands the impact of yet… But the transition where people are going to a remote work environment; we don’t have enough data yet to make this statement, but it seems as if maybe we’re creating some additional demand for people as they say, “Hey, look, I’m going to be working out of my home for the next two to three years. I’m going to clear some stuff and make a home office.” So we don’t know what that trend is long-term, but in the short term, it looks as if that may be a demand driver for the asset class.

And then the second part of your question of what’s the kind of short term to long term outlook… Short term, I think our biggest risk in the market has been new supply. There’s been a lot of new development in self-storage in the last five years. COVID has not really been the impact. I would say if we’re struggling in specific markets or if there are properties that are struggling, it’s typically new supply coming to market. And then I think long term, from an asset class standpoint, we’ve seen cap rates compressing now, but as more capital comes into the market — right now, at the end of September, Theo, the Fed has created an extraordinary amount of liquidity in the marketplace, so there’s a lot of capital chasing deals. And for many of your listeners who are multi-family guys, and Ashcroft and Joe Fairless obviously have a significant portfolio there, there’s a lot of money chasing those deals and pushing down cap rates. And my personal belief is that’s going to continue to happen.

I think for stabilized assets and self-storage, cap rates are going to continue to compress, because it’s performed so well through, now two downturns, right? 2007, 2008, 2009 storage did really well, and it looks like through COVID it’s also going to be relatively recession-resilient.

So I personally think cap rates will continue to compress, there’ll be more capital chasing deals. It’s good if you’re selling. If you’re trying to acquire and buy, it makes it a bit more challenging, but time will tell on that one, Theo.

Theo Hicks: And that’s what I was going to ask you next… Are you guys actively still buying deals? And you kind of already mentioned this, but is it harder and harder to find deals? Or is the hard part not necessarily finding them, but getting them at the right price, and not necessarily having a lot of certainty in the underwriting?

Kristopher Benson: Well, to your first question, are we still buying deals – yes, we’re raising equity right now for a fund. We just closed on the second property two weeks ago. I would say that the gap between sellers’ expectations and buyers’ expectations is growing. So sellers believe they can sell these properties for much more than what we would be willing to underwrite to. Our strategy, Theo, has been built around secondary and tertiary markets. What’s interesting about self-storage is we don’t look at NSA level data,  total market level, it’s really what is happening in the one, three, and five-mile radius around that particular facility. It’s a very micro-market game, so we’re focusing on those secondary and tertiary markets and trying to find specific assets that fit our underwriting criteria… But certainly in the last – let’s call it 12 months, it’s become more challenging to acquire properties at prices that we can safely underwrite.

Your question around uncertainty around underwriting assumptions… If anybody predicted COVID in their underwriting — because certainly it was challenging to understand how that would affect self-storage or any asset class.

Theo Hicks: Yeah. So you mentioned that you just closed out a fund, so I was wondering if you could talk to us about the differences between raising money to buy deals via a fund, as opposed to raising money for a specific deal.

Kristopher Benson: Are you talk specifically, Theo, about the technical nature of it as far as structure is concerned? Or how investors view it? Or a little bit of both?

Theo Hicks: I would say from the operator’s perspective. So from your perspective, how is your approach different? I guess structurally, what are the structural differences that we need to know about?

Kristopher Benson: Look, there are some advantages and disadvantages to funds. So we closed fund one in March of 2020, and we launched fund two at the beginning of the summer. And I think the reason we looked at a fund, at least the first one we did, was we were late cycle; we believed that there was going to be some correction in the marketplace. And we were right on that. So kudos to us. But the idea of a fund is to create a little bit more protection for an investor. And that’s the advantage, right? So if you think of a mutual fund versus an individual stock, the fund — like fund one has 11 properties and it spread across four states, so you’re an owner in all 11 properties; you have multiple markets, multiple properties, multiple business plans… So if one gets crushed, let’s say a whole bunch of new supply comes to market, or a big employer leaves that town, you have the other properties to essentially buoy your returns.

And the downside to that, Theo, is it flattens returns in a positive direction as well. So if you have one property that absolutely is a screamer and crushing it, the other properties are going to bring the performance of that down. So from an investor standpoint, definitely advantages and disadvantages. And then I think from an investor, you have to think about – you’re trusting the operator much more, especially if you’re early money in.

For example, if you invest in our fund two right now, we only have two properties in the fund. We expect to build it out to a $50 million equity fund, so there may be another eight to 10 properties that we purchase, and you’re really trusting our business plan and our experience to underwrite the right deals to get into that fund. So advantages, disadvantages to both.

I think structurally, what you’re talking about from a syndication standpoint, it’s a lot easier to do a fund, because you have one set of documents, you have one PPM, one administrative piece of information that you’re sending out to investors for potentially multiple deals. One K1 at the end of the year; if you have 10 properties you put in a fund, you’re sending one K1. So administratively, there are definitely some advantages as an operator.

Theo Hicks: So how long is my capital tied up into a fund? I know you mentioned it depends on earlier or late, but let’s say from when the fund starts to when it closes, what’s the typical timeframe? And you can talk about it specifically for you in self-storage.

Kristopher Benson: Theo, as you are alluding to, everybody structures their funds differently. So there’s a number of different ways that you can do it. There are what’s called evergreen funds, that literally go on forever, and they just give you opportunities to take your money out along the way. Ours is projected to be a six-year hold. And that’s one thing that you hit the nail right on the head – ostensibly, your money is illiquid for that hold period. It could be sooner, but it also could be longer. If we came in this year six this year, let’s say it was June of 2020, we would have looked at our investors and said, “Hey, now’s not the time. We have no idea what’s happening to values. We have to wait for the marketplace to stabilize before we try to take this thing out and maximize value.”

So how the structure is set up is we are incentivized — we make money when you make money. So you want to make sure those incentives are aligned. And typically, that also means we’re going to try to either dispose of the property or hang on to it to maximize value for both parties involved.

Theo Hicks: And then is the way that I get paid as an investor the same as it would be for an individual deal? Am I getting monthly or quarterly distributions? And then on the back end, am I participating in any equity upside? Or is it just the ongoing cash flow? Or is it both? Or does it depend?

Kristopher Benson: Let’s start with it depends, Theo… Because, as you know, in the syndication world there are no hard and fast rules, right? So each operator has the ability to structure their particular deal for whatever works for their particular property. And I would say for us, we do a preferred return, and then [unintelligible [00:16:33].23] equity waterfall on anything above that preferred return, up to a specific IRR hurdle. And then the waterfall changes where it’s more advantageous for the operator, right? So if we outperform, we want to take more of the upside and share that with the sponsor. So the answer is it depends, but typically, it’s very similar to what the market [unintelligible [00:16:51].00]

Theo Hicks: Another question about the fund from your perspective… So I kind of understand, since you’re not buying a particular deal — because if you’re doing that particular deal, you get the deal under contract, and then you start collecting money… And so at what point in the process is money getting put into this fund? Do you have a deal bought already? Is the deal under contract already? Is it before you start putting deals under contract? How does that work from your perspective?

Kristopher Benson: It’s a good question. So generally, you’re raising capital… And again, depends, some people will raise capital and they’ll have an acquisition period of two or three years, right? So they’re raising capital the whole time and saying, “Look, we’re going to deploy this in increments when we find deals over the next three years.” For us, our fund is set up where we’re ostensibly raising capital and deploying it right away. Fund one, Theo, for us – we basically raised and bought properties in about 11 months. So we deployed $47 million over 11 months of equity, right? So we’re raising capital, as long as we have properties to close on. We do not want to take equity from investors unless there’s somewhere to deploy it. Otherwise, you’re starting to accrue your preferred return.

So you as an investor don’t want money sitting idle. And we, as an operator, don’t want to take your money if we can’t deploy it, because then we have to pay you money on money that’s sitting idle. So for us, what happens is, if we have more properties than equity, we’re raising capital. If we get to that point where the balance has shifted, and we have more equity than properties, we stop collecting capital and say to investors, “Theo, the next property that we get closed, you’re on the list. We’ll call you, you’ll get your subscription documents done, you’ll fund from there.” And then we move forward. So it’s always kind of a balance, depending on where you are on the acquisition side versus the equity raising side.

Theo Hicks: And then for your fund, at the 11-month mark is when you stopped raising equity?

Kristopher Benson: In fund one we did that, just because it was targeted to be a $50 million fund, so we were right there.

Theo Hicks: Okay, that makes sense. Okay, Kris, what is your best real estate investing advice ever?

Kristopher Benson: Now, or what I thought of previously?

Theo Hicks: Let’s go with now.

Kristopher Benson: Look, I think if you are experienced in real estate, there’s going to be some opportunities that come with this… And I think you need to think about how the world is changing around us and where that may impact strategy moving forward. And I’m just going to use one quick example; and this isn’t to look down on apartments, but everybody would say Class B and C apartments were the way to go, right? That $900 to $1,200 a month apartment, always I would say conventional wisdom was that’s always going to be rented. Well, in this particular cycle, typically, that tenant base was who got hit the hardest from an unemployment standpoint. And I can tell you from my own portfolio, the properties that have gotten affected the most are the ones where the labor force has been affected. So if I had a lot of service industry workers, they were typically the ones not paying rent.

So I think you just need to be really dynamic in your thoughts [unintelligible [00:19:59].21] what I used to believe, and take in the data that’s happening now and come together with a new strategy. And I’d say generally, Theo, you have to do something, you have to get started and jump in. If you’re on the sidelines, doing your analytics – great. But at some point, the best way to learn is to jump in and get involved, and that’s where you’re going to get the most experience.

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

Kristopher Benson: Sure am.

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

Break: [00:20:29][00:21:14]

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

Kristopher Benson: I’m going to go against the grain here, Theo… I’m reading the Calvin and Hobbes box set from Bill Watterson. So for your older listeners who actually knew what a comic strip is, Calvin and Hobbes are kind of a comic classic. And my dad was always a huge fan and got me the three-book box set. It’s pretty substantial. But I have to tell you, I’m enjoying it thoroughly.

Theo Hicks: I think it’s the first time on the Best Ever book, so there you go.

Kristopher Benson: Against the grain. I’m going against the grain.

Theo Hicks: Yeah. I like it. Alright, Kris, if your business were to collapse today, what would you do next? I guess by business, I mean the self-storage. Like, if for some reason no one wanted self-storage anymore, what would you do next?

Kristopher Benson: I keep a list, Theo. I call it the cool guy list. It’s the worst name ever, I know. But it’s basically everybody I’ve ever talked to that I think to myself, “Wow, that guy or girl is really impressive.” So the first thing I would do is call all of them and try to talk to each of them for a little bit about where they think an opportunity may lie. In my experience, that’s where I’ve had the best opportunities in my life, is kind of cold calls… And just saying like, “Hey, let’s be friends. Let’s figure out if we can do something together.” So that would be where I would start.

I have this vision, Theo, of taking a year and going to work for all the cool people that I like for a month for free. I don’t need to get paid, I just want to go experience it and see if there are opportunities that come with it. I haven’t done it yet, but it’s on the list.

Theo Hicks: That is fascinating. I like that idea. What is the Best Ever deal you’ve done?

Kristopher Benson: Probably that 64-unit apartment complex is going to be the Best Ever deal. That’s a buy and hold for me. I’m 40 years old, so I don’t see a reason we would sell that in the next 10 to 15 years, unless cap rates really get crazy. But that deal, just the basis that we’re going in at, will most likely be probably the best deal I’ve been a part of. And fortunately, I have a great partner who really taught me a lot going through it… Besides the financial, just the experience itself was super powerful.

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

Kristopher Benson: We do a lot of coaching, and not necessarily in real estate… But if my kids are involved in sports, usually, I’m trying to involve myself the best that I can, where I can bring value. And I think that’s the time that we have, is with the kids. It’s amazing how much you can impact kids’ perspective when you see him a few times a week for practice and games on the weekends.

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

Kristopher Benson: I think you started the show off with it – our website, reliantinvestments.com is a good place. I’m fairly active on LinkedIn. That’s Kris Benson, fairly active there as well. If people are going to either of those places, they can certainly get a hold of me.

Theo Hicks: Perfect, Kris. Well, thank you for joining us today and giving us your Best Ever advice, specifically about self-storage, but I think a lot of the stuff we talked about can be applied to other things as well. We talked about some of your predictions, in a sense, for the future of self-storage and how it was impacted by COVID.

I liked how you talked about the four Ds of demand for self-storage: divorce, dislocation, downsizing, and death. So if those things are increasing, then the demand for self-storage will also increase. And then the thing that I got the most out of at least was the difference between the fund and raising money for individual deals. You gave us the differences from the perspective of an investor investing into a self-storage deal versus a fund, as well as some of the differences from the operators’ perspective, so from your perspective when it comes to raising money using a fund.

And then you gave your Best Ever advice about how to identify potential future opportunities and attempting to basically go over some of your old beliefs to make sure they still hold true, and you gave the class B, class C multi-family as an example. And then your second part of the Best Ever advice was that jumping in, doing it, taking action is one of the best way to get education. So reading, analyzing is good, but jumping in and doing it is even better.

And then I really liked the “if your business were to collapse” answer about the cool guy list. So you continuously keep a list of people that you’re impressed with, so if something were to happen and you didn’t have a job anymore, you would go to each of these individuals, and call them, ask them for advice on any future opportunities they see. And maybe even going to work with them for a month for free, to see firsthand if there are any opportunities. So very interesting. Thanks again for joining us, Kris. 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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JF2328: HighSchool Vocational Class to Real Estate Developer With Kevin Palka

Kevin is the CEO of MVP Equities, a multifamily real estate developing company. In high school, he was fortunate enough to have a vocational program where the school would bus the students off-site to build a house from scratch and eventually auction it off for charity. Now he focuses on helping his investors acquire land, entitle, develop, and build for a profit.

Kevin Palka Real Estate Background:

  • CEO of MVP Equities a multifamily real estate developer
  • 18 years of real estate experience
  • MVP focuses on acquiring land, entitle, develop and build.
  • Based in Vienna, VA
  • Say hi to him at: www.MVPequities.com   
  • Best Ever Book: The Road Less Stupid

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Find a partner or mentor to work with you on your first project” – Kevin Palka


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 Kevin Palka.

Kevin, how are you doing today?

Kevin Palka: I’m doing fantastic, Theo. Thank you for having me.

Theo Hicks: Absolutely, and thank you for joining us. A little bit about Kevin—he is the CEO of MVP Equities, a multifamily real estate developer. He has 18 years of real estate experience, and MVP focuses on acquiring land, entitle, develop and build. Based in Vienna, Virginia. You can learn more about Kevin and his company at https://mvpequities.com/.

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

Kevin Palka: Sure, I’d love to. So my background is at 45 years young — I started in the construction industry when I was 15 years old. So I’ve been living and breathing the construction industry a large portion of my life. I started out as a carpenter’s helper at 16, building houses. I was fascinated with stick-building and wood and just cutting things and putting things together. I was the kid that always took things apart and tried to put them back together and just had a technical mind. So I just always had a natural draw to the construction industry and real estate.

So I began my career just working through the trade, through high school. I was fortunate enough in high school where we had a vocational program where we actually built a house off-site. So every Tuesday and Thursday, we would get bussed off-site and go build a house that we auctioned off for charity, and that was the start of my career. And my carpentry teacher’s son was a homebuilder, so he actually saw me working on this house through school and decided that I had a knack for framing and building houses, so he hired me on during the summers.

So I eventually just kept building houses and working in residential construction, graduated high school and then actually went to school in upstate New York, and got my master’s degree in construction management and then just focused into and fell into commercial construction, and just basically worked my way up through different companies and project management roles, superintendent roles, so being on-site and traveling, and just working on various job sites, and that transitioned into multifamily.

So I had a long, extensive background in doing residential single-family, then went to multifamily and a mix of commercial as well, which got me through the first 6-7 years of my career. I eventually decided in 2002 to move to the Washington DC, Virginia area since it was a dream of mine as a kid to build high rise condominiums or high rise buildings and apartments. The Washington DC market was a very strong residential and multifamily market, and it just provided an opportunity for me to work for a development company at the time, back in 2002, all the way up to 2008 when the big crash happened. And from that point, I had put under my belt several large-scale projects ranging from $100 million to $200 million projects, 15 story buildings, things like that, that just had a lot of mass, in urban areas around Washington, DC. So it provided a lot of experience for me, a lot of growth, I learned to do some larger-scale projects and just really fine-tuned my skills.

And as 2008 came in, the crash happened and I got laid off, that’s when I started my own company. So in 2008, Asset Construction Services was born as a general contractor builder, and we worked in, again, Northern Virginia, Washington DC area, throughout the metro area, building commercial spaces, multifamily spaces and a little bit of residential here and there.

Ultimately, I just got back into development over the last 2-3 years from 2017, all the way up till now and we’ve developed several different multifamily buildings, as we established a healthy balance sheet to use as equity in our projects. And within the last three years, MVP Equities was born and spun off of that as a sole development company.

And right now, our business plan is to build, develop and acquire – or in the reverse order, acquire, develop and build – about 500-700 apartment units per year. And currently right now, that’s what we have in our pipeline. We have a 224-unit projects in Richmond, Virginia, that’s in permitting. We’ve designed that project with an architect firm, we get it entitled, meaning getting the permits, and then we obtained the financing, and then we work with other contractors, usually third-party GCs, on projects of this size, to build it for us as we construction-manage, and just execute the project as a whole and get it to stabilization.

We also have a 500-unit project in Charlotte, North Carolina – same process. We’re currently in rezoning, and out raising capital for it, syndicating and getting these projects to permit stage, so that we can execute, close on the loans and build the project. 500-700 units a year is our target, and that’s currently what we have, and it’s going really well.

Theo Hicks: Kevin, thank you for sharing your background. So a few follow-up questions… You mentioned that, really, the main reason why you got into development was because of your schooling and your knack for building things, and I was just wondering – do you feel or do you find that development has other advantages over buying existing properties, or do you think both are good strategies? Or do you just do development because of your background? Or is there another reason why you chose development over buying existing properties?

Kevin Palka: Well, that’s a fantastic question, Theo. And my answer would be it’s been in my blood to build new. We have a background in renovating as well, but from the standpoint of building new – because when I moved to Washington DC, I got very conditioned to build new projects. So it’s more along the lines of it being in my blood, starting with a new canvas; you get to paint the picture, you get to design it, you’re not stumbling over somebody else’s path… Not mistake, but just challenges that you face when you get an existing property.

So we just love the challenge of building new. We think that the talent that we have and the ability we have to not only understand the construction process, but the development process as well… And where we add value is we’re just very good at getting the best and highest use of the piece of dirt to maximize its value, not only from a monetary standpoint, but to improve the neighborhood that we’re building in. And that’s a large part of why we pick certain projects, is they are in up-and-coming neighborhoods, and they are transitioning and helping transform that neighborhood to be a little bit better.

Theo Hicks: Okay. So another question, since you have a lot of experience with construction management, obviously it’s what you’re masters in, and it sounds like you’re using third-party GCs for your deals. So other people who are doing massive construction projects, or something as simple as having a contractor help you flip a house or do renovations on your house. What are some tips you have on managing those contractors? Because we’ve all heard the horror stories of paying a contractor and never hearing from them again, or the contractor not doing great work. So kind of what advice do you have for people big and small, some kind of universal advice for managing contractors to make sure you’re getting the most out of your money?

Kevin Palka: Yes, it’s a great question, and then like you said, it can apply to flipping a home all the way up to a large project. But my advice would be, as cliche as it may sound, is do your homework. And breaking that down is one, interview the contractor, and really, really get to know them on a personal level, and visit their past job sites. Go look at their works, see what they’re doing, touch and feel their products, speak to their previous clients or who they’re currently working with; that’s a big one. There’s no better reference than their current clientele. So if they dance around that, that’s a sign that you shouldn’t probably work with them.

Ask for a qualification statement. There’s a document that you can get online called an AIA A305, and it basically lists out the qualifications of the contractor, from financial strength to previous project history, so you have a paper trail of what they are committing to and what they said they have done. So investigate that, do your homework. When you do start the project, meet with them weekly, take meeting minutes, take photographs. You can’t just leave your contractor on an island and expect the project to be done, or trust that it’s going to be done. You have to be there, you have to show your face, you’ve got to have a presence. And when you have a presence on the job and that people know that they’re being held accountable, you usually have a higher chance of success. So doing all that homework will definitely help your chances of success and helping you have a successful project.

Theo Hicks: And then transitioning to funding… Do you mind walking us through how you did your background, do the same thing, but tell us how you fund your deals, how that has evolved, I guess, since you started your own company in 2008?

Kevin Palka: The funny thing is, when I started my company in 2008, I had cashed in my 401(k) – or what was left of it – to start my construction company. We really just needed a little grindstone, as they say; just really hustled and saved money and built up our balance sheet over a period of a good 9-10 years. And what that did was it established a track record for us. Really, people saw what we were doing, and then they looked at our previous history with my previous employers, and they saw that long project list that I had accumulated over 15-18 years, and knew that we could perform, knew that we could execute. And then when we started going out and doing a development deal again, which back in 2017, when we put that hat back on, we started raising money through friends and family, we started just getting the word out there… I’m a mover and a shaker. I love to meet people, I love to be in front of people, shaking hands and just introducing, and just one thing leads to another. And we actually did a hard money loan on one of our first projects. And that guy who gave me the hard money loan actually invested in my project that I had after that. And that just set up another slew of introductions and it snowballed into just a bigger project with traditional bank financing. He had a huge relationship with some of the national banks, some of the local banks, that got us really good clean financing, and it helped us im, put in some equity; he brought in another partner, we raised some more equity and it just really snowballed into people just executing on that project, that one being a success and now to where we are today. We’ve actually just accumulated more and more investors by doing webinars, podcasts; we started a 506(b) fund to raise money from accredited investors. So we’ve gotten really legit with the way we do it.

We’ve also worked with different relationships with debt and equity brokers that helped us come in and just open doors. Some of the national players have gotten involved with us just to make introductions and source equity for us, source debt… And just bringing in the right people to really guide us and help us so that we do it in the right manner, we do it according to all regulations of the government, the SEC, and making sure we do everything properly and just having the right counsel in that respect. So just a large networking that we built over the last 3-4 years, it’s really got us in a good position right now, and we think we’re going to be able to execute rather efficiently with all our capital stacking.

Theo Hicks: So from 2008 to 2017, during that eight to 10 years, there was no money raised at all, it was just your own personal money that you saved up?

Kevin Palka: Correct. We were just using our own funds at that point.

Theo Hicks: Alright, Kevin, what is your best real estate investing advice ever?

Kevin Palka: My best real estate advice ever is to either find a partner or a mentor or coach to work with you on your first project. That will definitely help you flatten that learning curve, and really let you learn a lot quicker from somebody that’s been there and done it in the trenches.

Theo Hicks: Okay, so a quick follow-up question on that. So let’s say I want to do a development project, I want to do a first deal and I listened to you in this podcast and I go, “Alright, I need to get a partner or a mentor,” how do I get that person on board with my deal? And again, you can say that it’s not possible either, but let’s say I’ve not done deals before. I have a W-2 job that I’m working, and I want to get into real estate; how am I able to get that person on board? Do I pay them? How does that work?

Kevin Palka: What I would recommend is for some people to network through local events. For example, in our neck of the woods in Northern Virginia, there’s a program called GRID and they have a local meeting with mentors and coaches in real estate, individuals that actually often market that they will partner with you. You can go to those meetings, start to get to know people, start to get introduced… There’s guys that we know, for example, that have government IT jobs that are doing their first two or three-unit, four-unit condo flip. So they get involved with an architect, the architect makes some introductions… And offer to partner. You can just start networking with other professionals and offer a joint venture, a 50/50 ownership structure; or if you have three people, a third, a third and a third.

It’s really just getting out there, shaking hands, getting to know people. Get out there and go to events. Obviously, in COVID right now, it’s a lot more difficult, but everything’s gone virtual. So you can do it from the comfort of your home now. Do your research and find out.

I’m a grinder, I go out and just look online and I just don’t stop until I find what I need. So real estate is not for everyone, but you’ve got to have that passion, you’ve got to have that grit to be able to go out and find what you need. So just getting out there and shaking hands, or anybody can reach out to us, and if we know somebody, we’d definitely be happy to point you in the right direction.

Theo Hicks: Alright, Kevin, are you ready for the best ever lightning round?

Kevin Palka: Let’s do it.

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

Break: [00:17:06] to [00:17:54].

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

Kevin Palka: This one’s awesome. So I read The Road Less Stupid, believe it or not. The Road Less Stupid by Keith Cunningham. It’s a book for any entrepreneur, real estate, whatever business you’re in that gives you amazing advice on how to look at your business strategy; no matter what you’re doing, whether it’s real estate or something else, it gives you amazing outlook on how to really break things down and make really good decisions and think about things. He focuses in the book about thinking time and spending the time and really thinking about what you’re doing. So I highly recommend it.

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

Kevin Palka: I would reach out to all my current mentors and coaches that I have and current partners that I’ve worked with, and just because I love my business, I would want to rebuild it. And I would surround myself with people, because when a man or individual is alone and working by themselves, that’s their lowest level of temptation management. So you want to be surrounded by people, you want to be encouraged, you want to be re-coached and you want help. And other than that, I would go and help [unintelligible [00:19:01].29] shelters for dogs and things like that if I really changed careers.

Theo Hicks: Tell us about a deal that you lost the most money on, how much is lost and then what lessons you learned.

Kevin Palka: I’ve never lost money on a real estate deal, although we did come close. In 2007 we had bought a piece of property in Arlington, Virginia, and I did it with two co-workers, and we built a spec house. And then 2008 happened and we should have made over $100,000 apiece, we ended up making about $30,000 apiece; but we came really, really close to losing money.

What we learned from that was — we were a lot younger then, and just learning more about what the cycles are and paying more attention to other signs in the economy and what’s going on in the world, to be able to better make judgments about your timing and how you’re going to approach a project and how long you want to stay in it.

And the biggest project I’ve ever made money in was a project we did last year in Arlington, Virginia, called the [unintelligible [00:20:01].01] We had a significant profit on that, did very, very well, built a high-class condo building… And what I learned from that was just location, location, location. We were very close to Washington DC, it was about a two-minute drive here in the city… So that old saying holds true. So it was a very successful project.

Theo Hicks: Perfect. You’ve preemptively answered my next question, so I’ll skip that one, what’s your best ever deal, and move on to what is the best ever way you like to give back?

Kevin Palka: In my community church, we do a lot of volunteering work. My family, my wife and I, and our two kids, we do volunteering work for homeless shelters through our local church. We like to raise money for Catholic Charities, we like to raise money for Black Lives Matter… We do a lot of different stuff with different organizations to try and do our part and contribute to society. We like to donate clothes and toys, we teach our kids to do that, so that they understand that there’s other kids that need help, they need clothes, they need toys as well… So we try to pass that along to our family, to pass that along through our family and the kids, and definitely benefit others as well.

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

Kevin Palka: The best ever place to reach us is to go to our website at https://mvpequities.com. Our phone numbers are on there, our emails are on there and you can schedule a call with me at any time.

Theo Hicks: Perfect, Kevin. Well, thank you for offering that, and thank you for joining us and for providing us with your best ever advice. So very succinct – I like how you just provided everything, boom, boom, boom, in a list. So we talked about, first, why you selected development over some other real estate strategy or buying existing properties. Really, it was just something that was conducive with what you wanted to do, what you liked to do, and with your background. So anyone who listens to this podcast knows you can be successful in really any real estate niche, so just pick one you like, and then do that.

Kevin Palka: Exactly.

Theo Hicks: The other one was about the construction management advice; I really liked this… So it was do your due diligence on the contractor, which involves interviewing them, it involves looking at their previous projects, it involves speaking with people that they currently work with and people that they’ve previously worked with, as well as doing the qualification statements (you said AIA A305). And then once you actually hire them, just make sure that you’re there, that you’re present, show up at the job site. If they know you’re showing up, well, they’re going to know they’re going to be held accountable, and they’re more likely to do a good job, as opposed to you just leaving them there for months and months on end.

You talked about funding and how it just kind of organically grew from you funding with your own money, kind of building and establishing a good track record, and then starting with family and friends. You said you got a hard money loan, that that person ended up investing, and then through that network you’ve met more people, and then now you have very professional webinars and podcasts, and you raise money from debt and equity brokers. And then once you get to that point, make sure you have the right people on your team, the right counsel, so that you’re raising money by the book.

And then your best ever advice was to find a partner or a coach, mentor for your first project. You can find them through local networking events; sometimes there’s people who are explicitly marketing that they want to partner with you. And then in order to attract them onto the deal, get them to help you with the deal, just do JV, give them half the deal, because half of something is better than all of nothing.

Kevin Palka: Well said.

Theo Hicks: You’re going to have to grind and get out there and be passionate enough to keep hustling until you find what you need, until you find that business partner, and be willing to do whatever it takes to get them onto your first deal.

So Kevin, I appreciate it; thank you for joining us again. 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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JF2317: InvestNext With Kevin Heras

Kevin is the co-founder at InvestNext, a software that modernizes the way real estate syndicators raise and manage capital. Prior to funding InvestNext, he was employee #2 at the college career network startup, Handshake, where he contributed to initial product development efforts. Handshake is currently valued at over $400 million and it is the leading college-to-career recruiting platform in the nation. Today, Kevin is honored to be part of the season team of software engineers and a real estate professor.

Kevin Heras Real Estate Background:

  • CEO & Co-founder of InvestNext, software that modernizes the way real estate syndicators raise & manage capital
  • 5 years of real estate experience
  • InvestNext platform has hosted 230+ syndications worth over $1 billion
  • Based in Detroit, MI
  • Say hi to him at www.investnext.com 
  • Best Ever Book: Crossing the Chasm

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The benefit of InvestNext is being able to manage and raise your capital” – Kevin Heras


TRANSCRIPTION

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

Kevin Heras: Good, Theo. How are you doing?

Theo Hicks: I am well, thanks for asking and thanks for joining us. I’m really looking forward to this conversation. We’re gonna talk about Kevin’s InvestNext apartment syndication/real estate syndication software platform. So he’s the CEO and co-founder of InvestNext, a software that modernizes the way real estate syndicators raise money and manage capital. He has five years of real estate experience, and the platform has hosted over 230 syndications worth over a billion dollars. He is based in Detroit, Michigan, and you can say hi to him at InvestNext.com.

Before we get into what InvestNext is, do you mind telling us some more about your background and then what you’re focused on today?

Kevin Heras: Sure thing. To give context on InvestNext – as you mentioned, real estate investment platform geared towards your private network of investors, manager investors, on that platform. But ahead of InvestNext I was kind of going through the corporate track. I worked at a consulting firm and we implemented CRMs, ERPs, accounting systems and so forth… So I got exposed to a lot of different enterprise-level clients, as well as even real estate clients ahead of that… So that was kind of my systems background.

Ahead of that, really one of the most formative parts of my life was actually my time at Handshake. Handshake, for context, is basically what you might call the LinkedIn for college students. So it’s a career network. I was involved there when it was just a dorm room founded startup. Today they’re over a half billion dollar company. I was employee number two, working with the co-founders, building out the product, going to university career centers, getting shut down, going back, building more… The rest is history.

That being my third year of college was pretty formative in what I’m doing today, and I knew at that point that I really wanted to be involved in the tech space; I wanted to build something meaningful that solved a systemic problem.

Fast-forward to a few years back, when I met my co-founder, Michael Gisi; he was working on this interesting side-project, working for a real estate investment firm that was really just trying to streamline the way they interacted with their investors, they were they reported and communicated to them. It was a tool that was meant to be a one-off tool for that firm, but we got people knocking on the door, saying “Hey, would you mind deploying something like this for our group?” And we’d been talking about it for a while, and that was kind of the a-ha moment, and pretty much the founding moment of InvestNext. We realized at that point that there’s a massive gap in this space, how people go out and they syndicate and manage their capital partners and investors. From that point on, the rest is history.

Theo Hicks: Sure. And then InvestNext – was that five years ago when it started?

Kevin Heras: Yeah, proof of concept, product – that would be five years ago; we were really just getting into this space, exactly.

Theo Hicks: Okay. Are you a coder?

Kevin Heras: I’m on the product team. I stay away from the code. I did the design portion of it. I let Michael and his team work through that stuff, but I am heavily, heavily involved in the side of the workflows and the product.

Theo Hicks: So he was essentially working for an existing company, created something for them, and then other people were asking for the same things, so that’s where you identified the need.

Kevin Heras: Exactly. It was pretty serendipitous from that standpoint.

Theo Hicks: How did you meet the co-founder.

Kevin Heras: I think back to how this all came together, and really, at my last company where I worked at, it was an indirect connection. One of my customers said “Hey, my good friend’s working on a side project. Maybe you guys might be able to connect, or interact on this.” So there was really no presumption on what we’d be working together, or especially on what we’d be  building.

He just happened to know that I had experience with Handshake, I’d been in the startup world, and perhaps I could lend some advice. So an indirect connection, and then we really just hit it off from that point.

Theo Hicks: Nice. I always like hearing about how partners met each other, because it’s traditionally pretty random.

Kevin Heras: It really is… And again, something I always think back to is just the serendipity of it all. You really just never know the doors that you can keep open, and you never know who you meet… So absolutely.

Theo Hicks: Exactly. Perfect. So let’s talk a little bit about InvestNext now. I have experience with syndications, so in my mind, when it comes to investors, it’s really finding the investors, and then it’s getting the money from the investors, or raising money for a particular deal or for a fund, and then the investor relations part. Obviously, your business focuses – from what I’m understanding – on helping with the actual process of raising the money for a particular deal or  a particular fund. Then once that deal is closed on, helping with the investor relations portion.

Let’s start with the raising money part first, and then we’ll talk about the investor relations second. So how does InvestNext help the syndicator raise money? You do help them find more money, but help them manage that process.

Kevin Heras: Yeah, so the concept around this is that whether  you’re a first-time syndicator or you’ve already done this many times, our intent with the platform is you have a single workspace to manage the very beginning lifecycle of that syndication to start with. So that’s everything from you have a CRM, of course, to manage prospective investors, capital partners, just people that you are interacting with. That ties in directly into what we call an online deal room. So when you’re ready to go live with your offering or your deal, it’s really housing that digital tear sheet, that presentation. You can send it out to your groups, they can view that full offering, and then of course, commit online, run the entire transaction, subscription docs and everything through the actual deal room.

So that’s the big, major component to begin with, is just streamline that entire initial transaction with the investor, and of course, saving you time at the end of it all.

Theo Hicks: So it has a CRM that I have to track all my investors that I have. Would that also be like “Here’s ones that are potential, and here’s ones that have invested, here’s how much they’ve invested, and here’s the deals that they’re in”?

Kevin Heras: Exactly. It’s really being able to manage your entire pipeline of prospective capital. And again, it’s from the very onset; we work with groups that are doing their first deal, and they know that “Okay, perhaps we may not land on something for the next few months”, but at the very least they wanna start building up that pipeline, building those relationships. So they’re just tracking those relationships in the CRM, tracking their pipeline. And then of course, when the deal hits, they put together all their collateral, all their documents in the deal room, and of course, when they’re ready to actually present that, it’s as easy as sharing that.

Theo Hicks: So you said there’s an online deal room. So I have a  deal… A big thing is obviously keeping your investors up to date on where you’re at, when are funds due, when do you need to submit the documents, getting that information to them. So is there some sort of email service you’re connected to, that I can say “Okay, I want to send an email every week to remind them about funding. People who have funded will get one email, people who haven’t funded will get another email.” Is it capable of doing all that stuff, too?

Kevin Heras: That’s exactly it. So when you go live with the deal — first and foremost, what we wanna present to the investor is… Call it that kind of single source of truth. So they can go back to the deal room and say “Hey, what’s the status of anything that’s happening?” And within that deal room they can see all the updates of what’s been going on. So that’s kind of the inbound approach, so the investor knows — instead of digging through their email chain and looking for what was the last update, it’s all in one place.

The second part to that is yeah, there’s the intelligence built behind this, so that when the sponsor goes out, they market the deal, they have all their commitments in, they can transact the capital, transact the funds… And of course, who’s left in the previous sequence to that. So then from there, there’s intelligent reminders to follow up with those investors. That’s a very common scenario that we see, especially when you go on a capital  raise.

Theo Hicks: As an investor, how am I getting access to this?

Kevin Heras: Multiple ways. Different groups have different approaches to how they’re gonna interact with their investors. Some groups are very “by invitation only.” Of course, this can live behind a security layer that you can only be granted access to the deal room, and of course, once you’ve been verified, you can go in to view the deal. Other groups – call it maybe like a 506 open format fundraise; you can literally open it up to the internet as a whole. So varying groups do varying open access to the deal room.

Theo Hicks: So would I need to share a link with my investors, or would I input their email into InvestNext and then they’d get the “Here’s  how you set up your account” email from InvestNext?

Kevin Heras: Both ways. Basically, imagine if you’ve had a mass communication out  to a group of investors – you could actually grab that shareable link; you can say “Hey everyone, feel free to access the deal room right at this link.” And of course, when they jump in, they can view all the details there.

On the other side of that, whatever you wanna do with that – you can post it on your website, you can send it out… And of course, back to that “by invitation only”, you can select a certain group of investors and directly send them an invitation to that deal room.

Theo Hicks: Perfect. Okay, so I think we hit on that front part pretty well… So deal is closed, investors get the email that the deal is closed, and then now let’s talk about the investor relations aspect. So how does InvestNext help me manage my communication, and then getting the proper information to my investors about the deal?

Kevin Heras: That ties in directly into what we call the investment part of the product. First of all, that’s all connected. Once you’ve actually received those contributions, those investments, that’s now being tracked on the cap table. You can now set up your waterfall structure around this. So it’s a full drag-and-drop builder, exactly as you see it in your operating agreement; you model it right in the system, and then moving forward, when you’re running your distributions, whether that’s monthly/quarterly schedule, that’s being all run through the system. Investors are getting paid out.

On the flipside of that, on the investor relations side, of course investors gain access to their portal, they can view their full portfolio with you, distributions to date, return metrics etc. So that’s where we now carry into the investor relations part.

Theo Hicks: What about reporting? So do I upload my own reports? Am I inputting individual line items for data? How does that work?

Kevin Heras: One of two ways that can be done. Individual investor reporting… Since InvestNext houses the entire investor transaction data – so again,  contribution amounts, distributions – we are now the calculation engine for a lot of the investor performance metrics. So maybe you’re sending out a quarterly batch of statements out to your investors… You can generate those in the system; those can get placed outbound to the investors. Or the investors can log in at any point, as they would with their Charles Schwab account, they can view those in live… And then the other side of that is if you have any sort of property-level reporting or any sort of asset-level reporting, we’re working through integrations with systems.

So if you have an asset-level — we’ll call it your standard property management software, we can actually connect right into that and marry that data into your reporting. That’s especially useful for groups that, again, maybe at scale you’re working with multiple property managers, and each one of those may utilize a separate system. So what we need to be able to do is connect the data from each one of those systems and then aggregate those up both for internal reporting, as well as external reporting for investors.

Theo Hicks: So you’re saying that InvestNext can connect to ABC Property Management Company’s software, so that you’ll have instantaneous access to the reports for my property…? Like rent rolls, profit and loss statements, and things like that.

Kevin Heras: That’s exactly it. We’ve facilitated many of those integrations in the past, and that’s really the vision around all this stuff – again, we aggregate the very asset-level data, and not only for the sponsor, but for the investor, that’s now presenting an added layer of transparency, exactly.

Theo Hicks: And then the last question – so not sending distributions, not sending the reports, but sending monthly or quarterly update emails with specifics on current occupancy rates, and renovation updates, things like that… So would I need to do that somewhere else, and manually type in my explanations of what’s going on, or is there some sort of automation for that as well?

Kevin Heras: Yeah, so we have this — and maybe I’ll get a little into the nuts and bolts or techy about this, but we have this concept known as merch variables. The idea here is that when you’re drafting up a new communication, or even in our system, what we call a post, you can actually carry in as part of your natural language, as you’re typing out your summary or so forth, you can actually include metrics that you can embed into that paragraph line. So it could literally pull metrics in from the system that are already being automatically calculated. Of course, you can set that as your template moving forward when you’re doing your monthly or quarterly cadence reporting… And again, two different formats, as I just mentioned.

One way is I’m gonna send out a mass communication or mass email out to my industrial park investors. Of course, the system already knows who your industrial park investors are, it knows their actual reporting metrics… But then the other side of that is we have this concept of posts. When you do that, you basically can post an update to the investor portal; the investor logs in or they can receive that on their phone and they can view it in a rich-format text, as you would an online blog.

So it’s kind of the historical concept where maybe you sent out a mass email, you attached a PDF or an Excel, just kind of saying “Hey, this is what’s going on.” It’s a bit more of a richer format, where you can even embed YouTube videos or whatnot.

Theo Hicks: Like pictures, and stuff?

Kevin Heras: Yeah, exactly.

Theo Hicks: This is very neat. Alright, Kevin, what is your best real estate investing advice ever? Or your best advice ever for running a business?

Kevin Heras: I always say “Focus.” It seems pretty standard, but for me personally, focus has been an incredible paradigm to go after. Just understanding that when you’re building something, it’s really about becoming really good at what you do… And it’s, again, just staying focused on the core problem you’re trying to solve. And again, that’s from the paradigm of a problem-solving platform and a software. So focus is my big statement here.

Theo Hicks: Perfect. Alright, Kevin, are you ready for the Best Ever Lightning Round?

Kevin Heras: Sure thing.

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

Break: [00:17:26].14] to [00:18:17].21]

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

Kevin Heras: I’d say one I’ve revisited is “Crossing the chasm”. Again, primarily related to product building, product development, but I think it’s extremely applicable to any business. So it’s just about as you’re getting started, it’s being able to handle that initial growth, and at the same time it’s being able to keep yourself disciplined on what the problem is that you’re trying to solve. You’re not gonna build a business that solves everyone’s problems. They use the landing beach analogy; when you land on your beach, focus on that area, really own that area, and then of course, later on you can always expand your business. So… Crossing the chasm.

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

Kevin Heras: I would definitely have to ask myself what led to the point that the business collapsed. After that, it’d just be a matter of reflecting on what led to that moment, what inflexibility caused the business, unless some act of God… But if the business fell apart, I’d say I’d still be in real estate, I’d still be solving the problems in that space, because for us I think it is truly the final frontier for a lot of the stuff that’s happening in the world economy around real estate.

Theo Hicks: Besides this particular need of apartment syndicators needing technology for managing investors, what’s the other biggest pain point or biggest need that could be solved by tech that you see in real estate?

Kevin Heras: We really think that the entire transaction of real estate still  is yet to be disrupted, because just the process of acquiring real estate, all of the stakeholders involved, we have literally barely  scratched the surface on that side… And I think that’s very much so open for disruption. So the whole acquisition side is a very interesting problem to solve.

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

Kevin Heras: As you stated earlier, we’re a Detroit-based company, and we’ve made it our internal mission — Detroit is our home, and when people think about Detroit, you get this sense of “It’s seen better days/It’s grungy” and whatnot… And it really is, for us — I’m a transplant to this city, I’m not a Detroiter, but I’ve moved here five or so years ago and I’ve seen the place rebuild itself. A lot of big tech companies moving in; they’re seeing the opportunity. So our focus is hiring local talent, as well as just giving back to the local community here. So that’s kind of our mission locally.

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

Kevin Heras: Best ever place – you definitely can reach me directly at my email, at Kevin@investnext.com. Of course, you can hit me up on the website; there’s a little chat bubble and you’ll likely see my mugshot on there. Likely me or one of the people on our team that will get to you… But yeah, kevin@investnext.com is the perfect place.

Theo Hicks: Awesome, Kevin. Thanks for joining us today and walking us through the capabilities of the InvestNext platform. Very fascinating. We’ve talked about, first of all, how you met the co-founder of the business, and how it was kind of just random, and keeping in mind — this is pretty common, that I get people who have partners and just realizing that really any relationship that you have, or any action that you take could lead randomly down the line to a deal, to a partnership… You never really know. So keeping all of your doors open is always a smart play.

And we talked about the two main areas that are addressed by the InvestNext software – the raising money and the investor relations. And really, it covers everything that I can possibly think of, that is involved in the raising money part of it, from when you first touch someone who’s interested in investing, to the deal closing, and then from the investor relations standpoint, once a deal is closed, until the deal is sold. It’s seems as if it’s capable of covering all of that in one centralized location.

So anyone who’s interested in raising money, or has raised money, or is currently raising money, definitely check out this InvestNext.com. So definitely check that out. I’ll be checking it out as well after this interview.

Kevin, thanks again for joining us. 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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JF2314: Jump In and Learn With John Evans

John works as a supply chain manager and a part-time investor. He has been investing for a little over a year and already has a portfolio of a duplex, a single-family, one flip, and two commercial properties. He shares today how he has recently started and why he quickly sought out an experienced mentor to help him through his first multi-family property.

John Evans Real Estate Background:

  • Works as a supply chain manager and part-time investor
  • Has been investing for 1.5 years 
  • Portfolio consists of 1 duplex, 1 single family, 2 commercial properties, & 1 flip
  • Currently partnered with a local investor to complete his first multi-family property with 30-60 doors
  • Based in Florence, SC
  • Say hi to him at john@bedrockinvestmentgroup.net
  • Best Ever Book: Go-Giver

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Surround yourself with people who are doing it” – John Evans


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 John Evans. John, how are you doing today?

John Evans: I’m doing great, Theo. Thank you very much for this opportunity and having me on the show today.

Theo Hicks: Oh, no problem. Thank you for taking the time to speak with us today. A little bit about John – he works as a supply chain manager and as a part-time investor; he’s been investing for a year and a half, and his current portfolio is a duplex,  a single-family, two commercial properties, and he has done a flip. And he is currently partnering with a local investor and they’re looking to complete their first multifamily property, between 30 and 60 doors. He is based in Florence, South Carolina, and you can say hi to him at his email, which is john@bedrockinvestinggroup.net.

John, do you might telling us some more about your background and what you’re focused on today?

John Evans: Sure. Recently, I’ve just ended up partnering with a guy that basically — since I’m new to this, coming in and using leverage with him understanding and knowing the market. He is a realtor for the state [unintelligible [00:04:19].01] and also an appraiser, so he has some of the knowledge that I don’t have.

When I started really looking at doing this, I got on Bigger Pockets and a lot of good websites, obviously I used your guys’ website a lot, took the advice to learn for at least a year or so. I read a lot of books, educated myself, and then decided to partner with someone in the real estate space as a professional… And then also, we have recently just joined a mentorship with Robert Beardsley. So we’re doing that now, and I’ll tell you, that’s been a real big help for helping us understand really how to go about looking at the data and letting the data speak. I think it’s very important in this space – whenever you’re going out to raise the money, you definitely don’t wanna make a mistake with someone else’s money, including your own, because we’re gonna invest right beside our investors. So getting in that mentorship has been very key, and that’s what we’re doing right now.

We’ve also been kind of gearing up our social media presence, if you will. That was one thing that Rob has led us to do. You have to make sure you’re  telling people what you do, and the connections, and that’s been very important recently for our plan of action.

Theo Hicks: Perfect. So the local investor you’re partnered with, the realtor and the appraiser – the plan would be to buy a multifamily using other people’s money, correct? So you’re going to syndicate.

John Evans: That’s right.

Theo Hicks: Perfect. Okay. So let’s focus on that aspect of the business first. To start, how did you meet your partner?

John Evans: We’ve been friends for a while, we’ve met through some mutual friends. Our wives actually know each other as well.

Theo Hicks: And then how did the partnership come to be? Did you just one day ask him “Hey, I wanna do multifamily. Let’s partner up”? Or was it organic? Maybe walks us through how that happened.

John Evans: Sure, that’s a good question. He basically heard me talking about it one night; we were all together, and he had always wanted to buy an apartment complex on one campus, basically. So when you hear talking about an apartment complex, and then also doing syndications, and raising money to be able to help go and give someone else a return on their money – for someone who may not wanna actually be in the day-to-day operations of owning an apartment complex, that really intrigued him. He was like “You know, I’ve always wanted to do that.” So he said “Tell me what you know about it.”

I started explaining to him all the math, all the finance behind everything I’d learned, and then I started talking about Bigger Pockets. He didn’t know anything about that, so he started doing his own research. It was probably about a month after we initially talked about it, and he called me up and he said “Hey, let’s go out to dinner one night.” So we did. We had a quick meeting. We went out and we kind of discussed what our goals were and what we wanted to do, and then just kind of took from there.

Theo Hicks: What are the roles that you two are playing?

John Evans: It sounds like? Is he getting more of the money, and you’re gonna be more of the worker?

Theo Hicks: I actually do the finance underwriting piece, or the day-to-day process, or the day-to-day driven operations, and he’ll do more of the market type analysis, and then doing a lot of the research, finding the deals… It was kind of integrated; we both kind of play — not necessarily the same roles, because you can’t as you know, but he knows more the market side of things, and I know more of the finance and day-to-day operations types of things.

I manage my current duplex as well, and he’s actually managed his portfolio in the past also.

Theo Hicks: Did you break up those duties based off of who was better at what, basically? That’s what it sounds like.

John Evans: Exactly. We talked about what we both thought we’d be good at. I have more of an engineering/operations background from the manufacturing sector, and he’s always owned his own business, so he kind of has a good mix of knowing real estate, and also knowing how to operate a business.

I have an MBA, and majored in finance as well, so I kind of have the numbers side of the game, but I also don’t mind getting my hands dirty, doing the day-to-day operations as well.

Theo Hicks: So you mentioned that one of the things that your mentor focuses on is the data, so I’m assuming that means understanding how to underwrite the deals. So without getting into too much detail, because underwriting is a very complicated process, maybe tell us what’s the number one or the top few things that I should be looking at when it comes to data when I’m underwriting an apartment deal.

John Evans: You wanna look at definitely the return on investment for your investors, especially if you’re raising money. As far as before you even start underwriting, you wanna look at neighborhoods, you wanna look at demographics, you wanna look at the rents history of that area, and also crime rates; we look at that. We kind of have a five-step process.

Then once you go into the underwriting, you wanna load your data – we use his software. So it’s really good – you go and plug all your numbers in, and then you get an output. So you wanna go look at that output and see if the deal actually makes sense. Is there gonna be enough meat on the bone there to actually raise the money from someone else in order to give them the right returns? So it’ll give them a good picture of what they’re gonna make on their money; it’s one of the biggest things we look at.

Theo Hicks: You said there’s a five-step process… So step one was looking at the market. Step two was loading the data, and step three was looking at the output. What are the other two steps?

John Evans: So then we look at — if the deal makes sense, we go into submitting an LOI. That would be the next step. And then after that, if that offer comes back and it’s accepted, we go straight into due diligence pretty quickly. So that would be the next step.

Theo Hicks: And then the other thing that you mentioned  — well, you didn’t really mention this, but for raising the capital for these deals… So you guys are actively looking for a deal. Do you have some verbal commitments from investors already, and that’s how you determine the size of deal you can take down, or is the plan to get the deal first and then leverage that deal to raise capital?

John Evans: We have friends and family currently. There’s a group of around four people that we do know, that have a lot of interest in what we’re doing and they wanna place some money. Basically, they’re kind of done with the stock market and the volatility.

So when we started going and talking to them about what we were doing, they were very interested in it. Two out of the four definitely said they wanna do it. So we have friends and family, and then those two, and then two more potential already.

Theo Hicks: So you said family and friends, and then you’ve got the group of people that want to invest, that are differentiated from the family and friends… So how did you meet these people? Or how did they learn about your business?

John Evans: Knowing them from our local area, we approached them and told them what we were doing. And then we knew their background as well from being around us in the area… But once we approached them and laid out what we were doing, they were in.

Theo Hicks: And something else you mentioned – you’ve been focusing on the social media presence. Maybe walks us through that – that types of things you’re doing, what works, what doesn’t work, and what’s the ultimate purpose of the social media presence.

John Evans: Yeah, so usually, using Facebook it’s putting yourself out there. But first it was — and it still is a little bit – it kind of gets you out of your comfort zone. So it’s kind of challenging… I like it because it’s a challenge, and it makes me think… So meeting new people, creating a network is the main reason we’re using it right now, and just meeting a lot of people that’s actually doing this; surrounding yourself with the ones that are doing it, so you can learn more.

I really use it as a two-sided type deal, because I’m adding value to someone else, and I’m looking for the value they’re adding to me as well. I always go into our conversation with someone that I meet on, say, LinkedIn, because I’ve had some success in meeting a lot of syndicators on LinkedIn, and also some passive investors, which – I utilize that to be able to find out what are they looking for, what do they want out of a return from someone that’s actually syndicating and pulling them into their deal.

Theo Hicks: What types of things are you doing on LinkedIn and Facebook to add value to other people?

John Evans: One, for Facebook it’s posting non-traditional type thoughts. What I often find – I’ve had a few people that reached out to me lately – is they’re in the traditional mindset; go to school, get a job, all the good stuff that the Rich Dad, Poor Dad tells us that we should think differently; it kind of change our  mindset, which is one way that I was able to obtain the mindset to go out and try to do something non-traditional, so to speak.

I’m posting things that are non-traditional; I’m trying to get them thinking of a different way, and also adding value by doing like  a Thursday book recommendation based around investing, based around real estate, and then also the Best Ever Apartment Syndication Book – that type of stuff, that maybe someone that I know in my network that wants to do this, but they’ve never really studied it and they don’t really know about all of the tools and tricks that are out there in order to do some of this.

Theo Hicks: Alright John, what is your best real estate investing advice ever?

John Evans: Surround yourself with people that are doing it. When I first started, my banker owned real estate, my attorney owned real estate, down to the guy that I used to go in and fix the air conditioners in our units if they ever go out – he actually owns real estate; my CPA owns real estate. Interview people, find out what they’re doing, find out how much they know about this stuff, because you can gain a lot of value from those individuals, and they’re always willing to help you is what I’ve found.

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

John Evans: Absolutely.

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

Break: [00:13:01].10] to [00:13:51].06]

Theo Hicks: Okay John, so you mentioned you did the Thursday Book Recommendation, so this should be a pretty easy answer… What’s the Best Ever book you’ve recently read, or recommended? Either one.

John Evans: Absolutely, Theo. The Go Giver is my go-to. That book has changed my life. It’s by Bob Burg and John David Mann. The Go Giver book.

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

John Evans: Start another business, always. There’s a  lot of opportunity out there, a lot of things that are being done today that you can go in and make better, and I believe that’s exactly what I would do. I’d follow the same path and start another business.

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

John Evans: I’d say the duplex that I currently own in the portfolio. I’m right at about 27% ROI on that one, and it cashflows $280/door.

Theo Hicks: If you’ve lost money on any deals, how much money have you lost and what lessons did you learn?

John Evans: I haven’t lost any money. That’s rule number one, don’t lose money.

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

John Evans: Going to community events that’s for a good purpose, that align with our purpose and our way. And then another thing we really like to do – and a lot of this is silent – I love to give back to feeding the hungry. That’s one of my purposes; it really touches home.

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

John Evans: You can reach me at John@bedrockinvestmentgroup.net. Also, I always like to give out my cell. It’s 843-858-1274. I’m also on LinkedIn and Facebook.

Theo Hicks: On LinkedIn and Facebook it’s just your name, John Evans?

John Evans: That’s correct.

Theo Hicks: Alright, John, thank you for joining me and walking us through your journey and what you’re focused on today. We talked about partners and how your business partner is someone you had known for a while. They’re a realtor and appraiser, and have a lot more knowledge than you, and you were able to get them on board with your multifamily plan by being educated and really telling him what you plan on doing, your knowledge about apartments or raising money, and then you mentioned that the duties were split up based off of your strengths. Some of those are overlapping, whereas some of the stuff is only done by you, or only done by him. He’s more of a marketing guy, and you’re more of the underwriting, number cruncher.

You talked about your five-step for underwriting deals, analyzing the market, looking at things like demographic, rents, crime rates, loading that data into a customized cashflow calculator which you got from your mentor, analyzing the output, and the important number to look at would be the ROI to the people who are investing, and making sure that it reaches their investment goals. And then step four was making an LOI, step five would be the due diligence.

You talked about raising money, how most of it is family and friends, plus a group of people that you’d met in the past, you approached them, told them what you were doing, and at least two of them are very interested in investing.

We talked about your social media presence and how you use Facebook and LinkedIn to not only add value to other people through things like posting your non-traditional thoughts, getting people thinking in a different way, different types of themes to post, like your Thursday book recommendation, but you’re also using it to add value to yourself, to educate yourself by meeting with apartment syndicators, meeting with passive investors and seeing what they want… And then this kind of links into your best ever advice, which is to surround yourself with people who are already doing what you’re doing. So in your case, surrounding yourself with other syndicators who have raised money for apartment deals in the past.

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

John Evans: Thank  you, Theo.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2310: CrowdStreet With Darren Powderly

Darren has 17 years of commercial real estate experience, he started his career in brokerage, property management, and construction services. He then developed and acquired commercial real estate properties as a sponsor for syndicated investor groups and after 10 years came up with a concept for crowdstreet and has been building his business ever since. 

Darren Powderly Real Estate Background:

  • Co-founder of CrowdStreet
  • 17 years of commercial real estate experience
  • Darren’s personal experience consists of acquiring/rehabbing a retail building for a 3x equity multiple, a retail strip center for 6x equity multiple, an industrial-zoned land 3x multiple, and a townhome development for 8x equity multiple
  • Based in Bend, OR
  • Say hi to him at https://www.crowdstreet.com/

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Today online investing is probably more transparent than if you knew someone in person because of the access we have at your fingertips” – Darren Powderly


TRANSCRIPTION

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

Darren Powderly: I’m doing great, thanks for having me on the show today. I’m a big fan.

Joe Fairless: Well, I’m grateful that you are on the show and I’m glad that you’re doing great. A little bit about Darren – he’s the co-founder of Crowdstreet; he’s got 17 years of commercial real estate experience, and he is, as I mentioned the co-founder of Crowdstreet. On Crowdstreet they’ve done over 460 different real estate investments. He’s also got experience doing his own deals, which he did. We won’t necessarily focus on that much, but he has experience acquiring and rehabbing various commercial products like retail buildings and industrial zone land and retail strip centers.

So with that being said, Darren, let’s talk a little bit about you and Crowdstreet and your background… Would you mind telling the Best Ever listeners a  little bit more about that?

Darren Powderly: Yeah. Thanks, Joe. I started my career out in technology. I was fortunate to graduate [unintelligible [00:04:02].10] in the mid-90’s. And in the mid-90’s, but me at least, I was like “Could I go to Wall Street?” You know, Wall Street was where it was at; prior generation had made all their wealth there. But I took the technology path and I went to San Francisco, and got about five years of experience in San Francisco before jumping ship… So the dotcom boom and the dotcom bust were early lessons for me. It was an exhilarating up ride, and then sort of a stomach-churning, gut-wrenching drop out of that experience.

So I got into commercial real estate… I jumped from tech to commercial real estate in 2003, and I had been doing that ever since. As you mentioned, I did some deals of my own; I was the president of a brokerage firm, and so I got some good cross-functional experience which I think is great for every early career; you learn as much as you can, do as many things as possible, figure out where your passion lies.

My passion was a combination of tech and commercial real estate investing, and that’s what led to the light bulb or the spark that became Crowdstreet in 2012. That spark went off in 2014, and I’ve been fortunate enough to run that business ever since.

Joe Fairless: It sounds like you’ve got the perfect background for your company – tech and commercial real estate coming together, plus president of a brokerage firm, so I would assume you know how to manage teams…

What aspects of doing your own deals have you then used to build out Crowdstreet?

Darren Powderly: Well, I syndicated equity when I was doing those deals. I brought together a couple of like-minded investors like me. I was not only the skin in the game, I was also the sweat equity. And fortunately, I was also bringing in other people that were doing the same thing. We all put a little bit of our money in collectively, we put our balance sheets together to get a loan, non-recourse in most of those cases except for one development that we did that had partial recourse… And decided who would play what role.

We got a number of deals done, and fortunately, the timing was good. When I started to invest was actually during the great financial crisis. Prior to that I didn’t have enough capital or experience, guts, or more importantly, just knowledge to do it. And it was during the great financial crisis where I started to get greedy when I saw real estate values just plummet. I bought some industrial land, I bought some townhomes that I still own… We developed a retail strip center across the street from a hospital that we knew had demand drivers there… So those were all very valuable experiences.

Also, because I was a real estate professional and I owned a brokerage firm, I did property management, asset management, construction services, as well as leasing, which was an important skill at that time. I had the right skills around me to take on these projects… And all of that was instrumental in giving me the confidence to eventually start Crowdstreet.

I had studied real estate investing, I got my CCIM, which some of your early listeners will know what that is; it takes a while to get that. I studied really hard. Some people call it the MBA of commercial real estate… And I think it is. The CCIM is a great program.

So it was a lot of hard work. One last comment on that is the ten-year rule. Malcolm Gladwell in one of his books talks about 10,000 and ten years of experience before you become “an expert”. I passed that. Before I started Crowdstreet, I had ten years of commercial real estate plus five years of technology prior to that… And I’m like a junkie for self-improvement and constant learning. I still am a voracious reader every single day, and all those things led to the ability to have that level of confidence to start Crowdstreet.

Joe Fairless: I assume it’s fair to categorize Crowdstreet as a crowdfunding platform… Is that correct?

Darren Powderly: Yeah, that’s one way to put it. I think, Joe, today a more accurate way to put it is just like online real estate investing. People who wanna build a diversified real estate portfolio online can go to Crowdstreet and co-invest with some of the best real estate operators, developers, owners (otherwise known as sponsors) out there around the country. And they can do so in $25,000 increments. So it really is just more of a form of online syndication or online real estate investing, put even more broadly.

The crowdfunding term, while not necessarily inaccurate, has got a lot of stigma around it; it means a number of different things, and we’ve evolved the language that we use around our business to really just broadly online syndication or online real estate investing.

Joe Fairless: Alright, fair enough. So I won’t use that dirty term…

Darren Powderly: Although it is in our name… [laughs]

Joe Fairless: Yeah, right… [laughs] Good point on that one. But alright, online real estate investing. So there are other online real estate investing platforms out there… How do you all differentiate from them?

Darren Powderly: Well, the first thing is the commitment to sponsorship quality, and really institutional-grade sponsors and institutional-grade properties. What does that mean? We really work with firms that have been around for probably ten years on average, and have almost at a minimum had a 250 million dollars worth of track record at the asset level, at  a property level.

Then we also look for sponsors that have experience managing individual investors, their friends, and their family, and what they call the country club set. So we invest to get all that, and we do all of the background checks on sponsors and confirm everything… So it’s a super-high-quality bar of sponsors. The number one thing that sets us apart from anybody else is just that.

Joe Fairless: What types of questions do you all ask, that you don’t believe some other real estate investing online platforms ask?

Darren Powderly: First of all, for Crowdstreet we have a clearly-defined deal review process. You can find that on the Crowdstreet website; we put it all out there, extremely transparent. You can also find every single deal we’ve ever done and fully realized underneath our Marketplace Performance page, but that’s a separate topic.

So when we evaluate a firm, we’re gonna background-check the principals and the firm itself. We have third-party sources to do that; we use something called CLEAR, which is a background check on the company and the professionals [unintelligible [00:10:19].18] broker checks, and so forth. So really deep background checks. We’re gonna do interviews and reference checks.

We’re also going to confirm the track record that they provide us. So they provide us often a spreadsheet. “Here are all the deals we’ve ever done, and here’s how they’ve performed.” We’re gonna spot-check those and confirm that that in fact is true.

Then we’re going to give that sponsor a designation – Emerging, Seasoned, Tenured, Enterprise. So it’s pretty extensive. It’s really an application process; they apply, and go through it all – we go through their application, we do all the background checking, and we’ll accept a sponsor, or politely decline them before we even move to evaluating the asset. That’s step one.

Joe Fairless: If a sponsor comes to you and it’s a new relationship and they say “Hey, I’m looking at a deal to acquire; I’d love to work with you all”, what’s the timeframe for this vetting process? What does your team tell them?

Darren Powderly: The process from the first call – they call Crowdstreet or they ping us online, and we have a call… Let’s say they already have a deal in hand, that’s set up – we’re probably gonna be 2-3 weeks out to approve the sponsor and the deal.

We have an investment committee and a full team of analysts and so forth, that are working 24/7. We also have a tech-enabled deal submission process that gets us to pretty accurate Yes/No indicators. It’s not 100% AI [unintelligible [00:11:40].27] our technology and our data-driven and our predictive analytics, but it’s there. And what it does is it helps make the humans more efficient. So the humans can get to a pretty quick understanding of who is the sponsor, and then is this asset, their business models and their projections on the asset realistic?

We’ve got 4-5 different third-party databases that we’re running models against, and that gets us to ask the right questions. The human engagement on the phone, and — while we don’t actually visit the properties in-person, which some institutional investors do, we have so much online now, and so many things at our fingertips.

So it takes about 2-3 weeks to get to a yes. That’s assuming that the sponsor has everything we need; that often is a cause for a delay.

And then we’ll sign our agreements, and it takes us a couple of weeks to get it published on the Crowdstreet marketplace. So you’re already talking over a month before the deal is launched on the Crowdstreet marketplace.

Sometimes those deals will be fully spoken for or oversubscribed within a day; other times it takes us 30 days. Sometimes it happens very quickly. We typically ask and set expectations to have 30 days as time posted on the marketplace.

And then we have to actually collect the funds and close it out. So probably from first conversation to a fully-subscribed and funded and closed deal we’re talking 8 weeks, plus or minus a couple of weeks.

Joe Fairless: Have you ever had a deal that made it through the process not get fully funded from the crowd?

Darren Powderly: It doesn’t happen very often, because one of the outputs of our screening process is an estimated fundraise projection. It’s not an aggressive number; it’s a number that we feel confident that we can hit based on what we know about our investor demand.

We’ve got 115,000 investors as part of our membership now, or community, and much fewer active investors are those that have written a check. But about 9,000 have actually written a check, and many of them are repeat investors.

Joe Fairless: You said 90,000?

Darren Powderly: No, 9,000 individuals have written a check. But about 60% are repeat investors, and repeat investors often have about 4-5 deals in their portfolio, about a $250,000 portfolio through Crowdstreet.

So we love that, because they’re actually fulfilling our vision for them, which is enabling them to have an online marketplace where they can actually build and diversify their real estate portfolio. These are the VIP investor members.

So we make that estimate on how much we can raise for a deal, and  we’re at like 95% batting average on that, which is really great; oftentimes we’re exceeding it within a short period of time, but we hate to fall short. Sponsors don’t like that scrambling at the end. Sometimes they’ve got earnest money at risk, and  we take that responsibility quite seriously, to estimate a number that we can hit.

Joe Fairless: And what are the reasons why those 5% don’t get the funds?

Darren Powderly: Sometimes things change from the point that we make the estimate and post the deal on the marketplace. We had that in Q4 2018 – we got a little above our skiis, and [unintelligible [00:14:42].04] the stock market dropped 20%, and we felt we were going in a recession, and our investor community reacted like normal individuals do; psychologically, it was a difficult time, and they kind of said “Hey, I’m gonna take a pause until I figure out what’s going on here”, and actually, things came roaring back in Q1 of 2019 and took off again. So sometimes it’s an external event.

Other times, honestly, we just misread it. We’re like “Wow, we really thought that this deal–” Let’s say it’s a core deal, and it’s fully stabilized and cash-flowing, income-oriented property; there’s a big place for that in every investor’s portfolio, especially people who might be a little older, approaching retirement, and so forth… But honestly, we raise a little less money on those income-oriented properties than we do on more opportunistic or growth-oriented investments, and that could be it. It could be we just slightly over-estimated the demand, and we try to get better at that. That’s the area where we need to constantly do better; constantly comb the data, and not be erroneous in our projections.

Joe Fairless: You’ve got (I think I heard you say) 150,000 investors…?

Darren Powderly: It’s 115,000 investing members.

Joe Fairless: 115,000 in the community, and then 9,000 have written a check, right?

Darren Powderly: That’s correct.

Joe Fairless: Got it. Are they all accredited?

Darren Powderly: Well, the investors who write the checks are. Everyone’s welcome to join, and they’re welcome to learn; we’ve got a ton of educational materials on Crowdstreet, and someday we may have offerings for them. But today, Crowdstreet is designed for the accredited investor, in line with some of the federal regulations related to compliance.

Joe Fairless: So how does your team attract the accredited investors to join your platform? What are two or three main ways?

Darren Powderly: Oh, sure. Well, first of all, we have been around since 2014, and we have executed on our business model, and [unintelligible [00:16:38].20] one of the leading online real estate investing marketplaces, especially for the institutional-quality commercial real estate. There’s other platforms that do single-family, and fix and flip, and things like that. We don’t do any of that. We stick to what we’re good at. What we’re good at is underwriting, working with really experienced commercial real estate developers and owner-operators.

So it’s the reputation and referrals from other sponsors now, that has really been [unintelligible [00:17:04].00] People call us nearly every day, companies call us nearly every day, “Hey, I spoke with a peer in the multifamily industry, and they said you did a great job with them.” Of course, that is the goal.

Investors are referring us, because they might  have invested locally, through a country club type deal, with a sponsor, and then they meet us and they say “Hey, there’s this local group in Kansas City you really should meet”, as an example. And they make the introduction. That makes us feel great.

And then beyond that, we are attracting investors to Crowdstreet through a variety of digital marketing and demand generation. We’re really good at that, thankfully; we have a great marketing team. You’ll find us all over the industry publications, and just different financial and personal finance websites. We do have some strategic partnerships with other finance-related firms, and firms with their own communities, that like to introduce them to Crowdstreet because they know the quality of our deal flow is so high.

So it’s a variety of things, but definitely digital marketing and demand generation specific to that accredited investor audience is probably more fruitful than anything else that we do.

Joe Fairless: You mentioned when you were talking  about how you qualify the sponsor – you first qualify the sponsor, and then you look at the deal. And regardless of if someone joins Crowdstreet or not, can you talk about the importance of first qualifying the sponsor and then looking at the deal? Because some percentage of investors who are looking at passively-investing in a deal will go straight to returns, or straight to the type of property, or go straight to the underwriting, and not do an extensive background check and review of the sponsor itself.

Darren Powderly: Yes, it is incredibly important, and for wherever you invest in the private equity real estate space, or just private real estate… I can’t emphasize that enough, how important it is to know who you’re investing with, because ultimately, that is going to far exceed any other factor of the real estate deal itself. If you invest with a jerk or an unscrupulous person, chances are that’s gonna doom that deal, even if everything else goes right.

But if you have a great fiduciary of capital, an experienced developer or owner or an investor who has done this exact product type, in this exact location, many times before, and they can demonstrate a track record for it – and we actually require that… Somebody can be awesome at multifamily in Texas, and then they come to us and they’re like “We wanna do an industrial deal in Seattle”, and it’s like “No. Go do three of those before we’ll do one with you. Prove that you’re awesome at a new product type in  this city.” So that’s the way we look at that.

Now we just encourage all investors to know who you’re getting involved with first and foremost, by far; even if [unintelligible [00:20:10].22] digital format. But if you’re going to also rely on the collection of data from a  third-party, do the background checks, do the Google checks. It’s not hard to find information on  people these days.

In fact, I’d say that’s one other thing, a misconception about an online platform like Crowdstreet – “Oh, online investing… How are you supposed to trust it?” Today it’s more transparent what you can find out about somebody, and the amount of diligence, background check today online than you can probably even if they live in the next town over, because you didn’t have all the access to the information at your fingertips like we do.

So I think I made that point super-clear, that’s how we look at it. Of course, it doesn’t meant the property evaluation or the deal structuring and all the legal documents that back up the legal structuring are not important; it’s all important. But the fiduciary is the most important.

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

Darren Powderly: Real estate is so much driven — so beyond the fiduciary and the sponsor, real estate is such a demand-driven business. It’s wonderfully exciting, it’s constantly stimulating because the evaluation is influenced by so many factors. Right now – more important than ever – there’s so many things changing across our nation, whether it be political, economic, social… There’s just so much change going on. It’s delightful if you’re not actually owning some of the things that are being hurt by the shifts of change in America today… It’s delightful if you have the ability to study these changes and then just try to go where you think the demand drivers are favoring.

So think about why a particular property or investment – what will it be like a year from now or five years from now, given demand drivers like migration… Migration is something that’s fascinating right now, because of people moving  either from city to city, or from city to suburbs, and so forth… So tons of opportunities right now and over the next five years. So study the demand drivers and make sure you understand what those are prior to making a big investment.

And also, the age-old diversification. The beauty of online real estate investing is that you can make  smaller investments into a lot of different deals. Publicly-traded REITs were invented in the 1960s to do something similar, to give individual investors the ability to diversify across a lot of different properties… And they served their purpose. I own REITs. I’m buying REITs right now; they’re undervalued in my opinion… So that’s a way for me to diversify on private real estate. I’m investing in public real estate as well.

But it’s also a way for me to diversify, and diversifying in private real estate is often difficult, because you’re limited to who you can co-invest with, often the ticket sizes are $250,000 to participate/get into a deal… Crowdstreet lowers the bar on that quite a bit, which enables more diversification.

So those are a couple of things that come to mind. Nobody [unintelligible [00:23:13].01] Nobody. So you’re gonna have deals that under-perform in every portfolio.

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

Darren Powderly: Let’s roll!

Joe Fairless: First, a quick roll from our best ever partners.

Break: [00:23:30].09] to [00:24:10].20]

Joe Fairless: Okay, best ever way you like to give back to the community?

Darren Powderly: I’ve become really passionate about DEI initiatives and ESG initiatives. I’ve had sort of an enlightenment moment just recently through what’s gone on across America, so we’re trying to figure out a way to help minority-owned real estate companies grow their platforms; women-owned businesses, people of color-owned businesses. We’re spending a lot of time thinking about that.

I’m also an environmentalist. I became an environmentalist when the Exxon Valdez crashed in Alaska when I was a child, and I still have horrific memories of that. That was the moment I became an environmentalist, and I’m a huge believer that America can have a thriving economy, the best economy in the world, and also lead with environmental change and efforts to reduce CO2 in the atmosphere, and address climate change as we know it. It’s incredibly important and I’m passionate of these things.

Joe Fairless: How can the Best Ever listeners learn more about Crowdstreet?

Darren Powderly: Well, you can go to Crowdstreet.com and spend some time just searching the site, looking around… It’s free to register, so everybody is welcome at Crowdstreet to register and study the materials; not only the resource page, but actually each deal is fascinating to look at, and watch the sponsors present themselves. You learn from the best.

Download the spreadsheets and study those materials. The underwriting that goes into each one of these deals. It’s really a fun way to learn about real estate investing. And if you feel so compelled and if you qualify, go ahead and think about making an investment, or call a Crowdstreet representative to talk more about what it’s like to make your first investment.

Joe Fairless: Darren, thanks for being on the show, thanks for talking about your background, lessons learned building Crowdstreet to where it’s at, and the types of deals that you all do, as well as the vetting process that you all do, and the mindset and approach that anyone should have, regardless of if they participate in Crowdstreet or not, whenever they’re looking at an opportunity to invest.

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

Darren Powderly: Thank you so much, Joe. Have a great day.

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JF2296: Bad Start but Strong Finish With John Dessauer

John has a rich history as an entrepreneur and has owned many companies in various industries. John has transacted hundreds of deals in real estate in different sectors such as apartments, office buildings, retail, single-family homes, and condominiums all within his personal portfolio.

John Dessauer Real Estate Background:

  • Full-time entrepreneur 
  • Has over 22 years of real estate investing experience 
  • Portfolio consists of over 2 million sq ft. rentals/retail 
  • Based in Chicago, IL
  • Say hi to him at: www.johndessauer.com 
  • Best Ever Book: Spin selling

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The best benefit for having multiple companies is having multiple sources of income for when unfortunate events happen” – John Dessauer


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 John Dessauer. John, how are you doing today?

John Dessauer: I’m good, Theo. How are you?

Theo Hicks: I am well, thanks for asking. And thank you for joining us, looking forward to our conversation. John’s background – he’s a full-time entrepreneur and has over 22 years of real estate investing experience. His current portfolio is over two million square feet in rentals and retail. He is based in Chicago and you can say hi to him at his website, which is johndessauer.com. So John, do you mind telling us some more about your background and what you’re focused on today?

John Dessauer: Yeah. So thanks for the interview and the introduction. I guess my background started growing up here in Chicago, just outside now, but up until the point I left for college I had always grew up in apartment buildings, so I had a unique perspective of that business from the inside looking out, rather than — a lot of people that get involved in real estate investing, they learn it from the outside looking in.

So after I graduated from college and I got out into the workforce and realized that the corporate world wasn’t for me, I kind of went back to my roots and said “I liked it when the rent guy would come once a month and pick up that rent check.” That was something that I’ll never forget, around 10 years old I’d have that happen all the time. I was like “Ma, why is this guy here again?” “He’s here to collect the rent.” But yet I’d see my mom go to her nine to five, or nine to nine really, to make that rent check happen. So I never forgot that. 27 years ago, when I started this, I said “I want to be the rent guy. I love my mom, but I want to be the rent guy” at that point. So I started out about 20-some years ago, at 22, and I haven’t looked back since.

Theo Hicks: Perfect. So maybe walk us through how you started. You mentioned that you wanted to be a real estate investor since you were a kid. You said you went to school, and then came back to this area. Maybe walk us through how did you get into your first deal.

John Dessauer: So what was interesting about the whole thing was when I first thought about being a real estate investor, you don’t think about all the dynamics that are involved in actually doing it, from financing, to property management, and all the things that you’ve got to do. What you think about is the luxuries and the ton of money that you’re going to make, right? That may not happen, by the way, but that’s what you think about.

So my first deal was a duplex; it was a street that I was interested in buying real estate on, and lo and behold I was driving by one day and I see the realtor pounding the “for sale” sign in the front yard, and I thought “Hey, that’s something I would be interested in buying.” So I pulled over, talked to the real estate agent… And what was interesting about that first deal, which I made a terrible mistake on, by the way, is I was way over-leveraged on the deal, because I bought the thing with 80% bank financing, and at that time I was able to use 20% seller financing. So it presented a situation where I came to closing with zero money out of my pocket. So I thought “Man, I’m the next real estate mogul. I’m unstoppable now, if this is how every deal goes.” But what I realized pretty quickly within 30 to 45 days is I was over-leveraged. I not only had a mortgage, but I had the operational expenses of the duplex, and I had an empty unit on one of the units, and the other unit – the gentleman was paying about $300 in a $700 market. So I had all this money going out, but not a lot of money coming in.

So that was my first deal. I learned pretty quickly that really kind to understand the financial dynamics of the deal and how important that is, and even more importantly, just because you can buy a deal with no money down, or even buying it creatively – because there’s a lot of that around today – doesn’t mean you should. So those are my lessons there.

Theo Hicks: That was a great lesson. So let’s flash forward to now… So what’s your business model today?

John Dessauer: Yeah, good question. What’s interesting, I studied a lot of guys from the industrial revolution. I don’t know what it was, but Chicago was a town that had a lot of these guys in it; Pullman, and Marshall Field, and some of these other guys… But the guy that I drew a lot of interest in was not from Chicago, he’s from Pittsburgh, Andrew Carnegie. And what I realized about him was his original business was not steel, his original business was a telegraph business. And he started on the telegraph business and got to steel because they would put telegraph lines along railroads. So he got interested and started buying railroads so he could place his telegraph lines a little bit better and save money by doing that. And the biggest expense of a railroad is steel… And the rest was history.

So by no means am I saying I’m in Andrew Carnegie but it’s kind of the same thing in that all of my business today has been related to that initial business that I got into, which was real estate investing. So today we have a real estate investing company, we’ve got a full real estate brokerage, so we have real estate agents, both residential and commercial, we do asset management with that, we are managing assets for ourselves and other people as well, apartment buildings, retail, office buildings, things like that… And then we have a marketing company, too. And one of the things that I have learned in my career is marketing in sales are so important in the real estate investing world. That’s one of the things that I think people don’t really think about… But that’s kind of where our business model is; it falls into our investment company, our brokerage, our asset management company, or our marketing company, and all of those are kind of related, they have a symbiotic relationship with each other… And that’s kind of our model, we stay with that core real estate theme.

Theo Hicks: Could you walk us through the progression of when those were brought on and then kind of how it happened? Obviously, it started with investing in real estate. So you said you’ve got an investing company, the brokerage, the asset management company… The asset management — is that the property management company?

John Dessauer: Yeah. Yup. Property management.

Theo Hicks: Okay. So brokerage, asset management, marketing company. In what order did you bring those on, and when, and why?

John Dessauer: Obviously, the investment company started first, and that was basically at first buying and selling all types of real estate, everything from single-family houses up to 350-unit apartment complex kind of thing. So the very next thing that came was the brokerage. And the reason that that came is I would sit at closings as the owner-operator, I was buying a hundred-unit apartment complex, and I’d sit at the closing and I would see the work that the agent that represented me and the agent that represented the seller in the deal, and no offense what they were doing, but I saw the checks they were getting and I thought “Wow, that’s pretty amazing for them to be partaking in this deal where I’m bringing the capital, the equity, and the debt to the deal, and they’re taking a chunk.” Now, granted, they found me as the seller – or sometimes the buyer in that case – but I did like that process, so I thought it would be interesting to get a licensed and create a  firm.

Now we’re in four states – Illinois,  Indiana, North Carolina, and Florida – and we buy and sell a lot of real estate through that. As an investor myself it helps, because I do get an inside look on real estate as it comes through, but also I am able to participate my real estate commission in my deals. So I start saving 3% to 6% off the top before I even get rolling with that.

The next was the asset management firm. We were probably at one time one of the fastest-growing firms in the south part of Chicago, and the reason for that was we were acquiring a lot of assets… And as you know, Theo, that management is probably one of the most important aspects of that; for you to have a successful real estate investment it’s got to be successfully managed. So we started doing that for ourselves and other people as well, so that became an income string to us.

And then finally the marketing side, and I think I was mentioning this before… One of the biggest things that I think people underestimate when they want to become a real estate investor is they underestimate the skillset of sales and they underestimate the skillset of marketing. So we created the marketing to get leads for our deals, and we also do marketing in other areas, but that was the real premise initially for that.

Theo Hicks: Okay, so you kind of mentioned where you got this idea (from Andrew Carnegie) of starting your original business, and then from there seeing what your expenses are and rather than paying those, basically starting that company or buying a company that does that. Is it possible to do too much? Because there are 20 different ways you’re paying money; how do you know when you should stop? Should you bring everything in-house? Like contractors, mortgages, financing… How did you know when to stop, or how did you know which one is to bring in? Not necessarily in what order, but… I know you kind of  explained why you picked these particular ones, but just a larger level… If I’m this investor right now, should I base it off of what I like, what I’m good at, maybe when I’m spending the most money on, based off my market? What type of things should I be thinking about?

John Dessauer: I think initially — and by the way, I don’t want to sound cliché, that is a really good question for an entrepreneur, because one of the dangers is of bringing on too much, and taking in too much. But the idea of where I was going with that was I would look at where we were spending money, and I would look at where I didn’t have a lot of control.

So let’s take property management, for instance – we were spending money on a property management firm or third party firm, but yet I didn’t have necessarily direct control in that firm. And that was a real sensitive thing for a real state that we were buying, because a lot of times we were buying assets that were assets that needed a value-add to it. So we would come in, do a little renovation, increase the rents, lower the expenses, and that really takes an experienced manager. Initially, I didn’t have the time to educate some of those property managers, so I thought we would shorten that curve and create that ourselves. Now, that is a little more difficult, and we do need to bring on some people for that, but you’re either going to outsource the property management or asset management to a third-party firm, or you’re going to outsource it to a firm that you own, that you have employees too. And for us, that was a decision that we made, and 22 years later it was probably the best one.

Theo Hicks: So you’re getting to my next question, which is – so I’ve got my real estate investment company I’m in charge of, and I guess technically the COO, too. So you said the first company that you started was the brokerage. So here walk me through specifically for that, or just kind of in general… Am I then the CEO of that company, too? Or am I hiring someone to run that company, and then trusting the company to this individual? And if so, how does that work? How do I pick someone? Does that make sense?

John Dessauer: Yeah. So for us, it was interesting in that my wife – I know she’s better looking than me, but she’s probably smarter than me as well. So as a married couple, I’ve got a little bit of an advantage over somebody that’s starting off on their own. So we have two people, type-A personalities, instead of just one person. So when you have a couple of different entities, number one, there’s a synergy that goes on between all of them. And there are some tax advantages in different things that you can do as well through having multiple companies like that.

The best benefit of having multiple companies is you have the ability to have multiple streams of income. And a good example of why that’s important is March of 2020. When COVID hit, a lot of things shut down, and a lot of income stream shut down for a lot of different people. And while it was unfortunate, I think one of the things that I’ve realized over my twenty-some years of doing this is that always happens. It’s COVID today, or it’s 9/11 yesterday, or it’s the great recession, or whatever it is, it always happens, and it comes in cycles. So one of the things that we’ve realized with the way that we are set up is when an income stream shuts down, another one is there, or turns on. So for us, that’s been a real blessing.

Let me get back to your question on structure; the structure can happen really any way that you need to see fit with that. What I would suggest is don’t overburden yourself and take on too much where you’re ineffective at all things. Only taken on is much you as you can really kind of handle, and you’re going to know that for yourself, your listeners are going to know that for themselves. I knew for me that I was able to take on a role on the brokerage and on the asset management side, because we were already doing it. I was already taking that responsibility. So I had a little experience there. If I didn’t have any experience with that, I would probably looked or lean on some other people to bring in to kind of run that show, if you’re that big. A lot of times you are starting on small and you can’t do that.

And that’s probably the third thing I would mention, is instead of bringing on all these people and creating all these entities and all this workload, make sure there’s a reason for it, make sure there’s a journey for it. Ask yourself, number, one, why you’re doing it, how is this going to make you money or save you money, save you time rather than spending time… That’s number one.

And then number two, make sure that you are growing financially in a way that you can kind of bring on that. There’s no sense in creating all of these things if financially it’s not in the cards yet. So that might be out of your 18-month plan. That might be your three to five-year plan, but not your 18-month plan. Your 18-month plan is to get to a certain revenue or income scenario, and then make the decision once you’re there what we do next, whether it’s a brokerage, and asset management firm, marketing whatever that is.

Theo Hicks: Perfect, John. Alright, what is your best real estate investing advice ever?

John Dessauer: My best real estate investing advice is there’s a lot of places that you can go and spend a lot of money to get educated. For me, the best education was some of the mistakes that I made early on. And I’m not saying not to get an education because I do think there’s a definite spot for that, and bringing on a mentor or a coach and things like that is a definite help. I wouldn’t be where I am today without that. But what I would say too is don’t be afraid to take a little action. If you’ve got a duplex, call that agent. If you’ve got a six-unit building or a retail center or office building, call that agent, start talking to them, start getting information.

So this is the advice part, surround yourself with people that are doing it now in any way that you can. Either go to their meetings, take them to lunch, do a deal with them, whatever it takes, but surround yourself with the people doing the things that you want to do, and all of that would rub off on you.

Theo Hicks: Perfect. Alright, John, are you ready for the Best Ever lightning round?

John Dessauer: I’m ready.

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

Break: [00:18:34][00:19:24]

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

John Dessauer: I read a lot. The Best Ever book that I have read recently is called Spin Selling by Neil Rackham. And it’s interesting, and I was mentioning this earlier – as a real estate investor I think we don’t focus on how important sales is to the real estate investor, where you’re selling that agent, you’re selling that tenant on paying you rent on time, or you’re selling a contractor to get the job done in the right amount of time, at the right cost. You’re always selling. So for me, that was a really impactful book on how to organize your sales process. So Spin Selling by Neil Rackham.

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

John Dessauer: That’s an interesting question. I would probably work — I would go right back and work on an advantage we have today that I didn’t have when I started, and that’s technology. And what I mean by that is, for instance, the way that we find our leads today is purely tech-based, and we do that by… Instead of searching for a property, instead of searching for a person, like a real estate agent, we search for problems. So problems in real estate – when there’s a piece of real estate for sale, there’s always a problem to solve. If I can get there before that owner says “I need to reach out to a professional”, I’ve got a leg up, whether it’s pricing, or deal structure, things like that. So that’s what I would do, I’d go right to my tech source for that, and we would start down the marketing way like that. I know without a doubt if it failed today I would be back up in no time.

Theo Hicks: What is the Best Ever deal that you’ve done?

John Dessauer: I would say — I’ve done a lot of good deals, I’ve done some deals that weren’t so good; I’m sure you may be asking that, too. But one of the best deals that I did was I bought a property in Lafayette, Indiana, and I bought it for 3.15 million bucks. So within 18 months, I turned that into 5.4 million. The way that I did that was by a technique that I worked a lot on, I call it “divide and conquer”. I buy at wholesale and then I piecemeal it off and sell it retail, and I can drastically change the value of the real estate in a very quick way by doing that. So I would say that was one of the better ones.

Theo Hicks: Well, you were leading me, you know exactly where I’m going next – what’s the deal that you’ve lost  money on? Give me the most money, or just the biggest headache type deal… And then what lesson did you learn?

John Dessauer: So everybody likes to talk about their wins right? They don’t want to talk about their losses. But I think in your losses is where you learn more.

I bought a 48 unit apartment building, it was made up of two twenty-four unit buildings. And the way I bought it was I had a contact that was a real estate broker at a national firm, a big firm, and he said “Hey, I’ve kind of got this pocket listing that if you want to buy, it’s yours. I think there’s some upside here. It’s been managed improperly.” So I looked at it, I had the equity to buy the two buildings at least, so I went for it. And the lesson that I learned was bad management sometimes leaves a scar. And what I mean by that is when you’ve got a single-family house that has bad management, you can change that pretty quickly. When you’ve got a 48-unit building – even though there are two buildings… When you’ve got a 48-unit that you’re buying, of bad management, it really does take a longer time to get that straightened out. And my fault was my ego got in the way and I said “Hey, I’m John Dessauer. I’m going to get back in there and I’m going to change this around in 6 months. I’m going to have a performing asset.” Well, that didn’t happen. I ended up selling the building after a year and a half and losing money on that. But that was a lesson learned, and I haven’t done that since.

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

John Dessauer: We do a lot of things. We’ve been involved a lot with the country of Haiti. Haiti is a couple of hours off of the US coastline of Florida, and it’s really a forgotten about country; they’re in a really really challenged economic scenario for most of the country. The government is a little bit in chaos. They don’t govern the best there, let’s just say that, for the people.

So that’s always been a focus of mine… I was on a board of directors for a foundation that we’ve built 23, actually 24 sustainable villages down there. So that’s always been something that’s been on our radar and something that we’ve participated in over the last, say, 10 to 15 years.

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

John Dessauer: You can reach me at johndessauer.com, that’s probably the best way. I’ve written some books on real estate investing; one in particular I think your listeners and watchers would be interested in is the one called Apartment Confidential, where I start to talk about some of the strategies that I’ve used, like the one property with my biggest upside [unintelligible [00:24:22].22] so I used that strategy in that book. But that would be the best place to find me, johndessauer.com.

Theo Hicks: Awesome, John. Thanks for joining us and giving us your Best Ever advice. Some of my big takeaways – your first deal, you talked about that over leveraging and these creative financing strategies… Even if you can do that legally or the seller is willing to do it, it doesn’t necessarily mean that you should always do it. You gave the example of your first deal being zero money down, but that also increases your monthly outgoing payments, and the property couldn’t support those payments… But obviously, lesson learned.

You talked about your business model, which I really liked. I had an interview with someone a few weeks ago who does something kind of similar… So you have your initial business, and then you look at things that you’re spending money on and then things that you don’t have a lot of control in, and then rather than continuing to use that third-party, you bring it in-house, and you either create your own company, which is what you did, or [unintelligible [25:22] just bought an existing company that did that, so bought asset management companies, things like that, and just took them over. And so the benefits are synergy between all those businesses, there’s tax advantages, and then obviously, you are able to reduce your risks if something bad were to happen, because you have these multiple income streams that are hitting the deal from all different angles. And you kind of walk through during your journey when you brought each of those on.

So it started off with obviously an investment company, next was the brokerage because you saw the money that they are making for not really doing that much, or at least that much as you were doing… And then next was the property management company, because that’s was more of a control issue. And you did the marketing, because marketing is something that people underestimate, the skillset of sales and marketing; that’s how you were able to get your leads.

And you talked about the mindset of when to bring them on, making sure not bringing on too much, not overburdening yourself, making sure you can handle it from a time perspective; if that’s something you’re good at and experienced at you can bring it on, if not consider, finding someone else and bringing them on… And then making sure you know exactly why you’re bringing this type of thing in-house, and making sure you’re at the point financially that you can bring it in.

And then lastly, your Best Ever advice was that obviously education is important, book education, but you’re going to learn a lot more by the mistakes that you make. So just kind of surround yourself with people that are at where you want to be, so that if you do make those mistakes, you’ve got someone to help you quickly resolve those… But even also leverage that experience to maybe increase your confidence to get out there and take some action. John, I really appreciate it, thanks again for joining us.

John Dessauer: You got it.

Theo Hicks: 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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JF2288: Commercial Real Estate With Tyler Cauble

Tyler is the Founding Principal and President of The Cauble Group, an East Nashville-based commercial real estate brokerage serving the Greater Nashville Area. He’s a native Nashvillian that has not only been a witness to the city’s tremendous growth but is also involved in it through his developments, renovation projects, and volunteer work

Tyler Cauble Real Estate Background:

  • Full-time commercial broker
  • 3 years of investing in commercial real estate
  • Portfolio consisting of 4 office buildings totaling 50,000 sq ft and in 2017-2018 he developed 42 for-sale townhomes
  • Based in Nashville, TN
  • Say hi to him at: https://www.tylercauble.com/ 
  • Best Ever Book: Walkable City

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Just get out there and do it” – Tyler Cauble


TRANSCRIPTION

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

Tyler Cauble: Theo, I’m doing well man. Excited to be on the show with you.

Theo Hicks: Awesome. Well, I’m excited as well, and thank you for joining me. Before we begin let’s go over Tyler’s background. So he is a full-time commercial broker with three years of investing experience. His portfolio consists of four office buildings totaling 50,000 square feet, he has also developed 42 townhomes. He is based in Nashville, Tennessee and his website is tylercauble.com. So Tyler, do you mind telling us some more about your background and what you’re focused on today?

Tyler Cauble: Absolutely. I appreciate it, man. So I’m a Nashville native, which nowadays is very rare. Growing up in Nashville, it was a very quiet town; it was night and day compared to how it is now. But I went to college at the University of Tennessee and dropped out after about a year. I didn’t really see the college path for me. I had been in sales for a little bit before that and did really well with it. So I was looking at that, going “Okay, well I can just go ahead and jump into sales or I could spend the next three years in college.” So it made the decision easy for me.

I moved back to Nashville, started working as a project manager for my grandfather’s construction company. I was there for about three months before a developer that I had actually sold to in my previous sales job heard that I was back in town and he recruited me. He basically called me up one day and said “Hey, have you ever thought about getting into commercial real estate? We need an in-house leasing agent to come handle our shopping centers and our office buildings, because we feel like we’re not getting the attention that we need.” And this is back in 2013, the market was very very different back then, it was very slow-moving. The residential side had started picking back up but the commercial side hadn’t. So they wanted someone to come in and manage their properties.

So they paid for me to get my real estate license and I was off to the races. They gave me a 150,000 square foot shopping center to lease, as well as a 57,000 square foot office building in downtown Nashville, and pretty much told me to go find tenants, and we’ll show you how it’s done. So that’s what I did.

I spent a couple of years doing that, stabilized those properties, realized I had worked myself out of a job, and that’s when I started taking on third-party works. Just started doing tenant rep, which means I was representing businesses looking for space. I started doing development as well. The company that I was with, by the time I left, had about a thousand townhomes either under construction in permitting or in planning. So I got to see that first hand and decided to put together my first townhome development deal when I was 25.

So we did 42 units in a little town called Bellevue, it’s about 10 minutes southwest of Nashville. And after I did that, I realized I can kind of do this thing on my own. So I left, started the Cauble Group, wrote a book on how to lease commercial real estate, and haven’t looked back since.

Theo Hicks: Thank you for sharing that, very interesting journey. And I actually was talking to someone earlier about this, I’ll ask you the same question. I kind of already know what the answer is, and that is, how beneficial was your full-time corporate W2, so to speak, job in real estate? How did that benefit your own real estate investing?

Tyler Cauble: Oh, man. It’s the best thing that I could have ever done. When I first got started, I didn’t realize how good I had it, it took me probably a year or two before I realized “Oh, okay…” People don’t really get the opportunity for a developer to pay for their real estate license, to give them that much space, and to learn how to lease from a development perspective. Typically, you have to get work as an asset manager, you got to start off as a property manager, or an analyst, and kind of work your way into that for a few years. And man, it’s impacted everything. It was a nice little boutique farm here in Nashville and they did office, they did retail; we had an industrial portfolio, we were building thousand of townhomes, we had a portfolio of single-family custom homes that we were building as well. So I got to see everything from a zero-risk perspective, which is really nice. So now that I’m on my own I kind of have an idea what I’m doing. And yeah, it gave me a headstart in commercial real estate and development for sure.

Theo Hicks: And did you know at that time that you would ultimately do your own investments, or did that just happen organically, and you like “Well, I got all this information, might as well apply it with my own money instead of applying it somewhere else.”

Tyler Cauble: Right.

Theo Hicks: Is that kind of how it worked?

Tyler Cauble: Yeah.

Theo Hicks: Or did you know going into it, “Hey, my plan is to work for this company, get all this knowledge, and then do it all myself”?

Tyler Cauble: I’ve always been entrepreneurial. I was always trying to find different businesses to start up. I started two when I was in college for that one year that I was there. So when I went into this it was very quickly like, “Okay, how can I start doing this?” And I started trying to put investments together for the team, I started trying to put developments together for the company. I was successful in doing that and partnering with them on those projects, but it very quickly was brought to my attention that “Hey, this is not your show, this is my show. And you’re just here to work for me.” So I was like “I’m kind of doing all the work, I understand how all of this works, it’s time for me to go do it on my own.” So from day one, I don’t know that I was necessarily thinking “Hey, I’m going to learn from here and then go start my own thing”, but over the four and a half years that I was there, it very apparent became that way. And I’m really glad that it did.

Theo Hicks: So for someone who wants to do what you’re doing now, would you recommend that as a starting point, as you mentioned, with zero risk, or do you recommend them doing it on their own from the get-go?

Tyler Cauble: I think it was a great way to get started. When I did it I was 21. There is no way I could have known half of what I know now if I just got out and started doing things on my own, because I learned from so many different people at every step of the way. And I learned it literally from the ground up.

I started off as a commercial real estate leasing broker, but then I was also assisting with the property management, and then because of that I was getting involved in all of the contracts, and so I understood how to read contracts, I understood how to lease, I understood how to handle tenant relations. And we were also developing, so I learned a little bit about construction and how to go about the developing process. So for me, to be able to learn all of that while also getting paid commissions on the real estate side, and getting to have a paycheck without taking all that risk was great. Because if you dive right into it and you just start investing, there’s a lot of nuances of every deal that you probably don’t know and you may not understand because of that. So I think that it definitely gives me an advantage, and I highly recommend starting out that way, especially if you’re younger. Because of the connections that you’ll get starting off at a development firm or a larger commercial brokerage, there are connections and relationships that you may not have otherwise been able to make.

Theo Hicks: That was another question I was going to ask you, too… Aside from the educational piece, how many of the relationships that you developed at this company are now used to benefit your own company? Are you business partners with them? Have they invested in new deals? Are they your customers, or do you now work with anyone from your past life?

Tyler Cauble: Some of the friendships that I made back then, like the commercial brokers and some of the contractors and stuff like that, we’re still friends today. But I kind of went off on a different tangent than what that company did. What they were doing, which I think is great if that’s what you want to do – it was two partners and they self-funded the equity in every deal. So that was the only perspective I had of development, because that was what I was raised in. So these two partners, they had made a lot of money, they took on the debt themselves, they never raised any equity and all they were comfortable with was doing these smaller — I say smaller, but we were building a hundred, two hundred townhomes at a time. But they wanted to focus on townhome projects. Well if you’re going to go do a 340 unit multi-family complex, you’re going to run out of capital doing that very very fast. So I went to this real estate mastermind and learned about syndication. I had never heard about that before and I said “Wow, I didn’t even think about going out raising capital, doing even bigger deals.” So that was kind of the path I ended up taking. So we’ve syndicated some deals, so I learned how to raise equity that way. So yeah, I’ve carried those relationships to a certain extent, but I’ve taken a very different path from kind of what I was raised in.

Theo Hicks: So those office buildings that you own, those were syndicated deals?

Tyler Cauble: Only one of them was, it was a smaller deal. I’ve been fortunate enough, now I’ve been in the business for seven years. We’ve got some high net worth clients that like to provide the equity for our projects. So I typically call two to five guys, they’ll throw in the capital and I’m done. I had never done a syndication before, so I wanted to experience it. So I found a little million dollar office building, and I raised that equity through a syndication just to see what it was like. So that one was syndicated; the other ones I just called a couple of guys and they threw in the equity.

Theo Hicks: So these guys that you called up, these high net worth people, how did you meet them?

Tyler Cauble: So being from Nashville, that gave me a leg up for sure, just on knowing who the players were in town. And then after five years of experience in the industry, people were starting to know me and I started making a name for myself. So every time I had these conversations with them, like “Hey, this is what I’m looking to do. Like I want to start buying this type of product, and here’s what I want to do with it. Would you be interested in throwing money into it?” And of course, the answer is yes. As long as your numbers look like what you’re saying they’re going to look like, we’ll keep throwing money into your deals. So far, that’s how it’s done.

Theo Hicks: So you said you knew who the players were in the town. The guys that had money. So did you call them? Did you email them? Did you show up at their office? How did that original relationship start? You said they knew about you, right? So did they reach out to you?

Tyler Cauble: That’s right. Some of them actually did reach out to me. So I have a fairly strong presence on Instagram, which is so funny to say now, but I actually do get professional football players and professional hockey players on my investment roster, because they follow me on Instagram. When I first got started, my boss at that time, this was four years ago, said “Man, nobody is ever going to buy commercial real estate from you on the internet. This is a relationship game. You’re wasting your time.” And now I’m raising six figures, to seven figures of equity because of Instagram.

So the other ones were people that I had crossed paths with over the years… And yeah, I just call them up and I say “Hey, look. Here’s what I want to do. I want to take you out for drinks, let me take you out for coffee, buy you dinner and just talk to you about what I’m doing and get your opinion on it.” Some of my investors had been guys that were way more established in the syndication game, or in the investment or development game, and I just said “Hey, look. I’ve put this investment together, and I want to get your opinion on it.” And I went and kind of sat down and just said, “What do you think of this offering memorandum? What do you think of my numbers? Do you think that I’m looking at this correctly? What have I forgotten?” And I’ve actually gotten them to invest in those deals that way; it wasn’t intentional, but they looked at it and they said “Well, yeah. I mean, I like this deal. I want to invest with you.” So there’s a number of different ways, but it’s fun, yeah.

Theo Hicks: Well, I definitely want to ask some questions about this Instagram account.

Tyler Cauble: Yeah.

Theo Hicks: Something that we stress here a lot on the podcast is the thought leadership platform, and that would be one example. So how were you able to grow your Instagram followers? What are your tactics for Instagram? What are you posting? How often are you posting? Any other tips you have on that?

Tyler Cauble: Oh, man. We could talk about this for hours, because I kind of nerd out myself and started studying it a few years ago. Basically, what I started doing was showing a behind the scenes of a commercial real estate guy in Nashville. Everybody wants to know what’s going on. That building got torn down in the corner, what’s going on over there? But also Nashville happens to be an “it” city, so people are interested in seeing what’s going on.

I think so many people get it wrong and they post a picture of a property, and it’s just the property and they go “Hey, this space is vacant. You guys can lease it from me.” Or “Hey, I represent [unintelligible [00:14:41].21] I want to work with you guys.” Or “Hey, buy this building from me.” Or “Hey, we’ve got an open house Sunday.” Nobody wants to follow your Instagram account if you’re just going to shove advertising down their throat. So I just said “You know what? I’m hardly ever even going to talk about projects that I have available.” And I do that in the stories, but never on the grid. On the grid it’s all about the relationship, it’s all about who I am. So a lot of my followers just follow me for that. And I’ll post stories about walking through projects and talking about investments and how many investors we have on a deal and how we pulled it off, how we raised the capital, what the tenants were that we decided to put in there. And people just naturally started going “Oh, okay. Well this guy, he’s clearly successful. He’s doing these projects and he’s showing us that he’s doing them. I want to be involved in that.” So people just started reaching out.

But I used to post every day, now I post once or twice a week. I’m very careful about what I post on my grid; you have to do super high-quality photos, you want it to look really good. And that’s what Instagram is at first, it’s all about the image. If you don’t have the best-looking image possible, there’s no point in posting; nobody’s really going to read your caption. So that was a lesson that I learned.

So high-quality images, and then tell a story in the caption. Tell somebody about how you walked through a deal, and you’re having a deal with the framing contractor because they used the wrong stud somewhere, or stuff like that people find interesting, oddly enough. So again, it’s kind of the behind the scenes, not necessarily an advertising platform for me.

Theo Hicks: Alright Tyler, what is your best real estate investing advice ever?

Tyler Cauble: Best investing advice ever is to just get out there and do it. I was afraid of buying buildings until I bought my first one, and then that year I bought four. So get out there and do it.

Theo Hicks: Nice and simple. Alright Tyler, are you ready for the Best Ever lightning round?

Tyler Cauble: Let’s do it.

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

Break: [00:16:27][00:17:08]

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

Tyler Cauble: Walkable City by Jeff Speck. It talks about tactical urbanism and why cities should be walkable and built around people. Hands down the best.

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

Tyler Cauble: I’d start it all over again. Start buying more real estate.

Theo Hicks: Can you tell us about the Best Ever deal you’ve done?

Tyler Cauble: Best Ever deal I’ve done was a 28,000 square foot office building in East Nashville, which is where I’m based. I negotiated with the owners, actually; they’re hotel guys, and they happened to buy this office building, they didn’t know what to do with it, so I negotiated with them to come in as the operating partner and to have equity granted to me at certain milestones throughout, so I didn’t actually have to buy it. Best deal I’ve ever done.

Theo Hicks: And on the flip side, do you mind telling us about a time you lost money on a deal? Maybe the most money on a deal? How much you lost and then what lessons you learned?

Tyler Cauble: We actually haven’t lost any money on any of our deals. I’ve got one deal that I think is an okay deal. And it was actually the first deal I ever did. And so far, we’ve about broken even on it. We’ve made a little bit of money. The problem that I had there was I was a little too optimistic about the neighborhood. The neighborhood ended up being a little more backwards than I was hoping it would be. It’s got a lot of younger people moving there, but it’s taking a lot longer than I thought.

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

Tyler Cauble: Best Ever way I like to give back… I love giving my time and giving advice. Whenever people reach out to me on Instagram, or they want to grab coffee with me and pick my brain about real estate, I love giving back to new real estate guys, because I didn’t really have somebody that was there to really show me the ropes the way that I wish I had. And so I love being that person for other newcomers.

Theo Hicks: I’m going to add in an additional question. What is the Best Ever Instagram post you’ve had? Whether it’s been the most engagements or resulted in the most money raised. Maybe walk us through what the picture was or the video was and what the caption was.

Tyler Cauble: Oh, man. That’s a great question. Best Ever it was like 850 or 900 likes. It was actually here pretty recent. I’m trying to think of which one it was… But I believe I was just talking about my vision for Nashville and the skyline, and how I see the city growing over the next 10, 20, 30 years, and how I love being a part of that. And I think that it was just so genuine and it was a great picture too, and everybody can relate to it.

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

Tyler Cauble: I think you know what I’m going to say, man… It’s Instagram. I will respond to every single DM that I get through Instagram. So you can follow my account, it’s @commercial_in_nashville.

Theo Hicks: So it’s @commercial_in_nashville on Instagram. We got it pulled up right now, and yes, these are very professional pictures. So make sure you check out his Instagram account to get tips on how to grow your business that way. As I mentioned we stressed that relationship platform here a lot.

Tyler, thank you for joining us and providing us with your advice and your Best Ever advice. Some of my biggest takeaways were the benefits of working in real estate as your full-time job before you decide to go and venture off on your own, especially if you catch the real estate bug at a younger age, when you don’t have the knowledge or the money to do a lot of investing yourself. So either in between deals or before you even start doing deals, working at a full-time real estate job can benefit you in regards to education from a zero-risk perspective. So you can learn about whatever you want to learn about with really none of your own skin in the game, and then you can make money at the same time at the job. And then you can also form some connections; for Tyler’s story, he did make some friends, but since the business he was working in was much different than what he was doing, didn’t necessarily work with a lot of those people. But still, depending on what type of job you do decide to pursue, you could benefit from the connections as well.

And then you mentioned that you were able to raise money on Instagram. So you became a well-known person in your local market in Nashville, and had people reaching out to invest in new deals, and you kind of gave us some examples and tips on how to grow your Instagram page, tell a story in the caption, and you realized that the photo is important. If you don’t have a nice photo, no one is going to read your caption anyway.

You used to post daily, now it’s a few times a week. And you said that the wrong thing to do is sort of advertising and what’s better is to go over who you are and what you’re doing, so walking through projects, and things like that. So if you want examples of what to do, make sure you check out his Instagram.

And then your Best Ever advice was to get out there and do it, that you were fearful all the way up until you did your first deal and then from there it was relatively smooth sailing, at least from a fear perspective. So, Tyler, I really enjoyed our conversation. Thank you for joining us today. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2287: Raising Capital Using Crowdfunding Platforms With Chris Rawley #SkillsetSunday

Chris has been a real estate investor for more than 20 years, investing in single-family, multifamily, commercial properties, and income-producing agriculture. He’s the CEO of Harvest Returns, a platform for passive investments in agriculture.

Chris Rawley Real Estate Background: 

  • Full-time real estate investor and CEO of Harvest Returns, a platform for passive investments in agriculture
  • Has been an investor for over 20 years
  • A previous guest on JF1665
  • Portfolio consists of single-family, multi-family, commercial properties, and income-producing agriculture
  • Based in DFW, TX
  • Say hi to him at: https://www.harvestreturns.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If your putting together a syndication before you go and pay an attorney a lot of money, just look into crowdfunding platforms” – Chris Rawley


TRANSCRIPTION

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

Chris Rawley: I’m doing great Theo, thanks for having me on.

Theo Hicks: Oh, absolutely, and thank you for joining us again. So Chris was previously interviewed on this show by Joe. And that episode is 1665. Make sure you check that out to learn about Chris’ background. As a refresher, he is a full-time real estate investor and CEO of Harvest Returns, a platform for passive investments in agriculture. He has been an investor for over 20 years and has a portfolio of single-family homes, multifamily, commercial properties, and income-producing agriculture. He is based in Fort Worth, Texas and his website is harvestreturns.com.

Today is Sunday, so we’re doing the special episode of a Skillset Sunday. And the skillset that we’re going to talk about today is raising capital using a crowdfunding platform. But before we talk about that, Chris, do you mind telling us what you’ve been up to since we interviewed you about a year and a half ago?

Chris Rawley: Yeah. I primarily focused on building our business and developing new agriculture deals and bringing on new investors. We recently passed over six million dollars that we’ve raised to help farmers across America, and actually across the world. So that’s kind of our passion, it’s helping farmers continue to farm, as well as providing investors a way to get into that asset class.

Theo Hicks: Perfect. Let’s talk about the skillset. So I’m going to let you say what you want about the best way to raise capital on a crowdfunding platform, and then I’ll ask some follow-up questions to dive more into details on that. So take it away, Chris.

Chris Rawley: Sure. So at some point during our investment careers, if we’re investing in real estate or whatever you’re investing in, you tend to run out of your own money. That’s when we start to look for other sources of capital, and one of the ways to get capital is you can reach out to your friends and family members… But those wells run dry after a while as well, so then you might want to look up a larger pool of investing.

Since around 2015, there have been a number of real estate and other equity crowdfunding platforms that have sprung out all over the country, and dealing with all sources of asset classes. So just looking at the real estate side, you have everything from people who want to raise money to do single-family fix and flips, you have more established investor syndications that are doing multifamily or large commercial office buildings, you have people that are doing notes, you have — in our case, we’re doing agriculture. So pretty much any kind of asset class, any type of real estate you can think about, there is a real estate crowdfunding platform out there. So if someone decides they want to raise money on one of these platforms, the first thing you need to do is a little bit of research and decide, “Okay, this is what I do. I’m a fix and flipper, or I’m a wholesaler etc. Is there a platform that can help me put together a project and raise funds for that project?” So do some research, you’ll see that there are literally dozens and dozens of platforms. Some of them have different criteria for investors, so the best thing to do is to reach out and say, “Hey, what’s your criteria for someone who wants to put together a syndicator project?”

They’re going to provide you with a lot of guidance along the way, but just in general there are some things you need to put yourself in the right mindset… And the first thing is, what are investors looking for? So chances are if you’re raising money with a crowdfunding platform, you’ve probably invested yourself, so you kind of understand that. But four things that people are always thinking about before they write someone they don’t know potentially a check is, “What is my risk here?” So identify your various types of risk. People don’t like to lose money, first and foremost. What are my returns? Is this sponsor capable of producing returns that he or she is promising? Is this project viable based on location and timing, the plan, what they intend to do? And also, what are potential tax benefits? How is it structured? How am I going to save money on capital gains or income? Am I going to receive various sorts of beneficial tax laws? It’s that sort of thing. And people are also looking for a connection.

In our case, we do farm projects, so people like being part of helping somebody raise something or grow something, produce, be part of the food system. And the same thing can be true with just about any other kind of real estate; it’s like, “Hey, I want to help this local community. I want to help this person bring jobs to this particular neighborhood.” That sort of thing.

The next thing you need to kind of dig into is looking at your numbers. The crowdfunding platforms are going to go into various types of due diligence; it might be as basic as, “Just put up your listing on a platform and pay us and we’ll promote it to our investors” to “We’re going to really dig into a sponsor’s background, we’re going to dig into the numbers, we’re going to dig into your track record, we’re going to dig into your structure.” It’s always easier to raise if you’ve already done it before. So before you come to a crowdfunding platform with, “Hey, I need to raise five million dollars,” it’s probably best that you put together a smaller sort of syndication on your own or with some other partners, or piggyback with someone who has done this before.

And you’ve got to have a team. Most people don’t want to invest with a single person, because if there’s risk there. So whether that team consists of your CPA and your attorney, that’s important; or you know, other sorts of business partners. But having a team is something that investors really look for.

So then it comes down to what does the crowdfunding platform wants you to do. Sometimes they want to put your deals in front of these particular investors that are qualified, and that comes into what sort of regulations you’re going to do. And this is kind of the beauty of crowdfunding platforms, and I strongly recommend this. If you decide, “Hey, I just want to put together a real estate syndication on my own,” the first thing you’re going to have to do is understand securities and security regulation. And there’s a number of different entities that are involved with that. The SEC, the IRS, FINRA, state security agencies… And there’s a whole new definition; you’re going to have to go out and hire a security attorney, and spend a lot of money upfront putting together your private placement documents, and things like that… Whereas if you go straight with a crowdfunding platform, they’re going to do that for you or they’re going to help you with that process. And again, it varies from platform to platform.

In our case, we actually have spent all that money upfront with our securities attorneys and we help our sponsors put together that thing, and it saves them a lot of money because we’re essentially amortizing the cost of putting together securities documents. But to me, the two biggest hurdles are getting over the regulatory learning curve, and the second is getting out the pool of investors. The beauty of crowdfunding platforms is that they have a built-in pool of investors, and they’re jumping right into your offering, and it’s getting up in front of their eyes… And hopefully, if you you’ve done all your homework and put together in an appealing plan, they’ll be able to raise the money rather quickly.

Theo Hicks: Thank you for that detailed breakdown. So I want to go back to start from the beginning, and then work my way through. So the first thing you said is to find the right platform. So I’m a fix and flipper, I am obviously not going to want to go on an agriculture crowdfunding platform and vice versa. You mentioned that there are a lot of fix and flipping crowdfunding platforms out there. I’m sure there might be a little bit less when it comes to agriculture, but I would imagine that for a lot of these more common strategies like multi-families, there’s going to be a lot of different platforms. So I Google it, I’ve got a list of 20 different platforms… How do I pick the right one?

Chris Rawley: Great question. You’re going to have to do some digging. There are some sites where you can do reviews of crowdfunding platforms, but they’re mainly designed for the investor side, not the sponsor side. So dig through a few that look like they might be right, and then just definitely reach out to them and their sales or marketing team will get out to you and give you basic criteria. And some list very specifically, like “Hey, we only want to work with these types of sponsors who are doing these types of projects, and maybe have this track record.” And it’s all going to really vary there. Some of them are very specific, some of them are a little bit more open to having conversations; a lot of that depends on how long they’ve been in business and how large they are. The more established platforms are going to tend to have more formal criteria for listing a project.

Theo Hicks: So basically reach out to them and figure out if you even qualify for that platform. But for the one that I do qualify for, is it just whichever one I’ve got a good feeling about? Is it based off of some metric they have, that they’ve got this many investors looking at it? Am I allowed to list it on multiple crowdfunding platforms? Am I only strictly stuck to the use of one?

Chris Rawley: Great question. Can I answer your last one first? Generally, most of them are going to only want a single raise, just for regulatory purposes, on their platform. They’ll sign some sort of exclusivity agreement, unless you’re doing a very large deal that has institutional money and other slices of capital. But for a first-time person reaching out to a crowdfunding platform, you can ask for a reference. So say, “Hey, can I talk to another sponsor that had a good experience?” And we definitely do that for our new sponsors that come to us, and any crowdfunding platform that wouldn’t give you a reference, I would be suspect of.

Theo Hicks: Okay. And the next step was to determine what the investors are looking for, and you broke it into four different steps – the risk, the returns, the tax benefit, and I think it’s the connections, or being helpful. Is the reason why they’re doing this is because ultimately this information has to be included on an offering posting? …like, you can have like four sections, an FAQs type of thing. Or is this more “You need to know because these people are going to ask you questions about this, and if you can’t answer it they’re not going to invest with you”?

Chris Rawley: It’s a little of both. When they set up [unintelligible [00:13:02].13] but when they set up your offering on their platform, there needs to be some way to distinguish it from all the other offerings. Most platforms are going to have multiple offerings running at the same time, so if you’re an apartment complex in Oklahoma City, that’s different than a commercial office building in South Florida, which is different than a fix and flip in the West Coast. So those basic facts need to be up there, and [unintelligible [00:13:27].20] platforms are going to tell you what they need. They may ask for a business plan, or a pitch deck… And those things are similar whether you’re raising money for a fix and flip, or whether you’re doing a start-up and you’re creating some sort of app or something, and there are some platforms for those as well. So if you’re not a real estate person but you want to raise money on a crowdfunding platform, there are also platforms for those start-up types of companies.

And then the other part is they want to be able to just tell the investors what they’re getting, and as many details as possible. If  the crowdfunding platform asks for it, it’s important. And you will get questioned. And once the raise is ongoing, that’s kind of the next piece. Some platforms, they do it all for you, some want the investor to be more actively involved, some will want you to do a webinar, depending on how big your offering is.

We do a lot of webinars, and they tend to work well with presenting some sort of tangibility with the deal… Because you can kind of see the numbers on the thing, but unless you hear the sponsors voice and you see how this is a real person or he’s got a real team, you have more confidence in trusting him with your money.

Theo Hicks: I did want to ask about the listing… So you kind of gave us a few examples, but is there any secret sauce that people can do to make their listing stand out compared to all the other listings that are on there? Or is it just doing what the crowdfunding platform wants you to do and just stopping at that?

Chris Rawley: It really depends on what you’re trying to raise money for. In our case, our farms can be very unique. I tell people that if you’re kind of seeing one multi-family apartment complex syndication, you’ve seen them all… But with farms, if you’ve seen one farm, you’ve seen one farm. These are very unique, and not only are we talking about different crop types and different locations, but different ways of growing things.

So, if you’re on a real estate platform, people are looking for returns, but they’re looking for the track record. I know when I invest on a real estate crowdfunding platform I have more confidence — location is important in a specific marketplace; there are some places I just want to invest. But assuming you are in one of the places that I’ll invest, I generally want somebody who’s got an experienced track record, and that takes some time.

Theo Hicks: So crowdfunding is not for someone who’s just getting started, right? In the beginning, you said they start out with their own money, they go through that, next is the family and friends, and once they’ve gone through that, then they consider crowdfunding?

Chris Rawley: I think that’s important… We’re all going to make mistakes in our investing career, and putting together a deal or a career. As an investor, I’d rather not invest in somebody else’s mistakes, I’d rather them have a little bit of a track record. Let’s say you’re a fix and flipper. “Hey, have you done a handful? Okay, maybe I’ll trust you with my money if you seem to have a pretty good track record of doing that.” So, it’s hard work as well all know; there’s no free lunch in investing or putting together real estate deals.

Theo Hicks: And then I’m sure you talked about this in your other episode with Joe. I would like to ask just a few questions about agriculture. So I’m someone who’s interested in investing in agriculture, obviously. I’m not going to be able to do this myself, I don’t know anything about it. So a crowdfunding option is a good way to go. What types of returns should I expect when investing in agriculture? In my mind, I can compare it to fix and flipping and multi-families, I’m more familiar with.

Chris Rawley: Yeah. On our platform, it’s fairly similar. In fact, given that I was a real estate investor before I was an agriculture investor, we tend to structure the deals quite similarly. So we have debt deals, so think of like a hard money lender, and those are 7% to 12% on the debt side, roughly. On equity deals, you’re going to be talking teens. And then we have another category that I could classify as your AgTech, that are more high risk, but potentially higher return, where we could see a 20%, 30%, 40% IRR based on just what the type of project it is.

So we do a number of indoor agriculture projects; this is like vertical farms, hydroponic farms… It’s a very big space right now and growing space, because people are realizing that, one, they want locally grown produce, because they want to know how it’s grown, and it’s also a sustainable way to produce. But two, after COVID, people are seeing that “Wow, the food supply chain is not all that robust as we thought it was, and trucks don’t always run, and supermarket shelves can empty of meat and produce”, and having food produced closer into where people live makes a lot of sense. So with those you’re going to see a higher return.

Theo Hicks: And then I know for crowdfunding the minimum is really low. Is that the same for your crowdfunding platform? Or do I need to have a hundred grand? Or can I invest with five grand?

Chris Rawley: Our starting minimum is five grand. Most deals are about ten thousand minimum ticket size. We have people that will invest a hundred thousand or two hundred thousand on a specific deal, but we would like to keep that low, because we believe in diversification, not only across asset class, but across offering. So if you invest a single platform or multiple platforms and you have many small investments, that’s a really good way to diversify your portfolio, whether it’s real estate, or agriculture, or any other asset class.

Theo Hicks: Alright, Chris. Is there anything else that you want to mention about raising capital using a crowdfunding platform or any other call to action you have before we wrap up?

Chris Rawley: Just obviously if there are any farmers listening to this and they want to talk to us, we would be happy to talk to them about how we can raise money. But if you’re putting together a real estate syndication, before you go out and pay an attorney a lot of money – you’ve probably seen in, there are a lot of seminars out there – just look into the crowdfunding platforms, because you might be able to save yourself a lot of money and heartache and leverage the work that somebody else has already done before you put that investment in yourself.

Theo Hicks: Awesome, Chris. Well, thanks for joining us again and walking us through some of the tips for raising money using a crowdfunding platform from the perspective of the sponsor, obviously. So we talked about you start with your own money, and then you’ll go to your family and friends next, and then after that, once that money has run dry, you’ve got the experience. The next potential step would be to raise money on a crowdfunding platform. And then you walked us through the things to think about.

First is to do research to find the right platform, because not every single platform is going to cover all investment types. For most of these platforms, you initially reach out to someone and see what their criteria is, and you can find websites that do reviews, which are kind of the perspective of the investors, but still it could be helpful. And then you can also ask them for a reference. You can talk to another sponsor and see how were they able to raise money from this website, how was the process, things like that.

And then you mentioned that you can typically only have your deal on one website at a time; you can’t have your deal on 30 different crowdfunding platforms. From there, the next step is to determine what your investors are asking for regarding risk, returns, tax benefits, and the connections. Make sure you’re including that in your listing.

Obviously, you want to look at the numbers and make sure that the deal makes sense, because the crowdfunding platform might actually go into a lot more due diligence on you and your deal. Plus, it’s easier to raise money that way. And then make sure you haev your team in place, and then make sure you understand what the crowdfunding platform wants you to do. So, Chris thanks again for joining us. To learn more about Chris, you can go to harvestreturns.com. 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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JF2285: Working Two Full-time Jobs With Jimmy Johner

Jimmy has been investing for 5 years and currently owns and operates a marine infrastructure company. He is also working full-time with a commercial general contractor and developer with the purpose of continued growth. 

Jimmy Johner Real Estate Background:  

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Networking is the most important thing you can focus on to help grow your business” – Jimmy Johner


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 Jimmy Johner.  Jimmy, how are you doing today?

Jimmy Johner: Doing great, Theo. Thanks for having me on board.

Theo Hicks: Absolutely. Thanks for joining us. So a little bit about Jimmy— he is the owner and operator of a marine infrastructure company, and he also works full-time with a commercial general contractor and developer. He has five years of real estate investing experience and his portfolio consists of 66 units, as well as a 9-unit salon suite development. He is based in Beaufort, North Carolina, and you can say hi to him at his LinkedIn profile, so his name is Jimmy Johner. And if you’re watching the video, when you look him up, you’ll see his face and know that it is his profile.

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

Jimmy Johner: Yeah, absolutely. And thanks for the description of my last name there, spelling it out, people tend to botch that up quite a bit. So as you said, I own a marine infrastructure company. I’m kind of all things business and kind of have been an entrepreneur bone for the majority of my life. The marine infrastructure company consumes quite a bit of my time right now, and then I obviously do as much real estate investing as I can. We try to pull as much money into the real estate as we can from the other businesses.

I guess looking into my background, I went to a Maritime Academy after high school, and just dove into the shipping industry, traveled all over the world and got the travel bug out. I still do quite a bit of it now… And just always wanted more and real estate was kind of the path I decided to take to continue to grow.

So right now our main focus is multifamily. We try to find some value-add deals in the Eastern part of North Carolina around the Raleigh market in the East, and we’ve got a couple deals under contract right now, another 46 unit property right outside of Raleigh that we’re hoping to close on late October, and steady hunting some more down south. So I’m actually in Louisiana right now, outside of New Orleans on a self-storage project that we’re under development on. So all over the place, wide open.

Theo Hicks: Awesome. So you said that you spend a lot of your time with the marine infrastructure company. So right now while we’re interviewing, you’re doing something for your real estate business, right? Or are you doing something for your marine’s infrastructure?

Jimmy Johner: For the general contractor that I work for. So I work full-time for a pretty good-sized commercial developer/contractor. We work all over the country, doing new development deals. I mainly do storage, so we do Class A Self Storage developments. So from the ground up, three to five-story, 120,000 square foot buildings. Yeah, so right now I’m actually out of town for the company that I work for full-time.

Theo Hicks: Got it. So when do you work on your real estate business? Is it on the weekends, at night, in the morning?

Jimmy Johner: Well, all the time. My partner in crime [unintelligible [00:05:46].05] His name’s Alan. We kind of tag-team a lot of stuff, a lot of late nights and mainly weekend work, and with the power of the cell phone, we’re able to do quite a bit remotely. And given today’s climate with remote working, it’s kind of a no-brainer that we’re able to hunt deals and delegate different things to different people on our team, and continue to find deals and place capital.

Theo Hicks: So you have 66 units right now… What’s the breakdown of that? Is it just one building? Is it 66 single families, or somewhere in-between?

Jimmy Johner: No, 66 apartment units. So we own two different properties. One’s an 18-unit and the other ones is 48, consisting of seven different buildings, but it’s two different properties.

Theo Hicks: Perfect. And then how did you fund those deals?

Jimmy Johner: We raised, you know, OPM (Other People’s Money); raised money for the first one just through connections and networking with people that I know that that had some liquidity and were interested in the real estate realm. A lot of them were kind of neck-deep in single-family homes and we’ve tried to transition some of their focus, because they do have the capital available to get on board with us with multifamily, and kind of leverage our knowledge with that sector of the real estate industry and their capital and make it a win-win partnership or a no-lose, no-lose, as I like to say it.

Theo Hicks: So that was for the 18 unit, it was people that you already knew that invested?

Jimmy Johner: Well, and as well for the 48. So we actually have the same equity partner on both of those deals and it’s kind of been a dream come true, for lack of a better word. It kind of came easy. Once we put the work in place and he felt comfortable with what we were doing, it was actually pretty simple to raise the money, to be honest with you. It wasn’t too much effort on our part. And just finding it and putting it all together and making it work was the real task.

Theo Hicks: So you have one guy that invested in the 18 unit and the same person invested in the 48 unit for all of it?

Jimmy Johner: All of it.

Theo Hicks: Alright. Do you mind telling us some background on that? Who is this person? Maybe not their name, but how did you meet them? How long did you know them? How did you bring up the concept of him investing in your deals, and things like that?

Jimmy Johner: Great question. Yeah, I’ll leave them somewhat private, because that’s how he tends to stay. But it’s all to the power of networking. So my partner and I know people all over the country through the construction industry that we work in, and we’ve known this guy for a long time, probably five or six years or so. I knew he was interested in real estate, he owns a ton of single-family homes, and we just bounced it off of him and asked him if he knew anybody that might be interested in it. He raised his hand.

So it’s kind of a typical approach, asking somebody that you know, that’s got the liquidity, if they happen to know anybody that might be interested, hoping that they’re the ones that say, “Yes, I’m interested.” And from there, we just continued to leverage that relationship is really all it comes down to. And he trusts us and we trust him and we were able to make the deal work. So my partner and I have come pretty little out of pocket; we put all the upfront effort and all operational stuff in play, which again, makes it a great partnership, because we can’t do without him and he can’t do it without us. So that makes a great partnership.

Theo Hicks: So this conversation happened, and then he invested in the 18 unit and he’s invested in the 48 unit. Are those the only two apartment deals you’ve done? Was the 18 unit the first deal you and him have done yourself personally, or had you done deals in the past before it?

Jimmy Johner: I’ve done a few duplex developments and stuff in the past, and we’ve done a salon suites development in the past, but the 18 units was the first apartment building that we bought. So that was the first time that the partnership was born with the three guys that are in it now. The other stuff was just me personally.

Theo Hicks: So [unintelligible [00:09:00].03] talking about this to someone else; if someone asked you, how beneficial has your full-time job with this commercial general contractor and developer, being full-time in real estate, how beneficial has that been towards your investing business? Not at all or completely invaluable? Without it you wouldn’t be able to do what you were doing, or somewhere in between?

Jimmy Johner: I don’t know that I’d call it I wouldn’t be able to do it without it, but it has definitely been transformational from a networking standpoint and a knowledge basis and a literacy concept of how everything works with real estate, from land acquisition to building it, to renovating it, to everything. It’s just made a tremendous difference. And again, the network. I mean, I can’t emphasize that enough. The network that I’ve developed over the last five years has just been incredible. I know people all over the country that are neck-deep in real estate every single day that I could call and bounce questions off of, and so on and so forth. So it’s been invaluable for sure.

Theo Hicks: And is that how you met your business partner?

Jimmy Johner: No, we actually grew up together. He’s one of my best friends, so I’ve known him since I was 10.

Theo Hicks: Huh, interesting. So a lot of people, they’ll give advice and say that you shouldn’t partner up with a family member or a friend that you already know, that you already have a pre-existing relationship with; maybe walk us through your advice for anyone—it is probably the easiest to partner up with someone that you already know, but they say that eventually things might get difficult. So—

Jimmy Johner: Yeah, no, I—

Theo Hicks: Would you let us know or give us some of your advice on what people need to do in order to set themselves up for success when partnering with someone they have a pre-existing relationship with?

Jimmy Johner: I’m a big fan of partnerships. You can spread the risk and also spread the amount of work that it takes upfront and on the backend, take massive action on getting stuff done, which is a huge part of getting stuff done… It’s just taking action, quit thinking about it and just do it.

But I would say that in any good partnerships, you both have to have one another. If it’s one-sided where you don’t really have to have the other person to do one thing or another, and it’s not a no-lose/no-lose situation… I think that’s key. And you do have to be careful with friends and family, especially when it comes to money, with any type of partnership. But upfront, we put together an operating agreement with an LLC, just like you would with anybody, and I trust him with my bank account and he trusts me with his, and I can’t do without him and he can’t do it without me. So again, that’s the value of an awesome partnership, is not being able to do without the other person… And knowing your boundaries with them and knowing what they’re comfortable with and knowing that they’re not comfortable with and having an open dialogue with that is really the key, I think, to moving forward with it.

Theo Hicks: What was the size of the deal you said you’re working on right now, you said a 42 unit?

Jimmy Johner: It’s a 46–

Theo Hicks: 46 unit?

Jimmy Johner: Yeah. I think it’s a one-three purchase price. So we’re getting a pretty deep discount, along with about almost a million dollar renovation on the backend. So about a two-year turnaround for our investors on money, and so forth. I can get into the weeds and that stuff if you want.

Theo Hicks: Yeah, so I wanted to ask how you found the deal. And then I’m assuming that the same individual who invested in the previous two deals is investing again… So maybe tell us about what that structure is going to be. It sounds like this is going to be a pretty heavy value-add deal.

Jimmy Johner: Yeah, pretty heavy value-add deal. The way we found it – it was an off-market deal, we found it through a pocket listing through a broker that I know; he brought it to us just because again, that network; he knew we could close. So he brought it to us, negotiated directly with the seller and the broker via Zoom, just like this, and it went under contract about a month ago on it. We’re just heading into the due diligence right now, and like I said, planning to close late this month, early October. And we’ll get some bridge debt in place for the acquisition, refi it after 24 months or so, getting some agency debt on it and pay our investors back, and roll all the refi proceeds into another deal that we hopefully will find between now and then.

Theo Hicks: So your investors will invest upfront… And then when you give them money back, are they still in the deal or are they just kind of putting that money upfront so you can stabilize it, and then they get their money back plus some sort of profit, and then they’re out?

Jimmy Johner: Great question. There’s a million different ways to skin a cat. That’s one of the first things people always ask me. So from an equity standpoint, the way we structure a partnership, we don’t like to label ourselves as syndicators, just because we really like the word partnership when it comes to SEC regulations and so on and so forth. So being an active partner makes a big difference. There’s less paperwork, there’s less soft costs upfront with security attorneys and so on and so forth.

But the way that it’s working on this one, we’ve got three partners – it’s myself, my partner, Alan, and then our other equity partner that’s going in on the deal. He’ll own 33% of the deal, just like he does on the other two, and we’re all raising the money together from within the three partners. We’re not raising it from anybody else outside of the partnerships. So all the money that’s coming in is ours, so at refi we’ll all get our money back, and then like I said, roll it over into another deal.

So we don’t take anything out of any of the properties right now. And that’s also the power of me trying to maintain a full-time job, along with my partners; they do the same thing. So we don’t rely on any of the money that our real estate makes right now, we’re just continuing to build the business, and we’ll continue to roll that money for as long as we can, until we can say peace out on everything else.

Theo Hicks: So you’ll buy the deal and then you’ll all invest. The money is coming from mostly the equity partner, but then you and your business partner also invest, and then you get bridge debt, stabilize it, refinance, all the investment money that went in there is paid back equally, you don’t get anything extra on top of that… And I’m assuming that extra equity that you get back from the refi plus all of the cash flow – does that just go into an account that’s then used to buy more deals? How does that work?

Jimmy Johner: That’s a great question as well. There’s a lot of tax stuff that you’ve got to watch out for… And again, that’s the power of having a team of people that know this stuff; they’re a heck of a lot smarter than I am when it comes to all the tax code. But we’ll refinance the deal, roll it over into the same entity, and then it’ll get distributed to the partners, quote on quote, but all it does is get rolled over into another bank account with a new entity that buys another deal. So it’s all kind of tax-deferred because we’re active partners and because we all do take a liability in the refi.

So again, there’s a lot of steps in the middle, but that’s kind of the basis of it, just what you said; we’ll shift the money around, move it from one account to another and then buy another deal with it as a down payment.

Theo Hicks: Alright, Jimmy, what is your best real estate investing advice ever?

Jimmy Johner: Networking. I’d say that’s the most important thing. In my short lifetime of doing this, it’s the power of networking. The more people you know and the more people you can bounce questions off of, the more things that tend to come to you… And just taking massive action towards that networking.

Theo Hicks: Alright, Jimmy, are you ready for the best ever lightning round?

Jimmy Johner: Sure.

Theo Hicks: Alright. First, a quick word from our Best Ever partner.

Break: [00:15:15] to [00:15:57]

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

Jimmy Johner: So I do a lot of reading, I’ll have to say — I don’t know if it’s the most recent one, but Seven Habits of Highly Effective People. I know I said like 10 times in these 20 minutes about taking massive action, but that’s probably my number one book I’ve ever read; just an overall mindset, and so on and so forth. And a close second would be, you know, Carnegie’s How to Win Friends and Influence People, of course.

Theo Hicks: If your businesses were to collapse today – your marine business, you lost your commercial real estate job and then your multifamily business were to somehow collapse, what would you do next?

Jimmy Johner: I would do it all over again.

Theo Hicks: Start from scratch. Okay.

Jimmy Johner: Start from scratch. I know how to do it now, so it’ll be a heck of a lot easier to do it again.

Theo Hicks: Out of all the deals you’ve done, what has been the best ever deal?

Jimmy Johner: I’ll say that first 18 unit… And not necessarily so financially speaking, but just from a learning curve perspective. That’s probably the best deal. I mean, it’s what kick-started my multifamily mindset on getting rocking and rolling with apartments and finding the value in them. We’re actually getting ready to refi that deal right now and it’s helping buy the 46 unit. So it works. I’d say that deal is probably my best one.

Theo Hicks: If you’ve lost money on a deal before, how much did you lose and what lesson did you learn?

Jimmy Johner: Knock on wood, I haven’t lost money on a deal in real estate. I’ve broken-even and come close, but haven’t lost money. Now, I have elsewhere on jobs, and so on and so forth. And it’s just — knowing your numbers is the most important thing, and not faking a proforma. Whether it’s real estate or any business, just not faking your proformas and making the numbers work, but actually writing a real proforma and making sure that you know every little detail.

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

Jimmy Johner: I like to employ people. That’s my number one thing. I know that kind of sounds like not really giving back, but… There’s no free lunch, I’d like to say that, and I thoroughly enjoy keeping people employed and providing them a place to come to work every day, and with a positive environment, and having ownership in what they’re doing every day, and enjoying where they work. So that’s my form of giving back.

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

Jimmy Johner: I’d say through LinkedIn, it’s probably the quickest and easiest way to get a hold of me. I’m also on Facebook and Instagram, all my handles are the same, it’s James Johner or Jimmy Johner.

Theo Hicks: Perfect, Jimmy. Well, thanks for joining us and walking us through your real estate journey, as well as your best ever advice. Some of the big takeaways that I got was number one — and you talk about this a lot, is that a really good way to get started in real estate if you don’t have the money to buy deals yourself is to just get a full-time job in real estate, because of the massive benefits you’ll get, as you mentioned, from networking and then from knowledge.

So for your business, you were able to find your equity partner through this networking, and then the knowledge and the literacy that comes from working in real estate gives you a leg up when you’re first getting started, and lets you skip a lot of the minor mistakes that people usually make because they don’t know/they’ve never done it before. So it allows you to do it without having your own skin in the game, in a sense.

And the other thing was your strategy. I also really liked that too, where you’ve got your equity partner, you don’t do syndication, you do the joint ventures, so everyone’s active… And then you’ll invest, you’ll do value-add deals, the three business partners will invest money in the deal, and then once the deal is stabilized, you refinance, rather than each of you cashing out and taking the cash and doing whatever you want to with it. You said there’s some processes you need to follow, but high-level, the money is rolled into another deal. So all the cash flow, all the refinance proceeds, all of that stuff goes to you and then goes into an account that’s used by other deals.

And then you are living off of your full-time income, and ultimately the goal is to do enough of these deals where you have enough cash flow coming in, so that that replaces your full-time income. So a more longer term perspective and I really like that strategy, so thank you for sharing that.

One thing I forgot to mention with that networking part – not only did it allow you to find your equity partner, the knowledge, but you also got the deal you’re working on now from a broker who knows that you’re able to close on deals, that you got through that network.

So Jimmy, thank you for joining us, I really appreciate it. Best Ever listeners, as always, thank you for listening, have a best ever day and we will talk to you tomorrow.

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JF2202: Adding Another Asset Class Your Portfolio With Vinney Chopra #SituationSaturday

Vinney is the CEO of Moneil Investment Group and Moneil Management Group and is also a returning guest from episode JF805. In today’s episode, he will be going over how he decided to start developing a new niche in multifamily and why. He will be discussing new ground-up construction of luxury assisted senior living.

 

Vinney Chopra Real Estate Background:

  • CEO of Moneil Investment Group and Moneil Management Group
  • A full-time investor with 35 years of experience
  • Over the past 12 years has completed 28 syndications; 14 of those in the past 3 years
  • Controls over $330 million, and 4,100 doors
  • Based in Danville, CA
  • Say hi to him at: http://vinneychopra.com/ 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Senior living has been outperforming apartments for the last 10-15 years” – Vinney Chopra

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JF2195: Future of Shopping Centers Post Covid19 With Beth Azor #SituationSaturday

Beth was a guest in a previous episode of JF1974 so be sure to check out her first episode to learn more about her. In today’s situation Saturday she will be sharing what it is like to be a shopping center investor during the Covid19 era. 

Beth Azor Real Estate Background:

  • Owner of Azor Advisory Services, Inc. 
  • Has 30 years of investing in retail shopping centers
  • Portfolio consist of 6 centers currently $80 million
  • Based in Fort Lauderdale, FL
  • Say hi to her at: https://www.bethazor.com/ 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“As a landlord, the COVID19 recession is completely different than the ‘09 recession” – Beth Azor


TRANSCRIPTION

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

Beth Azor: I’m doing great, Theo. Thanks for having me.

Theo Hicks: Thanks for joining us again, actually. So Beth is a repeat guest. Her last episode was Episode 1974. So make sure you check that out. And today is Saturday, so we’ll be doing Situation Saturday, talking about a sticky situation that our guest is in and lessons learned, things she’s doing to get out of it. So before we get into that, let’s go over Beth’s background as a refresher. So she is the owner of Azor Advisory Services. She has 30 years of experience investing in retail shopping centers. Herr current portfolio consists of six centers valued at $80 million. She’s based in Fort Lauderdale, Florida, and her website is bethazor.com. So Beth, before we get into the situation Saturday, do you mind telling us a little bit more about your background and what you’re focused on today?

Beth Azor: Sure, Theo. So my background has been mostly retail, 35 years in the industry, started investing about five years in, so 30 years is correct. I’ve owned and operated shopping centers solely in South Florida. My six that I own today are within ten minutes of my house. So I definitely have some market knowledge there and some control. I like to have control. I also train leasing agents, how to lease vacancy around the country for large REITs, private investors, wealth funds, institutional clients, and I’ve canvassed knocking on doors over 10,000 hours.

Theo Hicks: Well, that’s a lot of door knocking.

Beth Azor: That’s a lot of door knocking.

Theo Hicks: So as I mentioned, it is Situation Saturday. So we’re going to talk about the future of shopping centers post COVID. So Beth, I’m gonna let you just take it any direction that you want to start off, and then I can ask some follow-up questions after that.

Beth Azor: Sure, Theo. So in March, when COVID hit, and some of the tenants started calling us, the landlords, crying, “We might not be able to pay our rent,” I held my first rent relief reduction webinar with over 700 people that attended, and I was very firm. “Let them go to their business interruption insurance, hold firm, tell them no”, and I had three since, so I’ve had four in all. And boy, what a change things have made. When the government shuts down your retail and the nail salons cannot open and the hair salons cannot open, the landlords have to pivot, because if those tenants aren’t taking in a dollar, you can’t really be the tough old landlord that we might have been in ’09. People ask me all the time, “How’s this recession compared to ’09?” It’s completely different. It’s a million percent worse, because the government shut down the retailers. They told them, “You cannot open.”

So I had acres and acres of parking lots with no cars in them, and it was very challenging. I went from talking local tenants, mom and pops off ledges crying to me on the phone, to talking to national tenants who had huge balance sheets, who were being rude and saying, “Sorry, we’re not going to pay rent for the next year.” As a landlord, after about three or four weeks of that, probably in the April to May range, I decided that I had to have the local mom and pop day of phone calls and the national phone calls, because I literally had to change my strength and armor and empathy depending on who I was speaking to, and that’s something that, in 35 years, I never thought I was going to have to do. Okay, so today’s my day where I’m going to talk to all my mom and pop, hair salons, barbershops, little coffee shops. Now tomorrow, I’m going to talk to these big-box retailers who have the balance sheet, who can pay me my rent, so that I can pay the mortgage, but are just choosing to be jerks and not doing so.

So that has been a huge, huge challenge, and just looking back and seeing how day one, “We need to be tough”, to now day, I don’t know, five months later, where we’re really propping up some of these mom and pop tenants, because if we don’t, we will end up with 20% to 30% to possibly 40% more vacancy than we had five months ago. And there will be a lot of landlords and lenders having big discussions, because I’m not sure if the lenders want to take back these properties full of vacancy. It’s really sad and scary.

Theo Hicks: So for the mom and pops, when you say helping them out, propping them up, can you get a little bit more specific on exactly — not just what the conversations are like, but what’s the results of the conversation?

Beth Azor: So again, back in the beginning, we were like, “No waivers. Tough landlords. We’re not going to give any waivers. We’re only going to do deferrals,” to now five months later, where we have to give waivers. I had hair salons and nail salons that literally were not open for over two and a half months, not pressing the cash register. So we can pretend to defer the rent for them to pay back later at some future date. But in reality, they’ve lost those sales forever, they’re never getting them back. And even if we were smart enough or the tenant agreed to a 12-month payback of a deferral, how likely is it that they are going to recover to where they pay that back? So we are doing waivers for tenants that weren’t open. Now, I have a sub shop guy that is doing 50% more business during COVID. Dining rooms closed. He has an app, he’s doing deliveries, he’s doing curbside, and he’s killing it. So he’s doing double the sales that he did pre-COVID. So he’s not getting any waiver or deferral and nor is he asking.

So the tenants that are asking, smart landlords are helping and we’re helping in ways of either deferrals and or waivers. With the national tenants, what we’re doing, and even with some of the locals, is if we make a deal, it’s as short term as possible. So hopefully we’ll all get back to some semblance of order soon; and if we can get something in return for the waiver, or the deferral, that would be great.

For example, I had a lease with a Panera Bread, and they wanted to defer, I think, April and May’s rent or half 50% of April and May’s rent to first quarter 2021. So I said, “Sure, but your lease is coming up in two years. I want you to renew now your second five-year option,” and they said, “No problem.” So now I have a seven-year lease left, which is great for me, and all I did was be their short term lender, where I just postponed getting my rent till first quarter 2021.

Theo Hicks: And then in order to get the information to know – so this is more for the mom and pops – to know what situation that they’re in. Is that what you’re talking about on your phone calls and getting an idea of where they’re at, what they can do so you can figure out what the best course of action is?

Beth Azor: That, and then requesting their sales reports. So actually knowing what they’ve done… And there are some tenants that, like the national, some don’t report, and there’s this new tool called geofencing, which is mobile data. I’ve had some national tenants reach out and say, “We’re doing horribly. We are the worst in the chain,” and then you can fill up the geofencing tool and actually see that their traffic is back to where it was pre-COVID. So it’s amazing how technology can help the landlords, much to the tenants’ unhappiness. I did have a few nationals that tried to play a little game with me and then I was able to say, “Hmmm. Look at this geofencing report. I can see how many people were at your store yesterday, and it matches to February’s traffic. So it’s not going to help.”

Theo Hicks: You said that was geofencing, like a fence?

Beth Azor: Yes, geofencing, and it’s mobile data. So in retail, for the last 35 years that I’ve been in business, demographics is hugely important. So when you’ve got a Starbucks or a Panera or a TJ Maxx, or even some local tenants, they come to your shopping centers and they’re interested in leasing space, they want to know what is the income, what’s the daytime traffic, the employee base in the area, what are the traffic counts, etc, etc. Now there are tools… Uber has one and a company called Placer.ai, and they have the ability to target your shopping center and tenants inside your shopping center, and they can provide you with a report that shows how many people were at your Panera Bread or your Starbucks up till yesterday.

Theo Hicks: Wow, that’s crazy.

Beth Azor: It’s crazy, and demographics for the last 35 years were always based on census data, which is only done every ten years. So for us, in the retail industry, to be using census data today that’s based on 2010 in South Florida is completely full of errors. So to have this tool where I know exactly how many people drove into my parking lot up till midnight last night is very, very, very valuable.

Theo Hicks: Perfect. So we talked about what you’re going through right now. What is– and I know this is probably an impossible question, but… So I positioned it to say what are your expectations for shopping centers moving forward, both from the perspective of your existing portfolio and then what your plan is to whether acquire or get rid of some of your existing portfolio?

Beth Azor: So I’m not going to get rid of anything because I love all my projects and they’re performing regardless. But looking forward, my big wish is that we get our kids back to school because the parents need to work and that gives them disposable income to be able to come back and shop at our shopping centers. And while they’re stuck at home, helping their kids homeschool is a problem for the retail world and the economy. So I’m praying that that happens. But to defend against that, I’ve been encouraging and even myself, putting tutoring places even at no rent almost like a PSA, a public service, in any vacancy in a shopping center where we could have a Zoom setting where we hire a college student, and parents can drop their kids off and get a couple hours reprieve at home because if they can work, they’ll get more disposable income and that will filter down to us. They’ll be able to eat out more, go shop more, etc. So it’s schools. If schools aren’t open, what can we as shopping center people with vacancies do to mitigate that and then bring employees back? Because a lot of my small tenants said, “I can’t get my employees back because they need to be at home with their kids.”

So that’s what I’ve been preaching – How can we in the real estate industry help schools and help parents so that we can get people shopping again? I’m predicting 30% of the malls in our world have closed are indoor malls, and I’m predicting that 50% of those never reopen. So us outdoor shopping center, strip center, power center, lifestyle center owners need to shift and start talking to those mall tenants. For example, Sephora and footlocker, those tenants in those markets where their malls have closed will start looking for alternative opportunities and that will be to us, the non-indoor mall people. So I do think that it will shift and you’ll see “Oh, I used to go to that store in the mall”, and you’re going to start seeing that be in a more outdoor, strip center, power center opportunity.

Theo Hicks: And then what about buying? So were you– or what’s your overall recommendation for people who are currently investing in shopping centers or want to get into shopping centers. Is now a good time? Should we wait? Should we not invest? What would you say back to that?

Beth Azor: I think that in the next year to two, there will be a lot of opportunities, especially with CMBS loans because as all of our community lenders have worked with us as our tenants didn’t pay, the CMBS lenders did not. So if you have a loan with the CMBS, a commercial backed security mortgage, there was no deals made, and I think that the tenants don’t make it. There will be a lot of CMBS loans going into default and those will be opportunities. So my recommendation to anyone that’s listening that would like to invest in retail, is retail’s very community neighborhood-based. Like I said my six centers are within ten minutes of my house. So I know those centers, I know the market, I know the other landlords and I know the tenants. I shopped in these markets.

So for anyone that’s interested, pick a little area that you know well. Maybe you own a mobile home park down the street, maybe you own multifamily nearby, maybe you own office buildings. So pick an area that you know and start researching who owns this property. The more vacancy in the asset, the more likely that that’s going to go back to the bank or the lender, and you might have an opportunity to pick that up, and just start talking to retail leasing agents around that property to get information and get knowledge. If your instinct is this was successful before, it’s probably going to be successful again. When I buy, I look for strip centers that are parallel to busy streets. So there’s no L-shaped corner spaces. They’re just flushed to a main street.

I like high-income neighborhoods, high-income demographics where people have a lot of money. So even if they’ve hit a little bit of a hard time, they still have disposable income, and I like smaller– I don’t like power centers, and I’m not really a grocery-anchored center investor. I’m not going to compete with all of the REITs out there that need to invest their money in grocery-anchored. So I look for the multi-tenant, smaller strip centers, 20,000, 30,000, 40,000, 50,000 square feet that are right on the road, lots of traffic, great visibility. That’s where the retailers want to be. They want to have great parking, they want to have great visibility to the main area where there’s a lot of daytime traffic, lots of employee traffic nearby to feed the businesses and the restaurants.

Theo Hicks: Going back to what you said about the properties that have CMBS loans on them, that there weren’t any deals made with those lenders, and so you expect there to be properties going back to the banks. If I want to keep a lookout for that, how do I find those properties? Is there a website I go to, I need to talk to a leasing agent as you said, or someone else?

Beth Azor: I think that you can reach out to the CMBS loan lenders themselves. You can find mortgage brokers and capital market’s investment brokers in your area. Ask the leasing agents who are the top investment sale brokers. They can probably get you in, but it’s really a who you know game there for sure. I don’t think they published lists. There are watch lists, but you need to know who to call to get that information, and it’s a very tight club.

Theo Hicks: Okay, Beth. Is there anything else you want to mention as it relates to shopping centers and COVID or any other call to action you have before we conclude the interview?

Beth Azor: Well, my call to action is go shop local, go out and pick up from your local restaurants, shop your local tenants. Those are small businesses who support our economy all across the country. So shop local, love local. And then if you have any other questions or want any more information for me, I have a website called www.azoracademy.com, and that has a ton of free information. I have over 150 free videos on YouTube under Beth Azor. So anything about retail, leasing, you can find all of the information on either YouTube, bethazor.com or azoracademy.com.

Theo Hicks: Perfect. I’m actually following your advice right now. I’ve got Uber Eats on the way from a local restaurant. So I’m doing what you told me to do already.

Beth Azor: Alright. Good job.

Theo Hicks: Alright, Beth. Thanks for joining us again and providing us with your insights into what you’ve been doing since the onset of the COVID outbreak. The biggest takeaway that I got was you had your days where you talked to the mom and pops where you were more open and listening and sympathetic, and then you put your arm around to talk to the national tenants. You mentioned that you weren’t necessarily just listening, but you were also confirming what you were hearing with the mom and pops. It was by requesting the sales reports to confirm that their revenue had actually gone down or was non-existent.

And then you mentioned that technology called geofencing to check the mobile data at some of your national tenants who claim to have reduction in traffic, whereas in reality, it didn’t. And then you mentioned some of the things that you want to see happen in order to help your residents, people going back to work, how you mentioned how you’re putting up free tutoring in some of your vacant units.

And then you also mentioned that you think that a lot of the malls that closed down aren’t going to reopen. So there’s going to be opportunities for shopping center landlords to bring on new tenants that are traditionally in the mall and you gave some examples of that. And then opportunity wise, in the next few years, you think there’ll be a lot of properties that currently have CMBS loans that will be foreclosed on because there weren’t any deals made with the lenders and in the end, the owners.

And then you also mentioned that if you are interested in buying, make sure that you are buying on centers that are parallel to busy streets, high-income neighborhoods. You don’t like the power centers, you don’t like grocery-anchored, and then it’s very community and neighborhood-based. All of yours are within ten minutes of each other. So pick an area that you already know well. Maybe you already own property there, maybe you live there, and then start figuring out who owns those properties, what their vacancy is right now, how did they perform pre-COVID. Ask your leasing agents to get this information to see if it makes sense to buy.

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

Beth Azor: Thanks, Theo.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2194: Important Development Deal Steps With Shane Melanson

Shane is a full-time commercial real estate developer who started investing in 2004 and dived into commercial real estate in 2007.  Shane goes step by step on how he goes through a development deal by utilizing one of his very own deals and sharing the details. 

Shane Melanson  Real Estate Background:

  • Full-time commercial real estate developer
  • Started real estate investing in 2004 & specifically has 13 years of commercial real estate experience
  • Portfolio consist of an Apartment building, retail property, and several rental properties and development land
  • Based in Calgary, Alberta
  • Say hi to him at: https://shanemelanson.com/ 
  • Best Ever Book: Keys to the vault 

 

 

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Just because you think there is a market, doesn’t mean there is, you have to verify before you proceed” – Shane Melanson


TRANSCRIPTION

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

Shane Melanson: I’m doing great, Theo. Thanks for asking.

Theo Hicks: Well, thanks for joining us. Looking forward to our conversation. Before we get into that, a little bit about Shane’s background – he is a full time commercial real estate developer, he started real estate investing in 2004, and he has 13 years of commercial real estate experience. His portfolio consists of apartment buildings, retail property, several rental properties, and developed land. He is based in Calgary, Alberta, and you say hi to him at shanemelanson.com. So Shane, could you tell us a little bit more about your background and what you’re focused on today?

Shane Melanson: Sure. My background is, I grew up in a small town. So I wasn’t born into developing or investing in commercial real estate. Both my parents were teachers, and when I grew up, most of the jobs I did were labor. I built logging roads and… Anyways, probably my first year of university, I was back in Whitecourt, and I was working for a good friend of mine, his dad, building roads. My buddy, who is quite entrepreneurial and pretty successful, probably five or six years older than me, brought an investment opportunity to my dad and myself. Just to condense it, the deal didn’t work out. I put all $13,000, which for a 19-year-old kid or 18-year-old kid, that’s a lot of money. But my dad, he remortgaged his house and put $100,000 into that investment, and unfortunately, just saw it evaporate. So they had just paid off their home, and now he was going to spend the next ten years – he was a principal, my mom is a grade one teacher – to pay off that mistake. So that set me on a bit of a different tangent, where I thought the only way to be wealthy was to work hard and save money, but that only gets you so far.

So I think I was in my fourth year of university. Well, I took longer in university because I partied and worked multiple jobs. But my best friend at the time, I was living with him, and he was investing in residential real estate, and he had about three or four homes and I was noticing that he was living– he had no payments, because he had roommates that were paying for his mortgage. He invited me to a real estate conference up here in Canada called REin. So I went to it, I started to learn more about this concept of investing in real estate. I was still very jaded from losing money in the past. But I realized that if I was going to get ahead, that I needed to expand beyond just trading time for money. So I got into fixing and flipping. I went full into real estate. I got my real estate license, my mortgage license, I worked as an appraiser or an assessor, I should say. Then I was in urban planning. I got a job at Sun Life. That was where I got into commercial real estate. There I was a lender, and I was in a meeting one day with two gentlemen that were syndicating a real estate deal that was about $12 or $13 million. They were maybe 10, 15 years older than myself, but I learned that you could pull money from high net worth individuals and buy these larger properties. But it was wasn’t until I met my father-in-law that I was actually able to do a deal like that myself. So I tried to compress my history into how I get into commercial real estate…

Theo Hicks: Perfect. Thanks for sharing. So maybe tell us a little bit about what you’re doing now.

Shane Melanson:  Sure. So today, what I do primarily is… Well, between 2016 and 2019, I was doing mainly developments, and the reason for that was, I found the market to be hyper-competitive and I was looking for a way to leverage the skillset that I had, and that was going out and finding opportunities. So for example, we found three acres of industrial land by the airport. We tied it up for four months, spent some money, call it $30,000 to $40,000 probably or more on architectural plans, drawings, marketing material, and we pre-sold 70% before we removed conditions. So this was an off-market deal, or maybe better to call it a pocket listing from residential brokers that were trying to do more commercial. So that was deal number one. We ended up pre-selling the entire building by the time we closed.

So our risk then, was really on execution because my partner Jason, who’s got a lot of development experience – and I’ve got some, but he’s really more the hands-on and I was more on the money-raising, marketing, selling and negotiating with the tenants… That was a very good deal. We sold out in, I think, 16 months. Sold out, meaning that the actual condo units were sold off to the end-user. And then we found a retail property. We secured an anchor tenant there; that’s on about two acres, and we’re just actually developing phase two. I’ve got offers on multifamily and to do some land development for purpose-built, smaller, under 50-unit multifamily right now here in Calgary. So that’s what I’m up to.

Theo Hicks: Do you mind walking us through with more specifics on that first deal you were talking about? Maybe some numbers as well?

Shane Melanson: Sure. We bought 2.9 acres. I think it was $925 an acre. Our construction hard costs were about $135 a foot, and then obviously, you have soft costs. So let’s just say the all-in number on 30… There’s differences between what was the gross square footage versus the net square footage in terms of what you actually sell, but let’s just call it 35,000 square feet, and we were selling anywhere from $300 to $340 a square foot, depending on the size of the bay, the location, and these were small bay industrial warehouses. So a person might say, “Wow, $300 bucks sounds like a lot per square foot.” We have to remember these were three buildings, so you have less economies of scale. Number two, you’ve got smaller base, so a lot more demising walls, more HVAC rooftop units. So all this adds to the cost of being able to do an industrial development. We also didn’t have the– what’s the correct term. Our site coverage was much less than you would have in, say, a typical industrial development. You might see 40% to 44% site coverage. But because this was more retail office industrial, we were closer to 30% or 29.5%, I think, was the actual site coverage. So your cost per square foot of land goes up. If you look at $925 an acre, we’re probably $64 to $66 per square foot. So happy to break it down into more detail or walk you through how that deal all came together, but–

Theo Hicks: I’m curious to see how that came together because again, I’m not as familiar with development deals. I think our audiences isn’t as well. So maybe try to look at the specific numbers. Maybe walk us through more specifically how you found it. And then after you found it, you said you held it out for a little while and spent money on certain things. What happens during that process? And then maybe take us more like a step by step process through that deal.

Shane Melanson: Sure. So this deal, the step by step was two gentlemen brought us the opportunity Like I said, it was off-market. It was owned by a very large developer. So generally, in those situations, you don’t get to negotiate much on price. We tried, but they said, “Here, take it or leave it.” So we said, “Okay, you want the price. I want terms.” So we tied it up for four months, because I learned on a previous development where I was involved, I was the CEO of a company where we did 1,153 acres resorts in Ontario. So in that deal, what I learned very quickly was just because you think there’s a market, you have to verify it, and the only way to verify it is to actually get money and deposits. So what we did is, we said, “We think that the market is x and we tested it, and we were wrong. The market wasn’t 3,000 to 5,000 square foot base. It was 1,350 to 1800 square foot base.” And really what that meant was a price point under $500,000. So what I did  is I said, “Okay, based on that, let’s design three buildings so that we can maximize the site coverage. Here’s the renderings,” and we told our brokers — even though I’m a licensed commercial real estate agent, I could have done that, I didn’t have the relationships in that area of Calgary. So we essentially gave up, whatever you want to call it, paid our brokers very well, about $550,000, I think, in commissions. But they were responsible for profits of over $2 million.

So four months due diligence, multiple iterations, going back to the market, and really, I think it’s important having proper expectations of what an agent does. An agent is there to get the deal, to bring two parties together, and then it was really up to my partner and I to negotiate and make sure that those deals a, closed and b, we were designing buildings that these guys were going to be able to occupy and run their businesses out of.

Theo Hicks: I just want to jump in really quickly. So you’re talking about this broker is with the people who are going to actually lease or buy the [unintelligible [00:12:01].20] once they’re developed. Is that what you’re saying?

Shane Melanson: That’s correct. Yeah. So the broker that brought us the land also went out and pre-sold these units. So when I say pre-sold, they’re no different than when you could build a rental apartment building or you could build for sale, for condos. This was a condominiumized industrial building, and there was 24 units. So we needed about 70% pre-sales before a, we could get construction financing and b, before I felt comfortable going out and raising capital from investors because I didn’t want — a, I wasn’t gonna build it on spec, or speculating that we could sell it. So really, it was relying on our agents to bring us qualified buyers and we secured those with letters of intent, and then switch to purchase and sale agreements. We put the money in escrow, and that was verification that there was demand for the product we were building.

Theo Hicks: So did you actually get the money first?

Shane Melanson: Well, there’s different ways… The money goes into our lawyers’ trust account, and there are ways that developers can access it. We didn’t want to jump through those hoops, so we raised money from our investors. I think in this deal, we raised $2.7 million. So that meant we bought the land outright, and we have money for soft costs. The deposits were there and we did not draw down on them. We had a construction loan from our bank, RBC. So once you hit certain milestones, you’re able to start drawing down. So I want to say, in this case, we were able to build those three buildings, including site work in under 11 months. I think it was even closer to eight months once we started actually doing the construction.

But I think it’s important for people to know that there was about a six-month period where you’re going in for development permits. In here in Calgary, you have what’s called the DSSP, which is your deep services plan, about how water is going to move around on your site. And that took four months, about three months longer than we had anticipated.

Shane Melanson: So in Calgary, one of the other things is you’ve got winter. So all of a sudden, you’ve got a fixed price contract from your general contractor, but that doesn’t include heating and hoarding. So if you’re building and pouring concrete, for example, in the winter, tack on 80,000 bucks plus or minus or more if you’re pouring concrete, doing taping and mudding… So there’s a lot of things that a developer learns when you’re getting into a deal, and I think one of the biggest mistakes I see newer developers or builders making is thinking because they’ve got a fixed price contract, that they’re set. The reality is that there’s a lot of exclusions in those contracts, number one. And then number two, you’re dealing with people. So just because you think someone’s going to show up, a trade is going to do their job, there’s mistakes. And is that trade gonna honor their work? Are they going to come back and fix it? Or are you, the developer, going to be left high and dry? And fortunately, we had an excellent general contractor. Some of the trades squeezed us, so you’ve got to absorb that.

Theo Hicks: So you said it takes 11 months to build the buildings, correct?

Shane Melanson: Yeah, even less than that, actually. Because when you’re just doing steel frame, they go up pretty quick.

Theo Hicks: Okay. So then, once you’re done, at that point, are you completely out of this deal. You get your money, do you pay off the loan, and you’re out completely?

Shane Melanson: In that case, because they were industrial condos, that’s right. Now let’s say, we own one or two, we wouldn’t be able to get out. Now, we also had to set up a condo board, so we had to sit on the board for a year, but we brought in a property manager. But for all intents and purposes, we got our money, we paid our investors back, we closed down the companies and you move on to the next deal. So the next one, the retail I’m working on, that is for lease. So we will keep that and if someone comes along and offers us too much money, we’ll probably sell, but we’re very happy with our tenants and [unintelligible [00:15:38].16] there.

Theo Hicks: So we at Ashcroft do apartment syndications. So obviously the type of person, at least from what I understand, the type of person who invests in apartment syndications have different goals than the type of people who invest in these development deals. So what are the goals of your investors? When you’re talking to them, when they’re trying to figure out if investing in your development deals is going to be a good fit, what are the types of things that they’re saying, that makes you say, “Okay, they’re a good fit,” and maybe what are some things that they say that makes you think that they’re not a good fit?

Shane Melanson: Well, I do multifamily syndications as well, and I would say that the profile of the investors is they’re looking for good returns. In my experience, these investors, high net worth individuals, they’re really betting on the team and their ability to execute. So obviously, if you’re buying a value-add multifamily that has maybe 6% to 10% cash on cash returns and a 15% IRR, well, much less risk. If I’m doing a development deal, these guys are looking for 25% to 35% returns because they understand that there’s more risk. So we explain that upfront and we show them the downside. We show them, “Look, I’ve got my house on the line, and we’re mitigating risks in as many places as possible.” So for example, pre-sales, pre-leasing, you want to verify that demand as much as possible to give comfort both to myself and to my investors.

I think the other thing I would say is some investors– you’re right, I’m very careful. So if someone wants to come into one of these deals, has never invested in commercial real estate, is just looking at the big cash on cash or IRR, and they don’t have an appreciation for the fact that it’s illiquid and they’re putting in their last $100,000 or $150,000, generally speaking, those would not be good investors. Most of the investors I’m dealing with, I would say 70% of the people that come into my deal are either developers themselves, some of them are on publicly traded companies, doctors, dentists, that have a significant net worth, and are looking at this as just another avenue to invest with higher returns, and really they’re betting on the team and a track record.

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

Shane Melanson: I think the best real estate advice I could give someone is that this business is a relationship business, and one of the things that helps me in all of my deals is the fact that I don’t have an ego in the sense that I think I have all the answers. So like I just alluded to, if I’m doing a deal, I’m going to triangulate all my information from mortgage brokers to lawyers to lenders to other developers, and I’m going to also get people with skin in the game that have experience in commercial real estate to guide me and make sure that I’m not making a mistake… Because it’s very easy to fool yourself into thinking you have a great deal, but you really want to test that, and the best way to do it is just from your relationships in the business.

Theo Hicks: Okay Shane, are you ready for the Best Ever lightning round?

Shane Melanson: Let’s do it.

Break [00:18:40]:03] to [00:19:43]:04]

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

Shane Melanson: I think the best ever book is a book that I’m reading right now for a second time by Keith Cunningham. Keys to the Vault, I believe it’s called.

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

Shane Melanson: I would probably go back to commercial brokerage and continuing to help people buy and sell in commercial real estate.

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

Shane Melanson: There’s a couple of things, but one of them is through the Junior Achievers here in Calgary. Going in and specifically with grade sixers, talking about entrepreneurship as well as some of the stuff that I do with respect to how to invest in real estate.

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

Shane Melanson: Best place is my website, shanemelanson.com. There, you can find my podcast, my book, all that stuff.

Theo Hicks: Well Shane, I appreciate you coming on the show and talking to us today about your background, what you’re doing today, and then your best ever advice. I always enjoy having conversations with people on here that do things that I have very, very minimal knowledge on. So I definitely learned a lot today.

So you walked us through your first deals that you did by yourself, the 2.9-acre deal where you turned it into three different industrial buildings. Something that I thought was interesting, and I really want to think on of myself more is when you talked about how you learned that you need to verify that there is a need, a demand in the market, that you have the right need and demand in the market. So for this deal, you originally thought that it was going to be larger base.

Shane Melanson: That’s right.

Theo Hicks: And then once you actually went through your month of due diligence, you realized that the demand was actually for smaller base. So you do that before you actually go out and raise capital and before you actually start building. You don’t assume you know what you’re doing. So I thought that was very interesting. I’m sure there’s ways that everyone listening, no matter what type of real estate niche you’re investing in, you’re gonna find a way to apply that to your business. I really appreciate you showing that.

And also, you talked about the brokers and how you yourself had a broker’s license, and you could have technically, legally done the pre-sales and gone out and found buyers, but you didn’t really know the market that well, and you knew that you could pay a broker really well, and they’d go out there and make sure that they find you qualified buyers. That you were able to get the pre-sales you needed to order to qualify for financing, and that sure, you pay them upfront a lot, but the ROI from that would be much higher. So you gave us numbers on that as well. And then you also talked about the investor profile for a developer and how typically they’re experienced in developments. It’s not someone who’s putting in their last dollars into a deal and hope to hit it big, and that they are expecting higher returns compared to your value add apartment syndication because of the higher risks involved.

And then your best ever advice which was that this is a relationship business, which I talked about in your broker advice, and then that you realized that you don’t have all the answers and making sure that you’re triangulating and getting all the information you need from the brokers and the lenders and the contractors. And then you also try to work with someone else who has experienced in developments, they have skin in the deal, and that they can guide you so you don’t make any massive mistakes. I really like that. I really like all of the advice that you gave. I’m sure the Best Ever listeners did as well. So again, Shane, thanks for joining us today. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2191: Retail Shopping Centers With Beth Azor

Beth is the owner of Azor Advisory Services, Inc. with 30 years of experience investing in retail shopping centers. Beth chooses to focus on retail shopping centers because she likes the variety of dealing with all different types of businesses. She shares some advice on how she deals with small business owners versus well-known companies.

 

Beth Azor Real Estate Background:

  • Owner of Azor Advisory Services, Inc. 
  • Has 30 years of investing in retail shopping centers
  • Portfolio consist of 6 centers currently $80 million
  • Based in Fort Lauderdale, FL
  • Say hi to her at: https://www.bethazor.com/ 
  • Best Ever Book: The War of Art

Click here for more info on PropStream

Best Ever Tweet:

“The majority of my marketing for new businesses is now through Facebook. Facebook gives me access directly to the decision-maker” – Beth Azor


TRANSCRIPTION

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

Beth Azor: I’m doing great, Theo. Thanks for having me.

Theo Hicks: Absolutely, and thanks for joining us. A little bit about Beth – she’s the owner of Azor Advisory Services, she has 30 years of experience investing in real shopping centers, her portfolio consists of six centers currently valued at $80 million. She is based in Fort Lauderdale, Florida, and you can say hi to her at bethazor.com. So Beth, do you mind telling us a little more about your background and what you’re focused on today?

Beth Azor: Sure, Theo. So I’m really focused on getting rents today during the post-COVID craze. I am an investor in retail shopping centers. I love retail. I’ve been in the business for about 35 years, started investing about 30 years ago, and all of my shopping centers are within ten minutes of my house, which is great. I have tenants from Starbucks to Aldi to Panera Bread to Verizon. I have mom and pop, small businesses and national tenants. For the last four to five years we’ve been challenged with the whole online sales, and now we’re challenged with having our tenants have not been able to be open for business for two months. But the pent-up demand with consumers shows wonderful signs of rebirth, so we’re all keeping our fingers crossed that own shopping centers these days.

Theo Hicks: Thanks for sharing that. So I actually haven’t talked to someone who has retail shopping centers. I know a lot of people that I’ve talked to for Joe’s business who focuses on collecting rent from tenants who are living there. So are you seeing issues with both the small businesses and the national tenants or is it just one more than the other?

Beth Azor: So the challenge is– and I’ve been likening it to the roller coaster of emotions, because finally what I had to do after about the first two weeks is I had to seriously delineate my days off on certain days talking to the mom and pops and on certain days talking to the nationals… Because as a landlord, when you get on the phone with a mom and pop and they’re crying and you’re talking them off ledges and you’re just trying to keep them wanting to reopen when we can, you have to have empathy and understanding and you don’t want a mass exodus of tenants. And these are local businesses that literally had not been able to punch the cash register going on over 72 days in South Florida. So you had to have one state of mind dealing with them.

On the other hand, you got national tenants with huge balance sheets, Theo; huge balance sheets. And many of them were able to do either drive-thru sale or online sales or curbside pickup sales. So their cash registers were still being run somewhat. Certainly not like in pre-COVID, but they were getting a certain amount of customer traffic and income, and many of them– there were some nice ones, but many of them were not very nice, and making demands to landlords that was not very respectful, courteous or friendly.

So the first two weeks I was taking phone calls from one to the other, one to the other, and I did not really have my armor up. So I decided after two weeks, “Okay, I’m going to bifurcate this and on Tuesdays and Thursdays I’ll deal with my mom and pop tenants, and on Mondays and Wednesdays, I’ll deal with which sometimes were very rude national retailers.” Some of them I knew from being in the industry and going to conferences. I think that they were in job-saving mode and they didn’t like coming to me saying, “I can pay my rent, but I’m not going to pay my rent.”

I’m sure you and your listeners saw the article in Wall Street Journal and many other industry magazines or newsletters about a big national coffee tenant who sent all of us letters saying for the next 12 months we were going to need some rental abatement or deferral or waiver or whatever. So I came to the conclusion that these representatives of these Fortune 500 companies or public companies, they knew what they were doing to us, the little guys – I only own six centers – and they felt bad. And I think when people feel bad and feel guilty, they don’t really know how to handle it and sometimes they use different emotions than we landlords would like them to use.

Theo Hicks: Who do you talk to at these national companies? Is there a leasing person they have that you talked to constantly every month?

Beth Azor: There are real estate managers who sometimes are jumping in the fray on this because they’re not out looking for new stores. They can’t travel. So they’ve jumped in to help with their companies with these rental discussions. I have spoken to CFOs. I have spoken to attorneys. So it runs the gamut. It’s not consistent across the board. With the small businesses, you’re dealing with the small business owners, literally the mom and pop owner.

Theo Hicks: So we’ve talked on the show a lot about apartments and the types of deals and payment programs and things like that, that the property managers and the owners are having with their residents. So not talking about the nationals, but the more of the mom and pops. What type of, I guess, agreements have you come to? What are some examples of payment programs that you’re having at the retail shopping centers that are owned by mom and pops?

Beth Azor: Sure. It depends on a bunch of things. It depends on if they moved out, could you release it and how fast, if they have infrastructure in their space that is valuable to either them or a replacement tenant. If they are, let’s say, a jeweler who, a competitor, after waking up in about 30 days saying, “Wow, I’ve got a lot more vacancy than I ever thought. Let me go down the street and try to steal some other tenants that are easy”, midnight move type things. How long is their lease before it comes up for renewal, and what are things that they have we would like back? So maybe a mom and pop has a termination right. Maybe a mom and pop has an exclusive. Let’s say they’re a hair salon and they have a nail salon exclusive. Well, for me to be able to put in a nail salon when this hair salon hasn’t done nails in ten years, that’s very valuable. So you can make some exchanges with the mom and pops and even with the national tenants in exchange to give them some deferral.

Pretty much across the board – and I consult for landlords all around the country – we’ve all been trying to do deferrals like kicking the can, not full out waivers. So where we might do 50%, 30% rents over April and May, maybe take the difference out of their security deposit, and then anything leftover, they are to repay it in 2021; maybe the first six months. We don’t want to move it to the end of the lease term, because we want the tenant to renew and take the bump in the rent that the market rent in an option would include. So trying to get back any difference of any deferred rent in 2021, even if it has to be over 6 months or 12 months, it is not the end of the game there. It’s not a bad thing.

Theo Hicks: Perfect. Thanks for sharing all that information. So let’s maybe transition away from the COVID and talk more about your current portfolio. So you have six centers. Are these things that you’ve had for a long time or are you always actively selling one each year and buying one each year? What’s your overall business plan?

Beth Azor: I like to hold them. So the one that I’ve had the longest I bought in ’08, and then I’ve probably bought a shopping center every two years or developed. I developed from ground-up a five tenant shopping center with a Starbucks, a Verizon, a Blaze Pizza. I built that one from the ground up. I bought an old strip club in town. The town was getting rid of strip clubs. I called the owner and got them to sell me the building, knocked it down and built a five strip shopping center. And then three years ago, I bought an old office building that was built in the 70s. I knocked that down and built a Starbucks center on one half of the parcel, and now I have a future parcel to develop on. Most of my centers are unanchored strip centers, but I do have one that’s a grocery-anchored center, and that is anchored by Aldi. It’s a supermarket in parts of the country.

Theo Hicks: What does that mean, unanchored versus anchored?

Beth Azor: So anchor means a big-box tenant like a grocer or a Walmart or a Target or a large tenant that would anchor the rest of the small retail. So it’s like in the old days with the malls where Sears and Penney’s and Macy’s would drive traffic to the mall. They wouldn’t pay as much rent, but the other ancillary tenants would pay more, and they were paying for the traffic that those other anchors, those larger retailers would bring to the property. That’s the way it is. In our center – I have a Starbucks, a Blaze Pizza, a Verizon,  a Select Comfort and an ice cream. They’re all the same size, pretty much 2,000 or 3000 square feet. There isn’t one major anchor that drives the traffic… Versus I have another shopping center that’s 75,000 square feet and 20,000 of it is Aldi supermarket, and they drive a lot of traffic to the center. So tenants will pay more rent to be next to a traffic driver such as a supermarket.

Theo Hicks: Why do you choose retail shopping centers over other asset classes, other retail classes or just multifamily or warehouses? Why would you choose this one specifically?

Beth Azor: I like the variety of dealing with all of the different businesses. One day I might be dealing with an ice cream store owner, the next day with an insurance guy, the next day with Panera Bread, the next day with an athletic shoe store, the next day with a hair salon, Sherwin-Williams Paints… It’s a big variety of businesses and I like that.

Sometimes, we landlords have to evict people. Theo, I always had the motto, I never wanted to manage or own anything that had a bed in it because I didn’t want to evict someone from their bed. I know all of your listeners, unfortunately, sometimes have had to do that. So it’s not a fun time at any time when you have to evict somebody, but evicting someone from their business versus from their home, I can swallow that a little bit easier.

Theo Hicks: Yeah, I like the philosophy. This is an off the beaten path question a little bit, but do you get any discounts at these places like a Target or at all the whatever? I’m just curious.

Beth Azor: No, I would tell you that there probably are some property owners that do that. I learned very early on in my career, and it’s one of the first things I tell anyone that I hire, “Don’t go to the sports bar and ring up the tab, because there’s no discounts.” In fact– and tenants will try to give my maintenance guys or my property managers, “We got you this time”, and absolutely not. It’s a firing offense… Because at the time that I go and collect rent and I’m like, “Why haven’t you paid rent and you’re three weeks late?” “Well, your maintenance guy was in here and look at this bar tab.” I never want to have that conversation. So even my kids who are now 19 and 17, they are always with me hanging around the shopping center, and I have tenants who try to give them stuff, and they know that they’ll be in big trouble if they take anything for free from one of my tenants. But tenants would offer it, for sure, to get on your good side. It’s just a policy that I have to not accept it.

Theo Hicks: What does your day to day look like now compared to when you first started doing this? What types of things do you do now in the business as opposed to what you were doing when you first got started?

Beth Azor: So when I first got started, I would prospect by going store to store, and I still do that, but now I do more Facebook and Instagram prospecting, because I can get through to the gatekeeper so much faster. So back 30 years ago, there wasn’t such a thing as Facebook and Instagram. So I would just literally go hit 40 stores a day, go knocking on stores saying, “Hey, I own shopping centers in the area. What are your expansion plans? Do you want another location? Do you want to reload?” I still do that probably only about once or twice a month, and every day I prospect with social media and Facebook.

The responses that I get, I’ve never, in 35 years of doing business, have seen the response I get from Facebook and Instagram, social media prospecting, because you’re bypassing the gatekeeper. 90% of the businesses that have Facebook and Instagram pages, those pages are monitored by the business owner, because if someone’s complaining about the business, they don’t want their store clerk or their gatekeeper to see that and potentially erase it. They want to handle it themselves. So you can prospect them through direct message on Facebook, and it’s crazy. It’s about a 40% response rate within 24 hours, and of that 40% that responds, 90% will say, “No thank you,” and one or two of the responses will say, “Where is your property? Send me more information.” It’s just remarkable.

Theo Hicks: It’s interesting. So it’s worked for a Starbucks, for example?

Beth Azor: The Nationals, it’s a networking thing. So 90% of the Nationals have what’s called an exclusive tenant rep broker, and they are a local person who knows the local market knowledge and they hire them. They don’t pay them anything because we the landlords would pay the broker if we did a deal, but the landlords choose them as their exclusive representative. So if I wanted to do a Starbucks deal, I would know that this guy Don in our market reps them and I would call up Don and say, “Hey, I’ve got a new deal. I just bought a piece of land. I’m going to develop a shopping center. Starbucks isn’t anywhere around here. What do you think? Are they looking in this area?” And then Don would say, “Yeah, that’s definitely in our path of where we’re looking,” and I would be doing the deal with Don. Eventually, the real estate manager would come in and maybe I’d meet them on a site tour if I didn’t already know them.

So you collect those acquaintances and those connections by attending shopping center conferences. Before COVID we had a lot of those. You could literally be at a conference every other month and that’s where you’d shake hands in the old days and meet who’s repping who and who works for who. So simultaneously, you’re canvassing the locals to fill the local spaces and you’re collecting your connections of the people who work for the Nationals so you know who to call if you have an opportunity that you think would be good for them.

Theo Hicks: For someone who wants to get started in this shopping center, retail niche, what’s your best real estate investing advice ever for that person?

Beth Azor: Try to offer to work for free to a shopping center owner that owns properties, versus a broker. So if you’ve go to work for a brokerage firm, you’ll be responsible to have to go get your own listings, which is very, very difficult. But if you could find someone who owns six shopping centers like me or 20 shopping centers or 100 shopping centers, and anyway you can get in there– I have kids from college that come and shadow me all the time, and I always tell them, “Shadowing leads to internships and internships leads to jobs.” So if retail is something of interest, start figuring out who in your market owns the shopping centers and start knocking on their door. You certainly need to have a real estate license to be a leasing agent, but leasing is the future. I say to everyone always that go, “How did you end up owning six shopping centers?”, “I started as a leasing agent.” If you can figure out how to fill vacancies, you’re very, very, very valuable; very, very valuable. So be that person, learn how to fill a vacancy, and then the rest will be very easy.

Theo Hicks: And then a few other ways to fill the vacancies of what you talked about – social media for small business and then finding that Don in your local area for nationals.

Beth Azor: Exactly, exactly.

Theo Hicks: Perfect. Okay, thanks for sharing that. Alright Beth, are you ready for the Best Ever lightning round?

Beth Azor: Sure.

Break [00:19:05]:03] to [00:20:07]:09]

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

Beth Azor: So I have a book club for leasing agents every month, and last month the book was supposed to be The War of Art, but I changed it, Theo, to Man’s Search for Meaning, Viktor Frankl… Because we’re all going through a lot, and I think state of mind and perspective is crucial. So that was the most recent book that had a lot of impact on me because you can’t compare what we’re going through to the Holocaust. But sometimes when you’re stuck in your house for two months with kids and your business is severely being impacted, you can go down into a deep place. So I had about 100 people on that book club call and we all agreed that it was the perfect book to switch to in this time. So I’ll say that one.

Theo Hicks: Yeah, The War of Art. Make sure you definitely revisit that one. That’s one of my favorites.

Beth Azor: Cool.

Theo Hicks: Steven Pressfield, right?

Beth Azor: Yeah, I moved it up to September, I think. Yeah.

Theo Hicks: That’s a very solid book. Alright, if your business were to collapse today, what would you do next?

Beth Azor: Wow. Move to Hawaii.

Theo Hicks: There you go. I guess you can take your own rowboat right now. You can’t really fly there.

Beth Azor: Yeah, exactly. I’d have to wait, yeah.

Theo Hicks: Besides your first deal and your last deal, what’s your best ever deal?

Beth Azor: Buying the strip club. So I say I bought a strip club and built a strip center, and the city loves me for it. So I get more than my neighbors do because it helped clean up the city.

Theo Hicks: There you go. On the opposite end, what is a deal you lost the most money on? How much did you lose and what lessons did you learn?

Beth Azor: I bought a Winn-Dixie shopping center. We did a Staples office supply. I bought Winn-Dixie. They went bankrupt so I bought their lease. We spent $1.2 million. We had done the Staples lease at 20 bucks a square foot and thought, “Wow, this is awesome. I could probably get the Winn-Dixie at $15.” We never leased the Winn-Dixie. We were never able to lease it. Even though in the beginning, we had Walmart looking at it and a lot of people– I think my arrogance and my confidence in leasing the Staples so quickly at such a high rent blinded me. So once we had got control of the Winn-Dixie, I thought I could get $15, when I should have probably been happy and taken Walmart’s number at about $8 to $10. But my partner and I just believed that market knowledge was key and we just did the staples for $20, so certainly, we could get $15. And we ended up giving the keys back to the bank three years later. We had a balloon mortgage. The note was $16 million. We told the lender we thought it was worth $12. They said we can’t negotiate with borrowers, so we handed the keys back and they sold it later to someone for $12 a year later, and personally, I lost about a half a million and my partner lost probably about 5 million.

Theo Hicks: I had to ask you this earlier… Very quickly, how are you funding these deals?

Beth Azor: So the smaller ones I do personally, just with income from the other properties that I’ve saved up or just earned, and some I do family and friend money. I used to do institutional. That deal that lost the 5 million was BlackRock, an institutional partner, and after that deal, I said, “I would not buy properties that big anymore and have to have clients like institutions,” because I was happy to have them at the time, but it was a difficult relationship, obviously, near the end. So I decided smaller properties with family and friends.

Theo Hicks: Perfect. Okay. Another lightning round question. What’s the best ever way you’d like to give back?

Beth Azor: Well, currently I’m doing something called the Small Business series, and I’m interviewing small businesses and posting the interviews on my website and on my YouTube channel, and I’m trying to promote small business because they need it. Every time I call and ask if they want to be interviewed, they go, “What’s the catch or how much?” Nothing. I want to get the word out that you’re the best nail salon in town, or the best rib guy, or the best personal fitness gym. It’s been so rewarding, and they’re getting business from it, and it’s just been great. So right now, that’s my best way of giving back.

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

Beth Azor: Probably LinkedIn. Beth Azor on LinkedIn, but I’m also on Facebook, on Instagram, and my website bethazor.com. So type in Beth Azor, you can find me.

Theo Hicks: Perfect, Beth. Well, I really appreciate you coming on this show. I can’t believe this has been only 20 minutes. We’ve gotten so much information about retail shopping centers in just such a short amount of time. So we started off by talking about some of the challenges you’re facing with the Coronavirus. So we talked about how that’s different at the mom and pops, as opposed to national tenants. You talked about how you’re trying to delineate your days, so you’re not having this emotional rollercoaster anymore of talking to mom and pops who are very upset and national tenants who are not being as friendly as they probably should be. Then we also transitioned to talking about your business plan. So you’re buying and developing every two years. You really like to hold on to your property; the longest one being in 2008. We talked about the two main reasons why you like retail shopping centers. My personal favorite being the second one, which is you don’t want to own anything that has a bed because you don’t want to evict someone from their bed. I think it’s a really good philosophy.

We also talked about reasons why it’s not smart to take any discount or concession from your tenants because they might use that as an excuse to not pay rent. We talked about how your prospecting has changed from a lot of door knocking to now doing it on Facebook and Instagram for the small businesses, and then it’s still the local brokers that you meet at the shopping center conferences for the national accounts. And then lastly, we talked about your best ever advice, which was if you want to get started in retail shopping center, find someone who owns a center and either shadow them or be a leasing agent and help them fill vacancies, because you said that being a leasing agent is going to be the future, and if you can help owners fill vacancies, then you’re gonna be very valuable to them. So again, Beth, really appreciate you coming on the show and sharing your best ever advice. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Beth Azor: Thanks, Theo. Thanks for having me.

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JF2177: First Self-Storage Deal Making $1.5Mil With Mike Wagner

Finding your first deal and making a little money or break even is a good goal to have but how about doing your first deal and making $1.5 million? Mike ended up making this doing his very first deal in self-storage, and he shares some of the mistakes he made and lessons he has learned by doing self-storage facilities. He also was happy to share with us the approach he takes to increase the value of self-storage units.

Mike Wagner Real Estate Background:

  • Full-time real estate investor with 13 years of experience
  • In 4 years he built a portfolio of 31 doors 
  • In 2011 he focused in self-storage making over $1.5 million on his first deal
  • Based in Farmington, NY
  • Say hi to him at: members.thestoragerebellion.com 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“I am a low volume, high margin investor” – Mike Wagner


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, Mike Wagner. How are you doing, Mike?

Mike Wagner: I’m very well. Thanks, Joe. How are you?

Joe Fairless: I am well and looking forward to our conversation. A little bit about Mike – he’s a full-time real estate investor with 13 years of experience, and in his first four years, he built a portfolio 31 doors, then he transitioned. In 2011, he focused on self-storage, making over $1.5 million on his first deal – we must talk about that – based right outside of Rochester, New York, in Farmington. So with that being said, Mike, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Mike Wagner: Absolutely. Very briefly, I entered the real world as a physical therapist, doing the 9 to 5 thing, and I spent six years and about a quarter-million dollars getting certified and trained to do that, and about six weeks after I started, I realized it wasn’t for me, and so that’s what led me to real estate in general.

Joe Fairless: How come?

Mike Wagner: I enjoyed being a therapist, but long story short, I wanted to be the one who is in control of my time rather than having a boss tell me how often I could vacation and when I had to be back, and all of that stuff. So I started like a lot of investors do and I bought a duplex, with your typical little money down, seller financing deal, and I rehabbed it and put tenants in, and then refinanced to pull my money. It was the BRRRR strategy before I had a lot of initials to describe it. And over four years, I rinsed and repeated, and as you mentioned, got up to 31 doors.

Long story short, my wife and I were actually down on a vacation in Costa Rica, and it occurred to me that that was the life I wanted to live, not the one where I was punching a clock, as they say. So the landlording, it worked okay, and a lot of people do it very well. There were parts that I didn’t love, but generally speaking, it worked. I was making money; it just wasn’t getting me where I wanted to go fast enough, so that’s when I started looking at alternatives and ultimately, what led me to self-storage.

Joe Fairless: So let’s talk about it. So the 31 doors was through the BRRRR method before it was called the BRRRR method.

Mike Wagner: Correct.

Joe Fairless: Okay, and then in 2011, that’s when you focused on self-storage, is that accurate?

Mike Wagner: Exactly. I had been poking around a little bit before that. I was intrigued by the idea, but I closed on my first property in September of 2011. It was 12 days after I turned 30. I really wanted to quit my day job before I hit 30 and I missed it by 12 days, but I bought that property at the time. I gave up my physical therapy income, roughly 75 grand or so, and bought the storage facility that, with my debt, was losing two grand a month. So it was essentially $100,000 swing in the wrong direction.

Joe Fairless: Huh. So it was losing $2,000 a month when you purchased it and you knew that going into it?

Mike Wagner: I did, and it was making ten grand before debt service, but clearly, with the debt I put on it, that’s what put us on the wrong side of zero. Most of your listeners are probably thinking, “Well, we should tune out now; this guy’s clearly an idiot,” but I promise you it worked out in the end. That’s the same deal that I ended up clearing over $1.5 million on while I owned it.

Joe Fairless: Please elaborate – business model and numbers and how that ended up happening.

Mike Wagner: Yeah, sure thing. At the highest level, I’m a value add investor. So I look for storage facilities that are underperforming, and quite simply what I tried to figure out are the answers to two questions. Why is it underperforming, and then honestly, am I capable of fixing it? If I can answer those two questions, I get excited. And this particular deal, it was actually less than half full from an economic standpoint. It was half full physically, but it had the capability of generating as it sat when I bought it $150,000 a year in revenue, yet the current owner was running it such that she was collecting about 50k in revenue. So clearly, there was a management issue, but what my job was to figure out, is that the only problem or is there some other fatal flaw I don’t know about? So through my due diligence, I just saw the answers to that question. Can I fix this and is there a fatal flaw? What I ended up concluding was that it was just a management thing and if run properly, I could turn it around.

So within nine months of buying it, I had an appraisal on that property for $750,000. I should tell you that I paid $350,000 for it. So that was our first equity explosion, and man, at the time, I thought that was as good as it could get. I had left a job and I didn’t go bankrupt in the process, I had turned the property around. But that was only, like I said, 9 to 12 months into it from there; we expanded, we tripled the size of the facility, and I ultimately sold that property in August of 2018. So we’re coming up on a year and a half, give or take, for $1.8 million.

Joe Fairless: Wow. How much did you put into it?

Mike Wagner: We bought it for $350,000, and then through expansion, I was into it for a little over $800,000.

Joe Fairless: Okay, got it.

Mike Wagner: So the total profits when I quote $1.5 million, that is approximately a million in equity, and then over my seven years of ownership, about half a million dollars in positive cash flow.

Joe Fairless: Nice. What are some things that went wrong on that deal? I mean, clearly, all’s well that ends well, but what were some challenges you had to overcome after you bought it?

Mike Wagner: That’s a great question. I believe in finding the wrong in every deal because I make a mistake on every deal, and that’s where we learn the most. On that first one, I remember how devastated I was when it happened, and I thought the world was gonna end. I didn’t know at the time that a typical storage building, even if it’s not climate controlled, should be insulated on the roof to prevent condensation. So I had a day in January that was cold overnight, and then it got 70 degrees and sunny randomly, and that created quite literally a rain inside my buildings, and so I had to rip off 10,000 sqft of roof, put down installation and then reapply the roof over the top of them. I thought it was the end of me, and looking back, it was such a small blip in the radar; it’s comical.

Joe Fairless: It wasn’t when you got that first phone call though.

Mike Wagner: No, it certainly wasn’t.

Joe Fairless: Who called you? Was it a tenant of yours?

Mike Wagner: Yeah, it was a customer. When I said it was raining inside the unit, I was stealing their words. That’s how they phrased it to me.

Joe Fairless: [laughs] Oh, man… And in that scenario, you go there you address the problem. How do you handle that customer?

Mike Wagner: Excellent question. In the storage world, one of the huge benefits is that we don’t have liability for the belongings that customers place in it; it’s their responsibility to ensure those things. So from a legal standpoint, I didn’t have to do anything, but there’s a difference between being legally right and doing one, what’s human, and two, what’s good for business. So I made a business decision to pay her I think, out of pocket, I gave her $600 or $800 or something, in exchange for the understanding that we weren’t going to put this all over Facebook and the internet and whatnot. We had resolved the problem and I sought to keep it quiet.

Joe Fairless: Okay. And how many storage units were there?

Mike Wagner: When I bought it, there were 150 total revenue generating spots, half of those were traditional storage units and half of them were outdoor parking spots.

Joe Fairless: How did you find it again?

Mike Wagner: Believe it or not, that one was found as a listed property on LoopNet. The bank had actually strong-armed to the seller into listing it in lieu of a foreclosure, and they ultimately accepted a short sale on it.

Joe Fairless: That was your first self-storage property, and you’re buying it from a bank through a short sale. That’s a pretty sophisticated process. What was that like going into it as a first-time buyer of, I think, the largest property that you had bought to date?

Mike Wagner: That’s an excellent question, and there’s a couple of things that were at play. One, I was the beneficiary of the short sale being the bank’s idea, not mine, and anyone who’s familiar with short sales knows that that is a huge distinction. So I wasn’t fighting that uphill battle of convincing them of anything. They had laid their cards on the table and said, “We just don’t want to foreclose on this.” That being said, the bigger hurdle for me was finding the funding to get the deal done, because as you rightly pointed out, most of the banks, the first five to be exact that I talked to said, “Yeah, right, kid. You’re crazy. What do you know about renting garages?”

So I had to use each rejection as a way to learn and then preempt that objection with the subsequent bank, until the sixth one finally said yes, and what I did was just leaned on my experience in the residential world… And it becomes much harder for banks to question our credibility when we can convey to them that we’re an expert. Even if we don’t have experience, we know XY and Z about an industry, so I could lean on things like the income to expense ratio in storage being 30% to 35%, as opposed to the world I was coming from, landlording where it’s 50 to 55%. So there was a 20% margin of error that would 1) allow my inexperience to be compensated for and absorbed some of those mistakes I made, like buying a facility that wasn’t properly insulated.

Joe Fairless: So that was the first self-storage purchase. How many have you purchased since then?

Mike Wagner: That’s an excellent question, and I am absolutely a low-volume, high-margin investor. So I’ve been doing the storage thing for just about nine years now, and I’m on deal number five of my own. I help other people as minority partners in their deals, lending my experience to them in exchange for a small piece of equity, but as far as my own properties, I’m only on deal number five.

Joe Fairless: So let’s talk about deals two through five. What was the second deal?

Mike Wagner: That one was 20 minutes from my house here in Western New York. Very similar setup. I never thought it would be as good as that first one, but it was three buildings, 16,000 sqft, about half full, and very low rents, that I wasn’t sure I could improve, but I thought there was a chance I might be able to… And even if I didn’t, I knew just filling it up at least made it a double. It wasn’t a home run, but it was a double. So I went after it, and long story short, I paid $360,000 for that one, I sold it last year for $1.325 million. We had expanded it as well. So I was into it for about $650,000 or so at the time.

Joe Fairless: What was the business plan?

Mike Wagner: Very similar to the first one, people are always asking, “Mike, that’s incredible. You doubled the value. How did you do it?” It’s one of those instances where I want to make myself sound like some genius, but it’s just common sense stuff. We answer the phone, we treat customers the way they deserve to be treated. Storage, not quite as much today as in the past, but it’s still true in a lot of mom and pop locations, is it’s treated as a hobby or a secondary revenue stream by its owners, so they don’t do all of the very easy things necessary to optimize the value of the asset that they have. So that’s where we come in, we purchase it, and then we deploy some relatively straightforward and simple systems that allow us one, to maximize the value, but also do it with very little of our own involvement. I spend roughly three to five hours a week managing my three storage facilities that I currently own.

Joe Fairless: So let’s talk about the systems you bring in day one to maximize the value. What are the things that you make sure that you do?

Mike Wagner: That’s an excellent question. So the first thing I do is I prioritize the inefficiencies. So I say, “Alright, what’s wrong here and what’s the most important one to fix?” And then I just check those off one at a time. Generally speaking, the biggest thing is usually vacancy, so we’ll address that before we care too much about maybe inefficiency number two, which is collections… Because an empty unit is our biggest inefficiency. Collecting the money on a full unit might be number two. So systematically, we go in that order, but all of them are addressed, to some degree, by what I call my three-pronged remote management strategy, and this is what allows me to buy, regardless of how close a facility happens to be to where I’m living, and it also allows us to travel the country without negatively impacting our business.

In a nutshell, the three pieces of this strategy are cloud-based software –  that our management software that’s embedded into a website that the customers can access and use on their own to rent units, pay their bill, update their account, do all of those things. So it’s a very user-friendly DIY model.

For those folks that aren’t wanting to do everything via the internet, we do have also a call center and again, it’s embedded. It’s not a glorified answering service like many call centers are, but it’s built into the back end of our software. So the folks that answer the phone can quite literally handle 90% to 95% of all customer needs that way, and when they can’t, they simply email or text me depending on the urgency of it, and then I just respond by email or text and have them get back in touch with the customer to handle the issue.

Joe Fairless: What’s an example of something they would email your text you that they can’t answer?

Mike Wagner: They don’t have the authority to issue refunds or to make exceptions or maybe make a payment plan for a customer who’s fallen behind and trying to avoid auction; those types of things. Sometimes it’s just a customer who, for whatever reason, is upset by something that’s occurred and they just won’t sell for anything other than speaking to the owner. So I’m not going to pretend I never talk to my customers. I would say maybe once or twice a month I’ll be on the phone with somebody. But more often than not, it involves payment of some sort.

Joe Fairless: Okay.

Mike Wagner: The third piece of the management strategy that we use is it’s critically important, but it’s far less cumbersome than most people think it is, and that’s the onsite tasks. I own property number three, I bought in Florida just about two years ago now, and it’s gone very well, and I haven’t been there in the last 18 months, and the reason is because I’ve hired somebody who serves the role of what I call boots on the ground. They are responsible for all of the physical tasks, which include things like pest control and lawn mowing, as well as probably the most management heavy side of things is they have to walk around the facility and take an audit of what units are rented and water available, so that we can reconcile that with our inventory that’s shown via the Internet to our customers when they come to rent.

But it is two to four hours worth of work per week, and because it’s so few hours, we can pay them extra in exchange for them really taking ownership of the place. I don’t hire somebody to mow my lawn. I hire the person who I know is going to treat it like it’s their own, and I pay them double what I should, probably to the tune of one $25 to $40 an hour for these $10 an hour tasks, because them taking ownership is worth its weight in gold to me.

Joe Fairless: Will you describe what you mean by that? I love using the example of the person mowing your lawn. What is the difference between them mowing it versus them taking ownership and mowing it?

Mike Wagner: Yeah, that’s an excellent question, and I address this head-on during the interview process. When my potential hires ask about what’s involved in the job, I don’t say anything about the physical tasks – mowing the lawn, pest control, sweeping units. None of that comes until the very end of the conversation. What I describe for them is the ideal candidate for this job will treat this place like they own it, so much so that I as the owner can forget about it without any of my customers knowing that I’ve forgotten and that usually hits some people, like that gives me deer in the headlights and they’re like, “I don’t know what you just said, kid.” Other people, it just lands on them, and it sounds crazy, but that’s usually when I know whether or not I’m going to give that person a run at it.

The beautiful thing is for this role, you don’t need an A+ player. An A+ player will make it your life that much better, but you can quite literally get by with a B- or a C+. Now, after a couple of months of that, you’ll probably be looking to upgrade, but it’s a very easy onboarding and offboarding process. Oftentimes, we’re bartering living quarters or storage units for this work in addition to the pay that we offer them. So we never, never offer the living quarters until we’re sure they’re a more or less permanent fixture. During the test drive, they’ll have to work 8 to 12 weeks for us on a trial period before we’re going to make any long term commitments.

Joe Fairless: So I wanna make sure I got the three-part system. I got the cloud-based software, I have on-site tasks. Was the first one prioritize inefficiencies or was that something else?

Mike Wagner: No, I’m sorry, I wasn’t clear on that. So the first thing I do is I prioritize the inefficiencies; that’s just for more of a strategic level. The three prongs, you got two of them – the cloud-based software, the boots on the ground, and then the call center is the third piece.

Joe Fairless: Ah, okay. Got it. Cool. What is a URL to one of your storage facilities website?

Mike Wagner: You could check out bronsonselfstorage.com. That is the Florida property that I purchased two years ago. We just are in the process of listing it. We bought it for $465,000, all in. We had some repairs to do; we were at half a million, and now two years and one month later, I’m listing at this week for $1.5 and a quarter. So 1.525 million, just over a million dollars above what we have into it.

Joe Fairless: When you take a look at your experience, there’s got to be some piece of advice that like, “You know what? I wish I would have known this when I started.” So what is your best real estate investing advice ever?

Mike Wagner: That is a question I love and expected. So you’d think I’d have an answer on the tip of my tongue. What I will say is that my encouragement to my younger self for anybody listening is –  listen, do what you need to to get smart, and don’t pretend that you’re going to have it all figured out, and then you get to make the first move. The analogy I use a lot of times is that of a staircase. A lot of us, especially analytical types, want to know and see very clearly all 12 steps and the top of the landing before we even take step one. But in my experience, the people that achieve success most quickly are the ones who are willing to take steps one and two, even if it’s still foggy at the top of the landing, and then improvise along the way. Now I am huge on risk mitigation, so I’m not, in any way, suggesting that folks throw caution to the wind, but nine times out of ten, I think folks move more slowly than they should, just because of that fear of the unknown.

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

Mike Wagner: I am.

Break [00:22:20]:04] to [00:23:23]:09]

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

Mike Wagner: Eric Barker, Barking Up The Wrong Tree.

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

Mike Wagner: Lots of ways. I would say, right now, top of my list is working with a school Escuela Integrada down in Guatemala.

Joe Fairless: Best ever deal you’ve done.

Mike Wagner: It’s gotta be that first storage deal that we talked about earlier.

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

Mike Wagner: I would ask them or invite them to come check us out. I have a new online community. It can be found at members.thestoragerebellion.com. Completely free to join, come hang out with us and talk storage. It comes with a seven-day workshop for you to get smart and see if storage is something you want to pursue. There’s no sales or anything like that in it.

Joe Fairless: Mike, thanks for being on the show talking about your experience, how you got going, and then how you pivoted to self-storage and have been doing so for the last nine years. The approach that you take and the three-prong approach – cloud-based software, call centers, online tasks, and the first thing is prioritizing the inefficiencies. I love a couple of things that you mentioned. One is you believe in finding the wrong in every deal. I think we should all do that… And then two is the two questions that you ask yourself when you’re looking at an opportunity. Why is it underperforming and can I fix it? Very straightforward questions and on the surface, it might seem obvious, but really, they’re powerful questions to ask whenever we’re looking at opportunities. So thanks for being on the show. I hope you have a best ever day. Talk to you again soon.

Mike Wagner: Thank you so much, Joe.

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JF2169: Immigrant to Real Estate Business Owner With Hamza Ali

Hamza is the founder of Gray Spear Capital, an asset management company focusing on commercial real estate. Hamza started real estate as a new immigrant and through his determination, resourcefulness, and strategy-mindedness was able to grow his own real estate company. Through this interview, Hamza shares how he was able to do this and the little secrets he would implement to help him get great deals safer.

 

Hamza Ali Real Estate Background:

  • Founder of Gray Spear Capital a asset management company focusing on commercial real estate
  • Developed and managed a variety of projects, in the flex space and light industrial real estate
  • Portfolio consists of 1000 apartments in Houston
  • Based in Houston, TX
  • Say hi to him at: www.grayspearcapital.com 
  • Best Ever Book: Billion Dollar Whale

 

 

 

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Best Ever Tweet:

“You should try inviting someone who is more successful than you are to join your meetings. This will help you appear more of an expert than you actually are” – Hamza Ali

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JF2151: Construction Owner and Investor Point Of View With Jorge Abreu

Jorge Abreu decided to leave real estate because he was not passionate about working in the corp world. He ended up developing a construction company called JNT Construction and now is the CEO of Elevate, a commercial investment group. He is now a full time active and passive real estate investor with 14 years of experience. 

 

Jorge Abreu Real Estate Background:

  • CEO of Elevate Commercial Investment Group and owner of JNT Construction
  • Is a full-time active and passive real estate investor with 14 years of real estate experience
  • He has wholesaled 200+ properties, flipped 100+ and developed several construction projects from the ground up
  • Current portfolio consists of 1,720 doors as a GP and 1,400+ as a LP
  • Based in Dallas, TX
  • Say hi to him at: www.ElevateCIG.com 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If a contractor doesn’t have a presence online, it is a huge red flag.” – Jorge Abreu


TRANSCRIPTION

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

Jorge Abreu: I’m doing good, Joe. Glad to be on your show.

Joe Fairless: Yeah, I’m glad to have you, and looking forward to our conversation. A little bit about Jorge – he’s the CEO of Elevate Commercial Investment Group, and owner JNT Construction. Full-time active and passive real estate investor, with 14 years of real estate experience. He’s wholesaled 200+ properties, flipped 100+ properties, and developed several construction projects from the ground up.

His current portfolio consists of 1,720 doors as a general partner, and over 1,400 doors as a limited partner. Based in Dallas. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jorge Abreu: Yeah, definitely. As far as the background, I graduated from university with an electrical engineering degree. I went to work for UPS in the engineering department. Probably my senior year before I graduated I knew I didn’t wanna do engineering, I didn’t wanna be in a cubicle, crunching numbers all day, so I started looking at some other successful individuals and noticed that a lot of them built their wealth through real estate… So I started getting educated on real estate investing, did some single-family deals, decided to quit my W-2 job, start doing real estate full-time… That’s where I’ve found my passion.

Then, while trying to scale the single-families, I started doing a lot of fix and flips, and ran into some issues with some general contractors, so I decided to open a construction company to help scale that aspect of it. So then the construction company kind of took off on its own as well, and then about 3,5 years ago I kind of looked back, looked at what I had built, and realized that a lot of the stuff I had done was very transactional, and I didn’t have that constant cashflow coming in, and I also hadn’t built that legacy, or that wealth… And that’s what kind of turned me into looking into multifamily.

Luckily, I had some clients through the construction company that were multifamily syndicators, and they kind of opened my eyes to that world. Before then I never thought about purchasing a 200+ unit property, didn’t think it was possible… But with the syndication, that kind of changes things. So at that point — at first, I tried doing both the single-family and the multifamily. I’m a big Tony Robbins fan, and he always talks about focus is where the energy flows, so I decided to just stop doing single-family altogether and just put all my focus into multifamily. Since then, it’s really paid off.

Joe Fairless: Well, let’s talk a little bit about your story. Your senior year in college you worked so hard — you were about to get a degree in electrical engineering and you realized your senior year you don’t wanna do what your degree is in. Electrical engineering, for people I speak to, is  a very tough degree to get…

Jorge Abreu: [laughs] Yes, it is.

Joe Fairless: Were you demoralized by that, or what was your mindset?

Jorge Abreu: That’s a great question. Thinking back, it’s a five-year degree. A lot of math, so a lot of hard work to get past those classes… And I wasn’t demoralized. I had found what I knew I wanted to do, so more than anything I was excited. And I knew this was gonna have to be part of my path to get there – to come out of university making a decent  salary, and then do what I really wanted to do on the side, until I built that up enough to where I can do that full-time.

Joe Fairless: You said you looked at successful people and a lot of them got money through real estate… Who were some of the people you look at?

Jorge Abreu: Donald Trump was one. I know there’s a lot of people that love and a lot of people that hate him. Back then he was mostly a lot of real estate… And then Ron LeGrand I don’t know if you’re familiar with him. He’s been around for a long time.

Joe Fairless: Yup.

Jorge Abreu: So he was the first seminar I went to when I ended up signing up for his coaching, and that’s really what got me going.

Joe Fairless: And then you decided to quit your job at UPS in the engineering department… I imagine, since you majored in electrical engineering, you’re a very thoughtful, logical thinking person… What was your thought process that led you to say “I’m ready to leave this cushy W-2 job and go full-time in real estate”?

Jorge Abreu: It took a couple good deals to close for me to really prove to myself that I can do this, and I can pay consistently… And it got to the point where it was costing me money to be going to my W-2, and I think that’s where I’m very numbers-driven… So when I saw that, it just made sense.

Joe Fairless: That makes a lot of sense, if you have proof that you’re making more money doing your own thing than your full-time job, and it’s actually costing you money to be there. As far as GC issues –  you said you came across general contractor issues, and then you started your own construction company… What were the issues? And maybe if you have a story that you can share about some issues, even better.

Jorge Abreu: Just overall getting burned, paying the contractor too much in advance, and then having them disappear… That happened to us twice. This was back in South Florida; now I live in Dallas, like you mentioned… But I’m originally from South Florida.

Then when we made the move to Dallas after the ’08 recession, the same thing happened here. I think that was the last draw, when it happened here in Dallas; I was maybe thinking “Okay, maybe it’s something in South Florida.”

Joe Fairless: There’s crooks everywhere.

Jorge Abreu: Yeah, that’s for sure.

Joe Fairless: Why did you pay too much of an advance the second time, after being burned the first time?

Jorge Abreu: That’s a great question, too. Just not the right move, obviously… But when you’ve got a lot going on, and trying to scale… I can definitely say that – and this has always happened – I always trust individuals right off the bat, and I’m very optimistic. I finally have learned – it took maybe a couple more times, but… Yeah, that’s mainly why.

Joe Fairless: Let’s talk about some specific deals. So you’ve wholesaled 200+ properties, flipped 100+, and developed several construction projects, and you’re also a GP on deals, and an LP. As far as the development of construction projects from the ground up, tell us about one.

Jorge Abreu: So as the market go hotter – residential is what I’m talking about right now – it got harder to find good deals… And what we decided to do was leverage our construction company to create deals. It started doing a small addition – I know I can add 500 sqft to this house, and it’s gonna cost me $100/sqft, but I can turn around and sell that extra square footage for $200/sqft. Then we started ripping the  roof off of houses and adding a second floor, to the point where we just finally went to the next step where we demolished the house and started building new ones. And then on the multifamily side, actually working on the first one, on a large multifamily scale, which – we’re just in the entitlement phase right now.

Joe Fairless: With the renovation process where you’re building out 500 sqft more, compared to building a brand new house after you demolish it – what are some main differences, other than it’s just larger? But besides that, maybe from an approval process, or from some other type of consideration that we might not think of, and that you’ve discovered when you got into it.

Jorge Abreu: Most people would actually think that addition would be easier than the new construction, which is not necessarily true. Building a new construction is easier. The permitting is harder, obviously, and that’s one reason why we were ripping the roof off and adding a second floor, versus just tearing the whole house down – it’s because the permitting process is a lot quicker, a lot easier… You can get off the ground quicker, because you already have your foundation… But on a new construction, once you have that foundation poured and you start building it, it’s a lot easier than the existing, because you don’t run into plumbing pipes that are broken… You never know what you’re gonna find behind the walls that you’re tearing down.

Joe Fairless: That makes sense. Permitting is harder for new construction, but the construction aspect of it is easier. You gave the example of $100 versus $200. $100 to build the 500 sqft, but you can get $200 on the sale… What were the ratios that you were looking at with new construction when you were doing them?

Jorge Abreu: So we started doing some higher-end single-family  homes, and that was more of the ratio maybe — we were building it for more like $130 to $140/sqft, and then turning around and selling that for $240. I’m not sure exactly what the ratio is there, but…

Joe Fairless: That’s fine; that helps, that comparison. When you say higher-end homes, what’s the end price point range?

Jorge Abreu: Most of them were a million to — I think the most expensive one we did was right around 1.5 million.

Joe Fairless: Any of them sat on the market for too long and made you sweat?

Jorge Abreu: Absolutely. [laughter] Unfortunately.

Joe Fairless: What happened with one of them?

Jorge Abreu: There was one that location — they always say “location, location, location.” It was a good location overall, but it was a little closer than we realized to a main street, and we kept hearing that comeback in the feedback, that they didn’t like the fact that it was — we’re talking about maybe 4-5 houses in from a main street. So it sat out a bit longer than we expected.

Joe Fairless: Out of your deals, thinking back, what deal have you lost the most amount of money on?

Jorge Abreu: Hm… It’s a tough question. We’ve definitely lost on some deals. I won’t say we haven’t. I know there was a renovation we did… It was something with a neighbor… I can’t remember the exact deal, but I know we ended up losing maybe 20k or so on it.

Joe Fairless: You don’t remember — not specific, but high-level, why you lost the money? In case we can learn from that, that’s the only reason I’m asking…

Jorge Abreu: Yeah, for sure. We ran into some issues, so we had to replace all the plumbing. You’re originally from Texas, I believe, so you know about the foundation shifting…

Joe Fairless: Yes… [laughs]

Jorge Abreu: Okay… So the foundation had shifted quite a bit, which we saw that going in, but we did not expect to have to replace all the sewer lines, which we did… So that cost us some money. And then on top of that, it ended up sitting longer than we expected, we ended up having to drop the price… So  a mixture of spending more on the renovations than we had expected, and then having to sell it for less.

Joe Fairless: Do you still have your construction company?

Jorge Abreu: Yes.

Joe Fairless: Knowing that you have a successful construction company, what are some things that you can share with people about the construction process, that you know because you own the company and you see from the construction side what things are like? That maybe are either missed, or things that other investors should realize about the construction process. I know it’s a broad question, but maybe think of it from the standpoint of “When we get quotes from construction companies”, or the payment process, or “Here’s some unique things you could do to work with a company…” Just anything that comes to mind.

Jorge Abreu: No, for sure; I’ve actually done quite a bit of webinars and stuff on these things, because I feel like it is an aspect of multifamily investing that a lot of people don’t have a background in, and they do some of these things wrong…But I think it starts with the contractor that you hire; you need to do your homework. You need to call references, you need to make sure that they have insurance – that they have general liability insurance, and enough to cover if something was to go wrong. That they have a presence online… Nowadays if a contractor doesn’t have a presence online, it’s a huge red flag. So that’s one – do your homework when you’re hiring the contractor.

And then while the project is — well, not even while the project is going on… So once again, before  you hire them, dig into how they communicate exactly. How are you going to communicate with me throughout this project? Are you going to give me a weekly report? Are  you gonna give me daily reports? Do you have a software that you use to actually manage the project? Are you gonna give me schedules? How do I hold you accountable? Those kinds of things. How do you handle change orders? That’s big, because if you’re picking a contractor solely on price, you’ve gotta be careful; you’ve gotta look at the details and make sure that they have a detailed scope of work. If not, they may change-order you to death, which I’ve seen several times… So yeah, I’m not sure if there’s something else… I can keep going on and on.

Joe Fairless: That’s good. So when I meet with a general contractor, what are 2-3 things I need to make sure that I either ask him/her, or get from him/her? I know there’s more than that, but what are 2-3 things that “Hey, you’d better ask or get this information from him/her before they do the job”?

Jorge Abreu: For sure you need to get a detailed scope of work, that lays out exactly what you’re getting. If they delivered a paragraph with a price at the bottom, I will not accept that. Make sure that if they’re supplying some type of materials, that you have an actual allowance of what they’re supplying and how much they’re budgeting for that. And their insurance – make sure that they supply a certificate of insurance, and that it has the owner of the property’s name on it.

Joe Fairless: What do you mean by owner of the property’s name?

Jorge Abreu: You know, each property is gonna have its own LLC, most likely… So that should be mentioned on there as additionally insured.

Joe Fairless: Okay, cool.

Jorge Abreu: Yeah, it just makes it easier if something does go wrong – it makes it easier to file the claim on that insurance, if it goes that far.

Joe Fairless: Okay. Got it.

Jorge Abreu: And the third thing I would say would be the communication – really dig into how they’re gonna communicate with you, and have them lay that out for you.

Joe Fairless: Got it. You actually gave a bonus; you gave four, so even better. Detailed scope of work, materials allowance, make sure that you’re additionally ensured on their certificate, and the communication.

Taking a step back, based on your experience, what’s your best real estate investing advice ever?

Jorge Abreu: Best real estate investing advice ever… Get focused. Don’t get distracted with all the different noise that’s out there. That’s a pretty broad statement, but that can go for so many things. Real estate alone – if you decide that you wanna be a real estate investor, get focused on what type of real estate you’re actually gonna do, what area you’re gonna do it in, what type of properties you’re gonna look for, and then go all-in… And don’t try to be a real estate investor while selling things on Amazon, while doing something else. Conquer the one thing in front of you, focus on it, and then possibly start adding other streams of income.

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

Jorge Abreu: I’m ready.

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

Break: [00:18:55].23] to [00:19:38].15]

Joe Fairless: What’s the best ever book you’ve recently read?

Jorge Abreu: Recently, it would have to be Atomic Habits, which mainly goes over the fact that every day we have habits, a lot of them we don’t even realize it; it’s our subconscious mind just doing things. But if you become aware of that, you can actually replace those bad habits with good habits… And then when you really break it down, the outcome of your life depends on those habits.

Joe Fairless: Best ever deal you’ve done?

Jorge Abreu: That would have to be our five-property portfolio of 1,275 units we closed on end of November, last year.

Joe Fairless: How did you find it?

Jorge Abreu: Found it through a broker.

Joe Fairless: And where are they located?

Jorge Abreu: Houston.

Joe Fairless: Why is that the best ever, because it’s the largest?

Jorge Abreu: Because it’s the largest, yes, and there was a lot that went into getting it closed… So it felt really good getting it there.

Joe Fairless: What was just one of the challenge?

Jorge Abreu: Raising 22 million dollars.

Joe Fairless: Fair enough. When you take a look at that deal and the challenges you came across, what’s one thing that you learned?

Jorge Abreu: If you’re going for a institutional or an equity partner, have several back-ups.

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

Jorge Abreu: I know our company goals — by the end of this year we wanna have a non-profit organization that we support 100%, and we’re gonna start doing a yearly event, where all the proceeds would go to that organization… And probably doing some other things throughout the year. So that’s not something we’re doing this second, but it’s definitely in our plans.

Things I do right now – I like to educate others. I feel like some people get trapped in the “Okay, I’m supposed to go to the university, get my degree, go work a W-2 job, have my 401K or whatever retirement plan, and that’s it. That’s what I’m gonna do.” And there’s other ways to really be able to build wealth, and other investments, like multifamily and things like that, that aren’t really taught in our school systems.

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

Jorge Abreu: They can visit my website, which is ElevateCIG.com, or JNTConstruct.com. They can also shoot me an email if they like, at jorge@elevatecig.com, and if they do that, I can send them a couple different contents. I have a free checklist for due diligence for multifamily properties, and a couple other things I can send them.

Joe Fairless: Jorge, thanks for being on the show, talking about your construction management experience, lessons learned, talking about the deals that you’ve done, and what’s worked, what hasn’t worked, and the differences and the thought process with new construction versus adding on, versus what you were doing before that, buying existing product and wholesaling.

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

Jorge Abreu: Thank you.

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