JF2693: The Secret Strategy for Turning Motels into Profitable Long-Term Housing with Andrew LeBaron

Andrew LeBaron decided he needed to niche down his real estate strategy. That’s when he had the idea to convert motels into long-term stays. Varying slightly from an apartment, Andrew’s motel conversion strategy allows him to cut certain costs and hurdles that typically accompany multifamily properties. In this episode, Andrew walks through the benefits of long-term stays over apartments, the budget differences between motels and multifamily, and how he’s created his conversion strategy.

Andrew LeBaron | Real Estate Background

  • Syndicator, Apartment Motel Owner. His business model is reviewing small to midsize motel/hotel assets, underwriting the deal, purchasing, converting, and refinancing.
  • Portfolio: GP on motel assets: 42-unit, 13-unit, 22-unit, and an 18-unit.
  • Upcoming deal for a 129-unit Motel that he will convert to apartments.
  • Based in: Phoenix, AZ
  • Say hi to him at: buymoretime.com | Facebook and Twitter: @andrewinvestor
  • Best Ever Book: Raising Capital for Real Estate by Hunter Thompson

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JF2685: 5 Worthwhile Benefits to Investing in Affordable Housing with Denis Shapiro

Denis Shapiro has diversified his portfolio ranging from apartment buildings to self-storage to mobile home parks. Now, Denis has branched out into Affordable Housing, a market that few people decide to invest in. In this episode, Denis shares why Affordable Housing can be a lucrative investment, along with five benefits you can gain from this asset type.

Denis Shapiro | Real Estate Background

  • Fund Manager at SIH Capital Group, which has an income fund and allows their investors to invest in specific deals they are GPs on. The income fund mirrors what one would find in a REIT but more consistent and is not publicly traded.
  • Portfolio: LP on multiple syndications in various asset classes such as apartment buildings, mhps, self storage and atm funds. Also has 10 Residential syndications, including Ashcroft deals
  • Has two upcoming GP deals in the works: a 50 unit Affordable Housing community closing in 01/22; and a 9 unit STR community closing in 02/22.
  • Based in: Freehold, NJ
  • Say hi to him at: www.sihcapitalgroup.com | https://www.facebook.com/sihcapitalgroup
  • Best Ever Book: The 5 Love Languages of Children by Gary Chapman

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TRANSCRIPTION

Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Denis Shapiro. Denis is joining us from Freehold, New Jersey. He’s a fund manager at SIH Capital Group and he is an LP on a number of funds, including apartments, mobile home parks, self-storage, and ATM funds. Denis also has two upcoming GP deals in the works, one of which is an affordable housing community and the other is a short-term rental community. Denis, thank you for joining us and how are you today?

Denis Shapiro: Thank you, Ash, for having me on. It’s awesome to be here again.

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

Denis Shapiro: Yeah. I gave a more detailed background last time I was on so I’ll keep it really, really short. I’ve been investing in stocks for 20 years, the last 10 years, I’ve transitioned into alternative, but I’ve never pulled the cord on traditional. I feel that traditional and alternative can complement each other really well if you have stocks and bonds, and then you also invest in private securities like real estate. So for the last 10 years, I’ve gone down the rabbit hole… I went from single-family rentals and I quickly didn’t really want to do anything with that. Then I went to note funds, ATM funds, life insurance policy, but then I feel like I had the gateway moment is when I went towards apartment building syndications. Once I went down that rabbit hole, I feel like everything else opened up to me after that.

Ash Patel: You found the Holy Grail, huh?

Denis Shapiro: Yeah, it was definitely — when I first found it, I was like, “Oh, this is too good to be true. You get all the benefits of investing with a multimillion-dollar property, but you can do it for as little as $50,000.” I started crowdfunding so I was doing as little as like $10,000, but that was a disaster in itself. It was hard to believe that you could literally get all the benefits with a fraction of the investment.

Ash Patel: Yeah, the power of leverage. Denis, when you say traditional alternative investments, what does that mean?

Denis Shapiro: For me, traditional is anything that’s publicly traded, and alternative is anything that’s private. I wrote a book on this, The Alternative Investment Almanac, and I was trying to find a pinpointed definition of what exactly is alternative, because some people don’t consider real estate alternative. So the conclusion I came up with from all these different opinions is that it’s just a matter of is it publicly traded or privately traded, and that’s it.

Ash Patel: When you started investing in multifamily, did you start as an LP in other people’s deals?

Denis Shapiro: Absolutely. Besides my own single-family rental and duplexes, when I got into the commercial real estate space, it was strictly as an LP. My goal was just to become the best possible LP investor. Because, truthfully, if that is the only thing you accomplish, you can be an extremely successful investor. You never really need to go the GP route; but if you just really hone in and become the best possible LP investor that you can be, it’s an extremely powerful wealth creating tool.

Ash Patel: Denis, how does one become the best LP investor?

Denis Shapiro: Probably the easiest answer is investing with the best operators. But the journey — it is a journey. It’s something that people need to understand. My first investment wasn’t a good one; my second one was slightly better, and then after I had a dozen or so under my belt, I got the variables down path. I knew which ones I wanted, I knew which markets I wanted to be in, in which markets I did not want to be in, I knew where I was overexposed, underexposed… So it’s just time, knowledge, and experience. It’s not something that you’re going to wake up and you’re going to be like, “Wow, I’m a great LP investor today.” It takes a while to get to that point.

Ash Patel: What made your first investment not a good one?

Denis Shapiro: So much. And you know what? It’s easy to blame the operator, it’s easy to blame the underwriting, but honestly, it was just me and my lack of experience. I did not know how to evaluate a deal, and it doesn’t really matter who the operator was at that point, or anything else. I should never have made that investment, because I was not at the place where I should have been at that point before sending in that $50,000, or whatever the amount was.

So the second part of that answer, I guess, is what were the key variables that I learned that I kind of applied from the mistakes from that deal is not invest in deals where the overwhelming majority are one-bedrooms. So it might look like a big property, like 100 units or 200 units, but if 80% of those are one bedroom, you’re never going to get high 90s occupancy; it’s always going to be transitional. One bedroom – people leave, they move in with a girlfriend, they need to upsize. One bedroom’s are the most transitionary lifestyle unit composition, so you want to stick to the twos or threes. It’s okay to have a couple sprinkled in, but when you’re buying a complex and its majority are one bedroom, then you’re asking for problems.

Ash Patel: Interesting. I’ve never heard that before, but that sounds like great advice; it makes a lot of sense. I think back to all the one bedroom I rented or the studios that I rented; I was there for a year. I moved in with a roommate, moved in with a girlfriend… Yeah, that’s a neat perspective. What else do you look for in GPs?

Denis Shapiro: Okay, so from an operator’s perspective, a lot of things that I look for, is I like to take the word conservative and I scrape it out, because every deal gets labeled conservative. What I really look at is what is the range that they’re projecting.  I don’t invest in deals that project over 20%. I don’t do many developmental deals, so my sweet spot, what I look for in IRRs is between 13 to 15. What I’ve found is the operators that tend to go for that 13 to 15 sweet spot, they tend to actually perform into the high teens and the 20s. And it’s the operators that — like, when I did that crowdfunding, when I started out with crowdfunding, it was littered with a bunch of people who were projecting the 20s and the Moon. Part of my inexperience was I was attracted to that. These days, I scrape that off the plate, unless it’s an operator that I really, really know. If I get any deals from any operators that I don’t have a relationship with and it starts with a two in front, I usually just delete it.

Ash Patel: Your crowdfunding experience – was that through one of the big platforms out there? We’re you an LP on that deal?

Denis Shapiro: Yeah. I was an LP. The bottom line is it was a technology company disguised as real estate. I feel bad, because I was one of many investors that were basically… I don’t want to use the word defrauded, but it’s pretty close to that, where the advertising — and they were advertising on some of the bigger podcasts, well-established real estate podcasts as well, right before they shut down. As a real estate investor, you never want to hear the company that you invested through, because they didn’t get a VC funding, then they’re shutting down; then there’s a big problem there. It was a huge, huge — honestly, probably the biggest learning experience of my life was investing into crowdfunding where I thought it was better to do 5000, 10,000-dollar investments than to do 150k. Today, that probably cost me 100k to $150k of my net worth, that decision.

So it’s definitely — in the syndication world, in the private securities world, you get what you paid for. Usually when they preach, they advertise, get into these deals that $10,000 or whatever it is, usually it’s kind of a get-what-you-paid-for scenario.

Ash Patel: Yeah. And the way I look at it is if you’re taking on $10,000 investments, that’s a lot of accounting overhead. Why not just market yourself, get the 50k, the 100k investments, right? If you have the track record, it shouldn’t be hard to do.

Denis Shapiro: Yeah. But the problem was a lot of these operators that did get on these platforms didn’t have the track record. They either had a sponsor on the team that had a track record, or whatever the case was. But there’s forums out there where you can clearly see how bad it is. I have a lot of people that reach out to me from an investment perspective and say, “What should I do to get started? Should I go that route?” I say, “Absolutely not.” It’s not that every platform is bad. Yes, my particular experience was really bad, but the bottom line is that when I started taking on that responsibility for myself and doing the vetting, and calling the operators, and learning some underwriting, doing all those skills – that skill and knowledge base transformed my whole career… Versus still being on a platform where I would log in — yeah, I’d have a really nice portal and I would see this beautiful pie chart, but I would have learned nothing in that process. Versus having those calls, having those conversations, building up my network, and having people to actually go to for an opinion that actually means something. All of those things a crowdfunding platform cannot do for you.

Ash Patel: Yeah, and all of those things will help make you the best LP investor.

Denis Shapiro: Exactly.

Break: [00:09:35][00:11:13]

Ash Patel: Denis, how many different deals are you in LP on right now, roughly?

Denis Shapiro: A few just one full circle, but I would probably say high single digits. Probably high single digits, because I have an investment club that I do a lot of deals with; so I would probably say between 10 to 11.

Ash Patel: Do you spread your money out in different asset classes, or is it all multifamily?

Denis Shapiro: No, we do — so my investment club and my fund are two very, very different things. The investment club is a private fund with me and two other individuals, and they have very unique backgrounds. One of them is in crypto and the other one is in startup. So I personally wouldn’t feel too comfortable investing in crypto or startup, because I don’t have that experience. I’m a commercial real estate guy. But when they offer something to the club, I have complete confidence in them. So it allows me to have a more diversified portfolio. But when it comes to the actual fund that I actually administer, all that stuff basically is commercial real estate.

Ash Patel: If you find a really good operator, why not just go all in on that one operator, and keep doing more deals with them?

Denis Shapiro: I think it’s like a lifecycle. At first, when you’re new, I think the first couple of years, it was exciting to get on calls with new operators, and especially well-established operators. I remember the first time I spoke to Joe and some of the other big operators. It was fun, it was an experience, and it was worth those conversations, and it was worth doing a lot of deals with a lot of different operators. Now that the deals went full cycle and now that you have an evolved portfolio, now it does make sense for me to be more selective. And I do go all in on selective operators; like, for our fund that we administer, we only have four operators. But those four operators give us exposure to almost 196 properties out there, so we’re still really well diversified. But if I was earlier on in my career, I wouldn’t advise it. But I feel like after you go to full cycles, then you can kind of apply your 80/20 principles, and then at the end of the day, it becomes okay, as long as those operators are well diversified. If you’re doing a fund to funds or something like that, so you’re not putting all your eggs in one specific property, with one specific operator.

Ash Patel: Got it. Are you doing that now, a fund of funds model?

Denis Shapiro: We do two things. With SIH Capital Group, we have an income fund. The goal is literally just to provide the highest possible income from day one, and for it to be consistent. But those returns are capped. And then for email list, we’ll do the deals that we GP on; those deals we will offer to our investor list and they get access to the full total returns. So I always like to say, if you invest in the fund, you get less potential returns, but you get a well more diversified portfolio to back those returns; and they’re good for those specific goals. Now, if you invest in the individual deals, you will be subject to the performance of that specific deal.

Ash Patel: The deals that you guys’ GP – do you have a team that you work with?

Denis Shapiro: Yeah. I have different partners for the different things. We try to avoid doing the deals everybody else is doing. We’re not doing like value-add deals, we’re not buying in Texas and Florida and the Carolinas. There’s nothing wrong with that model; I’m an LP in many, many of those deals, so this is not me throwing shade at that model. But the GP deals that we’re doing, we’re actually trying to stay local, because we are asset-managing them ourselves.

So we have one deal in Pennsylvania — because I’m in central New Jersey area. We have one deal in Pennsylvania that’s about two hours away. It’s actually an affordable housing community, so this is not what many people associate with when they think of low income. This property looks like a class B, beautiful townhouses, plenty of parking spaces, safe, private area. That’s a 50-unit affordable housing unit, and then we are also doing a short-term rental community on the shore. It’s personally something I really wanted to do with short-term rentals. The shore is one of the only areas in Jersey that I would invest, because it is a blue state. So because it’s a short-term rental, you’re not dealing with the tenant-landlord laws as much, so it’s a little less of a headache. But those are two deals that we’re kind of doing on the general partnership side.

Ash Patel: Affordable housing. What does that mean? Does that mean they get their rent subsidized?

Denis Shapiro: Yes. What happens is — the community was built in 1998 so it was a very fresh property. When it was built, it was mainly built through tax credits. Then it gets into a system where there’s vouchers on it. What I learned in the process is that there’s project-based vouchers and tenant-based vouchers, and then there are just people that are getting utility allowances. So in one shape or form, people are getting assistance, but that assistance varies.

What I’ve learned is there’s a lot of value in the project-based vouchers over tenant-based vouchers, because tenant-based vouchers will go with a tenant, but project-based vouchers actually stay with the property. So what ends up happening is if you get a bad tenant on a project-based voucher, you have a lot of leverage over them… Because if they’re not strictly affirming to the lease, if you evict them, then that voucher still stays behind with the property. So they lose that voucher, and because of that, they usually are some of the best acting tenants that are there. Versus the tenant-based vouchers, usually they feel like the power is in their court, because, “Hey, if I leave, I know people want my voucher.”

So one of our business plans — it’s not the typical value-add, “Hey, we’re going to put granite countertops.” One of the pieces of our business plan is actually to up the amount of project-based vouchers versus the tenant-based vouchers. It’s a very unique business model, where it’s not based on income, it’s about controlling the tenant population there and making sure it’s a safe, great, and affordable community for the tenants.

Ash Patel: How do you up the project-based vouchers?

Denis Shapiro: [unintelligible [00:17:09].10] It’s about relationships with the housing authority. My partner on this deal, he already has affordable housing with this housing agency, so it’s all about relationships. It’s just something we’re going to just apply when we have it. The property also had vouchers that were not being used, and we’re going to be able to go in and use those vouchers right away, because there’s a certain amount allocated to the property. That means the next seven vacancies we could fill in from day one. So there are some cool interesting aspects when you’re dealing with affordable housing that you don’t really see with typical class C and other properties.

Ash Patel: If somebody doesn’t have a voucher and wants to pay full price, can they lease a unit at that property?

Denis Shapiro: They could, but there’s incentives of doing the voucher. It’s a higher market rent, so there’s usually incentive to go to the vouchers. We do have a contract with the housing authority. So we usually would try to stick with the vouchers, but we do have the option to also rent it out.

Ash Patel: You can’t really turn me away though, can you? If I come in and say, “Hey, I’ll pay your full price. I want this unit.”

Denis Shapiro: Actually, there’s already a waiting line. One of the benefits of doing affordable housing is because there are built in waiting lists through the housing agencies. So it’s not like we have to put this on apartments.com to fill it. The average occupancy since we went into contract has hovered between 90% to 100% with a waiting list. That waiting list is the month deep. This is why I really like this space.

‘I think, going forward, SIH Capital Group is going to really try to hone in on the affordable housing space because it’s so much less competitive where it’s not going to get bid by 35 different buyers. Because you need to understand the vouchers, you need to have affordable housing property management background, you also need to have a relationship with the seller where they can feel confident that they will sell this property and will get approved by the state. So there are all these different little nuances where it allows a smaller buyer pool and much more of a relationship transaction than typically what you get when you’re dealing with a commercial broker.

Ash Patel: I grew up about 10 miles from where you are, in Holmdel, Central Jersey, and a lot of my buddies back there are like, “Man, there’s no deals out here. You’re lucky you’re in the Midwest. You can’t find a deal in Jersey.” I don’t buy that; you could find deals anywhere. How did you guys find this deal?

Denis Shapiro: The affordable housing deal – that was directly through… My partner purchased a property from them three years ago. So we’re buying it from one of the largest affordable housing developers in the state and in the country. He has a direct relationship with the disposition manager; that’s how we got that deal. The New Jersey deal that we got, which is the short-term rental community – that deal was also kind of off-market, where the brokers kid goes to school with one of my other partner’s kid. It was a very weird circumstances that we kind of just jumped on. But it was a very unique property. If you’re familiar with the shore, the shore real estate is probably some of the most desirable. It’s almost like the Hamptons situation, but on the Jersey Shore. This is like a mile away from Asbury Park; the location really sells the deal.

It’s a hard business plan to execute because we’re going to be converting these short-term rentals, so there’s going to be heavy renovation. It’s almost the complete opposite of the affordable housing deal, because the affordable housing deal is a very simple, easy to follow business model. The short-term rental community is a little bit more complicated. But that’s kind of what you need to be good at when you’re putting a deal together in New Jersey, because it is a blue state. There are certain complications that don’t allow it to be like a, “Oh, the market rent is $2,500. The rent here $1,700. I’m going to purchase it and bump it up.” When you’re dealing with the state of New Jersey, no, it’s not that simple. Because while there’s no rent control, there’s a term in Jersey where it says if you raise rent over a certain amount, it’s unconscionable. The term unconscionable is completely subjective on how the judge feels that day. So it could be $1 increase or it could be a $600 increase.

So just my point is that it’s not that the deals are not there, it’s just you need to be more creative with the deals to make them work in a blue environment. But you can’t replace a location that’s four blocks away, 40 minutes outside of New York City.

Ash Patel: Yeah. So you got these deals based on your network. It’s that’s simple. All you guys out there that are complaining about no deals – build your network, extend your network; put yourself out there.

Denis Shapiro: Yeah. Both deals were actually offered to me basically day one. My partner, toward the affordable housing community, texted me that day, he said “Are you in?” I was, at the same time, meeting up with the other deal in Jersey. Both deals were presented to me; it’s not like I personally found the deal, but I just jumped on it when I got the opportunity.

Ash Patel: Alright. Let’s dive into the numbers on the affordable housing project. It’s 50 units, is that right?

Denis Shapiro: Yeah. I’ve just got to keep it high level, because we’re closing this month and it’s a 506B, so I’m going to keep it very, very high level for the affordable housing, if you don’t mind.

Ash Patel: Yeah. Tell me what you could tell me.

Denis Shapiro: Okay. It’s 50 units, 100%, occupied, built in 1998. We have five project-based vouchers, but we have up to 12 that we can use; so there’s seven vacancies we could fill, about 18 tenant-based vouchers, the rest have utility allowance. We’re getting Freddie on it. The other big, big advantage when you’re dealing with affordable housing is you get expedited service to the mortgage brokers, so we kind of jumped the line on the mortgage queue.

Ash Patel: Why is that?

Denis Shapiro: Well, we’re going Freddie and they have a mandate for affordable housing. So if two deals go to the brokers at the exact same time, they will expedite the affordable housing over a regular deal every day of the week.

Ash Patel: You’re from Jersey; are you sure you’re not paying off somebody?

Denis Shapiro: No. This was just a benefit that we actually didn’t know about since day one… But when we started finding out about the delays that are going on right now, we definitely were appreciative of this benefit. And we also got a reduction on the mortgage so we got about a half a percent off. We were going to be looking at 3.8, we’re coming down to like 3.3, and potentially a little lower, because the rates kind of dipped down a little bit. We’re going to be locking in about a week or two in that range. We’re getting a nice reduction… but we can’t take any IO. That was a little bit of the downside but we’re going to be paying down principal day one.

Ash Patel:  You can take… What’s IO?

Denis Shapiro: Interest only.

Ash Patel: Okay. And what’s your down payment on this?

Denis Shapiro: I think 25%. I think we’re going to be at 74% LTV on this.

Break: [00:23:54][00:26:51]

Ash Patel: Can you tell us roughly what you’re buying each door for?

Denis Shapiro: Yeah. Total sales price is 5.725, and it’s 50 units, so a little over 100k a door.

Ash Patel: Okay. What are your rents right now?

Denis Shapiro: They’re ranging between $1,100 for the two bedrooms and $1,300 for the threes, and they’re all threes and twos.

Ash Patel: Can you raise these rents over time without the program?

Denis Shapiro: So here’s the interesting place… If you look at 99 out of 100 syndications, the typical business model is geared towards the income. Besides a few little levers that usually operators will use, the focus of every business plan has always been on the income side. Put the nice flooring down, fix up the kitchen, and get an extra 20 bucks a month. Over here, the business plan is so simple because the operating expenses are in the high 70s. So the real opportunity here is to bring it down to a lower level. The industry norm for a 1998 build is probably in the 50s. And just by doing that, we would be successfully execute the business plan.

Ash Patel: How will you cut expenses?

Denis Shapiro: We have a lot of these from day one. We already got the insurance quotes came down, a lot of it is through relationships. One of the GPs on this deal is the property manager on my partner’s other deal. The current property manager is charging the current seller 9%; we’re already at 4%. We’re doing a water conservation program since day one… So we have five or six levers that we’re going in literally day one. We’re going to be getting rid of about $140,000 worth of expenses in year one.

Ash Patel: Denis, is this similar to a section eight deal where if you add a washer and dryer, you get to increase rents, or if you add amenities, rents go up?

Denis Shapiro: You have to be careful… So you got to check on what you could do and what you can’t do. For example, during due diligence, we found out that every single person has a dog, and the lease definitely says you’re not allowed to have a dog. But the good thing is this is five acres, and it’s townhouses, and there’s a lot of families there, so we actually don’t mind the dog situation. But we don’t want to close our eyes and pretend that the dogs are not there, because dogs do cause some damage. So day one, we’re going to put a little pet park there and we’re going to charge pet fees. So we had to check with the housing agency that pet fees are allowed to be charged, because now you’re bringing up their income to a higher amount than normal.

So you can do certain fees, you just have to check with the housing agency that it’s okay. The current seller also has laundry and dryers for every single unit, and that’s not being charged, and they’re also fixing them up when they break. So that’s a really nice amenity; so we just plan on just charging a washer and dryer fee, really just to subsidize when these things start breaking. We’re not really looking to generate much extra revenue from it. But every single one of these things that we’re looking to add, it’s kind of like we’re going to be checking with our property manager who’s checking with the housing authority. So it’s not as simple as other deals where you could just do it and just do it. It’s an extra layer of compliance.

Ash Patel: I’ve got to ask you a question… And this comes from every time I buy a property. When I buy a building, I usually improve the lighting, the landscaping, the signage, to let the tenants know, “Hey, this new landlord is actually going to improve the property.” You guys are going in and you’re going to start charging all these fees; how do you reassure the tenants that they’re in good hands?

Denis Shapiro: We are very fortunate that this place is 100% occupied; this place is already safe, so we don’t have to go in and do a lot neglected — we don’t have to fix a lot of neglected items, I want to say. But we are also going to be fostering a certain culture, where we’re not going to say, “Look, hey, we’re going to pretend that you don’t have pets. But in exchange, we are also going to build a pet park where your dogs can come and run, and there’s going to be places for you to get the dog bags.” So it’s more about explaining to the tenants that we are adding value by doing those kinds of things, and “Now you don’t have to hide your dog anymore.” Because technically, that’s breaking your lease, and you could actually lose your apartment for that. This might not be a day one type situation, this might be when the leases turnover, where we might be doing this as the lease’s turnover for the whole year, we’re going to start implementing it.

So it’s not about we’re going to go in there and just going to be, “Hey, we charging you an extra $200 a month for stuff that you’re already getting.” It’s more about, “Hey, we are going to be providing certain benefits. Here they are.” We expect an open dialogue of communication.

Ash Patel: Got it. You’re an investor with some of Joe Fairless’ deals. You’ve seen that they’ll do ice cream socials, pizza parties… Would you do any of that? And then take it a step further – what if you bring in some financial literacy experts and educate some of these tenants on how to get ahead financially? Is that something you would consider doing?

Denis Shapiro: Yeah. So the first part with Joe and his community – one thing is this town is really cute; it’s like that Hallmark type of downtown.

Ash Patel: What town is it?

Denis Shapiro: Oxford, Pennsylvania. It’s about 20 to 30 minutes south of Lancaster. It’s a smaller town, everybody kind of knows everybody. We went out and we went with a couple of investors to the local downtown, and I had the cheapest meal I had in 33 years of living in New York City/Tri-state area.

Ash Patel: It’s Jersey though, that’s a problem.

Denis Shapiro: [laughs] Yeah. So it’s a very homey thing, but there’s a bunch of these local businesses there on the strip. I went into a comic shop and I got like a bunch of comics for my kids to bring home. They were like literally $1 each. I was like, “How great would it be if we host a comic day?” We’ll literally buy 100 comics and bring it out for the kids. We have a community room in the clubhouse, and we’ll just get the kids to come out, they could pick out one or two comics…

So we already have things like that to do, where we’re going to really try to incorporate as much local businesses as possible to that. Then on the flip side, the financial literacy program – I love that idea. I’ve seen an operator or two — I think the DaRosa group was working to implement something like that. I’ve got to check with them how it actually works, because a problem sometimes with a lot of those free services – a lot of people won’t sign up for them unless they have to pay for them; and you obviously don’t want to charge them. So I think that’s going to be something that we would consider, but I would want to see some feedback on some of the operators that have done that already in the past, see how successful and if it was worth the time.

One thing I will say is that my group SIH Capital Group, one thing we wanted to do is we want to do like a scholarship. We want to do that scholarship where it will be localized to the properties that we are GPs on. For example, for the Oxford Village, because the short-term rental community, obviously, this wouldn’t apply for – for the Oxford Village deal, it won’t be a huge scholarship, but maybe we’ll do something every year that we own the property, and it will just only be for the tenants that are there.

Ash Patel: That’s incredible. I love the comic book idea. Two great ideas, so I commend you on that. Denis, what is your best real estate investing advice ever?

Denis Shapiro: Be 100% okay to fail. I have to say my first mutual fund I ever invested in – complete failure. First individual stock I ever picked – complete failure. First crowdfunding deal I ever did – complete failure. First syndication I did – not a complete failure but not a good deal. Every single time, the second deal was finally better, the second trade was certainly better, and then it was just better and better. That’s the biggest piece of advice. If you’re scared to make that wrong investment, you’re just never going to invest. That’s the biggest mistake you can make… Because 10 years from now, I don’t really remember the $1,000 I lost on that mutual fund; it doesn’t mean anything. But I do remember my whole stock portfolio that I built subsequently because of that mistake. So that my best piece of advice, just be happy to fail.

Ash Patel: Denis, are you ready for the Best Ever lightning round?

Denis Shapiro: Yeah. Let’s do it.

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

Denis Shapiro: Oh my god. Okay. I am actually reading The Five Love Languages of Children. I don’t even know if it’s love languages… But it’s a derivative of Gary Chapman’s book. I have a six-year-old, a four-year-old, and a three-year-old, and it’s given me some interesting perspective on parenting. The best book is always one that you could actually take and just relate right away to. I would recommend that, it’s an interesting book for any parents out there.

Ash Patel:  Thank you. I didn’t know there was a challenge edition of that book. I’ll check that out for sure. Denis, what’s the Best Ever way you like to give back?

Denis Shapiro: It’s definitely going to be more scholarships, more stuff in the communities that we are invested in, and it just feels like a natural extension to give back at the same time.

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

Denis Shapiro: The best way is, if you’re interested in a copy of my book, The Alternative Investment Almanac, that can be found on Amazon. But otherwise, the best way to reach out to me is on sihcapitalgroup.com. What I did is I created two abridged versions of my book. If you sign up to my email list, you can get one of each. And then if you like what you see on the email list, please feel free to reach out there.

Ash Patel: Denis, I got to thank you again for being on the show today, sharing your story from starting out investing in stocks, getting into single-family homes, then becoming an LP investor, starting a fund, and being a GP. I appreciate you sharing all your lessons, stay away from entire communities that are one bedroom, and all the other advice, man. So thank you again.

Denis Shapiro: Ash, it was awesome being here. Thank you so much.

Ash Patel: Best Ever listeners. Thank you so much for joining us and have a Best Ever day.

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JF2666: Investing in Office Space During the Work From Home Era with Andrea Himmel

Andrea Himmel’s mother went from nothing to a multibillion dollar portfolio of office buildings and warehouses in New York City. Inspired by her mother, Andrea joined the family firm and now acts as Chief Investment Officer, hunting down great opportunities in Manhattan and the boroughs. In this episode, Andrea breaks down why she’s investing in office spaces during the work from home era, and how she’s able to close on these high-profit deals.  

Andrea B. Himmel  | Real Estate Background 

  • Career: Principal and Chief Investment Officer at Himmel + Meringoff Properties
  • Founded in 1978, they own a multibillion dollar portfolio of office buildings in Manhattan and last mile warehouses in the boroughs of NYC. They do not syndicate equity. They own their entire portfolio with their own equity.
  • Portfolio: Multi billion dollar portfolio of ~20 properties in NYC. Over the past 40 years, they have bought and sold over 5MM SF.
  • Based in: NYC, NY.
  • Say hi to her at: http://linkedin.com/in/ah-ny
  • Best Ever Book: A New Earth: Awakening to Your Life’s Purpose by Eckhart Tolle

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TRANSCRIPTION

Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Andrea Himmel. Andrea is joining us from New York City. She is the principal and chief investment officer at Himmel and Meringoff Properties, which was founded in 1978. It owns a multibillion-dollar portfolio of office buildings in Manhattan and last-mile warehouses in the boroughs of New York. Andrea has 14 years of real estate experience. Andrea, thank you so much for joining us in how are you today?

Andrea Himmel: I’m great. Thank you for having me. I’m honored to be here with you.

Ash Patel: The pleasure is ours. Andrea, before we get started, can you tell the Best Ever listeners a little bit more about your background and what you’re focused on now?

Andrea Himmel: Sure. I studied real estate undergrad at Wharton and knew I wanted to work in it, because my mother was actually in the industry. She had co-founded the firm I currently work at in 1978, and was really a pioneer in becoming a first-generation owner of a significant portfolio, coming from really not much. So I was very inspired by my mother. During college, I had multiple internships, one at Lubert-Adler, where I was working on real estate from a private equity angle, a lot of Opco/Propco kind of retail investing. I worked in CMBS at Morgan Stanley, and ultimately landed at Brookfield in 2008. I was a little underutilized, so I started interviewing around about two years later, because it had been a slow market, as you recall, that was with the recession.

So I interviewed and my mom said, “You know what? Get out of real estate. Get into a more sophisticated form of investing, so you can differentiate yourself. Because a lot of real estate owners are street smart, but not really financially sophisticated.” So I took a job for a hedge fund and I spent eight years there. I ended up managing their oil and gas portfolio that was about 10% of their 60 billion of assets under management; it was a long-term value fund. I learned how to value cash flow. Basically, businesses should be like lemonade stands – money in, money out, some form of capitalizing the business, and some way to distribute the proceeds. The skills I gained there, focusing on valuation, were 100% applicable to those that I use now today in real estate evaluation work.

Ash Patel: Well, you make all of that sound easy.

Andrea Himmel: I ended up starting a private equity fund. We hit a home run and raised 300 million dollars from Elliott Management, which is Paul Singer’s fund, and had a 96% return on our first fund, and a 3X multiple. Then at the time, since I was a startup, I was working out of one of my mom’s buildings. She had always told me “You can never work for me.” But I had earned her respect over the years, so she invited me to work for the company.

Ash Patel: Amazing. A lot to cover here. Your mom started this business in 1978 – was it investing in real estate in New York City?

Andrea Himmel: It was. A lot of it, however, because she didn’t have the cash to buy much, she was acquiring ground leases in the boroughs, and in emerging neighborhoods, such as Fourth Avenue, which is now Park Avenue South, or Harlem in 1979. They did a lot of ground leases because there’s no major initial upfront capital payment. She went on and purchased options, and ultimately [unintelligible [04:09] She got started doing that. She actually met her business partner at a lecture that Larry Silverstein was giving at NYU, and his guest was Harry Helmsley. Harry said, “Does the audience have any questions?” My mom’s hand went up and she said, “What’s your greatest accomplishment?” Harry Helmsley said, “What are you doing tonight?” Of course, that’s unacceptable today, I think, but it grabbed the attention of Stephen Meringoff, who later approached my mother and said we should team up and be owners together. So they borrowed recourse, which obviously we don’t do anymore, but they borrowed recourse up to 90%, because financing back then was totally different from the RTC days, and built a portfolio over a few decades.

Ash Patel: And Harry Helmsley, the owner of the Empire State Building, and from his wife, Leona Helmsley.

Andrea Himmel: Yeah, we were all family friends, and he became a mentor to my mom. My mom actually very confidently broke her way into real estate by sneaking into REBNY galas, which is the Real Estate Board of New York. She had gone to HBS and she said to many prolific developers at…

Ash Patel: HBS is Harvard Business School?

Andrea Himmel: Yes, it is.

Ash Patel: Got it.

Andrea Himmel: She said, “You know what? I’m putting together a real estate panel for Harvard Business School. Larry Silverstein, do you think you qualify for this? Harry Helmsley, do you qualify? Seymour Durst, do you qualify for my panel?” Instead, what that did was it turned them into her mentors over the years, and ultimately peers. She became a well-respected name, following in the footsteps of giants.

Ash Patel: Incredible. And your mom was a pioneer because in 1978, and even through most of the ’80s, New York was not what it is today. It was a rough place.

Andrea Himmel: But as Harry Helmsley told her, Grand Central is not going to get on rollerblades and go anywhere. There are still certain districts, certain neighborhoods, and we still feel the same today, that are emerging, even though they may be Grand Central, or Penn Station. But we think location, location, location, as well as leaseability and all sorts of things.

Ash Patel: Andrea, I don’t want to make this podcast about your mom, but one last question. You mentioned she did ground leases and then got financing. How does that work?

Andrea Himmel: So she did a lot of ground leases where…

Ash Patel: With no money?

Andrea Himmel: [unintelligible [06:50] back then it may have been a few 100,000 or 100,000 a year in your ground rents. There may be upfront key money, but usually, there wasn’t.

Ash Patel: Also, she was the lessor.

Andrea Himmel: Yes, she was…

Ash Patel: Not the owner.

Andrea Himmel: Not the owner of the fee. So she had run the property, operate it, bear all the CapEx, all that. And through refinancing and stabilizations of properties, she was able to amass a portfolio.

Ash Patel: Alright, so then you had a career in private equity. You were underutilized… Tell me about that.

Andrea Himmel: I just out of college was so overly zealous to have my brain pecked and my energy leveraged.

Ash Patel: And you wanted to rule the world, right?

Andrea Himmel: I wanted to grow, I wanted to make my world larger, and my brain larger… I was at Brookfield, which at the time — right now, they’re an incredibly dynamic and prolific company that’s very nimble. Back then it was a bigger public company, and I think I needed a more nimble environment, so I preferred to find somewhere where I would really be challenged intellectually.

Ash Patel: Yeah, a lot of us have first jobs where we’re under-utilized. Good for you for making the move. You then went to a hedge fund in the oil and gas space – was it a real estate play? Or was it a pure oil and gas business?

Andrea Himmel: At the time, I started with three and a half billion dollars of cash and to manage, and it ultimately is now 60 billion. We were investing in equities, so publicly traded companies such as Schlumberger, or Hess, or Exxon. At the time, it was less environmentally conscious, so we didn’t have a philosophical lean in any direction. But we sought undervalued companies for long-term holds, and based on true distress in the market, or anxiety among investors. I did that on the equity side. Then when oil prices in 2016 collapsed to $26 a barrel, from $125, I saw an arbitrage in the private market to buy assets that were priced as if oil were $26, whereas equities were trading as though oil were at $70. So I moved to the private side, raised a fund, it was rejected by 2000 investors, it took 2001 meetings to actually get a commitment… And our first one we tripled, our second fund is still being deployed. It’s a fascinating industry, it’s also a real asset, as far as it can be 1031’d. I think of it as real estate below grade… So it was applicable.

Ash Patel: Right now, you focus on warehouses and office buildings?

Andrea Himmel: Correct. We’ve been in the industrial space since 1986. We’ve been in the office space even longer than that. And we feel that there’s a tremendous amount of capital froth in the industrial space right now, so we’re focusing our efforts on growing our office portfolio. We like to zig one another’s zag. We’re contrarian investors, and we can do that because we can arbitrage time, because we have a balance sheet. So if we can be long-term holders and buy something that’s in distress, we’re a fortunate buyer. Not to mention we’re very nimble in structuring. So if the seller needs some sort of tax-efficient structure or some legal structure that an institutional buyer wouldn’t be able to accommodate, we’re able to do those sorts of things.

For example, there’s a warehouse in the Bronx that we loved, we bid on it… The owner’s problem was he couldn’t monetize the real estate without monetizing his plastic business first. So we made a bid with a private equity fund to buy both the business and the real estate, and do an Opco/Propco separation of the two, so that we can ultimately get to the real estate.

Ash Patel: And you ended up selling the plastics company?

Andrea Himmel: That did not execute that deal.

Break: [00:11:10][00:12:50]

Ash Patel: So you have the money of a hedge fund, but you have the nimbleness of a small company.

Andrea Himmel: We do always partner on deals with equity partners. So while we’ve done a few deals on our own, for example, we paid 25 million for a 120,000 square foot building in Long Island City, the noodle factory in 2017… We focus on really anything within office and industrial. I can get into like how we approached that.

Ash Patel: Let’s do it.

Andrea Himmel: So because I was trained in research at the hedge fund I worked at, we said that in the industrial space, we wanted a macro supply-demand thesis. We said we don’t even know what supply is in industrial. In New York City in 2003, when Mayor Bloomberg was in charge, 200 square blocks were rezoned from industrial to residential. A lot of factories converted to loft/resi or whatever. So supply, we know, was on the decline. Demand was rising, because the reason that the pandemic has accelerated, people want delivered items, and they want them delivered to them more quickly, so warehouses need to be located more central to the urban core, or to their end customer. That’s called last-mile delivery. We saw demand rising, we saw supply falling, and then set out to decide what are our parameters. Any site that’s between two and 20 acres, let’s call that M zone – we want to know about.

It turned out there were 1,500 of them. 500 of them were owned by government agencies from whom we would not be able to buy. 500 were owned by real estate investors, who are too sophisticated for us to buy from. The final third or 500 sites that remain are owner-occupied. Take the plastic frisbee guy, or a packaging company, someone who actually uses their space, recognizes at some point that the real estate is worth more than business, and decides whether they want to monetize on the real estate. We wanted to focus on that stock of folks, because they seem to be the least able to add value from a real estate perspective, and the most willing to transact. We entrenched ourselves in the world of owner-occupied stock. Whether that’s knowing the tool company really well, spending time with the principals who own the building, and understanding the tax issues they may face having owned it for 40 years under a trust, with six kids, or… We can get down into the gritty details and be pretty nimble with them. So that’s our industrial approach.

Ash Patel: Do these principles continue to operate that location?

Andrea Himmel: Yeah, they operate really because their business cash flow is dependent upon their labor, and their labor would quit if they announced that they were looking to sell the real estate or shut down the company; so they would immediately lose cash. What we’ve seen with a bunch of the owners is the fear that they lose their labor, and these are 3% of all warehouses in the US are actually at all robotized, so everything is a lot of labor.

Ash Patel: I don’t understand how that works. Do you buy the building, or do you get an option on it?

Andrea Himmel: You can structure it however you want, but it’s up to the seller. What does the seller want to do? Do they want a lease back for two years, while they figure out where their company can go and relocate? And then you own it free and clear, in which case you’re buying the fee. We’re not interested in the simple sale-leaseback, because that’s kind of like a poor return. We’re really focused on doubling our money on a deal at least, so we work with the owner and solve for whatever their problems are. So if they want something that’s tax-efficient because of low basis, we can say if it’s 100-million-dollar deal, we’ll give you 50 million as an option payment to buy it in 10 years at 100 million, and the 50 million option payment is nontaxable. So we do structures like that.

Ash Patel: Got it, okay. They can continue to operate their business for years to come, but you have the option to buy the building.

Andrea Himmel: Or we buy the building and they lease it back at some below-market rent for a few years while they try to find their new location, or shrink, or sell, or do whatever they’re going to do their business. Then we have been an empty property that we have to lease.

Ash Patel: Got it. With office buildings, what are you seeing today in New York?

Andrea Himmel: Distress on a vacancy level… But wow, is leasing activity up. The vacancy is about 6% higher than normal, it’s about 18%, and the average is about 12%. So we still have a fair amount of available space, and a large amount of that is sub-leased space. But anecdotally, just from within our firm, we just signed a 100,000 square foot lease with NYPD at 525 West 57th Street, a 70,000 square foot lease with NYU downtown at 411 Lafayette, in addition to maybe 13 to 15 leases in Chelsea, Noma, and Flat Iron area. That compares to zero activity last year at this time, so we’re seeing the market really pick up.

Ash Patel: What is MIPD?

Andrea Himmel: NYPD.

Ash Patel: Oh, NYPD. New York Police Department. Got it. Are you buying these at distressed prices?

Andrea Himmel: We only are willing to buy at distressed prices. We don’t value assets based on IRR or some return metric like that. We always measure return on invested capital as a multiple; we’re really basis-buyers who try to make money on the buy.

Ash Patel: You mentioned when you were with the hedge fund in the oil and gas industry, you learned a lot about cash flow. And I was going to ask the question, do you buy value-add properties if you’re so focused on cash flow?

Andrea Himmel: We’re not focused on cash flow. As an investor, I like to invest in companies that are profitable. That’s why I don’t know how to value venture capital from that angle; I don’t know how to value a company that has negative profits, I just don’t. But my perspective – ordinary income, the current yield, we don’t care about that. We can actually forego that if there’s a path to a reasonable yield. And if that means that it’s an unleased property, whether it’s office or industrial, we have the confidence that being a vertically integrated company, we can lease it up. We’re willing to take that risk, because that’s a business we’re in, and we have 40 years of experience doing the management, too.

Ash Patel: Andrea, when did the company go all-in on office?

Andrea Himmel: It’s a great question. I know that we had a property on 125th and I think Lexar Park, and it’s a major –now fully-developed site. But we were there in the ’70s, we’ve been in all the neighborhoods, we’re in Queens as industrial in 1986, and then office at least around 1986 or 1984.

Ash Patel: So in 2020, you suffered a bit of a hit.

Andrea Himmel: Yeah. We saw our buildings, just like the market, really hit 10% occupancy level. We had a lot of blend and extends, or at least conversations. But our arrearages have caught up; we’ve actually extended tenants to our accretion, to our benefit. We have a building that is highly leased to the entertainment industry and nonprofit for entertainment industry tenants, because it’s in Times Square. That building, I’d say, might have had more tenant requests to get rent abatements and such. But we worked with our tenants, we were very generous and we continue to try to be.

Ash Patel: Blend and extend is when you re-up somebody lease for maybe a discount in rent for a period of time.

Andrea Himmel: Yeah, and you just get more term. It’s great if you want to borrow against the asset, because having term allows you to borrow to a greater percentage of the capital stack. We’re conservative when it comes to debt, but it’s hard, for example, to finance month-to-month leases on one extreme, and it’s easy to finance a 50 or 30-year lease on the other.

Ash Patel: Andrea, was your office vacancy caused by defaults? Or was it caused by tenants just not renewing their lease?

Andrea Himmel: There are a few categories. Upon renewal, a few tenants just did not renew. But honestly, we’ve [unintelligible [21:32] spaces. Then there are tenants who tried to get out of their lease and we said no, and we have big security deposits, so they’re kind of stuck in that position. Then there are tenants who agreed to have a conversation and negotiate some form of an amendment to the lease, where we can both be mutually beneficial.

Ash Patel: And with your research background, what research went into your decision to double down on office?

Andrea Himmel: Great question. I think of our firm and what we’re looking at – it is above normal levels of vacancy. We’re in a cycle where we’re somewhere near a low, although there really has yet to be seen some distress. But we’re looking out to office — we could say, if we were really negative, “Wow, I have a building that’s 30% vacant, or 10% vacant, and it has 30% rollover, and five years of leasing risk, because who knows when people come back to work… And I have to carry the building, its taxes, its insurance, and everything else, the mortgage, for five more years… Screw it, I’m just going to Florida.” And that’s what we’re seeing.

I made a database – going back to database making – of private owners who are similar in size to us… Similar or smaller, like between 10 and 20 properties. So it started as a list of 2000 properties and 65 owners that we focused on, and then narrowed it down to a list of 15 owners each with an average of 10 properties or 150 properties. We are focused on certain neighborhoods, and we are focused on certain asset types. We think there’s great re-use potential in the garment district, which is totally distressed, from the life science perspective. We think that certain neighborhoods that are unsexy will emerge again.

Break: [00:23:38][00:26:36]

Ash Patel: Where do you get your data from?

Andrea Himmel: I use a few subscription apps or softwares. Like I use Reonomy, PropertyShark, and Costar. I also look at public tax records; ACRIS, in New York, is what you use. I sometimes follow court litigation to see if there’s a partnership in trouble. I track weekly transactions of properties to say “Oh, hey. Actually, so and so who we thought was never a seller is starting to sell assets. Maybe that’s a good data point.”

I track a lot of indicators. Obviously, the interest rates, the inversion of the 30-year coming below the 20-year a week ago or two weeks ago was a big trigger for me. Then obviously, all these data points we have on inflation… It changes the cap rates we’ll use to underwrite and discount rates to value.

Ash Patel: So with projected inflation on the horizon, you’re not using the norm for cap rates, you’re actually using a higher cap rate?

Andrea Himmel: Yeah. We’re conservative, but not conservative to the point that we’ll price ourselves out of the deal. For example, if something were today to trade on a four cap or let’s say a five cap, I’m talking 6% then; or five and a half percent. Nothing like on an exit, nothing crazy. If there’s an assumption that there should be cap rate compression, for example, the stabilization of the building offset by the growth in it.

Ash Patel: Andrea, you mentioned that you know the garment district is going to come back. Why?

Andrea Himmel: It’s M-zoned, meaning it’s manufacturing zoned. The buildings – not all of them, but some of them are built structurally so robustly, with [unintelligible [00:28:22].17] to HVAC systems, to ceiling heights, that they can accommodate life sciences clusters. New York City was the number one in the country last year for venture capital funding of life science startups.

Ash Patel: What is life science?

Andrea Himmel: Life sciences, anything from biotech to anything working with living organisms, basically. It’s research, its R&D. We have a building, 525 West 57th Street, it’s a life science-oriented building. It has the premier MS researcher, Dr. Sadiq, and he has a vivarium, which is where living organisms are studied, and requires certain very technical features on a lab level. We also have Genzyme LabCorp, and — I forget who it became later on. But we had a 200,000 square foot vacancy in that property, because CBS left after decades of paying very low rents. We leased half of that already to the NYPD, as I mentioned, and then we have another 100,000 to lease, but we think we’re close on leasing that, too.

Ash Patel: Do you just use leasing brokers?

Andrea Himmel: We have an internal leasing team, because we’re vertically integrated with a management company that’s dedicated just to our buildings. But we will always work with outside brokers if someone brings us a tenant. We aspire to integrity in the brokerage community, because I think brokers are the lifeblood of the industry, and are really undervalued and underappreciated. So we make sure that if someone brings us a deal or a contact, that we reciprocate in kind.

Ash Patel: What does your leasing team do that’s creative to try to get these tenants in?

Andrea Himmel: It’s a great question. We’re amenitizing buildings. Our buildings aren’t that large, they’re not million square foot buildings; they’re small, they’re 200,000 square feet, so we don’t have a great deal of space to dedicate as an amenity. The rooftop isn’t that large, or [unintelligible [00:30:27].01] So for us, it’s more about — we foresaw a strong location, a good building, meaning it has good ceiling heights, good light, good air, good infrastructure, and we’ve been proactively investing in its maintenance and capital over the years.

Ash Patel: Andrea, I read an article this morning that said, “Companies that offer a four-day workweek will have a huge competitive advantage in the future.” So all of this pressure to work from home, work less, what is that going to do to office space?

Andrea Himmel: It’s called a six-billion-dollar question with inflation. But we don’t know yet. We can’t quantify, and I’d be arrogant to say I could, the impact that work from home will have long-term on office demand. It will no doubt take away from office demand. However, there are countervailing forces that may cause some net positive effects, such as the de densification of office places. People want corners, they want windows, they want light, they want to be in their own offices; they don’t necessarily want to be sharing spaces or hoteling like some companies are doing, or hot-desking. We’re seeing a lot of it leasing in our portfolio, because our buildings are such that the windows are operable, which is rare, they often can walk to their floor, because these aren’t 80-foot towers, they’re 12 to 15 story buildings. Maybe not in the 15-story are they walking, but for the most part, tenants like these factors. Also, the floor plates are about 15,000 square feet in general for us, so that allows for one to two tenants per floor, which is good from the perspective of the tenant thinking “I don’t know the COVID policies of my neighbor.”

Ash Patel: Yeah. So my opinion is the work from home will not last because of the lack of collaboration, and at some point, lack of productivity.

Andrea Himmel: I’m most productive at my office. We’re closed down right now because we had a COVID case, but it was resolved and everyone else in the company is negative. But it’s amazing to me that… All week I’ve been out and about at conferences and meetings. You have to see people, this is a tangible business. We would never buy a building that we didn’t kick the tires on.

Ash Patel: Yeah. You’re like me, you think at some point, people are returning to the office and the work from home is going to be short-lived.

Andrea Himmel: Certain industries, it will be more work from home. Like, I foresee law, for example, doing that. Although I think it’s really hard for them to find talent, promote, and create upward mobility. Software, maybe they work from home. But the people that we see remaining working from the office actually require more square feet per person than when we included the ones that are now departing from the office.

Ash Patel: So no more cubicle farms.

Andrea Himmel: Correct. I hope.

Ash Patel: Andrea, what is your best real estate investing advice ever?

Andrea Himmel: Be over prepared. If it doesn’t work on the back of an envelope, using Excel to go get into the weeds too much is just going to create too much margin for error.

Ash Patel: Andrea, are you ready for the Best Ever lightning round?

Andrea Himmel: I’m ready.

Ash Patel: Let’s do it! What’s the hardest lesson you’ve learned?

Andrea Himmel: It’s a great question. The hardest lesson is, because I worked for my mother and her business partner, in the beginning years, I didn’t push back often. We had so many properties off-market that today are worth multiples of what they were. I knew, from analysis paralysis, as well as good analysis and gut, that these were deals we should have pursued. I should have pushed harder against their opinion. I’m at the point now where they take it more seriously when I have recommendations, and they often manifest in strategies… But at the time, I wish I had the confidence to push back more.

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

Andrea Himmel: A New Earth by Eckhart Tolle; it’s similar to A Power of Now.

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

Andrea Himmel: Be present.

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

Andrea Himmel: I serve on the board of directors of Habitat for Humanity, as well as the Manhattan Chamber of Commerce. I mentor a lot of students, I’m a big sister to a little sister for 18 years now. I also support 10 women in Uganda in Sierra Leone through Child Fund, which is a nonprofit. I plan on starting a village savings and loans association. I really think philanthropy, giving is receiving.

Ash Patel: Andrea, how could the Best Ever listeners reach out to you?

Andrea Himmel: You can email me. My email is ahimmel@hmprop.com.

Ash Patel: Awesome. Andrea, thank you so much for sharing your story, with your mom being a pioneer in the ’70s, to you going a couple of different routes and coming back to real estate, and just dominating New York City real estate. It was a pleasure to have you on the show today.

Andrea Himmel: Thank you. It was my honor.

Ash Patel: Best Ever listeners. Thank you for joining us and have a Best Ever day.

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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JF2664: 4 Ways Passive Investors Can Find Better Deals First with Judy Brower Fancher

Judy Brower Fancher knows how to find killer deals before anyone else. From staying on top of market trends, to being a wanted repeat-investor, Judy has developed a strategy for getting exclusive access to competitive deals. In this episode, Judy breaks down her methods into four parts so that you can find better deals first as a passive investor.

Judy Brower Fancher Real Estate Background

 

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TRANSCRIPTION

Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed. This is the world’s longest-running daily real estate investing podcast. Today we have Judy Brower Fancher with us. How are you doing, Judy?

Judy Brower Fancher: I’m doing well. Thank you for having me.

Slocomb Reed: Great to have you here. Judy is the founder of Brower, Miller, and Cole, a private research firm. Her current portfolio includes 20 senior living multifamily, one industrial, one self-storage, and two multifamily properties. She is a passive commercial real estate investor who just sold the assets of her 27-year commercial real estate marketing firm, where she represented more than 100 commercial real estate companies. She’s based in Newport Beach, California, and you can say hi to her on LinkedIn. She is Judith Brower on LinkedIn.

Judy Brower Fancher: Judy Brower Fancher on everything.

Slocomb Reed: Judy Brower Fancher on everything, great. Judy, tell us about yourself. What got you into marketing for real estate firms?

Judy Brower Fancher: Growing up in Southern California, one has pride in where they live. I think a lot of commercial real estate started here. My dad worked for an architectural firm when I was growing up, then he worked for two large landowners, and he was their public relations person. So I went into my dad’s field, but I like to say that he also has three normal children. That’s how I got started. When I decided to start my own company after working for other firms, commercial real estate was truly what I loved. I like to say I love a building when I’ve known it since it was a hole in the ground.

Slocomb Reed: That’s awesome. Tell us about – you were working in marketing and research for 27 years. Did you have a specialty within that for your clients?

Judy Brower Fancher: Specifically on commercial real estate companies, which is how I got my background, which I hope is helpful as an investor to me now. We’ve done everything from television advertising, to public relations, to putting on investor relations meetings for institutional investor companies, to working with syndicators on getting attention from both the opportunity side and from the investor side… So we’ve worked on every product type, think everything. We’ve done land, we’ve done self-storage, industrial office, multifamily, retail – huge. And the company still exists. I did sell the assets to someone I trained for 10 years. So if anybody wants to reach out to find out about that, I’m just saying that’s a thing. But that’s actually not what I’m doing now. Now I’m trying to make money off the money I earned.

Slocomb Reed: Absolutely. That makes you a pretty well-informed passive investor, right?

Judy Brower Fancher: Hoping so. I’m not as smart on the finance side as I think I am on probably the product and market. The company worked nationally, so I have a really good feel for a lot of the markets. I actually started investing with my clients; I asked permission, they didn’t come after me. I asked a few of my clients if I could invest with them and that’s how I got my feet wet a long time ago.

Slocomb Reed: That’s awesome. Judy, with you focused on your own passive investing now, making money with the money you worked hard to earn, and given that you have a very solid understanding of the assets themselves and of markets, what advice do you have for other passive investors and the research that they should be doing into a market or into an operator before they invest their hard-earned money?

Judy Brower Fancher: I’ve had a really lucky path with being able to invest alongside my clients. Also, I think what you need to do is use all the parts of your brain. You want to look at what are the environmental factors if you’re investing in certain parts of the country? Are you in flood zones? And yes, the sponsor should know that too, but if you’re trying to weigh risk and say, “What can I do that’s more sure?” Because that’s what, as an investor, I want to do now, more sure things… It’s to look at each market and maybe environmental things. I was just in Louisville, Kentucky which I love and I want to maybe do some PR for them. It’s a great city, but it is not growing. I don’t know why. They have the Derby, they have bourbon, it’s not horrid weather, everything about it seems right. But I think if you’re investing now you want to look for cities where there’s tech, because that seems to attract the young families, and that makes it grow. They don’t seem to have tech there. They have Humana, it’s one of the largest health things in the country, but that’s still not the young people coming in. So that’s how I try and look at things.

Another thing that I have done, because I work with companies that are investing, is to look where are my big clients investing and what are they seeing there in the markets? That can help me understand what I might see. I hate to say that anything’s a sure bet, but I have a great story from yesterday…

Slocomb Reed: Go for it.

Judy Brower Fancher: I’ve only done one crowdfunded investment; all the others, I’ve known the people personally that I’ve invested with. But I went to try and do another crowdfund one yesterday. It’s an obvious win. They’re buying properties to take care of all the trucks and all the supply chain stuff. They have huge properties and they’re all over Houston, which I guess they know they’re going to flood to. But they have identified and gotten five properties under control, they have five more that they’ve identified that they’re trying to get under control… The Invest Now button went live, I clicked on it, it said numbe 127 in line.

Slocomb Reed: Wow.

Judy Brower Fancher: Uh-huh. Then I got a thing saying, “Okay, go ahead and get your paperwork started.” Because I’d worked with them before, bang, bang, my [unintelligible [00:06:56].08] They’re like, “Okay, documents will be available at five o’clock.” At [5:01], I went in, I got my documents and started working on them. At [5:50] I got an email saying you’re too late.

Slocomb Reed: Wow.

Judy Brower Fancher: So when you have a sure thing… Like now where everyone thinks industrials, it’s the flavor of the month, above multifamily I believe… If you can get in on it, go; you’re going to win. It’s correct. Right now, industrial, they’re saying they’re going to need 10 times as much. These guys are supply chain support for industrial. I think that’s going to work.

Break: [00:07:30][00:09:10]

Slocomb Reed: It seems like in 2021 and 2020 too here soon, that sense of urgency is vital for getting to the right deals, regardless of which seat you’re sitting in. If you’re on the buy side of anything right now, that sense of urgency is really helpful. Judy, what is it about this opportunity that you pounced on, but were still a little bit too late for? What was it about that opportunity that makes you think that it’s a home run?

Judy Brower Fancher: Because I talked to people from all over the country about what’s going on, I try and read. I don’t think you can buy any industrial right now that’s not a win, literally. I don’t think that’s possible right now, because I think the statistic is they need about three times as much as exists right now. Now, I do look at the timeline because I think things change. You never know what’s coming down the pike. Anything that’s in industrial that’s within five years’ timeline, I’m good with it. I wouldn’t go on to a 20-year industrial, I’m not sure if something’s going to change, where all of a sudden people wouldn’t need industrial and 20 years. But the quicker the better for me, that’s what I look at in all of them.

I got into a multifamily in Sacramento. This is guys that I know, and they wrote back and said, “We can only take part of your money, because everyone wanted in on this.” So it was sort of the same thing. But this is a 12-unit building in Sacramento that was 90% vacant, absentee owner, just hadn’t taken care of it. They’re going to fix it up and flip it within 12 months, and we’re all going to make money.

I’m going to say that having friends in the right places is almost what you need right now. For people that are investing, if you know people in the business, just let them know that you’re interested, because they would rather have people they can come back to repeatedly and get money from than have to go out and find new investors. So if you can make friends with a company that knows that you will send your money pretty quick, that gives you access as an investor.

Slocomb Reed: Judy, thank you; that’s very helpful. Talk to the Best Ever listeners who are high net worth individuals looking to invest passively. They also have very busy, professional, and personal lives… They want to spend one to two hours a week — beyond listening to our podcast and the other podcasts they listen to, they want to spend one to two hours a week studying or doing the activities they need to do to get access to great deals. What are the one or two things that passive investors can do on a regular basis that will help them recognize and take advantage of great opportunities right now?

Judy Brower Fancher: I would think that LinkedIn is a good thing to spend half an hour on. Look at the stories, look at what’s being bought, who’s buying it, and maybe reach out to them. Because LinkedIn is a professional tool that works very well. If you say “Hi. I’m a passive investor. Can I link in with you? I’m interested in your company.” That’s going to be a welcomed outreach. And then honestly, looking at just the trade news, just keeping in touch with what’s happening, and other kinds of news. If you can think up topics about — if you find out where tech’s going and all that, like I’m seeing things that make the economy move that are attractive now, that look like growth things… Healthcare, and I think healthcare and tech are the biggest ones… That seems like the best way to do it. And then depending on how much you’re willing to place, I’m going to sidewind on your question really fast and say that my idea–

Slocomb Reed: Sure, go for it.

Judy Brower Fancher: People talk about that they have a diverse portfolio. They mean they have small and large cap stock, and the stock market just goes up, and down, and up. It doesn’t matter what company you’re in, it doesn’t matter if it’s foreign, or local, or anything… I don’t understand, that’s not diverse. That’s probably the other thing that I would say – if you want to be diverse, that I do have multifamily, self-storage, industrial, and senior housing, and I have stuff in the Northeast, and I think I’m going to buy something in the Southeast now… But I definitely have things in the West, and I have something in Tennessee; that’s where the industrial opportunity came up. It’s an Amazon building so it’s great. I think that’s more diversification. That is another place you want to spend your time, is making sure you’re not just chasing one asset class. Or if you’re going to be a passive investor, there’s no reason not to spread your risk by going in some into a bunch of different product types and different geographies.

Slocomb Reed: Do you think, Judy, it’s important for the sake of diversification, to invest with a broader number of general partners, or should passive investors be finding the one, two, three people they know, like, trust, and can place their money with?

Judy Brower Fancher: I am a fan of experience. So I did a couple of little toe-touch deals, just tested people a little bit. I mean, not to be saying I tested them, but to try and get comfort level. But I definitely like repeat investing with people that have a good track record, that I’ve seen them performing on what they’re doing. They’re like, “Hey, we have this other one. Do you want to go in on that?” “Yes, thank you.”

For me, there’s no reason to put all of my investments with one party. I don’t have anything against putting investments with the same party if they’re doing different product types or different geographies; I think that’s great, because then you do have that comfort level with the people you’re investing with. I like that when you have a question, you can get an answer. That’s the great thing about actually knowing these people that are running the businesses, that you can get hold of if you have a question.

Slocomb Reed: Totally. As competitive as it is right now, to get invested in great deals, do you suggest that newer passive investors do the toe-touch and invest the minimum, or the safe, smaller amount of their capital the first time? Or should they really just be pouncing on the great opportunities they find?

Judy Brower Fancher: If you have an industrial portfolio and you have a bunch of money, you may as well put a bunch in there. One of the things I try and look at, when you’re talking about being busy and everything, is that it’s going to take you some amount of time to get the materials back to them and get everything put in order and everything. And if you’re going to put your money out, and you put in a small amount, and it’s going to take you five years to make $10,000 – is that the best use of your time today? Maybe in your own business, you can make more money than that, faster. Alternately, because I did have a service business where I was worknig by the hour, and I had employees, so net profit at the end of that minus taxes… When I first invested in real estate, and I put in – I don’t know, 20,000 bucks, and I got back 28,000, I couldn’t stop laughing. I’m like, “I didn’t even do any work. This is amazing.” It’s kind of fun, someone else’s doing it. So it’s a little bit of time to do it, but I’m just saying that if you think about the time period and everything, you don’t want to put in so little that the return is a waste of everyone’s time.

Break: [00:15:43][00:18:37]

Slocomb Reed: Let’s say you, Judy, identify a great operator, a great GP – do you go ahead, connect with them, and get preliminary paperwork and stuff done before they have a deal to present, just so that you can get on it faster?

Judy Brower Fancher: I haven’t needed to do that outside of the crowdfunding thing that I tried. The others, they’ll ask for interest and they ask you how much you’re interested. Then they start slotting people in. The smaller ones – I’ve seen that they are doing it on a more personal basis… I guess I’ve filled out things on their website, of what accounts and different stuff like that. But then when it’s an investment opportunity and they email you, then you click in and put in how much you’re wanting to do, and they tell you the “Yes, great.” Or like I said, in that one case, they got oversubscribed really fast and they came back to me and said “Sorry, but we’ll take it.” It was about 50% of what I wanted.

Slocomb Reed: Gotcha. What crowdfunding platforms do you recommend?

Judy Brower Fancher: I am investing with self-defined benefit plan many, like IRA. I have to move it into an IRA account to spend it on real estate. And I have found that Crowd Street has more deals that accept that.

Slocomb Reed: Crowd Street.

Judy Brower Fancher: Realty Mogul didn’t seem to have as many deals that were okay for investing through that. So that’s the platform that I have used. They answer their emails. I don’t know them personally, but they do answer their emails.

Slocomb Reed: Awesome. We’re going to do a Best Ever lightning round. Are you ready for some quick questions?

Judy Brower Fancher: I am.

Slocomb Reed: Awesome. Judy, what is your Best Ever way to give back to the community?

Judy Brower Fancher: I am the vice chair of membership for an Urban Land Institute National Product Council called The Entertainment Development Council. I’m also on the board of my local ULI. It’s another way that I meet and learn things from people that I guess I should have mentioned. If you have a local ULI chapter, that’s a good way to get knowledge on real estate.

Slocomb Reed: What does ULI stand for?

Judy Brower Fancher: Urban Land Institute. It’s the people that own all the real estate in the United States, and the world. It’s an international group.

Slocomb Reed: What is the Best Ever book you’ve recently read?

Judy Brower Fancher: I just read a book called Small Giants, which is by Bo Burlingham. It’s about companies that stay small on purpose. They make a ton of money and they stay small, which is my taste. It’s my taste for running a business and for investing.

Slocomb Reed: Tell us about the deal you’ve lost the most money on.

Judy Brower Fancher: I invested — the most money I’ve ever invested into was a high rise in Phoenix to be built. I think it was in the early ’90s. The owner walked away from it. I was a limited partner, passive investor, no choice; just kind of jaw dropped. It’s like, “Oh, my money’s gone.”

Slocomb Reed: What happened? Why did they leave?

Judy Brower Fancher: They didn’t build it. I think that Arizona or the country went into a big recession, and they didn’t move forward on it and they let it go. They turned the dirt back over to the bank, I guess, that they’d taken the loan from.

Slocomb Reed: Wow. Tell us about the deal you’ve made the most money on.

Judy Brower Fancher: It’s coming up. I actually invested in an industrial park in Orange County, California, also in the ’90s. I well doubled my money in 15 months.

Slocomb Reed: You said it’s coming up. That deal went full cycle; what’s coming up?

Judy Brower Fancher: The Sacramento multifamily one is going to probably double my money, I think. I’m about to get out of a fund where… Is it okay to have a second to tell? My client let me in on the friends and family, and I didn’t quite understand what he meant at the beginning; I wasn’t as sophisticated in my investing, I guess. I am in on the people that are syndicating, we — because I’m passively in it– tie up the property, and then syndicate it, so we only have a 90-day exposure before it’s owned by a…

Slocomb Reed: Oh, okay.

Judy Brower Fancher: And that is going to close sometime at the beginning of next year, and I assume that means that we get a bundle all at once. That will be good.

Slocomb Reed: Nice. You said it should double your money. How long is the hold period for that?

Judy Brower Fancher: The one in Sacramento, the hold period is going to probably be 12 months. They said maybe two years, but it’s going to probably be 12 months.

Slocomb Reed: Doubling your money in 12 months to two years is not bad, for sure. Especially when you can do it passively.

Judy Brower Fancher: Yeah. They’re doing it for me.

Slocomb Reed: What is the best way, Judy, to reach out to you if any of our Best Ever listeners have questions?

Judy Brower Fancher: Finding me on LinkedIn is easiest. I guess I probably am Judith Brower. But I think if you search Judy Brower Fancher, you’ll find me.

Slocomb Reed: Search Judy Brower Fancher and you will find Judy.

Judy Brower Fancher: On LinkedIn. Yeah, that is the best.

Slocomb Reed: Awesome. Judy, we appreciate you being here on the podcast, telling us your story of growing up into commercial real estate, spending your professional career supporting commercial real estate investors, getting into investing passively with your own clients, and now being on this podcast is part of it. Thank you. You’re helping other passive investors identify great opportunities. Best Ever listeners, we hope you have a Best Ever day. Judy, thank you again for sharing your story with us and giving us some Best Ever advice. We will see you again 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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JF2662: 5 Evolutionary Ideas for Your Business with Joe Fairless

We’re sharing the top sessions from the Best Ever Conference 2021 as we gear up for the second Best Ever Conference at Gaylord Rockies Convention Center in Colorado this February 24-26th.

In this session, Joe Fairless will help you identify your liabilities, maximize your opportunities, and accelerate your growth for your business.

Register for the Best Ever Conference here: www.besteverconference.com

 

Click here to know more about our sponsors:

Deal Maker Mentoring

 

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Follow Up Boss

 

TRANSCRIPTION

Joe Fairless: Welcome to another special episode of The Best Real Estate Investing Advice Ever Show, where we are sharing the top sessions from The Best Ever Conference 2021. This year, the Best Ever conference is back in person, February 24th through 26th. Come join us, Denver, Colorado. You’ll hear all the new keynote speakers, you’ll meet some new business partners, you’ll learn some insights from the presentations and from the people you meet, that you can apply to your business today. Here is an example of a session from last year that is still relevant today and will be beneficial for you.

Everyone, looking forward to our conversation. I’m grateful to be here and I’m grateful that it’s remote, it’s virtual, but we’re all here, we’re all learning, we’re all looking to improve ourselves. I have a lot of respect for you because you’re putting a priority and an emphasis on growing. That’s ultimately what it’s all about. Coincidentally, that’s what this conversation is about. It’s about the evolutionary ideas that I have for you. It’s based off of things that I’ve learned for the last 12 months, it’s based off of things that I’ve come across. I thought “You know what? I’m going to document these five evolutionary ideas and I’m going to share it with the community because it was helpful for me personally.” Anytime I go to an event, anytime I hear a presentation, I’m not looking to apply all of the items that I hear from someone presenting, I’m not looking to meet everybody in the room. I’m simply looking for one substantive relationship if it’s with an individual, or I’m looking for one item that I can apply to my business. That’s what my recommendation is for you for this conversation. I have five ideas for you but if one of them is applicable, then it’s a win.

Let’s talk really quickly about my background, just for some context, in case you’re not familiar. $1.2 billion worth of assets under management, I’m the co-founder of Ashcroft Capital. In addition to that, I’m the founder of the Best Ever platform. With that platform, we have the conference, clearly, we have Best Ever causes which is near and dear to my heart. My wife and I have personally donated to over, I believe, 36 nonprofit organizations for the past 36 plus months, we do one organization a month. Apartment syndication book and a couple of other things. As you can see in this picture, I’m married, and I have a two-year-old named Quinn who is ever so active, and more so by the day. Let’s talk about the five outcomes for our conversation today.

The first outcome is, first and foremost, that I want to have a conversation with you about an area that I suspect is not being paid attention to enough, and is actually your largest liability as it relates to building a business. That’s number one. Number two is I want to make sure that we’re all getting the most out of our team members, but also our team members are fulfilled, and they have the right sense of direction for what we’re looking to do. So I have a tip for you there. Number three, a big challenge, is finding the right deals, that pencil in a compressed cap rate environment, also ensuring that we are still delivering on the expectations that our investors have, from a profitability standpoint, and then also maintaining sanity and protecting against anomalies that might come up whenever we’re doing deals. By anomaly I mean, if you have 25 deals, then you might have 23 that are performing but maybe two are struggling. How do we protect our investors against that and then ultimately, how do we also protect ourselves and the company against any anomalies that might come up?

Number four is a suggestion that I have based off of what I’ve experienced as it relates to thought leadership platforms. I am not going to talk about that you need a thought leadership platform. Holy cow, we were talking about that at the first Best Ever Conference. I’m not going to talk about that. I’m going to assume that you already know you’ll need a thought leadership platform. What I’m going to talk about is what’s the evolutionary next step from the thought leadership platform. The fifth is I’m going to talk about the success paradox. The success paradox is something that you likely have come across, but perhaps haven’t consciously paid attention to, some consequences of the success paradox, and a solution for that. So let’s dig right into it.

The first is the current situation. How I’ll structure this conversation is we’ll talk about what your current situation might be. Again, each of these five things doesn’t necessarily have to apply to you right now. Perhaps you will come across this current situation, and again, if you can pick one of these five things out, then I think it’s a good thing, and hopefully apply even more than that. For anyone who knows me, besides family and business, I’m currently obsessed with chess. For the last two years, I’ve been obsessed with chess. I went from the Chess With Friends app, to now and phasing that out, and I’ve graduated to chess.com app, so I’m playing people all across the world at all hours of the night. I tend to play more foreigners than Americans because I play at, again, all hours of the night. Americans are all asleep and I’m playing chess. So I am currently obsessed with chess. There’s a lot of parallels between real estate and chess. We’re not going to get into that in this conversation. I will mention one aspect of how there’s a carryover.

In chess, there are three ways to describe a mistake, basically, when you make a bad move, and they’re very kind about it. The first is inaccuracy. If you make a move and it’s inaccurate, or it’s an inaccuracy, you could have made a better move but it’s okay, there’s plenty of time for you to redeem yourself. So one isn’t an inaccuracy. The second is a mistake, they just flat out call you out, “Hey, that’s not an inaccuracy. That’s a mistake. That was a bad move. You shouldn’t have done it.” But not all is lost. But the third is called a blunder. If you blunder, you’re pretty much done, you’re pretty much going to lose the game unless there’s some miracle that takes place. As I was researching chess in my spare time, I came across this blog post. It really resonated with me as a real estate investor. As you can see, it’s what are the main reasons you blunder in chess? The number one reason is they were just careless, they weren’t thinking through things, and perhaps they were overconfident. It got me thinking, what is an area in real estate… I’m specifically talking about commercial real estate because that’s what we’re talking about at this conference. And even more so, perhaps, syndication. It doesn’t have to be multifamily, syndication across any property type.

I was thinking, “Where does that really apply and where could I and other real estate investors perhaps have a vulnerable point where we are perhaps careless?” I would recommend that right now, just for a moment, just think. Where might I be a little careless in my real estate business that it could cause a blunder? Where might that be? I have all points of vulnerability, due diligence, or maybe not underwriting properly, or maybe don’t have the right team. But what could cause a very large blunder where I’m not paying particular attention to enough? What I came across it and when I thought of this, my guess is that if we were in person and I asked that question to a roomful of hundreds of attendees, my guess is that there wouldn’t be one person who would mention what I’m about to call out as an area of vulnerability that they might be too lax in. That area is compliance.

Break: [00:08:51][00:10:30]

Joe Fairless: If there are any issues from a compliance standpoint in the syndication industry, then it could very well cause a blunder for your business. The thought process here is… I have a picture here as you can see, with Patrick Mahomes, I went to Texas Tech guns up, he’s getting crushed right there, I feel so bad for him. I bring that up because we’re essentially the quarterbacks of our business. If you look at NFL salaries and those multi-billion-dollar organizations, they know the importance of protecting your blindside. I would say that compliance, for 99% of the people who are listening and participating in this conference, is a blindside. You might be thinking, “You know, Joe. Not me, I’m not part of 99%. I’ve got a securities attorney.” The thing that I’ve noticed, not all securities attorneys –I have a very good one– but most securities attorneys and attorneys in general, we have the same challenge with them as we do accountants.

When you ask an accountant, securities attorney, or real estate attorney a question, they give a great answer, direct to the point, you got your answer. But the problem with that is if you’re not asking the right questions and if you’re not asking them enough times as you’re progressing through your business, then you’re not covered. With the NFL, I’ve seen that the left tackles are actually paid three times more than running backs on average, and two times more than receivers. You might be surprised by that. I was thinking, with our syndication business, are we not prioritizing compliance enough, and generally speaking, across the industry? I would say yes, we’re not. My solution is twofold for this. I’m not just saying, “Hey, it’s important to be more aware of it.” But I have two solutions. One is, if you have more than three syndications in your portfolio that you’re managing, that means you’ve got some momentum, you’re building a business, you have built a business, and now it’s time to get serious about having someone dedicated to ensure that you and your team are being compliant.

My suggestion is to hire someone, an in-house compliance person. If that’s not in the budget because if you look on Glassdoor, it’s between 80 to 250 to $300,000 salary for an in-house compliance person. If that’s not in the budget, then bring someone on part-time and then transition them into full-time, maybe as a contractor, transition them into full-time later. That would be one solution. The other is, I would recommend getting the proper insurance directors and officers for insurance. If you don’t have it, I recommend doing that. This is simply to cover our blindside as real estate investors who syndicate deals. If you’re not syndicating deals, then it’s not as relevant to you because you’re not doing any securities. But maybe you actually are, but you mistakenly think you are not. I would recommend having more protection and more oversight on your team. That would be protecting your blindside.

Number two is that you’ve got team members and right now, clearly, they’re mostly remote, if not all of them are remote. They might not have been remote in the past, but now they are. How do you, as a business owner, feel good about that work is being done and that you’re maximizing the potential of your team members? On the other side of the fence, as a team member, how do you help them be set up for success so that they can take the ball and run with it versus not being clear on exactly what the responsibilities are? Because that’s the main thing I’ve found as a challenge for me personally is with remote team members. You’re not there in the office, you can’t look them in the eye, you can’t talk to them and get some nonverbal cues on how things are going. That’s very challenging. The solution that I came up with, it’s not a revolutionary solution, but it is an evolutionary solution, certainly, if we’re not doing this already. That is to identify a single KPI per team member, that way you know what they’re on the payroll for. If you haven’t done this already, it’s a beautiful exercise.

Not only for you, because it gives you confidence and comfort, quite frankly, that “Hey, they’re on the team and this is the way that they make more money than I pay them.” Not only that, but I found that when you give team members clear direction like this, it’s very much appreciated. It helps them feel better about what they’re doing because they know they’re going towards the direction that you both want them to go towards, that helps the business, they grow, you grow, and everyone benefits. But I want to mention that sometimes when someone is farther away from the money source, what I mean by that is a salesperson, for example. I have some sample team members of mine, I have just one through five, just for sample team members, I want to give you some different examples. A salesperson, for example, it’s very clear, ROI. How much are they compensated? How much XYZ do they bring in? Then there’s the simple compensation structure. But what about, for example, a team member number four who has multiple responsibilities? What about that team member?

That team member is the one that oversees my Best Ever brand. That team member is ultimately responsible for the profitability of the brand. Think about when you’re coming up with the one KPI per team member, think about how you can as closely as possible connect that KPI with profitability for the company. That will help you sleep better at night knowing that you are setting them up on a course to help you grow the business, also to help them perform. You might come across –you will come across I should say– a team member who might be say, an executive assistant or a project manager. In those cases, it’s harder to associate one KPI for that team member. If you can’t do one KPI for that team member, then my suggestion is to have a one-sentence description of what their role is that way they can use it and you can use that, at least, as a way to identify what their focus is and what their role is.

The third thing I’d like to suggest to you is that if you are in a current situation where it’s tough to find deals, I think that’s a common occurrence on finding deals, tough to find deals. Two is even if I find the deals, I’m not sure if they’re going to be generating the returns that my investors are looking for. That’s a challenge because we’re a compressed cap rate environment. Three, as I mentioned earlier, protecting against anomalies that might come up on deals where you’re performing across the board, but there might be a couple of deals that aren’t performing as well as you’d like. How do you protect against that? We’ve talked about this throughout the conference. I say “we” I mean other people. Today, have talked about this throughout the conference, that is the fund model. I would say that with the fund model, what I found is that it’s a beautiful, beautiful solution to solve those three challenges. I’ll get into specifics because that’s what this conference is all about, it’s about getting into specifics. I’ll back up what I just said with some points to illustrate it a little bit more.

With a fund versus doing single asset purchases, what it will allow you to do is it will increase the deal flow. The reason why it will increase the deal flow is that, right now, you ideally have identified a specific property type that you’re going after. Based off of that property type, you have a narrow window of deals that you can look at. When you do a fund, you could be more flexible with different properties that offer different types of returns as long as you ultimately average out to where you need to for your investors. For example, if you have historically been looking at say Class-C properties. Class-C properties tend to have better-projected returns, although you want to get out of them before the CapEx starts coming at you and buildings start falling apart. If you were doing Class-C properties before and you have a hard time finding Class-C properties, but you happen to come across a Class-B property, but your investors were looking for more of the Class-C returns.

If you had a fund, then as long as you’re getting your Class-C properties, you can mix in a Class-B property. It could have lower projected returns but because with the fund, you’re averaging out the returns, you’re able to still deliver for your investors but you’re also able to increase your deal flow. If you’re having a hard time with deal flow, consider a fund because you will open up the types of deals that you can buy while still staying within your area of expertise. I’m not saying go outside of your expertise, I’m simply saying that you can have lower projected returns on one deal, combine that with a higher projected return, and perhaps that lower projected return deal wouldn’t have been able to be purchased by you in the first place if you didn’t have a fund because your investors wouldn’t have gone for that, but combining it into a fund all as well.

The second way that it could potentially provide better investor returns, the second advantage, I should say, is that it could potentially provide better investor returns. The reason why is because you can commingle money in a fund, whereas single asset purchases, you clearly can’t do that. With a fund, if you buy say deal number one and the Capex is $6 million, then in that fund, you are now six months into it, and you’re now ready to buy deal number two for the fund. If the first deal was requiring per year projections, six million dollars, but as you’re into it, as you’re doing the renovations, and as you’re looking at the Capex budget, you’re coming in under that six-million-dollar mark. You’re thinking “Man, we’re actually doing really well. It’s going to cost four million or four and a half million, not six million dollars.” When you’re raising money for deal number two, you don’t have to raise as much money because you’ve already got one to one and a half million dollars in savings from deal one. Because you don’t have to raise as much money as you would have if you’re doing single asset purchases, you’re going to be coming out ahead from a return standpoint.

Break: [00:21:48][00:24:41]

Joe Fairless: The third thing I’d say is its better sanity. Because if you have a deal or two that is not going as projected and you have a lot of other deals that are… As a limited partner, if you’re in those deals that aren’t going as projected, that sucks because you’re in a deal that’s not going as projected. But as a limited partner, if you are in a fund with that operator, now those returns are averaged together. You’re in a fund where the other deals that are performing are picking up the slack from the deals that aren’t. As a general partner, that’s a beautiful thing too because now you have one fund that is performing, assuming that you’re hitting projections versus individually reporting on a single deal. From my standpoint, we looked at it extensively. It’s a win-win for the operator and the limited partner. I would recommend looking at that.

Here’s something for thought leadership and challenges that, I can tell you, I’ve personally faced. I’ve got the Best Ever podcast and it’s been going daily for 2500 or so days, literally every single day. I haven’t been doing all those interviews, especially over the last 12 months or so. Theo Hicks has been doing a lot of the interviews, but I’ve still been doing interviews. What I realized is that the more the syndication business, Ashcroft capital, the more that company grew, the less I focused on the thought leadership platform. The result was not good. By the way, it has nothing to do with the interview style that I was doing or Theo was doing. But there wasn’t a dedicated person solely focused on the brand and on all the content across all the different types of mediums within the platform. I recently hired an editorial director and she’s overseeing the entire brand now. So now we have someone in place for that. When she was doing an audit of the podcasts and of other platforms, there weren’t a lot of positive reviews as of late.

It is because that I wasn’t putting the time that I needed towards it and, really, no one was, even though it was one of the most important foundational pieces of the brand. We’re fixing it. I bring this up because the podcast has 2500 plus interviews, you will come across this as you continue to grow. Ultimately, you want to spend time where, just like in real estate, you build the highest and best use on a piece of dirt. In business, you want to be in the highest and best use areas where you make the most money, and it’s fulfilling for you. As you grow your syndication business or commercial real estate business, your attention is going to go towards that, and your thought leadership platform can become stagnant if someone isn’t dedicated to paying attention to it. What I suggest is slowly transition it once it becomes mature. How I think about it is The Tonight Show where you had multiple hosts, Johnny Carson, and then a bunch of other people that have come since then. It’s a platform but then you can transition it to other people.

What you’ll find with my platform now is we have Theo Hicks who is a rock star and has been doing interviews, and he’ll still be doing some. Then we’ve got a show with Travis watts who you’ve heard from during this conference today. Then also Ash Patel, who a lot of you know is a commercial real estate investor who focuses on office and retail. He is going to be doing a lot of interviews for the podcasts. That way, I have the ability to focus on the stuff that makes me the most money. But then also, I’ll still be doing about three interviews or so a month in order to continue to be in the mix. Because I found it’s a great way to stay sharp, but it’s also not the highest and best use of my time. You also see that we’re transitioning from just Best Ever, to Best Ever commercial real estate, to triple downing exclusively focused on commercial real estate. I’ve talked to a lot of people who have thought leadership platforms that are mature, this is ultimately what they’re trying to do. So I’m just letting you know, this is what’s going to happen for you and that’s something to keep in mind. Identify some people who can eventually transition that over for you so you’re not as focused on it.

Lastly, I’ll say that once you implement these four things, if you do implement these four things or any of the four things, you might look like Mickey Mouse right here where it’s just like, “Hey, everything’s good,” whistling a tune. The challenge is what I call a success paradox, which is that the more successful you become in business, the more money you make in business, the less likely it is you’re going to receive constructive criticism from team members. Unless you proactively encourage that. It’s paradoxical because, in order for you to have become successful, you will have received, as you know, all sorts of constructive criticism, with some of it not constructive along the way. So how do we reconcile that as you become more successful, we get less feedback, which we would normally use to implement and become even better? The solution is fairly obvious. I was reading the book Mastery by Robert Greene. He talks about this exact scenario. What he suggests is to identify an event, say two to three months ago, that way, it’s not fresh from an emotional standpoint. You can think about it more as a third party involved, not necessarily personally involved. Think about an event that didn’t go according to plan and then think about how were you responsible for that taking place?

Something that happened to you that you didn’t like, what role did you have in that? What that does is it puts us taking more ownership in what we do, and it helps us get better feedback. The other thing I’d say is, who are the three people in your circle who will give that feedback to you? It’s necessary to have at least three people always in that circle to have that feedback for you. I can tell you, one, you saw the podcast review, the “Meh, so-so,” review. A team member shared that and I love it. I want that type of feedback. So that’s one for me. Two is, Ben actually, recently when we were talking about a welcome video for the conference. I was going to record it and he said, “Great, please record it. But can you do something better from a background standpoint? Because the last time it looked really unprofessional?” I was like, “Thank you for that. Yes, it did look unprofessional. I was kind of thinking that but no one mentioned anything to me. Thank you for that.” He ended up recording the welcome video in the studio to make sure it is professional and reflected the conference brand.

The third is here’s a quote from… It’s not a full quote because the full quote is Rated-R. I’ll let you read it. He said it looked like I was squinting in the sun. This is actually a friend, Ash, who’s going to be doing interviews. He said I was squinting in the sun or it also looked like I just saw one of our friends naked. I won’t mention the friend’s name. He said “That’s just a bad picture of you.” I said “Man, thank you. No one mentioned that to me. I appreciate that candid feedback.” So have three people on your team who will give you that candid feedback. With that, I’ll go ahead and wrap up.

I hope you gained some useful insights and actionable advice from this previous Best Ever Conference session. Remember, if you’re looking to scale your investing in 2022, we look forward to seeing you in Denver. Get 15% off right now with code BEC15 at besteverconference.com. That is code BEC15 for 15% off at besteverconference.com.

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JF2654: Industrial CRE: Find Your Competitive Advantage with Neil Wahlgren

The industrial sector can be hard to market to potential investors, but Neil Wahglen has found a way to ensure his company stands out from the rest. From their sale-leaseback strategy, to their unique, storytelling marketing, Neil has been able to not only bring in but maintain long term relationships with high-net-worth investors. In this episode, Neil details how these strategies came together to help him find his competitive advantage in the industrial space.

Neil Wahglen Real Estate Background

  • Works full-time as COO at MAG Capital Partners and is an Industrial Sponsor.
  • He has 8 years of real estate investing experience and is both active and passive.
  • Portfolio: $350M of industrial, single tenant net leased (NNN) commercial.
  • Background: commissioned officer and pilot in the US Air Force and Navy.
  • Based in San Francisco, California
  • You can find him at www.magcp.com | neil@magcp.com

 

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TRANSCRIPTION

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

Neil Wahlgren: I’m doing great. Thanks for having me, Joe.

Joe Fairless: I’m glad to hear it. It’s my pleasure. Neil works full-time as COO at Mag Capital Partners, they are focused on industrial products. He has eight years of real estate investing experience, both active and passive. Their portfolio is 350 million dollars’ worth of industrial triple net lease commercial. His background – he’s was commissioned officer and pilot in the US Air Force and Navy. Thank you, sir, for everything you did for our country, you, and your colleagues. I sincerely mean that. Neil is based in San Francisco, California. You can check out their website, magcp.com. It’s also in the show notes. With that being said, Neil, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Neil Wahlgren: Yeah, absolutely. Like you mentioned, a slightly non-standard track to finding commercial real estate. California native, I grew up just outside of San Francisco, I really grew up in the suburbs, a little bored out there… I decided I need some excitement, I went to the Air Force Academy, went on to fly a number of planes, but primarily the C-130, the Hercules. I flew that full-time for the Air Force, and then part-time for the Navy, and the reserves, been to over 100 countries, two combat deployments, to Iraq and Afghanistan. It was just a great, maturing and experiential process in my 20s. That was the right thing at the right moment there. Ultimately, I did that for altogether about 10 years, and kind of hit a transition point where you start looking, hitting that point your life, you’re like, “Alright, can I keep doing what I’m doing now and hit really my goals for all the things I want to do?”

The more I was in a flying world, the more and more I realized my time was stuck two hours in the cockpit, which was stuck to time away from home and not being able to build that family work-life balance that I was hoping for. That was my catalyst for effectively transitioning out of aviation and out of the military side, and somewhat serendipitously ended up running into a family friend, right at that transition point, who had built up kind of an equity-focused, really investor-focused arm of commercial real estate. They had a model where they would effectively partner with developers, operators, and brokers who had a very niche skillset for commercial real estate deals, but didn’t necessarily have that capital component. So we would JV with them on a deal-by-deal basis. That was effectively how I got my feet wet and jumped into commercial real estate about eight or nine years ago.

Joe Fairless: What was your role eight or nine years ago? I know it’s evolved. I assume it’s evolved since. What was it at the beginning?

Neil Wahlgren: At first, it was operations. Kind of bringing that very structured checklist – discipline, multi-component experience of flying, and really piloting and managing a multi-crew aircraft. The founder was skilled at certain parts, but that operational piece, he knew he had a hole to fill. I came in on that side, really just working internally, and then slowly grew and built out a team. Through that process, we ended up growing our holdings and portfolio in about four years by about 10x. So it was a really fast-growth profile, and I learned just firehose effects. We got to see and underwrite through everything, from multifamily, to industrial, to commercial, multi-tenant retail, even some ground-up development stuff… So I really got to see a ton of different types of commercial real estate and a bunch of different partners, and I really got to see and really hone in on what is the type of real estate that I love here, what stands out amongst the rest, and what operating teams do I find exceptional? Ultimately, one of those groups was Mag Capital, who I had the opportunity to join up with full-time about four years ago.

Joe Fairless: And we’ll get to that. Just so I’m clear, you said you first started doing operations, and slowly grew from there. What specifically were you doing when you started out?

Neil Wahlgren: When I first came in, it was a bit of chaos. It was just emails, it was a lot of projects. There was, I would say, ineffective communication going on between investment partners, between operator partners. Really it was just – start from the ground up and every day was “Alright, let’s build this checklist out to have a rhythm, a flow, monthly check in meetings, set up standards and consistencies with both investors and with operator partners, set up expectations, and really start delivering on time or early on what we said we would do.” That was really a major piece that was missing on this firm when I came in, and really setting up that relentless, methodical approach toward day-to-day operations, which slowly grew weekly, monthly, and an annual forecast was ultimately what allowed us to grow.

Joe Fairless: As COO, what are the KPIs that you’re evaluated by?

Neil Wahlgren: Great question. My primary focus is in capital markets. We’re vertically integrated at MAG. We not only broker and source our own deal opportunities, but we also fund with our internal investment partners. So I am graded and effectively judged by how well we can effectively pair those two pieces.

Joe Fairless: What two pieces?

Neil Wahlgren: Both the deal side and the equity side; cash and deals. Effectively, you need to be skilled and efficient at doing both, but more so you need to be balanced and be able to find the right flow to say “Hey, am I looking ahead? What’s my deal flow pipeline look like? Am I preparing adequately on the investor side?” It’s everything from, are we able to get the right deal flow for what our investors are asking for? How many deals per year are we able to fund effectively and quickly? Are we able to do it in a way that commitments turn into true-funded positions? All these granular details of a COO are probably the most important components of the position.

Break: [00:06:50][00:08:23]

Joe Fairless: That’s a lot of responsibility, first off. Assuming that I’m interpreting what you said correctly, does that mean that you’re responsible for finding the deals, and does that also mean you’re responsible for finding the money to fund those deals?

Neil Wahlgren: We have more the latter. So we have two principals, Dax Mitchell and Andrew Gi, who come from a brokerage, a broker background, and also from an effectively commercial real estate appraisal background. They run our acquisitions team, they’re sourcing, they’re using multi-decade relationships to put together and find these industrials, single-tenant, net-leased investments that we do. Then ultimately, as those opportunities come and work through the pipeline to the point where, if it makes it all the way through, they become an offering that we want to effectively bring into our investment group – that transition and that alignment of debt partners, equity partners, and ultimately getting a solid deal under contract, that is where my primary focus really is.

Joe Fairless: So I heard debt, equity, and then you said ultimately getting a solid deal under contract. Are you responsible for any part of the negotiations to get the deal under contract once the other two partners identify it?

Neil Wahlgren: Yeah, most of the negotiations are done on a principal level. Our primary way that we’re sourcing deals is actually somewhat unique, in that it’s through sale-leaseback. It’s a very niche way to create opportunities in that space. Unlike other commercial real estate asset types, these projects probably have more work that’s done upfront, because you’re negotiating not only the purchase price of your asset, but also the brand-new lease that you’re putting in place, and kind of the relationship between those two.

Joe Fairless: Elaborate more on that, will you? You said the primary way you’re sourcing deals is by sale-leaseback. So you’re finding them via leasebacks, or that’s just a mechanism that is used to… I don’t even know. Help me understand.

Neil Wahlgren: Sure. A high level of sale-leaseback is when you have… To use an example, the industrial space. Imagine you have a light manufacturing company that operates and owns its own real estate. So a sale-leaseback is when they sell off the real estate that they own and simultaneously lease it back as a tenant. We come in as a buyer and then we transition to the landlord. They are the seller who transitions to the tenant.

Joe Fairless: Got it. So how you find those deals is by seeking out businesses that currently own the land, reaching out to them, and say, “Hey, do you want to sell to us and just lease it back?”

Neil Wahlgren: Typically, not directly. A lot of it is done through broker relationships. Those types of companies — or what happens, most of the time those companies are recently acquired by private equity backers. Those private equity groups are intensely focused on growing the operational component of their new business, less interested in being real estate owners. They will often be the driving force. They’ll either connect with us directly or through broker relationships, and effectively say, “Hey, we just bought this company, we want to basically move the cash into the operation side to grow EBITDA, grow revenues, profitability, etc. So they will sell the real estate, prefer to be in a tenant position, and then redirect that capital into growth metrics.

Joe Fairless: So you’re responsible for debt and equity?

Neil Wahlgren: Yes. We have specific teams on both sides of it.

Joe Fairless: But you’re the one overseeing it?

Neil Wahlgren: Correct.

Joe Fairless: Okay, so let’s talk about equity. I think most of the listeners are interested in that primarily, but we will talk about that too, because that’s something that gets glossed over, but shouldn’t. Equity – what was the last deal you bought,

Neil Wahlgren: We just closed on a five-building 500,000 square foot industrial portfolio with a single tenant. That tenant was a powdered metal parts manufacture; kind of a neat industry. Imagine 3d printing with layers of plastics, but these guys did the same thing with layers of powdered metal. They effectively forge into these complex parts, sell to automotive, aerospace, heavy equipment, etc. We did a sale-leaseback transaction, buying five different buildings, all tenanted by the same company.

Joe Fairless: How much equity was required for that?

Neil Wahlgren: That one, I believe we raised about 10 or 11 million.

Joe Fairless: Okay, let’s say 11. Where did that 11 come from?

Neil Wahlgren: We effectively have really long-term investment partners. It’s a range of family offices, a range of high-net-worth individuals and retail investors, and we ultimately do multiple deals with the same folks.

Joe Fairless: Okay. So the $11 million came from both family offices and high net worth individuals?

Neil Wahlgren: Correct.

Joe Fairless: What percent do high net worth individuals make up of the 11? Approximately.

Neil Wahlgren: Probably the majority, I don’t have the exact numbers.

Joe Fairless: Okay, the majority. And how are you attracting the new individuals? Not the current ones, but new high net worth individuals.

Neil Wahlgren: Having been in this space a long time, my feeling on it is there are two extreme approaches. You can be more of a marketer, or you can be more of an effectively deep relationship, deal focused type of equity relationship. We’ve chosen to be the latter; so we really do very little outside marketing. Almost all of the growth, all the new investment partners that we’ve made are almost probably 99% referrals. It’s effectively devoting resources, devoting time to folks who invest with us on a repeated basis. They effectively bring friends, family colleagues, and that’s been almost 100% of our growth on that side.

Joe Fairless: How, if at all, do encourage or help facilitate referrals?

Neil Wahlgren: Everyone who invests with us is important. There are some people in our network that we’ve found over time really are just phenomenal partners. Not even necessarily the biggest check writers, but people that really believe in the product, believe in our model, believe in our team, and ultimately bring in what I call outsized referral sources. Those, what we’ve found, is really hyper-focusing on those people. Thank you’s, handwritten notes, gifts, taken out… It doesn’t need to be monetary-based either, but just putting attention back into the people that are really helping make you successful. We really put an emphasis on that as a team, and it’s paid dividends, in my opinion.

Joe Fairless: What system do you use to track that?

Neil Wahlgren: A lot of tags; we use a CRM coupled with our investor portal. We meet three times a week, myself and my equity team, and we outline who needs attention, what is the best way to effectively give back, what’s the best way to receive feedback, or solicit feedback… All those pieces done on a very repeatable consistent process is what we’ve found to be the best approach on that.

Joe Fairless: Which CRM do you use? And which investor portal do you use?

Neil Wahlgren: We use a portal CRM company called simPRO. We recently switched over to that system and I’ve been pretty happy.

Joe Fairless: What did you switch over from?

Neil Wahlgren: Juniper Square.

Joe Fairless: Why did you switch?

Neil Wahlgren: I think Juniper Square, in our opinion – not to get too much in the weeds – perhaps focus more on institutional investor relationships than for the type of relationships that we had. We felt we were able to effectively present opportunities, and manage in a more robust manner in terms of metrics, in terms of graphics, in terms of telling the story of these industrial investment opportunities with the simPRO platform.

Break: [00:16:15][00:19:08]

Joe Fairless: I’m glad you’ve found the right platform. And it’s okay to get into the weeds in this conversation. that’s alright. A lot of investors are looking at different options so this is helpful. As far as the focus, it might have been a little more focused on institutional investors. Can you just give a couple of examples for people who are trying to identify “Okay, here’s the type of portal I’m looking for”? Because most listeners for the show, they’re focused on high-net-worth investors as their investors, so this will resonate.

Neil Wahlgren: With any investment, it comes down to telling a story. Effectively, a system should be just a medium that you’re using that allows you to tell your story in a way that’s effective. If you’re effective, if you’ve told that story well in a clear and concise manner, and you have the right amount of trust and backing with your investors, really the equity will fall into place at that point. Industrial can be tricky. I’ll be honest with you, it’s not that sexy. It’s four walls, oftentimes it’s in secondary markets, it’s not flashy, it’s not on the front end of a new development center… Typically, it tends to be really the value and the beauty of it is the relationship between core dirty often manufacturing operations, paired with the real estate that allows that to happen. So to tell that story, we use drone footage, we use some nice imagery, and we like to pair the story of what operation is happening within these four walls, what type of manufacturing? What are the products? Where does this go? How is this integrated in the American industry? Then really couple this investment real estate around that, and pairing those two, using a lot of graphics. We’ve found that that particular platform allowed us to do it best.

Joe Fairless: What about on the debt side? How do you identify the right debt product for… Let’s use an example, the last deal that you did.

Neil Wahlgren: Sure. Honestly, we’ve found a lot of the industrial products that we’re buying – we find opportunity in the seams. We’re buying secondary markets or kind of what I call commutable secondary. It might be the labor force for this manufacturing is in, say, Des Moines or in Champaign, Illinois, some similar-sized city, and then ultimately the asset might be 10 miles outside of town, but that’s okay. If you have the right strength of tenant and the right credit behind it, that can be the most sleep easy, cash-flowing vehicle you can have. But to your point, those types of markets can be sometimes scary or overlooked by national lenders. So what we found is regional lenders, state-level, or Southwest oriented banks, or Midwest oriented banks who know those areas better, have tighter relationships with companies and individuals in those areas – those really, for our type of model and product, are absolutely the best kind of debt partners. So we do repeat business with typically smaller credit unions and banks.

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

Neil Wahlgren: I would say that the best advice that I have is find your competitive advantage. If you don’t have a competitive advantage, find out how you’ll get it. If there’s not a clear path to that, find a partner to invest with who does. I think relying on commodity skills without having some outlying advantage really leaves a lot of risk on the table for an investment. So I would say find someone who has an ultra-tight niche and specialty, does it well, and then either partner with them or emulate what they’re doing.

Joe Fairless: Is your competitive advantage the two principles and their background? Is it just being focused on industrial relative to the rest of the commercial real estate world that isn’t…? What would you say?

Neil Wahlgren: I think we as a team, I believe we put together better investments in single-tenant net-leased industrial acquired through sale-leaseback transactions than anyone else.

Joe Fairless: That’s a mouthful. You make that sentence long enough, of course you will be exactly that. [laughter] That makes sense, though. I’m glad that you talked about that. I’m glad that we touched on each of those aspects of it too, since that’s your competitive advantage. We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Neil Wahlgren: Let’s do it.

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

Neil Wahlgren: I would say what we’ve talked about before – finding those who put in an outsized effect on your personal development and growth, finding those people, and giving back. So I think we find those folks and shower them with time, with attention, with appreciation, and listen. I think by really taking the interaction level to a higher level with a smaller group of people that are directly responsible for your success – I think that’s what we do best.

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

Neil Wahlgren: We have a lot of resources on our website, www.magcp.com. Or I’d love to hear feedback, comments, questions from folks as well. You can reach me directly at neil@magcp.com.

Joe Fairless: Neil, thanks for being on the show. I enjoy talking about a sector that I do not focus on in the commercial real estate world, because I love being educated on it. So I appreciate that. And hey, even if we’re not focused on this sector, there’s a lot of takeaways that you talked about that can be applied to any aspect of commercial real estate or any aspect of business, quite frankly. So thanks for being on the show. Hope you have a Best Ever day and talk to you again soon.

Neil Wahlgren: Thanks, Joe.

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JF2646: Want to Host Your Own Networking Event? Check Out These Clever Tips to Elevate Your Meet-ups with Hayden Harrington

Hayden Harrington was tired of the meet-ups he kept attending. They were usually hosted in crowded, hard-to-hear areas where it was difficult to effectively network with people. That’s when he decided to create his own, unique events. In this episode, Hayden shares how he broke from tradition and created a successful in-person and online networking group.

Hayden Harrington Real Estate Background

  • Real estate entrepreneur focused on large-scale multifamily syndications
  • Currently has $30MM AUM and actively growing the portfolio
  • Managing partner at Momentum Multifamily, a commercial real estate group focused on buying institutional quality assets for their investors
  • Based in Richardson, TX
  • Say hi to him at: www.momentummultifamily.com
  • Best Ever Book: The E-Myth Real Estate Agent by Michael E. Gerber

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TRANSCRIPTION

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

Hayden Harrington: I’m doing well. Thanks for having me on, Joe.

Joe Fairless: I’m glad to hear that and it’s my pleasure. A little bit about Hayden. He’s a real estate entrepreneur focused on multifamily syndications. His company has $30 million of assets under management. He’s a managing partner, speaking of his company, at Momentum Multifamily, based in Richardson, Texas. With that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Hayden Harrington: Sure. Thanks again for having me on. Like you mentioned, based here in Richardson, which is a suburb of North Dallas. I’ve been here for about eight years now. I’m originally from the Woodlands, Texas, down on the North side of Houston. That’s really where I got my start in real estate, doing actually fix and flips and rentals with my dad, growing up through my teenage years. That’s really where I was exposed to it and first got a taste for it. But ultimately, through doing some rehabs and flips with him, it kind of opened my eyes to wanting to go bigger. Obviously multifamily was that next natural step. It took me a while to kind of figure out how the game is played and how it works, but I finally landed that first deal earlier in January 2021. We currently got our second one under contract and are set to close actually next month. So we’re excited.

Joe Fairless: Congratulations on all the above. You said it took you a while to learn how the game is played. How long did it take and what did you learn?

Hayden Harrington: Good question. It really took probably four or five years. I started really setting my sights on the commercial side of things around 2016 or 2017. At first, I wanted to do everything myself, because that’s really all I was exposed to. On the single-family stuff, it was just me and my dad doing all the work ourselves. That’s really all I had ever seen, is just “We’ve got to do it ourselves and make things happen.” So for a long time I had that dream of I want to get into commercial, I’m going to find that one investor, he’s going to write me a million-dollar check, I’m going to go out and buy a commercial property, and I’m going to be off and running. That dream got me nowhere.

It was a lot of trial and error for a while, just understanding the reality of the commercial real estate space and educating myself on the different niches, like where I wanted to start… Because there are so many different places that you can start, whether that be development or buying existing multifamily, buying office, triple net commercial, and so forth. So I spent some time really just exploring and talking to people on each of those areas, and ultimately set my sights on multifamily.

From there, again, you have more challenges that you’re presented with and how to get a seat at the table of a syndication or become a general partner. There’s definitely a learning curve involved with that. For a long time, I knew proximity was power, I knew I just wanted to be around people doing deals… So I’d meet somebody that’s experienced and I’d offer “Hey, I’ll work for free.” I just want to be around the people that are making deals happen, because I knew that was the fastest way to learn. A number of doors actually closed on me, and nobody would accept that offer from me for a while, and I was kind of scratching my head like “Man, I’m smart and capable. What am I doing wrong here?” It wasn’t until I really put myself in their shoes and looked at it from their perspective of what I was actually offering when I had my lightbulb moment.

When I did that, I realized that what I was asking for was not offering them value. It was offering their time and resources and energy to educate me so it really wasn’t a great deal for them. Until I looked at it from that perspective, I really wasn’t making a whole lot of progress and I was just dealing with a lot of frustration.

So I began to look at it from a different angle and a different approach. I said “Okay, in my mind, what are the things that are going to speak to a syndicator or somebody that’s experienced?” The two things that popped up were deals and capital. In my mind, those were the two things that were actual tangible value to get a seat at that table. I knew finding a deal would be extremely difficult, especially when you’re just starting out. It’s hard to even know what a deal is, honestly. And if you’re looking at everything on LoopNet or Crexi, there’s a reason why most of those deals are there. So the good deals really are only sent to those that are experienced. A broker is not going to waste their time on somebody they’ve never heard of. I knew that, and so I really set my sights on the capital side, that’s ultimately how I was able to bring some skills to the table and get a deal done.

Joe Fairless: When you were originally looking for a deal by yourself, what type of deal were you looking for?

Hayden Harrington: Honestly, I was just scouring LoopNet and Crexi, those online sites, just trying to make sense of it. Like I said in the beginning, it was kind of looking at different types of assets but I wasn’t getting anywhere else. I was trying to make some relationships with brokers and so forth, I tried to make my own underwriting model, and a lot of it wasn’t great. So after not making a whole lot of progress, I just kind of discarded that idea. I said “Hey, I need to actually go and fine-tune this strategy, get around people that are actually doing deals so that I can be pointed in the right direction.”

Joe Fairless: Got it. Whatever the property type ended up being by yourself, how were you planning on funding it?

Hayden Harrington: Like I said, hopes and dreams of having some investor believing me enough to write me a big check. But obviously, that didn’t get me anywhere, so that was not a great approach.

Joe Fairless: Fair enough. Alright. You got the first deal in January 2021. What was it?

Hayden Harrington: It was a 228-unit property in North-East Houston. A property built in 2012. It was formerly called [unintelligible [00:06:08].18] Liberty Hills and we rebranded it as the Henry at Liberty Hills. It’s kind of our brand that we wanted to stamp down there in Houston on all the properties we buy down there. We bought it for just shy of about 30 million, 828 a door. We actually got it at a five cap, so looking back, we feel pretty good about that, especially where things are at now. But really kind of interesting, just to wind it back, my partner, Dustin and I, we’ve been teamed up for about three years now.

Joe Fairless: How did you meet Dustin?

Hayden Harrington: Just in my own educational process, and trying to understand how the game was played, I started networking. Like I said, I knew proximity is power, and I want to get around people. That was kind of my approach, to add value. I ended up meeting, Dustin and I threw out an idea. I said, “Hey, what if we start a networking group here and kind of make it a little different to help us stand out?” In that way, I can not only put him in a good light, but also, we can work together to build an investor list, or in other words, a pool of equity that we could potentially pull from when that deal eventually came. So we started working together in early 2019 and did the meetup for a little over a year until COVID shut us down… But we were getting 100 plus people out every month. That’s really how I was able to kind of get my name on the map, and we built a pretty sizable database from it.

Joe Fairless: That’s awesome. Let’s talk more about that. But just so I’m clear on where you met Dustin – you said networking, but what specific networking event did you meet Dustin at?

Hayden Harrington: There was a networking app, it’s called Shapr. We connected there and then I just threw it out. I was like, “Hey, can I take you out to lunch?” The app is kind of similar to LinkedIn, and I saw that he had experience in multifamily. I said, “Hey, I want to take you out to lunch if you have some time.” I just want to ask some questions. I think it was on our second lunch that we did that, because we kind of hit it off and got along right away. That’s when I threw the idea out there. I was like, “Hey, what if we start this networking event together?”

And honestly, that was a challenge for me because growing up, I was very introverted and very shy for a long time. I knew throwing that idea out there. I was like, “Oh, man. If I’m co-hosting a networking event, I’m going to have to speak in for all these people.” Honestly, I went back and forth in my mind whether or not to bring it up. I’m grateful I did, looking back, because so much has come of it. I think that’s a product of what happens when you take those chances, you take those risks, and you kind of believe in yourself. Because if not, a limiting belief that I held within my mind keeps me from achieving my goals. That’s when I was like, “You know what? Screw it. I don’t care how it goes. I’m going to throw this out there and put forth as much effort as I can and see what happens.”

Break: [00:08:45][00:10:18]

Joe Fairless: With that meetup, clearly, it was successful with 100 plus people shortly after you started it. You said you wanted to do something different. Tell us, what did you do?

Hayden Harrington: A couple things. Like I said, I was going around to different events too, just trying to understand how the game is played. I realized that the people that were putting the events on were the ones that were doing deals. That was a big realization for me. But the problem I saw was all these events were done at restaurants, bars, and crowded hard to hear places. They didn’t have a sophisticated way of checking people in, it was kind of a table that you do it yourself. I started to see all these things as opportunity. I was like, “I don’t have the best handwriting. I’m sure a lot of people out there don’t either. One simple thing, when you’re putting in your database, you put one wrong letter in an email address, that’s a lost lead.” So doing stuff like a digital check in where we had a computer or an iPad that would be on the backside of a website that I built for us that would automatically add people to a CRM. Just trying to minimize the room for error, maximize efficiencies, and then also doing automated follow-up emails from the time that they submit that form. Two hours later, when the event is over, and they’re getting home, they’re already getting hit with a follow up thank you email.

Then a big thing was putting them in an environment that will help them network, getting them out of the restaurant, that was my number one criteria. I said, “We’re not doing it at a restaurant, we got to get it out of that.” Because the problem with that is you sit down at a table and you’re locked in that seat. You’re talking to the guy to your right or your left and that’s where you spend the next hour and a half. That’s a major issue when you’re trying to build your network. We said we’re done with restaurants. We started in a title company’s office up here in Dallas actually, Madison title. They were gracious enough to open up their office after hours, they actually catered food for us. It was great. Then to further that too, again, like I said, I was kind of naturally introverted. I wasn’t the best at networking. So I basically just solved the problem for myself, which was, we called it a graceful exit. Trying to get out of conversations can sometimes be very difficult when you’re networking because you don’t want to come across as rude.

We’ve essentially just addressed that problem that everybody’s thinking. Every 10 minutes, we force people to mix it up, we actually would bring a cowbell and that was their signal. Okay, times up, exchange business cards, go meet somebody else. People loved it. The first meetup, I think we had 20 to 25 people, then it was 45, then it was 70, then it was 100 plus. It grew very, very quickly. Essentially, we just wanted to help people network more efficiently. That was really the only problem that we were solving.

Joe Fairless:  That digital check in, is the attendee the one putting their info into the iPad?

Hayden Harrington: Yup, absolutely.

Joe Fairless: Describe the flow of the event will you, from the moment you go in to when you leave. As an attendee, what am I experiencing as far as content and different setups that you have structured?

Hayden Harrington: We eventually moved it to the Westin in Las Colinas here in the mid-city. It was a big conference room in a nice brand-new hotel. We’d have them come in and check in outside the room that we’re holding it in. Then we had somebody writing down their name tags. Everybody’s name tag was all in the same font, it’s clear and legible.

That’s another problem too that we solved, because sometimes it can be just hard to read people’s names and their handwriting. So we had somebody with good handwriting writing down their name tags, they’d be checking in, then they’d go and network for a little bit. We kind of introduce ourselves up on stage and some sponsors that we had. We then let people network for the next hour, rotating every 10 to 15 minutes. We gave them free food so there’s always food and drinks. Then the second hour of the event, we do a speaker. So we’d have the speaker come in, and we had Michael Becker come one time, James Kandasamy, John Montero. We had a bunch of pretty well known, especially around Dallas, people that would come and speak on different topics. You get kind of the best of both worlds. We’re not sitting down for two hours and just giving you a presentation, but we’re allowing you to connect with some people, and then also giving you some education to take home as well.

Joe Fairless: What’s the cost, if any, to attend?

Hayden Harrington: It was always free. We gave people free food and it was free to attend. That’s one thing. We didn’t want to put a price tag on it because honestly, we wanted as many people as we could possibly get out. So we left it free for people and I think they really appreciate that.

Joe Fairless: How would you promote it?

Hayden Harrington: Mainly just through social media, honestly, and Meetup. That was kind of our big avenues to promote it. Not anything special really. Once they’d be signed up, we’d obviously send reminders and stuff like that. I think that’s a big one just because people get busy. We were only doing it once a month so sometimes you put it on your calendar, or you register for something, and you kind of forget about it. So we made sure to send people reminders and make sure that they knew when and where it was.

Joe Fairless: How often would the reminders be?

Hayden Harrington: Normally we do a week before, then morning of, and then kind of like an hour before reminder. We do typically three, maybe four reminders kind of leading up to the events.

Break: [00:15:36][00:18:29]

Joe Fairless: You had a lot of people and then COVID hit. So now what are you doing with that Meetup?

Hayden Harrington: We transitioned to do a lot more online stuff. I think that was a big pivotal moment too because a lot of people, as soon as COVID hit, especially in our space, they just kind of stopped doing stuff. A lot of people had local meetups and they never really made the transition online. We started doing webinars and online networking events. We actually were able to build our list significantly faster than we were before and also expand our reach. We pivoted very quickly and just started doing monthly educational webinars, we do bi-weekly networking events with people all over the country. I think the first few months, we were getting at least double or triple the amount of people added to our list just because we could expand our reach. Especially up front, everybody was excited to hop on different network events. There was some definite Zoom fatigue over the subsequent months. But really, at first, we were getting at least twice if not three times as many more contacts added to our list every single month.

Joe Fairless: Now are you still doing those Zoom networking events?

Hayden Harrington: Absolutely. We just finished up a three-part series. We did kind of lifecycle of a deal. We did one video in the series per month. The first one we did, Dustin and I were on underwriting, then Gary Lipski came on the following month and did asset management webinar to our audience, and then Rob Beardsley of One Star Capital just recently did a case study on a full cycle transaction. Then we still do the every other week virtual networking on Zoom as well.

Joe Fairless: Are you doing this full time?

Hayden Harrington: Yup.

Joe Fairless: What’s been the biggest challenge? Actually, before you answer that, you were learning for four to five years how to approach getting a deal. How are you supporting yourself?

Hayden Harrington: Out of college actually, I started a nutrition company, did that and grew that for a few years. Then when I exited that, that’s really when I went all in on multifamily. I definitely had to make some sacrifices too because I knew in my mind, it’s the coffees, it’s the lunches, it’s those meetings that are spontaneous where all the value is found. If I was tied up too much, I’d miss out those opportunities, and I didn’t want that. So I had to do things like sell my car and just go all in on this bet on multifamily. I think that definitely paid dividends. But it’s very challenging to get off the ground because the barrier to entry is very high, especially for somebody that’s young. I definitely had to make some sacrifices along the way.

Joe Fairless: When you sold your car. How did you get around DFW?

Hayden Harrington: I drove my grandfather’s old Jeep around for a couple years. Thankfully I had that. But that kind of afforded me the ability to go and make that sacrifice. Not everybody has something like that. Thankfully I did and was able to go forward with that.

Joe Fairless: What did do you do with the money when you sold the car? Where did that go?

Hayden Harrington: Straight into savings. I have little savings, plus proceeds from that, did a couple of little jobs, and stuff. But that was all into savings, just try to keep myself afloat and keep the dream alive.

Joe Fairless: Wow, good for you on that nutrition company. What did you sell it for?

Hayden Harrington: I’m not able to disclose that but it was a good venture. We ended up growing it into about 90 different stores across eight different states.

Joe Fairless: A seven figure sale to you.

Hayden Harrington: Not quite, but we didn’t know…

Joe Fairless: Pretty healthy.

Hayden Harrington: Yeah, it was still a good business. I credit that business a lot because it actually taught me a lot. Especially the marketing and branding side because at first, frankly, we were broke. So I had to figure out how to build a website, how to design a product, all that stuff I had to kind of take on myself. A lot of those skills translated to real estate because a business is a business, ultimately your investors are customers and the same principles apply to selling a product as selling an investment.

Joe Fairless: If you speak to someone who says “Yeah, I want to get into multifamily,” but they were where you were years ago. What’s something you would tell them to do less of that you did and what’s something you would tell them to do more of that you did?

Hayden Harrington: I’d say don’t try to do it all yourself. Because for a long time, that’s what I tried to do and it got me nowhere. Be willing to specialize, be willing to focus on where you can add value, and not try to do it all. Multifamily is absolutely a team sport. Focusing on a role that you can be really good at and bring a lot of value to the table, I think that would definitely serve you well in the long run. Just to add to that, just be patient. These are long relationships, not only with the partners that you’re in, but also the properties, the deal itself. It’s not like you’re flipping these in a month, we underwrite to five year holds, so these are long term transactions, they take time to put together. I mean just the closing process could take two or three months, and that’s from getting your offer accepted. That doesn’t even factor in how competitive the space is. Just be patient, be willing to put in an enormous amount of effort and work, and good things will happen

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

Hayden Harrington: I think my best piece of advice really goes back to just believing in why you’re doing this. What’s your why to begin with? I think that’s the most important question to ask yourself is what’s your purpose behind that? Because you’re going to face a lot of closed doors, you’re going to face a lot of hurdles, a lot of objections, and your why’s are what’s going to keep you going. Having that the center of your focus, and having a lot of clarity around what that why is, I think is the best advice I can give.

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

Hayden Harrington: Yeah, let’s do it.

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

Hayden Harrington: That’s a good question. I really liked the E-Myth. I read that one recently. It kind of ties into what we’re talking about here as well.

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

Hayden Harrington: The best way to give back is we’ve actually done some charity events and that’s something we’re really excited about within Momentum Multifamily. It’s continuously giving back to not only our investors and getting them involved, but also the community as well.

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

Hayden Harrington: Check out our website momentummultifamily.com. Feel free to reach out at hayden@momentummultifamily.com as well.

Joe Fairless: Hayden, bravo on what you’ve done. Thank you for sharing your story. I know it will be inspirational and helpful to a lot of Best Ever listeners who are starting out especially in commercial real estate. Thanks for talking about at the Meetup, how you positioned it differently, proved upon the experiences that you had attending other Meetups, and are enjoying the results of those improvements with a lot of people attending. So nice work on that. Thanks for being on show. Hope you have a Best Ever day and talk to you again soon.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2645: How This Mindset Change Turned a $41 Million Loss into a $100+ Million Success with Cowboy Joe Marques

When he set out to make his first deal on a 472-house subdivision, Joe Marques — better known as Cowboy Joe — thought he’d selected the right team for the development. As it turned out, the group was using him with the end result costing him $41 million. Today, Cowboy Joe shares with us how that first deal actually set him up for success, discussing the importance of building good relationships and how your self-worth affects your net worth.

Cowboy Joe Marques Real Estate Background

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Ash Patel: Hello Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Cowboy Joe Marques. Joe is joining us from Gulf Shores, Alabama. He has invested in numerous development projects across the US, ranging from resorts, commercial buildings, multifamily, and full subdivisions. Joe is currently involved in unique projects in the Caribbean, ranging from 1.2 million to $100 million. Joe, thank you for joining us, and how are you today?

Joe Marques: I’m doing well, Ash. Thank you for inviting me on the show. Looking forward to it and hoping to add some value to your listeners as we go through.

Ash Patel: Joe, it’s our pleasure. But I have to ask you, why do they call you Cowboy Joe?

Joe Marques: You know, Ash, people have been calling me that for 20 years and I’m still trying to figure out. I don’t know if it’s the hat and the boots or what. But, in all seriousness, I was raised on a ranch. I pretty much have been a cowboy most of my life. I think the first five years of my life I wasn’t. A lot of the wisdom I have comes from my grandfather, who was a true almost like off-TV Western cowboys. He built multiple ranches, and a lot of my wisdom comes from that. When I started branding, Cowboy Joe was what stuck. People said I was already that, no sense trying to brand something that I wasn’t, and brand what I was, so that’s what I did.

Ash Patel: Best Ever listeners, if you see a picture of Cowboy Joe, he looks the part. Joe, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Joe Marques: My background is I was a big government contractor, I did a ton of different government projects, I’ve always loved working with dirt. My granddaddy was constantly improving pastures, improving timber, things like that, so I had a love for working with dirt at a young age, and just basically came back to it.

As far as my real estate experience, I’ve been involved in real estate investing for right about 35 years now. I started with the traditional fix and flip. Our original mentor was Charles J. Givens; that’s a name not too many people know because that’s way back. He had the whole subject to how to do owner financing and the fix and flips. So I started doing fix and flip, but just truly enjoyed the bigger projects from the government contracting side, enjoyed the bigger project, so just naturally gravitated back to land development. And I’ve done some absolutely amazing projects over the years.

Ash Patel: You said government contracts – is it for ground-up development?

Joe Marques: The government contracts I did were in Saudi Arabia, [unintelligible [00:03:15]. I did a lot of environmental remediation. I did also emergency watershed protection, which is basically going in after storms and making waterways whole again. For example, when New Orleans had Katrina and levies broke, emergency watershed protection was fixing those levies, clearing out waterways… I did a very interesting project with the Coast Guard and FEMA combined, getting all of the vessels and everything that ended up in the waterways and [unintelligible [00:03:45] surrounding New Orleans after the storm literally removing those vessels. One was a barge with paraquat drums sunk in it, and paraquat is a pretty nasty agent that isn’t used anymore.

I love challenges, I love solving problems. Basically, when I got out of government contracting and went back into development – that’s what I love to do, see how can I solve problems. It’s also why I love consulting and coaching people in land development, and mindset of high-performance thinking as well. It’s because our biggest problems are caused by that real estate right there – the six inches of space between your ears, that real estate there is the most important real estate you’ll ever develop. That’s why I work a lot with mindset and high performance thinking with my students.

Ash Patel: Joe, what kind of development did you start out with after your government contracts?

Joe Marques: The very first development that I did after government contracts was a 472-house subdivision turnkey. That’s from knocking the trees down to turning over the keys. I learned a very valuable lesson on that. The reason I focus on building relationships, knowing the people that I’m involved with, and not just chasing money, is because that project –a lot of people would say it broke me, but it actually made me. It’s what gave me the knowledge and the drive to teach others to dodge some of the mistakes I’ve made. I was in that project strictly for the money. Long story short, there were people that didn’t have the best of intentions, that cost me a little over $41 million on that one project alone, which was a cascade effect that bankrupted me. It didn’t bankrupt me, but it broke me. I didn’t file bankruptcy, I paid every bill; it just took a while. I went from being worth –depending on whose number to use– between 77 million and 98 million dollars to worth about negative 450,000 overnight, and have started building back from there.

But that project was valuable, because I learned a ton of lessons, and learned how to use capital structures, which are critical. It’s also what tested my mindset, because I thought I had a good mindset, but if you get hit hard enough, then that’s where you find out what your true mindset is. There’s an old cowboy saying – you only know how good a watermelon or a man is until they’ve been thumped. I got thumped, and I learned a whole lot about myself in the course of rebuilding back.

Ash Patel: Joe, what was it that went wrong on that deal?

Joe Marques: People got greedy. We worked a deal that was basically third partnerships. The other two thought that they could do my part, because they were the money people; I wasn’t involved in it money-wise. But I was furnishing all the equipment, all the labor, and actually building out the project. They figured that they could approach my material suppliers, my subcontractors, and basically cut my percentage out of it, which it didn’t work out really well for them. That’s neither here nor there, because it really didn’t work out well for me at that particular point in time. It cost me literally everything I had. But then again, the universe is always in balance. What I thought was the worst thing that ever happened to me, was the best thing ever happened to me. Because I had relationships that were pretty much in it for what I could do for them. I was in a very bad marital relationship that basically I was staying around for the kids, and once I went broke, all of that went away.

Now I’ve got a circle of friends that truly inspire me; I’m just grateful every morning I wake up that I get to hang out with people I hang out with. I’ve got an awesome wife that – I scare the hell out of her because I’m an entrepreneur. I make the joke of the entrepreneur mindset, employee mindset… Well, she was way worse. She was a high-level government employee mindset. That’s a whole other level. Two different brain wirings entirely. But she loves me, she supports me, and on the flip side of that, if I get too far off my rocker, she will challenge me as well. So she’s a perfect balance for me.

Break: [00:08:15][00:10:07]

Ash Patel: Joe, what were some of the hard lessons that you still carry with you today? What are some of those learning lessons from that deal?

Joe Marques: The biggest lessons from that deal are number one, the value of relationships, and knowing who you’re in business with. Number two is capital structures. There’s a ton of, I’ll call them gurus –for lack of a better word– out there that are teaching people that you’ve got to deploy every cent. If your money is not working, it’s dead money, you’re not doing anything. But one of my mentors, George Anton, has taught me the value of capital structures, and the value of reserves, and what opportunity cost is. The biggest reason I went broke is that I was over-leveraged, I had credit lines, I had over half a million dollars of credit lines available and able to use. This is also along the same time when the bubble burst, and banks just closed credit lines. Credit lines are not reserves, because a bank can close them for any reason at any time.

So here I was, saying I had a half-million dollars to work with, and didn’t. Factoring in debt, equity partners, and reserves… Relationships are the key to life. If you’re building relationships, you can pretty much accomplish anything you want to. If you’re trying to do it all alone, you may get away, you may be able to get there fast, but if you want to get somewhere a long way and it lasts, build relationships, build up equity partners, do things together, and don’t try to be a tower for yourself.

Ash Patel: Joe, you’ve mentioned capital structures a few times. What does that mean?

Joe Marques: A capital structure is how you structure the underlying capital around any asset. You have debt, you have equity, and you have reserves. To tell you the value of it, you can take two investors, each one of them buys a 100-unit apartment complex right next to each other, side by side. Exact same areas, exact same resources, but one of them financed it with too much debt, and the other one has it balanced properly between equity, debt, and reserves. When you do have something like what happened in 2008, the one that has too much debt will lose it; not only will the other investor be in good shape and keep his building, he’ll probably be in a position to buy that one building that other investor lost.

If you structure your capital properly, you can pretty much survive anything. And as we know, real estate over the long term is going to do well. Short-term dips, if you’re over-leveraged and have all your capital deployed, where you don’t have reserves to handle those downturns, is when you lose everything. Kind of like when people talk about losing money on a stock. Well, if they bought it high and sold it low, then they lost money on it.

Amazon’s a classic example. Amazon had some 90% drops during the course of its climb. People have lost money on Amazon, only because they bought it at one point and sold it at a lower point. If they’d held on to it long-term, then it would have made them money. The same thing with real estate, that capital structure is critical on being able to number one, grow your wealth, number two, preserve your wealth.

That’s another thing that most investors don’t focus on; they focus on returns. The first thing you focus on is the protection of your investment. Your return of investment, versus your return on investment. You want to make sure that you’re having the best odds possible of getting your money back first; then next you focus on what is the return on your investment, and how much money is that money going to make me. Kind of like Warren Buffett. Warren Buffett says rule number one, never lose money.

Ash Patel: Joe, after this apocalypse, how did you rebuild?

Joe Marques: To be quite honest with you, I had about a year and a half there that I was in a tailspin. That’s why I said about getting thumped and testing my mindset. I was actually homeless. I probably wasn’t homeless, I like to say that was my couch surfing years, because I did have a few true friends. Basically, I’d stay on one couch for a while, then go to another couch for a while. After about a year and a half, I said “Alright, enough feeling sorry for yourself. You built all this once; you can build it again.”

I started out and was doing the exact same thing that I did the first time I became a multimillionaire. And it was like I was beating my head against the wall or hitting the glass ceiling. That’s when I met another mentor of mine, Dr. Trivedi. That’s where I truly learned the importance of mindset. But more important about mindset is people call it mindset, but it’s one thing to intellectualize it up here, but none of that counts until you get it in here. Until you believe it in your heart, none of that up here helps you. And I didn’t believe it in my heart until doing Dr. Trivedi’s processes. The minute that I started believing in my heart, I went from a net worth of negative 50,000 to a net worth over a million dollars in just a little over a year and three months.

Ash Patel: What was it that you did to earn that net worth?

Joe Marques: Doing the same thing I was already doing. It’s just things started working for me, because I believed that I was worth it. I didn’t look at everything as being in the way, I looked at it as on the way, and knowing that everything works for you, nothing happens to you. Happening to you – that’s a victim mindset. I can look back over the worst periods of my life – at the time I was going through it, I thought that’s the worst thing ever happened to me, things like that. But when you look back over and see what all you learn from it, what it helps you to achieve, it’s the best thing that ever happened to me.

Ash Patel: What were some examples of asset purchases or partnerships? Because you didn’t have any money at this time.

Joe Marques: No, I had no money. I partnered with actually a friend of mine from high school that was a GC and a builder, and then we used equity partners; and we still use equity partners. We’ve got money now and could do a lot of these projects that we do without bringing on equity partners. But if you hold on to that money as reserves, and you keep that money, you can do multiple projects… Versus being tied up in one and you’re locked down. If it gets marked down, then you’re stuck, you can’t grow it. Whereas if you use equity partners, you still have money tied out there to where you can invest in other projects, you can have multiple projects all at once. That’s what’s called opportunity cost. That was something I had no clue about until George Anton. It’s that money sitting in a checking account is not dead money. When that’s on your balance sheet, and when that’s on your personal financial statement, you can qualify for multiple projects.

Let’s just use $100,000. If you put $100,000 in a million-dollar project, then you can get that project done. But if it drags out six to nine months and you could have done three other projects in that timeframe with that 100,000 sitting in the bank account, then your opportunity cost was the profit on $3 million worth of additional projects, versus that one profit on the million dollars. I’d much rather create a pie factory where I’m only getting 50 to 60% of each pie, versus owning 100% of one pie. It’s basically using the velocity of money in multiple projects and keeping the money working in multiple areas, is the reason why we were able to build up that fast.

Ash Patel: On your bio, I see a resort. What did you do with that?

Joe Marques: We have built out several waterfront properties in Gulf Shores, Alabama. I also consulted on the Silver Sun Gallery in the Dominican Republic, which is a big, huge –I don’t know who’s got the flag on it now, but it’s a resort, hotel, and casino, with retail space. I’ve consulted on projects in St. Lucia, as well as Tulum. One of my clients currently is in Puerto Rico, that we’re consulting on some stuff with.

Break: [00:18:16][00:21:37]

Ash Patel: What are you today? Are you primarily a consultant, a developer, an investor?

Joe Marques: Primarily, I am a coaching consultant and investor. I still do hands-on development, but I’ve stepped away from the actual doing part. I work more on the business than in the business. I help qualify the properties and I help get them approved entitlements. But as far as hands-on development, I’ve stepped back from that. I’ve got one project that I’ve still got some hands-on development that I’m involved in. But once that one’s done, it’s pretty much on the other side of it.

Ash Patel: What have you learned in all of your years of coaching and consulting? What’s the biggest hindrance to people moving forward? You’re going to say mindset, but what is it about the mindset that keeps it from moving forward?

Joe Marques: The biggest thing is self-worth. People don’t think they’re worthy of having that kind of money. People will argue when I make this statement, but you can do empirical data and pull it up. Your net worth will equal your self-worth. If your self-worth is down, your net worth will go down. Now, can somebody temporarily make a lot of money? Yes. But if their self-worth is not up there, they won’t keep it. They’ll give it away to things that they feel guilty toward. They feel guilty toward the children and wife because they’ve taken too much time business-wise – they’ll spend money that they really don’t have to cure their guilt toward them.

It’s something that until you truly buy yourself, it’s hard to have long-term wealth. And wealth is a whole nother thing; wealth is not money. Wealth is all seven areas in your life where you live an inspired life. If you’re chasing money, you’re not going to have a wealthy life, because you’re going to destroy other areas of your life chasing money. One thing my granddaddy said that took me years to catch on to was, he said “Money is a lot like cats. Have you ever chased a cat? They’re kind of hard to catch. Whereas if you start doing something that the cat’s interested in, it won’t leave you alone. It’ll get in your way. Money is a lot like that. If you’re chasing money, it’s hard to catch. But if you start providing service to the universe, start doing what you enjoy, what’s in your values, and you’re providing service to the universe, the money’s the easy part.”

Ash Patel: Joe, what is your best real estate investing advice ever?

Joe Marques: Well, that’s going to be two parts. First, don’t do real estate investing if that’s what somebody told you to do because that’s the way to make money. Do real estate investing because that’s what you want to do and you enjoy doing it. Some people won’t enjoy land development, some people enjoy fixing and flipping. If that’s what you enjoy, do it. If you enjoy wholesale and you like the art of the deal, getting things under contract, and then somebody else that wants to do the work, do that. If you like land development, do that. But figure out what it is you truly enjoy and become the best that you can at it. The second part is to take action. You can read, you can study, you can take nine million courses, but if you don’t act on it, you’re not going anywhere. Coaches and mentors are very valuable. They help you short-circuit the timeline drastically but you still have to take action. Because you can spend money on a coach and mentor but if you’re not going to take action on what they tell you to do, you’re still not going anywhere.

Ash Patel: Do you use a coach now?

Joe Marques: I have five coaches right now. I will pretty much invest in coaching and mentorship pretty much till the day I die because we’re all living beings. Every living being is either growing or dying, there is no in-between. I do everything I can to challenge myself in the seven areas of life to where I am growing. For example, you’ve seen people I’m sure that within a year of them retiring, if they’re not dead, they’re out of shape, despondent, and not accomplishing anything. But a lot of people die right after retiring because they don’t have anything to live for, they don’t have anything to challenge them. I’m not going to be in that position. Einstein said, “A problem cannot be solved from the same level that was created at.” I pay for mentors that are higher level so when I create a problem, I’ve got higher level people that can help me solve it.

Ash Patel: Joe, are you ready for the Best Ever lightning round?

Joe Marques: Definitely.

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

Joe Marques: Best Ever book I’ve read recently is Chasing Success by one of my mentors, Dr. Alok Trivedi. Because it truly helps you figure out that it’s not about chasing money or success, it’s about figuring out what you want out of life and living your life.

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

Joe Marques: I love doing impact investing, that’s where you’re giving. Most people listening to the language give back. I don’t give back. I give because I’m truly grateful. When you say give back, a lot of people give out of guilt. That’s the same thing. I give because I truly am grateful for everything I have. I have the ability to make money, and I give because I’m grateful and I believe in that cause. I truly love helping single women and children. I help with one of my students who has an excellent cause for battered women, I help with that. Then impact investing is where, not only are you doing good for the community, such as building foreign student housing on different campuses, to where foreign students have other foreign students from the same country, to where they feel like they’re at home and they’re not alone, and can assimilate into the university life. But not only are you doing good, but you’re also making money in the process. Residential assisted living is another thing. You’re able to help families take care of their loved ones without being in full-blown nursing homes to where they can have a little bit more of independent life. A lot of the residential assisted living facilities, those little communities become like family, there are friends that play cards, they actually have a connection to where they can develop relationships, and not feel alone versus an institutional nursing home type thing.

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

Joe Marques: The best way to reach me is www.cowboyjoe.me. You can learn more about me and you can schedule a 20-minute call. I do a 20-minute consultation call to help you see if it’s something interesting. You want to learn land development or if you have a project that you need some help on. I give 20 minutes of consulting for free to determine whether or not we’re a fit and I solve your problem. I did a 20-minute call recently that I actually saved you two ladies for making a $600,000 mistake and didn’t charge them anything. Now, of course, they took that knowledge, they’re looking for additional projects, and the minute that they’ve got them lined out, they’ll be calling me back. But I truly do love teaching people about this.

Ash Patel: Awesome. Joe, I got to thank you for being on the show today, sharing that tough story about your downfall, all the lessons that you learn from it, and how you bounce back. Thank you again for your time today.

Joe Marques: Ash, it was an absolute pleasure. Again, I hope I added some value to your listeners because I truly do love reaching out and connecting with people.

Ash Patel: Thank you again. Best Ever listeners, thank you so much for joining us and have a Best Ever day.

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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JF2644: What One CRE Investor Did to Survive — and Conquer — the 2008 Recession with Jerome Maldonado

Jerome Maldonado was nearing the end of his retail center construction and about to start developing office condos when the 2008 recession hit. Overnight, his bank stopped all funding, leaving him without the remaining $300,000 needed to complete the project. Jerome takes us through his journey of navigating the recession and how he managed to pull through and succeed with his property.

Jerome Maldonado Real Estate Background

    • Full-time commercial real estate investor
    • 20+ years of experience
    • Portfolio consist of 400 real estate transactions between buy/hold, flip, development, and more
    • Based in Albuquerque, NM
    • Say hi to him at: www.jeromemaldonado.com 

Check out our previous episode with Jerome, JF2562: $7M in Less Than 2 Years with Jerome Maldonado.

 

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the Best Real Estate Investing Advice Ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever, we don’t get into any fluffy stuff. Today we’ve got a special segment. We’re bringing back Jerome Maldonado. Actually, we brought him back. He’s here with me, and we are going to talk about a tough situation that he was in, and that should you come across this situation, which some of you might, because the market isn’t always going to be as rosy as it is… Should you come across this situation – well, you’ve got a blueprint for how he handled it and navigated it, should you choose to follow that same blueprint. We’re going to talk to him about what happened during the recession, whenever he had developments for retail and office buildings, and then boom, 2008 and 2009 hit. First off, Jerome, welcome back, and glad you’re here.

Jerome Maldonado: I really appreciate you having me back, and really appreciate you guys taking the time to get me back on the show. Thank you, I’m excited to be back as well.

Joe Fairless: This the first time we’ve talked; you spoke to Ash last time, so I’m looking forward to learning from you through this conversation as well. Best Ever listeners, if you recognize Jerome, you probably are a loyal Best Ever listener, so I appreciate that. It’s episode 2562. That’s the episode that he was on. It released September 7th, 2021.

He is a full-time commercial real estate investor, 20 plus years of commercial real estate experience, completed a bunch of transactions. He is based in Albuquerque, New Mexico. His website is his name, easy to remember, JeromeMaldonado.com, and that’s also in the show notes. With that being said, Jerome, take us back. No need to go through your story like you might have with Ash, because we’ve got that episode already. Let’s go directly to what you were doing leading up to the recession, and then what happened that was challenging for you from a lending standpoint.

Jerome Maldonado: We’re at a high market right now, so the reason this topic becomes very interesting is because I know that there’s people out there that think that this market will sustain itself over the course of the long haul. If you look at history, history can depict exactly what’s going to happen in the future if you just kind of watch market trends. We’re sitting on the high end of the market right now. Now, I never discouraged people to buy at any point in the market. If you’re really in this game, you got to be buying in all market cycles. Top end of the market, median market, or bottom end of the market. Those who do it correctly will always be successful. It’s proven through the test of time. But in 2008, it was my first time going through an aggressive market cycle. When I got started in the late ’90s, we were at the bottom of the market cycle and we were coming out, so I didn’t have to worry about going through that big dip. 2008 was my first real head-on experience, and I was in denial like a lot of people.

When I got into projects in 2006 and 2007, leading up to 2008, I didn’t think about a downturn in the economy. I just thought about what my ROI would be when the project was completed based on the current conditions, which is what a lot of investors do that are new to the game, or have even been with the game for a duration of time but haven’t gone through an aggressive market cycle… 2008 being one of the most aggressive financial market cycles, where the financial institutions themselves were annihilated, so to say, with the collapse of Lehman Brothers, AIG, and what was happening nationwide.

So we had retail centers that were under development… I owned a construction company, we developed our own product, so they were our retail centers. We had office condo complexes going up, they were also our projects. And I had subdivisions going up of single-family residential dwellings. I thank the good Lord that the residential dwellings we facilitated with cash out of pocket, we were debt free on those, so that saved us.

But the commercial sector we had financed through institutional money. We went in, we put our down payments, we acquired the land, we went to an institution, and got a construction loan to build out the asset. Then when 2008 hit, we had a large retail center that was under construction nearing completion, and we had a new office condo complex that was also getting ready to break ground, which we had done all entitlements. So for those of you guys who don’t know what entitlements are, it’s when you do all of your engineering, you do all of your utilities, curb and gutters, you do your water models, your architectural work, and all of the stuff that you need to retain permits to build a project out. A few hundred thousand dollars is what it cost us to do the entitlements on that project, and that was all cash out of pocket. So obviously, we were committed to the game, had a lot of money out of our own pockets, and the institutions were funding us through construction loans.

When 2008 hit, we had never missed a payment, we were never even delinquent on a payment. So we got to October of 2008, the banks called us up, and they didn’t want to fund the last $300,000 of our retail complex. When we asked them why they, just said that the market had changed, they didn’t know if the valuation of the assets still sustained itself, they wanted to see leases from tenants, and we were losing tenants faster than we could obtain them. People by this time were aware that the financial sector was under attack due to the Lehman Brothers collapse, so they just halted our funding, $300,000 shy. So we had to tally up that money in-house and finish that product. We did so successfully; a little bit of stress involved, but we did so successfully. The office condo complex we pulled from, we still own the land today, and we pulled from it. So $250,000 worth of entitlement costs went down the drain. It was good a tax write-off, it was the best part of that.

Break: [00:06:13][00:07:46]

Joe Fairless: Educate me on going down the drain, because I’ve never done development. If it wasn’t titled previously, does that not carry with the land for the foreseeable future?

Jerome Maldonado: Yes and no. As you guys know, the office sector of development has changed substantially since 2008. Office and retail are, I would consider, more of a distressed asset in certain most areas. There are still big developers that are doing office and retail, obviously. This area was in an area that was migrating in that direction. At the time, Intel was downsizing; that was the biggest employer of that area. The recession halted things. So for city development, this progressive plan was moving directly towards the area that we were developing in. When the political sector changed and the mayor changed in that municipality, they shifted completely, 180 degrees. They migrated where their development plans were, and moved in entirely different direction. So it changed the development outlook of what is viable in that area.

When you do entitlements, you’re entitling that set of plans, that set of architecture. As far as the water models, the utility models, that type of stuff, the hydrology, the civil engineering that tells you the lay of the land, and the soil test – that stuff can be transferred, so that stuff is not dead in the water. But as far as the architecture fees, the engineering fees that are attached to those architectures, fees like the structural engineering, all of the mechanical engineering, the sprinkler for fire sprinklers, that engineering, all of the civil engineering for that pad site, that exact project, all of that is awash. You lose 100% of that when you don’t do that development. Unless you do it down the road, which we aren’t; so we lost 100% of that portion of the entitlements.

Joe Fairless: Why wouldn’t you do that development now?

Jerome Maldonado: Because the market sector changed, the city’s progressive growth plan migrated and changed entirely. So in that area, office isn’t really needed in that area anymore. At the point time we were building it, we were one of the first guys in, but it was supporting the growth towards the new downtown area, or the projected downtown area. The city that we were in…

Joe Fairless: What city?

Jerome Maldonado: It’s the city of Rio Rancho, where Intel is… Which is very similar like Chandler is to the Phoenix Metro area. It’s not in Phoenix, but it’s where Intel is, so Chandler is growing because of Intel. Same thing in Rio Rancho. But when the city development plans shifted, they had to. They didn’t have infrastructure, so the city had to make a radical change to accommodate public infrastructure for roads and for drainage. And since the recession changed the migration of housing and housing development, they no longer had impact fees and housing and property taxes that they were banking on to develop out that area. So what they did is they migrated and focused their development into where the city of Rio Rancho actually attaches to the city of Albuquerque, and they focused their development off of the City of Albuquerque progressive growth plan, so it was able to utilize the City of Albuquerque infrastructure to help the growth of the city of Rio Rancho, at a time where they were hurting financially, just like everybody else.

Joe Fairless: I’m looking at a map now. Rio Rancho is just north of Albuquerque.

Jerome Maldonado: Correct.

Joe Fairless: Alright. So did that end up being a good thing, that you didn’t carry through the development, since it’s no longer the highest and best use of the land now?

Jerome Maldonado: Yes, it was. We would have gone bankrupt; that project would have taken us down. That would have been our demising factor, that project. It was a godsend that we didn’t take that one down; and it was our decision. It’s funny, there’s different sectors of banks – and this is what’s important for people to understand right here. As we go through this, we’re on the height of the market; there’s some of you guys that are super aggressive, and have started moving forward on projects, as I am right now as well. But the way we do it now is entirely different. In 2010, Bank of Oklahoma was calling, blowing up our phones, telling us we needed to get appraisals on our retail centers, and on projects that we were never delinquent on, that we had never missed a payment on, that we work extremely hard to make sure we were servicing our debt.

They knew that we didn’t have the leases to sustain the value of that building, so they wanted to ensure that they had a good debt to income ratio. So they were leveraging us to get annual appraisals on the property, which were costing us about $20,000 a pop. Plus, they were doing forced underwriting on us, which also costs us about $5,000 each time they did that.

Joe Fairless: Will you explain what forced underwriting is?

Jerome Maldonado: You have a clause in your loan docs that states that you will pay all fees associated with servicing your loan. Anything that the bank feels you need to do to service the loan, you’re responsible for any fees. In their terms, for my loan to be serviced, I had to have underwriting done financially on our businesses and ourselves to be able to make sure that we were sustainable enough to continue servicing that loan, and that our financials were strong enough to do so. So that was a little loophole that the bank has that requires us to manage those fees. Another one of those fees being the appraisal, to see if the appraised value is still sustainable, so that the debt-to-income ratio for the bank still fits their business model. If it doesn’t, they either balloon your payment or they make you come to the table with a variance of the appraised value, so that they still sit in a 70% to 80% debt to income ratio, so that they’re not over-leveraged on the property either.

So in spite of being a good Samaritan, a good paying customer, these are little things that commercial lenders do to developers that press them. I know a lot of other developers were going through this at the exact same time. And not only developers, commercial real estate investors. For those of you guys who are apartment syndicators, doing multifamily, those of you guys who are just in the commercial sector, all of you guys are subjected to the exact same thing that we went through back in 2010. It didn’t happen overnight, it did take a couple years… But at a time that we were already pressed financially to be able to make these payments, we were still working on stabilizing the property. Two years later, they were also going in and forcing us to come to the table with additional fees. So it became very stressful.

Joe Fairless: These aren’t on the two deals that you were talking about. These are on other commercial deals that you had at the time.

Jerome Maldonado: No, this was on the retail center… And on other deals, but this was on the retail center itself. At the time that we were going through this in 2008, the thing that was ironic was I had two loans from Bank of Oklahoma. One of them was being halted, and they were telling me that I had to come to the table with the last 300,000. Then a different sector, a different department was calling me, that underwrote the second construction loan for the office condos, and they were pressing me to get going on phase one. Phase one was an $8 million dollar project. So I’m sitting here taking one phone call on my left hand, they’re telling me “Halt. We’re not giving you more money.” And then on my right hand, I’m taking another phone call from the exact same institution saying “Hey, you need to get going here. We’re ready to fund your loan. It’s go time, start turning dirt.” I’m sitting here confused, going “Okay, one sector is telling me stop, the other sector is telling me go.” [00:14:54].07]

I threw my hands in and said “I’m done. We’re going to fund the 300,000. We’re pulling the strings on the new development, cancel the loan.” It was the best decision we ever made. Hence two years later, I had the Bank of Oklahoma so far down my neck that it was extremely stressful so we had to make some big pivots and made some changes in 2010.

Joe Fairless: Like what?

Jerome Maldonado: In 2009 they did the same thing to us. In 2009 when they made us do the appraisal, I kind of just tallied up the money, scratched my head and said, “Okay, let’s do this.” And I thought it was the end of it. They did an underwriting in 2009, I dealt with it. 2010 came around and I got the same exact phone call. As you can imagine, I was upset and frustrated with them, and I expressed that to them… And it got to a point where I had the lenders calling me in a very insulting, demising way, kind of laughing and joking; they were nasty.

Joe Fairless: What did they say?

Jerome Maldonado: Profanity, back and forth. We were cussing each other out back and forth on the phone. We had a lot of four-letter words, they were using them back and forth with me, they were telling me that I was just a broke ass, to tally up the money, and come to terms with stuff… Just aggressive; just super aggressive, just nasty on the phone. So much so that – for those of you guys listening, I don’t care if you work with Bank of Oklahoma, I’ll never do business with those guys again.

Joe Fairless: Clearly.

Jerome Maldonado: [unintelligible [00:16:04].03] never do business with those guys ever again. But anyway, I was lucky enough to be in communication with a lot of people that are in the industry. So really important is to be well connected and well networked within your industry, to know other professionals that do the exact same type of business you do. Because in times like this, those contacts and connections come through with great resources. At the time, I had a really good buddy, did the same type of development I did, we used to go to lunch randomly once every three months, every four months. I told him the story and he said “Don’t put up with that [bleep [00:16:41] because I have a guy, his name is Jason; go to this credit union, they’re doing commercial lending, they’re very loan friendly right now. Get out from underneath that loan.” At the time, interest rates for commercial lending were between 6.5% and 7%.

When we got to 2010, the credit union opened up, it’s when interest rates finally started to go down a little bit. I was able to retain a new loan for 4% interest from a credit union that embraced the property, embraced my loan, and was substantially more professional.

We facilitated the underwriting, and I was able to utilize the appraisal that I had just spent almost $20,000 on, to utilize for the credit union. They accepted that one and we were able to go through underwriting, and with a little bit of nominal fees, I was able to switch over the loan and make up the difference on the interest savings, as opposed to staying with the same bank. It was a blessing.

So for those of you guys that are sitting on projects right now, exercise your contacts wisely, and diversify your relationships with lenders, know who they are, know where your relationships lie, and make sure that you follow the lenders, not the banks. The biggest problem I had is that in 2008 and 2009, the lenders that we had relationships with, that drug us to these banks, they moved.

A lot of variances in employment at that time – the construction industry, the mortgage industry, everything. Anything that had to do with construction, real estate, and banking, all three of those sectors got hammered. It was something that there was a lot of migration of employees all over the place. Those relationships no longer existed, so I landed up following people, not banks. Through that, we were able to stabilize our assets, and it was a huge blessing.

Break: [00:18:24].12] – [00:21:15].12]

Joe Fairless: I’d like to go back to the office condo complex where you said “We didn’t do it. But if we didn’t do it, we would have gone bankrupt, because there’s not a need for it now.” What about your assessment then was incorrect, or were you not looking at, that if presented a similar opportunity right now, you would now know to ask XYZ question or look at a certain data point or data points?

Jerome Maldonado: Here’s what I used to do. I would go in and I would find out where other developers that were larger than me had purchased land and were proposing projects. The projects were not coming out of the ground yet, they hadn’t gotten their own entitlements, and then I would go in and piggyback that; but I usually did it before them. So I was always in front of the big developers, looking at progressive growth patterns where other big investors were going. Now what I do is the opposite, I no longer go in before them. I go in, I do the exact same thing where I’m studying market trends, city development plans and projections, and I watch the exact same things. I just don’t pull the trigger on stuff as quick as I used to. I wait for them to come out of the ground with their projects then I piggyback it on the back end instead of the front end. There’s another big piece to this…

Joe Fairless: Slightly less upside, but significantly less downside,

Jerome Maldonado: Substantially. You’ve got to call the shots. But one of the big things that I do now… I used to purchase my land in advance, and then I would start my entitlement process once I retained the land and had ownership of it, thinking that I had to do it this way. I got substantially smarter, both on my residential developments and my commercial development. This is the way I do it now, so listen up everybody, because this is the key. I take control of the property, but I don’t take ownership of the property until I have all my entitlements done. Okay, I’m going to say that again. I take control of the property, but I do not take ownership of the land until I have my entitlements done.

For the sake of example, I have a 350-unit, 10-acre development project going on right now in Port Orchard, Washington. I am in the middle of working on entitlements for the property. We’re working on architectural work, we’re working on all of our engineering, we’re working on our zone changes, we’re working on all of our entitlements, all the pre-development stuff that needs to go on, we’re working on right now.

I control the land, but I don’t own the land. I go in and put an offer in on the land, I work out terms, and what I do is I retain the land with just a modest deposit, and I put all the terms in advance. Then I work with a seller, letting them know that we have our due diligence period. During that due diligence period, we work through all of our entitlements. When those entitlements are nearing completion or fully completed, then we go in and close and retain the land, which substantially decreases our liability. If a time like 2008 ever happened again, we can dust our hands off with a couple $100,000 loss, take the tax write off and walk from it, as opposed to going into a multimillion-dollar project, that being like a $55 million project that we’re doing, and then being stuck in the middle of it, and the bank calls your note and then you’re just between a rock and a hard place. So this allows us to work through entitlements in a much safer way and be able to protect our assets and our money substantially better.

Joe Fairless: Jerome, I know why you were invited back. Thank you so much for being on the show. This has been awesome. I am jealous that Ash had the first conversation. I wish I also was in on that. I appreciate you sharing your specific examples of how you navigated a challenging time, because as you said, challenging times are going to come up again… And it’s better not to be scrambling to find information like this when that happens, but rather listen to it now and just expect for it to happen and have a plan in place when it does happen. Thank you. I’m incredibly grateful for this conversation. How can the Best Ever listeners learn more about what you’re doing?

Jerome Maldonado: We’re really easy to find. My name is obviously in the podcast. If you just Google my name, go to any social media platform from Facebook, LinkedIn, Instagram, Tik Tok, any of them, and just put in Jerome Maldonado, you’ll find me. On Instagram, it’s @jeromemaldonado1, or you can just go to our URL which jeromemaldonado.com. Anybody who has questions, any outreach from people that need help and assistance, to be able to save you guys headaches, or save you guys money, or prevent you guys from going the wrong direction, we’re always happy and I’m always here to help assist and help people grow. At the end of the day, if we all work together, we’ll all make more money, we’ll all live better lives, so I’m here to help and serve.

Joe Fairless: Grateful for this conversation. Hope you have a Best Ever day and talk to you again soon.

Jerome Maldonado: Thank you so much. God bless you and have a great day as well.

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

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

Michael Blank Real Estate Background

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

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever. We don’t get into any fluffy stuff, and we’ve got something for you today. And I’m sure you are wanting to dig in, because you probably read the title of this episode. So I’m going to just tell you right now, The 5 Secrets to Closing Your First Deal. That’s what we’re going to talk about today with Michael Blank. How are you doing, Michael?

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Makes sense. Number three?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Number five.

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

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

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

Joe Fairless: Those are for the pigeons.

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

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

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

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

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

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

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

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

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

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

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

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

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

Michael Blank: Yeah.

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

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

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

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

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

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

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

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

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

Joe Fairless: What’s your guarantee?

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

Joe Fairless: Or what?

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

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

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

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

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

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

David Kislin Real Estate Background

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

 

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TRANSCRIPTION

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

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

David Kislin: Excellent, guys. Thank you.

Joe Fairless: Well—

David Kislin: Thank you for having me.

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

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

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

Joe Fairless: Where in Brooklyn?

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

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

Joe Fairless: What were you buying and moving?

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

Joe Fairless: Wow. Okay.

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

Joe Fairless: Really?

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

Joe Fairless: What’s disastrous? Describe that.

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

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

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

Joe Fairless: Okay.

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

Joe Fairless: What did you buy it for?

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

Joe Fairless: Wow!

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

Joe Fairless: Wow!

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

Joe Fairless: Nice!

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

Joe Fairless: Just keep doing that every time.

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

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

Joe Fairless: Mm-hmm.

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Is that by Chelsea Market?

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

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

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

Joe Fairless: Yeah. Yep.

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

Joe Fairless: Mm-hmm.

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

Joe Fairless: Hmm.

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Oh, Gosh!

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

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

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

Joe Fairless: Wow.

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

Joe Fairless:  What’s a starchitect?

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

Joe Fairless: Okay. [laughs]

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

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

David Kislin: No, no.

Joe Fairless: Sorry.

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

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

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

Joe Fairless: Hmm.

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

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

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

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

David Kislin: We had a total of four investors.

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

David Kislin: The conversations?

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

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

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

Joe Fairless: And what did you pivot it to?

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

Joe Fairless: Mm-hmm.

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

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

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

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

Joe Fairless: You say “we,” who’s we?

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

Joe Fairless: Mm-hmm.

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

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

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

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

Joe Fairless: Nice!

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

Joe Fairless: Mm-hmm.

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

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

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

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

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

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

David Kislin: Sure.

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

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

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

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

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

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

Joe Fairless: Are you tweeting a lot?

David Kislin: Not really.

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

David Kislin: No.

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

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

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

David Kislin: That is correct.

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

David Kislin: Alright. Thanks a lot, guys.

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JF2641: Don’t Make These 4 Mistakes as a New Passive Investor | Actively Passive Investing Show with Travis Watts

“What mistakes did you make in your career that I should be on the lookout for as a new passive investor?”  Travis Watts answers this listener question by sharing four mistakes he made starting out as a passive investor that you can learn from:

  1. Location, location, location: You cannot overcome a bad area with good management.
  2. Understand that management is key.
  3. Make sure you understand the underwriting.
  4. Don’t do a deal just for tax reasons or because you see a lucrative fee split structure.

Want a more in-depth look at how to vet a team, a market, or a deal? Then check out our three-part miniseries starting with episode JF2396: Passive Investing Strategies | Actively Passive Investing Show With Theo Hicks & Travis Watts.

 

Click here to know more about our sponsors:

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TRANSCRIPTION

Travis Watts: Hello, everybody, and welcome. It’s Travis Watts with another exciting episode of The Actively Passive Show. This week, the topic came from actually a conversation I was having with an investor, and this investor asked me, being that I’m a full-time passive investor, he asked “What mistakes have you made, and what should I look out for?” He just basically, was looking to avoid some newbie mistakes, and I thought that’s an excellent question and I want to do it justice, I wanted to better articulate my point, so I made an episode out of it.

I want to share this information because it’s important you guys to balance the risk conversation with the reward conversation. Of course, everybody’s always out there talking about whatever it is they do, whatever their investment is, how awesome it is, and how great it is, and that’s fine. It’s also important to have the conversation about what risk you’re taking on or what mistakes could easily be made. So with that, I’m just going to walk you through four things I made mistakes on early on and mid-career so to speak, in regard to being a full-time passive investor. So we were talking about multifamily, private placements, syndications, being a limited partner.

So without further ado, let’s dive right into number one. Location, location, location. We all know the saying, we all know the phrase, it is a classic real estate line, but here’s the deal. I made a few investments early on. I say a few—well, yeah, it was a few. It was probably three, total. These were C-class properties, first of all. So the class of property, meaning, A class is new development, new construction, or not that old, very high end, luxury, very high creditworthy tenants, stuff like that. So we’ve moved down two spots on the spectrum down to C. This particular place that’s coming to mind right now  didn’t even have a pool, didn’t have a gym. This was just kind of living in the unit and paying the bare minimum rents in an area that we all found out wasn’t such a great area. And I will point out why that is so important.

You cannot overcome a bad area with good management. So at first, this operator was pointing the finger at the property management company. They had hired a third-party property manager, and then things weren’t going well, there was lots of problems, stuff wasn’t getting addressed at the property level. So they fired him, and then the whole quarterly update was how excited they were to bring in this new property management company. Well, guess what? The new property management company couldn’t really do any better. The same problems existed, and when I say these problems, what I’m talking about is there was a shooting on the property. Fortunately, nobody was even injured, but still there was a shooting, so obviously, people don’t want to live in an area like that. There was a stabbing, there was vandalism… They had put up a gate to make it a gated community, and someone ripped the gate apart and broke it. So it wasn’t even functional. There were squatters on the property in the vacant units that hadn’t been leased up. There was just so much stuff, and it all came back to the fact that we had bought a property in a bad area. Just straight up. It was probably a C-minus, D-plus kind of sub-market, and the property itself was probably a C property. So it wasn’t the worst. I think it was built in the ’70s.

But anyway, my point is that of all the deals I’ve done A, B, C – I have never done anything under C – the C properties just notoriously have a lot of problems. That’s just my experience. I’m not saying you’ll have the same experience with a C property; it depends on a lot of factors… But I’m just letting you know.

B class is my sweet spot. I like the 1980s, 1990s, early 2000s built, good markets, good areas, surrounded by good neighborhoods with a high price of single-family homes, high wages in the area, all that kind of stuff, and we’re just taking an older property and we’re improving it. We’re bringing it back to the market standards in the business model.

A class, very rarely have any problems. However, less cash flow associated. So I’ll leave it at that. The mistake I made was investing in bad area. So whether you’re active or passive and you’re looking at a real estate deal, single-family, multifamily, syndication, GP, LP, whatever it is, pay attention to location. Look at school ratings, look at the surrounding neighborhood metrics, look at the jobs in the market, read the stats, look at the crime stats.

Number two is understand that management is key. Now, I just alluded to that you can’t overcome a bad location or area with good management, but in a general sense, the profitability will come from the key management; their ability to advertise and screen for quality tenants, and take care of issues on the property. A lot of deals that are being purchased – not always, but a lot – in the syndication space, and this is probably true with anybody buying, often the management hasn’t done a good job, therefore, they’re not leased up properly, or the rents are well below the market, or maybe it is a mom-and-pop operator and they just refused to ever raise the rents wedge… It’s usually management-related. Or you get on Google, you type in the property and you look at reviews and you just see zero stars and one stars, “Management’s not doing this,” “Management that,” management, management, management.

Back when, even before this – I was talking about single family real quick – I had a property and, come on, guys, quite frankly, I was a bad property manager; and when I say that, I mean, I didn’t know what I was doing. So I was making mistakes. It wasn’t like I was mean to people or doing things that were illegal. I’m just saying, I wasn’t effective. I would rent to a tenant, and let’s say they worked at my company. So, they were more of like an acquaintance or a co-worker, and they were going to rent my property. Sometimes I would just forego the screening process. “Ah, I know you. You work where I work. It’s all good.” Well, huge mistakes came from that.

I had a couple tenants that would always pay their rent right at the deadline, if not a day or two late. I wouldn’t be an enforcer of the late fee. It’s like, “Ah, it’s the 6th or 7th; at least you paid it, we’re all good,” and then notoriously, they would do that then every month thereafter, knowing they’re not going to get penalized. So why not pay it on the 8th instead of the first, because there’s no repercussion. Bad idea!

There was one property I had that was so bad, I hired a property management company to take it over, I was fully transparent about the issues and the tenants and what was happening to this point and why I had hired them in the first place, we signed the contract, we moved forward, about 2.5, 3 months later the property manager quit. They quit on me, because the tenants were so bad; and I take full responsibility for me putting them in there in the first place. But I’m just telling you, if you don’t have good management, you will not have a good performing asset.

So when you’re looking at these pro formas, and these overviews, I rarely hear a lot said about the management. It’s all about the deal, the deal, the deal, the deal, this structure, and it’s made of brick, and it’s in this neighborhood, and it was this many units. Talk to me about the management; ask questions about the management.

If you’re going to invest with a firm that’s what we call vertically integrated, meaning that they manage their own properties, just take a look at their track record or their current performance on the existing properties that they’ve acquired – totally cool to be vertically integrated. Lots of great reasons to do that. But if it’s a brand new group, and they’ve never managed properties, and they’re like, “Oh yeah, we’re vertically integrated. We’re just going to wing it and try to manage our own stuff,” probably a bad idea. You probably would want to start with a more experienced group to come into the picture, help you out, learn from them, and then possibly go vertically integrated later.

Again, not telling anyone to do that specifically, but be aware as an investor of who the property manager is, whether it’s third-party or in-house, and what their experience is in managing that kind of asset.

Break: [08:31] to [10:04]

Travis Watts: Number three mistake that I made is not understanding the underwriting. And here’s the thing – not all of us are underwriters, not everyone wants to go stare at Excel sheets and find the misnomers… And one word of caution upfront, don’t get caught in analysis by paralysis. So many people do this. I’ve done this… Where you’re just digging and digging and digging and thinking and thinking and thinking, to the point where you miss out on the deal altogether, right? It fully subscribes or you don’t have a chance to even participate.

So, here’s my philosophy. You and I, and anyone listening – we’re never going to know 100% of everything to make a decision to move forward. So if I can know, maybe 60%, 70%, ideally more like 70% of the details and the data and the underwriting, at that point, I’m comfortable myself moving forward with a deal. I’ll learn the rest along the way, and I’ll never get to 100 anyway.

But here’s the mistake I see most commonly made is – look, you and I and anyone else can make underwriting look good on paper; just the difference in saying, “Well, we were going to take a 70% loan-to-value mortgage on the property, but let’s move it up to 80%.” Well, now the numbers look a lot better, don’t they? But now we’re possibly overleveraging the property.

Another thing I’ve seen is a group’s going to come in and buy something at say a 5 cap, and then they’re going to underwrite to sell it at a 4 cap. So they’re going to go very aggressive with the exit strategy, when in reality, that’s in none of our hands, okay? The way cap rates are fluctuating and interest rates – that’s not going to be in our control. So I like to see the opposite – you’re buying at a five cap, you’re going to exit at potentially a six. You don’t actually want that to happen. A higher cap rate means a lower purchase price. So that’s not a good thing. That means the market has softened up. There’s many ways and reasons that could happen. But what I’m telling you is when you’re looking at the pro forma, ask the question, if it’s not already preemptively stated in the overview, what cap rate are you buying at? And what cap rate do you anticipate selling at? In my opinion, as an investor, I’m always looking for a higher exit cap rate, not a lower one, for underwriting purposes, so that I know this is conservatively underwritten.

Another thing when it comes to underwriting that I see is aggressive rent pushes. And yes, we’re seeing it now and over the last maybe 6-12 months we’ve seen a big uptick in rent; some markets are 12%, 13% 14% year over year rent increases, which is incredible… But guess what? It’s also not the norm. So, if I see that — just making this up, for example, purposes, but let’s say Tampa, Florida. That’s one of the really hot markets right now. Let’s say, it’s got a 10% year-over-year rent growth, at least for the last 12 months. Well, what you don’t want to see in the underwriting is a new deal being purchased in Tampa, and they say, “Yeah, we’re going to get 10% year over year rent increases for the next 5-7 years.” No.

When you see big spikes, like we see right now, there’s usually a leveling off, sometimes even a slight sinking; I’m not saying that will happen. I’m just saying that can happen; you’re not likely to see 10% a year or year after year for the next decade.

So what I’m looking for is either very little rent growth in year number one as they do renovations, or maybe just a conservative 2% or 3% a year rent growth in the projections. Again, you don’t really want that to happen. You want a higher number than that, and hopefully, you get it, but you’ve got to be conservative too, because if you’re basing your overall return, which is most people are investing based on the overall return projections, you want to know these are conservatively underwritten, or else that’s not going to happen.

And the last thing I’ll say about underwriting is take a look at the capital expenditures budget. If you can, try to get a line by line, and ask questions about it. Why is the landscaping $300,000 per year? Why is it $8,000 per unit? And then look at the breakdown – how much of that is flooring, countertops, cabinetry, appliances. If you feel like they’re being a bit skimpy, like given the inflation right now and the supply chain issues, maybe those appliances are going to be on backorder, or they’re going to cost 30% more than they did last year. Just take that into consideration.

‘Same with property tax and insurance. I’ve seen huge volatile swings in these prices, where it’s underwritten as a 5% a year increase to the insurance or the property tax, but it ends up being 25%. These things can throw off the overall numbers to the investors.

And if the operator has it, I always ask for a sensitivity analysis or what some people call a stress test, and that just shows that they’ve put this projected pro forma through hypothetical stress testing. So in other words, what if interest rates are 4% today, but they go to 6% over the next few years? What if our occupancy today is 95%, but it falls down to 80%? Then what, and what it shows you often is what happens to the overall investor returns should these things occur… So that can be very informative to help you decide how conservative they’re being on these numbers.

Break: [15:20] to [18:13]

Travis Watts: Alright, number four. A lot of people are out there talking about tax advantages of real estate, multifamily, and a lot of people are out there promoting their fee structures, saying “Oh, we have super low fees versus our competitors or whatever.” Number four is don’t do a deal just for the tax reasons or just because you see a lucrative fee split structure. Here’s the way I look at it – yes, tax advantages are excellent in my experience in real estate in general, and having a nice fee structure can be nice as well. But if the deal you’re investing in is aggressively underwritten, or the operator can’t actually execute the business plan anyway, what use are the tax advantages or the low fee split structure if you end up with 4% or 5% return in the end, when you hope to get more like a 15 or 20? It’s definitely a secondary consideration.

I see some people getting caught up in those and saying, “I would never invest with this group over here, because of their fee structure”, and that’s fine to have that opinion… But you guys – I think I mentioned this on a previous episode… I’m in a deal – this is not a multifamily deal, this is a different private placement – and the operator is getting about 66% of the profits and the limited partners are getting about 33% of the profits. Just rough numbers there; but for years, I’ve still been getting overall a double-digit return, on an annualized basis. So, I’m okay with the quote unquote “unfavorable fee structure” because to me in the end, that deal’s still helping me accomplish my goals. So that’s the way that I frame it. That’s the way I look at it.

So the difference between the 80/20 split, or 70/30, or 50/50 and I’m looking more at the office operator, their track record, their ability to actually execute the deal… And generally speaking, if you’re going to invest with a group that has a longer track record and more experience, they probably aren’t going to have as low of a fee split structure compared to maybe a brand new group that’s just getting started, who’s trying to be competitive and gain investors.

So with all of that in mind – I told you this would be a shorter episode, I just want to conclude by saying that Theo Hicks and I recorded last year, it’s about a year ago, you can check it out on YouTube or joefairless.com, how a passive investor vets a team, a market, and a deal. So we did a three-part mini-series. I think each episode is roughly 30 minutes long, so it’s an hour and a half of content, where we go in much more detail about how to actually vet the team, the market and the deal.

I highly recommend that you guys check out that three-part mini-series if you haven’t already, because I could talk all day long, about risk and reward and experience and all this kind of stuff, but every week, I’ve got to pull it back, I’ve got to tone it down, I’ve got to just give you some key elements and hopefully inspire you to do some more research on your own so that you can conduct proper due diligence before you invest.

Thank you guys so much, as always, for being here. I truly appreciate you. I truly appreciate you tuning in to these informative little rants that I that I do. My passion is to help other people like yourselves understand the risks, the rewards, the pros, the cons to real estate investing. It’s made such a profound impact in my life that I want to share that and I want to help other people. So reach out anytime, joefairless.com, travis@ashcroftcapital.com. If I can ever be a resource for you guys, I’m all over LinkedIn, social media, Facebook, whatever, happy to do so.

Have a best ever week, we’ll see you next time on the Actively Passive Show.

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

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

Carlos Reinoso Real Estate Background

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TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: Let’s hear it all.

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

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

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

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

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

Ash Patel: Let’s deep-dive into that.

Carlos Reinoso: Sure.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: And I love that.

Carlos Reinoso: Thank you.

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

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

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

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

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

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

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

Carlos Reinoso: Right.

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

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

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

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

Ash Patel: How many people attend your Meetup?

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

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

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

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

Carlos Reinoso: Once a month.

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

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

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

Carlos Reinoso: The networking?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Carlos Reinoso: Let’s rock.

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

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

Ash Patel: Yeah, please do.

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

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

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

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

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

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

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

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

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JF2442_ From Baghdad to Boston_ Combining Dentistry and Real Estate With Dr. Bender

JF2442: From Baghdad to Boston: Combining Dentistry and Real Estate With Dr. Bender

Coming from a family of medical professionals, Dr. Bender studied to be a dentist. Originally located in Baghdad, Iraq, his family had to move to Dubai, and that’s where he got introduced to the world of real estate.

After the 2008 market crash, Dr. Bender had to go back to dentistry to support his family. They moved to Canada, and then to Boston. In 2019, Dr. Bender got back into real estate by purchasing a 45-unit multifamily house in North Carolina. He’s now in the process of acquiring a 200-unit together with two other investors.

Dr. Bender  Real Estate Background:

  • CEO of American Dental Group with 5 dental offices, real es
  • Real Estate investor, e-commerce, and day trading
  • 3 years investing in Abu Dhabi and 2 years in the USA Portfolio consisting of 45 units, in process of selling to buy a 200 unit asset before the end of 2020
  • Based in Boston, MA
  • Say hi to him on www.benderscapital.com 
  • Best Ever Book: Best Ever Syndication book

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