JF2089: House Hacking to Commercial Property With Tiffany Alexy

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Tiffany bought her first property while in college by house hacking and has continued to house hack continuously and is currently in her fourth house hacking property. Tiffany shares a story of bad luck when she decided to venture away from house hacking and into flipping. She talks about a combined strategy of house hacking and BRRRR with her office property


Tiffany Alexy Real Estate Background:

  • Began investing in real estate at 21 y/o with a 4 bedroom condo that she lived in and rented the other 3 rooms
  • Today, owns 10 units of commercial and residential properties
  • Started her brokerage firm, Alexy Realty Group in 2017
  • Based in Raleigh, NC
  • Say hi to her at https://www.alexyrealtygroup.com/
  • Best Ever Book: Ninja Selling by Larry Kendell 


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Best Ever Tweet:

“Be creative” – Tiffany Alexy


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

Tiffany Alexy: I’m doing great, thanks. How are you?

Joe Fairless: I’m glad to hear that, and I am doing great as well. A little bit about Tiffany – she began investing in real estate at 21 years old, with a four-bedroom condo that she lived in and rented the other three rooms. Today owns 10 units of commercial and residential property. Started her brokerage, Alexy Realty Group, in 2017. Based in Raleigh, North Carolina. With that being said, Tifanny, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tiffany Alexy: Sure. As you mentioned, I started investing in 2011. I purchased my first property as a senior in college, and I ended up house-hacking it… And that’s kind of what got me jump-started into my real estate investing career. I lived there for a couple years, and then I moved out, rented that one out  completely, and just kind of repeated the process, and have been doing so ever since about 2011.

Joe Fairless: What do you mean by “repeated the process”?

Tiffany Alexy: So after I rented that full unit out, I bought another one just across the street. It was a 3-bedroom/2,5-bath, and I lived in one bedroom and I rented out the other two… So I just continued house-hacking. I actually still house-hack today.

Joe Fairless: So the first one was a four-bedroom condo; the one across the street was a 3-bedroom?

Tiffany Alexy: Correct.

Joe Fairless: And you bought the first one, and then you got a loan and bought the second one, correct?

Tiffany Alexy: Correct.

Joe Fairless: And then what did you do after that?

Tiffany Alexy: I just kept doing it again and again, so now I’m in a three-bedroom townhome where I have my own room, and then I rent the other two bedrooms out.

Joe Fairless: Wow. How many properties have you purchased to do it.

Tiffany Alexy: I’m on my fourth.

Joe Fairless: You’re on your fourth – okay, cool. So you got  your first two that we talked about, and then you did it again, which was a – what?

Tiffany Alexy: It was a townhouse.

Joe Fairless: The third one was a townhouse. How many rooms?

Tiffany Alexy: It was a three-bedroom, and I rented one out. The roommates that I had at the time had access to the third room, so we used it kind of as a home office.

Joe Fairless: Okay. And then you’re on your fourth…

Tiffany Alexy: So I had one remaining in that one. Exactly.

Joe Fairless: And how many bedrooms is your fourth one?

Tiffany Alexy: It’s a three-bedroom as well. Same situation – I live in one and I rent out the other two.

Joe Fairless: Okay. And over how many years have you done this?

Tiffany Alexy: I started in 2011.

Joe Fairless: Oh, alright. I can do that math… [laughs]

Tiffany Alexy: So it’s been almost ten years. [laughs] Yeah, and there were some situations in between where I didn’t house-hack, but for the majority of the time I have been house-hacking.

Joe Fairless: Okay… So talk to us about the loans  that you’re getting on each of these four properties.

Tiffany Alexy: They’re conventional, owner-occupied financing. The first one I had to put 25% down, because it was one of those condo situations where there were a lot of investors to own the units, so it didn’t qualify for Fannie/Freddie financing… The Wells Fargo, Bank of America, the larger banks wouldn’t finance them. So I went through BB&T on the first one, and I had to put more down because of the investor concentration, essentially.

Joe Fairless: What about the next one?

Tiffany Alexy: The next one was the same situation – it was another high investor concentration, so I put another 25% down on that.

Joe Fairless: Okay. And when you say “high investor concentration”, will you elaborate on what you mean?

Tiffany Alexy: Sure. It just means the majority of the condo units owned in the neighborhood are investor-owned. So it’s not owner-occupied.

Joe Fairless: Okay. Even though you’re getting an owner-occupied loan.

Tiffany Alexy: Correct. I believe the rule is if it’s over 50% investors in the actual subdivision, then they require some additional steps.

Joe Fairless: Okay… I hadn’t heard of that.

Tiffany Alexy: Yeah, it’s called non-warrantable.

Joe Fairless: Non-warrantable, okay. Cool. So there would be an advantage to not have non-warrantable in the loan, because them you’d be able to have less money into the property, right?

Tiffany Alexy: Yes, and that’s exactly what happened with the second two of the townhomes. So the rules don’t apply with the townhomes. So my third – I was able to put 10% down, instead of the 25%. And then the one that I have now, I’ve put 3% down.

Joe Fairless: Wow. You’re getting better. [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: How low can you go.

Tiffany Alexy: Exactly.

Joe Fairless: What is the reason why you were able to do 3% on this fourth one?

Tiffany Alexy: I don’t know, it was just a loan program. Conventional was going down as low as 3%.

Joe Fairless: Okay. Same lender on the 3% and the 10%, the last two?

Tiffany Alexy: No, different lenders.

Joe Fairless: Who did you get on the third one, and who did you use on the fourth?

Tiffany Alexy: The third one was First Citizen, and the fourth was Benchmark.

Joe Fairless: How do you find your lenders?

Tiffany Alexy: Honestly, they find me. It’s just word of mouth, networking, pretty much just organically.

Joe Fairless: Okay. So thinking back with benchmark, for example, what is the first time you came in contact with the point person that you ended up going with at Benchmark?

Tiffany Alexy: With Benchmark I actually found out about them through a client. I was helping a client purchase an investment property, and his lender was put in contact with me, because I was his agent… And I really liked the lender, because he was very communicative, always responsive, super on top of it. And my client got a great rate, so I was like “Okay, I’ll keep you in mind for the next one.” And it just kind of worked out that way.

Joe Fairless: Okay. You’ve been doing it for approximately nine years… What are some things that have gone wrong?

Tiffany Alexy: Oh, a lot has gone wrong… So I will tell you about a situation where I got in a little bit over my head as far as a flip. I purchased a 2,600 sqft. duplex in Ayden, North Carolina, which is about 15 minutes South of Greenville, where East Carolina University is. And you see HDTV and you think it can be easy… It’s not the case. I bought it from a wholesaler who had the contract on the property and was selling the contract. For that reason, I got it super-cheap; it was like 28k for this duplex. It needed a lot of work. I actually had FaceTimed my contractor through it, and she gave me an estimate of about $100,000 in work.

At that point I was like “Okay, that’s still not too bad, because I’m in for 128k, and it could rent for about $700/side.” So the numbers on that weren’t too bad. The only thing is the flip took a year. There were a lot of delays, just because it’s 2,5-hours away from me, so I didn’t have a lot of time to drive to the property and check on my contractor and make sure that he was running according to schedule.

Everything was just delayed. Windows took seven months to come in, and then one came in and it was broken, so we had to send it back and get a replacement… It was just a disaster. So after about a year I got a call from the town of Ayden fire department that it had actually caught on fire.

Joe Fairless: Ohhh… After a year, prior to you renting it out, after you’d completed the flip almost?

Tiffany Alexy: Exactly. So the flip was a little more than halfway done, and it just completely torched one side. It didn’t burn down, but the entire interior of the better side was gone. It was just up in flames. So that was kind of a learning experience, and at that point I was like “I don’t wanna put another 100k into this project. It’s never-ending.” We couldn’t even have utility to the property, because it has to pass inspection in order to turn on the utilities.

So it wasn’t an electrical fire. What I found out later was that somebody had broken in and had a party, they lit candles, and just left. They’d broken through that broken window.

Joe Fairless: Dang! They got in through the window that took seven months to arrive, that was broken, that you were waiting on a replacement?

Tiffany Alexy: Correct.

Joe Fairless: And then they burned the house down as a result of it.

Tiffany Alexy: Yeah, so that one was boarded up, and they just took it off.

Joe Fairless: Okay… Insurance?

Tiffany Alexy: So everything that could have gone wrong, went wrong. Yes, I had insurance, thank goodness. So I was able to get that money, and I was done. So I basically broke even, which is a lot better than what could have happened.

Joe Fairless: What was the insurance process like?

Tiffany Alexy: It had to be a vacant policy, because there was nobody living at the property. It was one that I had to renew every couple of months, because it was a vacant policy, and it was more expensive because of the risk associated… Which, obviously, for good reason.

Joe Fairless: Yup. Thank goodness you had that policy.

Tiffany Alexy: Yes, I’m very glad I did that.

Joe Fairless: What was the check amount that they cut you for the fire.

Tiffany Alexy: It was 67k.

Joe Fairless: Okay… So they cut you a check for 67k, and you bought it for 28k… What did you end up doing with the property?

Tiffany Alexy: I actually essentially just gave it to an investor I know, that was in the area. He was my property manager at the time as well, and I just wanted to wash my hands of it. So I sold it to him for $10.

Joe Fairless: Okay. [laughs] So you had put in 28k, and you got a check for 67k… So you had about 42k in profit. However, that doesn’t factor in paying the contractor, and holding costs and all that… So you’re saying essentially the 42k was wiped away? It was about that, it wasn’t anything more…?

Tiffany Alexy: Correct. It was between 40k and 45k.

Joe Fairless: People always ask “Well, why would someone give a house away? What are the circumstances?” Here’s a circumstance. You gave it for ten bucks.

Tiffany Alexy: Oh, absolutely. Yeah, it was just one of those where I didn’t wanna continue dumping money into it. I was busy with my brokerage at the time and I just didn’t have the time… And he was local, 10-15 minutes away from where he was, so it made sense for him, because he could get the property for very little, and essentially his money in would be all the repair costs, and then he could rent it.

Joe Fairless: Okay. And how long ago was that?

Tiffany Alexy: That was last summer. I sold the property to him in July.

Joe Fairless: Well, you “sold” (in air quotes), right? Ten dollars… [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: And have you kept up with him and the status of the property?

Tiffany Alexy: No, I actually haven’t.

Joe Fairless: Aaagh…

Tiffany Alexy: I need to follow up with him and see what’s going on, see how he’s doing.

Joe Fairless: You haven’t talked to him since you got the $10 bill from him?

Tiffany Alexy: No. He sent me a referral or two, but I haven’t asked him what he’s done with the property.

Joe Fairless: That is a challenge, and thankfully you had insurance. I think that’s a big takeaway, having insurance on the vacant property. If presented a similar opportunity in the future, what choices would you make that are different from the choices you made on this deal?

Tiffany Alexy: First of all, I wouldn’t have bought it…

Joe Fairless: Why? Why wouldn’t you have bought it?

Tiffany Alexy: Well, I bought it sight unseen. That was my first mistake. Not necessarily that buying sight unseen is a mistake, but it was in a market that I didn’t know, and I just thought, “Okay, well, it’s 28k. Even if it goes South, it’s so cheap…” So I put it under contract sight unseen, which typically is not that big of a deal, especially in North Carolina, because you have the due diligence period, so you can still back out… But once I was under contract, I felt kind of obligated to purchase it. And not out of anything that anybody else was doing, it was just kind of my own feelings. So that was the first mistake.

The second mistake – I didn’t get a home inspection. It was primarily because I knew that it would need a lot of work. It was essentially gonna have to go down to the studs and be completely redone… So at that point I was like “Well, I don’t need a home inspection. I know that it’s gonna need a ton of money and a ton of work, so I might as well just save that money.” But what I didn’t know was the joists had been rotted out because of termites, so essentially it was about to go 20k over budget to replace the joists. And that’s what was partially why it took so long as well.

Joe Fairless: Windows and termites.

Tiffany Alexy: Exactly.

Joe Fairless: Thank you for sharing that.

Tiffany Alexy: Of course.

Joe Fairless: Those are takeaways that are applicable to a lot of people, and I’m grateful that you mentioned that. What else has gone wrong?

Tiffany Alexy: With that deal or with other deals?

Joe Fairless: With another deal.

Tiffany Alexy: That one was essentially my one and only flip experience. Everything else that I have has been buy and hold. So on the flipside, I’ll give you an example of one that has worked out really well. I currently have an office – it’s in Cary – and I kind of did a double strategy on this. We talked a little bit about house-hacking… If you’ve heard of the BRRRR method, which is the Buy, Rehab, Rent, Refinance, Repeat – I kind of combined the two on this office that I have, and it’s worked out really well.

Essentially, I bought it similar in a way to my owner-occupied properties. It’s just an owner-occupied office, because I was using it for my business. I’ve found it a couple of years ago, it was listed for 175k, and it needed a lot of work. These buildings were built in the late ’70s, so it was just really old, and hadn’t been touched since then. It still had a wood-burning stove in the main lobby area, that was connected to the chimney.

Joe Fairless: Well, that’s got some character.

Tiffany Alexy: Yeah. For sure, it does have character. Orange [unintelligible [00:16:59].03] carpets…

Joe Fairless: [laughs] Even more character.

Tiffany Alexy: Textured wallpaper… Exactly. So it was kind of an ugly duckling, but there’s not a whole lot of inventory as far as office goes here, so I snapped it up and paid the asking price. I’ve put in about just over 40k in work.

What I did was added the chair molding, the [unintelligible [00:17:23].26] put in luxury vinyl  plank floors, repainted everything… It has a lot of that intricate dental molding, it’s got that thick crown molding, and that was a pain to pay somebody to paint. So it took a lot of paint for that… But I essentially just redid everything, including the bathroom, and I rent out a couple of the other offices. So it’s got technically four office spaces. I use one. One of the other offices I rent for $500/month.

The upstairs is kind of an oversized office. I rent that for $650. And then the last office, that is not my own, is the largest one, so I turned it into a conference room. I use that for my clients, but I also rent it out on a website called LiquidSpace, which is similar to Airbnb, but it’s for office space… And it’s just like an hourly rate.

So between all that, I got it rented, and then I refinanced. So I was able to pull out most of my initial equity, because it got reappraised for 250k.

Joe Fairless: Awesome.

Tiffany Alexy: So it worked out really well for me… And of course, there’s a higher monthly payment, but because it’s tenant-occupied, I’m essentially breaking even on the payments.

Joe Fairless: Bravo! What tenants do you have in there?

Tiffany Alexy: It’s a digital marketing company and a software company.

Joe Fairless: Okay. What’s the square footage of the overall space?

Tiffany Alexy: It’s just under 1,400 sqft.

Joe Fairless: Alright… And how did you find the digital marketing and software company?

Tiffany Alexy: The digital marketing company – funny enough, I used to do property management, and they were one of my property management clients. And the software company – I believe it was just Craigslist, because I had posted a couple different ads online about the office space.

Joe Fairless: Okay. And the 40k in updates that you did – what was your role in those updates? Was it the money person, or were you the one overseeing it, or were you doing it?

Tiffany Alexy: All of the above. So I was the money person–

Joe Fairless: Oh, you did it?

Tiffany Alexy: Yeah. I hired a contractor, so I didn’t do the work myself… But I helped with the design process, picked out everything, I put up the money… So yeah, I was pretty involved.

Joe Fairless: Okay. What’s something that you learned from that experience, overseeing the contractor?

Tiffany Alexy: It’s definitely to have a contingency. I went in knowing that we were gonna go over budget, just because it always happens… But it turns out that there was a bay window in the back, in the conference room, and it was actually sagging, because it didn’t have a foundation… And this was something that my home inspector actually didn’t catch.

I kind of had two options. I could add a foundation to it, or I could just tear the bay window out and make it a regular window… So what I ended up doing was just tearing it out, because it was cheaper that way, and just putting a normal window in. But of course, my contractor had to reframe and tear out the actual bay that was sticking out… So that was another 5k that I was not anticipating…

So it’s definitely to have a contingency fund always over budget, because there’s always gonna be things that you will not know ahead of time.

Joe Fairless: How much should we over-budget when we put together a plan?

Tiffany Alexy: I usually just add 10% to the overall total.

Joe Fairless: Okay. So in this case, those 40k – what did you initially budget? Was it 40k, or was it 35k?

Tiffany Alexy: I initially budgeted 50k.

Joe Fairless: But you said you put in 40k, so–

Tiffany Alexy: Yeah, we still came in under.

Joe Fairless: You were under? Wow…

Tiffany Alexy: Yeah. So initially what I was thinking was 50k.

Joe Fairless: Okay…

Tiffany Alexy: So it worked out. But I always think more.

Joe Fairless: What caused it to be under?

Tiffany Alexy: There were a couple little tradeoffs… Let’s see. Upstairs, I initially was gonna put the LVP flooring, but I decided to go with carpet instead. One, for soundproof, and then also there were stairs that were a little bit narrow, so I didn’t wanna put the hard, slippery flooring, just in case. So I ended up putting carpet upstairs. That saved some money.

I got some quotes for the exterior, and I used a different contractor for the exterior, which saved me some money as well, because he actually was doing the office next door, so he was able to give me a better rate.

Joe Fairless: Okay. And how did you come in contact with that contractor?

Tiffany Alexy: The person who owned the office next to mine actually just sent me an email and said “Hey, I’m actually getting work done on my office. This is the guy that I’m using. He’s willing to help you out”, because he knew that I was doing work to my office as well.

Joe Fairless: Okay, cool. Good timing, and nice people, connecting the dots. Well, taking a step back, based on your experience, what’s your best real estate investing advice ever?

Tiffany Alexy: My best real estate investing advice ever would be to be creative. Situations where the office happens, everybody that hears about what I did with it – they’re kind of astounded that I did it, but it really wasn’t anything groundbreaking or magical; it was just a matter of me moving in and being creative and renting out the extra spaces that I didn’t need. So it’s creativity and efficiency, really.

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

Tiffany Alexy: Sure.

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

Break: [00:22:43].03] to [00:23:26].29]

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

Tiffany Alexy: Oh, gosh… So I would say the book Ninja Selling, by Larry Kendall.

Joe Fairless: Great book.

Tiffany Alexy: I read this book many times. I’m actually re-reading it again. It’s a great resource for those who are in sales, or sort some sort of sales-driven career, but who aren’t necessarily wanting to brand themselves as that salesperson, if that makes sense.

Joe Fairless: I highly recommend that book. One of the big takeaways I got from that book  is – using the example of a real estate agent – a real estate agent could do a very good job with a client, and then five years later, when that client goes to sell the house, they might not be the first person their client calls, because they’re just not top of mind. So it’s important that we have to be top of mind in a relevant way on an ongoing basis with our customers, in order to continue to earn their business.

Tiffany Alexy: Absolutely.

Joe Fairless: What’s the best ever deal you’ve done?

Tiffany Alexy: The best ever deal would be one of my rental properties on [unintelligible [00:24:38].18] It was one that I purchased — it was an estate sale. It wasn’t a great deal, but I knew that if I rented the rooms out individually, I could make more money.

I purchased it for 145k a couple of years ago, and I rented it out for $1,800 at the time. Since then, I’ve done renovations to it, and I actually bumped the rent up, so now it rents for $2,300.

Joe Fairless: Wow. And what would it rent if you just rented the house, not the rooms?

Tiffany Alexy: Probably closed to $1,600.

Joe Fairless: Huge difference. How much more work is it from  a management side?

Tiffany Alexy: It’s really not that much more work, and the way that I market it is I calculate how much per bedroom it would be, and then I give a slight discount. These tenants at $2,300 – the last tenants were at $2,100, but with the last tenants I had marketed it at $2,300, but they all came together; so it was four tenants, and I said “Hey, if you all sign a lease right now, then I’ll give it to you for $100 off. So between that, and then they signed a two-year lease, I ended up giving it to them for $2,100. But that’s still a huge difference from the $1,600 it would rent for otherwise.

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

Tiffany Alexy: My first actually hosts monthly get-togethers, and we always do it at local restaurants, or coffee shops, and I like to just support other local businesses with my marketing dollars, because we’re all in it together.

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

Tiffany Alexy: The best way would be Instagram. My Instagram handle is just @Tiffany.Alexy.

Joe Fairless: Thank you so much for being on the show. What a fun show, where I learned a lot, and there’s a lot of helpful information for people who are doing the house-hacking, and the type of financing to get, people who are doing commercial properties, and a case study for the office that you have, lessons on a fix and flip… I mean, you really covered a lot of asset classes today. [laughs]

Tiffany Alexy: Yes, I did.

Joe Fairless: This show has got a little something for everyone, so thank you for that. Again, I enjoyed our conversation, and I hope you have a best ever day, and we’ll talk to  you again soon.

Tiffany Alexy: Thank you for having me.

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JF2082: Four Decades of Raising Capital With Ken Holman

Listen to the Episode Below (00:22:49)
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Best Real Estate Investing Crash Course Ever!

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

Ken Holman Real Estate Background:

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


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Best Ever Tweet:

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ken Holman: Don’t tell anybody, okay?

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

Ken Holman: Yeah.

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

Ken Holman: Yeah.

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

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

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JF2080: Medical Real Estate Investing With Colin Carr

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Colin is the Founder and CEO of CARR, one of the nation’s leading providers of commercial real estate services. He has personally completed over 1,000 transactions and has been in real estate since 2000. Colin goes into medical real estate investing and what it looks like in his business. 


Colin Carr Real Estate Background:

  • Founder and CEO of CARR, one of the nation’s leading provider of commercial real estate services
  • Has been involved in commercial real estate since 2000 and has personally completed over 1,000 transactions.
  • Licensed real estate broker in ten states
  • Based in Denver, CO
  • Say hi to him at https://carr.us/

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Best Ever Tweet:

“I like to help healthcare providers maximize their profitability through real estate.” – Colin Carr


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

Colin Carr: I’m doing great.

Joe Fairless: Well, I’m glad to hear that, and a little bit about Colin – he’s the founder and CEO of CARR, one of the nation’s leading providers of commercial real estate services. He’s been involved in commercial real estate since 2000, and has personally completed over 1000 transactions. He’s a licensed real estate broker in ten states, based in Denver, Colorado. So with that being said, Colin, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Colin Carr: Yeah, absolutely. Well, first of all, thanks for having me on. Excited to be here. My background is exclusively real estate. I started managing apartment complexes when I was 19 – mid-rise, high-rise, rural; moved to Denver in my early 20s, kept managing apartments for a few years, got into brokerage, few years after that did Walmarts, Wendys, Blockbusters, a lot of national retailers, moved into other aspects of office, industrial, investment, healthcare, and then started a firm about 12 years ago, and we are now operating in about 40 states, and we touch a couple thousand transactions a year and have a pretty good pulse in the market.

Joe Fairless: What’s your personal area of focus right now?

Colin Carr: I’m the CEO of the company and I oversee over 100 agents. We have a healthcare division, we have a commercial division, an investment division and a senior housing division. So I oversee our agents’ best practices, and I do a lot on the investment and development side.

Joe Fairless: Alright, so I was typing as quick as I could… Healthcare, senior housing, and I know I missed a couple. What are some others?

Colin Carr: Yeah. Commercial, and then just an overall investment platform as well.

Joe Fairless: Okay. So when you say commercial, I think of senior housing facilities as commercial real estate. So what’s commercial? How is it defined here?

Colin Carr: So we would differentiate commercial being corporate uses, CPA’s attorneys, architects, oil and gas, financial services. So everything that we do is commercial real estate. We have a just traditional commercial division that also touches those focuses of commercial tenants and buyers, and then we actually have a senior housing division and then an investment division as well.

Joe Fairless: Okay, when I hear investment division, I think, ‘Well all of these are investments.” So how is the investment division different from senior housing investment or healthcare facility?

Colin Carr: Great question. Our investment division is going after investors that are looking for income-producing properties, and we’re helping them on the buy side, the sell side, the due diligence side. So our commercialization is corporations, helping them with their real estate. Our healthcare is helping healthcare providers with their real estate investments, income-producing properties with savvy investors looking to grow portfolios, acquire, dispose of, etc, and then same thing on the senior housing side – it’s investors, developers, operators. So a lot of these overlap though, there’s investment deals happening in all those sectors, and it’s a lot of overlap.

Joe Fairless: Which division is your least profitable?

Colin Carr: That’s a great question. All of our divisions are profitable, which is great. Senior housing is our newest one, so we’re touching a couple of dozen deals in that sector right now in a handful of states, but that’s our newest division that’s only a couple years old. So still got a great expertise there, but that’s one of our newer platforms.

Joe Fairless: What are some reasons why you created a new division for senior housing, and how do you hit the ground running in order to grow that quickly?

Colin Carr: So senior housing came to us because people knew how much healthcare work we do. We help a couple of thousand health care providers each year with their real estate. So we touch a lot of deals there, and so there’s a lot of investors and a lot of developers that are involved with medical office buildings, complexes, and they want to get into the senior housing game. So we get a lot of people that try to come to us for advice in that world, but that’s how senior housing came to be. It’s just very ancillary and complementary to our healthcare world.

Senior housing is an interesting niche because it’s not just the real estate component, it’s the operations, and really the operations drive the value, as you know. So that’s a world that just takes a little bit longer to get into. Whereas a lot of profitability, a lot of opportunities, the amount of product that’s needed in the senior housing market is one that literally cannot be met over the next 10, 15, 20 years. So there’s a huge opportunity there, but there’s more complexities too, with compliance and operations and licensing. So it’s a little bit different world.

Joe Fairless: From a broker standpoint, why is it harder to get into because of operations? This is my ignorance showing, but I wouldn’t think that you all would be involved in the operations part. So it’s like, alright, you’re selling a property, so why does it matter that the operations are really important with senior housing?

Colin Carr: That’s a great question. So to understand how to value a senior house facility, you’ve got to understand the operations, and you’ve got to actually get in there and get under the hood and figure out how the property is being run, because the operations are what drives the income. Whereas if you’re looking at an apartment complex or a multi-tone office building, you can look at a rent roll, and it’s pretty clear to figure out what’s happening. There’s so many different variations of senior housing facilities, and there’s a lot of concepts of, “Is it government subsidized?” There’s so many different facets of senior housing, and there’s different revenue streams in addition to just “What do they pay per month for that room? What are the other services that are provided?” So to understand or read a senior housing facility, you’ve got to understand how it’s operated.

Joe Fairless: And is that as simple as hiring one person or bringing on one person who knows the industry, and then he or she can train your team, and now you’re off and running, or is it more involved than that?

Colin Carr: It’s really more involved than that. It’s a skill set that takes, in my opinion, years to really understand and learn, and I’m not trying to make it larger than it is or more complex than it is, but there’s so many nuances. Is it independent living? Assisted living? Is it memory care? Is it a skilled nursing facility? Is it Medicaid? There’s so many aspects to that world. And then on top of that, from a buying and selling side, the facilities don’t get put onto a commercial MLS or listing service predominantly, unless it’s a really challenging property that is less than desirable.

Whoever controls the listings controls the opportunity. So it’s not one that you can get on to an online database and preview 15 facilities and see their income statements and rent rolls and balance sheets. You can’t do that. So you got to understand how to evaluate them, number one, and then you’ve got to figure out who controls the opportunity,  number two.

Joe Fairless: It makes a lot of sense how you got into it, given your connections with healthcare. So can you talk about your healthcare business or division and what’s a typical transaction look like?

Colin Carr: Absolutely. So our primary healthcare division represents healthcare providers. So dentists, physicians, veterinarians, and we help them with every aspect of their real estate interests. So finding land, developing properties, new locations, relocations, a lot of lease renewals… And in doing so, we work with a substantial number of landlords, large REITs, developers, and we work with a lot of owners trying to figure out how to make their properties more valuable, how to increase occupancy, etc.

Joe Fairless: What’s a recent transaction that comes to mind, or a recent deal, whether you’re finding the location or the actual property itself, or selling it? …just something that we can talk about.

Colin Carr: So an owner purchases a building, wants to attract healthcare uses, gets us involved in the process, figures out where’s the deal got to be priced at, what we have to do to make it attractive to healthcare providers, is it a viable healthcare option… And then if we can assist them in that process of bringing them numerous buyers, we can create a lot of opportunity out of changing a property from an office use to a medical use, etc.

Joe Fairless: What are some questions that you ask the owner during your due diligence process to determine if that office can be used for medical?

Colin Carr: Some of the initial stuff– we go through all the zoning, we go through those concepts, but really it’s does the owner have a desire to invest heavily in the process? Medical office is a very attractive asset class of property. Markets go up and down, the economy changes, it will correct; everyone knows that. So if you’re an owner, you’ve got to look at it and say, “Who do I want on my property?” You want a franchise that maybe has thin or no margins, and they’re just trying to buy a market share to see if they can later sell, and it’s not really a long term viable option.

Are you concerned if you have a retail center and you’ve got a bunch of apparel and soft goods, and you can pull up their income statements and realize these guys are losing money quarter after quarter, and what’s going to happen when you lose the 20,000 square-foot Forever 21 store that doesn’t renew and how do you backfill that with four or five other people and who’s going to backfill it? Or do you look at a medical opportunity and say, “You know what, even when the market goes down, that dentist is not going to decide to start a landscape business. Or the plastic surgeons, they might tighten the belt, they might trim some staff, they might work four days versus three days a week, but they’re probably not going anywhere, they’re probably not gonna change industry.”

So we do a lot of education with landlords on why it makes sense to invest more money into a healthcare deal. Why if you can lock down a ten-year deal, the tenants are gonna go in there and pump a couple hundred thousand dollars into the space; they’re more invested, they’ve got more skin in the game – why that makes sense to stretch further to make that deal, and why that deal, even though you might have to put a little bit more money into it or invest more, why that deal actually ends up being a safer investment for you.

You put more money in, so some people would say, “Well, no, that’s more risky,” but you’re securing a more valuable blue-chip tenant in a lot of scenarios. So we do a lot of education with landlords and developers on why they want these deals, and then you get the right tenant, they sign a ten-year lease, they’ll probably be there for 20, 30 years. So you can literally do a deal and not always – there’s definitely changes, – but a lot of times, you put that thing to sleep for a couple of decades.

Joe Fairless: You mentioned asking the owner, do they have a desire to invest money into it, but then you talked about how the tenant will put in a couple hundred thousand to get it to fit their exact needs… So what is the owner putting money into the property to do, versus a tenant?

Colin Carr: Good question. So the tenants put a lot of their own money into the spaces because landlords are typically not going to front the entire cost of the buildout or the finish. We do ask the landlords to contribute as well. We’re looking for both sides to be invested in it. So a traditional office deal or industrial deal or retail deal, the landlords are going to put money into the space to attract good tenants.

A lot of times on the healthcare deals, we ask them to put in a little bit more than they would for a traditional office use or retail use, but we, in turn, put in more money than the traditional user as well, and a lot of times we’re doing longer-term leases, and we’ve got a much lower default rate. Most of our healthcare uses have less than a 1% default rate, so it’s a more secure investment. So we ask the landlords to put more money in because our clients are putting more money in, and they’re willing to do longer-term leases, and they carry a higher success rate, lower default rate with them.

Joe Fairless: Is the landlord putting in money prior to getting a tenant?

Colin Carr: Typically, we tell them, “Don’t touch the space on a healthcare deal until the actual healthcare provider or tenant shows up”, because you think they want that type of lighting or ceiling or walls or bathroom, and then they want to change the location of the finishes… So we don’t like landlords to put money into spaces. A lot of times, landlords will try to put into a vanilla shell format or vanilla box, and we don’t want that, because they’re going to upgrade it almost every time. So that’s another way for landlords not to waste money on vacant spaces. Wait till the tenant shows up, don’t spend money in advance.

Joe Fairless: Is it usually 50-50 on improvements or what?

Colin Carr: No, it’s usually a per square foot basis that comes into line with the lease rates to where some landlords say, “Hey, I’m not going to put in more than one year of total rent into the deal” if it’s new construction and they’re financing the money, and they’re going to turn around and sell it in a couple of years. They might put in two, three, four years of rent into that initial space. So it depends. Is it first generation? Is it second generation? Are they a long term owner? Are they gonna try and sell it? Is it the cash they’re putting into it, or are they going to finance it? So it just depends on who the owner is and the structure, but typically, on most healthcare spaces, it’s between one to two and a half years of total rent usually gets put into the concession package of TI allowance, free rent, stuff like that.

Joe Fairless: So for someone listening to that, and if they’re thinking, okay, so, in a medical transaction, where you bring a health care provider, if I’m a landlord, I’m gonna have to put in, on average, one to two and a half years of total rent that I receive. So I’m not making any money for one to two and a half years. Why would I ever do that? You mentioned it already, long-term, but is there anything else that we should be thinking about where it’s like, “Oh man, the first two years are gone. I’m not making any money.”

Colin Carr: A lot of landlords are going to finance that tenant improvement allowance and a lot of lenders are going to be more prone to give money for that tenant improvement allowance, especially if it is a healthcare use and a long term lease. So there’s definitely owners that want to put cash in upfront and not go to the bank, but if you’ve got a loan on the property already, which most landlords do, most lenders are going to give money for that tenant improvement allowance to secure that tenant. So at that point, it’s [unintelligible [00:16:25].25] game.

The other thing that comes into play too is for the landlords that are willing to put money into the space, they’re going to typically capture a higher lease rate, which means the property is worth more. So whether you look at it as having a long-term owner, that’s fine, but most people are always looking at “What’s my exit strategy?” and so the higher the lease rate, the better the cap rate, the higher the property. A lot of landlords are looking at properties, “Hey, if I could buy this property, and let’s just say it’s getting $20 a square foot for rent, and if I were to put a little more money into it and get a healthcare use in there, I could maybe get $23 a square foot in rent. Well, $3 a square foot on a six cap or seven cap, all of a sudden my property’s worth 200 grand more, 800 grand more, whatever it is, depending on the size of the property.”

So it’s a numbers game of “Can I put more money into this space to attract better tenants, longer-term lease, and then a better cap rate, because it’s stronger credit tenant, lower default rate, and then can I raise the value of my property?” So that’s the game – if you’ve got a property and you’re normally getting local mom and pops retailers or short term office leases, and you can attract the long term healthcare use, you can raise the value of your property substantially by getting healthcare in there.

Joe Fairless: What’s been one of the more challenging transactions you’ve personally worked on?

Colin Carr: How many hours do we have for me to run through that list? Almost every commercial deal we do has some–

Joe Fairless: A specific one. I’m looking for a specific example that you can tell us a story about.

Colin Carr: Man, that’s a great question.

Joe Fairless: It could be a recent one. I’m just looking for a story from you about a transaction where there was a challenge, you overcame it, and here’s some things we can learn from it.

Colin Carr: I would say, a specific deal I’m thinking of right now is, you find a landlord – and this is a specific deal – they bought a building a number of years ago, the tenant had an above-market lease rate when it was purchased, annual increases push the lease rate up 3% every year, and then you come to the lease expiration date, and you get ready to do a lease renewal, and the landlord is 100% set on not reducing the lease rate because they don’t want to discount their cashflow and discount the value of the property… But the deal is way over market, the tenant’s not going to stay. So you end up in an arm wrestling match with the landlord, and they’re assuming that the tenant’s not going to move, but the tenant has to move, because they can’t pay that type of rent.

So the landlord has come to grips with the fact that they didn’t do good due diligence upfront and it was an above-market lease rate, and they can’t capture and maintain that rate moving forward. And once that lease is over and that tenant moves out, they’re going to have to come to market with the real deal for the next person. So that’s a traditional deal, that’s what I’m thinking of right now, is “Hey, you’re 20% above market. I know it looks good on paper, I know you bought it thinking it was a great cash flow, but it’s not real.”

So it’s kind of a pro tip – you’ve got to make sure that you’re not dealing with inflated rents that are not renewable in the future, and if you lose that tenant and you have to go to market, you’re gonna have to come up with a real deal.

Joe Fairless: What a great piece of advice mentioning that… Because if I go to look at deals, and I see an office building and the seller says, “Hey, the market is X amount of dollars, but I got you even better at Y.” I think, “Ah, that’s awesome. This is gonna be a better deal than I’ll get it anywhere else, because I’m getting better market rents,” but as you said, there’s some pitfalls to that when the lease expires.

So then what I would need to do in order to make sure that the deal still makes sense is determine what type of market demand there is for that type of tenant, and if there’s a whole lot of demand for that tenant, then — I guess, I still shouldn’t assume that I’ll be able to get above-market rents upon the lease renewing, but at least there’ll still be more tenants to fill in if this one leaves.

Colin Carr: Absolutely. You’ve got two sides of the coin. You got, “Why the lease rate’s below market?” and “Is that really the lease rate?” They say, “Well, this is a below-market lease and you’re gonna be able to bump it up on a renewal.” “Well, alright, show me that you’ve achieved that the last couple leases you’ve done and show me where the market’s at, so that I have the track record that you’ve been able to do that.”

The other side of the coin is, “Hey, look at these lease rates. They’re capturing premiums, and these are a lot higher than our competing properties in the market or other comps.” And the question is “Is that sustainable in the future? Do I need to discount that value and underwrite it differently?”

The same concept applies with – you get a property as a 100% leased, you’ve got to put a vacancy factor in there and assume that you’re gonna run a vacancy over time and on average. You’ve got to put a 5% or 10% vacancy factor in there. So yeah, there are definitely pro tips as far as if it’s below market – why? If it’s above market, why? I think really the question comes down to what’s sustainable, and that’s where you’ve got to tap market experts to give you that advice and just make sure that you’re doing your due diligence.

Joe Fairless: Based on your experience as a real estate professional, what is your best advice ever for real estate investors looking to purchase, or in the industry of buying healthcare, or having commercial properties that cater to healthcare professionals?

Colin Carr: My advice would be just find the people that are the most likely to bring you those tenants. So when you’re talking about buying a medical building, and you’re talking to the seller, look at what they’ve done as a track record, because that’s a great indication of hopefully what you’ll be able to accomplish as well, too… But it’s really easy just to talk to the selling party and let them give you all the information, all the play by play. But at the end the day, they’re not going to be the ones to try bringing you the new people for your space, or helping you to renew those people. So I would say, find an industry expert like a company that represents healthcare tents and buyers, and then ask them, “What would be your objections to bring in your clients to the center? What would we have to do to attract your clients for the property? Do you think the market can sustain these lease rates? What type of TI allowance do I need to do to put into these deals?”

Get a perspective from the other side of the table with someone who’s not involved in that transaction. Not the listing agent, not the seller, but talk to somebody who is viably going to bring you an option or bring you a tenant for the future and get their perspective on it, because it’s going to be very different than what the seller’s selling you, trying to sell you the property.

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

Colin Carr: I am.

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


Break: [00:22:55]:04] to [00:23:38]:03]


Joe Fairless: What’s a bad piece of advice that you’ve received over the years?

Colin Carr: Thinking the market’s not going to change. Thinking that, “Hey, we’ve got this the last five years, it’s gonna continue to be that way”, and just not realizing the market is gonna shift.

Joe Fairless: What’s a best ever resource that you use in your business that is really helpful for you, whether it’s an online resource, an app, some website, something like that?

Colin Carr: The same answers two times ago – talking to the market expert who’s not involved in the transaction to give you an independent third party perspective on how viable is this location, this space, this deal, this price, and how would you critique it for your clients if you bring us a tenant or buyer for this?

Joe Fairless: What’s been one of your favorite transactions that you’ve done?

Colin Carr: Favorite transactions… I would lump them together as beginning deals in the business, grinding out the dirtiest, lowest-priced, worst location industrial deals you can possibly imagine, and just learning how to put together a deal, learning how to treat people, learning how to figure out how to solve problems, and just thinking back to the worst property you’d ever want to go to, and then getting that deal done and making no money on it whatsoever, but realizing you found a way to make a win… And at the end the day, even though it was a down and dirty property, the tenant was happy to be there, and learning how to do deals.

Joe Fairless: How do you not make money when you transact a deal, even if it’s a bad deal and a bad area?

Colin Carr: As a broker, you’re paid usually upon– it could be a per-square-foot commission, but a lot of times it’s a percentage. So I’m thinking of the 1,100 square foot machine shop industrial deal with a $4 lease rate, where you spend months on a deal and you make a couple hundred bucks or something like that, where you look at your time and you’re like, “Wait a second, I think I ‘ve made $1.50 an hour on this deal.”

We’ve got monster success stories of making a ton of deals, and that’s great, but honestly, it’s the deals that you learn to cut your teeth on, and even the ones where maybe, you lost some money, but you learned a lot. Those are my favorite because that’s the foundation you build upon.

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

Colin Carr: I love sharing information and helping people take what I’ve learned, and then help them become more successful… Because that’s really what I’ve done over my career – I’ve had the benefit of picking people’s brains, asking the exact questions you’re asking now, getting their insight, and then taking a lesson that a guy took 20 years to learn, and then he shares it with me and saved me all the heartache and pain. So doing the same thing of taking my information, the skillset, the contacts, introducing people to those same people, those lessons, and then helping them to build upon the foundation that I’ve laid, which is really the foundation of hundreds of other people before me.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Colin Carr: Website is carr.us, and in the upper right hand corner, you can find an agent. So if you want to talk about the viability of a deal or get a perspective from us before you buy a property or invest in and pick someone’s brain, our team, our agents are happy to do that. We do it every day. They won’t charge you for it. They’ll just give you free advice and give you their thoughts, and you can get in touch with someone locally that could give you a lot of information that could help you to process.

Joe Fairless: You’re a wealth of knowledge. It’s so nice talking to people who are so knowledgeable about what they do, and it is very clear that you know your industries that you’re in, and it’s just fun. I love talking to people like you. So thank you for being on the show, talking to us about the four divisions of your company, talking about how you got into senior housing as a result of being in healthcare, and then going deep into healthcare in particular, from an investor standpoint, and what to look for. So thanks for being on the show, really enjoyed it. I hope you have a best ever day, and we’ll talk to you again soon.

Colin Carr: I appreciate that. Thanks so much.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

JF2062: Commercial Real Estate During The Coronavirus With Tim Karels

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Tim is the Owner of Falls Real Estate, he owns and manages $15-20M in commercial real estate and has over 9 years of experience. The coronavirus has impacted everyone in the market and today Tim explains from a commercial real estate perspective how he is handling rent collection and making property improvements 

Tim Karels Real Estate Background:

  • Owner of Falls Real Estate 
  • Falls Real Estate owns and manages $15-20M in commercial real estate
  • Over 9 years of experience in real estate investing
  • Based in Sioux, South Dakota
  • Say hi to him at https://fallsre.com/
  • Best Ever Book: Richest Man In Town


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Best Ever Tweet:

“We have to emphasize with everybody but we also have to remember we have our own investors and mortgages to pay and we should look at how we can work together as a team.” – Tim Karels


Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. My name is Theo Hicks, and today we’ll be speaking with Tim Karels. Tim, how are you doing today?

Tim Karels: I’m pretty good. How about you?

Theo Hicks: I’m doing good, thanks for asking, and thanks for joining us and being willing to talk about what everyone is talking about, which is the Coronavirus. Today we’re gonna talk to Tim about how his business is being impacted by the Coronavirus, and just all things Coronavirus.

Before we get into that, a little bit about Tim. He is the owner of Falls Real Estate, which owns and manages 15 to 20 million dollars in commercial real estate. He has over nine years of experience in real estate investing. Based in Sioux Falls, South Dakota. You can say hi to him at FallsRE.com.

Tim, before we start talking about the Coronavirus, do you mind telling us a little bit about your background and what you’re focused on today?

Tim Karels: Yeah, a little bit about myself – I am born and raised in South Dakota. I’ve been here my whole life, and I absolutely love it here. Our real estate is all focused in South Dakota as well. Right now we’re really just focusing on potentially looking what we can do to improve our properties. It’s really hard right now to look at investing in properties, given the situation that we’re all experiencing… But the labor force is looking for projects and for stuff to do, so how can we use that labor force, often at a cheap rate, to improve our properties, and also try to help the economy and keep people in business.

Right now it’s status quo on the investment properties, but how can we improve those, and focus on how to collect the rent, and the best way to deal with people that might be put into a bad financial situation based on the virus.

Theo Hicks: Perfect. Thanks for sharing that. So before we dive into our tactics, I wanna just set some more context, so people understand what your portfolio is. It’s 20 million dollars in commercial real estate… Do you wanna walk us through how many properties that is, what they are – is it retail, office, medical, multifamily? That way we have a little bit more context, and then hone in more specific questions.

Tim Karels: It’s really just four large properties, mainly consisting of office space. We have some downtown — Sioux Falls is a metropolitan area of about 200,000 people, so it’s not very big, but it’s the largest in South Dakota. We have some loft apartments, we also have some retail, some restaurants, and some event centers.

So it’s a mixture – probably about 75% office and 25% in that specialized retail and apartment and loft. So kind of a mix of basically everything.

Theo Hicks: Perfect. So your two main areas of focus right now are 1) improving your existing properties, and 2) making sure you’re able to collect rent. I actually haven’t talked to anyone who — because most people I’ve talked to are just multifamily… So maybe we can focus on the rent collection part first. Obviously, a lot of retail places are shut down because of the stay-at-home orders and the essential business  orders and things like that… So maybe walk us through how you’re approaching collecting rent on your retail properties specifically.

Tim Karels: We’re definitely working with our retailers. The PPP program that’s come out has 75% to be used for payroll and 25% to be used towards rent and utilities. It’s our focus to try to help as many small businesses in the retail sector succeed, as much and long as possible, understanding that we have to keep the lights on and the building at working condition, even if we’re not getting rent, and knowing that we have our own mortgage to pay. So what we’ve been doing is working on a case-by-case basis, giving these retailers some context in the banking world, the financial world, to allow them to apply for the PPP. We’re not really telling them that they should do it, we’re saying “Hey, you have to do this, especially if you cannot pay rent.”

Once they do apply for that PPP — I know the banks had a hard time rolling it out. It sounds like we’ve already hit 250 billion out of the 350 allocated, and by Friday that’s gonna be hit… So if these retailers did get their PPP in, they got funded. We’re working with them on a case-to-case basis on how we can collect rent, while they utilize the ratios that the SBA has allocated for how they can use those funds.

If they haven’t applied, we’re telling them to apply, and if the funding does run out, we’ll have to probably just defer the payments until they can get that PPP. If they’re not gonna apply for the PPP, then unfortunately they’re not gonna try to help themselves. We will probably just gonna have to go through the legal realm of what happens when somebody doesn’t pay a rent.

So we have to empathize with everybody, we have to try to help everybody as much as we can, but we have to also understand that we have our own investors and our own mortgage to pay, so how can we all work together as a team. Usually, it is on a one-by-one case type thing.

Theo Hicks: Thanks for sharing that. That makes a lot of sense. I know that PPP program is very helpful for a lot of people right now. What about office? My wife works for a corporation who has an office in a downtown area, and they’re all working from home… I guess it depends on what type of a renter you have, but it might just be a little bit different for an office; those corporations can just work from home. The company is still making money, so I’m assuming they can still pay rent… But obviously, you would know more than me, so correct me if I’m wrong, if there are any problems with rents. So what types of things are you doing to collect rent on those office buildings?

Tim Karels: For the most part, everyone at the office/individuals has paid. South Dakota – we’re one of eight states that don’t have a shelter in place order. Now, the city of Sioux Falls – I don’t know if you just saw on the news; we have the Smithfield Pork Processing Plant, which has now become the number one hotspot for Coronavirus sources in the nation… So our mayor and the city council is trying to put together a stay-at-home shelter ordinance for the Sioux Falls city ordinance.

So the economy here was very strong; the offices that we rent out, those companies were all very strong, so I think in the short-term they all had cash reserves to pay for the rent. They too can apply for the PPP program. They don’t rely on foot traffic nearly as much as the retail, the restaurants, and bars, and event companies and whatnot… But how this is different from the financial collapse is that every business is getting affected. Some of them are reaping the benefits, for example exercise equipments at home, beer sales, distribution sales, liquor sales are going through the roof. If you look at even smaller things, such as planning events or wedding and all that stuff are going through.

So there are some offices that might be semi-retail that are struggling, but I think overall, they’re gonna be fine. They’re probably not gonna make nearly as much money, but I think that they’re gonna be fine, given that they can also apply for the PPP, and that it’s not affecting them like some of these retails, that literally overnight went from 100% full-blown/let’s go/balls to the wall, to they lost 90% of their business in 12 hours. It’s just crazy.

Theo Hicks: Yeah, totally. I figured that’d be the case, where retail would be a little bit harder hit than office. I guess depending on the retail too, because as you mentioned, if you were renting to a liquor store, then they probably have no issue; maybe you can ask for a little bit more rent from them, or something. [laughs]

Something else you mentioned too that I really like, and it’s funny, actually my mom was talking about this stuff – what are you gonna do during this time to improve and come out the other side better… And you mentioned that one of your focus, since obviously acquisitions are slowing down  – what can you do to improve your existing portfolio. So you’ve got office, retail, apartments… You can either go one by one, or just overall improvements you’re making. Give us some examples of things that you’re focusing on right now to improve your current portfolio.

Tim Karels: Like I said, we have some exercise rooms and facilities in some of our real estate, and people are feeling uncomfortable going out to exercise facilities that are off-site, and they might even feel uncomfortable going here, but we do have our cleaners go in… So we’ve been buying new equipment; if there’s some shoddy or old equipment, we’ve been replacing that… We’ve been looking at what type of things that will bring some more bang to the buck.

It literally could be just simple things, such as painting, things that you don’t need to bring in a whole crew, because — keep in mind, we don’t have that shelter in place quite yet, so business that are deemed not essential still can come in to work. So we are trying to keep our tenants as comfortable as possible by not bringing in a whole crew, and demolishing and putting up new stuff… But if we can paint, replace countertops, replace flooring, elevator panels, the equipment rooms was a big one… And just stuff that will make a small difference and make the tenants maybe feel a little bit happier, knowing that we’re not bringing in a  whole crew to do it and risk their health.

Furthermore, there’s people out there looking for work. I’ve just had my HVAC system go out in my house, and I called an HVAC company because it’s 28-30 degrees out at night, so we still needed some heat… And I had a guy come in 15 minutes and he basically just said “We’re sitting on our butt, we’re looking for work. If you need some stuff to get done, now is the time, because we can probably get you a good deal, at least on the labor side of stuff.” So I think it’s those kinds of improvements that you can look to do without jeopardizing much health for your tenants.

Theo Hicks: Okay. Is there anything else that you wanted to mention as it relates to the Coronavirus and your business, before we move into the lightning round?

Tim Karels: I don’t think so. I think it’s interesting, because most financial institutions when it comes to mortgages that are due – I think if you’d have someone have good relationships with them and you are struggling with cashflow, a lot of the institutions will hopefully do an interest-only, or maybe defer some payments or move them to the end of the loan… But I really think it’s important that landlords do work with their tenants as much as possible.

I see some tenant strikes going on in the bigger cities, but I also see some landlords that send out unreasonable letters to their tenants… And I just hope that as Americans we see the bigger picture; we know that we’re all struggling, so how can we help each other, and what can we do?

On the residential side, I think the government is taking care of most people, whether you agree with it or not… But with that being said, there’s still gonna be  independent contractors or people that own small businesses that haven’t got the PPP, or they’re a seasonal business and they can’t get what they need, that are still gonna need to be worked with.

So I just hope that other landlords have the passion to work with these tenants, but I also hope that tenants don’t always [unintelligible [00:13:36].21] tenant strike, and hurting landlords that are providing housing, and trying to help people with their businesses, and stuff like that. That’s really all I had to say, and hopefully we can get through this together.

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

Tim Karels: Yes, sir.

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

Break: [00:13:55].19] to [00:14:57].28]

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

Tim Karels: There’s a book called The Richest Man in Town. It’s actually written by a guy from Brookings, SD. An individual that worked at Walmart his whole life, who absolutely wasn’t rich, but had the best personality… And it’s changed my life, and it made me look and be more humble.

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

Tim Karels: Probably go camping for a month, and just let my mind get clear. I’ve worked hard, and hopefully it doesn’t collapse, but I also deserve a break, I think.

Theo Hicks: Do you go camping in South Dakota somewhere?

Tim Karels: Probably I have to because of the restrictions, but it’s a little cold. So if it collapsed today, I’d probably wanna go somewhere down South.

Theo Hicks: What deal did you lose the most money on, and how much did you lose and what lessons did you learn?

Tim Karels: Probably just trying to get into the house flipping. I didn’t really lose that much money because of the appreciation that houses had, but when you put in your time and effort on it, and you have to pay your property taxes back, pay a real estate agent back, pay short-term capital gains… I looked at the amount of money I was making versus the time I spent, and it’s “What can I do better and become more efficient?” To be honest, it scrapped the whole idea altogether. I think because I learned from it quickly, it saved me tons of money in the long run.

Theo Hicks: And then lastly, what is the best ever place to reach you, and anything else you wanna mention before we wrap up?

Tim Karels: Just my website, www.fallsre.com. Fill out a Contact form if there’s anything to talk about. I don’t know, I just like talking to other people about the investing world. I own a couple other businesses too, and I just kind of like to stay in touch with everybody about anything business. So if there’s anything to talk about, feel free to contact me. If you’d like to have a phone call or if you’re in the area when this whole thing gets done, have a coffee or a beer or something.

Theo Hicks: Alright, Tim, I really appreciate you coming on the show today and being willing to talk about the Coronavirus and how it’s impacting your business. To just quickly summarize what we’ve talked about – your portfolio consists of mostly office. We’ve talked about how most people have been paying their rent; office is not gonna be as impacted as retail is. You kind of walked through what you’re doing on some of your retail properties, which is mostly asking and telling your tenants that “Hey, you guys need to apply for this PPP program, so you can use 25% of that loan to pay for your rent and utilities.”

I also really liked when you talked about how you’re focusing on how to improve your existing portfolio during this time, as opposed to just writing it out, not doing anything. You basically mentioned that you’re trying to do things that make a small difference and make your tenants happy, not having to bring in a full crew to stress them out about potentially catching the Coronavirus.

So again, I really appreciate you coming on the show. Best Ever listeners, as always, thanks for listening, stay safe, have a best ever day, and we will talk to you tomorrow.

Tim Karels: Thanks. You have a great day, too.


Website disclaimer – Should be prominently displayed on website

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 – To be read at or near beginning of podcast

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.

JF2055: Open Air Shopping Centers With Chris Ressa

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Chris is the COO of DLC Management Corp and he currently oversees DLC’s a portfolio of $3 billion. Their goal is to buy value-add properties that are underlease or undermanaged. He explains in detail what a value-add property is and how they analyze if it is a good buy or not. 

Chris Ressa  Real Estate Background:

    • COO of DLC Management Corp
    • Currently oversees DLC’s asset portfolio of $3 billion
    • 15 years of real estate experience
    • Located in Elmsford, New York
    • Say hi to him at:https://www.dlcmgmt.com/ 



Best Ever Tweet:

“Don’t be seduced by the price dropping.” – Chris Ressa

JF2051: Real Estate Tribes Approach During The Coronavirus With Travis Smith

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Travis is the CEO of Tribevest and shares the story of how Tribevest came to be and explains how they are being impacted by the coronavirus pandemic. He also shares what he is noticing in other tribes and how they are approaching the market. 

Travis Smith Real Estate Background:

  • Founder and CEO of Tribevest
  • He is a partner in several investment groups that invest in single-family rentals, multifamily, and commercial real estate
  • From Columbus, Ohio
  • Say hi to him at: www.tribevest.com


Best Ever Tweet:

“When everyone is panicking and selling, our tribes are pulling capital together, so when the time is right, they will be able to take advantage of great deals.” – Travis Smith


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

Travis Smith: Good, Theo. Thanks for having me; glad to be here.

Theo Hicks: We’re glad to have you and thanks for being here, looking forward to our conversation. As everyone knows, we are in the middle of the Coronavirus pandemic, so we’re going to be talking about that today with Travis, how it’s impacting his business, his thoughts on it and what he is doing to combat it. But before we get into that, let’s go over Travis’s background.

He is the founder and CEO of TribeVest, which he will talk about here in a little bit. He is a partner in several investment groups that invest in single-family rentals and multifamily and commercial real estate. He is from Columbus, Ohio and his website is tribevest.com. So Travis, do you mind telling us a little bit more about your background and then what you are focused on today?

Travis Smith: Absolutely. TribeVest, first of all, just a little bit about the platform. We’re really a collaboration platform for investor groups. You can think of us as an operating system and a banking platform designed for real estate investors to come together, assemble, form and bank together, and ultimately do more as a result of pooling resources and pooling capital. So I’m really excited to talk about that. A little bit of my background – I come from the FinTech space, so digital banking and payments processing was where I came up, and then in 2017, 2018, came full time being the founder of TribeVest.

Theo Hicks: Okay. So do you mind elaborating a little bit more? Give me an example of what I have — I don’t know, $500,000, and I’m interested in investing in real estate, how would I use TribeVest to use that capital?

Travis Smith: Yeah, let me go back to the beginning, which is very relevant today. TribeVest was born from the last global crisis, the financial crisis, the Great Recession in 2008 and 2009. My brothers and I, we were on a fishing trip, quite frankly one that we couldn’t afford, and we were seeing the world changing around us. In fact, my uncle, who we had all looked up to and admired because he had a great job, worked for HP, was traveling the world, and after the Great Recession kicked in, he was laid off and was unemployable at the age of 55. It made us realize that everything we had been told to go to school, get good grades, get a good job and retire and die gracefully wasn’t going to work for us. We always saw real estate as a way to hack wealth without having to give up our day jobs, but we had that same problem that we all have – to break into private markets, to break into real estate, you need capital, lump sums of money that we just didn’t have.

On that fishing trip over a few beers, we had a breakthrough. We said, “Listen, guys. Let’s quit talking about doing real estate deals and address the problem right in front of us – lack of capital.” And in that moment, we said, “Let’s each agree to a manageable and monthly contribution of $500 each.” That was a stretch for us back then, but it was manageable, and between the four of us that was $2,000 a month, $24,000 a year, and that was how we broke in. One investment led to another led to another and led to another, and we look back and we’ve realized that by forming and funding that investor group, that tribe, we unlocked a future we could have never dreamed of, and over time, we were changing our future.

About three years ago, people started to notice, and they said, “Wait a minute, you’re investing in what type of deals? How are you doing this?” Then they would say, “Well, wait a minute, I have a tribe. We have shared financial goals. Can you help us form an investor group too?” And that’s when we thought about it, and said, “Is there a market here?” And of course, we realized, we looked back and we thought, “Gosh, what would we have done differently?” and we would have done a ton differently. Ultimately, that’s how we came up with our initial product, that now hundreds of investor groups are using to form and fund whatever their venture.

Theo Hicks: Okay. So your website’s like a fishing boat in a sense, where people come together who want to collaborate on some particular venture deal, let’s say, a real estate deal… And so they all just put their money together on that platform and then go off on their own to buy the deal? I’m confused on that aspect.

Travis Smith: No, I’m glad you’re clarifying this. Right now, we are deal-agnostic in that most of our tribes and our customers are coming with a pretty good idea of the deal they want to get done, whether it’s a single-family rental down the road that they’re putting together with their neighbors, or they’re participating in a multifamily syndicate, or a commercial deal syndicate, or whatever, it literally could be anything and that’s a fun thing to get into on what our tribes are investing in. But really, they bring the dream, they bring the deal or what their goals are, and we’re helping them facilitate. I think it’s important to point out here, Theo, and maybe you’re picking up on it – what we’re doing is nothing new. We’ve been surviving and thriving as a tribe since the beginning of time, and certainly in real estate, since the beginning there too, people have been coming together, forming groups to get deals and bigger deals and more deals done.

So we didn’t invent the idea of tribe investing, but what we are providing that was missing out in the marketplace, was a neutral third-party platform that took the burden off the members of the group, especially the initiator. It was always trying to figure out how to market the tribe and the deal and, “Hey, this is my deal” and “Come on in”. And now there’s a platform that takes the burden off of everybody, where the initiator could come in, build a vision and a mission for the group, and then share that out to prospective members and invite them in to collaborate, co-create, “Are we aligned?” Then we’re just as proud of the groups that go on to achieve awesome deals as we are the ones that never get going, because we feel like we’ve done our job.

When we are looking back at our initial tribe, when we said, “Hey, what would we do differently?” one of the big things was, “I wish we would have taken more time to align and qualify and agree on our expectations.” We always say more important than the rules are the rules upfront – the how much, the how long, then what, and what if; all those things you don’t necessarily want to talk about or you feel like you don’t really need to – well, you do, and TribeVest helps you do that in a very fun and systematic way.

Essentially, what we’ve done is we’ve mitigated emotion by making sure that you’re taking care of those things upfront. I think you’re picking up on it. Our main value here is we keep the relationship the main priority – more valuable than any of the deals you’re going to be getting done. It’s more valuable than any of the deals or anything are those relationships. Anybody that’s been around long enough or been in the business long enough would have a hard time arguing that.

So this platform is designed for you to come in, align, assemble, agree, and then all those other things that are out there, but we’ve just streamlined them. We made them super easy, we’ve automated. You can file for your LLC in all 50 states. A really unique thing, at least for business partnerships, is once you have your EIN, your LLC, you can open up an FDI business bank account online with your partners, and have access to this tribe view dashboard with all your documents, all your banking activity, your balance. You can propose deals, you can discuss those deals, vote on those deals. So just a true collaboration platform that happens to have the entity formation and the business banking part of it too.

Theo Hicks: Thanks for sharing that. I understand a lot better now what you guys are doing over there. So your company name is TribeVest, so you obviously have a massive network, a massive tribe. I want to transition now to talking about the Coronavirus. So what are the people in your tribe thinking about this right now and how did things affect their investing, their jobs? You mentioned that a lot of people who do this are also working full-time day jobs? So can you just walk me through where your head’s at and where your tribe’s head is at currently?

Travis Smith: My tribe aside, what are we seeing out there across our network and our community is really interesting. I think one of the things that we’re seeing is, we’ve seen a surge in registrations, just over the last three weeks since this happened, and we’re attributing that to a couple things.

First, I think people are thinking about ways to connect with people they care about, and knowing that we can’t do that physically, we can’t do that or get together and socialize in person, we’re figuring out ways to leverage technology platforms that bring us together, and TribeVest also does that. My brothers and I, our tribe, not only is it the reason why we’ve been able to build wealth and be in the position we are, but it’s also our most favorite thing we do together. We’re spread all over the country and it’s what brings us together. It’s the reason why we’re talking on a weekly basis. So just an interesting thing that we’re seeing is this surge in registrations.

I think the other thing that we also empathize with is there’s this mass consciousness happening right now. It doesn’t happen all the time, and usually, it happens during these moments of crisis, especially global ones, where we’re all in similar situations and observing the same news and have the same fears, and it’s an incredible time to rethink your future. Like my brothers and I, during the last financial crisis, we didn’t want to be a slave to our paycheck, we didn’t want to be dependent on our 401(k) on Wall Street, and everybody we knew that was independently wealthy and had true financial freedom was investing in real estate, but we didn’t know how to start.

That’s one of the main things, Theo, that TribeVest enables people to do. It gives people the ability to start; you can form with people you know, like and trust. So there’s confidence and safety in numbers, and then being able to pull capital in a manageable and monthly way, is super powerful.

So one of the things that we do is, even before you form your LLC, or before you open up a business bank account, before you formalize, we give you the ability to start contributing capital in parallel together. So I’m putting $500 a month or $1,000 a month into my personal FDIC savings account. But, Theo, you’ve agreed to that too, and so has Sue and so has Jeff, and we all log into the same dashboard, and we can see collectively how much capital we’re pooling, so that when opportunity does knock, when a deal does come across our table, we have capital and we can answer the door and the opportunity.

So that’s one way that our tribes are taking advantage of it. While everybody else is panicking and selling, our tribes are pulling capital in a manageable monthly way so that when the time is right, they’ll be in a position to take advantage of great deals and build wealth that way.

Theo Hicks: Is there anything else as it relates to your business, your dealings and the Coronavirus that you want to mention before we sign off that you haven’t talked about already?

Travis Smith: Yeah. I think we touched a little bit about it – from change comes opportunity. And the winners of the next year, two years or three years, whatever this is going to look like, are going to be the ones that have capital and are able to reinvest or invest in different opportunities that come from this change. No doubt, we don’t know what this is going to end up looking like, but things have changed, which again means there’s opportunity. So just keeping that mindset and always looking to grow for that opportunity.

Theo Hicks: Perfect. And then where can people reach you to learn more about TribeVest?

Travis Smith: Tribevest.com. They can follow me at @TribeTrav at Twitter. We’ve also built a landing page for your audience at tribevest.com/bestever, and we’ll have special information for them there.

Theo Hicks: Perfect. Well, Travis, thanks again for joining us today and telling us about your platform TribeVest, as well as your thoughts on the Coronavirus. So just to summarize – and I’m pretty sure I fully understand how TribeVest works now – it’s a collaboration platform for investor groups. You call it the operating system and banking platform designed for real estate investors to pool resources and capital. Basically, I, me and a few friends have an idea of a business idea, or maybe we just have a particular deal that we want to do, we don’t know exactly how to get started, we can come to TribeVest and they can help us with all of the things that we need to do to set ourselves up for success including, it sounds like, strong focus on creating an upfront business plan with the correct rules, the correct expectations and the correct vision, and basically help us facilitate that deal.

You mentioned how the idea was born from the 2008 recession, and that you realized that you needed capital to break into real estate. So rather than focus on finding deals, you focused on ways to get capital, and you and your brothers each agreed to do $500 per month, and that’s how the business started. Then what you also mentioned, that I really liked, is that the one thing that’s more valuable than the deals and really anything else are going to be the relationships. You try to focus on that a lot at TribeVest.

Then more COVID-related, you mentioned that you’re seeing a surge in registrations over the last three weeks and you attribute that to number one, people needing ways to connect virtually because they can’t do it physically in person. And then also, the fact – and this is a very true point – that everyone’s really in the same situation; the news is the exact same for everyone, it’s always about Coronavirus. So everyone has the exact same fears, which means it’s a great time to rethink your future and what you are going to be doing once this eventually ends, and that the winners of the next few years and after this ends are going to be the ones that have capital to invest in the different opportunities that come from this change. Obviously, that starts with, as you mentioned, the most valuable thing, which is your relationships and your network.

So again, Travis, thanks for joining us. Best Ever listeners, as always, thanks for listening. Everyone, stay safe, have a best ever day and we will talk to you tomorrow.

Travis Smith: Thanks, Theo.

JF2050: Managing and Dealing During The Coronavirus With Shannon Robnett

Listen to the Episode Below (00:18:04)
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Shannon has 25+ years of real estate experience owning 500+ properties, experienced builder, and syndicator. His family has always been in real estate where dinner conversations consist of real estate deals. In this episode Shannon shares the ways he is approaching his investors and residents to make sure they are all taken care of and his business stays safe. 


Shannon Robnett Real Estate Background:

    • 25+ years of real estate investing experience
    • Developer, builder, and syndicator in multi-family and industrial
    • Currently owns 500+ properties
    • From Meridian, Idaho
    • Say hi to him at: www.shannonrobnett.com  



Best Ever Tweet:

“Communicate early and often” – Shannon Robnett


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

Shannon Robnett: Good, Theo. How are you?

Theo Hicks: I’m doing good, thanks for asking, and thanks for joining us. Today, we’re gonna be talking about the coronavirus, which seems like everyone is talking about today.

Shannon Robnett: That’s for sure.

Theo Hicks: So we’re gonna ask Shannon how the coronavirus is impacting his business and the things that he is implementing in order to combat it. But before we get into that, let’s go over Shannon’s background. So he has 25+ years of real estate investing experience, he’s a developer and builder of all types of real estate, as well as a syndicator; he currently owns 500+ properties, and he’s from Meridian, Idaho, and you can say hi to him at his website, which is shannonrobnett.com. So Shannon, before we start talking about the coronavirus, do you mind telling us a little bit more about your background and what you’re focused on today?

Shannon Robnett: Sure, Theo. So I grew up in a real estate family, so I watched my parents do deals at the kitchen table and talk about if we sold this, we could buy that. My mom is a third-generation realtor, my son is a fifth-generation realtor, and my dad is a general contractor. So I kind of got that growing up. I didn’t really see that there was much option for me with that background. So I’ve always been about doing deals and putting things together, and we’ve just been able to continue to grow a business that meets the needs of our clients, meets the needs of our community. So with that, it’s definitely kept me busy and given me a lifetime’s worth of work.

Theo Hicks: Perfect, thanks for sharing that. As you mentioned before, you’ve started — so you’re a builder and developer. So you build all types of properties – commercial, industrial, multifamily, retail, but then you mentioned that you don’t own those. But you own 500+ properties. What are those? Are those multifamily, or are those something else?

Shannon Robnett: Currently, we just finished 180 doors. We’re in process, right now, of constructing one particular project of 191. We’ve got another project at 36, and then we’ve got two other projects that total another 200 doors that are under construction. So we develop those, we find the ground, we put the deals together. I also own industrial space. We’ve got multi-tenant industrial buildings all over the valley. But the retail business, the office business is just a little bit different business, and is just one that I’ve chosen to stay out of, and we’re seeing a decline in retail, we’re seeing a decline in shop space, and things like that. So that’s just an area that I’ve stayed away from.

Theo Hicks: Okay, and then all of the other multifamily projects you were talking about, will you then own those or manage those afterwards, or do you then sell those?

Shannon Robnett: Our goal is to build them up and then sell them, essentially to another one of our entities that is a syndication entity. I also do have a property management company, so I keep real tight control on what value my tenants are getting, making sure that we’re more concerned about the bottom line, giving the tenant the experience that they’re willing to pay for, because we all know, at the end of the day, that affects the value of the property through the cap rates. So we’re always, always managing our own.

Theo Hicks: So, for your syndication business, are you raising capital from other people to fund those deals?

Shannon Robnett: We are raising capital from other people. We’ve got a pretty good network. Obviously, we’re always willing to have other people join our projects, but we’ve been pretty good with that. Myverticalequity.com is where our capital raise is centered out of, but our investors that are on our syndications are in the mid-20s for their returns, in their IRR.

Theo Hicks: Okay, yup. So the reason why I was asking you all of those questions is I wanted to see what you were all involved in, so I can figure out what type of questions to ask with the coronavirus. But it seems like you’re involved in everything, so can we take this really in any direction. So let’s start with property management. So you said you have your own property management firm. Before we start talking about communicating with tenants, let’s talk about the operational perspective. I know a big thing right now is collecting rent. So we’re recording this on April 8th. So April 1st was the first of the month, when rent was due. So maybe walk us through how that went, what type of things you did to make sure you were able to collect the rent, what types of concessions that you guys came up with for your residents, or really just walk us through what happened.

Shannon Robnett: Okay. So when this whole thing started coming out, we sent out a memo to our people. It was about the 25th of March, and we hand-delivered it, actually put it on everybody’s door, letting them know that we were interested in understanding if they were affected by it and if they could let us know that there had been some change; maybe there was a letter from their boss or their unemployment filings or medical notice, we were willing to work with them.

So our approach was always to reach out to our tenants first, because we want to maximize that experience for them. So contacting them about this early really put us ahead of the curve, because we started hearing rumblings, we started having tenants come to us, and everybody is afraid of the unknown. They don’t really know what’s going to happen next. They don’t know how secure their job is. So just being able to come and talk with us.

Then when it progressed a little further and we started seeing states shut down and things like that, when we closed our amenities, we immediately told the tenants that in April, that we would not be collecting for the RUBS, nor would we be collecting for the cable, and the internet. So the tenants felt like they were being compensated for not having the amenities. So from there, we were able to really build a bridge with them and begin to continue the conversation. Moving forward, we had about five people come forward and most of them were interested in how this month was going to go, but how next month was going to go. So we were able to build a bit of a forbearance where we reduced the rents here, and then extended them by another year in the property, and spread out the discounted rent over that time period. So they were able to feel like we heard them, they had a choice in how that was going to go, we weren’t looking for a raise for next year, but we were able to spread out the discount of this month and next month over that period of time.

Theo Hicks: Okay, so we’ve talked about the residents side of things. What about your investors? So how did you handle communication with the investors? So these are deals where you, obviously, raise money from people, they’re used to getting their returns, they’re used to things just going as normal. From here on out, you really don’t know what’s going to happen by the end of the month, so what types of conversations, emails, phone calls have you had with them?

Shannon Robnett: Well, Theo, we used the same philosophy with our investors as our tenants, and that’s  communicate early and often. So we reached out to them with an email, letting them know that we didn’t know what was going to happen. However, we reminded them that we did have cash reserves that we could pull from, that we weren’t in trouble of not making our payments this month, nobody had issues with any of those things. And really before they ever got concerned, we took the proactive step with them and just let them know there was no reason to be concerned. And then after that, as always, we’ve really tried hard to stay in front of them, and most of our investors aren’t that concerned, because we are always communicating often.

Theo Hicks: So you sent an initial email. After that first email, how often were you sending emails? Every day, every week?

Shannon Robnett: We gave them an update on the fifth, and then we’re starting to do a weekly wrap up. Hey, here’s how many people we had come in looking for some assistance, here’s what we think to do, here’s how we’re going to handle it, here’s how that would potentially affect cash flow. So we’re going to start doing that on a weekly basis as we move on, just so that we over-communicate and don’t run into issues.

Theo Hicks: Okay, and then what about on the opposite side. We talked about deals that you already completed, that you have a property management company, have tenants, have investors. You mentioned that you’re working in a few development deals. Are those being impacted at all or are those still on schedule, everything is going smoothly?

Shannon Robnett: Well, construction is considered an essential service. So our contractors have been on site and moving forward as scheduled. It has given people a time to pause, as far as jumping into our deals, but it’s also been a funny time because we’ve seen a lot of people wanting to get out of the stock market and coming to us and saying, “I decided I want to invest with you guys now.” So we’re seeing both sides of the spectrum there, where we’ve got people coming into our deals faster than we thought, on stuff that we have shovel ready that we’re moving forward on. Some of the stuff that’s in planning that’s out six to nine months I don’t think is going to be bothered, but right now, we don’t know.

Theo Hicks: Okay. As you mentioned earlier about forbearance – are those conversations you’re having with your lenders?

Shannon Robnett: No, we’re not in a position where we need to have a forbearance conversation with our lenders. We’re just doing that with our tenants and we’re structuring it… Because everybody’s hearing that word in the media, and tenants like to get what everybody else is getting. So having them talk about, “I’ll give you half off of April and half off of May, and then we’ll add it on to June and July and spread it out over the next 12 months. And maybe that requires a lease renewal, but we’re great [unintelligible [00:10:32].28].”

Theo Hicks: Alright, and then another question. Obviously, they recently passed– it was last week, I don’t know time is like a time warp right now…

Shannon Robnett: Right. You’re running in quicksand.

Theo Hicks: I saw a funny meme – January is 31 days long, and then February is really short, it’s 28 days long, and then March is 6000 days long. Something like that.

Shannon Robnett: Right, right. Exactly.

Theo Hicks: But anyways– so they passed the CARES Act. I was wondering if you have investigated it or are taking advantage of any of the loan programs – the EIDL, the PPP loans at all?

Shannon Robnett: Yeah, we have applied for both the PPP and the EIDL loan program, and the reason that we’ve done that is because our employees were really excited when we applied for the PPP program, because they knew that there was an opportunity for additional protection for them, and it also puts us just in a stronger position on a balance sheet to have those funds available if we need them. They’re grants that can be paid back, but if you’re not applying for them, you’re definitely not going to be eligible. So having the opportunity to get the cash while it’s available is definitely, I think, prudent business.

Theo Hicks: Yeah, and then for the EIDL, that $10,000 advance is considered a grant. I don’t think you got to pay that one back, is that right?

Shannon Robnett: That’s my understanding as well.

Theo Hicks: It’s confusing, but it’s my understanding too.

Shannon Robnett: Yeah, and that’s the thing. We’ve applied for this and I’ve stayed in touch with our lenders on this. Everybody’s trying to get to the bottom of it. I know that– typical government, they say, “We’re going to do this,” and then they throw it off onto another agency that’s got to sort out how that actually gets implemented. But from the standpoint that cash flow right now or cash in hand right now is what everybody’s looking for, any opportunity to increase that and have that to work with later is definitely a great option.

Theo Hicks: Okay then the last question, I’ve been asking this to everyone who I’ve talked to this about… Where do you see your industry – let’s just call it, I guess, development – in six months or a year from now or once this is all over? Do you think it’s gonna snap back to normal or do you think there’ll be any changes, and if so, what do you think those changes will be, and then are there gonna be opportunities, just like there were after the 2008 recession that people should be aware of?

Shannon Robnett: I think that we’re going to snap back fairly quickly. The biggest difference between right now and 2008 is that there’s inventory shortages everywhere. So with the inventory shortages, I think we’re going to see it snap back pretty quickly. I don’t think that we’re going to go into an 08′ type recession, because that had a lot of product available. But I do see that there are some people that shouldn’t be in real estate, that are going to get removed fairly quickly… But those of us that have been here for a while that are about staying the course, I think you’re going to be just fine.

That’s the way it is with development. We’re always looking 12 to 24 months down the road anyway. So I see that we’re going to see some positive changes in how the lending market is going to respond to this, because I think that, like most things, lending has been getting a little bit loose and a lot of people that maybe shouldn’t be doing this are getting in the waters which is making it a little muddy.

Theo Hicks: Yeah. I think that’s a common theme that everyone thinks that this is going to, in a sense, weed out the fakers, so to speak, that shouldn’t be investing in real estate. So I guess that’s probably a plus plus, once they do leave and they’re trying to sell their properties. Those are opportunities for people to take advantage of.

Shannon Robnett: Yeah, like Warren Buffett said, “When the tide goes out, you can see who’s swimming naked,” and I think that there are going to be opportunities, but I don’t believe that they’re going to be the opportunities that we saw in ’08, ’09, because most people, if they’re not in a cash flow position right now, they’re not far from it, because they’re not dealing with the vacancy that would require a lot of discount in multifamily. Single-family is still selling very well. In most areas, there’s not enough inventory of that. So if their single-family product comes back on the market, they’ll get snapped up pretty quickly.

Theo Hicks: Alright. Well, Shannon, I really appreciate you coming on the show today and sharing your background, first of all, but also how the coronavirus is impacting your business and some of these solutions you’re putting in place. Just to summarize, from a resident-tenant perspective, you mentioned that you initially sent out a memo, hand-delivered memos – first time I heard about that – to all of your tenants asking them to let you know if they’re going to be affected financially by the coronavirus.

So you reached out to them first and early; it was a theme with communication. You mentioned that once you closed the amenities, you told residents that you would not be collecting for the RUBS or internet or cable. So they felt like they were being compensated for not having the amenities, because as everyone knows, those aren’t a monthly fee or anything. They’re just built into the rent. I thought that was a very solid approach. And then, you mentioned that people who needed help, you extended their lease by a year, and then spread their delayed payments over that timeframe. So that was your repayment strategy.

For the investors, you mentioned that you sent them an email on 5th of April that you don’t really know what’s going to happen, but here’s all the measures we have in place that makes us think we’re going to be okay. We have reserves, we’re not getting any trouble paying any expenses. So just like the tenants, you acted quickly. You mentioned that you’re also doing a weekly wrap up emails. I really like that. So just mentioning, “Hey, here’s what happened this week, here’s who needed help, here’s we’re going to do, here’s how it’s gonna impact the financials, but we were still okay.” So just trying to stay in front of them as much as possible.

You mentioned from a construction perspective — I didn’t know that construction was considered an essential service, so you’ve got your contractors are still there working. You got some people who are not interested in investing, but then you’ve got more new people coming in who want to get out of the stock market because of how poorly that’s been performing.

You mentioned that you applied for both the PPP and the EIDL loans, that your employees were excited about the PPP because of the extra protection that they’ll get, and that it’s good to just to have cash right now, because you have stronger balance sheets.

We talked about your post COVID predictions, that you don’t think it’s gonna be as bad as 2008 because the fact that there are inventory shortages right now, and that you think that once it’s all over, people who shouldn’t be in real estate will have been kicked out, and that there’s gonna be positive changes in lending and lending requirements because it’s been a little loose, which just allowed these people to come in… And again, that you don’t think it’s going to be like 2008 because vacancy was much lower then and inventory was much higher then. So I think that covers everything we’ve talked about.

Shannon Robnett: That’s it.

Theo Hicks: Again, really appreciate you coming on the show and being willing to talk about this stuff.

Shannon Robnett: Thank you, Theo.

Theo Hicks: I’m glad to hear that you’re doing okay. I’m glad to hear that you’re safe. Stay safe. Everyone listening, stay safe. Have a best ever day and we will talk to you tomorrow.

Shannon Robnett: Thanks, Theo.

JF2026 : Analyzing Storage Properties With John Manes

Listen to the Episode Below (0:26:23)
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John is the CEO and Co-Owner of Pinnacle Storage Properties and Pinnacle Storage Managers. John gives an example of how he looks at a deal and determines if it’s worth his time and money. His goal is to buy a storage property that can run without the necessity of him being there. You will learn the formula John uses to evaluate each property he finds before making an offer. 


John Manes Real Estate Background:

  • CEO and co-owner of Pinnacle Storage Properties and Pinnacle Storage Managers
  • Has been involved in self-storage since 2005, has raised over $35 million in private equity to build a $100M+ portfolio
  • Based in Houston, TX
  • Say hi to him at Pinnaclestorageproperties.com 


Best Ever Tweet:

“Can you be successful? Yea, but you’ll trip over yourself doing it and your going to make mistakes that might be very costly” – John Manes


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

John Manes: Doing great, Joe. How have you been?

Joe Fairless: I’m doing well as well, and I’m glad to hear you’re doing great. A little bit about John – he’s the CEO and co-owner of Pinnacle Storage Properties and Pinnacle Storage Managers. He’s been involved in self-storage since 2005, has raised over 35 million in private equity to build a 100 million plus portfolio. Based in Houston, Texas. With that being said, John, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

John Manes: Sure. I started my career in retail, spent 17 years working for people like the Walmarts and Kmarts of the world. Got burned out on that, and applied to a job with self-storage as a district manager, with this little tiny storage company called Uncle Bob’s self-storage, the fourth largest self-storage company in the United States, and who are now Life Storage.

Ended up doing so well they promoted me to regional vice-president. I started with them in ’05, got promoted in ’08, and from there I went on to be the COO of a privately-held self-storage company here in Houston, that had 55 self-storage properties. I did that for about five years. Four years ago I went out on my own, create Pinnacle Storage Properties, and currently have 20 properties under ownership, two that we’re raising money on right now, and we’re getting ready to partner on eight others.

We have ground-up development on top of that around Texas, and a conversion deal in Temple, Texas. So by April we’ll be 32 properties.

Joe Fairless: Wow. The conversion deal – what are you doing with that?

John Manes: So we’re buying a 25,000 sqft. single-span building that used to be a youth sport building. We’re putting a mezzanine in it and an elevator for two stories, so it’ll be a 50,000 sqft. footprint right off the bat. It comes with four acres of land, it’s right on I-35 at the exit, in Temple, Texas, just north of Austin.

We were brought that deal off-market. It’s under contract – the building and the land – for $18/sqft. So we can’t build it for less than $35/sqft. It’s one of those ones that you find every now and again, and it was brought to us by another storage operator that was able to do the conversion, but not raise the equity or be able to sign on the debt, because it’s such a large project… So we partnered with him, and here we go. We’re already in the process of permitting and everything like that right now.

Joe Fairless: The youth sport building, from the ones I can think of, I wouldn’t think that a conversion would be too much to do, because a lot of times they’re just boxes with some dividers, and maybe some nets and stuff. Was it tough to do? I know the other operator was involved on that more so than you, but  do you know the details?

John Manes: So we haven’t started construction yet. We’ll probably start construction in the next 30 days… But to your point, it is a single-span building, which means there’s no pile-on posts in the middle. It’s just one big, huge, open room. The challenge to that is we’ve gotta put a second floor in the middle of it… So you will end up with those posts and everything on the first floor. But we’ve got some great construction people that we’ve dealt with for the last ten years, that have done all that kind of stuff. So from that standpoint, it’s a matter of getting the right engineer, the right architect, and then getting the right construction guys, put all them in place and let them do their magic. Rely on the people that know what the hell they’re doing, right?

Joe Fairless: Yup.

John Manes: So the painful part of that is going through rezoning and permitting and things like that, because you’ve gotta get it switched to be storage zoning versus an operating business like a sport athletic center would be.

Joe Fairless: In this case, when the operator came to you all and said “Hey, I have this opportunity. Here’s what I need”, what are the first five or so questions that you asked the operator, to just quickly assess if you should have more conversation about  it?

John Manes: That’s a great question, because we do some creative things on partnerships, and we get approached a lot on these types of projects… And mainly the reason people approach us is because they want somebody to help them raise equity. So to me, I always say “If you’re just looking for me to raise equity, I’m gonna raise  equity on my own deals.” So if you’re looking to operate it afterwards, or you’re looking to just put non-recourse debt on it with no risk on debt…

They always say there’s four components to a deal – you find the deal, you raise the equity on the deal, you sign on the debt, and then you operate the deal after it’s done. If you’re looking for me to just raise equity on the deal, it just doesn’t have much interest to me, because I can do that for my own deals, and I have 100% of the deal.

So the questions I ask, most importantly, is what are their needs? What are you looking for? What do you need help with? And I know you’ve been doing these for a long time, and you’ve probably had storage people on your podcast, but the reality is not everybody knows how to run and operate storage like they would in single-family or multifamily environments.

So they come to us for those needs. If I ask them the question of what they need and they need help operating it and they need help raising the money, then I perk up a little bit more. So I try to find out what their needs are. Because we’re a full-service shop, right? One of my business partners, Eric, handles all of our construction-related stuff, and he’s navigated the cities probably 15 times already… So he’s got those reps that have been painful to other people for the first go-around. He knows how to navigate those. So if they need help with construction, that gives us an idea. If they need help with raising money, that gives us an idea; or if they need help signing on debt, or if they need help managing it when it all said and done… Those kinds of things – that’s really when I perk up.

Joe Fairless: That’s helpful to know. So that’s from a partnership standpoint. What about from the deal standpoint? What are some main questions that you’ll initially ask or information you’ll initially ask just to get a sense of the opportunity, or if there is not an opportunity?

John Manes: I ask the basics – what do they have it under contract for, how many square feet is it… You asked earlier what is our specialty – our specialty is buying under-managed, under-enhanced, under-expanded self-storage property. So we buy the mom and pop. That’s what we’re known for. We’re not known for ground-up development, we’re not known for conversions, things like that. We’re known for fixing the mom and pop up, and running it better, and adding value that way.

So my questions generally revolve around “How many square feet is it? Is there room for expansion? What type of sales volume are they doing on a monthly basis? Why type of ancillary income do they do?” All the basics to see — because we’ve underwritten 350 self-storage properties in the last 14 months, so we can look at a deal and do the math in our head to find out whether that’s a good deal or not… So by asking those basic questions, we’re not class A cashflow buyers that have a self-storage property at the corner of I-10 and 45 in Houston. That’s not our bread and butter.

So when I ask the basic questions, “Where is it at? How big is it? What’s it doing per month? Is there room for expansion? Who owns it?”, those are all the basic questions that I ask right out of the box. On the conversion deal, I wanted to know how many square feet it is, how much land comes with it, what’s the potential for doing expansions; then if we do expansions, do we have to have detention, do we have to put a detention pond it, which eats up an acre, an acre and a half of your land…  All the things that allow you to know whether the purchase price equals the amount of revenue you can create.

Joe Fairless: Okay. For the detention pond, when would you not need one, versus need one? Generally.

John Manes: We focus on secondary, suburban, and some tertiary markets. So because of that — I live in Katy, Texas, which is a suburb of Houston. Almost everything around here is going to be required to have a detention pond to it, because of all the flooding from Hurricane Harvey, and things like that… So they want you to hold back as much water under your property as you can, for a temporary amount of time, so it doesn’t flood your neighbor’s property.

So when you’re dealing with suburban markets, chances are you’re gonna have to have some type of detention. When you get into the secondary markets, it becomes a little looser, and it’s not 100% of the time that you need detention… But in those areas, they might want you to have a fire hydrant on your property instead of detention. So if you have a fire, they can put it out, things like that. But then when you get into the tertiary type of markets, there’s so much–

Joe Fairless: Wild West?

John Manes: Yeah. There’s a lot less regulation. But everything’s relative. Inner city environments, urban core, you’re getting $1,50-$2 per square foot on rental rates, but you have a lot heavier cost in detention and things like that. Then when you get to suburban areas, you’re getting $1,10-$1,20 per square foot, and you’ve got a little bit less. You go to secondary markets, you’re getting a dollar, and you have less… And then you get out to tertiary markets – you’re getting $0.75, but it’s kind of a free for all. But to go build out there, it’s harder to make your numbers work, because you’ve still got the same building costs… So this is what you do downtown, urban market. Your buildings will cost you the same amount of money.

So it’s all relative to how you buy, how  you build, how you expand, but it all plays around what the zoning and the cities will allow you to do or not allow you to do.

Joe Fairless: When you’re initially qualifying a deal and you said you can do the math in your head, if  it’s a good deal or not and just run some rough numbers by asking those questions about what’s it under contract for, square footage, room for expansion, monthly sales volume, other income… Would you just run through an example? You can make it up, or a real one, and I would love to hear the thoughts that are going on when you’re thinking about “Hey, here are the numbers. It does work/doesn’t work based on this.”

John Manes: Okay, but I’m warning you, Joe, you’re getting inside of [unintelligible [00:12:31].23]

Joe Fairless: [laughs] Well, as long as we can exit out of it… We’ll exit out of it quickly thereafter.

John Manes: [laughs] So to me it’s pretty easy… In storage I’m gonna use $20,000/month, which is $240,000/year. But how I equate it in my head, pretty easy, and it’s not a perfect math, is if you’re doing $20,000/month, then you’re looking at a property that’s doing $20,000/month, you’re gonna pay around two million dollars for that property.

Joe Fairless: Why?

John Manes: I’ll just use basic math – you have 240k a year, your expense ratio on a small property like that is typically around 50%. 240k divided by two is 120k. If you divide that by a 6% cap, it’s two million dollars.

Joe Fairless: Okay.

John Manes: So basic math on a 20k a month – there’s not ten months in a year, so it doesn’t equate perfectly to two million dollars, but it does equate to a 6% cap. And then secondary, suburban type of markets, like a Katy, Texas, you’re sitting around a 6% cap. Now, if I’m looking at a tertiary market that has a population of 10k people, it might be a 1,8 million dollar buy on that 20k/month, because it’s a 7% cap. So what I do is I start with — if it’s doing 20k, the purchase price should be around two million. If it’s doing 10k, your purchase price should be around 750k. So when you go down in monthly sales volume or revenue, the smaller the number gets below 20k. Above 20k, when you get to 30k, your purchase price is gonna be about a 3.3 million dollar. And the reason is because your expense ratios in storage stay the same, whether you have 50k/month or whether you have 20k/month; they’re relatively the same.

We buy off a cashflow, so because of that, when you’re doing 30k/month it’s not a 50% expense ratio, it’s 42% expense ratio. So because of that, you’re paying more for the property because it has more cashflow that goes along with it, and you’re trying to stay about the same.

So if you come to me and you go “Hey, I’ve got this property, it’s in Tyler  TX” and I go “How big is it?”, you go “It’s 40k sqft.” I go “What are they doing?”, you go “They’re doing 33k/month”. I go “Okay. Ancillary income?” You go, “No, they’re not doing any ancillary income.” U-Haul? No. They don’t sell, boxes, insurance? Nope. I go “Alright, so let me guess… You have that property under contract for 3.5 million dollars?” and they go “No, I have it under contract for 4.2.” I go “Well, you’re paying too much.” Just like that.

Joe Fairless: Yup.

John Manes: So to me it’s an equal balance inside my head. You said you wanna get in my head.

Joe Fairless: Yeah. And I reserve the right to exit out whenever I want… [laughter] But did I heard you right, that the expense ratio in storage stays the same, regardless of how many units you have?

John Manes: That’s correct.

Joe Fairless: So if I buy a 100-unit versus a 1,500-unit, the expense ratio is gonna stay about the same?

John Manes: Yes and no. If you brought me a 100-unit property that did not have any land for expansion, that was doing $10,000/month, I would not buy that property. And the reason I would not buy that property is I do not wanna buy a job. So you can get an expense ratio in that property of 25% or 30%. You’re the one answering the phone, you’re the one meeting the customer out there, renting this space, and showing this space and so on, and you have no payroll. And then you have no website, you have no marketing… Right? So all of that expense ratio gets driven down.

But if I’m going to buy that 100-space property and it comes with 3 acres of land, and I can add another 40,000 sqft. to it, I’m going to spend 50k/year in payroll, whether it’s 400 spaces, or… I’ve got a property in Nacogdoches that’s 1,000 spaces, and we run that property with 2,5 people, versus 1,5 people. So we spend about 85k-90kin payroll in that store, versus a 400-space property that has 1,5 people to it and they have 50k work of payroll. So everything is relative, and there is a point that you have to add labor to it, or take away labor from it…

But if you’re looking at running and buying a self-storage property that is an investment asset, like most of your listeners are looking for, then the expense is relatively gonna be the same from a 250-space property all the way up to an 800-space property, which is the meat and potatoes of the self-storage industry.

Joe Fairless: Based on your experience in self-storage, for someone who is looking to get started in self-storage, what is your best advice ever for them?

John Manes: My best advice – and I give this all the time, because we get a lot of people that wanna get into the industry… My best advice to them is find somebody that already knows how to operate these things. I don’t think the operators of self-storage get enough credit against the value-add of these assets.

Let’s say that somebody in your audience that’s listening right now is a finance guy, or a broker that can find these things, or something. Go out and find somebody — when I meet people one-on-one, I say “It doesn’t have to be us, but go find somebody that knows how to operate these things…”, because that’ll make you more money, and it’ll make you more money faster. Can you be successful? Yeah. But you’ll trip over yourself doing it, and you’re gonna make some mistakes that might be pretty costly.

Joe Fairless: What are some common mistakes that someone with that lack of experience would make, that an experienced operator wouldn’t?

John Manes: Hiring the wrong website people. A lot of these guys wanna just go to GoDaddy, create their own website, it doesn’t interact with your software, there’s no prices online… Things like that. And Google doesn’t give you any credit for not having any content, or anything. Believe it or not, 80% of our customers touch us online some way, whether it’s they look at stuff on their phone, and then drive to our store, or they look at prices online on their PC or  on their telephone… They touch us somehow online. And a lot of them try to be cheap, because they’re doing 10k/month and they don’t wanna spend $300/month on having an effective website. But your effective website drives demand to your property. The more demand you have, the higher your prices can be, and eventually it pays for the $300.

Joe Fairless: What’s a URL to one of your websites?

John Manes: Mystorageplus.com.  It’s a many aggregator type of site that has [unintelligible [00:20:24].17]

Joe Fairless: Okay, cool. We’re gonna do a lightning round where I’m gonna ask you some quick-hitting questions. Are you ready for the Best Ever Lightning Round?

John Manes: Hit me!

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

Break: [00:20:40].03] to [00:21:30].27]

Joe Fairless: Alright, John, what deal have you lost the most amount of money on?

John Manes: The good news is I’ve not lost any money on any deal, so I can’t answer that. Have some of them gone sideways? Sure. But we’ve not lost money on it, and that’s the beauty of storage. It tends to be recession-resistant. We had a project that we bought 20,000 sqft, we expanded 63,000 sqft, and the construction company was eight months behind delivery on the product. So we were paying the mortgage rate months without having cashflow, we ended up in a lawsuit with them… That’s the bad news.

The good news is we were able to restructure that deal, get an extension of our interest-only payment on our loan, we borrowed an extra $150,000 from our investors in the form of a loan to be able to support the interest-only payment for an extended period of time, and now we’re back on track.

Time healed that wound, and so did increase in occupancy. We didn’t lose money on it, we just didn’t make as much money as we thought.

Joe Fairless: What was the result of the lawsuit?

John Manes: We settled.

Joe Fairless: And knowing what you know now about that experience, when presented a similar situation in the future, how would you approach it a little bit differently?

John Manes: Honestly, I don’t know that I would have approached it differently. I’ve been in a relationship with the contractor for eight years, so… The obstacle became that the construction company grew too fast and took on too many projects at one time, and ours was one of them. So I personally could have never predicted that, particularly knowing the individuals involved.

So doing it differently – I’d have to say pick a different contractor, but how do you know that, particularly when they’ve done a tremendous amount of work for you in the past, right?

Joe Fairless: Yeah, that’s a tough one to identify. Best ever way you like to give back to the community?

John Manes: I have a servant’s mentality. Right now I’m in the process of creating a mastermind group of professional athletes. The reason that we’re doing that is because like myself, most of these guys grew up poor, and all of a sudden they have money, and they just don’t know how to handle it or what to do with it. I like to educate people on how money works, from the simplest form of how to compound your money, to how to create a budget, and all those different things that people like Dave Ramsey teaches.

I love to give back in the way of the knowledge that people have given my and us as a company. We teach our store manager team how to go buy a self-storage property if they want to. So we try to take care of the people that take care of us, at the same time as the people that just don’t know. You hear a lot of people say “If I knew 20 years ago what I know now…” Okay, well, go teach somebody that.

Joe Fairless: Yup.

John Manes: That’s why I volunteer a lot for these podcasts. I have rooms full of people that I teach, not only storage, but basic financial principles around credit scores, and how credit works, and all that kind of stuff. I love giving back through teaching, and the knowledge that we’ve been blessed to be exposed to.

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

John Manes: They can call me – 210 818 1496. They can go to PinnacleStorageProperties.com, or they can email me at john [at] johnmanes.com. They can go to my YouTube channel and watch a bunch of my YouTube videos that talks about a lot of this stuff, why storage is a good investment, and all the stories about how me and my partners grew up with nothing, and have created something. All that is on YouTube.

Joe Fairless: Well, John, thank you for being on the show, talking about self-storage, and in particular talking about a deal that you’re working on, and also how you qualified that initially… And then taking a step back, how you qualify opportunities, and the questions that you ask. And then I’m officially jumping out of your head… [laughter] So you can be one with yourself, and I can go about my way, too. But I really did appreciate your conversation, and I’m grateful that we talked.

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

John Manes: Thanks, Joe. I appreciate it, buddy.

JF2025 : The Differences Between Commercial & Multi-Family With Anthony Scandariato

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Anthony is the Co-Founder and Managing Principal of Red Knight Properties, a value add multifamily and mixed-use investing company. Anthony shares some insight on purchasing commercial real estate and explains the differences between multi-family and commercial properties. 

Anthony M. Scandariato Real Estate Background:

  • Co-Founder and Managing Principal of Red Knight Properties, a value add multifamily and mixed-use investing company
  • They have over $500 Million of Commercial Real Estate acquisition experience and control 9 properties
  • Based in NYC, NY
  • Say hi to him at http://redknightproperties.com


Best Ever Tweet:

“Try to find a niche.” – Anthony Scandariato


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

With us today, Anthony Scandariato. How are you doing, Anthony?

Anthony Scandariato: I’m doing pretty good, Joe. And yourself?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Anthony – he’s the co-founder and managing principle of Red Knight Properties, a value-add multifamily and mixed-use investing company. They have over 500 million dollars’ worth of commercial real estate, acquisition experience, and currently have 9 properties with their company. Based in New York City, New York. With that being said, Anthony, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Anthony Scandariato: Sure. That was a great overview, Joe. I appreciate it. And for your listeners, we’re actually right outside of New York City, based in New Jersey; about a half an hour outside of Midtown Manhattan.

Joe Fairless: Where in Jersey?

Anthony Scandariato: [unintelligible [00:01:46].29] Morristown area.

Joe Fairless: Okay.

Anthony Scandariato: So we’re pretty close to New York… And we started our company – my partner and I – about  a year ago. In terms of the acquisition experience, I worked for an institutional real estate operating company in New Jersey, where bought office buildings up and down the East Coast, where we were renting to Fortune 500 companies and doing value-add plays, but on the office side. I kind of realized that for a long-term investment strategy, or even a short-term investment strategy, that office wasn’t the best thing to be in, at least in this point in the cycle… So I kind of decided to start buying a few deals on my own, deals that I could just buy and build a track record, and then bring on additional partners and investors once some of these deals came to fruition and returns were actually realized, to feel comfortable to actually be taking the leap doing this full-time at Red Knight in 2020.

Joe Fairless: You bought office buildings up and down — what did you say, the East Coast? Did I hear that right?

Anthony Scandariato: Yeah, we bought anywhere from pretty much New Jersey, all the way down to Florida.

Joe Fairless: Okay. Purchase price ranges were what?

Anthony Scandariato: For your listeners, very big range. It was anywhere from 10 million to 287. That was our largest.

Joe Fairless: Alright… Where was the 287 property?

Anthony Scandariato: It was a building in downtown Charlotte, Wells Fargo Center. Great market, for sure, for any asset class, I would think.

Joe Fairless: How many years were you working at that institution?

Anthony Scandariato: About 5,5 years.

Joe Fairless: 5,5 years, okay. And what was your role during those years, and did that role evolve or change at all?

Anthony Scandariato: Absolutely. So I graduated from college actually in ’14, so it was essentially a role out of school; I started out as a very low-level analyst, analyzing different opportunities for the company’s investment strategies. Then I kind of evolved into taking over the acquisitions department, and also at the same time getting involved with a boutique company and seeing everything from the acquisition, to the asset management, to property management, to development, to negotiating with lenders… Almost like running your own within the shop. So a great experience, and I’d recommend it to any of your listeners who are thinking to get into commercial real estate on their own long-term, but kind of want the experience beforehand, and kind of learn from really good mentors who have been successful.

Joe Fairless: To use your words, “a low-level analyst” – what do you do exactly in that role?

Anthony Scandariato: I wouldn’t really call it low-level, maybe that was the wrong term… But more of–

Joe Fairless: Entry-level?

Anthony Scandariato: Entry-level, yeah. Entry-level market studies, feasibility reports, comparable reports… Almost like a basic form for appraising properties. And then after you master that skill, you can look at analyzing investment opportunities for the company, and presenting to the company if this is a good opportunity to pursue, and if we’re gonna pursue it, are we gonna partner on it, and who are we gonna partner with… And kind of run it soup to nuts. It kind of just evolves from there.

Joe Fairless: Talk to us about a feasibility study that you would do, just the components of that please.

Anthony Scandariato: Sure. So you would obviously do a market study, which could be broken down by obviously started with the state, and then it could be broken down by submarkets is what we call them, in certain regions in different states… And as you dig deeper – it depends what asset class you’re looking at, but you look at historical trends for vacancy, you can look at historical trends for rent growth, and average rental rates, look at trends for any new construction, any new development coming on the line, looking at historical sales data, price per square foot… For a lot of your listeners, multifamily is price per unit, and cap rate… Many different metrics to determine if it’s a good investment to underwrite and present to either a limited partner, or another general partner you’re trying to acquire the property with. Nothing else starts without that general feasibility study.

Joe Fairless: Those different data points that you were talking about are variables that are assessed… I imagine that you all had a subscription to some third-party research company or database to pull a lot of that information. Is that correct?

Anthony Scandariato: Yeah, that’s the benefit of also working for a larger company. You have the [unintelligible [00:06:25].18] which is, as you know, the largest commercial real estate information company, at least in the country right now, and they’re trying to take over more… Reis is another good resource, primarily more catered towards the multifamily… And obviously, different news cycle reports, we could speak to different brokers on historical market reports… There’s many ways to get market intel.

Joe Fairless: So as an analyst you go get this information, but I imagine that doesn’t take very long to run these reports, because you’re just logging and running the reports… What are you doing with the information as an analyst?

Anthony Scandariato: So once you’ve found that information, typically — it depends on what asset you’re looking at, and what asset type it is. For example, I was buying office buildings. Typically, they come with an offering memorandum, which is the same that you  see in multifamily properties. You go through that, verify all the information the brokers are presenting to you are correct and accurate from your third-party sources, and then putting together after that a comprehensive financial analysis [unintelligible [00:07:38].18] you can use, and also working for a larger company, they’re able to buy subscriptions to software such as Argus, which is very expensive relatively speaking to just a general simple Excel spreadsheet.

With office properties there sometimes could be a hundred tenants at the property with different reimbursement methods, and different lease expirations, and [unintelligible [00:08:03].09] and expense caps… So it’s pretty comprehensive software. I haven’t really seen an office building modeled on Excel from scratch, but if anybody’s ever done that, I’d love that template. [laughter]

So  you kind of gather all the market information, verify what the broker is presenting to you is accurate, underwriting the property in either Excel or Argus to the best of your assumptions, and then seeing based upon your return criteria seeing if it’s a good investment or not, and then kind of presenting to your internal investment committee, and then it kind of goes from there, depending upon how you’re structured.

Joe Fairless: When you’re looking at the third-party research information and cross-referencing it with the information the brokers provided to verify that it is correct, when it is not correct, what are they typically fudging the numbers or their facts on? What categories or what stuff does that typically involve?

Anthony Scandariato: The number one thing I’ve seen is rent growth. Whether you’re buying a hotel, or self-storage, whatever it is, typically the brokers like to fudge those numbers, so that’s the first thing I look at – what did they assume for rent growth? Let’s just say you have a tenant paying $1,000 for a one-bedroom unit; did they assume that you’re gonna get a 7% increase year one, and then year two a 5% increase, without any renovations or justification for it? Even if you wanna compare that to your historical data, most of the time generally cut that in half, what the broker is saying… But it depends on every asset class, and where the properties are located.

If your property is located in a hot market like Charlotte, for multi I had to look at the 10-year historical average year-on-year rental growth there, and see if whatever they’re underwriting makes sense. And if it doesn’t, we adjust, and then we see how our numbers shake out, and we would go to the broker then and make an offer; sometimes it’s accepted, sometimes it’s countered, or sometimes it’s not accepted at all. That’s generally an overview of how we come up with an analysis.

Joe Fairless: For 5,5 years you were focused on buying value-add office buildings, correct?

Anthony Scandariato: Yes.

Joe Fairless: And you learned within a structured organization, but you were able to get a lot of really good hands-on experience, and have different roles over that period of time… And then you decided “I’m gonna take this experience and I’m gonna pivot in the multifamily.” Now, earlier you briefly mentioned that you moved to multifamily because office near and long-term wasn’t as good as multifamily… But let’s talk about that more. Why not office? Because as you were totally aware, I know, office is not as competitive – at least my perception of it; I’ve never purchased an office building. My perception is multifamily is much more competitive than office… And if you have that skillset of being in the industry for 5,5 years, it seems like that would be a great play for you to just double down on office, since you’re bringing that skillset already…

Anthony Scandariato: That’s a good point. What I would say to that is if you’re looking to pivot asset classes, I would try to find a niche within the asset class you’re trying to pivot to, that not many people are looking at. For example, for many obvious reasons [unintelligible [00:11:36].01] multifamily historically has been very recession-proof, and we can go into those details, but we’ll spare them for another time.

It’s more the fact of you kind of have to know your local market, and understand where all the investors are flocking to, and where some of the investors aren’t, because they’re not aware of the areas.

For example, I live in New Jersey, which we mentioned, and it’s very close to New York City, within half an hour… A lot of investors in New Jersey won’t touch anything West of the waterfront, which is Jersey City, Hoboken… Basically Hudson County. So we don’t stay in those markets at all. We like to go West of that, because that’s number one where we live, and number two where we know, and number three where we’re able to focus on kind of the middle market deals, anywhere from — a small scale we did was a million; we’re closing on our first syndication now which is 5,5 million, we just got another one under contract for 7,3…

So if you’re in between that 1 to 20 million dollar range, if you bought in Hudson County and you had that type of money, you’re probably gonna be buying only 15 to 20 units, whereas if you go further West, you can start to get in the 50 to 100-unit properties, with less competition and buying from very non-institutional owners, where you can really create value, and not many people are looking right now in those areas. But once the waterfront gets heated up, everything trends West, historically as well.

But office in general, to answer your question, you could be really good at repositioning office buildings. It takes a lot more time to do that, in my experience, than repositioning multifamily…

Joe Fairless: Why?

Anthony Scandariato: Vacancy… It depends where you’re at. I’ve done deals anywhere from Jersey to (like I said) Florida, Atlanta, Charlotte, Louisville, Baltimore… Even if you’re in a pretty hot market, lease for office buildings take sometimes months to negotiate, even if they’re only 10% of your rent roll and they’re signing a three-year lease. Sometimes it’ll take four months to negotiate a lease… And then you have to deal with the construction, which could take another 2-3 months, or potentially even six months, depending on how big the tenant is. And then they start to pay rent… And then you’ve gotta do it again. You’ve gotta keep constantly doing it…

So it’s a little different than multifamily, where traditionally you had your leases, and just kind of an expected turnover rate every year, and you kind of forecast that as you build your portfolio and you’re able to plan for it. So office is very fluctual, especially when you have a downturn as well.

Joe Fairless: If you were forced to only buy office, what would your approach be?

Anthony Scandariato: I’d say pretty similar to the multifamily – trying to find a niche. Stay out of C, B, D locations, in gateway markets such as New York City and Chicago and Boston. I would go to secondary markets, which we have, very similar to what we’ve been doing. The cap rates in terms of the spread between multifamily and office – they’re getting tighter. I’m seeing about 100 basis points spread right now on a stabilized property between office and multifamily, which is not anything to write home about.

Joe Fairless: Did I heard you correct, for your first couple deals you’ve used your own money?

Anthony Scandariato: Correct.

Joe Fairless: So what was that first deal?

Anthony Scandariato: It was a two-family house… [laughs] I still own it. I think it’s a great way to start out. It could be relatively affordable…

Joe Fairless: We’re gonna skip past that. What’s the next one?

Anthony Scandariato: Okay. Two-family house, and then I bought another two-family… [laughs]

Joe Fairless: Next… What else?

Anthony Scandariato: Another two-family, but I sold it…

Joe Fairless: [laughs] You got three two-families.

Anthony Scandariato: Basically, I started with three two-families, and then I met my partner through a mutual friend. My partner played for the NFL for eight years, Brian Leonard. He’s a great partner to have. He played for eight years as a fullback, so he’s local to the area that I live in. So we ended up partnering on our first deal. It was a very simple split between the two of us.

Actually, we bought a mixed-use building together. It wasn’t 100% multi; it was about 60% retail, 40% multi… A year ago, which we just turned around and did a really nice cash-out refinance.

So we went from the two, two, two, to essentially a ten. Then we bought another ten, and then we bought a 13, and then we bought a 20, and then we bought another 20, and then now we’re closing on a 51, which was our first syndication, and now we’re doing a 64… So you see the progression.

Joe Fairless: Yeah. Is the 60% retail, 40% multifamily the only mixed-use you’ve purchased?

Anthony Scandariato: No, we actually have three mixed-use properties, but the first property we bought was very local to the area I live in; I knew the building and I was very comfortable with the retail. The other two properties that we have, that have retail only, have one or two tenants, whereas the first building we bought had four retail, so the income from the residential and the other ones were anywhere between 70% and 80%… So it looked less risky.

Joe Fairless: Right. Okay. On that first one that you bought, that is 60% retail, what did you do that the person you bought it from did not do?

Anthony Scandariato: Sure. It’s a great case study. We bought it from a farmer family. They actually had 9 siblings that owned the property. Then what happened was there was a fire at the building a year ago, prior to when we bought it, that occurred. One of the tenants left the candle in the curtain over night, and the next thing you know the whole building was on fire.

It was a little bit of a disaster, but structurally, the building was still sound. They had a nice insurance claim that they collected on, and redid essentially the whole building. But this family is very non-sophisticated, and what they ended up doing was they kept everybody’s rent the same after that occurrence, even though you had brand new apartments and brand new retail space now, that they paid for. So everybody’s rent – let’s just call it $800 or so, on the market is more like $1,400. So we went in there and obviously we were able to increase rents, and we also were able to add a little bit more upgrades that the insurance company didn’t add.

So we added some upgrades, we got a substantial rent increase from all the residential, in addition to leasing up some vacant retail that was sitting vacant for years.

Joe Fairless: How do you go about leasing up vacant retail?

Anthony Scandariato: It depends how big the space is. With a local broker. In this instance it was 1,000 sqft. It was actually like a lot style, it was kind of lower-level… We didn’t even think we would rent it, to be honest, for a while, unless we gave it away… But we rented in two weeks after we bought it, and we just put it on the market with the broker.

Joe Fairless: Huh. How much?

Anthony Scandariato: We got $10/sqft, so about $1,000… But if [unintelligible [00:18:06].16] you just add a lot of value to your building, with one lease. So that happened, and there was also a retail tenant that was below market, that we knew was leaving. Every time we buy a building, we like to interview the tenants, if it’s retail or office; obviously, it presents more risk than apartments, and we like to see what’s going on.

So we knew they were gonna be leaving, but their rent was $500 below where somebody else new would come in… So they ended up telling us they were leaving, so we kind of planned. We had the broker market the space already while they were still occupying it. When they left, they got somebody paying actually $550 more than the previous tenant, with no turnover, no vacancy. That was really a slam dunk deal.

Joe Fairless: What type of business is it?

Anthony Scandariato: The new tenant – it’s like a curated goods for men’s supplies. They have men’s deodorant… It’s kind of a cool, crafty space. The space before that was a high-end women’s boutique.

Joe Fairless: Okay. Last question on that, and then I’ll ask you the question I ask everyone… How much did you buy it for? …and I believe you said there was recent refinance – what did it appraise for on the refi?

Anthony Scandariato: Sure. Pretty crazy numbers, and we weren’t expecting this… So we bought it for 1.285 million. Our all-in basis was around 1.3. It appraised for $2,110,000.

Joe Fairless: Excellent. Over what period of time?

Anthony Scandariato: A year.

Joe Fairless: Wow. I’m glad that you talked about what you all did, because that is what attributed to the value increase. Anything else that you didn’t mention, that attributed to the value increase?

Anthony Scandariato: People were flocking over the building when we were making offers. I think we positioned ourselves well. I was friendly with the broker, and we showed a proof of funds, and it was kind of a no-brainer… But we were very fortunate. Maybe it was a little bit of luck and market timing, but very fortunate to have bought that, and really looking to that as a case study for our future success… Even though every deal is not gonna be like that, but… A really good start.

Joe Fairless: What percent of money did you get out on the refi?

Anthony Scandariato: 100%.

Joe Fairless: And how much of that was Brian’s versus yours?

Anthony Scandariato: It’s a very simple 50/50 split.

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

Anthony Scandariato: Like I said before, find your niche, and find your niche asset class. Know your local market and where you think you think you can add value if you wanna be a value-add investor, which I’m assuming a lot of your listeners do. For cashflow reasons you could buy a very safe product that’s not gonna go anywhere, but you’re probably only gonna make maybe 5% to 6% on your money. Some people might be okay with that, but… I would say find your niche if you’re trying to create value, and eventually syndicate and bring on other partners… Find your niche.

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

Anthony Scandariato: Sure.

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

Break: [00:20:52].15] to [00:21:39].13]

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

Anthony Scandariato: Knock on wood, nothing yet.

Joe Fairless: Best ever deal you’ve done?

Anthony Scandariato: I don’t think anything could beat the deal I’ve just described right now…

Joe Fairless: What’s the best ever resource you use in your business?

Anthony Scandariato: I think Costar is a really good resource for market intelligence.

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

Anthony Scandariato: We do a charity event every year for children with cancer, that my partner runs. We like to donate a part of the profits to that. And we run it in New York City every year.

Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing.

Anthony Scandariato: You can visit our website, RedKnightProperties.com. Like us on Facebook, or you can add me on LinkedIn. I really appreciate the time, Joe.

Joe Fairless: Yeah, I appreciate you sharing the office experience that you have, and how you’ve applied that to apartment buildings, as well as some mixed-use projects that you’ve done, and how you and your business partner have created the company. I love the case study, as well as just talking about your approach when you were an analyst, how you approached the feasibility studies and the different components of it, and what you look for… And then trust, but verify on those offer memorandums brokers provide, especially the rent growth; as you said, that’s the number one thing you wanna make sure is accurate, is those assumptions.

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

Anthony Scandariato: Great. Thanks a lot, Joe. I appreciate it.

JF1978: How to get a National Tenant in a Retail Shopping Center with Alan Schnur

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Alan Schnur is a contrarian when it comes to buying and selling commercial properties. Alan has built his business around buying shopping centers with national tenants that are recession proof. Alan also explains how triple-net leases work for retail businesses.

Alan Schnur Real Estate Background:

  • Alan has bought and syndicated more than 2,000 units and managed more than 7,000 units
  • Owns numerous medical, office, warehouse buildings, shopping centers, and custom builds multi-million dollar homes
  • Based in Houston, TX
  • Say hi to him at www.gr8partners.com


Best Ever Tweet:

“The triple-net lease business – I’m in ten different states right now. It runs on its own, I don’t have to fix anything, and as a syndicator, the income stream is so much more dependable.” – Alan Schnur


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

Alan Schnur: Hey, Theo. Thanks for having me. I’m looking forward to our conversation here.

Theo Hicks: Absolutely. Thanks for stopping by, and I’m also looking forward to our conversation. Alan’s background – with partners in syndication, Alan has bought more than 2,000 units, and he also sold a management company that manages more than 7,000 units. He currently owns numerous medical, office, warehouse buildings, shopping centers, and he also custom-builds multi-million dollar homes. He’s based in Houston, Texas, and you can say hi to him at gr8partners.com.

So Alan, before you get started, could you tell us a little bit more about your background and what you’re focused on now?

Alan Schnur: Sure, Theo. I appreciate that, thank you. What can I say – I like to trade; I have a Wall-Street background, been involved in the financial markets, commodity markets for the last 20-25 years of my life, and found myself picking up real estate single-family houses in the beginning of my career, like most of us. Then I transitioned into apartments and warehouses and shopping centers, which I’m really excited to talk about today.

I like to buy low and sell high. I like to keep around 20-30 different projects, always working in my portfolio. For example, over the last few weeks I’ve just sold three apartment complexes, really because I can’t buy any the way I like to buy them… So I like to stay active and keep busy. If I can’t buy, I’m selling, and if I can’t sell, I’m buying. I always like to keep my portfolio full… And the idea comes from really Wall Street – you have a specialist sometimes that stands in the middle of the pit and just takes orders. He has inventory, and he’s always buying, he’s always selling, and that’s how I felt about real estate as well. I use that idea in houses; I bought over 400 houses. I was always buying and selling, and recently I just sold a whole entire portfolio… I was doing the same idea with apartment complexes, where I bought over 22 apartment complexes; I have a few left.

Today I guess we’ll talk a little bit about my warehouses, my land leases, and the shopping centers, triple-net lease material… Which I think is an evolution to all this real estate as we get older. I think your listeners are gonna be really excited to hear about how do you get a national tenant, like  TJ Maxx or a Krispy Kreme Doughnuts, or a [unintelligible [00:04:04].04] or a Burger King or a McDonald’s, put them on a 5 to 10-year lease, and more or less just sit back and collect rents, and let them take care of the real estate.

Theo Hicks: Well, let’s start with that, because that does sound pretty exciting.

Alan Schnur: Yeah, for sure.

Theo Hicks: So you mentioned triple-net leases, which we can get into in a second… But I wanna focus on the national tenants, so getting a big-time company to rent your office space.

Alan Schnur: I’ll tell you what, I do office, but my passion is in retail shopping center strips.

Theo Hicks: So let’s focus on retail shopping center strips. How do you get a national tenant in there, once you own the property?

Alan Schnur: Well, I’ll tell you what – the retail shopping center business got such a bad rep over the last three years, maybe 3-5 years. And let’s face it, the malls of America aren’t the same anymore, and it’s spread across the retail sector. The contrarian that I am basically said “Okay, well let’s go after the 8, 9 and 10 cap deals, and sell the apartment complexes at 3, 4 and 5 cap.” So I am a contrarian; I’m not buying shopping malls, I’m buying hundred thousand square foot shopping centers, with national tenants that I feel like are recession-proof, they’ve already been through it, and they’re prepared; in good times they prosper, and in bad times they even do better. So my tenants – TJ Maxx, Ross, [unintelligible [00:05:20].16] the Burger Kings, the McDonald’s, the Starbucks… So I always kind of feel like I’m getting involved with these national names that are protected from any kind of downturn in the economy.

To answer your question, when it comes to filling up spaces – well, look, even in the apartment complex business, it seems like here in Houston once or twice a year the units would turn. But what we do in the retail business – we go out and we get some really good leasing brokers, and they take 3% to 6% of a 5 or 10-year lease, they work really hard, and they have connections into a lot of these companies… And we’re pretty full. As a matter of fact, our portfolio now is close to a million square feet, we’re in the 90%… So we’re full.

Theo Hicks: So you’re working with these leasing brokers that have the relationships with these national companies… So if I own a 100-square-foot shopping center, as you mentioned, I’m not sure exactly how big 100-square-foot is – would that be like a TJ Maxx, or would that be like a Dollar General?

Alan Schnur: For example, a typical footprint for a TJ Maxx store would be anywhere from 25,000 to 45,000 square feet. So they might take up, say, 20% of a decent-sized shopping center… And I’ve gotta tell you, you don’t see the kind of vacancies that maybe you saw 3-5 years ago. I have a TJ Maxx, one of the best-performing locations in the United States. They’ve been there for 20 years… It’s constantly a five-year lease, and they have options to renew when they want to, and exercise it for another five years.

So a lot of these stores stay put, and they don’t really move around, because it’s quite expensive to move around… But a lot of it is also irreplaceable real estate. It’s kind of like geographically located in the center of the heart of the town,  the car count is maybe 30k, 40k, up to 80k cars a day pass… Hard corners, where people are always making lefts and rights… What else do we look for…? A good, signalized stoplight, so people just can’t fly by. Dense populations… Household incomes – we like 30k, 40k, 50k, up to 100k, depending on the stores that we’re trying to attract… So a lot of factors play to the need of these anchors, such as the TJ Maxx’s and the Ross, and the Discount Tires. And quite frankly, we should go into talking about right now what it really means to be involved in triple-net leasing.

Theo Hicks: On this topic, really quickly, before we get into that…

Alan Schnur: Go ahead, go ahead.

Theo Hicks: Could you mention, how does someone find the best leasing broker in the market for their retail shopping center?

Alan Schnur: Good question. A few ways. First of all, I’m networking with everything. Going to the events. ICSC is kind of the main national organization for shopping centers. I would suggest all your listeners join that organization.

Secondly, what we do – we really rely on Costar, which is a software program. All that information is available in Costar. If we’re looking at an area, we can see the top five best leasing agents in the area, and we can reach out and we can talk to them. And we do.

And also, just kind of see what your competition is doing, and ask who your colleagues are working with… It’s a lot of your big names that you’re familiar with already – the Marcus & Millichaps, the Collier’s… You’ll find some independents out there. JLL… So no stranger to the same names that are in multifamily are in the retail shopping center business.

Theo Hicks: Perfect. Okay, triple-net leases.  As I mentioned beforehand, I’ve heard this term thousands of times, but I don’t necessarily know what it means… So can you just define what it means?

Alan Schnur: Sure. Let’s kind of connect it to the housing business, where I believe most of us are coming from. You might see the word “reimbursables.” So a triple-net is reimbursable. Let’s start off with insurance. In multifamily housing, me, the owner of the apartment complex, I’ve gotta buy my own insurance. Taxes – me, the owner of the multifamily, I have to pay the taxes. And then third, the expenses to run the place – we call them CAMs, common area maintenance. So in the apartment complex it’s windows break, or the grass needs to be cut, or the snow needs to be removed… We, the owner, we pay.

Now, in the triple-net business, in the retail business – which is mind-shattering – it’s reimbursable. So we might pay as the owner, but every month, the tenant is responsible for their portion of the expenses. And the expenses come from a budget that’s given to them annually.

So let’s just say the insurance, the taxes, and the common area maintenance – let’s just say it costs $10,000 for one particular tenant, annually. Well, over 12 months, we’ll call that $833 – he’s going to send that in along with their rent, every month. And what happens if the numbers are over – charged too much, or charged too less, it’s refunded to the tenant, or the tenant  has to make up the difference and send it to the landlord. How does that sound?

Theo Hicks: That sounds pretty amazing. That sounds awesome.

Alan Schnur: Right?

Theo Hicks: Those three are pretty big — taxes, for sure, is one of the biggest expenses that you’re gonna come across, and depending on the amount of maintenance… But yeah, if they pay for all that, I’d imagine your expense percentage is pretty low.

Alan Schnur: It really is, and that brings us to a really good point… When I was in the multifamily house business, I’d say — let’s see… In the C class business, 60 to 80 of every dollar that I came in, went out as an expense. So you could imagine how long the profit and loss statements are, and how much work you have to do, and sending out all those checks, and paying all those people, and having all those things fixed.

Well, in the retail shopping center business, in the triple-net leasing business, we don’t have that. So for just about every dollar that comes in, we keep around 90-95 cents of it. So in essence, it’s easier to run a shopping center or a retail business than it is to run a portfolio of apartment complexes.

Theo Hicks: 90 to 95 cents?

Alan Schnur: If something breaks, it stays in-house.

Theo Hicks: Wow.

Alan Schnur: So let’s take it a little further… Generally speaking, if someone’s air conditioning goes in an apartment complex, the owner has a problem. If an air conditioning goes on one of my shopping centers, it’s not my problem. If the front glass door cracks in an apartment complex, it’s my problem. In the shopping center business it’s not my problem at all.

So the majority of the expenses are the tenant’s problems. Kind of like a leased car. It’s their lease car, it’s theirs for five years, ten years, and then at the end of the time they can either renew, or not. And I should remind everybody that in these leases, too — because once in a while I’ll get the question “Well, if you’re in a five-year lease, what about inflation?” And I constantly tell people, usually in the leases annually there’s rent bumps between 1% and 3%, every year. So even on a five-year lease, five years later, you’ve just increased your NOI by 15%, if the 3% bumps were in there for 5 years straight.

Theo Hicks: So these rent bumps, these reimbursables – all these are written in the leases for the tenant.

Alan Schnur: All of those, which is so nice about this business too, because — I was really in the class C housing business, and I can’t say the leases really carried any weight, and quite frankly, renting out to thousands of people, I don’t think I’ve ever collected a single dollar owed to me when the lease was broken… But that’s not the case here, in the retail business. The money is all about the leases, and the leases are all about the money.

Sometimes they’ll even go dark, and if it’s a national name, they’re still paying their rents. Their doors might not be open… Right now I’m doing a deal with a 45,000 sqft. grocer; they’re delayed in getting their permits from the city, and it’s a shame, because I want them to be open before Thanksgiving, but they’re still paying me rent. So it’s their responsibility to open up their own doors.

Theo Hicks: Do you get a percentage of the sales in these leases?

Alan Schnur: In some of them you do. It just depends on all these — leases are like art. It really is art. I tell my son all the time he should study legal real estate law. [unintelligible [00:13:37].13] It so happened Tuesday morning we have a percentage lease with them, and we just got a check for an extra $20,000 for the last quarter, because their sales were good. So yeah, there’s plenty of different ways of making money in this business, and it really depends on what the lease says.

Theo Hicks: The triple-net leases – are these something that are across the board for all of the retail shopping centers?

Alan Schnur: That’s a great question, too. There’s gross leases, and then there’s triple-net leases. And then there’s leases with caps. Let’s address them all. We’ve talked about the triple-net leases; it makes sense – insurance, taxes, and common area maintenance is gonna be billed back to the tenant. The gross leases – I don’t actually care for them. Once in a while there’ll be a gross lease with maybe some kind of city user, where just like in the apartment complex, it’s almost like all bills paid; I’ve gotta pay their electricity, their taxes and their insurance. I’m not a fan of it, I don’t do that type of business. I kind of have a joke – if I wanted to be in the gross lease business, I’d be back in the apartment complex business.

So I really prefer where I am in life, the triple-net lease business model, because it’s so scalable. I have over 100 national tenants, tenants that you see trade on the stock exchange, from Starbucks, to Ross, to Discount Tire, BPL Plasma, major grocery stores.

And then lastly, when it comes to these leases, sometimes they’re capped. Sometimes they say “You know what – we like this spot, we’re gonna take it, we’re gonna pay all the triple-nets, but we want you to cap out at (say) $3,50, and then you can’t raise it more than 5% a year going forward. So what does that really mean? It means you need to figure out how to raise that 5% every year, so you can stay on top of the taxes, the insurance and the common area maintenance needs that the tenants are gonna use.

But usually, if you did all your homework, and you crossed all your t’s and dotted all your i’s, the caps are usually the market triple-net rates anyway, if that makes sense.

Theo Hicks: Yeah.

Alan Schnur: One more thing I just wanted to add about that – you know in the housing business where at the end of the day the syndicator or the property management company sends you a bill for, say, 3% of the gross collections? It makes sense – someone collects $100,000 for you, they run the property, so they get $3,000, right?

Theo Hicks: Yup.

Alan Schnur: Well, what when it happens in this business, the tenant pays. It’s reimbursable. It goes to the tenant. Isn’t that wonderful? The tenant pays for the property management.

Theo Hicks: Yeah, you’re taking that 90 to 95 cents on the dollar.

Alan Schnur: Exactly.

Theo Hicks: I can’t believe I’ve never delved into this before. It sounds amazing.

Alan Schnur: I’m trying to blow your mind, Theo.

Theo Hicks: Oh, my mind’s been blown.

Alan Schnur: Look, 400 houses… I bought a house a month for ten years straight, [unintelligible [00:16:31].17] I left corporate America, I sped things up, and then for 90 days, every quarter I bought an apartment complex for five years. Sped things up… And then I got involved — and then I started reading about triple-net leases… And the same idea works in warehouses. I have a major Fortune 500 company, I have around 100,000 sqft. of warehouses spread out across the United States.

Another thing that’s great about the triple net lease business is that — I don’t know about you, but when I was in the housing business, all the volume I just talked about, and the management, I can drive to every day; it was all in 5, 10, 30 miles from me, at most.

The triple-net lease business – I’m in 10 different states right now. It runs on its own, I don’t have to fix anything. I don’t have to take the calls. And as a syndicator, the income stream is so much more dependable. Because that’s what I am, a syndicator. And I’d like to talk about that for a second – I’m always looking for partners and investors, and sharing information, which maybe we’ll talk about at the end of this… But it’s more dependable than any asset class that I’ve ever been involved with before, making those quarterly distributions to our investors.

Theo Hicks: What is your best real estate investing advice ever?

Alan Schnur: I would say one needs to be coachable, really open-minded. It’s taken me 20 years to get to the warehouses, the storage, and the triple-net lease business. I was a better listener, I was more open-minded as I got older. I wish I had that foresight when I first started.

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

Alan Schnur: Sure. Shoot.

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

Break: [00:18:12].05] to [00:19:10].28]

Theo Hicks: Alright Alan, typically we ask you what’s the best ever book you’ve recently read, but I’ve changed it up a little bit… What is the best ever book or best ever resource to learn about triple net leases?

Alan Schnur: Hm… Would I be biased if I told you I had my own book? I have two books.

Theo Hicks: Not at all. Let’s hear about them.

Alan Schnur: Okay. The first one is called “Creating your own real estate cash machine”, which is more geared towards owning hundreds of houses and thousands on apartment units. It’s on Amazon, on the second edition. And last year I put out a book called “The cashflow mindset. Millionaire, billionaire, zillionaire designs for financial freedom”, and it’s all about how to use different asset classes to retire quicker, enjoy life, and have lots of fun, and lots of my philosophies. I read that one too, it’s on Audible, if someone doesn’t wanna read it. So… The Cashflow Mindset, by Alan Schnur.

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

Alan Schnur: I would go buy a vacant shopping center, for what it’s worth, a net operating income which wouldn’t be much, and then I would go fill it up with tenants, and it would most likely be trading at a 7, 8, 9 cap… And capture millions of dollars of equity. I’ve done it multiple times.

Theo Hicks: What deal did you lose the most money on, and how much did you lose?

Alan Schnur: I once got involved in a property management company with the wrong person, and the lesson learned was I should have done a background check, because I would have seen all the lawsuits. I would have seen it all. So I lost on that investment, a few hundred–

Theo Hicks: And then lastly — oh, sorry, a few hundred thousand dollars. Okay. And then lastly, what’s the best ever place to reach you?

Alan Schnur: I have a few ways of reaching me. First of all, alanschnur.com. I have lots of free education, probably a few hundred videos, from apartment complex how-to’s, houses how-to, and I believe some retail how-to as well. AlanSchnur.com. And you can also reach me at gr8partners.com if you’re interested in investing, getting involved, learning more about this. We send out quarterly reports, financials, P&L summaries, videos… And you’d be amazed how quickly you can become an expert while enjoying someone else’s syndications. So that’s gr8partners.com, where you can find a ton of information about what we’re doing, and all the different people that we work with.

And I’m an open book. If I have a few books, and on every book that I have, my phone number’s on the back page… Which is 713-503-5908. Call me, you might be surprised. If I don’t pick up, I’ll get back to you, and let’s see if we can do some deals together.

Theo Hicks: Alright, thank you for sharing your phone number, and – wow, one thing I really enjoy about doing these interviews is just hearing about different investment strategies. Usually, I have an idea about them, but this is one that I had really zero knowledge of. That’s the triple-net lease.

Alan Schnur: Awesome, awesome.

Theo Hicks: You went into really a crash course into the triple-net lease – what it is, how to find national tenants, and why you wanna find national tenants, how to find the best leasing brokers in the market to help you fill those spaces. Then we went into why triple-net leases are beneficial, and it’s that reimbursable aspect. The tenant basically pays for everything.

You gave a great comparison – when you did multifamily, about 60 to 80 cents on the dollar went out as an expense. Triple-net lease – 90 to 95 cents came in. And you briefly touched on the other leases and why you like the triple-net lease the best… And again, mostly just saying about how great these triple-net leases are.

Then your best ever advice was you need to be coachable and you need to be more open-minded, because if you come across an investment strategy like triple-net leases and you’re not open-minded, you might miss out on the opportunity to invest in a great strategy.

You also mentioned your books, Creating Your Own Real Estate Investing Cash Machine, and then The Cashflow Mindset.

Alan, I could definitely talk to you for probably hours, but I appreciate you taking this brief time to speak with me. Best Ever listeners, thank you for tuning in. Have a best ever day, and we’ll talk to you soon.

Alan Schnur: Thank you, everybody. Thank you, Theo. Have a good day.

JF1974: How To Fill Vacancies In Shopping Centers with Beth Azor

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Beth Azor has found an interesting way to use social media to help her prospect when needing to fill commercial spaces. From knocking on doors to handing out fliers, Beth also teaches the importance of face to face interactions to win new tenants. 

Best Ever Tweet:

“Listening to your instincts and really being focused on a specific sub-market are my two pieces of advice that have best served me.” – Beth Azor

Beth Azor Real Estate Background:

  • 34 year veteran of the commercial real estate industry
  • Owns and manages a portfolio of $80,000,000 in commercial retail properties
  • Based in Ft. Lauderdale, Florida 
  • Say hi to her at www.bethazor.com 
  • Best Ever Resource: TripIt Trip Planner

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Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell. 

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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

Beth Azor: I’m doing great, Joe. How are you? Thanks for having me.

Joe Fairless: Well, I’m doing well as well. You’re welcome, and I’m grateful that you’re on the show. Beth is a 34-year veteran of the commercial real estate industry. She owns and manages a portfolio of $80 million in commercial, retail properties, based in Fort Lauderdale, Florida area. So with that being said, Beth, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Beth Azor: Absolutely. So I’ve been in the shopping center industry for, like you said, 34 years. I got my real estate license when I was 18. My parents were in real estate and residential. I started with a firm down in Miami, grew my way through. I started as a rookie leasing agent, helping mom-and-pops open stores in shopping centers. Then I had the opportunity to start buying in as a passive investor. I was at that company for 18 years, left and started my own company in ’04. I’ve built my own portfolio, raising family and friends’ money, finding the deals, leasing the space, collecting the rent, all that jazz. That takes about 70% to 80% of my time. The rest of the time, I travel the country teaching leasing agents how to fill vacancies in shopping centers, because we all know, we have our fair share these days.

Joe Fairless: Yeah. Well, that sounds like a fun topic to talk about. When you present to the leasing agents, what do you talk about exactly for how to fill vacancies in shopping centers?

Beth Azor: Well, it’s just good old knocking on doors, cold calling, canvassing. Now, there’s a lot of great results with Facebook and Instagram prospecting. They do need to create relationships with the national corporate tenants like Starbucks and Panera Bread and Home Depot and those guys, and we have the ability that we have conferences where we can meet those directors face to face. But usually, 15% to 20% of our shopping centers are filled with mom-and-pops and entrepreneurs. Those are best found and relationships built by literally knocking on doors, cold calling or using social media. The social media works because the gatekeeper’s removed. So an entrepreneur, let’s say, has three restaurants in Albuquerque.

They have a Facebook page or an Instagram page and the leasing agent can directly reach out via those tools. There’s no gatekeeper involved, so you’re getting right to the owner. With Facebook, there’s this guy, Mark Zuckerberg – I know we’ve all heard of him – and he actually pings the recipient on a text message and says, “Hey, one of your customers has reached out to you. If you want your algorithms to continue to rise, please respond.” So for every ten texts on Facebook or Instagram, the average response is about 40%. Of the four responses, maybe three say, “No, thanks. I’m not interested.” But one says, “Yeah, tell me more. Where is your shopping center?” That 10%, within 24 hours, in my 34 years of doing business, it’s the highest return of a prospecting effort ever.

Joe Fairless: Wow. Sending messages on Facebook through the Facebook pages is the highest return on time?

Beth Azor: Highest return ever in 34 years.

Joe Fairless: So you pretty much doubled down on that.

Beth Azor: Doubled down. And you’re capped out, because Facebook figures out what you’re doing. So you’re allowed to do about 10 to 12 in the morning, and then about 10 to 12 in the afternoon. So in our shop, I have a very small team. I have a leasing agent that works with me, but she does about 20 to 25 a day. We’ve done in the last year seven deals. An average leasing agent with a portfolio of my size – we’re doing about 12 to 15 deals a year, and we’ve done seven deals with Facebook and Instagram in the last 18 months.

Joe Fairless: So let’s talk about a specific example. Maybe a recent property where you had some vacancies, and then your team reached out to a bunch of people via Facebook, and then you got some tenants. Will you just walk us through one of those examples?

Beth Azor: Sure. I’ll actually tell you the first example, is my junior leasing agent comes to me one day, I’m not on any social media at the time, and she says, “I think we should prospect on Facebook” and I literally said, “Well, I think that’s the most stupidest idea in the world.” I thought Facebook was just a joke. But as a teacher, I heard myself say that and I said, thinking to myself, “Shame on you, Beth.” So I said, “Mackenzie, you go ahead, honey. Maybe something will pan out.” Again, very condescending, terrible. So she reaches out to a chocolate store that was in Fort Lauderdale for 49 years. So absolutely with my veteran hat on, I’m thinking, “There’s no way this guy’s doing another location.” He’s been in this one location for 49 years. If he wanted to expand, he would have done it.

We had prospected them, we had gone to see them, we had dropped off flyers, we cold called… We probably had reached out to him about nine times; nothing. She Facebook prospects him and that night, at two in the morning– because it’s amazing, these mom-and-pop entrepreneurs are looking at their social media, we usually get our responses between [9:00] and [3:00] in the nighttime. So he responds and he goes, “Funny you should reach out. We’ve been looking for another location in your area. When can we see the space?” And we signed the lease about seven weeks later.

Joe Fairless: Wow. So it was an additional location?

Beth Azor: Yes, it was a second location. That has happened six more times with us in the last 18 months.

Joe Fairless: So if you have a team of four people, can each of the four people do it 10 to 12 times?

Beth Azor: Yes, because you do it on your personal Facebook page. You’re not allowed to do it on your business Facebook page, because that would be spamming. So Facebook allows you to do it on your personal business page. So sometimes I’ll encounter a student or a client who says, “Oh, well, I don’t want to do that from my personal Facebook page.” I’m like, “Okay, I understand.” So what some people I know have done is create an additional personal Facebook page, and feed it with pictures of you standing in front of your properties or your shopping centers or doing videos, “Hey, I’m here at my vacancy.” But it’s still a personal page… So that when that Facebook recipient receives it and they go back to check your page, they’re like, “Oh yeah, this guy, they definitely lease shopping center. Let me respond.”

Joe Fairless: Which could limit what I was going to ask, but now it makes sense why you can’t hire a team overseas to do this, but then I get it. Their credibility of “Well, they’re in the Philippines, is this legit?” So when you go to speak to leasing agents about how to fill vacancies in shopping centers, you tell them about this messaging, because it’s the highest return of time in all the years that you’ve been in the industry for getting leases. I’m assuming that the conversation is longer than the time we’ve had on this call… So what else are you telling them? Because it sounds like that’s all they need to know.

Beth Azor: No, because that takes about 15 minutes in the morning and 15 minutes in the afternoon. So I’ve been doing this for 34 years. I own six shopping centers, I’m out knocking on doors once a week. A typical leasing agent should be out knocking on doors four times a week, because face-to-face, in the end, is really the winning combination. Walking in, seeing the restaurant, seeing if it’s busy, seeing a retailer, seeing the merchandise is what you want in your shopping center. Exposure. If they don’t know you, they can’t do business with you. So handing out 30 to 50 flyers a day on your property… So I teach them why it’s still important to do hand-to-hand combat and I talk to them about their flyers.

So instead of just having a generic flyer, “ABC shopping center, this is the location,” if they have a space that used to be an urgent care for a family doctor, or if they have a space that used to be a restaurant that has a hood and a grease trap. I teach them to create their marketing materials to make it easier for the prospect, so that when they drop off the flyer, and the entrepreneur is extremely busy running his business, and has had some ideas, “Well, maybe I want to open a third or fourth”, but they don’t have a lot of time to leave their businesses and run around looking in vacant storefront windows… So I teach the leasing agents to create marketing materials that makes it easier like, “There’s a hood and the hood is this size. There’s a grease trap and it’s this size. There’s an outdoor patio that keeps so many people”, with pictures. So that’s another thing.

Another thing that I talk about is having a plan. So instead of just taking sign calls, where nine times out of ten they are businesses like vape stores– every vape store in the world wants to be spaced in shopping centers today… Having a plan of what is the income demographic around your shopping center? What’s the population? What’s the education? And what are the vacancy store sizes? So if you have a 7000 sq ft. vacancy, you’re not putting an H&R Block in there who wants a 1,000 sq ft. So creating a plan of “That 7,000 sq ft. maybe I want a bike store, or I want a leather furniture store, or I want a gym” and having a plan and creating what’s called a tenant mix plan…  I teach them about that and how to assign uses to demographics. If you have a high-end market with 150k in household income, you’re not going to want to try to lease to a coin laundry. You probably will want to lease to a tutoring facility, because the parents in that high-end market are going to want to send their kids to tutoring versus if you were in a lower-income market, you wouldn’t be targeting tutoring, you probably might be targeting coin laundry. So there’s the science piece to retail leasing.

Joe Fairless: Let’s talk about your six shopping centers. We would love to learn more about that. Which one’s your favorite?

Beth Azor: The strip club that became the strip center.

Joe Fairless: Okay, what a wonderful topic on a podcast, too. Thank you for that. So tell us about it.

Beth Azor: So there was a strip club called Eden’s Nightclub in a market where I own two other shopping centers. I was at the local commission meeting. I was there for my charity, trying to raise money. The city gave funds to local charities and I was in the audience to do a presentation for my charity. The commission decided at that meeting they were going to outlaw strip clubs in the municipality by the end of 24 months.

Joe Fairless: Where is this at?

Beth Azor: This is in Davie, Florida, which is a suburb of Fort Lauderdale. So my thought immediately goes to the Eden’s Nightclub, which is down the street from two shopping centers I own. So the next morning, I’m reading– I think right then and there, I’m on my phone looking at the tax rules, trying to find out who owns Eden’s strip club. I called the people the next day. They live four hours north of me in Jacksonville, 87-year-old couple. I said, “So I wanted to let you know that you’re going to have a vacant strip club in 24 months.” They didn’t really believe me. I sent them the minutes of the meeting, and I started an 18 months dialogue with them, and a relationship.

I went up to Jacksonville where they lived, I had tea in their living room, and I really wanted to get this property under contract because no one else really knew about the whole strip club thing. I knew that the minute the strip club closed, all my competition, which at the time I thought would be smarter, more experienced and richer than me, would descend on this asset, because it was a phenomenal piece of land. It was located on a main and main intersection and it was located next to it a vacant Kmart, which we all knew at one point would be something pretty spectacular, because it was in a very good high-income demographic.

So I worked it, worked it, worked it, and I made them an offer. They said, “It’s not high enough.” I go, “Well, what’s the number?” “Well, just give us more.” So it just wasn’t going anywhere. I ended up trying to put it under contract; didn’t put into it. The place closes and sure enough, now I’ve got five competitors trying to get these people to sell to them. So the couple gets sick. First, the husband gets sick and then the wife gets sick. So they decide that they’re going to hand over the decision-making to their son, who had just graduated from West Point. So he’s 24, and he calls me up and he goes, “Hi, you’re one of the candidates we’re looking to sell our building to. I’m coming down. Can I meet with you? I’m going to meet with four other people.” And I’m like, “Sure. But I’d like to be the last meeting.” He said, “Yeah, no problem.” So we meet. But that was actually going to be three weeks from that point.

So I have this one partner who I work with, and he said, “What’s the number one thing that will be important to them?” and I said, “Time.” The minute they pick their purchaser, they’re going to want to close fast. He goes, “Okay, call them back and tell them that if they will let us go on the property to do the environmental in title, we’ll do it at our own expense. So that if and when they pick us, we can close in two days.” So I call the son and I explain the situation. I said, “I know your mom and dad. Once you’ve make a decision on who you want to go with, you’re gonna want to close fast. So if you let me do this, we’ll be in position to close in 24 hours.” So he said, “Sure, we’ll give you permission. You’ll get insurance.”

So we went into the environmental and the title and the survey, and everything was clear. We did it in three weeks. We have the meeting, he meets with the other four people– again, smarter, richer, more experienced people than me. Then I meet with them. So we’re doing just some chit-chatting and I said, “So what are you going to do, Michael, now that you graduated from West Point?” And he says, “Well, I wanted to get a job in Washington, DC doing consulting.” I said, “Oh, do you have any leads?” He goes, “No, I’m starting from scratch.” And I said, “Well, I don’t really know the ranks in the military, but what’s the highest rank?” and he goes, “General, or whatever.” I said, “Okay, that’s not it. What’s the next rank?” He goes, “Admiral.” I go, “Oh, yeah, Admiral. I know a guy who’s an Admiral. He was an admiral in the Navy.” He goes, “Really?” “Yeah. He does consulting in Washington DC.” He goes, “Really?” I go, “Yeah. Let me call him right now.”

I pick up my phone and I call him. It was a voicemail. I said, “Gordon, I’m with a young man, just graduated from West Point. He is coming to Washington DC, would like to meet some people to look at opportunities in the area. If you could call me back so I can connect you guys, that would be great.” Hangs up. This is a guy that served on my alumni board with me. While we’re still sitting meeting, Gordon calls me back. I hand the phone over and they set up an appointment for the next week.

Joe Fairless: Wonderful. Wonderful for everybody involved.

Beth Azor: Exactly. So he leaves. He calls me the next day and he goes, “Beth, my parents really love you. They really appreciate you’ve been working the deal for 18 months. All the rest of these people just came once the building closed. If you agree to pay $3.4 million for these two acres, it’s yours.” I said, “Done”. So we signed the contract; we closed in 48 hours.

Two of the people I saw at a conference the next week, and they both said, “You’re crazy. You spent 300 grand too much. You shouldn’t spend any more than 3.1.” Literally, my heart went to my stomach and I’m thinking, “I hope they’re wrong.” Because we literally had no plan for the deal. We just knew that it was a great piece of real estate. So it turns out though, the Kmart became a Whole Foods. Everyone thought we knew that, which we didn’t. We ended up building an 11,000 sq ft. strip center, and the NOI, Joe, is 722.

Joe Fairless: Wow.

Beth Azor: So it was a home run. So the strip club that became a strip center– and there was just so many pieces of it – doing that survey and environmental in advance, having connections to help him with his career, spending the 18 months working the sellers and going to them and having tea in their living room. There were so many pieces of it that all of us in real estate employ at one point or another in a deal, having the Whole Foods ending up leasing there so that my rental rates were much higher than everyone thought they would be.

Joe Fairless: What’s the cap rate in that area?

Beth Azor: So I made a big mistake… We wanted to build it and flip it, and it was going to be a big home run for us. But we stupidly put on a CMBS loan. It takes nine months to assume securitized backed loans. So we still own it. If we had a traditional loan on it that was assumable, we could sell it for about a 5.25 cap rate.

Joe Fairless: And that’s a little under $14 million bucks, right?

Beth Azor: Yeah, exactly. We have Starbucks, we have Select Comfort, which is a high-end mattress store. We have Blaze Pizza, which my franchisee is LeBron James. We have a Verizon corporate store, and then we have one local tenant, a little ice-cream guy. It’s a huge home run and we’re blessed to have it.

Joe Fairless: What were you offering during those 18 months?

Beth Azor: I just kept calling them giving them market information saying, “I’m still here. I would love to– ”

Joe Fairless: I mean, what price were you offering?

Beth Azor: I had offered 2.9. They said, “Go up.” I said, “Well, how much?” “We don’t know. Just go up.” I’m like, “I’m not going to negotiate with myself.” Then I learned that a broker in town had a relationship with them, so I called him and I said, “I’ll pay you if you can get me in there.” We put in an offer at 3.15 with his tutelage, and then they got sick. So the 3.15 is where we ended at, then they got sick, everything went stale. That’s when the strip club closed, that’s when everyone else got involved, and that’s when the son got involved. So we’re very happy that we own it and paid 3.4.

What I also knew, that my competitors didn’t know – because I own two shopping centers nearby, I knew the market better than anyone. So I knew that an AT&T corporate store had renewed across the street from this deal at $50 triple net, and it was blocked by a Chipotle. So it didn’t even have visibility and exposure. So I underwrote the 11,000 sq ft. at 50, because I knew I could get that. I ended up getting in the mid-60s. But conservatively, I said, “I know I can get as much as AT&T paid,” because they were 5,000 sq ft, my stores are going to be smaller than that and I have better visibility and exposure. My competitors didn’t have the connections and the market data that I did, so that’s why I was comfortable with the 3.4. But let me tell you, I did take a pause when they all told me I was crazy, because they owned hundreds of shopping centers, not just– at the time, I had four.

Joe Fairless: Did you go back to– was it city council meetings? Do you ever go back to those meetings and hope to catch lightning in a bottle on one of those pieces of intel again?

Beth Azor: Yeah, I’m in those meetings all the time, because I have this charity… And I tell my students these stories in my workshops, and I say, “How many other real estate people do you think were in that council meeting?” You have to read the newspaper and be involved in your community. All my six shopping centers are within ten minutes of my house. So I live and breathe my market. The more you know about your market, the faster you can move because you have the knowledge that someone else coming in from outside isn’t as up-to-date. So being involved in the commission– and that has helped me too, as I’ve gone on to do renovations or tried to get additional parking… I did a Panera and I needed to get five more parking spaces. Because I knocked out a strip club, let me tell you, that gave me a lot of kudos with the city.

Joe Fairless: Yep. Well, taking a step back, what is your best real estate investing advice ever?

Beth Azor: One, go with your instinct. Because I’ve lost eight deals in my past when I had an instinct, but listened to naysayers, and again didn’t trust my own instincts. I said, “Oh, well, they own more than I do. They know more than I do. They must be right.” So listen to your instinct and explore it. You can always drop a contract if it ends up that they’re right and you’re wrong. But I’ve lost eight deals where other people have gone in and bought them and did what I thought, because I was scared. So listen to your instinct.

Then the market knowledge piece. Because I have a friend who has 28 townhomes in Wichita. Why she’s so successful is because her market knowledge is better by thousands of percent over her competition, because she’s the biggest buyer and owner in that sub-market, so she can move faster and she has more knowledge. So I think focusing on a specific area makes you an expert, and then that gives you the leg up. So listening to your instinct, and really being focused on a specific submarket are my two pieces of advice that have best served me.

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

Beth Azor: Yes.

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

Break: [00:22:56].07] to [00:23:31].12]

Joe Fairless: Alright, what’s the best ever resource that you use for your business that you couldn’t live without?

Beth Azor: TripIt. TripIt is an online travel app on my phone. I travel a lot in my teaching, and it’s just phenomenal. It will tell me when I’m on the airplane, how many minutes till I land, what’s the gate I need to go to, where’s the baggage claim. All my trips I can look at, versus just looking at my calendar, which is filled with so many other things; it just has all my trips for 2020. I can just zip through it and go, “Okay, well, I can’t plan.” It’s just phenomenal. I love it. TripIt.

Joe Fairless: Alright. What’s a deal you’ve lost the most money on?

Beth Azor: A Winn-Dixie anchored shopping center during the recession. We had a balloon note. I was partnered with BlackRock. We bought the Winn-Dixie out of auction. We had done a $20 a square foot staples deal in an adjacent space. We thought we could replace the $5 Winn-Dixie rent with, let’s say $15, and the recession hit, and no one was expanding. My partners, BlackRock, lost 6 million, and I lost half a million.

Joe Fairless: What’s the best ever way you like to give back to the community? You’ve mentioned your charity.

Beth Azor: Yes, I own a charity called Hope Outreach. We help families that are marginalized, that need help. Maybe they work two jobs each, their kid ends up in the hospital, one of the parents doesn’t go to work, they’re in the hospital with the child. They pay all their bills, but now because they live paycheck-to-paycheck, they’re literally a paycheck away from being on the streets, and they don’t have a month to apply for aid. We are an emergency situation where we can help with the utilities, the rent, food… So we help the people before they end up on the streets when it’s really just like one paycheck away.

Joe Fairless: What’s the best way the Best Ever listeners can learn more about what you’re doing and get in touch with you?

Beth Azor: Bethazor.com is my website, and then Beth Azor on all social media, especially LinkedIn.

Joe Fairless: Beth, thank you so much for being on the show and talking about your experience, talking about how to lease up shopping centers, using social media tactics, getting specific there. Also, other tactics that we talked about or that you talked about.

And then the strip club to strip center case study, and some things where you put yourself in a position to be lucky, and then you acted on it and then capitalized on, and then some, by connecting the dots with the son, by reaching out to the owners and developing that relationship… And then ultimately – what I really love about it is starting the due diligence process before anyone else. Because in the mind of the seller, you’re already this far along, and you were, because you could close within one or two days. So it assumes a closing in their mind. So you’re already like, “Okay, well, we have to go through all this other stuff. But with this group, they’ve already done their due diligence, and they’re ready to go.” I mean, it’s very smart, so thank you for sharing that. I really enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you again soon.

Beth Azor: Thanks, Joe.

JF1973: Value-Add Mobile Home Parks and Commercial Ground-Floor Apartments with Gabriel Hamel

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Gabriel Hamel has amassed a multi-million dollar real estate portfolio consisting of single-family homes, multi-family apartments, commercial real estate, and mobile home parks. His 43-unit mobile home park had some value-add opportunities and Gabriel took advantage. Listen to this episode to find out how Gabriel purchased his mobile home park and other multi-family properties.


Best Ever Tweet:

“Do the math, know your market, and trust your intuition. Intuition goes a long way in this game.” – Gabriel Hamel, Hamel Investments

Gabriel Hamel Real Estate Background:

  • Real Estate investor, experience with Seller Financing and other creative purchasing structures
  • Currently owns 140 units
  • Based in Eugene, OR
  • Say hi to him at https://hamelinvestments.com/ 
  • Best Ever Book: The Big Leap 

The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell. 

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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

Gabriel Hamel: Hey, I’m doing great. Great to be here with you and your Best Ever listeners.

Joe Fairless: Yeah. Well, I’m looking forward to it and grateful that you’re on the show. A little bit about Gabriel – he’s a real estate investor, he has experience with seller financing and other creative purchasing structures; currently own 140 units and has another 60 under contract. Based in Duck Country, Eugene, Oregon. So with that being said, Gabriel, do you want to give the Best Ever listeners a little bit more about your background, and your current focus?

Gabriel Hamel: Yes. I started buying real estate in 2005. Shortly before that, I picked up Rich Dad, Poor Dad. Before that I didn’t have a lot of direction on what I wanted to do with my life. Read Rich Dad, Poor Dad, I got deployed to Iraq shortly after that, but constantly thought about the lessons I learned in Rich Dad Poor Dad. I came back, started buying property in 2005 when banks were giving loans to just about anybody. A couple of years into that, now it’s 2008, I own a couple of houses and banks are not giving loans out to people that don’t have jobs or money. So that’s when I really turned my focus into getting creative with seller financing deals.

Joe Fairless: You’ve got 140 units.

Gabriel Hamel: 140 units, yup.

Joe Fairless: Wow. What is the largest property that you have within the 140?

Gabriel Hamel: The largest property as far as the unit count, I have a 43-unit mobile home park.

Joe Fairless: Okay. So a 43-unit mobile home park. So of the remaining 97, what’s that?

Gabriel Hamel: It’s a big mix. I started off with single family and then smaller multifamily, a lot of duplexes, triplexes, 4-unit, 6-unit stuff. I have a couple of apartments that are 20-unit, 15-unit, but I still hold quite a bit of smaller multifamily as well.

Joe Fairless: Which one’s your favorite?

Gabriel Hamel: I am really liking the mobile home park.

Joe Fairless: Really?

Gabriel Hamel: I really am. Yeah, it had a lot of value-add opportunity. The 60-unit that you mentioned that I had in contract actually pulled out of that deal. And the one I purchased, the more I dug into it and the more I dug into the numbers, the better it got. The 60-unit I had in contract, the more I dug into it, the worse it looked. So I had to trust my instinct and trust the numbers and pull out of that one.

Joe Fairless: We’ll talk about the 60-unit in a bit. 43-unit mobile home park, you said that’s your favorite. You really like it. There’s a lot of value that you added. Will you elaborate?

Gabriel Hamel: Yeah, it was something I was looking for. I took it on similar to some of the multifamily stuff. I like to buy property that has that value-add opportunity, so I’m looking at properties that are poorly managed, under-rented, deferred maintenance. This park, it was running okay. The previous owners were great people and they ran the park okay, but there was some value-add opportunity with– the rents hadn’t been increased in four and a half years, the utilities weren’t being billed back to the tenants… So that was costing close to $15,000 a year, just there. Then some of the mobile homes themselves, a lot of the maintenance costs were on the park-owned properties. So right now, I’m in the process of selling the park-owned units back to the tenants on contract. In that way, they’ll be responsible for some of that ongoing maintenance and they’ll have that pride of ownership in the home.

Joe Fairless: Is that the name of the game with mobile home parks, to not own the mobile homes?

Gabriel Hamel: I’ve seen it done both ways. But I want to own the land and not the mobile homes.

Joe Fairless: You mentioned the reason why – maintenance costs, and then there’s more private ownership. What would someone who has the opposite philosophy say for why he or she wants to own the mobile homes?

Gabriel Hamel: I’ve seen the higher end parks where the homes are newer and in great shape. So they’re able to rent them out at a lot higher of amount and there’s not a lot of that maintenance cost. So the part that I purchased, they’re older units, so almost all the maintenance for the last several years have been when I was digging into the numbers were on the park owned homes. So I think the newer parks and the newer homes – there’s gonna be less maintenance and they’re going to be able to charge a premium for renting it, and they’re owning the unit as well.

Joe Fairless: How much did you buy the 43-unit mobile home park for?

Gabriel Hamel: I paid a little over 1.3.

Joe Fairless: Is that your money, you and partners, or what?

Gabriel Hamel: This one, I didn’t have a partner on. I used to some private money and put about 20% down, and an interest only loan that I will be able to refi out of that. I think next 18 months I’ll be able to add a lot value and refi out and recoup probably most of the money that I put into it.

Joe Fairless: So private money and with 20% down. So is that you borrowed the 1.3 from someone and you paid 20%?

Gabriel Hamel: No, I put down about $240,000 and I had private money to finance the rest of the deal.

Joe Fairless: Okay, private money meaning just investors?

Gabriel Hamel: Yeah, hard money.

Joe Fairless: Hard money. Okay, so hard money lender, got it. So you got a hard money loan on it, and then you put out of your pocket the 20% down, and the goal is to get the heck out of that loan as quickly as possible and to refinance out.

Gabriel Hamel: Exactly. And it cash-flows with that hard money. But I think with making some of these changes it should appraise out based on [unintelligible [00:06:48].26] cap rates. I think it’ll appraise out close to that 2 million mark, and so I’ll be able to get something long-term fixed financing on the park.

Joe Fairless: And your 200K-ish back?

Gabriel Hamel: Yep. Correct.

Joe Fairless: That would be nice. That’s called infinite returns.

Gabriel Hamel: That’s what I’m always looking for, is infinite returns.

Joe Fairless: Yeah. How’d you find the 43-unit?

Gabriel Hamel: This one was actually– a commercial broker had been sending me a lot of multifamily stuff up in Portland. A lot of it was really nice, A and B class stuff. I just said, “Hey, if you see any value-add multifamily or mobile home park, let me know.” They had someone in their office with this park, so I had the opportunity to look at it. I actually drove down there, and the owners of the park were there. So I was able to spend some time with them and really getting to know them and the park a lot better, which made a big difference.

There was actually an offer that came in higher than mine. But I think building that relationship with those sellers really made a big difference. And I’ve done a lot of seller financing deals where it’s been really relationship based and I’m working directly with the seller on unlisted properties. It’s rare to able to build that relationship directly with the seller and in this case, they happened to be there when I showed up at the park. It worked out really well.

Joe Fairless: It’s just a coincidence.

Gabriel Hamel: Yeah, absolutely.

Joe Fairless: Have you since tried to manufacture that coincidence moving forward, since it worked out so well?

Gabriel Hamel: Showing up to a park with a seller there?

Joe Fairless: Yeah.

Gabriel Hamel: Not exactly. I’ve looked at several other parks… The 60-unit park that I backed out of– the previous owner, she didn’t own it anymore, but was actually acting as the property manager. So I was able to look at that property and get a lot information from this property manager whose parents had owned it, and her grandparents had actually built the park. So that was interesting as well.

Joe Fairless: So you’ve got that 43-unit… It sounds like that’s a fairly recent purchase.

Gabriel Hamel: Yeah, I closed on that in June of this year.

Joe Fairless: Okay. Alright. So recent-ish purchase. You got the 43-unit mobile home park, and then you also said you have a 15-unit and a 20-unit apartment building. Do you self-manage all this stuff?

Gabriel Hamel: I don’t manage any of my rentals. So right when I hit the 17-unit mark, I was managing it myself. I had young kids at home. But at 17-units– one night, I was fixing a toilet or attempting to fix a toilet, and I had already considered and factored in property management. I’m kind of handy but not that handy, so I ended up spending my time… And then I had to call a plumber anyway; it’s late at night. So I’m spending my time and money, and then that was really the time I turned everything over to property management. And once I did that, I had a lot more of my time to put deals together. That was one of the best decisions I ever made.

I know a lot of people self-manage and some don’t, and I’m definitely one that sees the value in not managing my own properties. I don’t love it, I’m not great at it. I’m better at putting deals together. And I don’t like being that guy that has to take a security deposit or kick a tenant out for non-payment.

Joe Fairless: The 15-unit and the 20-unit… How are those people performing?

Gabriel Hamel: The 15-unit was a value-add. It was an old building, I partnered on that one. It was a commercial ground floor with two commercial spaces and 13 apartments. That was quite a bit different than many other projects I had done. My partner on it had a crew of guys that did a lot of the work. I put the deal together. He’d been working on it prior, and handed it over to me to negotiate the purchase. That was a big value-add. So all the apartments had to get gutted and restructured because of some egress things that were going on.

Joe Fairless: What was going on with the egress?

Gabriel Hamel: So it was a single-room occupancy originally. So before we bought it, the city came and every code violation you can imagine was going on.

Joe Fairless: Before you bought it?

Gabriel Hamel: Before I bought it.

Joe Fairless: Thank goodness.

Gabriel Hamel: Yep, yep. So we were trying to purchase this prior to that, when people were still living in it. Then a small fire happened, also previous to us owning it. That’s when the fire marshal came in and saw all these violations, kicked all the tenants out. So we’re still trying to negotiate. So now here’s a building that the sellers are trying to sell and there’s nobody. All the commercial is vacant, the residential is vacant… And we went to the city and just said, “Hey, we want to do this. We want to make this work.” We had some ideas and some plans, and they were great to work with. We just sat down and said, “Hey, what can we do? What can’t we do?” So this particular building, instead of keeping it a single-room occupancy, we essentially put a hallway down on the side that we couldn’t put windows into, made that a long hallway, and made a bunch of just neat and oddly-shaped — one two-bedroom in there, but one-bedroom units. It was a great play.

Our focus was the residential. The residential would fully support our financing. So that’s where the majority of our time went. As soon as that was done, we focused on the commercial and got some great tenants on the ground floor there.

Joe Fairless: What type of businesses do you get?

Gabriel Hamel: We have a bicycle shop that had been in another location previously, that wanted to be in this part of town. Then we had a restaurant come in on the larger side of the ground floor, and they’ve done really well.

Joe Fairless: A local mom-and-pop restaurant or a chain?

Gabriel Hamel: Yep. Local restaurant and local bike shop.

Joe Fairless: Okay, cool. What kind of area is this in?

Gabriel Hamel: I live in Eugene, Oregon, and this was in downtown Springfield. So growing up, it was, “Hey, why would you go to Springfield?” There wasn’t a lot going on downtown, and this building was the eyesore. It was the bigger– you see the building on your way into town when you cross the river, and on your way out when you cross the river, because it takes up that whole block. It was an attractive building, but it needed a lot of work. But also, it was in the path of progress. A lot of restaurants and stores from Eugene and local folks were coming into Springfield and opening up restaurants and stores and different things. So part of it was timing. Now, downtown Springfield is a very neat place. People actually want to go down there and hang out and grab a meal. So it’s neat to see.

Joe Fairless: What did you buy it for? How much did you put into it? What’s it worth now?

Gabriel Hamel: Oh, gosh. This was a little while ago.

Joe Fairless: Wait, when was it? When did you buy it?

Gabriel Hamel: So we bought this about three years ago.

Joe Fairless: Oh that’s not too long ago.

Gabriel Hamel: Not too long ago, not too long ago. We had close to a year of renovation, like all said and done. So we bought this in–

Joe Fairless: To the best of your memory. To the best of your memory.

Gabriel Hamel: We were in the 400-range and we put another close to that into it. The renovations were close to what we paid for it.

Joe Fairless: Okay, and what’s it worth now?

Gabriel Hamel: It would appraise out probably close to two million, maybe more.

Joe Fairless: There you go. Do you plan on doing a refi on that?

Gabriel Hamel: Yeah, we actually did. So we refinanced it. My partner and I had some 1031 money so we exchanged a little bit into that. We used hard money for the purchase and most of the renovation. Then we actually did refinance out of it and did a 25 year amortization commercial style loan.

Joe Fairless: I’ve noticed on the two projects we’ve talked about in detail, you’ve used hard money. What are the terms that you’re getting?

Gabriel Hamel: I typically borrow in the low 8% interest only, and a couple of points.

Joe Fairless: Are you making payments on the interest only throughout, or at the very end or?

Gabriel Hamel: It really depends on the deal. On the mobile home park, yeah, right away. On this other project, we actually deferred some of the payments during that construction time. So we actually kept an account aside that would cover that, so that we had some money to focus just on the renovation. Hard money is not something I used starting off for quite a while. I didn’t use any hard money for the first 10+ years of investing.

Joe Fairless: Was that your own money and that was it?

Gabriel Hamel: I was doing a lot of seller financing deals. I started with almost no money. So my first three deals were two no money down and a 5% down deal. I didn’t have a lot of money, but banks were giving loans then. Then in 2008 and ’09, ’10, ’11, ’12, I did a lot of low and no money down seller financing deals. That’s where I really built up the majority of my portfolio. These other two deals were a little bit different than what my focus up until then had been.

Joe Fairless: I forgot how I introduced you with the first thing. I mentioned that you have experience with seller financing and other creative purchase structures. So let’s talk about that in a moment… But on a related note, these last couple that we’ve talked about, they weren’t seller financing or creative structures, although I guess you could argue getting a hard money lender and doing what you did is cvasi-creative. Do you see yourself doing more of the structure that we’ve talked about in the future? Or do you see yourself reverting back to the seller financing?

Gabriel Hamel: I do both. So I try to take a real holistic approach to any deal, and I look at the deal individually and see what makes the most sense for that property. How am I going to get the biggest return on my money, how much money am I bringing into the deal… So it just really depends on the property, what financing would best fit.

Joe Fairless: Okay. So let’s talk about a deal that you’ve done with seller financing and why you chose that versus hard money and your own money with a down payment.

Gabriel Hamel: So my very first seller financing deal was the deal I found on Craigslist, and they were offering seller financing. I had been looking for seller financing. The reason I did that without bank loan or hard money is because I did not have the funds or a job to get conventional financing.

Joe Fairless: Were you in the military?

Gabriel Hamel: I was, yeah.

Joe Fairless: Okay. So I guess this is post-military.

Gabriel Hamel: It is. I was deployed to Iraq in 2003 and 2004. I came back, bought my first house in 2005, another one in 2006, and another one in 2007. That was all with bank financing. But a bank would approve anyone then. So I still bought smart, even though it was a hot market, and not great loans. I still have those houses today and they’ve done well. But I realized quickly a couple hundred dollars a month of cash flow per house would take a lot of single family houses to build up enough cash flow to live on. So my first seller financing deal was two duplexes side by side, four units. I put twelve and a half thousand down, and I got a lot of that back with deposits and prorated rents at closing, so it ended up being less than that… And the thing cash-flowed. So like all the things that I said before – poorly managed, under-rented, deferred maintenance, and it had all those things. The sellers were great people that were just tired of managing property, and so they were happy to sell or finance the deal. It was terms that were favorable to them and favorable to me. It was a true win-win scenario.

Joe Fairless: Out of all your deals, which deal have you lost the most amount of money on?

Gabriel Hamel: I have never lost money on a deal.

Joe Fairless: Props to you. Which one’s been the least profitable?

Gabriel Hamel: The least profitable – I partnered on another single room occupancy property about an hour South of me. I partnered with the same person I partnered on this other partner with, and I partnered with the lender. Long-term, it’s going to be fine. It’s a property that had a bad reputation and we ended up having to do a lot more work up front. It’s taken a while to really change the image of this building. Long-term, it’ll be fine if we keep it. If we sell it, I think we would make some money and do okay there. But it has not been as profitable as we anticipated. The expenses with the earlier renovation than we anticipated has costed not to perform as well.

Joe Fairless: What aspects of the expenses creeped up on you?

Gabriel Hamel: We had early vacancy. By the time we closed on it, some tenants had moved out. We had a commercial tenant that wasn’t paying. All the rents were low, being that it was single-room occupancy, but it also was really hard to get because it had a bad reputation previously for drugs and transient traffic coming through there to just really change the image of the property. So interior painting every time a tenant moved out, exterior painting we’ve done recently, and just some upgrades that we plan to do, but not as quickly as we did.

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

Gabriel Hamel: My best real estate investing advice ever, I’d say network, build relationships and let people know what you’re looking for. If people don’t know what you’re looking for, how are they going to find you? How are they going to bring you a deal? Lastly, I’d say do the math, know your market and trust your intuition. I think math and intuition goes a long way in this game.

Joe Fairless: We’re gonna do the lightning round. Are you ready for the best ever lightning round?

Gabriel Hamel: I’m ready.

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

Break: [00:19:32]:00] to [00:20:08]:03]

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

Gabriel Hamel: I have two of them. The Big Leap by Gay Hendricks and Can’t Hurt Me by David Goggins.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about?

Gabriel Hamel: A mistake on a transaction we haven’t talked about… Not digging deeper into my due diligence.

Joe Fairless: Will you elaborate?

Gabriel Hamel: I think when you get a proforma from, say a broker, and those numbers don’t always add up. Now, I’ve been okay with– now I’ve had enough experience to really dig into those, but I think a lot of properties look great on paper, and once you really spend some time and dig into those numbers, they don’t always add up to what you’re really being sold by the broker.

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

Gabriel Hamel: I like going to lunch and meeting up with people who are excited about building financial freedom through real estate or already started on their journey. I really enjoy just that natural coaching and mentorship.

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

Gabriel Hamel: The best way to get a hold of me would be either through Instagram or on my website at hamelinvestments.com.

Joe Fairless: Thank you so much for being on the show. Well, we talked about in detail the 43-unit mobile home park, the value that you added and the business plan. We didn’t even talk about the 60-unit. Shoot! Real quick, I want to learn more about the 60-unit. What were some specific things that made you want to pull out of the deal?

Gabriel Hamel: On the 60-unit, the biggest reason I pulled out of the deal– and it’s going back to that proforma… They’ve built a beautiful proforma based on their highest month rent and their lowest expenses. The more I dug into the numbers, and the more documentation I got from the seller and the property manager, things just really didn’t add up. There was just too many questions, and the numbers – their rent amounts didn’t add up, the expenses didn’t add up. There were just so many red flags. I tried hard to make it work, and it’s not something that was going to force. It wasn’t a good purchase.

Joe Fairless: They weren’t flexible on the purchase price or terms?

Gabriel Hamel: By this point, no, they weren’t.

Joe Fairless: Well, thank you for sharing the reason why you pulled out of the deal, as well as the deals that have gone well. We touched on a little bit of seller financing, but really the focus was on the larger deals. Thank you for going to Iraq, serving our country and keeping us all safe. Really appreciate you sharing some time with us. I hope you have a best ever day and we’ll talk to you again soon.

Gabriel Hamel: You too. Thank you very much. I appreciate it.

JF1967: Commercial Real Estate Investing & Commercial Loans | Best Ever Cincy Meetup with Michael Schablein

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Michael is a local Cincinnatian, and commercial lending expert. As Vice President of the commercial real estate banking division of US Bank, Michael has underwritten around $300 Million in commercial real estate loans. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Every year or two we have to get a new valuation and new loan documents” – Michael Schablein


Michael Schablein Real Estate Background:

  • Vice President, Designated CRE Specialist Community Banking at US Bank
  • Almost 20 years of experience in commercial real estate
  • Has underwritten around $300 Million in loans
  • Based in Cincinnati, OH
  • Say hi to him at michael.schableinATusbank.com


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Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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

Mike Schablein: Doing great.

Joe Fairless: Well, I’m glad to hear that. Best Ever listeners, if you listen to  it on the podcast or watch it on YouTube, come visit us in Cincinnati. That’s BestEverCincy.com. We meet the last Tuesday of every month, except for December. I don’t think we’re gonna do December… But last Tuesday of every month, come hang out; you can go to BestEverCincy.com. We’ve got people from all over the Midwest.

Introducing Mike – Mike is the vice-president; he’s the designated  commercial real estate specialist, community banking at U.S. Bank. Did I say that right?

Mike Schablein: You did. It’s a mouthful.

Joe Fairless: It is a mouthful, that’s alright. He has almost 20 years of experience in commercial real estate. He’s underwritten around 300 million dollars worth of loans. Based in Cincinnati, Ohio. With that being said, Mike, do you wanna give the Best Ever listeners and everyone hanging out a little bit about your background and your current focus?

Mike Schablein: Sure. Well-rounded background – I  started in banking 30 years ago, as a teller, during college, and progressed up to a branch manager, and then got into some consumer lending, and some mortgage lending (residential). This is with the small savings loan that no longer exists; they were bought.

In 1999 I went to Fifth Third Bank and I was in their commercial credit area for two years. In 2001 I transitioned into commercial real estate. I started downtown in the Tower, and then ended up working in Butler County, off the Union Center highway exit. In 2007 I left Fifth Third and came to U.S. Bank, and I’ve been there since.

I am in Butler County still, in Hamilton, and we can talk about what makes that different than being in Cincinnati per se. I’m not actually part of the group or the team that is Cincinnati Metro Banking for U.S. Bank. I am part of community banking, which means my peer are not so much in Cincinnati, or St. Louis, or Seattle, they’re more in Topeka, Kansas, and South Dakota, more of the outside of the metropolitan areas. So what is a challenge, I guess – most of my clientele is within the 275 belt loop, as to not trip over my compatriots with U.S.  Bank in Cincinnati.

You mentioned designated real estate specialist… There are two of those in community banking in the state of Ohio – me, and then another gentleman who’s up in Toledo. There is one real estate lender in downtown Cincinnati who does only real estate, and she looks generally at only things 20-25 million dollars and more. So those are big projects. I look at projects generally from 250k up to 5 million, although I can do projects of any size. It just is that most of the deals that I come across are in that 250k to 5, maybe 7-8 million dollar range.

There are, as far as I know, somewhere between 40 and 50 U.S. Bank business bankers around Cincinnati. They can do real estate deals; they are not real estate specialists. So they can do financing for a company, through a line of credit, or they can do a loan to buy an apartment building… They’re general lenders. I am specifically real estate.

I think the other differentiation would be types of deals. I will do probably deals that could be a little more complex, or deals with developers, construction loans… That definitely is a specialty that we may not see the business banker do so much. But I’ve been doing real estate now for 18 years, and I really enjoy it, and that’s probably what I’m gonna do until I retire.

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

Mike Schablein: Unfortunately, it’s been a while. It’s been a very competitive market.

Joe Fairless: What’s a while?

Mike Schablein: A couple months. I’m working on a couple right now, but it is very competitive out there, and that should be something we touch on. The last deal I did was for a project in Over-The-Rhine that is mixed-used retail on the first floor, and developing condos for sale on the upper floors.

Joe Fairless: And when you underwrite that, what are some important things that you look at?

Mike Schablein: That kind of a deal we place a little more weight on our guarantors, our sponsors, who’s behind the deal, what their personal liquidity and other sources of income are, more so than, say, buying a strip center where you’re placing your underwriting way more on the tenants and the leases, and underwriting that cashflow. This one, again, is construction. It did have one COI for the retail space, but all of the residential units are being built to sell with no identified buyers… So again, we’re looking real hard at our sponsors and what their ability is to carry this along if they don’t sell quickly.

Joe Fairless: COI stands for…?

Mike Schablein: Sorry, I meant LOI.

Joe Fairless: Okay, got it.

Mike Schablein: And that’s in [unintelligible [00:07:11].28] if we have a letter of interest with approximate terms. That kind of thing will generally start that for the underwriting process. Obviously, if someone brings us a lease that’s already executed, even better… But nine times out of ten on a new construction real it’s more prospects and letters of interest versus hard leases.

Joe Fairless: And you said that kind of deal we look more as a borrower. Is it because it’s more of a speculative deal, and not currently cash-flowing?

Mike Schablein: Correct. Anything that we can underwrite the cashflow… Again, say multifamily  – we have years of financials, and we have a rent roll; we feel like we can do a pretty good job underwriting and projecting how that may service the debt. Again, with the strip center with leases and cashflow, we can underwrite that. When you have something that’s more speculative in nature – construction – you’re looking at market rates out there, and you’re coming up with a proforma, but that proforma is only as good as the research you’re doing. And again, when you’re getting into speculative underwriting, then you’re gonna look more at your secondary source, which is your guarantor… So when we look at the guarantor, the first thing that we’re looking at is liquidity. We’ll collect  a personal financial statement and what they note as liquid accounts, so checking savings, investments that can be easily liquidated, things like that; we’ll get statements to correspond to those figures.

Joe Fairless: What’s the liquidity typically required?

Mike Schablein: Yeah, this is definitely more an art than a science. I’d say when you have a construction deal, a speculative deal, we’re gonna look for a little higher proportion – say 25%, or 30%. It depends on the deal, of what the debt is.

Joe Fairless: After deposit.

Mike Schablein: Yes, yes. And we’re also looking at their other personal and other commercial exposure. So at the end of the day, again, it’s art more than science, but the larger the deal and the stronger the cashflow – we tend to relax a little bit on what we’re looking for with liquidity. But we still wanna see it. And that would be part of maybe what we might wanna touch on with Best Ever advice… I would say Best Ever advice is look at your lender like your partner. When you’re buying a multifamily at 80% loan-to-value – we’re in this thing at 80%, with your 20%, and we wanna know every bit about that project as much as you would.

So we will ask a lot of questions, we will ask for a lot of information upfront… But look at it more as a partner, not “Oh, the bank is asking me for more stuff, and they never stop asking questions.” We ask a  lot of questions because we care, and because we wanna know. I wanna be able to answer questions that are put to me if we get financials in that show the property is not doing as well  as we thought it might do. I wanna know why. Well, if I’m not really paying attention and I’m not asking you questions as we go, it’s not gonna help me explain your case to the folks on my end on the credit side, that need to answer to people above them on the audit and on the examiner side.

So it’s a partnership, and we don’t ask for things we don’t need just to ask you for more stuff. We ask for it because we think that gives us the ability to understand you a little better, understand your business, and be able to present that more. Because at the end of the day, I’m your advocate, I’m the one that’s talking to the credit people, and the examiners, and everybody else… And if I do a lousy job of presenting your situation, it all flows downhill.

Joe Fairless: Will you take us behind the scenes? A lot of people in the room have probably gone through the process of getting a commercial loan, and some are particularly focused on residential… But I think regardless, it would be good to know when your company (U.S. Bank) has asked all the initial questions, and received the information – will you take us behind the scenes and let us know what are some typical follow-up questions that people you report to are asking you, that you’re having to field?

Mike Schablein: That is a good question. Well, let’s spread the curtain – there’s no Wizard of Oz here; the questions and the information on a commercial loan aren’t just upfront, at purchase, “Hey, I gave it to you. You approved it. We close the loan, we’re good.” Most of the time – and some of it is driven by the size of the loan and what our bank’s policy is as far as ongoing underwriting requirements… But on deals of size and larger, we have what are called annual reviews. And you have reporting requirements in your loan documents… So every year, I’m probably collecting a personal financial statement, I’m collecting liquidity verification, I’m collecting tax returns (personal), your business returns, K1’s… All kinds of things. It just generally will elicit ongoing questions; anything that changes substantially year-to-year.

A part of that requirement with the annual reviews is we’re pulling updated credit reports. So we’re looking at not only the property or the properties and how they’re performing relative to how we initially underwrote them, but we’re also looking at your personal situation; if there’s any significant changes, we’re asking those questions.

So it’s definitely not ask it all at once and maybe some follow-up and then we’re done. It can be an annual process. And in some cases, if it’s a large enough deal, we’re collecting quarterly financials; not so much on you, but your property. So quarterly P&L’s, and rent rolls. We’re obviously looking at occupancy on multifamilies if we see significant changes there… More units vacant, if we see costs that we’ve underwritten for a period of time spike… Maybe there was a [unintelligible [00:13:11].09] leak… Things that we’re gonna ask about.

Generally, properties don’t perform like your one-time proforma underwriting forever. There’s always gonna be changes.

I’d say the other thing is with loan documentation – again, some of it is dependent on deal size, but there may be a performance measurement in there. You have to hit a certain debt service coverage. That could be a quarterly measurement, it could just be a once-a-year. A lot of times, for various reasons, the property may not hit that during the term of the loan.

Joe Fairless: What happens?

Mike Schablein: Well, that’s a real thing, right? What happens is if it’s a true measurement and it didn’t work, but we can get our arms around why, and determine it’s not necessarily an ongoing issue that can’t be rectified, maybe a one-time issue, you’re gonna get a default letter issued, with a waiver. So we’ll waive the default, but you’re gonna get that letter. It looks kind of onerous; we’re quoting the language in the loan documents that say “Hey, this is what it was supposed to do, and it didn’t meet that measurement, so we’re putting you on notice, kind of thing…” But we’ll waive it. If we can’t get our arms around it and you can’t helps us get our arms around it… “Well, we’re having a hard time filling a unit, for whatever reason.” Well, you may get a default letter without waiver, and then we start having very regular internal discussions about your deal, and we’ll amp up the question asking and probably ask for more frequent financial reporting that you’ve provided in the past, and we’ll monitor it very closely until it either improves, or we get to a point where it just isn’t gonna get better and it’s not performing, and we’ve gotta have discussions about “Can we pay this down some, or do we have to send this to folks that are gonna –” I call it the workout group; those are real folks that all they do is monitor these accounts until the loans mature. At that point, they either help the client find a way to get that note renewed and meet the terms that it’s gotta meet, or they help the client find a new bank. That’s real.

Joe Fairless: And what are those internal conversations like, whenever you are talking about a deal that’s not performing and you can’t get your arms around it?

Mike Schablein: What makes it more real is that we actually have a higher-level credit approver on [unintelligible [00:15:35].26] in Hamilton. So they’re not necessarily located everywhere, we just happen to have one right in the building, and he’ll come down the hall and talk about it, which is good… But those conversations  – I think they want to see some timeframes given to things. They don’t wanna just hear “Well, we’ll have a conversation.” They wanna hear “Okay, within 30 days this is what I wanna see” or “I want you to report back and say that you’ve had this done.” It’s more defined, I guess, than when something’s maybe struggling but hasn’t quite hit that radar of “Well, it’s not performing.”

Joe Fairless: And then on the acquisitions side, after a potential borrower has submitted all their information and you’ve all received it, what are some typical follow-up questions that are asked, for whatever reason?

Mike Schablein: What I’ve found, and more so on the smaller – and when I say “smaller”, I just mean… We look at deals of various sizes. They can be a deal to buy a six-unit, it can be a deal to buy a 200-unit. But what I tend to find is more on the smaller deals, where maybe the current owner, the seller – maybe they have other properties and maybe they do their own tax returns. Maybe they load up expenses that aren’t necessarily related to that property on that [unintelligible [00:16:56].10], things like that. That’s gonna require more questions and understanding “Well, I see a lot of driving expenses, or meals and entertainment, and stuff like that for a local play. What is that?” Getting our arms around what’s a real expense for the property, versus what’s somebody’s personal expense. You don’t really see that too much on the larger deals. Those are generally underwritten, and you know what you’re looking at.

On the bigger deals, in this environment, the challenge is that it’s such a seller’s market, properties are so hot that a property that’s maybe not performed so good in the past gets  a strong three months, and all of a sudden the broker is underwriting the trailing three month, and trying to sell you “This is what it is.” “Okay, that’s what it is for the last three months. That’s not what it was for the last ten years.” So then we’re trying to get a sense of what’s a reasonable underwriting. It may not be the trailing three, but maybe it is definitely, and there are reasons why it has improved, and find a way to underwrite it that makes sense for us the bank, as well as the client, when they’re putting an offer in… Because again, it is a seller’s market, and a lot of properties are getting multiple bids.

Joe Fairless: What, if any, scenario would you all underwrite to the trailing  three months?

Mike Schablein: More so maybe it was a distressed property that has been renovated, and re-tenanted, and “Hey, we got this thing up and going”, and we can get our arms around what our renovation expense is, and we can see this submarket or that property is — say it’s generally a 90% to 95% occupancy, and their prior couple of years were in the 50s and 60s while they were emptying it out to redo units. So there’s usually a story behind that, and we’ll underwrite to that story if we can understand it and make sense of it.

Joe Fairless: Let’s take a step back, and for anyone who has not gotten a commercial loan, but plans on getting one in the future, what are the things they need to keep in mind in order to be approved for a commercial loan when they’re used to residential?

Mike Schablein: Okay.

Joe Fairless: We talked about liquidity a little bit…

Mike Schablein: Yeah. So definitely liquidity. 80% loan-to-value on a multifamily is fairly aggressive; it’s a standard. We don’t necessarily wanna see — yes, we want the bank to do 80%, but I’m gonna get 15% as a seller, held second, and I’m gonna put 5% into it. We wanna see that you’re putting the necessary equity in this, on the commercial side. Now, I know on the residential side there’s still programs out there for homebuyers for 3% down, 5% down, 10% down. We generally wanna see 20% down.

Now, you may have partners in this deal, you may have investors in the deal. So you may show me on your personal financial statement you could put the 20% down, but you’re not necessarily doing that. You may have investors that are putting in cash; they aren’t gonna sign guarantees, but that’s how you’re gonna get to your 20%. Those are all things we need to understand. We need full tax returns, we don’t just want page one and page two, we want all the schedules, we want the K1’s. I don’t care if it’s 200 pages long. You can email them and we electronically store them.

So full returns, full information, personal financial statements… Really take your time. Do a good personal financial statement. Don’t just blow through it and — “Hey, the bank needs to see a little liquidity. I’ll put some of that there.” Let us know what you’ve got. Not that at the end of the day we’re needing that because we’re trying to figure out how we’re gonna turn you upside down and shake out the quarters if we have to… I haven’t had to do a workout deal at U.S. Bank in 13 years. And it’s cyclical. It may have a period, for whatever reason, where it struggles. You’ll get a little more latitude from the credit folks when they know we have a good, complete personal financial statement and we understand your capabilities to pull that deal along while you’re fixing it… Versus the one that doesn’t show us everything, and we’re like “Well…” Our margin for error isn’t very much, and then they start getting a little more nervous.

Joe Fairless: On the personal financial statement,  you mentioned you need 25%  to 30% liquidity for  a new construction. What would be liquidity for —

Mike Schablein: What I would tell you is there’s no magic formula to that. It really all depends upon —

Joe Fairless: What’s minimum?

Mike Schablein: Again, no magic formula…

Joe Fairless: No minimum liquidity?

Mike Schablein: You obviously have to have enough to put the equity in that we need, and then we generally wanna see that you have at least another equal amount of that. So if you put 20% in on $100,000, we like to see you still have $20,000 after that, to account for one-time expenses or things you weren’t necessarily thinking would happen, that kind of thing. But a lot of it is driven by the size of the deal, and you have other partners in the deal… Do you have a bunch of other commercial loans, and how are those loans performing? If those other loans aren’t performing well, we’re probably going to see more than if you have a lot of commercial loans and they’re all cash-flowing at two times…

Joe Fairless: First one. This would be the first one.

Mike Schablein: This would be the first one… So we don’t wanna see that you’re putting every nickel you have into that down payment and you have nothing sitting there in reserve. You need to have reserves, you need to expect the unexpected, you need to expect that you’re gonna have that 20-year roof on there and all of a sudden it’s not what you thought it was, and it’s a major expense.

Again, I’m not gonna put a percentage to it, but I’m gonna say we’re always looking that you’re gonna have reserves. If you don’t have reserves, we’re gonna need to find another way to get you to that down payment, because as a bank we’re not gonna approve a deal where you’re putting every nickel in and have no reserves.

Joe Fairless: Same answer to net worth?

Mike Schablein: Net worth – we have a lot of clients with large net worths, but it’s–

Joe Fairless: What’s a large net worth?

Mike Schablein: It’s all relative. You can have a million dollar net worth that’s full liquidity… I consider that a big net worth. Your million dollar net worth is a little bit of property, but it’s $700,000 in cash. And we’ve got the 25 million dollar net worth person that has all kinds of real estate and has about $10,000 in cash. That one makes me nervous. Any of those properties go the wrong way, they don’t have the reserves. They’re having to either leverage their other properties, or get investors… Whereas that guy with the lesser net worth – very liquid. That makes us feel good.

Joe Fairless: What are your thoughts on a rule of thumb 10% liquidity, 100% net worth? Just a framework to throw it out there?

Mike Schablein: You’re gonna pin me down–

Joe Fairless: Just like your people like deadlines when you’re doing the workout, you’ve gotta have some sort of–

Mike Schablein: I can tell you, there are all kinds of things in our commercial loan policy, and I can quote you every ratio and percentage in what we wanna see on every type of property… That’s not something that’s actually covered in there. There’s nothing in our commercial loan policy that says they need to have this net worth or this amount of liquidity. It’s completely something that the credit approver — it’s arbitrary, and an art.

Joe Fairless: It is an art and a science–

Mike Schablein: Totally an art. There’s nothing that’s defined. Having said that, I’ll go back to the one with the high net worth and no liquidity – he’s gonna get scrutinized a little more than the one with the much lower net worth, but it’s a high percentage of liquidity. That one can withstand some bumps, and the other one is gonna have to leverage something to do that, and that requires – if it’s not our loan, it’s somebody else’s loan they have to leverage; that requires that other lender being okay with it. That’s as good as I can do for you on that.

Joe Fairless: Fair enough, I appreciate that. What are some no-go’s for you?

Mike Schablein: It’s flexible. That’s a good question, though. U.S. Bank has a lot of no-go’s. It makes my box a little smaller than I’d like it to be, but… We generally are only going to work with regional borrowers, buyers, investors. Regional – I can stretch those bounds, but realistically, say within 2-3 hours of the Greater Cincinnati Beltway. That’s where our borrower has to be located. We’re all about where our borrower is.

If you’re in Northern Kentucky or you’re in Northern Butler County, or you’re out in Eastern Indiana or out in [unintelligible [00:25:35].25] you’re in my market. If you’re up towards Columbus, you’re probably still in my market. But we’re gonna follow you, because we can get to you easily. I can meet with you on a day’s notice and drive out to see you.

Joe Fairless: The property has to be in that area, too?

Mike Schablein: No. We’ll follow you, Joe, if you’re buying a property in Florida. I’ll follow  you and do that property in Florida, if it underwrites and it cash-flows, and we can get our arms around that market. The no-go is I can be looking out of my office window at the building across the street and somebody from California buys it – I can’t finance that. Now, I could refer it to U.S. Bank of California, but they generally don’t get that excited about doing that themselves. So that’s the challenge.

Joe Fairless: Why is that? Dollar size/amount?

Mike Schablein: Yeah, sometimes it’s dollar size, sometimes I know by policy the guy in California knows he could do it, but California is a big state, they don’t really know that client, it’s not a large deal…

Joe Fairless: Yeah, not worth their effort.

Mike Schablein: …and in Hamilton, Ohio – not worth their effort. They don’t think they can understand that market. The cap rate in Hamilton, Ohio is not the cap rate in Los Angeles. There’s a lot of different things going on there. So as a lender, philosophically that’s always a challenge for me, because if I’m looking outside at that building across the street, I know the real estate market in Hamilton, Ohio, I know what’s driving things… I get that property, but if that borrower is not local to me, I can’t do it. And conversely, I don’t understand sometimes why — I may know you, and that’s great; I have full confidence in you, and you’re telling me this property in Florida is a great deal, but I don’t know that real estate market and that concerns me. But in theory, I can do that. So out-of-market borrower – no go. Second bank financing behind this – no go. We don’t do that, as far as no-go’s.

The other no-go for us is recourse. We do not do non-recourse. If the guarantor, the member, the borrower, that person is not willing to sign the personal guarantee, we’re not doing the non-recourse loan. And it’s very easy on larger properties that cashflow; non-recourse loans are all over the place… That’s just something philosophically we don’t do; it’s more of a relationship-based thing, and the bank frankly wanting to have a second source of coming back if the property doesn’t work… Versus the non-recourse loan, where you can hand over the keys and you’re done.

Joe Fairless: Cool. We’re gonna go to the Lightning Round, because you’ve already said your best ever advice – treat it as a partnership.

Mike Schablein: Right. Think of the bank as your partner.

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

Break: [00:28:29].05] to [00:29:07].11]

Joe Fairless: First question, what’s the best ever way you like to keep up to date with what’s going on in your industry?

Mike Schablein: I meet a lot with real estate brokers, and loan brokers. To me, it’s both. I need to know what’s available in the lending markets. Over 20+ years you know a lot of lenders at a lot of banks, so you can kind of keep up just by meeting with them, with what they’re doing. The loan brokers tend to know not only what the banks and the credit unions are doing, but what the life companies, and the Fannie/Freddie programs and all the other types of financing sources are. So I wanna know what’s going on there… Also, from a real estate perspective, what are the hot areas, what are the new projects that are maybe under consideration, but haven’t hit the business [unintelligible [00:29:50].22] Because once it’s hit that, it’s too late. That’s six months too late.

Joe Fairless: How is knowing where the hot area is helpful for you?

Mike Schablein: Finding out who owns the property, I can dig and find that myself, and making those calls, and trying to find out what’s going on.

Joe Fairless: Making the call for —

Mike Schablein: To the developer, to see what their plans may be. “Hey, I see you’ve purchased some property in Silverton [unintelligible [00:30:17].27] there’s probably some new multifamily just down the hill on Stuart– understanding neighborhoods that maybe are in the midst of change. Greater Cincinnati is a gigantic place. My office is in Butler County and I can’t possibly always know what’s going on in every neighborhood, and maybe what is planned, what local municipalities are planning to do with land, and if there’s developers, who they are and what they’re planning to do. That’s a challenge.

A lot of times the real estate brokers, the folks at the CBREs and the Colliers and those places tend to have an inkling of what’s going on before it hits the publications, and that’s when you wanna be checking into that… Because again, once you’ve read it in the [unintelligible [00:31:05].03] they’re already six months down the road on getting their financing in place.

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

Mike Schablein: I could do a better job at that… That ties into the book I  just finished, Halftime. I’m probably in the middle of the third quarter than halftime at this point, but… Kind of that point where you get to “How do you give back more?” and how do you get to a point where you’re doing what you want to do more than what you need to do to pay bills, and that kind of thing. Just really a mindset change… But I am on a local not-for-profit board; it’s a very small — but sometimes you just can’t do everything and still have four kids at home, and a couple in college… So I do that. Do I wish I could do  more? Sure… And I think my mind – I’m starting to wrap around “I need to”, it’s just the how that I haven’t mastered yet.

Joe Fairless: And the best way the listeners can get in touch with you to learn more about what you’re doing?

Mike Schablein: Yeah, that would be tough, trying to find it online, and probably even more difficult — U.S. Bank is a big bank; all the smaller banks, you might see [unintelligible [00:32:15].12] and actually be able to click on people. U.S. Bank’s got 70,000 employees, and a lot here in Cincinnati, so it’s not so much personalized and individualized. I have business cards I’m happy to pass out. I do a lot of emailing, because I can’t be everywhere at once.

Joe Fairless: Do you wanna mention your email?

Mike Schablein: Yes, sure. Michael.schablein@usbank.com.

Joe Fairless: Thanks so much for hanging out with us, and I’m opening it up to–

Mike Schablein: You spared me the Antonio Brown questions; I wasn’t gonna answer those anyway. [laughter]

Joe Fairless: I know what you’re talking about, but I have no idea of the context there. Let’s [unintelligible [00:32:58].00]

Audience Member: I wanna paint a lending scenario, and this is multifamily. Say I’m an existing borrower, current on all my payments, the various multifamily properties are performing, liquidity is okay, but when you review the debt service coverage ratio, I miss badly. I miss by 15% or 20%. So that’s a violation. What’s your thought process, or what would cause you to call the loan versus waive it?

Mike Schablein: Well, one, we generally don’t call loans. You may end up being monitored by somebody else other than me if they feel it’s a problem that’s system, that’s not going to go away. I guess what I would question is you say you’re performing well, but you’re missing your debt services. Why would that be?

Audience Member: Maybe I went a little too aggressive with the purchasing, and things are, for example, not fully renovated…

Mike Schablein: I’ll give you a situation we see all the time. What we see a lot is a property is performing, and then a year — it would be embarrassing if I didn’t know why for a full year, and then found out after the fact, but a lot of times you’ll get that next set of financials and all of a sudden your repair and maintenance expense is way up. “What the heck happened?” Well, yeah, I went ahead and renovated five units… Great. Okay, you didn’t ask me for the money, you did it on your own, but you drove your expenses up and your accountant decided they’d rather expense it than capitalize it, or maybe there were certain things that couldn’t be capitalized. We can get our arms around that, right? That’s a one-time thing. “Hey, this is what I did; I put my money back into the property, here’s how much I’ve spent…” I’ll normalize the underwriting and say “Well, had you not spent that $30,000, you would have hit your debt service coverage. It’s fine.” I can do that.

But I guess what I’ll struggle with is this scenario I’ve painted for you before, where “Well, I have a lot of properties and I travel to them a lot, and I’ve put all my personal expenses on the [unintelligible [00:35:02].00]  for that.” That’s something that I may know what you’re doing, but that’s not necessarily an acceptable answer for not hitting your debt service coverage. So you’re either gonna change the way you’re doing that, or we’re probably gonna have an issue, and it’s probably gonna end up where somebody else monitors that account until it matures, and then our recourse at that point is just to tell you we’re not gonna renew the loan… And that gives you a chance to shop that elsewhere.

But again, as long as we can understand why, and underwrite it and normalize it… A lot of times that’s what it is. “Hey, [unintelligible [00:35:35].28] and put the money back into the property.” “Okay, great.”

Audience Member: Hi, Michael. I–

Mike Schablein: You look familiar.

Audience Member: I’ve done a deal with you on [unintelligible [00:35:48].10], brother. You made it very easy.

Mike Schablein: Yes. Well, that’s the one time I made it easy. [laughter]

Audience Member: Yeah, I don’t know about that. I’ve been told that U.S. Bank has a stress test that you would [unintelligible [00:35:56].25] a 10% vacancy and credit loss. Is that accurate?

Mike Schablein: We have what they wanna call a minimum vacancy. Say you’re in a market that CBRE says Pleasant Ridge’s multifamily vacancy right now is 3%. Our policy may say the minimum of 5% or market vacancy, the minimum. So we’ll use 5%, even though the market is 3%. Now, conversely, say it’s 10%. Well, we’re not gonna use 5%, we’re gonna use the 10%, the actual. So it’s always gonna be a minimum of 5%. Sometimes the actual may be less than that, but if that’s really causing a deal to not work…

Audience Member: [unintelligible [00:36:48].27]

Mike Schablein: Management fee, we’re gonna use 4% as a minimum. Now, if you’re paying somebody 7%, then we’re gonna use 7%. But if you’re paying somebody 2%, we’re gonna use 4%. So there are a couple things like that, but honestly, the rest of it is really based on historicals.

Audience Member: As far as the debt coverage ratio goes, depending on how you structure the loan, I’m assuming their payments are gonna be different. So if it’s an interest-only loan, then maybe a little bit lower monthly payment. If the term length is longer, over a period of time you pay less. Also the amortization – if it’s 15-year versus 20-year versus 25-year, that payment is gonna be different… So do you work with investors to structure a loan in order to make the numbers work, or…?

Mike Schablein: That’s a good question. We have what’s called a sizing tool. We actually size the loan based on a constant, and that constant will involve interest-only. Your payment may be interest-only, but we’re gonna size that if it was a P&I payment based on a certain interest rate and a certain amortization… So if the loan sizes to that and you do an interest-only payment, you’re gonna be fine, because you’re interest-only and we’re basing our loan size on a P&I payment. Having said that, where that comes back to haunt us sometimes – that sizing constant may be a little more conservative than what the actual debt service of the property is. So our sizing may say “This only supports a 5 million dollar loan”, but the actual debt service would size at 5,5 million dollar loan. Well, somebody’s gonna underwrite it for the 5,5 million dollar loan, and we’re stuck at 5 million, and that becomes a competitive issue.

Audience Member: [unintelligible [00:38:21].04]

Mike Schablein: I can’t really speak to the residential. Commercial loans, I’d say your best source of information on commercial loans — because every bank is a little different. There is no heat map that shows “This bank loans this loan for a quarter of a million here, and U.S. Bank did this one here.” It’s really auditors’ sites, reporter sites… You can find who’s filing mortgages, and then obviously on auditors’ sites; if you know particular areas of properties, you can see who’s bought them, who’s transacted.

Audience Member: So if I have a smaller multifamily property, a 4-unit, and it’s in an LLC, and I’d like to do a HELOC on that, how would I go about doing that?

Mike Schablein: It is a good question. When you have the 1 to 4-family properties — I know residential lenders can do a multifamily 4-unit, unless they’re owned in your name. I think the LLC throws that out of the residential financing picture. On the commercial side, most larger banks don’t like HELOCs on investment properties. Number one, they generally limit the term. If they were gonna do  one, they generally would be a year or two years, so every year or two we’re having to get a new valuation on the property, and new loan documents, things like that.

I’d say we generally will prefer a term note. If it’s a one-time need, we’d rather see that than a floating checkbook on an investment property. Now, having said that, if it’s a very low loan-to-value property, if it’s a 30%, 40%, 50% loan-to-value we would consider a HELOC. But again, I think the trade-off is you’re probably gonna have a shorter term than a term loan, and every couple of years you’re gonna get that papercut of costs, with a updated valuation, and title update, and loan documents, and that kind of thing.

Joe Fairless: Assuming that the HELOC did happen, what would be a case where that one-time need could make sense to the bank? What would that one-time need be?

Mike Schablein: Well, big-ticket items… So depending on — if it’s a 4-unit, maybe I already have two empties, and the other two, I’m just gonna let them walk at the end of their term, and I’m gonna redo the kitchen and the bathrooms in these units, and I’m gonna pump the rents, and we’ll underwrite it to the proforma… Things like that. That would make sense on a one-time basis. If you own a bigger property and you’re like “Hey, I’ve got ten buildings on this property and I’ve gotta do roofs, or I’m gonna redo all the parking lots”, that’s more of a term note thing than a line of credit. A line of credit thing is “Hey, I’ve owned this property 20 years and I’ve paid my loan down, or paid it off, and I just wanna have something in the event I decide three years from now I’m gonna put new roofs on it, or do that…” Then we would look at more of a HELOC situation. But not where “Hey, I’m at 75% LTV and I wanna get every bit of equity I have to have this just in case something comes up.” That’s when we’re looking at your liquidity reserves.

Audience Member: That makes sense. And also, can you repeat your email?

Mike Schablein: Sure. Michael.schablein@usbank.com.

Audience Member: So if you were to analyze a deal that’s just a 4-family, 8-unit, whatever you wanna call it [unintelligible [00:42:09].16]

Mike Schablein: I have some properties that required flood insurance. The flood maps change, too. It may be in the flood zone two years from now, and it wasn’t when we did the loan. You don’t know. But yes, we have a very dedicated group of folks that only monitor flood mapping. So if something like that comes up during the term and it wasn’t in a flood zone, we’ll get a notification, you’ll get a letter, and it gives you X amount of time to get that in place.

But as far as underwriting goes, I’m not gonna say no to the property because it’s in a flood zone. If it works, and you have the proper flood insurance in place, and it still cash-flows, we will do the deal.

Audience Member: I guess what I’m saying if you just compared apples to apples, same place, on high ground and flood zone – will there be a difference in the way you look at it?

Mike Schablein: I don’t look at the deal differently.

Audience Member: Okay.

Joe Fairless: I set the bar high, so let’s see what you’ve got…

Audience Member: Well, a couple questions. I’m a buy and hold investor, I’m relatively new to commercial. Everything until recently has been four units or fewer. My understanding is that U.S. Bank has as a commercial lender on real estate has a reputation of being very picky about what they will and won’t write on… But if they decide they would want to write on a property, they’re gonna blow everyone out of the water with the terms that they’re willing to write on. What’s  your perspective on that reputation. Does that seem to hold true to you?

Mike Schablein: I don’t have that same perspective. I would say, in fairness, our box is smaller than a lot of financial institutions. And not because we’re picky about the types of properties so much, it’s that our underwriting terms – I could tell you, from the day I started 13 years ago to today, haven’t changed hardly at all… Whereas a lot of banks, leading up to 2007-2008, when things really went sideways, there was a lot of aggression out there. A lot of banks pulled back until about 2012-2013, and then it heated up again, and right now it’s the Wild West out there. It is definitely a borrower’s market for getting aggressive terms. Our terms haven’t changed.

On multifamily we’ll do up to a 10-year term, but on all our other commercial types, you can give me a Walgreens’ 15-year lease – it’s gonna be a 5-year term. So it can renew, but our terms are very conservative, so that makes our box small; not that we’re picky about what type of property it is.

Audience Member: Conservative, in a small box, but not picky. Okay. So if we experience a market shift and all of a sudden it gets a lot harder to get loans on our properties, would you expect that U.S. Bank would, in a market like that, end up feeling more aggressive than other lenders?

Mike Schablein: Yes. Again, when I came over it was just at the start of the crash, and from about 2009 through maybe 2013-2014 it was the most business I’ve ever done in commercial real estate… And that’s because everybody else pulled back. We weren’t doing anything differently, we weren’t offering any better terms, different terms. It was the same stuff. There just wasn’t any competition. Now everybody’s out there, so it’s challenging. But again, we’re not doing anything different, it’s just everybody else is really going after it.

Joe Fairless: Last one and then we’ll wrap up.

Audience Member: Do you invest in real estate personally, and if so, what do you do?

Mike Schablein: Well, the answer is no. My Fifth Third days, 1999 through 2007, there was actually a rule within the commercial real estate group – we couldn’t invest and lend at the same time. Number one, they didn’t want any clouding of thinking; number two, they didn’t want that to be your day job instead of the commercial lending aspect of it. U.S. Bank doesn’t necessarily have that same rule. What’s precluded me is four kids, two in college, a lot of other things going on right now. Would I invest in real estate? Absolutely. But it’s just not the right time yet.

Joe Fairless: Mike, thank you so much.

Mike Schablein: Thank you.

Joe Fairless: I appreciate it.

JF1962: Finance Major Builds Real Estate Investing Business with Peter Knobloch

Listen to the Episode Below (00:22:08)
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Peter joined an investment firm after college, helping them acquire 343 doors and raising $3-4 million to obtain the properties. Now he works on building his own portfolio, with experience in many different assets. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“You’ve got to know the numbers, if you’re not good at it, get someone who is” – Peter Knobloch


Peter Knobloch Real Estate Background:

  • Third generation real estate investor
  • Experience in many areas of commercial real estate investing, including multifamily, office space, hotels, restaurants, and sporting clubs
  • Based in San Diego, CA
  • Say hi to him at www.pknobloch.com 
  • Best Ever Book: Best Ever Apartment Syndication Book


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

Peter Knobloch: I’m doing great. Thanks for having me on your show. I appreciate it.

Joe Fairless: My pleasure, and looking forward to our conversation. A little bit about Peter – he’s a third-generation real estate investor. He’s got an experience in a lot of different areas of commercial real estate including multifamily, office space, hotels, restaurants, and sporting clubs. Based in San Diego, California. With that being said, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Peter Knobloch: Yeah, I’m a New Englander by birth. My parents are both from New York. My dad brought us out here because of the Navy, he was a Navy pilot. I’ve been here in San Diego since I was about four years old, so I could say I was raised here. I really love living here in San Diego, it’s wonderful.

I was very fortunate to marry my high school sweetheart. We have six children, and they’re all absolutely wonderful, and six grandkids. I have an MBA in finance and international business. I started out my career at an investment firm, and the principal asked me to take charge of buying multifamily apartments for syndication. We cater to a high net worth individual; we had a [unintelligible [00:02:28].15] pool of investors. Within about a little over a year, we acquired seven properties at a gross value of about $14 million, 343 doors; we raised somewhere between $3 and $4 million in equity, and I thoroughly enjoyed it.

I did everything, from basically the cradle to the grave – finding the property, all the way to working with our attorneys to do the private placement memorandum and the subscription agreements, and it was a lot of fun.

Then I went into commercial real estate, where I was assistant to the CFO. I worked there for three years, and worked on multimillion-dollar projects. I did cash flow forecasts, investment valuations, business plans… We worked with a lot of international investors, particularly Japanese, at the time, and I thoroughly enjoyed it.

After that period of three years, I went into the serial entrepreneur [phase]. I wrote a lot of business plans, helped raise capital. I did international manufacturing with an Israeli partner. I helped startup companies, I helped start up a high-tech company where we built nuclear portable analyzers, and I was there for six years as a CFO. I’ve helped some companies turn around, and I’ve help companies get ready for sale. And for the last ten years, we had a family business and we’re in the process of selling that. About a year ago or so I decided I was going to get back into real estate, because I really thoroughly enjoy it. It’s a lot of fun. It really suits my personality. [laughs]

Joe Fairless: So what do you focus on now?

Peter Knobloch: In terms of real estate?

Joe Fairless: Yeah.

Peter Knobloch: I’m looking for the value-add, because that’s what I do best. Those are the properties we purchased when I was at the investment firm. We were kind of looking for the cvasi-ugly duckling on the block, the B-, C, C+, if you will, types of properties. I’m not buying anything in California because economically, it just doesn’t make sense. So I’m looking outside of California – Midwest, Arizona, Texas, Tennessee, those areas. And I’ve found some great deals. I made at least three offers in the last 30 days, all of which were rejected, and that’s okay. But you just keep trying. So that’s what I’m focusing on – I’m looking for the value-add opportunity, anything above 30 units, and something that we can go in and do that, as you know, the forced appreciation.

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

Peter Knobloch: Well, that was back in the day. I currently haven’t purchased any property since I just started this year, looking and ramping things up… So I haven’t done anything. I’ve come close, like I said… I put three offers in and came close on one, but it’s a very competitive market out there. But that’s okay, because I look at the real estate market as a multi-story parking garage, in the sense that sometimes during the year it’s gonna be very busy, a lot of people coming in and out, and some years, it’s gonna be slow. But the point is that there’s always people entering and exiting the market, every day. So the key is to continually, consistently look, and keep looking and not give up.

Joe Fairless: I like that analogy. I hadn’t heard that before. Is that an original Peter-ism?

Peter Knobloch: Yes, it is. Because years ago, they’d say “A good deal and real estate comes around every week.” And what I’ve noticed is that frankly, now they’re every other day. There are so many people that are entering, and a lot of people exiting the market, for whatever reason.

Joe Fairless: Let’s talk about some things I mentioned while I was introducing you. I said, based on your bio, that you have experience in a lot of different types of commercial real estate investing, one of them including sporting clubs. Can you elaborate on that?

Peter Knobloch: The gentleman that I worked for in commercial real estate bought a class A building complex. And within the building complex was a gym, if you will, a very high-end gym. And he got the idea that “Why don’t we build some class A sporting clubs attached to office complexes?” And one thing led to another, and he started the concept of freestanding $25 million sporting [unintelligible [00:06:28].01] high, high-end sporting clubs. And at the peak of the business, we had ten high-end sporting clubs, on the West Coast and on the East Coast. So that’s how that idea got started.

Joe Fairless: What is a sporting club, exactly?

Peter Knobloch: It’s like a fitness gym. You know, some of the more popular ones…

Joe Fairless: Yep.

Peter Knobloch: …but they cater to the professional and they’re looking to attract the individuals who are willing to spend a lot of money for an extremely well kept, maintained, full of amenities type sporting club. The amenities in there were sauna, personal trainers, nutritional experts, and class A fitness equipment. It was really quite the luxury gym.

Joe Fairless: And they’re all next to a class A office? Did I hear that correct?

Peter Knobloch: Yeah, they were targeted for those areas.

Joe Fairless: And what happened to those?

Peter Knobloch: Well, during that time, it was the go-go days of real estate, and we were doing investments with a lot of Japanese investors. And towards the end of the third year that I was there, the real estate market started to decline, and the interest in spending $25 million for a sporting club started to decline as well. So they lost interest in that.

The other thing that contributed to it is that we built a $300 million multi-use real estate project here in San Diego. And I was the financial analyst on that project. It started out at a $175 million budget, but it ballooned to $300 million, because the owner of the commercial real estate started to spend more money than the Japanese investors were comfortable with. So he fell out of grace with that, and things spiraled down from there, and so… It kind of went away.

Joe Fairless: But the $175 to $3 million – did that get completed?

Peter Knobloch: Yes. It did get completed. It’s a beautiful project.

Joe Fairless: I bet it is.

Peter Knobloch:  It’s right next to the freeway in San Diego. It looks like a Tuscany village. It has an office; it’s, I think, a ten-story office, with a high-branded hotel; there’s three restaurants on the pad, and of course, the sporting club and the pool. It’s really quite gorgeous.

Joe Fairless: How do you go from 175 to 300?

Peter Knobloch: Change orders. [laughs] You change orders. Seriously, you would go in and look at things and say, “I want to upgrade this, I want to upgrade that”. As an example, he was on a trip to Greece, and he was going through a museum, and he saw a statue and said, “I think that $100,000 statue would look good in the lobby.” If that gives you an idea of–

Joe Fairless: Wow.

Peter Knobloch: Yeah, it just got out of control, so to speak.

Joe Fairless: So it was built as a $300 million facility, so that $100,000 statue is in the lobby currently?

Peter Knobloch: Oh, yes. It is.

Joe Fairless: And you were the chief financial officer. Did I hear that right?

Peter Knobloch: No. I was the senior financial analyst. I worked with the CFO for three years side by side and I did all the number crunching. I did all the underwriting, investment analysis, cash flow forecasts, evaluation, operational, everything.

Joe Fairless: What are some tips you have for developers who are listening or even fix and flippers who are working on a smaller scale, whenever they’re undertaking a development type of project?

Peter Knobloch: Well, the first thing is addressed in your book – which I read and I really enjoyed tremendously, and you did a great job on it – is to qualify the market, make sure the market will sustain what you’re doing. Whether it’s developing, or flipping, or going in and renovating; make sure that you get your money back, so to speak.

But second to that is you’ve got to know the numbers. You’ve got to know them upside, inside, every which way, and you’ve got to feel very, very comfortable. And if you’re not good at it, then by all means, get someone who is.

For example, when I was at the commercial real estate development firm, I was running these numbers and I made a mistake. And it was a $30 million mistake because we’re dealing with a lot of zeros. Now, it didn’t have any impact on anything, but it was very embarrassing, and it could have turned out to be a problem, but fortunately, it didn’t. But the thing is, you’ve got to know the numbers and you’ve got to get really, really good at knowing what the numbers are, what the costs are, and your budget to renovate, what the return is going to be, how long… Everything. It’s really critical.

Joe Fairless: The $30 million mistake, what was it exactly?

Peter Knobloch: It was another multi-use project that we were looking at. We were doing forecasts and evaluations on it. It was just a simple– didn’t double, triple check the numbers, and it just fell in there. Fortunately, one of the guys saw it and said, “Hey, this doesn’t look right.” So I went back and triple-checked, and sure enough. But that’s the way it is.

Over the years I’ve built up a repertoire of saving my spreadsheet every two minutes for a major change, and really taking the time to carefully check analysis. For my real estate investment, I built a spreadsheet a few months ago, and I really, really like it. It does a phenomenal job. But the point being is you can never be complacent with it. You’ve always got to be diligent and double and triple-checking your numbers.

Joe Fairless: When you are building your spreadsheet, what are some aspects of it that you want to make sure it included?

Peter Knobloch: Well, of course, what drives it is the revenue. You can play around with the operating expenses and other components, but really, one of the key components is the revenue. When I looked at a property, I say “What do the rents look right now? I want to know exactly how it sits today and take a picture of it.” And then what I did is I built another spreadsheet within the spreadsheet, if you will, that takes the current rents, plugs in the lease expiration date. And then I have the spreadsheet go out two, three, four years, and I put the months in, and I built in a formula that tracks when the lease expires, and when I can bump that rent up. So I get a real-world timing and magnitude exposure of when I can realistically bump the rents, and what does that revenue look like. And of course, once you get that nailed down, then it affects everything down to the investment return.

A lot of people I see say, “Well, we can go in, we can raise the rents,” and they’ll bump them x percent over a time period. But they never talk about the fact that the leases have different expiration dates on it.

Joe Fairless: Yep. That’s a very important variable, because if a lot of them are on the back end of the year, then you’re missing out on–

Peter Knobloch: A full year.

Joe Fairless: Yeah, exactly. So you have the months that you can plug in on a rolling basis so you can see how the income will be increased in a realistic way, based on the leases. What are some other things that you included?

Peter Knobloch: I take the proforma and use it in the first year. I say, “Okay, what are the operating expenses currently? Are they reasonable?” So I use those in the first year, just to be more realistic in the sense of conservatism, understate revenues, overstate expenses. And then I take averages in terms of operating expenses – what does that look like in terms of per unit? Is it $400 per unit for advertising and marketing? Is it $800 unit make-ready and turnover? Whatever. And then, I plug in what I think I can do in the second year, third year moving forward in terms of the operating expenses.

Of course, I keep a capital reserve, operating reserve, because cash is king… And I plug in the debt and then look over the cashflow as depending upon how the investment structure is in terms of the general partner and the limited partner. And I have some sensitivity analysis where I can do some stress testing – what if the net operating income goes up or down? What if the interest rates go up or down? How does that affect the overall return on the property?

What’s really critical for me is to look at the property as it sits today, but also in the second or third year, when I start implementing the changes, and what do the returns look like, as a project sits, as an investment.

Joe Fairless: I’m sure as an employee in these organizations that you mentioned earlier, you were part of a deal that lost money. If that is the case, what happened with that deal?

Peter Knobloch: Specifically regards to which one?

Joe Fairless: Any of them.

Peter Knobloch: In the terms of the commercial real estate side?

Joe Fairless: Yeah, commercial real estate side.

Peter Knobloch: Well, I’m not sure how to answer that, because I left because I got an offer from another company after the third year, and I imagine that they just walked away from it. That’s what I heard [unintelligible [00:14:53].12] friends that, unfortunately, because of the problems with being over budget, there was no way to recover.

Joe Fairless: Sorry, I was talking about not necessarily that one, the $175 to $300 million one, but just any other deal that you worked on that lost money. Any lessons learned from those deals?

Peter Knobloch: What’s funny is I haven’t worked on a deal that’s lost money. I know that sounds really odd. But as an example, the properties that I bought in the investment firm, because we bought them right the first time – and this is one of the key things about buying any kind of investment, is making money going into the deal. We would buy them below market in many aspects, and we just simply bought them right. We bought them in a very smart way. So I just don’t have any experience in that, in the sense of any bad deals.

Joe Fairless: Well, that’s great. We love to hear that, right?

Peter Knobloch: Yes, yes.

Joe Fairless: When you take a look at your experience working with high net worth individuals at the very first company you worked for, what are some lessons you learned by working with them?

Peter Knobloch: Speak plainly and simply. Sometimes we want to be sophisticated, and we feel that these investors are very smart, because they got where they got because they worked hard and they were very smart. But what’s really critical is just to be very transparent, very open and completely honest, and work hard. And building that trust is the number one important aspect of the entire relationship. You want to do business with people you trust. And when they see that you’re disclosing everything that you possibly can, and you’re answering all of their questions as best as you can, and know that you’re committed to preserving your capital and growing their investment and getting their return on investment, then it gives them a tremendous comfort level, and they’ll want to work with you and continually work with you. So that’s what I observed. They’re great people and they appreciate the honesty.

Joe Fairless: How did you end up working with so many international investors at the commercial real estate firm that you work at on your second job?

Peter Knobloch: The reason why is because we hired a Japanese consultant, because at the time the Japanese banks were very interested in the United States commercial real estate market. We worked with a number of banks like [unintelligible [00:17:18].08], Long-term Credit Bank of Japan, a few of those. And at that time, they were simply investing in it, and they’re offering incredibly low, very favorable interest rates and loan-to-value/loan-to-construction costs, so it was very advantageous.

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

Peter Knobloch: Create a vision of what you want to do, put together a plan, write it out, and work on it every day. And don’t give up, don’t give up. Just be consistent and learn from others, find a mentor, but just keep working at it. Your skill level will grow, your experience will grow, your wisdom will grow, and you’ll meet people and opportunities will open up to you… And it will happen, but you’ve gotta stick with it and keep at it.

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

Peter Knobloch: I am.

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

Break: [00:18:15].02] to [00:19:00].00]

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

Peter Knobloch: Oh, heavens… I know this is a shameless plug, but I really enjoyed your book. I really did.

Joe Fairless: I’m glad you did.

Peter Knobloch: It was quite good.

Joe Fairless: You’re talking about the syndication book?

Peter Knobloch: Yes. The Best Ever Syndication Book. Excellent book.

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

Peter Knobloch: I have a very unique skillset, and if I can help, in that sense… I’ve been involved as a serial entrepreneur for quite a long time. Just yesterday, I was having a conversation with a gentleman who’s part of a pharmaceutical company and they’re starting up the company and started asking a lot of questions. I was very happy to help answer some of those questions. So if I can help somebody in some way and be a blessing in their life, that’s what I love to do.

Joe Fairless: Best ever deal you’ve participated in.

Peter Knobloch: My wife and I bought a three-bedroom condo about 15 years ago out of foreclosure. We paid $50,000 for it, and it was a mess. You cannot believe how trashed it was. But we saw beyond it, we went in and we purchased it. We put in about $20,000. I went and did 90% of the work myself, because every home that we moved in with my father, we always did construction and remodeling. And then we had a friend come in and do the kitchen, and then a year, a year and a half later, we sold it for $150,000.

Joe Fairless: Best way the Best Ever listeners can learn more about you.

Peter Knobloch: I’m building a website. I formed a holding LLC which we’re gonna use to acquire the properties, but the website I have right now is at pknobloch.com. It gives you some background on what I’ve done, and what I do.

Joe Fairless: Peter, thank you so much for being on the show, talking about your experience in real estate, what you’re focused on now, the $175 to $300 million development that didn’t go according to plan, and we talked about the reasons why.

And also the spreadsheet that you created, putting months in there that reflect when the leases expire, so you can actually see what timeframe exactly that you’re gonna be able to get the rent premiums in. Thanks for being on the show.

Oh, by the way, does that take into account the time it takes you to renovate those units? So it might expire on the 21st of September, but you might not actually get the premium until October the 15th…?

Peter Knobloch: Yes, it does. It does take into consideration that. Thanks for bringing that up.

Joe Fairless: Well, very cool, Peter. I hope you have the best ever day. Talk to you again soon.

Peter Knobloch: Thank you again, Joe. I really appreciate having me on. Thank you.


JF1949: Building A Large Brokerage, Foreclosures, Management, & Commercial Real Estate with Devin Doherty

Listen to the Episode Below (00:24:06)
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Devin’s daily focus is finding investors for himself to work with. Him and his team have extensive backgrounds in real estate, which they use to educate clients, and help them find great investment properties. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Warren Buffet is a great example with all of his real estate investments” – Devin Doherty


Devin Doherty Real Estate Background:

  • Real Estate Broker and Owner of Doherty Real Estate Group at Keller Williams
  • Twenty years of commercial and residential property management experience
  • Licensed general contractor, experienced in custom home construction & remodels
  • Experienced Short Sale & Foreclosure Negotiator
  • Based in Orange County, California
  • Say hi to him at www.fivedoors.com
  • Best Ever Book: The Bible 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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

Devin Doherty: I am super-fantastic, Joe.

Joe Fairless: Well, nice to have you on the show, and glad to hear that. I feel like there should be an expialidocious at the end of that…

Devin Doherty: [laughs]

Joe Fairless: A little bit about Devin – he is a real estate broker and owner of Doherty Real Estate Group at Keller Williams. He’s got 20 years of commercial and residential property management experience. He’s a licensed general contractor experiencing custom home construction and remodels. He’s based in Orange County, California. With that being said, Devin, do you wanna give the Best Ever listeners  a little bit more about your background and your current focus?

Devin Doherty: Sure, you bet, Joe. My current focus is on our national real estate team, which is the Five Doors Network, with Keller Williams. We’re operating in about 20 locations currently, and my personal mission in life and our mission in our business is to build generational wealth through real estate. What that translates into is our ability to provide value to our clients, who are both our agents, and their clients, and their ability to find investment opportunities in real estate that make sense for them to either make a first-time move, or multiple moves down the path.

My mentor is Gary Keller, so I’ve been very blessed to be able to be fed that perspective for a number of years with Keller Williams.

Joe Fairless: So building generational wealth through real estate, and you said your clients are the agents and their clients… So just so I’m understanding it correctly – are you saying your focus is your brokerage?

Devin Doherty: Yeah, our brokerage specifically searches out clients that are interested in investing in real estate, whether that’s first-time investing, or whether they are multiple-time investing. We actually have an anti-listing agent mindset, where we will sell homes that are only needing to be sold after we have a conversation about why we should hold the property, or how we might be able to hold the property.

So yes, we’re out there looking for listings. As a matter of fact, we’ve just celebrated our 800th sale this year, today. That’s 800 people who were asked the question “How is it that we can hold this property instead of selling it?” and they chose to sell it anyway, because of whatever it was – a move up, a move down, lifestyle, death, divorce, all the typical reasons that somebody might sell.

We then take that potential sale, we determine whether they wanna sell it at wholesale or retail, and we coach them through the process of — if they’re wanting to go the retail route, how we can be the best representatives to get them the most amount of money in the marketplace… And if it’s a wholesale opportunity, then we have an investment division who will look at those deals and see if there’s something that makes sense for the agent to purchase, or for the team to purchase, or for the organization to purchase.

Joe Fairless: Well, congratulations on the 800 mark so far, and we’re a little past half the year, so you’re gonna continue to go strong and creep towards the 2,000 mark in closings, so nice work on that.

So your focus is on finding investors who you can work with, right?

Devin Doherty: That’s correct.

Joe Fairless: Okay. Why investors? Because a lot of agents and brokerages prefer to shy away from investors.

Devin Doherty: It’s a great question. I think, Joe, the thing that we like to do is we like to align ourselves and think that actually every single homeowner is an investor… And the fact is that they actually don’t know the power of what they’re holding, and when we show them why it makes more sense to invest in real estate than to invest in the capital markets, for instance, with the leverage that could be provided, that we would help them align with their highest purpose and intent, and that is that they wanna be able to provide a college education for their children, or retirement income, or really talk about generational wealth – what would it look like for them to actually be able to leave something to their children’s children. And the only way to really look at that is to take something that they’re not looking at, maybe with the right perspective, and help them upgrade their mindset.

Joe Fairless: How do you — “convince” isn’t the right word, but how do you show them that real estate is the right approach to take, versus stocks and bonds?

Devin Doherty: It’s a great question. I think the first thing we do is we point to some of the great thought leaders that I know that you’ve interviewed, and some of the people that are out there that have made this point very clear… I think a great example of that is Warren Buffett and the amount of investment that he’s done in real estate in recent years. You look at the amount of homes that he’s purchased through his investment arms… I think it’s pretty evident that Wall-Street has moved to Main Street, and so many people are wanting to take more control of the capital markets, and you just don’t have that ability… And then you add leverage on top – you invest a dollar, you get return on a dollar in the capital market, where you invest a dollar in real estate, you might put 10% down and you might have return on ten dollars, or you could even go into a no money down situation and now you’re talking about a massive return.

We’ve just helped a veteran – actually, he’s active duty – in San Antonio, Texas, in one of our locations, we helped him create $1,000/month cashflow from buying a 4-unit building where he’s living in one of the units and the other three units are paying him to rent, and he’s putting $1,000/month in his pocket, and he’s getting a place to live… That’s the kind of conversations we love to have.

Joe Fairless: You’re in Orange County, he’s in San Antonio… How did you come to work with him?

Devin Doherty: He was actually referred to me from an Orange County financial advisor. Believe it or not, there are some financial advisors out there in the world of capital markets who understand the value of leverage. She actually connected me to him in San Antonio, and then I put him with one of our team members in San Antonio. We’re a nationwide company, so that’s what allows us to be able to make those kind of connections and help people literally anywhere.

Joe Fairless: Got it. Okay. Do you invest yourself?

Devin Doherty: Of course. I’m super-blessed, because I married into the concept of generational wealth. My father is also a forty-year veteran in the lending industry, so my wife’s father’s mother started the Beverly Hills Board of Real Estate back after World War II, so I back in 1991 was brought into a family business by choice. I actually started in the technology industry… But by choice I was able to align myself with how — my wife’s name is Judy; we’ve just celebrated our 25th wedding anniversary last week, and I’m super-excited…

But what I can tell you is that when I look back at what they’re done, they’ve literally just made small moves over time, and now that we’ve done some investing together and some apart, over 100 doors of real estate in some of the best areas of Southern California, which are Beverly Hills, Bel Air, Brentwood, Pacific Palisades… And along near the airport as well.

What’s great about that is that we’ve been able to get this kind of perspective that when you start with that generational wealth mindset, then you actually have a really clear opportunity to be able to go and look at the market and start turning over rocks, looking for those opportunities for yourself. So that’s kind of where the bias started from – I was blessed to have that experience.

Joe Fairless: First off, clearly, congratulations to you and your wife on 25 years. That’s incredible. I think that should be celebrated 25 times more than the announcement of a wedding, and getting married. It’s always — not always, but recently, it’s boggled my mind, because I just got married, how when we post on Facebook about our wedding, tons of people love it, comments… But when you post about 5, 10, 20-year anniversary, you don’t get as many comments… Like, wait, wait, wait… It should be the opposite. You should celebrate the 25 years much more than the initial. But that’s a sidebar.

As far as the generational wealth thing goes, what did the previous generations do to put in place safeguards, so that future generations don’t mess it up?

Devin Doherty: That is a great question. As a matter of fact, we actually ran into that question early on in my relationship with the family, and we hired a consultant who is basically a  strategic family business consultant, specific to how it is that businesses past down from father to son, and son to grandson… And the statistics are actually terrible with what–

Joe Fairless: The third generation.

Devin Doherty: Yeah, the third generation. And the reason for that is that there’s a loss of vision, there’s a loss of connectivity to the vision, and then there’s also a disconnect between what it actually took to get the wealth, versus what it takes to continue to grow it or maintain it. Jim Stovall wrote a book called The Ultimate Gift, and he actually has a series of movies about it… And what’s really interesting about all of that is that what we’ve found in our own family was that we had to align with the highest purpose and intent, and that moves away from — at a certain point you wanna create security for yourself, and then you wanna create opportunity, and then you wanna give back. And until you’re aligned on the giving side of it, there’s actually not a real good understanding of why that makes sense… And until you have people in your life who are not takers, if you will, who are givers, you actually don’t have the ability to create a common goal, or a common vision. That’s a big challenge.

Joe Fairless: Okay. I heard all that, so help me break that down into the answer to the question… And I apologize if I’ve missed it. So what safeguards are in place to protect the future generations from messing up what previous generations did?

Devin Doherty: I’ll give you a great example. My son is ten years old, and he was out at an open house with us this last weekend. My 12-year-old son is in the business of helping us find opportunities. My 15-year-old daughter is working in an environment where she’s investing 15, 20, 25 hours a week in a job where she is getting value from it. I would say that the magic pill in all of this is the ability for people to connect to the real big picture opportunity, which is teaching the value of hard work and knowing that it didn’t come for free.

If you look at Warren Buffett’s plan for his kids, he’s only gonna leave them a very small amount of money, and the rest of it is all gonna go to charity, and I think that that’s the thing that’s really interesting – if people don’t align with the fact that they’re doing this for something great than themselves, there’s no opportunity whatsoever to not mess it up.

Joe Fairless: Okay. Anything in the contracts, or something that’s passed down, that also is included? Or is it just “You’ve gotta raise your kids right, teach them the value of hard work, and know what the bigger picture is for your generation and future generations”? Or are there some tactical things that you all do as well?

Devin Doherty: Yeah, I’d say there’s obviously tactical things. The point is that you can have a lot of language and estate plans about how to manage this, and estate plans can be very well written… For instance, there’s a tool inside of Judy’s dad’s estate plan which has been discussed, called the Generation Skipping Tool, which basically means that “Hey, look, if you’re not gonna do it, we’re gonna leave it for your kids.”

Joe Fairless: [laughs]

Devin Doherty: So generational skipping trusts are actually en vogue, because one of the things that we have as we align with the Bible and the teachings of the Bible as a Christian, and one of the things that I’ll say is that the Bible is very clear, and one of the reasons why we started Five Doors is because it says that you’re supposed to pass an inheritance to your children’s children. So it doesn’t necessarily say anything about what you should pass to your children.

So you’ve just had that beautiful baby, and yet you don’t know how that baby’s gonna show up in the world, and make things happen. Or I’m sorry, you didn’t have a baby, you just got married. But you get the point – down the road you’re gonna have that baby, and you actually could choose to pour in, you can share everything that you want with them, but you actually can’t control that… And yet the innocent person is that children’s child. So what kind of legacy do we wanna leave for them? How is it we’re gonna connect to them, to make a difference for that children’s children?

Joe Fairless: Interesting. I’m sure the Generation Skipping Tool has given some people some night sweats, who are listening, who have the generational wealth… They’re like “Oh, I hate that term. Yes, I know of it…” [laughter]

Devin Doherty: Yes, as we all move towards significance in whatever that looks like for us, what I would say is that we also have to plan accordingly. I was at a seminar, and the speaker – who happened to be my business partner, Seth Campbell – was mentioning this concept of “How many of you actually know your great grandparents, or know any of their names?” And I’m sitting there in this class, going “You know what – he’s right, I actually don’t know any of my great grandparents’ names.” And what that translated into was “Well, what kind of legacy did they leave for you if you don’t even know their name?”

And then if you compare or contrast that to, let’s say, Abraham Lincoln, I’m sure generations down the line people knew who Abraham Lincoln was. And I think that when you take that and you then overlay real estate, and wealth building on top of it, it can get really funky. My wife grew up in a very rich area in the Pacific Palisades, and the fact is that not all parents are emotionally available, and willing to commit to the parenting that’s necessary to train the child in a way that they’re gonna be seeing the significance of what is available to them; then they treat money in a completely different way.

Joe Fairless: Yeah. Someone I’ve interviewed on the show, Richard Wilson – he heads up a family office in Miami, and he talked about some interesting things that 500 million net worth families do for their kids. This has reminded me of that conversation… It’s really interesting.

Devin, what was the last property that you bought? And tell us a little bit about it.

Devin Doherty: Well, again, my focus is not so much on myself, it’s the success that I see through others. A lot of the investment opportunities that I find, I actually give out as gifts to people who are in our world. So I would say that one example is that we recently had one of our administrative executives looking to level up her life and create more passive income, so we were able to find her a positive cashflow duplex in her area that she lives, and be able to make the right moves to support her in getting the right financing and all the things that were necessary… And that gives me so much more joy than even finding things for myself.

When I say “finding things for myself”, since she’s part of my team, I’m creating security for her, and that creates a win for us anyway. It’s just that when I look at opportunities for us – yes, I find those opportunities; we recently have taken down some other types of deals. But the things I get passionate about are helping people either get the first opportunity, or the second opportunity… Because that’s actually what unlocks really, as you know, every other opportunity.

Joe Fairless: Right. Okay… But as far as some of the things you’ve taken down, what was the last one you took down or purchased, and what’s that deal?

Devin Doherty: Well, we flip properties on a pretty regular basis… So I use hard money, meaning that I just throw dollars into deals. Those kinds of deals we do quite often. Our team did 175 flips last year, so there’s a lot of great deals inside of that.

In terms of specific deals, we still look for conversations with what our potential sellers — we literally dial for dollars to find opportunities for potential sellers. An example of one is that we just had a three-unit building in the city of Orange, which is here in Orange County… And it was an absentee seller, who was out of the area, and they wanted to sell the property. It’s the kind of deal that we would normally take down. That was a three-unit that was around 750k.

Joe Fairless: With the generational wealth focus, how come you’re doing 175 flips, versus doing more long-term stuff?

Devin Doherty: Great question, I love that question. As a matter of fact, what we intend with our flips is that we’re facilitating the ability to build cash to be able to hold. So we actually have a 10 to 1 ration, where it’s our intention — 10 flips equals one hold. So we continue to flip, because it’s a great source of income. And you don’t always hold a property that you don’t need to hold, or you may not want to hold, for whatever reason. So flipping for us is another active income tool to create passive income through holding.

Joe Fairless: Okay. And by “us”, is it you and your wife and your family, or is it your brokerage, or…?

Devin Doherty: It’s my Five Doors team that we formed. I have 150 agents nationwide, so the team at large is the one that is using these tools. What we do is we personalize it down to that individual, so if an agent on our team finds an opportunity, we teach them how to either hold it if they can, or flip it for the profit, so that they can develop holding dollars. Does that make sense?

Joe Fairless: Yeah, but you don’t profit from that, right? On that?

Devin Doherty: No, we do.

Joe Fairless: You do.

Devin Doherty: Yeah, I profit directly from it. I profit from the brokerage income side, as well as the flipping opportunity.

Joe Fairless: Oh, okay.

Devin Doherty: So we’re directly involved in that. Basically, what we’ve done is we’ve just taken the things that we love to do on our own and just made it a fun party, with a whole lot of people.

Joe Fairless: Got it.

Devin Doherty: And in that process, what we now have is we now have 150 people looking for opportunities, and that number is gonna obviously continue to grow… And because of that, that allows us to have this window into finding these wholesale deals that are worth holding. And there’s more and more of those kinds of opportunities that become available to us, as we turn over more rocks. As you know, it’s just about a finding game.

Joe Fairless: When you hold a property, how many people actually own it?

Devin Doherty: Great question. We have two methods. We have the individual owner method, like the one I talked to you about with one of our administrative professionals, and then we also have a group method, where we have a fund. The fund will actually hold the property, and then they get a piece of that fund.

Joe Fairless: Okay, they get some sort of ownership percentage or shares in the fund?

Devin Doherty: Yes, exactly.

Joe Fairless: Okay.

Devin Doherty: The biggest challenge with the real estate industry is that we teach people how to go out there and find a seller, sell the home, they take a transactional income, and they’ve done nothing for their generational wealth opportunities in that process. They haven’t made a really great relationship with the seller, because the seller is no longer in that home. They haven’t shown the seller how they could potentially keep the home…

Some of our best clients are the people we’ve taught how to build wealth with. That’s completely missed when you’re missing the overall focus. And what we do is we put all of our aegis in the position of them being a cash buyer. When they act like a cash buyer in the marketplace, they could take a wholesale deal down, they could take a retail deal down… Whatever it looks like, it makes it much easier for them to find opportunities when they have the mindset of a cash buyer.

Joe Fairless: It makes sense… And we’ve talked about a lot of different things, from generational wealth to your business model, your 10 to 1 ratio… What is your best real estate investing advice ever?

Devin Doherty: I think I’d have to go back one statement and say that if you can help your audience align with the fact that they are truly cash buyers, and that they just need to figure out who their partner needs to be in that – and I know you’re a partner in that, and I know that there’s many other people that are out there that have either hard money, or other people’s money that they can use, as you can help people align with their mindset of being a cash buyer, when they have a focus on generational wealth (because they’ve gotta have that first, right?), if you could teach them to have the focus on generational wealth and then attach that to them being a cash buyer, that’s like a double whammy. That’s absolutely the best advice that I could possibly give.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Devin Doherty: I’m ready.

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

Break: [00:20:54].19] to [00:21:35].23]

Joe Fairless: Best ever book you’ve read?

Devin Doherty: The Bible.

Joe Fairless: Best ever deal you’ve done, that you haven’t talked about?

Devin Doherty: A house that we moved out of that we were renting… And we moved out of the house, we left an offer – no money down, seller-carried offer; we left the offer, we moved out, and two weeks later the owner said “Hey, we wanna take your deal.” We moved back in two weeks later and got the deal.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Devin Doherty: A transaction mistake… I’d say the biggest mistake I’ve made in transactions is not understanding why the deal is being done from the opposite side. Not getting a clear understanding on that.

Joe Fairless: Best ever way  you like to give back?

Devin Doherty: I love to give back just the way that you do, in the form of teaching, training and coaching. I’m a coach for MAPS at Keller Williams, and I’m also a trainer for Keller Williams, so I  love being able to give this kind of advice in one-to-one and group settings.

Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about your company?

Devin Doherty: Our website is FiveDoors.com, and you can reach us toll-free at 866-338-4677. That’s the best opportunity.

Joe Fairless: Well, Devin, thank you for talking about generational wealth, the approach to take. One, you can have safeguards within the estate plan, the generation-skipping tool that you’ve mentioned, but then more macro-level, the way you approach the generational wealth focus with kids, and that is show the value of hard work, because that tends to be something that needs to be reinforced outside of the first generation… And especially outside of the second generation. And then also the big picture opportunity – have the shared vision.

First we’ll want security, second the opportunity, and third, give back… But we really can’t get to the third part until we’re all aligned with the macro-level stuff. And then also your approach with Five Doors.

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

Devin Doherty: Thank you, Joe.

JF1946: From Auto Mechanic To Commercial Real Estate Investor To Real Estate Mentor with Peter Conti

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Peter got his start in real estate in the 1990’s while he was a full time auto mechanic. We’ll learn how he went from that profession to doing commercial deals, and what he has to teach others that want to do the same. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“You have the ability at any time to walk away from the payments” – Peter Conti


Peter Conti Real Estate Background:

  • Founder of Real Estate 101
  • Began investing in real estate in 1990 as an auto mechanic. Has taken his lessons learned and helped mentor thousands of real estate investors build their own portfolios
  • Based in Annapolis, MD
  • Say hi to him at https://realestate101.com/
  • Best Ever Book: Unlimited Power


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Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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

With us today – Peter Conti. How are you doing, Peter?

Peter Conti: I’m doing great, and to all of the Best Ever listeners out there, thanks for joining us today.

Joe Fairless: Yeah, and a little bit about Peter – he is the founder of Real Estate 101. Began investing in 1990, and is based in Annapolis, Maryland. With that being said, Peter, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Peter Conti: Yeah, thanks to all of you for tuning in. My focus is really on commercial real estate. I got started investing in 1990, and at the time I was working as an auto mechanic. While I enjoyed fixing cars, it was a lot of fun, it wasn’t gonna really take me financially in the direction I wanted to go… So I got started investing in real estate. I’ve done everything from single-family homes, to commercial properties, apartments, shopping centers, land development – all kinds of stuff, actually all across the country. I had a lot of fun with it over the years.

Joe Fairless: Shopping centers – do you still invest in them?

Peter Conti: Currently no. With the changes in the commercial real estate market we’re a little more cautious, unless there is a definitely play on doing like a WeWork type facility, [unintelligible [00:02:34].18] or something like that. But the interesting thing is that real estate is always changing. That’s one of the things that I love it, and that’s why I’m still involved with it today – it’s always challenging and interesting, even though I’m working on a much smaller basis. All I do these days is just basically help out, consulting with a handful of clients. But I just love doing deals, and I love looking at stuff, and finding what we call “the deal within the deal.”

Joe Fairless: What’s an example of a deal within a deal?

Peter Conti: Well, a lot of people go out and they may learn, for example, how to use the cap rate formula, and how to convert the net operating income of an apartment building into a value… And the trouble is if that’s all you’re going on, and you’re just looking at the information, if you’re looking at retail deals, all this stuff just from commercial real estate brokers and that type of thing, most of the deals aren’t gonna look really stunning. Retail will sell the property for top dollar if someone comes along, type of thing.

I’ve seen people who’ve made the mistake of spending their first year or  two basically analyzing deals and never finding one, to get to  a point where they start talking to the broker, and more importantly, directly to the seller, which is really —  your question is “Hey, it’s a great property, but tell me more about your situation, what’s going on with you. Why would you ever consider selling a property like this? It looks like the thing is cash-flowing. Why would you ever consider selling it?” And then just shutting up and being quiet, listen for what they tell you, maybe by the tone of their voice, what they’re not telling you… I generally encourage people to go back and ask that same question a number of times, on a commercial property as well as single-family houses, to really find out what’s going on. That’s where you find out what their problems are. And if you can solve those problems as a real estate investor in a way that works for you to also make a profit, then you’re moving ahead on putting a deal together.

Joe Fairless: When you’ve asked that question, “Why would you consider selling it?”, what’s an answer that you’ve received?

Peter Conti: Gosh, over the years I’ve heard everything from “Oh, we just thought we’d put it on the market and see if someone would pay full price” kind of answers, to “My son died out back behind the house here, in the drainage ditch, and we just need to get rid of this property immediately” type of stuff. You hate to see that type of thing, but as real estate investors we solve people’s problems, and there’s a broad range of problems out there… Everything from people who are going bankrupt, to medical issues, or people towards the end of their life… All types of situations like that.

My experience over the years has been if you can go in with a passion and an eagerness to get to know someone, find out really what’s going in a good way, put together a deal that’s a win for them and a win for you too, then you’re gonna be successful.

Joe Fairless: What’s the last deal you closed on?

Peter Conti: Let’s see… A deal just about a month ago. This was a deal I did along with one of my clients. He’s located in Northern California. It’s a 10,000 sqft. office, retail, and had a section that was a restaurant at one point in time. The property was worth 1.2 million, we were willing to pay $950,000. We were able to get the bank that was selling it all the way down to $840,000.

Then we found a local investor there who had money available that they wanted to invest, and even though we could have closed it on our own, we got the investor to put up all the money to buy it, and all the money to fix it up, and no payments for the first year. Pretty exciting deal there.

Joe Fairless: And how did you structure it on the GP side?

Peter Conti: Generally, this was a deal basically just put together from the two of us, so it was a lot simpler than some of these big, fancy syndication deals, with all sorts of partners and things. So it was really quite straightforward.

Joe Fairless: Got it. So it was just 50/50?

Peter Conti: Yup.

Joe Fairless: And in that type of deal, 10,000 sqft. office, retail, it used to have a restaurant – what’s the business plan?

Peter Conti: The plan is to get it leased up over the next 1-2 years. We were able to arrange the financing where it was no payments for the first year. It has a one-year term, but it can be extended for a second-year term if we need it. Basically, get the property leased up where it’s stable and operating. At that point in time, bring some long-term financing in place and decide “Is it something we wanna sell? Or do we wanna keep it long-term?” My guess is we’ll keep it 5-10 years at least.

Joe Fairless: And how did you all come across this? I think you said the bank was selling it?

Peter Conti: Yeah, this one came through relationships. I know that – listening to some of your other podcasts – it’s something that comes up time and time again… Building relationships is a tough one, because all of us wanna go out — we wanna make a relationship, but we wanna also get a deal, if not next week, we want it yesterday, right? And relationships take time. It’s a matter of letting people know who you are, letting them know that you’re investing in real estate, giving them an idea of what you are looking for and what you’re not looking for, and then providing them feedback over time when they send you stuff, to say “Hey, thanks for sending me that deal. It’s not quite what I’m looking for. The thing’s 100% leased up and it’s been fully renovated; I’m looking for something that has an upside to it… But thanks for thinking about me. Here’s what I’m looking for…” and then defining clearly your focus in the market, whatever it is.

Generally, the commercial properties – we’re looking for something like this one; it wasn’t 100% vacant. Actually, the previous owner was still in there, was paying rent to the bank after the bank had foreclosed on it… So part of the game plan is getting him to move out in a good way.

Joe Fairless: And how do you do that?

Peter Conti: Well, generally what I’ve found over the years is if you can do what I call a friendly eviction, as opposed to fighting somebody… And it boils down to basically bribing — maybe it isn’t a politically correct word, but… Finding a way to make it where they decide that they’re gonna move out of the property and cooperate with you. Generally, it involves paying them some money, or working with them.

In this case, he’s got a bunch of furniture and stuff in there, and he wants some time to be able to do kind of a going-out-of-business sale type of thing and get most of his inventory sold before he moves out of there.

Joe Fairless: Let’s talk about the last full transaction deal you’ve done. Tell us about it, please. Or full cycle deal, I should say.

Peter Conti: Gosh, I’ve been involved in so many…

Joe Fairless: The last one that closed.

Peter Conti: Yeah, there’s one down in El Paso, Texas. It’s a shopping center deal. That one was interesting because a lot of shopping stuff we’ve been staying away from for reasons I mentioned earlier… But this particular one was available at a good price. It was a combination of some national tenants, but other more mom-and-pop type businesses. It was just located in a growing area down there where we liked the market, we liked what  things were doing.

That was a deal that we put together with myself and other investors coming in. We’ve got a total of eight people in the deal altogether. I like deals like that, where I can own a  little piece of something across the country, and I’ve been there, I’ve seen it… But I generally will just look at a photo now and then to see what it’s looking like, or get an update from our partner who’s in the area, managing that deal.

Joe Fairless: Tell us about the deal that you’ve lost the most amount of money on.

Peter Conti: The deal that I’ve lost the most amount of money on… There was an apartment building deal out in Oklahoma City that we put together, where the plan was to buy the property and then bring in a HUD financing for it. HUD had a program at that point in time where they would provide all the money for you to completely renovate the units inside and out. We were gonna do new roofs, new appliances… Basically everything to reposition and turn the apartment complex around. It was 276 units, nice property in a nice area.

The problem was this was my one deal that — well, let’s see… Another one I lost 10k on, but this was the one deal I lost when the market turned back in 2008-2009. And unfortunately, we were in a position where we had all the boxes checked off, we met all the requirements for HUD, we submitted our applications, got everything in place, and then they were kind of dragging their feet because the market is changing, and then they changed their underwriting requirements, ended up rejecting our proposal for refinancing on it, put us back to the drawing board, spent another 4, 5, 6 months, going back to him again, and we went through a number of times going back to HUD, as HUD tightened up its requirements.

That’s one of the few projects that I’ve had go south in my life… So it does happen. But I tend to be pretty conservative investing. A lot of the deals I’ve been involved in over the years are things with creative financing, going in and buying an apartment building for example using a master lease. The type of deals I like are deals like that, where you basically structure it where if for some reason the deal doesn’t work out, you’ve gotten into the deal with very little of your own capital, ideally without using investors’ capital, because you don’t wanna lose investors’ capital either… But having it set up where worst-case if you had to take that property and turn it back over to the previous owner, you can do that.

One of the nice things about that – I always tell someone that I’m working with, “Look, you’ve done really well to get to the point where you are today… The last thing you wanna do is go out and get into some real estate deal that’s gonna risk the assets and the credibility that you build up at this point in your life.” So we like to structure our deals where you’re got the upside, but the downside is extremely limited. In most cases, we’re gonna try and limit the downside to where your downside is if you have to walk away from this deal, or it doesn’t work out, you’re gonna lose your time but you’re not gonna lose money.

Joe Fairless: That makes sense… And yeah, I’d love to talk a little bit about the master lease stuff. On the 276-unit, just to close that out, how much did you end up losing?

Peter Conti: That one – I don’t like to say the number, but it was $350,000.

Joe Fairless: Got it. And what happened with the property.

Peter Conti: It ended up getting taken back over from a bank that we had brought in as part of the original purchase. They were carrying a note on it for the time period where we were getting it turned around and getting the HUD financing in place.

Joe Fairless: And I know that happened to a lot of people… So when you apply for future loans and they ask about that, is that generally accepted from a lender’s standpoint that “Hey, that was a crazy time, with a recession, so we understand that that took place”, so you’re still able to move forward with future loans approvals?

Peter Conti: Well, there’s two parts to that. One is I didn’t sign personally on that, so it didn’t affect my personal credit rating. I’ve found, Joe, over the years, that there’s so many ways to buy properties, buying it leaving the existing financing in place, getting owners to carry financing, doing something like a master lease, bringing in an investor who maybe wants to take some of that upfront risk for the first year or two, like we did with that property in Northern California…

The [unintelligible [00:13:33].27] there’s not a ton of times that I’ve gone out to a bank and said “Hey, pretty please, I’m down on my knees… I’ll fill out whatever applications you want. Here’s a blood sample and part of my first-born son”, just because — I don’t know… I’ve always had a hard time going in and talking to someone who’s making a tenth of what you can make as a real estate investor, who holds the reins on a bank loan. Not that we don’t do deals with local banks, but there’s so many ways to go out, if you’re willing to learn how to qualify someone and connect with someone, and really find out what’s going on. A lot of times the discussion that we end up having with them goes something along the lines of “Hey, this apartment building here – you’ve done a great job with it.”

We generally are looking for properties that people have owned for a period of time. My rule of thumb is I want someone to have owned it for at least 15 years. It’s one of the rules that we use.

Joe Fairless: Okay.

Peter Conti: You’re looking for someone who’s what I call a lazy landlord. They’ve had the property — yeah, they probably really worked and got the rents up to market and spruced it up 15-20 years ago when they first bought it, but now they’re in a position where they probably are set. If they’ve been successful in real estate, they probably have all the money that they’re gonna need for the rest of their life. Any other money that they make is just gonna end up going to their heirs; maybe their kids aren’t interested in real estate or don’t appreciate what they have given to them… And they’ve chosen to just take the easy route, which is to not raise the rents, not keep it up to market, not stay on top of all the maintenance and repairs.

It allows us investors to go in and sit down and talk to them and say  “Gosh, you’ve done such a great job.” What we’re doing is positioning that person as someone who’s done really well… And kind of speaking to their sense of ego, but also saying – for those of you who are listening, maybe if you’re younger and you think that is a disadvantage, it’s not. It’s a huge advantage. Because what you say is “Gosh, I’d like to be as successful as you someday. If you were in my shoes, what would you suggest doing? What if we were to do something like this? The property – yeah, it’s probably worth 1.5 million once everything’s all completely up to market, and with everything fixed up, but as you know, the rents are low, there’s deferred maintenance and repairs and things… The property is gonna need some capital put in it to really get you top dollar for it. What ways could we structure something where it would give me enough time to go in, really do the work on the property to get it up to snuff, where – you know, and we both know it’s not all the way up to where it could be. Is there a way I could make you payments over a period of time, or if I got you X amount of dollars per month for the first year or two, and then we had a closing at that point in time and cashed out there – is that something we should be talking about, or you probably hate the idea?”

We always like to go with negative phrasing. So if they say “No”, they’re really saying yes. So we’ll end up with “You probably hate that idea, huh?” and they say “No, I wanna find out more. What would that look like?” And then at that point we’re shifting into, rather than telling them how great it is to work with us and how long we’ve been around, like a lot of people make the mistake of doing, we generally go right back and say “Well, gosh, I’m curious, what is it about that – if there was a way that we could get you a steady 12k a month over time from the property, what is it about that that even makes this something worth spending the time talking about?” It gets them to jump in to say “Here’s the reasons why I wanna do the deal.” And getting that part of it really down in the seller’s mind, and of course in our mind as well, knowing what they need to achieve and how they wanna do it is very helpful for putting a deal together… Rather than “Here’s what we can do, and here’s a photo of the before and after, and here’s all our properties”, and going in what I call sales mode.

Joe Fairless: Very smart. Instead of you doing the talking, you’re prompting, and then they’re doing the talking, and then you’re collaborating on the deal structure, and they’re taking the lead based on what they’re looking for.

Peter Conti: Yeah. Ideally, if you do it correctly, you are controlling the situation, but you’re doing it in a manner where you put your thumb exactly on it, Joe. They feel like they’re coming up with this idea of how to structure the deal and put it together… And I’ve found some of the best deals come as a result of that  – you and the seller sitting down together, putting your heads together to say “What could we come up with? Tell me why this would work for you. Gosh, I’m not sure we could do that… If we could, is it something you’d really wanna do?” And kind of having that reluctant buyer standpoint, so that it’s almost like they’re talking you into doing the deal, rather than you trying to twist their arm into doing the deal.

The one real big benefit, besides a much funner way to put together deals, is it helps deals (I’ve found) stay together. We have a saying, “Friction holds deals together.” I had a car years ago – it was a ’65 Oldsmobile.  I put an ad in the newspaper – that was before Craigslist – I said $500. Some guy called, he came over that morning, gave me $500 and drove off. And there I was thinking “Gosh, maybe I could have gotten $600 or $700.” Same thing is true with a real estate deal; if you help somebody really struggle to go through the process of putting the deal together with you, then it’s much more likely that they’re gonna feel like they did their job to get a good value for the property, and structure it in a way that’s good for them, and it’s much less likely that they’re gonna come back 2-3 days later saying “I decided I didn’t wanna sign the deal because of X, Y and Z.”

Joe Fairless: Very helpful. Thank you for that. And since you talked about master lease in particular, I’d love for you to just describe what that is, and maybe some nuances of it. I’ve done a master lease; that’s the only deal I’ve lost money on. However, it wasn’t because of the master lease, it was because I messed up. So the structure of it I think is a great structure. So what is it, and what are some tips for doing a master lease?

Peter Conti: Yeah, sure. For all of our Best Ever listeners out there – this is something you definitely want to know about. It’s not something that you’re probably gonna be able to learn how to do, and then just contact a commercial real estate broker and put a deal together next week. It’s definitely a deal that you’re gonna put together in the right situation, with somebody who’s got the motivation and also a willingness to go along with a deal like this… But big picture is I think for most of us that are here today, you and I are listening, as part of the collective group we have here – you probably are familiar with lease options on houses, where you lease or rent the house for a period of time, and then you have a price that you can buy it for in two years, five years, eight years, whenever down the line. It’s basically doing the same thing, for example, with an apartment building, where you agree with the owner of the apartment building that you’re gonna pay them a set amount each month as your payment, as part of buying the apartment building. You’re basically leasing the entire apartment building.

And the agreement with the seller allows you to  – in exchange for making that payment to the seller of the property, you’re gonna do all the work that’s involved. Of course, your property manager is gonna collect all the rents, deal with vendors, pay all the expenses, everything including the property taxes on the property, and then one set, solid amount, each in every month – the same amount, by the way – is gonna go to the seller. In fact, when we’re talking to sellers about putting together a master lease, that’s one of the things that we point out – that they’re gonna get that amount each and every month. There’s not gonna be a month when they have to put in a couple thousand dollars because of a problem with a boiler, or whatever; other months where they make more, other months where they’re making less… They get that set amount and they can count on that each and every month as part of you coming in and basically taking full charge of the property.

It’s almost like you get all of the rights of owning the property, but rather than having to come up with 20%-30% down payment, like you would if you were using conventional financing, oftentimes with a master lease you’re able to put a deal together where the amount of money going into the deal is very little. A lot of times – in fact, most cases – on the ones we’ve done the seller doesn’t get any money upfront, other than their monthly payments… Although there’s certainly properties where you have to have some capital to maybe put a new roof on it, or deal with some of the situations of the property where it hasn’t been run well… But that’s quite a bit different from needing 20%-30% down on a big property.

Then you also agree on a purchase price that you’re willing to pay for the property, and the seller is willing to accept. And then the third thing you agree on is how long of a time period you’re gonna have to actually close and take title on the property.

Now, when we’re putting deals together with a master lease, we’ll call it a lease purchase. We won’t call it a lease option. The difference, legally, between those two is you have the option to buy, but you don’t have to  buy. With a lease purchase, you have agreed that you’re definitely gonna buy it. But what I’ve found, Joe, is that when you structure these deals — one of the things that we do is we put together an actual purchase contract along with the lease agreement… And in that purchase contract there is default language that if the buyer defaults, this is what happens, and if the seller defaults, this is what happens. And one of the things that we’ve found is very valuable in any real estate transaction is to always be the person to volunteer to “I’ll go ahead and pay for document preparation.” If you’re the one that puts the documents together, then you control the language in the documents.

So in a master lease situation, the purchase contract that goes along with it – it’s always gonna have a clause that says “In the event that the buyer defaults or doesn’t do something in this contract, basically close and buy the property three years from now, in that case, if they buyer defaults, the seller shall keep from the buyer all amounts paid to the seller as full, incomplete, liquidated damages.”

Now, I’m not an attorney, please check with your own attorney before you’re using this advice that I’m giving you here today, but we’ve found that that’s a very good way to be able to go into a property. You’ve structured it, you’ve put it together where for all intents and purposes it’s a lease purchase, or a master lease on a commercial property, yet you still have the ability, if you want to at any point in time, to basically stop making the payments; the previous owner has the right to take the property back over. It’s an easy way for you to walk away from a deal without any risk, like there would be if you — obviously, if you had a bank loan on a property, you can’t just walk away from it.

Joe Fairless: And one other thing to mention – I actually delayed my closing, because we didn’t have the lender’s approval of us entering into this arrangement, and I wanted to make sure that the lender was on board… Otherwise, that could spell trouble later, when you go to exercise the option, or during the process of the master lease… If the lender is not aware of the arrangement you’re making with the seller.

Peter Conti: Yeah, absolutely. I’ve found if you’re ever putting a deal together where someone’s telling you that they wanna do a silent second, or something, or “We don’t wanna tell the lender about this”, that’s the last thing you wanna do [unintelligible [00:24:38].28] Definitely full disclosure to all parties involved.

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

Peter Conti: The best real estate investing advice I have ever is basically — I started out as an auto mechanic, and my belief is that if someone else has gone out and done something, then chances are pretty good that you can do it, too. So if I can make it starting out as an auto mechanic, you most certainly can, too.

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

Peter Conti: Sure.

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

Break: [00:25:17].04] to [00:25:52].17]

Joe Fairless: What’s the best ever song that you like to play on the piano?

Peter Conti: Best ever song that I like to play on the piano is “As the deer panteth.” It’s a song that we played 25 years ago when my wife and I got married, and it was a fun one to pick up and learn. I just did that over the last year or so.

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

Peter Conti: The best ever book is one that I read a number of years ago, but I’ve picked it up a couple of weeks ago because I wanted one of my kids to go through it… It would be Unlimited Power, by Anthony Robbins. Some of the stuff he goes through in there is a little bit cheesy, but you know what – it works.

Joe Fairless: What’s the best ever deal you’ve done?

Peter Conti: Best ever deal that I’ve done – that would be a master lease deal on an apartment building where I went in without any money whatsoever; it was a nothing down deal. I ended up owning the property for just over 15 years, controlled it with a master lease for the first six years, then brought in new financing at that point in time. Because of the equity that we’d built up through the master lease, raising the rents and things, we weren’t  required to bring any money at the table at the refi… And the property was really [unintelligible [00:26:52].07] some good cashflow. I put it on a ten-year loan amortization schedule, and had the property just about all the way paid off when I ended up selling it for right at about 1.2 million dollars.

So I hate to share that with people, but hey, you asked for best ever… There are deals out there where — they don’t happen every day, but that was a deal where I got it in with none of my own money, used the cashflow from the property to fix it up over time, and by the time I sold the property I ended up making on that one property over one million dollars. If that’s not enough to get you excited about real estate, then you probably need to look into doing something else.

Joe Fairless: Did you 1031 it or did you just cash out, paid long-term capital gains tax?

Peter Conti: That one I had some other things that were involved. I had a business that I had bought, and we ended up making some changes on that and closing that business down, so I actually had some lost carry forward stuff business-wise, and I was able to balance out against that… So tax-wise we came out okay on that deal.

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

Peter Conti: For me, what I do is there’s a condition a lot of people aren’t aware of… It’s called chronic regional pain syndrome, and it’s something that I experienced a number of years back. I should have stayed off motorcycles, but I convinced my wife that it would be okay if  I got a dirt bike for myself and my son. I ended up falling, shattering my hip, and unfortunately they crushed the nerve in my leg while they were working on me… And I got this condition where basically it’s sort of like phantom pain. Your brain goes into a loop and gets stuck on if something’s hurting, so even after it heals up, it still continues to hurt.

My solution for that was I decided that I was gonna hike the Appalachian trail. I said if I can go all the way from Georgia to Maine and hike 2,000 miles, my leg would have to be better. Quite a long story behind that, but I did hike all the way from Georgia to Maine; it was the perfect thing that I needed for my leg at that point in time.

Now I’m involved with a number of organizations that are both helping people that have similar conditions like that, and also starting to spread the word to let people know that if something doesn’t heal up after six to eight weeks, particularly if the amount of pain that’s involved is much more intense than it should be, then they need to find someone that specializes in this condition, that can take a look at them and get them some of the help that they need. It’s just heartbreaking to meet some of these people that have spent a good portion of their life in ongoing chronic pain.

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

Peter Conti: Probably the best way would be if they want to grab a sample copy of my Commercial Real Estate Investing for Dummies book. If they just go to petersfreebook.com – I’ve set that up for the Best Ever listeners there, where they can just go in, enter their information, and we’ll zip one right out to you.

Joe Fairless: Well, Peter, thank you for being on the show, talking about the deals that have not gone well, and the deals that have gone well, and talking about how to approach the conversation with an owner when you’re ideally wanting to do creative financing. I enjoyed that a lot. So thanks for being on the show. I hope you have  a best ever day, and we’ll talk to you again soon.

Peter Conti: Thanks so much, Joe.

JF1943: How This Investor Closed A MHP Deal For $1.25M 8 Months After Starting with Jason Paul Rogers

Listen to the Episode Below (00:22:18)
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Theo and Jason are going to get into his story, and how he got into real estate. After we hear that, they will dive deeper into his mobile home park deal – which he bought just 8 months after attending a seminar. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“Do what you say and say what you do” – Jason Paul Rogers


Jason Paul Rogers Real Estate Background:

  • Founder and CEO of Brighter Living Properties, a real estate investment group with seven figures in assets under management
  • Acquired his first mobile home park for 1.25 million dollars 8 months after attending Dan Pena’s seminar
  • Based in Omaha, NB
  • Say hi to him at https://brighterlivingproperties.com/
  • Best Ever Book: Rockefeller Biography


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

Jason Paul Rogers: Doing awesome. I appreciate you taking the time and for having me here.

Theo Hicks: Oh, absolutely. And we appreciate you doing the same as well, and I’m looking forward to our conversation. A little bit about Jason – he is the founder and CEO of Brighter Living Properties, a real estate investment group with seven figures in assets under management. He acquired his first mobile home park for 1.275 million dollars, eight months after attending a Dan Pena seminar. He is currently based in Omaha, Nebraska, and you can say hi to him at BrighterLivingProperties.com.

Alright, Jason, do you mind telling us a little bit more about your background and what you’re focused on now?

Jason Paul Rogers: Yeah, I would love to. I’m a fairly younger guy, 28 now; I did our first deal when I was turning 28… So my background really wasn’t real estate-based; in fact, it really wasn’t business-based. At the time of recording this, just a year ago – so if you go one year in the past, I was actually something of a nomadic traveler. I was living between Denmark and Colombia, in  South America… So something of a traveler, I had a little online business, and was comfortable enough with that.

I then got a bit of a dry — single and don’t have some of those tie-downs, you may say, or some of those challenges when you have a mortgage, or have kids, or have a wife, or have a family… So I thought “You know, if I’m gonna go big and make some moves, this is the time to do it.” As you actually mentioned – I didn’t think you were gonna mention my relationship with Dan Pena, which… It’s not like we have a deep friendship, or even a real business relationship, but he does have a seminar that I decided to jump into. He teaches a mergers and acquisitions style of growing your business by buying top-line revenue… So I actually somewhat got into the real estate game not from a traditional real estate investing standpoint, but from more of an M&A (mergers and acquisitions) standpoint.

I learned everything I could from him, because at this time last year I didn’t understand what a balloon payment was, didn’t really understand how an amortization schedule worked, how I lived 27 years without knowing some of the basic things about finance that I legitimately didn’t understand, I don’t know. But I learned everything I could from him, as well as a host of other mentors and individuals in finance, and then real estate, as I decided “You know what – I really had liked real estate throughout my younger years.” I hadn’t really ever tested the waters, but it had always made sense to me to own a hard asset, something tangible, something that would never lose its intrinsic value, so I decided to go into the mobile home park sector.

I really liked the aspect of it being a recession-resistant asset, that essentially will always hold some level of value, and even if the economy has a tough time, people will always need affordable housing… And I could go through the whole story, but I built a team around me, because without my lack of real estate experience, or legal experience, or accounting experience and all these different things – I don’t have a B school background, or legal experience, or accounting experience, and all these different things, like I don’t have a B school background, or a law degree or anything like that, I figured “Let me build a team around myself to help me”, and once I had that team established, it was just a non-stop hunt for deals and for finance.

Long story short, on August 9th of 2019 we closed our first deal, that deal out here in Nebraska, where I’m talking to you right now, the 1.275 million dollar deal, and now we go on a hunt for bigger deals as we move forward.

Theo Hicks: Do you mind telling us the story of that deal? So you went to the Dan Pena seminar, you landed on mobile home parks, and you mentioned why… So from there, what were the next steps? How did you find the deal? Did you put the team together first? How did you fund it? Things like that.

Jason Paul Rogers: As I remember, when I was putting my team together, I started firstly with putting a team together, I remember explaining to these individuals I was reaching out to – I reached out to a host of individuals with a lot more background; think investment banker types, individuals with a lot of real estate experience, top accounting firm backgrounds, kind of these big four accounting firms, and top legal firms… I was reaching out to individuals of that type. When I would talk to them, they would ask me “Okay, well, do you capital fundraised?” I remember saying “We’re actually gonna be running the bases backwards. We’re gonna be running the third base first, which seems counter-intuitive…” But we figured if we build a world-class team first, it’ll be easier for us to procure financing. So it was almost a “If you build it, they will come” mentality.

So we built the team first, built some strategic partnerships with a quality accounting firm and a pretty high-quality law firm, and then after about two months of really building that team, I went all-out on calling for deals, and started to build banking relationships. We targeted the Midwest for a host of reasons… I’m actually from California originally, went to school in UCLA, so I’m a California boy… But the cap rates and the valuations of real estate in California kind of turned me off, not to mention some of the rent control things and aspects of that nature – it kind of scared me, so we really focused on the Midwest.

After probably about a month of hunting for deals, mainly through cold-calling – we weren’t really using brokers… For one, I didn’t really have any capital to my name, so when you talk to a broker, “Hey, send me proof of funds.” Well, my bank account wasn’t exactly super-sexy for a broker… So we went with the off market deal flow, mainly through cold-calling… And I went on a tour of probably about 15 to 20 mobile home parks in Kansas, Nebraska, South Dakota, all the way up into North Dakota.

I really found that Great Plains area to be advantageous for what we were looking to do. It seemed to have the most opportunity, and it seemed to be the least touched by the institutional buyers, and there  seemed to be a little less competition for deals out in that area.

I probably put 20k, 25k on rental cars, and met about 15 to 20 different sellers (or potential sellers), I looked at about 15 to 20 different mobile home parks… We then chose the one that made the most sense to us, which is the deal in Nebraska. From there, I then went on the hunt for bank finance. But as a side note, we also needed equity. You very rarely hear of a real estate deal that you are able to do without any equity.

So what actually happened there was — I can’t put it any more bluntly than to say “I was pretty darn broke.” I was actually sleeping on my grandmother’s couch for a period when I started this process… Which I don’t recommend. I don’t think what I did was exactly ideal. In fact, it certainly wasn’t. But it’s my story, and it’s just the way it happens.

So I knew I needed equity from somewhere, and I had a bit of a social media presence, which I leaned on too a good bit. I shared that I was looking to do a high-quality deal, and that we’re gonna offer a preferred rate of return, as well as en equity stake in the acquisition that we made… And I actually started by going to friends and family, and I was sincerely looking to practice my pitch.

So I went through my pitch, and said “Look, economic occupancy over the last three years has been over 95% (which was true), over the last two years it’s been over 97%. This is a local area without a lot of inventory as far as real estate, so the affordable housing demand is super-strong, you’re next to all these big manufacturers…” And I was going through pitch, and I’m pretending, when I’m talking to friends and family, that they’re the investors. “So if I was to give you, say, 15% to 20% of this deal and to give you a preferred rate of return of 8%, would that be something that would interest you?” And I didn’t actually have to get to this big list of investors that had actually raised their hand as investors (I’d found them on LinkedIn). I didn’t have to get to that list, practicing my pitch, to actually come up with the capital we needed, because very quickly within my network there was some very local interest, if you will, in the deal.

So within a pretty short amount of time I was able to procure $150,000 in equity, and then from there I went on a fundraising tear… Because with the 1.275 million dollar deal, 150k is only 12% of the capital stack; normally, you’re looking for 25%, 30% perhaps on a down payment for a real estate deal.

So my 12% down payment wasn’t exactly great, but what the seller initially did in this Nebraska deal – he had initially said to me “Hey look, I like you…” and this and that and the other, “…I’ll carry the paper.” He was gonna carry 275k on a second-position note, with a matching interest rate to the first lien note. So what that was gonna do is if you could get the seller carryback to count as equity, we had the 150k in total between transaction costs and the down payment that we were gonna use, the seller was gonna match the interest rate to the first lien note for 275k… So it took our “equity” up to – depending on if we used between 100k to 150k of our capital as a down payment versus transaction costs, it was only gonna require the bank going for about 900k of the 1.275.

So I pitched every single bank in town, literally called every bank within a 100-mile radius of the asset… There was certainly some pushback, because my financials weren’t super strong, and that team I’d built – I had told them initially “Hey look, I just want your advice, I just want your insight. I’m not looking for you to guarantee a loan, I’m not looking for you to put in money. Just give me the insight and stand behind me if you will, and give me pointers on how to go forth.”

That was all fine and dandy, they were impressed with the team I had built, but they were like “Well, these folks are gonna guarantee the loan; then we’ll be really impressed, and then we’ll push this thing through. But with you being the guarantor, you guys are bringing a little bit of money into the deal, but how do we de-risk this thing?” So that was a challenge for us. But kept pushing, and there were some banks that were getting more interested.

Then at some point during the negotiation process – I don’t wanna get into the skinny of the deal (there’s some things I’ll keep a little confidential, mainly as it relates to the nuance of the deal, and some of the nuance of what the seller had going on on his end; I don’t wanna speak on that behalf), but what ultimately happened was the seller came back to me, and at this point he and I had built a good rapport, which if we had longer, I would talk more about the importance of building a great rapport with a potential seller, for a host of reasons, including the financial piece… Because he came to me and said “Look, I see the way you’re hunting for bank finance, I also see that if you pay me this big sum of (say) a million dollars or whatever it would be upfront in cash, what’s gonna happen as far as capital gains tax, and all this stuff…”

Long story short, he came back with a seller carryback option, and there was a whole bunch of negotiation – how would that be structured, and at what interest rate, and the amortization, and there was actually a period where he wanted me to run the thing for two years if we were gonna do that deal… And there was a whole bunch of negotiation that happened, but ultimately I was able to not be required to run the thing, and we procured a competitive rate of 6% from the seller… So the deal ultimately closed with an 88% seller carryback, which means we’re pretty darn leveraged. But even at that loan-to-value, if you will, our debt service coverage ratio was really high. That thing freely cash-flows extremely well, and I think that was in part because we went a little bit more rural; our deal is a little bit outside of Omaha, and we were willing to go into a slightly more rural area, that was actually a really strong local economy, agriculturally-based, very stable… But it was one of those deals that was a little under the 50,000 person metro population, so even the midsized investment groups just weren’t quite looking at it seriously… So we were able to find a deal that allowed us to go higher on that leverage than what you would traditionally want to do, yet without — let’s just say our free cashflow was really comfortable, as if we were doing a deal at maybe only 65% or 70% leverage.

So it really has been a good deal. Now, it is park-owned homes, which is the one wrinkle, which means you have to be a little bit more maintenance-savvy… So it’s not a perfect deal, but it got our foot in the door and now it gives us a base to go on and do subsequent deals, which is what we’re planning now.

So that’s in 5-7 minutes or whatever that took, that’s pretty much the story of how it came to be.

Theo Hicks: Yeah, very detailed, thank you for sharing. I’ve got a few follow-up questions before I move on… The first thing that comes to mind – as you mentioned, when you were first starting out you’re like “Okay, I’m gonna build a team first, and then basically leverage their relationships to raise capital, in a sense, and get financing from banks.” And you mentioned that you were reaching out to some pretty top-tier legal, accountants, things like that… How did you win them over to your side? You mentioned you didn’t have any experience, you didn’t have any money… How were you able to get them onto your team?

Jason Paul Rogers: Candor, and a big vision. I would say those were the two main things. First thing — I remember my pitch really well, because I made it over 50 times. I remember starting with saying “Hey, thank you so much for your time”, and then there was this “Look, I know I can do this, but I know I can’t do it alone. Let me be real transparent with who I am and who I’m not, firstly. No real estate background, no B school degree, no law degree… I don’t have those traditional white-collar degrees. I just wanna be clear about it, I don’t have that; that’s in fact why I’m reaching out to you. But what I do have is a relentless work ethic, and more importantly, I believe the ability to make this thing happen. Again, I know I can do this, I just know I can’t do it alone, and I think it’s gonna be a lot easier for us to be successful, because we’ve found this asset class in the manufactured housing industry, or the mobile home park space, that’s ripe for consolidation, that is a real strong asset that will be a joy to fundraise for.”

So I talked a lot about the money. The big question you have when you’re reaching out to individuals like that, especially in the early stages before you really have a track record, and when you really don’t have much capital to talk about, is “Okay, well how are  you gonna get the money?” I can guarantee you that’s gonna be the question if you follow anywhere near a model of what I did. It’s “Okay, where is the money?” And I made a pretty strong point that if we have a strong enough deal and a strong enough team, the finance will come… Which ultimately did prove to be true. The bank financing our deal, like I talked about a minute ago, was difficult, but ultimately what I didn’t share is finally a bank did get involved, and albeit the terms weren’t exactly ideal, which is why we went with the seller carryback note, a bank finally did throw their hat in the ring. It took two months of jumping the bones of every bank in greater Lincoln and Omaha metros to get that to happen, but it did happen.

But again, I would say it’s the big vision – I talked about the big vision that I have for Brighter Living, to grow it to be a very successful company, and I told them I would do anything and everything in my power to make sure this was a success… And I made it really clear to them – “I’m just looking for a little bit of your time. I’m not looking for your capital, I’m not even looking to tap into your network for this first deal. Let me prove myself, and then we’ll tap into your network”, which is actually about a year later almost of now recording this, that team now has confidence in me… “Wow, if this kid was able to pull that  off without any of our real hope other than a couple of pointers, imagine what would happen if we all opened up our collective Rolodex”, which is why we’re really excited about the future. But hopefully those were some valuable pointers about how I was able to build that team from scratch.

Theo Hicks: Absolutely. I’m gonna wrap the next question into the best ever advice question… So the second thing you mentioned that seemed to be the most important for this deal, because the seller ended up basically funding 88% of the deal… You mentioned that you wanted to talk about this anyways, which is building rapport… So what is your best real estate investing advice ever as it relates to building rapport with a seller?

Jason Paul Rogers: I would say the best advice I can give about building rapport with sellers is 1) do it in person, 2) do it honestly, but 3) even if you don’t have a super-strong base to stand on, don’t sell yourself short. There’s this tough blend on “Hey, I don’t have the world of experience…” I’m talking assuming our listener here doesn’t have a ton of experience. If you have experience, then it’s even easier for you. Then it’s just as simple as “Spend time with a seller and ensure the seller that your goals overlap.” It’s really that building rapport over time, figuring out what are your goals, Mr. or Mr. Seller, what are my goals, and can we bridge them in a way that allows for us both to get what we want out of life… But the best way to do that is through shared time together.

I probably spent 10 to 20 hours in-person with the seller before that seller carry-back offer went through. And the other half – I know this is a multi-part answer, but I don’t believe in the “just one thing.” There’s a lot of factors that go into procuring over a million dollars in bank finance when you don’t really have too much as far as your reputation at that point.

The other thing that goes into this is every single thing I told the seller I would do, I did. “Hey, I’ll see you at 11 AM.”  I was there. “Hey, we’ll do a Zoom call at 9 AM.” I was there. “Hey, I’m gonna talk to every single bank in town.” Four days later his realtor was saying “Man, I got a call from two different banks, two bankers that I knew locally, that this guy Jason Rogers was talking about your deal.” So do what you say and say what you do.

When you blend all of those things together, you give yourself the best chance possible to have rapport. But don’t get me wrong, also part of it is just a human thing. There were 15 or 20 other sellers I talked to that I probably didn’t have as good a rapport with any of them as I did with the one seller that we ultimately did the deal with.

There was a shared mindset regarding business and how it should be done, so when you take all of those things together, it’s not just one ingredient that makes the cake, but you put all these ingredients together and then – yeah, it’s a happy birthday, and a delightful cake to go along with it.

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

Jason Paul Rogers: Let’s roll.

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

Break: [00:17:34].26] to [00:18:10].21]

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

Jason Paul Rogers: This one’s not gonna be super-delightful for  your audience… I haven’t read a book in quite some time, and I used to be a voracious reader. We can talk about books all day long. I love Rockefeller’s biography, I love Alexander the Great’s Biography, I love Relentless by Tim Grover, I love Meditations by Marcus Aurelius… That being said, I’ve not read a book in probably six months or more. I’ve just been so darn focused on business that I really haven’t got to that.

So there’s  a couple of books that I like, but I’d be lying if I said I read a book recently. I just don’t wanna BS the audience here.

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

Jason Paul Rogers: If my business were to collapse today, what would I do next… I’d probably go into sales of some kind. I like sales… Only if you’re selling something you believe in. By the way, on the prior question, I would also read the shareholder reports [unintelligible [00:18:54].19] That’s not exactly a book, but I do read those. But yeah, I’d probably go into sales.

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

Jason Paul Rogers: I do a whole bunch of – this is a bit self-promotional – free content on YouTube. I’ve been somebody that’s loved YouTube for a long time. So I’d say producing YouTube content that is free, that really is not holding anything back, that tries to add as much value as humanly possible – that’s what I like to do when I’m not working, to give back.

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

Jason Paul Rogers: I would say the best ever place to reach me would be my LinkedIn, which is LinkedIn.com/in/jasonpaulrogers1. I know that’s a very long URL, but basically just search my name, Jason Paul Rogers, on LinkedIn. I’ll probably be the first one that shows up. So I would say LinkedIn is probably the best ever place to find me.

Theo Hicks: Perfect. Well, Jason, I really appreciate you coming on the show today and giving us really a lot of information in such a short period of time. Very detailed… You walked us through, again, in great detail, your first deal, that 1.275 million dollar mobile home park. You mentioned how you started from being a nomadic traveler, to attending a seminar, to learning all you possibly could about the mobile home park asset class, starting by putting a team together, then focused on financing second… You talked about why you focused on the Midwest as opposed to where you are from, which is California. You talked about how you found the deal, through hunting for deals, through cold-calling, and touring across the Midwest, 15-20 mobile home parks.

After you found the deal, you talked about the entire process of funding the deal, and how you ended up landing on an 88% seller carry-back note with the owner. We also talked about how you partnered with the top-tier people in the market and how others can do the same. You said it was candor and a big vision. Something I really liked about what you said was when you were talking to them you didn’t go in there saying “Hey, I want your network, I want your money”, instead you just said “I’m just looking for your time, and I wanna prove myself first before I start asking for these big things from you.”

And then lastly, your Best Ever advice for how to build rapport with the seller was do it in person, do it honestly, don’t sell yourself short. Make sure that your goals overlap, which is accomplished by shared time together. You spent 10-20 hours in-person with the seller… And then the biggest thing I think is doing everything you said that you’re going to do, you actually did. And I think a really good example was you said you were gonna reach out to every bank within a 100-mile radius, and then the broker called the owner and said “Hey, I got a call from these banks. Jason reached out to them.” I’m sure that was a great way to build rapport with the seller.

Again, Jason, I really appreciate you coming on the show today. Best Ever listeners, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Jason Paul Rogers: It’s been a pleasure. Have a great one.

JF1940: Investor Gets Into Real Estate On Accident, Scales To $750M AUM with Don Wenner

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Don got his start in the industry by knocking doors to sell security. An investor told him to do that same thing with real estate. He took the advice and ran with it, knocking on doors to find properties to buy, eventually getting away from the door knocking and scaling a large real estate investing business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

“When people lose money on an asset, usually it’s because they couldn’t execute internally and over extended themselves” – Don Wenner

Don Wenner Real Estate Background:

  • CEO of DLP Real Estate Capital, a family of real estate solution companies w/ 350 team members, 750MM in assets under management, and 100MM plus in annual revenue
  • 10k units owned, 12k homes and apartments acquired
  • Based in Allentown, PA & St. Augustine, FL
  • Say hi to him at https://dlprealestate.com/
  • Best Ever Book: Turning the Fly Wheel by Jim Collins


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

Don Wenner: I’m doing great, Joe. How about yourself?

Joe Fairless: I’m doing great as well, and looking forward to our conversation. A little bit about Don – he’s the CEO of DLP Real Estate Capital, a family of real estate solution companies with 350 team members, 750 million in assets under management, and 100 million plus in annual revenue. They’ve got 10,000 unit owned, 12,000 homes and apartments acquired, and based in a couple places: Allentown, Pennsylvania, and Don, where are you located?

Don Wenner: St. Augustine, Florida. Just south of Jacksonville.

Joe Fairless: Just south of Jacksonville. First, Don, do you wanna give the Best Ever listeners a little bit more about your background and your current focus? And then we’ll go from there.

Don Wenner: Absolutely, so I’ll give the one minute or two version. I started in real estate probably like most people; I was a college student at Drexel University in Philadelphia, and I was actually spending my days knocking on doors… Literally, all day, knocking on doors while I was in college, for ADT Security. I became the number one sales rep in the country for ADT, and I was making 5k to 8k every two weeks; I thought I was on top of the world, I was 19-20 years old… And the guy who owned the company was in real estate. This was 2006. Everybody was in real estate in 2006… And he told me if I could sell alarm systems knocking on doors, I’d do great selling real estate.

So I got my real estate license, started selling real estate. That led to very quickly starting to flip real estate, which then at the bottom of the market led to building a real estate portfolio of single-family homes, scattered multifamily, all the commercial food groups… That led us to build a construction company to handle all the renovations, it led us to build property management to handle all the management, it led us to need to open private investment funds to bring in capital to fund all the growth… That led down a path of starting to lend capital to other investors and growing a large lending business, and then further writing equity and partnering with other operators.

To fast-forward all that now to today, we have a family of 350 team members across eight total companies, headquartered, as you said, in Pennsylvania, Florida, offices really throughout the East Coast… And having a lot of fun at it.

Joe Fairless: What do you miss about door knocking?

Don Wenner: [laughs] It was a lot of fun. The simplicity of the one appointment sale, the simplicity of you know on the door, you put your head down and shuffle and walk in that door, and you walk out with a signed contract and a commission check. The simplicity of that type of sale was pretty awesome. It was a great way to cut your teeth and learn the basics of sales… I’ve been having a lot more fun since then, but it was a great experience.

Joe Fairless: So how many units does your company own right now?

Don Wenner: We own somewhere between 10,000 and 11,000 right now.

Joe Fairless: And where are they located?

Don Wenner: We’re heavy in the South-East. We’re in a total of 15 states. We’re heavy from North Carolina down to Florida, we’re also heavy in Pennsylvania and New Jersey, because that’s where the company is headquartered, and we have a lot of relationships and assets… But we’re out as far West as Arizona, we’re as far North as South Bend, Indiana, but we’re in 15 total states and we own anywhere from 200 to 3,000 apartments and homes.

Joe Fairless: And how are you able to manage that process?

Don Wenner: Great question. It starts, of course, with great people. If you asked me where do I spend most of my time, the largest segment of my time is spent on hiring and developing leaders. We really build a culture of  — our mantra is “Leaders made here.” So we build great leaders throughout the individual businesses, empower them to grow and take ownership and lead, and that’s been really the key to our ability to scale, both geographically, and the new business lines, and sitting in different seats with any of these different business lines and transactions.

Joe Fairless: And I’d love to talk more about that, but first just so I’m wrapping my head around this correctly… You said you have 350 team members. How many of those are W-2 employees?

Don Wenner: 325.

Joe Fairless: So you have 325 W-2 employees across eight companies. What company of the eight has the most employees?

Don Wenner: Property management.

Joe Fairless: Yes, of course…

Don Wenner: We have about 150 in property management.

Joe Fairless: Okay. And why have your own property management? Because I’m sure you did some pros and cons of starting your own management company.

Don Wenner: Yeah. To be honest, in the beginning, the types of properties we were buying – it was hard to find good management. When you’re buying 20-unit, 40-unit, 60-unit type properties, there’s really not good professional management out there. Or at least not that we were able to find in the secondary and tertiary markets we were in. So in the beginning, there really wasn’t any other option. And then as we grew, we evaluated and we’ve used third-party management, and we have some of our portfolio today, about 2,000 of our apartments we do a third-party management. But we still provide the construction management and the asset management.

But really, at the end of the day, your job running a business is operations, and your ability to execute is the key in any business, and certainly managing real estate is no different. I believe that my interest, my alignment and then the interest in generating profits at the asset level is always gonna be much greater than the interest level in the management company whose goal is to drive his bottom line.

So the alignment of interests are in place when you own your own management company, and then we believe strongly that by executing what we call our elite execution system, which is how we run each of our businesses, and the disciplines of executing, of hiring, of laying out our strategy and business plans and then doing the things every day, building the right forms of communication, solving issues, managing your top priorities – the way we’ve built that throughout our organization allows us to get significantly better results than any other management company we’ve been able to come across.

Joe Fairless: And since that’s the case, why have 2,000 units be with third-party management?

Don Wenner: When we go into a new market – for example, we’ve gone into Arizona, and we didn’t own anything within six or seven hours of this new community we just bought in Arizona… So in that specific case we didn’t have any infrastructure in place yet, we didn’t have any relationships yet, we didn’t have any contractors yet… So it was in easier — in that case, actually, it was one of the rarest situations where we bought a property that already had pretty good management in place… So it was just a lot easier to keep that third-party manager in place initially. They already had the knowledge of the asset, the knowledge of the market, the knowledge of the people… Than to force change, and with all my senior leadership being remote – it made it a lot more challenging.

So generally we’ll bring in third-party if it’s a new market to us, we don’t have experience… And then if they do an incredible job, we’ll keep them. If they don’t, then we take over the management.

Joe Fairless: So let’s talk about the Phoenix portfolio or property. Can you tell us some details about it?

Don Wenner: This property is actually right outside of Tucson, and…

Joe Fairless: Oh, Tucson. Arizona — I made a poor assumption.

Don Wenner: [laughs] So this is a 196-unit built in 1997, class B community, in a class B+ neighborhood.

Joe Fairless: Okay. And how did you find the deal?

Don Wenner: I actually bought it through an auction platform. So we’ve actually done pretty well buying through auction platforms, because generally, especially this platform, you have to wire a 10% deposit, and it was a 14 million dollar deal… A 10% deposit within 24 hours of winning the auction, and you have to close in 21 days with no contingencies.

So generally, what we joke is smaller operators generally don’t have the ability or the confidence that they can pull the money together that quickly, and the big guy, the guy sitting in New York, generally the big Wall Street funds, they generally can’t get the contract signed in 21 days, let alone close on the asset. So we’ve generally done very well on those types of deals, with very short timetables and very hard terms.

Joe Fairless: That’s interesting. What platform is it?

Don Wenner: Real Insight Marketplace.

Joe Fairless: Okay. How many deals have you bought from Real Insight Marketplace?

Don Wenner: Five or six.

Joe Fairless: And the first one, how did you get comfortable with buying the first one off of an online auction? …I assume it’s an online auction platform.

Don Wenner: Correct. You have to be willing to invest and do your homework upfront. So you have to be willing to invest, and doing your due diligence, getting out to the asset, doing everything upfront when you know there’s a good probability that you’re not gonna win the auction. You have to make that investment to get to the point of 100% confidence before the time of submitting your offer, so that then you’re confident in the asset and in your underwriting, but also in your ability to close quickly, and understanding all the hair that could come up as you’re finalizing up your capital structure and getting the deal closed.

Joe Fairless: So what do you do, tactically speaking, to get 100% comfortable with purchasing a property where you’ll have 21 days to close with no contingencies?

Don Wenner: I’d say the first place for most people who start is you have to confident you have your capital in order. That’s the first thing that we focus on. Beyond that, it’s understanding the asset and the market at a high level. Generally, our due diligence process consists of a team going out to the asset, or an acquisition team, our construction management team, our asset management team… In this case, this property didn’t have a heavy redevelopment component, but when they do, generally bringing contractors, and often bringing — our third-party is bringing an engineer out right away, if there’s not already one. In this case there was. Getting the phase one done on the property before you even have it tied up…

But bringing a full team out there, spend a couple days, walk through every single unit, dive deep into the asset, do your full lease audit and evaluation of the financials upfront… And then getting out to the competition. That’s really a big part of it. Truly understanding the market… This was, again, our first deal in a new market, so getting to know the market, getting to know the competition, getting to understand the demand, getting to understand the larger employers in the market, understanding the demographics, understanding the tenant base, and getting comfortable that we’re gonna be able to continue to execute over the 5 or 7-year business plan that we’re laying out for that property.

Joe Fairless: Approximately how long does it take to complete this part of the process for you? I know on the ground you said a couple days, but I imagine the lease audits, and looking at the financials – that takes a little bit longer.

Don Wenner: Yeah, if we’re under a short timetable, like on a deal like this, we’re generally gonna complete the whole process, start to finish, in about seven days. Like most, we’d prefer to have a little more time, but when we’re operating under a short timetable, generally we’ll complete the majority of our due diligence in about a week.

Joe Fairless: And what part of what you’ve just said — are there still some lingering things that could bite you in the butt, just because you were having to compress your timeline to seven days?

Don Wenner: Yeah, it’s a great question. Like any deal, we look at it as — a deal or an asset can be a great asset at one price, and a terrible buy at another price… So one of the great parts of buying on auction platforms generally is you’re picking up assets at a lower basis, that gives you a little bit more room. So anything we’re not 100% confident we’ve nailed down, then we just assume the worst in our underwriting. We’ll assume the worst on what it’s gonna cost us, or if we’re not 100% confident with what rents we’re gonna be able to drive through an upgrade package, we’re gonna assume the most conservative side of our analysis, and max out our max bid based on a more conservative underwriting.

So generally, the more holes we have in our underwriting at the point of the auction, the lower our bid is gonna be, which can result in us getting a better buy, or of course, can result in us losing out, because we weren’t able to complete and check every box in our underwriting, so we came in more conservative.

Joe Fairless: I believe you said you’ve closed on six properties on that auction platform… Did I hear that right?

Don Wenner: On that specific auction platform, yeah. We bought many, many on multiple different auction platforms, but on that specific one – yeah.

Joe Fairless: Okay. On that platform, approximately how many bids have you put in to get those six closings?

Don Wenner: We’ve probably bid on 15 assets to win those 5 or 6.

Joe Fairless: Oh, so 15 which includes those six, or 15 that you didn’t get? Wow…

Don Wenner: Correct. So we have a 33% to 40% hit rate generally on auction deals that we decide to bid on. We feel we have a good chance at it, and we do all our homework upfront to determine what the whisper price is, what the reserve price is, really where is the thing gonna shake out, to know if it’s something we’re gonna put forth all that energy and effort around.

Joe Fairless: If you mobilize your crew to go do that 7-day exercise and go visit the property, and do the lease audits, do you generally then move forward with making an offer?

Don Wenner: Generally, yes. There’s certainly exceptions to the rule. You come up with something you just don’t wanna tackle or deal with. It’s usually less about the physical asset, and it turns out that an issue with the neighborhood that we don’t wanna tackle, whether that be crime, or drugs, or just we see negative trends in population growth, or socio-economic changes going on that we don’t feel confident in the basis, that we didn’t have the most accurate assumptions before we got out to the asset. That’s generally what happens. It’s less about the asset than the neighborhood.

Generally, we like to buy C+, B- assets, in B+ or better neighborhoods. So if it turns out to be a neighborhood that we don’t think we’re gonna be able to control or change, then that can be what turns us away from an asset.

Joe Fairless: What online platform have you bought the most properties on?

Don Wenner: In terms of multifamily communities, we’ve bought on many of them. But I’d say the one we’ve historically been the most active on has been 10X.

Joe Fairless: How many would you say you’ve closed on that?

Don Wenner: Maybe 15.

Joe Fairless: Any recent ones?

Don Wenner: I don’t think we’ve won any in 2019. In 2018 we definitely bought a number of assets. I know we’ve been the bridesmaid on a few this year, but I don’t think we’ve won any this year.

Joe Fairless: And any nuances that you’ve identified from one auction platform compared to another, that you think would be relevant to share?

Don Wenner: I’d say some of them have more flexible terms, but the more flexible the terms are, generally the higher the price is gonna go. For example, on 10X they’ve started providing debt options, or giving you time to place debt… Which, as an operator, of course, that’s a great thing. We actually, on the lending side of our business, have funded a ton of auction deals for other operators, because we’re one of the few lenders who will close loans in 20 days. So it’s actually been a huge source for us not only to buy deals, but actually to fund deals to other operators. And some of the auctions that we’ve lost out on, actually we’ve ended up funding the guy who won the auction. And because we already underwrote the property, we were comfortable with it and we could close in 21 days. That’s happened many times. More times that we funded other guys buying deals than we’ve bought them ourselves.

But when auction platforms start saying “Hey, we’ll give you a 30-day extension, we’ll give you 60-day terms to place financing”, or sometimes they’ll say “Hey, we’ll give you unlimited time, as long as you’re working with our lending partner” – that’s generally when everybody realizes “Hey, I can have a lot time. I have time to go place debt, I can go get financing.” Then that opens up the buyer pool times three, four, five or ten. If they had to close in 21 days, or even 30 days, they wouldn’t be bidding. When that happens, generally we’re not able to be the buyer, because people are gonna be willing to overpay, when they can go out there and place some CMBS debt, or something that operators will use to get interest-only 10-year paper, and they can justify paying prices that to us don’t make sense.

So we actually love [unintelligible [00:16:52].15] as an operator, and we love it as a provider of debt and equity. The other guys — when there isn’t time typically to place financing, that’s where we can excel and get the best deal and bring value.

Joe Fairless: And what makes you like a deal as a lender, but not like the deal as an operator?

Don Wenner: That’s a great question. I’d say if one of our partners or borrowers comes to us with a deal that they wanna fund, we don’t compete against them. A lot of times we do like the deal a lot as a lender, but in many cases we’ll go and provide equity to them as well. A big majority of deals where we provide debt to, we end up providing the majority of the equity as well. So a lot of times when deals do come to us for debt, we really do like them and we provide them with capital as well.

We just had a deal – it was an auction deal – this past week that we were bidding on, and then we found out one of our close partners that we do a lot of business with was bidding on the same deal. We didn’t bow out, but we strategized with them and we still put out an offer, but we purposely put out our offer to be inferior terms to the partner, to help his offer actually look better, and we actually helped him win the deal. Then we ended up coming in and we’re providing both the debt and we’re providing 90% of the equity on that deal, but we’re doing it with another operator; we’re allowing him to run and manage and execute on the property.

Another case is we’ve had situations where we’ve put offers in on a deal, we lost out, because somebody else was willing to pay a little more, and then we found out who the winner is and we come and offer them capital into the deal. We’ve operated that way as well many times.

Joe Fairless: Tell us about the deal that you’ve lost the most amount of money on.

Don Wenner: Yeah, good question. I can’t really say I had a deal that I’ve lost a lot of money on. We certainly had some single-family flips, we’ve done a couple thousand single-family flips… One that comes to mind – we’ve renovated a house, start to finish, beautiful house, sold it; it was like a 350k house. And a week before closing, a realtor or an inspector doing the inspection – we never identified who did it – turned off the emergency heat switch and shut off the heat, and the whole house froze. It was a long story, but the insurance company didn’t cover it… So we ended up having to re-renovate this entire house, to the tune of about 80k. So it turned it from a 40k profit to a 40k loss. That’s the biggest loss that I can think of on any property we’ve had.

We don’t have a lot of times we’ve lost money. When I think about bad deals, where my mind goes with deals gone bad is generally doing deals with people I don’t wanna be in business with, and I think that’s the mistake that people often make. A deal can go bad because you’re stuck with a partner who restricts and doesn’t provide the capital, or doesn’t agree with the business plan, or slows things down, or won’t make decisions, or whatever the case. Or just makes your life miserable.

In the early days, like a lot of people, when we first got going, we would partner with anybody who had capital… And we worked with some lousy partners in the beginning, that really made deals unenjoyable, and sucked some of the profits out, because we had to move so slow, answering questions, and getting their feedback, and getting their approval on decisions… It really slowed us down. So that’s been the bigger challenge in our early days, and why we really committed to raising our own private funds that we had complete discretion and control of, and then being able to go out there and offer capital to others with complete control. It’s been a huge reason why we have not dealt with those issues since our early days, and why we haven’t had issues of major losses on deals. It’s a big part of it, because we do business with people we wanna be in business with.

I think building relationships with people is a huge part of success, but the other point I wanna make is I think generally when guys lose money on a property, generally it’s not that the property was a bad piece of land, or a bad asset… Generally it’s not that they bought it at a bad price. Generally it’s not that they didn’t understand construction, or they didn’t understand property management. Generally it’s not that the market turned on them. Usually it’s that they couldn’t execute internally. They tried to take on too many projects at once, and they just couldn’t handle them. They over-extended themselves.

They didn’t have any structure in their organization to stay on top of the important things, and time started going by, and things didn’t get done, they forgot to pull their permits, and then they had to go backwards, they hired a new project leader and put them in charge of the project and he completely screwed up because they hired the wrong person; they didn’t really train them, they didn’t really manage them… They didn’t have a way to scale. And what I’ve seen is when guys go from being successful home flippers or whatever type of investor and wanna scale and grow a business, they tend to struggle not because they don’t understand real estate, but because they don’t know how to scale a business. They hire the wrong people, they don’t partner with the right people, they don’t build the internal processes to execute in their organization.

They don’t have a way to drive communication as their organization grows, they don’t have a way to set priorities, they don’t have a way to solve issues, they don’t have a way to keep out the noise and stay focused on what really matters, and they end up overextending themselves. And even though they may be doing a decent amount of business, they end up starting to have losses, they end up starting to be inefficient, they end up starting to take longer than it used to take them, and they start running a business that’s no longer profitable like it was in the beginning. That’s what we see more times than not, especially over the last number of years, where the market has been so great.

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

Don Wenner: My best real estate advice ever kind of ties to my last comment, and it’s two parts. Number one, be in business with people you like. The Chug Test I heard recently by Steve Sims, who wrote Bluefishing, the Chug Test – don’t hire anybody or do business with somebody you wouldn’t wanna go and grab a beer with. So be in business with the right people.

And focus on building the internal operations of your business, and it’ll take care of everything else if you focus on execution in your organization.

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

Don Wenner: I’m ready.

Joe Fairless: Alright, I know you are. First, let’s hear from our Best Ever partners.

Break: [00:22:24].03] to [00:23:00].12]

Joe Fairless: Okay, best ever book you’ve recently read?

Don Wenner: I read 3-4 books every week, but my best one I’ve read recently I’d say is Turning the Flywheel by Jim Collins.

Joe Fairless: And what have you implemented in your business from that book?

Don Wenner: Turning the Flywheel is a little monogram, as he calls it, an add-on to Good to Great, and I’m a huge Jim Collins fan. He doesn’t really teach anything new in this book, but what he does is he crystallizes a lot of his teachings – Good to Great, and Great by Choice, and How the Mighty Fall – and really lays it out in a really clear basis.

The biggest thing I’d say I implement is he [unintelligible [00:23:26].28] that you need your organization to be discipline-centered. He calls it disciplined thought, disciplined action, disciplined people. He just does an amazing job of crystallizing and explaining that, and then he breaks out all his different tools and things he teaches: the hedgehog principle, the flywheel etc. and breaks them out in a really organized fashion. It’s a tiny little book, it takes an hour and a half to listen to, but his strategy simplified in a little tiny book – it’s amazing.

Joe Fairless: Best ever deal you’ve done?

Don Wenner: The next one I’m gonna do.

Joe Fairless: What deal have you made the most money on, and how much did you make?

Don Wenner: I’d say a deal we’re actually selling in 3-4 days is gonna be the most profitable single deal. We bought a property for seven million dollars in Orlando, and we’ve put about a million dollars into it, so eight million total cost, we put two million equity and six million debt, and we’re selling it for 15 million. We’re gonna return an 8 million-dollar profit on a two million dollars investment in a little over two years.

Joe Fairless: A couple things that you did to increase the value that greatly are what?

Don Wenner: Management was the big play there. Really, really poor management, and a really, really poor tenant base. So we’ve spent a lot of energy and effort to turn over the tenant base, and put the right people in place there on our end, on the management side, and changed it from — when we bought the property, there were multiple shootings on the property the previous year, there were a lot of drug issues, there was unfortunately a rape on the property… And we really focused heavy on putting security in place, not allowing that type of behavior to continue, getting rid of all the troubled tenants. We turned it around over the first year and really drove up not only the occupancy and the quality of tenants, but the rents as well.

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

Don Wenner: About two years ago I launched a foundation called DLP Positive Returns Foundation, and we focus on two epidemics that we believe to be epidemics in America. One is the affordable housing epidemic here in America, that’s frankly getting worse every day, and second is attacking the job epidemic; that we’re losing jobs to technology at  a rapid pace, and I believe the only way to solve for that is through entrepreneurship here in the States.

So we’re really focused on those two causes, supporting a lot of other great organizations, both in terms of monetary capital, but then also I teach our operating system, our elite execution system – which I’ve just finished our book called Building an Elite Organization – and I go and I teach that to social entrepreneurs and help them grow their causes. It’s been incredibly rewarding.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and get your book, Building an Elite Organization?

Don Wenner: Email is the fastest way to contact me: don@dlpre.com. And of course, you can find us on all the social platforms and such as well. Our website is dlprealestate.com.

Joe Fairless: That’s how they also can get the book?

Don Wenner: Yeah, so you shoot me a quick note to my email address, and as soon as the book is going live, which is gonna be January 1st, you shoot me a note and we’ll send you out a copy of the book.

Joe Fairless: Awesome. Congratulations on the book, and also clearly congratulations on the real estate business. I really enjoyed learning about the approach you’ve taken to acquisitions on the online auction platforms, and what you do to mitigate risk as much as you can, what would be a reason why you would pull out – not necessarily about the property, but really about the market, because it’s very challenging to change that… And then the approach that you take from a mindset standpoint, and how you’re continuing to learn, you’re annihilating books on a weekly basis. Very impressive.

I really appreciate our conversation, I enjoyed it. I hope you have a best ever day, and we’ll talk to you again soon.

Don Wenner: Awesome. Thanks, Joe. I appreciate the opportunity.



JF1939: MHP, Multifamily, Commercial, & SFR’s Investor With Experience In Every Class Tells All with Maurice Philogene

Listen to the Episode Below (00:22:25)
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Best Real Estate Investing Crash Course Ever!

Theo and Maurice are going to have a great conversation for us today. Maurice has a lot going on in his business, with experience across many different asset classes, he has a lot of value to add for us today. The first thing we will get into is how he balances his time between all those different deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“You just can’t do it without family and good partners and friends” – Maurice Philogene


Maurice Philogene Real Estate Background:

  • Founder and Principal of JMP Investment Group, LLC
  • Multifamily investor and entrepreneur, he’s executed over 200 transactions across numerous classes of real estate, including commercial, apartment buildings, mobile home parks and single-family residences.
  • Based in Washington, D.C.
  • Say hi to him at jmpholdings@outlook.com
  • Best Ever Book: The 4 Hour Work Week


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


JF1925: Investing In Legally Compliant Cannabis & Hemp Properties with Dana Wallace

Listen to the Episode Below (00:24:43)
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Best Real Estate Investing Crash Course Ever!

This is either a first or possibly the second time we’ve had an investor on to talk to us about real estate investing, in the legal cannabis space. Dana will walk us through how she finds and vets properties, and the obstacles she has to work around in this space. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“You may have a license that you can move to a different location” – Dana Wallace


Dana Wallace Real Estate Background:

  • Owner of 420Estates.net, a firm that specializes in legally compliant Cannabis properties
  • she has over sixteen years of experience in the typical aspects of investment real estate sales
  • Based in San Francisco, CA
  • Say hi to her at https://www.420estates.net/
  • Best Ever Book: Code Of The Extraordinary Mind


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today we will be speaking with Dana Wallace. Dana, how are you doing today?

Dana Wallace: Great, how are you?

Theo Hicks: I’m doing fantastic, thanks for asking. I’m looking forward to our conversation. It’s gonna be a fun one, I can already tell. Before we get started though, a little bit about Dana. She is the owner of 420Estates.net, which is a firm that specializes in legally-compliant cannabis properties. She has over 16 years of experience in the typical aspects of investment real estate sales. Based in San Francisco. You can say hi to her to 420Estates.net.

Dana, before we get started, could you tell us a little bit more about your background and what you’re focused on now?

Dana Wallace: Absolutely, and thanks so much for letting me be a part of your podcast today. I really appreciate it. My company is just a boutique real estate company which basically specializes in legally-compliant cannabis and hemp properties. I am solely focused on the cannabis industry and hemp industry. We voted to bring recreational cannabis in in 2016, and I started my company in late 2015 when I saw that California was more than likely gonna vote this through… And it’s been a really interesting journey, anywhere from cultivation properties, to warehouse, industrial, commercial properties for distribution, extraction, which is considered manufacturing, dispensary, delivery… Lots of different things going on in the real estate portion of it. And I just have become very involved with a lot of the companies and small craft farmers that are working in the industry as well.

Theo Hicks: Okay, so I personally don’t know anything about these types of properties, so I’m gonna ask you just a bunch of questions, and if they seem like dumb questions, I apologize.

Dana Wallace: No, they’re never dumb. It’s a complex industry, and there’s a lot going on, and no municipality is the same, so… Yeah, fire away.

Theo Hicks: Okay. How many properties do you own? Either number, or just dollar amounts… What’s the volume we’re talking about here?

Dana Wallace: So I don’t specifically own any of the properties. What happens is an owner of the property will call me and they would like me to sell their property along with the business entity that obtained the cannabis licensing permits, or they have bought a property that they want to lease. And more than likely, that’s usually a warehouse; however, there are some landowners who are leasing to cultivators as well.

These owners have either gone through the process of becoming a permitted, licensed operation, or their actual property is zoned or approved to be able to operate a cannabis business, whether that’s cultivation, manufacturing, distribution… It just depends on what licensing they’ve gone through and what their property is approved or zoned for.

Theo Hicks: Okay, so you deal with owners of properties that are in the beginning  phases, all the way up to the shops that someone can go into and buy cannabis?

Dana Wallace: Yes. They can either be in the licensing process, they’ve already finished the licensing process, and so now they’re wanting to sell not only their real estate, but also the business entity that obtained the permits. That way, someone can come in and start operating and doing buildout, or they’ve got an already-established business and they’re looking to sell that as well, maybe for expansion, or they have obtained multiple permitting in multiple businesses.

Theo Hicks: Okay, so I’ve gone through the beginning phases, I’ve got my license and I want to buy a property, and I come to you. What would you say to me when I first sought you out?

Dana Wallace: In most cases you’re going to have a property, because in most municipalities you need to identify the location of where you’re gonna be operating your cannabis business. So they want you to have that property in place, whether you have purchased the real estate or you’re in a long-term lease on that real estate and the landlord has given full consent… Otherwise you would not have licensing in hand. Because with the lease, that landlord is going to have to be cannabis-friendly and have to submit an approval letter in order for you to be licensed. So you will have already identified a location.

Theo Hicks: Okay.

Dana Wallace: Sometimes different zoning has happened, especially for example in Los Angeles, and maybe you had a location and it’s no longer zoned correctly, so they’re allowing you to find a different location. In that circumstance you may have a license that you can move to a different location.

Theo Hicks: Is there a particular type of property I have to buy? Can I just buy a single family home in the middle of a neighborhood, or does it have to be in a specific location?

Dana Wallace: If you were going to grow out of your home, which some people choose to do, you’re gonna be allowed, in most cases, six plants per adult in the home. And again, the municipalities may vary, so your city or county may say “If you’re gonna grow six plants per adult, that’s fine, but you need to only grow in an enclosed space. Or you can only grow outdoor. And if you grow outdoor, then you need to put it in a small greenhouse.” And then they might have smell mitigation rules in place.

So most people that just wanna grow for personal use will not be utilizing me, because you can do that out of most homes. You just have to check your local ordinances. But if you’re coming to me because you want to grow commercially on a recreational level to sell to dispensaries, then you’re gonna be coming to me and saying “Okay, we have to find out what the proper zonage is in my particular area, whether they even allow it or not.” So there’s a bunch of research to be done, because each municipality does things differently.

Theo Hicks: I think you said this already, but do these people own a property that’s already zoned, or do you help them have their property rezoned to allow them to grow cannabis?

Dana Wallace: I have not gone through a rezoning process. I imagine that in most cases that would take quite a while. It’s just a matter of figuring out “Are you correctly zoned with your particular property?” And a lot of times they’ll have already gone to their planning department, spoke with their cannabis staffing, the building and planning permit department, and they’ll find out if they’re zoned. Like I said, each municipality is very different.

For example, in Oakland you’ve got a green zone. So you plug in your address and you look to see “Hey, does my industrial warehouse fall in the correct zone? And if it does, what am I allowed in my zone? Maybe I’m only allowed to do non-volatile manufacturing”, which is extracting cannabis plant oils. Or maybe I’m only allowed to do cultivation and distribution, moving my product out of this location. In that case, you look and see where you fall on their zoning map.

Other municipalities don’t have a zoning map, so you really need to go down to the municipality’s planning department, find out who to speak with, and find out where your property falls as far as zoning. If you’re looking at land, a lot of times if you’re zoned ag and you wanna do cultivation, that municipality is saying “If your property is zoned ag and you can meet these setbacks from your neighbors, and you’re not pulling from a creek or a natural water source, or basically harming the environment with what your plants are, with your cultivation business”, then yes, you can move forward and get your property permitted, because you’re zoned ag.

Theo Hicks: Okay. So you mentioned that someone would call you, and they either already have the business and they wanna sell it, or they want to lease it. The amount of money I can sell my property for, or the amount of money I can lease my property for – is it a lot higher than using it for just standard industrial use?

Dana Wallace: Yeah, there is more than likely always a cannabis premium on those properties. For example, if in your city a regular industrial warehouse is usually being leased for 75 cents to a dollar, to a dollar fifty a square foot, it can be as high as two to two fifty a square foot. So there’s definitely a cannabis premium. Same thing with selling… Because now you’ve added value to that property – and also leasing – because that property is actually permitted to conduct whatever cannabis business you’re looking to get into, which means you’re that much farther ahead of the game, so there’s more value in that property. You’re able to step into a business and purchase it, along with the real estate, whether you’re leasing and purchasing the real estate.

Theo Hicks: Do you know the types of returns these owners are getting once they actually start to operate their business? Let’s just use a landlord, for example; let’s say I’m a real estate investor, I’ve got one of these properties that’s leased and permitted to conduct a cannabis business… What types of cash-on-cash returns should I expect to see?

Dana Wallace: So you’re looking at 12% to 14% cap rate. A lot of investors have that business model in mind. I’m going to buy an industrial warehouse in the correct zone, get it permitted for cannabis business use, and then I’m gonna lease to cannabis tenants with that lease premium, for being able to operate a cannabis business.

So it can vary, again, from municipality to municipality. There are some small towns which are having economic hardships. Maybe they have a bunch of industrial properties that have been sitting abandoned, and they’re looking so forward to the tax revenue, and the jobs, and the things that it’s gonna bring to their communities, so they may have better lease pricing, or better purchase price points on their buildings. But in a lot of the bigger cities – yes, there’s a definite return margin. And it does vary, because a lot of the state permitting just became permanent at the beginning of this year, and there’s a lot of businesses still going through the process…

So it’ll remain to be seen where everything kind of settles and ways that we can mark in the fluctuations in the market. But we are starting to be able to point to different figures in the business and say “Okay, well this is kind of what this market is getting on returns and what they can commend. Okay, let’s go over here; this is kind of what we’re seeing in this particular municipality.” But it’s very new, so there’s not a lot of hardcore, solid points… But you’re definitely getting a premium on any purchase or lease figures that you do with cannabis clients or tenants; you’re definitely getting a higher return, because of the risk and the complications with this market right now.

Theo Hicks: That’s a perfect [unintelligible [00:12:52].20] my next question, which is besides the obvious regular risks associated with investing in real estate, what are some additional risks associated with this specific investment strategy?

Dana Wallace: The risks are that it is still federally illegal, although we are making huge progress. There’s bills in front of Congress now to push for federal legalization. One of our main hurdles in the cannabis industry is that the banks are federally regulated. Cannabis operators do not have a banking system that they can walk in and bank with, so it remains very much an all-cash business, which causes security problems for the operators. This is something that we’re in desperate need of – banking for our cannabis operators.

There are private groups that put together banking for Colorado, and that’s starting to happen here in California. You’re gonna have private groups that are able to put together banking, so that they can safely go in and bank. So instead of showing up to the state capital to pay your taxes with (unfortunately)  a briefcase or duffel bag with your tax payment in it, you’re actually gonna be able to safely bank. There’s also things that are set up – secure vaults; companies have started those as well, so that it is becoming more and more secure… But that’s one of the main hurdles – the banking for our cannabis operators.

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

Dana Wallace: My best real estate investing advice for people who would like to dip their toes into the cannabis industry is basically when you’re being presented with ideas or real estate that has a cannabis entity that’s going to be operating out of it, is basically really find out who your cannabis company or operator is. You should know the full story on them, the full background story; who are they, how long have they been in the industry? Is there a brand that they can point to? Is there products that they can point to that they have on the market? What is their business history?

I say this with also the point that because of the banking industry, everybody had to do business in cash before, so you’re not gonna be able to look at somebody and go “Where’s your tax records? Where’s your bank statements?” So it’s very important to sit down and find out who it is you’re dealing with, what their experience is in the industry, and do they have a team made up of people who are also savvy with just regular business and corporate structures?

The other thing is you’re gonna wanna look at their growth plan for their company, whether it’s expansion capital, whether it’s buildout capital now, the guy has received the licenses and he wants to build out… You’re gonna wanna look at “Okay, well how has he planned out his growth?” Because for some of these businesses it’s much better to see them going through phases of growth – “Here’s phase one, and we’re  gonna start seeing profit before we move on to phase two, and phase three…”

Or you can get some guys who come in and go “We’re doing it all. We’re buying millions of dollars’ worth of real estate, we’re buying millions of dollars’ worth of licensing, and we’re going so big because we wanna dominate the market.” That can be very dangerous, because you need to really take baby steps… Unless you are getting involved with an absolute huge company and they have a record of being able to sustain themselves in the business so far. Again, we’re still a very new industry. But it can be very lucrative, you just need to do your due diligence and basically do the research it takes regarding who it is and where you’re gonna be located.

Theo Hicks: Alrighty. Are you ready for the Best Ever Lightning Round?

Dana Wallace: Sure.

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

Break: [00:17:05].08] to [00:18:03].07]

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

Dana Wallace: Code of the Extraordinary Mind, by Vishen Lakhani. I may be pronouncing his last name wrong… But it’s basically — the whole book is premised on the way we grow, the values we are taught based on our culture, religion, or whatever it is, in our families, and maybe how our parents and grandparents grew up… And just taking a hard look at what do you wanna do, what are your passions, stepping outside of that box and following your own heart, instead of just the regular structures of maybe what you grew up with and the rules that you grew up with.

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

Dana Wallace: Being in real estate, I am very used to pivoting and making sure that I’m always keeping one step ahead of my thought process as far as being able to build a sustainable real estate business… And it’s all about following niches.

So if the cannabis business or industry were to fall apart, I would stay in the investment realm of real estate, but I would pivot over to the hemp and CBD market, which is less regulated, less taxed, and is also going to be a huge industry. So I’m kind of always on the lookout for “Okay, what are the offshoots of what I’m currently doing? Keep your eye on that and stay involved in that as well”, and definitely pursuing niche real estate, or niche businesses, because it really sets you apart from what everybody else is doing, and helps you kind of stay at the forefront of people’s minds.

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

Dana Wallace: The way that I like to give back is you can spend a lot of time having conversations with people that may not end up monetizing anything for you. But the fact that you can share your knowledge and maybe help them in some way that’s not related to at all is really valuable to me. I appreciated when I first got into this industry being able to just pick people’s brains, find out what they were doing; they invited me to their properties, they invited me to lunches and conversations so I could learn everything I could about the industry and soak it all up. So I try to be very mindful of sharing that knowledge.

A lot of people like to label themselves as consultants and charge fees, and in my mind if I’m sharing the knowledge of what I know, it will come back to me, because I’ll have given someone else an opportunity that maybe there’s an idea or a  thought process they hadn’t thought of before I shared what I knew about the industry with them… So I just remain very mindful of sharing my knowledge.

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

Dana Wallace: Well, you can reach me at my website, which is 420Estates.net. I’m also on Instagram, which is @420estates4you. I have a pretty good presence on LinkedIn as well, under Dana Wallace. You’ll see the 420Estates there also.

Theo Hicks: Alright, Dana, I really appreciate you coming on the show today and sharing your insight on the cannabis industry. Again, I didn’t know anything about this going in, so I really appreciate you giving us a rundown on the entire process. Just to summarize some of the key takeaways… So you mentioned that you need to buy a property in the right location, in the right zoning in order to operate a cannabis industry. If you’re a landlord or if you’re looking to sell that property, you need to keep that in mind.

We talked about the leasing and purchase prices of these types of properties, so there’s always gonna be what you call the cannabis premium. So if you’re looking at leasing your industrial warehouse, where you could get 75 cents to $1,50 for just regular use, the premium would be as high as $2 to $2,50 per square foot. And then similarly for selling that property – just like any other value-add strategy, if you’ve got the zoning and the permitting to allow you to conduct a cannabis business, you’re further ahead in the game and you can get a premium for that property. More specifically, you said that the returns are around 12% to 14% cap rate. Obviously, it’s new and there’s no hard data on this, and it could go up in the future.

You talked about the risks associated with this industry, and the fact that cannabis is still illegal federally. Because of that fact, the main hurdle is banking, so a lot of this investment strategy is all cash… But you mentioned that there’s some private groups out there that are starting to put together banking, and there’s some legislation that might pass that allows it to be legal federally, which would obviously change and reduce these risks.

And then lastly, you gave your best ever advice, which was to make sure you’re doing due diligence on any company who’s going to lease your industrial warehouse. You’re not gonna be able to find the typical tax records and bank statements like you would for a regular property, so instead you need to do due diligence on the companies, to get their background, how long they’ve been in this industry for, is there a brand or product that they can point to, what’s their business history, what does their team look like, are people on their team savvy businesspeople who have done businesses in the past?

And then lastly, look at their growth plan… And you mentioned that it’s better to see a growth plan that is in phases, as opposed to someone who is trying to just go all-in at once, unless of course it’s a well-established company who has a track record of being able to do that.

Again, I really appreciate it. Lots of great information. I know Best Ever listeners are gonna learn a lot from this episode and might have an idea for a new investment strategy if they are in one of these states where it is legal recreationally. I appreciate you stopping by, again. Best Ever listeners, thanks for listening. Have a best ever day, and we will talk to you tomorrow.

Dana Wallace: Thank you so much.

JF1901: From 0 to $1.5 Billion In Assets How To Hustle & Build From The Ground Up with Peter Rex

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Best Real Estate Investing Crash Course Ever!

Peter is an entrepreneur that started a real estate investing company, which now maintains $1.5 Billion in assets. We’ll hear about his story and some tactical tips and strategies he has used throughout his career to scale to the level he’s at now. We’ll also hear about what he’s doing to improve the maintenance side of investing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“As I was running all this stuff, I realized how inefficient maintenance was” – Peter Rex


Peter Rex Real Estate Background:

  • An entrepreneur who hustled and bootstrapped a startup into a billion dollar real estate company
  • His real estate company has purchased 17,000 units and maintains $1.5B + in assets.
  • Based in Seattle, WA
  • Say hi to him at https://rhstrategic.com/
  • Best Ever Book: Julius Caesar


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


JF1893: Office & Retail Real Estate Investing 101 with Catherine Kuo

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Best Real Estate Investing Crash Course Ever!

Catherine was learning the real estate investing world from a very young age. As she said, when most kids were having playdates, she was with her mom at work underwriting deals. She invests mostly in office and retail space now and that is where the conversation focuses today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:
“Be persistent, try to get in front of the decision makers, build rapport and create a relationship” – Catherine Kuo


Catherine Kuo Real Estate Background:

  • Commercial real estate advisor, investor, and entrepreneur
  • Currently handles leasing for just under 100,000 SF of office and retail space in Las Vegas
  • Based in Las Vegas
  • Say hi to her at https://www.elitehomes.us/
  • Best Ever Book: The 5 Love Languages


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


JF1889: Investing In & Managing over $2 Billion In Real Estate with Alexander Radosevic

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Alexander is joining us today to share his background, how he got into real estate investing and built a large company focused on investing and managing real estate. We’ll hear a couple of case studies from some of his deals, how he found them, financed them, and what he’s done with the deals since acquiring. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“There are so many career opportunities in real estate” – Alexander Radosevic


Alexander Radosevic Real Estate Background:

  • Launched his real estate company, Canon Business Properties, in 2001
  • His company now owns or manages over $2 Billion of retail, hotel, industrial, and residential properties
  • Based in Beverly Hills, CA
  • Say hi to him at https://www.canonproperties.com/
  • Best Ever Book: Great by Choice


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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

Alexander Radosevic: Doing great!

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. A little bit about Alexander – he launched his real estate company Canon Business Properties in 2001. His company now owns or manages over two billion dollars of retail, hotel, industrial and residential properties. Based in Beverly Hills, California.

With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current business focus?

Alexander Radosevic: Sure. Initially, I was an investment banker with Lehman Brothers, from ’84 to ’87. That collapsed, and I got involved with real estate through a client, and have consistently stayed in that marketplace, from the acquisition side, into management and construction… And the focus of our company is in those areas today. We focus on retail investment, commercial/industrial investments, we also then take care of construction and construction management, and we’re also advisors in other genres for debt financing and things along that nature.

Joe Fairless: So when you were an investment banker and you transitioned into real estate full-time, what were a couple of your first projects that you worked on?

Alexander Radosevic: Interestingly enough, I was involved with debt financing first. Numbers is something that comes very good to me… So I analyzed a lot of properties first, before we started making acquisitions. So it gave me a lot of understanding really how properties operate. And I looked at industrial, office, retail – all different types of investments, from the analytics side, and see how profitable they were for our investment purposes. That was my first role in real estate.

Joe Fairless: So you were a W-2 employee, assessing opportunities that you all wanted to finance?

Alexander Radosevic: Yes.

Joe Fairless: Okay. And then how long did you have that role?

Alexander Radosevic: To give you an idea, after about two years of doing this, one of the brokers I did a transaction with – I asked “How did everything go? Were you happy with the funding?” [unintelligible [00:03:36].20] “What are you gonna do with your $10,000?” and I was like “Excuse me?” He said “Yeah, isn’t that what you made on this?” And I was thinking like “Wow, this is interesting. What did you get out of the deal?” and he said “Well, I made $50,000 out of it.” So I had immediately said selling is a much better opportunity from the side of the financing for me at that time, I thought, and I enjoyed getting out of the office and working on properties. So that sort of conversation got me to get out of an office, go entrepreneurial, and begin to search for investments on my own, and that’s how I started my company. I was driven by the commission dollars earned from the sale and acquisition side, other than the financing side.

Joe Fairless: So you had that background both from Lehman Brothers as an investment banker, and then also looking at debt financing… And what was the first couple projects as an entrepreneur?

Alexander Radosevic: Well, probably the one that I’d say to me was the best one for me long-term – in 1994 we had the L.A. riots here, and South Central L.A. was the area which was hurt the most. At that time I was looking at properties there and found an abandoned bakery, about a 40,000-foot single-tenant building. It had been burnt. I took a risk, which we all know risks can have great rewards… I acquired the property, I went in, I had some construction background already through my family, and my father was in the construction business… I went through, cleaned the property up, and converted it into a nine-unit multi-tenant manufacturing/warehousing building.

What that became was my first value-add project, really without even knowing it. And it sort of set a template for me going forward, and it’s something I still do today.

Joe Fairless: How did you get the funds to purchase that?

Alexander Radosevic: My very first real estate transaction of my life – I bought land at Laughlin before Laughlin was ever developed. I was reading something called The Penny Saver; it was a throw-away paper here in L.A. while I worked at Lehman Brothers…

Joe Fairless: Sure.

Alexander Radosevic: …in my twenties. I think I was 22 at the time when I bought it… And I bought 2,5 acres on the river, which as we know Laughlin, Nevada has now turned into quite a profitable sort of marketplace. There’s hotels, some 60,000 people there living, and so forth. So that was my first opportunity in real estate, and I used those funds from the monies I made there and continued to invest those monies when I sold out of that property and invested into other real estate opportunities.

Joe Fairless: And that abandoned bakery – did you get financing on it?

Alexander Radosevic: Yeah, we did. At the time it was tough to get…

Joe Fairless: I bet.

Alexander Radosevic: [unintelligible [00:06:25].04] you’re talking double-digit rates… But I think I probably leveraged somewhere around 40% debt. It was all I could get out of it… So I had to raise 60% capital. but once I got the capital, the profit — not even the profit, really. The building was bought at such a good price, obviously, like anything in that time. It was worth it. I took a little risk, and the rewards were there.

Joe Fairless: So it’s been a little while since that property that we’re referring to, and I respect your memory. I appreciate you going back in time with us on this… You’ve clearly grown your company to a great degree since then… So along the way, my assumption is that you’ve optimized certain things that you do now on deals, compared to when you were doing your first handful of deals as an entrepreneur. What are some things that you’ve now optimized, knowing what you know now?

Alexander Radosevic: Well, from a standpoint of acquisition, due diligence has become to me the key to all the opportunities I find for myself personally, and those that I represent on transactions. I’d say the ability to gather and review information today, in comparison to what I did 20 years ago, is really one of the key elements to what we do for not only myself, but for my clients. We’ve got a very vast portfolio of property. We look at tons of deals all the time, and our ability to thoroughly examine cashflow, marketplaces, management, financing, all within a concise period of time, so that we’re performing and not losing opportunities, like we had at times – I’d say that’s been probably the key growth for me personally, is to have the ability to analyze the information quickly, and that the information is accurate and thorough. It’s been a great change for us.

Joe Fairless: Would those be the four buckets that you do due diligence in? On a high-level… Cashflow, marketplaces, management and financing?

Alexander Radosevic: Well, those four are critical. Look, first of all, you have to know what you want to achieve. Are you looking value-add, are you long-term hold, are you short-term? Are you gonna tear down, develop? You have to know what you’re shooting for, but first and foremost, like they say, “location, location, location”, and then of course, pricing and financing, because you’ve got debt… And for me, since we have a lot of properties under management, we’re real strong on who will be the team that’s gonna be responsible for that asset as it’s being repositioned or acquired. So those are four strong buckets, but there are other criteria in which we may look at something for a specific client… Especially if we’re looking for trophy/legacy properties. There are other very serious factors to look at, and those become a little bit more detailed… Without getting into that; I’ll just leave it at that. But there’s other criteria for different acquisitions, but those would be the four primary.

Joe Fairless: Let’s go with any of them, whichever one you wanna go with. Cashflow… When you say marketplaces, just so I’m tracking what you’re talking about, what are you referring to?

Alexander Radosevic: Okay, so for us it was some corporate offices here in Beverly Hills. We consider L.A. our home base… Outside of Beverly Hills, a province within L.A, right? So we look at the marketplace here as a focus — if we’re looking at retail, we might be looking in Beverly Hills specifically; we might be looking at a trophy sort of property on Rodeo Drive. And then within that area it’s just gonna be a long-term hold  for the family, are we looking to perhaps take out a quality tenant, bring in a new tenant that the family has a relationship with? It’s that sort of criteria.

If we’re looking at industrial properties, which I’m a big fan of, to be honest with you, we’re looking for properties that are located near international airports in major cities like LAX, Denver, Cincinnati. We’re looking for major distribution centers, let’s say within a mile or two-mile radius, that we’re looking to acquire to develop… So that marketplace already has a built-in need, or a built-in opportunity, if you will. That’s the  criteria in which we’re investing for that particular purpose. And again, we’re in different areas, but let’s just hone in on the idea of industrial, for instance.

Joe Fairless: Sure.

Alexander Radosevic: We’ve looked at stuff in Houston, George Bush Airport, LAX airport… We wanna stay, as I said, within a mile to two-mile radius. We know that these are key opportunities for distribution, and distribution now is becoming quite a big topic with what Amazon has done recently to the marketplace. We’ve been probably doing that for almost 15 years consistently, and that actually has been one of the best returns we’ve seen; industrial real estate has become a very hot topic, whereas 15 years ago there were very few really dedicated to that market space.

So that’s what I’m referring to. If it’s in industrial, we’re very specific on the criteria we’re gonna acquire. We have a base of who we’re probably gonna be looking for for tenants. We’re doing build to suits, if you will, along the way… And that’s how we evaluate the real estate; if it’s gonna be an office building, again, whether it’s in South Beach Miami, in a marketplace right now where we’re looking at some opportunities, there has to be for us to evaluate an end game [unintelligible [00:12:08].19] for us in that marketplace. We’re not just going in blindly, and I think that’s where we really capitalize, again, on the information that we’re ascertaining on these deals. Because when you’re not in a city itself, you’ve gotta rely on foot soldiers’ information. So this is critical to us.

Joe Fairless: Let’s talk about a recent transaction… Just real quick, what’s a recent transaction, and then I’ve got a couple questions; I just wanna learn more about it.

Alexander Radosevic: Sure. Recently, we’re looking at – to be honest with you – land acquisition, that we’re gonna go into for the development of a boutique-style hotel. That’s hotness marketplace, as you know; I know you’ve had some of your speakers speak about this… The small boutique hotel is a very hot market. We’re looking now for something on the coast here in California. California has a lot of restrictions, [unintelligible [00:13:03].03] but we’ve found a land, we do have entitlements in place, and it was a process that was started by the previous owner some nine years ago…

Joe Fairless: Wow…

Alexander Radosevic: And it will take us about another four more years of entitlement work to get what we need out of it. To give you an idea, that’s a very, very marketplace-specific opportunity. And once it is entitled, of course, like anything else, it will give us  a tremendous amount of opportunity and profitability, that’s for sure.

Joe Fairless: I was gonna ask some questions, but you took it in a direction that’s much more interesting than what I was thinking, so let’s talk about it… Nine years that they started on it, and then four additional years; what is transpiring over the four years?

Alexander Radosevic: Sure. Coastline development, which is similar to (let’s say) inner-city development, if it’s got too many apartment buildings, there’s more restrictions placed on it. But coastline here in California in particular is difficult. So the nine-year process was converting what was originally a residential/commercial use into what will be a hotel use. So the zoning process itself, with the prior ownership, and the city, combined with the Coastal Commission, all have to come to an agreement on the conversion from its initial approved use into a hotel base use.

So you’ve got three different governmental agencies working at the same time, and not all of them want the same result. Then you have to have some legal power come in, you have to have some meetings with city officials… There’s just so many things that take place that many people give up.

Joe Fairless: Oh, yeah.

Alexander Radosevic: This family persevered, but they owned quite a bit of real estate, knew or were properly advised by  a third-party that said “This is gonna be your highest and best use”, but the issue was they couldn’t take it to the end because they lacked what the city really wanted, which was where we come in – hotel-experienced operator/developer that could show the finish line to them. And that’s where some people get stuck and repurposing a property. You have the great idea and you have the right intention, but you don’t have the expertise. Without the expertise sometimes you just have to sell it and allow someone else with more expertise to take over.

So we’re looking at that opportunity now, and we’re gonna get the feedback we believe that we should get, which is an approval. The issues now we’re battling with is how many keys are we gonna get out of the property. We would like to get 131 keys, but we may only get 101. Well, if you only get 101 keys versus 131, you’ve lost almost 25%, right? So now the dollars and cents become more critical. The construction costs may come down, but then your cashflow NOI on the back-end are also coming down. These are really critical issues when you’re developing any sort of project roundup that’s relying on cashflow, not the single-tenant use.

So this is part of what any development — this is gonna be the same with an industrial building. If you only get a 500,000-foot structure down to 300,000 feet, it’s the same sort of an issue. But in this particular matter we’re fighting to get as many keys as we can, obliging the city with communal parking for the [unintelligible [00:16:29].09] providing some retail opportunity,  a quality restaurant, and all those factors come into painting this beautiful picture, so that someone sitting behind an office the day that it goes to a Council meeting can now look at this visually and say “Okay, I get it. Let’s go with 131 rooms” or “Let’s split the difference at 117, but you’ve gotta give us an extra 100-car parking on the weekends for the beach, and we would like two restaurants instead of one”, and some other criteria. So it’s a give and take, and it’s a process, but it’s one that — in this particular case I can’t share with you the exact location, but it’s gonna be very well received and a very well-used hotel.

Joe Fairless: So you’re estimating four years from now that process will be completed…

Alexander Radosevic: Yeah, yeah.

Joe Fairless: What about the project makes it worth four years of your life to focus on?

Alexander Radosevic: In that particular market space it would be the only class A opportunity there. So number one, the destination is very well known, however there just has not been a new development there in over 20 years. To give you an idea – number one, we’ve capitalized on the most important part… Quality AA, plus location, the most newest development, highly-trafficked, perfect opportunity for us to capitalize on what will be a new destination. High dollar rent per door, and in a marketplace that, as I said, is very desirable. It’s a very well-known area. If I said it, you’d be like “Oh my god, I can’t believe this is gonna be the first one in 20 years”, but that’s the way it is; it’s been that way. So that’s the answer for that.

Now, why is it worth the four years? Well, the back-end value of it – it’s construction costs after we’re done and  into this project, and depending on what flag we decide to put there, it will be more than 4x return on your money after it’s all said and done. So you’re looking for that sort of opportunity. It doesn’t come that often, so  you have to be patient; it’s just part of real estate, you have to be patient at times… And this is one of those you’re gonna have to jump through not one hoop, not two hoops, but probably like 50 more hoops. It’s gonna be that sort of process.

Joe Fairless: If you were the original owner, so nine years ago you owned that land, and for whatever reason it also would have taken you 13 years from the start to finish to get it done, would you have chosen to do this, versus just — you said it was zoned for residential, so I assume you could do some sort of multifamily use there…?

Alexander Radosevic: Yes… No. Because multifamily — well, actually let’s take that back. The answer is I would have chosen it, knowing what I know now. But nine years ago you don’t know. So if you take a risk like when I bought that 1994 property – they took a  risk and carried that torch a long way, but only lacked one component: they don’t have the expertise in this marketplace to develop this property. They had to have a third-party come in or flip it. So had they had the experience, then they would have taken this all the way to the end and really benefitted. They took it as far as they could.

One lesson I learned from one of my original clients was I bought some land — I bought land a lot, and I had asked one of my clients to help me build it. He was a builder. He was actually an industrial real estate builder and a mentor of mine, and one of the guys I first started managing with. I bought some land down in San Diego, and I said “Look, I got this from a guy, he went belly up, out of New York, doing a subdivision funding up in San Diego. And it was about 32 acres. We can get 16 homes out of it. Each parcel had to be a minimum of two acres, and I was gonna put a park in the middle of it, and it would be a communal park for families.

Joe Fairless: It sounds like a nice place.

Alexander Radosevic: So I laid it all out and I called my client up and I said “Would you help me with this?” His answer was “Alex, you’re a great guy…” I was maybe 29 at the time. Not even 30 yet. And he says “…but here’s what I’m gonna tell you. If you can just get some utilities there and get some streets paved, let someone else carry that torch and build the houses. You did your part and make a profit.”

To give you an idea – I ended up buying all those pieces at about $70,000 for a two plus acre parcel was my total all-in cost in the end, and I sold them off for over $200,000 a piece without putting up a structure.

Joe Fairless: Beautiful.

Alexander Radosevic: Just assembling land and getting utilities, and basically doing a subdivision, getting things lined up and handing it to somebody else can also be a very profitable business in real estate. Real estate is great for that reason, because you can be a land guy, you can be a land parcel guy, you can be the guy who puts utilities in and flips it to the developer, you can be a finance guy… There’s so many [unintelligible [00:21:07].08] opportunities in real estate, and I’ve had the good fortune of touching a few, and really becoming an  expert in some others.

The land thing happened through a client who said “I won’t help you, but here’s what I would do if I were you, and this is how I got started.”

Joe Fairless: With this transaction, the one with the boutique hotel, did you just outright purchase that land from them? Or is there a joint venture?

Alexander Radosevic: We will do a joint venture…

Joe Fairless: Okay, cool.

Alexander Radosevic: …and they will participate, as some do, not on a 50/50 basis, but we’re giving a sort of back-end deal, and then at the time of the sale, if we decide to sell out, there will also be a piece for them on the back-end.

Joe Fairless: Cool. So their contribution was the land, plus getting it to wherever point they had gotten it, and then you’re taking it–

Alexander Radosevic: Correct.

Joe Fairless: Got it. Okay. And if they had sold it to you outright, I was gonna ask you why they didn’t just do a joint venture, but never mind. Okay.

Alexander Radosevic: [unintelligible [00:22:02].07] he would love that. Any guy like me would love to have been able to acquire it all out, but you know what –  they’re not fools either. They did have [unintelligible [00:22:09].18] They just didn’t have the expertise to take it to the next level… As I didn’t when I bought that land in San Diego. I knew the client, it was a client of mine. He says “Look, Alex, I don’t wanna build with you right now, my friend. I’m building other things. But here’s what I would do… Take it from there.” So they did what they could do, and I think they’re very happy. We came in strong, and — don’t get me wrong, this isn’t something that happens in a day. It took quite a bit of time to build a relationship. It’s not just coming in and knocking on someone’s door and saying “Hey, we’re the best deal in town.” It’s building a relationship with someone, the family, and creating some faith and trust, and having some sort of proven track record to do something.

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

Alexander Radosevic: Best ever advice – if you can, try to hold the properties that you buy, allow them to appreciate, and leverage against them, as opposed to selling them and trying to trade up. We all need to sell and trade up to buy bigger and better things, but there comes a point in which if I just had held on a little bit longer to some investments, I could have easily leveraged out now two or threefold what I got out of it selling it. It’s just the way it is. And I have tried to buy in areas — because I understood how to underwrite property, so I’m always trying to buy in areas where I know that are strong, that are growing.

As a cheat sheet answer – and sorry to divert, but you’ll have the chance to do what you want with the information I’m providing – I would track the top five best places to live and work in in the United States when we’re looking and analyzing properties. So that’s one of the criteria I look for. I look at consensus information throughout the country, and tracking the top five places to live and work. What does that tell me right away? There’s expansion, there’s stability, there’s financing…

I’ve tried to invest that way not just in California, but throughout the United States, where I’d put my money and my clients’ money to work. In those marketplaces you know that push comes to shove, you can always get rid of a property. In all those marketplaces that we’ve held on to, refinancing out, cashing out, holding the asset is a better position to take.

Joe Fairless: What source do you use for best places to live and work? Or sources. Because there’s all sorts of stuff  [unintelligible [00:24:28].16]

Alexander Radosevic: Yeah, unfortunately that’s changed a lot, too. You bring up a great point without really saying it… There’s too much information available for a lot of us, and knowing when information has value is what you’re kind of alluding to; which one of this many sources is there.

So there are government consensus in every state, that I’m more a fan of than just a third-party periodical published by a company saying “These are the spaces.” So I’m looking at cities, I’m looking at their information provided, because theirs is the most accurate in terms of income, revenue, traffic, tax bills, all that information. Now, there are companies now that are coming out, and I’ve had a chance to speak on some panels that are out there, but I won’t say one is favored to the other. I would have to say if you go online and you’re looking for that specific information – growth, tax bill, tax benefits, utility bill opportunities…

You must understand, if you’re building an industrial building, I’d rather build it in an industrial marketplace right now that the city is giving tax benefits for the next ten years for developers coming in that are building in this marketplace, and I know that’s gonna be attractive for the buyer coming in, and the manufacturer coming in, because they’re also getting tax benefits. So if I’m looking at an industrial building, I’m looking for those specific  marketplaces, with those key information, if you understand what I’m saying.

So I’m picking the five best places to live and work, and then I’m saying “Okay, I wanna build an industrial park near an airport. Where am I getting the best tax benefits from?” That area is gonna be growing. This is gonna be a multi-tenant park, there’ll be a lot of small mom-and-pops wanting to develop in that area and service the community… So I’m looking at true city factual statistics; I’m not really going to third-party emailing sort of collaborated surveys done by third-parties. I’m actually going to those cities and getting as much information as I can from them directly.

Joe Fairless: And then your team has to aggregate that, and then make it apples to apples comparison, because I’m sure you’re getting it in all sorts of different formats from each of the different cities, right?

Alexander Radosevic: Right. And there are, as I said, without giving a lot of secrets out, there are ways to get that information a little bit easier… But you’re right. We will look at the information aggregated, and I’m looking for specific factors that are attractive to me in that marketplace. As  I said, housing, if you’re doing an apartment structure, how many have to be in a community that’s really thriving? How many of those have to be units that are dedicated to housing for X, Y and Z? Is it 10% of those properties? Is it gonna have to be subsidized housing? Is it 18% of that property that has to be subsidized housing? That element to me right away is important, because that’s gonna change my cashflow out of that property by x%. Is it worth it for us? So we’re looking at certain criteria within that marketplace specific to our needs.

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

Alexander Radosevic: I hope so. Let’s do it.

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

Break: [00:27:39].25] to [00:28:18].18]

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

Alexander Radosevic: Wow… That’s a tough one. I’d have to say probably a book — Great by Choice, let’s go with that one. Jim Collins is a pretty well-respected author, and he’s got some good books out. I don’t know how many bestsellers — he’s got quite a few. The most recent one is why do some companies thrive, let’s say in uncertainty and in chaos, and others not? It’s a great read; it’s something that anybody in business can use.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about?

Alexander Radosevic: Wow. A mistake… You know what – as always, lack of due diligence.

Joe Fairless: What about a best ever deal you’ve done?

Alexander Radosevic: I alluded to the first one, the bakery, but probably the best I ever did was buying that land in Laughlin, Nevada. It was my first, and it had an amazing return.

Joe Fairless: What did you buy it and what did you sell it for?

Alexander Radosevic: I bought those parcels of land for $2,500, with $500 down. 2,5 acres on the Colorado River. I am embarrassed to say that we’re talking well over hundreds of percent return on my money.

Joe Fairless: [laughs] Embarrassed/you’d do it again.

Alexander Radosevic: Oh, my god… Let’s say 1,000% return on my money, right? Yes, of course. It’s just luck. Sometimes we need to be lucky in life, right? But I was reading a paper — and I’ll tell you why I read the paper; can I get a minute?

Joe Fairless: Yeah, of course.

Alexander Radosevic: I know it’s the lightning round, but I’ll just tell you – true story. At the time I was working at Lehman Brothers, and a couple guys had brand new Porsches. And I wanted a Porsche. I had heard a story that a woman sold her husband’s Porsche for $100, angry because she had cheated on him. And that’s why I started reading that Penny Saver. Because I really was — I was reading the Wall Street Journal, what you normally do as an investment banker; you’re in a different realm. But that story got me so convinced, so I started reading it all the time, and coincidentally I found this guy selling this land in the Penny Saver. I contacted him, and he goes “If you buy this, you’re gonna be rich, kid.” I was like 22 at the time, the guy was like 45 years old. He was an airline pilot, of all things, who was friends with the developer.

Joe Fairless: Oh, wow…

Alexander Radosevic: And he goes “Trust me, you’re gonna be lucky.”

Joe Fairless: [laughs]

Alexander Radosevic: So I bought as much as I could, with $500 each time, and that’s how it worked out.

Joe Fairless: Oh, good for you. Best ever way you like to give back to the community?

Alexander Radosevic: Okay, so I didn’t come from any family with money, to be honest with you. I alluded my dad was in construction… My mom and dad divorced when I was six months old, and my mom remarried a clothing guy; I worked after school every day as a kid, since I was eight years old, buttoning blouses, and sweeping the floor, and doing things like that with my stepdad. So I didn’t come from many money… And what I do or what I like to do is help young entrepreneurs that lack education or funding, if you will, that have the strive and desire to be successful – I like to help in that matter one-on-one, if I can. So I always focus on trying to help young people, or young men or women, whether they come to my office and they leave to go on to another career, or they come to my office and  start their own construction company… Whatever it is that I can do. But I like the idea of working with someone one-on-one and helping them grow.

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

Alexander Radosevic: The company is Canon Properties. I’m at my office here. My website – you gave it – is canonproperties.com, and I’m happy to take any email. I try my best to respond, I’m at alex@canonproperties.com.

Joe Fairless: Alex, thank you so much for being on the show. I loved hearing about the boutique hotel land acquisition joint venture that you’re doing, and just talking us through the four-year process (knock on wood) that you’re about to undertake, you and your partners, as well as the previous nine years that your joint venture partner undertook with what they did.

Then also the deals that you did previously, and then talking a little industrial, too. We don’t talk enough about industrial on this show, so again, thank you so much for being on the show. I’m really grateful for our conversation. I hope you have a best ever day, and we’ll talk to you again soon.

Alexander Radosevic: Thank you so much for your time, and I really appreciate the opportunity to speak with you as well.

JF1886: From Skyscrapers To Retail & Multifamily with Donato Settanni

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Donato worked for a company building skyscrapers in NYC, one of those projects sold apartments in the building for $90 million. Once he had an education base Donato wanted to do his own thing, and branched out to create his own company. We’ll hear some about his skyscraper experience, then we’ll hear more details on his own current investments which total a value of $25 million and growing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“The best way to learn is to do it for yourself” – Donato Settani


Donato Settanni Real Estate Background:


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

Donato Settani: I’m doing great, thanks for having me.

Theo Hicks: Absolutely. I appreciate you coming on the show, and I’m looking forward to our conversation. A little bit about Donato – he is the managing partner of DXE Properties, has managed multiple projects in closing, totaling over 3 billion (billion with a B) in value. Based in New York City, New York, and you can say hi to him at DXEProperties.com.

Donato, before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Donato Settani: Sure, no problem. So I started my career in New York City in the construction industry. I’ve then decided that that wasn’t necessarily for me, so I went back to school for a masters degree in real estate development, and then went on to work for a couple of owner in New York City, including Macklowe Properties and Oxford Properties, two very large owner-developers in Manhattan, where I had the opportunity to build some mega-tall skyscrapers and close on huge properties, upwards of 3 billion dollars, in real estate.

Since then, I’ve recognized that you should work for yourself, and split off and created DXE Properties with a friend of mine, and we currently own seven properties, around 25 million dollars in real estate, and we plan to keep going.

Theo Hicks: Are the properties you own through DXE – are those also skyscrapers, or are they a different type  of real estate?

Donato Settani: No, they are totally different. The properties we currently own – we own two retail properties (one has a development component) both outside of New York City, and then we own five multifamily properties, scattered throughout the South-East mostly.

Theo Hicks: Alright, let’s talk about the skyscrapers first, because not every day you get to talk to someone who develops a skyscraper. Do you wanna tell us maybe about one particular project that you worked on, that stands out? Talk about the height, the cost, and what all goes into developing a skyscraper, from a preparation standpoint?

Donato Settani: Yeah, no problem. Building in New York City is quite difficult; we always call it building on a postage stamp. One of my most notable projects was with Harry Macklowe of Macklowe Properties. There we developed 432 Park Avenue, which was the tallest residential building in the Western hemisphere. The total height was about 1,400 feet tall, 106 apartments. The most expensive apartment went for over 90 million dollars, so it was an extraordinary experience to be a part of…

As far as the planning, he bought the site back in around 2006-2007. It was [unintelligible [00:04:24].18] He bought it for 400  million dollars, and then had to slowly assemble land around it. Eventually, he demolished the site, but the economy turned, so the project stalled. Harry Macklowe  is a very tenacious developer and was able to convince a large equity partner to step in and continue on with the development. From there, we planned this 1,400-foot tower which had never been done before in New York City, for high-end condos. Overlooking Central Park, you could see all the way out to the Atlantic Ocean when you’re up nice and high. So we planned it, we pre-sold a lot of units, and there’s only a couple units left today.

Theo Hicks: So did most skyscraper developers — would they build it and then they will also manage it, or sell the units afterwards? Or do they typically build it and then sell it to someone else who then actually sells the units or rents out the units?

Donato Settani: Most developers in New York City, when they’re developing condo units, they will build it, manage it and sell off the units. Some of them, depending on which company, will keep property management in-house. There’s a couple reasons for it. Number one, you wanna make sure tath the units you sold to the tenants – that they’re happy tenants, and the best way to do that is to keep managing the property. Number two – in New York City there’s a sponsorship requirement that you’re responsible for any defects in a property after you build it and sell it… So it’s best to manage it and know what defects might come up firsthand, and be able to fix them before you get into a lawsuit.

Theo Hicks: What are the profit margins on these types of developments? I’m pretty familiar with multifamily development… Just mid or low-rise apartments. What would be the ROI you would estimate was made on this project?

Donato Settani: This project was very unique. I can talk about it from when it was recapitalized on forward, with the new equity that was brought in as a starting point… But I would say that Harry was visionary in putting it together at the right time, and we also had some good, dumb luck, and hit the market right… But in terms of returns, we could loosely say that the project cost around 1.3 billion dollars, and the sellout, including the retail, was over 3 billion dollars.

Theo Hicks: Okay, and just out of curiosity, how did you get into — not why you decided to get in this skyscraper development, but how were you able to get on this team, for these large projects? So if I’m someone who’s interested in becoming a skyscraper developer, or at least working on a team of a developer who makes skyscrapers, what’s some advice you would have for how I could get picked up by someone?

Donato Settani: That’s a great question. I worked out of school — so I went to school for engineering, and  out of school I worked for a major construction firm in New York City. I actually was able to be on the team that built the new Yankee Stadium up in the Bronx, and also in Madison Square Garden renovation projects… So that gave me some big-time experience on the order of magnitude of billion-dollar projects.

I then went back to school to try and get onto the owner’s side. That’s what a lot of people do… So I went back to school for real estate development, and I actually took a job interning for free when the market was bad, because no one wanted to hire me. So I’d read somewhere that if you really wanna do something, do it for free… So I took a job, interning for free for a smaller owner in New York City, got some experience with that smaller owner, and the equity partner of that smaller owner happened to be the equity partner with Macklowe Properties on this huge project… And they called me up one day and said “Hey, how would you like to build the tallest skyscraper in the Western hemisphere?” and I said “Sign me up.”

Theo Hicks: That’s really solid advice. That’s actually how I got started working for Joe. So whenever anyone asks me “How can I get into a unique industry, like skyscrapers or multifamily syndication, what’s a really good way to quickly climb the real estate ladder and find your way working for a multi-million-dollar or multi-billion-dollar company?”, working for free is a great answer. It sounds like for you — you didn’t even work for free for this large company. You started really small, you got that experience, and then from there you were able to jump to the higher levels… So yeah, really good advice.

Let’s talk about your DXE with your friend… I guess my first question is what advice do you have about partnering up with people? How do you make sure you’re selecting the right partner? And then maybe talk a little bit about any challenges or benefits of partnering up with a friend, as opposed to partnering up with someone who you’ve met pretty recently?

Donato Settani: I’d say that we both had a decent amount of caution on partnering up. I had done my own development project outside of New York City by myself, and he had bought a bunch of multifamily, mostly in the Midwest and some in the South-East on his own. So we weren’t used to working together by any means, and used to just doing things on our own.

I would say that we took about a year to formalize the relationship. We did a couple deals together using our separate entities to make sure that the relationship was going to work, and then we came up with a pretty strong and robust operating agreement over time, as we really got to know each other on a business level, to make sure that we could move forward in the right way and create a long-standing company.

Theo Hicks: Alright. And then those seven deals that you’ve done – you said you currently own seven properties, 25 million dollars; two of them are retail properties outside of New York City, and then you said five are multifamilies in the South-East. So it sounds like you’re kind of focusing on the areas that you know, which is in New York City, and then focusing on — I think you said that he owns some multifamily properties in the Midwest, but I guess he was the guy that knew the multifamily. Do you wanna walk us through one of those retail deals in New York City? How you found it, how much it cost, what you did to it, and then maybe what’s its value right now?

Donato Settani: We bought a small, small property up in Upper Westchester in New York. It was a small retail property. It has three retail tenants currently, but what we liked the most about it was it had four acres of land right behind it, and it was located right in the center of a wealthy town in Westchester County, which is a major suburb of New York City. So we bought the property… The major tenant, which was Chase Bank, was leaving. We were able to get the property off market, through a lawyer that we knew, just at a compelling price. We actually got it well below the recent appraised value, and have had offers since to purchase the property from us just as a flip, which we have denied.

We’re hopefully able to secure a new bank tenant in there. We’re currently working out a lease on that, and just trying to get to the end on that one. Then we also have the opportunity to develop further behind the property, which really makes our basis on that land a zero. So if we get this lease done, which we’re confident on, I’d say within the next year from purchasing the property we would have doubled the value of the equity in the property, at a minimum, not even including the potential development further down the road.

Theo Hicks: And as the reason why you’re targeting a bank – is that just because banks are really good tenants, or is it just because the current unit is set up for banking?

Donato Settani: It’s really both. The current unit is set up for banking. It actually has a drive-through; the town won’t let you use the drive-through if you don’t continue the use as a bank, so there’s advantages to going after a bank… And then furthermore, everyone knows that a bank is a credit tenant. So when we go to sell the property, selling the property with a credit tenant is gonna be a lot more valuable, especially in this tenuous retail market, than selling a property with a restaurant owner, or a day spa.

Theo Hicks: What is a credit tenant? What does that mean? Just out of curiosity. I don’t know…

Donato Settani: Sorry, a credit tenant is just a name used for a national tenant, whether it be in the retail space or the commercial space. So you would consider a good bank a credit tenant, or on the larger retail side something like a Stop & Shop, or a Target, or a CVS. Those are all credit tenants. On the office side –  a major office player. Basically, even if the office went dark or the retail went dark, you’d still be getting your rent payment, because the overall company is not going to go bankrupt… Forseeably.

Theo Hicks: Yeah, that makes sense why you’d wanna target someone like that. So it’s not like a small business and that’s the only location they have. Something that’s got thousands of locations across the country are preferable to those smaller mom-and-pop type shops. Alright, Donato, what is your best real estate investing advice ever?

Donato Settani: Best real estate investing advice ever is it’s really hard to take the leap into investing in real estate. As I said, I had a full-time job and was investing on the side… Really, what you need to do is you just need to jump in with both feet. You need to be smart about it, obviously, and not take a dumb risk… But the best way to learn is to do it for yourself. Once you do it, you’re never going to turn back. As you see the fruits of all your work, you’re just gonna get more and more excited about doing the next deal.

Theo Hicks: Alrighty. Are you ready for the best ever lightning round?

Donato Settani: I am.

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

Break: [00:14:26].19] to [00:15:08].12]

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

Donato Settani: The best book I have ever read recently – I would have to say Tim Ferriss’ book. I’m pretty sure the name of it — it’s called Tools of Titans. It’s a great book about a bunch of podcasts that he’s done over the past couple years – he put all the best information into that book.

What I really like to do – I’ve read the book cover to cover, and then I go and seek out all those podcasts that I really liked what he talked about, because there’s just so much more information in the podcasts than he was able to put in the book… So it’s really like a continuous learning experience, over and over again.

Theo Hicks: Alright. Well, what’s the best ever Tim Ferriss podcast we should all listen to?

Donato Settani: Best ever Tim Ferriss podcast… He does an interview with Tony Robbins, which was really good. I’ve recently listened to one with Seth Godin, which was very good. And the third one I would say is he interviewed one of the founders of Google, which was just fantastic.

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

Donato Settani: I always say — it’s kind of a joke, but if my business were to collapse today, I’d just go be a pizza man. I’ve got the name for it.

Theo Hicks: There you go… It’d be Donato, singular, not Donatos Pizza. What is the worst deal you’ve ever done?

Donato Settani: The worst deal I’ve ever done… I would have to say that that’s a tough question right now. We’ve been riding a very good market on the way up, and we’ve been lucky enough to not have too many bad ones. I would say that there’s skill involved in that, but we also have to understand that we’ve been in a good market, so… Only time will tell, and I’m sure there will be a bad one in our mix, but the goal is to not have any.

Theo Hicks: On the other hand — besides your first deal, the one we already talked about, and then your most recent deal, what’s the best ever deal you’ve done?

Donato Settani: Best ever deal I’ve done – I’ve built a townhouse development outside of New York City, in Westchester County. The whole deal took me 18 months from the day I closed on the contract to the day I sold the last condo and got out of the deal. We did really well on that deal. All the investors were very happy, and I actually now live in that same village, because I like the experience of building and the people that I sold to so much.

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

Donato Settani: Best ever place to reach me – if you go to our website, www.DXEProperties.com. Or my email address is dsettani@dxeproperties.com.

Theo Hicks: Alright, Donato, I’ve really enjoyed this conversation. Lots of good information. Just to recap some of the main takeaways – you talked about how you started off in the construction industry and were able to transition into working on the tallest residential building in the Western Hemisphere, and then from there you learned that you wanted to go off on your own and start your own business…

We talked about some of the things to put in place when you’re going off on your own and in creating a partnership. In this case it was with a friend, but these lessons really apply to any sort of partnership. A few of the main things were to make sure you do a few deals together via your separate entities first, just to make sure everything works out, before jumping in and starting a business together and having the same LLC. You mentioned how you worked together for a year first, to make sure everything worked out, and then also make sure that you create a strong operating agreement to set yourself up for success.

You also talked about how you were able to go from working in the construction industry to working on the tallest residential building in the Western hemisphere – one of the main takeaways was intern for free. So if you want to get into an industry, find a smaller owner in the industry and work with them for free to get that experience, and then hopefully pursue a larger firm, leveraging that previous experience.

Then I also learned what a credit tenant is, which is essentially a national tenant. So if you’re in the retail space, there are advantages to having a credit/national tenant – that’s a company that isn’t just a one-off company; it’s like a Chase Bank, or a Target, or a CVS… Just because you’re lowering your risk of them not paying for rent.

And then I guess lastly was your best ever advice, which I whole-heartedly agree with, and it’s how I got into real estate, which is — it’s obviously pretty difficult to get into real estate. The best way to do it is to just jump in with both feet. Now, obviously, be smart about it; don’t do anything stupid, and set yourself up for success, but educating yourself and building a strong team… But the best way to learn, the best way to stay in the game long-term is to actually get in the game. So just do a deal… For me – I house-hacked a duplex, put 3.5% down… It was small, but I got into real estate that way.

Again, Donato, I appreciate you taking the time to speak with us today. Best Ever listeners, thanks for stopping buy. I know this episode was valuable to you… Have a best ever day, and we’ll talk to you soon.

Donato Settani: Thanks a lot for having me.

JF1880: Lifetime Entrepreneur & Real Estate Investor Syndicates Apartments Full Time with Gary Lipsky

Gary had multiple businesses before getting into real estate investing. Once he started with real estate investing he knew that he wanted to syndicate apartment communities and found a way to start doing that. Now, 1500 units later he’s on the show to tell us how he’s scaled to the level that he has. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“We had closed two deals with that broker before, so that helped” – Gary Lipsky


Gary Lipsky Real Estate Background:

  • Founder/President of Break of Day Capital
  • Syndicates B & C Class value add apartment opportunities in high growth population areas
  • Owns over 1500 units both passively and actively
  • Based in LA, CA
  • Say hi to him at https://qccapitalgroup.com/
  • Best Ever Book: Millionaire Fastlane


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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

Gary Lipsky: Very good, thanks for having me.

Theo Hicks: Thanks for joining us. I’m looking for the conversation and talking about what you’ve got going on in your real estate business. A little bit about Gary’s background – he is the founder and president of Break of Day Capital, syndicates B and C class value-add apartment opportunities in high population growth areas. I’m looking forward to learning more about that investment strategy.

He is both a passive and active investor, owning over 1,500 units. Based out of Los Angeles, and you can say hi to him at BreakOfDayCapital.com. Gary, before we dive into the meat of the conversation, can you tell us a little bit more about your background and what you’re focused on now?

Gary Lipsky: Yeah, I’ve always been an entrepreneur my whole life. I was shoveling driveways, and [unintelligible [00:02:19].20] growing up in New Jersey. I owned a restaurant delivery service in college, and co-produced three independent films in my twenties. I started an after-school business in Los Angeles and we served over 9,000 students daily… But I always knew real estate was going to get me to where I wanted to be. When I looked around, the wealthy people either had their own businesses, or owned real estate, and usually both.

So when I even bought my first residence, I always was looking for value-add opportunities, and I kept finding houses that I can add value to, and upgrading and moving into a nicer community for my kids. And I took advantage of the tax benefits, and then was able to leverage that and turn it into some single-family rentals, and passively investing into real estate. Now, like you said, I own over 1,500 units, and now I’ve gotten into real estate full-time a little over 2,5 years ago.

Theo Hicks: Of those over 1,500 units, what percentage are you a passive investor and what percentage have you syndicated yourself?

Gary Lipsky: Passively I would say about 90%. I have a 76-unit deal that I was a key principal on in Crowley, Texas, and a 42-unit in Tucson, and I most recently signed an LOI for a 128-unit in Phoenix that I’m working on.

Theo Hicks: So the 76, 42 and 128 – those are your active deals.

Gary Lipsky: Yeah.

Theo Hicks: Okay. Let’s now talk about passive investing first, and then we can dive into the active investing. A pretty common question that I see a lot is how do you — not find a syndicator, because it’s pretty easy to find a syndicator to invest with these days, but what’s your process for vetting a syndicator? What would your advice be to someone who is doing their first deal? There’s hundreds and hundreds of syndicators out there these days, so what are some things they should be looking at?

Gary Lipsky: It does get overwhelming in the beginning, because you just don’t know what to look for. I would look at a lot of deals, and learn from the different perspectives to see how are people underwriting, get to know the sponsor… I have some friends that even go out – they’ve driven across country to meet with all the different sponsors to vet them before investing… Which I love. I did not do that, but that’s one strategy.

So once you start looking at a few different properties in the same area, you can start seeing the differences, and seeing what reversion cap rate they’re using, how they’re doing the value-add, does it make sense, do the comps support it…? So you start getting a feel; the more deals you see, the better acclimated you get.

Theo Hicks: So those are some things to actually look for that they’re doing, in order to pick them; so make sure they’re doing things properly. Are there any red flags you can think of, where if you’re talking to a syndicator and they say something, or you see something, and you’re automatically like “Whoa, whoa, whoa… Something is amiss here. I’m definitely not investing with this person.”

Gary Lipsky: Yeah, it’s surprising how many sponsors are wary of answering questions, or don’t answer it in a way that — it’s okay if you don’t know the answer; just get back to me and give me the right response… Versus just saying something where you don’t know the right answer, or if they start backing away from the question… When you converse with a sponsor, you start getting a feel “Do I trust them or not?” That could be a red flag, if you don’t feel like they’re being completely honest.

Theo Hicks: Yeah, I actually talked to a passive investor, and he would purposefully ask questions that he knew the answers to, but he just wanted to see how they would reply to it, just to see if they would say “Hey, I don’t know the answer to this, but I’ll get back to you”, or they’ll start BS-ing a response… So that’s definitely a red flag.

And again, I’m not sure if you’ve ever invested with someone where it’s their first deal, but I guess the question is would you ever invest with someone who has not raised capital before, or would you only invest with someone who’s done 10, 20 syndicated deals already? So I guess the question is if I’m a syndicator, I’ve maybe done a few multifamily deals on my own, what would be something I would have to do in order to have you invest in my first syndication deal? Or is there nothing I could do?

Gary Lipsky: Well, that’s the exact experience that I had to go through as a first-time syndicator. So what I’m looking for with a syndicator who might not have done any deals before is had they run businesses before? Because if they have, then they can use that experience to translate into real estate, particularly multifamily. The way you’re running a business, you’re building teams, how you communicate with people, how you follow up and hold people accountable – those are all experiences that you can take from previous businesses, and that’s what I used when I started out.

Theo Hicks: Okay, let’s transition into talking about your first syndication deal – a 76-unit, a 42-unit… Do you wanna tell us a little bit about some of the steps you had to take before you started finding those deals? Any team members you had to find? Did you find the capital first, verbal commitment-wise? Did you have financing lined up from a bank? What are some of the things you did before you actually went out and found your first deal? Or did you just find your first deal and then figure all that stuff out later?

Gary Lipsky: I was looking at smaller deals in the beginning, and realized I needed to go bigger, and with a team. So the 76-unit I was a key principal on… So I signed on the loan, I invested some money, and I was able to learn from sponsors. They kind of walked me through everything, and be a part of the process. So that was a really good education for me.

Then on the 42-unit – that’s when I’m raising money, my business partner found the deal, we constantly underwrote it, checked the comps, kept evaluating it, and felt strongly enough by having had that other person to bounce back the ideas… It was really important to have that level of confidence. Doing it on your own, particularly in the beginning – you think it’s a good deal, but being able to run it by someone and going through the process really helps have that confidence level up, and… Hey, you’re not crazy, you’re not doing anything foolish.

Theo Hicks: Yeah, exactly. So with that 76-unit you were on the GP because you were the loan guarantor, you invested some capital, and I’m sure you learned a ton from that process.

Gary Lipsky: Yeah.

Theo Hicks: A lot of people might not have the net worth liquidity in order to do that… But on the second deal you were able to raise capital. You mentioned you had a business partner, so I’ll ask you about that in a second, but how much money did you have to raise for that deal, and how did you raise that capital? Who was it from, how did you position the deal to them, it being your first time raising capital?

Gary Lipsky: Yeah, we raised just over a million dollars, and it was friends and family, people that I had done business with previously and trusted me, knowing that I had been successful before… but yeah, it’s not an easy process your first time. But what you’re doing is sharing an opportunity and something that you really believe in, and people buy into that opportunity. When they look at other places where they’re gonna put their money and they see that this is a great opportunity, with amazing tax benefits, they were excited to be a part of it.

Theo Hicks: And you mentioned the benefit of a partner… Obviously, it is possible to do a syndication deal by yourself, but you need to make sure you know how to do everything, and most people don’t know how to do everything… From what I’ve seen, you’ve got kind of like the numbers guy, and then the networking guy. So someone focused on the relationships, raising capital, and the other person is at their computer, crunching numbers and underwriting the deals, and maybe asset-managing it… What advice do you have a) on finding a partner, and b) on vetting that partner?

Gary Lipsky: It’s spending time with them and seeing if they have the same values as you. Do you trust them, how they look at deals? It’s a process that you build over time. The guy I’m partnering with – we kept running into each other at meetups, so… Developing a rapport over time, and we were both interested in a property together, so we went out there together and looked at it… And over time, it was clicking.

I appreciated how hard he worked, and I can rely on him, and that was really important to me… And obviously, he felt the same way about me.

Theo Hicks: How did you find the 42-unit deal and how did you find the deal you’re currently working on, that 128-unit deal?

Gary Lipsky: The 42-unit deal – my business partner was already out there in Tucson, and — it hadn’t even come on the market yet. He was the first one to see it, so that’s how we actually got it. It’s certainly not the sexiest-looking building, but tremendous value-add opportunity… And it’s in that 42 range, which is maybe a little bit bigger than some of the small players, and smaller than some of the bigger players. So it’s that middle ground, which was nice.

But the 128-unit… One of the guys that came in on our 42-unit deal  – he works full-time, but he got this deal because he had done business with the broker previously. He sent it to my business partner, and I got a text at like [12:30] in the day, he’s like “We’re going to Phoenix tomorrow, 3 AM. I’ll talk to you later.”

So this deal was going to market, and we wanted to be the first ones to see this. So we drove out from L.A, 3 AM, and checked out the comps, walked every inch of this property… I was underwriting the deal on the computer the whole way back, and five hours back to L.A, and just going through every single scenario. We thought this was a great opportunity, so… We got it by outhustling others, and being one of the first to see it. We didn’t get into a bidding war. We aggressively went after this property, trying to avoid best and final… Because I’ve been in best and final a number of times and have lost, and I thought this was a really good opportunity, and if we could take it down right from the beginning, then let’s try to do that.

Theo Hicks: So both those deals were off market. The second, that 128-unit, was — you said it was someone who invested in the first deal knew the broker, and then sent you that opportunity, and then you were able to get it before it went to market, right?

Gary Lipsky: Yeah, he had actually closed two deals with that broker before, so he had a relationship with him. That’s important. Even after doing one deal, we’re just getting a lot more attention from brokers… So that’s how — it starts snowballing really fast, so it’s been really nice.

Theo Hicks: Yeah. And that 42-unit – that was off market through your business partner; was that also through a broker relationship?

Gary Lipsky: No. Certainly, he’s looked at properties with the broker before, but he really didn’t have that strong of a relationship. It was right time, right place, so we were able to grab it.

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

Gary Lipsky: I would say outhustle and be creative on solutions. It’s worked for me in all of my businesses in the past, and it’s worked in real estate as well.

Theo Hicks: Do you wanna give us an example of a creative solution? Maybe not real estate-related, but on one of your businesses? If you can think of anything — you said you made some films; that’s pretty interesting… What are some creative solutions you had for that? I’m sure that was–

Gary Lipsky: Sorry, for what?

Theo Hicks: You said you created films when you were in college, is that right?

Gary Lipsky: Oh yeah, in my twenties. Well, the company that was handling one of my foreign distribution sales – they were going under. We had a deal with Germany for 50k for the rights for the film, and I said “Give me the number of the person and I’ll get the money myself.” And I would wake up, 4 AM, and just call every single morning for like two months, and I got fully paid. And most people were like “Germany never pays, or they give you a discount…”, and I got the full amount after two months, just calling myself.

Theo Hicks: Yeah, that’s definitely hustling right there.

Gary Lipsky: Yeah.

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

Gary Lipsky: Yeah, let’s do it.

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

Break: [00:13:31].16] to [00:14:09].24]

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

Gary Lipsky: Millionaire Fastlane, by M. J. DeMarco.

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

Gary Lipsky: Well, I would reflect and learn from what went wrong, and get back right at it again.

Theo Hicks: Besides your first deal and your most recent deal, what’s the best ever deal you’ve done?

Gary Lipsky: I’d have to say my personal residence right now. I bought it, and I knew it was a great value-add opportunity, and fixed it up, and within a couple of months the value went up a quarter million dollars.

Theo Hicks: What about your worst deal?

Gary Lipsky: It had to be a student housing. We bought this as a passive investor, and they just built up too much student housing in that area, so now we’re struggling over there.

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

Gary Lipsky: I’ve founded CORE Educational Services. It was in 2006… So we service under-served youth in L.A. We’ve had a tremendous impact over the last 13+ years.

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

Gary Lipsky: You can reach me at Gary@breakofdaycapital.com, or visit my website as well.

Theo Hicks: Alright, Gary. I really appreciate it. Very insightful conversation we had today. Just to summarize what we talked about so far – we talked about first your passive investing, and we discussed some of the things to look for when you’re vetting a syndicator, or just how to become a passive investor in general. You talked about how you just looked at a ton of deals, underwrote them, just to see the different ways different sponsors underwrite deals, look at deals, revenue cap rates, how they’re adding value, how they’re finding their comps, if their comps make sense… You mentioned that you had a buddy who literally drove across the country to meet all these people, so that’s definitely one strategy that will definitely work.

Then some of the red flags – we talked about [unintelligible [00:15:55].05] So if you ask them a question and they either refuse to answer it, or they do answer it and you can obviously tell they’re making up an answer on the fly, what you wanna see is obviously that they’re knowing the answer, but if they don’t, at least saying “You know what, I’m not sure about the answer to that question, but I’m gonna go look it up and I’ll get back to you within a few hours”, or something like that… And just kind of trust your gut. And if you feel like someone is not trustworthy, that’s definitely a red flag.

Then we transitioned into talking about active investing, and you provided some solid advice about how someone who has never syndicated a deal before can attract  capital from friends and family… And you mentioned you need to focus on what you have done in the past. So if you’ve done real estate deals, focus on that. If you’ve started businesses before, focus on that, and in particular focus on the skills that you’ve learned from those experiences and how that will help you conserve and obviously make them money.

We also talked about how you’ve found your business partner, and some tips on forming syndication partnerships on the GP side, so finding a GP to work with. It really comes down to spending time with them, [unintelligible [00:16:56].24] and making sure that your values and your core missions are aligned, and again, going back to that trust factor.

Then you mentioned that you actually met your business partner at a meetup group, which is pretty cool. Then you mentioned, lastly, about finding deals. Your first 42-unit was kind of a right time/right place deal, but you talked about on the 128-unit how you’ve found it through hustling. So your business partner said “Hey, we’re going here tomorrow. I’ll see you at 3 AM”, you drove there at 3 AM, you visited the comps, you drove the property, and on the way back, that five-hour drive, you underwrote the entire time, and you were able to get your offer in before you had to go to that best and final seller round.

And something else interesting that you mentioned was most people want to find those off-market deals from brokers, and most brokers are gonna wanna see some sort of track record… And it seems, at least for you, one deal was enough to start getting a lot more attention from brokers, and seeing more off market deals. I’m sure a lot of people who are listening – that’s something they’d like to hear; just do one deal, and then you can have the chance of getting those off-market opportunities.

Then lastly, your best ever advice, which kind of summarizes everything you’ve talked about, which is hustle and be creative about your solutions, and there were plenty of examples of that throughout the conversation.

I appreciate it, Gary. Again, you guys can say hi to him at BreakOfDayCapital.com, and he also provided his email address. Thanks for joining us today. Have a best ever day, and we’ll talk to you soon.

Gary Lipsky: Thanks, Theo.

JF1875: Real Estate Titan Educates Us On Development Deals with Erez Cohen

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Erez is on the show today to tell us his real estate investing story, which has included a few different roles and strategies. These days Erez focuses on development deals so we’ll take a dive into his role with those deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“If you want to start real estate investing, your work ethic matters more than your knowledge” – Erez Cohen


Erez Cohen Real Estate Background:

  • Real estate investor and author
  • Has taken part in over $3.5 Billion worth of real estate deals, author of the book Real Estate Titans
  • Based in Mexico City, Mexico
  • Say hi to him at https://www.linkedin.com/in/erezcohenh/
  • Best Ever Book: Principles


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Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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

Erez Cohen: Doing well, Joe. How are you?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Erez – he is a real estate investor and author. He’s taken part in over 3.5 billion dollars (that’s with a B) worth of real estate deals. He’s the author of the book Real Estate Titans. Based in Mexico City, Mexico. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Erez Cohen: Yeah, Joe. Thanks. I’m very happy to be on your show, thanks for having me. It’s a pleasure to be talking to your audience. About 14-15 years ago I started working in real estate full-time. I’ve always been enamored with real estate since I was a young kid. I had two sisters who were architects, so I was always exposed to seeing the creation, and buildings, and homes, and neighborhoods, and cities. To me that was just always something really wonderful, and so I always wanted to be in real estate.

I started on the financial side, so on investing, and then more recently I’ve moved to the development side, and it’s a lot of fun. I love it.  It always keeps you busy, and it’s really a wonderful business.

Joe Fairless: Well, if you’ve moved to the development side, you’re certainly staying busy… So educate me on what you’re doing from a development standpoint, and we’ll go from there.

Erez Cohen: Sure. Like any other field in industry, you always try to look for a supply and demand imbalance. Currently in Mexico and Mexico City a very interesting segment to focus on is residential [unintelligible [00:03:05].05] Mexico City is truly a verticalized city, so we have to go up… And we’re currently focused on doing residential projects targeted for the middle sector in Mexico. GDP per capita here is about a fifth of what it is in the U.S, so very different price points… But building apartments for anywhere between $150,000 to $300,000. Usually, financing is readily available for buyers, and also for developers. So keeping busy on that side…

Also, looking at some mixed-use property. In today’s world it’s really a live-workplace leap; everything together, in the same place… So we’re trying to add some component, some retail, maybe a little bit of co-working office etc into these projects as well.

Joe Fairless: Let’s go back a little bit… What was your background before you got into real estate about 14 years ago?

Erez Cohen: I was never 100% sure which field within real estate I wanted to be in, so I focused on business administration and pre-law. I did some summer internships in law firms and investment banks. It was all really interesting, but I definitely decided that I did not wanna be a lawyer… So I did that, and then I started working full-time in an investment bank, in the real estate group. It was a really interesting challenge. For those people listening who work on Wall Street and investment banking – it’s a wonderful learning experience, it’s not such a great lifestyle. You’re working between 80 to 100 hours a week, but at the same time it’s a phenomenal learning. We can go into the discussion whether school and education really prepares you in today’s world for financial and professional success. My opinion is it does not. But when I was in investment banking, I felt it really taught me a lot of important skills that I needed.

I also believe that if you start your career off with something really challenging, I think that’s wonderful, because life unfortunately (or fortunately, whichever way you look at it) is really a big challenge. So the more arduous endeavors you go through at a younger age, I think the better that prepares you to deal with the inevitable challenges that will come up later.

So I did investment banking for a while, and then I was able to jump to the investing side. So I worked then for a large private equity fund, focused on real estate investing. And you’re kind of on the sell side in banking, and then you’re going to the buy side when you’re in a private equity, and it’s also really interesting – it also teaches you a lot of transferable skills… But I’ve been asked “If you could go back to school/university, what would you study?” Honestly, I think that there’s a lot of  different fields, and there’s so many different entry points in real estate, as you know, Joe, that I do think that there’s a lot of different things that one can find passion for, whether it’s economics, or pre-law, or architecture, or civil engineering. Whatever you decide to study and wherever you decide to go, I think that there’s always those leaps that are available. I don’t think that if you study civil engineering you can’t go work on Wall Street in a quantitative job.

Everything throughout my life, and I’m sure throughout your life and a lot of the people listening – we’re always told that “Hey, you know what – it’s too hard. You can’t do that leap. You can’t go that way, you can’t do this, you can’t do that…”, and it’s important to never listen to these limiting beliefs. We’re surrounded by people that have these limiting thoughts, that tell us what to do.

So I’d say that if you have some people that are looking to start maybe a career in real estate or to further their career in real estate – it doesn’t matter so much what you’ve studied, what matters is your will, your hunger, your values towards hard work etc. If you have those things, I think you’ll be able to do whatever it is you want.

Joe Fairless: 80 to 100 hours  a week working in investment banking you said was a phenomenal learning experience. What are some specific things that you learned?

Erez Cohen: First and foremost, you learn the value of hard work, and I think that’s really important in life. I would say that in general – and that’s in banking or in any other very tough job, with these types of long hours – most importantly what you learn is the qualitative things. It’s interacting with other humans, leadership, teamwork etc. It’s kind of like the softer things, because obviously, you’re gonna learn a lot of technical things… I would say that in order to succeed in life, the technical skills in my opinion are important, but they’re not that important.

So if I’d have to throw out a number, maybe 30% of the things that I learned were technical skills, financial modeling side, so you do a lot of Excel proformas… In real estate we have ARGUS, as many of your listeners probably know. You also do a lot of presentations, like pitch books, offering memorandums etc. Sometimes you do capital raising on the equity side, so maybe IPOs (initial public offerings), and then you might be on the debt side, helping your clients raise debt… All these things are great, and you’ll learn a lot about them, but you can also read a lot about them. But I’d say the better experience comes on the softer side of just you interacting with everybody else, and you learning leadership skills, teamwork skills. I think that those are super-important and I’d say that’s probably the biggest thing that I take away from that… Because it’s almost like being in the army. If you go through an IPO, like a year and a half’s work, for example, you’re traveling the world trying to raise money for your client, it’s almost like you went to war.

You and your colleagues were in the trenches, staying up till 5, 6 AM, having an hour’s sleep, going back to the hotel, showering and going back at it. All these things are just overall a really good experience, especially if you get them at a younger age.

Joe Fairless: What are some leadership fundamentals that you believe in order for someone to be a good leader?

Erez Cohen: That’s such a great question, and there’s so many wonderful people out there who do have probably much better responses than I do, but I’d say the first and foremost thing in my opinion is understanding very clearly what are your assets and what are your values, and if you live according to your values and you’re congruent. For example, you might yell at somebody for doing X, and then you do it yourself – I think that’s very incongruent, and in life and in any industry anywhere in the world you see this a lot.

I do believe that you have to have your values very clear. I think that both this simple, basic common sense to just treat everybody else as you’d like to be treated. On Wall Street I’ve seen from my career a lot of people that when they’re analysts, they’re starting out, they have a really tough time with their bosses, and their bosses’ bosses… They get treated very badly, so what they do is that eventually when they’re in more senior positions, they treat their analysts in a really bad way. And I think that’s just a really sad thing to see.

So for me, it’s always about treating your team very fair, very good, and taking care of business… I mentioned this in the book I wrote – I think that something wonderful… Anybody who can read Dale Carnegie’s “How to win friends and influence people” – he has so many really good points there, really valid points that I have seen throughout my life, that are really truthfully things that if you inculcate/integrate them into your life, you should be able to find a lot of success. It’s just about being a good person, being a nice person, and obviously, important skills that come with being a leader… But I’d say in general those are my main recommendations.

Joe Fairless: You mentioned that this career path helped condition you for the challenges that come up throughout life… What is a big challenge that has come up for you in your life?

Erez Cohen: Every human on Earth has challenges, and many times we think that our job – especially if we live in the Western world – and our professional life is the most important thing. We’re always focused on those challenges, and it’s not until you get something happen to you on the personal side, whether it’s (God forbid) a disease that you get, you or somebody close to you, or some other type of personal thing that might happen, some type of tragedy… So I think that that’s really when everything balances out.

So I’d say that I’ve had a lot of personal things come up to me, diseases with different people close to me and my family, and including some loves ones – that is always definitely a bigger challenge than anything professionally. And of course, like everybody else, we have a lot of professional challenges; depending on the economic environment, you always have things that you’d never think will come up, that will come up… And I’d like to also just put a parenthesis to this answer and say that this book that I wrote, called Real Estate Titans – what I did in this book is I went and I interviewed 11 real estate titans from around the world, people that are super-successful professionally, personally, and in so many other aspects, and I asked them this question, about their challenges… And it’s the craziest things that one can never imagine that will come up. It’s almost like Murphy’s Law – whatever can go wrong, will go wrong. These are the types of things that you have to be ready for.

So that’s why, in my opinion, and going back to what I said about challenges – you have to be mentally strong to get ready for any challenge that might come up… Because you never know what might come up. And I know, Joe, you probably lived through this many times in your life and you know this, but — we never know, so I feel like it’s super-important to be mentally strong and perseverant. And also, I’d say — sorry for the fluff here; it sounds corny, but it’s true… I’d say try to surround yourself with people that are just optimistic in general about life, because they keep you motivated, they keep you inspired… And if you yourself can do that every day, you have to work on it; you have to start your day off doing different things. But if you can be optimistic, I think in general it’s great, because you always need that in order to deal with those challenges that will inevitably come up.

Joe Fairless: So now let’s transition a little bit into the development projects that you’re working on. Are they all in Mexico City?

Erez Cohen: Yeah, most of them. There’s one deal that we’re looking at in South Florida, Miami, but yeah most of them are in Mexico City.

Joe Fairless: Okay.

Erez Cohen: As you guys know, real estate is a very, very local business. Building in Miami is very different than building in L.A, and very different than building in New York. You have different state laws, and tax issues… So in Mexico City I can tell you that probably more than in the U.S, and perhaps we can make this a more macro conversation – kind of like the developed world versus the emerging market world, Mexico obviously being in the emerging market world and the U.S. being the developed world… In an emerging market it’s much tougher to get permits and licenses, so it’s a much longer process. At the same time, the positive thing about that is that as you look at the ground-up development value chain, you’re dealing with the biggest risks upfront; you put less money, and I think that’s something better.

In this case, the biggest risk that you would have if you build any type of building, or shopping center, or whatever, anywhere in Mexico, it’s gonna be the permits and licensing. So if you can deal with that successfully and you can get all the dozens of different permits and [unintelligible [00:14:05].25] that you’ll need, then after that you’ll be in a much better position.

Another thing that we try to do is I asked a few years ago — I love learning from really successful people; one of Latin America’s probably most successful developers – I asked him throughout his career what was the most important thing that he’d learned from developing all these projects, and he said “Learning what it’s gonna cost me now.” Because Joe, I’ve been throughout my career maybe in  50 different projects, involved in them, and I could tell you that one of the main things when you’re doing ground-up development is getting the budget correct.

Joe Fairless: Yup.

Erez Cohen: There’s almost always – I’d say maybe 95% of the time – cost overruns. So because of that, one of the things that we’re trying to do is get the GMTs (guaranteed maximum prices) in place. There’s a lot of different construction contracts, and it’s totally important to learn them. You’ve gotta look at the open book, and you’ve got the lump sum contracts etc. (we’ll go into that), but what we’re trying to do is today, before we even build the building, know what it’s gonna cost us. So depending on your construction scheme, if you’re hiring a GC (general contractor), let’s say Beck [unintelligible [00:15:16].15] (there’s so many out there), but whoever you decide to hire, then you’ve just gotta make sure that they’re also taking the risk.

In any type of business – and in real estate it’s no different – you always try to have all parties do well. In this case, “Hey, you know what, GC? If you’re gonna come in with us, you’re gonna get all this potential upside… You’ve also gotta have potential downside. So you’re gonna tell me today what it’s gonna cost me.” Obviously, there’s more details to that; usually, there are different parts of the architecture scheme, but once you get to CDs (construction documents), if you can advance with those and maybe get to 60%-70% [unintelligible [00:15:50].19] construction documents, then probably it makes sense for a GC to give you a GMT. So they’re gonna tell you what it’s gonna cost you today. That’s something huge that I’ve seen in my career, that is super-important.

Joe Fairless: You mentioned in emerging markets it’s harder to get permits and licenses, but those risks are upfront, and it’s less money that  you have currently in the deal, so that’s a good thing… In developed markets where is the largest risk for doing a development there?

Erez Cohen: As we look at the supply and demand in emerging markets – let’s take for example Mexico, but you could do the same argument for Brazil or India or Russia or China – the population is much younger. So because of that, you’ve got much more millennials, you’ve got gen Z’s etc. who are purchasing whatever it is you are selling to them, whether it’s an experience in a shopping center, whether it’s staying in a hotel, whether it’s an apartment, or renting some co-working space at a WeWork, or whatever it is. So because of that, usually demand is larger, and usually your productions are a little more interesting

On the one hand, we discussed how you could mitigate some of the potential construction risks, but then on the leasing/sales risk, or market risk, or however you look at it, in emerging markets it’s usually a little more comfortable. The demand is usually there. You have an investment thesis based on smarts and logic.

If you look at the developed world, obviously demand is lower in general terms, because the population is not growing, the demographic is not as interesting, the economies are growing at a much slower pace… So because of that, usually the construction and market risk are bigger risks, I would say, from my experiences developing in emerging markets.

So in emerging markets it’s probably gonna be permits and licensing. It’s dealing with the fact that there is law, but forcible law is very tough, and because of that you’ve gotta deal with local municipalities, with governments, there’s a lot of corruption, unfortunately… So because of that, permits and licenses are an issue.

But as you move, for example, to the U.S, obviously there is always the human element, and there might be challenges, with some sorts of corruption or favoritism, but in general terms the U.S. is a developed economy, there’s a forcible law, the courts are open for anybody… It’s much easier, and so permits and licensing is a little easier, but a the same time you’ve gotta deal with the challenge of the market risks, as we discussed. So overall, that’s my perception.

Joe Fairless: Tell us about a project that has lost money, that you’ve worked on.

Erez Cohen: There was one project when I was in investment banking — and fortunately, I haven’t had too many of those yet… But they will always come. If you do enough deals, you’re always gonna get one or two or three or four bad deals. Hopefully, you don’t get too many… But when we were in investment banking – I wasn’t an investor on this deal, but basically it was this resort time in Mexico. It’s near Cabo, it’s called La Paz, for any of your listeners who have actually been there. It’s a really beautiful place. The investors – they made a bet on this town taking off.

So what I’ve learned is that when you’re developing anything in resort towns – let’s say for example Myrtle Beach; something that your audience can relate with… In Myrtle Beach clearly there’s more access to their town. In this specific case there weren’t direct flights. Today you go to Cancun or to Cabo and you’ve got direct flights from any major city in the U.S. This town did not. The investors went in saying “Okay, we’re gonna go talk to United, we’re gonna go talk to American Airlines, we’re gonna talk to these different airlines and get them to change some of their routes and get some direct flights in there.” Unfortunately, that never happened…

And you’ve also gotta have support locally from the municipality, from the state etc. Here in Mexico it’s very tough, as we’ve previously said, to interact with the local communities, or the local municipality government etc. to get them to support  you. They really expect almost 100% of the support from the developers. And just as a parenthesis, I was recently at the Urban Land Institute Spring Meeting in Nashville, Tennessee, and that’s an example of a city that’s had phenomenal, phenomenal help from the local government and the state. I was in Nashville, and it’s like “Wow, what’s happened here…” It was absolutely inspirational to see what’s going on down there. But unfortunately, in Mexico it’s not the case, so in this specific investment the investors did not do well.

Joe Fairless: If presented a similar opportunity in the future, what are some questions you would ask about it prior to undertaking the opportunity?

Erez Cohen: First and foremost I wouldn’t be that focused on having such a great location, maybe a beachfront with a marina, getting the permits and licenses etc. I would be really focused on “Hey, guys, how are we gonna make sure that the demand  comes?” Because it’s a speculative development. For anybody listening who hasn’t developed yet, it’s really important that anytime you’re analyzing any type of deal, you look at the demand and you realize “Is it speculative demand, that it’s not currently there, but you’re gonna have to fly it in? Are you gonna have to bring it from some other city, some other state, some other country?” Usually, I don’t like those types of deals, because obviously there is much more risk involved in them. In this case specifically I would be super-focused on “Hey, how are you gonna bring in airlift in here? Who is gonna come and buy these beautiful condos on the beach? Who is gonna come and stay at this beautiful, luxurious hotel? Who’s gonna come and park their yachts here, when you’re an hour away from Cabo San Lucas, which has a much bigger marina?” etc. So I’d be very, very focused on the demand.

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

Erez Cohen: Wow. That’s a really great question. I would say – this might sound like a cliché, but I would say that any decision that you make, that it’ll be focused on maintaining a really good reputation. So many times in my career I’ve seen really phenomenal investors, people that are truly [unintelligible [00:21:49].03] that really understand supply and demand – which that’s what it’s really all about in terms of your investment thesis – who have really great relationships with equity investors, and with different banks etc, just really great people on the investing side, but they’ve made some very poor decisions regarding ethical standards; they decided to do things that were unethical, and they got caught, so they had to pay the price, and that’s very unfortunate.

So I’d say your reputation is everything, so every decision that you make, be focused on long-term. Think that you’re gonna be — whatever your age is, if you’re 20, 30, 40, 50, you’re gonna be working hopefully till you’re 80-90; you’d gonna wanna stay busy. So always make a decision based on that.

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

Erez Cohen: Let’s do it, Joe.

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

Break: [00:22:48].16] to [00:23:23].16]

Joe Fairless: Okay, what’s the best ever book you’ve recently read?

Erez Cohen: Principles, by Ray Dalio.

Joe Fairless: What’s the best ever deal you’ve done?

Erez Cohen: A vertical residential deal in Mexico City.

Joe Fairless: And why was that the best ever?

Erez Cohen: Because we were able to mitigate almost all the risks. We went in when there were already permits and licensing in place, and a really phenomenal construction company was doing the building. We were able to pre-sell many of the units, and returns were over 40% IRR.

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

Erez Cohen: I believe that it’s kind of like what Bill Gates says – it’s your fault if you die poor, but it’s not your fault if you’re born poor. I believe very much in that. I believe that helping children for me is the most satisfying thing, whether it’s children with cancer, or HIV, or any children that are impoverished… I take part in different foundations, and that gives me tremendous fulfillment… And all around the world.

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

Erez Cohen: I’m happy to connect with your listeners on LinkedIn. They can go and find me there. And if they really wanna learn a little bit more about me and the journey that I went through the last two years, they can check out the book that I’ve recently launched. It’s called Real Estate Titans, and they can find that on Amazon. I went and I interviewed 11 of the most phenomenal real estate investors from around the world, that I know have invested billions, or tens or hundreds of billions of dollars… And I went and I asked them many of the questions that you’re asking me… And they’re really just phenomenal. I learned so much from them. So there’s a little bit of my story in there as well. If you want to check that out, I’m sure that it’ll be tremendous value to  your readers.

Joe Fairless: Absolutely. The Real Estate Titans: Seven Key Lessons From the World’s Top Real Estate Investors. That is on Amazon.

Thank you so much for being on the show. I really enjoyed learning about what you’re doing with the developments in Mexico City, learning about the differences between developing there versus the United States, and then some global mindset lessons that we’ve talked about. So thanks for being on the show; I hope you have a Best Ever day, and we’ll talk to you again soon.

Erez Cohen: Thank you. It was a pleasure, Joe. I appreciate it. Take care.

JF1874: Veteran Real Estate Investor Shares Story Of Scaling The Real Estate Ranks with Cory Boatright

Listen to the Episode Below (00:27:45)
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Cory is with us today to share his story of scaling his business. He started in the same position as many new investors, from bird dogging to wholesaling and then on from there, Cory has faced a lot of the same problems other have faced or will face as they try to grow into the real estate investing industry. Hear how he has overcome obstacles, and how he stayed focused enough to eventually sell over $100 Million in real estate transactions.


Cory Boatright Real Estate Background:

  • Real estate investing coach and investor
  • Has completed over 1000 real estate transactions, owns/manages over 422 apartment units via syndication, and sold over 100 million in real estate transactions
  • Based in Oklahoma City, OK
  • Say hi to him at www.coryboatright.com or www.apartmentevaluator.com
  • Best Ever Book: Modern Day Jonah


Best Ever Tweet:

“Usually you want to go the cheapest route but with multifamily you may not” – Cory Boatright

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Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


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

With us today, Cory Boatright. How are you doing, Cory?

Cory Boatright: What’s going on, Joe?

Joe Fairless: Well, I’m looking forward to our conversation. A little bit about Cory – he’s been a real estate investing coach and investor. He’s completed over 1,000 real estate transactions, owns and manages over 420 apartment units (he’s on the GP side on those properties) and sold over 100 million dollars in real estate transactions. Wowsers! Also based in Oklahoma City, Oklahoma. With that being said, Cory, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Cory Boatright: Sure. Thanks again for having me on here. Real estate investors, I’ve been doing it for just close to 15 years now. I bought my first house when I was 21 years old, so that’s 21 years ago. I’m 42, getting ready to be 43 in June. I just kind of went up the ranks, I did everything from a bird dog, all the way up to I had a short sale business in 2006, and a loss mitigation company, and then just basically moved to wholesaling after a bunch of big things happened in my life, that were pretty hard things to deal with personally… But also, everything that you go through teaches you a lesson.

So I got involved with more wholesaling over the last 5-6 years, and about half that time I started having more interest with apartments. You and I just saw each other in Colorado at your event, which was awesome; an absolutely incredible  event… And I read your incredible book; it’s a huge, huge book. I’ll put it right here on my desk, so everyone is seeing it.

Joe Fairless: Oh yeah, there it is…

Cory Boatright: It’s such a big book, man… And it’s great!

Joe Fairless: There’s a lot of stuff to say about apartment syndication.

Cory Boatright: It’s a lot, it’s a lot… And I listen to all your podcasts, and everything. So you have been tremendously helpful in that regard. Another one of my partners, Corey Peterson, with the Big Kahuna, he’s been really helpful as well, and Michael Blank, Sean Terry is one of my partners now, working on the apartments side… So what I’m focused on is finding 75 to 150-unit apartment complexes, primarily in the greater OKC area. That’s been my big focus right now. We’re finding them off market, and the reason why, Joe, is because I believe there’s a big gap, where what’s called direct response marketing – you’re familiar, obviously, with Dan Kennedy, and John Carlton, a lot of the greats from marketing – there is a gap right now that’s needed, I believe, in multifamily. No one is really doing a great job of doing direct response marketing for multifamily, and for the owners.

So in 2019, one of my big Emphasis projects – I call them Emphasis projects – is really finding some piece of direct mail, marketing piece, some medium that really gets in touch with the owners of the 75-unit to 150-unit via direct response, with not having to – not that there’s anything wrong, but not having to work with or go through a broker, if note needed. So that’s been a big emphasis… And then of course, my wholesaling business. We did over 113 deals last year. I have a great operation, how that’s setup. That runs maybe about 15 hours of my time a week to keep that thing churning… So it gives me an extra time to do the other things, like marketing for multifamily.

Joe Fairless: Well, let’s dive in. I’d love to talk about the direct response marketing to multifamily operators and why you see an opportunity there… But first, the 15 hours  a week that you invest in your wholesaling business – what are you doing exactly?

Cory Boatright: I have this exercise – and I do this with consulting students as well – called “the $10,000/hour activity.” Basically, it is take a week of your life and write down from when you get up to when you go to bed at night, everything that you did in an hour, every hour, you put it up on your phone, that reminds you “What did you do this last hour?” At the end of this week you have to grade “Was that thing that you did (we’re talking about business activities, not family; you can’t put a price on that) worth $10/hour activity, $100/hour activity, $1,000/hour activity, or $10,000/hour activity?” Obviously, there’s very few things in a $10,000/hour activity, and it’s more of a concept, but what I’ve found – and it’s easy for all entrepreneurs to do this, myself included – is that we tend to do things just so we can get them done, so they’re not lingering around, not hanging out there, and causing us to get off focus… But those are $10 to $100/hour activities, Joe. And the goal is to figure out where we can spend more of our time on the $1,000 to $10,000/hour activities.

Those things, as you asked, are the big leverage points, the big rocks. We do a level 10 in our business — if you’re familiar with Traction; great book, you’ve probably heard a lot from it… A great way to basically run a company, and you can go through and you can find out these big rocks of what are the things that need to happen to move the needle forward? Those tend to be not the things that are the $10 to $100/hour activities; those are the $1,000 to $10,000/hour activities.

An example would be maybe you need to call someone, Joe, and have a conversation with them, because it needs to be a direct conversation with you and them to connect, and build that relationship with then. Maybe from there, you want to talk to them about some opportunity that you have that’s coming up, or in your business, that can really move the needle forward in your business. That would be a $10,000/hour activity. Some of these other smaller activities are things that typically just a virtual assistant can handle.

I’m still amazed – and you’ve mentioned this before we got on this interview today that you have a lot of Tim Ferriss books around. Well, he wrote the 4-Hour Workweek, which was pretty instrumental in changing the perspective for me – and I bet for you, too – on how  you view business and how you can leverage things. Well, that’s where the focus is right now, is “Where can I put those big rocks, and where can I look at those $1,000 to $10,000 activities that can move the needle forward?”

Joe Fairless: Today is Thursday, so we’re well into the week… What are some specific things that you’ve done in your wholesaling business this week?

Cory Boatright: Great question. This week I contacted a guy named Greg Helbeck and Jason McDougall, and I’ve found an opportunity for marketing – because I love it; I absolutely love marketing – but it’s in Dallas. I’m here in Oklahoma City, I’m not gonna do anything in Dallas. I know that they have a great operation in Dallas. I simply told them about this opportunity, spent maybe ten minutes with them, and said “Hey, first off, is this a good opportunity, a house that you can do something with?” They said “Absolutely.” I said “I’m not gonna spend a lot of time on it. Here’s all the information on it. If you think we can do something, let’s partner up. You let me know.”

So that was one thing I did. They came back to me… Not only are they gonna be able to partner on it; that deal in itself – we picked it up for around 143k, and we’re probably going to sell it between 165k to 170k. So just for that 5-10 minutes of spending that time, sharing that little bit of information with them, being very clear on the expectations – “I’m not gonna do anything. This is a great opportunity for you. This is your area, this is your market”, and that deal is going to clear 27k, so my part of that deal will be over 10k. And I spent maybe 10 minutes on that. So that’s an example.

Joe Fairless: That’s a $60,000/hour thing that you just did. Even better.

Cory Boatright: That’s right. I’m working on the 10X. [laughter] It’s difficult to get there, but you’ve gotta shoot for that. But that really is an example – whenever you’re creating those leverage points and you find those things that you’re not gonna necessarily spend your time on, but you know someone else that’s really gonna be good at it, then it’s good to build on those relationships.

Joe Fairless: So let’s talk about your comment when you said direct response marketing, and there’s a gap that is there for multifamily properties… Specifically, having something that compels owners of 75 to 150-unit properties to follow up with you. What do you know, that others aren’t doing?

Cory Boatright: I’d love to be able to give you a lot of data, because I love data myself… But I’m really in the process right now of building the data up. But I can tell you some things I have figured out so far.

Joe Fairless: Okay.

Cory Boatright: One is I’ve done mailers on finding deals on apartment complexes, and what I’ve found in the Greater OKC area, in a source called List Source (your listeners are probably familiar with that; listsource.com). You can pull data and you can look at apartments that are ten units and above. And what’s really interesting that I’ve found after doing a small mailer was some people that contacted didn’t even know what their NOI was, didn’t know what a P&L sheet was, Joe; couldn’t tell you how many exact units are, couldn’t tell you what the vacancy rate was, couldn’t tell you how much work is needed.

This really blew my mind, because there is this assumption and there’s this perception that because someone owns a five million, ten million-dollar asset, that they’re smarter than you, or whatever it is… That they know more about that unit, that they’re gonna be less motivated to work with you because they have options. And they do have options, but as understanding the pain points from motivated sellers in the wholesaling business, which is what we deal with on a day-to-day basis, it is a different animal on multifamily, because it takes longer time, but the pain points are really interesting. On multifamily it is “My partners and I have a legal dispute.”

Joe Fairless: Yup.

Cory Boatright: “I’m going through a  divorce right now.” “I’m embarrassed because I don’t know how to run this thing. I don’t want anybody out there telling me ‘Oh, your 150-unit now is being bought up because you don’t know how to do it.” There’s embarrassment, there’s shame involved. They’ve got properties inherited, and their kids are on drugs, so they’re doing stuff they shouldn’t be, and they’re running the asset into the ground. They don’t have any idea on their accounting.

Or  maybe, some of the things — they just need to do a 1031. There’s a lot of other reasons, but some of the ones that weren’t so obvious, that was very learning for me, was these people are still motivated, too. So no one is hitting someone right between the eyes, which is what great marketing does, and speaks to one person. I’m not talking about speaking to this economy of multifamily owners, all assuming just because they have 100 units or whatever, that they’re happy and everything’s great, and they’re bigger than everyone else. I’m talking about a message that speaks to your pain. Because once you speak to that person’s pain, then you’ll get a response.

That’s really what I’m talking about – finding that marketing piece that says “Hey, if you have a challenge right now and you need to sell the property quickly, but you don’t know what it’s worth, you really don’t know if you’ve been fixing the property up the way it should be… Hey, I’m local. I’m here in Oklahoma City, I’ve lived here for years and years; let’s go have coffee. This is a completely confidential conversation.” By the way, anything that has private, confidential, your email address, your personal phone numbers saying “This is real”, stuff like that – it stands out from all of the noise that they get all the time, that says “I want you to call me [unintelligible [00:13:31].25].”

Joe Fairless: It absolutely does. When you say speak to one person and find that pain point, how do you create something that speaks to one person, when as you mentioned earlier, there are varying pain points on the spectrum? If I’m going through a divorce, my pain point is gonna be different from if I have inherited a property and I don’t know what I’m doing.

Cory Boatright: Sure. One thing that I know that hasn’t worked is a postcard. If you’re approaching this marketing for multifamily and you’re using a postcard, stop doing it.

Joe Fairless: [laughs]

Cory Boatright: Because the postcard is really designed for single-family, and there’s a reason why, but I don’t wanna get into it necessarily right now… I’ll tell you that a letter is gonna be more effective. And not only a letter, but a FedEx package that you can get a signature — because how many FedEx packages do you send and you don’t open?

Joe Fairless: You open it. You always open it.

Cory Boatright: You’re gonna open it. Or if you have an envelope with a window that shows their name, and at the top of it “Open immediately” or “Urgent”, something that shows urgency. And we can get into particulars of split testing. But the answer to your question is you are going to have to split test it. And I’d love to show you right now all the data, but I’m still working on this myself, so maybe at the end of myself we could have–

Joe Fairless: Follow up.

Cory Boatright: That’d be awesome, to follow up. But you’re going to have to split-test. And the cool thing about multifamily when you do these lists, Joe, is that they’re not that big. I send out between 50k and 60k mail pieces for single-family motivated homeowners every single month. I’ve done it for years, right? I don’t have to do even 10% of that, because there’s not 10% of 75 to 150 apartment complexes in the Greater OKC area. It doesn’t exist. So because you have a smaller list, now you have to change your mindset. This is hard for marketers because we think “What’s the best ROI for our marketing piece?” And you have to change that. You have to think about “What is the best way that I can get in touch with an apartment owner?” If I did get a deal, and it’s a direct to the owner, I’m not having to worry about a broker, so what’s that saving on a 3-5 million dollar deal? It’s saving at least 100k or more, right?

Joe Fairless: Yup.

Cory Boatright: So if I didn’t have to do that, what could I spend on the marketing piece? Well for me, I’m spending between 31 and 34 cents on a little postcard with an API that goes to Google for a Google image that says “Is this your house?” That one’s really effective. But on this, for a letter, you’re gonna spend 50-70 cents just on the regular marketing to single-family. You have to stop thinking about that, because your list is only 5k or 6k people, Joe. Now you can spend $15, $20. If you wanted to, you could probably spend $30 or $40, depending on where you are and what your marketing is, to get in touch with this person. And that’s the way that you have to think about it. And it’s really hard, because usually you wanna go the cheapest route, but on multifamily… You’re gonna have to spend a little bit more money, but it’s gonna be worth it if you find even one really solid deal.

Joe Fairless: It is. And that’s the beauty of the larger deals. It’s worth it when you just get one… And it’s not only the transactional profits you get from that deal, but it’s what it sets you up for for future deals because you did that first deal. I love that thought process, and I was going to ask you per piece approximately how much it would be for a FedEx, but you’ve just answered the question… Which really is “That’s the wrong question to ask, Joe. It’s really about what’s the opportunity cost here if you don’t do it.” Because if you’re working with a broker, there’s nothing wrong with that. But if you are working with a broker, you’re gonna pay a commission, whereas if you don’t, then on a large property the seller saves the $100,000, but then you can build that into your offer, and then you can save some money because you’re saving them on the broker fees. That’s great.

So one challenge that a listener will come across when they implement this is single-family – heck of a lot easier to track down the owners and their address; multifamily – you get an entity that owns the property more of than not. Then you look up the entity address and it gets you to some whacky address… So how do you make sure that you have the best addresses to contact the owners?

Cory Boatright: Great question. The easy answer, but many may not have this access – but you could get it, depending on how much your persistence is – is commercial brokers have a service that we’ve all heard of, called CoStar (I know many of your audience has). CoStar has all of the addresses, all of the phone numbers of these owners, and that’s gonna be one of your easiest routes to go if you can work with a broker and they’re willing to basically pull that data out and give it to you. Now, of course, if you’re doing that, the broker is probably gonna say “Well, if you find a deal, I want you to work with me”, so there’s that side of it, too. But if you wanted to go the route and pay for your own CoStar – I believe it’s $25,000 to $30,000 a year, so that’s gonna be [unintelligible [00:19:00].23] evaluate there.

The other one is skip-tracing. Skip-tracing is easier with a single-family, because you don’t have to typically worry about companies. A lot of these owners have companies and LLCs and trusts and everything else that these properties are associated in and set up in… So you can have skip-tracing. Skip-tracing can help you tremendously. There are some back-and-forth on whether or not you can get a company skip-traced, versus an individual skip-traced, and the answer is you can, but it may cost a little bit more money because it’s a little bit more involved. They have to go usually to the Secretary of State, they have to go and see who is a registered agent, and those things. On  some of these you can’t see [unintelligible [00:19:50].20] if they’re filed in places where they’re hidden… So that would be something that you need to look into – skip-tracing, and certainly CoStar.

Joe Fairless: And what are some skip-tracing resources that you recommend listeners check out?

Cory Boatright: Sure. American Skip Tracers is a guy that everyone can go check out. I believe Tom Krol – I’ll give him credit for introducing me to him. He didn’t even know it, but he posted about him. Tom Krol is a great wholesale–

Joe Fairless: Yup, I had him on the podcast. Really good interview.

Cory Boatright: Yeah, great guy. Lots of great [unintelligible [00:20:25].04] in our mastermind group, Collective Genius. So American Skip Tracers… I think it’s called American Tracers, or American Skip Tracers. That’s one. There is another one that is called IDI. It’s gonna take you a little harder time to get that one set up, but that one is very, very good for pulling great information, and you actually get set up on your own FTP (File Transfer Protocol, for you techies).

And then Delvepoint is another one that’s gonna be a little harder for you to get set up, but Delvepoint has fantastic data as well, that you can look into.

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

Cory Boatright: Two – be persistent, and when everybody else quits, keep going. That’s on single-family. So I’m gonna divide it. On multifamily – slow down. The person that takes longer time and thinks through things, and isn’t in a hurry – they’re going to win in the multifamily game… Especially when it comes down to you actually closing. When you’re actually closing, the last week of your closing process means everything. With delays, or anything else – that last week is what it’s all gonna come down to. So taking time and being patient on the multifamily.

It isn’t like a hot potato, like me in the wholesaling business, where I get a property, and I essentially — I do wholesaling, Joe; so we call it real estate, but really it’s like the pawn shop of real estate. I get these properties for 25, 30, 50 cents on the dollar, 40 to 60 cents on the dollar using the Greater OKC area – that means a 100k property, I buy it between (the lowest) 25k or (the highest) 60k. I turn around and I sell it for a profit. But I’m really selling the contract. Someone is signing a piece of paper for 50k, I know Joe is gonna buy it for 70k. I give that over to Joe, and he pays me 20k. That’s really wholesaling.

Joe Fairless: Yup.

Cory Boatright: And multifamily – it is so completely different. It is all about due diligence. It is all about “Did you tell me everything that you should have with this whole process of going through–”

Joe Fairless: Which they didn’t. [laughs]

Cory Boatright: They didn’t. They never do, right? The person that’s more excited to close is typically gonna be the person to lose.

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

Cory Boatright: Let’s do it!

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

Break: [00:23:04].00] to [00:23:39].10]

Joe Fairless: Okay, best ever book you’ve recently read?

Cory Boatright: The best book recently?

Joe Fairless: Yeah, recently.

Cory Boatright: Recently… I read a book a week, so — I usually listen to a book a week on Audible. Modern-Day Jonah, which is Nathan Taylor actually sent it to me. I’m in the process of reading it right now.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Cory Boatright: Assuming my expectation was the same as the owner’s expectation.

Joe Fairless: Best ever deal you’ve done?

Cory Boatright: It had to be a short sale deal. I stumbled into it way back in the early 2008-2009, and it changed the trajectory of my life when I realized that banks were willing to accept less than what’s owned on the underlying debt. It changed my life.

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

Cory Boatright: Gratitude. I remind people every day that you take so many little things for granted. I started a thing called The Grateful Project through my — I won’t get into it, but I went through a personal episode of thyroid cancer at the end of 2012; it radically changed my life. And to this day, I post a reason to be grateful every single day. I wear this bracelet, The Grateful Project, which means everything to me. I think if you thought of gratitude as a currency, then you should really think about wanting to become a billionaire, because gratitude means everything, and it is the number one thing that will get you through life on the highs and lows.

Joe Fairless: Colleen (my wife) and I say what we’re grateful for before every meal, and one of Tony Robbins’ quotes that rings in my mind whenever we talk about this is “Trade your expectations for appreciation.”

Cory Boatright: I love that, man. I say in the shower every day – “My worst day is someone else’s paradise. My worst day is someone else’s paradise.”

Joe Fairless: It’s true.

Cory Boatright: I say it over and over again, and… Man, you get hit with different things in the day, and you’re like “Ugh..!”, but then you’re going “Well, it isn’t that bad.” It’s a good way to think about it.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing, and get in touch with you or your organization?

Cory Boatright: I love that. So just google my name, Cory Boatright… What’s really funny – if you google my name, it actually says “People that google you also google Joe Fairless.” It’s really hilarious.

Joe Fairless: Oh, yeah…! I’m glad to be associated with you.

Cory Boatright: Good company. And then I was telling you, Joe, we set up — because I’m on Facebook a lot, I like social media, and I’ve done that for a long time… So I set up a website called ApartmentEvaluator.com. And the only reason I did this is because people were just sending me direct messages on Instagram, Facebook, and emails, like “Hey, I got this apartment deal”, and they might give me four pieces of information. And this Apartment Evaluator is just a very simple — it asks a couple of questions, but it really streamlines things, and helps with organization.

Joe Fairless: Amazing. Yeah, I see it in here. It looks straightforward, and it looks like a good resource. Well, thank you so much, Cory, for being on the show and talking about your journey… Talking about specifically marketing and where you see your blue ocean strategy, and focusing on direct response marketing towards apartment owners, and how you’re going to specifically go about that process… And you’re already a general partner on 420 units, which we didn’t even talk about, but I’m glad that we talked about what we did, because this is very action-oriented for the Best Ever listeners, and it’s good because you’re coming from a wholesaling background on residential, where you know the marketing piece, you’ve got that down pat… And now someone like you, with your background and experience can turn on and transition into the multifamily space. So I’m looking forward to a follow-up conversation; a year from now let’s talk and see the results of what you’re going to be doing after you get all the research in, and do split tests and stuff.

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

Cory Boatright: Thanks, Joe. I really appreciate you.

JF1852: From No Real Estate Knowledge To Over $40 Million AUM with Michelle Bosch

Listen to the Episode Below (00:29:53)
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Best Real Estate Investing Crash Course Ever!

Michelle immigrated to the states to study business and work a normal job like most people expected. She did that, and she was not happy. Thankfully she came across real estate investing as a way out of that. Now doing syndications and buying and selling land, Michelle and her team are doing really well and she’s here today to share her story and knowledge with us. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“I wish he had focused on the who of our business a lot sooner, we’ve been focusing a lot on the team” – Michelle Bosch


Michelle Bosch Real Estate Background:

  • Co-founder and CFO of Orbit Investments and a full time real estate investor since 2002
  • They have over $40 Million AUM
  • She has bought and sold over 4,000 pieces of real estate and built the 3rd largest land investment and auction company in the US
  • Based in Phoenix, AZ
  • Say hi to her at https://www.michellebosch.com/
  • Best Ever Book: This is how we rise


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TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


Theo Hicks: Hi, Best Ever listeners. Welcome to the best real estate investing advice ever show. I am your host today, Theo Hicks, and today we’ll be talking with Michelle Bosch. Michelle, how are you doing today?

Michelle Bosch: Wonderful, Theo. Thank you for having me.

Theo Hicks: Absolutely, and thank you for joining us. Looking forward to our conversation. A little bit about Michelle, she is the co-founder and CFO of Orbit Investments, as well as she’s been a full-time real estate investor since 2002. Currently, she has over 40 million dollars worth of assets under management. She has bought and sold over 4,000 pieces of real estate and built the third-largest land investment and auction company in the U.S. She’s based out of Phoenix, Arizona, and you can say hi to her at MichelleBosch.com.

Before we get into the meat of the conversation, do you mind telling us a little bit more about your background and what you’re focused on now?

Michelle Bosch: Sure, absolutely. I am originally from Honduras, so just to give you a little bit of background – I’m an immigrant to the U.S. I came here in 1995 to study Business School, then an MBA. I went to work, like everyone expected, and hated it, and started looking into real estate — well, before real estate, into other business opportunities, but then looked into real estate. We knew absolutely nothing about real estate, nothing regarding how to build a home. My husband’s also from Germany, so how we build and construction in general was completely different.

It was a little bit overwhelming for us, because most people start with houses, and that’s what we wanted to start with… And we had no clue, so then we decided to focus actually on land. The reason why we focused on land was because, like I said, we didn’t know anything about how to estimate repairs, how to deal with tenants, or deal with toilets; they were getting broken, or roofs, or repairs, or molds, or anything of that sort.

So I had humble beginnings in the land space, and then we were able to really quickly scale that, and we went from doing our first year 60 land deals, to the next year doing a little bit over 100, and then the third year deciding, “Okay, we are working our butts off. Either we go big, or shrink back up.” We decided to go big and started selling our land through live auctions. Here in Phoenix we would have about one a quarter, so about 250 pieces of land in one day… That’s kind of where we started.

Then in 2009 we were in the incredibly fortunate situation of having created incredible large cash profits from selling land, either through cash or through seller financing, so quite a bit of cashflow coming in as well… And we were sitting in quite a bit of liquidity. And Phoenix was for sale, so we just went crazy shopping for homes. We could get them for anywhere between $30,000 and $50,000 and we could rent for $950 to $1,100 every month.

Then just three years ago, in 2016, we started in the multifamily space, syndicating our first deal, partnering with someone that knew how to do this really well, and now three years later we’re getting actually ready to sell that first asset. Then we moved on to two additional syndications in two other markets… So that’s where we are now. But we continue to this day to do land, just because it is so simple to work. You have virtually no competition, you don’t have the typical three T’s, of the tenants, toilets and termites. You don’t have to deal with mold, you don’t have to deal with anyone letting you into the property, getting a key to get into the property, because there is no key… [laughs] You just walk into the dirt.

At this point, all of the land that we do right now flip, we do it site unseen. We don’t need to be going to the property anymore, and that’s who we were able to actually scale, by just using Google Earth, maps, coordinates that we can send our buyers to, or when we’re buying, to really assess and do our due diligence upfront. We really don’t need to visit the property.

So it’s simple – we have developed a really good process to find sellers that don’t want their property anymore, and it’s a numbers game at this point. We have a team that is a very well-oiled machine, that we can really rely on to operate as we would operate. And I know you’re gonna ask me this a little bit later, but I wish we would have focused on the Who much, much sooner in our business. I would say during the last maybe six to seven years, our major emphasis has been on developing our team, on making sure that we hire based on core values, that even if someone has the expertise and skillset, that they must also align in core values and in our mission in order to join our company. That has really brought an incredible amount of ease and effortlessness for my husband and I.

We work together on this business. We’re one of those weird couples that can actually work together… And really just having that unique ability team to rely on has been just instrumental in us being able to move from being generators of results inside of our business to really being creators of opportunities for our business.

Theo Hicks: I appreciate going through all that; lots of things to hit on… We’re gonna break it into first talking about land, and then your syndication deals, and then some more high-level stuff about building your team. First, what part of Germany is your husband from?

Michelle Bosch: He is from the very South, from an area called the Lake of Konstanz. This is absolutely beautiful. It borders to Switzerland on one end, to Austria on the other… We actually fly into Zurich when we go visit every year. We’ve been doing that yearly pilgrimage thanks to real estate, for the last 22 years. He’s just right across the border, so 45 minutes after landing and getting out of customs in Zurich, we are on the German side and enjoying a beautiful area of Germany. Just incredibly orderly, clean, flowers everywhere, vineyards… I always tell him, “What a pity that the Germans don’t really advertise this area so well”, because it has nothing to be envious about or jealous about if you compare it to Tuscany. It’s just that Tuscany has an incredible amount of advertising that is being done for that area and that region in Italy… But it’s beautiful. It’s very, very quaint.

Theo Hicks: Yeah, that’s great. I just ask because my mom was born in Munich, so it’s always interesting to see people–

Michelle Bosch: Oh, yeah? About a 4-hour car ride or 3 hours by train. We’re actually going to be right now in September at Oktoberfest. I’ve heard for years about Oktoberfest, and I’m like “Jack, we need to make it out there sometime.” Especially since we had our daughter – we have an 11-year old daughter – we’re restricted to that school schedule. She’s usually back in school by the time Oktoberfest comes around, but I’m like “We’re just gonna go ahead and do it. We’re gonna pull her out for a week.” We already have tickets to it, our flight’s booked, and we’re excited. [laughs] Yeah, because he’s been talking about it for 22 years, and I’m like “I finally want to experience this.”

Theo Hicks: There you go. Alrighty, so let’s start off by talking about the land. In particular, you mentioned that you’re able to buy these properties sight-unseen. I know some people do that for properties as well. You mentioned a few things that allow you to do that – Google Earth, maps, coordinates… We don’t have to necessarily dive into that, but you did say you’ve got a well-oiled machine process, and I just wanted to go over that process of how you’re finding these deals… You said that  you’ve got a good way of finding people who no longer wanna have their land… So how are you finding them, how are you evaluating them, and how are you finding sellers in the back-end?

Michelle Bosch: The first step is basically identifying an area that you want to buy land in. Usually, there’s three types of properties that we’re after. Either an infill lot in the city, a lot that is in the path of growth, so on the outskirts of the city, or a recreational property, which can be out in the boonies, or close to lakes, or ski areas, or anything that you can think of recreational.

Here in Arizona it’s usually — I say “out in the boonies”, people that wanna go and set up a camper, or come out there with their RV on the weekends, or wanna go riding their ATVs… And the more washes the piece of land has, the more attractive it is for them. So we have to be open-minded when thinking about land. We always think of like “Oh my gosh, it’s got a ton of washes”, and that’s actually — a property that I can think of, one of our very first 40 acres in really rural Arizona, had quite a bit of washes, and we’re like “Oh my gosh, we’re gonna be stuck with this. What are we gonna do?”

And then there comes along a buyer that says “I am actually looking to pan gold, and I want a property that has quite a bit of washes”, because the mineral rights actually come with the property here in Arizona. In some other states the railroad companies own the mineral rights, but here in Arizona you have that situation. Or someone says “I don’t want it flat, I don’t care if it’s buildable, because I just wanna take it out there with my kids and ride our ATVs on the weekend.”

So the first part is basically identifying an area, and then once you have identified an area, you wanna procure a list of owners in that area, and you want to sort that list  by vacant land list owners only. Ideally, that list should have the owner’s mailing address, so you can actually contact them. And then what we do is we send them what we call our land profit generator proven letters. We tested quite a bit at the beginning until we ended up with the letter that we have been using now for quite some time. It is signed by me.

We even tested at the beginning having Jack sign the letters, and we had higher response rates when it was a lady soliciting them. So they go out with my signature. Invariably, there’s some people that still cannot conceive that a lady is soliciting them, so they will ask for Michael instead of Michelle.. But that’s okay… [laughter] And you send them a letter, pretty much. Then people will call you based on that letter, and they will raise their hand and say “Yeah, I do have this piece of land. I am interested in selling.” And we basically go through a script that we’ve developed to find as much information as we can, and gauge motivation from the seller.

We make offers. In the process of making offers we don’t take very long, because at this point we still don’t have our property under contract… So we do a relatively quick value analysis just to give us a ballpark. Most of our offers are anywhere on the 5 cents to 25 cents on the dollar of value of the property. We send those offers out, and then invariably, contracts will come back in accepted. You send that to a title company, close on the deal, and if you have been doing this for quite some time, you will more than likely the moment that you have an acceptance, you will start marketing the property, so that you can start doing that in parallel.

You also have the scenario where you don’t even have to use your own money, but you could do what we call a double-close, where you find a buyer and then that buyer really pays your salary, and the difference – they cut you a check, and there’s no money in the deal. Or you can assign a contract to another investor. So there’ different ways to do it, you don’t have to buy it. It’s just that for us it’s such lower price amounts that we just go ahead and buy it. Unless it’s a higher-priced property, then we’ll either put an option on it, or do a double close to find a buyer first, and then close on that transaction.

So that’s pretty much the process… And a lot of the selling can be done online as well. You don’t have to have your own website, you don’t have to really be tech-savvy. You just need to go to the places where people are already looking for real estate. We list our properties on Craigslist, on Zillow, on LandWatch, on Facebook Marketplace. Actually, Facebook Marketplace for the last year and a half has been fantastic… So we’ve been using and shifting a lot of our focus towards Facebook Marketplace to sell quite a bit of our land… And there, again, you can send them coordinates, plat maps…

This is all information that you will probably acquire upfront, in the process of the purchase, but basically as you are accumulating all this information in the process of you purchasing it, or putting it under contract, this is the same information that you’re gonna be using to market your property and find your buyer and send your buyer out there if they need to go look at the property before they invest.

Theo Hicks: That’s a really good, succinct six-step process for essentially going from beginning to end. There’s a few follow-up questions, starting with your script in your letters. Do you mind just telling us what you’re — you don’t have to tell exactly what it is if you don’t want to, but what’s the letter… Don’t go through the entire script, but…

Michelle Bosch: Yeah, yeah. I don’t have it handy, so I don’t know it off of my head anymore. On the letters it is a numbers game, but the number of mailings that we have to do in comparison to houses is minimal to get a deal. You can expect from a mailing of 100 letters to get anywhere between 8 and 16 callbacks, and then probably 2-3 deals, depending on the area and the property that you’re after. If it’s rural or infill lot. An infill lot will probably require a little bit more, just because it’s in a city and there’ll be a little bit more competition… So that’s what I wanted to say on the letter side.

It’s basically a letter that says “Hey, I know you own property in such-and-such county here in Arizona (or Texas, or wherever you’re at), and I’m really interested in buying it from you. I can pay you cash, I can help you get rid of the burden of property ownership. I close quickly, I have a track record. I’ve been doing this for so many years now.” Or if you don’t have that track record, you can say “My company is looking to buy and acquire in this area we’re moving in, and if you would be interested in having a quick cash sale, please give me a call.” And you give them the contact information. There’s a little reference.

We have actually developed a proprietary software, so that helps us manage all our deal flow… So part of that letter, when it goes out, there’s a little reference number on the side, that even if someone calls me back and I miss their call, they can leave a voicemail and I have an outgoing recording that says “Leave me your reference number, and with that I can look up your information, and I can look up your property, and I can call you back”, if that’s what they want, a callback. Otherwise I’ll just send them an offer. Because that’s all I need really from them; it’s nice to talk to them on the phone, just because, like I said, you can talk to people on the phone and you probably get a higher acceptance rate, but it limits you in terms of either you hire three people to help you, or you outsource it to a call center, so that they can help you receive those inbound calls, and you are able to personalize that call a little bit more… But there’s only so much volume you’ll be able to handle.

Or you can decide  – if you still have a job – that you’re gonna let it go to voicemail, or outsource it, whichever way… And perhaps you personally are not gonna make that relationship with your seller on the phone, but it’s gonna give you the ability to scale, basically, and send out much more letters, send out much more direct mail, and be able to service many more inbound calls, and therefore send out many more offers, and get more contracts accepted, and so on and so forth. So that’s just on the letter side.

When you’re receiving the call, the questions that you wanna ask people are along the lines of “Are  you the owner of record?” More than likely, I would say about maybe a little bit over 50% of the people that we get either they inherited it, there is a divorce of some sorts… Some kind of a hardship has happened, or mainly they’ve inherited it and they’re miles away from that property, and they don’t wanna have to deal with it… And it’s either in the name of their parents, or of the estate, or whatever… So you wanna ask them, “Am I dealing with the owner of record, or who are you in relation to the owner of record?” You wanna make sure that you are talking to the person that has decision power.

Then you wanna ask them about the property. “Can you confirm the size? Does it have access? Does it have utilities? Electricity? Is the road access paved or unpaved? (Because we’re talking land here) Do you know if it’s difficult to get in a septic tank, or have you had your land percolation test?” It’s basically a test that they do to figure out how fast water drains in order for you to be able to put in a standard septic system… So you basically go through a series of those questions to try to see what is out there in terms of value already in the property; any improvements that they have done, fencing it, or anything of that sort… And then  you can ask if they have an idea of what they would like to get for their property. That’s pretty much the gist of the script.

What you’ll find out is that during the course of that conversation, if you are servicing the calls, which is how we started — actually, both Jack and I would take all those inbound calls, and because when we had just moved here in the U.S. our English wasn’t so good, we struggled at the beginning. I’m like “No, you take that call.” “No, no, YOU take the call.” “No, YOU take the call.” Because we were really concerned and self-conscious about our accent, and people feeling like they could do business with someone that sounded like a foreigner.

Honestly, we were very concerned about that. And actually, it was never an issue. People loved talking to me and telling me their stories of how they had purchased that piece of land… If it was here in Arizona along with another lot in Florida, but they had decided to go ahead and retire in Florida, and now they didn’t want their property… A lot of out-of-state owners. And it really gives you the opportunity, when you take the call, to really connect and hear from your seller as to what’s going on with the property.

Theo Hicks: Very detailed. This is a very solid episode for those who want to get into the land game. The last question before the best real estate investing advice ever question, which is “How are you formulating the offer price?” I know you ask them what they want, I know you said that you do between 5 and 25 cents on the dollar of the value of the property, but how are you determining that actual value? Do you have software that you use, is there a formula? How does that work?

Michelle Bosch: Yeah, our software actually is tied in with Trulia and Zillow, so we can see comparables very quickly. Otherwise, a simple Google search if it’s a subdivision and I don’t find anything on Zillow or Trulia; I can just google it and get a feeling for 5-10 minutes at most for value, and go ahead and make my offer anywhere between 5 to 20 cents on the percent of that… And send it out, and see what happens.

There’s gonna be people always that are not gonna be accepting that offer, and they might even write you back, saying “Hello, how do you dare write me such a low-ball offer?” But then you have a ton of others that actually accept your offer and wanna do business with you. That was your question, right? What was it?

Theo Hicks: Yeah, that was the question, how you’re valuing the property. So basically all the properties are comparables.

Michelle Bosch: Well, one more thing is in an infill lot situation, that’s where it would vary a little bit. You might not have comparables, because say a subdivision is completely built out, and perhaps you’re looking at the last infill lot there to acquire. So how you would do that is you would basically look at the average price sale of homes in that area, and then figure out basically per square foot what a builder would be having to spend in terms of building a similar-sized property now, and then from there say “Okay, about 20%-30% of that value is going to be going to the land. So the land is really worth this much, and of that I’m going to offer 10%, 15%, 20%.” So you kind of like back into the value of the land based on the value of the house. So that’s the only place where you kind of need to back into it. Otherwise it’s pretty much straightforward for the most part, and it’s just looking at comparables, and size, proximity, price per acreage that has sold in the area that you’re looking at.

Theo Hicks: Alright, Michelle, what’s your best real estate investing advice ever?

Michelle Bosch: I think the best advice ever – and even to this day we continue to apply it and we need to remind ourselves, because as we have transitioned in our journey as investors, you get so enamored with “Oh my god, I can entertain so much complexity now.” But my best advice would be to always, no matter what it is, even if it’s an apartment syndication, to keep things simple. The key to prosperity is simplicity, and to keep things simple. That would be one. And then the second would be to really focus on your Who and on building your team that is rock-solid, that is people that share your same core values, that are going to have the same intentions that you are, that really rally behind your vision and the mission that you have for your company as a business owner; that is the biggest a-ha.

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

Michelle Bosch: Sure! I can do this! [laughs]

Theo Hicks: Alright. I’ve got faith. First, a quick word from our sponsor.

Break: [00:22:49].28] to [00:23:50].14]

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

Michelle Bosch: I am actually in the process of reading it right now, and it’s called “This is how we rise.” It is by a lady by the name of Claudia Chan. She is the founder of the S.H.E. Summit. Part of what I’m really interested right now is in really advancing women and getting many more women into real estate. So it’s a leadership book, and I would highly recommend it. She talks a lot about whole life leadership – in order for you to become a business leader, you really have to develop yourself personally, and in order to develop yourself personally, you really need to develop yourself spiritually. When you go to that place of spirit, because nobody wants to talk about that too openly — but when you do go to that place of developing yourself spiritually, you start thinking about leading in your life with a purpose, and everything that you do in leading in your business, and in your community, with a purpose. I would highly, highly recommend that book, “This is how we rise.”

Theo Hicks: If you had to start over today with little or no capital, how would you do that?

Michelle Bosch: I would go back to doing land. When we started doing land, how we did it was lower-priced property, high volume. I would probably turn that around, just because I can entertain a little bit more complexity now, and I would have had the benefit of that experience… So I would now focus on slightly larger-priced properties when it comes to the land, but I would definitely go back to the land… Because what I like about land is that it gives you the opportunity to create large cash profits if you just do a quick flip… Which we call one-time cash, by the way, in our family.

And if we decide to do seller financing and really carry the note, become a bank, and have someone pay us monthly payments every month on our land, that’s temporary cash… So it allows us to go from one-time cash, to temporary cash, and then use that money to go and park it into passive cashflow type of investments such as apartments. So that’s what I would do – I would build my team around core values much quicker than I did in the beginning, for sure, and leverage the knowledge that we have, the capability, the confidence, the courage.

We always say that our process has been a process of following what we call the four C’s, which is we committed to something simple, which was land… But that helped us build the courage, the capability and the confidence to move into the next asset class, which was houses. And then after doing that for some time, and 50 rentals later, in three different markets, we’re like “Okay, we committed to that, we mustered the courage, we gained the capability, now we have the confidence to move to the next big project.” So leverage that, leverage our network, and then move as quickly as possible again into passive investments and get what we call our Security Plan in place through passive investing in plays as quickly as possible.

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

Michelle Bosch: The best ever place to reach me I think would be to just go to my website. It’s www.michellebosch.com. Of course, Facebook, Michelle Bosch, Instagram @MichelleBoschOfficial. We have a free Facebook group called The Land Profit Generator Real Estate Investing Group – very active; it’s an incredible community of very generous people; generous with their time, with their knowledge, that really help each other just figure out land deals if you’re starting at the beginning, or if you don’t know what the heck you’re doing. It’s an amazing resource to have. And just a source of inspiration every single week. “I have three offers accepted. I just closed on a deal.” Just last week we had a gentleman – his first deal was $18,000. Another guy said “I just sold something for $35,000.” The next lady had another offer that go accepted, and so on. It’s a place to come in and celebrate your wins, and really share your struggles, because everyone else there is going to help you get over those. They’re a very, very giving community.

Theo Hicks: Well, Michelle, I really appreciate you coming on the show today and going into extreme detail on how to get started in land. This episode should be called “The Ultimate Blueprint to Buying Land.” I’ll quickly summarize the six steps… Number one, identify the area, and you went over the types of land you can look at. Step two is you get a list of owners – you said specifically sort by vacant land only – contact those owners, and then send them your letter… And you went over exactly what to include in that letter.

We talked about the pretty high conversion rate of these rate of these letters for land, compared to other real estate niches.

Three is to screen the calls. You went through some of the questions to ask and how to approach actually screening the calls from a logistics perspective. Four, make offers… Again, you went over exactly how to calculate the value of your offer.

Five is as the signed contracts come in, send those to your title company to close, and then step six, which kind of like 5.b) at the same time, once you get that contract, you can start to market those properties, and you gave us examples on how to do that.

And then your best ever advice was two parts. One, keep things simple; don’t make things super-complex and just confuse yourself; if it ain’t broke, don’t fix it, as they say. And then you also talked about how you should focus on building a team that shares the same core values and mission and you, and that trumps someone who’s highly skilled in land, for example, but doesn’t share those values.

Again, I really appreciate taking the time to speak with us today. Best Ever listeners, thank you to everyone who listened. Have a best ever day, and we’ll talk to you soon.

Michelle Bosch: Thank you for the opportunity.

JF1851: Working With Big Investors & Who Are Accredited Investors? #FollowAlongFriday with Joe and Theo

Listen to the Episode Below (00:22:27)
Join + receive...
Best Real Estate Investing Crash Course Ever!

A couple of lessons coming at you today from Joe’s interviews for the podcast. We’ll hear his favorite two lessons he learned, which were from Bob Lachance (https://revaglobal.com/) and Shoshana Winter (https://www.iintoo.com/). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“They’ll get more relevant information for them”


Free Document:

LOI Examples: http://bit.ly/loiexamples2


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


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

We’ve got Theo Hicks with us. Theo, how are you doing, sir?

Theo Hicks: I’m doing great, Joe. How are you doing?

Joe Fairless: I’m doing well, just got done with the run, feeling good. Still sweating a little bit, but I showered, so I’m nice and clean for you. Looking forward to our conversation. We’ve got Follow Along Friday, and the purpose of Follow Along Friday is to talk about some things that I learned, or if you did the interviews the previous week, that you learned, and how it can help everyone hanging out with us today.

The focus of today’s conversation is gonna be about who are accredited investors, and really dissecting some information about how to think about accredited investors… Because it’s likely that, Best Ever listeners, you could benefit by bringing in more money partners into your deals, and accredited investors are the ones who have money to partner up with you. So we’re gonna talk a lot about who are accredited investors, and it is inspired by an interview that I did with Shoshana Winter, and we’ll talk about that.

First, a quick unrelated note to accredited investors, but more along the lines of just being helpful for anyone, regardless if you’re looking to partner with accredited investors – Bob Lachance; he is an active business owner and he has been a real estate investor since 2004. He’s actually an ex-professional hockey player. I really enjoyed my conversation with him. He seems like a great guy. Easy to smile, at least — I didn’t see him smile, because it’s only audio, but I could just tell he’s just an easygoing guy and he would be a cool guy to hang out with… But that’s not why I’m mentioning him. Why I’m mentioning him is when he was leaving professional hockey – he played overseas some, and he played professional for eight years; when he’s leaving professional hockey, he’s gotta create a new identity for himself, he’s gotta create a new profession, he’s gotta create a new way of making money and supporting himself and his loved ones… And he chose real estate.

The way he transitioned into real estate is he went to a real estate meetup group, and he asked everyone in the group who is the top shortsale investor in Connecticut (he lives in Connecticut). He asked a lot of people, because he wanted to get into shortsales; he’d done some research and wanted to do that… And they all mentioned one person. He then reached out to that person, and he said “Do you have any openings? Because I’d like to work for free.” Boom. And by doing that, he — of course, the gentleman (I think his name was Pat) said “Yes, I do have an opening. Here’s a list of people, and their addresses, here’s their script – go knock on some doors.” So he knocked on doors for almost one year, and that was his first job in real estate.

I mention that because there are a couple of things to take away from it, in my opinion. Maybe more, but a couple that stand out. One is when we’re transitioning into something new, it’s important to identify who is at the top of the game that you want to get into, and you identify that through word of mouth. Once you do that, then you go throw yourself into an opportunity where you can add value to their life. In this case, he offered to work for free. By offering to work for free, he was given an opportunity to actually make money by door-knocking; so he did not have to work for free, although I believe it was just commission-based… So you eat what you kill, so to speak.

But one, when we transition in something, identify who’s the top person through word of mouth, and then throw yourself in there and offer to work for free… That’s number two. And I’d say number three is, regardless of what that position is, just do it, and do it well and learn from it, and identify what you can take away from it that you can apply to future opportunities as you grow in the business… Because I’ve never — have I ever door-knocked? Not in a real estate capacity, I don’t think I have. Maybe as a young kid, but that’s completely different. So I’ll say I’ve never door-knocked before… And that’s gotta be terrifying. So props to him for taking a position that has got to be uncomfortable at minimum, and doing it for almost a year because he wanted to get into the business, and then off he went after that.

Theo Hicks: You never sold any candy bars or anything when you were a kid, and going door-to-door? And magazines?

Joe Fairless: I did, but I don’t count that, because kids are cute and people give them money just for sympathy, or they’re with their parents, or something… I’m sure I did, that’s why I kind of hesitated, but as an 18+ year old person, no, I haven’t door-knocked.

Theo Hicks: It’s definitely different. The cute factor is there for sure.

Joe Fairless: Yeah, yeah.

Theo Hicks: That’s interesting, and we’ve talked about it on this show before, how to work with someone who’s top in the industry… Obviously, offer to work for free; they happened to have an opening open for him to work for free, but… Just because someone says no if you ask them to work for free doesn’t mean you just stop. We’ve talked about this before – try to find a way to proactively add value, so do some research on them beforehand, figure out what they might possibly need help with, and then just do that for them…

And then when you reach out to them, introduce yourself, mention that you’re interested in working for them, and then use whatever this thing you did for them as evidence as to why you’d be someone worth bringing on. Sprinkle in there that you’ll work for free as well is also a good way, because I know, Joe, if someone came to you right now and offered to work for free, if you don’t have a job opening, you’d probably just say no. And if that person kept pushing, maybe they figure something out in their mind, that they thought would add value to you, and they did that, even it maybe didn’t, you would just see that they put forth that effort, and might be willing to give them a chance.

So I guess my point is that if you do follow this strategy and they say no, don’t just give up. You can go to the second-best person, but you should also continue to pursue the top person; you just have to think a little bit more outside the box, to figure out how to actually get in the door with them.

Joe Fairless: Excellent point. Thank you for bringing that up. It’s one thing to ask someone, “Hey, what can I do? I’d love to help you out.” And people do that. They send emails to me, or to the Contact Us page, and they ask “Hey, I’d love to work for free”, but it’s not free, because they’re looking for me to mentor them or help them along, and that’s my time, which is the most valuable thing, and it’s the most valuable thing for you and everyone else… So it’s the opposite of free, it’s actually the most costly thing out there. We only have so much time on Earth.

So by taking your advice, Theo, if they proactively create something, that helps me get an idea of the skillset they already have, and that they can bring to the table, and the value that they can add, and then I can start seeing them positioned within the structure of the company and how they could help, and then that gets my wheels turning. And I think you did that, right? Didn’t you do that?

Theo Hicks: It was a hybrid of that strategy. I was gonna add to that and say if they ask you to do something, don’t just do exactly what they said; do that, and then go above and beyond that is another strategy as well, besides proactively adding value. I think I did more of that than just doing something beforehand. Because you did have something you needed help with already. You said “Hey, Theo, I need help with this”, whereas this situation – this is someone proactively reaching out to you and saying “Hey Joe, do you need help with anything?”

And I was gonna mention it, but you already said it – you’ve gotta remember, if you’re reaching out to Joe, if you’re reaching out to, in this case, [unintelligible [00:09:40].05] you’ve gotta remember that they don’t know who you are, they don’t know what you’re good at. They have no idea if you are an MBA-level person, or a boots-on-the-ground level person… So as Joe mentioned, by proactively adding value and creating something for them, they can look at that and they can use that to determine what skillsets you have, and then begin thinking about how you could fit into their business. That’s also another benefit of doing that – they know what you can actually do.

Joe Fairless: Yes, thank you. I completely agree. The next thing that we wanna talk about – and this is related to what I’ve mentioned earlier – is who are accredited investors? This conversation is inspired by Shoshana Winter. She is a digital media veteran; she’s got 30 years of marketing management experience, and she’s at iintoo, based in New York City… And she said they have a database of 200,000 accredited investors. And it depends on what study you look at, but she mentions there are about 13 to 15 million accredited investors in the U.S. So there’s not a whole lot… I think there’s more than that, but regardless, there’s not a whole lot of people who are qualified as accredited investors.

So as a company that is partnering with accredited investors, it’s important to know who they are. And I think a lot of the times we go to the demographic information of accredited investors. They tend to be 45+ year-old, they live in business hubs like New York City, Dallas, Miami, those types of MSAs, versus Prosper, Texas, or some random area in Ohio. And the demographic information is important to know; what level of education do they have? Well, most of them have an undergraduate degree at a minimum. That’s important to know, but I think where it gets really interesting is when we look at the psychographic information.

She is coming at it from – as I’ve mentioned earlier, she’s got 30 years of marketing experience at companies in New York City, and working with companies that have achieved some pretty tremendous things… I think she said she worked at Audible before; I think Amazon owns Audible now, so before Amazon purchased Audible. I believe that, but I might be misquoting something right there… But you get the idea.

So with psychographic information, she said she took a look at their database and she said they tend to be more progressive thinkers, because syndications aren’t something that most accredited investors know about. And quite frankly, a lot of accredited investors don’t know the term “accredited investor”, so they don’t know what they have access to by being at a certain income level or a certain net worth level.

One of the things to think about is — when we talk about they tend to be a more progressive thinker, what does that mean? Well, it means that they tend to be more of an early adopter. They are using Uber. And again, I recognize that Uber isn’t something that only early adopters are using, because a lot of people are using it now, but in the early days they were one of the first ones using Uber, and they are more on the cutting edge of technology, or at least they try things out on the earlier stage, relative to the general public.

Now, anytime we’re talking about 13 to 15 million people, anything you say about 13 million people will not apply to all 13 to 15 million people. So if you are an accredited investor and you’re listening to this, and you’re like “I don’t use Uber” or “I’m not an early adopter”, I get that; I’m just talking more in generality, because that’s what Shoshana was talking about, just more general statements of them. Because I can tell you that from my experience, I haven’t looked at this, so I don’t have the exact statistic, but I’m gonna estimate that 90% of our accredited investors own real estate besides partnering with us. So they are people who already have experience doing these types of deals, so they’re more familiar with them and more comfortable with them. And the people who have not done any real estate outside of syndications – it’s a much different conversation than if they’ve done deals, even like a small investment property.

So thinking about from a psychographic standpoint how you position your company, know that they’ve likely done real estate deals in the past, they’re likely a  progressive thinker, most likely more of an early adopter, it helps you create more relevant information for the investors. And then what you can do with that – and I have not done that; our company has not done what I’m about to say, but in the future we will… What we can do with that is we can segment our email list so that if they have invested in the last six months, then there’s a certain message.

If they have never invested in real estate at all, then we know it’s more of a long-term play with them, because we’ve gotta educate them about syndication, so we put them in a certain segment in the email list where it’s more of an education email series… Whereas if they’ve done multiple syndication deals, then it’s a different track of segmentation, so we have different messaging for them.

It’s just interesting to think about the different psychographic information and characteristics of investors, because then we can start segmenting our email list a certain way to really speak to each of the segments based on who they are and their experience, or their thought process, and their interests… And it’s a more relevant message to them, which leads to more business, for them and for us.

Theo Hicks: That’s a really good point. I’ve never even thought about that before. Obviously, you segment your email based on who’s investing in what deal, but not necessarily what type of information would resonate with them the most.

I see here you have “Have they invested recently or not?” That could be obviously one segment. But “Do  they own real estate or do they not own real estate? How much do they know about real estate?” This is more personally, but one of the hardest things is figuring out how detailed to make the content; I’ll say a word that to me I know  what it means, but maybe other people don’t know what that word means, so do I define it? Am I wasting people’s time who already know what that word means?

Now, if you break it up and just “Okay, these people have never done a deal before, so we’re gonna keep things very high-level, whereas these people have done 20 deals, they’ve invested in every single deal, so they need something more specific. Let’s dive into data, because that will be more relevant to them”, and then segmenting that out so you can send them each a different piece of content.

That’s actually a really good idea, that I hadn’t thought of before. That will be more valuable for them, for the reason I mentioned. It will likely result in more engagement in the emails, and increase the likelihood of them sharing it with people in their circle of influence.

Joe Fairless: And the key there is to have that information in the first place. That can be the challenging part. When you’re having initial conversations with your prospective investors, making sure that you’re collecting the right information, either in the conversation, and/or during the initial outreach form that the investor fills out, or however you’re doing it, but being intentional about collecting certain information.

For example, when I speak to prospective investors, in my notes – because I’m taking notes during our conversation – if they’re an entrepreneur, if they have any business at all outside of a W-2 job, then I’ll write in my notes “entrepreneur”, and then we have a snail mail newsletter called “The Best Ever Report”, that gets mailed to our accredited investors for Ashcroft Capital… And we profile one of our investors in that newsletter, and usually they’re entrepreneurs. So my team will search the notes and they’ll just search the word “entrepreneur”, and they’ll confirm that that person has invested with us – because we only profile people who have invested with us – and assuming they have, then they’ll be contacted to be highlighted in the newsletter.

So there are things that you wanna be intentional about doing when you’re getting to know your prospective investor, that way you can then use that information to then build a relationship with them even more by segmenting them in a certain email segment, and having more relevant information to them, or putting them in a report like we do.

Theo Hicks: Yeah, so one of the big takeaways here is that 1) when you’re actually talking to your investors upfront, make sure you’re asking the right questions, so you know about them. And then once you know about them, you can put them in their categories, so that when you are creating content, you can figure out which segment they should be in, so you’re sending them the correct, relevant information.

Alright, good stuff. Really quickly, trivia question – the first person to answer the trivia question correctly will receive a free copy of our first book. Last week’s question was “What large city has the most diverse economy?” This is based off of industry diversity, occupational diversity and worker class diversity, and surprisingly, the answer was Sacramento, California. And even more surprisingly, I think 4 of the top 10 were California too, which I personally did not expect. So if someone got that correctly, Sacramento, they will be getting a copy of the book.

This week’s question is “What U.S. city has had the most multifamily completions so far in 2019?” This was in a very recent study.

Joe Fairless: New York City.

Theo Hicks: Okay. So if you wanna answer this question, it’s either in the YouTube comments, if you’re watching this on video, or info@joefairless.com if you’re listening to this on the podcast.

Joe Fairless: I’m pretty confident about that one.

Theo Hicks: Okay. And then the last thing is the free apartment syndication resource of the week. As you know, Best Ever listeners, we do Syndication School every Wednesday and Thursday; the focus is on the how-to’s of apartment syndications. For the majority of these series we offer free resources: PDFs, templates, PowerPoint presentations, something to help you scale your apartment syndication business… And we’re highlighting some of those documents on the Follow Along Friday.

This week’s document is from series 15, which is how to submit an offer on an apartment syndication deal. If you wanna listen to that series, it begins at 1716, and the free document for that series are four letter of intent templates. They’re actually examples that you’d have to copy and paste and add in your own personal information… But that [unintelligible [00:20:48].03] episode explain to you everything you need to know about creating a letter of intent, which is the non-binding agreement you send to a seller, with the intent to purchase their property with your purchase terms. If you want to download that, 1716, or in the show notes of Follow Along Friday.

Joe Fairless: And still have an attorney look over any type of legal document. Any template we ever share with you that would be considered a contract with a buyer or a seller, have an attorney look over it, just to be on the safe side.

I hope you enjoyed our conversation, got some value from it. We will tlak to you tomorrow.

JF1840: Buy & Hold, Development, & How Meetups Help Your Business with Steve Arneson

Listen to the Episode Below (00:27:31)
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Steve is on a mission to educate and inspire 1,000,000 people with his podcast, meetup, and his own real estate investing. With over 20 units, 4 development projects, 60-70 person real estate meetup, he is on his way to that goal. We’ll hear about how he grew his meetup, what that has done for his business, as well as hear about some of his real estate deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“Keeping track of all the places you are looking at or have made offers on, and revisiting them after a month” – Steve Arneson


Steve Arneson Real Estate Background:

  • Real estate investor with 20+ doors
  • Has 4 development projects in the early stages, hosts a monthly meetup for the last 3 years, and is a co-producer of Victoria Real Estate Investment Expo
  • Based in BC, Canada
  • Say hi to him at https://thereinvestors.ca/
  • Best Ever Book: Traction


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

Steve Arneson: Joe, I’m having a best ever day.

Joe Fairless: Oh, well, that’s as good as you can get then, I guess… I’m looking forward to our conversation. Steve is an investor who has over 20 doors, he has four development projects in the early stages right now. He also hosts a monthly meetup – he’s been doing that for three years – and is the co-producer of Victoria Real Estate Investment Expo. Based in British Columbia, Canada, right?

Steve Arneson: You’ve got it. Hometown is Victoria, BC. I absolutely love it here. It’s best place ever to be, in my opinion.

Joe Fairless: Alright, well let’s learn more. Do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Steve Arneson: For sure. Background in real estate; I’ve been a full-time investor for about three years now. With my best friend and business partner, Randy Molland, I bought my first investment about six-and-a-half or seven years ago now. It was a live-in condo flip. All my family is involved in real estate on one  level or another. Like you said, we have a monthly meetup here in Victoria to help educate people on the benefits of real estate investing… And yeah, we are on a mission to inspire and educate a million people to live a more fulfilled life, and have the equity and the cashflow that can supplement that lifestyle through real estate.

Joe Fairless: Do you keep track of the million people that you inspire?

Steve Arneson: Mentally, I’ll say. We don’t have a formal tracker to it. I think our number is about 1,500 right now, so we’re steadily pacing.

Joe Fairless: Got it. You need a little thermometer on your wall, where you color it in all the way to a million. So you’ve been investing in real estate for six years, full-time for three years. Your first one was a live-in condo flip… Are all of your properties in Canada?

Steve Arneson: They are, yeah. West Coast.

Joe Fairless: Okay, let’s talk about your monthly meetup. You started it three years ago. That, by no coincidence, I imagine, is when you became a full-time real estate investor. Why did you start it and how do you structure the meetup?

Steve Arneson: We started it basically for our own accountability and to grow our network. It wasn’t until we started listening to podcasts where we found like, hey, meetups can be a really good source of building network, building content, educating people, and kind of building investors and other people into our funnel, as you say in marketing.

So we took it upon ourselves to become the face here in Victoria, because there wasn’t an educational meetup, so there was a huge demand for it. There were those typical meetups where it’s a sales pitch on like “Hey, join my new fund”, or whatever, and then the other side of it, where it’s the old white guy, sitting around and drinking their scotch, talking about their yachts. There was nothing in between where it was just educational-based.

We bring in professionals from all across Canada to come and speak and present with us, and the format is like a half hour of networking to start off, and then about an hour and a half, two hours of content, where we talk about any given topic, from simple things like market updates, to creative strategies, to financing. We bring in developers to talk about what they’re doing in the green space, and everything in between. It’s really the community that we wanted to build from day one, to help people come, feel safe asking those “stupid questions.” So it’s an environment and a community for all levels of investors, and it’s been a lot of fun.

We started off — our very first one  was 12 people in the back of a restaurant… And at the Real Estate Investment Expo we had 900 people come through the doors one year, and our meetup now is steadily at like 60-70 people every single month. It’s been so rewarding to watch people who have come a year or two ago and go through this massive shift between realizing they have equity in their home, for example, and then refinancing that and reinvesting that into growing their portfolio to produce more monthly income, or a nest egg for building a legacy for the rest of their family. It’s been really rewarding, and that’s really what drives us on a monthly basis to keep active and keep doing it ourselves, too.

Joe Fairless: Twelve people in the back of a restaurant, to now consistently 60-70 people… What are a couple tips that you’d give someone who has a meetup to help grow their meetup?

Steve Arneson: Great question, thank you for asking that. There’s a lot that we’ve learned over the last few years. Number one is as you start building it, don’t allow anybody in. We literally vetted every single person who wanted to come, and we denied some people because we saw that they were the more selfish type, of like “Hey, here’s my business card. Hey, here’s my business card. What can you do for me?” And the community we wanted to build was the exact opposite. It’s people that we want to have in that room, or people who want to go there and be able to support and give to others. So that’s kind of rule one.

Joe Fairless: Before you go to rule two, let me just make sure I understand it. You vet people to attend your meetup… So how do you vet someone? If there’s someone you don’t want in there, like you described, how do you vet them if you haven’t seen them at the meetup before?

Steve Arneson: We didn’t market the meetup the first 6-8 months. It was just word of mouth, and they had to go through a screen process. Joe, say you had a friend who wanted to come. You would introduce us and we would have a quick conversation about basic stuff like building a relationship, but also where are you at now and what do you want to accomplish from this. We don’t want it to be that type of community where it’s just a bunch of solicitors. We’ve seen that not work, and it doesn’t align with our mission.

So it was just a five-minute conversation. You can tell a lot from people’s demeanor, how they respond to questions… So that was how we executed on that.

Joe Fairless: Sure. But now do you still do that interview process?

Steve Arneson: We don’t now, and it’s really interesting, because I can pick out a couple different situations in my brain where somebody comes in — because we are marketing it actively now to grow it, and to get power/caliber speakers in, and impact more people here in Victoria… So when those people who are more on the selfish side and are just looking for business come in, they kind of stand out like a sore thumb… Or what’s the phrase where it’s like a thorn amongst roses kind of thing.

Joe Fairless: Yup.

Steve Arneson: And they don’t come back, because they don’t feel like they belong or fit into this community.

Joe Fairless: Okay, I get it. So  you’re intentional about who you brought in initially, and then as a result of being intentional about the initial people, it’s then built a foundation of the overall community vibe. Then people come in who don’t fit that vibe or the culture – they opt out of that.

Steve Arneson: Exactly.

Joe Fairless: Okay, cool. Thank you. Alright, that’s one.

Steve Arneson: That’s one. Rule number two is just provide as much value as humanly possible. We are very strict on our timing. Doors open at 6. At [6:30] we get kicked off with the presentations. Randy and I typically open up with a “Hey, how are you doing?” kind of thing, and it may be a quick overview of what you’ve missed over the last month. Then we jump into presentations until [8:15]. That’s kind of like a hard close. We tell people that it’s gonna be ending at [8:15] sharp, and if you wanna leave – great, no hard feelings. If you wanna stick around and continue networking, awesome. Maybe it’ll be more Q&A. But it’s really jamming a lot of content, or at least education, into that hour and a half, so that people who come feel like they’ve taken something away that’s tangible, that they can implement into their business or into their life right away. That along with it being a little entertaining just keeps the energy high, just keeps people engaged, and keeps people coming back.

Joe Fairless: With the online presence that you have with this meetup, what do you do online to promote it?

Steve Arneson: We have some targeted Facebook ads, Instagram as well… We’re pretty decent for Google search. But we have a community on Facebook that we’re pretty active in. We invite everybody who’s in Victoria or who knows about us to join our Facebook group, and within that you get the exact same thing – you get lots of content, lots of education, lots of updates, and then also just notifications on who our next speaker is gonna be, the date, the time, some tidbits, a bunch of notes with the last meetup etc.

So we wanna communicate with people, we wanna engage people, we wanna help people, and it’s a great space for people to come and ask questions. It’s really cool to watch us not even have to interact with those people, because the other members of the community are stepping up and supporting new people with new questions.

Joe Fairless: You’re a co-producer of The Victoria Real Estate Investment Expo… What is it and how many years have you been doing it?

Steve Arneson: We did it for two years, 2017 and 2018. It’s a very large event; the largest that Victoria has ever seen in this space. It was a kind of dual purpose. We had about 30-40 exhibitors both years, so for people who wanted to connect with tradespeople, or funds, and then we had two different stages as well at the venue. We had people who were interested in doing workshops, where it’s more hands-on… For example budgeting. We had a budgeting workshop. And then we had the other stage, which was the main stage; we were having our keynote speakers there educate people on trends in the marketplace, or strategies etc.

Joe Fairless: How many people did you have in year one?

Steve Arneson: Year one we had 900. Year two we had 600 or 650.

Joe Fairless: Interesting. How come the decrease?

Steve Arneson: Yeah, unfortunately we booked our date a year in advance after the first one went so well, and over that year, leading up to year two, we had three other very large events booked for the exact same weekend. Victoria is not a big town; there’s only 350,000 people here. We’re close to Vancouver, which is a million and a half or so… But when you have 3-4 very large events in a small town like Victoria, it just gets a little diluted.

Joe Fairless: What were you competing against?

Steve Arneson: I think there was Comic Con, and there was a women’s conference, and I can’t remember what the third one was.

Joe Fairless: Okay. Are you doing it this year, 2019?

Steve Arneson: We’ve shifted our model, so we’re not doing the same type of event, but we are going to continue with the education stuff. We’ve built our network to a really great space; all those exhibitors that were there… We have special connections with each and every one of them. So if people are interested in meeting them – we can facilitate that introduction. Then we’re really focusing on just doing more hands-on workshop-type events and live events, where we bring in speakers and trainers to help facilitate and host with us, to just kind of move the needle a little bit further in people’s investing careers or lives.

Joe Fairless: Got it. So instead of one large event, you’re doing a bunch of smaller events.

Steve Arneson: Exactly. Our next one is actually coming up in — today’s the 9th, and the next one comes up in two weekends from now, 18th and 19th.

Joe Fairless: Okay. And for someone who has a grand vision of doing  a big event like you had put on for two years, what are some watch-outs that you would give them? …other than the date thing.

Steve Arneson: Oh, don’t do it…

Joe Fairless: I can tell, yeah. Because you would be doing it again if it made sense… So please, elaborate.

Steve Arneson: It was one of the most time-consuming and stressful efforts I’ve gone through my entire life. Full transparency, we had over $100,000 invested into this one event, and in Victoria specifically, more so than a lot of other markets, but in events as a whole, you sell like 50% or more of your tickets the last week. So leading up to that last week, we’re sitting there going “Come on, where’s all of our ticket sales?” and stressing, because we’ve got $100,000 on the line here… It was a little nerve-wracking.

So make sure you have a good date, plan it well in advance. For real estate, I would say late spring is really good. [unintelligible [00:13:37].23] earlier spring people aren’t quite in the rhythm yet. The real estate cycle kind of picks up and is more popular in the later spring, before people go on vacations and stuff through the summer… So that’s critical timing. If you’re not gonna do it in the spring, do it in the fall, late September, October. And then just have a really good marketing plan in place, and then just cross your fingers and pray that people will start buying your tickets early.

Joe Fairless: [laughs] How much money did you lose on the second, year two?

Steve Arneson: I think we broke even on it. It was tight. And in our minds, it was the best marketing expense ever.

Joe Fairless: Sure.

Steve Arneson: Because we were at the time a very new business, but we had professionals from all across Canada come, that we got to build really great relationships with, because they got to see the integrity we have, the work ethics, the characteristics of who we are as people… And we got really put on the map from those two events. So it was basically a breakeven event which just gave us infinite return afterwards.

Joe Fairless: So if it’s a breakeven event that gives you infinite returns, why not put someone in place to do that work, have a couple interns, and then continue to have infinite returns on an annual event?

Steve Arneson: That’s definitely something we’re gonna lead up into, but we wanna take it in a little bit smaller, bite-sized pieces, hence the smaller workshops. So instead of just putting all of our eggs in one basket for the year, what we’re doing is we’re basically diversifying our risk, and going from Victoria, to up island, and then on the mainland into different markets, to create new audiences and fresh content.

Joe Fairless: Oh, okay. Start more guerilla efforts leading up to it, and then when you have some massive amount of people that you know will be confirmed attendees, because you’ve got so much exposure through all those little areas, all the surrounding communities… Then you could build back up to the larger event with more certainty.

Steve Arneson: Exactly.

Joe Fairless: Okay. Cool. Switching gears – you’ve got four development projects in the early stages… What are they?

Steve Arneson: We’ve got one basically at lock-up right now, which means we’ve got windows and doors, and a roof… It looks really good. It’s a townhouse complex of six units. And we have the lot directly beside that, where we’re gonna basically take the exact same plans, but rotate it 180 degrees and build the exact same thing. Another lot is a question mark right now, but it’s in the core downtown, in a growing city, growing market, just North of Victoria… And then the last one is really exciting, where it’s currently got a house with a suite on it. With our investor we bought it cash, so the place is covering itself really well right now. It cashflows, obviously, because we own it outright… So the investor is getting a really good cash-on-cash return. And we bought it rezoned…

We have the ability to build up to five stories on it, and it’s two blocks away from the core of downtown. Growing neighborhood. It looks out onto kind of a big community garden type thing, and it has a lot of upside for us… So being in the development space has been a goal and a dream of mine for a long time. I didn’t know if it was gonna be possible or not, but I’m really excited to complete our first one with our developer, and move on to bigger pieces.

Joe Fairless: How do you structure that with the developer, in terms of just ownership of the deal?

Steve Arneson: Our very first one, because it was completely new to us, we didn’t want to take on that mass amount of risk… Because I think it’s like a 1.5-1.8 million dollar build, and walking into the developing space there’s a lot of unknowns. So basically how we structured it with our developer was we found and facilitated the deal, and then we basically wholesaled it to them, and then we got a rev share at the back. So if we do really well on the sales, then we get a chunk of that, and the developer has the majority of that.

Going forward, we’re being more and more involved in each deal, to create more income for us as our company.

Joe Fairless: Nice. And for someone starting out and who has a similar opportunity, and they don’t have the development experience but they’ve found a deal and they’ve found a good developer they know locally, what type of structure in terms of revenue share would you recommend that they try to negotiate?

Steve Arneson: If you did a lot of the front-end work, especially if you went through a rezoning process… Rezoning is really difficult.

Joe Fairless: Oh, yeah.

Steve Arneson: I’m sure you know, Joe. If you’re going through that process, you want at least 15%, in my mind.

Joe Fairless: 15%?

Steve Arneson: Yup. And then we can kind of negotiate here and there for different pieces. We have the bonus that my business partner, Randy — he’s a journeyman electrician, so he’s gonna be a little bit more hands-on through the whole process… So that’s really exciting. And then I’m the data geek; I’m the guy that’s gonna do all the number crunching, build spreadsheets etc. and make sure that the economic factor makes sense.

Joe Fairless: What’s a deal that hasn’t gone according to plan?

Steve Arneson: [laughs] Not according to plan… I’ll rewind to my very first purchase, which was that live-in flip.

Joe Fairless: Yeah… The condo?

Steve Arneson: The condo, yes. So I bought it at 24, and it was best part of town, bottom of our market, which was 2012 here… And I knew that it hadn’t been renovated since late ’70s. It was the dream for me – walking in there, putting in some elbow grease, and resell when I’m ready to move. So as this business builds, and my time — I got less and less available for doing renovations, I hired a contractor to do the renovations for me, as I wanted to flip and sell.

Joe Fairless: Oh, and here’s the challenge… Contractors…

Steve Arneson: Here comes the challenge. The part that went unexpected was the guy that I hired, who I thought was going to be doing all the work, then outsourced all of the work to someone who was not nearly as experienced. You could tell the craftsmanship from the original guy and the guy actually did the work was not the same. That was just disappointing for me. I probably lost out on 20k, but I probably saved 10k or 15k, so I maybe only lost 5k out of the process