JF2419 - The Benefits of Looking for Opportunities Beyond Residential Real Estate with Dave Holman

JF2419: The Benefits Of Looking For Opportunities Beyond Residential Real Estate With Dave Holman

In college, Dave took a class on building an eco house. That’s when he fell in love with architecture, engineering, energy efficiency, and building in general.

Dave’s life took many unexpected turns. He spent several years in Bolivia learning the ins and outs of entrepreneurship. After that, he worked for a nonprofit organization that introduced him to fundraising. Over time, he partnered with his friends and family to start his real estate business. Now he’s a triple threat – a commercial broker, a syndicator, and an owner of a property management company.

Dave Holman  Real Estate Background:

  • Commercial broker, syndicator, and owner of a property management company
  • 9 years of real estate experience
  • Portfolio consists of 94 units across 14 buildings approximately valued at $11M
  • Based in Brunswick, ME
  • Say hi to him at: www.holmanhomes.com 
  • Best Ever Book: Investment Biker 

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Best Ever Tweet:

“A commercial broker might misprice a residential property just like a residential broker might misprice a commercial property  ” – Dave Holman.

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JF2405 Looking For Unique Transactions and Great Deals With Craig Coppola

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

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

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

Craig Coppola  Real Estate Background:

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

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Craig Coppola: I am. Let’s do it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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JF2401: Grow A High-Income Portfolio with Zach Haptonstall

JF2401: Grow A High-Income Portfolio with Zach Haptonstall

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

Zach Haptonstall Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

Ash Patel: Zach, what was that first deal?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: That’s a significant penalty.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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JF2380: Finding A Unique Approach For Each Market And Project With Moneeka Sawyer

Moneeka was aware of the real estate business opportunities since she was a child. Following the American Dream, her parents saved their hard-earned nickels and dimes to buy properties. She graduated college during the recession and started a real estate business of her own.

Moneeka used cash gifted at her wedding as a downpayment for her first property. From then on, her real estate business took an intuitive path. 27 years later, Moneeka’s portfolio value is over $12M. Being based in San Jose, California, she specializes in buying executive houses for great long-term renters, and she secures her renters before investing her money into a new property.

Moneeka Sawyer  Real Estate Background:

  • Full time Podcast host and Investor
  • 27 years of investing experience
  • Portfolio consist of 5 executive homes, also started a ground up construction project
  • Current portfolio value is about $12M
  • Based in San Jose, CA
  • Say hi to her at: www.blissfulinvestor.com 
  • Best Ever Book: The One Thing – Gary Keller

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“Everybody has stress and money issues. Do you want poor people money issues, or rich people money issues?” – Moneeka Sawyer.


TRANSCRIPTION

Ash Patel: Hello Best Ever listeners. This is Ash Patel, and today I am speaking with Moneeka Sawyer from San Jose, California. Moneeka, how are you?

Moneeka Sawyer: I am so great. Thanks for having me on the show, Ash. Nice to be here.

Ash Patel: Good. So you’re a full-time podcast host and investor with 27 years of experience in a $12 million portfolio.

Moneeka Sawyer: Correct.

Ash Patel: I’ve got to hear the story. Tell me how you got started.

Moneeka Sawyer: I actually got started in real estate kicking and screaming. My parents actually came to this country as immigrants with $200 in their pocket and a dream to make a better life. They had heard that the golden ticket to wealth was to buy real estate. So once they had me, they’ve been here for a couple of years, they started saving all of their nickels and dimes… Because now they’ve got a child and their lives were filled with love and hope and excitement. So they started saving their nickels and dimes and bought their very first rental property. So that’s how they got started. Now fast forward 18 years later, and they paid for my college education through real estate. They did the same for both of my sisters, they paid for our weddings… Real estate really provided a huge amount of flexibility and choice for my parents and freedom. So it did a really good thing for them.

But I also saw with my dad, the level of stress that he went through, the toilets, the tenants, the mortgages, all of that stuff. So at a very young age, I decided no way, I’m not doing that, not worth it. Money is not worth that level of stress. Then I graduated from college, and it was a recession. We couldn’t get a job and I was starting to freak out. I had a conversation with my dad one evening that completely changed my life. I was telling him that I was so stressed out, and how was I going to make it on my own? I wasn’t sure how to do this adult thing. What was I going to do about money? He said to me over the dinner table, he said, “You know, Moneeka, everybody has stress and everybody has money issues. Do you want poor people’s money issues, or do you want rich people money issues?” My first thought was “Rich people have money issues?” [laughter] But then I decided, yes, I was going to do the rich people money issue. So kind of kicking and screaming, going against my will I decided, “Okay, I’m going to try this whole real estate thing.” So that’s how the whole thing started.

Ash Patel: So this was right out of college…

Moneeka Sawyer: Well, it was a couple of years after college, after I had been struggling really hard.

Ash Patel: And did you start out on your own? Or did you take over some of your parent’s properties?

Moneeka Sawyer: Good question. So actually, what I did was my husband and I got engaged. He wasn’t my husband… Anyway, my boyfriend and I got engaged, and for our wedding, we asked everybody for cash. So at the wedding and that year we got about $10,000 in cash. So we put down, I think it worked out to 5% on our very first primary residence. Then from there – this is kind of an intuitive path. From there, once that appreciated, we took equity out of that house, and then I bought another primary residence and rented this one out. Then I did that again in another four years. Then we hit 2008 and 2009. Out of that equity line, I was able to now buy five houses, and I also bought a piece of land. So that’s kind of how it all grew. I just started with gift money.

Ash Patel: Is your husband in this business with you?

Moneeka Sawyer: No, he’s a software programmer. He knows nothing about it.

Ash Patel: So you dove in, and I’m assuming you caught the real estate bug, and at some point fell in love with this.

Moneeka Sawyer: Yes, absolutely. Yeah.

Ash Patel: Okay. So what are you doing now?

Moneeka Sawyer: I’m kind of doing the same thing. My whole approach is to keep it as simple, and easy, and blissful as possible. I want it to be just a kind of inflow. So I do executive homes. I’ve started with our starter home and then grew it and grew it. So now all the properties that we have are executive homes.

What I love about that are the tenants. I kind of did this the backward way. I decided who I wanted to do business with, which – your tenants are your business partners. So I decided I wanted to be in business with people that didn’t need me, they just wanted a nice home. So I decided on executives, bought properties that they would want to live in, then just kind of turned it over to them. I did a little bit of the training, but they handle everything. I never get the phone calls for the toilets, or whatever it is that might go wrong, the termites. I don’t get calls because rent isn’t going to be on time. Everything just kind of is inflow. So that’s what I’m doing now.

Ash Patel: So executive homes – is that just higher-end homes?

Moneeka Sawyer: That’s just higher-end homes.

Ash Patel: And is it short-term renters or longer-term rentals?

Moneeka Sawyer: Longer-term. So the smallest amount of time I’ve had an executive there is two years. Most of them surprisingly lived there 10 years or more, and I don’t understand it. Why were they not buying their houses? But most of them are coming from Japan or other parts of the country, or whatever, they decide to stay here, they love the job, and then they just feel like they can’t get into the California market.

Ash Patel: How often does the individual pay the rent versus their corporation?

Moneeka Sawyer: It’s always the individual.

Ash Patel: Okay, so you don’t have any company contracts? It’s always just individuals. How do you market for that audience?

Moneeka Sawyer: I don’t. What happens is… This is a really cool thing – with an executive, they have executive parties, which is why they want to have a nice house. When one of the executives is moving, they start to tell all of their friends that they’re going to be moving. The wives have been at the house a lot. Wives make decisions on houses, that’s what everybody says.

Ash Patel: Absolutely.

Moneeka Sawyer: And one person starts thinking about moving, and the other wives think about “Maybe I could move then.” So I haven’t actually had to market a property in years.

Ash Patel: So 27 years and $12 million. What does your portfolio consist of today, in addition to the executive homes?

Moneeka Sawyer: Just the executive homes mostly. I have six executive homes. Actually, I have a property in Belize. I’ve got a couple of properties, small-time properties that I’m carrying notes on. I’m in a couple of syndications and I’m also doing a construction project, which itself is worth about five and a half million dollars.

Ash Patel: Tell me more about that, the construction project.

Moneeka Sawyer: Yeah, that’s actually new. So when you talk about the $12 million, that does not include the construction project, just so you know. This is kind of a new thing. But basically, we bought a piece of land that was in a redevelopment area in Los Altos, California. Got it for a song, because the zoning wasn’t right. Nine years later, we figured out the zoning. We just started construction about two months ago, so we’re really excited. We just poured concrete last week.

Ash Patel: Amazing. So did you have to fight the entire nine-year time period?

Moneeka Sawyer: We fought. We fought and fought. But it’s not fighting constantly. Once a month, we’d go to a council meeting. In between, we have a couple of conversations with our engineer, or architect, or whatever. So it wasn’t nine years of fighting. It took nine years to kind of get through the whole process.

We did not have to rezone, which was great. But the council, because they’re trying to figure out exactly what they wanted to do with that area, kept changing their minds. I will admit, it was an insanely frustrating experience. Had we known it was going to take us nine years, we would not have done that. But on the other side of it, I’m really glad we did. My heart is really about making communities better.

Ash Patel: Awesome.

Moneeka Sawyer: So even with my executive homes, I buy distressed homes in good areas and fix them. So this is another one of these things – we’re going to be building executive homes, we’re going to be upgrading an area… I love that.

Ash Patel: Good. Were there any tactics that you use to coerce that city council?

Moneeka Sawyer: I was a woman on the team and it was really interesting… And for you ladies listening, I really want you to hear this… The council, and the planning, and engineering – all of these departments are used to dealing with construction workers, contractors, and builders, who are mostly men. Men have a different way of approaching things. They tend to be a little bit more aggressive, they tend to be a little bit more to the point, they tend to get frustrated when they hear “no” 10,000 times. My approach was much softer. I went into every single meeting and I started the meeting just reminding everybody, “We’re on the same team, we both want to upgrade that area. We just need to find a place where we can meet.” That was the approach every single time. When I would go into the council meetings and stand up in front of the council, I will tell them, “I’m trying to upgrade the area. We’re not trying to make every single nickel we can out of this. Tell us what you need.” They would complain about something and I would say “I’m going to make it beautiful!” So the way that I talked about it, I think was a breath of fresh air from what they normally hear. Do you know what I mean?

Ash Patel: Good for you. I don’t know that I could have been patient for that long.

Moneeka Sawyer: I don’t know that I could have either if I hadn’t been prepared.

Ash Patel: Good for you. So with all of your years of experience, you love executive homes. What are your challenges with those types of homes?

Moneeka Sawyer: I only carry six properties. So if I end up with a vacancy, it’s a big deal. Each place gets a rent of about $6,000. So that disappears. When you have more properties, you have a lot more diversification, vacancies aren’t a big deal. I will say in the last five years, I’ve only had one month of vacancy, but that one month was not comfortable. You’re kind of stressed out. But my systems are now so easy and so streamlined that I don’t worry about it too much. But I think that would be the thing, when I have a vacancy. Or in 2008 when I’ve lost values on all my properties. I lost 50% of the value. That was millions of dollars. So that was stressful.

Ash Patel: Right now you’re fully rented. Are you doing anything to continue to get the word out about your executive homes? Maybe try to line up future tenants? Or will you worry about that only when the time comes?

Moneeka Sawyer: I usually only worry about it when the time comes. People know that I do a show. They know on Facebook what I’m up to, so people know, so they’ve got their eyes on me anyway. Usually, I get about two to three months’ notice when someone’s going to leave, because when they’re moving to something else big, they have to prep. Their friends are hearing about it that early. Often I have it rented two weeks before they even leave.

Ash Patel: Awesome. Would you recommend other investors go into those higher-end executive homes?

Moneeka Sawyer: It really depends. It’s an expensive market to get into, and I certainly did not start there. I started on the smaller properties and worked my way up. If you can work your way up, it’s like a dream. The only time I hear from my tenants is if there’s a big problem like a fence blew down in a storm recently, or for Christmas and my birthday. It’s really, really a lovely way to run a business.

Ash Patel: Great. So tell me about your podcasting.

Moneeka Sawyer: Yeah. The podcast is called Real Estate Investing for Women. We talk about real estate strategy, obviously, but my whole approach is about bliss. So I want people to have a holistic approach to business and to real estate so that they can live a really joyful, blissful, simple life. I don’t want all the stress of real estate. That’s how I started. So on the show, that’s what we talk about. We talk about mindset, we talk about heart set, we talk about strategies, we talk about money smarts, so all the different ways that you can invest, get money, like  self-directed IRAs. There are lots of different ways that we get private money, all of that stuff.

So we talked about all of those things, but definitely from a woman’s perspective because like I said, we bring something special to the market and I think women don’t understand that we’re so powerful. I will tell you that Los Altos had decided at one point to turn our property into a parking lot. Not a built-up parking lot, a flat parking lot. We would have lost a million dollars. It was because of my skill of communication that it turned around. Us women bring amazing things to the market. I think my show really helps to amplify our strengths.

Ash Patel: So when you started out with the podcast, was that your intention? …to get women into real estate, get them into investing, get their finances up to par? What are your biggest accomplishments in doing that?

Moneeka Sawyer: Yes, that was the thing, is I really want to empower women to have the freedom of choice, and financial freedom gives us that freedom of choice. So what were my biggest accomplishments?

Ash Patel: With your podcast and maybe some of your guests.

Moneeka Sawyer: Yeah. So some of my guests. I’ve talked to Hal Elrod, I’ve talked to Leeza Gibbons, I’ve spoken to Dr. Joe Vitale, I’ve spoken to many of the big names in real estate. So that’s been amazing. One of the questions you sent me was what are my Best Ever resources… It’s my guests, they’re amazing. I’m talking to these genius people every single day; they’re so much better at what they’re doing than I am and so they lift me up. So that’s one of the biggest things, is that I just have become such a better businesswoman, and it has increased my own wealth through the resources that they offer. So that’s one thing.

But the other thing is, every single day, I get either a new review, an email, or something on Facebook or whatever, saying how I’ve changed someone’s life. Someone started in real estate and now look at what they are. I had one woman that said, “I’ve been looking at buying real estate for two years, I started listening to your podcast, and now I have 10 properties.” So that is the thing that I love the most about it. That’s what keeps me going.

Ash Patel: Crazy question – if you had to pick one, the real estate investing or the podcast, which would you choose? You can only have one.

Moneeka Sawyer: Oh, so hard. I would have to pick real estate investing. And I’ll just say this as to why – I’m on my retirement track. The honest truth is that David and I could retire right now if we wanted to. I want to have a little bit more of a cushion because we have aging parents and some other things that I wanted to get taken care of. So we’re kind of looking at retiring in two to five years. The podcast is a hobby that gives me a lot of meaning, but the real estate is what’s going to give us the life that we want once we retire. I can’t really walk away from that. Yeah.

Ash Patel: So are you continuing to look for additional executive homes?

Moneeka Sawyer: Absolutely. I’m actually looking for a couple more executive homes and also one more building project. I’ve got my eyeballs on a piece of property that I’m in love with. Never fall in love with a property, ladies, or anybody. But I’m going to try on this one and we’ll see what happens. But I am looking for another building project.

Ash Patel: So what is your next executive home? What are you looking for and how are you going about finding it?

Moneeka Sawyer: I did the traditional route. This is another thing that I’m sure nobody else says on your show, but I use the MLS and Realtor, and I tell them areas that I’m looking at. We have some really big growth areas in the San Jose area right now. One of our malls is going from sort of mid-tier to high-tier and then we have a Google campus coming in. Now, we don’t know what’s actually going to happen on the other side of COVID, but we have a big Google campus stated to go in there. I’m looking in those areas for homes for the kinds of people that would be living around the Google campus or in this sort of higher-end area. It’s a little bit up and coming.

Ash Patel: An executive home is it just so much more expensive than the average home in the area? Or is it one of many homes in a high-end neighborhood?

Moneeka Sawyer: It’s usually one of many homes in a high-end neighborhood. I am never the best home in a neighborhood, ever. I like to be mid-tier for the neighborhood.

Ash Patel: And what are your typical cash on cash returns for these executive homes?

Moneeka Sawyer: That’s a good technical question that I don’t actually know.

Let’s say this – I have invested over 25 years, about $250,000 in these homes. I bring in about $5,000 a month on those homes. Now the equity is significantly higher. This is a thing that when you talk about retirement, you talk about how we have huge amounts of equity in California real estate – how are we going to now turn that into cash flow? That’s the project for the next two to five years. I don’t actually know how to do that yet, because I’ve never done it. So that’s the next piece.

Ash Patel: Passive investing.

Moneeka Sawyer: That’s right. Well, it’s always been passive investing. But now we’re going to move into cash-flowing passive investing, as opposed to equity growth.

Ash Patel: Awesome. Moneeka, what’s your Best Ever real estate investing advice?

Moneeka Sawyer: Be persistent. Don’t give up. The market will throw you some zingers, things get tough, sometimes you wonder what the heck you’re doing… But stay persistent and stay the course.

Ash Patel: And you’ve proven that with your nine-year fight with the city council.

Moneeka Sawyer: That’s right.

Ash Patel: Awesome. Are you ready for the Best Ever lightning round?

Moneeka Sawyer: Sure.

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

Break: [00:20:02][00:20:24]

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

Moneeka Sawyer: I would say my favorite is The One Thing by Gary Keller. It really keeps me focused.

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

Moneeka Sawyer: I actually am a founding member of the She Angels Foundation. We basically fund nonprofits run by women. I’m heavily involved in them. I absolutely love it.

Ash Patel: Awesome. So a VC firm for female-led organizations.

Moneeka Sawyer: That’s exactly right. We’ve got two avenues. One is nonprofit and one is profit. I think it’s sheangels.com or something.

Ash Patel: Wonderful.

Moneeka Sawyer: I should know that. [laughs]

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

Moneeka Sawyer: Go to blissfulinvestor.com.

Ash Patel: Got it. Monica, what an incredible podcast today. It’s great for you to share your story about your parents coming to this country as immigrants. You had no desire to go into real estate, you went in kicking and screaming, and you’ve done amazing things with your podcast, your foundation, your success in real estate… Thank you for sharing your experience with the executive homes. What a great podcast. Thank you so much.

Moneeka Sawyer: Thank you so much for having me, Ash. This was a pleasure.

Ash Patel: Have a great day.

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JF2379: How To Expand Your Market Reach By Going Virtual With Lauren Hardy

Lauren started working in real estate right out of college. Her journey began in a corporate environment, and she was mostly dealing with commercial properties. Once she had a child, Lauren decided to leave her job and work for herself. At the time, her brother was flipping houses, and he offered her to join the business. In 2016, she started looking for properties outside of the competitive southern California market in order to expand her business. Now, Lauren has a coaching program for those who’d like to go virtual and reach markets all over the country regardless of where they live.

Lauren Hardy Real Estate Background:

  • Real estate investor, coach, and host of wholesaling Inc. Podcast
  • Over 10 years of real estate experience
  • Has invested in 100s of properties, including developing spec houses, and flips
  • Based in Orange, CA
  • Say hi to her at: https://www.wholesalinginc.com/virtual/

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Flipping the house opened up a lot of ways that you could get ripped off by contractors” – Lauren Hardy.


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. This is Ash Patel, and today I’m speaking with Lauren Hardy from Orange County, California. She’s a real estate investor, a coach, a podcast host and has 10 years of real estate experience, where she has invested in hundreds of properties and developed spec houses.

Lauren, how are you today?

Lauren Hardy: Hey, I’m good. How are you?

Ash Patel: Good. You’ve got a crazy amount of experience. I want to hear it all. Tell me your background, how did you get started with real estate?

Lauren Hardy: Well, I got started right out of college. I started working in more of the corporate real estate space in commercial. I graduated college the day we went into a recession, so it was an interesting time to be in commercial real estate, because it was really getting hit. So that’s where I got my start.

When I was working though at the corporate world, I had my first kid, and I learned very quickly that working corporate life and having a child is very, very difficult… So it became my mission to become self-employed any way I possibly could. I really didn’t care what I was going to do. And it just so happened that my brother was flipping houses at the time. I think he had flipped maybe three or four houses in Southern California. So he just made the suggestion, “Why don’t you look into flipping houses? You probably only have to flip a couple of these things a year and you’d make the same amount of money you’re making in your corporate job.” So that’s where it all began. It really evolved in the last eight, nine years. It’s evolved to a whole different thing, but that’s where I got my start.

Ash Patel: So did you go to college for commercial real estate?

Lauren Hardy: Yes, sort of. I was a finance major and I did take real estate courses within that major. I went to a college that offered it; not all the colleges do. So I did take some real estate courses. But yeah, I knew I was going to get into real estate.

Ash Patel: And you took your brother’s advice and started flipping houses during a recession?

Lauren Hardy:  Yes. Well, let’s speed up a little bit. So I graduated during the recession. When I started working corporate real estate, that was mainly in the recession, when we were really at the bottom. I didn’t start flipping homes until we started coming back up around 2012.

Ash Patel: Okay, so the timing was perfect for flipping homes.

Lauren Hardy: It was perfect.

Ash Patel: Okay, and how did flipping homes evolve into your next step? And what was that next step?

Lauren Hardy: So the first goal I had was I wanted to quit my full-time job. So I started flipping houses on the side, while I was working a full-time corporate job. The goal was flip enough houses, make enough money to save up a year salary so I can quit. It took me a year, but I did it. And after then, it was definitely difficult. I thought it would be easier than it was. I had a new baby. So I had my first daughter already, she’s now two and a half, and then I had had a baby during this time.

So my whole thought process was, “I’m going to stay home with my kids, and I’m going to flip houses. I’m totally going to be able to do this. It’s going to be awesome.”

Well, it was not. It was very hard to be at home with two little babies and also manage the direct-to-seller marketing that I was doing. I was getting these deals via direct-to-seller marketing, so it was a lot of direct mail, talking to sellers, making offers every day… So I had thought I could juggle all that while the kids were taking naps, but it turns out that kids don’t take naps just like we take them… So it was really hard. But it really did evolve. I started out with just sort of flipping a few homes here and there. Slowly, I started pushing my kids into daycare, as I realized it was getting a little bit unmanageable.

But the real turn in my business came around 2016. By the time 2016 hit, we were doing pretty well in our real estate market in California, and there was less and less distressed inventory. So to put it into perspective, when we were in a recessionary time, like 2009, 2010, 2011, you could go to the courthouse steps and pretty much pick up a distressed property if you really wanted to; if you had the cash and the means to do it, you could just stand there, raise your hand and pick one up. By the time 2016 hit, it was very competitive at the courthouse steps, there wasn’t very many distressed homes, and there was a lot of hungry investors. So it became really difficult to buy houses that had enough of a margin where I could flip it for a profit here in Southern California, where I lived.

So I had to make something work. I had two options – I could either quit and get a job again, which felt like death, or I could figure out how to make this business work in another market. Because I noticed I had friends in other areas, other territories that were not having the same issues that I was having. So I made that choice to change and to go virtual. And my first market I chose was Nashville, Tennessee. And the first projects I worked on were spec houses, so I was buying lots and building homes ground up.

Ash Patel: Wait a minute, hold on… You could have just bought houses, turnkey, but you decided, in Nashville, to build spec houses. Help me understand that decision process.

Lauren Hardy: Okay, so that—

Ash Patel: Because, you know, there’s an easier route with real estate – just buy ready-made homes.

Lauren Hardy: Okay, so that was the name of the game at the time. That was the way to make money in Nashville. Nashville was going through a development boom. So the way it all came about – and I’m telling you, it was the most random story. I just happened to be vacationing in Nashville, and I’d had this idea that I need to go to another market, because California is getting really hard. So I thought, “I’m going to drive around and look at some houses that appear to have been flipped.”

I pulled a list off of ListSource and I pulled every home that was purchased by investors, like, LLC corporate-owned in the last month. And I got those addresses down, got my rental car and I started driving around. I started noticing something, I was like, “Wait, this neighborhood is strange.” There’s these old homes, but then there’s homes being knocked down where it said there was a purchase, but now there’s no house… And they were in all various stages of construction on these streets, all over the place. And I, coming from Southern California, had never seen anything like this before. It was really weird to see an old home built in 1920 and then right next to it, you would have two tall skinny houses right next to it, brand new.

So I kept driving, and I found a construction crew outside. And I found a guy that appear to look like the project manager, so I just pulled over and said, “Hey, what is going on here?” And he’s like, “Do you not know that Nashville is number one real estate market right now and this is the hottest neighborhood? So developers are just hungry for lots and they’re buying lots and we’re building homes, as many as we can fit on each lot.” So they were maximizing the value of every lot that they could buy.

Ash Patel: So to me, that seems like it’s more competitive than Southern California. How did you score a deal in a super hot market?

Lauren Hardy: Okay. At the time, I didn’t know that, because I thought, “How can anything be more competitive than California?” And the house prices were still, to be fair — these brand new homes were going $350,000. So California, at that time, on average house price was maybe $650,000.

Ash Patel: Okay.

Lauren Hardy: So there was still a big discrepancy there. So I’m telling you, it all started on the side of the road. And I’m talking to this guy, I’m like, “What are you, a general contractor?” He’s like, “Yeah, I’m building this house for this investor, but I’m an investor, too. I’ve got projects in the same neighborhood. Let me show you around.”

So I follow him. I didn’t get into his car, because that’s creepy. But I’ve followed him around and he took me to four job sites. And I said, “Okay, review the numbers with me. You bought the lot for what? How much did it cost to build how many homes, and you built four homes on this lot?” I was just doing the math and I  wrote it down on my piece of paper. And I was like, “Oh, my gosh, these returns are crazy good.”

And then the key question I asked was, “How are you getting these deals?” He’s like, “Oh, there’s this guy that does this secret marketing stuff and he gets these things under contract, and then this other guy tells me about them, and then we just buy it from that guy.” So that was literally how he described it. And I was like, “Oh, like a wholesaler.”

So then that told me, okay, there’s still an opportunity here, because he’s able to buy them from wholesalers and he’s not making it sound like it’s that difficult. So I sized the guy up. I said, “Okay, if he could do it, so can I.” Right?

Ash Patel: Awesome. Yeah.

Lauren Hardy: So I looked at him and I said, “Hey, Phil, find me some lots. And I’ve got money.” And that was it. I had California money, I had a ton of private money investors.

Ash Patel: Yeah.

Lauren Hardy: So he found me some lots, just like that, from a wholesaler. And then he built them for me. And it was so much easier than, say, flipping a house from a distance, because you have no ways that contractors can lie to you and say, “Oh, we didn’t see that in our first inspection.” The first bid is the first bid. There shouldn’t be very many change orders after that when you’re doing ground up, unless you didn’t accurately price out the fixtures that you were going after. Maybe you decided to go higher-end and you start changing your mind, but I [unintelligible [00:12:55]

Ash Patel: Right.

Lauren Hardy: He built enough of these things where I said, “Just make it look like those”, and it was actually ridiculously easy.

Ash Patel: So did you get your friends or colleagues or acquaintances to be joint ventures on these deals? Or did you syndicate it? Or did you just give them a fair return on the deals?

Lauren Hardy: I just gave them the returns. So I got construction loans, because in Nashville, they were giving out crazy good construction loans; very low-interest rate loans. So I got a construction loan for the bulk of it. And then any remainder, I was just getting my private money lenders — what I would do is, I would tie their funds in with a deed or trust, and I would offer them hard money rates. Anywhere from maybe 10% annualized return.

Ash Patel: Got it.

Lauren Hardy: So it worked.

Ash Patel: And how many years did you continue developing in Nashville? Or are you still doing it?

Lauren Hardy: Not doing it anymore. This business – it takes you for a lot of turns. So this sweet spot that I got in was perfect. It was great. But then, like anything, the news got out that Nashville was exploding, and every Tom, Dick and Harry started building in Nashville; even people that had zero experience in real estate, if they owned a lot, they’d just build some homes. They would figure it out how to do it and did it. So it was like the hot thing to do. I got in, made some good money.

But what that led me to do was wholesale other lots to other people. So while we were developing these homes, I started doing the direct-to-seller marketing and wholesaled lots, other houses, I worked outside of Nashville, the other areas… There were hedge funds buying there too, so there was just a lot of business to be done at that time. So I worked it for a couple years. But it then started feeling very similar to California vibes. And I was thinking, “Okay, it’s starting to feel like I just went from one California to another California, except for now this place is really far.”

Ash Patel: Yeah, so what was appealing about wholesaling? Why did you go that route?

Lauren Hardy: Okay, so I tried wholesaling, I tried flipping and I tried developing. So we’ve got the three exit strategies. Developing, that was actually pretty easy. Wholesaling, pretty easy. Flipping the house – it opened up a lot of ways that you could get ripped off by contractors. So you’re buying an old home, you’re not even there to inspect it. So you have your contractor go there, he could lie to you about what it needs right then and there, or he could undercut to get the job, and say, “Oh, no, I could do this for $50,000,” whatever. You go, you buy the deal, because your contractor verified that price.  The next thing you know, once you start construction, the contractor starts finding things in the walls and finding things with the foundation and the plumbing. And that just kept happening to me when I kept flipping homes over there. After a while, I just got so over it and I said, “Okay, I’m either doing ground up or I’m wholesaling these things and that’s it. I don’t want to flip another house.”

Ash Patel: And do you wholesale in California, or everywhere?

Lauren Hardy: Now, I wouldn’t say everywhere, but I am in some key markets in the Midwest and in the South. And right now, I’m not very focused on California, just because of where we are in the market. I’m getting better returns on my marketing dollars spent in other markets. But at this time, yeah, I was wholesaling in California as well, wholesaling in Nashville, and then I started trying out different markets.

Ash Patel: So how does somebody go about wholesaling 2,000 miles away from where you live? How do you make that work?

Lauren Hardy: You know, it’s not that hard. A lot of people have this limiting, belief like, “Oh, man, that must be impossible; that must be so difficult, because don’t the sellers want to meet you in person before they sign a contract?” And I thought that as well. But I was fortunate when I was doing business in California to have the experience that I did, which was, I was talking to sellers that owned properties all the way in LA, and I lived in Orange County.

So LA, if you know – I don’t know if you’ve ever visited, but it could be two hours in traffic to get to that seller’s home, because traffic is so bad on the 405 freeway. So I got to a point where I wouldn’t really meet the seller or agree to meet with the seller unless they gave me their word that they were going to accept my offer the day I met them. And I would let them know, “I’m going to have to drive in traffic, it’s going to be two hours, so I really want to make sure you’re firm on this price, and if I come with a contract, you’re going to sign this.”

So it started with that. I started honing in on my negotiation skills and learning how to take control of the conversation to where the seller just goes, “Oh, well, this is just how she does it.” And they don’t even question it. So years of doing that, I really refined that script and now I can train my team on that script. I literally have the script down of how you’re going to take control and tell them how things go. You just tell them how it goes. “This is how we work. I don’t get out of my desk until we have an agreement signed.” So it turned in from ‘I have your word’ to now ‘I don’t leave until you sign the agreement.’

Ash Patel: So I grew up in New Jersey, you’re from California, do you think that being on the coast, with that coastal mentality helps you deal with people in the Midwest a little easier?

Lauren Hardy: People in the Midwest are way nicer than people California.

Ash Patel: Yeah.

Lauren Hardy: If you want to have a bad day, go send some direct-to-seller marketing to a California seller or go start cold calling on a California list and you will want to kill yourself by the end of the day. They are mean. We always joke around within my company, my team, like anytime somebody new comes in, “At least you never had to talk to California sellers.” They’re so I mean.

So there are some competitive advantages that I noticed, especially in the South, too. California – we’re faster; we answer the phone. If a seller leaves us a message, we call them back within an hour or a couple hours. We wouldn’t let four days go by. But our competition – slower pace, slower-paced culture in the Midwest and in the South. So our competition will take few days to call sellers back, but we already locked up the contract by that.

Ash Patel: So you’ve got the edge?

Lauren Hardy: We have the edge.

Ash Patel: Awesome. So you mentioned the team – tell me what systems you have in place to help you with this wholesaling?

Lauren Hardy: Oh, lots of them. So right now me, personally, I’m not very active working in my wholesaling company or in my investment company. I actually have a coaching program and I host a podcast, so I’m pretty split. So I have some key implementers on my team that really help me out. I’ve gotten really lucky using virtual assistants as well. So I can touch on that, if you’d like to talk about—

Ash Patel: I’d love to hear about that.

Lauren Hardy: —VAs for life. My VA game is strong.

Ash Patel: I want to hear everything about that.

Lauren Hardy: Okay, so I do have an implementer. He’s the guy that’s worked with me for six years. And he’s my right-hand man; I think of him like family. He knows everything about the business. So he really has taken place of myself in my company. So I’ve been able to know that the business is still running and making money with him watching over it and I can work on my coaching platform and hosting the podcast and everything. So I’m very, very lucky on that. My investment company – I maybe work five hours a week dedicated to that company.

So I have virtual assistants that do a lot of different things for me. I have some that are based in the Philippines, and they do everything from checking my email and just flagging that ‘these are the things you need to see’, and that’s it, and letting go of everything else, deleting everything else, or answering the questions if they know the answers.

So for our marketing, we do a lot of cold calling and a lot of text message blasting, so she sets up all the campaigns in there and all the phone numbers stuff, and she checks the voicemails… We have all the voicemails get dumped in one voicemail box, from every single campaign we do, so she’s checking the voicemails and making sure that they get called back by one of our sales reps… So she’s doing all sorts of things behind the scenes, backend stuff that I don’t even know how to do anymore. If you said, “How do you load a campaign in Mojo Dialer?” My eyes would glaze over, I wouldn’t know what to tell you. I’d say, “You ask my virtual assistant how do you do it.” So we have a lot of support with VAs.

I also have VAs that – they’re Mexico-based, but they did live in the United States at one point. So they have very good English and understand our culture very well, and they’re doing a lot of the cold calling and the pre-qualifying with the seller. So kind of like the frontend acquisition, or some people call that role like a lead manager.

Ash Patel: Okay.

Lauren Hardy: It depends on how you want to slice and dice it. I actually now came up with the term sales rep. So I call them sales reps. So I work with them, and then I do have a sales rep that’s US-based here; I have two girls here. So I am trying to lean more into the virtual stuff, for obvious reasons.

Ash Patel: So you have an incredibly well-oiled machine… Lauren, what were some of the growing pains or the pain points that got you here? Because you didn’t think about doing the VAs early in your wholesaling. Was there a lot of pain that you went through to get to this point where you offloaded these tasks? Or were you very smart about it in the beginning and knew that you’re going to need help and brought people in?

Lauren Hardy: Honestly, it’s such an organic process and evolution, really. I would not say I was very smart. I’m not smarter than anybody. I definitely had a lot of growing pains. In fact, I still have growing pains. It’s never perfect. I’ve noticed with a sales team, a company that is based primarily with sales representatives, outbound sales in particular, even inbound – you’re managing people. And managing people is very hard, because there’s a lot of variables. And they’re things that they can do to manipulate systems, to make it look like they’re working when they’re not, and then you find that you’re playing investigator to figure out what they’re doing and how they did it and why you’re not seeing the results that you should be… So it’s difficult. I don’t want to make it sound like I have it all put together and that it’s easy, because this is my Achilles heel, managing the sales staff.

Ash Patel: So that’s your bottleneck right now?

Lauren Hardy: That’s the bottleneck. Right.

Ash Patel: So Lauren, you mentioned you had an integrator that’s your right-hand person. Out of curiosity, did you read the book Rocket Fuel?

Lauren Hardy: No, but I heard the term integrator from someone else that read Rocket Fuel.

Ash Patel: Yeah. So the book talks about you being the visionary, and the visionary cannot be successful without an implementer or an integrator. I’d love to hear about this person; what they do for you, how you came about hiring for that position…

Lauren Hardy: Okay, I hate the term, but I’m going to say itl it’s going to make me barf… I hate “serial entrepreneur”.

Ash Patel: Yep.

Lauren Hardy: I hate that term. You’ll never hear me saying that. But I need it just for the sake of this podcast – I have multiple businesses now. It wasn’t always like this. Two years ago, I only have my investment company. We now have a coaching program, I’m launching some software companies, so I’m now a serial entrepreneur. I hate that.

So the growing pain where I stand right now is I need multiple integrators… So I’ve found the integrator for that sales focus business. Like, real estate investing, wholesaling, flipping – it really is sales and marketing. It’s not this HGTV life that is portrayed in TV, it’s sales and marketing, that is it. So I’ve found an integrator who is so thick-skinned in sales, it blows me away. He is so emotionless when it comes to rejection… He does not care.

Ash Patel: That’s a talent. That is a talent.

Lauren Hardy: It is a talent. It does not ruffle his feathers at all. He can ask sellers for a price reduction, like it’s not a big deal. He doesn’t get embarrassed. He can lowball a seller, it doesn’t give him that feeling in his stomach that still gives me. So I found the perfect integrator personality for the sales company. Where I am today is now I’m working on integrators for all the different companies. My social media – I’ve found a creative; she’s creative, but she’s also very good at figuring out Instagram, what’s the social platform that I need to be on, what’s the trendy thing that I need to be doing right now and dropping videos on right now… I’ve found that girl integrating that side of things. So she is – I call her my creative director for the coaching program and the podcast and everything. So I think you can have multiple integrators. You’re not going to just find this one person that can do, for the serial entrepreneur, the multiple different businesses. I don’t know if you’re going to find that one person. If you know them, please let me know. But—

Ash Patel: That’s a great point, because I always assumed it’s the right-hand man or woman would be one person. But having multiple is even better. That’s a great perspective.

Lauren Hardy: And you know what someone recommended to me actually a week ago – because I actually reached out for some help, because I was going through growing pains. I was going, “Okay, I’ve got Hailey,” she’s the integrator for social media coaching, podcast, that side of things. I’ve got [unintelligible [00:26:47].21], who’s with the investment company… There needs to be someone managing them.

Ash Patel: A VP of Ops.

Lauren Hardy: A VP of Ops, right?

Ash Patel: Yeah.

Lauren Hardy: So I’m thinking like, “Gosh, this must be a very expensive person that I’m going to have to pay something. This is going to be someone that I have to pay six figures to.” So I reached out to someone that I know, that has this sort of person in mind, I reached out to that girl, I got in contact with her, and I said, “Tell me everything you do for him. What do you do? And let me share with you my issues right now. These are my big rocks, help me.” And she’s like, “Oh, you need an operations manager.” Oh, that’s what they’re called. Okay. Operations Manager. What does an operations manager cost?” And she’s like, “You can easily find someone who’s virtual for probably $20 an hour.” “Wait, what? I was thinking this was a $200 an hour person.” She’s like, “No, you just need somebody who is very operationally minded, they can pull your KPIs, they get you organized… That’s it.” So I think that’s my next hire; maybe ask me in a year and see if I’ve done it and tried it out.

Ash Patel: I would love to. Yeah, you’ve got an amazing ride that you’ve been on so far. So tell me more about the coaching. What got you into that?

Lauren Hardy: Nothing ever in my life has ever fell in my lap. I’ve had to go find it. For Nashville, I had to get out of the car and talk to some stranger. The coaching thing was an amazing opportunity that I still to this day pinch myself. So I was wholesaling virtually, and I reached out to my good friend Brent Daniels, and I said, “You know, I saw they’ve been on the Wholesaling Inc podcast and you host it… Why have I not been on that thing yet?” And he’s like, “You’re right. Let’s get on a schedule.”

So Brent’s a coach with Wholesaling Inc and he’s got this awesome program called TTP, a lot of you guys probably know or heard about it.  And I got on the podcast and I just talked about all things virtual wholesaling. And virtual wholesaling was a needed coaching program within that platform, because there were a lot of students in high-priced markets that were having a very difficult time implementing these same strategies that everybody else was in the nation, but they weren’t working in California. New Jersey – I’ve got clients in New Jersey, New York, Miami, Seattle, high-priced areas, the students were going “Help, we need help, we can’t be in this market.” So they needed a virtual coach.

After that podcast launched, one day I got a text message from the owner of the podcast, Wholesaling Inc, his name’s Tom Kroll and of course, I knew who Tom was. I was like shocked to get this text message; I almost like fell over. He’s like, “Hey, we need to talk.” I was like, “What about?”

And so he gets on the phone with me and just says, “What do you think about coaching virtual? Would you put together a coaching program?” And I was like, “Okay, yeah.” He’s like, “You’ve got a week to think about it. But that’s it. Yes or No, you’re in or out?” I think I thought about it for 24 hours. I was like, “Yeah, I’m in. Great idea.”

So I put a coaching program together, we beta-tested it for a while, made sure we had success, coached students for free on the platform… And then we actually officially launched the program March of 2020. So we’re almost coming up on my year.

And I’m hosting the podcast as well… So I do one day a week on the podcast, we’ve got a cool YouTube channel if you guys want to check out our videos… So a really, really great group. I’m super-honored to be a part of it.

Ash Patel: That is incredible. So what’s next for you? You need another giant challenge to keep this thing going.

Lauren Hardy: I’m literally a masochist. I’m always like, if you cannot say yes to one more thing, you’re done. This is it. I’ve said yes to two more things, there’s two more things I’ve said yes to, and I’m done for the rest of this year. I’m not saying—I’m not opening up any more businesses, I’m not—. So there’s a couple software companies that we’re not releasing just yet, that I’m very excited about. One is something I’ve worked on over a year; it should be launching very soon. And then there’s another one that just came about… And they’re partnership opportunities. So it wasn’t me behind the operations, but I’ve kind of the creative vision, and very excited.

Ash Patel: Visionary.

Lauren Hardy: I’m the visionary, I am.

Ash Patel: Yeah.

Lauren Hardy: Like, I am so good for ideas, but when it comes to actually executing them—I’m very good at getting the energy to like, “Let’s execute it!” and then like, “Okay, but you do all the details.” Like—

Ash Patel: Yeah.

Lauren Hardy: I’m not very detail-oriented. But I am very much a visionary, for sure.

Ash Patel: So we have to have you back in about a year or probably less to see what else has come your way. Lauren, what’s your best ever advice for, I would say real estate people, but your background is so varied, so for just people in general. Best ever investing advice, growth advice, real estate advice… You pick.

Lauren Hardy: Honestly, seek help. Anytime I ran into an issue or a problem, whether it was personal, whether it’s business, real estate, house flipping, find someone who’s killing it in that area and ask for their help. Ask them a question, whatever it is. Offer to pay them, “I’ll pay you $1,000 to talk to me for three hours.” I’ve done that. I’ve done that this entire time. Every time I needed help, I’d say, “Hey, I’ll do whatever I need to do, I’ll pay you whatever. Help me solve my problems.” Don’t try to go in alone and just solve your own problems. It is so much easier to just cut the learning curve, go straight to an expert, and in one hour, you could probably figure out the solution to your issue or problem, and you will then be able to overcome it, and then exponentially grow much faster than if you tried to do it all yourself.

Ash Patel: That is great advice. I know that would have helped me a lot, and I’m sure it’s going to help a lot of other people out there. Lauren, are you ready for the best ever lightning round?

Lauren Hardy: Okay.

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

Break: [00:33:05] to [00:33:29]

Ash Patel: Alright, Lauren, what’s the best ever book you read recently?

Lauren Hardy: The Road Less Stupid by Keith Cunningham.

Ash Patel: Tell me about that. What did you learn from that?

Lauren Hardy: Other than Keith Cunningham, is hilarious, his writing style is very funny and engaging, it’s just advice from a CEO of a multi-million-dollar company. So it’s just advice, how to not be stupid. Stop paying dumb taxes. And it really boils down to one daily practice that anybody and everybody can do… And it’s thinking time; just taking time to think. It’s amazing how many stupid mistakes we make because we didn’t think something through and—

Ash Patel: I’m adding that to my list. Awesome.

Lauren Hardy: I call it five-figure mistakes. All my five-figure mistakes were because I just didn’t take an hour to maybe say, “What if this goes wrong?”

Ash Patel: Right.

Lauren Hardy: Or “What’s very likely that could happen?” So… Thinking time.

Ash Patel: Great advice. And Lauren, what’s the best ever way you like to give back?

Lauren Hardy: Well, recently, I gave back to a charity. One of my students – oh man, great guy… He got into wholesaling houses because he wants to make enough money so him and his wife don’t have to take from their charity. So they have an amazing charity in India, it’s called The India Mission. It’s orphanages for children in India, they help clothe, feed the hungry… It’s an amazing organization that they’ve put together, and they have these children’s homes, these poor children in India… But as they run a charity, they have to take a salary. It’s not much…

Ash Patel: Yeah.

Lauren Hardy: …but they have to. So he got into wholesaling houses so they hopefully will not have to take their salaries out… And I couldn’t even imagine a better cause, right? So it was really cool to be able to donate a proceed of my profits to his charity this year.

Ash Patel: That’s great. Lauren, how do the Best Ever listeners reach out to you?

Lauren Hardy: I am pretty active on my Instagram. If you guys want to follow me, my handle is @thismomflips. If you guys happen to be interested in the coaching program, check it out at http://virtualinvestingmastery.com/ and I host the podcast wholesaling Inc if you guys want to check me out there.

Ash Patel: This is an incredible podcast. Did you ever thank your brother for getting you into real estate?

Lauren Hardy: Oh yeah, for sure…

Ash Patel: You’ve had an amazing ride with the initial fix and flips, the Nashville spec houses and the wholesaling, the systems you’ve put in place, a software company… We have to have you back. Thank you so much for your time.

Lauren Hardy: Thank you so much for having me.

Ash Patel: Have a great day, Lauren.

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

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

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

 

David Grabiner Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

David Grabiner: Yeah.

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

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

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

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

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

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

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

David Grabiner: Yes,

Ash Patel: Tell me the challenges of that.

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

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

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

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

Ash Patel: These are in the Chattanooga area?

David Grabiner: All in the Chattanooga area.

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: You’re still acquiring multifamily?

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

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

David Grabiner: Essentially, yeah.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

David Grabiner: Mm-hmm.

Ash Patel: Who else is in that strip mall?

David Grabiner: CVS.

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

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

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

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

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

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

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

Ash Patel: Year over year numbers.

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

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

David Grabiner: Yep.

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

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

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

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

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

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

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

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

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

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

David Grabiner: Yeah.

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

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

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

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

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

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

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

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

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

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

Ash Patel: Was this listed on LoopNet or MLS?

David Grabiner: No. It was not.

Ash Patel: How did you acquire this property?

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

Ash Patel: She’s a passive investor.

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

Ash Patel: So the seller is talking to you.

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

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

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

David Grabiner: Oh, yeah. Majorly.

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

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

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

David Grabiner: Let’s do it!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Oral Disclaimer

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

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

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

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

Chad Sutton Real Estate Background:

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

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Best Ever Tweet:

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

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JF2366: Using Old-Fashioned Tactics to Find Buyers and Sellers with Frank Iglesias

From the music industry to IT, and then to real estate, Frank has always been fond of receiving education and learning something new. While working in IT, he picked up a few properties on the side. In 2011, he walked away from the corporate world and became a full-time investor.

Back then, he started by utilizing the power of tried and true methods of reaching people such as direct mail and networking. In 2020, people are still happy to share what they do in a casual conversation and get on the phone to discuss a deal, so old tricks do work when used properly. 

Frank Iglesias  Real Estate Background:

  • Full-time investor 
  • 11 years of investing experience
  • Portfolio consist of several rentals, construction projects, has completed 100s of deals as a wholesaler & flipper 
  • Based in Atlanta, GA
  • Say hi to him at: www.buyinvestmentassets.com 
  • Best Ever Book: Think and Grow Rich

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Surround yourself with the best people you can afford” – Frank Iglesias.


TRANSCRIPTION

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

Frank Iglesias: I’m doing outstanding.

Theo Hicks: Great. That’s good to hear and thank you for joining us today. A little bit about Frank. He’s a full-time investor with 11 years of investing experience. His portfolio consists of several rentals and construction projects. He has also completed hundreds of deals as a wholesaler and a flipper. He is based in Atlanta, Georgia. His website is buyinvestmentassets.com. So Frank, do you mind telling us some more about your background and what you’re focused on today?

Frank Iglesias: Absolutely. Thank you for having me on the show, I just appreciate the opportunity to share my background. I was actually a music guy when I was younger, in high school, in college, and went to college for music… I thought I was going to rock the world on drums and that sort of thing. Then we realized that maybe that wasn’t the best avenue or the best chance of success, so when I left college and actually got into the IT industry. So for all intents and purposes, I was a computer geek for 15 years. I kept the music up on the side, so I did a lot with education. I’ve always been around the education aspect of whatever I’ve been involved in. Even in the IT space I did, along with the engineering that I got involved in, I was also a consultant, and when you’re a consultant there’s a lot of education involved. So that’s kind of been a consistent thread between those careers.

In a nutshell, I actually started getting bored with IT. We were part of a really great team, and it got to where the joke we had internally was if we do this much better, we’re going to automate ourselves out of a job. You hear that sometimes in the world today, and you’re like “Wait, that actually can happen”, and I realized the challenge was no longer there. Around that time, I’d actually picked up three or four properties by then, just while working my IT days. Like so many investors, I heard about Rich Dad, Poor Dad. I actually don’t even remember how I heard about it. I went to the seminar, of course, it got the bells and whistles turning in my head, and light bulbs going off… Once I left the IT industry, I really dove into real estate full-time. It has been quite a roller coaster since then. Certainly a journey and adventure, very different than corporate life. That’s how I got to today.

Theo Hicks: Perfect. Thanks for sharing that. How long ago was it that you left the IT world and started real estate investing full-time?

Frank Iglesias: At the end of this year, we’ll be at nine and a half years. It was the beginning of July of 2011. Right smack in the middle of the year we walked away from that world. Back then I had heard of Preston Ellie, and he was talking about preaching freedom. And I literally came home, and my children who were young at the time took LEGO blocks and they built the word freedom and put it on our mantle. It was a really cool experience as a dad.

Theo Hicks: Nice. So nine and a half years ago you left the IT world, and at that point you said you had three to four properties?

Frank Iglesias: Yeah, we had learned the wholesale a little bit, but primarily we were buy, fix and rent. It might have been five or six – I’d have to go back and look – that we had rented. Back then you could rent them and I had a full-time job so the banks like lending to you. You were the ideal person to give a mortgage to under great terms. That was in the middle of the crash, of course.

What was interesting was, as the market was crashing, I really didn’t understand it. I would hear that the stock market was crashing, because that would be what my corporate clan would talk about… But nobody really talked about the real estate market crash. I didn’t really start to understand that until once I was in it full-time. Up until then, it was “Oh, look. Oh look, we could buy houses, they are kind of cheap. This is cool.”

Theo Hicks: Yeah. So a lot of people I talked to who transition from working a full-time corporate job to real estate, they either have built up a portfolio so that they were generating enough cash flow to replace their corporate income and then they jump into it full-time… Or the second one is usually the case where they kind of just burn all the bridges and just jump into real estate, and they just figure it out. Which of those two categories do you fall into? Are you somewhere in between? Like, were those three to six properties giving you enough income that you felt comfortable leaving your job? Or was it less of a financial decision, more of like “I’ve got to get out of this IT world?”

Frank Iglesias: You know, it really was a little bit of both. We had some savings, we had a little bit of passive income, and we had done a few wholesale deals. Back then wholesale was still kind of new to us, so it was like, “Oh, look, I could just go do this and make five or 10 grand, or whatever.”

But I was bored in IT. I remember walking into my manager’s office and I said, “This is a fantastic place to work. Great job, great benefits, great opportunity, and I’m bored, so I know it’s time.” It wasn’t just time to leave the job, it was time to leave the industry. So it was definitely a mix of things. But you’re absolutely right, to your point.  You’re right, most people do the latter, they just dive in. I would actually add a third option and say they get fired. I know a couple of guys that just got let go and said “Forget it. I’m just going to stay fired and go for it.”

Theo Hicks: So after you had left your job, what was your first main focus in order to grow your real estate business?

Frank Iglesias: My focus for the first few years was heavy on wholesaling. We really focused really hard on that. I really had a good time, I did very well with that. I wish I had known how to scale, because that’s probably what I would’ve done. I would have done more of that in retrospect. But that was fun, that was really a lot of fun, just really diving into wholesaling. I learned from Lee Kearney how to do it, and to this day, I still use most of his techniques for wholesaling and it just works. So that’s been really nice. We still did some rehabbing though; we never not rehab it’s always just been a matter of to what degree.

Theo Hicks: Okay, do you want to go over some of those wholesaling tactics you talked about? Maybe kind of walk us through, from beginning to end. How you find the deals, and what type of thing you’re doing to get them under contract, negotiate the right price, and then how are you finding the buyers in the back end.

Frank Iglesias: Obviously, there are different techniques. Direct mail used to work really well back then, now it’s a little bit more of a different approach. But the one thing I would say that worked for buyers in particular and for sellers was just networking. Really telling everybody what you do.

When I say networking, I mean actually talking to them. Not texting them, not emailing them. Literally, picking up the phone, and talking to people. It’s so powerful. I feel like as technology has evolved, that still gets lost more and more. I don’t know, maybe people have other experiences, but I’ve never met someone that’s like, “Sure, I’d love to do $200,000 worth of business,” over text messaging. I just have not had that experience. It just always seems to go back to getting on the phone with people and just being real with them. People sense sincerity, people sense when you’re real with them. It’s just built into us as humans. So when I’m talking to other wholesalers or sellers, sometimes sellers will refer someone… There are so many people that you talk to you that will send you a great deal, just because they feel like they can do business with you, and same on the buyer side.

Just this year, as an example, someone wholesaled to us just a great deal, someone that I had spoken to and had a good conversation with several months ago. It’s been quite some time. He literally calls me out of the blue and sells me this wholesale deal. I couldn’t believe it, it was a unicorn deal, because the deal had 100 grand in equity. I’m like “Who wholesales me a deal with100 grand in equity?” I said that’s relation right there. Because my average email that comes from someone I don’t know doesn’t have those kinds of figures. And they made good money on it. They just negotiated an outstanding deal, and gave me an outstanding deal, and I’m like, “That’s all networking right there.”

Theo Hicks: I definitely understand the talking on the phone and networking. But kind of taking it just one step back, how do you know who to call, or how do you get the contact information? Who are these people you’re talking to? Give us an example. Are they wholesalers? So you’re finding out who the other wholesalers are and talking to them? Or is there another strategy you have?

Frank Iglesias: I always made it a point to talk to every wholesaler. A lot of people tend to write off new wholesalers. I love talking to them, because for every 10 new wholesalers you talk to, you’ll find one or two that are really, really eager to learn, and it’s great to connect with those people. So I always say, talk to all the wholesalers.

In all the years I’ve been doing this, the wholesale deals I get from people are not great deals, that’s never changed. That’s okay. Just keep talking to them, because you’re going to find the ones that do good, and they’re willing to learn, and they’ll start sending you deals more and more.

I just had someone from Chicago, send me one today. It actually looks pretty decent, so we’re going to look into that. But beyond that, how do you find them? Obviously, there are forums, you have Facebook, and all that. But really, the best place I like to go is into the public records. Because everybody talks, but when you go on public record, you can start seeing “Who’s closed 100 deals in 2020? Who closed 100 deals in 2019?” I’m just picking 100 as an arbitrary number. You can actually see it in the public record. I’m in Georgia, so it will actually sort, “Here’s who the biggest buyers are in descending or ascending order”, so I can see who they are. And what was interesting when I did this a few years ago, the biggest buyer in Atlanta right before the hedge funds came in, the biggest buyer in Georgia actually lived 10 minutes from me. If I told you his name, you’d probably know who it was. But a few years ago, he was the biggest buyer, and he bought hundreds of properties. I’m like, “Oh my gosh, I had no idea.”  I would have wholesaled him a few deals, nut I had no idea he was buying that much. What I have learned is a lot of the busiest people don’t tend to be out there, they tend to be much more quiet. That’s my experience.

Theo Hicks: Hm, interesting.

Frank Iglesias: Now again, a lot of this was pre-social media. Social media now has changed that dynamic a little bit, but it still seems to me that the people that do the most business, you don’t tend to hear about them a lot. But they’re in the public record and if you get in there, skip trace them, nowadays, you can skip trace companies so you can find these people. It’s pretty cool. Technology is making this business so much easier to find people. There’s a lot of people quite honestly that do like to be found when they sense that “Hey, this guy is real. This guy is sincere.”

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

Frank Iglesias: My best advice ever? Well, if there’s one thing I can say I’ve learned, and there’s nothing revolutionary about it, but I’ll echo it because I would agree, is surrounding yourself with the best people you can afford. I can’t put into words how valuable that is. And having a coach. We’ve had some great experiences, but I will tell you that not having a coach at some specific points in our career, that’s cost us a lot of money that we could have had on the right side of the bank account. So I think to surrounding yourself with the best people and having a solid coach. I cannot emphasize that enough.

Theo Hicks: I think I might know the answer to this question, but answer it anyway, which is how do you find these people? How do you find your coach? How do you find the best people you can afford?

Frank Iglesias: Oh, it’s actually a good question. It’s not easy. I am a huge believer in the 80/20 rule. 20% of people do 80% of the business, that sort of thing. I would say 20% of the people are really good at what they do, and the other 80% – I don’t want to say they’re bad at what they do, but they’re not your top tier. I would even say, it’s probably more like 90/10 or 95/5.

I’ve just learned that really, really good people are really hard to find. It takes talking to a lot of people. Like many investors, I’ve seen no shortage of webinars, and ads, and that sort of thing. As an example, the builder I use for our new construction projects, we were building houses for five years before I found them. Once you have them, you’re like, “Oh, my gosh, where were you four years ago when I needed you?” But that’s okay. It’s part of the evolution.

So it takes a lot of talking and just really exploring a lot of avenues… Not just real estate avenues, I would even say look at other business avenues. Sometimes your best people may not be completely all about real estate.

For example, I’ve got a business coach, and we talked a little bit about real estate, but really, it’s more about this is how you run a business. When I hired him – it’s been over a year now that I’ve been with him – it’s completely changed how we look at our business. Things that, quite frankly I never heard in real estate circles, all of a sudden became very, very real. He’s got a different perspective on it.

So I’ve got a real estate coach, I’ve got a business coach, I’ve got a life coach… I think you need those specialists to help you — start with real estate because that’s what you’re doing, but then as your business grows, get that business coach. Make sure you get that life coach, so you don’t lose perspective on things, because things can get crazy in this business, as you know.

Theo Hicks: Alright Frank. Are you ready for the Best Ever lightning round?

Frank Iglesias: Best Ever lightning round. Sure.

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

Break: [00:17:12][00:17:52]

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

Frank Iglesias: I recently read, Think and Grow Rich again. I think that book is truly timeless. What I would say is don’t just read it, really apply it. When you really apply what Napoleon Hill is talking about, it will challenge you, but it really opens your eyes, especially if it’s not the first time you’re reading this. It gets more impactful every time I read it.

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

Frank Iglesias: Oh, my. Yes, I’ve definitely lost money on a deal before. I think that’s an experience. No one wants to lose money on a deal, but we also learn a lot when we go through tough experiences. We lost over $100,000 on a rehab. The biggest lesson I learned from that was – I worked with a designer who also did project management at the time. She was an excellent designer, by the way; she was absolutely excellent. It was kind of a trust a little too much, but not enough verification… And that design thing can get away from you. It totally got away from us. We actually had a house design, and in a nutshell, once the design came back, she literally said it’s ugly. I kid you not, it was that simple. It’s ugly. So she really wasn’t excited about it. And the market was appreciating at the time.

Instead of just doing it, because ugly houses sell every day too, everything doesn’t have to be the Taj Mahal… We actually ended up delaying the whole project, changed it to a pretty house. By the time we built the pretty house, it was more complicated. And it was a nicer house, but more [unintelligible [00:19:31].26] way over budget. At the end of the day, we lost 100 grand. Whereas if we built the ugly house, we would have made money. It was crazy.

Theo Hicks: And then on the flip side, what’s the Best Ever deal you’ve done?

Frank Iglesias: I think my favorite deal I’ve ever done, that’s the best – because some of the ones I bought back in the early days of 2009, 2010, there was nothing glamorous about them, but I held them. In fact, we sold one earlier this year that we owned for nine years. For nine years we created 150,000 in equity, and we were able to do a 1031 exchange into something better. So when I look at all the other deals I’ve done, I’m like, that to me is the best deal. I just had a handful of those; buy and hold, build that equity, because it’s really nice what it can turn out. Now, of course, you want to make sure in a market where that can happen, and across Atlanta has been that market. But that’s what I would say.

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

Frank Iglesias: I have a background in education, I’ve always been involved to some degree, and I enjoy teaching real estate, I enjoy speaking, I can do the hype thing and be excited, but also when I share, at a lot of meetings, I like to just get real with people. Because a lot of people again, just want the sincerity, “Hey, what really happens. This is not HGTV. There’s a lot of real work that goes into this.” Nothing wrong with HGTV, by the way, but there’s just a lot you don’t see. So when a new person is coming in particular, they really want to know what’s happening. Or if you have someone that got involved and they got burned, they still want to do real estate, they’re excited about it, but they really don’t like the feeling of being burned, “Can you help me?”

So I love sharing in those types of situations in particular, because it really allows you to connect with people, you feel their pain, they understand that you understand them…  And it gives them a lot of confidence, a lot of hope, and really restores their, “Yes, I can do this.” That’s really rewarding.

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

Frank Iglesias: The best place to reach me – you can email me, it’s frank@workingwithhouses.com. Or you can call our office at (678) 408 2228. Those are the best ways. You can message me on Facebook as well, or Instagram, but email and phone are definitely much more likely to get me.

Theo Hicks: Awesome, Frank. Well, thank you so much for joining us today and providing us with your Best Ever advice. We focused a lot on wholesaling, but I think most of the things we talked about, if not all of them, can be applied to any real estate niche.

At first, we talked about you leaving your job, and the two options, and you added the third option, for people to leave their jobs, which is they have enough money to leave their job, they burn the bridge, or they get fired. So you were the got bored with what you were doing at your work and jumped into real estate full-time.

And then those timeless universal tactics that you talked about for wholesaling was networking, so talking to everyone you know about what you’re doing, and then actually talking to them on the phone, as opposed to just text or email or social media, things like that. Making sure you’re honest, you’re real because people can sense that. Making sure you’re talking to everyone, not just the established guy, but also the newbies, just because you might find that one out of 10 person who ends up being a real go-getter and brings a lot of business.

Then you talked more tactically specifically about wholesaling and finding buyers, like just go into the public record and seeing who’s closed on the deals, find the biggest buyers and skip trace them. And then your best ever advice was to surround yourself with the best people you can afford and having a coach. You kind of talked about how you start off with a real estate coach, but eventually when you find a specialist for business, and then a life coach as well. And you did mention that it’s really hard to find these best people. But just like you mentioned him with networking, you’ve got to talk to a lot of people. Then something I really liked was that you don’t necessarily have to just focus on talking to real estate people, because some other business might also be a good fit for you, whether they be a mentor, or a partner, or someone that’s going to work with you.

So a lot of solid advice was given in this episode. We really appreciate it, Frank, and thanks for coming on. Best Ever listeners, as always, thank you for listening. Have a Best Ever day, and we’ll talk to you tomorrow.

Frank Iglesias: Thank you.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2365: Embracing Mechanical Repairs with Mike Bonadies

Like many other real estate investors, Mike started his journey at a corporate 9 to 5 job. His buddy suggested branching out and becoming a landlord. Since then, has Mike grown his portfolio and has now become a property manager. Most of his properties were built before the 1940s, and few construction companies in the area could handle that kind of work. That’s why he opened his own construction company. He now has a nice cash flow coming from these adjacent fields, and his companies are working in synchrony with each other.

Mike Bonadies  Real Estate Background:

  • Full-time landlord and owner of Side By Side MRO, a construction company that specializes in pre-1940 construction & property preservation
  • Co-owns TerraVestra Property Management
  • 5 years of construction experience 
  • His personal portfolio consists of 25 units 
  • TerraVestra manages 250 doors, and his construction company works with 600 rental units
  • Based in Sewell, NJ
  • Say hi to him at www.sidebysidemro.com 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The system includes more problem-solving in pre-1940s construction.” – Mike Bonadies.


TRANSCRIPTION

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

Mike Bonadies: Thanks, Joe. I’m really looking forward to being on today’s show. Greatly appreciate you having me on.

Joe Fairless: It’s my pleasure. I’m looking forward to it as well. A little bit about Mike. He’s a full-time landlord and owner of Side By Side MRO, which is a construction company that specializes in pre-1940 construction and property preservation. He also co-owns TerraVestra, which is a property management company. They manage 250 units. He’s got a personal portfolio of 25 units, so he’s an active guy; very, very active guy. So let’s talk about that. He’s based in Sioux, New Jersey, by the way. So first, Mike, you want to give Best Ever listeners a little bit more about your background and your focus, and then we’ll go from there?

Mike Bonadies: I started off like a lot of other real estate investors, in a corporate job, doing nine to five work. It was for Dewalt Power Tools, so at least I saw construction unfold. As I spent more time there, a buddy of mine who was in the cubes with me was a landlord, and he said, “Hey, Bonadies, just check landlord-ing out. It’s a lot like what we do for here, but you can make more money for yourself.”

One thing led to another, I became a landlord. Quickly from there, I grew my portfolio, ended up becoming a property manager, and then from there getting my own construction company and have a nice little trifecta going of multiple cash streams, but within the same industry, all complementing themselves.

Joe Fairless: I love talking to people who own their own construction company. Yours specializes in something interesting, in my opinion. It’s pre-1940 construction and property preservation. So can you talk a little bit about that?

Mike Bonadies: Yeah. A lot of construction companies out there, they might do new construction or… BiggerPockets always talks about, “Hey, get properties that are over the age of 1952 after the Construction Code was established.” Well, I decided “Hey, why don’t we just go the opposite direction and doing exactly what everybody else isn’t doing?” We specialize in pre-1940 construction, and more specifically, multifamily pre-1940 construction.

Part of that is a byproduct of the area that I work in investing. I’m in the swamps of South Jersey, so there’s a lot of towns here where the average age of the original construction is 1880 to 1920. So if you’re going to buy a house in this area, you’re already looking at older construction.

Furthermore, from a business perspective, we saw that there weren’t a lot of contractors or individuals who were specializing in these older homes. There was a large demand for people that could do construction in these homes, and renovate them, and get them up to snuff. Just because there was a lack of supply, we said, “Why don’t we fill that gap and specialize in this? I think this could be quite lucrative.” I was already a landlord, my partner who is my partner in crime in almost everything, Drew Side, he was a landlord as well, and almost all of our properties was pre-1940.

So we already had some familiarity, and we decided, “Alright, let’s just work on this.  If we’re going to continue to be landlords and grow our portfolio, we’re going to have to know pre-1940 construction, and we’re gonna have to be good at it.”

So we started rehabbing properties that are in that age range, and building out crews that know how to operate on those properties and the difficulties of those properties, because they are definitely not your run-of-the-mill construction jobs. A lot of these properties are built like jigsaw puzzles, and they were built three or four times over by someone’s great-great-grandfather, who built it without power tools, and kind of just doing however they wanted to do. So now there’s a large amount of demand in this for South Jersey, and a lot of the, let’s say, landlord-friendly buildings or good deals in South Jersey are of this age group. So it really complemented everything quite well.

Joe Fairless: So let’s talk about that, because you’re focused on an area that there wasn’t a lot of other focus, or maybe no other focus from other construction companies. But if you were to ask them, I imagine they’d say, “Well, yeah. Because, Mike, it’s just tough work.” There’s a path of least resistance in other places to make money and to do well. Can you get into some more specifics? You said jigsaw puzzles and built many times over by multiple people… But what were some real challenges that you all came across with this business, and how did you solve those challenges?

Mike Bonadies: Where to start there…?

Joe Fairless: Maybe the companies that looked at this opportunity… Because I imagine some construction people said, “Oh, yeah. There’s an opportunity there.” But they’re like, “I don’t want to mess with that.” What would be the top two or three things that pushed them away, but pulled you to it?

Mike Bonadies: I would say the biggest difference between post-1940 and pre-1940 construction is the focus on mechanicals. If you think about your average construction company, it’s very easy to drop flooring, install a new kitchen, demo out something, hang new drywall, to make it look pretty. There’s a lot of people that are very good at doing that, and it’s rather a cookie cutter. You can just say, “Okay, tear up the floors, put new ones down, just got to measure it out, and we’ll just get away [unintelligible [00:08:18].12]” Pre-1940 construction you have that element, but the focus is much more on the mechanicals… Because a lot of times the plumbing is absolutely janky, the electrical might have cloth wiring, you might have a ton of knob and tube, you might have wires completely ran to the wrong box if you’re in multifamily construction.

So you have to have a level of comfort troubleshooting and running diagnostic work on what works currently in a property, or just stripping it all out and understanding “Okay, look, this piping is completely shot. I’ve got an [unintelligible [00:08:51].24] sewer main going out the front of the property that’s completely deteriorated. We’re just going to know that we’re going to have to replumb everything, and we are going to have to just tear everything out and get started with it.”

So I think that comfort working with mechanicals and enjoying working with mechanicals. It’s not necessarily as enjoyable as cosmetics… Because with cosmetics you can see the work that you’re doing, you can plan it out in your head very well, and then you can see a finished product, and you’re like, “Oh, this looks way prettier than when I started.” Mechanicals, if you’re running new HVAC ductwork or if you’re re-plumbing the place, there’s not that level of satisfaction that comes at the end of it, cosmetically. You’re like, “Well, there was a pipe here before and now there’s another pipe here. But this pipe works better.”

Joe Fairless:  The new one is shinier.

Mike Bonadies: Yeah, exactly. So I think that’s the biggest differentiator between the two. That cascades down to problem-solving, too. With a lot of the, let’s say, your generic flip construction,  again, it’s more about cosmetically pleasing something, and that doesn’t require a lot of problem-solving elements to it. If you have pre-1940 multifamily construction, you might have wires that are going to the incorrect boxes, and now you have to figure out how are you going fix one wire over here to make it make sense without having to tear down a wall or something like that.

Or on another hand, boilers are pretty common in South Jersey in the construction we’re doing. So we might get there into a basement and it looks like a kraken. There are just pipes going everywhere, leading to the boiler systems, and you’re looking at it and you’re trying to figure out, “Alright, do we need to replumb these boilers because everything’s on a common system? Or do we want to have them be independent? And if we do that, we have to rethink how we’re going to lay out some of these units, or rehab it.” So there’s definitely more problem-solving. It’s not like one of those things where you know how to do it a couple of times over, and then you just create a system around that. The system involves problem-solving more often in pre-1940construction. I think that scares away a lot of people from doing that kind of work, if that makes sense.

Joe Fairless:  Why 1940? Why not 1930? Or Why not 1950? What took place in 1940 that you’re focused on pre-1940?

Mike Bonadies: Well, from the late 1940s into the early 1950s, the construction codes started to get solidified. Now you had a state Construction Code that clearly outlines “Hey, this is how you’re supposed to do construction.” When you hit that early 1940s and before, there weren’t these big developers that were creating standardized homes. Your family was building a home, and it was however the person that knew the most about putting things together was developing that home or building that home. So nothing is standardized before that date.

Now, I know that may change from state to state, but generally speaking, I think most of the codes were developed in like 1952 or late 1940s. So when you hit early 1940 and before, it’s all custom construction, and there weren’t a lot of big developers. For instance, in New Jersey, Levitt is pretty well known. Levitt town and all that kind of area, they had standardized homes that they built for everyone. When you’re in that earlier timeframe in the United States, nothing was standardized. I walked into 50 different homes and seeing 50 different ways of putting together a house in some of those older constructions.

Joe Fairless:  Let’s switch gears and let’s talk about your personal portfolio. You have 25 units. Are they all single-family homes? Tell us a little bit about it.

Mike Bonadies: Yeah, I have 25 units and they’re all small multi’s; either duplexes, triplexes… And I’ve got two mixed-use buildings. We decided to go to the multifamily route because we thought it was a little bit less risk-inducive if things go sideways. We look at it as, again, putting my construction hat on, there’s only one roof; there’s potentially one furnace or two furnaces. There are less objects that can break down over time in multifamily. So the long-term play is to get multifamily… Even though you might get a little bit less rent. And people say that your tenants will stay a shorter amount of time in multifamily versus single families. I disagree, but we thought that the margins were higher on multi-families, and there were less things that would break down over time.

So I don’t own any single-family houses. I have just multi-families, all in the South Jersey area. I do tend to buy white elephants, so all my multi-families are really strange in one way or another… But they’ve been very lucrative deals because of that. Some may have cost me more money than others, but if you can problem-solve around it, you buy the deals that less people are looking at, and therefore you can get it at a better price.

Joe Fairless: Well, you’ve piqued my curiosity. Tell us about a couple of those.

Mike Bonadies: One of them is a mixed-use triplex that used to have a bar on the bottom and two residential units on top. The bar was converted into a residential, we went through the zoning process of that, and we turned it into an apartment in the downstairs. The building has like seven sides to it. It doesn’t look like your traditional house at all. I think back in the day it used to be a train station, 100 years ago. No one wanted to buy it because it had zoning issues that we had to work through, and no one wants to get a potential mixed-use property and convert it to residential in a highly regulated state like New Jersey. It does have its own unique challenges, because it used to be commercial, the mechanicals was set up for a commercial, so you had things like two sewer cleans leaving it versus a traditional one sewer clean leaving the property. And the gas meter–

Joe Fairless: And why is that a problem?

Mike Bonadies: It’s hard to trace problems. If something’s backing up, and the backup’s out in the street, you’re going to have to test more things to problem-solve it. That’s the core.

Joe Fairless: Okay. So in that case do you convert to one, or…?

Mike Bonadies: No, we leave it as is, and we just [unintelligible [00:14:48].07] over time. If you’re an out-of-state investor and if you’re not involved with your properties pretty directly every day and a sewer problem comes up for that particular property, you might have to spend more money getting someone to troubleshoot the problem and diagnose what’s the issue. If you know the properties that you buy incredibly well, like what we do – we try to really understand the properties that we buy. Well, when someone says, “Hey, we got this problem coming up”, we’re like, “Alright, well, we already troubleshooted it a bunch of times. I know exactly what this problem is based on how it was constructed. We knew it was a bar previously, so therefore, the problem is probably here.” If that ends up being what it is, great, you solved it. If not, you’ve got to do some more troubleshooting. So it’s a little bit more active than some other investments, but it can be very lucrative.

Joe Fairless: What did you buy it for?

Mike Bonadies: I bought this one for $140,000.

Joe Fairless: And how much did you put into it?

Mike Bonadies: I want to say 32,000 bucks, and I probably spent an additional $20,000 on top of that, because of zoning variances… And I had a sewer line collapse after the fact, so another 50K, we’ll say. My gross rents on it are $3,400 bucks a month, which is pretty decent for South Jersey.

Joe Fairless: So let’s see, you’re about 190k all-in, and $3,400… Yeah, 1.7%. You’re almost at the 2% rule on a place in South Jersey. What do you think it’s worth now?

Mike Bonadies: We just had it appraised for I think it was like 235k or 245k. So I was able to pull out all of our money; we’re in the money for nothing.

Joe Fairless: How long did it take to get the zoning fixed? Or changed, I should say.

Mike Bonadies: It took us about a year.

Joe Fairless: Okay. Knowing what you know now, would you do it all over again?

Mike Bonadies: Absolutely. I learned so much. I think the biggest learning factor there is a lot of other states don’t have a lot of complexity around zoning, like New Jersey does. Zoning is very tough in New Jersey. This deal gave me my first taste of politics and real estate and their intersection. I had to go up in front of the zoning variance board, I had to talk to the mayor and the town councils and get their votes. It was a great interaction, and I learned a lot.

Joe Fairless: What’s one thing you would do differently knowing what you know now, if presented a similar opportunity?

Mike Bonadies:  Scope your sewer lines, oh my gosh. If you’re going to buy a property, and it is older than 1952, scope that sewer line, because the half-life of iron pipes are somewhere between 65 and 85 years. If you’re buying around that 1950, 1940, 1930 timeframe, that means the original cast iron pipes are decaying, are corroding and they’re getting close to a collapse. Now I scope all sewer lines if I’m buying a property.

Joe Fairless: So that’s one deal, the mixed-use triplex; you had a bar downstairs, two residential upstairs, you changed the bar into a residential unit… I’m just curious, you have seven sides to the building, so how did you close off certain sides? I mean, if it was a bar, I imagine there’s a bunch of windows. The resident doesn’t want people peeping in.

Mike Bonadies: We were relatively lucky here… There was only one commercial door in the property. The bars here in South Jersey look a lot like Cheers does, so there’s not a lot of Windows, and there weren’t a lot of entrances and exits. So that wasn’t really a concern. But we kept the commercial door in there. Some people look at it as a unique character-building item to the property. We had a lot of interest when we were renting it out, because it still has those commercial doors, it has these giant commercial glass storefront windows, and people think that’s pretty neat. It also had an ATM still on the outside of the property, that gave it some character. It’s a brick building, so it really gives a unique feel when you’re moving in there. It’s not for everybody. It’s not your standard like “Oh…

Joe Fairless: You kept the ATM?

Mike Bonadies: …but it gives it character.

Joe Fairless: So you kept the ATM?

Mike Bonadies: Yeah, kept the ATM.

Joe Fairless: What do you make on that?

Mike Bonadies: I don’t make anything, because it’s not functional. But we jokingly collect the rent through the ATM every month.

Joe Fairless: Why don’t you make it functional?

Mike Bonadies: I do it for the sake of the tenants. It is right next to their door. I don’t want to have people just coming up.

Joe Fairless: Why don’t you remove it?

Mike Bonadies: Again, for character aesthetics. When we were showing the unit, people were fascinated by the ATM still being there. And the tenants have access to the guts of the ATM, so we made it a joke that when we pick up the rent, we collect it through the ATM.

Joe Fairless: Alright. What about another white elephant?

Mike Bonadies: Which should we go at next? Mixed-use properties are always great white elephants.

Joe Fairless: Yeah. They’re fun to talk about.

Mike Bonadies: They are, and they’re super unique, because the funding for them can be pretty difficult, too. But I have a mixed-use property that’s a mile away from the other mixed-use property. And this was a property — when we bought it, it was one single commercial storefront, and then two residential units on top. So it was actually a triplex when we got it. I think if you look at how the property was originally built, it was built as two blocks and lots, so two duplexes that over time someone must have got the zoning variance to fuse them together to make a triplex. Then we tore down the commercial storefront and we made them two different commercial storefronts. So we turned it back into a quadplex.

That one was a unique challenge, just because the process of going from a triplex back into a quadplex, splitting up the utilities again, and dealing with a commercial storefront instead of just residential units – it always presents a learning opportunity. It’s just something not cookie-cutter, like residential is. In residential you have kitchens, bathrooms, bedrooms. Everybody needs them. With commercial storefronts, you’re trying to build a vanilla box that someone else can then come into and turn into their own.

We had to do a lot of electrical work there, we had to rewire most of the building, redo the HVAC… And that was a challenge, because the building was not set up to be a quadplex for at least the past seven to 10 years. What makes that a little bit more of a white elephant is it’s a mixed-use building and it still was a mixed-use building. So when we had to do lending, it had to be a commercial loan, but the ARV of the property was $235,000. When you have a mixed-use commercial loan that is under $500,000, it’s a very small subset of lenders who will do long-term financing for that type of property.

If I look back at the other mixed-use property we just spoke about, that was a fully residential building when we were done with it, therefore we could get residential multifamily lending against it. If it’s a mixed-use property still, we have to get a commercial loan.  So we had to do a little bit more shopping around, we had to work more with local banks on getting the financing on there, because there’s just such a small subset of individuals who will do long-term lending for under $500,000 commercial loans, at least in the South Jersey area.

Joe Fairless: Let’s talk about the numbers on just your initial analysis when you’re looking at the opportunity. How do you determine to do those renovations and put all that work and time into it, compared to just renovating and sprucing up how it currently exists and finding tenants for the units?

Mike Bonadies: We look at it as a cost per door. In South Jersey, taxes are a pretty massive element of your equations, because taxes are higher than most of the other states in the United States. So if we’re looking at, “Okay, we can buy a property for less than $50,000 a door and we can put enough rehab in it so that our all-in cost is under $75,000 per door”, we know that between the taxes and the rents, we will have very good cash flow on the property.

So to go back to the first property we spoke about, with the bar conversion element… South Jersey is a lot of small towns, it’s not super urbanized, very rural, so we didn’t like the prospects of commercial rentals for that property, just because we didn’t think that demand was incredibly high. We said “Okay, look, this building is priced at 140. That hits our standard for residential purchasing, and it would be in the deal for less than 75K a door for each of the residential units. Our total net price was less than 75K door, and we know what the taxes are. So, therefore, if we convert it over to residential, it’ll cashflow like a monster.” That’s kind of the way that we look at properties in the South Jersey area, just because we know, given the South Jersey level of taxes, if we’re into the doors for less than this, we know that it will cash flow.

And it changes from county to county. So if I go to another county that I do a lot in, maybe we’re not all-in for 75 for the door, maybe we’re all-in for 50k for the door. And this is what the standard of taxes are in this area, so we know that this is a good deal. So it’s a little bit different than most people, but I would say we’re still relatively similar to what you would see other conventional wisdom saying to buy properties are.

Joe Fairless: Oh yeah, all-in per door thought process, plus keeping in mind whatever your largest expense is going to be, or one of your largest expenses, which is taxes. That might vary depending on the municipality within the state, but all in per door thought process is really helpful, regardless of where we live. Taking a step back, what is your best real estate investing advice ever?

Mike Bonadies: I’m going to say that knowing your neighborhoods and knowing your properties. Knowing where you do business is so critical. Knowing every detail of where you do business, especially if you plan to grow a lot there. We know our neighborhoods and we know the buildings that we buy like the back of our hands. It allows us that when a problem comes up, we can understand is this a symptom, or is this a core problem? Whether it’s maintenance-related or even tenant relations-related. I operate mainly in C and D neighborhoods, so there can be a decent amount of crime in our area, and maybe a problem that the tenant is complaining about. You can identify and solve for those problems very easily, if you know the areas.

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

Mike Bonadies: I like it. Let’s go.

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

Break: [00:25:02][00:25:42]

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

Mike Bonadies: I’m going to say 4-Hour Workweek. Even though I hated that book when I first read it, I reread it every once in a while. It really helps me understand how to cut the excess headaches from my business.

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

Mike Bonadies: I host webinars and podcasts for my local REIA, and then I’ll often spend time with the newbies after those webinars or podcasts to help them understand specifically the South Jersey area.

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

Mike Bonadies: You can reach out to me on Facebook, we post a lot there. It’s either @SBSMRO or @TerraVestra Rentals.

Joe Fairless: Mike, thanks for being on the show, talking about your construction company, talking about how you’ve built your portfolio, and why you focus on, as you call it, white elephants, properties that a lot of other real estate investors would shy away from. Really, it’s the same thought process for the construction company and your personal portfolio. It’s like, finding the opportunity where others either shy away from, or just don’t know of the opportunity, because they haven’t really looked at it.

I’m glad that we talked about your desire and your enjoyment for problem-solving of the jigsaw puzzles that the properties present, as well as just being really knowledgeable about how to work the mechanicals inside and out. So thanks for being on the show. I hope you have a Best Ever day. Talk to you again soon.

Mike Bonadies: Thanks Joe, I greatly appreciate it.

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JF2362: Cherry-Picking the Deals with Gary Spencer-Smith

Gary’s father’s death pushed him into the real estate investment path. In 2007, he emigrated to Canada from the UK, and that’s when he got serious about doing real estate full-time.

Utilizing his electrical engineering background, Gary became an owner and a contractor of several single-family properties. Through joint venturing, he managed to create a portfolio, eventually refinancing and moving on to a different phase of his life.

Gary Spencer-Smith  Real Estate Background:

  • A full-time investor for the past 8 years
  • 20 years of investing experience
  • The portfolio consists of 24 single-family homes, 5 cabin holiday resort, 110 person restaurant, houseboat, and converted a 24,000 sqft dealership into offices, storefronts, storages, and a warehouse,
  • Based in British Columbia, Canada
  • Say hi to him at: www.revnyou.com 
  • Best Ever Book: Sapiens

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I looked at what real estate could do for my life, and that was like a switch.” – Gary Spencer Smith.


TRANSCRIPTION

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

Gary Spencer Smith: I’m doing fantastic. Thank you very much for having me on. I appreciate your time and effort to put this together for everybody.

Theo Hicks: Thank you so much. I appreciate you taking the time to speak with me today. I’m looking forward to our conversation. Before we get to that conversation though, a little bit about Gary… He is a full-time real estate investor for the past eight years and has 20 years of investing experience in total. His portfolio consists of 24 single-family homes, a five-cabin holiday resort, a 110-person restaurant, a houseboat, and a converted 24,000 square foot dealership, converting that into offices, storefronts, storage, and a warehouse. He is based in British Columbia, Canada. You can say hi to him at his website, which is revnyou.com. So Gary, do you mind telling us some more about your background and what you’re focused on today?

Gary Spencer Smith: Sure. I guess people will hear the accent and think that doesn’t sound Canadian… So I was born in the UK. I grew up normal. I say normal upbringing – normal in these days, with divorced parents; single mom… Didn’t have that silver spoon start that a lot of people have. I got to 18, thought I don’t know what I want to do. Ended up going into the military, served 11 years in the Royal Navy, served in the Afghanistan conflict, Iraq conflict, Bosnia… I got to go to over 100 countries in the world. That gave me a real perspective on, I guess, life in general.

My father passed away when I was 21, which enabled me, but it kind of started me on the real estate path ahead of the curve then. I managed to purchase a house. I did 11 years in the Navy, got injured while I was in service, and in 2005 I was pensioned out of the military. In 2007, I immigrated over to Canada. A couple of years after that was when I really started investing seriously, following a plan, and had a goal in mind when I was doing it. So that’s kind of my life in a nutshell.

Fast-forward to now, I’m a full-time investor, and I guess all my income is generated around my real estate businesses. I kind of get to live the life that I planned when I was 16 years old. So I’m pretty lucky and grateful for where I’ve got to, and the challenges I’ve had along the way, and the lessons they’ve taught me.

Theo Hicks: So when you first started to invest – you kind of went over your portfolio – what was your original focus?

Gary Spencer Smith: I’ll take a quick jump back. My first investing [unintelligible [00:05:52].13] impressionable age, maybe I was 18 or 19. He said, “Oh, such and such has rentals, and he gets X amount of dollars per month.” And something just triggered in my head.

When I had my house, the first house I purchased after my father passed away, and my wife at the time, I was like, “Let’s just rent this out when we move” and she said “I don’t want to deal with rentals. Rentals are a headache. You’ve got to deal with tenants,” that story that people say. I listened to it and I didn’t do that.

Then when I left the military, I had a house down the South Coast of England, and I’m like, “You know what? I’m keeping this and I’m renting it out.” It was purely a mathematical choice. It was just, I figured out where I’m moving to and renting, and what I would get for rent there, and I was like 200 bucks a month better off. There was no plan around it. Subconsciously, I wanted to have about three houses over my working career. Retire at 60, I would have my military pension and three houses. That was kind of my goal. I don’t know where that came from or how that was planted in me.

Then I emigrated to Canada. I bought a single-family townhome, and that was for my kid’s college. That was the idea behind it. My kids end up not going to college, and we can get into that a bit deeper if we want. But I guess I was looking for a way to create income within houses. I didn’t want to do the job I was doing when I emigrated. I just used that to get to Canada, which was a life goal. Then I’m like, “I don’t want to do this till I’m 60.” So I kind of looked at real estate investing and how I could generate revenue.

We started doing single-family homes and from those single-family homes, we would actually go in, act as the general contractor… Now, a little caveat to that, I do have some skills. I’m a qualified electrical engineer, so I have an ability (I’m a certified electrician) that I brought to the table, so I utilized those. I didn’t have money so I started joint venturing really early on. Through joint venturing, that’s where I managed to create a portfolio. We were doing like two to three single-family homes, buying them, [unintelligible [00:07:50].11] in them, and then refinancing and moving on to the next. The BRRRR type strategy; it wasn’t exactly that, but it was a variation of that.  That’s what got me to a point where I’m like, “Okay, I guess I’m full-time at this.”

Then in the last few years, again, you look at life, you get to each stage, and you get to each goal that you achieve. I was kind of like, rather than going out and looking for real estate, I looked at what I want real estate to do for my life. That was like a switch, and that’s how we ended up buying the resort that’s on the lake. Even though it’s a business, it was a real estate purchase, because the assets themselves, the land assets, the property assets are worth the same price as the business we were buying, effectively.

Now my focus looking forward is just to keep growing properties. But I have a different strategy. I’m not involved in the day-to-day real estate as much as just looking at the bigger picture stuff, and I guess cherry-picking the deals.

Theo Hicks: Thank you for sharing that. So after the single-family homes, the next non-single family home purchase was the holiday resort?

Gary Spencer Smith: No, it would have been the dealership. It was an old Ford dealership from the 50’s, so it had the car mechanic shop, the body shop, the paint shop, the warehouse, the showroom. The lady who owned that building… I was actually at a funeral and we’re sitting at the table, and I’m from a smallish town, people know everyone in it, 25,000 people in the town… And she said, “Oh, would you look at my property? I’ve been trying to sell it.” I was like, “Sure I’ll look at it.” Honestly, I was being polite. I was going to look at it, but I had no intention of buying it. I’m walking through the property and I’m just looking at the space going, “Well, this is a space that would rent individually. This is a space that would rent individually. I could put a mini storage here, here, and here.” So I’m just doing the math in my head is a walk around… And then we walked into this huge warehouse, like 3,000 square foot, 35-foot ceilings, and I was just like, “Wow.” I was blown away.

This building was made from all first-growth fir wood, so even if you knocked the building down, you could probably sell the wood and get back the money that we were paying for the building. And I was like, “Well, this makes sense.” So then I made a few phone calls to some investor friends I have, we each put in $100,000 and bought it for 500,000. So that was the next one after single-family homes.

Actually, when you deal with single-family homes, there’s a certain lifestyle that comes around that. Especially if you’re managing it, which we weren’t. We had a property management company, which looked after that, plus another 50 doors. The commercial real estate was just so much better. It seemed to be for me, for what I wanted to do for it to get some time back. The tenants are great, they’re all professional people in all the different spaces. We’ve got plumbers, electricians, roofers, they’ll rent different spaces within the building…

And the holiday resort, that came about a year after purchasing the commercial space. It was actually the local pub and restaurant on the lake where I was living anyway. It’s a houseboat marina, there are 12 houseboats that go out, there’s a marina… We knew the owner, we knew he wanted out, so we had a conversation, we looked at the books, and it made sense. It was like a switch, it’s like, “Okay.” Because we lived on the lake, but I didn’t enjoy the lake, because I was always doing something else, albeit real estate related… And I love what I do, by the way, don’t get me wrong. I’m not complaining about anything I’ve done. But this gives me the chance to actually live and work in the location that I want to spend my life.

I was like, “Wow, this is just a slam dunk. So why would we not do this?” So we got creative, we raised some capital privately, we had some joint venture partners, we got a vendor takeback on the mortgage, you name it, the strategies were involved in the purchase of that property. So it wasn’t very straightforward, but it was everything I’d learned from the single-family homes, that skillset that I could transfer to enable us to buy that business.

Theo Hicks: Going back to the old Ford dealership… It sounds like a lot of work. How did you know that “Oh, this would be good for stores. Oh, I could put offices here. Oh, storefronts. Oh, the wood.” You saw the wood. How did you know all that?

Gary Spencer Smith: I seen her outside, she was having a smoke outside and I was driving past, and I remember thinking in my head, “Oh, I said I will go look. So I should.” Because that’s what I said I do. So I just did a U-turn and went back, and it looks like three little single-story storefronts from the road that you drive past every day. So I thought it [unintelligible [00:11:52].14] in a strip mall, it looked like that.

Then I go inside and I’m looking, and they’re each individually located. So where the garage used to be where they’d repair the cars, that had its own unit; it had three big garages, its own office, its own washroom. Then the showroom had its own office, its own area… Then there was a middle room that I guess would have been management, like the middle building, and the same thing, had its own office, all broken down already. Then she showed me the outside space; it was under the deck that was the body shop, and I’m like, “Wow, this could fit six vehicles in here, at least. Or someone could use this space.” It’s actually a fabric company that’s in there now. But it’s a good usable space, and had its own office. So everything was already compartmentalized.

But what she’d been doing was using the main showroom for herself, just for her little sewing business, and then she’d been renting the warehouse out to fisheries. That’s all she has done with the building. Everything else, she was like “Oh, I’ve got some stuff in there. I’ve got a friend that’s got some stuff.” Then she showed me the middle floor of this building [unintelligible [00:12:55].04] side on side, butted up against each other. I know it’s fair, you can tell, and the time it was built… ANd I was just looking at it going “You could park a tank on this roof.”

So then we got the drawings to the building and I’m like, “Wow, the amount of material that is in this to create the strength, what they used at the time – there is huge value in that.” So I was, “Well, it makes sense.” I did the math and the building itself [unintelligible [00:13:16].25] six and a half, but I think you’d be running between 10 and $12,000 based on market rents. For $500,000, that 1% rule, it absolutely crushes that. So I was like, “Well, why would we not do this?” So we moved our personal offices into this and we set up our studio for doing our YouTube channel stuff, and then we rented the rest of the space out in the building to cover costs and make a profit. I wish I could say it was an open space and I designed the idea, but it was already set up.

Theo Hicks: Okay. So you bought it for 500k… How much did you put into it to get it ready to go?

Gary Spencer Smith: $200,000.

Theo Hicks: 200K. Okay. Who did the work? Was it just your contractors you had met through the single-family business, or did you need to find someone new? How did you find the people that did that work?

Gary Spencer Smith: I’ve got a pretty good team from doing the single-family homes. We got to where we were doing three or four properties a year, plus all the odd jobs that come with managing 50 to 60 units. So I’ve got my backup plumber, electrician, backup electrician, framer, drywall – all those people were in place. We did do some of it ourselves, Chris and my business partner, when it came to our office space. And when we were looking through the building, the old big glass sliding doors that they would have had on the showroom, they were actually downstairs in the storage. So we just framed up a two by six wall and put the big glass sliding doors in, and that’s our office. It’s through all these big sliding doors at the back of the showroom, so we have our own sectioned-off space. That’s the only thing we did ourselves, was set that up. But for the most part, it was pretty much set up ready to go. A couple of partition walls, and an upgrade on the hydro, and some new lights and escape lights for the separate spaces. That was it. It doesn’t sound like a lot, but that 200l – $70,000 of that was a new roof. It’s a huge space, and we did this silicone roof on it. It’s got a 50-year warranty. So that was a huge chunk of the money was that. And then hydro was probably about $30,000. So 100k just on those two things, and the rest $100,000 was pretty quick, once you do in flooring, and trim, and a little bit of work.

Theo Hicks: Got it. Very fascinating stuff. Alright, Gary, what is your best real estate investing advice ever?

Gary Spencer Smith: Actually, take steps and do it. Don’t sit and wait. Get some knowledge, which is free. You’ve got awesome podcasts like this that you can listen to. You don’t have to pay tens of thousands of dollars for the knowledge. Get the knowledge that you can for free, pay a little bit of money to get some more refined knowledge, and then go take action. That’s it. Action will teach you more than any mentor or coach.

The second tip would be to find a good mentor. You don’t have to pay for that. That would be someone that’s done it, successful, who is willing to let you take them for dinner, take them for a coffee, bounce some ideas. If you can get a good mentor, you’re going to jump leaps and bounds ahead of everything else, and listen to what they say.

Theo Hicks: Alright, Gary. Are you ready for the Best Ever lightning round?

Gary Spencer Smith: Okay, let’s go.

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

Break: [00:16:04][00:16:44]

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

Gary Spencer Smith: I so wanted to plug my own book right there, [unintelligible [00:16:51].05] which is about human evolution. I actually use that when I’m discussing with my JV partners, just about how we think; it’s a mindset. Because real estate managing, buying, it’s all about the mindset. I’ve actually used part of that book where he talked about human evolution to help people understand about where we’ve got to and why we do the things we do. People are like “Wow, that’s so good.” We didn’t even talk about real estate, but they became a joint venture partner through discussing that book Sapiens.

So it’s crazy – not a real estate book, but I think one of the best books is written by Julie Broad, called More Than Cash Flow. That book is fantastic. Because I think anybody who goes on their real estate journey, that is pretty much the journey that most people will go through. You read the books, you sign up for the courses, you pay some money, you make some mistakes, you keep going, you achieve success.

Theo Hicks: And that first book you said, I think I might have missed that. What was the first book?

Gary Spencer Smith: Sapiens.

Theo Hicks: Okay, Sapiens.

Gary Spencer Smith: By Harari. It’s actually about humanity and the evolution of us as a species. But I actually used parts of that book when I was discussing mindset with people who were looking to be joint venture partners. That conversation they even said to me, was a turning point for them, understanding their own belief systems.

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

Gary Spencer Smith: You know what? To start with, I’d go get a job at McDonald’s, so I’ve got some money, and I can have a roof over my head and have some food. Somebody said to me once, if you lost everything, what would you do? Not that there’s anything wrong with working in McDonald’s, but I’m willing to go do anything to put a roof over my head and put food in my mouth, and for my family. So if I’m willing to do that, why would you not take the risks to go try something better, and even big? So I would go get a job first, then I would start looking for new joint venture partners, and I would move the business on and start again; you just keep going. If it fails, you start again and keep going. It’s like picking yourself up from walking, right? Like what would you do if you fell over? You pick up and you keep going.

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

Gary Spencer Smith: It was probably my first joint venture. That was the house I bought when I came to Canada. I bought it individually. I put $6,000 down, then joint-ventured with my cousin a year later; he gave me $20,000. There’s a whole story behind this, but he gave me $20,000. He didn’t have to qualify, I managed the property. But I use that money to take my family for a trip back to the UK and have three and a half weeks over Christmas. And that one transaction made me look and go “Wow, I put $6,000 in, I got $20,000 back a year later, and I still own half the property. That’s a 333% ROI.” I didn’t really understand ROI, but this opened my eyes to the real percentages you can make using real estate, using joint ventures, and that was it.

I just said myself “How do I do that more?” And that was that one there, my first property in Canada, because that opened my eyes to ROI and huge returns, and it ignited the fire.

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

Gary Spencer Smith: I had a leadership company — well, I still have a leadership company that we do from time to time, and I work with a lot of youth at risk. So I help the youth at risk develop their leadership skills, just so they can do simple things like go get a job, go find a place to rent. A lot of them I’ll talk about getting their first place to rent, and how they should show up, and how they should answer people, communicate with people, shake their hands.

So I like working with the youth at risk, those 15 to 19-year-olds that are on the verge of going one way or the other. Hopefully, if you can give a tiny bit of guidance to even one person like that, you have no idea how far that ripple can go, where it can change someone’s life. I know that was done to me at an early age, and that’s why I like doing it.

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

Gary Spencer Smith: I think if people email us at info@revnyou.com, or connect with us on Facebook, it’d probably be best.

Theo Hicks: You said you have a YouTube channel, right?

Gary Spencer Smith: We do, yes. Same as well – Revnyou With Real Estate. I think we’re about 7,700 subscribers right now.

Theo Hicks: Nice, good stuff. Well, thanks, Gary, for joining me today and going over your background and your journey to how you got to where you are today from in the UK, in the military, to moving to Canada and becoming a full-time real estate investor.

We talked about how you got started in single-family homes through JVs, as well as doing some of the rehabs yourself as a GC, as well as eventually the management company, which made you realize that commercial real estate was a better play for you. So you did the old Ford dealership, which you found at a funeral, of all places. And you talked about how much it cost, how you analyzed the deal when you’re walking through it.

And then after that was the holiday resort, which again, you walked us through how you got that deal as well, and how that made you start to think about how to use real estate to get what you want out of life. I thought that that was solid advice.

And then your Best Ever advice was to really just take action. Don’t sit and wait. Get some knowledge that you can now get for free pretty easily online. The different websites, and YouTube channels, and blog posts, and podcasts. If you need to, maybe pay a little bit of money to get some more refined knowledge, and then start taking action… Because that action will teach you more than any mentor or coach will teach you. But you still also said that it makes sense to get a mentor, but you don’t necessarily have to pay a lot of money. Just find someone who’s done what you are trying to do, and then the goal would be to take them out for dinner or coffee to pick their brain and get some advice on how to end up where they’re at.

So thanks again, Gary, for taking the time out of your day to speak with us today. Best Ever listeners, as always, thank you for listening. Have a Best Ever day, and we’ll talk to you tomorrow.

Gary Spencer Smith: Thank you very much, Theo. Have a great day, and it’s been a pleasure. Thank you very much.

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JF2351: CPA Guiding Entrepreneurs To Wealth With Noah Rosenfarb

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

Noah Rosenfarb  Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

Noah Rosenfarb: Awesome. Glad to be here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: That’s a winner.

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

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

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

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

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

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

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

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

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

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

Noah Rosenfarb: Of course.

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

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

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

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

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

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

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

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

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

Noah Rosenfarb: Thanks so much.

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JF2331: Self Storage During COVID-19 With Kris Benson

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

Kris Benson Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

Kristopher Benson: I’m doing great, Theo.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Let’s go with now.

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

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

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

Kristopher Benson: Sure am.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And then I really liked the “if your business were to collapse” answer about the cool guy list. So you continuously keep a list of people that you’re impressed with, so if something were to happen and you didn’t have a job anymore, you would go to each of these individuals, and call them, ask them for advice on any future opportunities they see. And maybe even going to work with them for a month for free, to see firsthand if there are any opportunities. So very interesting. Thanks again for joining us, Kris. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2328: HighSchool Vocational Class to Real Estate Developer With Kevin Palka

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

Kevin Palka Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever show. I’m Theo Hicks and today we’ll be speaking with Kevin Palka.

Kevin, how are you doing today?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Kevin Palka: Let’s do it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Kevin Palka: Exactly.

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

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

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

Kevin Palka: Well said.

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

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

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2317: InvestNext With Kevin Heras

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

Kevin Heras Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Okay. Are you a coder?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Like pictures, and stuff?

Kevin Heras: Yeah, exactly.

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

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

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

Kevin Heras: Sure thing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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JF2314: Jump In and Learn With John Evans

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

John Evans Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

John Evans: That’s right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

John Evans: Absolutely.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

John Evans: That’s correct.

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

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

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

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

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

John Evans: Thank  you, Theo.

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