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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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.

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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.

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

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

 

Vinney Chopra Real Estate Background:

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

 

 

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

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

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

Beth Azor Real Estate Background:

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

 

 

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Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Wow, that’s crazy.

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

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

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

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

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

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

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

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

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

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

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

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

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

Beth Azor: Alright. Good job.

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

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

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

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

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

Beth Azor: Thanks, Theo.

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JF2194: Important Development Deal Steps With Shane Melanson

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

Shane Melanson  Real Estate Background:

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

 

 

 

 

 

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Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Shane Melanson: Let’s do it.

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

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

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

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

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

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

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

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

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

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

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

Shane Melanson: That’s right.

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

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

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

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JF2191: Retail Shopping Centers With Beth Azor

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

 

Beth Azor Real Estate Background:

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

Click here for more info on PropStream

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Beth Azor: Exactly, exactly.

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

Beth Azor: Sure.

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

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

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

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

Beth Azor: Cool.

Theo Hicks: Steven Pressfield, right?

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

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

Beth Azor: Wow. Move to Hawaii.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Jorge Abreu Real Estate Background:

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

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

Jorge Abreu: [laughs] Yes, it is.

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

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

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

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

Joe Fairless: Yup.

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

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

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

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

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

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

Joe Fairless: There’s crooks everywhere.

Jorge Abreu: Yeah, that’s for sure.

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

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

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

Jorge Abreu: So as the market go hotter – residential is what I’m talking about right now – it got harder to find good deals… And what we decided to do was leverage our construction company to create deals. It started doing a small addition – I know I can add 500 sqft to this house, and it’s gonna cost me $100/sqft, but I can turn around and sell that extra square footage for $200/sqft. Then we started ripping the  roof off of houses and adding a second floor, to the point where we just finally went to the next step where we demolished the house and started building new ones. And then on the multifamily side, actually working on the first one, on a large multifamily scale, which – we’re just in the entitlement phase right now.

Joe Fairless: With the renovation process where you’re building out 500 sqft more, compared to building a brand new house after you demolish it – what are some main differences, other than it’s just larger? But besides that, maybe from an approval process, or from some other type of consideration that we might not think of, and that you’ve discovered when you got into it.

Jorge Abreu: Most people would actually think that addition would be easier than the new construction, which is not necessarily true. Building a new construction is easier. The permitting is harder, obviously, and that’s one reason why we were ripping the roof off and adding a second floor, versus just tearing the whole house down – it’s because the permitting process is a lot quicker, a lot easier… You can get off the ground quicker, because you already have your foundation… But on a new construction, once you have that foundation poured and you start building it, it’s a lot easier than the existing, because you don’t run into plumbing pipes that are broken… You never know what you’re gonna find behind the walls that you’re tearing down.

Joe Fairless: That makes sense. Permitting is harder for new construction, but the construction aspect of it is easier. You gave the example of $100 versus $200. $100 to build the 500 sqft, but you can get $200 on the sale… What were the ratios that you were looking at with new construction when you were doing them?

Jorge Abreu: So we started doing some higher-end single-family  homes, and that was more of the ratio maybe — we were building it for more like $130 to $140/sqft, and then turning around and selling that for $240. I’m not sure exactly what the ratio is there, but…

Joe Fairless: That’s fine; that helps, that comparison. When you say higher-end homes, what’s the end price point range?

Jorge Abreu: Most of them were a million to — I think the most expensive one we did was right around 1.5 million.

Joe Fairless: Any of them sat on the market for too long and made you sweat?

Jorge Abreu: Absolutely. [laughter] Unfortunately.

Joe Fairless: What happened with one of them?

Jorge Abreu: There was one that location — they always say “location, location, location.” It was a good location overall, but it was a little closer than we realized to a main street, and we kept hearing that comeback in the feedback, that they didn’t like the fact that it was — we’re talking about maybe 4-5 houses in from a main street. So it sat out a bit longer than we expected.

Joe Fairless: Out of your deals, thinking back, what deal have you lost the most amount of money on?

Jorge Abreu: Hm… It’s a tough question. We’ve definitely lost on some deals. I won’t say we haven’t. I know there was a renovation we did… It was something with a neighbor… I can’t remember the exact deal, but I know we ended up losing maybe 20k or so on it.

Joe Fairless: You don’t remember — not specific, but high-level, why you lost the money? In case we can learn from that, that’s the only reason I’m asking…

Jorge Abreu: Yeah, for sure. We ran into some issues, so we had to replace all the plumbing. You’re originally from Texas, I believe, so you know about the foundation shifting…

Joe Fairless: Yes… [laughs]

Jorge Abreu: Okay… So the foundation had shifted quite a bit, which we saw that going in, but we did not expect to have to replace all the sewer lines, which we did… So that cost us some money. And then on top of that, it ended up sitting longer than we expected, we ended up having to drop the price… So  a mixture of spending more on the renovations than we had expected, and then having to sell it for less.

Joe Fairless: Do you still have your construction company?

Jorge Abreu: Yes.

Joe Fairless: Knowing that you have a successful construction company, what are some things that you can share with people about the construction process, that you know because you own the company and you see from the construction side what things are like? That maybe are either missed, or things that other investors should realize about the construction process. I know it’s a broad question, but maybe think of it from the standpoint of “When we get quotes from construction companies”, or the payment process, or “Here’s some unique things you could do to work with a company…” Just anything that comes to mind.

Jorge Abreu: No, for sure; I’ve actually done quite a bit of webinars and stuff on these things, because I feel like it is an aspect of multifamily investing that a lot of people don’t have a background in, and they do some of these things wrong…But I think it starts with the contractor that you hire; you need to do your homework. You need to call references, you need to make sure that they have insurance – that they have general liability insurance, and enough to cover if something was to go wrong. That they have a presence online… Nowadays if a contractor doesn’t have a presence online, it’s a huge red flag. So that’s one – do your homework when you’re hiring the contractor.

And then while the project is — well, not even while the project is going on… So once again, before  you hire them, dig into how they communicate exactly. How are you going to communicate with me throughout this project? Are you going to give me a weekly report? Are  you gonna give me daily reports? Do you have a software that you use to actually manage the project? Are you gonna give me schedules? How do I hold you accountable? Those kinds of things. How do you handle change orders? That’s big, because if you’re picking a contractor solely on price, you’ve gotta be careful; you’ve gotta look at the details and make sure that they have a detailed scope of work. If not, they may change-order you to death, which I’ve seen several times… So yeah, I’m not sure if there’s something else… I can keep going on and on.

Joe Fairless: That’s good. So when I meet with a general contractor, what are 2-3 things I need to make sure that I either ask him/her, or get from him/her? I know there’s more than that, but what are 2-3 things that “Hey, you’d better ask or get this information from him/her before they do the job”?

Jorge Abreu: For sure you need to get a detailed scope of work, that lays out exactly what you’re getting. If they delivered a paragraph with a price at the bottom, I will not accept that. Make sure that if they’re supplying some type of materials, that you have an actual allowance of what they’re supplying and how much they’re budgeting for that. And their insurance – make sure that they supply a certificate of insurance, and that it has the owner of the property’s name on it.

Joe Fairless: What do you mean by owner of the property’s name?

Jorge Abreu: You know, each property is gonna have its own LLC, most likely… So that should be mentioned on there as additionally insured.

Joe Fairless: Okay, cool.

Jorge Abreu: Yeah, it just makes it easier if something does go wrong – it makes it easier to file the claim on that insurance, if it goes that far.

Joe Fairless: Okay. Got it.

Jorge Abreu: And the third thing I would say would be the communication – really dig into how they’re gonna communicate with you, and have them lay that out for you.

Joe Fairless: Got it. You actually gave a bonus; you gave four, so even better. Detailed scope of work, materials allowance, make sure that you’re additionally ensured on their certificate, and the communication.

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

Jorge Abreu: Best real estate investing advice ever… Get focused. Don’t get distracted with all the different noise that’s out there. That’s a pretty broad statement, but that can go for so many things. Real estate alone – if you decide that you wanna be a real estate investor, get focused on what type of real estate you’re actually gonna do, what area you’re gonna do it in, what type of properties you’re gonna look for, and then go all-in… And don’t try to be a real estate investor while selling things on Amazon, while doing something else. Conquer the one thing in front of you, focus on it, and then possibly start adding other streams of income.

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

Jorge Abreu: I’m ready.

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

Break: [00:18:55].23] to [00:19:38].15]

Joe Fairless: What’s the best ever book you’ve recently read?

Jorge Abreu: Recently, it would have to be Atomic Habits, which mainly goes over the fact that every day we have habits, a lot of them we don’t even realize it; it’s our subconscious mind just doing things. But if you become aware of that, you can actually replace those bad habits with good habits… And then when you really break it down, the outcome of your life depends on those habits.

Joe Fairless: Best ever deal you’ve done?

Jorge Abreu: That would have to be our five-property portfolio of 1,275 units we closed on end of November, last year.

Joe Fairless: How did you find it?

Jorge Abreu: Found it through a broker.

Joe Fairless: And where are they located?

Jorge Abreu: Houston.

Joe Fairless: Why is that the best ever, because it’s the largest?

Jorge Abreu: Because it’s the largest, yes, and there was a lot that went into getting it closed… So it felt really good getting it there.

Joe Fairless: What was just one of the challenge?

Jorge Abreu: Raising 22 million dollars.

Joe Fairless: Fair enough. When you take a look at that deal and the challenges you came across, what’s one thing that you learned?

Jorge Abreu: If you’re going for a institutional or an equity partner, have several back-ups.

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

Jorge Abreu: I know our company goals — by the end of this year we wanna have a non-profit organization that we support 100%, and we’re gonna start doing a yearly event, where all the proceeds would go to that organization… And probably doing some other things throughout the year. So that’s not something we’re doing this second, but it’s definitely in our plans.

Things I do right now – I like to educate others. I feel like some people get trapped in the “Okay, I’m supposed to go to the university, get my degree, go work a W-2 job, have my 401K or whatever retirement plan, and that’s it. That’s what I’m gonna do.” And there’s other ways to really be able to build wealth, and other investments, like multifamily and things like that, that aren’t really taught in our school systems.

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

Jorge Abreu: They can visit my website, which is ElevateCIG.com, or JNTConstruct.com. They can also shoot me an email if they like, at jorge@elevatecig.com, and if they do that, I can send them a couple different contents. I have a free checklist for due diligence for multifamily properties, and a couple other things I can send them.

Joe Fairless: Jorge, thanks for being on the show, talking about your construction management experience, lessons learned, talking about the deals that you’ve done, and what’s worked, what hasn’t worked, and the differences and the thought process with new construction versus adding on, versus what you were doing before that, buying existing product and wholesaling.

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

Jorge Abreu: Thank you.

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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JF2140: Unique Ways to Increase NOI with Shopping Centers With Alan Schnur #SkillsetSunday

Alan went from owning apartment buildings and hundreds of homes to now focusing on shopping centers. He decided to sell his portfolio of apartments and single-family homes because of all the work and challenges to scalability. Now he is able to scale and have a model of “set it and forget it” when it comes to dealing with fortune 500 companies and shopping centers.

Alan Schnur previous episode: JF1978

Alan Schnur Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

“For me, shopping centers are more scalable and more of the “set it and forget it” – Alan Schnur


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how 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, Alan Schnur. How are you doing, Alan?

Alan Schnur: Hey Joe, I’m doing great. How about you?

Joe Fairless: Well, I’m doing great as well, and looking forward to our conversation. A little bit about Alan – he has bought more than 2,000 units via his company’s syndication platform and managed more than 7,000 units. He owns numerous medical office, warehouse buildings, shopping centers and custom-built multi-million dollar homes, based in Houston. Today, we’re gonna be talking about unique ways to massively increase NOI with shopping centers. So first, Alan, do you want to get the Best Ever listeners a little bit more about your background, and then we’ll roll right into the topic at hand?

Alan Schnur: Sure. Thanks for the background on me, Joe. Again, thanks for having me today. What can I say – I’m a New Yorker, I spend a lot of time in New York. Actually, I worked in the World Trade Center in 2001, and I was fortunate enough to have left the building the day before on a business trip, and that 9/11 event really changed my life in many ways. I worked in the 101 floor, and the company that I worked for lost 700 out of 1,000 people, and I lost 40 out of 44 teammates; spent a week by myself in Portland when I was trapped, trying to figure out what I was going to do next with my life after that event, and it brought me to Houston, Texas. And I stayed in the commodity business for a good 10, 15 years, and I was turning everything around at that time in my life, and I wanted to create multiple streams of income. So I started buying single-family houses. Believe it or not, I bought one a month for ten years straight. So I woke up one day, I had around 150 houses and a successful commodity firm. So I decided to sell the firm, double down on the houses which I did, so I had a few hundred houses, and then by then, the world started to turn; not only with the houses, but in the commercial real estate business around 2010. So I looked around and I saw that apartment buildings were on sale. So for a five year period, every 90 days, me or me in a syndication, purchased an apartment complex, and I woke up five years later and I realized I had around 2,000 apartment units, and I grew out a property management firm too where we managed around 7,000 units and 1,000 houses, and life was good. I was just looking for something a little more easier. Sometimes we get involved in this real estate dream, not realizing how much work it really is.

So I had an epiphany one day; I woke up and I said, “You know what, I want to slow down a little or–” not necessarily slow down, Joe, but figure out how I can scale. It was a little hard for me to scale with the multifamily. It was taking up a lot of my time and the stuff that I was managing. So I sold it all. So I’ve successfully syndicated, founded, started, grew, cash-flowed, held on to, and I bought around $50 million of apartment buildings during the downturn and we sold everything for around $80 million. I took my share and I got into the triple net leasing business, the commercial aspects side of real estate, which I’m sure we’re about to start talking about. For me, more scalable, more enjoyable, I like dealing with Fortune 500 companies, getting leases signed that go for 5 or 10 or 15 years; set it and forget it as much as possible when it comes to real estate. So what can I say? So after I got rid of all the housing, I really jumped into buying warehouses, storage facilities, building multimillion-dollar houses, and most importantly, that’s made the biggest difference in changing my life over the last five years, I started buying shopping centers – don’t believe the hype, ladies and gentlemen – started buying shopping centers; awesome cap rates, even better at borrowing the money, nice good spread there of 400 or 500 basis points, and dealing with Fortune 500 companies where the leases go for a long time. So that’s really a quick background on where I am and where I started, Joe.

Joe Fairless: So apartment buildings and exiting out along with those homes got you a chunk of change that you clearly had some money going into it in order to buy a house a month for a very long period of time.

Alan Schnur: Well, you know what, I got a little creative at the time, or I want to say early 2000s. You pick up houses for $20,000, $30,000 a pop here in Texas in the surrounding areas. So yes, I did whatever it took.

Joe Fairless: What was the average purchase price would you guess?

Alan Schnur: $35,000 a house. Maybe fix it up for $5,000. I cash-flowed them for a long time for a good decade, and then woke up one day and realized that I’m gonna have to either sink another $10,000, $20,000, $30,000 into each house to bring it up to true market value; these were all rentals. Or — I just started selling them off in tranches, and that’s how I built it. I’d buy ten houses at a time, hard money, borrowed money from friends and family, or money that I was making, do five or ten houses at a time, and then go get some commercial bank loan on those houses. So it’s like the shell game, I kept moving the ball. In this case, I kept moving the same money into the next five or ten houses.

Joe Fairless: Okay, so you sold those and you sold the apartment buildings and you got a chunk of money, and then you went into triple net leasing, which as you said, was more scalable, more enjoyable. The perception that I have, and we’re going to be talking about this, is yes, more scalable, more enjoyable, but less profitable. So let’s talk about that.

Alan Schnur: Okay, so let’s talk about a few different ways of making money in this triple net commercial leasing business. Well, I have a few choices here. You could buy something empty and pay an empty price, if you know what I mean. Maybe buy 10, 20, 30 cents on the dollar, because if it’s empty, there’s no net operating income. So someone’s going to sell it to you per pound, per price. So let me back up a second. So buy an empty warehouse. I just did one recently; I bought a 35,000 square foot empty warehouse relatively really cheap, like 10, 20 cents on the dollar off of an auction, and put a Fortune 500 company in there. So now it’s cash-flowing, it’s got at net operating income… And when you have these Fortune 500 companies and they’re healthy and the piece of real estate’s healthy, you can really start talking about trading that  stuff that at a 6, 7, 8 cap rate on the net operating income. So it’s a really great way of getting ahead in life. I can’t specify this enough. If you can take something broken, fix it, put a good tenant in there, figure out how you’re going to cash flow it, and then cap rate it out, you can really be off to the races and running.

Joe Fairless: Someone who’s listening to this thinks, “Well shoot, I have access to auction sites and sale sites, and I see a distressed real estate all the time, but when Alan talks about bringing in a Fortune 500 company, that’s where I have a block where it’s like, well, I don’t know, any Fortune 500 company contact people.” So what are your thoughts on that?

Alan Schnur: I know we have limited time here, so let me move the same example to the shopping centers… Because I find that question posed to me many times in the shopping center business, and it’s really just fear and intimidation. Well, how am I going to fill this spot if the tenant goes out of business or doesn’t pay their bills and leaves? It is quite different than the housing business where we can just stick up a sign and see if we can catch people driving by, which still does work in the shopping center business, but we rely more on national brokerage firms, the Colliers, the Marcus & Millichaps. There are specific firms in your area of town that do nothing but lease. It’s an awesome profession to be in. It pays out 3% to 6% commission on the life of the lease for the broker. So the broker is really incentivized to go out and get a tenant for you, and you’ll also find that a lot of these brokers are representatives of these Fortune 500 companies. So as bad as you want to bring them into your space, they’re looking for your space to create a transaction for both parties and get paid.

Joe Fairless: Okay, so what are some ways to make your space desirable for those types of companies?

Alan Schnur: Let me give you an example. I just got back from ICSC. It’s a shopping center foundation group. It’s a national group here in the United States, but it’s actually worldwide. So there was a few major meetings every year with ICSC, and it’s also nationally. So we just had our Texas meeting literally last week in Fort Worth, Dallas, and what you find is every brokerage shop and every retailer that’s interested in Texas will show up at this convention. And on the second day of the convention, for example, all the retailers actually set up a table; it’s very cool. So you have Starbucks, maybe you have Chick-fil-A, you have a major grocer, you have new franchises that are trying to break into Texas. So they all set up their table, and in this particular situation, there was around 100 booths set up for these retailers. So let’s just say, I have some vacancy here in Texas, which I always have a spot or two for a lease… I literally will walk up with a flyer, say, to Starbucks and say, “Hey, I’m on Westheimer in Houston, Texas. This is my block. This is the specific information about the shopping center. Would you folks be interested in taking a look at it?” and you’d be surprised, they move so quick. They know exactly where they are, they pull up all their data, and you’re probably going to start exchanging some drone footage of the property.

For example, I had a very successful meeting with Little Caesar’s pizza. I recently bought a shopping center here in Pasadena, Texas, and it comes with an outparcel, which is another way of making money with commercial real estate and shopping centers. This outparcel was a bonus when I was buying the shopping center.

Joe Fairless: For anyone who’s not familiar with an outparcel, what is it?

Alan Schnur:  Sure. An outparcel is a piece of land. Maybe it’s like an outlier in your parking lot, or maybe even take a piece of your parking lot that backs up to a major road, and that’s exactly what this situation was. It backed up to the corner of the shopping center where two major roads intersected. So if you see me here holding my hands or if you’re listening, just picture yourself, you have a parking lot and two major roads meeting and you own the parking lot. Well, you literally can take a piece of that parking lot and build an outparcel, build a pad site for some retailer to come in.

I’ll give you even another example. I recently did this with Krispy Kreme Doughnuts and another shopping center that I have in College Station. It’s a TJ Maxx shopping center, but what’s really cool is the parking lot is huge, and we took a portion of the parking lot that lies up to this road, and we did a 20-year land lease with Krispy Kreme’s. So we took the outparcel, we just took 40 parking spots that nobody was even using, and we just built up a square, if you want to say that, and a foundation, and Krispy Kreme Doughnuts came in, they built their own structure, they’re running their own business, under the intention that we signed a lease for 20 years at $8,000 a month, with me as the owner of the property, sure. So they’re fully responsible for everything.

Joe Fairless: So monetizing 40 parking spots that you weren’t getting money for anyway, and people weren’t parking their cars anyway unless it was probably some overnight people who weren’t permitted to be there.

Alan Schnur: And let me break it out into money. What that really means by taking that 30 or 40 spaces, which was bringing in absolutely no income into the shopping center; $8,000 a month, I don’t have to take care of their property, times 12 months is $96,000, and this is trading at an 8 cap, which is high, so 0.08– I don’t have my calculator, I’m gonna say it’s around $1.2 million of value we just added to the shopping center just by creating an outparcel in a parking lot, by a busy road. And that’s another way how you create value and money in retail shopping centers.

Joe Fairless: What type of approval process is typically required to get an outparcel?

Alan Schnur: Well, first of all, if you’re the owner of the shopping center, you have to make sure that you do have the approval; you have to look at your leases. For example, I have another shopping center that has a specific national chain doctor’s office in it, and it specifically says, “You cannot block our view from the street.” So you really have to look at the easements and you have to look into the leases and you have to work with your attorneys. So for sure, I’m gonna abide by the lease and play by the rules and not put something up in front of that doctor’s office, but just maybe 100 feet down or 200 feet down, I can. So you just have to check your P’s and Q’s and see what you can do and what you can’t do, and all the leases.

In this particular situation, it wasn’t really blocking anybody. It was just a far off, distant hard corner. Back to the Pasadena, Texas example that we started talking about with the Little Caesars – so I’m pretty excited, because Little Caesars, that will easily generate $9,000 a month on a land lease, and they’re talking about $1.5 million in valuation just on the outparcel there. So again, outparcels, great advantage, great opportunity to create extra income for your shopping centers.

Joe Fairless: Okay, so outparcels is one. What are some other ways to increase NOI with shopping centers?

Alan Schnur: Well, when I buy shopping centers, I’m really looking for a 20% vacancy or even more, 30% vacancy, because they really trade on a true net operating income number. So if no money’s coming in for the spot, then you shouldn’t be paying for the spot, and that’s how I run my business here at GR8 Partners.

Let me give you a real simplified way of understanding this. When I was starting out in shopping centers, I like to start off small and then work my way up big. I started off buying around 10,000, 12,000 square foot shopping centers, and let me just keep the math easy. Let’s just say there’s six storefronts, and say they’re 2,000 square feet apiece. The first shopping center I bought was 50% vacant. So I had three tenants, 2,000 square feet apiece. So I bought that shopping center for around a million dollars. I put 30% down, so call it $300,000 down, and I valued each slot at $333,000 apiece, just simple math here. So that’s the million dollars that I paid. I hired a leasing agent, the same way I just explained it a few minutes ago. Over a 12 month period, we found three more tenants, and not only did we find three more tenants, we found national tenants. So we went for the mom and pops, who may be a pizza place or a dry cleaners, to an AT&T. We put in a national hearing aid company, and the third one I believe, was a Taco del Mar. So now I’ve got six tenants, and one side of the shopping center is worth $333,000. The other three slots are going to be worth $333,000. So all of a sudden now, on an NOI number, not only did I just pay a million dollars for the shopping center, but I doubled the value of the shopping center. So now it’s worth $2 million, and I actually did do that and I actually did sell that. So that’s a way of filling up your shopping centers and making extra money by filling up your vacancies. Makes sense, right?

Joe Fairless: It does make sense. Why wouldn’t other people do that who were competing for the same property?

Alan Schnur: I have this philosophy, the evolution of a real estate investor, a little older and wiser, just recently turned 50 and been doing this for 20 years, and I went through the same processes as every body. I started buying the houses, I started buying the apartment buildings, and then I started buying the triple net leasing stuff. Everyone wants to go through the pain, they feel like they’re not ready or they’re intimidated about filling up their shopping centers, but I can tell you, here in Houston, having a lot of property management experience, the average C Class apartment building will turn 60% to 80% every year or you’re going to lose your tenants. To me, that’s more scary… The credibility of the tenants and not paying their bills and things breaking, compared to why not do the shopping centers, why not do the triple lease? The money’s more dependable. If something breaks on triple net lease, the  tenant’s paying for it. If taxes go up, the tenant’s paying for it. If insurance goes up, the tenant’s paying for it.

Joe Fairless: I think the hesitation that most people have is, one is just becoming familiar with how to assess opportunities with shopping centers, how to run the numbers, what pitfalls to look for and just the learning process, but then combine that with the second thing, which is, I just don’t know if I can find quality tenants or enough of them because I personally don’t know business owners who would rent from me. Whereas I know that apartment owners don’t think “I’m buying 100 unit property, so I know 100 different people who would rent from me.” I mean, clearly, that would be a ridiculous thought process, but I feel like that’s a mental block for people outside of just learning the process and learning how to do it. It’s just, are there really enough tenants to rent my space if the space is currently vacant already?

Alan Schnur: Yeah, I hear you. I agree with you, 100%.

Joe Fairless: I’m not saying that’s a legitimate reason. I’m just saying those two reasons combined are what allows you to buy more property.

Alan Schnur: Here’s what I’d say to that to help someone get over the fear, or to answer that question. The first thing I would say is, look, there’s a lot more building going on when it comes to apartment buildings and housing right now than retail shopping centers. We went through this lull over the last five years in retail shopping centers. Another reason why things weren’t being overbuilt. Ask yourself a question – when you’re driving down the road right now, how many vacancies do you actually see in shopping centers? We don’t see too much here in Texas right now. So part of the argument would be, there’s a lot less space available to build shopping center strips on roads. Every other block has a new 300-unit apartment building here in parts of Houston, Texas. So when I’m buying shopping centers, I’m looking for core areas of a community, I’m looking for density, where there’s a lot of population, and I’m looking for a high car traffic count. So you can just think of those three things that I just said.

Joe Fairless: How do you quantify those three things?

Alan Schnur: Well, I quantify it– when I’m looking to buy a shopping center, I like to buy shopping centers that have 30,000 to 50,000 cars going by every day. I like to buy near a hard corner where it’s just absolutely buzzing in traffic like you wouldn’t believe it. I like to buy shopping centers where there’s so many people you can’t help but do your dry cleaning there, or go food shopping there or stop off and pick up a Starbucks.

Joe Fairless: How do you quantify that third one – the so many people part?

Alan Schnur: Okay, so we call that population density, and there’s plenty of services out there. I use CoStar a lot, and we’ll get a one-mile radius, a three-mile radius and a five-mile radius of houses. So we’re looking for a good 30,000, 50,000, and even goes up to  — a five-mile radius, we’ll go up to 50,000 people. So you want to have a lot of people if that’s the business you want to be in.

Joe Fairless: For the one mile radius, what’s too low?

Alan Schnur: Well, you’ve got to be careful with the one-mile radius because there’s day time population. Maybe there’s an area that you’re thinking about where people drive to work and that’s what people do; they work in that area, and then there’s households and there’s household incomes. So the daytime population is important. I just finished doing an analysis on a property in California. The daytime work population was 200,000 people, but only 25,000 people live in the area. So you’ve got to take that into account, who are going to be your tenants. You’re probably going to do a lot of restaurant business, maybe fpr  lunches where people are going to go eat and drink coffee, as opposed to maybe you don’t want to put a grocer in that area; and then you do want to look at the household income.

What we focus on at my firm is we’re really buying shopping centers, Class C and Class B. We’re really looking for the household incomes are anywhere from $40,000 to $75,000. We like the discounters for tenants. Some of the tenants I have, for example, are TJ Maxx or a dry cleaners or a grocers or an AT&T or T-Mobile, something where people have to go to this neighborhood center to do their business.

Ask yourself a question, Joe. How many shopping centers will you stop off at in one day? People say it’s a dying business, but there’s people that just absolutely want the experience of shopping. There’s people that have to go and drop off their dry cleaning. Even doctors and dentists, they’re moving out of medical buildings and they’re setting up their cosmetic dentistry in a shopping center strip or an ER clinic, setting up in all these shopping center strips. So again, these neighborhood centers that our people are always going to be drawn to; they just have to, they can’t live without it.

Joe Fairless: Anything that we haven’t talked about that you think we should before we wrap up as it relates to increasing NOI with shopping centers?

Alan Schnur: So another thing that’s really cool about shopping centers is rent bumps are built into the leases. It’s really common. Let’s say I’ve got Starbucks. It’s really common for their rent to go up 1% to 3% every year, and most likely you signed a five-year lease with them. So you’re looking at a 15% increase over the life of that five-year lease, which, when you’re working out your NOI numbers, that’s a huge increase. It’s not that hard to just buy, hold and bank off of rent bumps, and turn around and make 50% on the shopping center when you sell it a few years later; and then of course, we’re always looking for cap rate compression. Maybe bring in some better names, like I mentioned earlier.

We’re in a situation right now, where we have a 40,000 square foot grocer paying a rent rate that’s so low, it’s ridiculous, and they’ve been there for ten years, their options are up and now we’re talking to national names right now that will pay triple the price. So just by going from 50 cents a square foot to a buck 50 a square foot, you literally can increase the value of your shopping centers by millions of dollars.

Joe Fairless: What a fun conversation. I love talking about stuff that I’m not currently focused on, with people who are, and hearing about your approach. So, Alan, thanks for talking to us not only about ways to increase NOI with shopping centers, a couple of examples, building outparcel, have those rent bumps built into the leases, but then also what you look for with shopping centers, and you gave four things – 30,000 to 50,000 cars driving by, having it on a corner, having a population density that fits what you’re looking for and pay particular attention to daytime work population versus people living there, and then the household income being about 40k to 75k, plus the other stuff we talked about. So I really enjoyed it, Alan. Grateful you were on the show, and I hope you have a best ever weekend. Talk to you again. Oh, wait. Actually, last question. How can people learn more about what you’re doing? I apologize for forgetting that.

Alan Schnur: Listen, we syndicate. We have lots of partners in our deals, and you could find us at gr8partners.com. There, you can find our portfolios and what we’re up to and read about us. We’re always looking for new partners. We’re always looking to share what we know, and that’s one way of reaching me.

Another way to reach me is I have a book out, it’s on Amazon. It’s called the Cashflow Mindset. It’s really about lots of stories that we talked about today and ways of making money in real estate, the cashflow mindset. It’s also on audible.com. And I always do this, people think I’m crazy, but my phone number is 713-503-5908. If you’re interested in getting involved in commercial real estate, send me a text.

Joe Fairless: Alan, thanks for being on show. Have a best ever weekend. Talk to you again soon.

Alan Schnur: Bye, Joe.

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JF2132: 100 Years Of Experience With Dean Marchi

Dean is our sweepstakes winner! If you were not aware, we did a sweepstake for the first time ever for a lucky listener to enter for a chance to be on the show with Theo Hicks and ask questions or discuss their story. Dean was randomly picked and is part of a family with over 100 years of real estate experience. Dean focuses on development deals for multifamily and buyers of apartment buildings. 

 

Dean Marchi Real Estate Background: (SWEEPSTAKES WINNER)

  • Full time in real estate development 
  • His family started in Manhattan in 1929, but Dean bought his first deal outside of the family in 2005 and did his first development deal in 2009
  • Portfolio outside of family properties consists of 4 multifamily properties, 2 development sites, flipped 26 apartments
  • Based in New York City, NY
  • Say hi to him at: www.GrandStreetDevelopment.com 
  • Best Ever Book: Best Ever Apartment Syndication Book 

Click here for more info on groundbreaker.co

 

 

 

Best Ever Tweet:

“Focus on every deal your involved in, build up a track record and people will begin to talk about it and you will find investors” – Dean Marchi


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 are speaking with our sweepstakes winner. So if you didn’t know, we did a sweepstake where you could enter, all you had to do is subscribe to the newsletter and you have the opportunity to be interviewed on the podcast, and we are speaking with our winner today, his name is Dean Marchi. Dean, how are you doing today?

Dean Marchi: I’m great and I’m very happy to be here.

Theo Hicks: We’re happy to have you and again, congratulations on winning the sweepstakes. Maybe we’ll do it again in the future, so someone listening right now can be in your place in the next few months… But before we get into the conversation with Dean, we’re just gonna do a traditional interview, because Dean does have a strong real estate investing background. He’s full time in real estate development, his family started investing in real estate in Manhattan in 1929, so almost 100 years of experience in his family of real estate investing… But Dean bought his first deal outside of his family in 2005, and then did his first development deal in 2009. His portfolio outside of family properties consists of four multifamily properties, two development sites, and he’s also flipped 26 apartments. He’s currently based in New York City and his website is at grandstreetdevelopment.com. So Dean, do you mind telling us a little bit more about your background and what you’re focused on today?

Dean Marchi: Absolutely. So I really only do two things – I focus on either buying apartment buildings or building apartment buildings. And on the buy side, I’m mainly focused on Class B apartments in Class A or B areas where I see some upside outside of the building itself, and we try to do value add and bring our operational experience to improving them… Just focused on cash flow, and we always pray for appreciation. And on the development side, primarily we focus on what we call infill development in hot neighborhoods. So we’re focused on an area in Philadelphia called Fishtown, which has  a lot of similarities to what we did in Brooklyn, the development deals, the properties that we built there – Williamsburg, Brooklyn and Greenpoint in Brooklyn. We have a particular design, focus and style, but those are more Class A properties, exceptionally well located, and we try to bring a little flair to them; we’ve done well. So we’re regional developers of multifamily and regional buyers of apartment buildings.

Theo Hicks: When you started talking about the building – what did you call them again, infill?

Dean Marchi: Infill development sites. So in cities– so we don’t really do, what I would call, suburban walk-ups. Those we buy, but what we build is more of mid-rise apartment buildings in vibrant cities, whether it’s in Philadelphia, Brooklyn or northern New Jersey, where you can walk out the door, get on a subway, get your coffee, come home, there’s a wine bar or restaurant outside your door, that kind of development.

Theo Hicks: Sure. Okay, so you’ve got four multifamily properties and two development sites. So are those four multifamily properties to buy, and then the two development sites to build?

Dean Marchi: Yes, we’ve sold some that we built, and we’ve obviously sold those flips that you mentioned. There are 26 apartment buildings that we bought after the Great Recession, primarily REOs or short sales from lenders who took them back. We fixed them up and put them back into the market, stabilized them and ended up selling them. But we’ve held on to the rental buildings that we’ve built, and we also bought an existing apartment building, about 186 units outside of Baltimore, a suburban walk up as well. So we own and manage and outside of the family stuff, those buildings as well, ten apartment buildings in Manhattan as well.

Theo Hicks: Perfect. So how are you funding these deals?

Dean Marchi: Friends and family in, what I would call, super high net worth. So obviously on the equity side, we’ve only done one institutional deal; I would say more of an institution as opposed to a high net worth family office or just individuals.

So the first deal we did, I raised a few hundred thousand dollars from my parents, my uncle and my cousin’s girlfriend’s parents. So just very typical, sitting in people’s living rooms, raising a few dollars to get the deal done, and up to and including — quite frankly, there are a couple of billionaires who’ve invested with me, because with some humility, I’d expect my parents to give me a little bit of money if it was a good deal, but think of super high net worth people – they have tons of options, and for them to trust me with their money and like the deals that we do, that gives me a lot of confidence and a great deal of satisfaction.

Theo Hicks: For these billionaire super high net worth people, you did mention family office– are they through family offices or are these individual billionaires who are investing you in real?

Dean Marchi: Individual, yeah. There’s one deal that we did that is a family office that acts like an institution. So they’re so wealthy that they’ve set up a team of people to invest their money on their behalf. The ones that, in the past, have invested with us and continue today are people we’ve known through the years or met through friends and family and others who’ve recommended us and referred us. So it’s a pretty broad mix, to be honest. It’s great; it’s awesome.

Theo Hicks: Do you have any tactics, any tips, any piece of advice for someone who wants to eventually work their way up towards having these super high net worth, billionaire family offices investing in their apartment deals?

Dean Marchi: The best advice that I would give anybody is  focus on every deal that you’re involved in; the more successful the individual deal is, the more people around you are going to hear about it. So you build up that track record and then people start to talk about it, and whether it be the lawyer involved in the deal, or the broker who sold it or leased it up, whatever it may be, and you build a reputation. But it’s deal by deal; I don’t think you can leapfrog it; I think people trust in two things – the track record, and the person. So if you don’t have the track record, maybe one thing to do is to partner with somebody who does, and borrow their track record, if you will. Even if you get a small piece of a deal, it’s better because you’re building the track record, and over time, you can point to that experience. The other is that I think that people really do look to the individual. So if somebody likes you and trust you and you come referred by other people that worked with you in some capacity or another, that is really helpful for people, and quite frankly, I don’t think that changes from somebody investing $50,000 to somebody investing $5 million. I think those are the two things that people care about.

Theo Hicks: Something else you’ve mentioned too, and again, you might have the same answer – the track record and you a person, but you mentioned that these super high net worth people clearly have a lot of people wanting money from them. So obviously, I could have a really strong track record, and I could be a really good person… So did you meet these people just naturally, just word of mouth, eventually you got to them? But I would imagine that happens a lot. A lot of people are doing big deals, but not everyone has these super high net worth people investing, so once you’ve got that massive track record, what are the types of things, at least from your experience, that set your deal apart from, say, someone else who’s done the same number of deals as you, but is not attracting that type of money?

Dean Marchi: That’s a great question.

Theo Hicks: Does that make sense?

Dean Marchi: Yeah, it’s a great question. So I don’t do a ton of deals. As I said, I’ve been at this for a fairly long time and I haven’t done 100 deals. I do think that we are able to find better than average deals, and there’s no secret to that; it’s pounding the pavement; it’s driving the streets; it’s making the phone calls. But yes, we find, I would say better than average deals, but again, I just think it’s that track record, and what we try to do is to act like an institution in the middle market. So what I mean by that is, we like to do mid-size deals. So for example, the last building we built was 52 units. There are people who are putting up 800+ units in the same neighborhood. There are also a ton of people putting up four or five or six  or ten-unit buildings. So we like to be as sophisticated in our reporting and our approach to how we design and the team that we hire as the guy putting up 800 units, and make our deals though – because they don’t require hundreds of millions of dollars of investment – to make a deal available to somebody who has $100,000 or as I said, $5 million to invest.

So as I said, it’s probably true that we don’t really bother doing a deal that is, what I would call, an average deal, and beyond that, it’s just relationship management. It’s just the same thing, just talking to people, making sure they understand we have the same problems with our deals as somebody doing big deals or small deals, or the same kinds of deals. They’re not without issues, and we have had, fortunately, a track record where quite honestly, Theo, in the 90 years that we’ve been in the business, we’ve never even been late on a mortgage payment, and we started in the Great Recession, having gone through the Great Recession and COVID-19 related issues, and we’ve never even been late on a mortgage payment. So when I say it’s deal by deal, collectively over time you ended up with a track record of good performance, and we don’t oversell. Thank God, we’ve never lost money on a deal. All of our deals have performed at least as well, if not better than our pro forma. So people trust in that. And I always tell people, any deal that we’re going to do, eventually, something’s going to go wrong. We can’t keep it going forever. But I give them my solemn promise that I will treat their money more seriously than my own, and no matter what comes up, I will have at least three solutions for it. We’ll choose the best one at the time with all the information that we have, and try to make right. So people appreciate that and give us their money. So yeah, that’s it. It’s not that complicated, I guess.

Theo Hicks: That’s certainly perfect advice. Alright, Dean, what is your best real estate investing advice ever?

Dean Marchi: Well, I think there’s three things that I would say. Number one is buy apartment buildings… And not to be over simplistic about it, but Theo, what I would tell you is the first human being who decided to walk out from under the open sky and into a cave found that that was probably better than being out in the open, and I will say that if one day, human beings are living on Mars, I suspect that they’ll want a roof over their head. So it’s one of those essential needs, and I think you can’t go wrong with it… Subject to number two, which is not to use too much debt. I’ve seen people lose buildings, I know people who’ve lost their buildings when events beyond their control, such as the Great Recession or other events – it’s because they took too much debt. So there was a time before the Great Recession where you could buy an apartment building with no money down, all debt. So I would say, be cautious about taking on too much debt.

And then the third bit of advice would be to really think about holding it for the long term. That’s where you have really the greatest return. If I tell you what my grandfather paid for his first Manhattan building and what it’s worth today, it would spin people’s heads, but hold it for as long as you can, and I guess a little bonus bit of advice is try to get with people like you, quite frankly. Learned from your awesome book; wherever you can get with people who have experience in whatever you’re going to do, whether it’s real estate or anything else, that’s a goldmine that quite frankly, I think too many people overlook. Those are my three bits.

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

Dean Marchi: Sure, yeah. Let’s go.

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

Break [00:15:01]:08] to [00:15:50]:04]

Theo Hicks: Okay, I’m gonna do the normal question, but I do have one question that I would like you to answer as quickly as possible, but I’ll get to that one in a second. So first, what is the best ever book you’ve recently read?

Dean Marchi: So without sounding like because I’m on your show, but certainly I would include in that answer The Best Ever Apartment Syndication Book by you and Joe. And one that’s overlooked, if you don’t mind my saying more than one, is Powerhouse Principles by a man, a hero of mine, Jorge Perez. He’s the CEO of Related Group in Florida. It’s development focused, but there’s a ton of good advice in that book. And then the Steve Berges book, The Complete Guide to Buying and Selling Apartment Buildings; those are three favorites.

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

Dean Marchi: I would go and do exactly what I have always done. I would go and talk to everybody that I know and start over and do exactly what I’ve been doing for my life. Wouldn’t change a thing, just start over.

Theo Hicks: So the next question I want to ask you – I don’t know exactly how to ask this, but you hear stories all the time of how the one generation makes all the money, and then the next generation maintains it, and then the next one loses all of it…

Dean Marchi: Yes, 100%. I know exactly, yeah.

Theo Hicks: Yeah, you’ve got your grandfather who started the business, your parents are in the business, you’re in the business, all of you guys are successful… So what’s been the main thing that you can think of that has allowed your family to do that and not fall into the cliché trap that I just mentioned?

Dean Marchi: Wow, Theo. Awesome question. Honestly, my whole life, I don’t think anybody ever asked me that, and I think that the immediate answer is that one thing that’s really important to all of us throughout all three generations is that core family. It’s exactly what you said, it’s a business, but first was the family. So my grandfather passed along a lot of really strong Italian principles, if you will, which is where my family is from. Through my father– my father always taught me those lessons and I teach those lessons to my children. And the way I approach the business is that I am giving it and I am preparing what I do to be handed off to the next generation. So we build with incredible quality, we approach everything very honest with our tenants, we really try to honor them and to treat them well, so that when it goes to the next generation, if God Willing it happens, that the buildings, the business is well prepared for that transfer. And of course, I try to pass along every bit of advice that I gather from people like you and others and from my own experiences on to my children and make sure that they understand that they now have the responsibility when that handoff occurs, that they have the responsibility to prepare it for the next generation as well.

And always to remain humble, I think that’s the other thing. Nobody’s bigger than the market; that’s really important too. The way you phrased the question, that oftentimes the son screws it up, if you will, or the daughter goes and blows the business up… I think if you have some humility with what you’ve been given and a sense of responsibility to pass it off, you perhaps avoid some of that hubris that can lead to a business collapse.

Theo Hicks: Perfect. Great answer. I’m surprised no one’s asked that before. I had [unintelligible [00:19:06].25] but I forgot.

Dean Marchi: No, that’s awesome. I appreciate it very much.

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

Dean Marchi: Probably our website, which is grandstreetdevelopment.com. But my email is dean [at] grandstreetdevelopment.com, or we also have an Instagram page, which is @GrandStDevelopment; those would be the best ways to get me.

Theo Hicks: Perfect. Alright Dean, I really appreciate you coming on the show today. I learned a ton from this conversation. Some of the key takeaways that I got – number one, you talked about some tactics for being able to attract that money from the billionaires, the super high net worth people, the family offices, and at the end of the day, it really just comes down to, as you mentioned, the two things, which is the track record you have and then you as a person. So it’s just focusing as much attention as possible on every single deal to make sure that it is as successful as possible… Because then, once you’re successful, people start talking about you, you start building up a reputation, and it’s a snowball effect where eventually people know, like and trust you enough… And you’ve been referred enough times that you’re able to reach those higher echelons of investors. So you said it’s step by step; there’s really no hack or shortcut or cheat. It’s just going deal by deal and making sure each deal is as successful as possible.

A couple other things you mentioned too, that have helped your track record is, you said you act like an institution in a middle market. So you bring the institutional quality, the reporting and the relationship management; rather than focusing on these thousand unit deals, you do the middle 50-unit deals. Or you mentioned, you got very sophisticated reporting, and then for your family business, in the 90 years of business, you’ve never been late in the mortgage payment, never lost investors money on a deal, have always at least met the proformas… And then I really liked what you said is that you told them that if any issue were to arise, you always come back to them with at least three solutions, and one of those will obviously be used to fix the problem.

We talked about your best ever advice, which is threefold – number one, buy apartment buildings; housing homes are always going to be an essential need. I was just doing a syndication school episode today where they did a survey and asked people, “What’s your priority for paying expenses?” and above groceries, above car payments, above utilities was paying rent. So I could definitely reinforce that. Next was don’t use too much debt, and then thirdly was to think about holding for the long term, because that’s where you realize the greatest returns. And then you also talked about what sets your family apart from other family businesses – the cliché of the grandparent creates it, the dad maintains it and then the son destroys it. You said that it’s really about passing along strong values, and then I really like what you said, which is preparing to hand off the business to the next generation.

So not really taking any shortcuts to make money for yourself now that will screw over your kids in 30 years. Instead, you’re using good quality construction, you’re always focusing on having good relationships with your residents and the people you work with, and then passing along any advice that you get, but also included in that advice is letting your children know or the next generation know that, hey, you need to be prepared to pass it on to the next generation as well. So preparing them early on for that next-level transition… And then just being humble, as you mentioned, as well; no one is bigger than the market.

So again, Dean, I really appreciate you coming on the show. I learned a lot; glad you were our sweepstakes winner. 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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JF2118: Broad Experience With Alix Kogan

Alix is the President of Ashland Capital Fund and has 20 years of real estate experience owning 1,700 apartment units, single-family rentals, commercial and developments. He started in high-end custom homes and more recently has been focusing on student housing deals. Alix shares one of his new strategies which is investing in second lien mortgage debts.

Alix Kogan Real Estate Background:

  • President of Ashland Capital Fund
  • 20 years of real estate experience
  • The portfolio consists of 1,700 apartment units, single-family rentals, commercial and developments
  • From Chicago, IL
  • Say hi to him at:https://ashlandcapitalfund.com/ 

 

 

 

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Best Ever Tweet:

“My broad experience in real estate has helped me tackle new projects” – Alix Kogan


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, Alix Kogan. How you doing Alix?

Alix Kogan: I’m great, Joe. How are you?

Joe Fairless: Well, I’m doing well, and I’m glad to hear that. A little bit about Alix – he’s the president of Ashland Capital Fund, he’s got 20 years of real estate experience, the portfolio consists of 1,700 apartment units, single-family rentals, commercial and developments. He’s based in Chicago, Illinois, and he has now turned his focus towards student housing. So we’re going to talk about his background, what his focus has been, and then what his focus is now. So with that being said, Alix, do you want to first, give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Alix Kogan: Sure. So I started in high-end design build, building custom homes for clients in south-west Colorado, ran that business for almost 20 years and I had a successful exit late last year in December. So pretty recent, but I have a parallel track for a good 18, 17 years or so. I started developing a single family portfolio, did some ground-up development, townhomes, condos, small subdivisions, and then as of three years ago or so, pivoted into multifamily, and that is, of course, how you and I met, and I’ve been doing that.

I’ve been partnering with groups as a key principal, lending out my balance sheet, and let’s see– distressed debt is another asset class I invest in, and then as of late, I’ve been pursuing some student housing deals; I’m excited about that opportunity as it’s not tied directly to the market’s economy as much as multifamily is. So it’s just another asset class to diversify for me.

Joe Fairless: When you said you were doing development for townhomes and condos, what are some differences from that versus the high-end custom homes?

Alix Kogan: It’s really completely different. The high-end custom homes, we always build on client’s land, there’s really no risk per se. It’s really — we’re working for a fee. So transitioning into development is a whole other world. Of course, it’s still a construction, but you’re assessing risk, you’re assessing the market. So really, it took a completely different mindset and skillset candidly to do that; the common thread, of course – we’re building. So it was interesting; it was good, and we rode the tailwinds of a great economy up until, of course, the recession of ’08, ’09. Then we ceased all development activity and concentrated on custom homes and rode through the recession. Well, a lot of our clientele actually came from Texas, and that market was doing very well. A lot of our clients were already the tail end of their careers that made their money, they put their money away, so they were still on a place to retire and build their retirement dream homes, and continue down that path and not be too affected by the recession.

Joe Fairless: You said you’re now focused on looking at student housing. What are some things you’re doing now in student housing?

Alix Kogan: We’re pursuing a couple of different deals currently. It’s a similar play, I suppose, to multifamily. What I like about it is in recessionary periods, like we’re likely heading into now with everything that’s going on, a lot of people go back to school, or they stay in school longer. So you’ve got that natural protection, as opposed to say A class multifamily where I think, where you could have some higher economic occupancy with that asset class — but student housing is an interesting plan. So we’re pursuing that. There’s some opportunities out there, there’s some groups that got over-leveraged, and looking to get out of their assets. So it’s an interesting time. So that’s what we’re– no, I wouldn’t say we’re completely focused on that. It’s just a second asset class in addition to multifamily that we’re looking at.

Joe Fairless: How are you coming across groups that are over-leveraged? Where are you getting those connections from?

Alix Kogan: We’ve made a great connection with a best-in-class property manager, and they of course, have connections with owners all over. They’re also an investor, as well as a property manager as well. So they are an interesting group where they understand the investments side as well as the management side, and they have a very specific buy box for a number of reasons with their business plan. But they’re running into portfolios or individual assets that don’t meet their buy box, and I’ve developed a good relationship with them where they’re bringing me those deals, so it’s a win-win. They get to property manage the asset if we are successful in taking it down. So there’s some good synergies in that relationship.

Joe Fairless: So I’ve never bought a student housing project. Educate me and perhaps some listeners on what would be a buy box. What components are in a buy box for student housing, and then what your buy box is compared to, say, the property management companies?

Alix Kogan: Sure. So the first one would be pretty easy to answer. So the relationship that I have there, they only buy core A Class assets, and they have to be pretty significant size to execute their business plan and to comply with their investors’ buy box, in essence. So in terms of what I look for, I can buy a smaller deal. I don’t have a specific buy box in terms of has to be a large deal, although I can take down a large deal; we’ll look at — for example, right now we’re looking at an opportunity about the $7 million acquisition range. That is considered somewhat small for some of the large players. They’re going to be in that 15+ million acquisition range.

In terms of what we look for, and that’s fairly consistent from whether you’re buying large or small, you’re looking for a successful school with growing enrollment, and that’s pretty key today to be successful. I think, that’s one of the biggest metrics. So not only does the asset have to be a good asset, you’ve got a school that’s got a great sports program; so tier one schools. So you look at that, you look at the asset itself, you look at similar dynamics; you’re of course looking at your rent comps, are you under market, amenities is also a big factor in terms of your rent growth and where you are in the market. So those are some of the big things that we look at.

Joe Fairless: Based on your experience with high-end custom homes and townhomes and condos and investing in multifamily, what do you think, from that experience, is most relevant to help you be successful in student housing?

Alix Kogan: I would say I’ve been fortunate that I’ve had a broad experience in different asset classes, and the common thread is real estate. So I don’t know that there’s one thing other than I may just have a broader view, I may look at different things. So I can’t think one major skill set other than just the broad experience.

Joe Fairless: Let’s narrow it down then. For the high-end custom homes that you did for 20 years and you said you exited successfully, what were some ways that your company differentiated itself from your competitors?

Alix Kogan: That one’s pretty easy – we were very early to the game in design build. So while a lot of my competitors were typical, what we call bid build, where they’re bidding on plans through architects or through clients directly, that have plans drawn… We adopted the design build model right out of the gates 20 years ago, where at first, we partnered with some outside resources. We’d outsource some of the design work, but really controlled the whole process from design to build, and then eventually became much more fully integrated with architects, interior designers. So that was certainly a key to our success.

In addition, of course, doing great design and won more awards than anybody in the area in south-west Colorado, and organically grew. Building a great team – no surprise, when you become the largest in the area, you need a great team behind you. So I was fortunate to have a great team to do that with. But those were some of the — great design, great team and the design build model that many people tried to follow, but fewer successful in doing it.

Joe Fairless: You mentioned distressed debt. What have you done with distressed debt?

Alix Kogan: That’s been an interesting space. I started down that road with non-performing notes. So buying defaulted mortgages in large pools and then working them out. So I’ve been doing more of a niche portion of the distressed debt, which is buying non-performing second liens. So rather than buying first liens, which– it’s a bit counterintuitive, but if you understand my business plan and the plan that we’ve been doing, which is buying non-performing seconds behind a performing first.

So I’ll give you an example. If you have a $500,000 house, you might have a $400,000 mortgage of $100,000 worth of equity, and then you also took out, say, a $100,000 home equity loan to finish your basement. You fell on hard times, you stopped paying in your home equity, but you continued to pay in your first mortgage. So those are what I’m buying as the second mortgages.

I like them because, obviously, it’s been demonstrated that the borrower still has some financial capacity because they’re paying on their first; and because I’m buying the second lien, the non-performing lien or note, at such a discount, I have the ability to go back to the borrower and help them stay in their house and say, for example, “You’ve been paying, $500 a month before you defaulted. Can you afford to pay $250 a month?” So because I’m buying at such a discount, I can work with them, help them stay in their home and get them current, and that’s been a really good investment class. It’s not the easiest business to learn, a pretty high barrier to entry, but once you get it dialed in, it’s a very interesting business model.

Joe Fairless: What discount are you buying those second liens on?

Alix Kogan: It’s a broad range. It also depends on what state. Every state’s got different foreclosure laws and timelines. So I would say anywhere from 5% of the unpaid balance up to 50% of the unpaid balance, and everything in between. So you literally have to underwrite each individual asset separately. How much equity does it have? How nice of a property is it? Because that, in essence, is your ultimate security; it’s that asset. Because you can, of course, foreclose from a second position subject to the first.

And then there’s more of a qualitative analysis of the borrower profile. You really have to understand who the borrower is, look at their credit, look at their specific situation, and somewhat assess what is the percentage that that borrower can do work out with you. So that goes into the pricing as well, of course.

Joe Fairless: So you said 5% to 50% that you’re paying. So just so I’m understanding correctly, depending on the state, depending on the situation, if it’s $100, you’re paying between $5 to $50 for that second lien position.

Alix Kogan: Yeah.

Joe Fairless: Wow. So your discount is between 50% and 95%?

Alix Kogan: Yeah. I’ve bought some assets where there’s a lot of risks, and  I’ve even bought them at 1%.

Joe Fairless: Alright. Give us that example, that specific example. Tell us a story about that property.

Alix Kogan: Something that you bid that low, there is no equity.

Joe Fairless: How much you pay for it?

Alix Kogan: So that borrower is completely upside down. So that’s one of those that you’re likely not going to pursue. You might take that asset, put it on the shelf and just wait until that borrower sells the house, and you may be in a position where you get a payoff. So that’s obviously very high risk; but if you have $100,000 unpaid balance and it’s still secure and you’re buying it for $1000 bucks, you can afford to just stick that in a drawer and just wait… Versus other loans that have equity, and the borrower is obviously more motivated to protect and keep that equity. They’re obviously motivated to do a workout with you. So those you’re going to pursue more aggressively, and spend time placing that with a servicer, or spending money investing in whatever legal you need to invest in, so that you could monetize that loan.

Joe Fairless: I know you said you’re buying large pools. So are the large pools of these defaulted mortgages, are they grouped into varying risk profiles, or…?

Alix Kogan: No, no. They generally are just sold in a pool. So you get a spreadsheet with a bunch of assets, and it’s really — you’re doing your own group and you’re assessing the risk and you’re saying, “Okay, 20% of these are in a judicial state, New York, for example, and the foreclosure time is very lengthy and expensive.” So I’m going to price that portion of the pool at whatever it is. 20 cents on the dollar versus, say, for example, California loans, which is a non-judicial state, and very quick foreclosure time. I may price those at 45 cents. So it’s all over the board.

Joe Fairless: Did you say California is quick to–

Alix Kogan: Yeah, believe it or not…

Joe Fairless: That– I would have missed that on a true-false test.

Alix Kogan: Right, exactly. With all the legislation and everything that happens in California, it actually is a non-judicial state. So you can foreclose and get at the asset in 90 to 120 days. So it’s a much faster process in California.

Joe Fairless: Tell us a story of a defaulted mortgage, either a pool of mortgages or an example or two where you’ve lost money.

Alix Kogan: Sure. I had a recent loan that– and fortunately, we were pretty careful. I don’t buy really high-risk loans, but in order to buy a pool of loans, apparently, you have to buy some loans that are higher risk; but I try to keep those at a minimum. So I only honestly have one that was recent; a Kentucky loan that basically foreclosed and we got wiped out by the first lien and completely lost. It was a $7,000 investment, [unintelligible [00:17:37].26] a million dollars that we took down. So that can happen, but if you’re careful, that’s pretty rare.

Joe Fairless: Yeah. So how can you be careful and make that rare if you’re buying a large pool of loans, and it sounds like that’s just gonna happen during the course of business?

Alix Kogan: Well, one, they’re gonna price them at a risk price. So it’s all modeled into it. Think of it as you’re buying a portfolio of single-family homes, you know you’re going to have some delinquencies in one home. Somebody stops paying rent, but you have the income from the other homes to offset that. It’s really the same principle. I’m going to make money, I’m going to hit home runs on some. I mean, I’ve had some that I’ve made 200% return on my investment, and then I have one that I lose $7,000 on. So you just price the risk into it, and then there’s some people that specialize in unsecured and no equity loans. It’s just their business model. So I would even resell some of those loans, and just get my money back and focus on the good loans that I prefer to work.

Joe Fairless: Okay. Tell us the story of, on the flip side, one that you’ve made 200% on or just done really well, just a specific example.

Alix Kogan: Sure. Just recently I invested $113,000 in an asset in California. The house is worth $270,000. We, unfortunately, had to foreclose, got that house back, and up until just a couple days ago, I had a contract for $270,000. So you can do the math on that. That would have been a great exit strategy. Unfortunately, with what’s going on in the world right now, that buyer fell out of contract.

So we’ve got the house, it’s worth $270,000. I can turn it into a rental. I’m hopefully going to sell it to somebody else, but you can see the return is huge if I can obviously monetize, which I’m sure I will… And that whole timeframe was about seven, eight months.  Okay. So let’s talk about the team. I don’t think you’re the one tracking down all these owners and having conversations based on what I know about you… So who’s your team? How do you structure it? How are they compensated, that sort of thing? Sure. I’m on the acquisition side, so I’m developing relationships and finding the assets. Once I find the assets, I have an asset manager in California that works remotely. He’s got 30 years experience in servicing the distressed debt space.

Joe Fairless: How’d you find that person?

Alix Kogan: Just the whole networking, talking to different people, and I met him, and that’s been a great relationship. So he’s literally working out of his house.

Joe Fairless: If you can think back to who introduced you to him, I’d love to know exactly how you found him. You don’t have to name names, but just throw us the breadcrumbs.

Alix Kogan: I think the trail started on LinkedIn or I connected with somebody on LinkedIn, and they had pointed me in his direction for just networking, and that he may know sellers, and one thing led to another, where you think you’re going to buy an asset or get some referrals for sellers, and before you know it, you’re talking to a guy who actually is an asset manager that may have excess time and be able to develop a relationship. So that’s what we did.

It started off as — for him, I was somewhat of a side hustle in addition to other asset management work that he was doing, and as my portfolio grew, he’s come on board nearly full time with a little bit of consulting that he still does with outside funds and outside investors.

Joe Fairless: Wow. So you were randomly reaching out to people on LinkedIn based on what they have in their profile, asking them about distressed debt?

Alix Kogan: Yeah, specifically targeting sellers of distressed assets at that time, and just happened to run it across the guy. So there’s multiple ways that you can do this, and you also, of course — to answer your question fully in terms of the team, there’s also third-party servicers that we use. So they’ll do some of the work, and then my asset manager will serve an oversight with them as well as borrower outreach and talking to the borrowers as well. So it’s really a small team, a small little boutique firm, if you will, in that asset class, and I’m soft capitalized, I don’t have investors in that world. So it’s really a third bucket of my business plan – student housing, multifamily and distressed debt.

Joe Fairless: Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Alix Kogan: Learn the asset class well. It seems very obvious, but in terms of investing in different assets, learn that asset class well before you invest. Then if you have an opportunity to invest passively, learn as you go. I think that’s a great way, and you’re a prime example. I invested with you early on and got my feet wet in multifamily until I got comfortable enough to start looking at my own deals, and I think that’s a great way. And that’s also what I did with distressed debt. I invested passively in a more of a joint venture with a guy when I first started and learned the business, and then of course, the natural progression – I felt that I could do it on my own, and hire an employee that knows more than I do, and that’s just the way you scale and grow.

Joe Fairless: That’s a pretty good formula for people – invest passively to learn the ropes, plus build your ally group up so you can form allegiances, and then you learn the business simultaneously as well as actively learning, then go active and then hire someone who has more experience than you. But now you’ve got some experience and you know the ropes, you just don’t know the intricacies of someone who’s been in the business for decades. That’s a really good formula. I’m glad that you walked us through that. We’re gonna do a lightning round. You ready for the best ever lightning round?

Alix Kogan: I guess.

Joe Fairless: All right. Well, we’re gonna do it anyway. So hopefully you are. First though, a quick word from our Best Ever partners.

Break: [00:23:39]:05] to [00:24:34]:03]

Joe Fairless: Alright, what’s the best ever book you’ve recently read?

Alix Kogan: A book name Lifescale, which is interesting; a book that I’m halfway through.

Joe Fairless: Okay, Lifescale. Okay, got it. What’s a mistake you’ve made on a transaction?

Alix Kogan: Bad partner. Easy to say in the rearview mirror. He looked good on the front end, but I think more due diligence on the partner than the asset class is important. I got myself in trouble a few years ago with — and fortunately, we unwound that well, but… More due diligence on the partner than the asset.

Joe Fairless: What are some questions knowing what you know now that you would ask prior to engaging in a future partnership?

Alix Kogan: I think it’s more time getting to know someone, really as much as you can learning how they think, definitely more reference checks… But I think it’s time, and unfortunately, we’re in a business that moves pretty fast, whether it’s notes or multifamily or student housing – the deal comes up and it comes to you from a potential partner. So I’ve learned to slow down and only move forward when it feels right and I have enough of a comfort level with a partner. So as you know, I’m a KP on deals and people bring me deals all the time, and I really have to just slow that process down to get to know them better.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing and get in contact with you?

Alix Kogan: Ashlandcapitalfund.com is my website, and my direct email is alix [at] ashlandcapitalfund.com

Joe Fairless: Alix, thanks for being on the show talking about your areas of focus that you’ve had, and then now what you’re focused on, the three areas, with one of them being student housing and why you’re focused on that; you also talked about non-performing notes in your process there. Thanks for being on the show. I hope you have a best ever day. Talk to you again soon.

Alix Kogan: Thanks, Joe. Take care.

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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JF2097: Insight in Development Deals With Preston Walls

Preston is the CEO and founder of Walls Property Group, he currently manages a portfolio of 70 buildings valued over $300MM. Preston shares his experience through starting in residential to now development deals. Joe asks Preston to explain some different challenges he has faced in the development world so you can be better prepared if you choose to venture on this path.

 

Preston Walls  Real Estate Background:

  • Founder & CEO of Walls Property Group
  • Currently manages a portfolio of 70 buildings valued over $300MM
  • 16 years of real estate experience
  • Located in Seattle, Washington
  • Say hi to him at: https://wallspropertygroupre.com/ 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“It was helpful to move forward with something in the face of somebody you respect and trust pointing out the reasons you should not do it.” – Preston Walls


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best ever 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, Preston Walls. How you doing, Preston?

Preston Walls: I’m doing great, Joe. How are you doing?

Joe Fairless: I’m doing well and looking forward to our conversation.

Preston Walls: Hey, likewise.

Joe Fairless: A little bit about Preston – he’s the founder and CEO of Walls Property Group, currently manages a portfolio of 70 buildings valued over $300 million, he’s got 16 years of real estate experience, located in Seattle, Washington. So with that being said, Preston, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Preston Walls: Yeah, I grew up in a real estate family. My grandfather was a professor and started a student housing business on the side, and my father’s a real estate developer, so I grew up with it in my blood. I went to school on the East Coast and worked in Manhattan for a few years; I thought I’d get away, but they called me back and I’ve been working in industry since 2002; moved back to Seattle, I worked with my dad for six years, we did some ground-up together and some renovations, and the downturn came, and he said it’s time for him to move on, and I’ve been doing it on my own since then.

Joe Fairless: Well, what did you learn from your dad? I know that it’s such a open-ended, broad question, but just some highlights.

Preston Walls: Two things come to mind. One, just the practical skill aspect of being a developer and what it takes to put a new construction development together. That was really valuable, just as a skill set. The other, he’s been a critic of mine as well, and if there’s ever a reason not to do a deal, he’s the first one to point it out. Especially in the early, early years, where you’re trying to get over the hurdle of, “Should I do this? Does it make sense?” Just trying to get the conviction and the confidence to do it, it was helpful to move forward with something in the face of someone that you respect and trust pointing out the reasons you should not do it.

Joe Fairless: It was helpful to move forward in the face — so going against what someone who you trusted said not to do? Did I hear that correct?

Preston Walls: You have to be really committed and feel really strongly about the deal to move forward with it, to purchase it, when someone is pointing out the way that it could go wrong.

Joe Fairless: Someone with more years of experience, someone who is very familiar with you, and you’re familiar with them, and you know likely he has the best intentions for you. So how do you ultimately – and if you have a specific example, even better – come to a realization that “You know what, I know he has the best intentions and he has more experience, and he’s saying I shouldn’t do it, but for XYZ reasons, I’m going to move forward”?

Preston Walls: One deal comes to mind. I was living abroad at the time, but I’d managed to put this building under contract. I had done my due diligence from afar as much as you can do without seeing the property. He was in Seattle and attended the walkthrough inspection, and–

Joe Fairless: What type of property?

Preston Walls: It’s a 26-unit multifamily building in Seattle. And his report was there are five active leaks in the parking garage and it wasn’t raining out. So you’ve got water issues, there’s a lot of deferred maintenance, the tenant quality in some of the units is fairly poor. He said roof needs to be replaced, “You should not buy this building. I would not buy this building.”

Joe Fairless: Very good summary, yup. Okay.

Preston Walls: He got caught up on all of these– maybe multiple plumbing leaks are not cosmetic things, but he got caught up on what I viewed as resolvable, fixable items, and the price that we were under contract at was at discount enough for fixing everything that could possibly be wrong with it. So I moved ahead anyway with that property and I still own it today; it’s been a great investment. What number transaction was that in terms of your transaction history?  It was probably in the 12 to 15. But even the first transaction that we did, this dynamic played out the same, same way.

Joe Fairless: Really?

Preston Walls: I remember it was a triplex in Seattle, and the first deal you do is the hardest one to get over that hump, and I had created so many models of so many properties that were listed, and I had done the architectural work, adding another unit to the building and doing some work in the existing units… I had bids from contractors, I had all of these variables ironed out, and he was still telling me of all the things that could go wrong and the reasons not to do it. And I moved forward with that one as well, and I still own that one today, and ultimately, he was supportive of my decision and congratulatory of how the deal played out, but it was hard getting there.

Joe Fairless: You mentioned number one, that the thing that you learned was the skill set required to put a development deal together. I’ve never put a development deal together. I have a lot of respect for developers, because of all the stuff that they go through, and some of it I’m not even aware of. What are the skill sets or some important skills that are required for being a developer?

Preston Walls: One of the biggest ones or probably the hardest one for me is capacity to take risk, because you’re in markets where entitlements take a long time. The soonest you can acquire the land and deliver the product is probably five years in Seattle. So you’re looking at a really long timeframe between when you start spending money and when you eventually see a return on that investment. So a lot can change over that course of time and you need to be able to withstand financial– your balance sheet needs to be able to withstand that, and you need to have a pretty accurate idea of where things are going to be. And that’s rental market, that’s construction costs market, that’s cost to get there, that’s carrying costs, all of those things that go into it. That’s probably the most challenging one that I face.

Joe Fairless: High level, you said the soonest is five years. What is that timeline and just walk us through high-level steps from day one to year five?

Preston Walls: I’d say, three years for entitlements. So you purchase property, you need to get a master use permit, which is the permit that allows you to apply for a building permit; get your master use permit, then you can apply for the building permit. So roughly three years for that. 18 months for construction, six months for lease-up and financing.

Joe Fairless: Got it. You’ve gone through the entitlement process. What are some things that surprised you when you first went through it?

Preston Walls: Wow. There’s so many unknowns and uncertainties, and you’re continually learning new ones. Environmental risk is big. I’m building a site now that’s on a steep slope. Just to get the variance to build in an environmentally critical area added probably another 18 months to the process. Historic risk is another one that you don’t really know when that’s gonna pop up. So there are historic zones and historically designated buildings, but there can be historic aspects of a building, a facade that the local jurisdiction wants to keep, and that can significantly hamper your project or the scope of what you want to do.

Joe Fairless: Have you come across that?

Preston Walls: I have. I purchased a building in a historic district. The structure itself separate from the district had a historic easement on it, which meant that I couldn’t alter the exterior facade of the building. Didn’t say anything about the interior; the interior is essentially open for redevelopment, whatever you want to do. But ultimately, the combination of those two, having to get approval and sign off in order to get a permit from both of those entities was painful and time-consuming, and ultimately, I moved on to a different deal.

Joe Fairless: Do you currently do ground-up development?

Preston Walls: I do. I’m building a 60,000 ft building right now and I’ve got another project that should break ground later this year.

Joe Fairless: So you love the pain. You’re in it and–

Preston Walls: Well, I feel that ground-up construction is really fun. It’s really challenging, it’s exciting. I love the vision component of seeing a site, seeing what it can become and producing something there, but it’s hard from a risk standpoint, it’s hard from a balance sheet standpoint, it ties up a lot of liquidity and it ties have a lot of risk on your balance sheet. So I use it sparingly and I do the projects relatively infrequently. The value add syndication is my bread and butter, and there’s a lot less risk in taking an existing asset, making it better, repositioning it and turning it around more quickly to stabilize it.

Joe Fairless: So just from an internal assessment standpoint, whenever you’re looking at an opportunity, what must be in place in order for you to do ground-up development, since as you just mentioned, value-add, lower risk and less headaches– you didn’t say that, but I’m assuming that’s the case. So what’s gotta be there?

Preston Walls: There has to be a really good opportunity and a really compelling reason. The reason is usually a vision component that the market hasn’t seen. So the building I’m working on now that’s under construction, I bought it on a cap rate because a previous developer had tried to entitle it and did a half-assed job with it with the city, and the city responded with a public record notice that said, “You cannot build on this site.” So the broker that was selling it was hamstrung by that. He couldn’t market the development opportunity with this knowledge from the city, or with the city’s decision ruling on it. So it worked on a cash flow basis, and I got the development potential as a zero cost option to work on. So that became a side project in parallel to operate in the units that were there. And you go one step down the road and if you’re successful, you go to the next step, and all of a sudden, I had variants from the city to build a building there, and then I could move forward. So I’ve got to have a strong value proposition that gives me a cost advantage over the rest of the market. That helps me feel more comfortable on taking the risk of going into development site.

Joe Fairless: So tell us about the deal that you’ve lost the most amount of money on.

Preston Walls: Probably the worst deal I did was the historic one, and part of the reason I bought it was the purchase price was really low.

Joe Fairless: What was it?

Preston Walls: It was $450,000 for this commercially zoned retail property on a main street in Seattle. So I sold it for 20% more than that, but I lost a year and a half of time, opportunity costs that I could have been doing something else. So that was frustrating.

Joe Fairless: That’s pretty good though, if you haven’t lost money on any deal, and the worst deal is that you made 20% on the purchase price. I understand opportunity cost is in play, but from a dollars and cents standpoint…

Preston Walls: Well, the other factor that goes into it is I’m typically not a seller of buildings. I’ve only sold three or four properties over my career. So my goal is to own properties for long term, not sell them and hang on and realize the cash flow that they produce.

Joe Fairless: What are your thoughts on selling them and then doing a 1031 and going into a larger deal with more cash flow? I know you’ve thought about it.

Preston Walls: Oh, I’ve definitely thought about it. Every time I think about that, every time I’m tempted by it, my mind goes back to Robert Kiyosaki and the question of whether you want to carry buckets or you want to build a pipeline. And it’s tempting to carry some buckets and make some money, hire some bucket carriers, but ultimately, the pipeline business is holding on to assets long-term and getting the cash flow from them.

Joe Fairless: Just help me understand a little bit more, because with the 1031, you are still holding on to the pipeline; you’re just building it out with new parts. So help me understand that.

Preston Walls: Yeah, there’s a leakage from your pipeline every time you transact. So there’s frictional transaction costs. It’s expensive to buy and sell property. There’s overhead on your part as the sponsor to find a new deal. There’s risk of not finding as good a deal as the last one. There’s time involved in creating and reproducing it, all of which is time that you could spend working on another deal, a new deal that’s more [unintelligible [00:17:34].19] to your portfolio.

Joe Fairless: I love it. Thanks for sharing your thought process. It’s good to hear.

Preston Walls: I get a lot of pushback on that one. In my syndications, that’s part of what you’re signing up for with me, is not having an exit timeframe. My LLCs are open-ended and I plan to hang on for a long, long time, and it’s hard to think about assets, real estate that way when the majority of the market is on a five to eight year time hold horizon.

Joe Fairless: What did you do in Manhattan for a few years before you came back to Seattle?

Preston Walls: I was an indentured servant in a couple of different investment banks.

Joe Fairless: Okay. Any takeaways you got from that, that you’ve applied to the real estate business?

Preston Walls: Yes. My breaking point occurred about 7:00 p.m. one evening. My cubicle was across the hall from an office. It was the guy’s office that you want to sit in, it’s where you want to get to, and every night that he was not traveling, he said goodnight to his kids on speakerphone from his office and it tore up my 20 something year old soul that — I hadn’t started thinking about having kids, but I knew that that was not where I wanted to be, a working for someone environment; I wanted the passive income that would allow me the flexibility to work when and as much as I wanted to.

Joe Fairless: How soon thereafter did you quit?

Preston Walls: I think I lasted four or five more months after that. My dad had been working on me for years to come back to Seattle, but I was certain that I was going to work on Wall Street and that’s what I wanted to do.

But ultimately…

Joe Fairless: [unintelligible [00:19:21].26]

Preston Walls: It sure did. [laughter] I moved back and we started renovating apartment buildings together, and I haven’t looked back since.

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

Preston Walls: I would say don’t be afraid to go really deep into a narrow niche. I see a lot of investors that get distracted by the shiny new thing. There are so many different ways to be successful in real estate. Success for me has come from being really narrowly focused and concentrating on a specific niche, which is multifamily in a narrow geography within Seattle.

Joe Fairless: What’s your narrow geography within Seattle?

Preston Walls: There are five zip codes within Seattle that are within a 15-minute drive from my office. That’s my geography.

Joe Fairless: Have you ever bought outside of those five?

Preston Walls: I have not.

Joe Fairless: How many transactions have you done within the five? About.

Preston Walls: 40, 45.

Joe Fairless: So I introduced you “manages a portfolio of 70 buildings” so I’m assuming multiple buildings within one transaction.

Preston Walls: Some of those buildings are buildings that I had managed for my family, and we have a small third-party property management business as well.

Joe Fairless: Got it. What’s the name of that company?

Preston Walls: Walls Property Management.

Joe Fairless: Okay, I understand where the name came from. We’re gonna do a lightning round. Are you ready for the best ever lightning round?

Preston Walls: I sure am.

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

Break: [00:20:58]:06] to [00:21:37]:02]

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

Preston Walls: The Snowball by Alice Schroeder.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Preston Walls: Not understanding/respecting historic designations.

Joe Fairless: What about something we haven’t talked about? Maybe on a recent deal where you wished you would have done a little bit different?

Preston Walls: I’d say environmental on an acquisition where a bank was not involved. So a bank did not require– a phase one was paying cash, and that came back to bite me on a subsequent refinance round.

Joe Fairless: Okay, so the takeaway is always get a phase one.

Preston Walls: Yes.

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

Preston Walls: I’d say it was the first triplex that I did. Just being able to have the conviction to buy something with a lot of reasons not to. I still own it. It feels good to still own that asset.

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

Preston Walls: Our website, wallspropertygroupre.com. We’ve got newsletters up there and I’d love to connect with people if you’re ever in Seattle or want to chat. Look me up.

Joe Fairless: Preston, thanks for being on the show. Thanks for talking about your experience, what you learned from your dad who was a real estate developer and you worked with him, the entitlement process, what are the components of that process, and then also why you do not 1031, and why you focus on long term holds and building out, to use your metaphor – pipeline versus having the bucket. So thanks for being on the show. I hope you have a best ever day and talk to you again soon.

Preston Walls: Thank you, Joe.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2082: Four Decades of Raising Capital With Ken Holman

Ken has over 40 years of real estate investing experience and has done all types of real estate deals like self-storage, industrial properties, golf courses, retail lots, and apar