JF2755: How She Used Instagram To Raise $1,000,000 In Private Money ft. Soli Cayetano

Investor Soli Cayetano was able to retire at the age of 23 thanks to her popular Instagram account, Lattes and Leases. In this episode, Soli reveals the social media strategy that helped her connect with private money lenders to fund her deals and how she plans to grow in the future.

Soli Cayetano | Real Estate Background

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Slocomb Reed: Best Ever listeners, welcome to Cincinnati’s Best Ever Real Estate Investor Mastermind. We meet on the last Tuesday of every month in the Deer Park Community Center and we hope that you listeners have the opportunity to join us. Here with us today we have Soli Cayetano.

Soli is in the process of moving to Cincinnati from the Bay Area in California. She is a 24-year-old real estate investor who in her first 15 months as an investor has bought 25 doors, consisting of a few flips and buy-and-hold properties ranging from one to 10 units. She’s used a combination of conventional financing, commercial private money partnerships, and hard money to finance these projects. She has met some of her private money through social media, which is something I hope we get to talk about. Soli, why don’t you give us a little bit more about your background and what you’re currently focused on?

Soli Cayetano: Sure. Thanks for having me. I’m excited today. I’m originally from California and my background is in commercial real estate. I was a broker for quite a few years and then transitioned into residential investing. I decided to come to Cincinnati to invest because of my background in commercial real estate. We were doing a big deal here in Cincinnati; I saw the market, eat some really good food, met some great people, and was sold. I bought my first house mid-pandemic, it was June of 2020, and was hooked on real estate investing after that; I bought a bunch. Over the last 15 months, I flipped, bought, and held, I’m launching Airbnb next month, which I’m really excited about… And that brings us here today.

Slocomb Reed: That first one that you bought, was that in Cincinnati?

Soli Cayetano: It was, it was in Norwood.

Slocomb Reed: While you were living in the Bay Area.

Soli Cayetano: Off of Zillow, 2500 miles away. I bought it sight unseen, put an offer in sight unseen. I guess it sounds a little bit crazy now, but it wasn’t so bad when I did it.

Slocomb Reed: Gotcha. Well, if I can ask briefly what has come of that single-family bought off of Zillow sight unseen since then?

Soli Cayetano: I put about 15 grand into the renovation. It appraised for $155,000.

Slocomb Reed: What did you buy it for?

Soli Cayetano:  $100,000.  Yeah, I wish I could still find a $100,000 house in Norwood. It appraised for $155,000, six months later, I refinanced all but $7,000 out. It rents for 1,500 bucks a month which makes me about 600 bucks a month. I still self-manage that one.

Slocomb Reed: Yeah, so your return on investment is about 100%.

Soli Cayetano: 80% to be exact.

Slocomb Reed: 80%. So only an 80% cash-on-cash return after the refi, nice. I know a couple of things about you – this isn’t our first time having a conversation, and one of the reasons that I wanted to make sure I got you in front of these people and in front of our Best Ever listeners is because I know that there are things that you’re doing that I need to learn from when it comes to real estate investing. There are a couple of them in particular that I want to ask you about. The first is, your social media presence I know is a big deal for your investing. I was a freshman in college when Facebook was allowed for any university email address. Ever since then, I’ve gotten further and further away from the cutting edge of social media. Tell me what it is that you do with regards to real estate investing and social media.

Soli Cayetano: So it started as just a way to guess vlog my first property. After I bought the first one, I flew out to Cincinnati. I learned how to use a drill, I slept on the floor, I got food poisoning, I had my car broken into, and I vlogged the whole thing. I guess people grabbed on to the authenticity of sharing on social media, some of the really tough things about your first property. So it started to snowball; I didn’t think anyone would follow me but my mom. But I kind of grew an audience and now I raise a lot of private money off of social media.

I’ve had my Instagram for probably, I don’t know, a year and a half maybe by now, and have raised, I don’t know, half a million to a million from people that I met off the internet. It’s surprisingly easy, because I feel like they know me and they follow me every day, because I blog every day. So when we have conversations, the first thing that usually comes out of their mouth is “I feel like I know you.” It’s a lot easier to build credibility that way.

Slocomb Reed: Nice. So you come to Cincinnati because you bought a house in Norwood, you get food poisoning, and now you’re raising capital through Instagram.

Soli Cayetano: It’s easy. [laughs]

Slocomb Reed: Yeah, right? Well, I want to ask, is Instagram the only social media platform that you’re sharing real estate investing on?

Soli Cayetano: Right now, yes. But I hear Twitter’s the next big thing, which is funny, because it’s coming back around. I hear all the biggest real estate investors and crypto traders and all sorts of things are sitting on Twitter right now, so it’s something to consider.

Slocomb Reed: Gotcha. Instagram has been good for you, just an opportunity to share your experience with the world that has turned into garnering interest from people who have capital and are looking for a return. Can you tell us how that progressed? How long you were posting, how frequently you were posting, and when you started to gain traction?

Soli Cayetano: My first private money lender was my mother. I didn’t ask her for private money, but she told me, “I’ve been watching your Instagram for the past three months. I really want to be part of this. Can I invest with you?” I didn’t even know what private money was at that point, and didn’t know how to structure it, how to raise it, anything like that. But because she asked me, I was like, “Mom, okay. Let’s do this thing.” So I have her as a debt investor, and I guess we’ll talk about the difference between debt and equity. That was my first foray into private money-raising, I guess, unintentionally.

After that, people just started to come to me through my DMs, because I talked about how I raised private money unintentionally. So then the question was, “Oh, what is private money? How do I get involved with private lending?” I think through that and sharing more and more and more about how I use private money to fund deals opens up the door to people who have a bunch of money stacked up and don’t know what to do with it.

Slocomb Reed: What I’m hearing is you were just sharing your experience on Instagram; you were approached by your mother about helping you fund future deals. And as you continued to share your experience in real estate investing as it grew, it sounds like what that became was opportunities to educate people who were reaching out to you through Instagram. Some of those people actually looking for opportunities to get into real estate investing that you were educating them on.

Soli Cayetano: Yeah. I hosted a How to Raise Private Money seminar, which was actually great marketing for me, because I taught people how to raise private money. Some people who are on the call are like, “No, I don’t actually want to go do it myself. But since I just heard your presentation, can I invest my money with you?” I think the more you can educate people on what private lending is and the benefits of private lending, the more interested they become in growing their wealth. Because there’s so much money floating out there in the world, and everyone’s looking for a way to get a return on their money. So where people think that raising money is begging people for money, it’s actually providing an opportunity for people to grow their wealth in alternative assets.

Slocomb Reed: Soli, for the record, you put in your bio your age. I was just told that, so I felt like I had permission to say it. I know through my conversations with you that I can see some clear advantages in your investing to being a member of Gen Z, and how quickly — you wanted to share your experience through social media. Not in an exclusively Gen Z way, but how your age and your generation have been a benefit to you – have you come across times when you feel like your age has been a detriment?

Soli Cayetano: I think I carry myself older than a 24-year-old, so I’ve been told. I don’t usually broadcast my age to people who I meet on the street. Most people don’t think I’m 24, so I don’t think so. I think that people who do know and who know me from social media are pretty impressed with what I’ve accomplished and how well I carry myself, that it’s not about age, it’s about the experience, and I racked up a lot of experience pretty quickly.

Break: [00:11:51][00:13:47]

Slocomb Reed:  Our analytics for the podcast show that Best Ever listeners are already fairly sophisticated, so I just give a quick summary when it comes to Capital Partners and debt partners. What a lot of people are familiar with is apartment syndication or a partnership in which partners who are engaged in a limited capacity or limited partners have some equity stake in the deal, that they’re getting as a result of the capital investment. The performance of their capital in the deal ebbs and flows with the performance of the property involved. Debt investing, however, is where someone is effectively making you a loan, having some sort of interest or guaranteed return, if you can say. And the expectation is that their debt will perform whether or not the property performs as well as expected. You’ve decided that you want to focus on bringing on debt partners. Can you give us a couple of examples of how you structured that now and why you choose to raise debt instead of getting capital partners?

Soli Cayetano: So I can keep the equity. But I think a lot of people who want equity stakes want equity stakes when the property’s doing well. They don’t actually want to consider what happens in a worst-case scenario and people lose money. So if you tell them the extreme case, the roof caves, the building burns down, and someone has to come out with $50,000, do you? Usually, the answer is “No, I want a really passive investment and I want my return that’s guaranteed.” So it’s out of security, I think, it’s a lot simpler to go into debt; then the person’s not as nervous about what you’re doing day-to-day and whether or not they’re going to get the return that they were promised. It’s just whether the building burns down or it doesn’t, you’re going to get the return that I promised you, no matter what.

The flip side is I get to keep the equity, which is great, because I get the depreciation, which is very helpful for taxes.

On your question on how to structure it – right now, I’m doing anywhere between 8% to 12%, usually a nine-month term, and no points. It’s either a personal guarantee if they want it, or it’s a mortgage, like a deed to the property, the first position, if they can fund the entire project.

Slocomb Reed: You said 8% to 12%, it’s nine months. Is that…

Soli Cayetano: APR, so it’s annualized.

Slocomb Reed: Yeah, of course, 8% to 12% APR, and it’s a nine-month balloon. That’s a pretty quick turnaround. I know you do some house flipping with debt like this. Are you also structuring it that way when you buy multifamily?

Soli Cayetano: No, that’s for flipping. I would say that people from the internet want to develop some type of trust. I guess they feel like they know me, but they also want to test the markets with their investment. They probably don’t want to put money in for longer than nine months or 12 months; they want to get that return back and then decide whether they want to reinvest it. Friends and family are more willing to keep their money in longer, a lot more patient money. The longest term I have is three years; there’s one at two years. It’s all flexible. That’s the great thing about private money, is you can negotiate literally anything you want, with whoever you want, any structure you want. That’s for the commercial 5 to 10-unit BRRRs that I’m doing. It takes about a year to reposition them and refinance, so in order to get an extra buffer, it’s two years, and I’ll refinance and pay them back.

Slocomb Reed: When you’re looking at a 12 to 18-month turnaround on a multi-unit, are you making interest-only payments? Is it all accruing and paid out when you refinance? How is that structured?

Soli Cayetano: It depends on the project and it depends on the investor. On all flips, I like to pay back on the back-end, because it helps with managing cash flow. For flips, I’ll pay back on the back end. One of the longer-term, bigger loans for multifamily – they kind of that consistent cash flow if they’re going to have it tied up for 18 to 24 months, so oftentimes we’ll pay interest-only payments on the longer term.

Slocomb Reed: Plus, if you’re talking about a 10-unit building – and I think you have a 10 unit right now that you’re doing this on. If you’re talking about a 10 unit, there should be some revenue generated by the property in the meantime as well.

Soli Cayetano: There should be. [laughs]

Slocomb Reed: Should be, yes. Of course, if you are emptying out a building, you’ve got no revenue until you can get tenants back in there. But that segment of the process is not 18 to 24 months, so it makes more sense. How much are you raising for your deals? For a flip or for a 10-unit BRRRR, are you raising 100% of the purchase and rehab?

Soli Cayetano: For the flips, yes. Someone will come in and fund the entire thing. Usually, it’s somewhere between $150,000 and $200,000, something like that. The multifamily – no. So we’ve been raising the down payments and the construction funds. For the 10-unit, we raised $400,000-some for the down payment, had a commercial loan for 75% of it, and then the construction is about $350,000. It’s a big one.

Slocomb Reed: Gotcha. That deal is still pretty early on, isn’t it?

Soli Cayetano: Yes, the construction is starting next week. It’s probably a four to a six-month turnaround time for those units, because they’re pretty large renovations, and it’ll be leased up and refinanced probably by the end of the year.

Slocomb Reed: Gotcha. I know you were brokering commercial real estate deals before you started investing here in Cincinnati; you’ve been here investing for 15 months… I know that you flip houses to build capital to invest in buy-and-hold deals. Have you been doing it long enough yet, or are you intending that the people who reach out to you through social media fund 100% of the cost of flipping a house and get all their money back in six to nine months? Is the plan to convert those private capital partners or lenders into lending on larger buy-and-hold deals in the future after you’ve garnered more trust?

Soli Cayetano: Absolutely. The thought is a smaller amount of private money lenders are better quality, so they’re coming with more money, say half a million to a million dollars. They have more trust in the process, because we work together, we’ve proven that we’ll pay them back their money in the time that we told them we would, and then they feel comfortable keeping their money in long-term.

Slocomb Reed: Awesome. Well, Soli, are you ready for the Best Ever lightning round?

Soli Cayetano: Sure.

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

Soli Cayetano: I knew these were coming and I’m still stumped. I really liked The Comfort Crisis. It’s a book on doing really hard things and some of the benefits of stretching your comfort zone.

Slocomb Reed: I’m going to have to read that, I haven’t heard of that one yet. What is your Best Ever way to give back?

Soli Cayetano: Probably teaching people who want to get into investing, spending time teaching them how to get started. I think I’m pretty new, relatively; I still remember a lot of the feelings that I had and I still have a lot of feelings toward investing. So I think I can relate a lot better to people who are just starting out, because I was in their shoes not too long ago.

Slocomb Reed: What is the biggest challenge you’ve overcome in real estate investing?

Soli Cayetano: Managing hundreds of thousands of dollars of renovations from California.

Slocomb Reed: In Cincinnati.

Soli Cayetano: In Cincinnati. [laughs]  That’s tough.

Slocomb Reed: Do you have any tips or lessons learned for people who are facing similar things, investing remotely with six-figure rehabs that they have to manage?

Soli Cayetano: I really think it comes down to having the right team in place. I did not the best job vetting my contractors prior to hiring them, and then I made the mistake of putting one contractor on four projects, and then having to fire that contractor and pick up the pieces on the back-end, which is why I’m here today. So I think it really comes down to vetting people, talking to multiple people, not giving someone too much too fast, and letting them earn your trust.

Slocomb Reed: Yeah, contractors have been tough the last couple of years. It’s definitely felt like whoever has the labor makes the rules, the rest of us just have to play by them. Soli, what is your Best Ever advice?

Soli Cayetano: I’d say don’t let not knowing stop you from doing it. I think a lot of people wait until they know and they feel comfortable. Even like starting investing, starting raising private money, hiring somebody, hiring VAs, training a team, everyone wants to get really comfy before they jump in. But if you just jump in and figure it out, sometimes you fail fast fail often and you get further faster.

Slocomb Reed: Absolutely. Now, aside from attending Cincinnati’s Best Ever Real Estate Investor Mastermind, how can people get in touch with you?

Soli Cayetano: Probably my Instagram’s the best way. It’s kind of funny, but it’s @lattes.and.leases. I made the name when I thought no one would follow me, and now it’s just stuck.

Slocomb Reed: Lattes and leases.

Soli Cayetano: That’s where you find me.

Slocomb Reed: Nice. Awesome. Well, Best Ever listeners, thank you for listening in to our podcast. If you got some value from this conversation with Soli, please follow and subscribe to our podcast, leave us a five-star review and share this with a friend so that we can add value to them, too. Thank you and have a Best Ever day.

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JF2750: Institutional Investors vs. Syndication: Which Is Better? ft. Sam Sells

Sam Sells went from buying his first mobile home park with a credit card to having $66,000,000 in assets under management. In this episode, Sam shares how he scaled his portfolio, along with his experiences working with institutional investors and how it compares to syndication.

Sam Sells | Real Estate Background

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Ash Patel: Hello Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Sam Sells. Sam is joining us from San Antonio, Texas. He is the founder of Wild Mountain Capital, a real estate syndication firm. Sam’s company has $66 million of assets under management. They have syndicated 21 deals in the last three years, including self-storage and mobile home parks. Sam, thank you for joining us and how are you today?

Sam Sells: Thank you, Ash. Happy to be here.

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

Sam Sells: Absolutely. We just closed a good-sized deal for us with institutional partners on a multifamily project in Dallas Fort Worth. It was really interesting making that transition from syndicating to institutional investors and the fund transition too. A little bit about myself. I am retired Air Force, I love the military, I love veterans, I love our country, but I’ve been spending the better part of 20 years doing single-family flips way back before it was quite such a fad as it is now. We made it through the downturn and kept on going, because our basis was really low and we kind of brought that into the multifamily space. I started this company with my dad three years ago, and we look at apartment complexes, other assets that we can essentially flip, create a lot of value, and capitalize on that value, and move forward.

Ash Patel: Sam, what was your real estate experience before three years ago?

Sam Sells: 2003 I started flipping single-family homes with a friend of mine, and then since then really did it everywhere I went. Even when I was in Africa or Afghanistan or Asia, whereas, in the military, I usually have some project somewhere going on that I was either funding or supporting in some way or other.

Ash Patel: Take us through that evolution. So single-family homes… How did you transition to multifamily?

Sam Sells: Single-family homes is super-hard to scale. Looking at getting out of the military soon, I knew that was coming, I knew that we really needed to find a way for my family to prosper in a way that would change our legacies for our kids and our grandkids and so on, as well as make a difference in the world. There are lots of different ways you can make a difference in the world. You can do that just by lifting where you stand. The same way that 10 people would all get together to lift the piano that you can’t do by yourself, you would work with other people to lift something heavy and small, or you can create a team that goes out and changes the world through multifamily investing, by taking rundown places, or mismanaged or neglected in some fashion, and turn those around and create value that people are willing to pay for.

I spent a lot of time traveling around the world, focused on health security. That’s what my master’s degree is in, is health administration policy and global health, so I did a lot of global health. I came back and decided I can’t do health security as a person by myself; I need to go do that with an institution like USAID, or one of the many NGOs or IGOs and national non-government organizations that do all these wonderful things… But my family was tired of me being gone all the time, so I decided to switch from health security to housing security, and focus on that. Affordable workforce, anything like that, we’re focused in that game.

Ash Patel: Sam, you started this company three years ago with your dad. Tell me about that. How was that a good idea? How’s it working out? And what was your dad doing at the time?

Sam Sells: Like all really bad ideas, you think it’s a really good idea in the beginning. We did the math and figured out that mobile home parks are much better than single-family was, and decided, “Let’s just go at it, dad.” He had worked in construction for 30 years or so, big firms, but still, they didn’t have any kind of retirement plan, because that’s the construction world. So as he was getting up towards retirement — when I was a little kid, my parents used to say, “Sam, you’re my retirement.” If you’re in the military, you can take care of your family, but you’re not making a lot of money. You have great benefits and you could travel and do a lot of other things, but you don’t join the military to get rich or wealthy, or even really well off. You just join the military to serve your country or to get an education or whatever other reason you have.

I took the $30,000 I had saved up in a Roth IRA, emptied it, and my dad had about 80 grand, and between the two of us, we bought a mobile home park, a small one. Then we turned around and we bought another mobile home park, a 42-unit, doing a master lease, which I think is probably pretty hard to do right now, in the current climate. But we master leased a property and we had come up with $100,000 combined for that one, which meant that I used the credit card and refinanced the car that we had paid off, and doing all the things that you’re not supposed to do financially. Plenty of books out there saying that’s a terrible idea, but that’s what we did… And here we are, $66 million in assets that we own and operate, and we’ve done those with friends, partners, joint ventures, we’ve syndicated, we’ve done all kinds of things.

Ash Patel: You have several other family members involved in this company as well, right?

Sam Sells: I do. I have a brother who I thought was a marriage attorney or something. He was an attorney and Houston for a long time. As family members are, you know your family member, but you don’t really know them sometimes. We had a thing we needed to get done legally, and I sent it over to my brother, I was like, “Hey, can you help me with this?” He’s like, “Yeah, sure. I can help you. No problem.” And I made a comment like “I know this is outside of your expertise.” He said, “What are you talking about Sam?” I said, “Well, this is real estate.” He says, “Sam, I’m a commercial real estate attorney.” [laughs] I was like, “Oh, sorry. Why didn’t you say something?” He’s like, “You never asked.” “Okay.” So that was a natural fit…

Ash Patel: By the way, most people know what area of law their siblings practice…

Sam Sells: Maybe so. If you have a sibling who’s a doctor, do you know what their specialty is?

Ash Patel: Yeah, of course. [laughs]

Sam Sells: But I didn’t, I guess that’s what it was. Then we brought on my brother, who – he and I are in the same place in Florida together. We were special operations and he was doing — human intelligence was this thing, and he really wanted to take over property management, and so he took over property management, which is great, right up his alley. A big, strong guy, who loves that human aspect and the opportunity to really make a difference in people’s lives in a very, very personal way… So talking to them, working through their issues with them, and helping them. And I was on the business side of the house, and my dad was on the construction side of the house. So that was a natural fit. Then my other brother was an attorney, and those are all the pieces you need to run a commercial real estate company.

Ash Patel: Sam, you mentioned earlier the switching from the syndication model to institutional investors. Can you dive into that?

Sam Sells: Absolutely. We will still syndicate, and we’re happy to work with other syndicators who want to come to join an operator who likes to operate, like us. There comes some time in your lifecycle when you figure out what you’re really good at. We figured out that we’re good at operating. There are plenty of other things that we’re not good at, but that’s what we’re really good at. Acquiring, getting things under market, then closing those deals even if they get super hairy, and operating it, and really creating the value in a very, very short fashion.

So we had started reaching out, we went into larger deals, and started working and engaging with family offices. Everyone likes to say they have family offices, which by the way, are super-slow to act. So that’s great if you have a six-month acquisition timeline, and if you can find deals where they’re going to wait around for six months while you buy them; it’s either got to be a development ground-up kind of deal, or most family offices we met, they want to sit and have tea and do all those wonderful things to really get to know you. And they should; they need to preserve wealth.

Institutions, however, will move a little bit quicker. You’ll still probably need at least 90 days to get through a deal, and you probably don’t want to engage them for the first time halfway through your deal. But we’ve found that they are incredibly professional, they will do an extreme amount of due diligence on you, personally and on your company, all through your financials, all through who you are, and so forth; [unintelligible [00:11:18].18] very, very comfortable. And then the margins are much thinner.

As a syndication, you’re looking at all these awesome fees that you can collect potentially, and so forth, but institutions – they know those fees, they know what the market is, and they really want to maximize returns for everyone, yourself included. And you also have to have money; you have to have 10% or 20% on the sponsor side, from the sponsors, to work with an institution. There are syndications you can do with very, very little cash, which is why we like them, particularly at the beginning. Have your own personal cash.

Ash Patel: What are the benefits of having an institutional investor versus normal syndication investors?

Sam Sells: Definitely pros and cons. Pros for institutional investors – is it’s one group and one phone call. They may be working with a $150 million funds, but they need to deploy that capital, and so they’re going to write a check for $5 million, $6 million, 10, 15, 20, 30, 50, $100 million, depending on what kind of institution and what they’re looking for. They have target markets, they have target deal sizes, they have target deal types… So if it’s a class C value-add, or a class B value-add, a class A value-add, a core plus, whatever that is, that’s what they’re targeting. So if you’re a good fit for them, the pros are you can pick up the call, you know exactly what to expect, you know that on the other line they’re going to answer. You know what type of capital they need to deploy, you know what their timelines are, you have worked through the legal process, which you’re going to need a very savvy attorney who can help you get through all that stuff. Fortunately for us, my brother gets to spend 18 hours a day going through that litany of legal documents, and so forth.

But at the end of the day, it’s ease, and it solidifies a big portion of the deal, your capital stack, your equity, and how that’s going to work. In addition, when you’re going to the lender now, depending on this institution, they may or may not sign on the deal. A con is that you have to have a balance sheet personally as a sponsor or as a group, that you can take down that 20, 30, 40, $50 million deal.

Break: [00:13:36][00:15:32]

Ash Patel: In terms of institutional investors, what are some of the cons? They don’t sign on the loans at times. What’s their due diligence process like? Is it way more rigid?

Sam Sells: Their due diligence process is super-rigid, or can be very rigid. They’re really going to dig into your life, they’re going to know about your kids, they’re going to know about your cars, they’re going to know all kinds of stuff. Our institutional partners had reached out and they had listened to the podcasts I was on. He brought up one of the stories and said, “Hey, Sam, I really liked that story about you and your dad, starting with credit cards for your company.” I just thought, “Oh, man, and you still are working with us?” He laughed and he said, “Yeah, it just shows you guys have grit and determination, and you’re going to make it work. Obviously, you haven’t folded, you’re here, so you figured it out.” The cons are – yeah, they’re going to go all through your life. If you’re not ready for that, then syndicate.

Ash Patel: I had no idea. So they do a comprehensive background check.

Sam Sells: Comprehensive, all the way. It’s funny, I’ve gone through a top-secret clearance in the military, all these other clearances, and done lots of different things… And it’s just funny to hear the other person bring up stuff from your past. I’ve had that before, but it’s been in very different settings.

Ash Patel: Military settings?

Sam Sells: Yeah. Military settings.

Ash Patel: Now you have an institution across the table from you asking similar questions, huh?

Sam Sells: Yeah, absolutely.

Ash Patel: Is it true that institutions want a package of deals or properties, or will they partner or buy just one-off deals?

Sam Sells: One of the pros — I guess you could look at as a con, but to me is really a pro… It’s that they’re looking for a programmatic approach. So they’re coming to you to say, “Hey, Sam. I want to partner with you over and over and over again, because we know you, we like you, we trust you. We know what you deliver and we know you’re going to get after it, and we have no concerns.” However, if you’re not ready for that or if you’re you don’t have the momentum to carry through that level of work, then it might be probably something you don’t want to do.

Ash Patel: Sam, in terms of negotiating with them, do they require higher returns than normal syndications, or are they okay with lower returns, since they have so much capital to deploy?

Sam Sells: Returns are all about risk. So if their group  is focused on class C markets, then they’re going to be looking at those 18, 19, 20% IRRs. Really, each institution is — in a way, they’re like the single investors. If they’re savvy investors, they’re looking at different risk profiles and saying, “Okay, I can take a 25% IRR, because this is a development deal. I know I’m not going to make any money for three years, but after that, I’m going to get paid a lot of cash. I’m happy to wait.”

You’ve got other investors who say, “I want dollars day one, and I don’t care what the IRR is. I just want cash on cash return.” So you’re looking at deals in totally different aspects, and deals that made sense on one side don’t make sense on the other side. That’s why ten different investors can walk into a deal, nine of them can say, “This thing doesn’t pencil,” and one of them says, “This is perfect. This is exactly what we’re looking for,” which is fantastic. So institutions have their own personalities.

Ash Patel: Yeah. When you interact with them, do you feel like you now work for them, or do you feel beholden to them, since they’re the Goliath?

Sam Sells: Funny you mentioned that… When we first started working with an institutional partner, we had this conversation a lot internally. Like, “Oh, my goodness. They’re just going to grind us to a pulp,” or “They’re going to do this, or that.” In the end, what we found out is that they’re really good people to work with; they’re very conversational, it’s very easy to say, “Hey, this is what we’re thinking. What do you guys think?” They said, “Well, on these deals, this is how it worked for us.” Every deal is a little bit different, every property has surprises after you close. If you’ve ever bought multifamily properties, you know. Somewhere in one of those doors, there’s a surprise for you. You may not find it for years, but you’re probably going to find it, and you’ve just got to be able to roll with it. Folks who have been doing this for a long time understand there are surprises, but with the institutions at least that we’ve been privileged to work with it, it’s been a very comprehensive, but very partner-led approach.

Ash Patel: Sam, it seems like it’s a lot of people’s goals to work with institutional funds. What do you say to that person and then what tips would you give them on how to get there? Or how to position yourself so that you’re in a favorable light when they look at your balance sheets, assets etc?

Sam Sells: Great question. I think what I would say is, “Come talk to us.” We’re happy to provide some coaching or mentorship on how to do that. I used to talk to my troops a lot about trajectory in the military. What trajectory are you on? Where are you going? 20 years is going to happen, 10 years is going to happen, where do you want to be? You may say, “I don’t know where I want to be.” “Well, great. Let’s set a trajectory somewhere. At least you’re going forward.” For institutions, they are looking for certain things, and you do need to set yourself up in certain ways. For us, one of the big things that they really liked about us is that we were vertically integrated. We had property management in-house, and we had development in-house, which allows us to have cost efficiencies and speed. Trying to say this without using military terms, but your speed to action is just really quick. If we want to make a change at a property, I can send a text message and I know that my brother’s out there and he’ll make the change right then. I don’t have to file a change order, I don’t have to go through all these processes. We can just change.

Ash Patel: Sam, the million-dollar question. On your next deal, would you prefer an institutional partner or a normal syndication investment partner?

Sam Sells: My next deal, one of each.

Ash Patel: Really? Interesting. So you’re not 100% one way or another; you just look at all the pros and cons.

Sam Sells: I look at all the pros and cons. Syndicators are guys who have grit, determination, they’re out there, they’re risking it all. Institutions have this huge backing behind them, and we are happy to work with institutions and provide that military-grade level of integrity, action, speed to the fight, understanding that no plan survives first contact with the enemy; it’s just gone. But we understand that, we know how to flex, and we know how to get after it. Myself, my brother, the other team members who are veterans, we work in very agile, small units that we’re able to do really cool things.

Ash Patel: So you want the action with the boots on the ground?

Sam Sells: I love the action with the boots on the ground. And as a syndicator though — look, I started with 30 grand and a couple of credit cards and a whole lot of hustle. So we always want to give back, we’re happy to work with other syndicators who — look, they are not vertically integrated, they haven’t done all these things, but they’re really good at raising capital, or cash. We’ve done I think four deals, we’ve syndicated with other people who were very new to this process, and we’ve helped them through that process. There were some speed bumps in that process, absolutely, but we’re here.

Ash Patel: Awesome. Sam, I’m going to ask you an off-the-wall question… Would you consider looking into retail, different asset classes, industrial, warehouse?

Sam Sells: Absolutely. I built probably 12 medical facilities, overseas clinics, I led the team on a $64 million rehab, a 500-bed, largest wartime facility in the world. My dad has done a lot of industrial builds. I apprenticed as an industrial electrician, so there’s some inherent capability in those spaces that we would love to do. And we’ve talked about it; there are some nice gains. We’ve kicked around some deals to ourselves, and — I don’t know that I have a partner who would want to raise cash for this industrial deal… We understand the location, the site; this is North Houston, or this is wherever. Yeah, we would definitely entertain that.

Ash Patel: Awesome. Sam, what is your best real estate investing advice ever?

Sam Sells: Find a partner and create as much value as you can.

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

Sam Sells: Absolutely, Ash. Give it to me.

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

Sam Sells: The Mission, the Men, and Me.

Ash Patel: What was your big takeaway from that?

Sam Sells: It hit home, because I’m a boot on the ground guy. Analysts who are sitting behind that computer desk looking in Excel love deals and hate deals. The guys who have boots on the ground love deals and hate deals, and usually they’re completely different; so you need the boots on the ground.

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

Sam Sells: To me, it’s all about how we structure our lives and what trajectory we’re on in our lives. When we screen a deal, the first criteria is can we make a difference to the residents there? The second is can we make money doing it? Because this is a capitalistic paradigm that we operate in.

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

Sam Sells: LinkedIn is a great way to reach out to me. Find me, Sam Sells, Wild Mountain Capital, or send me an email at sam@wildmountaincapital.com. I’m very responsive most of the time, except when we’re closing on a deal, working 18-hour days to get it across the line and [unintelligible [00:25:29].26] on it. But if not, I’ll get back to you as soon as I can.

Ash Patel: Sam, I’ve got to thank you for being on the show today and sharing your time with us. Your amazing journey, starting out with single-family homes, buying a mobile home park on a credit card, and now dealing with institutional capital, $66 million of assets under management… Incredible story. Thank you for sharing that with us. Thank you and your family for your service and your sacrifice.

Sam Sells: My pleasure. Thank you, Ash, for having us.

Ash Patel: Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review and share the podcast with anyone you think can benefit from it. Please also follow, subscribe, and have a Best Ever day.

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JF2723: 3 Ways to Build Strong Relationships with Investors ft. Margaret Kozlark

How do you grow a good relationship with your investors? Margaret Kozlark, co-founder of investment firm Noblivest, shares three tips that have helped her connect with investors, and in turn, finance her deals.

Margaret Kozlark | Real Estate Background

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

Margaret Kozlark: Hey, good. Good to meet you, Slocomb.

Slocomb Reed: Margaret is the co-founder of Noblivest, which helps investors build their wealth for noble causes such as spending more time with family, volunteering in their community etc. They are mainly focused on multifamily syndication, hoping to expand into other asset classes such as self-storage and mobile home parks. Margaret is currently the GP of a 111-unit deal, she’s the LP in six deals covering over 1,000 units, and she’s based in Fairfield County, Connecticut. Margaret, we were talking a little bit before we started the interview about where the name of your company came from, and your desire to help people with those noble causes, a couple of which I just mentioned. Tell us more about that.

Margaret Kozlark: Sure, absolutely. It really kind of starts with people’s perceptions of money and people’s perceptions of people who have money. I think all of us were brought up with different variations of money in terms of it’s a necessary evil, or maybe people who have too much money are bad… And really, we’re trying to dispel all that and just say building your wealth is not a bad thing, especially if you want to do it for noble causes, as you said. Those could be on a large scale, like philanthropic endeavors, or community service, or it could be something much more intimate, like wanting to spend more time with your children while they’re actually young, or wanting to send your kids to college, or help your parents. So really, it’s investing for kind of a greater good, whether it’s in your family or the broader community.

Slocomb Reed: Awesome. Yeah, the opportunities available and this kind of real estate investing really do make it easier for people to have the time that they want. I have a young daughter, and real estate investing gives me the opportunity to hustle during business hours, but now that I’ve scaled, I have the ability to spend the evenings and weekends with my family in a way that I didn’t use to.

Margaret Kozlark: Yeah, and you can’t get that time back, so that’s awesome.

Slocomb Reed: Yeah. Tell us how you got into commercial real estate investing.

Margaret Kozlark: I, like so many others that you’ve had on the show, sort of did the traditional route. I went to college, I got a degree in Business and Marketing, started off actually as an analyst at Nielsen TV ratings, climbed the corporate ladder, both on the analytical side of radio and TV ratings, and then later in market research, working for some of the biggest CPG companies in the world. But it was a very nine to five grind, a lot of business travel, and just really started to feel very confining. The money was great, but I felt like I had no freedom. It got to a point where — I think it was around 2014, actually, I think was probably when I first heard about it. It was a former colleague that I worked with, and she was investing in syndication. In fact, she was one of Joe Fairless’s first investors, Holly Williams. Holly told me about syndication, “You’ve got to get into it, you’ve got to get into it.” I hadn’t heard about it; I feel like I’m hearing more about it now, but maybe it’s because I’ve been in this world for six years. Back then I didn’t really know anything about it. I was more “Let me just do the traditional 401K, my mutual funds are doing well.” It probably took me about a year and a half, and then I thought, “Okay.” She had told me about this checkbook IRA, let me do that, because I wasn’t happy with how my 401K was performing. I figured if this didn’t work out, I still had years to recover. So I invested in an initial deal in Texas that lasted about two and a half years, and I ended up with an equity multiple of close to 1.6 after just two and a half years. I’m like “I like this. This is actually great.” I always tell people investing in syndication is like tattoos, you can never just get one; you just keep going, and then you want more and more. Although, full disclosure, I do not have any tattoos.

Slocomb Reed: Although, if I were to get a tattoo, I would really only want it for the five-year hold period.

Margaret Kozlark: There you go, that would be perfect.

Slocomb Reed: I would definitely want to know that I could be rid of it in five years, especially if it was for a profit. Tell me, what has been your biggest learning curve, Margaret, in getting into both being an LP, but then you’re the general partner on a 100 plus unit property? What’s been the biggest learning curve?

Margaret Kozlark: I think the biggest thing is that, obviously, when you become a GP, now you’re literally kind of peeking behind the curtain. But when you’re an LP, you’re literally just passively investing happily, getting your mailbox money, and life is great. But I have so much more of an appreciation for all of the various syndicators that I’ve invested with over the years, because there’s a lot of work that goes into it. And just being on the asset management calls, everything from just making sure that the tenants are happy, and trying to reduce turnover, and learning about everything that’s going on with the rehabs. For this particular property, early on, it just seemed like it was just one thing after another. First, there was an ice storm in Texas, then there was a tornado, and there was some roof damage. Although I will say, the amazing thing is because the deal was structured so well, and the whole way we did the debt service coverage ratio, we had the buffer to handle those things. But it definitely was a little bit of a wild ride there for a while. So I think for me, the biggest learning curve – it’s not a bad thing, but it’s just learning more about those behind the scenes and what goes on behind the scenes.

Slocomb Reed: Specific to that, in your general partnership, you were telling me you have one other major partner. Is that Holly, or is it someone else?

Margaret Kozlark: No. My partner is Christine Chu. Christine is a former market research executive, so like myself. I was on the account management side, and she was actually a food scientist on the R&D side. Her children are still very young, she and I connected about a couple of years ago, and really just had similar values, a similar desire to really kind of live a life where we could be more present for our family. And even though my kids are older, my youngest is in high school now, we just really clicked and we thought, “Let’s just start doing this.”

She had been doing sort of the traditional single-family investing models. Hopefully, she’ll come on your show at some point and tell you, because she’s got some crazy stories, including when a car ran through one of her rentals; true story. So she was kind of ready to get out of the active side of investing and look at passive. So she came on board as an LP for one of my deals, and then now we decided, “You know what? Let’s just partner and just see if we can help other folks like us, who are parents, who are working these corporate jobs, that really want to spend more time with their kids, and want to not have to worry about money, but be able to have time for them.”

Slocomb Reed: Even as a general partner, you’re not typically the one who’s dealing with the car when it runs into your rental…

Margaret Kozlark: That’s correct, yeah.

Slocomb Reed: Within your partnership, Margaret, what do you focus on? Which aspects of the partnership do you thrive at?

Margaret Kozlark: I really enjoy investor relations, so I like having conversations with investors and explaining what we do. Just sort of helping to kind of translate it for people who might be financially savvy with other forms of investing, but more traditional forms, like stocks, bonds, and that kind of thing, but are interested in getting into this. I should also mention that in addition to this, I’m also a full-time real estate agent, so I deal with a lot of investors who, again, want to go the traditional route and buy multifamily or buy a single family… But multifamily in the sense of less than four; smaller. A lot of them, I’ve been able to say, “If you’re interested in investing, let me talk about a way you could go a little bit bigger, but actually have a lot less sweat equity in it.” That’s been fun as well.

Slocomb Reed: Yeah. I’m also a residential agent who specializes in investing. One of the first things if I’m having a consultation with a new investor client… I don’t personally take on new clients anymore. I’m on the largest sales team in the Cincinnati area. Shout out to The Chabris Group of Keller Williams.

Margaret Kozlark: I’m a Keller Williams person as well.

Slocomb Reed: Oh, nice. Well, we are known for sharing, enjoying educating people, and helping them invest. When I’m doing a consultation with one of those investors, whether it’s a friend of mine or a client of another agent on our team, the first thing that I do – I won’t talk about any particular investment vehicle in real estate, until they tell me their goals. I have to know what result they want from investing before we’ll have any sort of conversation about anything else. Ideally, you get to the point of goals taking on the form of 2X from Y, by when… But really, it’s the stuff that leads up to that. What are the end results of real estate investing that they want? Frankly, a lot of them really should be looking to be limited partners and passive in larger deals, because that’s going to accomplish what these people who are getting into real estate want, while also leaving them more time to do things like volunteer and spend time with their family.

Margaret Kozlark: 100%. And I’ll tell you something, the other really crazy thing is – and this is sort of a personal mission for me as well… It’s so crazy how there are so many people that are real estate agents that don’t invest in real estate, which is crazy. Especially because as real estate professionals, there are so many tax advantages that we can get through this; it’s nuts. One of my colleagues, who shall not be named, has 35 rental units, and I’ve been telling him, “You need to be doing syndication. I don’t even know how your property-managing 35 units. This is crazy.” Because it’s 35 single-family houses and a couple of duplexes in there, but it’s not like it’s a 135-unit building. So yeah, one by one.

Break: [00:13:58][00:16:08]

Slocomb Reed: Tell me about the deal that you’re a GP on… 111 units, where is it, where did you buy it, and where are you in the business plan right now?

Margaret Kozlark: It’s in Fort Worth, Texas; it is something we acquired off-market again. We’ve got some boots on the ground there that  we were able to make relationships with some of the local brokers; I’m sure it’s a standard story from a lot of folks. We’ve had it for about two and a half years now. But as you know, COVID sort of lit a match to the real estate markets, including multifamily.

Slocomb Reed: Right after you bought this thing, it sounds like.

Margaret Kozlark: Yeah, exactly right. In spite of all the craziness, it still had a lot of positive upside to it. So we are still in the cycle. At this point, we’re talking about just getting disbursement sometime perhaps this year in terms of selling the asset and moving to another one. But I’m not really able to share any details about that right now, but there are talks going on.

Slocomb Reed: Now, when you were putting this deal together, was it the standard play that you were sharing with your LPs? You were underwriting to a five-year hold, you have a preferred return in the 8% range, and IRR…

Margaret Kozlark: Absolutely. Yeah, we’re not really reinventing the wheel in terms of the ways that we approach things. Definitely, I think telling people the five-year hold is important even if you’re thinking you might be able to divest it sooner, people have to be prepared that their money may be tied up for five years. But we did do that, and it has been performing. For a while, we paused distributions when we were going through some of this craziness with the roof and stuff. But the investors are actually making out great, and it’s performing well, and they’re happy with it.

Slocomb Reed: Nice. So in another two and a half years you are looking to sell, and then you said possibly trade into another asset with the same investors?

Margaret Kozlark: Absolutely, yeah. I don’t think it’s going to go as long as two and a half years, to be honest with you. I don’t think we need it to go that long. But definitely, that’s the challenge. You’ve got all these people, they invested with you, and everything’s going great. But now, how do we find that 1031 exchange property, so that they can roll it right over? That’s something we’re going to have to figure out. But fortunately, we’ve got a bigger team of the other GPs that we can all sort of brainstorm on that.

Slocomb Reed: Gotcha. What markets are you looking in right now for your next deal?

Margaret Kozlark: Texas, obviously, Florida, the Carolinas; mainly the Southeast. I do have one property in Louisville that I’m an LP on. So I’m kind of just watching that just to see how that performs. I’m also thinking about Arizona, because there’s a potential partner that we’d like to work with who’s in Arizona as well, so we’re kind of eyeing it.

Slocomb Reed: Gotcha. So within your partnership, you focus on investor relations and capital raising. Are you involved in the deal-finding aspects of the partnership at all?

Margaret Kozlark: No, not a lot. That’s mainly just because of where I’m located. Being up here in Fairfield County, Connecticut – it’s not an area that I would invest in for multifamily, certainly, for a variety of reasons. It’s not a landlord-friendly state, and the taxes are higher. We partnered with other folks who are on the ground, and we are, of course, not just capital raising, we’re involved in asset management as well. But it’s really great to have the people who live in these markets that have the relationships directly with the brokers.

Slocomb Reed: Yeah, that sounds like a good place to live if you are involved in capital raising, and a residential real estate agent whose commission is based on home value. Thinking about how you position yourself and Noblivest when talking with prospective investors, Margaret, a lot of these people have a lot of opportunities. There’s a lot of capital looking to get invested in deals, but there are also a lot of other syndicators and there are other investment vehicles that these people have the ability to consider. What is it that you’re doing to differentiate yourself with investors?

Margaret Kozlark: I would say that working with Noblivest, similar to in the real estate traditional residential real estate agency, is that it’s really all about relationships. It’s building the relationships of trust with those people. Of course, everyone’s started with our sphere of influence of family and friends, and then a lot of our business comes through referrals, people who’ve worked with us before. I think that’s a huge point, because as you said, there are a lot of syndicators are out there, there are a lot of different asset classes. So really, one of the few ways that you can differentiate is the team and the people that you’re with, and making sure that you trust the team, making sure that they have the knowledge and the education to guide the process for the full cycle, and that you just trust them with your resources. I would say really, for us, it’s all about relationship building.

Slocomb Reed: Gotcha. Now, what is it that you’re doing in your relationship-building just beyond keeping in touch with people who may be considering investing?

Margaret Kozlark: We’re doing a lot of education. We have started talking before about our different responsibilities. Christine, my partner, does a lot of the back-end work. She does a lot of the organization, she writes a lot of our blog pieces, although I do write a few as well. But a lot of it — we feel really strongly about educating people. We’re never going to sell to somebody working with us, or even a project. It’s more let me get you educated about what this asset class is, about how passive investing works, to the point where you’re comfortable. And when you’re ready, hopefully, we’re the people that you think of, because we’ve kind of guided you through this process. So for us, a lot of it is just service, if you will; giving you information, helping you make an informed choice.

Slocomb Reed: Margaret, are you ready for the Best Ever lightning round?

Margaret Kozlark: I am.

Slocomb Reed: What is your Best Ever way to give back?

Margaret Kozlark: I am involved with an organization called Midnight Run. We provide services to the homeless on the streets of New York City. We will go in, set up tables, serve them food, and provide clothing. It’s very humbling and rewarding.

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

Margaret Kozlark: This one has been out for a few years,  but I would say The Power Of Moments by Chip Heath. It’s just a really great book about you don’t have to have the biggest marketing budget, you don’t even have to do everything wildly different, but it could just be one thing that sets you apart that makes you memorable. I really liked that.

Slocomb Reed: What is the most money you’ve ever made on a deal?

Margaret Kozlark: I have come close as an LP to a 2X equity multiple.

Slocomb Reed: Got you. How long of a hold period was that?

Margaret Kozlark: It was about three and a half years.

Slocomb Reed: Got you. Have you ever lost money on a deal? If so, what’s the deal that you lost the most on?

Margaret Kozlark: I actually have not. I’ve had some deals that haven’t performed as well as others. I’ve probably been in about 10 LPs and, knock on wood, all of them have been profitable. What I always tell people is, ironically, where I lost the most money was in the stock market because I jumped on the whole pot bandwagon. I bought up a bunch of marijuana stocks and just literally lost my shirt on them. But what are you going to do?

Slocomb Reed: Focus on real estate.

Margaret Kozlark: Exactly. I’ll stay in my lane now, Slocomb.

Slocomb Reed: Margaret, what is your Best Ever advice?

Margaret Kozlark: My Best Ever advice is no matter what, if you’re interested in investing or real estate, take action. Obviously, get educated but we could all have analysis paralysis, and you could be spending so much time waiting until you’re ready. But just go ahead and make a change. I would also say, related to that, you could make the smallest change, but if you do it consistently every day, it could end up having a massive impact, whether it’s your personal or business life. Getting up half an hour early, doing one extra thing for your business, making that one extra phone call. If you do it consistently, it can lead to really big results.

Slocomb Reed: That’s awesome. Margaret, where can people get in touch with you?

Margaret Kozlark: We are at noblivest.com. I’m also on LinkedIn, Facebook, or you can reach me at margaret@noblivest.com.

Slocomb Reed: Awesome. Best Ever listeners, thank you for tuning in. If you enjoyed this interview with Margaret, please follow and subscribe to our podcast, leave us a five-star review, and please share this with someone who you think could benefit from the advice that Margaret has given. Thank you and have a Best Ever day.

Margaret Kozlark: Thanks so much. Take care.

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JF2714: Survive Any Market Cycle: 4 Ways to Diversify Your Assets ft. David McAlvany

What if you could minimize the risks to your investments? In this episode, David McAlvany, CEO of the mobile app Vaulted, shares why diversifying your assets with precious metals can provide stability during market dips, rising interest rates, inflation, and more. 

David McAlvany | Real Estate Background

  • CEO of the McAlvany Financial Group which consists of McAlvany ICA (precious metals advisory firm), McAlvany Wealth Management (an SEC-registered investment advisor), and Vaulted (mobile app for investing in allocated and deliverable physical gold).
  • A key pillar of McAlvany Wealth Management’s strategy is centered around hard assets and global real estate.
  • Based in: Durango, CO
  • Say hi to him at: https://vaulted.com/ | https://davidmcalvany.com/ | https://mwealthm.com/

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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, David McAlvany. David is joining us from Durango, Colorado. He is the CEO of McAlvany Financial Group, which is involved in wealth management and global real estate, as well as various other assets. David, thank you for joining us and how are you today?

David McAlvany: Thanks for having me. I’m doing great. Looking forward to our conversation. I hope we can cover all the ground that you want to cover.

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

David McAlvany: Yeah. Our family business comes into its 50th year this year. We started in precious metals, specifically gold and silver, in 1972. So we have seen similar economic environments and financial market environments to what we have today. In fact, a part of the reason we exist today is because there were significant inflationary issues on investors’ minds in the late ’60s and early ’70s. Five decades later, we’re still doing that, helping investors who want to own physical/tangible assets.

In 2008, I launched our asset management company which focuses, in a complementary way, on hard assets, but this time in publicly traded markets, specifically in real estate, which would be in the form of real estate investment trusts, in infrastructure, in global natural resources, and then precious metals, but more of a producers as opposed to the physical product itself, which our sister company handles.

Ash Patel: With the economic cycle that we’re heading into now, what dissimilarities do you see versus previous inflationary times?

David McAlvany: What dissimilarities do I see? Some of the inflationary pressures obviously will recede; it depends on the length of this pandemic/endemic with COVID. They are clearly pressures in China, with Chinese manufacturing. Whether it is rare earth minerals that are in a hard-to-find situation, or semiconductors which continue to constrain some of our manufacturing here in the United States, because we don’t sufficiently provide our own… These are things that do have inflationary pressures which will recede. The thing that I don’t think will recede will be monetary policy, which today we’re looking at changes in monetary policy, and the idea is that Jerome Powell is going to raise rates, we’re going to see an increase in rates… I would just tell you that there’s so much debt in the system, roughly $30 trillion, that to raise rates is highly consequential. So being able to talk about raising rates and actually following through is quite different.

Another dissimilarity is in the 1970s, as we went from the era of Arthur Burns to Paul Volcker, Volcker got to raise rates and crush inflation. We were working off a very low level of debt, private, corporate, governmental. You can’t do that, you don’t have the same latitude, you don’t have the same levers to pull in terms of monetary policy today as you did then.

Ash Patel: Can you dive into that a little bit deeper, where — because of the amount of debt that we have, what’s the impact of raising rates significantly?

David McAlvany: You’re really talking about a cash flow issue. If you’re talking about corporate entities who have a lot of debt on the balance sheet, as they recycle their debt and have to renew it, it’s going to be at higher rates, so that impacts their cash flow pretty significantly. You tend to see stocks perform very well in a declining interest rate environment, and you tend to see stocks suffer, again, because the cost of capital goes up, in an increasing interest rate environment. So there’s an impact to corporations managing debt maturities, there’s also an impact on the government itself, at two different levels. Number one, they have to refinance their debt too, and at higher rates, it’s a larger line item. Interest in principal payments becomes a larger line item in the national budget.

If you look at the interest in principal payments today, it’s less than 7% of our total budget. But you don’t have to add very many percentage points in terms of an increase in interest rates for that to be 20%, of all government spending, just to pay interest in principle. We have a very leveraged balance sheet as a country, and an increase in interest rates takes that single line item, interest in principle — and again, from a low single-digit, it could be 25% in very short order, of our total governmental expenses. And that has huge implications.

Ash Patel: David, we keep hearing about all the money on the sidelines. What will it do to all the money on the sidelines?

David McAlvany: That’s a good question. All the money in the sidelines – it depends on the atmosphere that you’re in. Money on the sidelines in a fear-based environment stays on the sidelines. The Plaza Hotel came for sale in the 1930s and no one was willing to buy it, even though the price asked was only equivalent to the revenue generated by the bar and restaurant, not just the hotel. There’s plenty of money on the sidelines, but no one would put that capital to work because they were scared out of their minds. Money on the sidelines in a rising market means that you’re going to rise further, money on the sidelines in a declining market means that you’re going to have money on the sidelines. Just because liquidity exists doesn’t mean liquidity is flowing.

Ash Patel: What advice would you give to people that are going all-in on real estate, taking on a lot of leverage?

David McAlvany: I think it’s ill-advised, for a couple of reasons. You have an asset class that, like a bond, is sensitive to interest rates. We’ve been through a good long cycle of declining interest rates. Ash, when did interest rates start to decline?

Ash Patel: I would say 2008…

David McAlvany: 1982. This has been a huge stretch where interest rates have come down and stocks have gone in a beautiful direction for our entire lifetime; bonds have gone in a beautiful direction our entire lifetime; real estate has gone in a beautiful direction our entire lifetime. But the average interest rate cycle is somewhere between 22 and 36 years here in the United States. What had started at 82 – we’re already well past the longest interest rate cycle we’ve ever had, implying that at virtually zero, we have only up to go in terms of interest rates. And you’re talking about an asset class that is price-sensitive to a rise in rates. So if you are leveraged in an asset class that has downside potential as rates increase, I think that’s a dangerous position to be in. Are there exceptions to that? Of course, there are. Location, location, location is always going to be the mantra and a true issue as it relates to real estate.

Is there always going to be a place to make money in real estate? Yes. But I think you’re talking about the difference between a professional and a novice. If you are counting on the environment to remain the same in support of real estate trajectories continuing to go higher – again, the history of interest rates would argue otherwise.

Ash Patel: Alright. We real estate guys live in this bubble where all of our news is real estate-centric, our social media is real estate-centric, and all you see right now is with inflation coming – how do you battle that? Go out and buy more real estate, borrow more money. So give people a little bit of a dose of reality on the drawbacks of taking on that large amount of debt. Granted, you’re locked in for a long period of time, but I don’t think many of us realize the pressure on the asset price itself. Can you explain that?

David McAlvany: Well, you guys know about cap rates far more than I do. But when cap rates are compressed more, and more, and more, another way of looking at that is the risk in the asset is also increasing at the same time. There’s not a lot of room for error if you’re dealing with a cap rate of three, or four. There’s a lot of room for error if you’re talking about a 12 ca; there’s a lot more room for error. At this point, things have to work out; in a compressed cap rate environment, things have to work just right. I’m not a negative neutron, but I look around and I say “If I could have cash or a cash equivalent and be in a position to put money to work in a distressed environment, that would be pretty compelling to me.” Because I think there’s a lot of people in the real estate world who are way over-leveraged. And if there is any change at all, either in the economy or in the direction of interest rates, you’re going to find very leveraged players, all of a sudden, in real trouble.

We’ve had, perhaps, a great demonstration of this with a Chinese development company – $300 billion in debt; Evergrande, they’re one of the top 10 real estate developers in China. Now, all of a sudden, things begin to change and there are not as many people buying apartments as there were before, so volumes changed, just at the margins. And because they had so much debt, now all of a sudden, they’re in a real bind.

Ash Patel: Underwriting, in the perfect world – how do they anticipate what’s on the horizon? Do they have their exit cap rate one or two points higher than what they’re buying it at?

David McAlvany: That’s a good question. I think a part of the question that I like the most is when you’re buying something, be clear on what your exit strategy is. I think that’s a healthy thing to keep in mind. Again, for me, it comes back to a compressed cap rate. If you are buying something that’s at a compressed level, what possibly is your exit strategy, what possibly exists?

Ash Patel: I’ve seen a lot of proforma’s where they’re compressed even more upon sale.

David McAlvany: Right. But see, if you move away from the real estate crowd, on Wall Street we call that the greater fool theory of investing. You may come in with $10 million and all you’re hoping for is that somebody comes in with 15. But if you paid too much for an asset, what you’re really hoping, even though you paid too much, is that someone comes in and pays even more on the “too much” side effects. So you’re just banking on it. What’s your exit strategy? Is the best exit strategy counting on a continuation of market insanity? I don’t know.

Ash Patel: David, how do you advise people? Some of the younger guys and girls that have only seen good times in their life, people that graduated high school in maybe 2009 or 2010 and have had a great run (graduated college) and just all they’ve seen is an incredible booming economy. How do you bring them a dose of reality on what could happen?

David McAlvany: We spend hours every day looking at market history, looking at trends, and trying to extrapolate nuggets of important data from the past that would be relevant in the present. And I think for anyone who wants to look at where we’re at, it’s really important that you start looking at cycles, it’s really important that you understand the nature of interest rates, one of the prime drivers of real estate values. But more than that, prime drivers of all asset classes. Would it surprise you to hear that as of 2016, we’re only marginally above these levels? But as of 16, interest rates hit a 5000-year low.

Ash Patel: That is very surprising.

David McAlvany: Yeah. So with that in mind, you could also say that any asset that is interest rate-sensitive and does well on the basis of low rates is also the equivalent of a 5000 year high. I would just ask any investor, whether it’s real estate or anything else, where do you make money? When you sell something or when you buy it?

Ash Patel: It’s really when you buy it.

David McAlvany: Buy right. So if we make the case that we’re somewhere close to the highest values ever, because the cost of capital is the lowest in 5000 years, you’d have to argue that you can’t possibly buy it right. And that’s a broad statement about an asset class in general. There’ll be exceptions where the details percolate to the top, and whether it’s a distressed deal, or… There’s always an opportunity; that makes sense. But in general, you’d say, “You should look at history, know where you’re at in the continuum, and recognize that this is not a market that is going to help you make money.”

It’s no different in stocks. If you look at current price-to-earnings ratios, if you look at price-to-sales ratios, the price-to-sales ratio in the S&P 500 is the highest it’s ever been in all of US stock market history. We blew out the 2008 levels, we blew out the 2000 levels, we blew out the bull market levels of 1968, we’ve blown out the levels that we saw in 1928 and 29 before the market rolled over. You could look at stocks, my gosh, you are paying through the nose to own these companies.

Ash Patel: I’d like to pose a couple of different scenarios to you. Let’s take the real estate investor syndicator who’s really leveraged, taking on a lot of other people’s funds as well, and interest rates go up a point. Now they realize their proforma sales cap rate is not going to happen; they’re underwater. How does somebody like that get right?

David McAlvany: You get right before you get there, and you get on the hook now, you get on that immediately, because you have to make sure that your portfolio is lightened up and you’re a lot more liquid. I remember that my dad sat with one of our clients, a reasonably large investor; not a syndicator, but he probably had 50 properties, single-family homes, up in Oregon. This is 2005 or 2006. He sat down and did a consultation with my dad who was in the business at the time. He said, “What do you think I should do?” My dad said, “I’m going to recommend something that sounds crazy to you, but I’m going to recommend that you sell 100% of your real estate portfolio.” He’s like, “This is my cash flow, this is where I’ve made my fortune. What are you talking about?” He went home, thought about it over the weekend, called my dad, and said “I’m putting for sale signs on all the properties.” That was 2006; it took him about two years to get liquid.

The banks knew that he owned those properties, and in 2009 and 10, they came to him and said, “Are you interested in any of your properties? This one’s in foreclosure, this one you can buy from us in a short sale.” And he’s like, “Wait a minute. So I got liquid in advance of a significant decline in real estate, and now I get to own the entire portfolio for cash, plus another 20 or 30 properties on top of that, for cash?” So he went from being leveraged to unleveraged and owning a higher percentage — sometimes the best offense is a good defense is what I’m saying, Ash. It’s not as if you say “Well, that’s just silly. The sky is falling.” Somebody is always betting on the downside. Yeah, there’s a rain cloud somewhere, even on a blue-sky day. I’m really not saying just focus on the negative; what I’m saying is be strategic in the way that you approach the markets and recognize the markets don’t care about you, the markets don’t care about your long-term goals or ambitions. The markets just do what they do. And if there are trends that you can take advantage of… In this case, I think you’ve got a lot of over-leveraged players. And I would say, at this point, if you’re over-leveraged in real estate, and Jerome Powell does follow through, March, April, May, June, between now and the end of the year, Goldman Sachs says we’re raising interest rates four times this year… I personally don’t believe they can do that without unhinging the economy, because of our debt structures. But if they follow through, you’re talking about a 100 basis point increase, to your point. Now, how does that person get out? Well, it’s a lot harder to get out in December than it is now. And this is not a negative commentary on real estate; this is “How do I buy more of what I own, on better terms?” That’s what I’m talking about.

Ash Patel: So for somebody who’s not exposed to real estate today, is there a hedge knowing that the market is going to be negative in terms of real estate pricing?

David McAlvany: Yeah, is there a hedge…? Not a very good one, honestly. Not a very good one. That has a direct one-to-one correlation with real estate.

Ash Patel: How can you benefit financially if you know that prices are going to go down?

David McAlvany: What I would say is by positioning in cash and being able to do that, you give yourself optionality, you give yourself the ability to have leveraged purchasing power in the future. Positioning in cash now is the opportunity to buy a lot more later. What I would say is that in this environment of desperate monetary policies and governments who are willing to spend anything to keep people happy… Keep in mind, COVID reintroduced the world — this is something that’s very different. We haven’t seen this since the 1960s and ’70s. Governments around the world rediscovered that it’s really fun to put money in people’s pockets. It makes you very, very popular as a politician. “Ash, I’m sending you $10,000. What do you think of me today? Don’t forget to vote in November.”

So we’ve rediscovered the power of the purse. This is a fiscal policy through COVID. We’ve got build back better, and there’ll be a dozen other things over the next decade which are huge trillion-dollar spends. That means that your cash is at risk too, because inflation is here to stay. Even the supply chain issues go away when we sort out who we’re buying our microchips from; that’ll all sort itself out. But what’s not going away is the government spending money that they don’t have, and that having an inflationary impact. We went from sub 2% inflation to now the official CPI is 7%. I’m saying move to cash. How can I in good conscience say “move to cash,” when it’s a guaranteed loss of 7% sitting in the bank? Well, what I would say is that’s why we launched our vaulted program. Our vaulted program is a cash equivalent, it’s meant to substitute for a bank or savings account, but it’s denominated in ounces, held with the Royal Canadian Mint in Ottawa. On your smartphone, on your computer platform, if you go to the app store and look at Vaulted, or go online to vaulted.com, it’s a brilliant program. It’s a cash equivalency, very compressed cost to buy and to sell, instant liquidity, and it’s designed to be what gold was for 5,000 years. Not a commodity that you speculate on prices up and down, it’s the basis of a monetary system. And if we’re not going to be on a gold standard as a country, you can put yourself on your own gold standard. Insulate yourself from the cost of inflation by having a part of your liquidity in something that protects you from the ravages of inflation.

So yes, you want to reduce your market risk in real estate, yes, you want to have some exposure to cash, or I would say a cash equivalent, and you can get that in ounces. Vaulted is a great outlet. There are others, I’m sure too, but that would be the way I would solve the inflation problem and the overexposure problem to real estate.

I’m a huge bull in real estate. I own real estate personally, I invest in real estate, I am dying to get out of ounces, and into more cash-flowing real estate. So this is not the gold guy who is anti-real estate, I’m pro real estate; I just want to own more of it on the best terms possible. I think that given the market structure and the fever pitch speculation that we’ve seen in cryptocurrencies, in non-fungible tokens, in meme stocks – you’ve got money flowing, and people are excited, and people are making money, and it’s in real estate, and it’s in every asset class. Ash, I just don’t think this ends well. The good news is, it ends really well for someone who’s like, “Yeah, I think I’m just going to take a few of my marbles out of the game, and I’ll put them right back in… But instead of three marbles buy three things, I want to see three marbles buy nine things.” Increase your purchasing power, let the market come to you; make money on the buy side, not when you sell.

Break: [00:22:38][00:24:48]

Ash Patel: David, you’ve made a really compelling argument about what’s on the horizon. Why would you not take your father’s advice and sell all your real estate now?

David McAlvany: A couple of things. Number one, my real estate is not leveraged; and number two, I’ve got really good visibility on the rents. So it’s a very strong position to be in. I remember one of our other clients who at one point had close to 1,000 doors in downtown San Francisco. He leapfrogged from 500 to about 1,000 in one of the many economic downturns we’ve had in the last 60 to 70 years. This is a guy who’s dead now; he retired to Spokane, made a ton of money building houses in the 1930s, made a ton of money in the poultry business in California in the 1950s and ’60s, built a real estate empire in the ’70s and ’80s… And what he told me about what he built in terms of a real estate empire in San Francisco — not a bad place to own 1000 doors, I think — is that when the market turned down, he had zero debt. Everybody around him was scrambling to make payments, while he just lowered his rent 30% and stayed 100% of capacity.

Meanwhile, building A, B, and C across the street are going back to the bank. That’s how he jumped from 500 to 1,000 doors pretty quick. He had staying power, he had the ability to lower his rents to whatever to keep it 100% full, which put him in a huge position of strength. His kids always looked back and were like, “Dad, teach us how you made money in real estate. This is amazing.” My last conversation with him was in 2002. Gold was at about $400 an ounce, it’s $1,800 today. He said “My kids will never get it. It’s not about real estate, it’s about understanding value. It’s about buying things right.” What he was doing – he actually moved almost 100% of his money into gold at the time.

Ash Patel: How does gold compete with NFT’s, meme stocks, syndications, and growing money? These coins, your money is growing, you can watch it… There’s nothing fun about gold. How do you convince people that that’s the right way to go?

David McAlvany: Well, I think there’s a difference between something that is fun and something that has had a meaningful existence for 5,000 years. If you think about the rise and fall of nations, if you think about the history of the world, and even the fact that we have the opportunity to buy real estate on leverage… The basis of all banking, the basis of all money has been, for 5,000 years, gold. We’re playing games now with fiat currency that has nothing backing it. But the longer history of gold is just money. So you’re interested in money, I’m interested in money; you’re interested in non-fungible tokens, cryptocurrencies, and syndications because it represents more money to your balance sheet and income statement in the future. This means you should have an interest in gold, because gold is nothing but money. It’s just what money has always been, versus what it is today. I’m interested in more money, which to me translates as more ounces. Now, I’m going to get to more ounces through understanding relationships and relative values between asset classes.

Today, the relative relationship between stocks and gold favors getting out of stocks and getting into gold. Why? So I can come back into stocks when stocks are cheap and gold is expensive. I don’t care about ounces, actually. I’m improving my position by moving laterally from one asset class to the next. And yes, I’m interested in syndications, yes, I’m interested in real estate. I’m probably not interested, I’m not your guy for cryptocurrencies and non-fungible tokens, because I don’t know what they are. Maybe you can tell me what they are.

Ash Patel: Yeah, I’m like you. We’re still trying to figure it out. The fear of missing out.

David McAlvany: That’s fear of missing out, it’s “I can’t believe somebody made a million dollars.” There is a sense of sort of irrational exuberance when it comes to those things. Whereas if you look at real estate, the reason you like real estate is because it’s a tangible asset. You can stub your toe on it, you can walk around it, you can get comps in terms of what this thing is worth, and then know if you’re getting a good deal or not a good deal. And you can look at the cash flow attached to it and be like “This is fun.” I look at gold and I say “It’s actually really fun.” Because all you’re doing is playing a game. For me, I may be in gold today so that I can be in acres tomorrow. And I think about that relationship.

Ash Patel: Yeah, it was brilliant with Vaulted where you can just swipe and buy gold.

David McAlvany: Yeah, I think we’re moving into a digital era, certainly. And gold is stuck in the 19th century, certainly. So Vaulted is how you bridge all the integrity of 5,000 years with the innovations and convenience of the 21st century. So you get the benefits of something that has been enduring wealth through millennia, but you’re not hampered by somebody delivering a package to your front door from the US Postal Service, or God forbid, a FedEx driver leaving $50,000 with gold on your doorstep without a signature. So to us, Vaulted is a great way to own an incredibly valuable asset, to protect yourself against inflation, to have some upside in the case of a market downside… Because they do tend to move in opposite directions. If stocks go down over the next two or three years, gold’s going up, no question. So you’ve got some upside.

Ash Patel: And David, what’s the markup? How much more am I paying per ounce if I buy through Vaulted?

David McAlvany: 1.8% is the transaction cost to buy or sell gold through Vaulted. The beauty of Vaulted is we have an arrangement with the Royal Canadian Mint. We’re sourcing our bars directly from them; there is no wholesale middleman. We’re getting the bars as cheap as you can get them. So it’s melt value plus 1.8%. There are actually other people I know in the industry who are like “Oh, we only charge 1%.” Yeah, off of a much higher base. We are one of the most, if not the most affordable way of buying gold. And the beauty is you don’t have to buy an entire bar. You can buy $5 worth, you can buy $20 worth, you can buy $1,000 worth; we have clients that have bought multiple millions of dollars in the Vaulted program.

It’s been particularly popular with people that are looking for a short-term repository for their wealth. You sell a real estate deal, you know it’s going to be put back into the market, you’re going to be hanging out for six to 12 months, and you don’t like what the dollar is doing, and you don’t want it in the bank. Maybe you don’t have had a great relationship with your bank, they certainly aren’t paying you much.

Ash Patel: David, discounting today’s economic climate, what is your best real estate investing advice ever?

David McAlvany: My best real estate investing advice ever… I go back to that example of the Plaza Hotel in the 1930s, and I think “Buy when no one else is buying, and sell when everyone is interested in buying.” It’s a contrarian model that it’s really hard to do, because again, there’s the issue of fear of missing out, there’s the issue of what does someone else know that I don’t know? So how confidently are you engaged in the investment process? It’s a lot easier to look around and say everybody’s doing it, everybody’s making money; I’m just not worried. But to be able to buy when no one is showing up, and sell when everyone’s there just begging for the opportunity to own it, this applies across asset classes. But I can’t tell you the number of times we’ve seen it, even in our own industry.

This goes back — again we’ve been in business for 50 years. This is the early, early days, 1979; silver is at $50 an ounce. It’s just gone from $1 to $50; that’s silver. So there is an upside, there is a lot of activity, and a lot of things to be gained in having long exposure to precious metals. But my mom takes the call from a doctor – we were a small business at the time. The doctor says “I want two bags of junk silver.” She’s like, “I don’t think you should do this. You’re paying the highest price silver has ever been. Why don’t you wait six months and see?” He’s like, “Excuse me. I have an MD behind my name. I think I know what I’m doing here.” She could not hold him back, and he went on to lose 80% of his money. Why? Because there’s volatility in any asset class. He bought at the absolute peak, which we didn’t see again until 2011. So where you buy does make sense. If everybody’s clamoring to put money to work, take your time. Everybody wants to move their personal balance sheet ahead as fast as possible. If you’ve got a million dollars in assets, do you want it to be 10? If you’ve got $100,000 in assets, do you want it to be a million? You want to close that time gap to make that happen as fast as possible. Leverage gives you that opportunity, but leverage gives and leverage also takes away. The problem is if you’re overpaying for an asset to begin with, and it’s on leverage, you’re going to find yourself in a world of hurt. I think the best advice I can give is in this environment, you probably just want to cool your jets. And that’s not because you’re any less strategic and wanting to grow your wealth in real estate, it’s because you’re more strategic than the next guy, and you want the best price possible, because you know that’s how money is made – it’s the price you pay, not what you sell it for.

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

David McAlvany: Okay. I don’t know what that means, but sure.

Ash Patel: Alright. You’re about to find out. David, what’s the Best Ever book you recently read?

David McAlvany: The best book I recently read… I’m reading a novel by [unintelligible [00:34:22].21]. I’ve got to get out of my head, which is sometimes tough for me to do. A spy novel… It’s perfect, it’s a complete distraction. So I’m actually in the middle of a [unintelligible [00:34:34].10] novel and it’s fabulous.

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

David McAlvany: If you’re interested in the Vaulted program, Vaulted is on the app store for either platform, or you can go to vaulted.com online. Keeping in touch on a regular basis; in March we go into our 15th year of a weekly podcast on all things financial. So if you want an education, if you want to deep dive into the deep end of the pool, on economics, finance, and geopolitics, that’s where you find us, at weeklycommentary.com. You can do some binge listening and I doubt you’ll ever catch up, because we’re solidly 14 years in.

Ash Patel: David, thank you for an incredible conversation today. The contrarian advice that you’ve given is refreshing. A lot of us older guys have seen market cycles, but there’s an entire generation that is not. So this is very refreshing advice, very contrarian to everything we’re bombarded with on all of our real estate social media, our real estate news sites, and really what everyone’s telling us. So this was a great dose of reality.

David McAlvany: Ash, thanks for having me on the program. In this period of sort of political volatility and hypersensitivity, I’ve found myself gravitating towards country music, a good dog, a good beer, and a good pickup truck. Let’s just go back to the basics. A song rings in the back of my mind, you’ve got to know when to hold them, you’ve got to know when to fold them, you’ve got to know when to walk away, you’ve got to know when to run. It’s not that you’re any less bullish in real estate, or have less of a strategy, it just means that if you know how to engage even more strategically, the benefits are going to accrue to you that much faster, and you’re not going to be forced to a place you’re playing the patience game.

Ash Patel: Yeah. Again, thank you. Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review, share this podcast with anyone who you think can benefit from it, and follow and subscribe. Have a Best Ever day.

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JF2706: 5 Ways to Find Off-Market Multifamily Deals ft. Chad King

Chad King believes there is always a way to find deals, even in competitive markets. With the right tools and mindset, Chad has sourced the majority of his deals off-market. In this episode, Chad shares his direct-to-seller deals he’s closed, how he’s scaled his portfolio, and the best ways to source multifamily properties.

Chad King | Real Estate Background

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

Chad King: I’m doing great, Joe. Really looking forward to the conversation.

Joe Fairless: Well, I’m glad to hear it, and as am I. Chad is the principal and owner of Titan Capital Group, which purchases and repositions commercial real estate. He’s got 303 units as a GP and 328 as an LP, based in Nashville, Tennessee. Titancapitalgroupllc.com is the website. With that being said, Chad, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Chad King: Sure, absolutely. I started humble beginnings in the wholesale fix and flip space, I kind of scaled my way up, so I did that path. I’m sure some of your listeners are familiar with that trajectory. Then ultimately, I got into apartment complexes. I was buying my own for the first couple and then realize that through syndications I can ultimately do larger deals. Then I got into doing some 506(b) and 506(c) syndications. That’s where I focus all of my time now, is apartment acquisitions; that’s what I’m just mainly focused on now.

Joe Fairless: What have you purchased so far?

Chad King: I started with a little 14-unit. Me and two buddies put a down payment together and bought a little 14-unit, we’ve refinanced that thing twice. Then a 21-unit was the next deal, built some confidence, got to a 49-unit, then a 65-unit, then a 93-unit, and kind of just been scaling my way up. It seemed like every deal that I did, I just got a little bit more confidence that “Oh, man. If I can do a 50-unit, I can do 100-unit. It’s just an extra zero.”

So I’ve been acquiring a lot of stuff between 20 and 100 units. We’ve exited multiple properties, we refinanced properties; that’s what the portfolio looks like. The 303 on the GP is a mixture of a lot of 50 to 100 unit properties.

Joe Fairless: Let’s talk about those. I’d love to go through as many as we can, just to hear the progression and what transpired. We’ll fast forward to when you started doing larger deals. I heard you on the wholesale and fix and flip, and I might ask a follow-up question about that in a little bit. But let’s go to when you started doing the larger deals. What was the first one?

Chad King: The first, let’s call it syndication, of the 50-unit in Chattanooga, Tennessee…

Joe Fairless: So you went from wholesale and fix and flips to a 50-unit syndication?

Chad King: Yeah. There was a 14-unit and a 21-unit in between them, but that was just bought with active income that was from wholesaling and flipping.

Joe Fairless: Wow. Okay, good to know.

Chad King: Ultimately, I also had to get a guarantor. I didn’t have much of a balance sheet other than making money, because I was just an entrepreneur, and banks don’t really love entrepreneurs when they get underwritten… Because our job is to show losses, right? It’s funny how that works. So I had to get a guarantor for the first couple to get them done. Now, obviously, when the balance sheet increases, you can do your own deals. Anyway, I’m digressing a little bit.

Joe Fairless: Who was your guarantor? You don’t have to name the person, but how did you know that person?

Chad King: Just networking. We’ve done a tremendous amount of wholesale fix and flip deals and he was my partner in the wholesale business. So it’s all about networking, getting people to know, like, and trust you. It’s the same thing with raising capital, Joe, and you know that. People want to put their capital with somebody they know, like, and trust. A lot of times, it’s not even about the deal, it’s about the operator. When you network and you tell people what you’re doing, those relationships just sort of open themselves up, especially the ones that you need at the time.

Joe Fairless: Okay. So you did a 14-unit, a 20-unit, and you got a guarantor for those, because you needed to. But besides your guarantor, it was just you, correct?

Chad King: That’s correct. I was the one running the whole deal. Even on the 21-unit that we’re talking about right now, I learned a lot of lessons on that. We fired three property managers in the first two quarters of ownership,  [unintelligible [04:34] off the job. It was a heavy value-add deal; six units were occupied when we bought it. We could go down a rabbit hole like the lessons learned on some of these apartment complexes.

Joe Fairless: What were the top two lessons learned from that… You said 21-unit or 20-unit?

Chad King: 21-unit. Yeah.

Joe Fairless: What were the top two lessons learned from that 21-unit?

Chad King: That’s a great question. I’d say the top two lessons – number one, when selecting a property manager, you need to ask a lot of questions. I think I was a little bit still green in the apartment space and I wasn’t fully vetting the property managers the right way. But we use third-party property managers for all of our apartment complexes; I don’t want to take the phone calls, I want to scale. So getting those team members on the ground is mission-critical.

The first one that we hired, I didn’t vet them properly from an accounting, software, and systems perspective, and it was just a complete nightmare on the financials. They had a contractor that was able to get out there and everything, but the work orders and all the financials were all messed up, and I was spending all my time trying to dig through the accounting, the bills, and the credit card receipts, and it was a nightmare on the accounting side. They didn’t have a software in place, the woman’s son was running the books… I didn’t ask these questions, and it was a nightmare.

The second lesson I learned was making sure that if you’re going to go with a third-party property manager, that they have the relationships in place that can knock out work orders quickly and get things done in-house. What’s their relationship with contractors? Locally? Because the second property manager that we ended up letting go, it was taking them two weeks to get to just a minor work order, like fixing a toilet. It’s because they didn’t have any contractors in-house to knock out little things. I get you to need to serve out the big stuff, the electrical, maybe the HVAC stuff, but you need to vet your property managers… Can they knock out work orders quickly and do they have contractors in place to get things done? Those were the two lessons that I learned moving forward. Now we have just the best of the best property managers, because I think I learned those lessons the hard way on that building.

Break: [00:06:40][00:08:19]

Joe Fairless: From those two lessons, both property management-related, and you said to ask a lot of questions, and then make sure they have the right team in place from an in-house standpoint. What are a couple of questions that you would ask? I heard what you said, but if you asked, “Hey, do you have people in place that can do work orders quickly?” They’re going to say yes, it doesn’t matter who they are. Knowing what you know now, how would you ask those questions, both about the reporting and bookkeeping, and also the in-house question? How would you ask those to make sure you’re getting the answer that you need in order to make a good decision?

Chad King: Great question. I always take just a couple of notes, so I don’t forget and get off track, because I can go down some tangents… This is basic sales 101. You don’t ask a yes or no question, because you’re going to pigeonhole yourself into getting a yes or no answer. So if I could go back to that conversation and the way that I have them now, is you ask it very open-ended and see where they take the conversation. It sounds something like this. “Hey, just curious, how do you guys currently handle work orders?” Leave it open-ended and see where they take the conversation. But what you’re going to do is sort of guide that conversation to “Okay, what about in-house work orders? What do you guys serve out currently?” Letting them elaborate on their process and their product is I think the biggest thing, rather than asking them yes or no questions.

The same thing with the financials. I should have asked her, “Can you walk me through a little bit about how your accounting system works right now and how you guys handle the bookkeeping?” If I had asked that question and she told me “Well, my son handles the bookkeeping and we do it on an Excel sheet,” I would have freaking run for the hills.

Joe Fairless: I love your approach, the open-ended questions and let them talk, and you just ask a follow-up question. That’s awesome.

Chad King: That’s it, 101, you should listen twice as much as you’re talking.

Joe Fairless: Yeah. But it’s also the open-ended questions, versus people who would be inclined to have a checklist of, “Hey, do you have this? Do you have this?” And then they’re checking off their checklist of questions I ask. Whereas yours is more, “Here’s the outcome that we want.” Then it’s going to take probably multiple follow-up questions on the fly in order to get to that outcome; I’m just going to let them talk.

Chad King: 100%. I think the other lesson too, Joe, is that you have to know what your desired outcome is or what those questions are geared toward the responses that you’re trying to get and uncover. That’s kind of the lessons that I was just telling you about earlier. That’s what’s really important, is where are those questions actually leading to?

Joe Fairless: Well, okay. Thank you for that. Now, let’s go to the 50-unit. How much was it? And by the way, where are these properties? You’re in Nashville.

Chad King: Nashville, Tennessee. I started wholesaling in South Florida, and it wasn’t really conducive to where I wanted to build an apartment portfolio, so my wife and I packed up and left. We didn’t know anybody when we moved here, just came to Nashville, and I loved it where it was located. Obviously, the South-East is a landlord-friendly state. Then I was able to put a pin in Nashville, draw a two-hour radius around Nashville, and I was able to grab Chattanooga, Huntsville, Louisville… We have some stuff in Florida, but most of our assets are in Kentucky, Tennessee, Georgia, and Alabama. Most of our stuff is in Louisville, Chattanooga, and here in Nashville. We’ve entered and exited in Huntsville and have some stuff in Florida, too. But I’m right here in Southeast Tennessee, Kentucky, Alabama, to answer your question.

Joe Fairless: This 50-unit, where is it? Is that Louisville?

Chad King: Chattanooga, Tennessee.

Joe Fairless: Chattanooga. Okay. How did you find it?

Chad King: Off-market, direct-to-seller. It came from a text message, believe it or not.

Joe Fairless: How’d you get their number to text them?

Chad King: Skip tracing the. Pulled the list from Reonomy which is the…

Joe Fairless: You got the list from Reonomy, and then what did do you do?

Chad King: Got the list from Reonomy, we skip-traced it, and we put it into our marketing sequence. I love buying direct-to-seller. Most of the stuff that I have in my portfolio we bought directly from the sellers. So we put it in our marketing cadence and they responded to a text message. I sat down with the owner at a McDonald’s, and he pulled out his rent roll, it was on the back of a napkin. He was collecting the rent, mowing the grass, kind of a mom-and-pop, just your traditional perfect avatar cellar for apartments for forced appreciation value-add stuff. I ultimately ended up getting a Fannie Mae loan on it, because I put together all the financials manually based on his napkin roll.

Joe Fairless: So you bought the list from Reonomy, and you skip traced it. What service do you use to skip trace?

Chad King: There’s a lot of VAs and stuff, like on Fiverr, that’ll do skip tracing for you. We use a private guy; I don’t mind plugging him, his name is Ryan Smith.

Joe Fairless: Fair enough.

Chad King: He’s got a company called Lead Smith.

Joe Fairless: Just google him.

Chad King: Yeah. Google.

Joe Fairless: Sorry, he’s got a company called what?

Chad King: Lead Smith.

Joe Fairless: Lead Smith. Okay, fair enough. Once you said the company name, then it’s an easy Google. I was just laughing at the Ryan Smith part.

Chad King: I haven’t negotiated any kickback yet. So just wait until…

Joe Fairless: [laughs] Fair enough. You got maybe a week or so before this episode airs.

Chad King: Cool.

Joe Fairless: Alright. So then the marketing sequence – how many text messages did this owner receive before they agreed to meet?

Chad King: It was on the first text message, but he had received some other marketing from us, so it wasn’t a foreign text message, because he had gotten a couple of letters from us, and he had gotten… I don’t know if he had received the email, but he was on an email sequence as well prior to the text message. So he had gotten two letters, two emails, and then this was the first text that he responded to, to set up a meeting.

Joe Fairless: Got it. So he received two letters, he did not respond. He received two emails, he did not respond. He received a text message, he responded.

Chad King: Got to hit him on all communication mediums.

Joe Fairless: That’s right. What did the text message say?

Chad King: I’d have to go back to the language, that was a while ago… But just something generic, “Hey, I’ve sent you a couple letters. I’m not sure if you’re interested in selling the property. We’d love to have a quick conversation with you whether now’s the right time or not.” With apartment owners, Joe, all the messaging is geared towards building a relationship. It’s not like single-family, where you’re kind of looking for distress and motivation. You really won’t find too much of that in multifamily. I mean, these people do want to sell, but not a lot of these are going to be distressed sales. I mean, very rarely are you going to find that. It’s all geared towards relationship building, and I think I said like, “I’d love to sit down with you and talk about your portfolio, see if it might be the right time to sell.” This guy wasn’t in a lot of pain, but he was just tired of mowing the grass, collecting the rent, and doing all that stuff.

Joe Fairless: And educate me on Reonomy. I’m not too familiar with it. Are you sending the marketing sequence, the two letters, two emails, text messages, via Reonomy?

Chad King: Yeah. You can, it does have that service. However, we pulled the list out, skip-traced it externally, and then we sent that list to a mail house,

Joe Fairless:  A mail house and they send the letters out.

Chad King: Correct.

Joe Fairless: But what about the emails and the text message?

Chad King: We use MailChimp for the emails, and we were using Sendy for the text messages, which is where he actually got his text messages from. Ultimately, Sendy I think shut down, so now we use a service called Launch Control.

Joe Fairless: So how do you coordinate — if at the time (or sounds like still) you have at least three different companies that are sending out stuff on your behalf to the same person, how do you track that internally to make all those systems speak to each other so it’s easy for you to see the response or lack thereof?

Chad King: Yeah. So I have a CEO for that, that tracks all that; he’s the integrator, he tracks all the data. But with the apartments, you’re not going to get a ton of leads. It’s not like single-family, where you can shoot postcards out to 50,000 people. In any sort of metro, secondary or tertiary, there are only probably three or 400 apartment owners that might be in your target; so it’s not a ton. You don’t need some robust CRM, I think; that’s a limiting belief that people have like, “I don’t have a CRM setup like Podio.” You can get it done with an Excel sheet. I’ll be honest, I’ve acquired all my assets with an Excel sheet to keep track of who calls in. I have it ring directly to me, because I want to be the one that has the conversation. If a seller is calling in, have someone on the phone who can actually talk the talk. I think if you end up putting somebody in that position to answer calls, you may end up doing yourself a disservice. But I track them in an Excel sheet, to be honest with you, Joe. I mean, I’m not going to overcomplicate it.

Break: [00:16:39][00:19:36]

Joe Fairless: Yes, simplicity is very helpful in order for us to execute regularly, so I’m glad to hear that. Alright, I think I’ve uncovered the way we can add a whole lot of value to a lot of people on this show, and that is that you’ve purchased a majority, or I think you might have said all, of your large apartments off-market, direct-to-seller. Let’s talk about that, because clearly, right now it’s a challenge to find deals and a lot of people have excuses. Most of them are just BS excuses, because they’re not putting in the effort to do things like you’re doing, and/or hiring people, or bringing on people who have those skill sets to do this stuff. So that’s the 50-unit… What about the next deal? How did you find it?

Chad King: I have bought a couple of deals from brokers, so not all my stuff is…

Joe Fairless: Yeah. Fair enough.

Chad King: But the next deal was a 93-unit that was right here in Nashville. That one was negotiated directly with the seller as well. $8.3 million dollar purchase price. He actually owner financed it, held a $6.1 million note for us, so we didn’t have to go to the bank to get a loan, didn’t have to get approved for anything, no appraisal, nothing. I sat down with him and figured out what he wanted. He had owned it for over 20 years; just a lot of operational efficiencies that we were able to come in day one, increase the NOI by 110,000 by cutting salaries on day one, which increased our value over a couple of million bucks overnight. We can dig into that but that was the next deal. We did a syndication raise of 2.8 million on a 506C(c) which is open to the public. That was our first 506(c) syndication.

Joe Fairless: That was the 93-unit?

Chad King: Correct? Yeah. Right here in Nashville.

Joe Fairless: Yeah. I heard that you said direct-to-owner letter. Got it. Okay. Before, it was sent two letters, two emails, and a text message. The two letters – do they go out first before the emails?

Chad King: We do letter, email, letter, email text, letter, email text, and then they get off that cadence and give them a break, and then they go back on it later on.

Joe Fairless: How soon after they receive a letter do they get the email?

Chad King: Two weeks.

Joe Fairless: Every action is two weeks?

Chad King: Give or take.

Joe Fairless: Give or take. You said it was the first letter?

Chad King: The second letter he got from us.

Joe Fairless: So he had already received a letter and an email.

Chad King: Again, you can’t tell if they get the emails, you just have to assume that they’re seeing your name and your logo. I just know that we mailed them twice. I don’t know if he called me from the first letter that he held on to, or it was the second one that got him. That’s what you never know, Joe. People will pull a list and do a campaign and get no phone calls, and they’re like, “This doesn’t work.” Well, you’ve got to kind of put some activity in. These people need to see you a few times before they reach out to even set a meeting to see if you’re serious.

The other thing that I had going for me on this one in full transparency is we had a broker that had a relationship that was also able to speak to our credibility, that knew the seller very well, too. So it was off-market, it had never even touched the market, and nobody else even got a phone call to even bid on it. But I also build a lot of relationships with brokers in addition to direct-to-seller marketing. So on this one, I actually got a letter and we kind of tag-teamed it with a broker relationship that was able to help out, [unintelligible [00:22:49].19] in there for credibility.

Joe Fairless: What was that broker compensated?

Chad King: The seller compensated him on the sale. [unintelligible [00:22:56].19]

Joe Fairless: When you send the letters, are they the same exact letter? Same question for the emails.

Chad King: No.

Joe Fairless: Different, so you switch it up some. Got it. Alright. That’s awesome. What would you say to someone who says, “I’m having a hard time finding multifamily deals.”

Chad King: So is everybody else. [laughter] It’s a lot of activity. I think people say that and they probably haven’t even begun to look at enough deals to even come out and say something like that. Because I don’t think enough people getting into this understand how much activity you have to load into the top of the funnel, as far as deal flow goes and underwriting goes. I’m looking at 60 to 70 deals before we buy one, and underwriting 20 to 25 deals before we’re actually closing on one. There are 10 to 12 LOIs going out right now to get a deal closed. There’s a lot that goes into the top of the funnel, and people are looking at four or five deals and saying “Oh, there’s nothing out there.” They’re going on LoopNet, looking at the three four deals on LoopNet, and “There are no deals out there.”

You’ve just got to increase your deal flow, look at enough properties, and start underwriting enough deals to actually get one closed. Because it’s a numbers game; it’s a race to 60 or 70 deals is what it is. If you change the way you think about it – not that there are no deals out there, but “Hey, 70 deals need to come across my desk,” you’re going to raise your standards for your activity level and the rest is going to take care of itself. Kind of a long-winded answer, but I hope that was helpful.

Joe Fairless: That’s helpful. All on point. I’m not going to go through your other deals, because I think we’ve found the main focus for this conversation. I’m glad that we talked about it. So I’m going to ask you the question we ask everyone, what’s your best real estate investing advice ever?

Chad King: Best real estate investing advice ever… Trust the numbers. Fall in love with the numbers, don’t fall in love with the deal. Too many people fall in love with the actual property or the piece of real estate. They try and fit a square peg in a round hole and actually try and force the numbers to work. When I get a deal, Joe, I try and kill it on the underwriting; I kill the deal on the numbers, and then if it fights to stay alive and still stays in the green, then I trust it and I do the deal. So fall in love with the numbers and get good at trusting the numbers, because they don’t lie. They tell a story; when you’re looking at these properties, the numbers will tell you a story. You have to trust the story and be able to change the narrative, and trust the numbers moving forward, and they’ll take care of you.

Joe Fairless: You’ve got 328 units as an LP; so how many deals are you in as an LP?

Chad King: That’s five.

Joe Fairless: How many different sponsors?

Chad King: Two.

Joe Fairless: How did you pick those two sponsors?

Chad King: Track record. I vetted them hard. You’ve got to vet your GPs. A bad GP can screw up a great deal if they don’t know how to run it.

Joe Fairless: And when you say vetted them hard, will you qualify that a little bit?

Chad King: Yeah. Look at how many properties have they purchased, what are their current assets under management, how many have they successfully exited, is this their first deal? That’s not to say I wouldn’t invest in somebody if it was their first deal, but I just got to feel very comfortable with them in their game plan, their reposition plan for the property. I’m looking a lot at their numbers and how they’re projecting out. Are they a little overzealous on the rent increases? A lot of people think you can both increase rents and decrease expenses all at the same time, and it’s going to be hunky-dory. So what’s their narrative change going to be? How are they going to force appreciation?

So not only what the narrative is for the deal, but also, what is the narrative for those sponsors? Do they have other jobs that they’re doing? Am I just talking to a money raiser or am I actually talking to someone who’s going to be actually hands-on with the property? Those are the kinds of things that I’m asking when vetting a sponsor. How are they getting a debt? Like who’s sponsoring the debt? All that kind of stuff is important when you’re looking at investing in an LP.

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

Chad King: Let’s do it.

Joe Fairless: Alright. What deal have you lost the most amount of money on?

Chad King: Believe it or not, I have never lost money in a real estate deal. I did a lot of wholesale deals, but we’ve flipped a lot of properties…

Joe Fairless: Even the fix and flips?

Chad King: Yeah, we kept a very tight box on what we would actually take down and flip and we would wholesale everything else that was outside of our box. So we really got super specific on — and this is probably a good tip, but we didn’t do any renovation over 40,000. We kept it cookie-cutter on the renovations, things that just needed basic cosmetics. We stayed within that box and then wholesaled everything that was outside of that box. It ended up treating us pretty well, so we never lost money on a real estate deal.

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

Chad King: For-purpose apartment community. We put a line item below the line. We’re working this into our new acquisitions as well, but we’d like to give back with for-purpose apartment communities. Each apartment complex that we buy has an initiative. Some of them are child sex trafficking, some might be disaster recovery, and they all have an initiative below the line expense item that can fund an initiative. So both the residents and the investors now feel like they’re a part of a greater purpose, and we feel like we’re giving back to a greater purpose as well, to the things that matter to us.

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

Chad King: I had our marketing team put a link together just for your listeners. I did this first-offer challenge where I went into a brand-new market… I know this is the lightning round, but this is pretty cool for your listeners. So I went into a brand-new market from scratch, with no relationships and I just cold-called… I went from going to a brand-new market to making and submitting an LOI in five days, with one hour a day of work. I recorded the whole thing and kind of put it into this little package, to kind of eliminate everybody’s limiting beliefs that you just can’t get started and get an LOI out.

We cold-called brokers, I cold-called sellers, and I was doing it live. They can get a hold of that if they want to opt into our world at 7figuremultifamily.com/chad, and they can get access to that challenge. But if they want to come to see me, I’m Chad King on Facebook. We have 7 Figure Multifamily as our mastermind group. We’re doing an event in Nashville in June, or this year in June, we’re doing an event. If you guys want to come over and check us out at 7figuremultifamily.com, that’s our mastermind where we teach people how to do what we’re doing.

Joe Fairless: Got it. And you don’t spell out seven…

Chad King: No, the number 7.

Joe Fairless: Yeah. The number 7. Yeah, I just tried typing in seven, but that didn’t work. So you have 7figuremultifamily.com/chad. I see that.

Chad King: I don’t know if that link is live. I actually told them to set it up this morning.

Joe Fairless: It is live. They are on point. Yeah, it’s there. Well, Chad, thank you for being on the show. Thank you for sharing with us in detail how to get off-market deals. And hey, if you’re having a hard time finding deals and you’re not doing this, then here is a solution for how to find deals. I love that comment you gave regarding, well, you just got to keep doing it and have a system. The results are here in your story. Thank you for that, Chad, inspirational and very, very helpful and timely for a lot of investors. I hope you have a Best Ever day and I will see you at the Best Ever Conference here in about a month or so. I’m looking forward to shaking your hand.

Chad King: I can’t wait Joe. Thanks for having me on. I think we’re [unintelligible [30:11]. I can’t wait to see you. Thank you very much. I appreciate it. Always a great value on this.

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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JF2688: 3 Ways to Eliminate Competition in the Mobile Homes Market with Charlotte Dunford

What’s the best way to beat the competition? For Charlotte Dunford, it’s figuring out how to avoid it in the first place. Focused on mobile home parks with 50 or fewer units, Charlotte’s niche-down approach has allowed her more opportunities to find and close deals in the market than she would otherwise have access to. In this episode, she shares what is most important to look for in a mobile home park deal, as well as the importance of finding your niche in any market. 

Charlotte Dunford | Real Estate Background

  • Managing Partner at Johns Creek Capital, “creating wealth through mobile home park investments.”
  • Portfolio: 24 mobile home parks acquired through syndication, value-added and flipped 1 single-family home and 1 duplex. $4.2M AUM.
  • 3 years of REI experience
  • Based in Atlanta, GA
  • Say hi to her at: https://www.johnscreekcapital.com/
  • Best Ever Book: The Ultimate Sales Machine by Chet Holmes

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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Charlotte Dunford. Charlotte is joining us from Atlanta, Georgia. She’s in the private equity mobile home parks space, and her portfolio consists of over four million dollars’ worth of mobile home parks. Charlotte, thank you so much for joining us today, and how are you?

Charlotte Dunford: Good, how are you?

Ash Patel: I’m wonderful. Charlotte, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Charlotte Dunford: Yes, so my name is Charlotte Dunford. I am in mobile home park private equity investment. Like Ash mentioned, under our portfolio we have currently 24 small to medium-level mobile home parks, with a total investor subscription of $4.7 million in our portfolio. We are in this — we call it a niche within a niche. Mobile home parks have been a long-ignored asset class, and we are in the small to medium level mobile home parks, which has given a smaller niche within a niche. We have a strong belief in this niche.

As I got started, I was looking into other assets to get into, such as multifamily and other commercial properties. However, at the time, when I started a couple of years ago, I’d just graduated college and I started the job for a firm and then worked in the corporate world for a year and a half. I did not have the experience needed to compete with the big boys in multifamily and other commercial properties, so mobile home parks became a really good starting point, with less competition, but more profit margin for investors like me to get into the space. Over the past year and a half, it grew to what it is today, the 24 lots, so it really just took off from 2020 and 2019.

Ash Patel: So 24 lots in a year and a half is incredible. I’ve got a lot of questions. What is the private equity piece of this?

Charlotte Dunford: The private equity piece of this is our customers are investors. We offer a preferred rate of return for each deal that we are in. Right now, it’s an 8% preferred return, and then there will be a waterfall structure. 70/30 and then there’s the next hurdle. Each hurdle is a four-point increase, so the next hurdle is 12% and then it changes to 60/40, 60 being the investors and then 40 being the sponsors, which is [unintelligible [00:03:12].23] Capital, us. Then it jumps by another 4% at 16% return, and then 50/50. It stops there.

Ash Patel: How did you get started in real estate?

Charlotte Dunford: It’s interesting, because I came to the United States when I was 16, for high school. I did not come with anybody else, I came by myself. My parents didn’t come with me, so I pretty much just had to start everything from scratch. So I figured out pretty much the whole system and went to college. Then after working, I’ve always wanted to do real estate, because where I came from in China, you actually cannot own real estate legally, you have to lease it from the government for 70 years and you have to give back. So real estate has always been a dream come true now.

At my corporate job, I used my salary pretty much to finance my first deal in single-family, and then moved on to a duplex shortly after. Then after which I felt the desire to be an entrepreneur, and somewhat, although limited, but some experience in education I got in real estate through just listening to podcasts, buying books, and actually buying real estate. It helped me launch the new venture of a full-time real estate investor in mobile home parks. I met my business partner around the same time, late in 2019, and then we started buying mobile home parks. Then it got into one mobile home park, two, three, four, and then grew into what we have today, 24.

Ash Patel: I have even more questions now. You had a corporate job for one year out of college. Why did you not like that?

Charlotte Dunford: I like the job, it’s just that I had something I wanted to do more, which is being an entrepreneur and to create, and to really create a service for people to achieve financial freedom. For me, our service primarily serves accredited investors to expand their assets and to grow their wealth. I think that idea really appeals to me. That’s something I’ve always wanted to do.

So my corporate job was great, I learned a lot from it being a business analyst. Learning about data analytics… It really helps me today in my today’s job in underwriting and sourcing deals. So I did not want to stay in a corporate job forever, because it just was not providing fulfillment, either financially or mentally, or anything.

Ash Patel: Charlotte, your first mobile home park – was that purchased with your partner?

Charlotte Dunford: No, not with my current business partner. My first mobile home park was with other private investors that I worked with.

Ash Patel: And you found the deal.

Charlotte Dunford: Yeah, I always find the deals.

Ash Patel: Okay. You find the deals and you manage them as well?

Charlotte Dunford: Yes, we manage all of them in-house.

Ash Patel: And why mobile home parks that are under 50 units?

Charlotte Dunford: Because I’m a firm believer in escaping competition. One of my favorite books of all time is From Zero to One, by Peter Thiel, a Silicon Valley investor. He is actually one of the most successful investors out of Silicon Valley. He has a really good philosophy in escaping competition, and that’s to create more profit margin. For me, I chose this niche because it avoids a lot of big boys from institutional funds to buy up really extremely competitive and heated markets and heated, big lots. A lot of them are like a small city, big communities consisting of 300 lots, 100 lots, and even over 100 lots. Everybody’s going after that, everybody’s going after this heated market, which makes small guys like us, or small guys who want to get bigger, who want to monopolize a small niche and then expand… Our job is extremely difficult and almost impossible to make a good profit margin if everybody’s chasing after the same thing.

Ash Patel: Yes, I love that philosophy, and the same applies for multifamily. But it seems like there’s just no niche in multifamily that’s not highly sought after, even under 40, 50 units.

Charlotte Dunford: Exactly. That’s because multifamily maybe is not a niche. It’s become a major market. For mobile home parks, it’s different.

Ash Patel: So now when you dispose of these mobile home parks, does it make it more challenging because there are not that many players in that arena?

Charlotte Dunford: No, actually. There are a lot of… You’re talking about exiting, right? So I’ve already sold one and am in the process of selling another one, another two actually, and one of them will be closing soon. So no, I think the players — you probably wouldn’t want to sell it to institutional buyers, because those people will probably want bigger ones. If they do buy it, they probably want a big portfolio. So that’s another thing – you can group it and sell it together in a bigger package. Actually, it’s not that challenging to sell it, it’s just you have to find the right buyer. Even in the loan approval process – a lot of people think that there might be difficulties finding a loan to finance the buyer, but we have sold a couple and both times the loan has been approved with no issues. So it just depends on the buyer that you’re going after.

Break: [00:08:37][00:10:16]

Ash Patel: Do you have to use local lenders for this type of asset?

Charlotte Dunford: Actually, for all of our deals, I would never use a lender on all of our 24 deals. It’s very interesting. We either buy cash, because they’re small, they’re inexpensive, and we have a lot of private equity; that’s our capital. We have people subscribing to this deal, so most of them are cash or seller finance. Because in the world of small mobile home parks, it’s a lot easier to get seller financing, than let’s say multifamily… Because a lot of banks don’t really want to lend on a small to medium level mobile home park; they would rather lend on a same price single-family home. That’s like a $400,000 single-family home versus a $400,000 small to medium level mobile home park. That single-family home is a lot less risky from the lender’s perspective, but they don’t want to lend on it. So that gives the buyers a lot of chances to get seller financing, because sellers know it will be difficult to get kind of traditional financing. But the landscaping is changing now, because lenders are getting more comfortable with this asset class, and you’re more likely to get more loans; but you can still buy cash and seller finance. A lot of our deals are either cash or seller finance.

Ash Patel: What percentage of the deal does a seller typically hold back in terms of seller financing?

Charlotte Dunford: I think the best deals we’ve gotten vary from 30% to 50% down. We’ve had — one of our first deals actually, we got 35% down, 3% interest rate, 30-year amortization, and a 10-year balloon. So it’s extremely attractive terms, really not bad terms, even for lending commercially.

Ash Patel: Charlotte, what do you look for when you find a small mobile home park?

Charlotte Dunford: There are a set of requirements. We have a proprietary algorithm in-house to determine the score of each deal, to make sure that it passes the system. Some of the major things that we look for is, first of all, the ratio of a… Sorry, I’m a little sick; you can tell from my voice. Tenant-owned homes versus park-owned homes. A tenant-owned home means the tenant owns the mobile home, and they’re just paying a parking lot fee to the park; that is the ideal situation.

A mobile home park is essentially a parking lot; you’re running on dirt. You don’t want to be owning the cars that park in your parking lot and be responsible for the maintenance and repairs. So we definitely want a majority of tenant-owned homes versus park-owned homes. But there are exceptions to every rule, of course, and if they’re park-owned homes, they have to be an extremely newer model; probably newer than the 2000s, or if not newer than that. That will be the number one priority, because it really adds up to the expense ratio to the already high small to mobile home park expense ratio. That’s the number one thing.

The number two is the utility structure. We definitely want something public utility, there could be a private sewer, including septic tanks, that’s probably the only thing that we can accept. Anything else will be a little bit too risky. Because for a parking lot, we’re still responsible for infrastructure, maintenance, water pipes, the utilities, we want to make sure that they have lawn care. In the common areas, you still have to maintain a lot of common area maintenance. So you want to make sure those major infrastructure expenses do not cause big expenses, because that would really bankrupt you…

Ash Patel: What are some things that most people overlook, that you don’t, when you’re doing due diligence or when you’re looking to acquire a mobile home park?

Charlotte Dunford: That’s a good question.

Ash Patel: What have you learned over the years that a lot of people don’t know and now it’s part of your scoring system?

Charlotte Dunford: Right, that’s a good question. I think a lot of people don’t pay attention to, and this is very specific to the mobile home parks industry – it’s titles, mobile home titles. It’s interesting, because mistakes have been made and lessons have been learned in this… Most people don’t know that, in a closing, the title company checks titles for mobile homes. If you’re buying park-owned homes, you really need to make sure, especially if the park-owned homes are a major component of the deal, you’ve got to make sure that you’re getting the titles of the mobile home, to make sure that the seller actually has the title to the mobile homes. And there are situations, a lot of times, when the seller does not own the homes, and they’re trying to sell you the asset they don’t own. A lot of times, this falls through the cracks, because the title company doesn’t check for the titles of the mobile home, they only check the title for the real estate, which is the land underneath.

When they say the title is clear, if you’re a first-time buyer, you probably don’t know to check the titles of the mobile homes themselves, because they’re counted as personal property. Make sure they’re transferred through a bill of sale, and in a PSA, and they have titles, and the seller has titles, and to properly transfer them to you. If not, you’re going to encounter situations where there will be people claiming titles to the home and fight you on it, and the seller doesn’t know what to do, the title company didn’t know what to do, and you’re in a [unintelligible [00:15:34].06]

Ash Patel: That is an incredible piece of advice. And you’re right, if you’re buying a neighborhood of 30 single-family homes, you’re absolutely going to make sure that you have titles to all the homes. But I can see how that’s overlooked with mobile home parks. Thank you for sharing that.

Charlotte Dunford: For sure, yeah.

Ash Patel: How do you find these deals, Charlotte?

Charlotte Dunford: Over time, we’ve accumulated tons of channels to channel those deals to us. We go on mobile home park stores, we have broker relationships that send us those deals through emails, and several different channels off/on-market broker relationships. The sellers we have relationships with, and who often… My voice is wholly ragged today.

Ash Patel: You sound great, don’t worry.

Charlotte Dunford: …who often own several parks, so we maintain relationships with them towards other deals. So we make offers regularly, to make sure that we were sourcing every deal that we have available. Everything’s for sale for the right price, so we want to make sure that we see a good deal with good infrastructure, that we definitely put that in our database and we definitely keep track of that.

Ash Patel: Charlotte, earlier in this call, you mentioned a partner. How did that partner come into your business, and what is their role?

Charlotte Dunford: It’s interesting, because I was posting on a real estate forum, and it was asking a question on ”Are there any female investors here?” So I was 25 at the time, I was a young female investor. They were asking, and I say, “Well, here I am. I’m one.” I told my story of how I came to the United States when I was 16, and pretty much only with clothes on my back, and I became a US citizen this year. In that post, I kind of elaborated on my experience, and I didn’t really do much mobile home park at the time, only one or two… And that really attracted a lot of interest, including my business partner. It sparked his interest, and he reached out to me, messaged me, and said, “Hey, I saw your post. That’s interesting. Would love to talk more.” That’s when it started, we met, then we pretty much hit it off. I’m kind of a visionary on the team, he is the executor and operational person. We’re a good team, and we doubled our size in 2021. We have more team members on our team now.

Ash Patel: Charlotte, in terms of partnerships, for anybody looking to grow or scale their business, what’s your advice? Should they take on partners or just take on more employees and staff?

Charlotte Dunford: Well, I think you have to be careful who you do business with, and you have to pick your partner carefully. Taking on a partner is not a light job and is not a decision to be taken lightly… Because you’re essentially driving a ship, you’re picking another captain, co-pilot to fly a plane or drive the ship with you.

We’ve had experiences where business partners have not worked out, and it really can sour the partnership. I would suggest that partnerships are great, just be extremely careful who you do business with. If you’re not sure, I will start with employees first and staff before joining the partnership or picking a partnership, because that is a big decision. If you can’t see yourself working with this person for 10 years, and this person is not ethically reliable, you don’t like his personality or something – it’s very much like a marriage, don’t do it. But if you see the right fit, go for it. Just be very, very careful in selecting.

Ash Patel: Great advice. Charlotte, you self-manage all of these properties. How do you do that?

Charlotte Dunford: We manage them in-house, me and my partner, like a lot of people in mobile home parks, especially for small ones. You definitely want a team locally to watch over the property. We collect the rents and we bill invoices just like any other property management that would manage a single-family home or a multifamily property. We do that just like any other property manager; the only thing different we do is that we have a local watch people, either residents in the park to watch out for what’s going on, or local contractors that swing by and see what’s going on, for a small fee. One thing we don’t do is that we don’t give free rents for people to manage our property. We don’t think that’s a good practice, and we don’t do that. We are getting a service, we’re paying you for the service, but no one’s getting free rent. That’s something that we don’t do.

Break: [00:19:58][00:22:54]

Ash Patel: Help me understand that. I’ve got an office building where I have one tenant that does the common area cleaning, does the trash, snow removal, salts the sidewalks, and she gets free rent. Why is that not a good idea?

Charlotte Dunford: Well, it’s not a good idea for us, just because rents in mobile home parks are pretty low to start with. Waiving that rent – we don’t like starting this precedence of waiving someone’s rent for service. We would rather hire the right help to get on board than someone claiming that they’re not renting, because that is one lot gone. Especially for small to medium level mobile home parks, it’s not like those lots with 100 lots, or something. If you have 20 lots and one person is not paying, that’s a big chunk. That also means that this person is not going to pay future rent increases, which is a big part of the mobile home park, because there’s a lot of meat on the bones still left.

So one person not paying out of 20 lots, that’s a big chunk of your profit margin gone. And just because it’s small and it doesn’t really make sense economically to have this person to do a little bit job, a small job for a big chunk of rent… It just doesn’t make sense.

Ash Patel: That’s a great point, because I raised rents on the other office tenants, but the tenant that is not paying rent, I can’t really go back and say “Hey, I’m raising your rent. So from zero, we’re going to 100.”

Charlotte Dunford: Exactly. If it goes from zero to 250, it’s not just going to work well with them, and it just is not a good tradition to start.

Ash Patel: Yeah. Charlotte, with multifamily, 50 units is a huge pain point, because you can’t have a full-time leasing person, you can’t have a full-time maintenance person. What are your pain points with managing remote mobile home parks? And geographically, are these parks in different states, I would imagine?

Charlotte Dunford: Yes, they are. They’re in 10 different states.

Ash Patel: So what are your pain points in remotely managing these?

Charlotte Dunford: Being remote is actually not that big of a pain point, as long as you have a local maintenance team. I think the biggest pain point actually is not related to management, but to keep up with… We’ve onboarded a compliance officer to make sure that we’re complying with each state’s regulations, permitting, registration, and foreign registration, all that good stuff. The biggest thing is that you want to make sure that you keep up with each state’s requirements in reassuring your business. Because every state has a different requirement, and that needs some digging in. Some states are easier to work with and the others; you need your business license, you need your mobile home park permit, you need to register with the tax department, you need to register with their Department of Revenue, you need to go on their portal, you need to file annual reports depending on your business size, and everything. Every single state has different requirements, so that’s something you need really to keep up with. But I think as long as you have the right staffing or right infrastructure in place, that should help you with that.

Ash Patel: If somebody moves out of a mobile home, how do you remotely show that to a new tenant?

Charlotte Dunford: Because mobile homes are owned by tenants for the most part, and we usually put in their leases to have first-round of refusal for us, so we buy their home first. So once we buy it, we can arrange a sale, hire a local mobile home dealer, or a realtor to sell it to a new tenant. In that case, we don’t really want to own the home, we can have a new owner of the home occupy the lot, and they can pay the lot rent.

So as far as arranging the sale, it will be someone trusted in the park, or a local trusted team member who is either a contractor, or a tenant, or a realtor, or a mobile home dealer that we have dealt with before to show the home. We also have the lockbox and key, we also publish that either in the newspaper or online. So mobile home parks are really a different demographic, you have to really approach it differently.

Ash Patel: Yeah. I love that you have systems for everything. Charlotte, on the deals that you’ve sold, what was the cash-on-cash return for your investors?

Charlotte Dunford: We’re actually in the process of selling two. One is about to close, the other one hasn’t. Without the final closing, I can’t say. But the one that I did sell – that was just my own personal asset, so no investor involvement. The one that’s in the process, I can’t disclose that until everything has been said and done.

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

Charlotte Dunford: Great question. The best real estate investing advice is, I think my advice would be taking action, ironically. Because a lot of people have a lot of advice, to say that, “Be careful with this,” and that actual advice in managing a property. With me, if you don’t start taking action, if you have never invested before, if you don’t take action, and learn, and get the momentum going, and let the momentum carry forward, you won’t go far in real estate investing. So I would really just say learn a lot and take action.

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

Charlotte Dunford: Yes, I think so.

Ash Patel: Alright. Well, let’s do it. Charlotte, what’s the Best Ever book you’ve recently read?

Charlotte Dunford: It’s called The Ultimate Sales Machine.

Ash Patel: What was your big takeaway from that?

Charlotte Dunford: Have systems for everything, policies, and procedures. Train your staff with policies and procedures.

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

Charlotte Dunford: That’s the lightning round, huh? I’m supposed to be fast.

Ash Patel: No, take your time.

Charlotte Dunford: Give back through education, through mentoring.

Ash Patel: Okay. And Charlotte, how can the Best Ever listeners reach out to you?

Charlotte Dunford: You can reach me at our website at johnscreekcapital.com. There is a contact form and then I usually respond pretty quickly.

Ash Patel: Charlotte, thank you for taking time out of your day today to share your story. Coming here from China at 16 years old, going to college, getting your corporate job knowing there is more in store for you, getting a single-family house, a duplex, then entering into the mobile home space and absolutely crushing it. I applaud you and thank you again for sharing your story.

Charlotte Dunford: Thank you so much for having me. Again, I apologize for my sick voice but I normally sound like this. Thank you for listening.

Ash Patel: You sounded wonderful. Best Ever listeners, thank you so much for joining. Have a Best Ever day.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2687: How to Find First GP Deal with Melissa Elizondo

Melissa Elizondo wanted to branch out from her marketing firm and looked to add commercial real estate investments to her portfolio. In this episode, Melissa shares her current business strategy and analyzes her methods for closing on her first GP deal.

Melissa Elizondo | Real Estate Background

  • Partner at 1 Vision Capital which is a syndication group focused on converting existing landlords with single family portfolios into LPs on multifamily deals.
  • Portfolio: Limited Partner for 118-unit in Savannah, GA.
  • Full-time career as owner of marketing firm, Heartwood Marketing Solutions.
  • Based in: New Braunfels, Texas
  • Say hi to her at: 1visioncapital.com | Facebook and Instagram: @therealmelissaelizondo
  • Best Ever Book: The Energy of Money by Maria Nemeth Ph.D.

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

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

Denis Shapiro | Real Estate Background

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

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Follow Up Boss



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

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

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

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

Ash Patel: You found the Holy Grail, huh?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Denis Shapiro: Exactly.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: Why is that?

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

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

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

Ash Patel:  You can take… What’s IO?

Denis Shapiro: Interest only.

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

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

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

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

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

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

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

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

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

Ash Patel: How will you cut expenses?

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

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

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

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

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

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

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

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

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

Ash Patel: What town is it?

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

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

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

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

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

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

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

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

Denis Shapiro: Yeah. Let’s do it.

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

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

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

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

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

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

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

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

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

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JF2672: 4 Wholesale Secrets for Scaling During a Recession with David Olds

David Olds began investing in 2002 when he and his wife flipped their first house. Seeing the benefits of investing, David started to seek bigger deals in commercial real estate. Today, he has accumulated over 100 rental properties and continued to flip, having wholesaled over 1,000 deals. In this episode, David shares his secrets to wholesaling, how he survived two recessions, and how to maximize deals during market downturns.

David Olds | Real Estate Background

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

David Olds: Slocomb, I’m doing amazing. Thank you so much for having me on.

Slocomb Reed: Great to have you here. David’s company is Nationwide Property Liquidators. He’s a full-time real estate investor with 20 years of experience, both active and passive. Current portfolio, he has wholesaled over 1000 properties, rehab-flipped 27, rehabbed to rent 30 or so, and he has 62 rentals currently. He’s based out of Chattanooga, Tennessee, and you can say hi to him at nationwidepropertyliquidators.com. David, tell us about yourself. What got you into real estate?

David Olds: Man, I tell you, I get that question a lot, and I’m embarrassed to tell you that it’s the most cliche thing ever. I was in an airport, I was waiting to pick somebody up, and I’m moseying through the bookstore like most of us do, because we’re just killing time… And of course, I picked up Rich Dad, Poor Dad. Man, talk about one book that can just change the trajectory of your life. That’s what that book did for me. So I’m sort of leaning there on the rack, just killing some time… I read about 10 or 15 pages, and like, “Wow, this is really good.” I’ve got to go pick up my kids, they were flying in, unaccompanied minors, from seeing a relative in Ohio. So I took that book home and just devoured it. One thing about me is – I’ll tell people, “I may not be the smartest guy around, but I’m really coachable, trainable, and I follow directions really well.” At the end of the book, he says “Real estate is the thing you want to do. Go get involved with a real estate investment group, a REIA, or a meetup, or something like that.” That’s what I did, and that’s sort of how I got my first toe dipped in the water for real estate investing.

Slocomb Reed: I’m one of those, too. Whenever I track my progress as a real estate investor, my day one is the day that I picked up Rich Dad Poor Dad.

David Olds: Isn’t it amazing? [unintelligible [00:03:02].13] people, same thing.

Slocomb Reed: Yeah. That was about 20 years ago. David, when did you buy or wholesale your first property?

David Olds: Our first property, my wife and I bought. We bought it in 2002, so 19 years ago. That’s a funny story I tell people. I came out of the closing — and this was a house we bought for ourselves. I said to my realtor – because I didn’t know anything, I’m like, “Why did I buy this from Wells Fargo? I don’t understand.” She’s like, “Oh, it’s a foreclosure.” I’m like, “I kind of don’t really understand what that means. Can you tell me?” Of course, she explained it to me. That property — and we had just gotten married, we moved in, and… Because I worked in home improvement, and like lumber sales, that type of stuff… We fixed it up a little bit and resold it two years later. As we’re selling it, the same realtor, we’re going to closing, and she’s like, “Oh, I forgot to tell you. You know you’re not going to have to pay taxes on the money, right?” I said “What? What do you mean?” She’s like, “Yeah, it’s a homestead. You’ve lived there for two years, the government doesn’t tax you on it, because it’s your primary residence.” What?! $47,000 I get to put in my pocket, and I don’t have to pay any taxes?

So even though it was our primary residence, it really was an investment vehicle. So we did that, we sold that property, and we went and bought another one that we made almost 100,000 on. So that was how we slid into investing, while I still had a full-time job, was buying these properties, living in them, fixing them up with the sole intention of reselling them again in two years. Over the first, probably five or six years, we did that as often as we possibly could.

Kind of in the middle there is where I found Rich Dad Poor Dad and got involved with the Real Estate Group in Orlando. That led us into traditional rehabbing, buying, creative financing, subject-to, all those different strategies. So if you think back in time, there aren’t many investors that were around back then still, compared to the total number of investors. But in 2008, the market started getting really bad. Central Florida was the worst of the worst places to be. So we knew we needed to do real estate someplace else, because the market was so bad there; it was just loaded up with foreclosures, and it was really tough to make money.

Slocomb Reed: What did your investing look like in 2008? You were in Central Florida, you’d done some wholesaling and some flipping… Is that all single families to this point in 2008?

David Olds: Yeah. Just flipping at this point, no wholesaling. So here’s where we are. 2008, I went to this boot camp, a seminar up in Boston, with a guy, and he was teaching apartment investing. That’s what I wanted to do, was I wanted to learn how to invest in apartments, because we’re all just playing Monopoly, right? Everybody who’s got a house wants a duplex, everybody who has a duplex wants quads, everybody who has quads wants apartment complexes; everybody’s always trying to level up. That was the goal. I’m like, “Okay, I’ve done a couple of deals, I want to do apartments.” So we were looking for new markets, emerging markets. So we’re going to go through a market shift here at some point in the future, and understanding how to look at markets, what’s going up, and what’s coming down is really important.

Anyway, Chattanooga, which is where I live now, Chattanooga, Tennessee – it was an emerging market. There were a lot of things going on here that were causing explosive growth. So we came here with the intention that we’re going to buy some small multifamily 8 to 10 units, maybe 20 units. We had these visions of grandeur. But again, 2009 – think back to those times. It’s not like it is now. Do you know who was lending money? Nobody. Because banks were spending all their time taking properties back. They weren’t in the money lending position. So we fell backward because we were doing a lot of marketing to get [unintelligible [00:06:32].12] deals. We fell back into wholesaling, and that’s sort of how we got started. But as we’re wholesaling and we’re doing a lot of marketing, deals were coming in, and we were able to take those people and turn them into owner-financing.

Owner-financing was relatively new to the masses in the single-family real estate business like our world. But in commercial, everything that we’re doing now as individual real estate investors has been done in the commercial world forever – novations, and assignments, and all the crazy lease options, lease wraps, and all that type of stuff.

Slocomb Reed: A couple of questions about your wholesaling. You were doing a bunch of marketing to find deals in ’08. What kind of marketing were you doing?

David Olds: Back then, there was only a couple of things you could do. It’s not like it is now. There was direct mail, and really, there was ListSource, which was about the only place where you would go on to pull lists. There was no Propstream, there was none of that stuff, no BatchLeads. Facebook really wasn’t even around back then. So we would do three things really for leads. One, driving for dollars. We would drive neighborhoods, looking for distressed properties, properties that look like they’re empty, tall grass, that type of stuff. We were looking for duplexes, triplexes, storefronts, anything that we can find, because I had no money, broke. When I moved to Chattanooga, I had $5,000 in my account. It was me, my wife, and my brother. A lot of people look at us now like, “You run all these million-dollar companies.” I’m like, “Yeah, that’s great. But we started with zero; literally nothing.” So driving for dollars is one thing. We’re coming home every night, I’ve got this list, my wife is handwriting yellow letters and postcards to people. So we were doing that, putting out a lot of bandit signs, the street signs, “We buy houses, we buy duplexes, we buy apartments. We’ll buy anything, just call us. Please just call this number, we’ll buy.” Then we were downloading some lists and trying to do some targeted marketing. Because again, our goal was to buy multifamily stuff.

Slocomb Reed: Were you working a job at this time too, or was wholesaling your primary source of income?

David Olds: Yeah, just a little bit. I worked for 84 Lumber when I was in Florida, and I told them I was planning on relocating to Chattanooga. So I was on a little bit of a guarantee. And it was supposed to be for a year, but it lasted about three months before they’re like, “Hey, you’re a really good guy, but you’re not selling anything.” In fact, nobody was selling anything right now, because there was no new construction going on back then. They laid me off, so I had to make this work. I had a wife, two boys, and three fat dogs at the time, and I had to generate money. That’s why wholesaling became just crucial for us, because it’s very quick in your life cycle and a wholesale deal can be as short as 14 to 21 days from the time you put something under contract to the time you get paid.

So we were using that in conjunction with going out and finding these other deals and working owner finance where the seller will be the bank for us.

Break: [00:09:17][00:10:56]

Slocomb Reed: Tell me more about that. You’re doing this wholesaling, going into 2009 to 2010, at a time when banks aren’t lending. Tell us more about how you were structuring those deals so that you didn’t have to get financing and you weren’t selling to end buyers who couldn’t get financing either.

David Olds: Let me tell you where I’m at now. We’ve got a portfolio, it’s about five million dollars, a mix of single families and small commercial units. So again, let’s go back in time. So when there’s a market shift — let me tell you that, we are never going to know when we’re at the top of the market, or even when the market starting to decline, until it’s already happened. Anybody that’s out there projecting right now, “Oh, in March the markets going to crash.” Full of crap, they have no idea, I promise you, because I’ve been through two market corrections already. So we knew something was happening; there were foreclosures. This was when all the gurus are out, “Hey, you can market to foreclosures and do whatever. This is going to be your strategy.” Well, that was a struggle, because imagine, you’ve got somebody, they’re in foreclosure, they owe 100,000, the market is starting to slide; it hasn’t fallen off the cliff yet, but it’s starting to slide.

Typically, it’s very hard to find a way to make money on those deals. Or quick money, at least. So you can buy them, take over their mortgage, and that’s some long-term money.

So understand, that was a little bit of a struggle. It’s difficult to wholesale a house that’s worth 100k when they owe 97k. Where do you make money there? So I tell you that to understand this – so I come to Tennessee, and I have to start doing some marketing, and I can’t. I don’t have the money to do unlimited marketing, so I have to be very targeted. I sort of backed into this by accident, and I said “Well, I don’t want to do foreclosures, because I’m tired of dealing with that, and all the problems that come with foreclosure. I’m just going to market to people that own their houses free and clear. They can do whatever they want, because they own the house and they’re not bound by any banks or anything like that. And I actually have done some research, and somewhere between 35 and 40% of all the properties in the United States are owned free and clear. Did you know that? That’s a phenomenal number. I had no idea when I looked that up. So my intention was for wholesaling.

There wasn’t this master plan… I’m telling you how I sort of cavemanned my way backwards into this. So I said, “I’m tired of dealing with foreclosures, so I’m only going to market free and clear properties, and the ones I drive by that look like they’re distressed.” So I did that, so we’re getting in these deals… And I’d also done some training. This amazing guy, this name is Chris Kirschner – he had a thing called the Autopilot System. He’s not around, he doesn’t teach anymore. But he had this amazing course and it talked about how to make different offers to people.

So I’m hustling, because I got to do something, because I don’t have a great job, or a job that lasted; I got my wife, got my kids, I got all these things, I’m in a new city, we knew nobody, it was like to burn the boats kind of thing, we come here… But I’ve got this other thing where I know how to make multiple offers. And I bought the Carleton Sheets course, and  I’m buying all the courses. Don’t laugh at old Carleton boy; people goof on him, but he knew what was up.

Slocomb Reed: People who invested back before the recession, there are a couple of names that always come up from who they learn from. Carleton Sheets is one of them, for sure.

David Olds: He was the man, dude. I’ve still got his course on my bookshelf in there. I boxed up a lot of courses that I bought there in storage, but that’s one that I leave out there. So Chris Kirschner teaches in his thing; you can make multiple offers, and it really was geared towards making subject-to offers. And I thought to myself, “Sell?” As you’re talking to all these people who want to sell, because they’re motivated – that’s going to be the first thing – but I’m making them an offer… And let’s say you call me and say “I want 70,000 for my property.” I’m like, “Okay, great.” And I know you own it free and clear, because you’re on my list, and that’s where the lead came from. But for me, like a wholesale deal, you want 70k, I’ve got to be at 45k. You’re like, “Geez, man, I just can’t take 45.” I’m like “Hey, I get it. Let me see. Let me ask you a question. Do you need all the money at once? What are you going to do with it?” It’s got to be that kind of pacing; that pace, like it’s the first time you’ve ever thought of it. “Slocomb, man, I want to help you out. I know you’ve got this thing, you’ve got these tenants you hate, and you’re moving to Florida…”

Slocomb Reed: Do you need all the money at once? That’s a great question.

David Olds: Right. Like, what are you going to do with the money? If I give you that 70 grand, you know the government — I’m not an accountant, but you know the government’s going to take a third of that. Do you need it all at once? What are you going to do with that money? “I’m going to put it in the bank.” The bank’s paying about 1% right now. Man, if I could find a way to get to that 70 grand, would you be interested in that if we didn’t do all the payments upfront? So you sort of work backwards into it. So what I was able to do was I’m making all these wholesale offers, and people are saying, no, no, no, no. Because only one out of 10 people are going to take it. Then I back into this, “Hey, do you need all the money at once?” Sometimes people say yes. “Okay, cool.” Hey, I can’t help you. I’m not your guy. If anything changes, call me. But a lot of times, people say “No, I don’t need the money. I’m just moving, or I can’t deal with these tenants”, or whatever it is. I’m like, “I might be able to find a way to make this work for you. Let me run back to my office and work some numbers. Let me see if I can find a way to make this work.” And that’s it.

From there, now we make them a terms offer. I make them a cash offer, a 100% owner finance offer, and maybe another offer where I give them 2k to 5k down, and they’ll pick one. Whatever one they pick, I’m like “You know what? That’s the one everybody picks.” Because I just want to affirm whatever, I want to anchor them and affirm whatever their decision was, so they feel good about it. Because people want to be like other successful people. If you pick the cash offer after all that, I’m like, “You know what? I’ve got to be honest with you. That’s what most people pick, they just want the cash and be done with it.” Or if you pick a zero-down owner finance offer, “Man, that’s really smart. That’s what most people pick, because they just want to find a way to make the most money for this deal.” Whatever it is, it doesn’t matter. And if you pick the one where I give you 2000 bucks down, I’m like, “You know what? That’s really smart. That’s what most people pick, because they want to know that I’ve got a little bit of skin in the game.”

So it doesn’t matter. The key is that all those offers work for me. It doesn’t matter to me which one you pick, because I wrote the offers. They all work for me, any one of them. I’m going to wholesale your house, or I’m going to get a house for free, or I’m going to put two grand down, get a house for free, and pay less money, because it’s a sliding scale. I’m going to give you money; maybe I’m going to give you 62k instead of 70k. But if I can get the house with zero down at 5% interest for 10 years, I’ll give you your 70k. What do I care?

Slocomb Reed: A couple of things for you, David… Tell us how your real estate business transitioned coming out of the recession, and tell us how your success with single families transitioned into your commercial investing.

David Olds: So there’s definitely a difference in what I do now as opposed to the recession. In our wholesaling business back in 2009, ’10, ’11, ’12, probably almost into ’13, our business was very geared towards landlords. Again, you have to think of what was going on in the retail market. Nobody — I don’t want to say nobody; I don’t want to overgeneralize. Primarily, the real estate market still hadn’t started to get traction again. It took longer than any of us thought that it would. We thought, “Oh, 2008, new president, whatever. Things are going to happen, there’ll be an adjustment.” But it took a long time to come out of that, longer than anybody thought. So primarily within the recession, we were doing $25,000 deals. We were really strong in the lower-end areas. I don’t want to say “hood”, because I hate that word, but lower-income rental areas.

One of the things that I learned is don’t ever put your own biases or what you think on the marketplace. The data will tell you where people are buying and where they’re not. I know there are some investors who are like, “I don’t want to invest there, I only want to invest in nice areas.” That’s cool, but your returns are going to be lower, they’re going to certainly be lower in the nicer areas, because your entry cost is going to be a lot higher, so your return is going to be lower.

Man, if you go into those low-end areas – I tell people to drive through there on a Friday night at about seven o’clock. Do you see all those people sitting on the floor? Do you think any of them own those properties? No. They’re all tenants. So who owns those properties? Landlords. I know people that own half of the downtown area, all those houses that most people turn their nose up at, and those guys are making $800 to $900 a month off every single one of them. I mean, they’re just ridiculously rich. So in the recession, we’re primarily into landlords, as we come out; then we start getting into wholesaling more nicer properties in nicer areas, because now the rehabbers are coming back into the market. So the easiest time for us to buy properties, when we bought… We were over 100 properties at one point, where we bought the bulk of those; it wasn’t in the recession. I’ll be honest with you, the worst the news was about them saying “Oh, the real estate market is terrible”, the easier it was to buy. Because people are like, “Just take this, just take my house; just take my apartment building”, whatever it was.

So I guess to answer your question, it was far easier to buy during the recession than it is right now, because now everybody thinks they’re sitting on a pile of gold, and prices are running up through the roof. So how did we do it? We made a lot of offers; we got out there, we got up to the plate a lot of times, and we were swinging all the time. So the small apartment buildings that we’ve got, the 8, the 10, the 15 units, the quads, the triplexes – a lot of those came because we were talking to a guy who owned a single-family house, and he also owned these other properties. We were getting deals that way, and then we were also direct-mailing anybody with 20 units or less. I feel like I went a long way. Did I answer all the questions?

Slocomb Reed: Yeah, that’s good. How did your strategy shift as you started negotiating with apartment owners, as opposed to single-family owner-occupants and landlords?

David Olds: I tell you, it’s not a lot different. The people I’m dealing with are the smaller — they’re not the institutional guys; they’re not guys that own 1000 units. I’m not the best person to speak on that. The people that I talked to, they own a couple of houses, they own an 8-unit, a 10-unit. And before you can negotiate – I always really stressed this to my team and to our students, is you’ve got to build a great rapport with people, and you’ve got to figure out what their motivation is; you’ve got to figure out why they want to sell. I had one guy that sold us 27 doors; he had multiple properties. It was1.2 million dollars, and we bought that property zero down, 4% interest, on a 17-year term. A million-dollar deal, we did like no money.

Funny, I remember going to the closing and I was at one of my properties — this is back in the day when I actually was out painting and doing stuff. I looked down at my jeans, and they were kind of painted, I had a hole in them, and I’m like, “I should be dressed better to go get a million dollars in properties.” [laughter] I remember distinctly having that thought sitting in my old, beat-up pickup truck.

But I listened to this guy’s story – his name was Tommy Baker, and he owned a bunch of properties here in Chattanooga. He called me up one day, he’s like, “Hey, I want to sell all these properties.” I’m like, “Oh, okay.” From a wholesaler’s point of view, package deals are very hard to sell… Because a wholesaler – we’re trying to move properties, everybody understands what we do. It’s far easier to sell one property at a time than try to sell 27 doors at once. Because there’s a limited number of buyers who have that kind of cash available. Wholesalers – we sell to cash buyers.

So I talked to him, I said, “Tommy, send me over what you got.” He sent me an email, I looked through them, I called him back, and I said, “Listen, dude. I want to help you here.” I can tell he’s an older guy. “But to be honest with you, you’re looking for like full retail on all these properties. Your best bet would be to put these things on MLS and go ahead just sell them.” There’s something powerful too in telling somebody that, “Hey, I can’t help you. I’m not your guy,” but trying to at least point them in the right direction. So this is what he said, “Listen, I don’t want to do that.” “What do you want to do? How do you think I can help you?” He’s like, “Well, I need to sell all these properties. I can’t take care of them.” I’m like, “Okay, are you open to doing any kind of owner-financing?” I threw that out there and he’s like, “That’s exactly what I want to do.” I said, “Holy…”

Slocomb Reed: Hah! That’s awesome.

David Olds: I’m like, [unintelligible [00:22:37].03] Because we always get scared, what if somebody says yes? I’m like, “Okay. Well, send me over what the rents are. Let me look at it. Let me see what I can do. Then why don’t you come to the office tomorrow?” So he comes to the office and we sit down, we’re having a conversation… We don’t jump right into that. I want to talk to him like “Hey, man. What’s going on? How did you get these things?” I’m always fascinated talking to old-time investors who’ve been doing this for a long time. I’m like “How’d you get these deals? What did you do?” So his story was this… A long-time investor, kids were grown, out and married, he was probably 70, and he had self-managed all these properties. But here’s the thing, man – he was diagnosed for the second time with brain cancer. Heartbreaking. He was such a nice guy.

He said, “Listen, here’s the truth. I’m not going to make it. I’ve got three or four months left. Here’s the thing. My wife – I need to make sure that she’s got income forever. She’s never dealt with properties, she’s not going to be able to deal with them. I don’t want her to have to liquidate these things after I’m gone. I want somebody that I can trust, that will pay me on these things ,or pay her, that’ll get her through the rest of her life, so she’ll have income, so I know that my wife is being cared for.” Man, do you want to feel like a ton of bricks hitting you? I’m going to tell you, sitting in that room across that table, that’s what that it felt like. I said, “Okay. Yes, I want to buy your properties. I’m your guy. Let’s figure out the terms and how we can do this. Let me work on this over the next day or two. There are 27 of them. We need to go out and spend a day or two, and I need to get into all the units to see where we’re at.”

Because typically, when you’ve got a person that’s going to do that, for the most part, they’re probably distressed, in some way. He’s an old guy, he wasn’t great at keeping up with all of them; some were good, some were bad. We met again and I made him a deal. I’m like, “Here’s the deal, dude. I’ll give you everything that you’re looking for, every single thing that you want. Here’s what I need. The only way I could do it at this amount is zero down. I’m not going to put any money down. We’re going to do 4% interest over 17 years. The way I came up with 17 is I’m just playing with an amortization schedule. I know what the rents are, what the insurance is going to be, I know what the mortgage is going to be. I’m playing with those numbers so that I get myself to a cash flow number that works. And here’s what we can do. Either you can give me all the deposits and we can prorate the rents, like the security deposits and the taxes, and you can give that to me, or I can just not make payments for a couple of months to kind of offset. So we can work this out. What do you want to do?”

We ended up kind of coming to something in the middle, where I think he gave me the deposits and the proration of rent, and I took care of the taxes. So I went to this closing, 1.1 something, I don’t know, just right around 1.2 million. I put no money down, I walked away with $10,000 and 27 properties.

Slocomb Reed: That’s awesome.

David Olds: Kind of a good deal. But, again, I tell that story to people and they’re like, “That’s what I want to do. I want to do those deals.” I’m like “Yeah, that’s like saying I want to go down to Braves Park, where they won the World Series and hit a grand slam every time I get [unintelligible [00:25:32].29] It doesn’t happen. You’ve got to get up to the plate and take swings, because you’re going to get some base hits and then you’re going to get the grand slam.

I’ve actually done two big deals like that, but really, the bulk of all of my properties… But it’s the same process. It’s the same process whether you’re buying a single-family, a duplex, a quad, 20 units, 50 units, 100 units… It’s the same process. Why do you want to sell? How can I help you? What is it that you really need?

Break: [00:25:57][00:28:54]

Slocomb Reed: It sounds like you’ve done a really good job of making sure you get up to the plate enough times that you’re sitting across the table from those sellers who need to sell you 27 units all at once, on 100% seller financing.

David Olds: Yeah, it’s pretty neat.

Slocomb Reed: David, what is your Best Ever advice for our listeners?

David Olds: Different advice for different people. If you’re just starting out – because I get asked this a lot – the best advice is pick one strategy. I tell people real estate is like being a doctor. You could be the eye doctor, the nose doctor, the mouth doctor, the elbow doctor, the butt doctor, the toe doctor, whatever; lots of ways to do doctoring. Same thing with real estate – lots of ways to do real estate. You can wholesale, you can rehab, you can buy apartment complexes, you can buy storage units, you can do land development, you can do lease options… Lots of things you can do. All of them make money, every single one. So pick one that fits your personality. If you’re like me and you’re yappy, and you want to talk to people probably, wholesaling is probably a good place for you to be.

Some things that I could never do – I don’t like talking to banks; they’re very slow-paced. I couldn’t be like the short sale guy or the loan modification guy. That’s not for me, that doesn’t fit my personality. So find something that you really like and that resonates with you, and that you enjoy, because this will be a struggle. Being an entrepreneur – it’s not easy. Instagram, I think, it’s always the flash, the bling, the Lambos, and all that stuff… But when you’re starting out, it’s a little bit of a grind. So find something that you really like, but stick with it; don’t have that shiny ball syndrome of, “Oh, I’m going to do storage units. Oh, now I’m going to do lease options. I’m going to do tax deeds. Now I’m going to do whatever.” Find something that you enjoy, and really stick with it.

As you progress, again, another piece of advice is – like, this is hard; we’re all in the beginning, we’re all solopreneurs, we’re all starting out, and it can feel really lonely. You’re sitting at Starbucks, trying to grind this out, you listen to a podcast, you’ve got some idiot on here with a Patriots hat telling you how great he got this million-dollar deal, and it sounds so simple, or whatever… ll of us want to make it sound like the most glamorous thing. But it can be a grind, and it can be lonely. So whether you’re at Starbucks, or you’re sitting in your living room, or your garage, or your bonus room, or whatever, you can feel like a man or a woman on an island, like you’re out there all by yourself. And what I tell people is get a tribe; get some friends, get some people — I’m not saying do the business with them, but be around people that are doing this every day. Get around that campfire.

So whether that’s an online community, which is okay, but if there’s a local meetup in your area or a real estate group, you should be at that. You should be about two or three times a week, especially when you’re just getting started. Because one of the most powerful things that help all of us as human beings is that you have to believe that this can work. You have to believe it and feel that all the time. So when you’re around those people, like “Oh, Bob just did a deal for $6,000 and he did it in one day. That’s great. Joe just bought these storage units. Holy smokes! I can do that.” Because when you see other people doing it, it gives you the belief that you can do that, too.

So get around those people, have people that cheer you on, you should cheer on other people, be excited about their success… I’ve got those people all over the country that I’m friends with, that operate on a super high level, that I can call and go “You cannot believe what happened to me today, with my company…” Here’s the thing. I promise all of you that are listening, if you haven’t done your first deal and you’re struggling with something, my company is going to do 4.8 million dollars in assignment fees next year; there are days we struggle, too. We all have problems.

Slocomb Reed: Absolutely.

David Olds: Yeah, man. Don’t ever be confused like, just because I’ve got a picture on top of the Eiffel Tower in Paris that my life is perfect. I run a company, we deal with people, and I mess stuff up, too. We all had bad days. So find those people that you could jump on the phone with and go “Holy smokes, guess what I did today? I screwed this up royally.” My friends can call me and go “What are you doing when this happens?”

So those people that you –if you want to call it mastermind– that you have a relationship with, you help them out in a bad time, they help you out in a bad time, you all cheer each other on, and I’m excited about their success and they’re excited for mine.

Slocomb Reed: David, I totally get that. I have my list of people that I call when I have a certain struggle, or even when I have a certain victory that people outside of real estate just aren’t going to understand. I know who I’m going to call to talk to about it, because they’re going to know what the struggle was I went through it, and how big of a deal it is, this thing that only real estate guys understand. David, what’s the best way for our listeners to connect with you?

David Olds: Instagram is a really great place. It’s very easy, @davidoldsrei. I answer all of my questions or messages. If you have a question or something I can help you with, or a deal with what you’re struggling with, certainly reach out. Our website is the exact same, davidoldsrei.com. We offer lots of resources on there, some coaching, free videos, and all that kind of stuff. So definitely go over there and check it out. I think they’ve got some free contracts loaded, and free marketing stuff that we just give away for free there, because those are the things that people ask for the most. So ueah, @davidoldsrei on Instagram, or davidoldsrei.com is our website.

Slocomb Reed: David, you’ve taken us on a journey here. You got into real estate accidentally through some live and flips. You found Rich Dad Poor Dad like a lot of us. Heading into the recession, you moved to an emerging market so that you were in a good position to continue real estate investing. You focused on free and clear owners and landlords. Coming out of the recession, you transitioned into bigger deals, with a focus on making sure you were getting in front of any sellers as possible and figuring out how you can offer them what they needed to sell to you. And it’s brought you to around a five-million-dollar portfolio today. Your advice to all of our Best Ever listeners is to play your strengths, do what works for your personality, and make sure you stick with it.

David Olds: I love it when you say it. It sounds great. [laughs]

Slocomb Reed: I get to spend 30 minutes listening to you, soaking in all of your wisdom, and trying to summarize. Thank you again, David. And Best Ever listeners, we will see you tomorrow.

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JF2670: Will Interest Rates Be Higher In 24 Months? ft. Ryan Smith, John Chang, Hunter Thompson, and Neal Bawa

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

In this episode, Ryan Smith, John Chang, Hunter Thompson, and Neal Bawa have a lively debate about whether interest rates will rise over the coming year.

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

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

Ben Lapidus: We are on to the most exciting part for me where I get to participate in the intellectual debate. This year, we’re talking about interest rates, which is a scintillating subject matter, because John Burns hinted that interest rates are going up to 1.8% in the next year, and others have hinted they could go down. There are negative interest rates and other countries around the world. Will US interest rates be higher 24 months from now? We’re going to find out. I’d like to introduce our speakers, one at a time.

First, I’d like to welcome back Mr. Neal Bawa from Grocapitus; he’s got an amazing Udemy course, he is a makeshift economist in his own right. And interestingly enough, he raises a million dollars a year just from the tomatoes in his backyard. Welcome, Neal. I asked him how, and he wouldn’t tell me. He said, “You have to ask after the show.” If you didn’t have a question for Neal, now you have one. Neal will be debating for interest rates being higher, he’s for the motion.

On the other side of the queue is Mr. Hunter Thompson. Welcome back from Asym Capital, this is going to be your second debate with the Best Ever conference as well. What’s awesome about Hunter is that he seems like he is a powerhouse. He’s always running a marathon in his work, but he does it in a slow, smooth way. How does he do it? Apparently, this mastermind can run a three-hour and 10-minute marathon, which just shows his endurance. He will be debating against the motion for interest rates either being at or lower, where they currently are today.

Joining Neal will be Mr. John Chang from Marcus and Millichap. Again, the chief economist of Marcus and Millichap. Interestingly about John – I know his life shifted drastically with COVID. He did 62 presentations last year that he otherwise would have had to travel to, but hasn’t stepped on a plane since COVID started. So good for you, John, welcome to the club. I also enjoy not traveling, which isn’t very good for acquisitions. But I suppose it’s why we’re growing teams.

Then joining Hunter, against the motion, is Ryan Smith from Elevation Capital. He’s been in the business for multiple economic cycles. He’s looked at mobile home parks, self-storage, and plenty of other asset classes, and he is keeping his pulse on the market. Like Neil, he eats a million dollars of tomatoes a month, but his interesting fact is that he is a size 18 shoe. So watch out Neal and John, he might step on you.

With that said, I’d love to get this debate started. Will US interest rates be higher in 24 months? We’re going to have three phases here. The first is going to be opening arguments from each of these gentlemen over the next two minutes apiece, then followed by some scintillating debate, followed by closing arguments, and we will see who has influenced the most minds. How are we going to measure the winners? You, as the audience members are going to vote. You’re going to vote once right now, and you’re going to vote a second time. The winner won’t be who gets the rawest percentage points of participants to agree with them, but rather who has influenced the most minds. Who has created the most spread between the starting and ending percentage rate.

So I’m going to open a poll right now. 60 seconds on the clock. It is now open. Will US interest rates be higher in 24 months? You can answer yes, no, or undecided. You have 60 seconds. And just maybe in that time frame, we can get Neal to fill the 60-second void with how he raises a million dollars a year with the tomatoes in his backyard. Can I get you there, Neal?

Neal Bawa: You want me to tell you now? Very simple.

Ben Lapidus: Yes, please.

Neal Bawa: I install LED lights in my backyard, and they’re very bright. They’re two different colors. My neighbors, as they’re walking past… It’s a very rich neighborhood, everyone has million-dollar mansions… So they’re walking and looking at what I’m doing with my tomatoes. I leave the lights on 24 hours a day, so my house has this Halloween-like glow all year. When the tomatoes are grown in the summer, I go with a bag to all of my friends, and they want to know everything about the tomatoes because they’re so curious, they’ve been walking past the entire year. So, of course, that call lasts about an hour, and during that hour they asked me what I do. Of course, the story starts, and before you know it, they’re asking to be investors. So each year my yield has been higher than a million on the tomatoes.

Ben Lapidus: I expected nothing less from that answer Neal, that’s amazing. It’s a great story for debates that are virtual in a world like this. Thank you for helping me fill the time. So we’re going to do five, four, get your answers in now, three, two, I see a couple more, one… And we are going to hit the right button this time and pull — oh, you snuck that last one in there. So the folks who are debating against the motion, will the US interest rates be higher in 24 months? The answer being no, at, or below, have their work cut out for them, with only 15.4% of respondents thinking that that will be the case. 74.4% of respondents believe that US interest rates will be higher in 24 months, leaving a very small slice of the audience who is undecided to have their mind shifted. Hunter, Ryan, you guys have your work cut out for you. 10.3% undecided. Let’s go. We’re going to start with Mr. Neal, with your opening remarks. Two minutes on the clock, and I am timing you.

Neal Bawa: Anyone that thinks that interest rates will not rise over the next 24 months is quite simply delusional. We’re going to hear phony arguments, like the Fed has promised to keep interest rates low, or that the underlying economy is too weak to raise rates, or that the Fed is afraid of a double-digit recession, so they will not raise. Our team, John and I, will prove to you that all of these arguments come from just one source. They come from our inner desire as syndicators and apartment owners to see ever lower interest rates so our cap rates keep going down. We love drinking the Kool-Aid, we love smoking the opium, and we end up looking at only one side of this argument. And then we use social media to spread that one-sided argument to the point that we actually think that everyone is saying it so it must be true nonsense. Nonsense. Throughout today’s debate, we will present tangible, fact-driven arguments that will prove that not only are interest rates going to rise, but that there is already evidence that they will need to go up, already.

Our esteemed colleagues are going to spend a lot of time pointing to a year-old statement from the Federal Reserve as proof that rates will stay low. What they will fail to tell you is that the Fed also mentioned in the same statement that there are a data-driven organization and they will change their stance as necessary. At the time the Fed made that statement in Q2 last year, that pandemic was the greatest threat that the world economy had ever faced, ever. And that statement did its job already. The stock market bounced back, interest rates went down, real estate when ballistic, the US economy came out of the recession much faster than anyone had thought; it did its job. Now the Fed has to do what’s right for the US economy. Stocks are at an all-time high, real estate is going insane, one Bitcoin costs more than a luxury car; asset bubbles are everywhere. The Fed’s watching carefully, patiently. But folks, 24 months is a long time. The Fed does not have 24 months. They will have no choice but to start raising rates a year from now, and we will prove this to you beyond any shadow of a doubt. Thank you.

Ben Lapidus: Perfect two minutes, with inflammatory language to get Hunter and Ryan all riled up. Hunter, I’d love to hear that response. Two minutes on the clock, sir. You are good to go.

Hunter Thompson: I’ll keep it as brief as possible. Just for context, in terms of how we anticipate this is going to go… We’ve got John Chang, who on my podcast mentioned they spend about five million dollars a year in terms of proprietary economic data. We’ve got Neal Bawa, who is literally known for his ability to analyze economic data. Three years ago, I was asked to be a debater at this stage, but I was shortly told after that I was not the first pick. In fact, I wasn’t the second pick, or third pick, or fourth pick. I was the 13th pick to be on the debate stage just a few years ago. They had me paired with Ryan Smith, who for my understanding is a previous baseball player. So I’m looking forward to understanding how this is going to play out. Now, I was told to throw bombs; maybe I shouldn’t throw bombs at my teammate. But alright, just so we’re just we’re on the same page, let’s get into this.

I think that this is an important discussion, because a lot of people think that real estate is a great bet, regardless of what interest rates do. That’s pretty much the totality of their understanding. It doesn’t matter if they’re low or high, real estate is so good we should be participating. But the decisions we make based on interest rates are very consequential. There are some very savvy fund managers that made incorrect decisions, specifically to exit multifamily, with the intention of thinking that interest rates would rise and cap rates may similarly expand. And hundreds of millions of dollars of managers refuse to take floating rate debt, because they anticipated that interest rates would rise. Going back to 2010, that was the same question everyone was asking. When are they going to rise? How quickly is it going to happen? Look at the debt to GDP ratio; eventually, there are going to be some headwinds. And this whole time, they’re asking the wrong question. Really what the question needed to be was, how low can they go, and how quickly are they going to go negative? That’s the question that I’m seeing more and more as being much more important for us to ask as real estate investors, and what does it look like, and what real estate investment should be pursuing if that’s the case.

So my goal for this is to paint a very clear picture. When we look at the macroeconomic picture, we see where interest rates are headed. If you look up the 100-year or 200-year interest rates of the United States, it’s a very clear picture down and to the right, especially the last 40 years, down into the right. I’m not going to get up here and tell you that this time it’s different, and that this next decade, or next two months, or anything like that is going to be anything other than that. Now, the 24-month period is a short timeline. But from my perspective, this is like pocket aces versus pocket kings. Pocket kings can win sometimes, but that down and to the right trajectory is not going anywhere.

I’m also going to talk about the Bank of Japan, European Central Banks, all industrialized countries that have moved to zero or negative rates, and how the US political system, the incentive alignment associated with that, and the Fed working hand in hand have painted themselves into a corner that even in the most robust economy of the last 50 years cannot substantiate rate increases. That’s what we’re going to talk about today.

Ben Lapidus: Thank you, Hunter. Just so everybody knows, Hunter was my first pick this year, because of his amazing contrarian views on his podcast over the last few years. Thank you for joining despite the amazing competition you have on the other side of the aisle. John, two minutes on the clock, your opening arguments debating for the motion, interest rates will rise in the US, 24 months from now.

John Chang: Alright. Hunter actually ran off into left field for a little while and then he came back and argued that it’s down and to the right over the long term. But I want to pull some different context and some different data into the conversation. When the pandemic hit the US, our economy shut down like someone hit a light switch. We’ve only partially recovered from that. And when vaccinations reach a critical mass, likely in the second half of this year, economists are forecasting the economy is going to come roaring back. A new roaring ’20s, if you will. So the governments already injected 3.1 trillion dollars of stimulus into the economy, it looks like another 1.9 trillion is on tap; that’s five trillion dollars of stimulus, which is basically the equivalent of the entire economy of Japan being injected into our economy in cash. That is a lot of money. On top of that, the US money supply is over 19 trillion dollars; that’s up 25% in the last year to the highest level ever. As I mentioned this morning in my presentation, economists are forecasting growth in the 5% to 7% range in 2021, the strongest growth in more than 35 years. When the global economy reignites, it’s going to spur a surge in commodity prices, like oil. We’re also going to see growth in consumer good pricing, and that means inflation.

Part of the Fed’s mandate is to control inflation, so they cannot allow it to take off. They’ll need to do two things – raise the federal funds rate, and mop up liquidity. Now I’ve got to point out – back in 2013 after the financial crisis, when the Fed just mentioned the idea of reducing liquidity, Fed Chairman Bernanke’s remarks sparked the taper tantrum. That drove the 10-year Treasury up by about 100 basis points in about 100 days. So even a hint that the Fed plans to walk back into an accommodative stance could spark a flood of capital coming out of the bond market, which will push up interest rates. As my partner Neal pointed out, the Fed is a data-driven organization. Back in 2018, Chairman Jay Powell demonstrated that he has the backbone to go up against popular opinion and raise rates. So the Fed will not stand by, risk runaway inflation, and let the economy overheat at a record pace. So there you go, there’s my two cents.

Ben Lapidus: Thank you, John. Thank you for those nuggets of wisdom. To close out our opening arguments, debating against the motion that US interest rates will be higher in 24 months, Mr. Ryan Smith from Elevation Capital. Two minutes on the clock.

Ryan Smith: Awesome. Well, since nobody’s used a movie quote… When Neal was talking, I was disappointed. I was hoping he would end by saying “sexual chocolate” and just drop the mic, because that was just pretty thematic. Second, there’s going to be a lot of facts, figures, and numbers shared; I’ll just remind the audience that about 87.32% of all statistics are made up on the spot. With that in mind, I will also remind, to start, that the burden of proof really isn’t ours, meaning Hunter in mine. If all prevailing trends continue as is, unabated, we’win the argument. Their side will have to prove that if this, if that, and sequential ifs happen, then they’ll be correct. To that end, I’d have anybody go back and watch the debate last year in Neal’s position around cap rates, and should I buy or should I sell. I think there’ll be a similar outcome this year. But with all that being said, I remember back to 2014, talking to a number of limited partners that were interested in certain things, and the general thought was interest rates have to go up. In 2014, interest rates have to go up. Inflation is right around the corner. I heard talk of hyperinflation and the question I would ask is why. And there’s a sense that, well, it has to. But why? Well, it has to. And they were wrong, to Hunter’s Point.

Similarly, in about 2017, there was a lot of discussion around cap rates. Cap rates are at historic lows, they can’t go lower. Again, why? Because they can’t. Well, why? Because they can’t. Those folks, to Hunter’s Point, were wrong. So there’s a sense of nostalgia that I detect in the market, where there’s this sense that equilibrium… We’re going to go back, return to this point of equilibrium where everything’s just hunky-dory. But when you look at the data, things move in long-term trends; it’s either moving up or down. The trends that we’re going to be talking about, which is supportive of our motion, which is supportive of our position against the motion, is that since the year of my birth, 41 years, interest rates have been declining. For the last more than 10 years, the Fed funds rate has been declining. The Fed is actively and currently growing its balance sheet through Treasury purchases, which puts downward pressure on treasuries.

Similarly, the money supply has increased 250% since 2010, and 20% in the last year. There’s a flood of liquidity, which John alluded to, and his “if they mop it up” – that’s a pretty big if; there’s a lot of liquidity in the marketplace.

And lastly, when you look at transaction volumes, they are flat and declining over the last several years. So you have downward pressure that will likely remain. On the Treasuries you have thinning spreads that lenders are charging over the Treasuries, as there’s more supply of capital than there is demand for it, due to declining transaction volume.

So the last point, just to speak quickly to Neal, I’m actually in favor of inflation. I like inflation. We have members of our team that were operating in the real estate sector in the ’70s, when interest rates were 16% and things generally performed pretty well at that time. So I’m not in the camp of lower interest rates are better. That being said, I think it is a reality that will happen.

Ben Lapidus: Amazing. Thank you, Ryan. I wonder how many people got the movie reference. Thank you for that. Nobody got to see me laugh behind stage.

Break: [00:17:17][00:18:56]

Ben Lapidus: John, I want to start with you. And folks, because of our time, I know that we’re virtual so it’s a little bit weirder to kind of corral everybody… Do please keep your preambles to a minimum in answering these questions. Do feel free to answer each other, but I will intervene if I think we’re going off course.

John, I want to start with you, and I want to refer back to Ryan’s point. Ryan is saying that the burden of proof is not on Hunter and Ryan’s side. Interest rates have been declining for decades. And you’re mentioning a 7% growth rate, but Hamad Khan on our chat is suggesting he’s concerned with GDP and unemployment. Isn’t a 5% to 7% growth rate just recovering from a massive drop? Is hyperinflation something to be concerned about? Or is Ryan’s point valid?

John Chang: Okay, so you covered a lot of territory… There is that long-term movement. It’s been coming down, interest rates have been coming down for a long time. But we can’t count on that trend. If you look at the last 10 years, it’s been hovering right around 2%, and that seems to have been the balance. But you can only push things so far. The money supply is almost 30%, the Fed balance sheet is off the rails; it’s up 80% since the beginning of the year. So you see all these numbers and you say, “Okay, we can continue to do this. We can continue to stack it up. We can continue to pile into our debt and our overload.” But eventually, you start to hit a point where it breaks down. And if you look at the liquidity and the bubbles that have been forming… The stock market’s up 21% in the last year, and we went through a pandemic; it doesn’t make sense.

The problem is there’s too much money pursuing everything, there’s too much cash in the marketplace, there’s too much debt, and the interest rates are so low, it’s fueling that. That’s why there’s so much fear of an uprising of the interest rates, is that it’s going to create a contraction in the liquidity and cause some companies a lot of brain damage.

So I just really don’t think that the idea of long-term growth is going to hold out with regard to hyperinflation. It’s possible, but that’s exactly what the Fed wants to avoid. They’re going to let it run hot. If it gets into the two-and-a-half percent inflation rate, they’re okay with that. If it gets up to 4% and 5%, they’re going to hit the brakes; they’re going to hit them hard. And then they’re playing catch up, and that’s when you really start to run into some problems.

Ben Lapidus: Awesome. The against team, do you have a counterpoint to that?

Ryan Smith:

A couple of things. Again, it’s the if, if, if, if, if scenario. Again, it’s things can’t go lower. Why? Because they can’t. Why? Because that reaches a breaking point. Well, that breaking point wasn’t just described, it wasn’t articulated as “Here is the set of factors.” It’s this comment, which I agree with John, there’s likely going to be, some call it a number of names, call it inflation this year, for a number of reasons. I would at least submit that maybe a proper term would be reflation, not inflation, as the economy kind of comes back to its natural life, I think, to the gentleman who made a remark in the online interface.

But again, when you go back to the historic measures, when you look at inflation, John just said 4% and 5%. Well, there are two things that are problematic with that. One, there’s been only one time in the last 12 years that inflation hit 3%. That’s the peak over the last 12 years. It hit 3% one time, for less than half a year, and that’s the peak. That’s the highest inflation that has hit roughly in the last 12 years. Then the second, seen in advance of what I believe we’re talking about, which is this inflation/reflation argument, the Fed has modified their policy stance, which I find personally intriguing, for reasons we can discuss at another time. But the point is, late summer, I think early fall, the Fed announced a policy shift where their target is 2% inflation. However, they’re now considering it in the aggregate. And that simple little shift is a pretty big departure. And what that says is, simply put, that they will let inflation or reflation run without moving the Fed funds rate at all.

And to put one last data point on that, when you look at the trailing two years, which if you add that two years to now, you’ll find that we’re right. But if you go back for the last 24 months, the moving average for inflation has been 1.14%. If inflation, to John’s point, or reflation, does come and tick up to 3% for a year or more, the average would be barely more than 2%. Again, it’s a nonsensical argument, because I don’t think the possibility of that would even occur by the time the two years happens, which would, again, give us the victory in this debate.

Ben Lapidus: I appreciate that, Ryan. So Neal, Ryan is saying that the Fed has shifted their monetary policy, Hunter is suggesting that there is precedent globally in more developed countries… Not more developed, but more socialized countries, for interest rates to go to zero or negative. President Trump, during his time in office, exuded jealousy over that fact. So you suggested in your opening arguments that there is, “evidence that the Fed needs to increase those rates.” Given those arguments, what is that evidence?

Neal Bawa: Well, I want to start out by saying that Ryan is completely wrong when he mentioned that the burden of proof is on our team. All Ryan has to go out and look at is past recessions. The Fed raised interest rates after the 2008 recession. In fact, the Fed has raised interest rates after all recessions end. There is actually no proof of the Fed not raising interest rates after a recession ends. Show me that proof, Ryan; show me that proof.

And by the way, Ryan’s been reading stuff from a year old. He needs to actually go hit the newspapers, because on January 27 this year, the Associated Press reported that the Federal Reserve removed certain statements from their December statement that had said that the pandemic was pressuring the economy in the near term and posed risks over the near term. Why did they remove that phrase? Well, according to Jerome Powell, the most powerful man in America… It’s not the president that’s the most powerful man in America, it is Jerome Powell. According to Jerome Powell, the Fed now, today, sees the pandemic increasingly as a short-term risk, that will likely fade as vaccines are distributed more widely.

There are short-term risks that happen in the US economy all the time. We don’t even need to go into recessions; with the Fed changing its stance to the pandemic being a short-term risk – Jerome Powell’s words, not mine – there is now clear evidence that the Fed has changed its stance. Now, the Fed, when it changes its stance, takes time to move people from A to B, because they don’t want markets to crash. But if you simply read what the Fed is saying, look at what the Atlanta Fed is saying, look at what the St. Louis Fed is saying, it’s clear over the last two months that they’re changing their tune. And keep in mind, to win this argument — this argument is not whether interest rates will change in the next six months. In fact, John and I are not arguing that at all. We are saying that it’s impossible for the Fed to keep the rates this low for 24 months. If they raise rates 23 months from today, we would win the argument. What is the chance of that happening when the Fed is already talking about it, already backing away from its arguments? There is abundant evidence, Ben, that this is already happening. We just need to read the articles that are out there.

Ben Lapidus: So Neal, you invoked Ryan’s name. Ryan, I want to give you a chance to respond to that. Then I’ve got a question for you, Hunter, from the audience.

Ryan Smith: Neal, I’m a big fan of yours, by the way. I love the banter. But I would say similar to the fact that Neal grows tomatoes and ends up convincing people to invest in securities at the same time, it’s similar trickery. He just conflated two facts that are not to be interposed. So I’m familiar with what he’s saying, and I read generally publications with words that are longer than four characters… But in short, the conflation that he just made is the difference between the Fed’s shift in recognizing that the pandemic is a short-term impact, which I 100% agree with him, and recognize that with my point, which is still actually enforced… And the point I’m making is the Fed has made a policy shift and still maintains that policy shift. And what that shift is – it’s fundamental and it’s pretty seismic, in that they’re saying that, yes, inflation may kick up in the short run; they’re acknowledging that. Again, we can call it reflation, inflation, we have a debate on that.  But the point is, they are fundamentally — and historically, if inflation was to kick up at all, they would run in advance of it, raise rates, to Neal and John’s point, they would get ahead of it, try to pool in inflating situation by raising rates and kind of cooling things down as quickly as they can. Realizing some of the policy missteps in the past and some of the fundamentals in the economy currently, they have modified their policy stance saying “We’re actually going to let it run and consider inflation in the aggregate.” This is a really big shift, because now they’re not considering it at present value as it’s ticking up, they’re considering it to a degree a moving average of what it might be. So the point is, they’re going to likely let it run above 2%, and they have clearly stated and have not modified their stance that they will keep the Fed funds rate at zero until 2024, and also let inflation run, if it were to pass or come to fruition. So I would say, I’m not disagreeing with Neal’s point, but Neal had made a different point than I was making.

Ben Lapidus: Understood. I appreciate it, Ryan. We have a question from the audience for Hunter. You talked about the precedent of 0% or negative interest rates in other countries, particularly in Europe, I imagine. Can you reference those and try to draw a line for us as to why that might be a bellwether for the future of the US?

Hunter Thompson: Oh, it’s not just Europe, it’s all over the world. We’ve got Norway, Denmark, Sweden… Look it up. Industrial countries all over the world have zero or negative interest rates. So what I think people make the mistake of thinking is that how low can they go? That window is drastically different than what most people believe. It’s the same thing with how high can the debt to GDP ratio go before people are unwilling to purchase our bonds? Well, we have a tremendous amount of historical context and economic data to kind of discuss this. The the topic that I’ve talked about frequently, and I definitely want to talk about during this debate, is Japan. They have none of the advantages that we have in terms of the dollar being the reserve currency; they have about a 266 debt to GDP ratio. For those that aren’t familiar, they experienced basically an 80% collapse of real estate and stock market, it initiated a multi-decade-long, endless money printing. That’s the model that the United States is going after, that’s the model that Europe is going after; it will never end. The quantitative easing will never end. And because the debt burden becomes higher and higher and higher, the implications of actually raising rates become so burdensome that it’s absolutely crippling.

So when you look at the way the political system is set up to basically incentivize people to work on a four-year type of basis, and the Fed is certainly not set up to blow up the global economic picture… You just see this prolonged low interest rate environment. Now, the conversation about inflation is interesting, but I’m just not seeing it. So the question is, how much money printing can we have before this starts to happen? Again, look at Japan. Over the last three years, they’ve had half a percent inflation, -0.1% inflation, most recently and heading into 2021, 0.3% inflation.

So with all this money printing – and I’m interested to get both Neal and John’s perspectives on this – this does not result in CPI shooting through the roof. This results in the financial sector basically getting it and people purchasing bonds. So the negative interest rate bond market is about 16 trillion or 17 trillion dollars. That number is just going to go more and more and more.

The question about — and I’m assuming you’re talking about Europe… It’s much more widespread, and the reason it’s taking place doesn’t really make sense to me. These countries are buying their own debt, which suppresses their own interest rates. But I think people look at this and say, “Hey, Japan lost 80% of its stock market, 80% of its real estate market, and they’ve figured it out. They unlocked the ultimate key, which is that if you print enough money and keep interest rates lower, you never touch 10% unemployment.” Imagine that. Imagine the United States if you had an 80% collapse in the stock market and unemployment peaked out at 5.5%, which is what happened in Japan. People who are proponents of this theory view Japan as “We’ve unlocked it.” It’s like taking the power source and plugging it back into the power source. We got unlimited money now, and it’s never going to end.

Ben Lapidus: Hunter, I want to interrupt that, because I’ve got a fantastic question from the audience… And time flies when we’re having fun. So we are going to move to closing arguments after this. The question from Matt is if the US interest rates go negative –Mr. Matt Mopin, excuse me if I’m saying your name incorrectly– the dollar would be dethroned from the world currency… This is important to the point that you just made, Hunter, because the only reason we were able to execute quantitative easing is that we were the global currency of the world. So this is an open question for anybody. If the US interest rates go negative, the dollar would be dethroned from the world currency. True or false, and how does that impact your argument?

Neal Bawa: I’d like to take that on because, I’ve talked about this in the past. When Hunter tells this scary story to compare our interest rates with Europe, he makes what is known as a false equivalence. Then he compares us with Japan, which is an even more false equivalence. He fails to point out that the eurozone and Japan’s negative rate policies are in fact creating a massive, unprecedented flow of money into the United States. The Germans are sending us money, the Swiss are sending us money… When this money flows into our economy, it creates inflation, because it’s money that comes in here, and we have a fixed number of assets. When that fixed number of assets is presented with this money, it causes asset inflation. Because Ryan is confusing the Fed policy with saying rates stay lower for longer, with the Fed saying they will not raise at all. In fact, the Fed raises rates regardless of whether inflation is rising or not. Go back and look at when the Fed raised rates the last five times. They have raised rates when inflation is low. The biggest reason that the Fed raises rates is that interest rates are their weapon against a bad [unintelligible [00:32:55].22] They will raise rates whenever they can. They want to raise interest rates, because they lose this weapon if they simply never raise interest rates. Go back and look at the history of the last three or four recessions and you’re immediately going to notice that the US does not follow the world, and that is what gives us the privilege as a reserve currency of the world.

Ben Lapidus: Amazing. Hunter, he invoked your name, so I’m going to give you the last word here before we move on to phase three of this debate. Do you have a response?

Hunter Thompson: Sure. I’ll quote two of my favorite economists. This is from Larry Summers. “We are one recession away from joining Europe and Japan in the monetary black hole of zero interest rates and no prospect of escape.” Here’s another one. “It’s a good thing that we’re at positive yields. But our politicians want to go Germany’s route. Why? Because they can lend and basically borrow more money. The Treasury is financing our ridiculous trillion-dollar deficits with these kinds of Treasury bonds. So if you have a 10-year treasury bond that goes from 2% to 0%, now we can borrow so much more money. That’s the way the politicians are always thinking.” That’s from my favorite economist, Neal Bawa

Ben Lapidus: [laughs] Amazing final words. Ben Andrews, [unintelligible [00:34:10].13] I am going to get your question. I think it’s an important question, but it’s not substantial for the direction of this debate.

Break: [00:34:17][00:37:13]

Ben Lapidus: We’re going to move into closing arguments. Neal, I’m going to give you the last word. Ryan, I’m going to give you the first word in closing arguments here. Two minutes on the clock. Let’s try to get to that time folks.

Ryan Smith: First, let me say thank you, Neal, John, Hunter, and Ben. This has been lot of fun. I have a lot of respect for you. I’ve made my points in that, the trend is your friend. There’s a statement, “The trend is your friend, and don’t fight the Fed.” Both of those statements have us winning this debate, in that interest rates and both of those things happen, interest rates will be equal or lower two years from now.

Again, to my opening comment, I actually am rooting for inflation, against Neal’s assertion, because inflation can be incredibly positive in the asset classes that I play in. So for me, I’m actually a fan of inflation, but do not expect it. I actually think our position will be true in spite of my hopes.

And lastly, this whole debate that’s taking place – and if I may, I parked on the if’s. Let me interject my first if, which should tell you something about my stance. My first if – this is all presuming no global conflicts, which would cause central banks to seek flight to safety, which again wouldn’t create bond-buying of US Treasuries, depressed yields, and everything else.

We are in one of the greatest periods of peace in US history. And if you referred to a great book called The Fourth Turning, which is a regressive study of the market cycles for every industrialized population – it’s about 450 pages, and if you struggle with sleep, you should read it, it’ll cure what ails you… But in short, there’s a significant chance of global conflicts in the period of time that we’re in. So my position is interest rates will be lower, the same if not lower two years from now; I’ve made my case. All of that presumes no conflicts with China, Iran, Russia, or any of their surrogates, which I think is seemingly likely in the coming year. Anyway, I think we’ve got a good position, I feel good about it, and I’ve got a great teammate in Hunter.

Ben Lapidus: Awesome. Thank you, Ryan. The Fourth Turning, now on the reading list. John, final words.

John Chang: Alright. I want to tie up a couple of loose ends here. First of all, Japan has had negative treasury rates, but they’ve also had no economic growth. Their average economic growth over the last five years or so has been under 1%. So we’re not in that kind of a situation.

When you look at a willingness to raise interest rates – first of all, the 10-year treasury has gone up 30 basis points so far this year, and it’s already trending upwards, so there’s a basis going on right there. We also know that Jay Powell will raise rates. In fact, there wasn’t even that much pressure for him to raise rates. But when he took over as the chairman, he came in and just kept swinging. So in 2018, Jay Powell was raising rates, and he actually had to reverse course as the pandemic hit. So he’s one of the few chairmen of the Federal Reserve that I think would actually just go in there and just start hitting it.

The next piece is that we already have inflation. Just one thing for the real estate industry – construction costs for materials have gone through the roof. Lumber is already at a peak level, it’s up about 15% for materials on a year over year basis right now, and overall construction costs are up about 11%. So I wanna toss that out there to start… And the only circumstance that I can think of where interest rates don’t rise is if something bad happens to the economy.

If the vaccine doesn’t work, or if the vaccine actually starts the zombie apocalypse, or if we have a major economic setback – something like that could cause the Fed to ease off. My fingers are crossed that that doesn’t happen. The good news is that rising interest rates mean the economy is accelerating and doing very well, and that’s good for real estate. As Ryan was pointing out, a little bit of inflation is a good thing, and growth is a good thing. So we want those things, and we want the Fed to actually raise rates as we go forward, because that means things are going well.

The last piece I wanted to say is – pull it back to real estate. Look, take action. If you’re looking at refinancing, get it done. Yeah, rates can possibly come down in a short blip, but if you’re refinancing, refinance now. If you are buying an asset, lock in your rates. And if rates go down and you miss it a little bit, you’re probably okay. I don’t know anyone ever who complained that they locked in an interest rate at three and a half percent. So ultimately, we’re in a good place right now, it’s a great time to invest, and the opportunities are out there. But I still think interest rates are going to rise.

Ben Lapidus: Amazing. Thank you, John. Hunter, I will give you two minutes on the clock for your final words.

Hunter Thompson: Sure. I’ll try to keep it brief. I can’t see the clock, so give me the yank.

Ben Lapidus: You’re good.

Hunter Thompson: Agreed, interest rates rise when things are going well, and… Things are not going well. I think the metaphor is that we’re on morphine, so it feels like it. That’s not the right thing. I was injured, I had to get surgery on my shoulder; morphine doesn’t make you feel like this. This is adrenaline. This is adrenaline, but we’re just sitting at the desk, working like it’s normal. It’s not like being super productive, it’s just that we’re at the desk, we’re working, we’ll be able to keep our head off the desk because of the amount of stimulus.

There was a $1 trillion deficit in 2018, which was about 4.8% of GDP. That was the highest percentage deficit in GDP not in war times, in 2018, while we have the lowest unemployment rate of 50 years. That’s the type of situation that we’re in, where we have peak, peak, peak, peak debt, peak, peak, peak, peak deficits, all-time low-interest rates; if you sneeze, you create a massive economic collapse, and no one’s going to be on the front of that. Don’t bet against politicians acting within their best interest. Don’t bet against Janet Yellen being Paul Volcker all of a sudden; don’t make that mistake. I anticipate a similar to Japan low-interest rate, low growth, low inflation, kind of stagflation type of environment that continues on and on. That’s the way that I’m going to be investing.

Ben Lapidus: Thoughtful words.

Hunter Thompson: By the way, it can be quite lucrative for the real estate investor.

Ben Lapidus: Thoughtful words from Hunter. See, Hunter, that’s why you’re debating here for the second time with Best Ever. Thoughtful words that we can wrap our heads around. I appreciate the metaphor. And the king of metaphors and strong language, Neal – two minutes on the clock to make the most influence on our audience and this debate. Take us home, sir.

Neal Bawa: Ryan Smith said to Neal Bawa, “Show me the money.” And I said “Ryan, take a look. This is the greatest, the most super-heated stock market ever.” Ryan said, “I don’t see it.” So I said, “Take a look at the real estate market. This is by far the greatest, most mega-heated real estate market of all time.” Ryan said, “I don’t see it.” I said “Look at Bitcoin. One and a half-trillion dollars produced just in the last few months.” Ryan Smith says, “I don’t see it.” I showed him John Chang’s number of five trillion dollars injected into the US economy in the last 12 months, and Ryan Smith says “I don’t see it.”

The truth is, if you choose to ignore everything massive in the economy and base it on some old argument that has worked in the past, you’re not data-driven, you’re simply saying “It didn’t happen in the past so it’s not going to happen in the future.” Hunter says, “We see where interest rates are headed over 100 years.” We are not debating that, Hunter, we’re talking about the next 24 months. In the last 100 years, rates have gone up, rates have gone down half a dozen times. It takes our listeners less than five seconds in a Google search to prove you wrong.

I asked Hunter and Ryan, “When has anyone injected five trillion dollars into the US economy? When has anyone injected one third of that amount?” We are creating an asset boom the likes of which have not been seen since the roaring ’20s. The truth is our friends are confused. They think that because millions are hungry in America, we cannot have a booming economy. They think because half a million are dead, that we cannot overheat. This is an emotional approach, it’s an empathetic approach, it’s a good person approach, and I sympathize with them. But the truth is, folks, when the Fed makes decisions, it does not count the dead; it does not feel the hunger. It’s going to look at cold, hard facts. And our friends are choosing to ignore a mountain of evidence, and that is why they can see that interest rates must rise in the next 24 months. They absolutely must.

Ben Lapidus: There you have it, folks. Neal, your punditry is always a pleasure. So is the feature of interest rates based off of the adrenaline of the stimulus, as Hunter has suggested? Or have we over-compensated with the stimulus and interest rates need to go up to bring it back down to Earth?

So poll is going to be opened, we have two minutes to answer. Will the US interest rates be higher in 24 months? You get to decide what the answer is. Are you going to be voting for a future that hundreds to thousands of people will be seeing, predicting the future interest rates going up? Or will they be staying the same or going down in the next 24 months? You get to decide. The poll is now open. Yes, no, or undecided.

While we are doing that poll, John, I do have a question for you. This whole conversation is fantastic. I appreciate all of you guys. But what’s the “so what” here? We have a question from Ben Andrews. What are the implications for real estate investors just starting out if rates go up? Same question for if they’re going down. I’m going to couple that with a comment from Ryan [unintelligible [00:46:27].21] “John Chang showed the spread between a cap and US Treasury rates. at which point spread will investing in real estate not be worth it? Are interest rates and cap rates uniformly tied together? How much does this conversation matter for real estate investors?” If we have time for a second answer, I’ll let you guys jump in, but I want to direct this to John first.

John Chang: Okay, so I’m going to take the last part first. If you look at the trends on the cap rates and the Treasury rates, both have been going down to the right for a long time. But when you look at the short-term movements, it widens and it comes together, it widens and it comes together. Right now, it’s very wide, and that is good. We anticipate and I expect personally that interest rates will be rising. But I will also quote Mark Zandi, the head economist of Moody’s who said, “Forecasting interest rates is a fool’s errand and nobody ever gets it right.” So we have this window, and this is the “so what?” The window that we have right now is that the cap rates have been stable for the last two years or so. The interest rates have come way down, and the spreads from the bankers have tightened up over the last six months or so. So you can get financing on assets today. There’s a lot of liquidity, you can borrow money on just about anything, except for maybe a hotel or a big shopping mall. Outside of that, you probably get financing and it’s going to cost you less than it ever has. So the window is here; looking forward, those things can tighten. But I’ll tell you, even when they’re super-tight, investors make lots of money. People who bought real estate in 2007, when that spread was the narrowest ever, and held it, if they held it all the way until today, made a fortune on that real estate. So there is opportunity, and it’s just a question of how long it takes to get their perspective.

Ben Lapidus: Perspective appreciated. We’re going to close the poll in 20 seconds. Does anybody want to fill the space answering that question, with 20 seconds? Ryan.

Ryan Smith: Quickly, on the first part of the question, with is it good or is it bad? The answer is yes, unfortunately. There are two sides to the coin. You have cash flow, you have the value of cash flow, or the capitalized value of the cash flow. Generally speaking, there are trends like the one we’ve been in, where cash flow has been reduced on assets, but the value of that cash flow has been inflated on those assets. The opposite trend is increasing in cap rate, a decline in multiple, with increasing cash flow. There’s a lot of opportunity around market pivots, to my point earlier about inflation, if we’re able to lock-in. We did this rate lock two weeks ago on a mobile home park we’re buying in the Washington DC Metro next month, at 2.77%, 30-year in, 10-year fix, one-year IOO, non-recourse, fully assumable yada, yada, yada. The point being is if inflation does run and I can pass inflation on to the customer, then that means I have tremendous cash flow growth in the near term. So there are two sides to the coin, and you’re always deficient in one. You have too much here, not enough here, but over the long run, it’s kind of a ratchet system, if you’re on for the long run. It’s really, to John’s point, [unintelligible [00:49:20].13] get in the game.

Ben Lapidus: Thank you, Ryan, for the perspective and ownership. Sorry, Neal, I’m going to have to cut you off. We are going to go to close the poll, three, two, one… Poll ended. And what is amazing – let’s go over what the results were from the beginning. Will US interest rates be higher in 24 months? 74.4% of you answered Yes, not leaving a lot of room for Neal and John. This is what their answers were at the beginning, Hunter. They’re not leaving a lot of room for Neal and John to move a lot of minds, with 74% in agreement with them. 15.4% said no, they will be the same or lower in 24 months, and 10.3% were undecided. Not a lot of folks to bring home into your basecamp. What’s interesting is that the undecideds went up to 11.1%, almost a full point of people being more confused…

John Chang: We did such a terrible job. [laughter]

Ben Lapidus: Congratulation’s gentlemen, that’s a singular takeaway.

John Chang: Hey, that’s what you pay for.

Ben Lapidus: And those that believe that US interest rates will be higher in 24 months moved from 74.4% down to 66.7%. Seven points were gained by the team that suggested rates will be at or below where they are currently in 24 months. So Hunter, Ryan, congratulations. You have 12 months of bragging rights until the next Best Ever Conference. All four of you, congratulations on participating. This was a heated debate. I appreciate the spunk that all he brought to it, and I can’t wait to see y’all next year. Thank you. I’ll bid you adieu so we can keep this moving. I appreciate you guys. Thank you, gentlemen.

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

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

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

Andrea B. Himmel  | Real Estate Background 

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: HBS is Harvard Business School?

Andrea Himmel: Yes, it is.

Ash Patel: Got it.

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

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

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

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

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

Ash Patel: With no money?

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

Ash Patel: Also, she was the lessor.

Andrea Himmel: Yes, she was…

Ash Patel: Not the owner.

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

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

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

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

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

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

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

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

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

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

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

Andrea Himmel: That did not execute that deal.

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

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

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

Ash Patel: Let’s do it.

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

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

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

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

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

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

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

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

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

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

Ash Patel: What is MIPD?

Andrea Himmel: NYPD.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: Where do you get your data from?

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

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

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

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

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

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

Ash Patel: What is life science?

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

Ash Patel: Do you just use leasing brokers?

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

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

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

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

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

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

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

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

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

Ash Patel: So no more cubicle farms.

Andrea Himmel: Correct. I hope.

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

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

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

Andrea Himmel: I’m ready.

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

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

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

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

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

Andrea Himmel: Be present.

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

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

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

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

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

Andrea Himmel: Thank you. It was my honor.

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

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

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

Neil Wahglen Real Estate Background

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


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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: What two pieces?

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

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

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

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

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

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

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

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

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

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

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

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

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

Neil Wahlgren: Correct.

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

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

Joe Fairless: How much equity was required for that?

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

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

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

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

Neil Wahlgren: Correct.

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

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

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

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

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

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

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

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

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

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

Joe Fairless: What did you switch over from?

Neil Wahlgren: Juniper Square.

Joe Fairless: Why did you switch?

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

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

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

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

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

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

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

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

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

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

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

Neil Wahlgren: Let’s do it.

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

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

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

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

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

Neil Wahlgren: Thanks, Joe.

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

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

Carlos Reinoso Real Estate Background

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: Let’s hear it all.

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

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

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

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

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

Ash Patel: Let’s deep-dive into that.

Carlos Reinoso: Sure.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: And I love that.

Carlos Reinoso: Thank you.

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

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

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

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

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

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

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

Carlos Reinoso: Right.

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

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

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

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

Ash Patel: How many people attend your Meetup?

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

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

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

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

Carlos Reinoso: Once a month.

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

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

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

Carlos Reinoso: The networking?

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

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

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

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

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