JF2332: Balancing W2 Work and Real Estate Investing with Kevin Galang and Adam Ulery

While working full-time, Kevin Galang and Adam Ulery are active real estate investors. Adam prefers to build his portfolio by being a syndicate partner, while Kevin primarily focuses on notes.

Prioritizing and finding a balance is the key when pursuing multiple directions. Kevin works from home, and Adam has a lot of flexibility as a consultant. They both utilize their free time to tackle and execute their real estate objectives and share their knowledge on a podcast show of their own.

Kevin Galang and Adam Ulery  Real Estate Background:

  • Kevin is a full-time software sales engineer and Adam is a business agility coach
  • 6 years of combined experience in real estate
  • Kevin’s portfolio consists of 4 performing notes and 1 nonperforming note
  • Adam’s portfolio consists of 308 doors across 6 properties
  • Based in Tampa Bay, FL
  • Say hi to them at: www.dreamstoneinvest.com and www.notenuggets.com 
  • Best Ever Book: Can’t Hurt Me

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You need to understand how you want the system to run. A system isn’t just magically going to make your life better.” – Kevin Galang.


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today I’ll be speaking with two guests. We have Kevin Galang and Adam Ulrey. Adam and Kevin, how are you both doing today?

Kevin Galang: Doing fantastic.

Adam Ulrey: Awesome. Thanks so much for having us on the show, Theo.

Theo Hicks: No problem. Thank you for joining us today. So a little bit about Kevin and Adam’s background. Kevin is a full-time software sales engineer. And Adam is a business agility coach. They have six years of combined experience in real estate. Kevin’s portfolio consists of four performing notes and one non-performing note. And Adam’s portfolio consists of 308 doors across six properties. They’re both in Tampa Bay, Florida, and the websites are dreamstoneinvest.com and notenuggets.com. So starting with Kevin, and then going to Adam, do you mind telling us some more about your background and what you’re focused on today?

Kevin Galang: Yeah, so as you mentioned earlier, I have a full-time job. I’m sure many of your listeners do. And outside of that, I focus primarily on mortgage notes. I like note investing for a number of reasons. I like the protection aspect. What I mean by that – if the borrower ever defaults, you could take back the property, you’re protected by that asset. From the non-performing note perspective, I love the ability to help solve a problem. Let’s face it, Theo, you know that the average American is kind of one crisis away, as COVID is showing us, from not being able to afford their mortgage. But that doesn’t mean they’re bad borrowers. So I want to be able to come in there, solve the problem, and make a difference in somebody’s life, but at that same time, you’re able to make a return.

Adam Ulrey: Yeah, that’s great. And my background is I work in primarily the software space in the tech industry as an enterprise business agility coach. I help transform businesses. What I invest in real estate wise is multi-family, focusing on large multi-family. I’m a syndicator, and we focus primarily on value-add apartments in the Southeast. I really like that asset class and that focus, because it’s in my opinion the best way to grow your wealth very rapidly. That’s the primary reason why I kind of focus in that area.

Theo Hicks:  So Adam, you’re an active investor? You’re actively on the GP as a syndicator?

Adam Ulrey: That is correct. Yes. My team is Dreamstone Invest, and I’m a partner with those guys.

Theo Hicks: Perfect. So you guys both mentioned that you work full-time jobs. Kevin, would you consider notes passive? Or do you still consider that active investing?

Kevin Galang: I personally am the active investor. So I’m the one finding notes, talking to my borrowers, talking to sellers… But it can be a passive investment. One way that people do it is through partnerships, where I’m be the active person, where I find the note, work with somebody to work with the borrower, and the financial friend is more passive, for lack of a better way of putting it. But there are other passive options, like investing in funds out there that are with notes, and things of that nature.

Theo Hicks: Perfect. Okay, so you both have full-time jobs, and you’re both active investors… So my question for both of you is, how much time are you spending on your real estate business? When are you doing this? What happens if you need to do something and you’re at work? How do you decide what’s given a priority? And anything else you can think of that is a challenge working full-time, as well as being an active investor?

Kevin Galang: Well, sleep is a friend that I’m not familiar with anymore. Just kidding. I really focus on prioritizing. So the nine-to-five during the daytime takes precedence because I have that obligation to the company that I’m working with, to maintain my value as an employee. And I take lunch — for example, I’ll schedule calls to take lunch calls. I work from home, so it’s a bit easier… And then I try to schedule things in the morning. So before eight o’clock, I’m working on stuff, reading about the mortgage industry, writing and creating podcast episodes. And then at night, same thing, I go back to analyzing notes, and Adam and I will record podcast episodes on the weekends… So it’s really a finding that balance; you just kind of make the time for it and figure out what is the most important thing that you need to tackle, and just execute.

Adam Ulrey: Yeah, that’s exactly what I do. You just hustle and make it happen. As a consultant, I’ve got quite a bit of flexibility in my schedule, so I let Kevin put the client’s priorities first, and then I just kind of work around that and fill in. So if I’ve got little pockets of time where I can do something, take a call, or perform an activity, I’ll do that, and then just make up for it later in some way. Fortunately, my work schedule doesn’t need to be like that traditional nine to five. I can work a little earlier or work a little later, or kind of fit work in where I need to, as long as I’m not in front of a client. And when I am, of course, I’m dedicated to that.

Also, systems are a big help. You’ll see social media posts coming out for me at different times during the day – I systematized that; it’s automated. So it’s not always me scheduling the post. A team is a huge piece of how I’m able to achieve that. So I’m partnered with other people at Dreamstone Investments, and they’re working on things during the day while I’m at work, and then I can work on things at night when I’m not working.

Theo Hicks: It sounds like you guys are just working all the time. So on the–

Adam Ulrey: That wouldn’t be wrong… [laughter]

Theo Hicks: I just want to say, what time in the morning are you guys getting up, and then what time are you guys done working at the end of the day?

Kevin Galang: I wake up at around five or 6am, and that’s part of the routine. I’ll meditate, do some journaling, get some workout in, and that for me helps set the momentum, to allow me to figure out, “Alright–” Part of my journal, I kind of future-set, saying “This is what I will accomplish that day.” Then I execute according to that. But I also have the vision of how it connects to everything else. And as far as when I stop working, my girlfriend and I love to watch Jeopardy and compete with each other, so at [7:30] – I’m done by them.

Adam Ulrey: Nice. I also get up early, usually, sometime between six and [6:30] on most mornings. I have a morning routine as well. I use that SAVERS routine that Hal Elrod created in Miracle Morning; that really helps me stay focused during the day. And weekends, I work quite a bit, actually quite a lot.

In the evenings, it just kind of depends. I’m usually trying to wind down sometime around nine to 10 on most evenings. It just kind of depends on what’s going on. And Theo, I’ll say, I just consider this paying my dues. I didn’t learn about real estate investing until later in life. And I’m just trying to make up for lost time and get something going. I do not intend to go like this forever. But I just have to pay my dues right now. And then once things start to level out, I won’t be working like this.

Theo Hicks: I’ll just say really quickly, Kevin, I know someone – I think she won either two times or three times on Jeopardy.

Kevin Galang: Oh, you know her personally? That’s awesome. That’s so cool.

Adam Ulrey: That’s one way to create wealth.

Kevin Galang: Yeah. Exactly.

Adam Ulrey: Did she get some real estate with that earnings?

Theo Hicks: I don’t think so. I think she said that she won 60k, something like that. So anyway, so both of you have mentioned, and if you’re watching on YouTube, you can see the little emblem they have next to their heads – Tech Guys Who Invest, which is the podcast. So not only are you working full-time jobs and actively investing, but you’re also, as Adam kind of mentioned, doing other types of thought leadership things, maybe social media or podcasts. Maybe walk us through what all you’re doing in that realm for thought leadership, why you selected those, and then what benefits it’s having to your businesses.

Kevin Galang: So Tech Guys Who Invest was founded because Adam and I connected in a mastermind group and we realized we had great chemistry. We also realized that we both love educating people, and the Tech Guys Who Invest was just a natural title that we came up with, like, “Hey, you’re investing, you work in tech. We’re the tech guys who invest.” And it’s our way of really giving back and sharing information about how to take control of your financial journey, how to invest wisely and safely from the experienced advice of guests we bring on, the mistakes that we’re making, the wins that we have – we share all of that. We try to be as transparent as possible because if we can do it, we firmly believe that other people can as well.

Adam Ulrey: And we have found we just love this so much more than we thought. Part of the reason we did it is to not only educate people and give back in that way, but to attract people to us. They could be people that we would potentially invest with, or partner with in some way, or add value to. So we just wanted to do it for that reason. But it’s ended up becoming more than that. We actually just really love doing it now. We’re learning a ton, we’re having fun, it is attracting people to us, and it’s definitely paying back.

Theo Hicks: Do you guys do all of the bookings, the editing, the posting, the writing of the descriptions yourselves? Or is that outsourced to someone else?

Kevin Galang: So we’ve recently just started outsourcing the podcast editing and posting the show notes. And to Adams point, talking about systems, eventually we would love to graduate, to be “Alright, we recorded it; push it out to the team”, and that’s it. Because we love the podcast recording aspect, and the editing just kind of comes with it and it’s paying our dues.

And another point about systems is you need to understand how you want the system to run. A system isn’t just going to magically make your life better. You can get a system without figuring out how you want the system to operate and just end up with a really big problem. So now that we have the comfortability of almost two years of it, we can say, “Hey, this is how we want it to sound, please do X, Y, and Z,” to our editor.

Adam Ulrey: Yeah, we’ve got our processes down now. We understand them well enough to be able to standardize them and then outsource it at some point.

Theo Hicks: Are all the episodes with a guest, or sometimes just you two?

Kevin Galang: It’s a combination of both. We try to keep a cadence of an episode with a guest, an episode of us, and maybe two of us in a row, or two guests in a row. But we like to mix it up.

Theo Hicks: How do you find the guests?

Adam Ulrey: We like to find guests that mostly focus on real estate, but occasionally put in someone who’s just interesting or does something that not a lot of people know about. So an example is the guy we had on who invests in ETFs. He had started a gold fund in his past, and it was just super interesting. So every now and then we’ll throw someone like that in there, just to kind of share with people there are different things to think about when it comes to investing. And to answer your question about how do we find them – a lot of it is networking and just discovery, and then we’ll just reach out to them. We’ll just take action and invite them on.

Theo Hicks: Is it like an email, I’m assuming?

Kevin Galang: Exactly, yeah. Send an email, send them a Calendly link, that way we don’t have to go back and forth with “Oh, we’re free at this time. Are you free at this time?” “This is our updated calendar. If this works with your schedule, pick any time there.”

Theo Hicks: What’s the conversion rate you guys have? Is it most people say yes or most people say no? I’m just curious.

Kevin Galang: I would say most people do say yes. And I think that’s a cool thing about having a podcast, I think it’s a low barrier to entry. And selfishly, you can use it to learn from experts that are out there. So if anybody’s kind of on the fence of whether or not they should start a podcast, I would highly recommend it.

Adam Ulrey: Yeah, it’s been very rewarding. And we’ve had some people we reached out to you who are really popular, and we were not sure if they’d even respond to us, and they came on the show.

Kevin Galang: Yeah, the worst somebody says is no.

Theo Hicks: What was your best episode so far? In number of views.

Kevin Galang: For a while, the one with Gino Barbaro was one of our highest-performing ones. I have to double-check which else is out there. But that was a big one.

Adam Ulrey: Dave Van Horns was big too. His was…

Kevin Galang: Oh, yeah. Dave Van Horns was a high performing one as well.

Theo Hicks: I recognize both of those names, so good for you guys. Alright, starting with Kevin, and then going to Adam – what is your best real estate investing advice ever?

Kevin Galang: I would say you need to get focused. So figuring out your investor identity early is huge, because there’s a book out there, there’s an expert out there, there’s a podcast out there for every niche in real estate. And every niche in real estate can make money. But there’s a component I feel not a lot of people talk about, where you have to enjoy it. If you don’t enjoy investing in real estate, you might as well just continue to work your job because you’re going to burn yourself out so much faster by trying to grind everything out in an asset class you’re just absolutely miserable with. So get focused and figure out what you really want to do with your time and how you want to invest in real estate.

Adam Ulrey: Yeah, I love that, Kevin. And clarifying your goals is really important. So you focus on what is the right thing for you. That’s really important. Be honest with yourself about what those look like, so that what you’re working on is in alignment with what you really want to achieve deep down inside. But I think at the end of the day, taking action is super important. It’s one of the things that we see a lot of people just stall out on; they let themselves be held back by self-limiting beliefs or fears, and they get stuck in different modes like education forever, analysis paralysis… And at the end of the day, at some point, you have to take action.

Theo Hicks: Perfect. Okay, are you guys ready for the Best Ever lightning round?

Adam Ulrey: Oh, yeah.

Kevin Galang: Yes, sir.

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

Break: [00:16:48][00:17:33]

Theo Hicks: Okay, so starting with Kevin and then Adam – what is the Best Ever book you recently read?

Kevin Galang: Best Ever book I’ve recently read… I would say, Can’t Break Me by David Goggins. I know it’s not real estate related, but it is one of those things that it shows you how capable you are as a person, and that mental shift that you need to make to continue to work even though you’re tired, it’s been a long day from your nine to five, but you know you have podcasts or record or something like that… That helps you really dig deep. So it’s not real estate related, but I really like that book.

Adam Ulrey: Also not real estate related, but I think it can be applied… Late Bloomers by Rich Karlgaard. Fantastic book, especially for people who are a little bit older, or think they’re too old to start this thing – read that book, it’s amazing. It explains that you’re not too old, no matter how old you are.

Theo Hicks: In Late Bloomers, I know one of the big examples people use of that would be the KFC guy. Do they talk about him in that book?

Kevin Galang: Right, Colonel Sanders.

Adam Ulrey: Yeah, he even talked about it in the book.

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

Kevin Galang: Podcasts all day. And that’s what I would turn into, I guess, a business. But the idea of being able to just connect with people in different areas of life, doing different things, being able to converse and share that story with the hopes of inspiring somebody else to take action and achieve their dreams – that to me is what would be really cool to do.

Adam Ulrey: That’s awesome.  I’m with you, podcasts all day. That would be great. Definitely learn from the experience. I’m a big inspect and adapt guy, continuously improve, I love to take feedback and learn from that. So I would learn from why did I fail, and take that, roll those lessons into my next venture. And I think it’s important to never give up. That’s super-important to be successful. It’s just don’t stop. So I wouldn’t stop.

Theo Hicks: Yeah, you guys both have the voice and a cadence for podcasting, so that could work.

Adam Ulrey: Appreciate that. Thank you.

Theo Hicks: Okay, what is the Best Ever deal you have done?

Kevin Galang: So one of the performing notes that I recently did, I was super happy about it because I had zero money in; almost negotiated an equity deal. And as a performing note goes, you wouldn’t write home about the amount of money you get, $50 a month from it… But the fact that I had no money in, and it was the first one that I did, I was really excited to do it. Because for me, the first one was the hardest one. Once you get over that hump, you’re like “Okay, proof of concept. I can do this. Let’s just keep taking swings of that bat and see where it goes.”

Adam Ulrey: Yeah, I feel like the mastermind class I invested in might be the answer, because I wouldn’t have met Kevin, I wouldn’t have the Tech Guys Who Invest podcast if I didn’t. And a lot of people don’t think about an investment in yourself is an investment, but I really think it is.

Real estate-wise, we bought a 56-unit Class B here in the Tampa Bay area. It was our second deal as Dreamstone Investment as it’s known today… And it’s a great one, because the class B properties have low delinquency. It’s really weathered this COVID storm very well, and the numbers are strong. It’s been low hassle due to the higher class of residents we have in there, so that’s been a fantastic deal.

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

Kevin Galang: I would have to say the podcast, a great way to get back that I personally love and I’m passionate about it. But I’m always available if somebody wants to reach me and has a question. I won’t turn anybody down if you want to book a time on my calendar. So many people have done that for me, and I want to kind of pay forward in that regard. So being out there as a resource I think is one way that I give back.

Adam Ulrey: Tech Guys Who Invest podcasts for sure is one of my favorites. Sharing lessons learned with others, so they can grow and learn from my experiences. That’s awesome. And as kind of a follow-up, I volunteer with my daughters at Metropolitan Ministries, which is kind of like a homeless mission in the Tampa Bay area. It’s just really great to pass that along to them as something they’ll carry for the rest of their lives.

Kevin Galang: We also host a meetup – that was pre-COVID – where we would use the cash flow game to kind of educate people… And the look on people’s faces when they realize that “Wait, you can do that in real life?” Or “There’s no way people are doing what the game is teaching you in real life”, and having that look on their face of realization is so fulfilling.

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

Kevin Galang: Come take a listen to Tech Guys Who Invest podcast. We share our experiences, wins losses, you get awesome guests on that show… And we have an investor identity canvas that we have created. And it came about because I jumped from various different asset classes – Airbnbs, mobile home parks, multi-family, house-hacking… I looked into all of those things for a few months at a time, but never really got focused. And I wish I had something like the canvas we created to help me narrow down that list. If you want to check that out, it’s canvas.tgwipodcast.com.

Adam Ulrey: Awesome. So dreamstoneinvest.com. You can email me, adam@dreamstoneinvest.com. Find me on LinkedIn, Adam Ulrey. As Kevin mentioned, tgwipodcast.com. You can email either one of us at techguyswhoinvest@gmail.com. And the canvas he mentioned, once again, it’s canvas.tgwipodcast.com.

Theo Hicks: Well, thank you so much for taking the time out of your busy, full-time, all-day-working schedules to talk to me for half an hour today. I really appreciate it. Just to kind of summarize some of what we talked about – we talked about how you guys are able to balance the full-time job and active investing… And it’s just a grind, and as you said, hustling, and automating, and prioritizing things.

You also both briefly went over what you guys do with each morning to prepare for your day. Specifically, Kevin said he’ll set a goal each day, and then everything he does kind of based off of that, and then Adam talked about the Sabres routine. You both talked about your thought leadership with the podcast, why you do it, how it’s benefited you, and then more tactics on how it’s done. And then the Best Ever advice from Kevin – I really liked when you talked about how in reality you can make money and be successful in really any niche. So just find out which one you like, because if you don’t like it, then just keep working, because you’re going to burn yourself out, as you said. And then Adam said kind of similar to the same thing, focus on what’s right for you,  be honest on what you’re good at, what you like as well. Then also you added taking action is also very important. And I couldn’t agree more.

So thank you both for joining me again today. Appreciate it. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Adam Ulrey: Thanks, Theo.

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JF2329: Money Saving Lessons With Jack Miller #SkillsetSunday

Jack is the president and founder of Gelt Financial Corporation and has experience in buying and financing over 10,000 properties and today he wants to share with you all the lessons you must learn to save yourself money in buying or selling properties. Jack was a previous guest on episode JF1675 so be sure to go check his previous episode out when you have time.

Jack Miller Real Estate Background:

  • President and Founder of Gelt Financial Corporation
  • Since founding Gelt, has made over 10,000 loans in excess of $1 billion
  • A previous guest on episode JF1675
  • Based in Boca Raton, FL
  • Say hi to him at www.geltfinancial.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You don’t have to do that many good deals to make a fantastic living, so focus on the best deals” – Jack Miller


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. And first off, hope we’re having a Best Ever weekend. It is Sunday, and because it’s Sunday, we’ve got a special segment for you called Skillset Sunday. You knew that was coming, right? Because you’re a loyal listener, and that’s what we do on most Sundays.

With us today, we’ve got a guest who has made over 10,000 loans in excess of a billion dollars, and has also purchased a lot of properties. He’s the president and founder of Gelt Financial Corporation, and he’s going to talk about some lessons he’s learned along the way that will help you build your real estate portfolio the right way. With us today, Jack Miller. How are you doing, Jack?

Jack Miller: Excellent, Joe. How are you?

Joe Fairless: I’m doing excellent as well, thanks for asking. So, let’s get right into it. What’s the first lesson we should talk about that you’ve learned based off of your experience, that you see real estate investors do, or shouldn’t do, or should do more of?

Jack Miller: So the first lesson is you don’t have to do that many good deals to make a fantastic living, and to really become wealthy. But a lot of people want to do all the deals. So we see a lot of both as lenders and as buyers, you really need to be selective with the deals. So my first lesson is, don’t do a lot of deals, but focus on good deals.

Joe Fairless: That can ring true with some people who have fear of missing out. Because I’ve heard similar advice, but the exact opposite, where it’s don’t wait for the perfect deal, just get in there and do a deal, take action. What would you say to that?

Jack Miller: I would say whoever gives that advice isn’t there when things fall apart. The reality is there are a lot of people talking about how much money they make in real estate when things go good. But there’s a lot of deals that don’t go good and they end in total disaster. It’s sort of like people walking out of the casino, you always hear about the winners, but you don’t hear about the losers. So my biggest advice to people would be, learn to say no. Say no more often than you say yes. I would say approach this with precision, and absolutely don’t do deals that you don’t think are perfectly aligned. Because if it goes bad, you can do eight or nine good deals, and if you have one deal that goes bad, that can tank you and leave unbelievable damage to you, your credit, and your future ability to transact.

Joe Fairless: What’s the next lesson?

Jack Miller: I would say don’t fall in love with the deal. A lot of people fall in love with the deal, they fall in love with doing deals, and they put good logic to the side. You need to approach it from a business point of view. The deal is not going to love you, so don’t love the deal. So approach it very analytical, with your comparables be conservative… You see people and they’re too optimistic with their estimate on repairs, or too optimistic on their hold time, or too optimistic on what they’re going to sell it for… I would say, approach it from a pessimistic point of view, and if it works as a pessimistic point of view, the deal will surely work. Again, I don’t want you to think I’m a pessimist. I’m the ultimate optimist. But if everything works and you’re conservative, it’ll surely work when you’re optimistic.

Joe Fairless: Don’t love the deal, because the deal won’t love you. I love that.

Jack Miller: There’s no love back.

Joe Fairless: There’s no love back. No reciprocity at all.

Jack Miller: No reciprocity. The deal will suck up your money, and destroy you, and cause you sleepless nights like you wouldn’t believe.

Joe Fairless: What’s the next lesson?

Jack Miller: More people and companies die from indigestion than starvation. So what we see a lot is somebody will do one or two or three deals, they’ll make a good amount of money, and then instead of doing one or two or three at a time, all of a sudden they’re doing five deals at once. And that’s the wrong approach; I would say take it slow, do one deal, get it done, do another… Again, more people and more companies die of indigestion by growing too fast, than of starvation.

Joe Fairless: So, I imagine you see that a lot from the lending standpoint?

Jack Miller: Yes.

Joe Fairless: So tell us an example or two with as specific as you can get or remember about that.

Jack Miller: Over the past 30 years I’ve really had the privilege to work with some much more talented people than me. And I’ve seen time and time again, we have tremendous talent, tremendous well intent, and tremendous knowledge, and they over-expand. They’ll do one deal, they’ll do two deals, and they think they’re the best thing since sliced bread.

And all of a sudden they have four properties under agreement of sale. And inevitably, something happens that will tank them. It could be something like the coronavirus, it could be an economic meltdown, or it could be just the deals. You can’t do too many things at once. It’s just hard. It takes time to build up that infrastructure.

Joe Fairless: What’s the next lesson?

Jack Miller: A deal of a lifetime comes about every day. I hear all the time, “Oh, this is the best deal in the world. This is the deal of the lifetime.” I literally hear that just about every day from somebody. The reality is if you’re in there, you’re going to always find a good deal. And they’re all sort of interrelated, because people think “Oh, this is such a great deal. I can’t say no.” They fall in love with the idea of it. So with that comes the same thing as people are over-expanding. In order to do a deal, the deal has to be perfect, but your timing has to be perfect, too. You have to have the mental focus to be able to do the deal, the financial wherewithal to be able to do the deal, if something goes wrong. So again, don’t fall into that “This is a deal of a lifetime.” Because if you’re out there looking, they will come all the time. If you’re at home, sitting on your sofa playing video games, they’re not going to come all the time. But if you’re out there in the mix, they’ll be in there with you.

Joe Fairless: The first four lessons all relate to slowing down, be conservative about how you’re running the numbers, and make sure that you are not growing too fast. This seems like a consistent theme.

Jack Miller: Yes, it is, because that’s how I see people blow up. They want to do so much, because it’s so exciting and so energetic, it’s like a drug. But I see the need to slow down, they need to be more conservative. And those are really the same philosophies, by the way, that if you would read a book about Warren Buffett, or listen to him, he basically says the same thing. He says learn to say no. If you say no more, you’ll be better off. Because I’ve seen, and I see all the time, we have tremendously talented people who will explode and implode because they’re doing too much, or they’ve made the wrong decision.

Joe Fairless: What’s the next lesson?

Jack Miller: The devil’s in the details. We see all the time where people — especially now with the internet where you can be in one part of the country and see a property virtually in another part of the country. You could be in Texas and buy something in Des Moines, Iowa. And if you depend on other people to do the due diligence, usually something goes wrong. So my next one is, the devil is in the details. You need to understand the deal from every aspect. If the property needs work, how much work does it need? Don’t just take the realtor’s word that “Oh, he got you a contract.” Or how did you hear? He says ‘”Oh, the realtor got me a contract [unintelligible [00:10:33].26]” Or check-in with the township to make sure that you don’t need permits, or you do need permits. Factor it in.

A common mistake is when people buy properties, in some cities the real estate taxes are reassessed based on a sale. So a sale triggers it. So I see all the time the taxes are based on, let’s say $100,000 value, and someone’s buying something for 300,000, but they’re underwriting the deals based on the $100,000 taxes. They don’t realize that as soon as that deed’s recorded, the city’s going to triple the taxes. So it comes down to do your due diligence, know every aspect of the deal, again, from the buy, from the due diligence, from the contracting, from a zoning perspective, from a potential tenant perspective, read all the ordinances, read the leases…

I see it all the time where in a lease, a lot of times in commercial property, a prospective borrower, all they’ll read is the dollar amount the tenant’s paying and the lease term, but they don’t realize there’s co-tenancy clauses in there or other clauses that the tenant can leave for different reasons. So again, it comes to the devil is always in the details. That’s critical. You have to know these deals inside out and don’t depend on somebody else. It’s very easy to depend on someone else to do the due diligence; but you can almost bet that whoever you’re depending on is going to be long gone when the poopoo hits the fan.

Joe Fairless: Co-tenancy clause, for anyone who’s not familiar with it – will you elaborate on why that could be an issue?

Jack Miller: So co-tenancy is common in commercial real estate, it’s very common in retail. So what a co-tenancy means is, let’s say you have a shopping center, and you have a major supermarket in there, and you have five or six other little stores who are anchors. Those stores may come in and say “Hey, we’ll be a tenant as long as that supermarket’s there. But if that supermarket leaves, we could leave, too.” So a co-tenancy clause has to do with the tenancy of somebody else’s. And you see that a lot, especially now with Corona, with big stores going out of business. You have not only the big stores go out of business; if you have a co-tenancy in your lease, you could see the smaller stores leave or pay reduced rents. So you need to understand co-tenancy, and you need to understand if it’s in your leases.

Joe Fairless: Oh, absolutely. That could torpedo a deal quickly, and that could also bring in novice investors to buy a property who they think they’re getting a good discount, but in reality, they’re not getting a discount at all, because there’s no income that’s going to be happening in about three months after they buy it, because all the tenants are going to leave.

Jack Miller: People think I’m crazy, but I actually love reading leases; and they’re boring as could be, but you know what? I find it fascinating, and I tell buyers that you need to understand every clause in the lease… Because there’s a lot of times good clauses too, that you don’t understand. And it’s that way with every part of the deal – you have to really understand the deal. And again, don’t depend on somebody else to have your best interests at heart, because usually they don’t; they have their best interests at heart.

Joe Fairless: Lesson number six.

Jack Miller: Lesson number six really comes down to — I call it the three main parts of the deal. You think about every deal, I divided it into three parts. It’s the purchase, and maybe the fix-up if it’s a fix-up, it’s the management, and it’s the sale of it. And you have to really be an expert at all three parts. Again, if it’s not a fix up, it’s the purchase, and the leasing, and the management, and the sale. But we’ve seen so many people over the years who are really experts at one or two, but they’re not good at the third one, and the whole thing blows apart. Years ago – and I’m going back 20 years – there was one of the best buyers I’ve ever seen in the real estate business in Philadelphia. I’m going to call him Joe; that’s not his name.

Joe Fairless: Hey.

Jack Miller: He must have owned 100 or 200 properties, all in a prime section, and he bought them all for 30, 40 cents on the dollar. He was literally one of the best negotiators, and this guy could sniff out deals. Unbelievable. We have provided him financing, because every deal he bought was really a great deal. What I quickly learned was that this guy was a lousy manager. He couldn’t manage the property. He couldn’t deal with the tenants in the repairs. And he unfortunately had, I’m guessing 150, 200, properties, maybe 100 properties, all beautiful properties; he ultimately lost them all, and gone out of the business because he wasn’t good at the middle part, the managing and dealing with the tenants part. And he wasn’t good at selling them, because he could never sell them, because he always thought it was worth five times what the market would bring.

So he was one of the most masterful buyers of properties I ever saw, but he really wasn’t good at the other two things, and ultimately that was his downfall. So what I call the three main parts of the deal – we all can’t be good at different things, I’m lousy at a lot of things, but you have to know what you’re good and what you’re lousy at, or not as good, and outsource that, find a good property manager, find a partner who’s great at the things you’re bad at.

Joe Fairless: We’ve got time for one more. What’s one more lesson that you’ve learned?

Jack Miller: Think long term. What encompasses that is the power of compounding. When we do a deal, we think on a 10, or 15, or 20, or 30-year horizon. A lot of people are thinking six months and a year. And I think that’s the wrong approach. I think people who want to get rich quick, they tend to implode pretty quick. I have a sign on my door, it says “Get rich slow.”

Joe Fairless: What about the business models where it’s a value-add deal and you’re looking to exit out after five years?

Jack Miller: Nothing wrong with that. We’re in the middle of doing a deal now. As a buyer, we think we’re going to exit out within six to nine months. But sometimes you can’t. And you have to be prepared for the long haul. Corona is a perfect example of it, nobody could have predicted it before it happened.

Joe Fairless: On that six to nine-month projected exit, what specifically do you do or how do you approach, thinking long term, since you’re projecting that short of an exit?

Jack Miller: A few things. One, we stress test it instead of selling it. If we rent it out, how’s that going to look? And can we rent it out? Is our financing or our capital stack prepared for a long term hold, as opposed to a short term hold? Do we have the cash to be able to hold it if it doesn’t sell right away?

So I think it’s just looking at the deal from a 360 degree and saying “Okay, if I can’t sell it for what I want to sell it or what I need to sell it at, am I okay holding?”

Joe Fairless: Very, very helpful. How can the Best Ever listeners learn more about what you and your team are doing, Jack?

Jack Miller: You can go to geltfinancial.com. That’s the easiest way. We have a YouTube channel, it’s Gelt Financial. And just check us out on social media.

Joe Fairless: We ended up with seven lessons that you’ve learned from your experience, and I’m grateful that you shared them. Certainly, be conservative, continue to be methodical about the acquisition process, and make sure that you have experts on your team to address each of the areas of the deal throughout its lifecycle. The acquisition, the management, the sale process of it… And to stress test deals to make sure that even if you are projecting, in your case, a six to nine-month exit, or a five-year exit, or some other exit, it doesn’t matter, look at the scenarios where if that doesn’t take place, what will you do? And do you have enough money to withstand that? And is there financing in place that will allow that? If not, what would be your plan for acquiring that during the ownership periods?

So thanks for being on the show, Jack. I really appreciate it. Hope you have a Best Ever weekend and talk to you soon.

Jack Miller: My pleasure. Have a great day.

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JF2302: Financial Fears With Belinda Rosenblum

Belinda Rosenblum, CPA and Money Strategist, helps women entrepreneurs ensure their businesses can survive and thrive during these crisis times. So when all of this wraps up back to a new “business as usual”, they can have the freedom and fun back into their businesses and become well-paid CEOs. 

Belinda Rosenblum  Real Estate Background: 

  • Wealth Coach, investor, and Co-Author of “Self-Worth To Net Worth”
  • Has been investing for over 20 years and has brought in over $840,000 in rental income
  • Her current portfolio consists of Two Units property in Boston, and 2 properties in Costa Rica 
  • Based in Littleton, MA
  • Say hi to her at: www.OwnYourMoney.com/dashboard 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“You do have a relationship with money and you get to decide what that relationship is” – Belinda Rosenblum


TRANSCRIPTION

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

Belinda Rosenblum: I’m awesome! I’m so excited to be here.

Theo Hicks: Great. Well, thank you for joining us. Looking forward to our conversation. A little bit about Belinda’s background. First, she is a wealth coach, investor, and co-author of the book Self-Worth To Net Worth. She’s been investing for over 20 years and has brought in over $840,000 in rental income. Her current portfolio consists of a two-unit property in Boston, as well as two properties in Costa Rica. She is based in Littleton, Massachusetts, and her website is ownyourmoney.com. So Belinda, do you mind telling us some more about your background and what you’re focused on today?

Belinda Rosenblum: Absolutely. So this has been really fun, to even have the opportunity to talk about real estate; it’s definitely been one of my more profitable hobbies. I started early in my 20s, and now I have been running this company called Own Your Money for 13 years. For the first 12, we focused more on personal finance and did some business consulting, I have my own TV show, radio show, a lot of speaking… And then at the beginning of 2019, I actually pivoted to help more small business owners and to really recognize that there’s only so much that I could tell people that were in jobs like “Go make more money”, because they were running out of options. It was like “Get a raise, get a promotion, leave your job, start a business.” And with my business owners though, honestly, they have an unlimited potential to make money. And I feel that way about real estate, too. I feel like it’s such an opportunity that not enough people capitalize on and go for it.

So now in Own Your Money, it’s really about helping people to figure out how can they work less, profit more, create a more strategic, aligned, and profitable business, so they can pay themselves consistently, so they can really create the freedom and lifestyle that they started the business for in the first place. So that’s what we’re doing now. It’s really fun.

Theo Hicks: Perfect. So I think this is a good transition into the topic we’re gonna be talking about, because I would imagine in order to accomplish all those things you just mentioned, you must have the right beliefs and thoughts about money. So the thing we want to talk about was financial fears, and then what your beliefs you have about money is going to affect your ability to accomplish all the things just mentioned, as a small business, as a real estate investor. So tell us about that.

I guess to start off, what would you say is the most common fear or the most common belief that people have that keeps them from reaching that success as a small business owner or as a real estate investor?

Belinda Rosenblum: I do see real estate investors as business owners, too. I think oftentimes they may not, but the more that they can start to see themselves as their properties are their businesses, the better off they will be.

There are several big ones, I think one of the most important ones is that “I have to work harder and harder for money.” And then people feel very capped, they’re like, “Well, I don’t want to work any harder. So I guess that means that I’m capped at what I can make.” And they block themselves. Oftentimes too, people are afraid of success, like “If I become too successful, then…”

And just listening now, start to think about, if you were to say Money is…”, what does money really represent for you? What do you really believe about money and about your ability to earn it, how easy it can come to you, how hard it will be…? I know I watched my dad have four jobs, so there was a time when money would come more easily to me, and I would feel bad, like “Am I doing something wrong? Why did he need four jobs, and I just need to tell people what I do and they sign up?” But I think that sometimes people have a fear of success around “If I become more wealthy, if I am making more money on a regular basis, then people are going to want something from me, I’m going to have to pick up the check when I go out…” We do hope to go out again… There might be different ways that you complete that sentence.

Also think though, are you afraid of failure? A lot of times people are holding themselves back from achieving and making the money that they can because they’re not actually taking the risks, and being unapologetic about what they need to do in real estate, and really putting yourself out there.

There are so many, and it’s about starting to recognize that you do have a relationship with money, that you get to decide. Much of the time it is very unconscious, because it starts when we’re growing up. And we don’t realize it; we’re young, we’re impressionable. It usually starts somewhere five to seven, max like 10. By then, we’ve formed our beliefs about money.

It’s funny, because I actually have a five-year-old and a seven-year-old right now. I’m like, “Oh, God, what are we teaching them about money?” But it’s really important to recognize that your beliefs started really early. And it’s interesting, there are a few distinctions sometimes between women and men. And oftentimes, women are a little bit more emotional. We, as human beings, are meaning-making machines, and we don’t realize how much energy and emotion we put with money.

And men – it’s interesting, because they’re not as much on the surface as emotional, but that sometimes they won’t take the risks, or they won’t compete in the way they can, or they won’t put themselves out there if they have some old belief that says, “This is kind of the cap. This is what I’m comfortable with. This is what feels safe.” And then above that, they’ll stop themselves. “I don’t know if I want to do one more property, because then…” and they make up all the stuff that can happen.

So the more that you can be aware of what you’re telling yourself and what you believe about money, the more you can start to do something about it. Otherwise, it’s just a self-fulfilling prophecy that we go and make happen.

The other thing that’s really interesting is noticing what you believe about people that have money. And this is an interesting one in our culture. Theo, you’re a little bit younger than me, but think about all the shows that villainize rich people. There are so many. There’s rarely a show when a rich person is a nice person. Did you ever notice that? Two broke girls are fun and hysterical and amazing and broke. And the rich people are like Dallas, or there are just so much rich people that are mean, or greedy, or selfish, or kill people… It’s ridiculous. All the way back to like 101 Dalmatians, where Cruella DeVille is like stealing 100 puppies. It’s like everywhere, right? To the extent that you buy into any of that, that rich people must have done something bad for money, or they’re greedy, or they’re selfish, or they’re not generous, they must have done things that you would never want to do to have their money, then you will actually not want to ever be rich or wealthy.

And if you’re one of those people that knows how to make money, but isn’t very good at keeping it or saving it, boom, this could totally be your cap, your upper limit, because you’re like “Well, I don’t want to have too much money, that then I’ll be a rich person and then it may turn me mean. It may turn me into somebody that I don’t want to be.”

And what I encourage you to do instead, if there is some of that that’s resonating with you, is to actually find role models, find people that have money that do great things with their money, that are philanthropic, that are generous, that you can really be like “Hey, I want to be a rich person like him.” And you can start to see “Wait a second, maybe not all rich people are bad.”

If I believe in Bill and Melinda Gates and what they’re doing, and look what they’re doing with their money, well then there are examples where not all rich people are bad. And then instead, do what I say, which is actually recognize that having more money will amplify who you are, but it doesn’t have to change who you are. As people can start to recognize some of this unconscious and bring it up to the surface and gain some awareness about it, then they can actually start to do something different. Because otherwise, the beliefs that we keep telling ourselves again and again, they feel like truth… When they’re not. [laughs] They’re actually lies that we keep telling ourselves again and again.

Theo Hicks: And that’s the question I want to ask you… You kind of went over a lot of examples of the types of beliefs people have about money… So I guess practically speaking, if someone is listening right now – you gave a few examples, but how do I actually, as you said, make these unconscious things conscious? So am I writing them down? Do I need a coach to help me get these things out of my mind? How do I know which ones I have?

Belinda Rosenblum: So one of the easiest ways is just to start to keep a little journal, start to just write them down. And you can follow me on Instagram, you can DM me your beliefs about money. I’m @OwnYourMoney, if you want someone to see them, to recognize them for you. And start to write them down and think to yourself “Okay, what do I tell myself about money?” And when this thing happens, one of the easiest ways is to notice what those beliefs are, or notice all of your interactions with money. Notice your triggers, your reactions; when x happens, y is what you do.

So long story super-short, my dad had a stroke when I was 21 years old. I had just graduated college, and became family CFO. It was not a job I wanted, I can assure you, even as an accounting major. And by 28, I’d band-aided things together, but it was really starting to pile up, because I was having a really hard time keeping up. So I found myself at my dining room table, staring or feeling stared down by three huge stacks of bills and mail, literally like as tall as I was, at my dining room table.

So for me a trigger is that I can’t let my mail pile up too much in my house, because it literally triggers me back to when I was 28 and I let things become a big mess, and they were totally out of control. So notice when things happen. The good news, PS, I became a self-made millionaire five years later, invested in real estate, did a lot of good things… But it all pivoted on that day, when I was like “I can’t keep avoiding this.” So notice the interactions that are happening in your life around money and notice your reaction to them. So when you go to pay a bill, are you like, “Oh my god, more bills?” Or are you like, “Oh, look, my lights stayed on. Let me pay my light bill”, and be grateful for that, but realize that “Okay, great. Let me get this done. Let me look at how much money is left. Let me look at the profit that I’m making on this. Let me look at when am I going to have my property paid off?” and realize, are you in reactionary mode with these triggers, these unconscious beliefs, you notice what you’re telling yourself, or am I actually able to not be in that scarcity, poverty mindset, but realize “Oh, I’m making money. How can I make even more? How can I make this even easier and faster to achieve?”

And the mindset blocks are everywhere. So instead of feeling like, “Oh, I don’t have them,” and go into avoidance — we all have them. Newsflash. So it’s really a matter of recognizing what they are and how much they control your life. So to be able to start to connect with them, I like to look at all of your money interactions and start to write it down. Like, okay, when you paid a bill, when you were at the grocery store, when you bought something online, did you tell yourself “This is expensive. Can I afford it? Am I worth it?” I don’t like the term “Can I afford it?” because I feel like we can afford whatever we want. We have to decide “Do I want to afford it? Is this aligned with the way I want to be spending my money, with my values, with who I want to be in the world?” And really notice the languaging that you’re using around money and notice how things are making you feel in that moment. And I absolutely believe that our perspective is decisive, our perspective determines everything.

I’ll tell you a quick, funny story, Theo. I was getting married on the beach in Costa Rica, and we were at like this really poignant moment when they’re talking about those that couldn’t be with us, saying a prayer for them, and knowing that they’re all around us, and present… And my husband and I were in bliss, we were about to get married and seal the deal… And literally, these three dogs start walking by… We’re on the beach, Costa Rica, right? So these three dogs start walking down the beach. Well, one stops and pees on the beach of the canopy that was over us. And there was a moment where I was like, “Oh my God, is this for real?” And then my husband I kind of look at each other and we’re like “Do we cry? Do we laugh? Do we run? Do we stop? What do we do?” And then 10 seconds later, the second one then pees, and then they keep walking. [laughs]

The point of this is that I had a moment right there to decide what I wanted to believe, how did I want to feel about that moment. And it’s kind of a funny story; it’s not directly about money… But we just looked at each other and we started laughing. And we’re like “Oh, I guess the deceased are letting us know that they’re here with us.” And then we moved on with the wedding. But there are so many little things that happen in our lives where we have a choice to either get upset and to say “This is happening to me, and I’m a victim, and I can’t get to the other side of this.” Or we can decide instead “What do I want to believe about this? How can I choose instead a fun perspective on what just happened?”

So in that moment, when you’re feeling like “Oh, crap, another bill?” Or “Why is this happening?” Instead be like “Well, at least a dog’s not peeing on my wedding.” Or be like “Hey, it’s just another bill. It’s a little speed bump, it doesn’t have to feel like Mount Everest.” So you pay attention to your thoughts, and you choose more wisely.

Theo Hicks: A really good example, I think, about once you’ve identified these types of thoughts – you journal, you notice how you react to things, and you recognize that you have a belief that all rich people are evil. So once you’ve realized you have this belief, then the step to overcome that is to find someone who is rich and good that can be your role model.

Belinda Rosenblum: If that’s your belief.

Theo Hicks: Exactly. [unintelligible [00:16:37].00] an example. So if you have other types of beliefs about money, like for example the bill-paying that you gave, is identifying that belief enough to overcome it? Or is there something else I need to do in order to make sure I am not getting triggered whenever I see my pile of bills? Is the awareness of that belief enough, or is there something that I need to continuously do in order to always not be triggered when I see bills? And obviously, apply this to any other beliefs you have. I think the bills is just an example.

Belinda Rosenblum: An example. Yeah, totally. There is certainly deeper work. I actually just did a whole one-day intensive on changing your mindset around money. So there is a lot more you can do. But I think the easiest, fastest thing is to start to reframe, to release it, and to realize like “Oh, that’s not actually a truth. That’s just a lie I’ve been telling myself. So what’s a new truth that I can take on instead?” And to start to reframe it.

One of the other key elements – I’ll kind of go really big picture here – is to realize that you have a money story that has gotten created over your lifetime. It is a series of pivotal money moments that have happened; with each of those money moments, you locked in a belief about money. It usually starts really early.

I worked with [unintelligible [00:17:55].06] his mom literally stole money out of his piggy bank. Well, that had an effect on him 40 years later when he came to me, and he still didn’t trust women with money, didn’t trust himself to save money, didn’t trust money in the bank… And the result? He never held on to money; he was always broke, he was always very breakeven. So you can nail down, right into where that belief started and you can figure out “Okay, what did I [unintelligible [00:18:19].08] what were the facts of what happened? And how can I reframe what happened? And then how do I forgive what happened? So how do I forgive the person? And how do I forgive myself for holding on to that belief for years?”, usually, as a part of it.

I also — let me go back really quick… You had asked a question about what are some of the bigger beliefs, the lies that we tell ourselves around money… It’s often things like “I have no money, time, energy. Money just seems too… Hard, complicated, confusing, overwhelming.” Or “I’m not good at it. I’m not good at math. I’m not good at numbers. I’m not good at details. I’m too blank, ashamed, scared to look at my numbers.” Or five — “I guess this is how it’s going to be”, like they go to a resignation. Or six, “I don’t trust myself to keep up with the books or with money in general.” I think those are some of the bigger ones that I often see.

So people can listen and think, “Wait, which one of those do I have?” Because you probably have one of them. There’s a lot you could have. But I think those are some of the more popular ones.

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

Belinda Rosenblum: Do it. Don’t wait. I bought my two-family house at 28, and it was absolutely the best move. I wish I bought two. I think that sometimes people just wait way too long.

Theo Hicks: And then we’re going to skip ahead to the last lightning round question, because we’re running out of time. What’s the Best Ever place to reach you? And then any other call to action you have about learning more about what we talked about today? You mentioned that the second step, the reframing step, isn’t something that you can get across in a 20-minute podcast; maybe to learn more about that kind of stuff.

Belinda Rosenblum: Sure. So the Best Ever place to reach me, I’m @OwnYourMoney on Instagram, on Facebook @OwnYourMoney, I am ownyourmoney.com. If you know that part of what you want to do is just get a grasp of the numbers in your business, so you want to know and track the most important numbers in your business in just 10 minutes a month, go to ownyourmoney.com/dashboard.

I do have a book which could be really helpful. It’s very much on point with what we talked about. It’s called Self-Worth To Net Worth: 12 Keys to Creating Wealth Inside and Out. I wrote it with a psychotherapist and this was my learning and testing of a lot of what I’ve been talking about today. That’s it, selfworthbook.com.

Theo Hicks: Perfect, Belinda. Well, thank you for joining us. The main topic of today was why your beliefs around money affect your profit. So you gave a lot of examples of the types of beliefs people will have, type of fears, obstacles, whatever word you want to use, about money… But the main crux of it is to listen to what she talked about, and then also pay attention to different reactions that you have whenever you’re interacting with money, and then figure out which beliefs you have about money. This can be accomplished by observing and then writing it down, having a journal with you whenever you’re interacting with bills, or some TV show, or whatever. Write down–

Belinda Rosenblum: Right. All things money. Yeah.

Theo Hicks: Yeah. Essentially, really anything. Write down what thoughts you’re having, how you’re reacting to this. And then once you’ve recognized these types of thoughts you have, one really simple way – but I’m sure it takes a while to overcome these beliefs – is to reframe the story you’re telling yourself into a new story. And then you kind of mentioned that recognizing and figuring out the major plot points in your life that created story, the money moments, and then again, kind of reframing that in your mind. You gave the example of the guy whose mom stole money from his piggy bank.

And then your Best Ever advice in regards to real estate – and I’m sure this is probably another fear people have – about taking action, is just to do it. Don’t wait. You wish you would have bought more for your first deal.

So Belinda, thank you for joining us. Make sure you check her out at her website ownyourmoney.com. Get her book, which is Self-Worth To Net Worth. And then figuring out the numbers in 10 minutes is ownyourmoney.com/dashboard. So thanks again for joining us. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Belinda Rosenblum: Thank you. Bye.

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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JF2301: OZ Fund Investments With John Rubino #SkillsetSunday

John is a returning guest from episode JF1630, he has extensive knowledge and experience in real estate investment, lending, development, construction, consulting, and marketing. He currently serves as the COO, Founder/Partner at JID investments LLC. He is also a passionate and accomplished United States Naval Officer & Naval Aviator with 20 years of honorable active duty service. Today he will be sharing his experience in starting his first OZ fund investment project.

John Rubino Real Estate Background: 

  • Founder, COO & Co-Managing Partner of JID Investments LLC (JIDI)
  • 15 years of active and passive real estate investing experience
  • JIDI portfolio consist of over $14.5M invested in six projects in DC, North Carolina, South Carolina and Atlanta
  • Based in Fairfax, VA
  • Say hi to him at: www.jidinvestments.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“As a capital investor, you can take your capital gains and invest them into an Opportunity Zone with deferment” – John Rubino


TRANSCRIPTION

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

John Rubino: I am doing fantastic, Theo. Thank you so much for having me. I’m excited, honored, it’s a pleasure, and looking forward to talking with you and your listeners.

Theo Hicks: Well, thank you for joining us again. So John is a repeat guest. His episode is 1630. He was on a year and a half ago from this recording, February 2019. That episode was Raising Capital For Completing Big Deals. We talked about raising capital. And this episode, being on a Sunday, is going to be a Skillset Sunday, so we’re going to talk about a specific skill that our guest has. Before we get into that, as a reminder, John is the founder, COO, and co-managing partner of JID Investments. He has 15 years of active and passive real estate investing experience.

The JID Investments portfolio consists of over 14.5 million dollars invested into six projects in DC, North Carolina, South Carolina, and Atlanta. He is based in Fairfax, Virginia, and the website is jidinvestments.com. So John, before we dive into the skillset, do you mind telling us a little bit more about your background and then what you’re focused on now?

John Rubino: Sure can. I’ve been in real estate for over 15 years now. I served in the Navy – you can see some of these cool airplanes behind me – for 20 years. I retired back in 2017 and started my business in real estate back in 2013. I was a little bit of an active investor when I first started. I did some renovation properties, I did some new construction properties… And I really found my niche though after a few years in the business, in the passive investment side, partnering with sponsors and developers, doing a lot of the heavy lifting, and finding real quality projects on the residential, commercial, mixed-used side. I decided that I wanted to be in that world, to passively invest, have less of the risk of the management with the operations piece, the recourse, the guarantees, and a lot of the stress that the developers deal with. I wanted to be more on the sidelines with the money, and be able to help and get them over the hump with their capital stack on the equity side.

So I did that for about seven years while I was still in the Navy, and when I got back to DC for my final tour in the Navy, I started JID Investments in 2013, together with my accountant at the time, who’s now my business partner. And together, we set the business up, and a lot of the information that I shared with Joe kind of covers it on our first episode on how we came about and how we started.

Fast-forward to where we are now with our business, we have about 143 investors that are accredited, high net worth individuals and businesses that we go out to… And I guess you can call it syndication. We syndicate projects with partnered sponsors and developers on the active side, and we bring those projects to our 143 investors, of which David and I are inclusive of, and we raise money for those projects.

A lot of the projects we are investing in, like you said, Theo, DC, Maryland, Virginia, South-East is kind of our backyard. And given what’s going on with COVID and a lot of the unknowns with the economy, I’m really happy that we’ve selected those markets, because they’ve been able to see a little bit of resiliency – more so in DC – than other markets that are really struggling right now. So I think that that’s really given us I guess a knee up, or just a little bit more confidence that our investments are absorbed well. And when we do see recoveries, and again, growth in the economy, we feel that we’re going to be on the forefront, given those markets. So we’re excited, we’re doing really well, we’re scaling the business, we have some really cool and amazing new projects coming in. And that’s what we’re doing.

Theo Hicks: Thank you for sharing that. From your ending there with a very cool project, we’ll transition into the conversation of today. So the skillset we’re going to talk about today is opportunity zones. So I’m going to let you take it away, and then I’ll follow up once you’ve said your piece.

John Rubino: Absolutely. And full disclosure to your listeners, opportunity zones are very comprehensive, large scope type investments, where you definitely need to speak with the professionals in your world that handle your taxes, your broker, your business attorneys, to make sure that they are there for you to go through some of the details and some of the specific legalities and compliance which I’m not qualified to speak of.

What I will talk to you about is a little bit of what the program entails, the process of how it started, and how it’s become a wonderful opportunity for folks to take advantage of tax sheltering, tax benefit investment. Similar to what an active investor does with a 1031, a passive investor can now utilize this as an outlet or a venue to take capital gains and roll into an investment that allows them the ability to defer, to grow, and to still be involved in real estate to see appreciation in their capital and their investment.

So back in 2016, with the JOBS Act that came through through the Trump administration, Senator Tim Scott of South Carolina, and Cory Booker, and a bipartisan legislative bill as part of the 2017, 2016 JOBS Act put the opportunity zone plan together. There’s a lot of leaders inside of that – Secretary Carson, Governor McMasters down in South Carolina, they all came together and they put this legislation. And really what it did is it empowered the states to go out and identify certain parcels of land or pieces of land in urban low-income, potentially affordable areas that needed regentrification and really needed a boost to get their areas growing. And what these governors did is they went out and they identified the properties and the locations and got that back to the federal government, and that became the opportunity zone map for the country.

What that then allowed is it opened the door to have public and private investors come in and to purchase property to take advantage of and to utilize the system and the law within its jurisdiction to then have investments take place.

So the way it works is a passive investor can come in — and this is purely the investment side. There’s a lot of intricacies from a development side, Theo. There’s got to be a percentage of businesses that operate within the opportunity zone for the period of time of that investment. There are other details from the development side, but I really want to get into the investment side. The investment side – as a passive investor, you can take capital gain from the sale of a business, a stock, an investment property, take those gains, and you can invest them into an opportunity zone.

And the benefit is first, you get to defer that gain for the first six years of the investment. The total investment time on the opportunity zone is about 10 years minimum. Over the first six years of the opportunity zone, you can defer that gain and not pay any taxes on the year of liquidation. So that’s the first benefit.

The second benefit is in year five of the investment, there’s a reduction in basis of 10% on the investment to have as far as your capital gains tax on that money. So let’s say you brought in 100,000, Theo, and you’re one of the investment; in year five you get a reduction of $10,000 or 10% on the basis to now have to only pay the deferred gain in year six on the taxes at $90,000. So that’s benefit number two.

And then, of course, benefit number three is anything you earn on an invested gain over the minimum of a 10 year period is tax-free. So let’s say you brought in $100,000, you get the tax benefits that I laid out on the deferral and the basis reduction. And then let’s say in year 10 when we exit, or year 11 when we exit, somewhere in that period – it depends on the investment opportunity – you make a 2X on your money, you make 100% return, and you get $100,000 profit from your $100,000 investment. That $100,000 profit is tax-free.

So in the encompassing investment of the 100,000 that you brought in, and the $100,000 that you’ve earned, the only taxes you’re paying on long term capital gains would be the 100,000 that you brought in on the investment. And that would be at 90,000. So you’re getting taxed on 90,000, for $200,000 of investment growth. So hopefully that gives a little bit of insight into the program.

And there’s a lot of folks that are doing it right now, there are groups throughout the country. We are actually getting ready to invest in our first 506(C) offering here in Washington DC with a sponsor that we’ve done a deal with before. We’re very excited. It’s in a wonderful location, and we’ll have the opportunity to participate in their second opportunity zone fund. This will be our first opportunity zone investment. A little bit different from what we usually do, Theo. We usually raise money on a project by project basis for one specific opportunity or project. This will actually have anywhere from two to four properties or projects, which in the opportunity zone world they call it a qualified opportunity zone businesses or QOZBs, qualified opportunity zone businesses; the actual properties we’re going to be investing in on this opportunity. So there’s anywhere from two to four. So it’s like two to four projects in one that we’ll be investing in. So it’s really exciting, it opens so many doors to the potential of utilizing investment capital for a different type of investment, and I think most of all, is that it obviously brings growth and regentrification into areas that need it the most.

Theo Hicks: For the passive investor side, is there still the income tax paid on annual distributions? Or is that tax-free, too?

John Rubino: No. This investment, when you come in, it’s a deferral investment, so you’re not getting paid your money back until the end of the investment. The monies that you bring into the investment can only be a gain; it can’t be income, it can’t be distributions from let’s say multi-family cash-flowing asset… It’s got to be gains. So if you sell an investment property, if you sell stock in Apple, if you sell a portion of your business and you have a realized gain, that gain, that profit is what you can bring in.

Theo Hicks: So I can’t go in my bank account and just say “Hey, I’ve got…” Okay, okay.

John Rubino: No, you can’t. And it’s the same window for timeline than it is for the 1031. It’s six months from the time you liquidate to the time you identify the investment in the opportunity zone. And then you actually invest in the qualified opportunity zone fund or QOF, which is what we’ll have. And that’s your timeline.

Now, with COVID, the federal government, the IRS has relaxed some of those time constraints. So I’d have to go back, but I believe as early as November of 19, all the way through December of 2020, you’ll have the opportunity to bring in gains into an opportunity zone fund, whether it’s with us or any other type of investment that’s out there for OZs.

Theo Hicks: So as a passive investor I [unintelligible [00:14:43].16] the property, I put my $100,000 in this opportunity zone, and I don’t see any cash flow; I’ll just get money at the end once it’s it end once it’s…

John Rubino: It depends on the investment. So our investment will actually get some cash flow because we’re starting at land development, to development of the property, to construct, to pre stabilized, to full stabilized, to tenant move-in, to cash flow and distribution. So the sponsor can be paying out some cash flow to us somewhere at the midpoint of the investment, with the intention of that cash flow being utilized to pay the deferred gain on the invested capital.

So if you bring in the 100,000, you’re going to get a tax bill in year six on the 90,000. Remember, you get that 10% reduction in basis; the cash flow that we’re going to generate in our specific property that we’re going to pay out to our investors will help with some of the burden of the tax you have to pay on the 90,000. And that will be also part of your waterfall and your profits from the investment post 10 years. So since it’s going to be used to pay some of those gains, there are ways to do it legally that you can pay the cash flow and still keep it as part of the end closeout for the project post 10 years. Does that make sense?

Theo Hicks: Could you explain that last part again?

John Rubino: Yeah. Traditionally, if you bring in the investment at 100,000, you have to pay your taxes in year six, and then you’re not going to get any cash flow out until the property finishes in year 10. You close out, whether there’s a recapitalization or sale of the property or the project, you’re going to get your investment money back, and you’re going to get your profits back. It’s considered long term capital gains.

Depending on how it’s structured – and our specific OZ will be structured this way – the developer or the investor that’s running the project may be able to pay, at some point inside of that timeline (the zero to the 10-year mark) cash flow, and capture it as part of the profits when we close out on the back end of the project, with the intention of the cash flow being utilized to pay your deferred gains taxes on the original investment.

Theo Hicks: So will that cashflow be taxed as income is my question.

John Rubino: No, it’s a good question. It won’t be income. I know it’s not income because you’re not earning that inside of the one-year period. You’re earning that throughout the period of the investment, which is over one year. That’s a good question, and I’m going to take a note on that… But the way I understand it, it’s not taxed as income, and you wouldn’t have to pay the taxes on it when it’s distributed. It would be paid when the final closeout is. But again, talk to your tax professional. But that’s a good question. I want to follow up on that. Thanks for asking it.

Theo Hicks: So you said that the OZ is a minimum of 10 years? At 10 years they sell or refinance – this is what always happens? Or will I not see my profits for maybe five years after that or a year after that?

John Rubino: No, it’s really predicated on a 10-year period minimum, and then depending on your specific opportunity, there may be a six or 12-month extension that the developer has available that may take it out to 11 years, or 11,5, or 12 years. But it’s not a 10-year investment and the developer keeps it for 40 years. No. That’s all in the legal docs and your subscription agreements, so make sure as an investor, you read that. And that’s a good question. There’s usually an extension period post 10 years, but that again, is just there for if it’s needed.

Theo Hicks: Like if they can’t sell it, or something?

John Rubino: Well, if they can’t sell it, or it may be better than the market is in a period of growth, and there’s potential to grow more, or there could be some debt on there that goes out to a longer period than they may need… It just depends on the investment.

Theo Hicks: What would be the returns metric that’s used for these? Is it IRR, is it equity multiple?

John Rubino: We typically go out with an ROI, which is a flat out rate interest-only, no accrual. We do answer that question. It’s usually when we see these on the opportunity zones. It’s usually an IRR that can be accrued, 7%, 8% potentially. So that gets you maybe a 12% or 12,5% return on investment. It just depends on how much you bring in, what the period is… But it’s usually treated as an IRR, with an equity multiple that’s disclosed. We like to compute it, again, straight return on investment, and we clarify that with the developer.

And the other thing too is we’ll also show what the pre-tax return is, which is very important, because if you’re a resident of California and I’m a resident of Virginia, and we have an investor and she’s a resident of Florida, your capital gains structure may be different at a state level. So you’re usually paying 15% federal, but California may pay 12%, and Florida may pay 2%. So you want to show that as well in your metrics.

The other thing you need to think about too is depreciation, because a lot of these investments have depreciation. Once these investments start stabilizing and start having cash flow revenue, there’s going to be the potential of depreciation, and the potential for double depreciation, where you get to write off depreciation and as an investor there’s no write-off; you have to take that on as a burden on the back end. And that’s the specific design of a specific OZ. It just depends, yeah.

Theo Hicks: What types of properties are these usually? Are they retail? Are they industrial? Are they multi-family?

John Rubino: Again, it just depends. There needs to be a level of business that operates within the opportunity zone. Again, I don’t have this specific percentage and how long, but I believe it’s 90%. Your listeners can verify that. But there needs to be an element of business that stays within the opportunity zone for the duration, and that percentage has to be that number, while it’s still going through the full 10-year period.

But these usually start out land development with a development piece to build, and then there’s a construction piece, there’s a hold period… And it could be mixed-use, it could be part of a larger grouping of properties that are commercial, mixed-used and residential… It just depends on that specific opportunity.

Theo Hicks: From a passive investor’s standpoint, what are some things that they need to know when they’re looking to invest in an opportunity zone, compared to your typical apartment syndication deal? Not what are the main differences, but just what are the important factors they need to look at and understand to properly analyze an opportunity zone deal?

John Rubino: I think, first and foremost, you need to understand the implications from a tax perspective to see what makes sense. The nice part about an opportunity zone, different from a 1031, is with a 1031 you’ve got to bring everything back into the next property, right? With an opportunity zone you could bring in 1% of the gain that you earned or 100%; whatever you bring in gets treated with the opportunity zone process or the strategies; whatever you don’t bring in, you’re just going to pay long term capital gains on that for that tax year, right?

So I would say it’s important for someone to sit down and talk with their CPA, talk with their financial advisor, say “Look, I’ve got a two million dollar gain because I sold X amount of shares of Apple, and I’m thinking about putting it into an opportunity zone. How does that impact me from a tax perspective? How does that impact me from a risk perspective?” Because this is a riskier investment, and you have to take into consideration your risk versus your return. So I would say that, to me, the taxes are really a big thing. And also, you may have older investors that may not like the timeline, right? 10 years, 11 years if you have an older investor… But it could be a way to have as part of your estate to pass down to your children or your grandchildren, right? Which is also another benefit. But it’s definitely a lot more intuitive, and the scope of it is a lot more complex. That’s why it’s a 506(C). You’ve got to be able to get your arms around it and understand it. We do our part explaining things, but it’s definitely important to go out and look at the legislation, look at the information that’s out there on it, so you understand it better.

Theo Hicks: Perfect. So is there anything else that you want to mention, as it relates to opportunity zones or anything else?

John Rubino: Yeah. We’ll have more information about our specific opportunity here in the next two to three weeks. Our website will have a page dedicated to it. Again, I’m not a legal expert on it or compliance, but I’m happy to answer any questions that your listeners may have, and try to point them in the right direction if I don’t have those answers. So thanks for the opportunity to share that.

Theo Hicks: Absolutely. So two to three weeks from today, because we’re recording this in the middle of August… So if you’re listening to this in September, and after, until you said — what, December of 2021?

John Rubino: Yeah, we’re looking at keeping our opportunity zone investment out to as long as December of 2021. The nice thing about ours is that the level of investment is a lot lower in the threshold. Typically on these investments, the minimum could be anywhere from 100,000 to a million. We’re looking at setting ours at around 20,000, so you can come in at $20,000 with a gain and be able to invest on a potential 10 million dollar overall investment, which is what we’re trying to raise inside of the 150 million dollar fund that the sponsor has, which is very attractive to folks, and it gives them some flexibility and leverage.

One other thing I’ll say about it is obviously we have presidential elections coming up, so there is some information that’s being disseminated about what the implications would be, pending which administration comes in. So you definitely want to read about that. Do I think that the program is going to be eliminated? From what I’ve read, no. It won’t be eliminated regardless of who the next president is going to be. But what I’m reading is that there could be some changes made to it. So you definitely want to understand that, read that and be able to comprehend that before jumping into one, especially as we’re getting closer to the election.

Theo Hicks: That’s a good point, John. Well, thanks again for joining us and going through opportunity zones. Perhaps you’ve heard of these before, because I’ve looked through [unintelligible [00:25:03].17] and seen terminology, but I’ve  definitely learned a lot in-depth and definitely learned the advantages of the opportunity zones, the benefits from the perspective of the passive investor [unintelligible [00:25:11].01] the taxes you went over, that you’re able to defer taxes for the first six years; there’s a 10% reduction in basis after year five… And you said anything earn is tax-free.

John Rubino: That’s correct, after that period.

Theo Hicks: After the 10-year minimum. It’s kind of similar to the 1031 exchange for passive investors. And then when you’re looking at these types of deals, you said talk to your CPA, your tax guide for how it will benefit you, and what potential risks there are.

You mentioned that it’s 506(C), so it’s a pretty complicated, sophisticated investment, so you need to be credited… And then kind of pay attention to the various pieces of legislation regarding the opportunity zone. So, John, I appreciate you coming on. Make sure you check out his website, it’s jidinvestments.com. And then, as you mentioned in the intro, you can learn more about the beginning of his business; that is Episode 1630. I appreciate it, John.

John Rubino: My pleasure. Thanks, Theo. Great talking with you and your listeners. My best to Joe, and thanks again.

Theo Hicks: Absolutely. And Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

 

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2290: 5 Ways To Get More Apartment Deals| Syndication School With Theo Hicks

In today’s Syndication School episode, Theo Hicks shares 5 ways of winning the bidding wars. When it comes to securing your bid, simply offering the most money doesn’t always work. Besides, sometimes you are competing against other investors who have way more experience and capital. In this episode, Theo talks about 5 ways to get more apartment deals by making your bid stand out and tell the seller that you are serious and capable of seeing the deal through.

 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

Click here for more info on groundbreaker.co


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome back to another episode of The syndication School series, a free resource focused on the how to’s of apartment syndications. As always, I’m your host, Theo Hicks. Each week, we air a podcast episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we give away free resources. We gave away a lot of these documents in the past, so make sure you go to syndicationschool.com, check out some of those episodes and get those free documents.

Today, we’re going to be talking about how to win more bidding wars. So these are tactics that you can implement when creating offers to get awarded more deals. These are particularly good and beneficial in competitive markets, or if maybe you don’t have a lot of experience and you want to create a better offer to attract the seller to your offer, as opposed to someone else who has more experience.

Obviously, one way to create a better offer is to offer more money, which is obvious. So that’s not going to be one of these five. So these are five ways to win more bidding wars in addition to simply paying more money, which might not always work.

So the first is going to be offering a hard or a non-refundable earnest deposit. So the earnest money is what you give to the seller as a good faith deposit upfront, which is usually equal to about 1% of the purchase price. This is essentially showing the seller that you’re serious and capable of buying the property. Usually, by default, the earnest money is going to be refundable, that is a buyer will receive the full deposit back if the contract ends up being cancelled. Sometimes it might be a fee, but overall, you put down the money within the first few days of the contract, and if you cancel it, 30 days down the line or 45 days out, then you get that money back.

So one way to create a more attractive offer is to submit a non-refundable earnest deposit; this is more attractive to the seller because of the negative consequences of a buyer selling a contract. So for example, once a seller places their deal under contract, they’re no longer marketing the deal, they’re no longer taking other offers, they’re no longer doing tours… So if you end up closing, everything’s great. But if you don’t and you back out, then at the very least the seller is annoyed because you wasted their time, but there’s also other potential negative outcomes; maybe the economy changes and on the second round of offers, they get a lower offer price. Maybe the reason why they were selling is because they identified a new opportunity, that they now cannot purchase because they don’t have a capital that’s locked up in the property. Maybe they go back to other people who had submitted offers, maybe the second-best offer, third-best offer, and they’re no longer interested.  So it’s very advantageous for the seller to close the first person they award the deal to. So to prove that you’re capable of closing, you can go non-refundable.

Now, there’s a few different ways to go non-refundable. The first is going to be the timing, the money goes hard. So the most attractive timing to the seller would be if the earnest money went hard day one, so immediately. The second you give them the money, it’s non-refundable; they get to keep it no matter what.

Another option would be for the money to go hard after a certain clause is triggered, like at the end of a certain number of days or the end of the due diligence period, for example. Or it could be a hybrid of both, where the earnest money goes hard day one, so a portion of that earnest money goes hard day one, and then the remainder goes hard after a certain number of days or after a certain trigger clause is triggered. So for example, you can put down a 1% down payment on a deal, and then half of that money goes hard day one, or maybe 75% of that money goes hard day one, and then the remaining half goes hard after 30 days.

Another iteration of the earnest money going hard would be the amount of the earnest deposit. So it can be non-refundable, but higher than what is usual. So instead of 1%, you can go 2%. And then again, you can go hard day one, hard three days out, hard after a certain clause is triggered, or kind of a combination of both.

When you do the non-refundable earnest deposit, you still want to make sure you’re including some contingencies, and these are going to be things that are outside of your control. So if something outside of your control were to happen, then you can get your money back. But if you do something, you decide to cancel the contract, then the money is not refundable.

So examples of things that are outside your control would be a major lien on the title. If something comes up during the survey, if something comes up on one of the environmental reports, that’s really not your fault, so you shouldn’t lose your money because of that. But if you just had to cancel because you did improper underwriting, or you can’t qualify for financing, well, then they get to keep that money. So that’s number one.

Number two would be to shorten the due diligence period, to make a more attractive offer. So we’ve done episodes on due diligence before, so I’m going to assume you know what this means. But usually there’s a timeframe where you have this many days to perform your due diligence, and then there’s a contingency where if you’re not going non-refundable, you can back out and get your money back. But after that timeframe, you can’t back out and get your money back for a due diligence related issue. Usually this is going to be 30 days; it could be longer, but usually it’s 30 days. So during that 30 days, the buyer can cancel the contract. So if you offer a shortened due diligence period, then you’re shortening the time that you can cancel the contract.

Kind of like the non-refundable earnest deposit, this shows the seller that you’re more serious about closing on the deal since you’re willing to shorten the amount of time you’re spending on due diligence. And additionally, you might be able to close a little bit faster if you shorten the due diligence period, which results in the seller getting their capital back sooner. That may not necessarily the case all the time. But what is the case is that if you’re shortening it, they’re more confident in your ability and your seriousness to close, and it’s less likely or you have less time to cancel the contract. So that’s number two.

The third way would be to sign an access agreement while you’re negotiating the contract. So there’s usually a period of time – it could be very short, it could be very long – where you are awarded the deal and you actually sign on the contract. So you submit your LOI, they say, “Hey, we want to go with you,” you negotiate back and forth with the LOI to get a purchase sales agreement, you sign it, and the deal’s official and you’re under contract, and that’s when the time starts. But again, it could take a while; the time from LOI to signing the contract might take a while, or the negotiations just might fall through and the deal never comes to fruition, which is also a waste of time for the seller.

So to respect the seller’s time and to show that you’re serious about closing, you can sign an access agreement within a certain number of days after you’re awarded the deal. And by signing an access agreement, what this does is the seller is giving you, the buyer, permission to inspect the property before this contract is actually signed; your access is going to be limited compared to what the access is after the PSA is signed, but you can still get a head start on your due diligence. So this is not only shows that you’re serious about closing, but you can tie this to something else, which would be to stipulate that once this cross access agreement begins, the due diligence period begins.

In other words, from the time of you being awarded the deal – maybe it’s a few days of signing the cross access agreement. From the time when the cross access agreement, the due diligence period begins. So if it’s 30 days, then once you sign that cross access agreement, 30 days later, the due diligence period has expired… As opposed to waiting until the contract starts, you might be five days, 10 days, 20 days into the PSA, when the due diligence period expires. Again, it shows that you’re a lot more serious about closing on a deal and you have less time to back out of the contract.

Number four is kind of similar as number three, which is to use and mark up their purchase sales agreement. So again, there’s a time between the LOI and the PSA that is, in a sense, the time that the seller is not going to have access to their money. So the longer the negotiations draw out, the more likely the deal falls apart, but also the longer it takes them to get their money, because usually the contract starts and then it’s 60 days out and they close. So by offering it to use their PSA, and you mark up their PSA, you’re reducing that back and forth negotiation, plus you’re reducing any potential disqualifiers from legal language.

So essentially, instead of you sending them your PSA, you just use theirs. You give it to your lawyer, they use a red pen or red ink or red in PDF or some software they’re using, and they make changes to the seller’s PSA so that the seller can see very quickly what legal changes you made, as opposed to getting a 50 page PSA from you, they give it to their lawyer and they go through every single thing and they mark it up, there’s back and forth negotiation and then maybe there’s some disagreement over legal language that kills the deal. You just use theirs, they can see specifically what changes you made, and this lowers the chances of the deal being cancelled, plus it reduces that LOI to PSA timing.

And then number five, and this is something that might not always be a way to win more bidding wars, but it can be very powerful at a certain time of the year or if a certain event is occurring, which is to guarantee a closing date by a certain date.

So this can be really good for taxes, if you guarantee to close by December 31; then it’d be advantageous to them for taxes, depending on their business plan that they had for the property. Maybe they raise capital and it’s better that their investors get their money back this year. Or the next year — maybe there’s some tax changes coming up in the next year or at some point in the future, and they wanted to close before these new taxes come into effect. An election year, right? You might want to say, “ I guarantee to close before November 3rd,” or, “I guarantee close to the end of the year,” or, “I guarantee to close by inauguration during an election year.”

So essentially what this means is that you’re guaranteed to close by a certain date, which means no extensions to anything. It might also mean shortening the time from contract to close. So again, this might be attractive to a seller depending on what’s going on in the world.

So there you have it. Those are five ways besides paying more money to win more bidding war to create a more attractive offer to the seller. Number one is offer a hard non-refundable earnest deposit. Number two is to shorten the due diligence Period. Number three is to sign a cross access agreement or an access agreement while negotiating the contract before the contract is assigned. Number four is the use and markup the sellers PSA as opposed to giving them your own PSA created by your own attorney and then number five is to guarantee a closing by a certain date.

So you follow these five tactics, all of them, one of them is a combination of a few, you’re going to maximize the chances that you come out as a winner in a bidding war.

Now, one thing to mention is that when you’re in a competitive market, something like simply doing a non-refundable earnest deposit might not be enough, right? Because maybe all the offers have a non-refundable earnest deposit. And so the power is in increasing it, making it go hard day one or maybe only a portion of it going hard day one, it kind of depends on how competitive. The market is not competitive, the deal is. The same as shortening the due diligence period, maybe you need to shorten it a lot, maybe you only need to shorten it by a few days. And then maybe closing by certain date is completely irrelevant, they don’t care, which is why it’s important to understand why the seller is selling so you can figure out what’s important to them and then which of these to use, right? If they don’t pay taxes, if tax is increasing in three months. Well, you can guarantee to close by a certain date. If they want to close as quickly as possible, well, you can shorten the due diligence period and sign an access agreement. If they want to close no matter what, well then you can do the non refundable earnest deposit or a combination of those things.

So that concludes this Syndication School episode. As always, make sure you check out the other episodes we’ve done as well as those free documents at syndicationschool.com. Thank you for listening, have a best ever day and we’ll talk to you tomorrow.

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JF2287: Raising Capital Using Crowdfunding Platforms With Chris Rawley #SkillsetSunday

Chris has been a real estate investor for more than 20 years, investing in single-family, multifamily, commercial properties, and income-producing agriculture. He’s the CEO of Harvest Returns, a platform for passive investments in agriculture.

Chris Rawley Real Estate Background: 

  • Full-time real estate investor and CEO of Harvest Returns, a platform for passive investments in agriculture
  • Has been an investor for over 20 years
  • A previous guest on JF1665
  • Portfolio consists of single-family, multi-family, commercial properties, and income-producing agriculture
  • Based in DFW, TX
  • Say hi to him at: https://www.harvestreturns.com/ 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If your putting together a syndication before you go and pay an attorney a lot of money, just look into crowdfunding platforms” – Chris Rawley


TRANSCRIPTION

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

Chris Rawley: I’m doing great Theo, thanks for having me on.

Theo Hicks: Oh, absolutely, and thank you for joining us again. So Chris was previously interviewed on this show by Joe. And that episode is 1665. Make sure you check that out to learn about Chris’ background. As a refresher, he is a full-time real estate investor and CEO of Harvest Returns, a platform for passive investments in agriculture. He has been an investor for over 20 years and has a portfolio of single-family homes, multifamily, commercial properties, and income-producing agriculture. He is based in Fort Worth, Texas and his website is harvestreturns.com.

Today is Sunday, so we’re doing the special episode of a Skillset Sunday. And the skillset that we’re going to talk about today is raising capital using a crowdfunding platform. But before we talk about that, Chris, do you mind telling us what you’ve been up to since we interviewed you about a year and a half ago?

Chris Rawley: Yeah. I primarily focused on building our business and developing new agriculture deals and bringing on new investors. We recently passed over six million dollars that we’ve raised to help farmers across America, and actually across the world. So that’s kind of our passion, it’s helping farmers continue to farm, as well as providing investors a way to get into that asset class.

Theo Hicks: Perfect. Let’s talk about the skillset. So I’m going to let you say what you want about the best way to raise capital on a crowdfunding platform, and then I’ll ask some follow-up questions to dive more into details on that. So take it away, Chris.

Chris Rawley: Sure. So at some point during our investment careers, if we’re investing in real estate or whatever you’re investing in, you tend to run out of your own money. That’s when we start to look for other sources of capital, and one of the ways to get capital is you can reach out to your friends and family members… But those wells run dry after a while as well, so then you might want to look up a larger pool of investing.

Since around 2015, there have been a number of real estate and other equity crowdfunding platforms that have sprung out all over the country, and dealing with all sources of asset classes. So just looking at the real estate side, you have everything from people who want to raise money to do single-family fix and flips, you have more established investor syndications that are doing multifamily or large commercial office buildings, you have people that are doing notes, you have — in our case, we’re doing agriculture. So pretty much any kind of asset class, any type of real estate you can think about, there is a real estate crowdfunding platform out there. So if someone decides they want to raise money on one of these platforms, the first thing you need to do is a little bit of research and decide, “Okay, this is what I do. I’m a fix and flipper, or I’m a wholesaler etc. Is there a platform that can help me put together a project and raise funds for that project?” So do some research, you’ll see that there are literally dozens and dozens of platforms. Some of them have different criteria for investors, so the best thing to do is to reach out and say, “Hey, what’s your criteria for someone who wants to put together a syndicator project?”

They’re going to provide you with a lot of guidance along the way, but just in general there are some things you need to put yourself in the right mindset… And the first thing is, what are investors looking for? So chances are if you’re raising money with a crowdfunding platform, you’ve probably invested yourself, so you kind of understand that. But four things that people are always thinking about before they write someone they don’t know potentially a check is, “What is my risk here?” So identify your various types of risk. People don’t like to lose money, first and foremost. What are my returns? Is this sponsor capable of producing returns that he or she is promising? Is this project viable based on location and timing, the plan, what they intend to do? And also, what are potential tax benefits? How is it structured? How am I going to save money on capital gains or income? Am I going to receive various sorts of beneficial tax laws? It’s that sort of thing. And people are also looking for a connection.

In our case, we do farm projects, so people like being part of helping somebody raise something or grow something, produce, be part of the food system. And the same thing can be true with just about any other kind of real estate; it’s like, “Hey, I want to help this local community. I want to help this person bring jobs to this particular neighborhood.” That sort of thing.

The next thing you need to kind of dig into is looking at your numbers. The crowdfunding platforms are going to go into various types of due diligence; it might be as basic as, “Just put up your listing on a platform and pay us and we’ll promote it to our investors” to “We’re going to really dig into a sponsor’s background, we’re going to dig into the numbers, we’re going to dig into your track record, we’re going to dig into your structure.” It’s always easier to raise if you’ve already done it before. So before you come to a crowdfunding platform with, “Hey, I need to raise five million dollars,” it’s probably best that you put together a smaller sort of syndication on your own or with some other partners, or piggyback with someone who has done this before.

And you’ve got to have a team. Most people don’t want to invest with a single person, because if there’s risk there. So whether that team consists of your CPA and your attorney, that’s important; or you know, other sorts of business partners. But having a team is something that investors really look for.

So then it comes down to what does the crowdfunding platform wants you to do. Sometimes they want to put your deals in front of these particular investors that are qualified, and that comes into what sort of regulations you’re going to do. And this is kind of the beauty of crowdfunding platforms, and I strongly recommend this. If you decide, “Hey, I just want to put together a real estate syndication on my own,” the first thing you’re going to have to do is understand securities and security regulation. And there’s a number of different entities that are involved with that. The SEC, the IRS, FINRA, state security agencies… And there’s a whole new definition; you’re going to have to go out and hire a security attorney, and spend a lot of money upfront putting together your private placement documents, and things like that… Whereas if you go straight with a crowdfunding platform, they’re going to do that for you or they’re going to help you with that process. And again, it varies from platform to platform.

In our case, we actually have spent all that money upfront with our securities attorneys and we help our sponsors put together that thing, and it saves them a lot of money because we’re essentially amortizing the cost of putting together securities documents. But to me, the two biggest hurdles are getting over the regulatory learning curve, and the second is getting out the pool of investors. The beauty of crowdfunding platforms is that they have a built-in pool of investors, and they’re jumping right into your offering, and it’s getting up in front of their eyes… And hopefully, if you you’ve done all your homework and put together in an appealing plan, they’ll be able to raise the money rather quickly.

Theo Hicks: Thank you for that detailed breakdown. So I want to go back to start from the beginning, and then work my way through. So the first thing you said is to find the right platform. So I’m a fix and flipper, I am obviously not going to want to go on an agriculture crowdfunding platform and vice versa. You mentioned that there are a lot of fix and flipping crowdfunding platforms out there. I’m sure there might be a little bit less when it comes to agriculture, but I would imagine that for a lot of these more common strategies like multi-families, there’s going to be a lot of different platforms. So I Google it, I’ve got a list of 20 different platforms… How do I pick the right one?

Chris Rawley: Great question. You’re going to have to do some digging. There are some sites where you can do reviews of crowdfunding platforms, but they’re mainly designed for the investor side, not the sponsor side. So dig through a few that look like they might be right, and then just definitely reach out to them and their sales or marketing team will get out to you and give you basic criteria. And some list very specifically, like “Hey, we only want to work with these types of sponsors who are doing these types of projects, and maybe have this track record.” And it’s all going to really vary there. Some of them are very specific, some of them are a little bit more open to having conversations; a lot of that depends on how long they’ve been in business and how large they are. The more established platforms are going to tend to have more formal criteria for listing a project.

Theo Hicks: So basically reach out to them and figure out if you even qualify for that platform. But for the one that I do qualify for, is it just whichever one I’ve got a good feeling about? Is it based off of some metric they have, that they’ve got this many investors looking at it? Am I allowed to list it on multiple crowdfunding platforms? Am I only strictly stuck to the use of one?

Chris Rawley: Great question. Can I answer your last one first? Generally, most of them are going to only want a single raise, just for regulatory purposes, on their platform. They’ll sign some sort of exclusivity agreement, unless you’re doing a very large deal that has institutional money and other slices of capital. But for a first-time person reaching out to a crowdfunding platform, you can ask for a reference. So say, “Hey, can I talk to another sponsor that had a good experience?” And we definitely do that for our new sponsors that come to us, and any crowdfunding platform that wouldn’t give you a reference, I would be suspect of.

Theo Hicks: Okay. And the next step was to determine what the investors are looking for, and you broke it into four different steps – the risk, the returns, the tax benefit, and I think it’s the connections, or being helpful. Is the reason why they’re doing this is because ultimately this information has to be included on an offering posting? …like, you can have like four sections, an FAQs type of thing. Or is this more “You need to know because these people are going to ask you questions about this, and if you can’t answer it they’re not going to invest with you”?

Chris Rawley: It’s a little of both. When they set up [unintelligible [00:13:02].13] but when they set up your offering on their platform, there needs to be some way to distinguish it from all the other offerings. Most platforms are going to have multiple offerings running at the same time, so if you’re an apartment complex in Oklahoma City, that’s different than a commercial office building in South Florida, which is different than a fix and flip in the West Coast. So those basic facts need to be up there, and [unintelligible [00:13:27].20] platforms are going to tell you what they need. They may ask for a business plan, or a pitch deck… And those things are similar whether you’re raising money for a fix and flip, or whether you’re doing a start-up and you’re creating some sort of app or something, and there are some platforms for those as well. So if you’re not a real estate person but you want to raise money on a crowdfunding platform, there are also platforms for those start-up types of companies.

And then the other part is they want to be able to just tell the investors what they’re getting, and as many details as possible. If  the crowdfunding platform asks for it, it’s important. And you will get questioned. And once the raise is ongoing, that’s kind of the next piece. Some platforms, they do it all for you, some want the investor to be more actively involved, some will want you to do a webinar, depending on how big your offering is.

We do a lot of webinars, and they tend to work well with presenting some sort of tangibility with the deal… Because you can kind of see the numbers on the thing, but unless you hear the sponsors voice and you see how this is a real person or he’s got a real team, you have more confidence in trusting him with your money.

Theo Hicks: I did want to ask about the listing… So you kind of gave us a few examples, but is there any secret sauce that people can do to make their listing stand out compared to all the other listings that are on there? Or is it just doing what the crowdfunding platform wants you to do and just stopping at that?

Chris Rawley: It really depends on what you’re trying to raise money for. In our case, our farms can be very unique. I tell people that if you’re kind of seeing one multi-family apartment complex syndication, you’ve seen them all… But with farms, if you’ve seen one farm, you’ve seen one farm. These are very unique, and not only are we talking about different crop types and different locations, but different ways of growing things.

So, if you’re on a real estate platform, people are looking for returns, but they’re looking for the track record. I know when I invest on a real estate crowdfunding platform I have more confidence — location is important in a specific marketplace; there are some places I just want to invest. But assuming you are in one of the places that I’ll invest, I generally want somebody who’s got an experienced track record, and that takes some time.

Theo Hicks: So crowdfunding is not for someone who’s just getting started, right? In the beginning, you said they start out with their own money, they go through that, next is the family and friends, and once they’ve gone through that, then they consider crowdfunding?

Chris Rawley: I think that’s important… We’re all going to make mistakes in our investing career, and putting together a deal or a career. As an investor, I’d rather not invest in somebody else’s mistakes, I’d rather them have a little bit of a track record. Let’s say you’re a fix and flipper. “Hey, have you done a handful? Okay, maybe I’ll trust you with my money if you seem to have a pretty good track record of doing that.” So, it’s hard work as well all know; there’s no free lunch in investing or putting together real estate deals.

Theo Hicks: And then I’m sure you talked about this in your other episode with Joe. I would like to ask just a few questions about agriculture. So I’m someone who’s interested in investing in agriculture, obviously. I’m not going to be able to do this myself, I don’t know anything about it. So a crowdfunding option is a good way to go. What types of returns should I expect when investing in agriculture? In my mind, I can compare it to fix and flipping and multi-families, I’m more familiar with.

Chris Rawley: Yeah. On our platform, it’s fairly similar. In fact, given that I was a real estate investor before I was an agriculture investor, we tend to structure the deals quite similarly. So we have debt deals, so think of like a hard money lender, and those are 7% to 12% on the debt side, roughly. On equity deals, you’re going to be talking teens. And then we have another category that I could classify as your AgTech, that are more high risk, but potentially higher return, where we could see a 20%, 30%, 40% IRR based on just what the type of project it is.

So we do a number of indoor agriculture projects; this is like vertical farms, hydroponic farms… It’s a very big space right now and growing space, because people are realizing that, one, they want locally grown produce, because they want to know how it’s grown, and it’s also a sustainable way to produce. But two, after COVID, people are seeing that “Wow, the food supply chain is not all that robust as we thought it was, and trucks don’t always run, and supermarket shelves can empty of meat and produce”, and having food produced closer into where people live makes a lot of sense. So with those you’re going to see a higher return.

Theo Hicks: And then I know for crowdfunding the minimum is really low. Is that the same for your crowdfunding platform? Or do I need to have a hundred grand? Or can I invest with five grand?

Chris Rawley: Our starting minimum is five grand. Most deals are about ten thousand minimum ticket size. We have people that will invest a hundred thousand or two hundred thousand on a specific deal, but we would like to keep that low, because we believe in diversification, not only across asset class, but across offering. So if you invest a single platform or multiple platforms and you have many small investments, that’s a really good way to diversify your portfolio, whether it’s real estate, or agriculture, or any other asset class.

Theo Hicks: Alright, Chris. Is there anything else that you want to mention about raising capital using a crowdfunding platform or any other call to action you have before we wrap up?

Chris Rawley: Just obviously if there are any farmers listening to this and they want to talk to us, we would be happy to talk to them about how we can raise money. But if you’re putting together a real estate syndication, before you go out and pay an attorney a lot of money – you’ve probably seen in, there are a lot of seminars out there – just look into the crowdfunding platforms, because you might be able to save yourself a lot of money and heartache and leverage the work that somebody else has already done before you put that investment in yourself.

Theo Hicks: Awesome, Chris. Well, thanks for joining us again and walking us through some of the tips for raising money using a crowdfunding platform from the perspective of the sponsor, obviously. So we talked about you start with your own money, and then you’ll go to your family and friends next, and then after that, once that money has run dry, you’ve got the experience. The next potential step would be to raise money on a crowdfunding platform. And then you walked us through the things to think about.

First is to do research to find the right platform, because not every single platform is going to cover all investment types. For most of these platforms, you initially reach out to someone and see what their criteria is, and you can find websites that do reviews, which are kind of the perspective of the investors, but still it could be helpful. And then you can also ask them for a reference. You can talk to another sponsor and see how were they able to raise money from this website, how was the process, things like that.

And then you mentioned that you can typically only have your deal on one website at a time; you can’t have your deal on 30 different crowdfunding platforms. From there, the next step is to determine what your investors are asking for regarding risk, returns, tax benefits, and the connections. Make sure you’re including that in your listing.

Obviously, you want to look at the numbers and make sure that the deal makes sense, because the crowdfunding platform might actually go into a lot more due diligence on you and your deal. Plus, it’s easier to raise money that way. And then make sure you haev your team in place, and then make sure you understand what the crowdfunding platform wants you to do. So, Chris thanks again for joining us. To learn more about Chris, you can go to harvestreturns.com. Best Ever listeners, as always thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

 

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JF2280: Raising Capital Fast in an Efficient and Scalable Way with Hunter Thompson #SkillsetSunday

Hunter was fortunate to start his career in the wake of the Great Recession. At that time, he surrounded himself with great partners and educators. As a result, Hunter built his first company around his personal investment strategy. He was a sole investor at first; now he has hundreds of investors.

Hunter shares his experience in raising capital quickly and efficiently. Time is often the most important determining factor to close the deal. Listen to this podcast episode to learn how he closes deals within 30 days, having a line of prospective investors ready to wire the money in.

Hunter Thompson  Real Estate Background:

  • Founder of Asym (A-Sim) Capital, a private equity firm
  • He has raised more than $30 million in private capital
  • 10 years of real estate experience
  • Current assets under management of $100MM CRE
  • Previous guest on episode JF2028
  • Based in Los Angeles, CA
  • Say hi to him at: www.5millionin30days.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Attract, educate, nurture, and close” – Hunter Thompson.


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks, and today we’ll have a repeat guest Hunter Thompson.

Hunter, how are you doing today?

Hunter Thompson: Hey, thanks again for the opportunity. Much appreciated.

Theo Hicks: No problem. Thanks for joining us again and looking forward to our conversation. Today is Sunday, so this will be a Skillset Sunday episode, where we talk about a particular skill set that our guest has. And today it’s going to be about raising money, more specifically how Hunter was able to raise $5 million in 30 days, in one month.

So before we hop into that skillset, a little bit about Hunter’s background— he’s the founder of Asym Capital, a private equity firm, and has raised more than $30 million in private capital. He has 10 years of real estate experience and the current assets under management for his company is $100 million. Check out his previous episode, which is Episode 2028. He’s based in Los Angeles, California, and the website that he’s giving out today is 5millionin30days.com.

So, Hunter, before we jump into the skillset for today, can you just give us a quick reminder on your background and what you’re focused on?

Hunter Thompson: Yeah, so my background is really as a passive investor. I was very fortunate to start my career in the wake of the Great Recession, and I think a lot of people looking at the graph right now and go, “Oh my goodness, how great would it be to be able to buy in 2009 or 2010!” I can tell you, it was not as great as the chart looks because when you can’t see the rest of the chart, it looks like a terrible spiral death circle of foreclosures and your whole family is telling you that you’re insane.

However, the reason I say I was fortunate is that the market acted as a really massive filter for bad ideas when it comes to investing. So starting my career at that time, I was very fortunate to surround myself with some very sophisticated investors, operating partners, institutional actors that guided me towards the world of syndications and kind of allowed me to leapfrog some of the more beginner strategies that are employed frequently here. So I built a company around my personal investing strategy and went from one investor, me, to five, to 100, 200, and like you said, raised about $30 million. Actually, the number is now $35 million because of what we’re going to talk about today, but that’s a little bit about my background.

Theo Hicks: Thanks for sharing that. So yeah, let’s jump into this skill set. So you raised $5 million in 30 days. I guess my first question is, was this something that was kind of like something bad happened that you needed to quickly raise capital or did the deals need to close in 30 days and you needed to raise capital that fast?

Hunter Thompson: It’s actually a good question, because I didn’t really think about it until after the fact. We actually had plenty of room in the offering; it was an open fund that was not an evergreen fund, it was open on a rolling basis. And it wasn’t our most successful raise; we raised $5 million in 72 hours once. But the thing about 30 days stuck with me because of the fact that most deals that are not an open fund, for example, are extremely time-bound. And I feel like the time component is something that doesn’t get talked about enough. I wrote a book about raising capital, Raising Capital for Real Estate, by the way, and I put everything I know into that book. But I didn’t really focus on the time.

And the reason I say this is that the time can be the most important determining factor in whether or not you actually close the deal. And there are so many people out there that “could raise money”, but their real concern is being able to raise it in a 30 day period; most escrows – let’s say 90-120 days. You need that money to hit the bank account in day 30, day 45 and you need to be confident you’re able to do that or you will burn some relationships, or be too scared to go under contract.

So the way that we raised this money, and I’ll talk about all the strategies and tactics that we implement to do this, but the only way that I see that you can actually effectively confidently know that you’re going to be able to raise money is to do the opposite of what most people think about when they think about raising capital, which is chasing people around, trying to convince them to invest with you. I tried to do that, if you anything about my background, you know, I failed miserably on my first capital raise and just basically got laughed out of a room; I had to text my wife after the fact. And my current wife and the woman at the time who was just a friend of mine, quote, aka I was chasing her around for years on end, I had to text her and say, “Look, I was supposed to raise a $500,000 or $1 million and ended up with the total [unintelligible [00:07:47].27].” It’s one of the most embarrassing moments in my career.

But what’s happened between that time and now is that I built a fairly significant infrastructure to attract leads, nurture them through educational content, really create an educational platform so that thousands and thousands of investors are attracted to our firm. And then once you send that email out and that great deal is finally available, boom, the wires start coming in very, very quickly. So that kind of inspired me to create the summit, which is the 5 Million in 30 Days Summit and we’re going to have a bunch of speakers talk about different strategies, but that’s kind of the background.

Theo Hicks: Perfect. So the idea behind this is that once you put a deal under contract, that 30 days is from contract to when you need to have all the funds wired into your account for closing the deal. Correct?

Hunter Thompson: Exactly. And there’s so many people that are stuck—well, first of all, 5 million is consequential, right? Because if you have $5 million and you leverage it two to one, let’s say you can buy a $15 million piece of property. In most markets that’s 150 units, 200 units or more. So from my perspective, outside of the institutional space, that is where the elite players in this space play.

So a lot of people are asking, you know, “How can I get to the next level?” They may have had success raising from their friends and family to the tune of $500,000, and that’s a really confusing way to have success because it gives you a green light in a direction that’s a dead end. Because there’s a big difference between half a million and five million. And the difference is if you know some wealthy individuals, you can raise $250,000 or $500,000. But in six months, when you want to do a bigger deal, you go back to those same people, most of them aren’t ready to transition their whole portfolio into real estate.

If you go back to your uncle, for example, that’s made one real estate investment with you and you go, “Hey, I need another 50 grand,” they’re going to think you lost the first 50 grand. So it’s really a big hurdle, because I want people to be able to get to that elite level so we can help get money out of the stock market and invest in these deals we love so much.

Theo Hicks: Perfect. I like that you said that big difference between raising $500,000 and $5 million. What are some tactics that you’ve found to help people get to that elite level, to go from the family and friends who might invest in one deal every couple of years to being able to do multiple deals in a year and do these bigger money raises?

Hunter Thompson: I think, first of all the mindset shift from going out to try to get someone to invest with you – it cannot be overstated. The shift is from thinking of yourself in the middle of the circle and running around trying to find some rich uncle you haven’t talked to him 10 years, and convert him into becoming a real estate investor. You can do it. The problem is, it’s not replicatable. It’s not scalable. It’s not something that’s going to actually help you achieve your goals, which is creating multi-generational wealth through real estate.

So the framework, if you get nothing else from this short interview, the framework itself is a big shift. And I talk in my book about the stages are attract, educate, nurture and close. And I’ll kind of give some details into each of those. So attract – I think that a lot of people underestimate the value of building their email list and how powerful that email list is. We focus on podcaster — I’m a podcaster, as well, and I’m sure a lot of listeners are as well, which by the way you should be and if you haven’t yet, make the $30 investment in a microphone and start doing it, start putting out content. Trust me, the risk-return ratio on that $30 investment is very asymmetric.

But once you have people listening to your podcast or looking at articles on your website, or just engaging with you on LinkedIn, it’s so critical that you take them away from those platforms and get their email address. That’s the beginning of your real company.

So if you’re listening to this and you have 100 people on your email address, the goal should be to get to 1000. If you have 1000, you should be able to get to 10,000. And we’ll talk about why in a second. There are some confusions as far as how to do this. If I go to someone’s website and I see a call to action, which is for a phone call, let’s say, that is such a massive, massive undertaking, and it takes so much credibility for someone to take 30 minutes out of your day to call you. And also it shows that you have the 30 minutes, which is kind of a low credibility kind of thing to do.

So what I would suggest, definitely take the time to write your 5000 or 10,000-word ebook on one particular topic, hopefully that’s evergreen, and exchange that email address for that content.

Something else I would say recently, I have the tendency to try to give all the tactics away as possible. And that’s perfectly reasonable after you get the email address and after you kind of nurture the relationship a little bit. But something that I’ve had much more success with is actually tapping into the reality that when people give you their email address, the first thing they want to know is, is this person credible and how quickly can I establish that credibility? So rather than requiring them to read 5000 words, I have had much more success with things like due diligence checklists or 100 questions you need to ask about real estate investing, or anything like that where they can download it, instantly get that value, instantly understand credibility and go boom, “I’m going to be opening this guy’s emails for the next hundred years.” And the third email can be that 5000-word ebook. So those are just a couple of ideas. I’d say that the lead capture mechanism is critical. Just viewing your list as the way to scale your portfolio is important itself.

And we kind of transition into the educate stage. So you’ve got the email address. Now it’s time to provide some kind of potential for interaction on a daily, weekly, monthly, quarterly, annual basis. So where that is, is taking long-form conversations, chopping them up, putting in an Instagram post on the daily basis, let’s say a weekly newsletter, and the potential to opt in to a weekly newsletter, and quarterly updates for things like their investments, of course, but also changes to the market, potentially other podcasts that you’ve been on… And then as an annual update, we do an annual conference. And I know that Best Ever does as well. It’s an excellent way, because actually, once you’re doing this, it’s not only the time – the cadence of the time is important – but also the senses. So some people like to learn auditorily, some people like to read, some people will never read, will only listen to 100 audiobooks at 3X speed, and then some people want to go in person and go to a conference, can’t do that in 2020. But you’re giving the potential for all those senses to be touched.

Okay, I’m halfway through so I just want to take a second before we move on to the next ones but the first stage is attract and then convert to email is just so critical, and then it’s just about nurturing those emails.

Theo Hicks: I love it. Keep going with the last two, nurture and close.

Hunter Thompson: So nurture is something that it also can be done in a way that’s coinciding with educate. But I really want to just smash the credibility pedal all the way to the floor. So in the summit that we’re talking about, we’re going to have people come and talk about public speaking, strategies for how to deliver and communicate really complicated matters in an effective way, that when you look at the median of people can understand, but also feel like you’re intelligent. That’s a very challenging skill.

Neal Bawa who I’m sure has been on the show before, one of the best public speakers I’ve ever heard. I’ve never heard him speak about public speaking though, so he’s going to be talking about that. But appearing on other podcasts, how do you do that?

One example that talk about in my book is just creating a Google Form, inputting the top 200 Real Estate podcasts in that Google Form through a VA, sorting by number of reviews, starting at the bottom, meaning the lowest number of reviews and sending out emails to them, because they’re more likely to have you on your program and then working your way up. This is just a way to be seen in a way that’s going to nurture your leads. So we’re all working towards this close stage and we’re going to talk about in a second… But all of this work allows you that when you do finally put a deal out, it becomes oversubscribed really, really quickly. So there’s just so many things about this. But people are hesitant to do a lot of these things because they don’t see the dollars being printed.

But the truth is, I don’t spend my time trying to convince anyone to invest with me. I want to focus on smashing the credibility all the way up, so that I never have to do that. And it may sound like an infomercial if you’re still working towards that, but I can tell you, that is the case. I never tried to be a pushy salesman. It doesn’t work. It’s not scalable, it’s not replicated, it’s not going to help you. So there you go.

Theo Hicks: So for the nurture part, for the credibility, you said that going on other people’s podcasts is what increases the credibility of you.

Hunter Thompson: Yeah, and I’ll give you another tip on this kind of stage, because I think it’s really important. So networking events. And I know, again, during COVID there hasn’t been these, but this historically has been extremely powerful for those who focus on it. If you are going to an event, you need to remember that you’re in a sector which has the potential to be very lucrative. Warren Buffett, Carl Icahn, all these people have a lot of capital in real estate for a reason.

So seeing a $25 ticket price for a networking event can have the effect of people going, “Wow, I only need to get $20 worth of value, and I’m great.” But if you’re taking four hours of your time, you need to get thousands of dollars of value. Because this is a game where we’re standing to making thousands 10s of thousands, millions or 10s of millions of dollars. So you don’t want to substitute your four hours for $25. So when you go in with that mindset thinking, what ideas can I get that are going to give me thousands of dollars of value? What contacts can I get that are going to give me thousands of dollars of value?

And most importantly, when I’m talking to someone, I want to listen for the concepts, ideas, books, resources and other people that I can connect them with, to give them thousands of dollars of value. Because if you’re able to do that, the next time you come to that same networking event, that person is going to want to reciprocate. And then all of a sudden you walk into a room and everyone’s trying to give you the value and give you the context and now, that nurture mechanism is just going on itself like a snowball and it’s very, very powerful.

Theo Hicks: I love that second one about giving thousands of dollars of time. And we’ve talked about this on Syndication School a lot, about always trying to find ways to add value to other people. We’ve got a blog post about how to approach conferences, and how to make one good relationship every day and then follow up with that person based off of the conversation and add value to their business. So I could not agree more with that last one, because as you mentioned, it’s like a reciprocal positive feedback loop type of thing.

Hunter Thompson: 100%. And I’ll actually give a shout-out to Ben who helps produce Best Ever and I didn’t even realize this until you said it. But Ben is actually coming to the summit to speak about creating conferences as a way to nurture your clients. So I say we get the Best Ever speakers, literally the best ever in copyright manner. Ben is actually speaking on that topic. So I’m really looking forward to it.

Theo Hicks: Awesome. Alright, so step four, is to close.

Hunter Thompson: That’s right. This is what most people focus on when they’re starting the business. They start at the end and they don’t succeed because they’re starting at the end of the process. And by the way, when I say “they”, I mean me, right? Because I mentioned I got in a room of $30 million in net worth, gave a presentation that I would be happy to give today and got a total goose egg, right? So I’m guilty of this too, but it should only happen once.

So here’s why. If you’re in a room of 10 people and you are reasonable close and salesman, you can probably close 10% of that room. So if it’s 10 people, it’s one person. Now, what a lot of people do is they make the mistake of spending all of their energy, focusing on getting from a 10% closing ratio to a 20% close ratio, which by the way, would be insane and incredible, 100% increase, basically. But the issue there is that, that’s going from one investor to two if you’re in that room and that’s not consequential. I’m sorry, no disrespect to myself 10 years ago, but that’s not going to help you. The totality of your energy should be focused on getting out of that room and getting into a room of 10,000 people in it or an email list with 10,000 people. And if you already have an email list with 10,000 people, it should be, what’s the goal to get to 100,000?

And here’s why. Even if your close ratio goes from 10% with 10 people to 1% at 10,000, you’re still talking about 100 investors, let’s say with a $50,000 minimum aka $5 million in 30 days, that’s how you do it. That’s how this is done, not with different objection handling type of stuff, those that can help. That’s not the way the business becomes scalable. So I do have a keynote at the summit called Closing Strategies for High Net Worth Clients. And there’s one tip in there that we increase our average investment size by 33% by just one simple phrase. I can’t give it away now, you’ve got to go to the free summit to hear it. But I’ll give you a chip that is actionable immediately, which is time framing that Oren Klaff talks about.

During the close, especially the first call that you get on with the investors, once it’s established that yes, you are the person that they anticipated calling and such, I would just confirm that the call is scheduled from 2:30 pm to 3:00 pm. And that you have another call that’s right after that, that’s going to start at [3:00], so that you have to go. And this just makes everything after that, even if you blow it after that, it’s going to put you in such a better position because they know you’re not going to drone on and on and on. And perhaps more importantly, the credibility is much higher, because it shows that there’s a high demand for your time.

So I go into a lot of details in terms of that keynote, but really is just about outlining the process, ensuring that you’re communicating effectively and then any resources that you mentioned—oh, I recently had a question about interest rates and housing prices. I’ll send you an article that I wrote about that topic, smashing the credibility forward again. I’ll email them right after the call.

So those are just a couple of tips. Oh, wait, one more tip. And I know I’m giving away some tactics right now. But this is such a strong tip that I almost didn’t put it in my book, because it’s so powerful and 100% true. Giving a $30 to $50 gift to your high net worth investors on an annual basis is likely the best bang for your buck in the whole industry. You could certainly have an investor reinvest with you, solely because of a wireless charger that you sent them with your brand on it. So spend 35 bucks or 50 bucks after the close and you’ll see why we don’t have to do a lot of convincing for our investor base. So hopefully that helps.

Theo Hicks: Yeah, Hunter. I really appreciate you coming on here and giving us kind of the overall picture but also very specific actionable tactics for each of these steps in the process. And I also like when you said that I’ve got this one thing that increased our close rate or money raised, but you’ve got to come to our conference. I’m sure that’s another tactic I’ve heard from, I think, it might have been The Best Ever Conference actually.

And you kind of talked about today, not giving every single thing away, but giving a little bit away and then if you want the full picture, if you want the last answer to that question, the last piece of the puzzle, then you need to take this action. So I guess to wrap things up, what is that action? How can we sign up for this conference?

Hunter Thompson: Well, here’s the big upsell. So it’s a free summit and you can get a ticket for free at 5millionin30days.com. And it is some of the G.O.A.Ts, like I said, Ben’s going to be speaking, Bridger Pennington is going to be speaking, Jake and Gino is going to be speaking, Neil Bawa, Kathy Fettke, all these legends are going to be there but specifically to talk about raising capital, which means it’s very curated if you’re interested in the topic. They’re all going to be talking about one particular strategy so not; what’s your background? Why do you like real estate? But one thing; give me every detail. Okay, 30 minute interview, boom. So check it out at 5millionin30days.com.

Theo Hicks: Perfect. Everyone listening, that will be in the show notes, so you can just click on that link and go straight there. So, Hunter, again, I really appreciate it, how you talked about the basically four-step process for raising money. And the last step being the close which is what a lot of people focus on at the start and skip the other three steps which is not going to lead to success because you said that the goal here is to not increase your closing rate, but increase the number of people who are being presented your deals. That’s how you get the $5 million in 30 days, that’s the secret sauce.

And then you said that you need to increase that exposure, you need to focus on the first three steps, which is to attract people, which starts with creating an email list and making sure you have a nice carrot to get people to sign up, but not too big of a carrot and so we kind of work your way to the bigger part. So start with maybe a quick checklist to get their email address and eventually down the road, give them that big free ebook. And then from there, it’s education. So figuring out ways on a daily, weekly, monthly and annual basis to make contact and interact with your audience through various educational resources and you gave examples of that. Nurturing focuses on credibility and so getting other people’s podcasts and networking events as examples.

And then lastly, you said you can work on the close and at that point, we get some other tips as well about sending them resources if they have a question about something and say, “Hey, I’ve got this article about 1031 exchange that I wrote to learn more about this,” and then sending that gift so that the closing process is that much easier, that much smoother.

So, Hunter, again, really appreciate it. I can definitely tell you a podcast because you’re really good at speaking and presenting these ideas. So make sure you check out his podcast as well. What’s your podcast called?

Hunter Thompson: It’s Cash Flow Connections Real Estate Podcast and cash flow is two words.

Theo Hicks: Perfect. So check that out as well. As always, thank you for listening, Best Ever listeners, have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2278: Increasing NOI With Jamie Wohlschlegel

Jamie is the CEO of ServusConnect, ServusConnect is an exciting, new technology for the multifamily industry that delivers innovation and mobility to medium & large-scale apartment maintenance operations to optimize multifamily NOI.

Jamie Wohlschlegel Real Estate Background: 

  • CEO of ServusConnect, a multifamily property-tech startup
  • 6 years of helping multi families optimize their maintenance operations
  • Launched ServusConnect at age 40 as a first time entrepreneur
  • Based in Raleigh, NC
  • Say hi to him at: www.servusconnect.com 
  • Best Ever Book: Drudge Report

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Work on getting optimized with your digital approach, digital documentation is a big deal these days ” – Jamie Wohlschlegel


TRANSCRIPTION

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

Jamie, how are you doing today?

Jamie Wohlschlegel: I am doing awesome. Thanks, Theo. Thanks for having me.

Theo Hicks: Absolutely. Thanks for joining us. So a little bit about Jamie. He’s the CEO of a ServusConnect, a multifamily property tech startup that focuses on optimizing multifamily maintenance operations; he’s been doing this for six years. He launched ServusConnect at age 40 as a first-time entrepreneur. He is based in Raleigh, North Carolina, and the website is https://servusconnect.com/

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

Jamie Wohlschlegel: Yeah, I’m a typical mid-40 professional who’s had a number of careers. I did start out in multifamily out of college. I worked for a large multifamily operator in greater Washington DC and Baltimore Metro Area. And then I kind of got out of that, got into IT, and have been doing IT consulting for about 15 years, sales and consulting and working with Fortune 500, and that was a really cool experience. And then I kind of got bored.

About the time that I turned 40, I took a sabbatical from that job and started thinking about my roots and what was happening in the multifamily space, and saw an area that hadn’t been applied from a technology perspective in the maintenance area, and so we kind of dug in; that’s where we landed.

Theo Hicks: Perfect. So let’s talk about that. So what exactly does ServusConnect do for multifamily investors?

Jamie Wohlschlegel: Well,  ServusConnect is a dedicated maintenance operations platform and what we do is try to optimize and apply top technology to the maintenance workflow that typically happens between a resident and the management company or the folks responsible for handling maintenance issues in apartments. This is an area that has not necessarily had a lot of technology applied to it. It’s kind of an afterthought when it comes to the traditional property management systems that are out there, whether it’s your AppFolio’s, your Yardi’s, RealPages or MRIs, they all certainly have facilities modules, but they’re, again, typically an afterthought.

So when we started this process, one of the things that we saw was that maintenance operations was just a really black hole when it came to data, and that’s because a lot of it was still being done brute-force. There’s still a lot of paper and maintenance operations in multifamily… Which is really, really interesting, because it’s an area that just generates a lot of interaction with a resident. And as things have moved online, so online rent payments and online leasing and certainly during COVID-19 and pandemic, the need for a contactless resident experience with your landlord has been something that is really important, and certainly maintenance operations is a huge part of engaging with the tenant community.

Theo Hicks: From the residents’ perspective, if my management company, my owner is using ServusConnect and my toilet’s clogged, what happens? What’s the difference between me calling some guy and saying, “Hey, can you come and fix this?” What happens instead?

Jamie Wohlschlegel: Typically, a lot of management companies and certainly probably a lot of investors, who are also operators have ways for residents to put in service requests – either online forums, or they call the office or they have resident portal or maybe they’re running an AppFolio, so the resident has an app and will log in and will put their service requests in.

From there, that’s where the brute-force starts. And that’s where we have kind of find our niche is, providing that back office between the time that the resident calls in and it hits the system, to the time that the technician responds to it, digitally documents their work, and then that digital documentation gets recorded against the unit record, against that asset.

We really have found our niche optimizing almost that backend process and really streamlining the workflow from when a resident calls in and says, “Hey, I have a maintenance issue, my toilet’s clogged,” and they put that issue in an online form somewhere. That’s where a lot of our automation kicks in.

So it has required us to really open up API’s and figure out how to digitally connect those online resident forms and those property management softwares to our system. But really, where we shine at is streamlining the backend, which really makes a big difference when it comes to taking a lot of time out of the response time for maintenance operations to handle a resident issue.

Theo Hicks: Okay, so I submit my form, the only change for the resident, you’d say, would be a faster turnaround time. So from their perspective, they’re not seeing any of these calculations happening.

Jamie Wohlschlegel: Right.

Theo Hicks: They just call in and then someone shows up at their door faster?

Jamie Wohlschlegel: That’s right. The service request shows up digitally on a technician’s servusConnect technician app. We have points where we do touch the residents a lot is through our resident notification system. So we have automated resident notifications by SMS that go out and will alert the resident, “Hey, we’ve got your request, we’re adding it to our queue,” or when the technician gets ready to start the work, they’ll get an SMS that says, “Hey, so and so is going to be showing up at your apartment soon.” And then when the technician is done and they complete the work order, our system does send a survey to the resident. So we do have a lot of resident touch after that initial call and/or after that initial submission on the website that, “Hey, I have a maintenance tissue.”

So really, if we can keep an open line of communication with a resident and just brief them on what’s happening with their service request — because that’s the big problem is they put a request in online, and then it’s a black hole and they don’t know what’s going to happen until somebody knocks on their door.

Theo Hicks: 100%. Is it email or is it text notification? Is it everything?

Jamie Wohlschlegel: It’s both; it’s text and SMS. SMS is an email. So the SMS is the killer medium. I think the statistics are 95% of all SMS messages are read; you may not necessarily respond to them, but you pretty much read everyone. In the election season, now we’re all starting to get election SMS-es as well; you read them and then you delete them. But it’s a great notification medium; it doesn’t require residents to download some app that they may only use for a year while they’re living in that apartment. So SMS is the killer notification medium. And then from there, it’s kind of like the airlines – we take them into a unique mobile responsive browser-based, on their mobile device web experience so that they can see their service request and add any comments etc, get status details.

Theo Hicks: Do you have like a stat that says that before someone use our service, their response time was X and then after the response time was Y?

Jamie Wohlschlegel: Yeah. Usually, we’re seeing a 2X improvement. They call it service cycle time. So that’s a major metric that we track in our system. It is just the time that takes from what a resident submits a service request to when the technician completes it. That’ll typically improve 2X. The thing that I think that’s interesting that we’ve also started to see is that most operators manage for the things that slipped through the cracks. They’re not managing to the things that they’re doing really well.

And so one of the things that was surprising to us is that a lot of operators actually do a really good job responding and having short cycle times on a percentage of all of their service requests. But they don’t ever manage to that, because they don’t actually have that statistics easily available to them. What they’re managing to are the things like, “Hey, these service requests have been open for five days, where are they?” And then it’s a process to obviously try to figure out what’s happening on the service requests.

But when we get involved, we tend to have a lot of data that they haven’t previously been privy to, and so now that we can show and see where their faults are, and show them their improvements, we can also show where they’re actually doing really well, and those become key metrics on performance as they move out.

Theo Hicks: And this kind of my next question, which is from the property management and the owners’ perspective – do they have their own portal too where they can pull reports? The reason why I’m asking this is because I remember when I had a third-party management company, it was really annoying when I got a report and it just said, “$500 maintenance.” I didn’t know what it was, I didn’t know how many maintenance issues there was. I just was like, “Okay.” Well, something happened that month… And I called them and asked them what it was, and then they had to find the maintenance guy to figure out exactly what it was.

So from my perspective, as a landlord or as a property management company, what type of reporting do I have access to?

Jamie Wohlschlegel: There’s kind of two levels of reporting; there’s the what’s happening now reporting, like, what’s in the queue? What are folks working on? What’s the status of these open service requests? Have they been responded to? Have these guys uploaded photos and videos and comments on what’s been going on? So that’s kind of the current state of operations, which is very much front and center in our platform and our managers dashboard.

And then there’s the, “Hey, how are we doing? How did we do last month? How did we do last week? How are we trending over time? How do we do this year compared to last year?”  And beginning of 2019, we actually implemented a business analytics and business intelligence back into our system that allowed us to provide our owner operators and investors and all the folks who are interested in that type of data, more the analytical data of, “Hey, how is this particular property or how’s this particular service tech, or this team or this region performing over time? How have their service cycle times ebb and flowed?” and then compare that with the resident feedback, the survey data that we get in as well, and you can definitely start to see patterns here. So that has become a pretty important part for our clients of how they manage health of their maintenance operations teams, and frankly, how folks are doing and just general health and wellness of their operations. So yeah, for sure.

Theo Hicks: What’s the portfolio size of your average client? Like, if I’ve a duplex, is it something I’m going to be able to use and afford, or is this for bigger guys?

Jamie Wohlschlegel: Our target market based on our go to market model has been anybody over 500 to 1000 units under management has been a sweet spot. And as you get into 5,000 and 10,000 units and beyond that – we certainly have some very large customers who manage into the tens of thousands of units.

We typically price our product on a per unit per month basis, not necessarily by the number of service requests or not necessarily by number of users accessing the system. So it’s typically units under management. So we do have some small customers who get a lot of value out of our system, but sometimes it gets a little pricey as the portfolio just based on the model — the portfolio is very small, and it’s hard for somebody with less than 100 units to make ServusConnect work for them… Although we do very much try to work with everybody and want to work with everybody where it makes sense. But really kind of how we go to it is, hey, we want to work with as many people as possible and if you have a need in the space, let’s try to just be mutually respectful of each other’s time and amount that people have to spend on this type of problem and let’s just come to some sort of conclusion on what makes sense for both parties and move forward if we can. If we can’t, that’s okay too.

Theo Hicks: Perfect. So this might not be the best question, but — so you have a lot of experience in optimizing maintenance… For someone who can’t afford your product right now, what would be your best ever maintenance advice for that person with a portfolio under 100 units? What’s one thing they can do that’s not necessarily getting ServusConnect that they can implement in order to optimize their maintenance?

Jamie Wohlschlegel: First thing is try get organized with just your digital approach. Digital documentation is a big deal these days, and just being able to have a uniform way to connect a single channel, if you will, that connects with your maintenance teams, keep track of what they’re doing on a daily basis and get digital updates from them on the work that they completed… And then whether that’s a spreadsheet or— just a lot of times we see clients who have very capable property management software systems that have maintenance facilities aspects to it that are really not being utilized, so—and this comes from my IT consulting days. There’s technology that’s sitting on your shelf all the time. Every company has technology and every business has technology sitting on the shelf. Go and dust it off, make sure you understand what’s there and you can make it work for you and it helps you organize your day and see that you are on top of things. Use it, absolutely put it to good use. But if sometimes those things don’t scale very well and as you start to manage more teams and more units, and then you want to start to do some more intricate things with resident engagement, then certainly platforms like us are a good place to start. And we’ll talk to anybody and I’m happy to give anybody advice on this topic, even if ServusConnect isn’t a good fit for them.

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

Jamie Wohlschlegel: Oh, man, maybe. We’ll see. Let’s go. Let’s do it.

Break: [00:15:23] to [00:16:05]

Theo Hicks: Okay, Jamie, what online resource do you read, do you use to stay up to date with?

Jamie Wohlschlegel: I’m a news junkie, so easily Drudge Report is my number one go to.

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

Jamie Wohlschlegel: I would start a YouTube site for mountain biking, and a home improvement venture.

Theo Hicks: You should do that anyways, right?

Jamie Wohlschlegel: I should do that. I want to do that anyways. Someday, I’ll do that.

Theo Hicks: You just put a GoPro on your head while you’re mountain biking and then [unintelligible [00:16:32].03]

Jamie Wohlschlegel: I’m a huge project guy, projects around the house, building mount bike trails in the backyard, going and hitting jumps… That’s what I want to do.

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

Jamie Wohlschlegel: I’m big into praise and worship music. So I love to sing and play. I play guitar and I sing, and I love to do praise and worship music… So leading worship or being part of a worship team at Church is a way that I like to give back.

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

Jamie Wohlschlegel: LinkedIn is a good spot. I may not always respond right away, but LinkedIn is probably the one universal spot where folks can hit me up.

Theo Hicks: Okay, and that’s Jamie Wohlschlegel, so they can look him up on LinkedIn. Alright, Jamie, I really appreciate coming on the show and talking about your company ServusConnect. I kind of mentioned this, but yeah, maintenance is definitely a major area of headache, even for smaller landlords.

So we walked through how your company’s able to optimize maintenance operations, both on the residents’ side where they’ll get their maintenance requests fulfilled sooner, as well as no know what’s actually going on.

Jamie Wohlschlegel: Yeah. And it’s important to mention, Theo, that everybody does maintenance differently. Every company, every landlord, every investor, every operator does maintenance a little bit differently. And that is the challenging part about it, and I think that’s kind of made it difficult for companies like us to provide a uniform approach to it. But if you think about sometimes can you adapt to the technology? Man, we spend a lot of time thinking about this problem and I know, certainly a lot of other folks do, too. So if you’re a small operator, man, it might be a good idea to adapt to the technology that’s out there such that you can get some uniformity in your operations and that’s a really, really important point.

Theo Hicks: Exactly. Well, Jamie, again, I really appreciate you coming on the show. Enjoyed talking to you. Best Ever listeners, as always, thank you for tuning in and listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2252: Three Ways That Real Estate Is A Tax Favor Investment With Rebecca Walser #Skillset Sunday

Rebecca Walser is one of the few Top 100 US Advisors who is also a tax attorney, so she has a completely different perspective on personal finance. She is also a best-selling author and wealth management firm founder and is a regular on Fox Business who has also been featured in Wall Street Journal, Bloomberg, ABC, NBC, and Yahoo Finance.

Rebecca Walser Real Estate Background:

    • Wealth Strategist, CFP, Tax Attorney, 2X Top 100 U.S. Advisor by Investopedia
    • Best selling Author of the book “Wealth Unbroken”
    • Podcast Host – Crashes and Taxes
    • Frequently on national media such as Fox News, Business, Yahoo and more
    • Based in Tampa, FL
    • Say hi to her at: www.walserwealth.com 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“I’m not just a tax lawyer, I’m a financial person who wants to do tax and finance together.” – Rebecca Walser


TRANSCRIPTION

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

Rebecca Walser: I’m good, Joe, thanks for having me.

Joe Fairless: Well, I’m glad to hear that, and it is my pleasure. A little bit about Rebecca. She’s a wealth strategist, a certified financial planner, a tax attorney and Investopedia has named her in the top 100 US advisors, not once, but twice. She’s also the author of Wealth Unbroken and podcast host of Crashes and Taxes. Based in sunny Tampa, Florida.

Today, first off, I hope you’re having the best ever weekend; because today it’s Sunday, we have a special segment called Skillset Sunday. And Rebecca is going to talk to us about the three ways that real estate is a tax-favored investment. And are those three ways to stay? And if not, what do we do about it?

So I’m very much looking forward to this conversation. Rebecca, I guess to kick things off, would you mind just telling the Best Ever listeners a little bit more about your background, and then let’s roll right into the taxes?

Rebecca Walser: Yes, absolutely. That would be my pleasure. Again, thanks for having me, Joe. So I basically have been in finance my entire life. I learned about money at four years of age. I had a personal experience with my family, my parents weren’t that great with money. They came from a lot of money, both of them. And when you get two people together that come from a lot of money, they don’t really know what they’re doing with money. They don’t understand the value of money, how it’s earned, how to keep it… So they were unfortunately in a little bit of a financial disaster. And they had four kids right in a row, and it just really framed me — our power would be cut off all the time and weird things like that. And I just said, “Hey, whatever this thing about money is, paying bills, it’s not going to be me. I’m going to do it the right way.”

So I was pretty much obsessed with finance since the very beginning. I knew I would always be in the financial world. Graduated with my undergrad in finance with exactly the right credit hours. I did not waste one class, laser-focused. Got my first job with Price Waterhouse before the merger with Coopers & Lybrand my senior year of college. Worked for them internationally in the global financial world of consulting for five plus years. Then I moved to IBM, AT&T. Then I went into real estate finance. So I ran the gamut of finance, I’d say, all around multiple sectors. Then I decided, “Hey, I keep bumping up against this thing called taxation. You make a lot of money or you’re trying to help big corporations make a lot of money and there’s a lot of stuff you got to do a tax on.”

So I said, “You know, I think I need to quit my job and become a tax lawyer.” So I did that. It’s just that I was able to financially quit, go back to school. I went to University of Florida for my law degree and then I went and got my extra advanced law degree from NYU out of New York City in tax, which is the best tax program in the country. I then practiced tax law exclusively for a few years and decided, “This isn’t going to work. I’m not just a tax lawyer, I’m actually a financial person that wants to do tax and finance together, not just one solely independent of the other.” And I opened my own practice going on seven years now. So that’s kind of my background.

Joe Fairless: And just by having that job in college shows the initiative. And you mentioned, you didn’t waste any credit hours, which I never really thought of. I definitely wasted some credit hours, but maybe I got more well rounded. Who knows?

Rebecca Walser: Probably you did, Joe.

Joe Fairless: Having that job as a senior in college – that speaks volumes about the tenacity and the focus, in my opinion. So let’s talk about the three ways that real estate is currently tax-favored, and then we’d love to hear your thoughts on if that’s going to stay with us.

Rebecca Walser: Yeah. If you don’t mind, Joe, what I want to do is flip the script for one second, and before we go into how real estate is so tax-advantaged, I wanted to tell your listeners, why are we talking about that changing possibly? Why I talk about it if it’s going to be the case forever? And that’s why we’re going to talk about it, because we actually do see now that it’s threatened and that it is potentially going to change, and we need to prepare for that. There’s nothing to be scared of. It’s always the unknown that we’re afraid of. Once you know and you have potentially active strategies that can help you deal with what is coming, then you’ll be okay, right?

So what I feel like is most real estate investors don’t really understand the tax code around real estate and why it’s so favored. And I definitely want to go into that, but I first want to tell your listeners why are we even talking about this if it’s not going to change? It’s going to change in my lifetime. And I definitely believe in your lifetime as well, Joe, and certainly a lot of your listeners’ lifetimes. Because when these changes are happening now very fast. They’re coming very, very fast now. And why is that happening?

So you’re probably very familiar with, and I’m sure that your listeners are, the terminology “kicking the can down the road.” Okay—

Joe Fairless: 1031.

Rebecca Walser: So we’ve kicked this can down the road, and I’m specifically talking now about the broader world of America. And specifically, when we’re talking about the “kicking the can down the road”, we have known really since 1965 that we were going to have a huge problem between 2020 and 2030. And we’ve known this for a very, very long time. Like I said, since 1965, when Medicare got signed into law. And we’ve done nothing about it. And the politicians have kept saying, “Oh, I’ll deal with it later. I’ll deal with it later.” That’s the “kicking the can down the road.”

So why is everything changing? Well, what is it that we’ve known? We’ve had 75 million Americans born in a boom between 1946 and 1964. We call those people the baby boomers. So we have 75 million people — some of them have passed away, but we have a lot of baby boomers that are still in our workforce to this day. And we know that between 2020 and 2030, those people are going to reach what we call  FRA or Full Retirement Age. So as these people retire, what’s going to happen is you’ve got about 70 million people still that are working in the workforce, give or take. It probably might be closer to 68, but let’s call it 70 million people. So we’ve got 70 million people that are in the system that are at their top earning years, that are paying payroll taxes. Payroll taxes is the sole government source of funds that funds Social Security and Medicare. These people over this next decade are rightfully going to retire and extract themselves from paying those payroll taxes. So we’re minus 70 million people (approximately 68) from paying those taxes; and then those people are rightfully going to go on to Social Security and Medicare themselves. So if we round it up to 70, that’s a swing of 140 million people in the wrong direction from what we can afford to pay as American citizens and what we pay in. So we have known that this is going to be a huge problem—

Joe Fairless: Real quick, just curious… So that’s assuming that there’s not new people entering the workforce doing that?

Rebecca Walser: Excellent question. So your listeners are probably thinking, “Yeah, but there’s people to replace them,” right? And yes, there is. But let’s look at that for just a quick second. We have all the millennials, or we call them Gen Y right? All the millennials are already all working, because they’re all in their basically 30s at this point, or almost 30s; you’ve got some people that are in their late 20s. But then you’ve got Gen Z or the Zoomers, or whatever you want to call them; I call them the last generation, because they’re Gen Z. And Gen Z, we have already part of that generation already working. They’re in their young 20s, but they’re already working. And what we’re seeing with Gen Z is a new phenomenon. And this is the problem in a nutshell.

First of all, you’re replacing people that have been in the workforce for 30 plus years working at the top of their pay scale, presumably, most of them, and then you’ve got Gen Z that are young 20s, maybe with a degree, not with a degree, and they’re obviously not going to make the same amount of money. But then what we’re finding is a new phenomenon is what we call the gig economy. So people like you, you’ve got real estate investors that say, “I don’t need a W-2 job, I can go out and follow Joe’s advice and do all these things and make this real estate cash flow and have a freedom number. And I don’t need to work as a W-2.” You’ve got social media influencers, like YouTubers and Instagrammers. You’ve got gig economy like Uber driver, Uber Eats. Like, you’ve got all these people that are basically ICs (Independent Contractors), 1099, and they’re not paying the payroll taxes, which is why California did AB5. AB5 basically says, “Everybody is a W-2 employee for somebody else. You can no longer be an independent contractor”, so that they can try to recapture some of those state income taxes that they’re missing out on.

So you will probably likely see a countrywide AB5 in this coming decade because of this shift. In the history of time, this is the largest demographic shift ever recorded. It’s a worldwide phenomenon, because World War II really is what made the baby boomers come so fast. And that was a worldwide war. So this is happening everywhere. This is not just happening in America. I would say Germany, it’s happened probably 10 years ahead of time. They’re probably 10 years before us. Japan is also the same. But this is otherwise a worldwide phenomenon that every country is going to go through.

Joe Fairless: That’s fascinating.

Rebecca Walser: Yeah, it’s huge. So to just kind of cap off why that’s important… The CBO (Congressional Budget Office) in 2008, did a research project on “What is the impact to the federal government of the mass retirement of the baby boomers?” And specifically, “What is the impact of Social Security, Medicare and Medicaid?” And they concluded that report in 2008; this has been on record for 12 years, nobody talks about it. They concluded that study by saying two things will happen. It’s not a mathematical question. It’s not an estimate or a projection, it’s a mathematical certainty.  And that is number one, they said benefits will be cut. So you’re going to start to see Social Security benefits being means-tested. It’s already done right now in the form of taxation. They calculate your certain type of income and then they tax you based on that income. Provisional income is what it’s called. So the bottom line is, they said that benefits will be cut.

Based on the other taxable income that you have, your Social Security benefit will go down. Now, that’s not for everybody. I don’t want to scare your listeners and they think, “Oh my gosh, I’m supposed to get $24,000 a year and I’m only making $5,000.” I’m not talking to the people that are not making substantial money, but what I am saying is if you’re getting a taxable distribution from an IRA account or you’re getting taxable real estate income that’s substantial, anything above $20,000 a year, you can start to see that you will potentially be affected, your Social Security benefit could be cut. So the first thing is we can’t afford to pay the benefit that we’ve promised everybody, so benefits will be means-tested.

The second thing and the more important thing that they said is taxes will have to more than double. And they gave us projections. They said that 2008, the lowest tax bracket was 10%. They said the 10% bracket is projected to go to 25%, the then middle-class tax bracket of 25% was projected to go to 63%, and the top tax bracket was projected to go to 88%.

Joe Fairless: Well, that would be a game-changer.

Rebecca Walser: Yes, huge game-changer. What you’re looking at, Joe, really is European tax levels. People have to understand, we’ve had Social Security since 1935. We’ve had Medicare since 1965. Yet the baby boomers, this generation that’s retiring between 2020 and 2030, this generation is our first full generation that is moving onto these social programs in mass. This has never happened for America before. So because of that, we’ve had sort of a pay-as-you-go system between these two systems that’s been very cash-rich, which is why you hear of this $3 trillion fund, this surplus fund of social security that we’ve been able to gather or at least collect, but the government has already spent it. There is no dollars in the trust fund, just so you know.

So we’ve been able to be very cash-rich, but we always knew that once a full generation retired and went on to these programs, that we would have to have some sort of European style tax system. And we’ve been living under Ronald Reagan’s ’86 tax reforms where our top rate has been under 37% for the last 30 plus years, since ‘87. So you can see that people have sort of gotten used to thinking that low taxes is normal.  Low taxes is not normal when you have massive social welfare systems.

Joe Fairless: That makes sense. The question I have – you said that these were mathematical, I think you said, certainties. I don’t want to misquote you, but there’s no question about these two things happening is what you mentioned. But wouldn’t raising taxes to say 88% be just one of the possible directions? It’s not certain that it would happen? …because you could just say, “Well, we’re going to have the provisional income, as you mentioned, just be even steeper, or maybe we’ll just not do as much Social Security”, something like that or maybe there’s some other solution, other than increasing taxes to the certainty of 88% between 2020 and 2030.

Rebecca Walser: Well, obviously, they gave us projections, and I would think that the government would try to fake the tax rates as long as they possibly can, because these tax rates are really disastrous and they have all kinds of implications economically, as you know. But I think what their point was, Joe, is that even after we cut benefits, so even after we means-test, we still are not going to be able to pay out anywhere near what we promised to pay. So, therefore, taxes now must go up after you have cut benefits.

And the other problem that we have – and this is [unintelligible  [00:16:17] we don’t have time. But the other problem we have is that when Ronald Reagan cut tax rates from [unintelligible [00:16:20].01], active and passive in 1986 down to 28% top rate – when he did that, we didn’t stop spending money as a country just because we collected that much less in taxation. What we ended up doing as we’d come off the gold standard we started really leveraging debt. When Ronald Reagan was inaugurated, we didn’t even have a trillion dollars of debt. It took us October of his first term to even get to a trillion dollars of debt. But once he cut the taxes in the second term, we still kept spending like we were collecting higher taxes, but we weren’t. We were just debt financing it.

So what you have now is a perfect storm really in America that basically has lived off of 30 years plus of low taxation, high debt spending, now we have almost $30 trillion of debt. The Coronavirus is certainly going to put us at $30 trillion. And that $30 trillion, which is almost what I call an unsustainable no-go debt amount for gross domestic product and taxation, when you combine that with the retirement of the baby boomers and the tax need or that the revenue that we’re going to have, we can’t debt-finance it. So the only alternative to raising the taxes that you’re kind of thinking of is let’s just finance it with debt, but we already have $30 million of debt and that is almost unsustainable at that current level. So we are starting to get back into a corner where the only thing that we can do is really extremely raise taxes.

Joe Fairless: So let’s talk about the three ways that real estate is currently tax-favored.

Rebecca Walser: Absolutely. So it’s not a tax shelter, but it’s really close. So a real estate investor, as you know very well, Joe, that the whole MO of real estate investing with taxation is you buy your properties and you’re able to shield your cash flow, and therefore you’re able to shield and not pay taxes through depreciation. So we buy property, and we depreciate it down completely and we’re able to shelter or shield some of that rental income from taxation because of the depreciation.

Once we depreciate it down fully to a zero-cost basis, now we do a 1031 exchange into a new property and we get to start this process all over. So basically, we can go on a successive pattern of buying a property, depreciating it down, buying a property, depreciating it down, and 1031-exchanging all of the gains all along that therefore we are not paying capital gains taxes on anything, or even regular taxes on anything, because we’ve shielded depreciation as much as possible through depreciation and we don’t pay the tax on the 1031.

So there’s the first two advantages – real estate allows you to use a non-cash deduction called depreciation, to shield income from taxation. That’s unique. We don’t get that on anything else except for an intangible asset that we can amortize. So that’s very unique to real estate. That’s number one. That’s the number one positive tax advantage.

Number two, we have the 1031 exchange, where you can literally sell an asset and defer the gain into a very similar asset without paying a tax. You can’t do that with a stock. That’s number two.

And then number three, and final, is the 1014, or what we call the “Step-up at Death.” So let’s say that you’ve built a portfolio of $5 million. It’s all depreciated fully to zero, so now you’re fully paying tax on whatever you cannot hide with expenses legally, obviously. I’m not trying to give any tax [unintelligible [00:19:38].22] So we have fully depreciated the $5 million in our portfolio and the person who owns it passes and they leave it to their son, and now the son inherits that $5 million through something called the “1014 Step-up at Death”, meaning he inherits $5 million of an asset with a basis of fair market value $5 million, and he does not have to pay any gain taxes or any income taxes on that inheritance – estate tax, we’re not going to talk about that, it’s separate.

So we’ve got an income tax shelter of income while we’re holding it, gain while we sell it and then death – we can step it up to the next generation and never pay a tax on the income side.

Joe Fairless: That’s going away based on what you were saying before? At least some of that, right?

Rebecca Walser: Yeah. So what I wanted to kind of frame was, I want you all to see that everything is going to be changing in this 10-year period. So by 2030, I expect everything to look very, very different. And what I always love to do in a presidential election year – and this is not political, but whatever party is not an office, that’s the party that has all the vigorous debate and comes out with all their new tax proposals… And I always like to look at the party that’s not in power, their tax proposals, to start to see where we’re going to see these proposals coming. So we know Trump’s tax proposals – because we’re under his plan right now and he’s got all those things… What did the democrats, because they were the party that was going through all the rigorous debate schedule, what did they talk about? So it’s very interesting.

So starting with the 1031, you had Mike Bloomberg, of all people – very odd real estate guy who’s built a real estate empire along with his other assets – proposing the elimination of the 1031, complete elimination of the 1031. And you had Pete Buttigieg, proposed the elimination of capital gains altogether. So basically, every game would be taxed as ordinary income.

You have Joe Biden, who has obviously made it to the actual finale, could easily be the president, you have him saying that he wants to eliminate capital gains for people that make over $400,000. So if you’re making over $400,000 a year, all of your now income that would have otherwise been subject to a long-term capital gain at a tax-favored rate of 15% or 20%, 20% being the highest capital gain we have right now – that’s going to end and it will be taxed as ordinary income. And then you had surprisingly enough, in April of last year, Joe Biden proposed the elimination of the 1014 “Step-Up at Death”.

So what you can see is a future scenario where we’ve already started contemplating the elimination of the 1031, the elimination of the “Step-Up at Death” and taxing people at ordinary income tax rates as opposed to capital gains rates, which will apply to those gains that we get since we will no longer be able to do 1031. And this is not going to happen tomorrow. This is not going to happen overnight. I’m not trying to tell people to go out, [unintelligible [00:22:37] real estate. Real estate is a truly great asset. It’s the best asset to have for inflation hedge protection over the history of America. But I do want people to understand how tax-favored it is and how it will be attacked in these next 10 years.

Joe Fairless: What an insightful—and to me, it’s exciting. None of it is good for me, personally, or my business. But ignorance is not bliss. Yeah. So it’s important to get this information out there. And then everything needs to evolve, or it dies.

Rebecca Walser: Yeah.

Joe Fairless: So if we can’t control what’s happening, then we just got to evolve with it. And that’s why I think it’s exciting, because it’s just getting this information out there and having the conversation is so important. And I appreciate that you are leading the conversation and brought this up.

As we wrap up, how can the Best Ever listeners work with you?

Rebecca Walser: Great question, Joe. I have a pretty public profile. I also wrote a book called Wealth Unbroken. And if you just Google my name, Rebecca Walser, you’ll find me. I’m usually on national media, television once or twice a week. So if people just Google my name, they’ll find my practice, they’ll find my book, they’ll find all my media, they’ll find me. So it’s Walser. My website is http://www.walserwealth.com/.

Joe Fairless: And what do they hire you for?

Rebecca Walser: So what I do is — we’re a money manager, so we manage a ton of money in the market and we’re not anti-market. We’re just not as plain Jane, vanilla market money manager, like if you go to a Merrill, Morgan, Raymond James, Edward Jones; you’re going to just get what I call a triangle advisor. It’s an advisor who exists within the three angles of stocks, bonds, ETFs, mutual funds or REITs. We obviously manage money in that world, but we also leverage a lot of other strategies, specifically creating legal domestic tax shelters, which still exists in America… And also real estate is a huge part of it.

We really do love real estate as inflation protection. We’ve enjoyed these tax-favored policies of real estate, and now it’s just going to become very important for people that are real estate investors to make sure that they are starting to build tax-free asset classes alongside of their real estate portfolio, so that if everything does hit the fan and when it does hit the fan like I’m prognosticating here, they have a backup plan where they have gotten a certain amount of cash to sort of set tax-free, that will be usable for them while these tax rates go to high heaven.

Joe Fairless: Grateful that you were on the show, Rebecca. Thanks for talking about this. Hope you have a best ever weekend and talk to you again soon.

Rebecca Walser: Thanks, Joe.

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JF2250: The Power Of Using LinkedIn For Raising Investor Capital With Yakov Smart

Yakov Smart is the President at Linked Lead Enterprises. Yakov has been focusing on helping real estate investors with tools to help them raise capital through Linkedin. In today’s episode, Yakov, shares the mindset you need to have, and some of the steps you need to take.

Yakov Smart Real Estate Background: 

 

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Best Ever Tweet:

“In a matter of minutes you can have a hyper-targeted list of thousands of your ideal investor” – Yakov Smart


TRANSCRIPTION

Theo Hicks: Hello, best ever listeners and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today, we’re speaking with Yakov Smart.

Yakov, how are you doing today?

Yakov Smart: I’m well, Theo. Thank you for having me.

Theo Hicks: Yep. And thanks for joining us. Looking forward to our conversation. We’re going to talk about raising money on LinkedIn. So Yakov is the President at Linked Lead Enterprises and is an internationally recognized LinkedIn experts as well as the author of Disrupting LinkedIn; what he does is specializes in helping real estate organizations raise private money using LinkedIn.

He is based in Scottsdale, Arizona, and you can say hi to him at his website which is http://linkedleads.us/.

Yakov, do you mind telling us a little bit more about your background and what you’re focused on today?

Yakov Smart: Absolutely. So I’ll give you the really brief version of the background, so we can get into some of the concepts today as well. So my expertise for a number of years has been in the online marketing space. I’ve been marketing online, pretty much growing up with social media. I’ve been on social media since the eighth grade, way back in the days of something called MySpace, which I know a lot of people listening probably can remember as well. I first got into online business and online marketing as a college student. I actually wrote an ebook on success in college, which I think is actually still on Amazon funnily enough… But that’s when I first got into this online marketing world. I’ve pretty much been hooked ever since.

And fast forward a bit… I’ve had my business focus specifically around lead generation and attracting clients and investors using LinkedIn. Forward to the time that we’re having this conversation about for four and a half years, and as of recently, we’ve shifted our entire focus because of the opportunity that’s here at the moment of working specifically with real estate entrepreneurs and organizations and showing them a new way of raising capital and attracting the investors they’re looking for using LinkedIn… And through a series of strategies, tactics, and really innovative new ways of tapping into the LinkedIn platform and a few other online marketing platforms, we give people proven tools and a new way of raising more capital so that they can massively grow and scale some of their projects.

Theo Hicks: Perfect, thanks for sharing. And then you’ve also got your book on Disrupting LinkedIn. So I’m going to kind of toss it over to you and let you start wherever you want, and walk us through your tips, tactics, tools for using LinkedIn to raise more money.

Yakov Smart: So let’s start with some really important frameworks, because I know there’s people listening who are already very active on LinkedIn and have already given it a shot in terms of attracting investors and marketing and are seeing some sort of results. And I know there’s people who probably have a LinkedIn profile and haven’t really tapped into it for attracting investors and maybe haven’t even thought about tapping into LinkedIn for raising more capital, or maybe there’s people are transitioning from their day jobs and want to get into doing things like syndications and other real estate projects.

So the very first thing to think about is to understand the power of that platform, right? Because what LinkedIn allows you to do, it allows you to reach high-level decision-makers directly. So whoever is an ideal investor for you, whether they need to be accredited or not, whatever that number is for you that you’re wanting people to invest in your projects, there’s a great chance you can reach that person directly on LinkedIn… Because the average household income of a LinkedIn users $115,000, okay? That’s an average household income. And when people work with us, they’re just blown away by how quickly when you know how to build a list on LinkedIn, literally, within a matter of minutes, you can have a hyper-targeted list of thousands of your ideal investors, whether those are local dentists, dentists nationally, international investors, people at family offices, other real estate entrepreneurs, attorneys, tech founders, people who are working as project managers in corporations, who have 401 K’s to invest, for example. Pretty much any type of investor you can imagine. You can build a hyper-targeted list of these individuals and a hyper-targeted list of accredited investors if you’re working with or wanting to work with accredited investors only.

And the great thing is this data is the best data in the world, it updates in real-time, and you have access to those lists of potential investors at your fingertips. And what’s also really neat about that is as opposed to going out and buying a list or paying a list broker thousands of dollars, this information is available in real-time. And a lot of it, you can even get on the free LinkedIn search.

So the very first thing that people have to recognize and that they have to know how to do is how to find and pinpoint their ideal investors on LinkedIn, and build those lists. And that’s a really, really big thing, and there’s a number of ways to do that. But the other piece, the sort of the one-two punch where things really start coming together for you, is in the messaging. Okay? And if there’s a secret sauce to this, the messaging is that. Because you have to understand the difference between meeting that potential investor, let’s say at a conference or a networking event, versus LinkedIn, where if you’re having a conversation at a conference or a networking event and they’re not that interested at first, most people will give you the time of day, and they don’t want to just run the other way and give you the cold shoulder… Versus online, you’ve got a split second to get them to care. There’s a lot of noise out there, so you need to be able to build trust, you need to be able to stand out using your messaging and you need to understand the psychology of that ideal investor as well when coming up with your messaging on LinkedIn.

The upside here and the vision and the potential for you as a real estate entrepreneur who wants to raise more money and raise private capital using LinkedIn is you have the ability to consistently generate investor leads by having a system in place where quite literally with one press of a button, you have something that runs on autopilot, it’s 90% automated, where you’re generating high-quality investor leads day in and day out, staying within SEC compliance and constantly filling your calendar and building new relationships with potential investors. So it’s a tremendously powerful platform. I’ll also say it’s still one of the most under-utilized platforms out there for generating high-quality investor leads.

Theo Hicks: Perfect. So I’ve got basically three categories. Number one, the list. Number two, the messaging. And then number three, which is kind of like a combination of those two, is making it automated. So let’s kind of walk through each of those three. So the list – you already mentioned, free LinkedIn profile versus the more advanced LinkedIn profiles. Maybe tell us, is it worth getting that premium LinkedIn profile when it comes to making these lists? What’s the difference between the two?

Yakov Smart: So there’s five ways to build lists on LinkedIn, okay? And this will be a really good, thorough answer. So a question that I think a lot of people are asking themselves that are listening… So five different ways to build a list on LinkedIn… The first way is using the free search. It’s available to everyone. There’s a limit on searches you can do per month, but there’s some really good basics that you can segment for when you’re building your free list.

The second way is to search by LinkedIn groups. That’s also a free feature. That’s a way to see people based on behavior based on interests. For example, if you want attorneys who are interested in real estate to begin with, which tends to be a much easier group than just attorneys in general, having that type of overlap is another good way to build lists, and finding people by groups is the second way to do searches.

Third way, if you have a list that you could import  previous contacts, or if you bought a list from somewhere, you could integrate that with LinkedIn.

Fourth ways to use the LinkedIn advertising platform. At the time we’re having this conversation, it’s not worth it for most real estate entrepreneurs. LinkedIn ads tend to be more expensive, and they’re not nearly what Facebook ads are at the moment. Now, that may change.

The fifth way, and this is where the premium accounts come into play, is something called LinkedIn Sales Navigator. Inside of our programs, I highly recommend for people who want to really ramp this up and do this at scale and get consistent results to use Sales Navigator. It’s not just the old school LinkedIn premium account. There’s a few different types of premium accounts. There’s recruiter, there’s old school premium and there’s Sales Navigator. And specifically, the upside of Sales Navigator is you can build hyper segmented lists. There’s about 15 to 20 different filters you can filter by. You can save these lists and use them like a CRM inside of LinkedIn.

And what you also have the ability to do is get hyper-specific. We’re talking about criteria like zip code, we’re talking about things like how long someone has been at their company, right? So oftentimes, a good investor or someone who has a retirement account that’s had that longevity. You can go by seniority in the organization. You can go by different interests, different affiliations, as well. So all that is available, and also by company sizes, where people live. For example, there’s an affluent zip code, you can build list of those people as well.

And where it gets really, really powerful, is having the ability to do that and get hyper-specific; the more specific you are in Sales Navigator, the better. And the reason why this is such a big hack, Theo, is this tool was originally intended for B2B sales prospecting, and part of this new way of using LinkedIn that I think a lot of real estate entrepreneurs are drawn to, certainly when they work with us and why they’re drawn to a lot of our programs, is we’ve taken a tool that’s very, very powerful but it’s never been used quite like this. And there’s so much upside potential to it.

Theo Hicks: Thanks for sharing those five ways. So let’s say, as I’m following and listening to this, I’ve got my free account, I already have my target audience defined; let’s say it’s attorneys and the zip code or whatever. So I do a search, I got my list. The next step, I’m assuming, is the messaging. So once I have my list, what do I do with the messaging aspect of it? What are some of your tips for making sure I’m able to get their attention right away, build that trust right away, stand out right away? And then I guess more tactically speaking, am I just direct messaging all of them individually? Is there like a bulk way to send a message to all of them? So I guess that’s kind of a two-part question, the what and the how.

Yakov Smart: So the messaging is a really big thing. There’s three important places to have your messaging, Theo. And we could talk for hours about messaging, but I’ll give you sort of the essential start with.

So the first place, as some people could probably guess, is going to be that LinkedIn profile. You don’t want it to sound like a resume, you’re not looking to put your executive bio out there. Your messaging on your LinkedIn profile needs to be all about what’s in it for them, because you’ve got to grab their attention first and gear it towards your ideal investor. The more specific you can be in your messaging on your LinkedIn profile, the easier it’s going to be to start building that trust. And you want that ideal investor, when they look at your profile, to look at it and think to themselves, “Wow, this is for me.” Okay? That’s a really big thing that you want to have happen. But there’s some other important areas of the profile where you can do that. There’s some tactical things, headlines, your About section, having a great cover photo, making sure your profile is set to public. Those types of different things that are a really good place to showcase a lot of your messaging.

And the other reason why the LinkedIn profile is so important is because other than your website online, this will surprise a lot of people, but it’s really important – your LinkedIn profile is your most important online marketing asset. Because when people Google your name, even if you haven’t logged into LinkedIn in years, that LinkedIn profile is usually going to be at least on the first page, if not in the first three results. So it’s really important to have that updated. It’s really important to have that powerful messaging on your profile.

The second place is in some of the content that you’re able to post on LinkedIn. Just like Facebook, there’s a newsfeed on LinkedIn, and it’s using content when it comes to messaging. It’s not about volume. It’s not about posting five times a day, right? There’s a lot of gurus who talk about posting five times a day or whatever. That’s an overwhelming amount. No need to do that. It’s more about posting quality things, that educate people and get people to have an ‘Aha!’ moment of like, “Wait a minute, this is something I might want to learn more about.” And there’s a number of best practices there, but as a rule of thumb, just think about content that moves people closer to action, that makes them more aware and makes them more educated about the type of investment opportunities that you have to offer.

Now, a real strong word of caution – when you post on LinkedIn, do not post individual deals. There’s a bunch of SEC compliance and regulations that you just don’t want to go there, right? So it’s never about individual deals, offering up individual investments just out in the open on LinkedIn. That’s not what I recommend at all; I want to make sure people do not do that.

The third important place for messaging is, as you mentioned, Theo, direct messages, right? And the big mistake to avoid with direct messaging, you don’t want to go for the one-shot kill. And something as nuanced as investing, with you – you know, there’s some cases where people are going to write you checks for hundreds of thousands if not millions of dollars over time, and to just start that relationship off, you do not want to start off by connecting and pitching them immediately, right? It’s one of the worst things you can do, and you can ruin someone who might have been interested by taking that sort of approach.

So instead of doing that, you want to think about it as a series. I call it a LinkedIn messenger funnel. It is a series of messages you can strategically send to someone on LinkedIn over time that’s going to get them to want to find out more about what you’re up to, about investing with you, and it’s going to get them to want to schedule a call with you, and then eventually join your investor club and your investor list. So it’s a really powerful way to look at messaging.

And some other best practices, you want to keep things concise. You want to make sure that you’re always leading with value, you want to make sure sometimes you’re asking the right questions that are going to get their wheel-spinning, they’re going to get them interested, and you want to make sure you’re automated. This was your other point as well, sort of on the systems and automation. I’m big on delegating. I’m big on you as a real estate entrepreneur being the visionary behind your business and having a system you can actually delegate.

First of all, you want to automate as much as possible, but you also want to have a system for generating investor leads on LinkedIn that you can actually delegate to an admin, an intern and an assistant. And the big thing is to have it be systematic in a way where they can plug into, right? Where that becomes mechanical, that becomes a button-pushing. So first the  strategy in the messaging and the processes and the individual tactics that are going to work for you. Then the mechanical on the day to day upkeep.

Now, the great thing about the day to day upkeep, using different types of automation software, you can actually automate about 90% of the work, right? So once you have the messaging in place, your profile looks good, you’ve got a really good list, you can automate pretty much all the follow up. And the only manual part, and this usually takes people between 15 to 20 minutes a day if they don’t have an assistant do it on their behalf, is responding to people who are actually interested. You’re going to start to see inquiries, you’re going to start to see people who are interested in finding out more about investing with you, people engaging, asking questions and messages. And you’re going to either give yourself 15-20 minutes a day, which is usually time very well spent, for responding to actual leads to people raising their hands wanting to know more, or eventually delegating that to an assistant or an admin person. So you definitely want to tap into automation. Automate 90% of the outreach and the follow-up. That’s a really big thing.

Theo Hicks: Okay, Yakov, besides all the amazing advice you’ve given so far, what is your best ever advice for raising capital on LinkedIn?

Yakov Smart: To think of it as a system and reverse engineer. You really want something that’s going to work for generating investor leads and getting people on your investor list over the long term. So the best ever advice is to reverse engineer the process, have great messaging, and think about this in the long term, something you can duplicate again and again.

Theo Hicks: Perfect. Are you ready for the best ever lightning round?

Yakov Smart: Let’s do it.

Theo Hicks: Okay.

Break: [00:18:57] to [00:19:50]

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

Yakov Smart: The best ever book I’ve recently read, it’s a book actually by 50 Cent, that 50 Cent, Curtis “50 Cent” Jackson. It’s a great personal development book. I think people, if they listen to the audio especially will be very pleasantly surprised. It’s called Hustle Harder, Hustle Smarter.

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

Yakov Smart: I would figure something else out to market. I would generate some leads and sell some stuff.

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

Yakov Smart: Through education. I think educating people, upgrading their levels of awareness; it’s a great way because collectively, one person has a new range of skills or one person is doing better in their business with raising capital, and it positively impacts the people around them as well. So education first.

Theo Hicks: I’m not sure if you have a specific consulting program or your book is your main education source, but maybe tell us the most amount of money, either one of your clients or someone who’s read your book and reached out to you, the most amount of money someone has raised by using your LinkedIn strategies.

Yakov Smart: So I wouldn’t say that the book is a great source for attracting investors. It’s a general LinkedIn book. There are some better resources for accomplishing raising capital. I think, at the time, I think it’s 3.2 million actually raised. And I need to check that, but that’s the highest number that I know of.

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

Yakov Smart: So there’s a very specific place for people who are listening to this and want to go deeper and know more. There’s a free online training, it’s http://linkedleads.us/raisingcapitalwebinar/. It’s a free online training that covers the methodology, and they can get access to that by going to http://linkedleads.us/raisingcapitalwebinar/.

Theo Hicks: Perfect, thanks for sharing that and I’ll make sure that that is included in the show notes. Yakov, thanks for coming on the show and giving us your best ever advice and tactics for raising capital on LinkedIn. We were very specific, and you gave all your advice in list form, which makes it very easy for me to summarize, aas well as for people listening to remember. So your framework was how powerful LinkedIn actually is, and that not all people are necessarily using it to generate leads, and some people are, some people aren’t.

But you mentioned that something that seems to shock people, is when you mentioned that the average household income for a LinkedIn user is $115,000. So it allows you to reach people that have that salary or even higher directly.

You mentioned that there are three different aspects of the strategy. First, is the list. Second, is the messaging. And the third, is making sure that it’s on autopilot.

For the list, there’s five ways to build lists; there’s the free search function, there’s searching by LinkedIn groups, there’s importing a list, maybe a list you bought somewhere else, there’s advertising, which you’ve said, probably not the best, at least right now for real estate investors. They can get more out of some other advertising, like on Facebook. And then fifth would be the LinkedIn Sales Navigator, which is one of those paid accounts that allows you to hyper-segment your lists, and there’s a bunch of filters you can use.

And then for the messaging, which you said was the secret sauce… I liked how you said that you have to recognize a difference between networking with someone face to face, where they’re not interested, they’re not going to just instantaneously walk away from you. They’re going to be polite, maybe listen to you a little bit, and then walk away. Whereas online, it’s a split-second, you’ve got a very short amount of time to get their attention, or they will just click away.

So you mentioned that to set yourself up for success, the three places you need to focus on are your profile, the content that you post, as well as the direct messaging. And you kind of gave us all examples of what to do for each of those. And then you talked about the third category, which is putting the system on autopilot and that you’re able to automate 90% of it. And then the only manual part would be responding to people, which you could automate even further by delegating to an admin.

And then to wrap it all up, you said your best ever advice, which was to think of it as a whole system, reverse engineer the process and then realize this is a long term strategy. Don’t get discouraged if you make your first list and don’t raise $3.4 million in a week.

So Yakov, again, thanks for joining us. Best of listeners, make sure you take advantage of that free course at http://linkedleads.us/raisingcapitalwebinar/. Thank you as always for listening. Have a best every day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2224: Note Investing Strategies With Jamie Bateman

Jamie is a part-time real estate investor and works part-time in the U.S Defense Department. He currently has a portfolio of 8 rentals and over 20 mortgage notes. Jamie started off as a coach and after some time he decided to work for a mortgage broker where he saw some shady things happening so he decided to quit his job and join the military. Now he is focusing on his own real estate business while working for the U.S Defense Department.

 

Jamie Bateman Real Estate Background:

  • Part-time real estate investor and part-time in the U.S Defense Department
  • Has over a decade of experience in single-family rentals and 2 years in mortgage notes
  • Portfolio consist of 8 rentals and over 20 mortgage notes
  • Based in Baltimore County, MD
  • Say hi to him at: www.labradorlending.com 
  • Best Ever Book: Wealthy Gardener

Click here for more info on groundbreaker.co

Best Ever Tweet:

“One of the benefits from note investing is you have collateral” – Jamie Bateman


TRANSCRIPTION

Theo Hicks: Hello best ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’re speaking with Jamie Bateman.

Jamie, how are you doing today?

Jamie Bateman: I’m doing great, Theo. I really appreciate you having me on.

Theo Hicks: No Absolutely. Thanks for joining us, I’m looking forward to our conversation. Before we get to that though, let’s go over Jamie’s background. He is a part-time real estate investor and part-time in the US Defense Department. He has over a decade of experience in single-family rentals and two years of experience in mortgage notes. His portfolio consists of eight rentals and over 20 mortgage notes. He’s based in Baltimore County, Maryland, and you can say hi to him at https://labradorlending.com/.

Jamie, do you mind sharing with us a little bit more about your background and what you’re focused on today?

Jamie Bateman: I’d be happy to. As far as background goes, as you mentioned, I’m from Baltimore County, Maryland. I am the oldest of seven kids. I have three brothers and three sisters. Went to Hereford High School in Baltimore County. I went to Gettysburg College in Pennsylvania, played lacrosse there, and met my wife there, graduated in 1999.

After college, frankly, I really wasn’t positive what I wanted to do. Lacrosse was such a big part of my life at that point. I didn’t have too much direction at that point, so I decided to coach a little bit, so I coached in high school and at the college level. Unfortunately, it doesn’t pay real well and certainly not back then.  One year I made $8,500 (not $85,000) as essentially a full-time coach… So I decided it was about time to get a real job.

Through some networking, I linked up with a title company, and I later worked for a mortgage broker. At that point, there were some real shady things – this was probably 2004/2005-ish, kind of right before the peak of the real estate market… And some shady things were going on at the mortgage company I was working for and I said, “You know what, I don’t want to have anything to do with this.”

I quit my job, I joined the Army Reserves, went through Officer Candidate School, chemical school, deployed to Iraq for a year,  I ended up getting a Master’s… But again, as you can see, kind of bouncing around, not totally sure what I wanted to do. I was able to use that army career to pivot to a civilian job with, as you mentioned, the Defense Department, and that was in 2008. I got out of the Army Reserves as a captain. I’m still currently with the Defense Department today.

My wife and I actually bought our first rental property – pivoting over to real estate now – in December 2009. It was a condo, we still own it. In fact, we still have the same tenant there. I’ve kind of always had an inkling that I want to get into real estate investing, but frankly, at that point we weren’t really taking it too seriously, didn’t really know what we were doing. It was later on, 2014-ish, when I was driving a lot for work, for my commute, and listening to a ton of podcasts, and then I kind of decided to take real estate to the next level.

So 2015 is when we actually started buying rentals and I actually went part-time in 2015 at my “real job”, and my wife and I started ramping up our real estate investing.

Theo Hicks: 2015 – is that when you started to accumulate the now eight rentals that you own?

Jamie Bateman: You got it. Yep.

Theo Hicks: Are those all single families?

Jamie Bateman: They are all single families. One is a condo and six townhouses in Baltimore County, and then we actually just picked up a rental in Jacksonville, Florida. It’s our first out of state rental. That’s a true single-family detached home, which is a pretty cool story, I think.

Theo Hicks: Yeah, I definitely want to ask about that rental out of state. One question I want to ask you – a lot of people, when they think about single-family rental investing, you’re only allowed to have a certain number of the types of loans in your own personal name. I think it’s like four or eight or something.

Jamie Bateman: Yeah, I think it’s gone up to 10.

Theo Hicks: Okay, so you’re still just putting those in your personal name, then?

Jamie Bateman: No, actually they are in an LLC, and one of them is in our personal name. But that’s the first one that we bought over 10 years ago. We still have the same tenant there, and he brings us six checks twice a year, which is nice. But anyway, the rest are not in our personal name.

One of the downsides is we do have commercial notes attached to those properties and they are recourse loans that are amortized over 20 years, and they have balloons after five years. It’s your typical commercial loan, which that’s also typically a little bit higher interest rate. I’m actually looking to address that situation, because the payments are a little bit higher than I’d like them to be.

Theo Hicks:  Do you have one commercial loan over all those properties or each property is in a commercial loan?

Jamie Bateman: It’s actually the six townhouses in Baltimore County have three loans on them. So each loan is backed up by two properties.

Theo Hicks: Got it. Okay. Does that mean you bought those two properties at the same time?

Jamie Bateman: It doesn’t mean that. We actually were buying these with cash, and generally speaking, following the BRRRR method, which I’m sure a lot of your listeners are familiar with, and fixing these properties up and renting them out, and then refinancing. But in this case, when I say refinance, it’s really just a cash-out refinance to get some or all of our money back that we put into the deal. We weren’t using hard money or anything like that. We actually were using cash to buy them, fix them up, rent them out, and then went and got more of a standard loan.

Theo Hicks: Okay. When you refinance, you buy them all cash, and then you finance two at a time and bundle them into one loan?

Jamie Bateman: Exactly.

Theo Hicks: Got it. Okay. Let’s talk about the Jacksonville deal then. I’m assuming that the other ones – were all those in Baltimore County, Maryland, or were they also out of state or out of the area?

Jamie Bateman: The Jacksonville one is the first out of Baltimore County, actually. It’s the first one that’s even more than a 15-minute drive from where we live.

Theo Hicks: Walk us through that decision. Why did you decide to invest out of state? Why did you choose Jacksonville? And then kind of just walk us up until you actually found the deal. What team members were put in place from Jacksonville? How did you find them? How did you screen them? Things like that.

Jamie Bateman: Sure. I actually have – just for your listeners, if anybody wants to learn more about this particular deal, I do have a couple blog posts about this. But this actually is a good transition over to our note investing, because this actually was a note deal that we ended up taking back the property on; and I had no intention of keeping it initially frankly. I do like the Jacksonville market, which is one reason that I purchased the note, but I did not intend to pick up a rental there. However, we fixed up that property and I was going to sell it. The more I researched the market, I just thought that it’s a really strong rental market and why sell it now. I can rent it out for a year or two and if it’s just an awful experience, I can sell the property then.

As far as team members and that kind of thing, really, I relied heavily on networking through bigger pockets and other groups that I’m in and decided on a good, established property management company that’s down there, and I’ve relied on them heavily frankly. I’ve never been to Jacksonville, Florida, and so far, it’s going pretty well.

Theo Hicks: Let’s transition into the notes then. Overall, your note strategy, I think I know the answer based off of—or maybe I don’t; so is your goal — because I was talking to someone about notes, I think it was last week, and he buys notes because he wants to take the property. He kind of mentioned there are two strategies; there’s ones where you want the property and there’s the other one where you want to work it out with the person who’s currently living there, so you just make the money on the interest rate. Which one are you and why?

Jamie Bateman: I’m not intending to take the property back. I’m trying to keep people in their homes. I’d love to work with borrowers as much as possible. Sometimes it’s the last resort. That’s one of the nice benefits about note investing, is you have collateral, which is the property, as compared to the stock market and a lot of other investment strategies. That is one benefit there. So no, we buy both performing and non-performing first-lien mortgages.

Another benefit to note investing is that there are so many exit strategies. You mentioned a couple of them, Theo, but there are others. Another really good one is to buy a non-performing note, get it re-performing, and then resell that note. That’s what a lot of non-performing note investors aim for.

Yes, some people do try to take the property back and that’s certainly a strategy. I know, as the real estate market in general, across the country, tightened up over the last five years, there were a lot more flippers and rehabbers, and people who wanted the property, getting into the note investing space just for that reason. For me, it’s not my first goal, but it’s one of several options.

Theo Hicks: Sure. So you buy performing and non-performing. Do you do the strategy where you take the non-performing to performing and sell it, or the buy and hold as a flip strategy?

Jamie Bateman: Yeah. I would say that we’re closer to the buy and hold side of things. I don’t want to pretend like I’ve been doing the note thing for 10 years. It’s actively been more of a year and a half to two years type thing. We’ve had Labrador Lending for about two and a half years, but I’m actually in the process of adding value to some of our lesser performing notes. We’ll be hoping to resell them later this year. That’s definitely on our list of — probably our first option that we’d like to do. But I’m absolutely not opposed to just buying a nice performing note, and holding it for cash flow, especially during these times.

A lot of times what we’ll end up doing is if we’re using our own money, we’ll buy a performing note to pay the bills and keep the business going. I actually hired my wife in January. She helps me out with a lot of the due diligence and a lot of paperwork.. But we will use other people’s money. A lot of times a joint venture is best geared toward a non-performing note. The reason that is — well, several reasons. But with non-performing notes, you have more of a well-defined exit point. If you’re getting the note re-performing and selling it, that’s the transaction that ends your ownership of that note, right? But joint ventures don’t typically work so well on performing notes, so we’ll often buy a performing note with our own funds. Another strategy that I have employed recently is to sell partial notes, which is a part of that sell payment stream. That strategy works better for performing notes.

I hope I’m not confusing things too much, but there are different strategies to use with both performing and non-performing notes. We stick strictly with the first lien space and specific states as well. That’s another way of focusing the business.

But as far as performing, non-performing, frankly, you can’t control the borrower, you don’t know exactly how it’s going to go, so to pretend that you know, “Oh, this is my plan for this note” upfront – it just doesn’t work like that. You might have one or two strategies that you think are going to work, but the fact is, you have many options at your disposal. If you’re doing your due diligence well, you should have equity in the property. In my mind, whether it’s performing or non-performing, it’s actually a safer investment a lot of times than, like, the stock market or things that don’t have any collateral.

Theo Hicks: Can you give us some tips, some things that you do in order to take a non-performing note to performing?

Jamie Bateman: Well, I think it really boils down to carrots and sticks. Especially during this time with COVID and everything we’ve worked with our borrowers to defer a couple of months of payments if they were affected, or even if they said they were affected by COVID and the lack of employment. In other cases, we are modifying loans to lower the interest rates.

As an example, say a borrower — they might have an unpaid principal balance of $50,000, but they have unpaid interest in fees and all kinds of arrears upwards of $25,000, so they actually owe $75,000, and they’re unable to make their payments.  What we have been doing is modifying those loans, lowering the interest rate, potentially extending the term of the loan so that their payment doesn’t go up, and getting them back on track.

Another option there is to take those arrears – and this is a key part of it, and obviously check with attorneys in your state that the note is in… But if you can raise that principal balance, a lot of note investors actually bid on the principal balance, and that’s a key part of this is; you’re adding value to that note by, one, lowering their payment, getting them reinstated, caught up, and they start paying again, and then you’ve also raised the principal balance, so you’ve added value to that note then for the resale.

Theo Hicks: You’re saying that, in that example, a $50,000 principal and 25 payments and stuff, the new loan is actually $75,000 principle?

Jamie Bateman: You got it.

Theo Hicks: Perfect. Okay. All right, Jamie. What is your best real estate investing advice ever?

Jamie Bateman: I would say focus on your strengths and think about how you can add value contributing to something bigger than yourself. One more quick thing is, just do what you say you’re going to do. There are a lot of people that just don’t follow through and I think your word is really important.

Theo Hicks: Perfect. Okay, are you ready for the best ever lightning round?

Jamie Bateman: Let’s do it.

Theo Hicks: Okay.

Break: [00:16:15] to [00:17:06].

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

Jamie Bateman: The Wealthy Gardener by John Soforic. It’s really good blend between fiction and non-fiction, and it’s got so many life lessons in it. I think I’m going to have to re-read it.

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

Jamie Bateman: That’s a really good question. I think I would, again, go back to what I said with the best ever advice, focus on my strengths. I’ve got some networks built-in now as far as note investors and property managers and that kind of thing. It would take a little while but I think I could start over.

Theo Hicks: Out of the eight rental deals you’ve done and the 20 plus note deals you’ve done, which of those was your best ever deal?

Jamie Bateman: I’d have to say it was the Jacksonville deal, because numbers-wise, it’s really good. And again, go to the blog posts about that. It also utilized several different strategies. It used both buying a non-performing note, trying to work with the borrower, unfortunately, for closing, taking the property back, rehabbing the property from a distance, and then renting it out two days after it was on the market for rent, in the middle of a global pandemic. We certainly made some mistakes with that, I don’t want to pretend like it was the perfect deal, but that’s the one I’m most proud of.

Theo Hicks: And that blog post, is that https://labradorlending.com/blog/ and then it says  Jacksonville, FL, Case Study 2.0? Is it the one?

Jamie Bateman: You got it. Yes.

Theo Hicks: Okay. Now, what about a deal that you actually lost money on? How much did you lose? What lessons did you learn?

Jamie Bateman: We’re not really in the transactional space, per se. I’d say we’ve lost money with opportunity costs, the Jacksonville deal, for example, I overpaid for the note. I found out later that I paid $46,000 for the note. And it turns out, I actually could have paid $40,000 and found out through kind of a backchannel… But we didn’t lose money on the deal. We really haven’t lost money on a deal. I think it’s much easier to lose money if you’re actively flipping or that kind of thing.

Just to clarify, I have lost money on passive investments through crowdfunding deals that I totally blame myself for, for not doing enough due diligence there. I guess if you’re including that, then I certainly have lost money.

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

Jamie Bateman: We support our church financially and are active members there. My wife has volunteered there over the years and since we’re married, I’ll take credit for that—no, I’m kidding. I also coach youth lacrosse. I’ve coached my son’s lacrosse team for several years, so we’ll see where that goes. Other than that, just trying to support family members when we can and trying to be the best parents that we can.

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

Jamie Bateman: I’d say my website https://labradorlending.com/ and then you can also feel free to email me at batemanjames@labradorlending.com. A lot of people actually don’t know how to spell Labrador, surprisingly. batemanjames@labradorlending.com, I’d be happy to help anybody who has questions with single-family rentals or note investing, which is what we’re really focused on these days.

Theo Hicks: Perfect, Jamie. Thanks for joining us today and walking us through your journey. A few of the takeaways that I got… You talked about your strategy for acquiring those eight rentals and how you would buy them all cash, would do a BRRRR model, and then you actually refinance two properties into commercial loans. That was interesting.

You talked about your Jacksonville deal, and you mentioned that people can learn a lot more about that on your blog, and you mentioned how to find it there. But you mentioned the process of how are you able to do that deal by being out of state – it was originally a note that you had take the property back, which you didn’t intend on doing. And you mentioned that you fixed it up, and planned on selling it, but then did a lot of research and found that it was actually a really strong rental market. You relied heavily on networking on Bigger Pockets, and other groups to find a solid property management company that helps you with that process down there.

Then you kind of walked through your note investing, you kind of gave us a crash course on note investing; your strategy is closer to the buy and hold than is actually flipping the notes. You buy performing and non-performing, and you do joint ventures on some of the non-performing liens.

We talked about some of the pros and cons of performing versus non-performing. You talked about how to get a non-performing note to perform. You say it’s kind of like carrots and sticks, so you can defer payments; you can modify loans to have lower incidence rates, you can extend the term of the loan’ so the payment doesn’t go up, you can take the arrears and add it to the principal… So really just a lot about note investing. That was interesting.

And then also your best ever advice, which was focus on strengths, figure out how to add value, and then do what you say you’re going to do and follow through. So I really enjoyed the conversation and I learned a lot.

Better Ever listeners, I hope you enjoyed the conversation as well. Thank you for listening. As always, have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2223: Invest When Approaching Retirement With Bill Manassero

Bill Manassero is the Host of The Old Dawg’s REI Network and has 6 years of real estate experience with a portfolio of 756 doors. Bill started into real estate a little later in life than most people and decided to start into real estate by buying a couple of turnkey properties. When he started seeing checks being deposited in his account he decided to focus on buying more properties.

Bill Manassero (Man-a-cer-o)  Real Estate Background:

  • Host of The Old Dawg’s REI Network
  • 6 years of real estate investing experience
  • Portfolio consist of 756 doors
  • Based in Irvine, CA
  • Say hi to him at: olddawgsreinetwork.com 
  • Best Ever Book: Clockwork

Best Ever Tweet:

“Know what your why is, because when all else fades away, it’s going to be your why that keeps you motivated” – Bill Manassero


TRANSCRIPTION

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

Bill Manassero: Hey, I’m doing great, Theo. How are you, my friend?

Theo Hicks: I’m doing great as well. Thanks for asking. Thanks for joining us and I’m looking forward to our conversation. Before we get into that, let’s go over Bill’s background. He’s the host of The Old Dawg’s REI Network. He has six years of real estate investing experience and has a portfolio consisting of 756 doors. He is based in Irvine, California, and you can say hi to him at his website, which is http://olddawgsreinetwork.com/.

Bill, do you mind telling us a little bit more about your background and what you’re focused on today?

Bill Manassero: Sure. I’m an old dawg, I guess that came across real clear in all the URLs so far… I started in real estate actually kind of later in life. I had about 25 plus years in business; both in the corporate side, the entrepreneurial side, everything from technology to automotive to financial services; a pretty broad background. I also spent a number of years as a professional musician. And then my last stint was with a new internet company that seemed to be the last company I was going to work with, because I had the stock options, I was going to retire with the stock options and go into full-time ministry. The bubble burst and I was kind of left, “Oh, my gosh, what am I going to do?” Actually, that’s when I was called in the mission field first as a professional musician, and then later living in Haiti, Port-au-Prince, Haiti, where I have a non-profit organization called Child Hope International, and I spent the last 12 years with my family there, working with the kids that are abandoned, orphaned, and at-risk on the streets of Port-au-Prince, Haiti.

As I was getting kind of old now, I had been doing a lot of different things over a long period of time there, I was kind of looking at retirement, and I’m still in Haiti and trying to decide what I’m going to do, because I just didn’t feel like retiring. I didn’t know what it would mean to just, you know, sort of walk the beaches, collect seashells or something. I like to stay active.  I like to do things. I was looking into different options and came across actually an inheritance check unexpectedly. And because I had been in tech in a lot of different areas, I was very active in the stock market.

I got this check and I was pretty heavily vested in stocks. I thought, “Well, you know, I’d like to diversify with this,” and so I was looking at different options, and gold and annuities, a lot of other things. And really, I had some friends, [unintelligible [00:06:39].25] board of directors from a non-profit that are really successful real estate investors. And I thought, “Well, maybe I’ll do that.” But just as a way to diversify my investments. I started researching, reading the books, you know, I came across Rich Dad, Poor Dad, a bunch of other books, and finally said, “You know, I’m just going to do this. I’m going to pick up a couple of rental properties, turnkeys, so I don’t have to worry about them.” And that’s kind of what I did. I hopped on a plane at Port-au-Prince, flew to Atlanta, flew to Memphis, came back with three turnkey properties, and that was it. I was going to focus on other things in life.

But it turned out well. The next month that I’ve got money appearing in my account, and I’m going, “This is pretty sweet.” And I started thinking, “Maybe this is something I could do in my retirement.” That’s what I started doing. I started researching more and looking at what types of real estate investments there are; and I’m still very active in my non-profit, but realizing I’m getting older, and Haiti is a tough place to hang out. So I’m getting ready to move back to the States in sort of a sabbatical, and decide if we’re going to stay in Haiti or move back to the States where a lot of our kids and grandkids are. That’s kind of what happened.

As I got started, I shared with a lot of my friends, who are other people that are looking for investments, and they wanted to hear all about it, “How did you do that? Where did you buy the rentals?” and just all the details, and it got kind of nebulous at a certain point, where I was emailing people and trying to communicate with them. I said, “Look, I’m going to put a blog together, and then in that blog, I’ll share everything; the good stuff, the bad stuff, everything.”

The blog started, then my mentor at the time really recommended that I start a podcast and I was kind of like, “I don’t know about that.” The blog is enough for responsibility. He said, “No, you really need to do it. It really will help you.” I just said, “Well, at least I’ve got a face for podcasting, so that’ll be good, as long as I don’t go to YouTube.” That’s how the podcast started.

My focus on the podcast is for people that are 50 years of age and older, the people that are approaching retirement or are already in retirement, that are interested in real estate investing as a means to supplement their retirement or to create a legacy to hand down to their children, to grow their current retirement nest egg, and that’s kind of where I am today. Of course, you know, I’m still actively investing myself as well.

Theo Hicks: Are you still in Haiti or have you moved back to the States already?

Bill Manassero: No, we moved back for sort of a one-year sabbatical. On that trip, we really found out we just needed to stay here. We’ve got people that are running things in Haiti, we’re still active, and that’s part of my ‘why’, so to speak, of why I’m in real estate investing; I also want to help support our efforts there in Haiti, too. So yeah, that’s still very active.

Theo Hicks: You’ve got 756 doors. You mentioned you began by picking up three turnkeys, I’m assuming single-family homes. That’s three of those 756 doors. What is the breakdown of the other 753 doors?

Bill Manassero: Well, two of those are actually were single-family. One was a duplex, and in a really short period of time, and especially I’m just devouring information. I’m doing a lot of research. I’m looking at YouTube videos, reading a lot of books; I want to be a good real estate investor.

In that process, really early on, I paid about the same amount for each of these three turnkey properties, but one was a duplex, and the duplex – I paid about the same as I did for the single-family homes, but it was producing twice the amount of rent. Not only that, but I only had one property tax payment, I only had one insurance payment, and one roof to worry about.

So I’m kind of looking at this and going, “Okay,” I’m starting to see the economies of scale, you know, sort of emerging here. I said, “I’ve got to keep doing this.” I bought another duplex, and this time in Indianapolis, and sure enough, it turned out to be an amazing buy; I bought it near downtown, it was really growing, and it doubled in price in just like two years, and I’m saying, “This is really cool, but why limit myself to just duplexes? Let me look for other properties.” And then I found a 22 unit in Indianapolis as well. I kind of jumped into the small apartment world.

And then from there, I started looking at a hundred plus units, started looking at what was available, ended up partnering with people where I came in as a GP co-sponsor, and got involved with the 529 units in Irving, Texas. And then I moved into this space that I have always been really interested, and that is in the area of senior living. I have, obviously because my audience is in that realm, I’m in that realm. There’s just a strong, strong interest there, and seeing the 10,000 baby boomers a day are hitting age 65, the demand for housing is huge.

So partnering with some others also as a co-sponsor GP, and we are doing ground-up construction on luxury senior living facilities. And right now, we’re in Florida and West Virginia, we’re also looking at Texas and Arizona, and we have other states under consideration. But we’ve already built three and looking at it anywhere from three to six per year. That’s where the rest of the units come from.

Theo Hicks: When you are the GP, the co-sponsor, what’s your role? What are your responsibilities in those partnerships?

Bill Manassero: It’s different in each one. In some areas I’m focused primarily in Investor Relations… Because I know a number of investors, a lot of people have followed my story and what I’m doing, so I have a lot of people that are interested in investing with me. I also have marketing responsibilities, and also involved with administrative roles as they see fit for me to do as well.

Theo Hicks: Do you mind talking to us a little bit — obviously, you’ve got The Old Dawgs Real Estate Network, very popular podcast, and you kind of mentioned that one of your primary roles is Investor Relations… Maybe talk to us about—and you can answer this any way you want, but how that podcast has allowed you to raise more money to buy more deals, or at least be involved in more deals?

Bill Manassero: Well, my mentor at the time told me that that would be one of the advantages of the podcast. Now, I don’t monetize the podcast, I rarely—I’ll have advertisers approach me and it looks like it’s a good fit. But I don’t seek out advertising, or I’m not selling, consulting or any other thing. I’m not selling books or whatever.

I did that on purpose, because when I first started, as I was telling you, I got sucked into every boot camp that it brought me to the next level and then the next upsell, and before you know it, I’ve got bookshelves full of all these home study courses and all these things and I’m kind of going, “What happened?” I didn’t want to create a vehicle that would be that thing, another upsell place for folks. I wanted them to come there without any fear of being pitched on something. It was kind of an afterthought.

When I started looking at syndication, I thought, “Well, I’m going to set up an investor newsletter so that people can see what I’m doing,” and then through that, there was a lot of folks that have been listening to the show for years, and we developed as best a relationship as you can on a podcast, and they wanted to join me in these investments. It was kind of an organic thing. I wasn’t really pushing it.  I really don’t mention it on the air, rarely. We have a newsletter that goes out every month, where we announce our podcast shows and the articles on our blog. In there, there’s just a little note if you’re interested in investing with Bill, and you can sign up, and that’s about it. I’m really not pushing anything. If there’s people that are interested and want to be able to share the investments and if it looks like something that would work well with their investment style and their portfolio, then we work together.

Theo Hicks: What are some of your tips for how to grow a podcast, how to attract a large following? Or was it kind of just organic for you as well?

Bill Manassero: It really was. I’m not really intentional in it. One thing that I did do early on though and that was good advice from someone who had a very successful podcast shared with me, he said, “Just make sure the quality of what you’re producing is there; that you’re not just putting out a bunch of stuff. Make sure not only the quality of the guests and the topics and so forth, but the quality of the production, too.”

Early on, I got a producer from the start, so that he could ensure that the sound quality was good and that the edits were there, and just all the stuff to keep the quality of the sound up and so forth. That really made a big difference, because a lot of the reviews  that we’ve had – I don’t know, hundreds and hundreds of reviews – the primary focus is they like the quality of the speakers, the quality of the sound, and so forth. That has really paid off, but I haven’t really done any marketing per se to try to grow my base. I have a pretty loyal base of folks that listen all the time and they’re spreading the word to others, and that’s just kind of growing organically, like we said.

Theo Hicks: Thanks for sharing that. I want to transition really quickly back to what it sounds like is your main focus now, which is senior living, right?

Bill Manassero: Right, I’m still looking at apartment buildings, but in the process, when I started looking—it was getting to 2016/2017, it was getting harder and harder to find the kind of deals that I had. My criteria was to always buy something a little below market. As you know, because you guys are very active, finding below market properties is pretty rare.

As I was looking around, and the senior living thing came in front of me, I said, “Gee, I can get amazing returns on this”, because it’s very different and we’re dealing with construction, and in fact, all we do is really get a construction loan, and we buy the land, and then we raise money to develop the land, right?

In that process, we get a construction loan and a five or 10-year loan, but we usually sell the property within three years. So we never really have to go to agency loans or anything of that nature. These construction loans are easier to get, they’re still great rates, and then we can do interest-only on them for the first two to three years. There’s a lot of options there, but it’s a lot easier and quicker, especially in light of COVID and all the things that have happened that have impacted the economy. It’s relatively seamless, and we’re building these facilities in 12 to 14 months. We have offers on these things, especially from healthcare REITs, sometimes within six months into construction. It’s a pretty good little formula here.

Theo Hicks: Are those REITs proactively reaching out to you or there’s someone on your team who’s there doing that?

Bill Manassero: Well, one of the guys on my team, he’s built 23 of these things, but most of them in Michigan. He wanted to broaden out, and then my other partner and I were able, because we were in other states, and we were able to sort of help him broaden out. But I think his experience, not only just constructing and designing them and all the elements that go into the actual development of the facility, but he also came up with the operation manual for operations of these facilities. Even during COVID, and all of them that this guy has built and managed, there was not a single COVID case in all of these homes. A lot of it was because of how well this guy has designed the operational side.

What will happen is some of the REITs will buy them and they asked our third partner if he’ll manage these for them, and he does. Out of the 23, I think, he manages 14 or 15 of them.

Theo Hicks: How did you meet this person?

Bill Manassero: My contact was not him initially. But my friend that I’ve known for about six years, he actually it was a guest on my show early on, and then he introduced me to this guy that he made contact with that had built these, and that’s kind of how that connection came together.

Theo Hicks: Had you already been interested in senior living, or was it after you met this guy that you were like, “Huh, I think this is something I want to do”?

Bill Manassero: No, I’ve been looking at senior living, I don’t know, probably for the last four years or so, and I thought I might get into the residential aspect of it, where you take a home in a community and you convert it into a senior living house. And you can add maybe six or eight or 10, depends on the size and the state you’re in. That really appealed to me, because I knew guys that were buying single-family homes and making $10,000 a month after expenses, just as cash flow with these homes. That really sounded appealing to me, too.

My wife actually happens to be a caregiver, I have a daughter that’s a caregiver and a son that’s a caregiver, so we’re very into this area. One of the reasons we came back from Haiti too and kind of started this is that while we were on sabbatical, my wife’s parents took ill, and so we kind of stepped in to take care of them, because we’re the only ones that really weren’t nailed down to jobs and so forth, because we were on sabbatical. And in that process, it was a really moving thing for us emotionally and it was just a really great experience to be able to spend that time with my wife’s parents when they were moving into this need for assisted living.

Yeah, a lot of things kind of birthed out of that, but there has been a strong interest for a while for me; you know, Gene Guarino, Gene does this RAL Residential Assisted Living, and I had him as a guest on my show a couple of times too.

So I didn’t think I would ever do ground-up construction. In fact, I’ve avoided ground-up construction because of how long it takes, and trying to keep things under budget, but this third partner of ours really has mastered that and he always keeps it under budget; just amazing. That was one of the appeals for getting involved.

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

Bill Manassero: Well, I think the best thing I can say to anybody that’s going to get into real estate investing is to really know what your ‘why’ is. Because when all else fades away, it’s going to be that ‘why’ that’s going to keep you motivated. I honestly believe you need to take the time in putting a plan together, getting a mentor, doing the research and education and all of that, but the core of that, your mission statement has got to be that ‘why’; why are you doing this in the first place? Why are you getting involved in real estate investing?

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

Bill Manassero: You bet.

Theo Hicks: All right.

Break: [00:20:58] to [00:22:17].

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

Bill Manassero: Best Ever book recently, okay… I don’t know if you know who Michael Michalowicz  is, but he is the author of Profit First and The Pumpkin Plan and a few others. And he wrote a book called Clockwork, which is a great book for people in business. It’s sort of a simple approach to making business ultra-efficient, eliminate stress and just get your time priorities right.

Theo Hicks: If your business, I guess in this case, businesses, were to collapse today, what would you do next?

Bill Manassero: Well, I would rebuild. The great thing about it is if you lose something that you’ve had, that you’ve built up, you already know the process about building them up. A lot of people say real estate is all about location, location, location. I believe it’s about relationships, relationships, relationships. If you have relationships, then you can go to those people and help rebuild what you had before.

Theo Hicks: If you don’t mind, can you tell us about a time that you lost money at a deal, how much money you lost, and then what lessons you learned?

Bill Manassero: It’s kind of a general thing, but one of the struggles I’ve had – I’m an out of state investor, I’ve always been an out of state investor – is dealing with property management firms. And property managers can be your best friend and your most important partner, but if you choose not so wisely,  you can end up losing a lot of money. In that is things that happen – not only up charges on things that they do for you in that way, but they can help bring in some bad tenants for you. When you have to deal with bad tenants, the costs can be exponential.

That was for me, one of the key things that I had to get a hold of early on, is that you really, really need to screen your property managers and make sure that these are people that you can prove that they’re good if you’re going to hire him.

Theo Hicks: You’ve already answered the best ever way you like to give back with the non-profit. Do you want to talk about that a little bit more?

Bill Manassero: I think it’s something a lot of real estate investors should see. First off, it’s really easy to establish a 501(c)3, and it’s a great tool to be able to do the kinds of things you’ve always dreamt of doing to help others. I had my 501(c)3 for a long time and it has been a great tool and has helped just hundreds of people and families in Haiti. We were rebuilding homes for people during the earthquake, we’d set up a school and a hospital and all these other things there. It’s a great vehicle if you’re ever thinking about getting serious about helping others.

The other part is giving back. I love giving back… And granted, my audience is targeted 50 Plus, so I love to be able to help people get started later in life, but I also work with a lot of younger folks too. Through Bigger Pockets and places like that; I try to make myself available if somebody wants to meet, have coffee, and just ask questions. That’s another way to give back as well.

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

Bill Manassero: Best ever place is at The Old Dawg’s REI Network, and the website is http://olddawgsreinetwork.com/, and you can write to me if you’d like at bill@olddawgsreinetwork.com, or you can go the website and check out the content. There’s also a Contact page there as well.

Theo Hicks: Alright, Bill, thanks for joining us today and giving us all of your advice on all that you’ve done in your life, I really appreciate it. It’s always fun to talk to another podcast host as well.

We talked about your background, how you actually started in real estate later, which is why you created that Old Dawg’s Network, to help others start real estate later in their lives. You kind of talked about the breakdown of your portfolio, and how you’ve been transitioning into Senior Living lately, in part because of the fact that, as you mentioned, 10,000 baby boomers are hitting the age of 65 every single day.

You focus specifically on ground-up construction on luxury senior living facilities across the country. We talked about what your roles are in the GP. It seems like it’s mostly Investor Relations, because you know a lot of investors from your podcast. We talked about the podcast, why you started it, how you just organically, over time, without asking people to really invest, have had people come to you wanting to invest just based off of listening to your podcast for a long time, and you gave us a few tips on how to grow a podcast.

I really liked how you talked about focusing on quality and that a lot of your reviewers said they really liked the podcasts because of the quality. And it’s not just the quality of the guests and the content, but also the actual quality of the production. You hired a producer who would help with the sound quality and make edits on the backend and things like that, and then you also attribute your podcast success to a lot of word of mouth referrals from listeners.

And we got in a little bit more specifics on your senior living investing. My biggest takeaway there was – and you can really apply this to any new niche you want to go into, is finding someone who’s super experienced at what you want to do, and then work with them, partner with them, and have them be your mentor. You had met someone – maybe a friend of a friend – you had met through the podcast, and he had a bunch of experience with senior living facilities, had built over 20 of them. You mentioned that he has not had a single case of COVID at any of those, and so you continue to partner with him for these deals.

Lastly, we talked about your best ever advice which is, it’s important to have a plan, it’s important to get a mentor and educate yourself, but at the end of the day, the core of all that and the thing that’s going to keep you motivated when you’re kind of in a rut is to know what your ‘why’ is, have your mission statement and you kind of explained what yours was as well.

I really appreciate it, Bill. I know the best of listeners are going to enjoy this conversation. I sure did.  Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2221: Cashflow Quadrant | Actively Passive Investing Show With Theo Hicks & Travis Watts

Today Theo and Travis will be sharing the “CashFlow Quadrant” based off of the book from Robert Kiyosaki. “The cashflow quadrant will reveal why some people work less, earn more, pay less in taxes and feel more financially secure than others” – Robert Kiyosaki. Today Travis will break down how he understands and utilizes the lessons he learned from the book to hopefully help you in your own journey 

We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and we’re back with the Actively Passive Investing show with Travis Watts. Travis, how are you today?

Travis Watts: Theo, doing great man. Happy to be here.

Theo Hicks: Awesome. Thank you for joining me yet again. Today’s topic is going to be the Cash Flow Quadrant. I’d probably say that 25% of the people I interview, I’m going to ask them what their best ever book is, it’s some Kiyosaki book. And so I’m sure everyone listening is familiar with Robert Kiyosaki.

This concept, the cashflow quadrant, is based off of his book, Cashflow Quadrant. I’m pretty sure he, at the very least, introduces it in Rich Dad, Poor Dad. We’re going to go over what each of these quadrants mean, and the overall quadrant works, and how you can apply that to your actively passive investing business.

Travis wrote this very detailed blog post on it. He is the expert between two of us, so I’ll let him start, and then we’ll talk about his background and how he was introduced to this concept in the first place.

Travis Watts: Yeah, you bet, Theo. First of all, have you read this book, Theo?

Theo Hicks: No, I have not read the full book. I’ve read Rich Dad, Poor Dad, but not the Cashflow Quadrant.

Travis Watts: Sure. Alright. Well, for those familiar with my story, my mind started to open to this world of real estate and investing through one of Kiyosaki’s books. It was not this book, it was called Rich Dad Prophecy, written around the year 2000, give or take.

The Cashflow Quadrant that I have here up on the screen, that was the second book. So Rich Dad, Poor Dad came out, I think in 1997, this may have been ‘98/’99, and just before Prophecy, so it’s kind of the sequel if you will. That’s how Robert Kiyosaki describes it. It’s the sequel to Rich Dad Poor Dad.

What he’s talking about here, as you can see up on the screen, if you’re tuning in on YouTube, is you’ve got the ESBI. There are four quadrants, and what that symbolizes is, there are four ways to make money, essentially, in our society. You can be an employee, which is the ‘E’; you can be self-employed, small business owner, specialist, doctor, dentist, that kind of stuff. That’s an ‘S’. You can be a ‘B’, which is a big business owner; that’d be 500 or more employees. These are usually your corporations. And then an ‘I’ would be a professional investor. So not putting money into a 401k per se, but actually being a professional real estate investor, oil and gas, self-storage, whatever.  Those are the four ways.

And what was amazing about this is I started studying taxes at a certain point. I started to understand the tax implications, and that’s really what my blog post goes into. And with the disclaimer I’m not the CPA or tax advisor, or a tax professional, but I’m basically just taking the information out of the book and relaying it there in the blog post. As we talked about last time, Theo, about the speed reading, if you will, the point of this today is just to condense timeframes. Yes, you can go out there and you can buy this book, and you can go spend a month or two reading it, or you can just spend 10-15 minutes here and kind of get the gist of it, and the takeaways. That’s the value that I’m trying to create.

Let’s talk about the taxes here, and this is really what changed my whole trajectory, is how I earn income. This happened many years ago, but I’ve been on a pursuit in a whole different direction. I was at one point, again, those that listen to my podcasts and things, I was in the oilfield, so I was working a ton of hours as an employee. That was essentially the bulk of my income by a long shot.

Now, I was also self-employed to an extent, because I was fixing and flipping houses and doing that kind of stuff, running a vacation rental. So I certainly didn’t have 500 plus employees, but I was self-employed. You could also say in some regard, I was an investor, though at the time I wouldn’t have said I was a professional investor. I was dumping money into 401Ks and IRAs and things like that.

You can be in all these quadrants, you can be in one quadrant, whatever. But here’s kind of the tax side of it, I’ll run through really quick. An employee, if you really run the numbers, which I do in the blog, an employee is usually in on average, talking about the whole United States, paying roughly 40% of their earned income in taxes. Now, that’s a combination of your federal tax brackets, your state tax, if applicable, and then also the Social Security and Medicare. I’m not including other forms of taxes, like property tax, or sales tax in your state, stuff like that. So it could be higher, but roughly 40%. As a self-employed, believe it or not, actually the highest taxes paid come from self-employed individuals.

The reason is, when you’re an employee, you’re getting half of your social security and half of your Medicare paid by your employer, number one, and as you’re a self-employed individual, you’re paying 100% of all of those taxes, in addition to statistically speaking, self-employed individuals often earn more income, so you’re probably going to be in a higher tax bracket, in addition to both of those. Kiyosaki points out this could be roughly 60% of your total earned income and taxes, which is just crazy.

Theo Hicks: Yeah, I did not know that before reading this blog post.

Travis Watts: It gets crazier if you look at states like New York, or say California is the classic example. High-income earners in the ‘S’ quadrant could be paying 13.3% state income tax, almost 40% at the federal level, and then all of the social security and Medicare, it could be higher, so… Crazy to think about.

Now the ‘B’ quadrant; in 2017 – I don’t think this is in the book, because this was the JOBS and CARES act that got passed, they took C corporations and gave them a flat-rate tax. It’s 21%. That may be temporary, but even historically speaking, when Kiyosaki wrote this book back in 1999, he says, “’B’ quadrant is roughly 20% tax,” so significantly lower.

In a C Corp, for those that may not know, that’s usually your big corporations; your Apple and Google and Facebook, they usually structured as a C Corp. You see more the S corp structure as you get into the ‘S’ quadrant, and a lot of folks are operating just as a sole proprietor, also in the ‘S’ quadrant, just their individual names.

In the ‘I’ quadrant, this is what blew my mind. He claims that it’s possible to have a zero percent tax owed legally. Okay, and again, this is why a lot of the real estate gurus out there, and not to be political, but the Donald Trumps and whatnot, can legally pay zero percent in tax as real estate professionals. That was mind boggling to think that here I was, thinking I was going to be real smart one day money-wise and be in the ‘S’ quadrant, making [unintelligible  [00:10:54] and money or whatever, but I’d be paying so much in tax, it’d be insane. I could literally make half as much in the ‘I’ quadrant and come out ahead.

How that happens – we can take, since this is best ever community here Actively Passive Show, we’ll talk about real estate real quick.

The way that you pay zero percent in tax is because we have depreciation advantages to real estate. And not only just the straight line, 27.5 years in a lot of cases, but we have bonus depreciation that comes from doing these cost segregation studies. And, again, in 2017 the JOBS and CARES Act passed, and you can take these lifespans of certain items in your property, the ceiling fans and electrical and the trees, the landscaping, you can itemize this stuff out and you can do an accelerated depreciation, often all in year one.

It’s very possible when you invest in a piece of real estate, let’s say you’re earning some cash flow, you’ve got $10,000 in cash flow that you received – well, you might have losses on paper of $20,000 or $30,000, or something like that. That can be used to offset that, hence the zero percent tax and/or carried forward. In rare cases, if you’re a real estate professional, you can actually offset earned income as well with passive losses. I’m not going to get in the weeds with that, I’m not a CPA, I’m not a tax advisor. Please seek your own licensed professionals there. But I did want to point that out. That’s how that happens.

Additionally, let’s talk about stocks, because a lot of people invest in stocks. When you have long term capital gains, so you bought into an ETF or stock or something, and you’ve held it more than 12 months, and you go to sell it. That’s a long term capital gain. I think, don’t quote me on this, but I think for like a married couple right now, you could earn up to almost $80,000 doing investing that way and pay zero percent in tax, which is pretty incredible. A lot of different ways. There’s a good book called Tax-Free Wealth, it’s Tom Wheelwright’s book, check that out if you want to dig a little deeper, and of course, seek out your own CPA and advice there. But that is it in a nutshell.

What happened, back to my story real quick – I decided instead of going from ‘E’ to ‘S’, which was really my life plan at that time, I decided to go from ‘E’ to ‘I’. Today, I’m a professional investor, and the bulk of my income is coming from the ‘I’ quadrant. Now that being said, I do earn income a little bit in the ‘S’ quadrant, and in the ‘E’ quadrant, but the majority is from ‘I’.

So just learning the simple stuff, a book like this that’s 20 bucks can literally save you tens of thousands of dollars, not only sometimes in the first year, but for the rest of your working career. It’s really worthwhile to dig into certain topics like this, and then leverage the experts to help you out kind of on your own business plan. I know I’ve been rambling for a while, but that’s kind of the gist of it, and what the blog’s about, and the book.

Theo Hicks: Yeah, thanks for sharing that, Travis. You mentioned one thing I wanted to follow up on was the depreciation and the cost segregation, and there’s depreciation recapture, there’s a bonus depreciation… We actually wrote a blog post—again, we’re not tax experts. This is just general advice. But it’s called the Five-Tax Factors when passively investing in apartment syndications. It kind of goes into more detail on what Travis was talking about. We tossed in some examples with real numbers, so you can understand what the differences are between regular depreciation and accelerated or cost segregation, and when you’ll have to pay taxes on recaptured depreciation on the backend, and what Travis was talking about with the bonus depreciation for the tax cuts and JOBS Act.

Obviously, the tax aspects of the ‘I’ are the best, but at the same time, this is the actively passive show, so I wanted to briefly talk about the time investment associated with all of these. Surprisingly, reading through your blog post, not only is the ‘S’ quadrant the greatest tax cost, but it could potentially be the greatest time investment as well. Correct me if I’m wrong, but the greatest time investment is going to be between the ‘S’ and the ‘B’. But depending on what type of ‘B’, you are, as you mentioned in your blog post, it could be relatively passive, right? For example, I’ll talk to some people who obviously invest in real estate, but they’ll have some other businesses on the side, like consulting or something. And then they’ll hire a bunch of employees under them and they’ll hire a high-level CEO guy, and they’ve got people that are running the day to day aspects of the business; they’re not necessarily working that much, but when you’re kind of self-employed, you’re the person. When you’re employed, sure, you need to work hours, but when you’re self-employed, you’re the guy or your the girl, and you’re going to need to do everything. So not only is self-employed the greatest tax hit, but it’s also the greatest time investment. Whereas on the flip side, the ‘I’ has the greatest tax benefit, and also potentially, and again, it’s possible that you could be spending a lot of time here if you’re active, but as a passive investor, you could be spending the least amount of time by paying the least amount of taxes. I did want to mention that as well.

Travis Watts: Exactly. And that’s a famous quote, Warren Buffett talks about, if you don’t learn how to earn income in your sleep, then you’ll work till the day you die, which is a bit extreme. But to your point, so the ‘S’ and the ‘B’, big difference there is the ‘S’ is the operator, to your point; you’re a plumber, you’re an electrician, you’re a speaker. It’s you; you’re the business. But on the ‘B’ quadrant, you’re the owner of the business, to your point, so that you can walk away from the business, and it continues earning income for you.

So yes, absolutely. As you can see, if you’re not already familiar with this cashflow quadrant, you’ve got to get over to the right side of the quadrant, the ‘B’, and ‘I’. It’s tough to make a leap over to ‘B’ from ‘S’. I would say most people have probably the best chance at getting into the ‘I’ quadrant, because you literally can do that with $10. Just buy a share of a stock or something and you’re already there in the quadrant, and then just keep building on to it. It’s not to say you should only be an ‘I’ or you should only be a ‘B’. Like I said, I’m virtually in all quadrants except for ‘B’.

Extremely helpful to start thinking about tax implications, because again, it’s kind of a compounding effect. If you learn about taxes, say when you’re 20, and you start implementing this stuff, well, you’re going to be decades ahead of most people, and that savings can compound into more investing, and it’s going to have the biggest impact. If you’re listening to this today and you’re 85 years old, well, you can still make changes, it’s not too late, but it’s not going to have as big of an impact, obviously.

Theo Hicks: Yeah, it’s also important. We talked about how—I wouldn’t say it’s a drawback, but one of the prerequisites to being in the ‘I’ is you need to actually have money. And so sure, you can start with $10, but you’re not going to live off of $10. It’s not like you’re going to hear — every single person listening to this episode right now is going to quit their job and jump into the ‘I’ and make a million dollars. Obviously, that’s not the case.

As Travis mentioned, the goal is to be more on the right side, the ‘B’ and the ‘I’; and less on the ‘E’ and ‘S’, and maybe ultimately being completely on the ‘B’ and the ‘I’. But the first thing is becoming aware that this type of quadrant exists, and then as Travis mentioned, it’s a compounding effect.

Figure out how much money you can save each month or each year from your ‘E’ or ‘S’ job to put into ‘I’ and then do that for, depending how much money you have, a few years, or five years, 10 years, whatever, then you can start to pull back from the ‘E’ and the ‘S’. I think that’s a key here, is that you need to, in a sense, use the ‘E’ and the ‘S’ to get to the ‘I’. The ‘I’ is in regards to passive investing. Obviously, you don’t need to do this for active investing. This is not the active investing part of the show. But for passive investing, you need that capital to invest.

Travis Watts: That’s a good point. Something to point out too is this cashflow quadrant is just more or less a generalization. There are ways and strategies as a self-employed individual to save on taxes, with your home office deductions and your car expenses and your commutes and your mileage. There are definitely ways to offset. There are also choices to be made about like we talked about with state income tax; you could leave a state with 13% state tax to go to Florida, go to Wyoming, wherever, go to a no-tax state and save that, too.

It doesn’t mean that when you’re an ‘S’, you do pay 60% in tax. That’s not true. But it’s a generalization that a lot of folks do, for the reasons that we pointed out. Just know that.

And also, one more thing on the ‘S’ quadrant. You could learn to operate like a big business. You could do the same strategies; you could elect to be taxed as a C Corp if you want. There are things that you could do to pay that 21% tax, things like that. Again, not a CPA or a tax professional, but things that you can do there.

Now with the ‘I’, you mentioned passive investing. That’s true. I think a single-family buy and hold, specifically a buy and hold. Some would say that’s passive, others would say it’s not. But regardless, that’s what would qualify you for the ‘I’ quadrant, because it’s mostly hands-off.

Now, if you’re flipping houses, like I used to do, and you’re not an ‘I’. You may think that you’re investing, but that’s not true. You’re in the ‘S’. You’re actually self-employed. This is now a business that you’re putting a lot of time into, so you actually fall into the ‘S’. Because also you’re earning, by the way, short term capital gains, which go into the regular tax brackets of federal income, right? So you’re not going to fall into long term capital gains if you’re doing flips, for example, or wholesaling, or any active business in real estate. So, something else to think about.

Theo Hicks: People who are essentially holding on to their investments longer than a year, until you start experiencing capital gains tax – that would be considered an ‘I’? Or is it only people who do that and aren’t spending a lot of time doing it? Like, if I’m a buy and hold person who’s buying 20 deals a year, that’s going to be a large time investment. Would that considered an ‘I’, or would that be considered an ‘S’?

Travis Watts: Say it one more time? Sorry.

Theo Hicks: Is it just the tax benefits that determine which one you’re in or is it also the time investment?

Travis Watts: The way I look at it, you’d have to go into greater detail in the book to see exactly how he defines this. The way I look at it is a) a longer-term approach to investing because of the tax advantages that go with it. If you’re really striving to do the zero percent or up to, let’s say – I think it’s 15% after that, but it’s still capped when we’re talking long term gains. That’s the biggest thing, right? Anytime you’re actively doing a business, spending a lot of time on it, then you’re going to be an ‘S’ in that situation.

Theo Hicks: Got it.

Travis Watts: Now, the reason that Kiyosaki excludes 401Ks and IRAs is because that’s not a tax-advantaged strategy, that’s a tax deferral strategy. If you weren’t aware, anybody listening, a pre-tax 401k, a pre-tax IRA, when you finally do go to pull that money out, assuming you’re over the age of 59 and a half when the IRS says you can pull that money, you’re actually taxed as ordinary earned income, which is quite crazy to think about, because the investments you hold, if you were otherwise to hold those investments say in a brokerage account, not an IRA account, you would be paying zero to 15% tax in most cases on the gains. But instead, you may be paying up to 40% to 50% in taxes by kicking the can down the road and taking it later. We’re not even going to get into early withdrawals, which statistically most people will pull that money out early anyway, and pay a 10% penalty on top of that tax. It can get really ugly in those accounts, and that’s why he doesn’t consider that a professional investor, because it’s a very seamless thing; it comes out of your paycheck, it goes in there. You’re not usually being very active with a 401k.

Theo Hicks: Got it. I would say from the perspective of our listeners, it would be kind of broken into two categories. It’s the people who are an ‘E’ or an ‘S’, or they are in an ‘I’. If you’re an ‘E’ and an ‘S’, you’re working a full-time job at a corporation, or as you mentioned dentist, doctors, or own a company. Then you’ll want to kind of transition into the ‘I’. And then if you’re an ‘I’, and you’re a long term hold investor, from there you’re already experiencing the tax benefits. From there, the advantage would be reducing the time investment, and so that’d be transitioning from more of the active ‘I’ to the passive ‘I’.

Travis Watts: Yep. And so many folks, I guess, subliminally pick up on this concept without even knowing about this book, because coincidentally, there are a ton of S’s that are doctors, dentists, lawyers, attorneys that invest professionally in these apartments syndications, private placements, or just real estate in general. The reason that they’re really after that is for the tax advantages.

And again, not to go too deep into the tax stuff, but you can learn how to become a real estate professional. In some cases, or even as a married couple, maybe the spouse or stay at home husband or wife, whatever the situation may be, the non-worker could be managing the single-family portfolio, could be putting in more than 750 hours a year, it could be their primary focus. If you can qualify, working with your CPA as a real estate professional, it is possible to take these passive losses that we talk about from depreciation and bonus depreciation, cost segregation; take that stuff, and apply it against your self-employed income or your employee income.

So it gets deeper and deeper and deeper. We’re not the professionals here on the subject. But I just want to open everybody’s mind to this concept and idea if you weren’t familiar with the book already, or to reiterate, hey, maybe it’s time to reread that book. It’s been 10 years. Hopefully, that’s helpful just as a concept for people here on this episode.

Theo Hicks: It’s been very helpful to me too, because I’m pretty sure I’m getting the cashflow quadrant and then the assets and liability thing mixed up. I don’t think this was [unintelligible [00:24:59].14] but what I was thinking of was the liability versus assets.

Alright, Travis, it’s been a solid episode. Thanks for joining me and sharing your wisdom on the Cash Flow Quadrant on these Actively Passive Investing Show episode.

Best Ever listeners, as always, thank you for listening, Hope this was valuable. Have a best ever day and we’ll talk to you tomorrow.

Travis Watts: Thanks, Theo. Thanks, everybody.

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JF2217: Setting Up Your Taxes Like The Elites With Khurram Chohan #SkillsetSunday

Khurram is the founder of TogetherCFO and an expert in high net worth tax structures. KC helps the elites set up their taxes and in this episode, he will be helping you understand how they pay fewer taxes than the majority of the public and how you can do the same.

Khurram Chohan Real Estate Background: 

  • Founder of TogetherCFO
  • Writer for Forbes Magazine
  • Expertise in high net worth tax structures 
  • Based in Los Angeles, CA
  • Say hi to him at: www.togethercfo.com 

 

Best Ever Tweet:

“We use the law in a way to optimize the taxes” – Khurram Chohan


TRANSCRIPTION

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

KC Chohan: I’m good. Thank you so much for having me on, Joe.

Joe Fairless: Well, it’s my pleasure. And a little bit about KC; he’s the founder of TogetherCFO, his focus is on high net worth tax structures, based in Los Angeles. Best Ever listeners, today, is a special segment called Skill Set Sunday, where we talk about a specific skill, and here’s a specific skill that you’re going to learn by the conclusion of our conversation today. It is know-how that that the wealthy are able to pay a lot less in taxes and how you can set that system up for yourself. With that being said, KC, first, do you want to get the Best Ever listeners just a brief background on yourself?  And then let’s go right into the tax structure.

KC Chohan: Yeah, I’m KC, born and raised in England, and moved out to America with a big Fortune 500 company. I was working there for over eight years. I worked my way up through the ranks. I was always curious and wanted to understand taxation, accounting, and business. It got to a point where I was pretty fed up with corporate America and then started my own company, TogetherCFO.

I watched this clip once and it really sparked my imagination. Warren Buffett was on, I think it was NBC News, and he was sat right next to his secretary, and he was talking about how he pays a 17% tax rate, which is half of what his secretary pays, and she’s the epitome of kind of the average American. She’s paying over 35% in taxes, and he’s calling for this new tax law to go into effect, which obviously didn’t go into effect. But the takeaway from that was, how is he openly sat on national television, talking about paying such a low tax rate, and he’s not the only one, and nothing’s really been done about it?

That really sparked something inside me to help my clients and myself figure out exactly what he was doing… Because it’s fully legal. He wouldn’t be on national television, CEO of Berkshire Hathaway, one of the richest men in the world, talking about how the system allows that to happen. And then when you look at other big companies like Amazon, and Microsoft, and Google, all these companies have paid very little, if anything, in federal taxes, all fully legally.

What my firm now specializes in is helping the regular average American, the slightly higher net worth middle-income American to be able to do that same thing that Warren Buffett’s doing, legally.

Joe Fairless: I’d love to learn about the process of doing so. Can you walk us through the process?

KC Chohan: Absolutely. There’s different types of taxation in America, right? Every single state has its own set of rules, its own set of guidelines that they follow. Then on top of all 50 of those states with their own legal entities and rules, there are federal rules as well. There are two real taxation systems, if we look at a high level; it’s the 1040 system, which 99% of people use, and then there’s the 1041 system, which the top 1% use.

The difference in the 1040 system is its state and trust structures. And even within that system, there’s nine subsets that all have different rules as well. You’ll hear me talk a lot about different rules and regulations, and it’s all hidden in the tax code, which is over 22,000 pages long. It’s like reading Shakespeare, it doesn’t really make very much sense unless you know how to read it properly.

Hidden within those 22,000 pages is one specific subset in the 1041 system, and it’s called the complex trust system.

The rules within the complex trust are a very different set of rules that apply to any other system out there, and that’s what the top 1% and the top elite people use to legally pay very low taxes. Even Mitt Romney, when he did declare his tax returns a while back, it was 13%. Prior to that, he’d been alleged to not pay any taxes, the same as President Trump. He’s never going to release any of those returns, because he just hasn’t paid any taxes; and the system that they all use is this 1041 complex trust system.

Joe Fairless: You said there’s two will taxation systems 1040 and 1041. Will you educate me? What do you mean by there’s two systems, 1040 and 1041?

KC Chocan: The 1040 and 1041 are just two forms that you’d file with the IRS. The 1040, you [Inaudible [00:08:45]. We’re talking about business owners here, primarily. This system doesn’t apply to people who earn the majority of their income via W-2. So just to put that requisite in there.

Joe Fairless: Good distinction.

KC Chocan: Yeah, so we’re very clear that this is people that own businesses primarily.

Joe Fairless: Why do you say primarily, and not only—does this sometimes apply to W-2?

KC Chocan: Sorry. Let me rephrase that. Because yes, if you are that top few percent that make millions on W-2 income, this could also apply to you, but the likelihood is that’s just a totally inefficient way of doing things. I would not recommend that. But it would also apply as well.  Very rare, but yeah, technically, yes, you’re right.

Generally speaking, the vast majority of people will be business owners, they will be paying their taxes through a K-1, and that care one goes through the 1040 system. When you file your taxes with the government, the form you fill out is actually called the 1040, for the vast majority of people. The smarter people, they’ll research what they can use in the 1041 world, which is just another different form, which is the next form that the IRS provides. And then at the top of that form, there’s a section that’s split into nine different checkboxes, and those nine different checkboxes are the different subtypes of the 1041 system. And they all have their own different rules and legalities within them. The one that we use specifically and exclusively is the complex trust system.

Joe Fairless: Got it. So there’s 1040 and 1041. Is there 1042, 1043, 1044, etc?

KC Chocan: There’s multiple forms, but they’re the only two that you really need to worry about.

Joe Fairless: Okay. With the nine subtypes of the 1041, if you couldn’t do the complex trust system, which we will talk about a lot during this conversation, but if you couldn’t do the complex trust system, what’s the next one you would look at?

KC Chohan: I wouldn’t look at any of the others. But the types of systems that we were talking about, if you don’t qualify to set up a 1041 complex trust system, then I would look at other types of policies and procedures that you could do in the 1040 world… Because part of getting into the 1041 world, there is a lot of setup costs, a lot of legal fees, because we’re dealing with a lot more complex vehicles, and that isn’t always cheap.

Joe Fairless: Okay. Well, let’s talk about the complex trust system. What is it?

KC Chohan: The complex trust, like I said, it’s one of nine types of system that you can use in the 1041. The way we build our trusts, it’s a three-tier system. There’s a reason for that, in terms of you want to segregate out business expenses with family expenses, and then charitable foundations as well. It’s a three-tier system that allows you to fully optimize your taxes.

Joe Fairless: Okay. How does it do that?

KC Chohan: Well, the proof is in the pudding, as we say in England. I don’t know if you use the phrase over here. But generally speaking, it’s down to the laws that apply in that system, and the verbiage and the way that the trusts are written. There’s a certain wording and phrasing in the trusts that we write in with our legal teams that allow us to use the law in the way to optimize the taxes.

Joe Fairless: What’s an example?

KC Chohan: An example would be—let me just run through the way we kind of set someone up and maybe this will answer that for you. Let’s just say a regular person comes into the system, that paid $200,000 plus in taxes using the 1040 system. Generally speaking, the first thing we do is we do a side by side analysis, saying, “Hey, regularly you pay 200k in taxes, this is how you do it. These are the general write-offs that you have, all the loopholes that are current at that given time, and that’s your end taxable liability.”

We do the same thing through our system. We go through, “Hey, this is how we would run it through our system of trusts and foundations, and this would then be your taxable liability.” Generally speaking—we don’t guarantee anything, but generally speaking, we can save people a considerable amount of money, 60 plus percent.

Joe Fairless: Okay, so noted on the generalization for what you could save potentially, but we’d love to get into more of the nuances of it, either how that’s possible or just some details that you can provide?

KC Chohan: Well, the details are the tax code itself. So if anyone wanted to comb through that information, it’s all public knowledge. You could go on the IRS website and see that, and it’s all really spelled out there. If you type in 1041 complex trust, and you can see the way that the laws are written — and there’s not just one law, there are multiple laws here that allow you to allocate funds differently in the 1041 complex trust system than you would in any other system that I know of.

Through that allocation, and the way you can dictate how the revenue or the income is classified, and what the governing body of the instruments actually says, and the way it says it… And a lot of it is semantics, and it’s very much in the literature, and the secret sauce of kind of what we do is it’s the way that the trust documents are actually written. It’s several different types of law. We’ve got taxation law, we’ve got business law, and it’s all based around common law.

Our legal team has spent a lot of time tweaking, testing, perfecting the verbiage of the trust documents to get them to a point at which we can then lean on the law the same way Warren Buffett does, Bill Gates, Jeff Bezos, all these guys, the Rockefellers, all these elite people and their teams, and do exactly the same thing so that you get to a point where you can openly say on national television that you pay 17% tax, and that’s perfectly fine.

Joe Fairless: When you’re speaking with a new potential client, what are some common questions that he or she has?

KC Chohan: How is this possible? Because a lot of people just don’t know… And it boils down to — this is not really information that’s supposed to be out there. This is written by the powerful and for the elite, for themselves. They haven’t written this, for everyone to use this, because then taxation would take a big hit.

The whole reason why it’s hidden in the tax code is just for them to use it for themselves, and not have to play by anyone else’s rules. A lot of the time people don’t believe that it’s true, which is why we have legal counsel, opinion letters and external firms that consult with our clients to ensure that, “Hey, this is exactly what we say it is,” just because it’s such a new idea, and not many people know about this, and that’s by design.

And then also from a professional standpoint, when you speak with lawyers and accountants, they don’t know about this either, because they’re all trained at a state level. So they all do state bar or state CPA, and they’re very good at knowing what’s going on in their own state. But this structure is at the federal level, and even within that federal level, it’s a subset of nine different types of federal law. So to find experts that know this system inside out is very difficult.

Joe Fairless: What’s the average investment or cost to implement this system?

KC Chohan: It depends who you do it with. So you could go to BNY Mellon bank in New York, for example. You’d have to have liquid assets, I think they’re asking for at least 10 million in liquid investable assets before they would even have a conversation with you. Their set of fees was 700,000 plus, the last time I checked, on top of their annual fees. That’s quite expensive; or you could find a more boutique firm like ourselves, but we do it for a lot less than that.

Joe Fairless: Approximately how much on average?

KC Chohan: Around $150,000 in setup fees, and then we have a yearly percentage on what we save; so the way we prices on value, and the value is a percentage of whatever we would save you compared to the way you were previously doing it.

Joe Fairless: To do that analysis, to determine if it makes sense or not, how does that process work? Is there a cost to it? Do you reach out on your website? What’s that like?

KC Chohan: No, there’s no cost to it. We do that completely upfront. We want to build long term relationships and we do that for free, eat all of that cost in time. Normally, it takes around a week for us to run those numbers and get it back to people. But that’s the way we let people look inside our house and see, “Hey, this is what we do, and this is how we do it, and this is how it would work for you before you even make any decision.” We want people to be fully informed before they make a decision to move forward with us, and that’s why we do that side by side up front for free.

Joe Fairless: What information do you need from that prospective new client in order to run your analysis?

KC Chohan: Just their personal and their business tax returns.

Joe Fairless: That’s it?

KC Chohan: That’s it.

Joe Fairless: For the last year, or last two years?

KC Chohan: Last year. As long as we’ve got at least one year, but last five years is probably the best. And then we can literally go down that and say, “Hey, you paid X amount doing this. If we run it through our system, this is how much you would pay.”

Joe Fairless: Our audience are real estate professionals and investors – what if the real estate investor is already getting significant depreciation losses passed through and is paying basically nothing? Let’s say they’re paying a little bit in taxes. Is your system still able to help that individual, since they’re already paying a low or no amount in taxes, to begin with?

KC Chohan: Yeah, specifically for kind of your audience in the real estate world, the advantages of our system is paying no capital gains tax. When you come to sell a property or if you’re looking to do a 1031 exchange and upgrade, if you did it through our system, there’d be no capital gains involved at all.

Another thing is inheritance, the probate, all of passing on wealth to future generations – none of that is taxed either, because it’s all the way we write it in the body of the trusts, so there’s no taxation there. And then more importantly, the real estate professionals are the ones that we’ve worked with a lot here in LA. A lot of them are buying properties because they do need to get that tax write off. They do need to depreciate down, or they’re doing conservation appeasements… There’s a lot of different things that people do to write down the taxes. You wouldn’t have to do any of that anymore. So you wouldn’t feel the rush of, “I have to close on this property by the end of the year or a property by the end of the year so I can depreciate it, get my tax write off.” You’re not forced into being in that game, unless you really want to close on a deal, because the way we write our trust system allows you to optimize the taxes without having to use depreciation as a vehicle.

Joe Fairless: And since it is called a complex trust system, my assumption is that you would be creating a trust for them to run things through. First off, is that an accurate assumption?

KC Chohan: Yes, two trusts and one foundation is the way our structure works.

Joe Fairless: Okay, which aligns with business expenses, family expenses, and charitable donations.

KC Chohan: Yeah, that’s right. Yes, so there’s three new entities that are created.

Joe Fairless: Okay. Now, one perceived disadvantage of a trust, or in this case two trusts, would be your loss of control over the assets if they’re put in a trust. What are your thoughts on that?

KC Chohan: It depends on the way you write the trust service. Over 85 different types of trusts, and yet a lot of them, you have that disadvantage, but not in the way that we write ours. Ownership stays with the trust, but you have complete control at all times. That’s not an issue. That’s the way we do it.

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

KC Chohan: They can reach out to me at https://togethercfo.com/ or they can email me directly at kc@togethercfo.com.

Joe Fairless: KC, thanks for being on the show, talking about this system and the 1041 taxation code for complex trust systems and talking to us about some details around it, why you champion it, and some potential advantages for doing so. So thanks for being on the show. I hope you have a best ever weekend. Talk to you again soon.

KC Chohan: Thank you so much.

Website disclaimer

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

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

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

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

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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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JF2212: Process Of Institutional Raising With Kevin Riordan

Kevin is a full-time professor at Montclair State University teaching real estate courses and has been investing for over 30 years. Kevin has had experience in taking a company public and also has been focusing on raising money from institutions and he shares the process on how to navigate this process.

Kevin Riordan (Rear-din)  Real Estate Background:

  • Full-time professor at Montclair State University teaching real estate courses 
  • Has been investing in real estate for 30+ years
  • Career has been focused on the institutional side providing debt & equity capital, public and private, for commercial real estate
  • Also took Crexus Investment Corp; a commercial mortgage REIT, public in 2009 
  • Based in Montclair, New Jersey
  • Say hi to him at: riordank@mail.montclair.edu 
  • Best Ever Book: Grant by Ron Chernow

 

 

 

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Best Ever Tweet:

“Be cautious but also try to be bold” – Kevin Riordan


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I am Theo Hicks and today, we are speaking with Kevin Riordan. Kevin, how are you doing today?

Kevin Riordan: I’m well, Theo. Nice to chat with you.

Theo Hicks: Yeah, absolutely. I’m looking forward to our conversation and picking your brain. Kevin is a full-time professor at Montclair State University, teaching real estate courses. He has been investing in real estate for over 30 years. His career has been focused on the institutional side, providing debt and equity capital, public and private for commercial real estate. He also took Crexus Investment Corp – a commercial mortgage REIT – public in 2009. He is based in Montclair, New Jersey, and you can say hi to him at his email, he provided us with his email address. It’s riordank@mail.montclair.edu. Of course, the link to his email will be in the show notes, so you can just click on that if you want to reach out to Kevin.

Kevin, do you mind telling us a little bit more about your background and what you’re focused on today?

Kevin Riordan: Sure, I’m happy to. My background real quick on the education side; I was an accountant coming out of college, I got a CPA, and I was going down that route. I made a move into real estate on the accounting side, initially on the private side, but I had a little bit taste of actually making some transactions occur at that company, and I wanted to do that full time, rather than being in the accounting groups.

I’d say my big career move I made when I was 30 years old was making a move to TIAA CREF, which is a private pension fund for colleges, universities, non-profits. At that company, I joined as an assistant investment analyst, basically making real estate transactions, commercial mortgages, joint ventures, and I would stay there for 20 years, rose there to Group Managing Director. I started a number of initiatives, I was kind of combining — I was fortunate to be in a spot where public real estate capital is now coming into the commercial real estate space in the form of REITs and CMBS. I was there to structure and create a number of initiatives around that.

I left the company and then took a company public, as Theo has mentioned, called Crexus Investment Corp in 2009. I actually got to ring the bell on the stock exchange. It’s really not a bell, it’s actually a big button you press… But with that company, we were again providing finance capital to real estate owners and borrowers again, also assisting on some joint ventures.

Theo Hicks: Perfect. To make sure I just kind of wrap my head around it. When you say that you’re providing equity – are you providing this money to massive companies who are then using it to buy massive portfolios of real estate, or are these two smaller people who buy multifamily? I’m trying to understand what this money that you’re giving out, where’s it going to?

Kevin Riordan: That’s a good question, Theo. When I talk about working on the institutional side and providing capital for equity, one of two ways we’re doing that. One way we are doing it is we were simply becoming a joint venture partner with an operator. We are the money and then we try to find someone who is the operator developer. So we entered into a number of joint ventures with operator developers, having people on the ground using our money.

The way you would structure deals like that as you would be a partnership, and because you’re putting the money in, you would get a preferred return until some hurdle rates happen. And a developer, then once a hurdle rate was hit, then there is what they call the developer gets a ‘promote’, which is something beyond his equity contribution. I actually teach this in some of my courses. I teach how these are set up in the partnerships and how the money flows. That’s one aspect to it.

The other side, when I said providing capital to owners is assisting them to buy properties. That would probably be more, Theo, through a debt instrument; some type of mortgage instrument or participating mortgage instrument where he’s going to acquire and/or develop a property. And you are going to get, again, some stable coupon as a return, and perhaps share in the upside of the property through some kind of participation mechanism in the mortgage debt.

Theo Hicks: Perfect. Let’s talk about the first example you gave, about you becoming a JV and basically being the money, and then the person you partner with is doing the boots on the ground stuff. And again, just ballpark numbers here, what would be an average deal size you’re talking about here? Are we talking about like million-dollar deals? Are we’re talking about $100 million deals?

Kevin Riordan: A lot of those transactions were done more at my stay at TIAA. Those transactions ranged from $12 to $30 million, and that would be the entire investment. Really, we would put up 95% of the money, if not sometimes 100% of the money. Thenthe  structure would be – again, there’ll be a construction loan to build the project. Then once our money came in, we’re taking out the construction loan, in other words paying that off; we then become the owner as a partner with the developer and then we then have a preferred return.  The first money that comes to us, in terms of the cash flow for the property is up to our preferred return.

Just using simple numbers, it was a million dollars, and you had a 6% return, that would be $60,000. The first $60,000 would come to you if it was a million-dollar investment, and then anything above that you start sharing with the developer. That’s basically the way those things work.

Theo Hicks: Okay, so the reason why I was asking all those questions is because I’m just curious if you get to kind of walk us through—and again, I might still be misunderstanding, but let’s say I’m an investor, I’m an apartment developer, or I do apartment valuate type deals. I’ve been raising money from family and friends. Maybe I’ve expanded out to, I don’t want to say strangers, but I’ve expanded out to people I don’t know as well, right? And then I’ve reached a point where I’ve tapped all that out and I want to raise money from an institution, right?

First of all, let me know if I’m right and that person’s actually ready to raise money from an institution. And then assuming that I am, what steps do I need to take in order to maximize my chances of getting an institution to give me money for deals?

Kevin Riordan: The way you’re setting it up is exactly the way I’ve seen it happen. We’re starting with friends and family, we move from there. Theo, I would just say is the most important things would be first, establishing a successful track record with the things you’ve done. And approaching people, that’s going to be the number one question – what have you done? How has it performed? The first thing is to have that successful track record.

The second thing then when approaching someone is to have a very detailed and informed plan. And again, sufficient information and due diligence will be necessary, so that you can explain your plan to whomever you’re trying to raise money from. If I could use a slight example, when I took Crexus Investment Corp public, and we went out to raise equity, we went to visit a number of institutions.

I had never taken a company public before. I had worked for a private pension fund. And now I was on the other side, where I’m going to raise money from investors and I’m visiting pension plans. I’m visiting Fidelity. I’m visiting BlackRock. I’m visiting all these big money managers.  What did they want to see from me? They wanted to see two things. One, what had I done before, that I know what I was talking about, and number two, what was my plan?

To your listeners, I don’t think there’s any difference between what I’m saying as far as what’s required from myself when I took the company public, versus someone who has been building and owning just small multifamily projects and keeps rolling them up into bigger multifamily projects, to the point—and it’s also important, Theo, it has to have a certain critical mass to it. Institutional money is not going to look at $500,000 transactions. They’re going to look at something that has little substance to it. There’s probably some kind of minimum size transaction that’ll get their attention, and then the other things if you will make it happen.

Theo Hicks: Perfect. Let me take you back – you said that $12 to $30 million for those deals… Is that just the down payment, and then they’re in turn getting debt, or are you covering the entire total project costs?

Kevin Riordan: Those are the entire project costs, and the reason they would differ would be depending on where you were building. For example, one joint venture I did was out in Doylestown, Pennsylvania, which is a really cool little town. But that was a typical garden-style apartment, 210 units, and that probably all-in investment was somewhere around $12, $14, or $15 million. I don’t recall, it was a while back… Versus another project we worked on in downtown Atlanta, which had some construction issues around it, obviously a building in an urban setting, it gets more expensive – that project was closer to $28 to $29 million, if I recall.

Theo Hicks: When you talk about having a very detailed and informed plan. Are you saying for the specific deal you’re wanting to raise equity from the institution, or are you saying just overall business plan for what you would do were you to find a deal? Like, am I going to an institution after I already have a deal under contract, or am I going to an institution to see if they would be willing to give me funds, and then go out and find deals?

Kevin Riordan: The latter is what I’m referring to. That’s where you’re taking your track record with what you’ve done, how you’ve done it, how it’s performed, how you came about getting those transactions, how you made them work and now you just want to put that exponent to them, if you will, right? You want to make those bigger transactions, you want to get larger money, so herefore, what you want to do is have some larger plan ahead of you. It can work that way, Theo; you could go on a contract contingent on getting the financing, but it might be better to have a situation where people will believe in you and then with that, they’ll sort of say, “Okay, this is what we want to do, and with those parameters.” You can take that and go out and try to see if you can fit it into their mousetrap if you will… Because they’re going to have line items to check off. There’s going to be a return profile, there’s going to be a geography profile, there’s going to be an asset type profile… They’re going to have a number of things they want to check off.

And then what’s important from your side is not just the transaction itself. Yes, that’s important. What’s going to happen to its performance, those are all very important, but the other side that’s very important too is they’re going to want to see what is the ownership structure? In other words, what’s the guts of the company going to do to make this thing work?

Again, the money is not on the ground, the money is giving the investment to this person and run it. How do they run it? How’s their accounting systems? How do they report? What’s the depth of the organization? How do they respond to difficulties? How have they responded to difficulties in the past? All of those things will come into bear. It’s not only a question of looking idiosyncratically at the particular transaction, but it’s also looking at holistically, what does the organization bring to bear to make these transactions work?

Theo Hicks: Perfect. They’re looking at deals and you’re also looking at, and they’re also looking at who you are, and who works for your company and what you’re capable of doing.

Kevin Riordan: Right, because the question is really, how do I initially get this going? Initially, getting it going – it’s the two things. But once you get that breakthrough, then it becomes a transaction, you know what I mean? And you’re just looking at transaction. But initially, it’s got to be two things; breadth organization, of as well as an investment thesis.

Theo Hicks: Okay, so how do I actually find an institution? Do I just go on Google and start reaching out to people on Google? Do I go on LinkedIn? Do I just show up at their headquarters? What specifically am I wanting to do? Assuming I have all this setup, I’ve got my track record, I’ve got my super detailed plan, I’ve got my business all set up, I’m ready to go – how do I actually find these institutions?

Kevin Riordan: Great question. I will tell you that my experience would be that that particular individual — let’s call him the entrepreneur, he would have more success if he was successful finding an intermediary to make the introduction. There are a number of types of folks, consultants, mortgage brokers who actually canvass not just on the debt side, but also the equity side. Those types of people have the calling card if you will. 

The presentation initially is going to be — I think, this is an easier way. Because if you think about it, the pure money side, there would be just too much sourcing coming through the funnel, that it would be difficult to parse that. A lot of institutions will use outside intermediaries to help them, if you will, source transactions, and source organizations.

Theo Hicks: Perfect. Okay, Kevin, what is your best real estate investing advice ever?

Kevin Riordan: I think my best advice as something I didn’t do. Here’s what my idea would be. In 2011, I had an opportunity to buy about $2 billion of mortgage debt that Barclays Bank was trying to securitize, but they couldn’t because of the financial collapse, if you will. I only bought $750 million of it. My advice was looking back, I wish I had tried to buy all the 2 billion… And my advice would be, try to be bold. We had the capability of doing more; we erred on the side of conservatism, and I think we didn’t look far enough in advance to see how the winds were going to trade and how real estate was going to perform.

I guess my advice would be to be bolder in your assumptions. I’m cautious too, Theo; I’m sort of talking to both sides of my mouth here, but be bold with what you want to try to do, but understand the risks.

Theo Hicks: Perfect. Okay, Kevin, are you ready for the Best Ever lightning round?

Kevin Riordan: We’ll give it a shot.

Theo Hicks: Alright.

Break: [00:18:09] to [00:19:23]

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

Kevin Riordan: Grant, by Ron Chernow, and I’ll tell you why. I’m a big Chernow fan, but I read that book a year ago. What I had no idea was at the conclusion of the Civil War – yes, the Confederacy had stopped the war with the Union, but now they had created a civil war with the freed slaves. I think that’s very prescient as to what’s happening today, in June 2020.

Theo Hicks: That’s Ron Chernow, you said?

Kevin Riordan: Ron Chernow. He’s the author of Hamilton.

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

Kevin Riordan: I guess I would try to figure out why it collapsed, and adjust to what happened that made that happen, and figure out, what do I do to avoid that problem again?

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

Kevin Riordan: I’m a full-time teacher now, a full-time Professor at Montclair State University. All my people who are either in the business or at the business, I tell them what I do, 100% say, ‘That’s great. I’d love to do that, too.’ I know I’m doing the right thing, and I do teach them exactly what to do in real estate, particularly on the finance side. I help the students with their resumes, I’ll give them some interview tips. If I hear of a job, I’ll try to get them there. I think that’s kind of what I like to do.

Theo Hicks: Is Montclair State University, these courses you’re teaching, is it undergrad?

Kevin Riordan: They’re undergrad. I am technically housed in the finance and accounting department.

Theo Hicks: Okay, perfect. And then the last question is, what’s the best ever place to reach you?

Kevin Riordan: My email at Montclair State University is best.

Theo Hicks: Perfect. Best ever listeners, as a reminder, that email is in the show notes, and how to spell it one more time, it’s riordank@mail.montclair.edu.

All right, Kevin, I really enjoyed this conversation. I always enjoy talking about things that I don’t really know anything about at all and I really don’t know much about how working with institutions works. It’s been an enlightening conversation for me, and I’m sure it has been for the Best Ever listeners as well.

Kind of the crux of our conversation was around how to get your start in raising money from institutions, and kind of talked about the two important prerequisites, one being establishing a successful track record, and two, having a very detailed and informed plan, specifically in the beginning, about your business and your company. Obviously, after that, once you get your foot in the door, it’s more transactional, having a very detailed and informed business plan about the deal you’re working on.

Then you kind of mentioned the two things that institutions look at. One of them is the return, geography, asset class, profile, checklists, things like that, but they also want to know what the ownership structure is going to be, how you plan on running the property, what’s the depth of the organization, how you’d respond to difficulties in the past, things like that.

Then we also talked about how to actually find these institutions. It is essentially through these intermediaries, these brokers, so you’ve got different consultants. I’ve actually talked to mortgage brokers who do equity and debt, so when you’re having conversations with mortgage brokers, ask them if they also do equity and work with institutions, and that’s a great way to get your foot in the door, is through these intermediaries.

Then you gave your best ever advice, which is to try to be bold. Obviously, it’s important to be conservative, but you kind of gave an example of the time you had an opportunity to buy $2 billion in mortgage debt and only bought $750 million. You had the ability to buy all of it, but you decided to remain conservative, and then it sounds like you kind of regret that, and if you would have been bold, you probably would have made a lot more money on that transaction.

Kevin, I really enjoyed this conversation. Best Ever listeners, I hope you did as well. Make sure you take advantage of him providing us with his email address. He’s definitely very knowledgeable. He’s been doing this for a long time and he teaches people how to do it, and they pay him… So definitely take advantage of that.

As always, thank you for listening. Have a best ever day and I will talk to you tomorrow.

Kevin Riordan: Thank you, Theo. A pleasure to spend time with you.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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