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

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

Charlotte Dunford | Real Estate Background

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

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JF2687: How to Find First GP Deal with Melissa Elizondo

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

Melissa Elizondo | Real Estate Background

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

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

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

Denis Shapiro | Real Estate Background

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

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TRANSCRIPTION

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

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

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

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

Ash Patel: You found the Holy Grail, huh?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Denis Shapiro: Exactly.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: Why is that?

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

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

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

Ash Patel:  You can take… What’s IO?

Denis Shapiro: Interest only.

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

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

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

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

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

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

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

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

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

Ash Patel: How will you cut expenses?

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

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

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

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

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

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

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

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

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

Ash Patel: What town is it?

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

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

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

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

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

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

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

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

Denis Shapiro: Yeah. Let’s do it.

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

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

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

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

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

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

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

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

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

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

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

David Olds | Real Estate Background

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Slocomb Reed: Hah! That’s awesome.

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

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

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

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

Slocomb Reed: That’s awesome.

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

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

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

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

David Olds: Yeah, it’s pretty neat.

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

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

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

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

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

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

Slocomb Reed: Absolutely.

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

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

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

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

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

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

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

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

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

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

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

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TRANSCRIPTION

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

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

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

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

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

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

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

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

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

Ben Lapidus: Yes, please.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ryan Smith:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ben Lapidus: You’re good.

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

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

Ben Lapidus: Thoughtful words.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Andrea B. Himmel  | Real Estate Background 

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

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TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: HBS is Harvard Business School?

Andrea Himmel: Yes, it is.

Ash Patel: Got it.

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

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

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

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

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

Ash Patel: With no money?

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

Ash Patel: Also, she was the lessor.

Andrea Himmel: Yes, she was…

Ash Patel: Not the owner.

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

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

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

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

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

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

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

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

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

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

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

Andrea Himmel: That did not execute that deal.

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

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

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

Ash Patel: Let’s do it.

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

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

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

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

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

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

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

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

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

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

Ash Patel: What is MIPD?

Andrea Himmel: NYPD.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: Where do you get your data from?

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

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

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

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

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

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

Ash Patel: What is life science?

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

Ash Patel: Do you just use leasing brokers?

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

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

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

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

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

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

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

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

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

Ash Patel: So no more cubicle farms.

Andrea Himmel: Correct. I hope.

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

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

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

Andrea Himmel: I’m ready.

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

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

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

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

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

Andrea Himmel: Be present.

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

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

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

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

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

Andrea Himmel: Thank you. It was my honor.

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

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

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

Neil Wahglen Real Estate Background

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

 

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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, Neil Wahlgren. How are you doing Neil?

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

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

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

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

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

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

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

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

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

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

Joe Fairless: What two pieces?

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

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

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

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

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

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

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

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

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

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

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

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

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

Neil Wahlgren: Correct.

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

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

Joe Fairless: How much equity was required for that?

Neil Wahlgren: That one, I believe we raised about 10 or 11 million.

Joe Fairless: Okay, let’s say 11. Where did that 11 come from?

Neil Wahlgren: We effectively have really long-term investment partners. It’s a range of family offices, a range of high-net-worth individuals and retail investors, and we ultimately do multiple deals with the same folks.

Joe Fairless: Okay. So the $11 million came from both family offices and high net worth individuals?

Neil Wahlgren: Correct.

Joe Fairless: What percent do high net worth individuals make up of the 11? Approximately.

Neil Wahlgren: Probably the majority, I don’t have the exact numbers.

Joe Fairless: Okay, the majority. And how are you attracting the new individuals? Not the current ones, but new high net worth individuals.

Neil Wahlgren: Having been in this space a long time, my feeling on it is there are two extreme approaches. You can be more of a marketer, or you can be more of an effectively deep relationship, deal focused type of equity relationship. We’ve chosen to be the latter; so we really do very little outside marketing. Almost all of the growth, all the new investment partners that we’ve made are almost probably 99% referrals. It’s effectively devoting resources, devoting time to folks who invest with us on a repeated basis. They effectively bring friends, family colleagues, and that’s been almost 100% of our growth on that side.

Joe Fairless: How, if at all, do encourage or help facilitate referrals?

Neil Wahlgren: Everyone who invests with us is important. There are some people in our network that we’ve found over time really are just phenomenal partners. Not even necessarily the biggest check writers, but people that really believe in the product, believe in our model, believe in our team, and ultimately bring in what I call outsized referral sources. Those, what we’ve found, is really hyper-focusing on those people. Thank you’s, handwritten notes, gifts, taken out… It doesn’t need to be monetary-based either, but just putting attention back into the people that are really helping make you successful. We really put an emphasis on that as a team, and it’s paid dividends, in my opinion.

Joe Fairless: What system do you use to track that?

Neil Wahlgren: A lot of tags; we use a CRM coupled with our investor portal. We meet three times a week, myself and my equity team, and we outline who needs attention, what is the best way to effectively give back, what’s the best way to receive feedback, or solicit feedback… All those pieces done on a very repeatable consistent process is what we’ve found to be the best approach on that.

Joe Fairless: Which CRM do you use? And which investor portal do you use?

Neil Wahlgren: We use a portal CRM company called simPRO. We recently switched over to that system and I’ve been pretty happy.

Joe Fairless: What did you switch over from?

Neil Wahlgren: Juniper Square.

Joe Fairless: Why did you switch?

Neil Wahlgren: I think Juniper Square, in our opinion – not to get too much in the weeds – perhaps focus more on institutional investor relationships than for the type of relationships that we had. We felt we were able to effectively present opportunities, and manage in a more robust manner in terms of metrics, in terms of graphics, in terms of telling the story of these industrial investment opportunities with the simPRO platform.

Break: [00:16:15][00:19:08]

Joe Fairless: I’m glad you’ve found the right platform. And it’s okay to get into the weeds in this conversation. that’s alright. A lot of investors are looking at different options so this is helpful. As far as the focus, it might have been a little more focused on institutional investors. Can you just give a couple of examples for people who are trying to identify “Okay, here’s the type of portal I’m looking for”? Because most listeners for the show, they’re focused on high-net-worth investors as their investors, so this will resonate.

Neil Wahlgren: With any investment, it comes down to telling a story. Effectively, a system should be just a medium that you’re using that allows you to tell your story in a way that’s effective. If you’re effective, if you’ve told that story well in a clear and concise manner, and you have the right amount of trust and backing with your investors, really the equity will fall into place at that point. Industrial can be tricky. I’ll be honest with you, it’s not that sexy. It’s four walls, oftentimes it’s in secondary markets, it’s not flashy, it’s not on the front end of a new development center… Typically, it tends to be really the value and the beauty of it is the relationship between core dirty often manufacturing operations, paired with the real estate that allows that to happen. So to tell that story, we use drone footage, we use some nice imagery, and we like to pair the story of what operation is happening within these four walls, what type of manufacturing? What are the products? Where does this go? How is this integrated in the American industry? Then really couple this investment real estate around that, and pairing those two, using a lot of graphics. We’ve found that that particular platform allowed us to do it best.

Joe Fairless: What about on the debt side? How do you identify the right debt product for… Let’s use an example, the last deal that you did.

Neil Wahlgren: Sure. Honestly, we’ve found a lot of the industrial products that we’re buying – we find opportunity in the seams. We’re buying secondary markets or kind of what I call commutable secondary. It might be the labor force for this manufacturing is in, say, Des Moines or in Champaign, Illinois, some similar-sized city, and then ultimately the asset might be 10 miles outside of town, but that’s okay. If you have the right strength of tenant and the right credit behind it, that can be the most sleep easy, cash-flowing vehicle you can have. But to your point, those types of markets can be sometimes scary or overlooked by national lenders. So what we found is regional lenders, state-level, or Southwest oriented banks, or Midwest oriented banks who know those areas better, have tighter relationships with companies and individuals in those areas – those really, for our type of model and product, are absolutely the best kind of debt partners. So we do repeat business with typically smaller credit unions and banks.

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

Neil Wahlgren: I would say that the best advice that I have is find your competitive advantage. If you don’t have a competitive advantage, find out how you’ll get it. If there’s not a clear path to that, find a partner to invest with who does. I think relying on commodity skills without having some outlying advantage really leaves a lot of risk on the table for an investment. So I would say find someone who has an ultra-tight niche and specialty, does it well, and then either partner with them or emulate what they’re doing.

Joe Fairless: Is your competitive advantage the two principles and their background? Is it just being focused on industrial relative to the rest of the commercial real estate world that isn’t…? What would you say?

Neil Wahlgren: I think we as a team, I believe we put together better investments in single-tenant net-leased industrial acquired through sale-leaseback transactions than anyone else.

Joe Fairless: That’s a mouthful. You make that sentence long enough, of course you will be exactly that. [laughter] That makes sense, though. I’m glad that you talked about that. I’m glad that we touched on each of those aspects of it too, since that’s your competitive advantage. We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Neil Wahlgren: Let’s do it.

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

Neil Wahlgren: I would say what we’ve talked about before – finding those who put in an outsized effect on your personal development and growth, finding those people, and giving back. So I think we find those folks and shower them with time, with attention, with appreciation, and listen. I think by really taking the interaction level to a higher level with a smaller group of people that are directly responsible for your success – I think that’s what we do best.

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

Neil Wahlgren: We have a lot of resources on our website, www.magcp.com. Or I’d love to hear feedback, comments, questions from folks as well. You can reach me directly at neil@magcp.com.

Joe Fairless: Neil, thanks for being on the show. I enjoy talking about a sector that I do not focus on in the commercial real estate world, because I love being educated on it. So I appreciate that. And hey, even if we’re not focused on this sector, there’s a lot of takeaways that you talked about that can be applied to any aspect of commercial real estate or any aspect of business, quite frankly. So thanks for being on the show. Hope you have a Best Ever day and talk to you again soon.

Neil Wahlgren: Thanks, Joe.

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JF2640: 5 Tips to Boost Your Online Network and Find Investors with Carlos Reinoso

In less than six months, and without a social media team, Carlos Reinoso went from 200 to 5,000 connections on Facebook, a growing online network that eventually helped him score an equity partnership over 240 units. In this episode, Carlos shares his best tips on how to grow your online presence, how to leverage your network to meet investors, and how your social media accounts can lead to big deals.

Carlos Reinoso Real Estate Background

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TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel, and I’m with today’s guest, Carlos Reinoso. Carlos is joining us from Atlanta, Georgia. He is a full-time realtor, investor and general partner. He’s an equity partner in a 240-unit syndication, and is looking for additional opportunities.

Carlos, thank you for joining us, and how are you today?

Carlos Reinoso: Oh, it’s my pleasure. I’m doing fine. Thank you so much for having me today.

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

Carlos Reinoso: Sure. So I started real estate back in 1999, officially in Miami, Florida. I did some small fix and flips, and then after that, I decided I wanted to do a joint venture, or I actually purchased five- and six-unit properties, multifamily. So I did that and I purchased my own multifamily, and then shortly thereafter, an investor kind of caught on to what I was doing, and we started a joint venture and purchased another three or four more multifamily units.

Ash Patel: Carlos, were you a realtor this entire time?

Carlos Reinoso: Yeah. Basically, I started back in 1999 in Miami, Florida.

Ash Patel: Were you more on the multifamily commercial side, or were you more residential?

Carlos Reinoso: For the most part in my career, I’ve been residential, and only in the past maybe two or three years have I focused more on multifamily. So I was still selling single-family, but I was purchasing small multifamily units as well.

Ash Patel: And then, how did you go from doing this to becoming a GP in a deal?

Carlos Reinoso: That’s a great question. That’s actually a drawn-out answer, if I may.

Ash Patel: Let’s hear it all.

Carlos Reinoso: I appreciate it. Awesome. I found out about Multifamily Investor Nation, which is Dan Hanford’s group. I had an opportunity to be a co-organizer for one of their deals, just for the multifamily meetup actually. And when I heard about that, I’m like, “Man, that’s a great opportunity.” I was looking to do something like that, and I found out about that through the Joe Fairless book, the Best Ever Syndication book, and I need my own thought leadership platform. Along came this opportunity with Dan Hanford, and I said, “Here it is. It couldn’t get any clearer than that for me”, and I said, “I’m going to sign up for that.”

So fast forward two more years later, and I’ve gotten a lot of social media presence, through Facebook, through LinkedIn, and through the meetup. And what that has done, it’s build that know, like and trust thing, and it’s basically catapulted my opportunities. And recently, someone came up to me — this is actually my second opportunity, but this is one where the deal came all the way into fruition, and we’re actually under contract, and they basically said, “Listen, we’re looking for a GP and equity partner on this deal. If you’d like, we’d like to give you this opportunity.” And again, I jumped at it. I just saw a perfect opportunity to get my feet wet.

Ash Patel: Carlos, what did you bring to the table as a GP?

Carlos Reinoso: That’s an awesome question. So one of the things that I was able to bring was the network that I have. So on just LinkedIn alone, I have over, I want to say like 3,000, mostly investor colleagues, and of those, some will be property managers and others would-be lenders, and stuff like that. So that’s one of the things that are brought to the table.

The other thing is my partner was experienced with an investor platform as well, and he was able to help us out in the investor relation portion of it, when it came to the website. And myself, I also have investor relation experience, because basically, that’s what I’ve been doing for the past three years, is contacting investors, reaching out to them and trying to get involved with them in the multifamily arena.

Ash Patel: Let’s deep-dive into that.

Carlos Reinoso: Sure.

Ash Patel: You contact investors – what’s your goal on that call?

Carlos Reinoso: That’s awesome. Yeah. So my goal really is basically to start a relationship with them. I’m looking for a long-term relationship. We’re just not, “Oh, yeah. Let’s do a deal,” then after that, I’ll never talk to you again. I’ve heard that sometimes that happens, but for me, being in the industry as long as I have, I have a great reputation and it started way back in my first year as a single-family agent; I’ve been building it ever since over 20 years in this industry. Basically, that’s the way I’ve done it, is to talk to investors, let them know we have synergies, and if we have something in common, where I could bring in my expertise.

I also have negotiation experience as well, and I’ve been really good at that in the single-family world. I was really good at that in my own buying and flipping single-family homes, and I also did really well when I was buying those five and six units. So that’s pretty much the way it came about.

Ash Patel: And do you match up investors with people looking for investors? And do you come in as a GP typically?

Carlos Reinoso: Yes, so as far as GP – like I said, I’ve had two opportunities. The first one, it just didn’t work out. The investors were in another state. It was like kind of scattered. Everybody was in a different state. Some people were working a full-time job, so it was kind of hard to do everything together, and we did get as far as almost closing the deal. We got beat out from an investor group that actually was able to put the money hard on day one, and we’re talking in excess of a million dollars. So at the time, the group was just getting established, and we didn’t have that experience to say, “Yeah, we do have the network and the net worth to be able to put a million dollars hard”, and the experience wasn’t there where we felt confident enough to do that. And then the second experience – this one is actually under contract already, when I was brought in on the deal.

Ash Patel: When you get a group of investors together and you approach a deal sponsor, what kind of equity do you get as the person who brought the money?

Carlos Reinoso: Okay, so I think it varies because in the previous opportunity, it was basically an 80/20 split. 80% going to the LPs, 20% going to the GPs, the general partners and limited partners, and in this case, it’s kind of like a similar, but it’s a little different, because it’s kind of like a 0.4 of the overall or of the equity raise actually. It’s 0.4 of the equity raise. So it’s a little different than what I’ve seen in the past. But like I told them when they gave me this opportunity is “You gave me an opportunity to raise capital and to be boots on the ground and do everything I can for the deal. I promise you that I’m going to bring in not only the money, but I’m going to bring in the investors, and I’m going to do my best to make sure that this deal catapults and brings the investors back the returns that they’re looking for in the deal.”

Ash Patel: You are a social media presence, and you’ve got — you’re a force out there. How do you market on Facebook?

Carlos Reinoso: On Facebook, it’s something that I started so many years back that I kind of felt like one day, this was going to catapult. And I’m talking about way back, I want to say like 2007 or so. And I just said, “Man, this is going to be something that in the future is going to be a great place to network and to market, and it’s free. So at the time, I didn’t have a lot of money for advertising. I was basically spending it on different real estate expenses and stuff like that, and then I was like, “How else could I be able to market myself?”

At first, I was like, “Listen, I’m just going to do this with friends and family, and I’m going to keep it tight. I don’t want too many people here, maybe some recent customers, and I’ll build it out that way.” And then one time, I heard somebody saying, “Oh, you know, I’m doing all my marketing and I’m doing great sales on Facebook,” and I was like, “Man, maybe I should really try to grow this.” And before I knew it, I was just responding to everybody on Facebook, I would comment on my post, I would reach out to them, and I went from like 200 total friends to 5,000 in less than six months’ time. I was like, “That’s what it’s all about, free marketing.”

Ash Patel: How did you do that? That’s a monumental move. Did you just reach out to people that were in a similar industry, similar town?

Carlos Reinoso: Well, honestly, I do want to give credit where credit’s due. I’ve been a fan of this show, the Best Real Estate Investing Advice Ever Show, for many years, and I remember it was one of the best places that — I would hear the podcast and I even had the app before, when I used to have Android… And that app was awesome, because I could rewind, I could take notes… And I just remember all the time hearing, “Oh yeah, where’s the best place you can reach out to me? Oh, LinkedIn. Oh, my website. Yeah, reach out to me, and I’ll give you this and I’ll give you this lead magnet, I’ll give you the other”, and I was like, “Man, these people are really cool.” I would reach out to them. I will say, “Listen, I heard your podcast. I’m interested in what you’re doing.” So that was the main way that I was able to reach out to these people.

Secondly, on Facebook, every time you post something, if someone engages you, you want to make sure to engage them back, right? And you definitely want to make sure that you let them know, “Hey, listen. I appreciate you liking my post.” To this day, I still do that. “Thank you for liking my post. Let me know if there’s anything I could do. If either you or someone you know is interested in investing in real estate, definitely refer them my way, and thank you so much again for liking my posts and look forward to seeing more stuff for me in the future.”

Break: [09:45] to [11:18]

Ash Patel: I’ve got to ask you though, now that you’ve got so many followers, do you outsource that, or do you do it all yourself?

Carlos Reinoso: I wish I could outsource it. Right now, it’s basically still me. In the very near future, I’m going to, because I’m going to have to. It does take up a lot of my time, but these days I don’t spend as much time as I used to, but I do post something, reach out to the first few responses, and then get out quickly, because I have people in the Philippines, in Japan, in China, in London—I’m trying to think—Ireland… So we have different time schedules. So sometimes I’ve got to turn off and make sure, because if not — because like in the Philippines, they’re 12 hours behind, so there’ll be waking me up responding to my posts. But as soon as I can, I’ll respond real quick to the first few guests, and then I’ll come back out. So up to now I’m still doing it myself.

Ash Patel: And that’s great. The advice that I give people is, a lot of times if somebody has no social media presence, and they know that they’ve got to get on board, they’re like, “I’m going to hire a VA to do that.” No, no, you can’t. You have to put you out there. It’s got to be authentic, at least in the beginning, until it becomes overwhelming. But man, people need to know who you are. So do you put your personal information? Do you put all of you out there? Or do you keep it business?

Carlos Reinoso: I used to give two phone numbers, my office phone number and my personal phone number. So yeah. I definitely give my business email as well. And to me, I’m transparent. I’m the kind of person that what you see is what you get. You’re either like me, love me or hate me. There’s not a lot of in-between with me. And I’m just open like that.

So I want people to know that I am transparent, that I’m authentic, and that I’m not trying to just sweet talk you into something. I’m giving you my true self at all times. So again, if you like me, great. If you don’t, no big deal. It’s kind of hard not to like me, though, because I’m just so agreeable. I’m not the type of person to argue with anybody. If you look at my posts, anytime somebody posts something, the first thing I’ll say is something positive toward them, and if not, I’ll just pass on. I’ll skip that post, if I don’t think of something positive to say. But I learned that from Gary Vaynerchuk, is always try to give somebody something positive, and also Buddha says, “Try to make the world easier for other people”, and that’s always been my thing. Try to make the world better and try to make people’s day better, and that’s been my philosophy in life.

Ash Patel: Yeah, I love that, and I agree, man. Putting yourself out there is important, because when you’re doing a deal with somebody that doesn’t know you very well or maybe a new investor, they’re going to stalk you on Facebook and really try to deep-dive into who you are. And that’s how you kind of get to know people. Anybody that’s hiring an employee is going to scour all of their social media to find out what’s this person really like? Are they just putting on a good front? So I love that.

Now, LinkedIn is a little bit of a different animal. How do you mark it on that, and how do you get so many followers?

Carlos Reinoso: On LinkedIn, I’ve learned again, along the way — I want to say there maybe four years ago is when I really started to double down… And same format, really. I would see people that motivated me, that inspired me, that were doing the things that I wanted to do, and I would reach out to them and say, “Listen, I love your posts about syndications. I want to learn more. Do you have like a website that I could go check out or learn more about you?” That was one method.

My first possibly two years, I wasn’t really posting a lot on LinkedIn. I was more gathering investors and learning what was working for them, and kind of just feeding off of that. Because I know Joe’s a huge fan of Tony Robbins and I am as well. And he says, “Success leaves clues”, and I believe that. I believe if you look what people were doing to us see that it’s working for them, you don’t have to reinvent the wheel. Just look at what they’re doing, model that; add your own little flair to it, but model that and you’re going to be successful.

So what I started doing after that is I started saying, “Okay, let me start posting.” I started posting about the meetup with Multifamily Investor Nation, and that meetup – just let people know that this guy is not only learning but he’s also giving back what he’s learning. As I learn it, I’m giving it to others. And I think that shows; that transparency comes across, and you can’t fake that. You’re either seeing the authentic me, or you’d be able to notice, I don’t know what that guy is, but he’s not who he pretends to be. And I think you could tell this guy – “He might be goofy, he might be funny, he might be new to this, but he is who he is.” That’s one thing that I pride myself in, being authentic at all times.

Ash Patel: And I love that.

Carlos Reinoso: Thank you.

Ash Patel: You’ve got a busy schedule, man. You’ve got the real thing going on, investors, GP-ing, investing in other people’s deals… How do you manage your time?

Carlos Reinoso: It’s a great question. I time-block a lot. I try to set specific times for everything. And as far as the real estate, I recently resigned from my previous single-family business. Kind of leaving that — I was slowly transitioning away from that, and now I’ve decided I’m just going to hit the ground running 100% in multifamily and in syndications and joint ventures as well.

So that’s helping me to focus more, because I want to go all-in in multifamily. And I know Dan always talks about one of his seven red flags is don’t invest in a syndicator who’s not working full time. So one of the things that I’ve decided to do is do syndication full time. So that’s freeing up a lot of my time. But you’ve obviously got to still make the money, right? So there’s still deals that I’m doing, like smaller deals that are helping me catapult the multifamily side of the business as well.

Ash Patel: Carlos, are there ethical issues if you go to list a multifamily property? Are you allowed to buy it?

Carlos Reinoso: My understanding is it depends. So as a joint venture, I bought my own deals, and honestly, even as a single-family purchase of my own home – yeah, I was able to do both. In real estate, a lot of it is negotiations. So if you can negotiate into the deal, you can definitely do it. And I remember the listing agent when I purchased my home, I said, I’m a principal in the property, which means I’m also not only am I the agent for the buyer, I’m also, let’s say related to the buyer as well… And I remember, they’re like, “You can’t do that, that’s not allowed”, and this and that. And I said, “Listen, trust me. I had the experience.” I’m like, “Not only could you do it, I’m going to do it”. And I said, “If you bring it up again, I’ll just walk away from the deal.”

I was straightforward like that because I knew where I was coming from, and I felt like they were still trying to figure it out and understand how I could do that. But it was totally 100% legitimate, and everything that I did was always by the book. And, yeah, you could totally do it. Just make sure that you let them know upfront, and disclosure, disclosure, disclosure. That’s the name of the game.

Ash Patel: That should provide you a lot of opportunities to find multifamily deals before they hit the market.

Carlos Reinoso: Right.

Ash Patel: Alright, Carlos, I’m going to push back on you for a second… You went from single-family to multifamily. Why not keep going into other commercial? Retail, industrial… There’s got to be opportunities out there from both a realtor perspective and getting syndication deals.

Carlos Reinoso: Definitely. So for me, I like to focus on one thing, and especially these days… Because I’ve been doing so many things, and then I find that you’re not dedicating enough time to one thing. And if you’d read that book by Gary Keller, and I think it’s Jay Papasan… It’s basically, focuse on that one thing, and be the best at that one thing. So that’s what I’ve decided to do now, is just focus strictly on that one thing, and in this case is multifamily. And there’s people that do storage and everything else as well. There’s definitely great profits there, in the self-storage. So I can definitely invest passively in those. But as far as myself, the properties that I want to take down, I want to focus strictly on multifamily, either as a syndication or a joint venture.

Ash Patel: You’re heavily focused on your investors. How do you communicate with them? How do you keep them in the loop?

Carlos Reinoso: So there’s two ways that I go about it. One is a newsletter. Every time I do my meetup on the first Mondays of the month, I try to get an email out to them sometime before the middle of the week. So I have that monthly newsletter, plus the meetup is once a month. And then also, a lot of times, they’ll reach out to me after the meetup, and they’ll try to schedule a time on my calendar to touch base and reach out to me. So I set some time in my calendar on Wednesdays, Thursdays and Fridays, to network with these investors and give them as much wisdom as I can share as possible with them.

Ash Patel: How many people attend your Meetup?

Carlos Reinoso: Right now, we’re slowly growing. We’ve had anything from 24 to—about 36 is the most we had. We had 36 in-person. So I feel that more people would come if it was an in-person meetup, but I like the virtual more because virtually — they all have their own pros and cons… But I like the virtual more because we sometimes get guests from Canada, London, Ireland, and as far as Japan, and other places like that. So I like both, but virtual, I think, it’s the best way to expand that. So it’s been growing virtually.

Ash Patel: Do a hybrid, where the people that are local can come, and then you have an iPad in front of you where you can interact with your virtual audience as well.

Carlos Reinoso: That sounds great. And let me tell you, I tried that once. So I tried it once, and I had to take all my equipment and — you can’t see it here, but I have a green screen behind me. I have lighting here, I have my desk, I have my microphone, I have an amplifier, and I remember taking that to the restaurant. It took me about 15 minutes to set up. I guess it took me a while to promote it. I was late in the game to promote the actual event, and we had more people show up virtually than in person. So what I decided to do is I’m going to do once a month in-person, and once a month virtually. Nut that’s a great idea. It didn’t work for me though.

Ash Patel: Yeah. No, I get that. How often does your newsletter go out?

Carlos Reinoso: Once a month.

Ash Patel: What’s included in that? Is it a personal milestones? Is it just business? Is it industry trends?

Carlos Reinoso: That’s a great question, Ash. Seriously, you do seriously ask great questions. Basically, what goes out there is whatever happened in the meetup, like in this last meetup, I was telling everyone, “Listen, I’m super excited. I’m going to be a guest on the Best Ever Real Estate Advice Ever Show. I don’t know exactly what day it is yet, but as soon as I do, I’ll send you guys out a little email, so look out for that.” Other times, if I have a deal under my belt, and I have a deal that’s in their process, I’ll reach out and let them know about the deal as well. And then anything that I’m doing in the past weeks or during that month, I try to let them know about that through there as well.

Ash Patel: And early on, when you started this networking journey, what are some of the mistakes that you made?

Carlos Reinoso: The networking?

Ash Patel: Yeah… Early on, when you were trying to network with investors, what are some mistakes that you made that you can help other people avoid?

Carlos Reinoso: One of the things that I realized is I would be sending deals out to these investors, and either 1) they weren’t taking me too seriously; or 2) they would get back to me and say different things that I could do to improve. So I realized that I can’t just send a deal to an investor and say, “Oh, here’s the deal. Let me know what you think.” They really want you to analyze the deal, and kind of sell them on it. Because if you can’t sell them on it, it means you’re not sold on it. So that’s one of the things that I learned along the way.

So I would definitely recommend, before you send a deal out to anybody, first and foremost, learn how to analyze your own deals. I still do my own analysis, but it takes me a long time to do it. So I have a partner who it comes a lot easier to him and he’ll have the underwriting completed within a day’s time. It will take me at least a week.

So what I would say is, the more you practice, the better you’re going to get at it… But definitely analyze the deals before you send them to these investors, and let them know exactly why you feel this is a good deal. Don’t just throw it out at them. Digest it, and that way you don’t waste their time either. You might be wasting their time by sending them a deal that’s not even the kind of deal that they’re interested in. So definitely analyze it, get to know the investor and what they’re looking for, take notes on that. So every time I talk to an investor, I’ll look up, “Okay, such and such investor, okay, they only want Class A properties and Class B or Class A areas, and nothing less than $28 million.” So I know not to send them a Class C property, or nothing vintage later than the year 2000.

Break: [23:54] to [26:47]

Ash Patel: What CRM system do you use to track all of that?

Carlos Reinoso: Right now, I’m using ActiveCampaign. It’s kind of pricey. So I just started an ActiveCampaign, but before that, I was using Constant Contact and it’s pretty similar. It’s a good way to make sure that your emails get read, and it also gives people a chance to opt-out for whatever reasons, if they’re getting too much email from you. So that way your email is not flagged for spam, or anything like that.

Ash Patel: Got it. Should people ask for feedback when they’re sending out these newsletters, when they’re talking to investors on the phone? Do you ask, “Hey, what could I have done better? Help me improve.”

Carlos Reinoso: I love that. Yes, I definitely think you should. If you don’t ask, you won’t know how they feel about it. So you might think, “Okay, you’re just not receiving my emails,” and you might go, “Oh, they weren’t interested in my email.” And it turns out a lot of times people have so many emails coming in, that they just never saw your email; and it’s not that they’re not interested, they just never got to see it.

So I think if you reach out and say, “Listen, I sent you an email the other day about, let’s say, this investment that I have right now currently, or about the newsletter, or about this analyzing tool that I found out about, or a CRM I just recently found out about”, then you’re letting them know, and you’re asking them, “What did you think about it? Did you receive it? Any feedback that you could share?”.And then you can use that feedback later, to then share it with other investors and learn, so that you can perfect the art of your email. And then when you’re sending out emails on properties that you’re interested in getting investors for, you kind of have it honed in already by then.

Ash Patel: What is some of that feedback that you’ve received?

Carlos Reinoso: I’ve heard not so often, “Listen, you sent me a property that’s a Class B. I’m only looking for Class A.” “You sent me a property that’s older, I only want the newer properties” or, “You sent me a property that’s newer, and it’s larger than what I could take down. So if you can send me something 50 to less…” Stuff like that is what I’ve been coming across. And for the most part, people were telling me, “I just didn’t get your email. I never saw it. So yeah. Definitely, send it to me again, and let me take a look at it and I’ll get back to you.” So just always double-check with them to make sure.

Ash Patel: Carlos, if you have an investor that’s on the fence, they don’t know if they want to do this, it’s their first deal… What does a conversation sound like?

Carlos Reinoso: It’s funny, I was just listening to another podcast that Joe did with Brian C. Adams. Awesome podcast. I’m definitely reaching out to him today on LinkedIn. It was great. The tips that he was giving were so awesome. And again, this is why you definitely want to go to summits, listen to podcasts, read books, and learn as much as you can. Because you pick up these little golden nuggets, these little nuances everywhere you go, if you’re open to it, right? And like Bruce Lee says, “Be like water. Be able to adapt to anything.”

One of the things that Brian C. Adams was saying is “Before you even send a property out, ask the experienced investors, what did you like about your last investment? What was so good about it that you decided to invest in the deal? What are you looking for when you look for investment deals?” And get their ideas first. Then once you have their ideas, and you’ve gotten enough ideas from these investors, then next time when you send out the emails, send it out to the least experienced investors first and ask them for their feedback.

What you’re going to find as each time you’re going to hone in on that skill and get closer and closer and closer to perfecting the art of sending out deals, and I think you’re going to get better responses from the experienced investors as well.

Ash Patel: Yeah, and I love Brian C. Adams; he approaches everything, just like Gary Vee, from an empathetic approach.

Carlos Reinoso: I learned so much from these guys, and it’s amazing. Like I said before, if it’s not broken, don’t fix it, and if you know that success leaves clues and you see that these guys are having success, they’ve been doing it for many years now, don’t reinvent the wheel. Just do what they’re doing and give it your own flair, but do the best that you can with the information that you’re learning over the years… And take notes. I have copious notes. I always have one of these yellow pads with me wherever I go, because I’m learning from everyone. You could learn from experienced people, and you could learn from rookies, and you can learn from anybody, as long as you’re that empty cup, and you’re like water, always adapting to the cup, if you will.

Ash Patel: What’s the biggest mistake people make when it comes to networking and growing their network?

Carlos Reinoso: Okay, one thing I’ve never liked — and it goes all the way back to junior high, and I remember this, if I don’t know the person, I don’t want him to come across, “Oh, yeah. We’re best buddies,” and, “Hey, Carlos. How are you?” It’s like, “Hold on. Let’s get to know each other first before we get into that really comfortable vibe.” So I think before you get too cozy with someone, even though you feel like you know them, because let’s say they have a podcast or something else, kind of just ease into the relationship and be very respectful and very mindful of their space, and of their time. It’s a key takeaway that I think everyone should focus on.

Ash Patel: Love that. Carlos, what is your best real estate investing advice ever?

Carlos Reinoso: This is an advice that I still give to this day… Definitely read books, listen to podcasts, watch YouTube videos. I have a YouTube channel, if anyone’s interested… And go to summits, go to conferences. Just let these investors know your story, what you’re all about, and what you’re looking to do, and you’d be surprised just how helpful these investors could be.

Ash Patel: Yeah, real estate people are just incredible. I love that.

Carlos Reinoso: They really are the top of the line.

Ash Patel: Yeah. Carlos, are you ready for the best ever lightning round?

Carlos Reinoso: Let’s rock.

Ash Patel: Let’s do it. Carlos, what’s the best ever book you’ve recently read?

Carlos Reinoso: Seriously, Best Real Estate Investing Advice Ever by Joe Fairless. I have it right here at my desk. It really is the book that catapulted me into the virtual meetups. So I definitely recommend that one. Can I recommend one more?

Ash Patel: Yeah, please do.

Carlos Reinoso: Hunter Thompson’s book on Raising Capital as well.

Ash Patel: Carlos, what’s the best ever way you like to give back?

Carlos Reinoso: Through this meetup. Like I said, as I learn, I like to give not like a month later or two years later. The moment I learn it, I’m sharing it with my audience. My audience means a lot to me because no man is an island, and as much as I’m teaching them and showing them, they’re also kind of motivating me to keep it going and inspiring me that it’s not a lost cause, but it’s actually a blessing that I’m sharing with other people, and that’s my best way to give back. It really means a lot to me.

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

Carlos Reinoso: The best place right now would be LinkedIn. I am going to get a website soon, and I’m working on a deal magnet. Basically, it’s an Ebook that I’m going to be writing about passive investing and raising capital. So right now they could definitely check with me there on LinkedIn at Carlos D. Reinoso on LinkedIn.

Ash Patel: Carlos, I got to thank you for joining us today, telling us your story from 1989 in Miami doing some fix and flips to now just becoming a networking superstar. Thanks for sharing your story today.

Carlos Reinoso: My pleasure. Thank you so much for having me, Ash.

Ash Patel: Awesome. Best Ever listeners, thank you for joining us and have a best ever day.

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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.

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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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.

 

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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.

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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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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