JF2247: Investor Friendly Agent Dan Rivers

Dan is a full-time realtor and investor who has over 10 years of real estate experience with a portfolio consisting of 9 doors and has invested in 2 syndications. As an investor-friendly agent, Dan gives advice on how to approach an agent and how to properly start as a new investor.

 

Dan Rivers Background:

  • Full time realtor and investor
  • Has over 10 years of real estate experience
  • Portfolio consist of 9 doors, 6 with business partner and 3 others
  • Has invested in 2 syndications
  • Based in Charleston, SC
  • Say hi to him at: www.danrivers.com 
  • Best Ever Book: Mindset

 

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Best Ever Tweet:

“Mindset is one of my favorite books because it really opens your idea around fixed and growth mindset” – Dan Rivers

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JF2240: Burning The Boat With Salvador Aldrett

Salvador Aldrett is a full-time chemical engineer at Shell and has 17 years of real estate investing experience. Salvador grew up in Mexico and had a dream to come to the states to get his graduate degree with the goal to go back home. However, through his journey, he discovered real estate, met his wife, and the rest is history.

Salvador Aldrett  Real Estate Background:

  • Full time chemical engineer at Shell
  • Has 17 years of real estate investing experience
  • Portfolio consist of 17 units spread over 2 markets in Texas; single family, duplexes, fourplexes, and one townhome
  • Also has done a passive syndication investment of over 2000 doors
  • Based in Houston, TX
  • Say hi to him at: https://saldrett.typepad.com/
  • Best Ever Book: Think for Yourself

 

 

 

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Best Ever Tweet:

“Jump off the cliff and grow your wings on the way down” – Salvador Aldrett

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JF2233: 4th Generation Real Estate Investor Corina Eufingere

Corina is the owner of Brio Properties rental management and Chairman of Wisconsin Apartment Association. She is a 4th generation real estate investor who started at a young age helping her parents and grandparents on their properties, cleaning, fixing, working on the lawns and with tenants. One of the problems she saw her family deal with was with property management companies. With this in mind she decided to focus on her own property management with the goal of making it easier for people to work with.

Corina Eufingere (u-finger)  Real Estate Background:

 

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Best Ever Tweet:

“We need to bring the human being factor back into real estate” – Corina Eufingere


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 Corina Eufingere.

Corina, how you doing today?

Corina Eufingere: I’m good. How are you?

Theo Hicks: I’m doing good. Thanks for asking and thanks for joining us. A little bit about Corina, she’s the owner of Brio Properties Rental Management and chairman of the Wisconsin Apartment Association. She’s a fourth-generation real estate investor. Her personal portfolio consists of 12 units and then she manages 135 other units. She’s based out of Wisconsin, and you can say hi to her at http://briopropertieswi.com/.

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

Corina Eufingere: Sure. I’ve been around real estate my entire life. My grandparents, parents were all real estate investors. Interestingly enough, I traded [unintelligible [00:04:02] chores for working on all of their properties growing up; so I didn’t have to do the dishes, I didn’t have to mow the lawn, I didn’t have to do my own laundry, because I was spending my nights, my weekends and my summers working on my parent’s properties. But I learned a lot of practical experience doing that. Of course, when you’re that age, you’re doing the gruntwork, you’re doing the landscaping, you’re doing the turnovers and cleaning out the trash. But that’s really where I got my passion for real estate and I kind of saw what it did for my parents as they aged. It gave them some great passive income that they utilized until the day they died.

It was something that I think I knew deep down I was always going to be involved in. It took me a little bit, because I did a little bit of a detour, but I did end up purchasing my own property. So right now I do have 12, and I made those purchases about six years ago. I also do have my property management company that I started because I’ve heard the horror stories that exist out there in the forums, places like that, about how bad some property management companies are.

I’ve really sort of honed in on balancing between knowing what investors want, knowing some of the horror stories that come along that I’ve heard, and creating a management company that really does feel like they are on your side versus just on their own side and filling their own pockets.

Right now, honestly, I have been so focused on keeping not only my investments but my management company on the forefront of COVID and everything we’ve had in response in this industry in regards to that. That’s taken up all of my mental space for the past four months. And it’s going to continue to, because we’re not quite done with this yet.

Theo Hicks: Sure. You said that you bought your units six years ago, so you haven’t bought a property in six years; your focus is the management company.

Corina Eufingere: The first deal I did was six years ago, and then the second one that I did to finish off the 12 that I had was about two years after that, so about four years ago. So, yes.

Theo Hicks: Okay. Did you start the management company before you started buying these properties or was this something that you realized after you’ve had a bad experience with a management company?

Corina Eufingere: No, I started the management company about a year before I made the first deal. I always knew first that I knew I was going to get into property management, because I had had relatives that had horror stories with property managers, and I actually kind of lived through some of that. Once I got that under my belt, I got through to my team, it just made more sense then at that point to start building my portfolio.

Theo Hicks: Okay. How many units did you have under management before you bought your first deal? I guess during that first year, how many clients did you get?

Corina Eufingere: Clients, I had three, but that was about 73 units.

Theo Hicks: Okay, 73 units. So about half of the units you manage now or before. Walk us through how you’re able to get 73 units under management in one year.

Corina Eufingere: Well, the way I was able to do that was there was some connections that I’ve had. Growing up in real estate, I have connections. There was a couple that owned a property management company, they were retiring, moving on to a better life in Florida. I had worked with them way back when I was a teenager. They called me up and they said, “Hey, we want to step away from this. We’ve got this company right now, we’ve got employees. We don’t want to just close it up and say, ‘Hey, guys, good luck, go find other jobs.’ We want to be able to continue to have them have jobs and have them be provided for. So would you be interested in moving things over from our company to yours?”

That’s what I did. I basically went through negotiations with them, and I met the owners that they currently had, I made sure we were going to gel, we were going to match… Because property management is definitely one of those things where you’ve got to have a good rapport between yourself and your client, or between you and the property manager. Because if you don’t get along, everything’s going to be so much worse. So I did all of that. And when all that was said and done, I ended up with a company where I had one part-time leasing agent, I had two maintenance personnel and out of that 73 units with three clients.

Theo Hicks: So one leasing agent, and then the two maintenance people – they came from the other company. Did you just assume them on and actually qualify them again, or did you make sure that you wanted to keep them before keeping them on? Do they still work for you today?

Corina Eufingere: Oh, I definitely made sure I want to keep them on. Because one thing I’ve learned from just business in general is you don’t want to have people on your ship per se—let’s think of a business as a ship; you don’t have people on your ship that don’t want to be on your ship or they can’t function in the role that you need them to.

When I was interviewing owners, I, of course  was interviewing the maintenance staff, and then the leasing agent that came with it. Unfortunately, I don’t have any of them left with me anymore. Most of them stuck around for about six and a half years. I was really fortunate that they did stick with me a long time. Some of the circumstances were sort of out of control and it’s just sort of the way things turn out, because sometimes you got to make hard decisions in business. Some of these were hard decisions, to not necessarily move forward beyond that point with some of them.

Theo Hicks: Who’s on your team right now? Not like people-wise, but I guess position wise. How many leasing agents, maintenance people, anything else that you have on your team from the starting point of one part-time leasing agent and then two maintenance people? Where are you at today?

Corina Eufingere: Right now today, I’m at having three maintenance personnel. I also have a resident manager that manages a certain region of Wisconsin for us; then I have a property manager, I have a director of operations and then I do have one leasing agent, but we do sort of hybrid out; the property manager does a little bit of leasing and then that regional manager also does some leasing as well. That’s where my team’s at right now with seven, eight people.

Theo Hicks: Perfect. In what order did you hire them?

Corina Eufingere: The property manager was the first addition I made once I had kept the leasing agent and the maintenance staff. I brought on that property manager to take care of the admin to get it off of me, because it’s hard to grow your company when you’re in the throes of the day to day operation. In order for me to really step away and continue to make this grow and get it to grow, I had to bring that person on to handle the day to day property management. Of course, I’d make sure they were qualified, because me being an investor, I wanted to be sure they knew what they were doing. Because this means a lot to me, what I do, because I see the other side of it. I’m not just somebody who does the property management side of it.

I went to my clients, I made sure my property manager was very qualified. Once I got the property manager, then I actually went on to having that third maintenance guy, because at some point, that’s going to happen. We got the maintenance guy, and then we went on to getting the regional manager and then lastly, the director of operations.

Theo Hicks: It sounds like the property manager was the one that was the most important. You mentioned that you made sure that this person was qualified, and they knew what they were doing.

Corina Eufingere: Yes.

Theo Hicks: Can you give me specifics on the types of things you wanted to see out of this person background-wise? Any type of specific interview question? Maybe you kind of walk us through what this process looked like, where do you find them, things like that.

Corina Eufingere: Oddly enough, when I hired this person, the original intent of the ad was actually more of a social media manager. And then she came to me she had all this property management experience. She’d worked with a lady out of Kenosha who was really well-known in the community as being a great real estate agent for investors. So she already came with this knowledge of understanding things like in regards to return on investment and understanding capital investments, capital expenditures. She also understood how so much of our jobs as property manager is negating the risk involved. She really hones in on risk liability, and that’s one of the things that I love about her is, she will just be at times very blunt with the owners and say, “Hey, this is a risk liability for you. This is what can happen if we don’t fix this, if this isn’t addressed, or if we don’t do it this way.” She came to me as this sort of pre-programmed package with so much real estate experience, because she was honestly trained by one of the best people that existed in that area.

Theo Hicks: And then the ad, you said you created an ad for your social media person. Where did you post this ad?

Corina Eufingere: That was Craigslist, I believe. That was still back when you didn’t have to charge on Craigslist for a job post.

Theo Hicks: Nice. I know what maintenance people do… I’m kind of confused about the regional managers. So is the regional manager in charge of your one property manager, or do you have multiple regional managers?

Corina Eufingere: The regional manager, because the majority my team is based in an area of the state which is about 80 miles away from this other location that we’ve branched out into, we needed some of the boots on the ground. This regional manager – we call him our regional manager… Yeah, it’s not quite the greatest title, because sometimes you hear regional manager, you think they supervise other people, property managers… This regional manager is in charge of being boots on the ground in that area of the state that is a further distance away from where the majority of my maintenance is based or my property managers based. She’s our boots on the ground there.

Theo Hicks: Got it. What about the director of operations? Why did you decide to bring that person on? I saw that that was your most recent hire. What is that person’s responsibilities?

Corina Eufingere: That person’s responsibility is keeping all of our documents and our policies up to date. Because in real estate, especially as being a licensed real estate entity here in Wisconsin, there is a fair amount of pressure on us to not only be ethical, but also to make sure all of our I’s are dotted and our T’s are crossed, all of our ducks are in a row.

Whenever we have any sort of law change or anything that goes on, she is responsible for making sure all of our paperwork is still up to snuff, getting our staff retrained on whatever may have changed, and making sure our policies are still good for how we need to remain ethical.

She does a lot of continuing training. One thing we do is we do quarterly training with our staff. Sometimes it’s just maintenance, sometimes it’s just office staff. And their refresher is on things like fair housing or maybe their refresher is on how evictions are run, or how we need to handle confidentiality. She’s really in charge of making sure that our employees are trained to not only be ethical, but also be able to uphold any laws that we are subject to ourselves.

Theo Hicks: And then what are your responsibilities? Maybe to be more specific, if it helps, what does your typical week look like, or your responsibilities? Either one.

Corina Eufingere: My typical week, there’s still a little bit of the company stuff that I’m involved in. I still do some of the end of month processing for our owners. I still do that. I still do oversee payroll in regards to our portfolio, because one of the easiest ways that people embezzle money is actually through payroll. I decided to hold on to that, keep that process within myself.

Outside of those stuff, I’m really focused on the bigger picture and growing this company, because now I’m responsible for these seven or eight people that rely on me for having a job, for having income. I took that very seriously in the past couple months, because we had to adapt a lot of how we operated, because we weren’t doing things in person. I had to come up with, okay, we can’t do things in person. How are we going to communicate with our tenants, if we have somebody that wants to move in, how’s the showing going to look like?

Really, I’m focused on keeping us on the forefront of not only what’s been going on, but also making sure we are taking advantage of the technology and some of the trends that are existing out there and making sure we are being the most efficient that we possibly can for our clients. That’s honestly the great thing about my role right now – I’ve stepped more out into the brainstormer role, the creative role of being able to look at the company, figure out how we can make things better, how we can make things different, but efficient. That’s what I really enjoy about where I’ve been in my company recently.

Theo Hicks: Alright. What is your best real estate investing advice ever?

Corina Eufingere: My best real estate investing advice ever is once you buy your property, always remember there is a tenant relations aspect to this. There is this need to have human interaction, to remember that we are renting out homes to people and this is a place that they live. This is a huge chunk of their lives. This isn’t just a business for us. There’s little aspects of it that are human interactions, customer service. It’s such a big part of how we operate and it’s one of the biggest complaints that so many people have about their landlord, is that the landlord doesn’t treat them like they’re an actual human being, and we need to bring that human being factor back into real estate and make sure we are treating our tenants like human beings.

Theo Hicks: Alright, Corina. Are you ready for the best ever lightning round?

Corina Eufingere: Yes.

Theo Hicks: All right.

Break: [00:17:35] to [00:18:23]

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

Corina Eufingere: Right now, I’m just finishing up, I’m 97% of the way through it. It’s What Every Real Estate Investor Needs to Know About Cash Flow by Frank Gallinelli. This is a book that there’s a lot of math in here, a lot of equations in here, a lot of useful terminologies. What I love about it is he breaks it down into “These are terms that you’ll hear people say, but they’re really not that important anymore, these are old terms, and then these are the metrics that you really should be looking at when you’re purchasing your properties.” That’s what I love about his book.

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

Corina Eufingere: You know, I’d probably do the same thing I think Robert Kiyosaki says in his Rich Dad, Poor Dad. Even if this business collapsed today and mine does, I still have all the knowledge that I’ve accumulated over the years, I still have all my experience, so I’d just start over again.

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

Corina Eufingere: I am an 11-year cancer survivor. So one of the ways that I love to give back is I love to communicate with people who have been recently diagnosed with cancer or are going through it. I had it at a point in my life where I thought I was invincible. I was in my mid-20s and everyone thinks they’re invincible then.

One of the things I really enjoy doing nowadays is giving hope and direction to those young people who have been faced with that same awful diagnosis that honestly, no 20 somethings should have to deal with, but when you do, if you go into it with the right mentality, you can come out on the other side with such a positive, awesome view of life that you’re going to look back at the old person and then be like, “Wow, this might be the best thing that ever happened to me.”

Theo Hicks: Lastly, what is the best ever place to reach you?

Corina Eufingere: I do have an Instagram account, it’s Landlord Chick, and you can reach me over there. You can, of course, reach me at http://briopropertieswi.com/. I’m usually lurking around on Instagram a couple times a day. Also on BiggerPockets as well.

Theo Hicks: Perfect. Corina, thanks for joining us today and essentially walking us through how you were able to create your property management company. First, you talked about why you created your own property management company is due to all of the various horror stories you’ve heard about third party management. I’m sure a lot of people listening can relate.

You mentioned you started your management company before you bought your properties, and we focused on the management company in this conversation. You actually started off with a pretty quick start. You mentioned that you ended up inheriting employees, as well as clients from a previous private management company, someone who had worked with you growing up, who were retiring and didn’t want to close everything down and tell their clients ‘good luck’. So you took over those 73 units.

You mentioned that after you had your leasing agent and your two maintenance people, your next hired your property manager, who took away a lot of the admin work away from you. And you mentioned that you made sure that she knew what she was doing, she was qualified. You posted an ad in Craigslist for a social media manager, and actually this person replied, and you realized how experienced they were, that they were an investor-friendly agent in the past. They were trained by one of the best. And they focus a lot on risk liability, which you really liked.

After that, you hired a third maintenance person and then a regional manager who was someone who’s the boots on the ground in an area that was a little further away from where you managed most of your properties, and where the rest of your team is. And then you mentioned your last hire was the Director of Operations, who’s responsible for keeping the documents and policies up to date.

And then you mentioned what you did, which was still focusing on some of the admin work end of month processing for owners overseeing payroll, but then also focusing on the bigger picture and how to grow your company.

And then your best ever advice, which I think is really good, is that make sure that you always remember that you have a tenant who’s a human being. The biggest complaint you’re going to get from tenants is that they’re not treated like a human being, so making sure you’re focusing on the tenant relations aspects of the business and not just looking at them as just a number on a spreadsheet.

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

 

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JF2223: Invest When Approaching Retirement With Bill Manassero

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

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

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

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: How did you meet this person?

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

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

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

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

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

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

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

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

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

Bill Manassero: You bet.

Theo Hicks: All right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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JF2215: Rockstar Capital With Robert Martinez

Robert Martinez is a full-time real estate investor, syndicator, and manager at Rockstar Capital. He has 13 years of real estate investing experience and shares how he got started. He survived the recession and believes it is because at the beginning of his career he was in sales and learned to negotiate and make deals which helped him later in his real estate life especially in outperforming others during the recession.

Robert Martinez Real Estate Background:

  • Full-time real estate investor, syndicator, and manager at Rockstar Capital
  • Has 13 years of real estate investing experience
  • Rockstar’s Capital portfolio consists of 21 communities and 3,762 units
  • Based in Houston, TX
  • Say hi to him at: https://www.rockstar-capital.com/ 
  • Best Ever Book: Gary V podcast

 

Best Ever Tweet:

“Find out what will put you out of business and then develop a plan to defend against it” – Robert Martinez


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 Robert Martinez.

Robert, how are you doing today?

Robert Martinez: Hey, how are you, Theo? Thanks for having me on the show.

Theo Hicks: Absolutely. Thanks for joining us. I’m doing well and looking forward to our conversation. Before we get to that conversation, let’s go over Robert’s background. He’s a full-time real estate investor, syndicator, and manager at Rockstar Capital. He has 13 years of real estate investing experience. Rockstar Capital’s portfolio currently consists of 21 communities across 3,762 units. He is based in Houston, Texas, and you can say hi to him at https://www.rockstar-capital.com/.

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

Robert Martinez: Yeah, so I got started in real estate in 2007, but prior to that, I had no real estate background whatsoever. I grew up in Deep South Texas, like a border town close to Mexico, United States. I went to school at Texas A&M University and I thought I was going to be an engineer when I got out of school. What happened was I got a sales role within a company that makes engineer products. So I started going out to the Ship Channel and to the engineering houses and setting my company’s products.

And what happened to me is a lot like what happens to a lot of people in corporate America; they monkey with your commission plan, they monkey with your territory, they bleed you when you’re working really hard; you’re trying to plant roots and seeds today so that you can harvest them tomorrow and for years to come. That’s not how corporate America works, right? You want to make here, instead corporate America wants you to make down here somewhere, plus or minus $10,000.

I got very disgruntled, I guess, by that, and I wasn’t motivated. When I should have been out there looking for  new business for my company, I was out there trying to educate myself. I stumbled upon a real estate radio show; I listened to it for the better part of two years before I actually went to that real estate club to learn.

Once I went to that club, it literally was like that matrix moment with Morpheus and Neo, where you see the red pill, blue pill. You take the red pill, and you’re going to go back to reality. You take the blue pill, and you’re like, “Wow.” It’s like you see this whole other world that you never knew existed, and you didn’t know it existed because mom and dad didn’t teach you, right? Donald Trump’s kids knew about this stuff, right? Our people that are in the real estate market; but the everyday Joe, he didn’t know that, because if his mom or dad didn’t teach it to him, they didn’t learn it.

Thankfully, I believed in mentorship, I believed in educating myself, I went through the process, I went through the program, and I got to understand the basics of what it was to run an apartment complex.

With a partner, I got started in 2007. Together, we ran 2,000 units. I was the COO of the company, and after 2011, we separated. I started Rockstar Capital in 2011. Since then, we’ve gone on to purchase 22 communities; we own 21 today, just under 1300 units, asset value of under $400 million. I’m a two-time city owner of the year, I’m a two-time national owner of the year, and our claim to fame is that we pulled a tremendous amount of equity out of our communities. We’ve been able to pull out 12 100% cash-out refinance events since 2011, and we’ve won 17 city, state, and national Apartment Association Awards in that time.

Theo Hicks: Well, thanks for sharing that. There’s all these things in your background I’d like to focus on… I definitely talk about the 12 100% cash refi events. Before we get to that, it’d be nice to kind of go back in time a little bit, because I know a lot of people love the origin story.

You kind of mentioned up to the point where you took the red pill, you were all in on real estate, you decided to pursue apartments with a business partner. Maybe kind of walk us through — you don’t have to get super detailed, but maybe walk us through why you selected that partner, why you selected apartments, and then maybe a little bit of information on the first syndication deal. Where that money came from, how the duties were split, things like that.

Robert Martinez: Sure. I chose a partner because I didn’t know any better. I was scared. I believed in fear, and in fear, it was False Evidence Appearing Real. I didn’t think I could do it alone. I wish then I know now what I know, is that I could have done it alone. Financing was available and I would have done a lot better for myself. You talked about fees – he was the syndicator in those first three years and I was the operating arm, so I didn’t get any additional fees. I got the return on my equity. That’s what I got. I worked for it. He was a syndicator. He put the deals together, so he got those deals. And then we ran 2,000 units. I ran deals through the recession. Because of my sales background, I was able to get us to survive the recession. I was able to teach my staff how to sell and ask the basic questions, and how to compete against every day other people.

When we got started, we were dealing with C-class deals, right? Because that’s why everybody gets started typically when you first get certain apartment deals, so it was me against them. It was my sales team versus their sales team, and we won. During that time, we did three 100% refinance events. I don’t take credit for them, but I was the operating arm. I was leading the Salesforce.

And we had a falling out… Because what happens in this world, if you don’t have it clearly defined, and I thought we had an agreement—if you don’t have it clearly defined on what everybody’s roles are going to be, then it start to go bad.

We had an agreement, an agreement that he broke, and when I realized that I couldn’t trust that guy, I don’t want to be in business with you. So we had a parting of ways. And when I started Rockstar, I didn’t have a business partner, I did it by myself. I took the lessons and the experiences that I was able to gain during that time to begin the company.

Theo Hicks: Okay. How many deals had you done up to that point with that business partner before that falling out?

Robert Martinez: He and I did 10 deals right around 2,000 units, all C-Class, B-class deals. At that point, you’re talking 2008-2011. I think we were looking at deals that were in the $30,000 to $40,000 range per unit.

Theo Hicks: Then once that happened, what happened to those 10 deals?

Robert Martinez: My understanding is some of them still exist. Many of them were sold already, and he is not as large as we are today. They’re still around. I don’t have ownership in any of those deals. The deals that I had ownership in have sold already.

Theo Hicks: Okay, so then let’s transition to Rockstar. You had, obviously, a lot of experience from the 10 deals you had done. Let’s just start with the money-raising aspect. How did you get the money for these deals, starting with Rockstar?

Robert Martinez: Well, within that real estate club, I really had developed a name. I was co-owner of that previous company, so people knew who I was through the different events that they would have. For me and my very first deal, I already had a track record. I’m at a little bit different advantage, because I wasn’t a syndicator in those first three deals, but I was the guy running the show. So when we’d have presentations, I am there answering questions. I am there shaking hands and kissing babies.

So when I finally did my first syndication deal, that money came in pretty quickly. It was only about $1.5 million equity raise. We bought it in 2010 and paid $24,000 a door for it. It’s crazy. A 1984 deal; raised $1.5 million. We refinanced it twice since then; we’ve returned 400% back to the investors. It’s probably worth another 300% to 400% in terms of unrealized equity, but we’re in a CMBS loan, so I need a few more years for it to end and then we can pull the cash out again.

Theo Hicks: Okay, let’s focus on that, because I’m sure most people want to hear about it. The best way to go about doing this is to give us an example deal that you were able to do the refinance on. Let’s just pick a deal you’ve done it on – the first deal, the last deal, whichever you choose, and walk us through the numbers, and how did the whole process work, like how you were able to do it?

Robert Martinez: Sure. As you know, if you do this long enough, your model changes, your fee structure changes. Early on, I had a 10% promote. So of that $1.5 million, I would take a 10% override is what I call it; an override on the profits of that. I didn’t charge any acquisition fees, there were no additional other fees. It was a 5% management fee; that was 3% on the property management, and 2% on the asset management. Then we would go in, we would raise the capital, and then we would do a renovation.

I’m very big on replacing all the air conditioners, day one. That’s a lesson that I learned from those first three years in the business. Because the key to successful real estate investing is heads and beds, and you want people to renew. You make your money when people renew, not when they move in. Because as you know, when you have people move in, you’re spending a lot of money; you have vacancy loss, you have to make-ready expenses, you have marketing expenses, you have a wide variety of expenses for that unit. But if they stay, typically they will absorb a rent bump, a nuisance bump as we like to call it, and they stick around, which means that you don’t have any expenses against it.

My whole goal is what can I do to keep them to renew again and again with us?

The number one thing was air conditioners. The number one maintenance headache that any apartment has is the air conditioning, and the number one reason why people move out is maintenance. If you replace the air conditioner — as you hear in Houston, Texas today it’s like 97 degrees; it’s hot, and it’s going to be like that all summer long, probably through November. So if you can replace that one issue and you create a basic service and focus on the basic services, then people are going to stick around longer. So air conditioning was a big deal.

Then we go do our other renovations; we improve the exterior, we add HardiePlank patios so that it has a fresh clean look. We’ll repaint, we’ll update the interiors, we’ll put forward planking down. It’s the same business model everybody has, but what we also like to do is focus on reviews. We didn’t do that then. This was an evolution thing. As times go on, people find you online, so it’s really important to make sure that you’re controlling the narrative and the right story is out there. We don’t want the story to be written by somebody who’s been evicted because they can’t pay rent or somebody who’s not following community policies. We want it to be written by people who are moving in because typically, they’re happy, right? We focus a lot on reviews and then we focus on making sure that all of our basic services are right there in line and they’re consistent.

Theo Hicks: I appreciate that. Let’s talk a bit more about the reviews. What specifically are you doing to get those people who are renewing to do reviews? I guess, is it just happening naturally or is there some sort of productive effort on the part of you and your team?

Robert Martinez: Well, for sure, because first, you need someone to lead. You’ve got to execute. Everybody had the idea for Uber, but nobody executed on it, right? It’s the same thing. If you have the best idea, but if you have no plan to make it happen, then you’re going to have issues.

Reviews were very scary for us in the beginning. Like a lot of people, I would go to https://www.apartmentratings.com/, I’d go to Google, and I always see negative reviews, and everybody was scared. I literally would feel like an ostrich with my head in the sand. I didn’t want to see it, I ignored it. I got a chance to visit with Gary Vaynerchuk a couple times and he kind of said a couple of things that made me focus on brand, focus on reputation, and helped me understand that, “Man, I’m letting somebody control my narrative.”

So what we do is we told the staff not to be afraid of reviews; to go out there and solicit reviews. Every time that somebody is there and they’re moving in, ask them for their review. If you just ask for it, people are probably going to want to give it to you. That’s what we did and we started to build our reputation.

Today, per https://www.apartmentratings.com/, 16 of our 21 sites are ranked in the top 250 in the country. There’s 130,000 communities. I’ve got 16 sites in the top 250. In the top 10, I’ve got six sites, because this has been part of our business model. It’s something that’s a part of our foundational success. We spend a lot of money on the websites, we spend a lot of money on video, but they’re still going to go back and read the reviews because that’s what people do. They don’t want to make a decision on their own. They want to feel safe. It’s a little bit of a herd mentality. When you go to Best Buy and you want to buy a TV or a camera or something, you probably don’t know which one to pick. So you ask the sales guy, he’ll tell you everybody’s buying this one or buying that model. You’ll go to Amazon, you’ll plug in the model, you’ll then see other reviews there and then that’s how you make your choice. It’s no different for apartments. We’ve just got to make sure that we control the narrative and the best story is out there.

Theo Hicks: I appreciate you sharing that. Of all of the 12 cash out refinances you’ve done, on average, how soon after you’ve acquired the property, are you doing these?

Robert Martinez: Well, it’s definitely changed, because in the early years and back in 2008 and 2011 and 2013, we could do those in a 24 to 36 months cycle. It was that good. But as everything gets more expensive, and the cap rates get a little tighter, and there’s more competition, it’s now pushing out to three years or four years. We’re able to get the cash-out, but it just takes a little bit longer now, starting out with COVID-19 that happened and everybody’s budget can be in a little bit off and the investor sentiment is off, the economic outlook is off, it may take a little bit longer. But if you just follow the model, it’s going to be fine. But today we’re looking at probably between 36 and 48 months.

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

Robert Martinez: Man, you’ve got to go big or go home. I bought a deal that was 51 units. We were dipping our toe into the class-A market. I bought it in midtown, which is just outside of downtown Houston, a very hot area, a very trendy area. I thought, “It’s just 51 units, I can control that. I’ll be okay.” But what I didn’t understand is that any blip, my occupancy moves. So as they’re building a lot of new properties in the area, we were getting dwarfed out; these properties are coming up, they’re leasing up, they have every amenity in the world. I’ve got 51 units, I got a small pool, and I have an executive style fitness center.

When I did underwriting on that deal, it was $100 a barrel here in Houston for oil. When we closed the deal, it was $60 a barrel in oil. And Christmas that year after we bought the deal, it was $30 a barrel in oil. We really went into a gunfight with a knife. We had to get better. If I had had marketing dollars, if I had a bigger budget, I could have done better on that deal. But what I did learn – I learned websites, because you have to fight against it. We didn’t have any websites. I learned websites. I learned reviews are very important. That was one of the first properties that we got that was ranked really high. That probably was ranked in the top 1% in the country for resident satisfaction every year that we owned it, but it was one of those ‘necessity is the mother of invention’. We had to survive. But what if I would have had 300 units, 400 units? I would have had more marketing dollars. I would have been able to have more budget to pay for a better manager in the chair because that person sitting in the chair is running a multi, multi-million dollar deal. You’ve got to make sure you have the right person in that chair. And if I’m paying $40,000 a year or I’m paying $80,000 a year for the manager, you’re going to get a different performance, and I realized that. So as we move forward, we’re focusing on larger deals, because more units give you more ammo, it gives you more options.

Theo Hicks: Do you mind, before we go on to the lightning round, just elaborating a little bit on the website?

Robert Martinez: We had a website. It’s funny, right, because I had no websites. My marketing budget consisted of pretty flags, banners, and color on the outside of the property. We did a lot of resident referrals. We did a lot of advertising in different periodicals. But we had no social media presence whatsoever. We had no website presence whatsoever. We had to learn that and I learned it on the fly. That’s how I discovered Gary Vaynerchuk, was trying to learn from mentors like that, and going to visit Gary a couple of times, and understanding what I needed to do to separate from the pack. Our website had no teeth to them. They were just basically a shell. It was a pretty picture, a couple of links, and that was it. I didn’t understand SEO. I had to educate myself. I self-educating myself, but I also brought in people into my company that were where I wanted to be.

I brought in somebody that was working at another company and they [unintelligible [00:18:19].11] running 10,000 units, and I had to pay for that person. That came out of my pocket. But I had to learn that. I had to go through the process of understanding where we were weak. Together, we learned social media, we learned Facebook ads, we learned Instagram. Today, we have a guy that focuses on nothing but Google ads; like the SEO, the keyword placement. It’s just things that we didn’t even look at before. We’ve got a complete team, where three years ago I had nobody on the marketing team. Today, I’ve got seven people on the marketing team, because I realize how important leads are, I recognize how important follow-up is… We have a 24/7 call center now, so we never miss a call. It’s not just like an answering service that you pay 90 bucks for a month. It’s a live, breathing person that has access to your property management software that can schedule the appointments for you. It’s just been an evolution for us.

Theo Hicks: What would be the one thing you’d recommend someone do to improve their branding, when they obviously don’t have as big of a budget as you to hire a full team and 24/7 ads and one guy who’s doing Google ads and things like that? The one thing they should do today.

Robert Martinez: If you don’t understand that it’s all about the phone, then you’re dead in the water. You deserve to go out of business. You’ve got to immerse yourself. You can go to YouTube, you can go to Google, and you can educate yourself. Before I brought anybody in, before I started to take money out of my pocket and do that, I spent money on myself. I invested in myself first, before I invested in anybody. When they brought them in, they didn’t have social media experience. I had the social media experience. I learned how to do a Facebook ad. I learned that by watching Gary. I learned it by self-teaching yourself.

You’ve got to be a little innovative, right? Because every day, somebody’s trying to put you out of business.

One of the key takeaways from meeting Gary was he said, “Come up with a way to put yourself out of business,” and remember when he said that to me, and I’m like, “What do you mean?” He goes, “Find a way to put yourself out of business before somebody else does it to you first,” and that makes sense; because if you don’t try to find your weakness, someone’s going to exploit it. And you don’t have a chance to develop a defense against it. And that’s what I did; I realized that we had no brand, we had no reputation, our properties were unknown. During that pandemic, you survived during COVID-19 if you were still online 24/7.

Right now, during COVID-19, a lot of people saw occupancies go down. Our occupancies went up. Last year, 7% of our total leases were through our website only, meaning that they didn’t come into the office whatsoever. They did the employment screening online, they did the resident verification online, they took the tour online. We spent a lot of money for virtual reality tours where they can go room to room to room, click different buttons, it’ll send to different parts of the property, they can see the amenities.

Today, that’s over 30%. We actually have more completed applications today year to date than we did last year, yet our lead count is down. How did that happen? Because we were online. We were live 24/7. When the rest of the world was shutting down, our offices were still open virtually. That’s what I’m talking about; being able to plan ahead and think about when times are not going to be so good.

That’s being a wartime general. A lot of peacetime generals out there that thought that the world was going to continue to keep going and the harbor was going to stay full and all boats are going to float. But the wartime generals had been through the recession and they’re thinking about when times are tough, “What can I do to prepare for it?” That’s some of the things that we did.

Theo Hicks: I really appreciate those. That was really solid advice. One more time – find a way to put yourself out of business, and then—

Robert Martinez: Yeah, find a way to put yourself out of business, and then develop a defense against it. What is your weakness? And he is very big on doubling down on your strengths and hiring your weakness… As you’re getting started — I mean, I have 4000 units today, but I started with a 118 unit property, all by myself. It was me, the property manager, and two maintenance guys outside, and today I’ve got 4,000 units. That means I wore every single hat. I wore the underwriting hat, I wore the operator hat, I wore the owner hat, I wore the investor hat; I wore them all. And today, I now have people there.

What we’ve done is, I’ve focused on what I’m good at, doubled down on that… And systematically start to hire your weaknesses. Marketing was a weakness for us; when I realized that we weren’t able to stay alive and fight against better competition because they have a social media presence, because they’re buying your keywords up… You have to understand, “Hey, I don’t understand this. I need to bring somebody in here that does, so we don’t die.” Again, find a way to put yourself out of business, and then develop a defense against it.

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

Robert Martinez: Yes.

Theo Hicks: Perfect.

Break: [00:22:31] to [00:23:45]

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

Robert Martinez: I’m embarrassed to say, right? I think I told you, I just got the Jaws book. I’m not a big reader. I’m more of a guy that likes to sit in the car or sit at my computer with my air pods in. I listen to a ton of podcasts. I listen to everything Gary spits out, because he gives out some amazing information for free. And if you’re a good business guy, you understand how your business works, you can identify, you can take those lessons from him. I love the Gary Vaynerchuk podcast. I love Grant Cardone’s podcast. When I need a little jolt of energy, I need to feel like I can run through that wall, I’m going to go listen to Grant. But if I need some real stage business advice on how I can implement and make my company better, I go and I follow those guys. That’s all I need right now.

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

Robert Martinez: I’d do it over again, because I believe there are some things that will never go away; your need for food, your need for water and air, and you’ve got to have a roof over your head. I think if you focus on a business that services one of those items, you’re going to be okay. I would do multifamily all over again, and I just would probably do it differently.

Theo Hicks: Do you mind telling us about a deal that you’ve lost the most money on? How much did you lose? What lesson did you learn?

Robert Martinez: I’m very fortunate; I’ve never lost money on a real estate deal. For those of you that are struggling right now, I’ve been in deals that were struggling during the recession that looked like, “Man, we’re never going to get out of this.” But you never lose money till the day you sell. So just find out a way to keep it going, because when it’s bad, it’s bad, but when you’re running through hell, you don’t stop. You keep going. You want to get out on the other side. I’ve been very fortunate. I’ve gone through my ups and downs of deals, but I’ve never lost a deal. I’ve never lost money in a deal.

Now, did I make less money on a deal? Sure. That 51 unit deal. I had delusions of grandeur, I was going to pull another 100% equity out, and it didn’t happen. In the end, we wound up with 27%, which was around 8.5% annualized return; not the best return. By far, the lowest return. But the lessons I learned from that deal, were amazing.

I learned social media because of that deal. I had to go see Gary Vaynerchuk because of that deal. I learned resident reviews because of that deal. That deal created our whole marketing team later on, because I realized I’d bought a deal and I didn’t understand how to stand out above the noise. That deal forced me to learn how to do it, and I learned through the 51 units, “Man, you need to be looking at 351 units, 451 units, you need more size. More doors is better for you.”

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

Robert Martinez: I think there’s two ways I want to make sure that I give back and I’m remembered for; what I’ve done for my team and what I’ve done for the community.

Internally, I’m very big on trying to help my team out. I’m in a position where I can help and I know that. I’m in a position where they’ll take advice, they’ll listen to me, and its mentorship. I try to give everybody 51% of the relationship. I say, how can I help you? What is it you’re trying to do? Where are you struggling at right now? Let me see what I can do—because really all it is, is just a little bit of knowledge. Somebody wants to buy their first car, but they don’t know how to do it. They don’t know where to go, they need some help on their credit. You give them some advice. You tell them where to go. They want to buy their first house, you help them get out of debt, you help them save money, you give them advice, and they start to listen to you. I don’t do it for them, but I give them advice.

Here in the company, I told everybody that I want to see you get your real estate career started while you’re working with me. If you put $5,000 in any of my deals, I will match you $5,000. That is better than any 401k. That’s better than anything, because they will learn what real estate advantages are. They’ll learn cash flow, they’ll learn appreciation, they’ll learn the tax benefits, and I want to be that guy that teaches them. That’s a standing offer I have within my company.

For the community, I try to do as much as I can. There’s little stuff like the back to school events and working with the local Apartment Association. But my mom got hit by breast cancer back in 2016 and it was a very scary thing for me. I didn’t know what it meant. I had to educate myself on it. I realized how easy and preventable it is with just raising awareness. One in seven women will get breast cancer in their lifetime, but it’s like 90% are curable and preventable if you get it early, and you get the proper treatment.

We started a breast cancer walk back in 2016. We’ve done four years now of that, and I’m really proud of how much money we raised for Susan G. Komen, and have raised for Breast Cancer Awareness. And what we’ve done for families of our residents here where we help sponsor screenings, we’ve done financial assistance… But I just always go back, “What do I want to be remembered for?” I don’t want to live in regret. I want to make sure that I’ve done everything I needed  to do business-wise, everything I needed to do for my children to become the best mentor and the best father I can be for them. And for my team, to let them know that they had someone that cared about them and that I gave them a head start somewhere, where maybe if they hadn’t met me, they would be in a different position.

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

Robert Martinez: That’s a great question. I’m really focused on social media right now. You can find me on LinkedIn at Robert Martinez, I produce a lot of free content. On Instagram, I’m out there @apartmentrockstar, and I have a personal brand page, the https://www.theapartmentrockstar.com/ You can find out all of our live events, you can find out our coaching, you can see a lot of free videos. I even have a comic book on there. There’s a lot of free content to learn from me, but you can go to https://www.theapartmentrockstar.com/ and you can find me there.

Theo Hicks: Awesome. Robert, I really enjoyed this conversation. You have a lot of knowledge and you gave us a lot of knowledge in this episode. Definitely worth relistening for sure. There’s a couple of—again, a lot of takeaways here, but a couple of the biggest ones, at least for me personally, was, first of all, when you talked about making the money when you renew. I think that was really powerful, and it’s so obvious, right? But I don’t think a lot of people think about it that way.

You talked about obviously, if you’ve got people staying, resigning their lease, you’re automatically knocking down your vacancy loss, you’re make-ready expenses, your marketing costs, and you’re still getting that rent bump, right? When you look at a T12, you’ll see there’s a pretty big make-ready expense. There’s a pretty big vacancy expense. There’s a pretty big marketing expense. So being able to knock that down is huge. Every dollar saved increases the value of the property at even greater amounts. I really liked that you said that. You gave us examples of things that you do in order to promote that.

The biggest one you said was replacing all the A/C units from day one. I’m sure anyone who’s ever lived in a hot climate can understand how annoying it is when your A/C goes out for sure, so I bet that helps a ton.

You gave us a few other examples. Another huge takeaway was your focus on reviews. I hope I wrote this down right, but you said 16 of your 21 sites are in the top of 250 in the country for reviews and then six on the top 50, right?

Robert Martinez: That’s correct, on https://www.apartmentratings.com/.

Theo Hicks: On https://www.apartmentratings.com/. Obviously, getting people to renew is huge here, but you’ve said that really all you’ve done is just whenever staff are interacting with residents, so whenever someone is signing a lease or if someone is going to renew a lease, you simply ask them to sign a review. And you mentioned the reason why reviews are so powerful is because of that kind of herd mentality, and people are going to make their choices based off of what other people have already decided, right? So if they hate your apartment, then they’re not going to go there. If they love your apartment, then they’re more likely to go there. I appreciated that.

You also went over your best ever advice, which was to go big or go home.

Robert Martinez: Yeah.

Theo Hicks: I’ve talked about this before in Syndication School, but when you’re doing these apartment deals in that medium-range, and in your case is 51-unit deal which ended up working out, and you’ve got these bigger communities around you that have all the amenities on site, you are going to have a hard time attracting residents. Plus you’d have less money to spend on things, like you mentioned, marketing and a manager. When you’re dealing with apartments, the bigger the better, because you have more economies of scale.

Lastly, you talked about the Gary V. quote on find a way to put yourself out of business and then develop a defense against that. That was very, very powerful advice. I’m sure you could do a whole book on talking about different tips and steps for doing that.

But those are some of the biggest things I took away. A lot more really solid advice this episode. I really appreciate you coming on the show.  Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Robert Martinez: Thanks so much for having me on the show.

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JF2204: Investing While Overseas With Vincent Gethings

Vincent is the co-founder and COO of Tri-City Equity Group and is an active duty Air Force. Vincent shares the steps he took to begin his investing journey while still being active duty in the Air Force and not seeing the properties. He explains how he built a team through social media and through this team he has been able to grow his business to now a portfolio of 120 units.

 

Vincent A Gethings  Real Estate Background:

  • Co-founder and COO of Tri-City Equity Group and active duty in US Air Force
  • Has 6 years of real estate experience
  • Portfolio consists of 120 units (20 owned, 52 partnerships, 48 syndications)
  • Based in Oahu, HI
  • Say hi to him at: http://tricityequity.com/ 
  • Best Ever Book: Traction

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Set goals based off your potential and not your abilities” – Vincent Gethings


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’m speaking with Vincent Gethings. Vincent, how are you doing today?

Vincent Gethings: Good. Thanks for having me on, Theo.

Theo Hicks: Oh, yeah. Thanks for joining us. Looking forward to our conversation. Before we dive into that, a little bit about Vincent’s background. He’s the co-founder and COO of Tri-City Equity Group as well as active duty in the Air Force. He has six years of real estate experience and his portfolio consists of 120 units, broken down between 20 units owned, 52 from partnerships, and 48 from syndications. He is based in Honolulu, Hawaii, and you can say hi to him at his website, tricityequity.com. So Vincent, do you mind telling us a little bit more about your background and what you’re focused on today?

Vincent Gethings: Absolutely. So like you said, I’m active duty Air Force; I’ve been in about 14 years. So I do a lot of project management. I’ve done resource management before, so handling funds for big duty projects. Started getting into real estate investing, quickly wanted to scale up to multifamily. It didn’t take too long, about two years, to realize that small single-family, sub four-unit properties just were very hard to scale, especially because my entire strategy is out of state; being in the military, I’m always going to be out of state, essentially, from my market. So I wanted to scale up so I can afford the better systems, better quality project managers, property management systems… So I scaled up to multifamily. Now we’re looking at 50 to 100 unit property, B, C class. So we’re targeting El Paso right now. It’s our main market. We’re looking to take on a secondary market here, this Q3, Q4 this year.

Theo Hicks: Nice. So that will essentially double your units, right?

Vincent Gethings: Yes. So we’re eyeing up a couple properties right now. Nothing under the contract. We’re in June 2020, so market’s still uncertain. So we’re eyeing properties, but we haven’t pulled the trigger on anything yet. We’re still waiting to see if we can get some clarity on what the next year or two years is going to look like.

Theo Hicks: Perfect. So you’ve got 120 units. How many actual properties is that?

Vincent Gethings: Great question. So that’s seven properties.

Theo Hicks: And what’s the breakdown? So how many of those do you own? How many partnerships and how many are syndications?

Vincent Gethings: Well, I have 20 under my personal ownership. That was where I started, was I started with the zero down, VA house hack; that was my start. I made a bunch of capital off that. I was in Bay Area, California while it was crazy appreciating; took that capital, invested that. At the time, all I knew was small multifamily duplexes and fourplexes. So I went on a tear and bought six small multifamilies, had 20 units in about 18 months, and then that’s when I realized that I needed the partner to scale, and the next unit we closed was a 52 unit with a JV in Michigan. And then from there, we did our first syndication, which was actually closed two months ago in April now, during the height of Coronavirus. It was also our first syndication was that last 48 units.

Theo Hicks: Perfect. I want to walk through each of those. Let’s focus on the 20 units first. So six properties, all bought out of state. Obviously, the first one that you bought, you lived in it. So do you mind giving us some pointers, some tactics, some tips on how you were able to buy those properties, and then how you were able to manage those properties without being there in person?

Vincent Gethings: Absolutely. So the first properties I bought, I took that seed money from that live-in, VA, house hack, whatever the term we want to use. Took that seed money– it was about 150 grand I made off that first property from that VA loan, and then I started buying the out of state. So when I went into this, I went in with the mindset that I’m never going to work on these. I didn’t want to buy the properties down the street, become a landlord, and also the handyman and everything like that, because I know with being active duty military, I’m going to leave in three years, and I’m never going to come back to, say, Bay Area, California. So I didn’t want to have these properties sprinkled throughout the country at each base that I’ve lived in. I know that’s a very popular strategy for people in the military, and it works for them. That just wasn’t for me. So I picked the one location, said I’m going to build my team there, and I’m going to put my roots down there and scale up from that.

The way I did it is, I started with property management first, started building my out of state team, so property management first. Then I got a colleague. For this instance, I used BiggerPockets. Did their search feature of finding very active people in that market, set up some phone calls with them and developed a relationship, and said, “Hey, can you be my boots on the ground? If I have a property that I’m interested in, would you drive by it, maybe go do the– meet my agent out there, do the walkthroughs?” They were happy to do it, both for their personal experience, and then I would throw some money their way for their time, much appreciated. And then I had my agent.

So the way I pictured this in my head was a Venn diagram;my initial team was a Venn diagram. So one circle is my property manager, one circle was my agent, and one circle was my colleague, and they all overlap a little bit, and then that center in the middle was the synergy. So having all three of these people on my team, knowing my criteria of what I’m looking for, visiting said property – it’s the four-unit that we own – and reporting back to me their different perspectives on that deal… For the property manager, he would say, “Hey, these are the issues. We’re going to see a property manager. Here’s the upside I see.” That colleague might say he’s looking at that property from an investor [perspective]. He’s like, “This is what I see, value-add” or things that you might want to look at as an investor, maybe some cap ex item. And the agent, they’re going to report back and she’s going to tell me what she thinks about the price compared to the market and the neighborhood and everything like that. And then I can not be there at all. I can be 3,000 miles away, all three of these people report back to me. In my head, I’m putting together this picture of all of their stories and perspectives overlapping. And then when I’m done, I have this full thesis of this property and I have a very clear picture and understanding of the condition the property, how it’s going to perform, so I can do my due diligence and pull the trigger on that property without ever being there. So the first five properties I bought, all the duplexes and fourplexes, I don’t think I’ve seen any of them before I actually bought them. So I was 100% out of state.

Theo Hicks: So I think the property management company and the real estate agent, obviously they get paid after you buy a property, and I’m sure you did your due diligence on them to make sure they were experienced, but I’m curious about that boots on the ground person. So what types of qualification did you want out of that individual? Because obviously, you can’t just have a complete novice do it. Maybe you did; I don’t know. But I’m just curious to see what you did to screen that person initially.

Vincent Gethings: The first level of screening was at the time, I knew BiggerPockets, I read Brandon Turner’s books. So that was my base of my education at the time. That’s why I was investing in small multifamily. So I went to BiggerPockets, searched the zip code, and then I just filtered by pro members. So at the time, I was like, “Well, if they’re a pro member, they’re obviously invested enough into this industry to purchase the premium subscription at BiggerPockets.” So that was my first level. And then I looked at how active are they. Are they posting? What kind of portfolio do they have? And then I filtered it down more. And then I called a couple people, and I was like, “Okay, I need somebody that understands multifamily.” So I wasn’t going to send a wholesaler to go inspect a four-unit property. They might be pretty good at coming up with a valuation, but they’re probably not gonna be very good at understanding the value adds or the systems that need to be in place to run this property long-term as a landlord or an asset manager. So I looked for somebody that was actively investing in multifamily, and that’s where I found my good friend now, Manny, in Michigan, who’s just been a huge asset to my team.

Theo Hicks: Alright, perfect. Let’s transition to the JV deal. So do you wanna walk us through that? So you’ve got your six multifamily deal. Well, I guess, five, including the house hack, and then you decide to move up to this 52-unit deal. So do you wanna walk us through after you made the decision, what do you do, why did you decide to JV as opposed to doing it yourself, how’d you find the deal, what was your responsibilities, what was their responsibilities, things like that?

Vincent Gethings: Absolutely. So this was fall 2018, I hit the ceiling, so to speak, this plateau in my growth; in the current systems I had set up, we were seeing cracks in the systems and being able to grow further. So I knew that there was something wrong, but I wasn’t smart enough to know what I didn’t know. So I went out and I sought mentorship, did one of those paid mentorship programs. After vetting quite a few of them, it was an absolute godsend to me, and my team. I quickly found what I was doing wrong or how I could grow, and that was fall of 2018. By January or February 2019 I was in contract on the 52-unit. So that’s how fast I was able to figure out what I was missing in my education and my knowledge, break through that barrier and scale up.

I found this 52-unit through broker relationships that I was developing. Got them online, got the LOI, and then through meetups is how I found my partner. So I went to meetups, started talking about people that were interested in investing out of state. I’m in a capital market in Honolulu, Hawaii. There’s a lot of equity here, but the cap rates and the barrier to entry here is just outrageous. So there’s a lot of people that are like, “Look, I have a lot of equity, say, in my house, and I want to do a HELOC, or I have a lot of money in my IRA that I want to do self-directed, but there’s nothing around to buy. We’re looking at $200,000 a unit here.” So they’re looking for somebody to do out of state, but they just didn’t have that connection in the lower 48 to go and start that process.

The niche for me here was go to meetups and start finding people that are interested in multifamily, interested in out of state, in mainland. They just need the person to make that connection, that bridge. I found three investors very quickly that were able to come up with 25% of the deal. So it was very easy. Everybody just 25%, about  $98,000 each is what we had to come up with, closed that 52-unit. We closed it, and I actually did a very creative strategy, because at this time — and as you know, brokers are very skittish on your credibility and your ability to close. And at this time, I thought I had 20 units, I thought I had some credibility. That was not the case at all, because the 20 units are all residential-sized property. So I had to prove myself.

The way we did it was the 52-units is more of a portfolio. It was an 8-unit, a 12-unit, a 32-unit, all in the same town. I said, “Look, we can buy the 8-unit cash. We had enough money right then to buy the 8-unit cash, and that’ll show you brokers and sellers that we are serious. I’m serious about scaling my company and I have what it takes to close this deal.” So I bought the 8-unit cash, and that gave me the time to put together the loan with the bank because also had the credibility issue with the bank of, “Okay, we see you can do small units, but what makes you think you can do a 52-unit reposition?” So I had to court them also, and they took longer for them to underwrite.

So I bought the 8-unit cash to show them I was serious. That gave time for the bank to underwrite the entire portfolio. And then what we did when the bank gave us that commitment, I ended up using the 8-unit as the downpayment. So I crossed collateralized the 8-unit as the down payment for the rest of the property, and then wrapped all 52 units back together into one loan.

So that’s how we were able to creatively close that with not really having the credibility on the team, because two of them aren’t real estate agents, the other team member’s a military member like myself. So we lack the credibility on our team and that’s how I solved that problem in being able to close that for both the brokers, the seller, and the lender, was that creative structure.

Theo Hicks: Nice. So after that, you moved down to the syndication. So I guess my question on that is, why didn’t you do the same thing as the JV? You had three investors come in including yourself… What made you decide to do syndication instead?

Vincent Gethings: One, we wanted to scale our company up further in syndication. Some ways, it’s a progression. Other ways, to me, I think it’s just another tool in your tool belt, that you should, as an investor, you should be aware of and experienced in. So some deals, you might be able to do JV. Some deals you might be able to do syndications. So whatever that right for that job to take down that asset, and one, for personally, I just wanted experience in syndication.

Another side of it is, we wouldn’t have had the equity upfront as easily as we did the first one. So a lot of our capital was deployed in that first 52-unit, and we’ve only owned it for a year. So we haven’t refinanced yet, we haven’t sold it yet, so a lot of our equity’s still tied up in that one. So that was obviously, the biggest factor of going to syndication. The other side of it is the desire to scale the company even further and get that experience. And the second syndication was a 48-unit, so it wasn’t like we went from 52-unit to 150, 200-unit deal.

Theo Hicks: Who were the investors? How’d you meet those people?

Vincent Gethings: We did the common thing of getting an Excel sheet and picking our power base and write down all of our family, our friends, our uncles, our aunts, our co-workers, our acquaintances that we know that all had expressed interest in investing in real estate, or maybe that we’re partners with on smaller deals, and we wrote it all down and we started courting these relationships even further. So obviously with the SEC law, you had to have that pre-existing relationship, so we didn’t go out and meetups or shouting from the rooftops, “Hey, we got a deal. We’re syndicating.” We stuck to that power base or that circle of influence of people that we already had pre-existing relationships with. And we only had to pull on 10 or 13 investors on this one. So very small; $50,000 was the average investment.

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

Vincent Gethings: Best real estate investing ever is set goals based off of your potential and not your abilities.

Theo Hicks: Do you want to elaborate on that a little bit?

Vincent Gethings: Absolutely. So a lot of people have these limiting beliefs, and what I see a lot of people, they set goals of what they think they can accomplish right now based off of their current experience, their current education levels, their current partnerships or whatever they have. So they set their goals extremely low. They use that SMART acronym, which I absolutely hate, because the R in smart is realistic. I absolutely hate that, because you sell yourself so short.

Giving you an example… My original goal, when I did this, I thought I was like, “I’m gonna do a SMART goal, because that’s what we’re supposed to do.” It was 20 units in 10 years. So two units a year was my cash flow goal. I did 20 units in 18 months once I actually started opening my mind up and growing myself, actively trying to grow my experience, my team members. And then now, my team is at 120 units, and I’ve only been doing this for five, six years. I think that the sky’s the limit, now that our eyes are getting more open, we’re adding more tools to our tool belt.

So I think the biggest thing is people sell themselves short because they want to set realistic goals for themselves. They do it based off of their ability and not their potential. So a big example of that is the 10X rule. I read that and I was like, “Well, 20. Well, scratch that off and write 200,” and that’s what was my goal, and I quickly went from 0 to 120 in a very short amount of time once I did that. So absolutely set big, hairy, audacious goals, and then take massive action toward them. Don’t be realistic, because it doesn’t give you any room to grow.

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

Vincent Gethings: Let’s do it.

Break [00:18:11]:04] to [00:19:35]:06]

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

Vincent Gethings: Best ever book I recently read is Traction.

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

Vincent Gethings: Be a commercial pilot.

Theo Hicks: Nice. Is that what you do in the Air Force right now, piloting?

Vincent Gethings: No, I wish. No, I wish. I am not a pilot. I’m not Air Force pilot, but I do have my pilot’s license, and I have a small plane out here in Hawaii that I use for island hopping. So If everything went to hell, I would go finish my commercial rating and go be a commercial pilot.

Theo Hicks: Have you lost any money on your deals yet? If so, how much did you lose and what did you learn?

Vincent Gethings: Not actualized losses yet. So back to my original four-unit – I bought a four-unit for $170,000, put about $50,000 into it for renovations, making it really nice, best place on the block. So I thought you were supposed to do that to get the rent premium. Went and got it appraised, and it was worth $170,000, and I was like, “I don’t understand why.” And the appraiser said, “Well, it’s a residential property. I don’t care how much you raise rents. We go off comp value, and you have the only four-unit in this neighborhood. So it’s worth $170,000 because we don’t have anything to go off of as far as what it’s actually worth.” So on paper, I lost, say, anywhere from 30 to 50 grand on paper. But I haven’t sold the place yet, so it’s not actualized. But that was a huge lesson and that was the last straw for me of like, “Okay, I’m done with residential. I’m scaling. I’m going to partner up, and I’m going to scale and do commercial where the valuations make sense.”

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

Vincent Gethings: Mentoring people, especially in the military. Financial education, financial literacy is huge for me. I see a lot of people that just come from home with a good financial intelligence, and they just make very poor decisions very early on in their careers. So I spend a lot of time giving them a lot of books, Rich Dad, Poor Dad or Dave Ramsey’s Total Money Makeover. So stuff like that and just coaching them how to make budgets, how to think about investing, the different shades of money, so to speak… How currency works is very big for me.

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

Vincent Gethings: I’m on LinkedIn. So Vince Gethings on LinkedIn, and then connect@tricityequity.com.

Theo Hicks: Alright, Vincent, thanks for joining us today and very systematically — I can tell you’re a project manager, the way that you just knocked through everything, boom, boom, boom, step by step process for how you grew from your first zero percent down VA house hack to owning and controlling 120 units now, and hopefully, in the next few months, doubling that with your next syndication deal.

I think some of the biggest takeaways was I liked how you were able to find your boots on the ground in a state that you didn’t live in. So you mentioned how you went on BiggerPockets and you filtered by the pro member, and then you looked at those pro members to see how active they were, what portfolio they had, and then you spoke on the phone to make sure that they were actively investing and actually understood multifamily.

You also mentioned how you were able to do your 52-unit deal and build that credibility with the broker and the lender by instead of trying to buy all 52 units with 25% down or 20% down, you went in there and said, “Okay, I’ll buy this 8-unit all cash,” to show that you’re serious, and then you were able to actually not put any money in the deal and just use the 8-unit as a down payment and refinanced everything and cross-collateralized it into one loan.

And then you talked about how you were able to raise money for your first deal, which was that Excel spreadsheet exercise, which, Best Ever listeners, we talked about something similar on the show before, where you write down every single person that you know. Then you took it a step further and let everyone you know that you’d already talk to about investing in deals, and you were able to pull together 10 to 13 investors with an average of $50,000 each. And then lastly, your best ever advice which is instead of setting SMART goals, you set the SMAT goals. Or I guess, try to figure out SMAUT, so unrealistic goals.

Vincent Gethings: The Boston version, the SMAT goals.

Theo Hicks: The SMAT goals, yeah. So set goals based on your potential, not based off of what you can currently do, your current abilities or what you can currently do. So Vincent, really appreciate you coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Vincent Gethings: Thanks, Theo, for having me on.

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

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

 

Vinney Chopra Real Estate Background:

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

 

 

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Best Ever Tweet:

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

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JF2201: The Hands-Off Investor Author Brian Burke

Brian Burke is the President and CEO of Praxis Capital, a vertically integrated real estate private equity firm and in the past 30 years has acquired over half a billion dollars in real estate. He has been in a previous episode about 5 years ago, episode 305, and in today’s episode he will be sharing why he wrote the book “The Hands-Off Investor”  which is catered to the passive investor to teach them the ins and outs of investing

Brian Burke Real Estate Background:

  • President & CEO of Praxis Capital a vertical integrated real estate private equity firm
  • In the past 30 years has acquired over half a billion dollars in real estate; 3,000 multifamily units & 700 single family homes using proprietary software
  • Can be found in a previous episode JF305
  • Author of “The Hands-Off Investor”
  • Based in Santa Rosa, CA
  • Say hi to him at: www.PraxCap.com 
  • Best Ever Book: Ted Talks book

 

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Best Ever Tweet:

“Don’t take on too much debt” – Brian Burke


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 Brian Burke. Brian, how are you doing today?

Brian Burke: I’m doing great. How about yourself?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us again. So Brian was on the podcast all the way back in Episode 301. So that’s five years ago from when we’re recording today. So make sure you check out that episode, and today we’re gonna talk about what Brian’s been up to since then.

As a refresher, Brian is the President and CEO of Praxis Capital, a vertically-integrated real estate private equity firm. In the past 30 years, he has acquired over half a billion dollars in real estate, which covers 3,000 multifamily units and 700 single-family homes, using a proprietary software. He’s also the author of The Hands‑Off Investor. He is based in Santa Rosa, California, and you can say hi to him at his website praxcap.com. So Brian, do you mind telling us a little bit more about your background and what you’re focused on today?

Brian Burke: Absolutely. So I started out in this business 30 years ago flipping houses, and then grew into what you’d call a production house flipper where we were doing about 100 and something houses a year for a while there. We built a big rental portfolio of single-family homes at the bottom of the market, and then about 20 years ago, we shifted some of our focus over to the multifamily side. And then about 10 years ago, actually about 12 years ago now, really started going full speed in the multifamily side.

So our primary business focus right now is multifamily real estate. We acquire assets from Arizona all the way to Florida in the southern parts of the US and right now we own in Arizona, Texas, Georgia and Florida, and shopping in several other markets as well. Our portfolio now is approaching 3,000 units, and that’s really all we’re doing right now, is just focusing on operating our portfolio through the pandemic and looking for opportunities to grow the portfolio as we cross through to the other side.

Theo Hicks: Sure. So I definitely wanna focus on your multifamily business, but I know you recently released The Hands‑Off Investor book, and I actually have it in my bookshelf behind me. So that book’s focused towards passive investors, right?

Brian Burke: Yeah, it struck me that there was no book out there really written to show passive investors how to invest in syndication offerings. There’s books out there, and you guys did a great one on how to be a syndicator, how to raise money from other people, how to structure syndication offerings, but there was no book to show those “other people”, when you’re using other people’s money, there’s no book to show the other people what to look for in those offerings to make sure that they’re suitable for them, and I set out to change that and help fill that gap.

Theo Hicks: Perfect. So do you want to give– obviously, it’s a very long book, but maybe some tips on how to select the right sponsor, because obviously, there’s hundreds, if not thousands, of sponsors out there who are investing in apartments. So how do I as someone who does not know anything about real estate or at least not a lot about real estate, decide which sponsor to give my hard-earned money to?

Brian Burke: Well, the worst answer I can give is read the book first before you do anything. But it’s a true answer, because if you don’t know a lot about real estate, the book is going to teach you a lot about real estate. Because if you’re gonna be a building inspector, you need to know about construction techniques before you can inspect buildings. You might not have to be a contractor, but you have to know building techniques in order to know if contractors are doing the right thing. This is similar. If you’re investing passively in real estate, you don’t have to be buying real estate on your own, but you have to know enough about how to buy real estate, how to operate real estate, what things to look for to make sure that you’re making smart decisions when you’re looking at passive opportunities. So I always say that the sponsor that you’re investing with is the number one most important factor. If you find a good sponsor to invest with, chances are they’re going to be bringing you quality offerings to invest in, and you can spend a little bit less time worrying about the real estate itself, as long as you can get past the sponsor that you’re investing with. So my number one top tip for a passive investor is carefully select the sponsors that you invest with, because they can make or break you.

Theo Hicks: Okay. So let’s transition into the active side now. From my perspective, you see a lot of information when it comes to multifamily focused on raising money, focused on finding deals, maybe not so much underwriting deals, but since it’s a little bit longer to elaborate on, something you don’t see a lot on, at least from my perspective, is asset management. So can we focus on that in this conversation? Can you maybe walk us through some of your best practices for asset management and more specifically, maybe separate them between asset management tips for someone who has 50, 100 units, as opposed to someone who has thousands and thousands of units?

Brian Burke: It’s funny you ask that question because a lot of books out there, guru courses and that stuff, they always focus on the acquisition. It’s always about “Oh, you can find a deal, you can buy a deal, you can get the money for a deal”. That process only lasts a few months, maybe a few weeks, maybe a few months for you to find something, get through escrow and buy it. People neglect the part that actually takes several years, and of course, that’s the part of asset management and property management and operating all the way through to success. It’s a very, very important piece and a smaller operator who owns a few units, maybe you own a few hundred or maybe a few dozen or maybe just a few, it’s probably most efficient for you to use third party property management where they can come in, manage the asset for you. You can leverage their expertise, you can leverage their team, their resources, their scale, their local market knowledge and all those things to manage the property. And then managing the asset is really a job of managing the manager or managing the management company, in this case, making sure that they’re sticking to budgets, they’re hitting targets, they’re producing the income that you’re looking to produce, that they’re containing expenses.

So when you’ve acquired the property, you’ve probably (or at least you’ve hopefully) gone through and done a financial analysis forecast of what you think the income and expenses are going to look like. Your job as an asset manager, in this case, is to make sure that the management company is delivering to those objectives.

As you scale and get larger, there’s going to be a point where you might decide to manage your own assets, and that’s what we did. We made this decision about three or so years ago to form our own management company. We have an expert that’s in charge of the management company that runs it and gives us complete control over our assets, start to finish. So as you grow, now you’re going to be thinking about enterprise-grade property management and asset management systems, software, technology, all those things.

So for us, we have an enterprise-grade management system where I can look in there at any time all the way on the property management level to see rent rolls, income and expense reports. I can look and see move-ins and move-outs, and all those things, all the way up to the asset management level, where I can get key performance indicators for individual properties, the portfolio as a whole or a subset of the portfolio at a glance in a single dashboard. So having those kinds of tools is critical as your business grows, because now you’re actually running a large company here, not just managing a small property at that point.

Theo Hicks: When you made the decision to transfer from third party to in-house management, was it a certain dollar amount? Was it a certain number of units? Or was it something else that made you decide to make that transition?

Brian Burke: There were really three factors at play. One was, we felt that the scale that we were looking to achieve and we were beginning to achieve – we were at about 1,500 units when we made this decision – was such that we felt we could support a dedicated property management team. When you’ve only got a few units or a few hundred units, the management fees associated with that don’t support having an entire company dedicated to property management. As you get larger, you add up those management fees, you realize, “Okay, I could hire a full-time person with these management fees and we can start to do that.” So that was one of the aspects.

The other was that we were looking for institutional investors to invest alongside us in our assets, and our experience has been institutional investors prefer to invest with groups that manage their own assets. So in order to have the key to unlock that door, we needed to bring it in-house.

And third and finally, and probably most importantly, the team that I needed became available. In other words, I met through mutual contact someone who had started national multifamily management company footprint six times in his 40-year career, had done it for large institutional owners and had about 45,000 units of property management experience, and I had the ability to bring him on board with us to head up our management company. When all the stars align and the time is right, you pull the trigger, and that’s what we saw. All the stars were aligned; it was just time.

Theo Hicks: So logistically, how does that transition work? Is it very similar to the transition when you take over a property where it’s just an instantaneous thing? Or was there a longer transition where your new team worked with a third party team to make sure they knew what was going on first? Can you walk us through how that works?

Brian Burke: We did it a little bit differently. So it’s interesting, because the CEO of my management company, he had previously with another organization that he worked for, took about 25,000 units from third party management to in-house management in about a 90-day period of time. So he’s got experience doing that. We chose not to go that route. Instead, what we did is we just started folding in all of our new acquisitions into the internal management company and left the existing portfolio with third party, and then we just slowly started moving it over as the time was right. So really, all the new acquisitions went into the new management company. Most of the stuff that we had with third party was getting a little bit towards the end of its life where we were going to be selling anyway, and so we could let it ride with the management that was in place. And then as we sold those off, the management company — we had just management company attrition. We did this change about three years ago. We still have one property left that’s third-party managed, and maybe we’ll transition that one someday or maybe we’ll just wait until we sell.

Theo Hicks: Transitioning a little bit to what you’re talking about with the software and the technology and the management system. So for you, is that what you’re doing to track the progress at the property, just going into that software? Or I’m assuming you still have meetings with someone at the property management company that you own. So what’s the frequency of those conversations and what are some of the important things you talk about? Maybe what’s the recurring agenda for those conversations.

Brian Burke: Just like a third-party management company, we have the same high-level conversations on a regular basis. So we do a weekly to bi-weekly call with the senior management team where essentially, everybody on the capital and acquisition side is on that call, along with the property management operations team. So our org chart on the management company side, we have a CEO that’s in charge of the company, we have a Chief Operating Officer that’s in charge of the on the ground, street-level stuff, and then we have area vice presidents that are in charge of a certain region. So those individuals will be on the call with us, we’ll discuss each property and its performance, anything that has come up that we need to be aware of. We’ll look at all the KPIs to see “Okay, this property may be running a little lean on occupancy. What are we going to do about that?” and have conversations that are targeted based upon what we’re seeing in the data.

So we treat it just like a third-party management company. Really just the advantage to us is that because we own the management company wholly, we have complete control over all those personnel. We have the access to all the software so that we can see the entire portfolio through our business intelligence platform, and you have everything in a unified spot. This system is pretty robust. It drills all the way down to the property level. The property managers on-site use the same software that I’m looking at for day-to-day property management. So when they do a move in, it’s going in this system. The rent rolls are generated through this system, the invoices go through this system. So it’s an entire property management company in a box.

Theo Hicks: Perfect. Before we get into the money question, as the head of this massive multi-company organization, what does your week to week look like?

Brian Burke: Well, I would say that the majority of my time is spent on answering emails. It’s really just that exercise of — you’re getting pinged constantly from different directions for, “Hey, we need this, or there’s that, or here’s a deal coming up, or here’s an issue at a property we need to address.” But really, I spend a lot of time in the office. I like to tell people I’m just chained to my desk… Between investor communications and oversight of the assets, and I’m a pretty hands-on guy… So that means that I just had to spend a lot of time looking at absolutely everything, which means I don’t get very far away from a computer very often.

Theo Hicks: Alright. Well, Brian, what is your best real estate investing advice ever?

Brian Burke:Well, it’s 2020 as we’re recording this, we’re in the middle of a coronavirus pandemic. I think the best real estate investing advice I can ever give is most applicable to a time just like today, and this advice is actually designed for the climate that we’re currently in, and that is – don’t take on too much debt. Investors who buy with conservative leverage were the ones that survived the last recession. The ones that took on too much debt are the ones that failed in the last recession. So don’t take on too much debt, but couple that with always have plenty of cash. So if you’re a syndication sponsor and you’re raising money from individuals for your deals, make sure you’re raising plenty of cash to have excess reserves for those downturns, which they’re certain to be one year in the coming months. If you’re a passive investor looking to invest in an offering, make sure that the sponsor is raising plenty of cash, so that they don’t run short and put your investment at risk.

Theo Hicks: Can you be a little bit more specific? So how much extra money are you raising? Is it based off of the purchase price? Is it per unit? Is it a lump sum? Did you always do this for every property?

Brian Burke: Yeah, we tend to do ours as a percentage, and that varies, too. So I guess about a year ago, our percentage would be 1% of the purchase price of the property just for free cash. And then you’re also going to have additional cash that you’re going to have for funding impound accounts, funding utility deposits, funding first month’s mortgage payment; all of those are in addition to the 1% free cash.

Nowadays, I’ve been increasing that. We’re looking more at 1.5% free cash, plus we’re also abiding by the agency requirements for nine months principal and interest reserve that goes into a lender controlled account. So in that case, sometimes we’re raising as much as 3% or even 3.5% or 4% sometimes of the purchase price of the property just for cash reserves.

And then the other thing that we do is a lot of people like to use extra leverage to boost investor returns by funding capital expenses, like unit upgrades, new roofs, that sort of stuff, through a lender controlled reserve that’s through a bridge loan, where you’re borrowing the renovation dollars and you’re drawing them off as you renovate. We’re not doing that. We’re raising the renovation money ahead of time in cash. So in that case, we may have a few million dollars that are available for us to do renovations. But if things go really bad, that’s a lot of excess cash that we also have that allows us to survive an adverse event. So when it comes to having cash reserves, all I can say is the more, the merrier.

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

Brian Burke: Let’s hit it.

Break [00:19:34]:05] to [00:20:37]:02]

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

Brian Burke: I really liked this book called TED Talks, and it was written by the guy that is in charge of the TED Talk organization. It was a great book that talks about techniques for public speaking, and as an author, as a business executive and as someone who is in the financial services industry raising money from high net worth individuals and family offices, it’s really important that we’re able to effectively speak in public, and this is a great book to help find new ways to engage your audience.

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

Brian Burke: I’d do it again. I’ve already been through this before. I’ve survived multiple market cycles; the Great Recession. 30 years’ time, I’ve had the chance to reinvent myself several times so far through different market cycles, and I’ve been very fortunate that in 30 years of doing this, I’ve never lost a nickel of investor principal. So I would first do everything I can to safeguard the investors that I have already, and then I would build the business right back up to where I have it now. They can take away the business, but they can’t take away the knowledge.

Theo Hicks: What is the best ever deal you’ve done?

Brian Burke: Well, I’ve got a lot of those. I’ll take a recent one. We’ve got one right now that I’m really proud of. It was two properties next door to each other that we bought for about a little under $40 million for the two of them, from two different sellers that were listed by two different brokers at almost the same time. We ended up buying both properties, and then what we did is we just cut down a small section of fence on a driveway that connected the two properties, and then we were able to make the two properties into one. One of the properties was using an apartment unit as a leasing office, so we ran all the leasing out of the other property that had a real leasing office, converted that unit back into a rental unit. But by combining the two properties, instead of having a little over 200 units each, we have one property that’s almost 540 units. By doing that, we achieve some incredible economies of scale, we saved a ton of expenses. We were also able to increase rents at a dramatic amount because the property was under rented. We were able to make some really good improvements. Within about a year to a year and a half’s time, just based off of the increased income, we resubmitted that to our lender to look at a refinance and found that we’d increase the value of that property by about $10 million in about a year and a half’s time. So a 25% increase in a really short time is a great accomplishment, and $10 million is a really meaningful number.

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

Brian Burke: Ours is through a charity organization that I started with Jay Heinrichs, a friend of mine. It was really his idea; I can’t take all the credit for it. It’s called A Hero’s Home. You can find it at aheroshome.org. We’re raising money for the purpose of providing a fully fixed up renovated home, free and clear, to a deserving US veteran, service member, first responder, something that’s near and dear to my heart. I just can’t wait to hand those keys over one day here soon. We’re about two-thirds of the way towards our goal.

Theo Hicks: That’s awesome. Lastly, what’s the best ever place to reach you?

Brian Burke: The best ever place is just as you said at the top of the show, through our website, praxcap.com. You can also find me on Instagram, either @investorbrianburke or at @praxcap, and also on biggerpockets.com quite frequently, answering questions on the forum. So you can frequently find me there as well.

Theo Hicks: Alright, Brian. I really enjoyed our conversation today; a lot of takeaways. We focused mostly on asset management. But before we get into that, we did briefly talk about passive investing. So the most important decision for a passive investor is selecting the right sponsor, and your advice was to read your book or to get educated on the process that you will know if the sponsor is doing the right thing.

From asset management, we talked about the difference between being a smaller operator and a larger operator, which is really who was actually managing the deal. So when you’re smaller, it’s better to go with third party, but eventually, you get to the point where it makes more financial sense to go with the larger operator, and we talked about the advantages of that, which essentially gives you complete control over the personnel that allows you to have access to the same software that the management company does.

You mentioned when you made your transition, and the three factors were one, that’s scale we just talked about. The second one was when you want to work with institutional investors, they prefer in-house management. And then the third one was that the team you wanted happened to become available. We talked about how you actually did the transition, and there’s really two ways to do it. You mentioned that the CEO of your property management company had experience doing full transitions over a nine-day period, whereas you guys instead decided to include new acquisitions into this new management company, and then the existing ones remain in the third party. And then whenever you sold those, they obviously left a third property management. You got one last thing you need to sell before you’re fully managed by your own property management company.

We talked about the communication with your management company, which is the same as it is with a third party – bi-weekly calls, everyone in your team is on those calls. We’ve talked about each individual property and their performance, anything that has come up with those properties that you know about, focusing on those high-level KPIs as well.

We talked about what your week looks like, which is just answering a lot of emails and staying at your desk. And then we talked about your best ever advice, which was twofold, which was  don’t take on too much debt, because those are the investors that did not survive during the last recession, and the ones who did not take on too much of that did survive. Then we talked about having plenty of cash in excess reserves. I really like when you said the reason why you are raising the capital for renovations is that it gives you the opportunity to have even more excess cash. If something were to happen, you can pause renovations and have all that money, as opposed to borrowing that from the lender and you have access to  none of that money. Then you gave more specifics on the numbers for raising extra money for free cash.

So I really enjoyed the conversation, Brian. Best Ever listeners, as always, thank you for listening. Have a best ever day and I’ll talk to you tomorrow.

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JF2198: Mentor Boost With Bruce Petersen

Bruce Petersen is the Founder and CEO of Bluebonnet Asset Manager LLC and Bluebonnet Commercial Management. He started his real estate journey in 2011. He was a previous guest on episode JF1274, we highly encourage you to check out his first one to get an understanding of his full story. 

Bruce Petersen  Real Estate Background:

  • Founder and CEO of Bluebonnet Asset Manager LLC and Bluebonnet Commercial Management
  • Started his real estate journey in 2011, buying his first deal (48-unit) in 2012
  • Portfolio consists of 6 syndications and 1,108 total units
  • Based in Austin, TX
  • Say hi to him at: https://apt-guy.com/ 
  • Best Ever Book: Sell or Be Sold 

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Find a coach or mentor to have a model to follow, why try and reinvent the wheel?” – Bruce Petersen


TRANSCRIPTION

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

Bruce Petersen: I’m doing great, man. How are you?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us again. So Bruce is going to be a repeat guest. He was on here a little over two years ago. If you want to check out his first episode, it was Episode 1274 – Challenges That Syndicators Face When Executing Their Business Plans. So today, we’re going to catch up, talk about what Bruce has been up to since then. As a refresher, Bruce is the founder and the CEO of Bluebonnet Asset Management and Bluebonnet Commercial Management. He started his real estate journey in 2011, buying his first deal, a 48-unit deal in 2012. His portfolio now consists of six syndications and over 1,100 units; 1,108, to be exact. He is based in Austin, Texas, and you can say hi to him at his website, which is apt-guy.com. So Bruce, do you mind telling us a little bit more about your background and what you’ve been up to since we last spoke?

Bruce Petersen: Just a quick recap of who I am and where I came from… I’m a college dropout, barely got out of high school, grew up pretty poor. I think it’s a fairly common story, so I’m not really different there. I fell into retail for about 18 to 20 years, did that until I realized, “This sucks.” I convinced myself like a lot of people in retail do – “Well, I’m a people person, so I like retail.” And then 18 years, 20 years later, I thought, “Okay, I’ve been lying to myself. I do like people, but I don’t like what I’m doing.”

So in 2008, I believe it was… 2009, somewhere in that area, I walked away. I was 43 years old, decided, “I gotta find something else to do with my life, because this is not working for me.” So I just started educating myself on real estate, found a very highly qualified mentor; that was a godsend for me. Found that person in 2011, worked with her for a while, and got my first property in 2012, and I held that for almost two and a half years. It was a syndication. Sold it for a 300% passive investor return. Now I tell everybody going forward, “Don’t expect that. We’re a totally different market than we were back in 2012.” But my first one was very successful, and I’ve just been off and running since. I met my wife through real estate. So I’ve been married now for almost six years. So that’s going very, very well. We do it together. She’s the CFO and I’m the CEO, and we’ve been doing it ever since and having a ball.

Theo Hicks: Thanks for sharing that. I believe, on that first episode from the show notes I read, that we’ve talked about that 48-units syndication deal. So let’s not focus on that. Let’s focus on a more high level of syndication advice. But one thing you didn’t mention in your little intro was your mentor. So this is coming out– this is in the future, but today, I just recorded a syndication school episode talking about mentorship based off of a blog post one of the members in our team wrote about how to hack and save decades of time by finding a mentor. So it sounds like a mentor was one of the main reasons why you were able to be as successful as you are today. Maybe walk us through how you found this person, why you picked her and why it was beneficial to you.

Bruce Petersen: Tony Robbins’ Napoleon Hill thing – find a mentor, find a coach, a model, somebody that you can follow behind, why reinvent the wheel. I’m saying things that everybody’s heard before, but a lot of people still don’t believe it strongly enough to go out and do it because they don’t want to pay somebody. Well, why would you not pay somebody to teach you how to have a multiple hundred thousand dollar business or even a million-dollar business? A lot of people will spend $50,000 to $200,000 or more on college, go for four to eight to 12 years, and that’s totally fine. Many of those people don’t get a job in the discipline that they studied. And if they do, they don’t like it very often. So I don’t know why people wouldn’t find a mentor. They can shorten your timeline to success. They can help you avoid a lot of landmines, because there are going to be a lot of landmines, I promise. No matter how good you are at this, there’s always going to be something that’s going to come up, and if you’ve never done it before, you don’t know how to deal with those landmines that you trip over.

So yeah, I was very fortunate to find a very, very good mentor. She was a multifamily broker, actually. So she was a buyer’s broker; very rare in this industry. But she had tons of experience on the management side and on the purchase side. So it was a perfect match for me. I listened to her because I knew I didn’t know what I was doing. I’m a retail guy. I’m smart, but I don’t know this industry. So I had to listen to her, trust what she was saying was true and just execute on the roadmap; and I did, and it worked so well. So I just released a book called Syndicating Is a B*tch. It’s hard. It’s very lucrative. It’s very, very rewarding. But in the book, I implore people, I’m going to teach you every step of the way how to do a syndication. You still need a mentor, because this is only a book. It can’t deal with all the things that pop up that were unforeseen, like a black swan event we’re dealing with right now. We’re dealing with COVID-19. Nobody saw this coming. If you don’t have a mentor that’s been through some ups and downs in the industry, this is gonna be really really hard for you. So yeah, man, I cannot agree with you guys’ take on it. You do need a mentor. Don’t do this alone.

Theo Hicks: I really like your analogy or metaphor or whatever; it’s comparing it to college. I think that’s a really good way to position it. People will spend tens, sometimes hundreds of thousands of dollars to go to college, and the reason why they’re doing it is because they need that degree to get a job in order to make money. So they’re willing to invest that capital into four years of their life into school in order to get a job to make money. So why wouldn’t you do the exact same thing? Why do you expect someone to mentor you for free or just to not do it at all, when you can potentially have an ROI, as you mentioned, of ten to a hundred million dollars or even more? I like the way you position that.

Bruce Petersen: I think there’s a bad stigma in the industry right now because when you hear the word mentor, you think guru. And then guru makes you think of the guy in the 80s and 90s that would pitch crap to you at 1 o’clock in the morning, and you take pictures and videos on a yacht that he rented for the day and a car that he rented for the day, and that’s what people think of. That’s not what a true mentor or a coach is. They’re not selling you a bill of crap. They’re teaching you the right way to do it. Again, find somebody that’s been successful doing it. Not everybody’s going to be a great mentor… But yeah, I agree with you guys completely on it.

Theo Hicks: So you’ve got your syndication book; I enjoy the title. So let’s talk about raising money. Everyone loves to hear about raising money, so maybe walk us through some of your tips or since you wrote the book, maybe you’ve already got a five-step process to raising money for deals, and let’s approach this from raising money for your first deal. So let us know what type of background someone needs before they can get to the point where they can raise money, and then let’s talk about what your top tips are for going out there and making sure you can raise money for your first deal.

Bruce Petersen: Alright, so it all starts with the investors. People ask me all the time that are just getting started, and I mentor people myself now… And one of the first questions is, “Bruce, okay, this is great. I’m super excited. Well, do I find the investors first or do I find the deal first?” You better find the investors first. If you find a deal with no investors, legally, you’re probably going to get yourself screwed up because you can’t raise money the way you’re probably going about it; you’re probably going to go about it backwards. So you’ve got to be careful there. And then if you can’t raise the money, you’re gonna have to drop the deal and you’re gonna start to burn your name in the industry that “Oh no. Bruce is a tire kicker. He can’t come through at the end and close. So he just ties up a property for 30 to 60 days, and then he has to bail.” Get your investors first.

Bruce Petersen: Tip number one to me would be over, over, over raise. If you think the property that you’re targeting for your first property — because you have an idea that “My first one, I want to be maybe a 20-unit or 40-unit, maybe built in the 80s. This is my rough price per door.” So you have an idea, I hope, of what it is you’re trying to find for your first deal. And let’s say that first deal is going to cost you about $500,000 in a cash raise to get it. The cash raise would be your down payment, your closing costs, your rehab that didn’t get rolled into the loan, and any operating capital that you may need. So let’s say you need $500,000 to close this deal. You better raise a $1,000,000 to $1,500,00, and that chokes people. Well, I promise not everybody’s going to come through at the end when it’s time to put money in your bank account, because something will have come up in their life. They maybe had a family emergency, they maybe just decide “I don’t want to invest with anybody anymore” or maybe just to be honest, maybe they don’t like you now that they’ve got to know you a little better. So just be prepared for– you’re probably going to have at least 50% of your list not come through. So you better over raise. So that’s tip number one.

Tip number two, for me, would be you got to get out there. You’ve got to be agreeable. You have to have a good personality. This is very personality-driven and based. If people don’t like you, they’re not going to give you their money. I had a guy come up to me after an event one day and I had presented on stage, and he came up to me after… “Bruce, man, I love your story. I’m going to be a syndicator, too. This is great. I understand spreadsheets and everything. But there’s one problem, Bruce. I’m a jerk.” I’m like, “What? Come on, man. Really?” He said, “Yeah. I’m a jerk. People don’t like me and I hate people.” I was like, “Well, you can’t do this.” And he looks shocked like he was gonna cry. I’m like, “There’s a lot of money to be made, but if you’re just not a pleasant person, nobody’s going to give you their money.” So know who you are, present yourself professionally and with dignity. Don’t be rude, don’t be aggressive, don’t be arrogant. Because a lot of the people you’re going to be talking to trying to raise some money, they’re probably a bigger deal than you are. So keep your ego in check. One of the key things that really helped me early on was I started my own meetup back in 2011, and all but two of my first investors in that 48-unit deal came from that meetup. So we got to know each other for about six to nine months. They got comfortable with me having no experience, having no job, but they got to know me very intimately,  so they agreed to invest. That was a big help for me.

Theo Hicks: So my next follow up question was going to be what’s the process that someone should go through in order to create their initial list of investors or people? It sounds like for you, for your first deal, everyone came from your meetup group. So your advice would be to start a meetup group, I’m assuming, right?

Bruce Petersen: Absolutely. And if you don’t want to do that, that’s totally fine. If it’s not your personality to lead something, there’s nothing wrong with that. As long as you do have an agreeable personality and you’re likable… Well, just go to the Joe Fairless stuff, the Jake and Gino stuff, the Michael Blanc, go to all the different events that are going on around the nation. You’ve got to get out and mix and meet with people. So I think that you don’t have to start a meetup; it definitely helps. There’s a definite way to go about doing this in the right order. I would say, dress the part. I don’t want to get stuck in the millionaire mindset thing,  the millionaire next door. Don’t dress below your means. Dress at your means or above. You have to convey confidence and success when you meet with people. Have a good quality business card, dress appropriately. Don’t dress over your head. Don’t show up in a $400,000 car if you work at McDonald’s. Don’t do stupid things like that. Act like you belong, but still, keep yourself in check. But yeah, just get out to all the things you can get out to, join some of the groups that are out there too. You can get some education from the groups like your group, you can get educated there. You’ll meet other members that are looking to get into deals or looking to raise money themselves.

So the biggest thing is be engaged. Make sure you understand who you are.  I’m naturally introverted. I can be on stage and talk to 20,000 people. I light up, I’m fine. You put me in a room with people I don’t know, and I got to go work the room and network and I freeze. I just completely freeze up, and I honestly– this is not an exaggeration… I try to find the quickest exit because I get really, really uptight. I’m very aware of that. My wife is just the opposite. She hates being on stage, but she loves working a room. She used to be a flight attendant. She’s very, very good at that – striking up small talk with people. So I smartly go, “Okay, I’m not good at that.” So I follow my wife around the room, I’m not embarrassed to admit it. I just follow her around like a puppy dog. She strikes up the conversation. I come in. I can now participate in the conversation because I didn’t have to start it. But again, I know my weakness and I work with what I have.

Theo Hicks: I think that’s super important to know. So you talked about a tactic for actually going about raising money, but what are your thoughts on the experience, the background, the track record someone needs to have before they even consider raising money? When they raise money on their first deal, their second deal, their 10th deal? Is there a certain number of transactions? Is it a certain dollar amount of deals done? What’s your thoughts on that?

Bruce Petersen: Again, so on my first deal, I had no experience, I had nothing. I had never invested in real estate my life at that point, but again, it’s personality-driven, so I didn’t let that stop me. Don’t look for excuses not to do it because you’re always going to find that excuse not to get out there and do it. You don’t have to have experience, but you have to be transparent. Let them know up front, “I have no experience.” One of them laughed at me in my face. “I’m not gonna invest with you.” I didn’t take it personally. “I totally understand. You don’t feel comfortable investing with me and that’s okay. No worries. I want to move on and keep meeting other people.” Don’t get tore up by rejection, it’s going to happen. But again, just own up to who you are and what your experience is.

What I tell people that I’m mentoring is, when you decide, “Okay, you’ve been getting educated for a while, Johnny, and it’s time to go out and let’s go do your first syndication now. Well, when you walk into a room, you have to be confident. Again, don’t be arrogant, but be confident. I have no experience, Mr. or Mrs. Prospective Investor. But I’ll tell you what, this is what I’m doing. I’m targeting a 40-unit to 60-unit property in my hometown in Austin. I’m targeting something probably built in the 80s.”

Have the elevator pitch for what you’re trying to accomplish. That will convey confidence, that will convey preparedness, and people will become more and more comfortable with you because you have an idea. If you walk into a room and say, “Yeah, I’m gonna try to be a syndicator and try to do a deal.” “Well, what are you looking for?” “I don’t really know. Probably something close to my house.” So if you go into it like that, it’s like being a jerk. It’s not going to work. You have to be prepared. Again, you don’t have to have experience. Own the fact that you have no experience, but be prepared with somewhat of an elevator pitch that’s true and genuine, and walk into a room with confidence. That’s it.

Theo Hicks: Perfect. Okay, Bruce, what is your best real estate investing advice ever?

Bruce Petersen: I hit on it a little bit, but you’ve got to know who you are. The book that I wrote is designed to help people understand that syndication is not for everybody; it really is not. Everybody thinks it is for some reason, but it’s like any other business. If you’re not an entrepreneur by spirit, if you don’t have the personality that people are going to be drawn to, I don’t know that this is the right move for you. So I think it’s self-awareness. You have to know who you are. If you’re scared of people or if you’re a jerk and nobody likes you, be honest with yourself. We all like to lie to ourselves and make ourselves out to be bigger than we are in our own minds. I get it. I’m probably guilty of it sometimes, too. But if you lie to yourself in this, and you go out and raise $500,000, and you’re not equipped emotionally, mentally, any way to handle this, the deals not going to go well and you’re gonna have a lot of very unhappy investors on your hand, and you’ll probably never do another deal anyways, because it’s not gonna go well. So that’s my biggest thing is just be self-aware. If this isn’t for you, go find that thing that is for you. There’s lots of ways to make a lot of money in this world. You can have all the money you want. You just got to find the thing that works for you. So – self-awareness.

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

Bruce Petersen: Yep, let’s do it.

Break [00:18:57]:04] to [00:19:59]:03]

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

Bruce Petersen: The best ever book that I’ve recently read… Honestly, it was one I was very hesitant, but I was looking for the next book. I read Sell or Be Sold by Grant Cardone. I don’t like that flashy sales guy with the shirt halfway unbuttoned and gold medallion hanging around his hairy chest. Don’t like that image, but I read it and it’s fantastic. I gave it to my staff to read. It’s an incredible book.

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

Bruce Petersen: Well, I firmly believe I know how to make money. Now that I got out of the 9 to 5 – or really for me, 9 to 9 – working for somebody else, I’ve learned how to make money. So if I couldn’t do this– I’ll be honest, I’ve got some money saved up now, so I’ll be fine for a little while, but I would probably just devote most of my time to teaching. I absolutely love everything about teaching. That’s why I love being on stage. I’ll be on stage for free or I’ll pay people to let me on their stage because I just want to help people. So if I couldn’t do this, I would just find a way to teach.

Theo Hicks: So you’ve got six syndication deals. Tell us about the best deals, not your first deal. You already talked about that 300% return. Tell us about your second best deal as you’ve done so far, specifically in the apartment syndication arena.

Bruce Petersen: So I’ll talk about one of the most recent ones, actually. We bought it in 2017, roughly a 200-unit property in North Austin, and we’re getting just hammered with yearly tax increases, yearly insurance increases that are just higher than anybody’s ever seen, but we’re so profitable there. We bought a fully stabilized asset. We expected to maybe have a little bit of upside when we sell five to seven years later, but this deal has been so strong. We keep pushing rents, we keep doing unit upgrades, we keep instituting new revenue streams that weren’t there before, and everything we’ve tried there has worked.

We communicate very well with the residents. We make sure they understand we’re in this together with them. We’ve created a fantastic feeling of community there. And this fully stabilized asset, well, we just added executed a 50% cash out– well, not a cash out, refinance. It’s the same concept, but it’s a supplemental loan. So we were able to take out more loan dollars because we drove our value tremendously higher. So again, I think it was letting the residents know that we’re on their side. They’re willing to pay for some extra stuff, because they don’t want to leave us because they know they’ve got a good thing where they are. It was built in 1973, nothing special in a C class neighborhood. But again, everything we do here has worked and we started rolling out a lot of these ideas to other properties in our portfolio.

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

Bruce Petersen: Well, one of the most interesting things that we’ve done, the most rewarding things, we had a 120-unit property that we own, again, in Austin, and we realized that it was very working class, they have a hard time making ends meet, putting food on the table even sometimes. So we thought, “It’s time for school.” Most families in this neighborhood can’t even afford the $20 to $30 it’s going to cost to buy all the school supplies that kid needs for the upcoming school year. So we reached out to all the local schools, found out what all the different grades needed. We bought all the school supplies for every student on our entire property. We fed them pizza in a vacant unit one day.

So they came in and got pizza at the front door in the kitchen with my daughter – she was handing out pizza – then they walked over to a table with my wife and the property manager, and they got to pick their own backpack. Then they went into the bedroom with my autistic adult daughter and she had said, “What grade are you in?” So she was able to hand them their grade-specific pack, and these kids walked out with the biggest smile on their faces because they’re prepared this year; they don’t have to worry about it. That’s the coolest thing we’ve ever done, but we also hope to open a 24-unit to 36-unit affordability-based nonprofit apartment complex for adults with intellectual disabilities in the next five or ten years. So that’s our next big thing.

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

Bruce Petersen: The best way to find me is just apt-guy.com, like you said; it’s the website. You can see a little bit more about what’s inside the book, decide if you think it’s a worthy purchase. If you’re thinking about syndication, I firmly believe it is, because I’m just going to tell you the truth. This is what it is and if you want to do it great, it’s a great way to do it, go about making money, but this is what it’s really about. You can follow me on LinkedIn, Apartment Guy, or you can go to Instagram, @apt.guy.

Theo Hicks: Perfect. Okay, Bruce, I really appreciate you coming on the show and talking to us today; solid information. I like the way that you break everything down by here’s tip one, here’s tip two, here’s tip three. So I really appreciate that makes it better and easier to digest for our audience. So just to quickly summarize what we talked about. We first talked about mentorship. I said this earlier that I really liked your analogy, comparing it to people spending all their money on college, then they can’t find a job afterwards a lot of the time. Whereas people are super hesitant to spend money on a mentorship on, a coach, and you mentioned why that is, that people have a negative connotation with a mentor, but you talked about how it’s helped you on. On our blog, we’ve got plenty of articles talking about how mentorship has helped Joe, mentorship has helped every single person who’s successful. So I really appreciate you reinforcing that.

We talked about your top tips for raising money for your first deal. You said the first thing you need to realize is that the investors comes before the deal. You gave an explanation of why that is. And then your top three tips for raising money is number one, make sure you’re always over raising. So if you need to raise $500,000 for a deal, then you should be raising $1,000,000 to $1,500,000. We talked about number two, which is a get out there. The fact that this is very personality-based. So you can start your own meetup, you can go to meetups, go to different events across the nation to just get your face out there. And then you talked about what type of personality you need when you are out there. And then you also, number three, was to dress the part. So don’t dress below your means. Dress at or slightly above, but don’t go too intense. I think the example you gave was rolling up in a $500,000 car when you work in McDonald’s; don’t do that. You talked about if you need experience to raise money, and your answer was no; don’t use that as an excuse to not raise money. But you need to be transparent. You need to let them know that you don’t have experience, but still have an elevator pitch to show that you do know what you’re talking about, at the very least, and that will portray confidence, it’ll show that you’re prepared, that you have an idea.

Something else that you said too that I think is very important is that people are gonna say no. People are gonna say no, whether you’ve got a bunch of experience or no experience. Not every single person you talk to is going to give you their money. So don’t take it personally,  move on and keep meeting other people. And then your best ever advice was, know who you are, have that self-awareness to know what you aren’t good at, and [inaudible] maybe apartment syndications is not for you, and if it’s not for you, there’s still plenty of other ways to make money out there.

The next example you gave before you gave that advice was how you’re really good at speaking in front of large groups of people, like on stage, but you have difficulties and gets a lot of anxiety working a room, whereas your wife’s the exact opposite. So you have the self-awareness to know that about yourself, and rather than forcing yourself to be the person who’s in charge, walking around the room, you just let your wife do it. You follow her around and then accomplish the same thing without the anxiety. So I appreciate you sharing all that advice, Bruce. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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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JF2197: Two Years In Real Estate With Jeff & Taylor Adams

Jeff & Taylor Adams are a husband and wife team attacking the real estate world. They share how they began investing with house hacking to out of state investing due to the cost of real estate in their area. Being only two years into their journey they have faced many different situations and they were very willing to share to help you pursue your personal real estate adventure.

Jeff and Taylor Adams  Real Estate Background:

  • Jeff is a software engineer and Taylor is a realtor and co-founder of @womensinvestmentnetwork
  • 2 years of investing experience
  • Portfolio consists of Duplex and a mix of long-term rentals/AirBnBs, a single-family home, and one 5-unit building
  • Based in Boston, MA
  • Say hi to them at: Instagram @TaylorColemanAdams
  • Best Ever Book: Four Hour Work Week

 

 

 

Click here for more info on PropStream

 

Best Ever Tweet:

“Listen to what you want to do and make sure you network with as many people as you can and try to add value to those relationships” – Jeff & Taylor Adams


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 Jeff and Taylor Adams. Jeff and Taylor, how you guys doing today?

Jeff Adams: Great, how about you?

Taylor Adams: I’m doing great. Thanks for having us.

Theo Hicks: I’m doing great. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we get into that, let’s go over Jeff and Taylor’s background. So Jeff is a software engineer and Taylor is a realtor and the co-founder of Women’s Investment Network. They have two years of investing experience. Their portfolio consists of a duplex and a mix of long term rentals and Airbnbs, a single-family home, and a five-unit building. They’re based in Boston, Massachusetts, and you can say hi to them at their Instagram page, which is @taylorcolemanadams. So do you guys mind telling us a little bit more about your background and what you’re focused on today? And we’ll start with Jeff.

Jeff Adams: Our background is so intertwined. I mean, we’re a married couple, obviously. We met in college, we did the whole “We’re gonna get jobs…” I became a software engineer in robotics and Taylor went through a few things, you can talk about that… But really, the thing was, we needed to figure out how we were going to buy a house that we could actually live near our jobs and afford. The prices in Boston are crazy and our jobs were in the city of Boston. And the commute to get into Boston, if you’re even just 10 miles from the city, can take an hour and a half. So we started looking at single-family homes, but they’re just too pricey. So then we started looking more towards the duplexes. I mean, I’ll let Taylor do some of her background before we get into the real estate side.

Taylor Adams: Yeah, absolutely. So my background, I graduated from Northeastern University, and I started in finance, found out that was not for me, and I moved into higher education where I was before I left that work to become a real estate agent.

So I transitioned into real estate after Jeff and I started investing. So going off of what Jeff was just saying, we were looking for our single-family home to start out our lives together and decided to move forward with the duplex. At the time, we didn’t know anything about house hacking or BiggerPockets, and we eventually decided that we wanted to continue to buy properties because we got the bug. But we wanted to buy locally with our own money and realized that was going to take too long and it was going to be too expensive. So we started to explore out-of-state investing, and that’s what led us to dive into the properties that we purchased over the last two years.

So we dove in to test the waters in Tennessee with a single-family house. We found out we loved it and decided it was time to scale up to a five-unit. Given all of this happening, the market in the Boston area was super, super hot, and Airbnb was something of a lot of interest to us. So we decided to turn our upstairs unit into an Airbnb in our house hack. So we were full steam ahead at this point. We’re ready to scale up into large multifamilies. We had a 25-unit under contract. We ended up backing out of that because the numbers didn’t work out, and then COVID hit. So now we’ve been pivoting our strategy a little bit to try and take advantage of all the new opportunities that we’re seeing.

Theo Hicks: Perfect. Thanks for sharing that. So let’s start with the duplex. So you didn’t know about the house hack, but was it a house hack deal? Did you owner occupy it and then rent upstairs to cover your payments?

Jeff Adams: We did, exactly. We rented out the second unit.

Theo Hicks: Great. So do you mind telling us the numbers on that deal?

Jeff Adams: Yeah. So I’m more of the numbers person in the partnership… So it was on the market for $650,000 which around here was a pretty good price at the time. It might be crazy for some areas of the country. We did the inspection, we found some issues, we were able to negotiate down to $625,000. There was a renter in place that was paying $900 a month. So we asked that it be delivered vacant, because they were month-to-month renters. So then, we were able to get that rented out for $2,000 a month upstairs – that’s a three-bedroom – and then we lived in the other unit that’s a two-bedroom.

Taylor Adams: And we did 4% down using an FHA loan for that.

Jeff Adams: Yep.

Theo Hicks: You guys still live there now right?

Taylor Adams: We do.

Theo Hicks: Okay, perfect. So then after that, you said that you wanted to keep investing and you moved to out of state. So why did you select Tennessee?

Taylor Adams: We were evaluating a number of different markets, but we found out that the cash flow in the Sunbelt was really appealing. So we narrowed our search down, landed on Memphis for the cash flow, the low barrier to entry as far as pricing, and then started speaking to some of the more substantial property managers in the area to get a better sense of the market, and that just propelled us to move forward with Memphis.

Theo Hicks: How did you find these property management companies? What type of questions did you ask them? How many did you talk to? What was the timeframe between speaking with them to buying a deal, things like that?

Jeff Adams: There’s a few places you can look for the list of property managers to call down. Back then, we didn’t know as much. So we were looking at Google and looking at just Zillow, who was renting out the most units and stuff, which wasn’t a terrible strategy, but there’s also lists of qualified property managers that you can go through. So we actually compiled a list – I think we had 10 or 15 – and did more research on them offline, looking at reviews and stuff, and we could just cross off a whole bunch right away.

So I think I ended up talking on the phone with three of them. And it was the questions like– a part of it was how do you handle vacancies and turnovers and just the logistical questions, but a lot of it for us, too, was trying to get a sense of whether we could just trust this person. If they’re 1000 miles away from us and handling an asset that we put money into, and it’s going to be giving us money every month, is this a person that we feel that we can deal with? Some people on the phone, you can tell right away. Your gut just says, “This isn’t the right person for me.” Maybe for someone else, they’d be fine, but not for me. So we finally narrowed it down to the person who said the right things and we actually trusted, and then went and saw him in person and did a tour of Memphis for the whole day with him and then decided, “Yes, this is definitely the guy.”

Taylor Adams: Yeah, and the guy that we ended up going with, he is really well connected in the area. When we met him, you could tell that he really had a good relationship with lots of different contractors and people in the area and he could build those relationships and that was really important to us.

Theo Hicks: For sure. So at this point, you knew that you were gonna do Memphis and you were just trying to find the right team on the ground in Memphis.

Taylor Adams: Yep, exactly.

Theo Hicks: Okay. How did you find the deal?

Jeff Adams: So the property manager also has his real estate license. So he actually helped us find it. It was just on MLS, on Zillow, all that, and we just went through a whole bunch. We went down there and physically looked at ten properties. It didn’t end up being one of those. A few days later, after we got back, we found the one after maybe ten more that we investigated.

Theo Hicks: What was the number? So similar to before – what did it cost? Did you put your money into it? Was it turnkey? And then what’s it renting for now?

Jeff Adams: We got it for $65,000. I think that was $5,000 less than his price. We only had to put about $2,500 into it. There wasn’t too much to do; just the little stuff that comes out of inspections and just like you’ve got to fix that system and this thing. And then it was already rented out for $895 a month, and I just– they had a year left on their lease, so that’s lasted for a while. We actually had to evict them because they stopped paying last fall. But that was a pretty easy process in Tennessee. It’s very landlord-friendly down there. And then we got a new tenant in for the same price, $895 a month, and that one’s been going pretty smoothly.

Taylor Adams: And that one, we did 25% down on that property.

Theo Hicks: Yeah. So it was a pretty steep price reduction from the 650k in Boston down to 25k. So [unintelligible [00:10:24].11] difference. Perfect. Okay, so then the next deal after that, you said, was a five-unit, right?

Taylor Adams: It was, yep.

Theo Hicks: Was that also in Tennessee?

Taylor Adams: Also in Tennessee. Pretty close to our single family.

Jeff Adams: Yeah. So that one, five units, it was listed at $140,000. We did an inspection, got it down to $120,000, renting it out. It’s on average, I think, $400 a unit right now.

Taylor Adams: And I think we put 20% down on that property.

Theo Hicks: Was that an MLS or was that off-market?

Jeff Adams: That was on the MLS, yeah.

Taylor Adams: And that one’s been quite a bit of work. That one is definitely more of a BRRRR strategy. We’ve put quite a bit of money into it so far and will continue to, and we hope to double the value of the property, so that we can refi it at around $240,000.

Theo Hicks: Okay, so are you gonna increase the rents on that after you do the repairs?

Jeff Adams: Yeah. So we actually got two vacant units when we bought it. So we rented those out, and then there’s two units that are way below market. They’re at $350,000, and we can get them probably up to $450,000 or $500,000 if we redo those units.

Taylor Adams: Yep.

Theo Hicks: Okay, something else you had mentioned during your intro was that you had a larger multifamily under contract and then backed out and then Coronavirus it, and then you’re pivoting to take advantage of new opportunities. What are these new opportunities?

Taylor Adams: When everything happened, we had planned on continuing to move forward with syndication, but our investors were feeling a little bit unsure about what was going to happen during lockdown and whatnot. So what we decided to do was really focus on our house hack, which we hadn’t really been focusing on at all. So over the course of the lockdown, we refinanced the property, we’ve done a ton of renovations, and we’re actually in the process of transitioning our Airbnb upstairs to a long-term rental, because it just makes more sense for our area at the moment. And by doing these two things, the refi and turning upstairs into a long term rental, we actually are going to be able to get another house hack. So that’s something that we’ve been focusing on with the assets we already have.

And then really just trying to free up cash and focus on what are going to be the big opportunities that happen once we’re in a “post-COVID” world. So we’re thinking about, do we want to continue to look at large multifamilies or does it make sense to continue our approach around smaller multis? Is there opportunity in other asset classes? So we’re trying to keep our investors in mind and what they’re interested in and make sure that we are putting them in positions where they’re not at a ton of risk, given the uncertainty of the market right now.

Theo Hicks: Do you have any potential new asset classes you want to move into in the post Coronavirus world?

Taylor Adams: Yeah, this might sound crazy, but we’re really curious about retail space right now. We know that because a lot of smaller businesses, unfortunately, are going out of business, we anticipate that’s going to be a burden on these landlords who are holding these retail spaces. So we’re interested in keeping an eye on what happens with some of these and seeing if that’s an asset class that we can move into.

Theo Hicks: Yeah, that’s definitely an interesting approach. Alright, so starting with Taylor, what is your best real estate investing advice ever?

Taylor Adams: My best advice would be to listen to what you want to do. So people who have never invested will have lots of opinions and tell you to not invest in real estate. But this is your journey, so you should pursue it anyway if it’s something that you’re passionate about.

Theo Hicks: And then Jeff?

Jeff Adams: So going off of that one, some people are going to say things that you don’t know anything about what you’re doing and you shouldn’t listen to that, but there’s also gonna be a lot of people out there that have already done exactly what you’re looking to do. So networking is just so important, getting to know those people. And you don’t want to pester people every day like, “Well, what do you do about this?” But just being around them, you often pick things up that you just wouldn’t have otherwise. So being able to add value to them and network with those types of people is going to help you on your journey.

Theo Hicks: Before we go into the lightning round, I do have another question. What advice would you give to others out there who want to start a real estate business with their husband or wife in order to make sure that that goes smoothly? What are some things you guys do to make sure that the business functions smoothly together 24×7?

Taylor Adams: Yes, especially right now, we’re together a lot. Well, first of all, it’s a ton of fun. So I think that the biggest thing is communication and making sure that you’re on the same page. We very much treat this like a business. So we’re doing quarterly, monthly, weekly meetings to make sure that we are on the same page and we’re approaching this in a very specific fashion, and I think that helps to balance it out. But then also do not forget to take time to not talk about real estate and to talk about something else, or else you could be talking about real estate 24×7.

Theo Hicks: Anything to add there, Jeff? Or you’re just, “I agree”?

Jeff Adams: Yes.

Taylor Adams: Yes, I agree.

Jeff Adams: That’s another key, is agreeing.

Taylor Adams: Yes. [laughs]

Theo Hicks: Alright, are you guys ready for the lightning round?

Taylor Adams: Yeah, I think so.

Break [00:15:40]:03] to [00:16:43]:09]

Theo Hicks: Okay. And we’ll just do for all of these, we’ll do Jeff first and then Taylor second. So what is the best ever book you’ve recently read?

Jeff Adams: For me, it’s the 4-Hour Workweek by Tim Ferriss.

Taylor Adams: And then for me, I’m gonna say that it’s the Seven Levels of Communication by Rick Masters.

Jeff Adams: [unintelligible [00:16:57].21]

Taylor Adams: I’m sorry. Seven Levels of Communication by Michael Maher.

Theo Hicks: Perfect. Okay, if your business were to collapse today, what would you do next?

Jeff Adams: We’re just always starting new businesses. This isn’t the first thing that we’ve done. We’ve started software-based things… I think we would just find a new business to create.

Taylor Adams: Yeah, we’re a little bit of serial entrepreneurs. I think that the other thing that I would say is that we would figure out a way to make it work, because I think we’re really passionate about real estate. So we would want to figure out a way to pivot in a way that allows us to continue to do it even if it’s not exactly what our strategy looked like before.

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

Taylor Adams: So I’ll go ahead and say… So I actually started a community for women who are interested in investing in themselves, in their future. I definitely see that there’s not as many women in the investing world as I would like. So this is something I’ve created to help women gain the confidence and just inspire them to get involved.

Jeff Adams: Yeah, and we just like to help people get there. We help to mentor other people that just haven’t done anything yet. So that’s why I’m really excited for what Taylor’s doing with her women investors network.

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

Taylor Adams: For me, that would be my Instagram @TaylorColemanAdams.

Jeff Adams: And for me, email is fine. So it’s jeff.adams.c@gmail.com.

Theo Hicks: Perfect. Well, Jeff and Taylor, thanks for joining us today and walking us through your two-year journey. I really enjoy these conversations. I really like getting into the weeds and details on specifically what you guys have done to get started because other people who haven’t started can take a look at what you did over the first two years and replicate that so they can get their first deal.

So we talked about your first deal is that duplex in Boston and then from that, you transitioned to doing out of state investing with that single family property in Tennessee. We talked about why you chose Tennessee because of the low barrier of entry and cash flow. We talked about the process for understanding the market out of state, not really knowing it, never being there, or at least not living there, and that was through property managers. You created a list of 10 to 15 managers, you did some online research like looking at reviews, and you narrowed down to three. And then when you spoke to them, you obviously asked them the logistical questions about how they operate properties, but you really wanted to know if it was somebody that you could trust.

And then ultimately, you landed on one person who you ended up actually going down and touring Memphis with this person who was really well connected in the area and you ended up going with them. They also help you find this first deal, which is that single-family home. You went through the numbers on that. After that, you scaled up to the five-unit, which you also found on the MLS. The plan on that one is to do more rehabs and increase the rents. And then your next thing was to do the Airbnb upstairs, which we didn’t really talk about, which is fine. And then now, you said you’re going to be focusing on your house hack. So you refinanced it, you’ve done a lot of renovations and rather than doing the Airbnb upstairs, you’re going to do a longer-term rental.

And then in the future, that plan is to do another house hack, as well as making sure you’re freeing up some cash to focus on other opportunities, which you said you’re looking into the retail space because all these smaller businesses are going out of business and the people who actually own these retail spaces are probably going to be motivated because they’ve got no one paying them.

We talked about your best ever advice. For Taylor, it was to listen to what you want to do as opposed to letting other people tell you what you want to do. And then for Jeff, it was making sure that you’re networking with people who are already doing what you want to do. And then we talked about some best ever tips for working with a spouse or significant other – communication, making sure you’re on the same page, making sure you’re still structured in doing your quarterly, monthly and weekly meetings. And then you mentioned that it’s also important to take time to talk about things that aren’t real estate related and then obviously, making sure that you guys are agreeing a lot on things. So Jeff and Taylor, again, appreciate you guys coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever 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.

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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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JF2196: Underwriting Multifamily Acquisitions With Robert Beardsley #SkillsetSunday

Robert is the author of The Definitive Guide to Underwriting Multifamily Acquisitions and today he will be sharing the process of underwriting so you will be able to take away some ideas to implement into your underwriting process. 

Rob Beardsley Real Estate Background: #SkillsetSunday 

Click here for more info on PropStream

Best Ever Tweet:

“On a larger property, a $100,000 additional expense on your cap-ex budget isn’t really going to make or break the numbers, but missing your rent pro forma by $25 can make or break your deal” – Robert Beardsley


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. Well, first off, I hope you’re having a best ever weekend because today is Sunday, got a special segment for you – you know what it is – Skillset Sunday. Today on Skillset Sunday, you’re going to learn the process for underwriting multifamily acquisitions, and well, I figured we should interview the author of The Definitive Guide to Underwriting Multifamily Acquisitions, Rob Beardsley. How you doing, Rob?

Rob Beardsley: Doing very well. Thanks so much for having me on.

Joe Fairless: Well, my pleasure, and looking forward to our conversation. A little bit about Rob – he’s a principal at Lone Star Capital Group. In the past three years, he’s led over 100 million of multifamily acquisitions, based in New York, New York. With that being said Rob, first, do you want to give the Best Ever listeners a little bit more about your background just for some context, and then let’s go right into how to underwrite multifamily acquisitions?

Rob Beardsley: Absolutely. So the quick background in terms of real estate is I grew up in a real estate family. Both my parents worked at home, and I heard them on the phone all the time making deals, running a real estate brokerage firm in Silicon Valley. So I really absorbed a lot of real estate that I didn’t even realize until I actually got in the business later on… Because initially, growing up in Silicon Valley, my parents pushed me to go into tech and learn to program and go to school for computer science, and that’s what I did. Of course, eventually, I had to come back to my family’s passion and business, which is real estate, and the path I chose was multifamily. And shortly thereafter, I was very fortunate to meet my business partner at none other than the Best Ever conference.

Joe Fairless: I know what conference that is. I recognize that name.

Rob Beardsley: Yeah. So that’s been a very fortunate thing for us. Kevin and I founded Lone Star, as you said, and we’ve been enjoying the process.

Joe Fairless: Well, let’s talk about the underwriting process. So first off, why write a book about underwriting acquisitions for multifamily?

Rob Beardsley: It’s not the sexiest topic. It has gotten a little more interesting over time, but most people don’t write a book that’s pretty much a how how-to manual. So that’s something that I really wanted when I first started in the business, because there was just really no one resource that you could turn to and learn this. You could maybe take a $2,000 weekend workshop or find some other mentor who would maybe help you out, but there was no book, and I love consuming content through a book. So I started having a lot of people also ask me, “How did you learn and what book did you read?”, and I had nothing really to offer to them. So I told myself very early on that I would compile my thoughts and write a book on this, just because I felt that it was something that I’m passionate about, people are asking me a lot about it.

And then the additional point is the passive investor side. I think passive investors – they don’t even know that they don’t know this, and they should endeavor to get proficient at underwriting and evaluating deals if they want to actually be in the game long term, as a passive or active investor. So that’s something that I’m hoping to address which is a big need in the market.

Joe Fairless: So let’s talk about the way you structured the book, and then we’ll get into some specifics. So how did you structure the book?

Rob Beardsley: I tried to keep the book as short as possible. It’s not a memoir or anything like that. Like I said, it’s a very straightforward how-to manual. So I start out with just a quick introduction about what is underwriting, why is it important, and why should you learn it, and how should you go about learning it. As far as learning it, you can choose to build your own underwriting model, and whether that’s in Google Sheets or Excel or some other program, I recommend and say, “That’s perfectly fine. You’ll learn a lot doing that.” But if you don’t have the time, definitely just pick one that you trust. There’s many out there that you can get your hands on. I recommend getting all of them. So that’s the start of your journey. And then the actual process that I go through the book really starts from getting the information that you need, whether that’s directly from the seller or from the broker that you’re working with all the way through what data do you need in terms of websites and what should you be looking for, for key metrics, and then plugging that in. Every single input of my personal spreadsheet, I actually go over and give you guidelines on how to input it. So it really– it leaves nothing left out. Every single input is addressed, which I think would have been really helpful when I was first starting.

Joe Fairless: Every input addressed – is that every input for the spreadsheet that you use?

Rob Beardsley: Yeah.

Joe Fairless: Okay. And you mentioned earlier that you recommend getting all the versions of the underwriting spreadsheets that you can come across. How do you determine who’s right and which aspects you should include in yours and which ones you should not?

Rob Beardsley: That’s a great question, because not many people would think that there is deviations. You would think, “Well, this is math and this is cut and dry,” but it’s really not. There’s a lot of art and science and subjectivity, and I think why I recommend going out there and looking at all the different spreadsheets that you can get your hands on is because it will expose you to the different ways that people are handling certain assumptions and forecasts, and you can evaluate all of them and say, “I really like this. I don’t really like this.” One of the reasonings that I personally use in developing my assumptions and forecasts is  what’s the easiest to explain and what’s just the least complicated? Because if someone’s going to evaluate my deal or check my work essentially, I don’t want to have to come up with some crazy explanation about, “Well, I got to this number because I used the trailing three income, but then I also use the trailing 12 expenses, but then I adjusted the taxes.” So I favor simplicity.

Joe Fairless: So let’s talk about some things – and perhaps you mentioned them. Let’s talk about some things that you don’t like about other underwriting models that you’ve come across.

Rob Beardsley: I think a simple one that some people may overlook is your pro forma should be built on a monthly basis, because annually is just not granular enough and it’s more prone to make mistakes. As you’ll find, once you’re getting more involved with more deals and looking at different situations that are more unique, you’re going to want to have the control on a monthly basis, and having that monthly basis will allow you to tweak certain things such as renovation schedules and stabilization timelines. A big mistake people make is just being too aggressive with assuming they’ve got a 200-unit property on their hands, and they’re going to renovate all 200 units in the first year and the rents are gonna be up 20% in year one. That almost never happens. So on an annual basis, it may push you to make that assumption or push you to make the two-year assumption, so having a monthly can really let you be more accurate and potentially more conservative.

Joe Fairless: You mentioned earlier you go into what information you need to run your analysis. What information do you need to run the analysis?

Rob Beardsley: So the bare bones starting point is always a trailing 12-month profit and loss statement and a rent-roll. Both of those are very important and they’re different in their own ways. So quickly just to go over that if people aren’t familiar, a trailing 12-month profit and loss is also known as just a T12, and that shows the trailing 12 months of historical operations for the property, all the revenue, all the expenses to essentially come to a net operating income. So that’s a 12-month snapshot, whereas the rent roll is just one day, one snapshot in time. They complement each other, because the rent roll will tell you potentially what’s going on today or on a more recent basis, whereas the T12 gives that historical context, which is really important.

I was actually talking with a 30-year veteran in the business who said, “Yeah, I’ve probably forgotten more about evaluation than you know.” He said that “Back in the day, we would always look for the trailing 36.” They didn’t even call it a T12 back then. He’s like, “I don’t even know what you mean when you say a T12.” So they would look at the trailing three years, and he said, “Yeah, if you went that third-year back, you’d always see what the seller was potentially hiding.” I thought that was really interesting, because a lot of people these days aren’t even looking so much at the T12, and lenders and investors alike are willing to discount the later months in a T12. And really focus on the T3 or even T1, which – there’s some truth to that, but it is an interesting take.

Joe Fairless: So that’s the minimum… What’s the best-case scenario? You have a good friend who is selling you the property. They don’t care about money. They just want to make sure you make all the money that you possibly can by evaluating this property in its entirety, so they give you everything you could possibly wish for. What is that?

Rob Beardsley: That’s a really interesting question, because that’s starting to get into more of due diligence, which, obviously, we all know due diligence is hugely important. But in terms of underwriting, what I would potentially want to see is color to help inform my assumptions. For example, understanding the tenant base. Where do they work, and obviously, how much money do they make, and understanding the average tenancy, because if I know the average tenancy, I can calculate the turnover rate which will help me pin down my repairs and maintenance costs. If I know how much they make and where they work, I can better evaluate the risk of the income, and I can understand how far we can potentially push rents before we get into territory where there’s just unaffordability. So those would be helpful.

Looking at their maintenance log and seeing– this is actually very interesting, more on the due diligence side… But evaluating the maintenance log and seeing what are the most common maintenance requests, that might inform you of deferred maintenance and potential opportunities to cure deferred maintenance or potentially even create savings somewhere. So I would say, from the seller, those would be extremely helpful. Do you get them prior to executing a PSA often? No. But those would be helpful.

And then aside from what the seller can offer, there’s great public information and data services as you know, like CoStar and Yardi, that will provide a lot of that information. But we look at free information online as well, like Justice Map – highly recommend that resource – to really look at the incomes and the demographics on an extremely granular level.

Joe Fairless: CoStar is one resource to use. What paid subscription services do you use right now?

Rob Beardsley: CoStar and Yardi.

Joe Fairless: Why do you use both and not just one?

Rob Beardsley: Well, the simple answer is because we have the luxury of both. But really, they do the same thing. What I will say though if anybody’s considering them right now, Yardi does a little better job with sales and loan data and CoStar does not. This is specific mostly to Texas, so I can’t speak for all across the country, but that has been my experience. But CoStar does other things well.

Joe Fairless: You mentioned Justice Map as a free resource. What are some other websites you know you’re gonna go to, to check out a property’s area whenever you’re looking at a deal, that are free?

Rob Beardsley: I forget the exact domain, but it’s greatschools.com, I believe.

Joe Fairless: Yeah, Greater Schools or something, yeah.

Rob Beardsley: Right. So schools are hugely important, especially if you’re looking at a property that has larger floor plans like three bedrooms, schools are very important.

Joe Fairless: You’re actually right. It is greatschools.com.

Rob Beardsley: You were quick on that.

Joe Fairless: So greatschools.org, final answer. Alright, move on.

Rob Beardsley: So schools are important. Other places I like– I forget. I’ve got a bunch of links that I’ve just have copied and pasted into my underwriting model, so I can just click on them quickly from there. If I want to reference crime, I think it’s crimespot.com or something like that. So crime, schools, and then this is something that I actually heard you say on a podcast just the other day, which is looking at Reddit to understand where the hipsters get their coffee. I thought that was super interesting.

Joe Fairless: Yeah. I think someone I interviewed mentioned that. I don’t remember but yeah, I agree. That is very interesting. They really get the flavor of the community by going to Reddit, and take it with a grain of salt, certain profile people are on Reddit, but it’s just interesting. You mentioned that every input that you have in your underwriting model, you address it in the book. What are some inputs that you added to the spreadsheet that perhaps others might not have?

Rob Beardsley: That’s very interesting. So I’ll talk about the core model itself, and then maybe branch out to the sensitivity analyses and things that are more add ons. But I’ll talk about the core, which is one interesting component is the stabilization timeline, which in terms of value add, this is where models all start to deviate and they aren’t all the same. In terms of income and expenses, it’s pretty straightforward. Everyone’s pretty much the same. But the way that somebody projects how their value-add plan takes place over the first one, two, three years is very unique. So some people choose to input how many units they’re going to renovate per month, and then they have some schedule that they run, and then they calculate how many units are renovated and multiply that by the certain rent.

Rob Beardsley: So everybody’s got their own way, and again, going back to simplicity, the way that I have chosen to build that out is to simply have a stabilization timeline calculated with months. So you’d input a 12-month stabilization timeline, for example, and you would have your in-place rents and your pro forma rents. So right off the bat, you’re in-place rents would grow to your pro forma rents linearly over your stabilization timeline. So if you had, let’s say, $900 rents and your pro forma was $1,000 and your stabilization timeline was ten months, well, the model would just slowly build that rent up by $10 per month over those ten months, until it achieved the $1,000. Similarly, with your loss to lease, your vacancy, bad debt, concessions. The way that the model works is it all starts with the in-place numbers. So what’s currently happening at the property, and then it slowly linearly changes just like the rent to what our stabilized assumption.

So if we have 3% bad debt, but we think we can clean it up to one point, we’re not just going to go to 1% in the first month of ownership. The way we would do it is over our stabilization timeline, we would slowly linearly trickle it down. So that’s something I think is unique and really keeps it simple. But actually, if you compare it to some other ways, it’s quite a bit more conservative, just given the timeline. Obviously, you can use a faster timeline, but I think construction and project things typically take longer than you’d expect. So that’s one really important thing to address, because it actually has a lot of impact on the results of your underwriting more so than you’d expect. You wouldn’t expect that “Well, if I finished my renovations in 12 months versus 18 months–“, you wouldn’t expect that you’d get potentially a 2% bump in your IRR.

Joe Fairless: Yep, that’s substantial. One aspect that you mentioned was make sure that you’re factoring in monthly and not annual in your calculations, which yes, definitely, and I’m glad that you mentioned that. One thing it made me think of is, if you are doing monthly and you are getting granular with your assumptions, do you factor in the leasing period? For example the summer, you lease more units most likely than December?

Rob Beardsley: No, the simple answer is no.

Joe Fairless: How come?

Rob Beardsley: Well, again, coming back to simplicity. So one thing I like to say– and I could be wrong. There’s plenty of people much smarter than me. But one thing I like to say is my underwriting really isn’t trying to precisely forecast the future, including the depths of the winter and the booms of the summer. Similarly, if I think rent growth — obviously we all know rent growth isn’t just going to simply be 3% or 2% every year for eternity. But we use some more general assumptions like that to keep things simple and to just have a general understanding, and to — again, coming back to simplicity, I can easily compare apples to apples of different deals when I use more general assumptions and try to keep things as simple as possible. When I start really getting in the weeds and trying to get too specific, then it’s harder to compare to another property because you’re making so many assumptions. So my goal is to be as accurate as possible with as few inputs and assumptions as possible.

Joe Fairless: How do you know how to walk that line? And what is too granular, versus what is “You know what? I probably should go granular on this thing”?

Rob Beardsley: That’s a tough one, but I think the answer is understanding what is most sensitive to your outputs and your results. So an interesting example I give is people would be surprised to know that on a larger property that we’re used to dealing with, a $100,000 additional expense on your cap-ex budget isn’t really going to make or break the numbers. But missing your rent pro forma by $25, that could make or break your deal. So a $25 difference in your rents is a far greater impact than the $100,000 difference in your capital expenditures budget. So understanding what actually moves the model can tell you, “Okay, this is what I really need to focus on and make sure I get it right.” So we’re very, very focused on our rents and making sure that we’ve got our rents right, and that they’re defensible via comparables. That’s the next chapter of the book is once I tell you how to input every single input and say, “Okay, well, how do I prove that I’m right?”, and you need to do that with most importantly, rent and sales comps.

Joe Fairless: Rob, I enjoyed this conversation, and I know a lot of the Best Ever listeners have as well. How can they learn more about what you’re doing and get in touch with you?

Rob Beardsley: So the best way to check us out is at lonestarcapgroup.com. There, you can check out our articles, newsletter and most importantly, click the link at the top on the homepage and you’ll get a copy of my underwriting model that we talked about today emailed directly to you.

Joe Fairless: Rob, I enjoyed, as I mentioned, our conversation. I hope you have a best ever weekend and talk to you again soon.

Rob Beardsley: Thanks so much.

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JF2190: Begin With House Hacking With Anthony Angotti

Anthony started out house hacking and after some time he met some business partners to begin investing in apartments. When he first started out he took the initiative to do the renovations himself so he would be better equipped for future deals when hiring help. Now he hires help rather than doing it himself since he now owns 76 units.

 

Anthony Angotti Real Estate Background:

 

 

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Best Ever Tweet:

“In the beginning, I was the handyman, leasing agent, I was everything while working a full-time job. If I would have outsourced sooner, I would have been able to leave my job much faster” – Anthony Angotti


TRANSCRIPTION

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

Anthony Angotti: I’m doing fantastic. How are you?

Theo Hicks: I’m doing fantastic as well. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we get into that, a little about Tony – he’s a full-time realtor and investor with five years of experience, has a portfolio that consists of 76 units. He is based in Pittsburgh, Pennsylvania, and you can say hi to him at angotti.realestate@gmail.com. So Tony, do you mind telling us a little bit more about your background?

Anthony Angotti: Yeah, sure. I got started with house hacking. So that’s how we got started. We moved into an REO duplex, fixed up one side, lived in the other while we fixed it up, took that, repeated that a few times. We moved from duplex to duplex to duplex. But in the meantime, I met some business partners that were actually realtor clients when I first met them, and we started moving more into the apartment rental space. So we started buying small value add apartment buildings, and that’s how I’ve grown over time.

Theo Hicks: So when you said you move from duplex to duplex, did you continuously house-hack every single year?

Anthony Angotti: We have three, so a couple lasted a little bit longer, but we still live in the third one. My wife and I plan to probably do one more before we get sick of moving. Moving that much is quite the endeavor. So we’ll probably do one more this way and then move to a more traditional single-family house after that.

Theo Hicks: Would you mind telling us the numbers on that first house-hack that you did?

Anthony Angotti: Yeah, sure. So our local market wasn’t as hot at the time as it is now. Pittsburgh, the market’s been a lot more competitive. So we found an REO side by side, three bedrooms both sides, each one had a garage. So it was a pretty nice setup, pretty solid building outside of the repairs we needed to do. We bought it for $155,000, and then we used a 10% down portfolio loan on that. So with a local bank, it was an owner occupant loan, but we didn’t FHA or anything with that one. And then we did all the work ourselves other than there was a repair to the sewer line, and all the initial repairs cost around $15,000. So I don’t know if you have any questions on that specifically, but I could just go into the rents and stuff too, if you want.

Theo Hicks: Yeah. So you said you did all the repairs yourself. You did all the labor yourself?

Anthony Angotti: Yeah, yeah. Bought the materials, did a lot of the labor. That was a super beneficial experience to me because I learned a lot. I wasn’t particularly handy before. My father was helpful and YouTube was exceptionally helpful, but I had no real experience. By training, I’m a microbiologist. So it’s not like I came from a contractor background or something. But by doing that work, it really helped me understand what goes into projects, which then has led to a lot of benefit where I am now, because now I don’t do any of the work. But when I talk to contractors about different jobs or repairs or things, I’m a lot more knowledgeable because we’ve done that thing.

Theo Hicks: Did you just do the repairs yourself in that first house hack, and then after that contracted all that out?

Anthony Angotti: The house hacks – because we did three that way – each one that we did that way, we’ve done most of the repairs hands-on, at least for the unit that we lived in. For the properties that I didn’t live in, other than a couple at the beginning, we hired everything out. The apartment buildings, I haven’t really done any personal work in. But some of the smaller buildings at the beginning, that’s what we did, because we didn’t start with a ton of money, so it would have been very difficult for us financially to pay somebody to do every little thing.

Theo Hicks: What was the rent you demanded for the other three-bedroom and then about was the rent that you demanded for your unit once you moved out?

Anthony Angotti: So at the time, our total rent with garages is around $2,550 a month. Each apartment, before pet fees, they rent for $1,200 a month now. At the time, I think we rented the other side for $1,050, but the rents have gone up since then. And then we rent our garages separately from the tenants. So we pull in different rents for those.

Theo Hicks: So you rent the garages to someone else?

Anthony Angotti: Yeah. They’re detached garages, so I actually have a contractor that rents them. It’s my painter. He rents that from us, which is a pretty nice extra revenue source. It’s just on the back of the property, so it’s not like it’s connected to the tenants’ unit. It’s a totally separate thing. We’ve actually done that with a lot of our properties, because in Pittsburgh, there are quite a few properties that have detached garages and tenants are generally used to street parking. So since the market doesn’t dictate having off-street parking, we’ve usually just used the detached garage as an additional revenue source.

Theo Hicks: Is that something that you just proactively asked your contractor, your painter, if they needed a place to rent, or did they come to you, and then that’s how you got the idea?

Anthony Angotti: For that particular one, my painter actually lives on that same street. So I was just talking to him and he was talking about he needs a place for his stuff and I said, “Well, you can rent my garage. I’ll charge you $100 bucks a month for it,” and that’s what he did. But I did think about that initially as what I was going to do, and we’ve had good luck just renting them on Facebook groups for contractors. I’ll just join a contractor group on Facebook and list it for the area, or Craigslist or stuff like that. We found pretty good luck with that on the other ones.

Theo Hicks: Nice. And then last question about the house hacking before moving to the apartments. You said that you got a 10% down portfolio loan. Is there a reason why you didn’t pursue the lower down payment 3.5% FHA loan or one of the 203k loans that would include the rehab costs in the financing?

Anthony Angotti: I think, at the time, we had already just engaged that lender and I was brand new, so I wasn’t hooked up with a mortgage broker or anything; I just knew that bank. Additionally, that 10% down loan didn’t have PMI or anything because the bank kept it in-house. So if I would have done an FHA, I would have had PMI until forever unless I refinanced the mortgage insurance, if people aren’t familiar with the abbreviation. So we went with that, and the rate was a little bit higher, but the underwriting of it was nothing. Our documents we signed at closing were probably 15 pages. So compared to a secondary market loan that they sell to Fannie or Freddie, our underwriting and our document package was nothing. So it was a super easy loan. There were repairs on the property. There was a cracked vertical sewer stack, so that would have never passed FHA or something, and the bank was the one selling it, so there’s no way we would have got that repaired prior to closing. So that wouldn’t have been an option for us.

Theo Hicks: This portfolio lender – did you use them for all of your house taxes and also these apartments?

Anthony Angotti: We used them for the second house hack. We did FHA for the one we currently live in. I used that bank’s commercial division for some of my apartment buildings, although I do have other banks that I use, too. We have maybe three main local commercial lenders that we use for our apartment buildings.

Theo Hicks: Perfect. So let’s talk about the apartments. So I guess my first question is what’s the biggest apartment that you have?

Anthony Angotti: 10-units. So we focus primarily in smaller buildings. Two reasons. One is that’s what’s in Pittsburgh. There aren’t a ton of large apartment complexes. There are some, but they hardly ever come up for sale, and they’re just not very prevalent. Most of the apartment buildings are going to be in the 5 to 20 unit range, but that’s the biggest one that we have right now.

Theo Hicks: What was the second reason?

Anthony Angotti: Just how frequently you encounter them in the market. There just aren’t a ton, especially because we keep our portfolio pretty geographically tight. So it’s not Pittsburgh as a whole. We focus primarily around where I live. We can touch on it a little bit, but our strategy is to in-source everything. So we have an in-house property manager, we don’t have a third party company. We also are hiring an in-house handyman… So we try to keep our portfolio hyper-local to cut down on their windshield time, so they don’t drive as many places.

Theo Hicks: So let’s talk about the 10-unit deal. So the same run that you gave me for the house hack – How’d you find it? What were the numbers, and then what was the business plan?

Anthony Angotti: So the first one that I did was a 10-unit. It’s set up a little bit like a complex. So there’s actually a 5-unit building, 4-unit building and a little house all on the same parcel. So the way that we found that was actually… I have a few different partnerships. The one partnership that I worked with here, this building is a little bit further away from our normal geographic range, but the current owner was somebody I used to work with. So we’ll talk about it too later, but one of my biggest piece of advice is just to tell everybody that you know that you’re in real estate investing, because you never know where the next lead comes from. So this was just a former coworker and he had an apartment building that they were way under renting. So the market rent for the units– right now, we get $750, but he was renting everything between $350 and $400 a month when we bought it.

It was funny, because I told him what the market rent was, I was transparent with him, and I was like, “Why are you only getting $350 or $400 on this?” He said, “Well, we like a certain type of tenant and we fill it really fast when it’s like this.” And I said, “Okay” Then I found out later that the only place he was marketing his apartments was in the newspaper. So he was still just posting newspaper ads. That was the only way he was finding tenants, which explains why most of the tenants there, they’re all social security type tenants. They all just get their security checks, which is nice.

But we bought that for — I believe, it was $255,000 was the price… $255,000 when we bought it, and then part of that in first position was a commercial lender and the second part of it was seller-financed. So I believe about 70% of that is through the bank loan, and about 30% of that is the seller finance. So that’s the purchase info on it.

Theo Hicks: And then was it a turnkey type of deal, or you just took it over and turned the units over, or was there some renovations that needed to be done?

Anthony Angotti: There was nothing immediate that was pressing. However, like I said, when we purchased it, everything was super under rented. So our strategy when we went into it was to get everybody up to at least $600 a month. So we sent everybody, right after we bought it, a letter, everybody that lived in the building. They were all pretty decent tenants. There were no troublemakers in the building when we bought it. But we just said, “Look, we bought the building. All of your rents when your leases are up, they’re going to $600 a month. If you want to stay, that’s great, as long as you pay the rent. If you want to move out, we gave you plenty of notice. You should have time to find a place. All good there.” Over time, we’ve had five people leave, and we’ve just been renovating the apartments as they’ve left and our rent’s now, like I said, are around $750. I think all of them are $750 for all the ones that have left. So we have five tenants left at $600 and five tenants left at $750.

Theo Hicks: And then I don’t know the exact number, but I’m just curious… Let’s say you bump the rents up by $150. How much money did you invest into those units to get that $150 rent bump?

Anthony Angotti: Depending on what we’ve done, because the building does have older wooden windows, so on a few of them, we’ve taken the opportunity to replace the windows… But we’ve spent anywhere between $5,000 and $8,000 per unit. The units were in pretty good shape. They pretty much just needed paint, flooring, appliances, basic bathroom reno, just a surround and some paint and a ceiling fan, and then the kitchen was just painting cabinets, new countertop, that sort of thing. So it wasn’t a very expensive turn.

Theo Hicks: So you mentioned– and I hope this isn’t your best ever advice. I want to focus on this a little bit. So you mentioned that one of your good piece of advice is to tell everyone you know about investing in real estate, because you don’t really know where your next lead is going to come from. Have you ever done a deal off the MLS, or have all of your deals come through these word of mouth types of referrals?

Anthony Angotti: Well, the one I just mentioned was off MLS. A lot of what we do is off-market. Now, at this point, we send out a lot of mail and stuff like that, so we get a lot of leads that way too. But most of my smaller buildings, most of the house hacks that I’ve done– actually, all of those have been on MLS deals. That’s nice for me because like I said, the most recent one we did, we used an FHA loan. I’m also a realtor, so I got my commission. So this place was a free house. We used our seller assist and I got my 3% commission, so we’re out half a percent for down payment, so that’s pretty sweet.

But most of our buildings have either come off-market through our own efforts, whether it was mail or networking, or off-market through broker relationships. So we’ve had a few that came just commercial broker pocket listings that way. I don’t know that we bought any apartment building that has been publicly listed, to be honest.

Theo Hicks: And then the last question before the best ever advice, going back to the house hack. I house hacked, but I was single. Were you married for all of these house hacks?

Anthony Angotti: We were together.

Theo Hicks: Maybe give people some advice on how to navigate doing a house hack when you’re married, when you’re living with someone else.

Anthony Angotti: The funny thing about it is whenever we were renting, we were probably ready to get married then, and I was not thrilled about working for somebody else. It wasn’t really even a problem with a specific job, I just didn’t like it. So my wife just was introducing me to different things, and she introduced me to the Bigger Pockets podcast. She was like, “Hey, maybe this is something you could do to quit your job,” and I think the first episode I listened to was about house hacking. And then I told her– I was like, “Look, we have money to do one of two things. We can either get married or we can get this place and live for free.” Initially, she was obviously like, “Well I don’t know about renovating a house. I’d probably just get married first.” Then I said, “Well, just think about it for a week. Let me know.” After she looked at the numbers of that, she came to the same conclusion that I did – that you just save so much money that it can accelerate everything else in your life financially. So that’s what led us to do that the first time. I was just showing her the benefits, and also at the same time saying, “Well, we can still get married, but when we do get married, we’re gonna be in a way better place financially.” So for her, she’s been supportive from day one, so it wasn’t super difficult. But I think that having her see all the benefits financially of it was the biggest thing that helped her get on board with it.

Theo Hicks: Thanks for sharing that. Alright Tony, what is your best real estate investing advice ever?

Anthony Angotti: My best advice ever is to just not wait to outsource your tasks. So I think personally, I waited to hire somebody to help me for way too long. We’ve grown fairly quickly in five years, but I probably could have been, at this point, quit my job way sooner had I just hired out a lot of the stuff. At the beginning I was the handyman, I was the property manager, I was the leasing agent, I was everything, and I was also working a full time job. So my time to focus on growth, both of the portfolio and personal growth was just non-existent. So I think outsourcing, whether that’s to an employee or a third-party manager, third-party handyman, whatever, you’ll see double the return in income easily over what it costs to actually pay that person.

Theo Hicks: What’s the first thing people should outsource?

Anthony Angotti: If you’re self-managing, I think probably property management is the first thing that you should outsource, unless you have one or two properties. But once you get past two properties, you have to take management off your plate.

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

Anthony Angotti: Yep.

Break [00:18:57]:03] to [00:19:59]:07]

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

Anthony Angotti: Best ever book that I recently read was actually The Millionaire Real Estate Agent. So it’s not geared specifically towards investing. Like I said, I’m also a realtor. That’s by Gary Keller. The thing that I took away from it the most was just, like I said, about outsourcing, about building a business that works for you and you’re not so much working inside the business. So that advice really resonated with me. I believe he also has a book, Millionaire Real Estate Investor, that’s a little bit more specific towards investors. But that book was very useful for me.

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

Anthony Angotti: Start building it again.

Theo Hicks: Very simple. Alright, what deal did you lose the most money on? How much did you lose and what lessons did you learn?

Anthony Angotti: We haven’t had one that’s lost significant money yet. The one that we’re currently in, the house hack that we live in now, was pretty costly. I did it because it was the last deal that I used my W2 income for before I quit my W2 job. So I would say that just being a little bit more patient to find a deal was what I learned from that. It’s not going to lose money long-term, but it’s definitely not super profitable.

Theo Hicks: On the flip side, let’s talk about the best ever deal you’ve done, and this is the deal you made the most money on whether it’s in rents or equity created.

Anthony Angotti: Oh, so the deal that I made the most money on… Probably that 10-unit that we talked about. We easily added just in expense reduction and income creation, over $175,000 on new value, and our cash flow is pretty ridiculous right now. I don’t have it up in front of me, but when it’s performing– it varies month to month, but we make easily over $2,500 a month in cash flow on that one. So that’s a pretty good one.

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

Anthony Angotti: To the investor community, I host investor meetups locally, and I think even though the business benefit from that has declined a little bit the more business I’ve done, just helping everybody out with questions and their deals and stuff, if that’s useful. And then just in the general community, I coach ice hockey. I played ice hockey in college, so that’s something that I like to stay involved in.

Theo Hicks: Nice. So then what’s the best ever place to reach you?

Anthony Angotti: I just started a podcast called Be Free RE. You can find us on any of the platforms, but the unique thing about our podcast is that we actually answer listener questions on air. So people can call in and leave a voicemail, we play your voicemail on the show and then answer it. The number for that is 412-212-8366. And then if people want to reach out individually– I’m sure a lot of your listeners are on Bigger Pockets, so I’m on there as Tony Angotti, and then they can find me there.

Theo Hicks: Perfect. Best Ever listeners, definitely take advantage of that whenever people give out phone numbers or email addresses. Alright, Tony, I really appreciate you coming on the show. I always love talking about house hacking, because I did it and it’s always interesting to hear how other people have navigated that interesting strategy especially when it’s–

Anthony Angotti: It’s the cheat code to life; financial life, at least. It’s the biggest cheat code you can do to fix your finances.

Theo Hicks: Yeah, it really is. So you went into detail on the first house hack that you did. We went over the numbers. We also talked about how you were able to do all the repairs yourself, except for obviously that sewer line by using YouTube, as well as help from your dad, and that’s been beneficial to you when talking with contractors on future deals. You talked about how you were able to rent out the detached garages to someone who wasn’t the tenant for extra source of income, then we transitioned in talking about your apartments where you focused on that first deal and how you were able to increase the value substantially because of the fact that the rents were so under market rent. You learned to focus on the smaller buildings because of the supply in the area and you also like to make sure that everything is in-house, so you’re hyper-focused on a certain area so people aren’t driving around all the time.

And then you also gave us some advice on how to find the deals and that’s telling everyone you know about what you’re doing in real estate, because you never really know where that next lead’s gonna come from. You gave us advice on how to do the house-hacking when you’re married or dating someone and it’s really just explaining the benefits to them, and letting them agree and come to the conclusion that it’s a good idea themselves.

And then lastly, your best ever advice, which was not waiting too long to outsource some of the tasks like property management, leasing, doing the repairs yourself, things like that. So Tony, I really appreciate you coming on the show and sharing your advice. Best Ever listeners, again, make sure you take advantage of his offer to answer some of your questions on the podcast. Definitely call into that number. Thanks for listening as always. Have a best ever day and we’ll talk to you tomorrow.

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JF2184: 21 And Syndicating With Kyle Marcotte

Kyle is a 21-year-old syndicator, finished 119-unit syndication at 20 years old. Dropped out of UC Davis to pursue full-time apartment syndication. He explains how difficult it was at first when he was pursuing syndication as a young man and how he was able to overcome some of the hurdles most would fear. 

Kyle Marcotte  Real Estate Background:

  • 21-year-old syndicator
  • Syndicated 119-units at 20 years old
  • Left UC Davis to pursue apartment syndications
  • Located in Austin, Texas
  • Say hi to him at :https://kylemarcotte.com

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Best Ever Tweet:

“There was a tremendous amount of pushback when I was looking to leave school and go full-time syndicator” – Kyle Marcotte


TRANSCRIPTION

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

Kyle Marcotte: Good. Thank you for having me on.

Theo Hicks: Absolutely. Thank you for joining us. A little bit more about Kyle – he is a 21-year-old syndicator, he syndicated his first 119 units between two different deals at 20 years old, and he actually left UC Davis to pursue apartment syndications, currently located in Austin, Texas. You can say hi to him at kylemarcotte.com. So Kyle, could you tell us a little more about your background and what you’re focused on today?

Kyle Marcotte: So a little bit about my background. I was a pre-med student at UC Davis and playing division one soccer out there, and was just giving a lot of my time to other people and pursuing things that I wasn’t fully passionate about, and I just started to realize that in order to put the time in that’s necessary to be really successful at something, you have to really enjoy doing it as well. So I just knew that I was doing the wrong thing and I didn’t know really where I was going to find this passion or this thing that I could start pursuing, but ended up finding real estate through Rich Dad Poor Dad. I know, very cliche, but that is what happened. I was in my apartment in college, my sophomore year early on, and I just read the book and it put words to the feelings that I was having, which was I didn’t want to trade my time for money all the time especially as a doctor; you go to school for God knows how long and you’re in quite a bit of debt and you trade quite a bit of your time… And it’s a noble profession and I love the service aspect of it, but I just couldn’t see that being something that was going to light me up inside. So I found real estate and quickly jumped into it and then found multifamily through Jake & Gino and realized that that was going to be the best way to scale out of my business so that I could run a 107-unit deal one hour of the week is really all it takes, because you have a full-time property management because of the scale, and that just made a lot of sense. And by my mid sophomore year, I did a 107-unit deal in Louisville and then I ended up actually dropping out of school and pursuing this full time.

Theo Hicks: Alright, thanks for sharing that. So before we get into specifics of some of the deals, I just had to ask a follow-up question. Most people that are doing this are older, and for them, it’s about leaving a job. For you, it was about leaving college. Most people, they’re leaving, and then you talked about this in Rich Dad Poor Dad, what you’re “supposed to do”, that you get a lot of pushback from people. So what was the hardest part about deciding to quit, in this case, college, not necessarily a W-2 job, in order to pursue apartment syndications?

Kyle Marcotte: So there was a tremendous amount of pushback, as you said. My parents, for one, were not the biggest fans. I don’t think that parents are super excited to hear that their kids dropping out of school their sophomore year, especially when it’s an out of state school… And I’ve been pursuing soccer my whole life too, so telling my soccer coach that “Hey, thanks for recruiting me all the way from Austin to the Sacramento area and spending money on me, but I’m no longer going to finish out the year with the team, and everything like that.” So that was probably the hardest conversation for sure, just because soccer had been a part of my life since I was very little. It was the one thing that I had poured my heart and soul into, and to have to move on from that was definitely difficult, but there’s a great quote that says, “Be willing to sacrifice who you are for who you want to be at any time,” and you have to be able to see that change is inevitable and change is often a good thing, so you just have to embrace it and step into it if it’s what your heart’s telling you to do.

So even though literally nobody believed in me for a six month period where I hadn’t really done any deals and I was not going to school anymore, and getting the parents behind everything was difficult, and even my roommates were judgmental because from their point of view, it was me saying that I was smarter than them and I didn’t need school and that they did… And that’s not actually what it was; it was just that I was pursuing something I was passionate about. Yeah, it was definitely one of the hardest six months of my life, having pretty much no one really believing me and even myself not believing my own self at times. So it definitely taught me a lot about life and a lot about sticking to your guns and believing in yourself, but it was definitely not an easy road for sure.

Theo Hicks: Did you leave college after you had done the 107-unit deal or, or was that six months the period in between the first deal and the second deal?

Kyle Marcotte: Well, I hadn’t officially unenrolled from college in that six month period, but I had stopped going to classes, because you didn’t have the time necessarily… Because I was going and speaking at meetups at night and researching all day, reaching out to brokers all day, going to meetings all day, and I’d fully committed myself to this, but I hadn’t officially enrolled because it was mid-quarter, and on UC system, it’s the quarters. So we have three little sections of school, and then summer, but I was in the middle of, I guess, the spring quarter, and I just decided to stop going, and that was definitely difficult. And then we had that 107-unit I got under contract, and I unenrolled or whatever, but I hadn’t closed it, because escrow takes a little bit of time; raising money and all the hiccups that can come there.

So it was definitely a risky decision, but it was just one of those things where I was just listening to my heart and everything felt right and I just decided that if I’m not going to do it now, then I’m never going to do it. People always say that they’re just waiting for the perfect time to do things, but there really is never a perfect time. The only time you can really do it is now. The longer you wait, the less likely it is that you’re going to actually take the jump.

Theo Hicks: Exactly. So you already mentioned that you were networking brokers to find these deals. So I’m assuming you found this deal through networking with brokers, correct?

Kyle Marcotte: Yes, that’s correct.

Theo Hicks: Okay. So what was that like, talking to brokers as a, at the time, 20-years-old?

Kyle Marcotte: It’s insanely difficult, and it’s also not only the brokers. I’d say the hardest part was the raising capital part. The brokers is over email correspondence, so they don’t necessarily ask your age off the bat, and if you’re providing really good underwriting back to all their deals, following up on a bi-weekly basis and putting them in a system to where you know that you’re going to be following up on them, you have a good CRM, so you know their daughter’s name and that they play soccer or that they are a Girl Scout, and you can follow up in a personal basis and make sure that you’re developing a relationship, they probably thought I was 30, 40 years old on the email, because it just didn’t come up in conversation until I had built a decent relationship with them, and then they were like, “Okay, I really don’t care how old you are. This correspondence has been very professional and official.”

But looking at someone in the face and asking them to invest in you and them seeing that you are, obviously, 20 years old, that is the hardest part for sure, and they’re like, “Have you ever done this before?” Obviously, you can’t say yes, because you’re 20. What — were you doing this at 16?” It’s not possible. So telling people that I’ve never done this before, but I was going to work extremely hard and put everything I had into this and then I was putting so much on the table, I think that people just decided to take a leap of faith with me, but overall they’re just super blessed that they decided to do that.

Theo Hicks: So that process for good underwriting, following up on a bi-weekly basis with personal notes… Is that something you read in the book, you learned naturally, did you get that through Jake & Gino? How did you come up with that process?

Kyle Marcotte: I think I read it in some book. I think it might have been maybe the [unintelligible [00:09:11].04] book and then the real estate agent guy from New York, I think it might have been that book. But I read just so many books that first year. Honestly, I probably read at least a book a week, including the Best Ever Syndication Book, and just a lot of different books that talk all about business relationships and how to do especially real estate, but also business in general, because I’ve found that it’s important to know business, not just real estate, and the relationship side of things and the systematic side of things as well is super important, and that’s from books like E-Myth teaching me not to be auto emailing those people, but try to set up some system. Yeah, I was really just reading a bunch of books and just copying what other people had already been successful with.

Theo Hicks: Let’s focus on the raising capital part. So you mentioned that you were putting a lot on the table. Can you be more specific about what you meant by that?

Kyle Marcotte: Yeah, putting a lot on the table means to me is I’m giving up my dream of playing soccer, I’m dropping out of a really good school, one of the best public schools in the country, and taking a complete risk on my future to pursue this thing. So I’m against the wall. It’s like, if this doesn’t succeed, then my life goes down the hill. So when people are in that position, we often show up and rise to the occasion. It’s just human nature. There’s no real option other than to succeed. So people can see that in your eyes and hear that in your voice when you’re talking to them too, because at that point, I was at a level of commitment that was pretty noticeable to other people when they were talking to me, and I think that that made up for the lack of experience; it was just that they were like, “Wow, this kid’s really going for it. Let’s give him a chance.” These people really do want to help other people out and I definitely knew what I was talking about as well. I was speaking the lingo and showing people models and showing people my detailed underwriting and also them coming to the table and saying how committed I was, it made up for the obvious age.

Theo Hicks: So how much money did you raise for this 107-unit deal?

Kyle Marcotte: I had partners on the deal, but I raised over half a million dollars, somewhere around $600,000.

Theo Hicks: Okay, how many investors was it?

Kyle Marcotte: It was about four investors.

Theo Hicks: Four investors. Do you mind telling us who those four investors were and how you found them?

Kyle Marcotte: Yeah, so the main investor was a guy named Lalo, who I met at a local meetup. I had slowly become an expert in the area just by positioning myself at a meetup. So I would go in and at first, I would just say, “I like this meetup. I found it this way,” and tell them a little bit about the marketing, and then I would go and I’d bring a friend and say that I’ve been telling people about it and that it’s a good meetup, and then they were like, “Okay, cool. This kid’s bringing me some value, bringing people to my meetup,” and then I’d come back again and I’d ask, “Hey, can I start checking people in and maybe scheduling some speakers for you in the future?” Just doing little odd jobs, helping clean up after the meetup, and the guy was like, “Yeah.” I did that for about six meetups, seven meetups, and then I’d just ask, “Hey, can I start speaking on stage maybe, 10, 15 minutes, just about multifamily?”, and then he says yes to that, and you start to get on stage and you’re holding a mic, and people take you more seriously, and that’s actually how I met Lalo, and then he introduced me to a couple of his friends from work, and then that snowballed, and that’s how I raised almost all the capital – from him and then through his connections, and they also ended up liking me as well.

Theo Hicks: That meetup strategy is very solid. I think that’s very practical advice for people who want to raise capital and don’t have a lot of experience. So thank you for sharing that. So before we get to the money question, can you give us the numbers and some of the details on that 107-unit deal? So you’ve already talked about how you found it – maybe go through that again, what the purchase price was, what the business plan is, and then how it’s doing today, and when you bought it and things like that?

Kyle Marcotte: Yeah, of course. So the purchase price was four and a half million, $4.55 million, to be exact. It’s about 42k per door, and the business plan was really that we had actually bought it thinking it was 106-units, but we found a down unit fully plumbed, just had a bunch of storage in it. We quickly moved the storage out and converted the unit back to being operational and that adds $12,000 NOI on an annual basis, and then on a five cap, that’s quite a bit of value on the back end. So that was a home run day one, and then another big business plan – the main thing, the reason we bought it was because the payroll expense was almost double the market because the manager on site was actually the owner’s relative. So it was somewhat of a charity case and he was getting paid a decent salary to be an onsite manager, double the market rate, and we were like, “Okay, we can cut payroll day one,” which is amazing for adding quite a bit of value there, and then the down unit was just icing on top. But right now, it’s doing pretty well. We’re thinking about either doing a refinance or just holding it through the five-year term, but it’s pretty much stabilized at this point and we’ve been providing the preferred rate of return to our investors and things have been going pretty smoothly.

Theo Hicks: What was the compensation structure you offered to those four investors?

Kyle Marcotte: So there was more than those four, because my partner Eli also helped raise a little bit of money as well, but the structure was 70-30 split with an 8% preferred rate of return, with 70 in favor of the LP.

Theo Hicks: Do you mind just quickly telling us about your business partner, how you found him, and then maybe how you two split the general partner duties?

Kyle Marcotte: So me and Eli actually met at a Jake & Gino event in Jacksonville, and there’s a longer story behind how I actually afforded that plane ticket to Jacksonville, but long story short is that I actually applied for jobs in my college town. The only person hiring was an elderly living facility and I had the 6 am shift to noon shift, where you’re waking up the tenants who live there and getting them ready for the day and that means showering and everything like that. So it was definitely a rough job, but it was the only one who would hire and I had to make the money to make this plane ticket in a one and a half month period, and I ended up getting a red-eye. I think it stopped in Dallas, Charlotte, and then Jacksonville finally three hours before the event that morning, and I ended up meeting Eli there. We got to know each other a little bit better, and then about a month later, he was like, “Hey, I got this deal in Louisville. I think it’s gonna be huge. Could you raise any capital for it?”, and I just said yes before I knew that I could, and committed, and then figured it out, and the rest is history.

Theo Hicks: Last question before the money question, I promise. What’s your structure with Eli? How does the compensation break down? Because it sounds like you’re specifically raising capital and he is doing everything else?

Kyle Marcotte: He didn’t do everything else, but he definitely did the majority of the underwriting and some of the financing, things like that. This is actually where I learned the majority of the process-based tasks as far as building your team around it and securing financing and things like that. But we split the GP up where capital raise typically gets about 30% of the GP and then the asset manager partner gets around 50%, and then you have some leftover percentage for the KP, which is people who are going to sign on the loan and also put up risk capital; I think that’s something that you guys are doing. The GP is not putting up risk capital. Risk capital, meaning money you’re not going to get back if the deal does not close. So that’s inspection costs, lawyer fees and some other things like that. So we actually had an LP come and put that in. So we gave him extra GP share, I think it was about 10% of the GP just for signing on the loan and putting up some risk capital.

Theo Hicks: Okay, thanks for sharing that. Alright Kyle, what is your best real estate investing advice ever? Let’s answer it for people who want to get started in apartment syndication so they’re more specifically raising money with really no experience doing it.

Kyle Marcotte: I think the best advice I have is either that meetup strategy or just getting on social media and posting as much as you possibly can. I personally post almost ten times a day on LinkedIn, Instagram and Facebook. I think it’s just really important to establish yourself as an expert in the industry. So in real life, the meetup strategy, I laid it out earlier in the episode, but it’s first you come to the meetup, you’ve got nothing to give other than telling that guy how you found this meetup, because that gives him really valuable feedback on his marketing, and where he can start spending more money and less money. Then you bring a friend the second time, which shows him that you’re talking positively about his meetup in public, you’re bringing people to it, you’re liaisoning people to his meetup that makes him feel like you’re adding value again, and then the third time is just picking up all the odd jobs that I’m sure this guy does not what to do, which is scheduling people, sending out the weekly emails, putting people’s name tags on and just basic things like that, check-in… And then once you start establishing that relationship with the guy, you’re adding value over time, you can start to build up the goodwill to ask the big question, which is, “Hey, can I speak for just 10 to 15 minutes?” Don’t say, “Hey, I want the whole meetup. Give me the whole stage for an hour.” No, just ask for 10, 15 minutes, establish yourself as an expert, and if you can’t do that, because you live in a place where meetups don’t exist, either start your own or focus on social media, which would be LinkedIn, for sure, is huge right now… And you’ve got to post more than once a day. I know it’s really difficult, but if you do it for three weeks, it’ll become supernatural, and you’ll stop questioning if you’re capable of posting. You’ll just start doing it automatically, and then over time, people start to take notice and immediately just associate you as an expert in the space.

Theo Hicks: Yeah, that meetup strategy is essentially how I got my job working for Joe about four and a half years ago. So it definitely works. If you want to accomplish at a meetup group, they’re great places to find jobs, find partners, find deals, things like that. Alright Kyle, you ready for the Best Ever lightning round?

Kyle Marcotte: Yeah, let’s do it.

Break [00:17:18]:04] to [00:18:31]:03]

Theo Hicks: What is the best ever book you’ve recently read?

Kyle Marcotte: The best book I’ve read right now would probably be DotCom Secrets. It’s a book about sales funnel and marketing copy and things like that. It’s been huge for me and my business for sure.

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

Kyle Marcotte: I would probably just go out and try to get another deal and make it happen again. If it was to collapse due to pricing, I would assume that the rest of the market would be rather cheap, and I would try to galvanize people to invest in a new deal and try to offset any of the loss that we got from the 107, because I would be assuming that that would mean the market would go down and our price point would no longer make sense, and we wouldn’t be able to meet our debt coverage. Honestly, the best thing to do would be counterintuitive, but it would be to buy more, and I think I would try to go and find another deal, and hopefully make some asymmetric returns on that and make people whole again.

Theo Hicks: So this question’s besides your first deal and your last deal, what is your best ever deal? But you’ve done two, so you can’t do your first or your last… So just tell us a little bit about that 12-unit deal.

Kyle Marcotte: So the 12-unit deal was a group deal with some students in the Jake & Gino community, and we did a 12-unit in Austell, Georgia, which is outside of Atlanta. It was another home run, easy deal. The only thing we’ve had problems with is the management, but we’ve recently remedied that problem, and we’re deciding to maybe demolish the single-family home that’s actually on the property as well and maybe selling that land or doing something with that as well.

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

Kyle Marcotte: Me personally, I go to Bible study on Friday mornings and just giving back to that group of guys and everybody just coming together and talking about our faith and grounding ourselves in real reality in real truth, which is that we’re not as big as we think we are and that maybe we should take our lives a little bit less seriously. So on Friday mornings, I like to come back to that group of guys and just to feel grounded with them.

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

Kyle Marcotte: Probably kylemarcotte.com, because you have all my resources there and some links to my social media. But yeah, kylemarcotte.com is definitely the best place to reach me.

Theo Hicks: Well Kyle, thanks again for joining us today; a very inspirational conversation. It’s always great to hear about younger people getting into real estate. I got into real estate when I was about 23, I think; so similar to you. So props to you for getting into real estate. You talked about the hardest part about quitting and leaving school was getting a lot of pushback from your parents, even some of your roommates were pushing back, having to tell your soccer coach that “Hey, you brought me out here, but I’m leaving to go on and do things.” So everyone listening who’s quit their job can definitely relate with going through that… But you came out the other side and did the 107-unit deal.

We talked about how you were able to network with brokers, which was easier than raising capital because networking with brokers was more virtual, and when you actually met them in person, you’ve done their legwork where they were going to take you serious, regardless of how old you were. So specifically, you provided a good underwriting feedback on their deals, you had a good system that you followed up on a biweekly basis, with personal information about them, about their lives or family, and then all the processes that you used. You read a book per week and just tried to copy what other people are doing.

We talked about how you were able to raise capital, and it really came down to you putting a lot on the table and burning all bridges behind you and needing to succeed, and the people took the leap of faith and invested with you, and it’s working out for them and as well as for you.

You said that you found the main investor at one of the meetup group, and you walked us through your meetup strategy, which is step one, to show up; step two, to bring a person to the meetup to add value that way; and then thirdly, to do some of the smaller tasks that they probably don’t wanna do themselves – check people in, schedule speakers, clean up afterwards, and then eventually you took it a step further, which was to asked to speak on stage for 10 to 15 minutes about multifamily.

We talked about your 107-unit deal, $4.5 million deal. The two biggest value add plays was finding an extra unit that was down, and then you converted it to an actual unit and added about $12,000 to the net operating income, and then the payroll expense was abnormally high because of a relative situation. And then you met your partner Eli at Jake & Gino event. You talked about how you paid for your ticket by working at an assisted living facility for about a few months, getting up super early and doing some tasks I’m sure you didn’t want to do, but you grinded it out, got that ticket, met your partner. He found a deal, asked you to raise capital for it. The split was 30% to you, 50% to him, and then you had some allocation left over for the KP and the person who paid for the upfront costs.

Lastly, your best ever advice besides the meetup strategy already mentioned was to get on social media and post as much as you can. You post ten times a day to LinkedIn, Facebook and I think you said Instagram, and your advice on how to get that as a routine is you do it for three weeks and it’ll become second nature, it’ll become easy. So post as much as you can on social media to get to position yourself as an expert, and then follow that meetup strategy as well. So thanks again, Kyle, for joining us today. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

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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JF2176: Developing Easier Ways To Invest With Jacob Blackett

Jacob is the founder of SyndicationPro and Holdfolio. He started investing in 2010 while in college and after some time decided to start companies that would help make investing easier, which is why he developed his two companies. Jacob talks about his second multifamily deal, a  50-unit that ended up making cash flow tight due to some unforeseen repairs.

Jacob Blackett Real Estate Background:

  • Founder of SyndicationPro and Holdfolio
  • Started investing in 2010
  • Holdfolio currently owns and manages 1,221 units across the midwest and southeast
  • Based in Columbus, Ohio
  • Say hi to him at: www.holdfolio.com 

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Best Ever Tweet:

“I love leveraging technology to make investing easier” – Jacob Blackett


TRANSCRIPTION

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

Jacob Blackett: I am doing well, Joe. Thank you.

Joe Fairless: Yes, my pleasure and glad to hear that. A little bit about Jacob – he’s the founder of SyndicationPro and HoldFolio. He started investing in 2010. HoldFolio currently owns and manages 1,221 units across the Midwest and the Southeast. Company’s based in Indianapolis, he’s based here in Columbus, Ohio. So with that being said, Jacob, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Jacob Blackett: Sure, Joe. So my background, as you mentioned, goes back to 2010, when I started doing some fix and flips back in college. I got the bug then and decided to go ahead and get right into fix and flips and wholesales in 2012, and just got a nice wholesale fix and flip model going and started holding properties, and then learned about multifamily and jumped into that realm. Currently, I own and operate HoldFolio. We purchase real estate, we do syndications, we create partnerships to profit from real estate, and then all of this also, we took the approach of sourcing money online starting back in 2013, 2014, after the Jobs Act was passed and loosened up; some of the first real estate crowdfunding sites came online, and so with that experience of managing all of this online, that’s where SyndicationPro, the second company that I own and manage, was born. So we license software to colleagues and friends and people all over the country and all over the world to help them manage their syndication business online.

Joe Fairless: Okay, elaborate more on that, will you? Is it a competitor to, say, IMS or Groundbreaker and companies like that, or is it something else?

Jacob Blackett: It does have an investor portal built in. So that’s a big piece to managing a syndication business, is making sure that you’re providing a service to your investors and you’re also streamlining your back office. So there’s a lot of automation and tools and streamline processes that are built in. So yeah, you’d consider IMS, Juniper Square as our competitors, certainly.

Joe Fairless: Okay. So you said there’s a component of that. Is there something else that SyndicationPro does that is not typical of a competitor?

Jacob Blackett: Yeah, we take a pretty holistic approach. So that starts on the front end when someone hears about Joe Fairless and thinks about potentially investing with you – how do we capture their details? How do we intrigue them to become a lead, a prospect to potentially invest in you? So that’s built into the software, being able to register and capture leads from your website and being able to facilitate those relationships. So how do we create automation so that when they register, they can set up a call with your team, and how do we bridge those gaps and track communication? So that’s the front end of it, and then of course, through that investment cycle, you start getting into asset management and just other parts of the business like underwriting. Those features are to come on the underwriting side, but just a bigger holistic approach.

Joe Fairless: Okay. Your goal is to have the all-encompassing software for doing syndications, versus a portal or an asset management software platform. It’s the whole kit and caboodle.

Jacob Blackett: Yeah, if we can integrate more tools and more functions of syndication business into one platform, I think that just drives bottom-line value for our users and for our business. So that’s our approach, our vision and what we’ve been delivering on.

Joe Fairless: Okay, and with SyndicationPro, when did you launch it?

Jacob Blackett: We launched a beta version of SyndicationPro in late 2018, and then we launched our current version in late 2019, in October of 2019.

Joe Fairless: What are the main differences between the two versions?

Jacob Blackett: So the first version was honestly, just more- -we built it out on WordPress, it was really just to get it into the hands of people and confirm. I was getting the request from colleagues in terms of how to replicate HoldFolio’s success. We’ve syndicated 18 individual deals over the last handful of years with just about 600 individual investments, and we don’t have a large investment management team. We do all of that through the software.

So that initial beta version was really just get the core pieces into the puzzle, get it in the hands of users, confirm that it’s different, it’s providing a unique service, and then once we got that good feedback and validated, then we doubled down. So the current software is built on JavaScript. It’s a scalable, institutional quality software. So I took all those next-level steps.

Joe Fairless: Let’s talk about HoldFolio and SyndicationPro. If you had a good thing going with HoldFolio, why shift your focus to another venture?

Jacob Blackett: Well, I think you can agree with me on this – the beauty about real estate is you put in the front end work to identify those assets, especially buy and hold multifamily, and you can support an A+ team to operate the business. So HoldFolio is in a place now where it’s more of a mature business model. We continue to acquire properties. We’ve acquired two properties so far this year; bit of a pause in the last 60 days. I’m sure you’ve been in the same boat there along with everyone else, but HoldFolio continues to operate. It’s a beautiful business. We have scale, it provides great income, but knowing that– really what happened, Joe, is in early 2018, I went ahead and demoed a couple of investor portal options, because when I started HoldFolio, there was no options. In 2013, 2014, it just didn’t exist; investor portal didn’t exist, and so I had no choice but to build my own website and build that out myself. So I was demoing in early 2018 in order to consider getting on to one of these investor portals, and what I saw was, unfortunately, not a solution that would work for me just because of design, bulkiness, complicated and expensive. So that’s really where everything came together and why we launched SyndicationPro. So yes, following a desire, I’ve got a knack, and I just love leveraging technology, and so HoldFolio is in a great place, and now it’s really having fun with a new business. I’m sure that you relate to that, Joe, with the different verticals that you provide a lot of value in the world too.

Joe Fairless: It makes sense, and I’d love to learn more about your start with HoldFolio and how you got to this point. With HoldFolio, you’ve got 1,221 units in the Midwest and the Southeast. Now, are those properties that you have direct ownership in?

Jacob Blackett: Oh, yeah. 15 of our 18 partnerships, we’re the only sponsor on those deals. So we’re fully vertically integrated, we take a very hands-on approach. We are licensed contractors, property management, real estate brokerage, we manage most of our properties ourselves, and then three of our partnerships, we partnered with other sponsors on as well. Especially as we got outside the Midwest, we leveraged other people who had those vertical integrations to get exposure to different markets.

Joe Fairless: So what was the last property that you purchased?

Jacob Blackett: The most recent property was in South Carolina, actually Columbia.

Joe Fairless: Will you tell us about it.

Jacob Blackett: Yeah, it was a 226 unit, and we partnered with a group out of New York who has other properties in Columbia. So the property is considered a B+ type asset. It was built in the late 90s – ’98 was the year built on it – and it’s in an area of direct growth. A little bit more suburban, a little bit more affluent area where the comps are newer-built properties, so it was the start out there in that area,. So what it presented was the opportunity to go ahead and provide the next level of renovations in order to make those units more comparable to some of those newer builds in the area, and a nice little value add. So a really high occupancy, spending roughly $8,500 per unit on renovations, doing things like refacing cabinetry, hardware, granite countertops, putting nest thermostats and bringing up the common areas to today’s standard to, in the end of the day, reposition a B+ asset to probably what you’d consider as an A-.

Joe Fairless: What’s been the most challenging deal?

Jacob Blackett: That’s a good question. So I’ve done hundreds of single-family home deals, but I’ll focus on multifamily. So probably the most challenging multifamily deal we’ve done was our second multifamily we purchased. It was a 50-unit.

Joe Fairless: Who’s we?

Jacob Blackett: HopeFolio.

Joe Fairless: HopeFolio, okay. Got it.

Jacob Blackett: Yeah, yeah, always talking about it as a team. So yeah, we purchased that property from an owner who had owned it for about 30 years, and it needed some help. It had deferred maintenance, it was built in the early 70s, and it was pretty much your classic value add deal. Bought a C Class property looking to reposition it to C+, and our biggest mistake on that is that we went and scoped all the units and put together our budget to get through the improvements that we planned, but we didn’t consider that for the first 18 months of owning that property we were going to have considerably higher repairs and maintenance. So we went through with our improvements on the units just fine, but we didn’t have enough cash to really take care of the other things going on at that property, and so it just made cash flow tight for the first 12 to 18 months.

Joe Fairless: And how did you eventually navigate that?

Jacob Blackett:  It’s tough. It’s your second multifamily deal, you’re still learning in certain senses… So we just stayed on top of things, we looked at every single expense, every single month and categorized it… We reached into our network and anytime you can get some feedback from experienced colleagues, and  that helped them… It was really just the function of the previous owner putting bandaids on things for 30 years, just not dealing with the plumbing stacks leaking, just patching it, not replacing the plumbing stack and the toilets. If everything’s good, you could replace a toilet for a couple of hundred dollars, but if the sub-flooring is completely caved in and plumbing is so old that you can’t turn on and off the valves and they just break, all of that just starts adding up a lot. So we wrote it out, it hindered our cash flow, but in the end, we were able to sell the property and return principal plus profits to everyone. So for a bad deal, it wasn’t so bad, but it was certainly stressful as we were doing it.

Joe Fairless:  What deal have you made the most amount of money on?

Jacob Blackett: Oh, man. Probably my shiniest deals probably came in doing fix and flips in some gentrifying areas in Indianapolis where in 2013 through 2015 we were buying homes for 10 to 20 grand, we were completely renovating them for $80,000 to $100,000. These are older homes, older vintage… And we’re selling them in the neighborhood of $200,000 to $280,000 dollars. So it was a good couple of year period.

Joe Fairless: What years?

Jacob Blackett: It was in 2013 through 2015.

Joe Fairless: What area of Indy?

Jacob Blackett: In Fountain Square.

Joe Fairless: Okay.

Jacob Blackett: There’s dozens of homes in that area that we had the pleasure of getting in, and you strip it down to just the sticks. You can see from the backyard to the front yard, and you just come in all-new, that new layout, and so that was fun and some crazy numbers.

Joe Fairless: Do you remember the deal when the gravy train stopped on that area, and you’re like, “Oh wait, I just put in 100, and it’s not getting the price that it’s been getting for last two years”?

Jacob Blackett: It was interesting, because I didn’t stay in it long enough to get to that point, and that neighborhood is still cruising along, although people are paying 80 to 120 grand.

Joe Fairless: Instead of 10 to 20.

Jacob Blackett: Yeah, yeah, yeah. So we wrote it out summer over summer, year over year, and we started selling these things for 160 grand, and when we exited, we were getting close to the 300 grand mark on those exits, and of course, we slowly started paying more and more. But quite honestly, it is right about when we started getting traction with syndications in late 2015, that we said, “You know what? The fix and flips are fun, but they’re risky, they’re super transactional. Every property you buy, you sell, you’ve got to go find another one.” So we were looking to build a portfolio, long-term, buy and hold. So we just washed our hands of the fix and flips and focused on rentals.

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

Jacob Blackett: I would say for anyone who is getting started or entering into a new investment or something new, leverage existing people. So I made that mistake early on with my first couple of fix and flips. I was trying to do everything myself, when I could have simply tried to find a deal for an existing person or JV with someone who’s already doing flips. So just find someone who’s doing what you’re doing, who’s doing it successfully, especially if you’re just trying to get started, and see where you can fit into that puzzle, even if it just means providing some capital and having someone who’s agreement is to let you be more involved.

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

Jacob Blackett: Sure, Joe.

Break [00:17:32]:09] to [00:18:35]:03]

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

Jacob Blackett: Quite honestly, I have my first baby at home, so I haven’t been–

Joe Fairless: Congratulations.

Jacob Blackett: Thank you very much. But I will say one book that I come back to continuously is The Four Agreements. It’s an amazing book to just stay on track and have a really good mindset and outlook on life.

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

Jacob Blackett: Big Brothers, Big Sisters.

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

Jacob Blackett: They can visit syndicationpro.com. Our contact information is on there.

Joe Fairless: Jacob, thanks so much for being on the show. I enjoyed our conversation about HoldFolio, how you were getting some grand slams in Indianapolis on the single-family homes, also the challenging projects that you’ve worked on, and then SyndicationPro too, and why you created it and your focus now, in addition to HoldFolio. I enjoyed our conversation. Thanks so much for being on the show. I hope you have the best ever day, and we’ll talk to you again soon.

Jacob Blackett: Thanks a lot, Joe. Thanks, everyone.

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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JF2174: Working Harder With Gino Barbaro

Gino is the co-founder of Jake & Gino a multifamily real estate education company. He has also written three best-selling books and has a passion for educating others to help them be successful. He currently owns 1500 multifamily units and shares how having a growth mindset has helped him continue to grow at a fast pace. 

Gino Barbaro Real Estate Background:

  • Cofounder of Jake & Gino, a multifamily real estate education company
  • Best selling author of three books: Wheelbarrow Profits, The Honey Bee and Family, Food and the Friars
  • Portfolio consist of 1500 multifamily units
  • Based in St. Augustine, FL
  • Say hi to him at: www.jakeandgino.com
  • Best Ever Book: Pitch Anything Oren Klaf

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Education times action equals results” – Gino Barbaro


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks and today we’re speaking with Gino Barbaro. Gino, how are you doing today?

Gino Barbaro: I’m doing good, Theo. Thanks for having me on.

Theo Hicks: Yep, absolutely. Thank you for joining us. So Gino is the co-founder of Jake & Gino, a multifamily real estate education company; he’s the best selling author of three books, Wheelbarrow Profits, The Honeybee and Family and Food and the Friars. His portfolio consists of 1,500 multifamily units, he’s based in St. Augustine, Florida, and you can say hi to him at jakeandgino.com. So Gino, do you mind telling us a little bit more about your background and then what you’re focused on today?

Gino Barbaro: Sure, Theo. I came up in the restaurant world, bought a restaurant eons ago, it feels like, over 20 years ago, with the family up in New York. I loved it for the first 10, 15 years; it was great. Great recession comes along and everything changes, and I just said to myself, “I need to be doing something different.” I was already getting into real estate, buying little fourplexes, I got into mixed-use buildings, I got into self-storage, and I had failed at all those, because I didn’t take the proper education. I was taking massive action… And 2009 comes along, and I meet Jake thankfully, and he is a pharmaceutical rep at our restaurant, getting drug orders to sell to the doctor’s offices, and he’s doing these pitches, he’s trying to sell them pharmaceuticals. And for me, I loved him because he worked really hard, he was motivated, he was a great sales guy and I just knew that we’d click. I knew that one thing if you know anything about real estate. So I just kept the relationship going and in 2011, he moved down to Knoxville, Tennessee. I had no idea where Knoxville was. All I knew is I whipped out the laptop, started looking at deals down there and I’m like, “Wow, these deals make sense as opposed to New York.” So we created that relationship, and 18 months after he moved – it took us 18 months, Theo – we got our first deal, a little 25-unit complex. From there three months after that, we got our second deal, and then it just kept snowballing.

So for Jake and I, we’re pretty fortunate. We had timed the market– we just got lucky. We started buying where we could actually refinance the proceeds out and put it into the next deal. So the first 1000 units, we were able to buy ourselves – just me, Jake and a partner, Mike. And then after 1000 units, we’re like, “You know what, everyone’s out there syndicating deals, raising money, let’s learn it.” So for me, it’s the mantra ‘education times action equals results’. I wanted to get educated and I started learning the syndication model, and then ultimately, you learn, you do and you teach. We did our first syndication around 18 months ago, and the next 500 units was from syndication. So that’s what we’re focusing on now; we’re focusing on raising capital. We’ll still do deals internally, depending on the deal size, the deal structure, where it is, and we’re looking to start a fund. That’s our main goal for Q3 and Q4 of this year.

Theo Hicks: Perfect. Thanks for sharing that. I definitely wanna talk about the more recent syndication side, but you mentioned education multiple times during your background; obviously, you’ve written books. You’re a co-founder of a real estate education company, and then you also mentioned that it took you 18 months to do your first deal and that when you met Jake, you didn’t know anything about real estate. So do you mind just telling us what was going during those 18 months? Why did it take so long? Why did you decide to focus on education, as opposed to just other [unintelligible [00:05:53].20] who just do it and figure it out?

Gino Barbaro: Great question, Theo. The last 18 months, Jake and I have spent over $300,000 on our education, on consulting. You can get to a certain point in life and that’s where you stop, and you’re going to continue to need to grow. So when you’re buying your first deal, it’s different than when you’re buying your fifth deal. Things change, sizes change, asset class change, the amount of capital you need to raise changes. So you’re in constant growth mode, and if you’re not growing, you’re dying, and the only way you grow is by constantly educating yourself.

I challenge everyone out there to read the book Mindset by Carol Dweck. What I love about it is you need to have a growth mindset, you need to be constantly growing. If you have a fixed mindset where you’re like, “I know everything. I can do it myself,” well, you know what? Chances are, you’re not going to do it yourself, you’re not going to progress. You can, but it’s going to be a lot slower, you’re gonna make a lot more mistakes, and it’s gonna be a lot more painful, and that’s why it took Jake and I 18 months to get our first deal. We didn’t have a community like Jake and Gino, we didn’t have that proper education. I really started flourishing in real estate, believe it or not, Theo, when I went to life coaching school and I became a certified life coach. And I love coaching because one of the things it taught me was to ask the right questions. I wasn’t asking the right questions and I didn’t have clarity in my life. Why was I doing multifamily? Everyone out there’s gonna say, “Yeah, I just want to make some passive income.” That’s not the real reason for me, ultimately. For me, ultimately, I did multifamily for a couple of reasons. I was able to leave New York, move down to Florida, I could do it anywhere I wanted to, I was able to create multiple businesses from multifamily and I was able to scale. So once I really started working on myself, on my personal development and on my mindset, I was able to transcend and remove a lot of those limiting beliefs that I had. It takes money to make money, money is scarce; all those limiting beliefs that I had. If you can believe you can do something, then you know what – you’re going to become better at that skill itself, you’re going to learn it better and you’re going to take more action.

So for me, that first deal took 18 months because we had no credibility. No one really believed in us. I don’t even think we believed in ourselves. We didn’t have the proper training. We didn’t have the proper ability to network with the brokers. We thought that the brokers were there to serve us. No, the brokers have the deals. We have to treat the brokers really well; we’re the ones who are selling ourselves to the brokers. That whole mind shift took a little while for us. When we finally realized that, that’s when the deals started coming to us.

Theo Hicks: Okay, it’s the book Mindset. My wife had to read that for work. It was maybe, I don’t know, three or four months ago.

Gino Barbaro: What’d she think about it?

Theo Hicks: She said a lot of things you’re talking about. All she was talking about was the growth mindset versus a fixed mindset for literally every single thing that she saw.

Gino Barbaro: Theo, do you know what’s amazing about it? For me, I’m a parent, I have six kids, and we homeschool our kids right now; not because we have to. We’ve been homeschooling for over 20 years. And for me, the way we teach our kids – and this is a way for everyone out there – if we tell our kids that yeah, you’re really smart, that’s one thing. When they get challenged in life and they can’t figure it out, they’re gonna fall back to the fixed mindset by saying, “You know what, I’m smart. I can’t figure it out. I’m just going to quit.” But when you teach your kids, “Hey Theo, you really gotta work hard. If you want something, it takes a lot of dedication and a lot of hard work, and if you came in third place, it’s okay.” My kids call second place the first loser, and it’s okay, because you didn’t win, you came in second place; there’s nothing wrong with that. If you want to get into first place, you just need to work harder, and the growth mindset is all about working harder, working harder. If we can teach our kids that, so when they come up against a challenge and they have the clarity, and they have the hard work mind ethic and not quitting up, patience and persistence and keep on going, I think that’s one of the best things that we can teach kids with education. That’s what really was stressed in that book Mindset, and for me, it’s been a game-changer as far as relating with my kids and helping the students in the community by saying, “There’s a lot of hard work involved. We’re all smart. There’s a lot of really smart people out there. Multifamily real estate is not rocket science, but you do need to work really hard and you need to create and learn certain skills.”

Theo Hicks: So one of those skills you mentioned, and you mentioned that you didn’t know this going in, and that you eventually learned it, was how to properly build a relationship with brokers, and that originally you thought that they were there to serve you, but then you realized it’s the opposite… And obviously brokers are great sources for deals, and the better relationship you have with them, the more likely it is that they’re going to send you an off-market deal or send you a deal before other people see it. So from your experience, what are some of the top two or three things that people need to do right away in order to build that type of relationship with the broker, on top of obviously realizing that they’re not there to serve you?

Gino Barbaro: That’s a great question. Let me preface that by saying, we talk about the three pillars of real estate. We talked about market cycle, we talk about debt, and then we talk about the exit strategy. The first thing you need to realize is the market cycle. When I got into it back in 2013, 2014, early 2000s, the market cycle was definitely a buyer’s market cycle. So brokers were a lot hungrier back then than they were in the last couple of years. So you have to figure out what part of the market cycle is.

Right now, all of a sudden, the light switch has been just slammed back down and hey, it’s a buyer’s market again. So we have to figure that out. But with brokers, you don’t want to become their friends. They don’t want to take you out for a cup of coffee. They want you to be able to close the deal, they want you to know what cap rates are, they want you to be educated on it. They don’t want you to waste their time; that’s the first thing. I think the second thing is if you’re going to be serious and you’re gonna be talking to a broker, opt into their list. Start opting into their lists and start receiving their offering memorandums, and what I like to say is you do diligence on the market, and start going and doing some property tours with them; that’s what they want. They want to see that you’re serious about the property, they want to see that you’re serious about taking the deal down; don’t waste their time. Now for us in the beginning, Jake was a sales guy. He was always thinking about that you have to sell the broker, and you really do. You have to sell the broker on what your credibility is, on what you can do. So we created something called a Credibility Book, which is a business plan laid out with our strategy, laid out with why we invest in a certain market, laid out with how we get our money back to our investors, laid out with our case studies… So when a broker sees it, he sees that we’re serious. You have the website, you have the credibility book and you’re able to speak to them, I think, intelligently and you show to them that you’re not going to waste their time, and always be on top of mind to them.

I would always say to them, “Get their phone number, start texting them every three or four weeks, just checking in, seeing how things are going. Not always pestering about the deal, but try to build a relationship with them,” because real estate, what it comes down to– I think every business, but especially real estate, it’s really about your network and it’s really about networking with people in the business; and the bigger your network grows, the more brokers you know, the more possibility of a deal landing on your desk.

Theo Hicks: Is that credibility book like a PDF or PowerPoint presentation?

Gino Barbaro: Yeah, what we do is you can go to jakeandgino.com/honeybee, and on that page, you’ll see a copy of our credibility book. It’s a PDF document. If you want to print it out, ours is about 20 pages long. When you first start out, it should be seven 7, 8, 10 pages. You want to really focus on what market you’re in. So we’re in Knoxville; you want to talk about why Knoxville, maybe talk about the job growth, the population growth, the number of employers. Really put some nice pictures in there and not too word-heavy because people are more visual. Then you want to talk about what your strategies are. So we’ve done owner financing, we’ve done refi roles, we’ve also raised capital. So talk what your strategy is; then if you’ve done a couple of deals, put your deals in the portfolio. Also, whether it’s are you a full-time investor, are you a W2, give your bio in the book, and then also talk about the case studies.

So on all our various deals – we’ve done different deals, whether we’ve owner financed them, we’ve raised NOI – talk about that. And then finally, ultimately, just give them your blueprint, your roadmap of what you’re going to do with their money, how you’re getting their money back.

Theo Hicks: Perfect. Okay, let’s transition into syndication now. So obviously, your situation is a little bit different because a lot of people want to start raising money right away. You already had 1000 units, and then moved on to syndicating afterwards. So let me ask you like this – if you could go back, would you still have waited until you had done this many deals before starting syndication, or do you think you’d have been capable of doing it at 500 units or 200 units, 100 units, or do you think you really needed to wait until you did?

Gino Barbaro: That’s a great question. I don’t know the answer. I probably would have started syndicating sooner, but limiting beliefs of “Wow, I’m taking investor money, I’m a fiduciary, I’m not sure if I can do that.” I think part of it goes back to the three pillars of real estate; it’s the market cycle. At the time the market cycle when I started, syndication wasn’t a big thing. The Jobs Act that just passed, it was a little bit more regulatory, it was a little bit harder, and the deals out there – they were great to syndicate, but I just said, “Jake, let’s start small. We want equity in these deals. We don’t want to bring investors on.”

We should have probably done it sooner, but I wasn’t ready. So for me, that part of the market cycle we’re in right now, it may be a little bit harder to syndicate, only because you have to come up with so much reserves for your financing. Is that going to last forever? I don’t think so. Probably, the next 6 to 12 months Fannie and Freddie will start loosening up. That’s why you don’t know what you don’t know, that’s why it’s important. I keep stressing that word education. If I’d known about syndication when I started out with Jake, maybe I would have gotten on to it sooner. I started listening to the podcasts, I started talking to other syndicators, I met Joe Fairless on the journey around ’13, ’14 and we had started discussing that… But for us, it’s just one tool in the toolbox. I think in the next 6 to 12 months, the big opportunities are going to be owner financing and community banks; that’s how we started out. Now for me, like I said, I had that limiting belief. I probably should have started sooner, but it’s okay. I’m here where I am right now, and I’m pretty happy where I am right now, and it’s just like we said, one tool in the toolbox and we will continue to syndicate.

Theo Hicks: Perfect. Thank you for sharing that. Once you were ready to raise money, you guys decided to go ahead were like, “Alright, we’re gonna do a syndication”, do you mind just walking us through what you started doing? Did you send out an email blast saying, “Hey, we’re raising money now. Come on and join us,” or what was your exact step-by-step process for raising money for that first deal?

Gino Barbaro: Well, I think Joe Fairless has got a great blueprint, and I think I must have followed it not even thinking about it. We’re all a brand out there, we all have to create our own brands, and we were Jake & Gino. We started the education just because we wanted to write a book, and then from writing the book, Jake says to me, having the great partner that he is, “Let’s start a podcast.” I’m like, “Okay.” I think next month  we’ve been doing the show for five years. So we just started the podcast and from there, people started listening to it every day, you start creating that brand, you start creating that likeness from people. They get to know you, like you and trust you, and in 2017, we had our first live event. First, live event, we started signing up investors. People start trusting you, they start looking at you, they’re like, “You know what? These guys have got credibility.”

So for us, I think in the beginning, just creating a brand, start putting things on paper, start having the credibility book, start getting clear on why you’re syndicating. What is the reason why you’re syndicating? Are you doing it because you want to hold these deals long term? Are you doing it because you want to get into it three to five years? You have to figure out what your model is, and I think ultimately, start the brand, start a podcast, start writing blogs, start doing videos on YouTube, start getting your name out there and start creating a list of investors… Because unfortunately, most people, what they do is they’re like, “You know what? I’m going to go look for the deal, and then I’m going to look for the money,” and if you do that, you get the deal, and you will not be able to find the money, because you need to create what we call a substantive relationship, and I’ve been doing that all along for the first 18 months before we did our first syndication.

And for us, another reason why we waited, we had so many irons in the fire, as they like to say. We had the property management company, we were managing our properties day-to-day, we had the education company. We didn’t have time to get on phone calls and start talking to investors. What we ended up doing is we ended up creating ramp partners, brought on a fourth partner, and he was taking care of all the investor calls, he was taking care of all the emails… Because we’d grown our list of over 600 investors and to call and speak to every single one of them is a grind. It’s grueling. And we’re running other facets of the business. That’s probably one of the other reasons why we had taken a little while to start syndication, because when you have multiple businesses going on, you need to know where to focus on and that wasn’t our focus. But when you start running out of capital, that syndication model looks really great. So for us, really, Theo – start creating your brand, start learning, doing and then ultimately teaching it to others. You’ll have the credibility, you’ll be positioning yourself as an expert, people will see you as an expert, and then start trying to build up your list and start connecting with all those investors out there.

Theo Hicks: Okay Gino, besides everything else you’ve given so far, what is your best real estate in investing advice ever?

Gino Barbaro: Wow, the best real estate investing advice ever… For me, I think the two words ‘due diligence’ are probably the two most important words in life. When you’re doing something, make sure that you’ve done your due diligence, and all the mistakes that we’ve done in our deals, especially my first couple of deals – I didn’t know what due diligence was. When you get into a property, you take the deal down, you’re looking at a deal, you need to really scrutinize that deal, look at it so many different ways, make sure you go through the entire process of due diligence, whether it’s your underwriting, whether it’s inspecting the property, whether it’s inspecting the sellers, you have to dive through it and you have to make sure, and looking at it from a logical objective point of view; get your emotions out of it. Don’t pencil whip the deal, as one of our coaches likes to say, to make the numbers up, to make them work. Really take a logical, unemotional approach and dive into due diligence. And if you can have a good due diligence process, it’s going to save you a lot of time and it’s going to save you a lot of mistakes, and ultimately, it’s going to save you a ton of money.

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

Gino Barbaro: Yep.

Break [00:19:04]:03] to [00:20:06]:09]

Theo Hicks: Alright, so I think you already answered this, but maybe you’ll give me a different book, but what is the best ever book you’ve recently read?

Gino Barbaro: I’ve read so many books in the last two months being shut in and doing all the work… I think all the listeners out there talking about raising capital, they need to read the book Pitch Anything by Oren Klaff. We had him on our podcast, he is a really entertaining dude, but his book Pitch Anything is amazing. It’ll help you actually create a pitch for yourself and really speak to investors differently than you are right now. So go pick up that book, Pitch Anything by Oren Klaff.

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

Gino Barbaro: Rebuild it.

Theo Hicks: Alright, let’s talk about a deal that you lost the most money on. How much did you lose and then what lesson did you learn?

Gino Barbaro: I love that question, because that’s an easy one for me. 2006 November, bought a strip mall, 19,000 sqft up in Dutchess County, New York. It is about an hour and a half from New York City. It’s a dying market, I don’t know it – remember I said due diligence… I didn’t know what the market was, bought it in the wrong part of the market cycle, didn’t have an exit strategy, and the debt that I’ve gotten on it was terrible. So I made every mistake possible. I overpaid for it, and then I over-fixed the property, held it for ten years. And the worst part about losing half a million dollars in a deal was not the half a million dollars, because owning it for that long, you get a lot of learning lessons, you learn a ton about how to deal with tenants. The problem with owning something for ten years is the time that’s just sucked out of your life. Having that ability to not be able to focus on other things while I was worrying about this property – getting a call from the property manager every other day saying we’ve got a problem here. I should have cut bait and sold it sooner. One of the best things I ever did was sell the property for a huge loss, and got it off the balance sheet, got it off my mind, and I think about that property every three months now, which is great, so my mind can be used and spent on different things.

So for me, I’m beating the drum, Theo, but if I had really done my due diligence, if I’d really gotten educated, I would not have bought that property because it was in the wrong part of the market cycle, it was in the wrong market – no growth, no job growth, no population growth. I had terrible debt and I didn’t know why I was buying it. I didn’t know what I was ultimately going to do. Was I going to hold it long term? Was I going to refinance it? Was I going to flip it out? I didn’t think of any of these things before I got into the deal, and if I had, I would not have paid for that property, or I probably would have paid a couple of hundred grand less and gotten less. As far as pricing, I probably would have paid a ton less for it.

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

Gino Barbaro: For us, you referenced the book, Family, Food, and the Friars. When I was up in New York, I was a pretty big benefactor to the friars, Franciscan Friars of the Renewal, and I would go down to their friary and they’d have soup kitchens; they would deal with the poor in Harlem, or whether it was in Harlem, whether it was in Paterson, New Jersey, I’d just go down there and just spend time with them and cook, whether it was for the neighborhood or for them. I just love to spend time with them, because for them, it’s really giving to others. And I love being around them, because they’re in the service of others less fortunate, and for me, just to share that with my children and just to show my children that there are others out there struggling, for me, it was just a great feeling.

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

Gino Barbaro: jakeandgino.com and if you want to email me, it’s gino@jakeandgino.com. I answer all my emails, Theo.

Theo Hicks: Well, perfect. Thank you for sharing your email address and sharing your best ever advice today. I’ve got three pages worth of notes, just the top takeaways… And Best Ever listeners, make sure you relisten to this episode, a lot of powerful information… But you have a very strong focus on education first, before going out there and taking action. You have your formula, ‘education times action equals results’ and you don’t just mean educating yourself on real estate, but also focusing on the personal development side. You talked about how actually becoming a coach helped you figure out how to ask the right question, which ultimately helped you grow your business better. More tactically speaking, we talked about some of the best ways to build relationships with brokers. We talked about not wasting their time. They don’t want to be your friend, they want to know that you can close on the deal. So opt into their list, do property tours with them, show that you’re serious about taking on a deal, and then sell them what you can actually do by creating that credibility book, and you said that you can find a copy of your credibility book at jakeandgion.com/honeybee, and you gave us examples on what to put in that actual book.

And then always being top of mind – you mentioned getting their phone number and texting them every few weeks just to let them know what you’ve been doing. Again, not to just mindlessly bother them, but to have a specific reason why you’re reaching out to them.

We talked about your top tip for raising money, and that’s about creating a brand. So you talked about how you wrote a book, started a podcast, people started to know like and trust you, you eventually did your first live event, and because of all the previous work you’d put in with the book and the podcast, you were able to get investors from that event. And then also making sure you’ve got a clear understanding of, again, why personally you want to syndicate these deals. And then you also talked about you need money first before you actually find a deal to build that substantive relationship.

And then another really good way to raise money is to teach others how to raise money, because then you come across and portray yourself as an expert. And then lastly, your best ever advice which – it takes us full circle back to the education, which is understanding how to do proper due diligence, and that all the mistakes you’ve made has been because of not knowing what proper due diligence is. You gave us a perfect example of that property you did in November 2006. You gave us the exact specific date of when you actually did that property.

Gino Barbaro: That’s right. Painful, painful. November 6, bro. November 6th, 2006. I’ll never forget that. It is ingrained in my mind. That’s a good thing though, because if I hadn’t done that deal, then I never would have gotten into multifamily and I never would have dove into the education aspect. I would have continued to wing it.

Theo Hicks: Absolutely. And then the last thing you mentioned was about making sure you’re able to take the emotions out of the due diligence process, don’t try to– what was the words you used about penciling it in?

Gino Barbaro: Pencil whip. If you pencil whip a deal, you’re just making those numbers up. You’re making the deal work. And don’t fall in love with the deal, fall in love with the numbers.

Theo Hicks: Exactly. Be very logical and objective about it. So again, Gino, really appreciate it. Everyone, definitely relisten to this episode; very powerful. Thanks for joining us. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

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JF2167: My First General Partnership Deal With Alexander Felice #SituationSaturday

Alexander Felice is a career banker working in risk analysis for SBA lending. Alex is a previous guest on episode JF1614 and is now back after completing his first general partnership deal and today he joins us to share the lessons he has learned through this deal. 

Alexander Felice Real Estate Background: 

  • A career banker working in risk analysis for SBA lending
  • 6 years of real estate investing experience
  • Portfolio consist of 40 BRRRR deals, and a 24-unit multifamily 
  • From Fayetteville, North Carolina
  • Say hi to him at: https://www.brokeisachoice.com/ 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Start off small to get your reps in first, proof of concept, before doing bigger deals” – Alexander Felice


TRANSCRIPTION

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

Alexander Felice: I’m extremely well. Thanks for having me.

Theo Hicks: Absolutely, thanks for joining us. So Alex is a repeat guest. So make sure you listen his first episode; it’s Episode 1614. Since today, I didn’t know it’s Saturday, we’re gonna be doing a Situation Saturday where we talk about a sticky situation that our guest is in, and have a conversation about any challenges he’s facing and what he is doing to overcome them. So that’s gonna be the focus of the conversation today, but before we get into that, let’s go over Alex’s background as a refresher. He’s a career banker working in risk analysis for SBA lending; he has six years of real estate investing experience, his portfolio consists of eight BRRRR deals and a 24-unit multifamily. He’s from Fayetteville, North Carolina, and you can say hi to him at brokeisachoice.com. So Alex, before we start talking about your sticky situation, which is your first JV deal, do you mind telling us a little more about your background and what you’re focused on now?

Alexander Felice: Yeah. So I got into real estate trying to — I had a job I hated, so I had to get out of it. So I started buying single-family homes, because I was broke, and that’s all I could swing, and that went well for a little while, but it doesn’t take long before you realize that there’s no economies of scale, which is probably something everybody who listens to the show already knows or has figured out – that you have to go to big multifamilies to get the economies of scale. So after about eight of them, I started moving towards that, but it’s a challenge to grow, for me at least, to go up to– some people do hundreds of units in their first bid; that was not something that I was capable of, so I switched into slowly going towards multifamilies, and lately, I’ve been doing flips. I still want to do multifamily, but I’m just gonna go a little bit slower than I had anticipated, but yeah, that’s the transition that I’ve been at.

Theo Hicks: Sure. So you’ve got the 24-unit multifamily. Is that the JV deal?

Alexander Felice: Yeah, last June, we closed on a 24-unit multifamily. I did it with four other people, all of which whom I met on the internet, which was neat, and our original intent was to syndicate, but the 24-unit at a million dollar purchase price, it didn’t warrant the cost to do that. So we JVed it, and it’s gone reasonably well, with some hiccups.

Theo Hicks: Sure, yeah. So before we get into the hiccups, I want to just set the stage a little bit more. So you mentioned it as a $1 million purchase price. What was the original business plan?

Alexander Felice: So the plan was, it was five people who had never done this before, and we all have the same idea – multifamily, buy for cash flow, value-add if we can. We wanted something that– we were worried about preservation of capital first, and more so than anything, I wanted the experience. I have a giant ego and so I was trying to make sure that I didn’t let that run the show. I said, “Look, I just need to get one of these. I need to get five partners that I know I can return money to, and get the experience,” and then– I have a long life ahead of me that I can buy bigger, bigger deals. I didn’t want to go off and buy something that I couldn’t handle the first one. So idea was to get my reps in, proof of concept, get one done so that I knew I could do it and then the sky’s the limit.

Theo Hicks: How did you find the deal?

Alexander Felice: Broker. We were talking to brokers for probably four or five months, just looking at everything. One of the partners was just looking at deals, looking at deals, looking at deals. So this one, he brought to me, my partner; he brought it to me and we looked at it. It was in an area that we knew well that I already invest [unintelligible [00:06:19].18]. It was about what we wanted to do, and I wish there would have been more value add, but it was a deal that we knew we could make money on and we said, “Okay, let’s snowball.”

Theo Hicks: Perfect. So a million dollar purchase price, found it through a broker. The last thing I want to know is about your partner. So you said you met him on the internet. Do you mind walking us through that? I mean, a lot of people do that as well. I actually met Joe through the internet and I’ve been working for him for four years. So I’m just curious, can you walk us through how you met those four people in more specifics?

Alexander Felice: Well, on my website, what I’ve been doing as an experiment for three years now, interestingly, is I put up on the contact page — so the first thing you see is, “Do you want a video chat with me?” There’s no strings attached, there’s no nothing, no cost, no– I don’t sell anything. So I just put it on there and see who will reach out, and sure enough, I booked a month out for Thursday nights, and strangers just going on the internet and they video chat me and I do deals with some of them. So these are four people that I met through doing video chat with me, because they just wanted to be interested in what I was putting together.

I’m very transparent on my website about the deals that I do and how I do them, so it resonates with certain people. So people reach out to me and over time, it was, “Hey, I want to do multifamily next,” and so you say that to people enough– the rule of investing or the rule of networking is, just tell everybody what you’re doing. And so I’m very loud on social media, and I’m very loud on the internet, and it attracts the people that I needed. So over time, I got four other people that wanted to do the same thing as I did. They wanted to be part of what I was putting together, and it’s not more complicated than that. It’s just you have to put yourself out there and you have to be consistent, you have to be loud, and it inevitably will attract the people that wanna do the same thing as you.

Theo Hicks: Can you give us an example of you being very loud on social media?

Alexander Felice: I don’t go– No, I guess not. I wear a lot of bright pink. I say things that other people think they’re controversial. I don’t think any of that I say is controversial, but I’m very unapologetic on the internet and I’m not good at marketing strategy. I’m just good at saying my authentic thoughts and I’m just good at saying them loudly, and I do it quite often.

Theo Hicks: Perfect. Okay, so we’ve get the context for the deal set–

Alexander Felice: For instance, my website is called Broke is a Choice; that’s a jerk thing to say to a lot of people. That’s the thing I mean, where broke is a choice, but it’s a little bit rude; that’s my style.

Theo Hicks: Yeah, I like it. So when I first read that, I was like, “Ah, it’s a really cool website. I like that.” I think it’s a lot of attention because of that website.

Alexander Felice: There you go. That’s it.

Theo Hicks: And in the pink too. I’m sure the pink helps as well. Okay, so 24-unit, four partners, including you. We talked about how you met them, purchase price, how you found the deal. So the deal’s purchased. You mentioned that it’s going relatively smoothly. Maybe explain to us what happened after you bought the deal.

Alexander Felice: So I’m a career banker, so I should have known this, but I made– one big error that I made was, I didn’t anticipate the maintenance costs to go to escrow to the bank. So we have a certain percentage that goes to reserves to the bank every month that comes out of cash flow. Well, I didn’t anticipate that in my projections. So that cost every month, plus insurance on year one charged me for year one and year two. The bank took the second year to an escrow. So I have about 10% of my gross potential income that comes out of cash flow every month. Is it the end of the world? No, not a little bit, but it does reflect on my ability to pay out investors cash on cash year one.

Theo Hicks: I’m sorry, but before you continue, I’m just confused. So it was reserves — so you’ve got reserves coming out each month. What about the insurance? You’re saying it was a lump sum?

Alexander Felice: No. So say I have $13,000 a month in gross potential rents. Well, I have $500 a month that goes to the bank for repair escrow. Now that’s pretty standard. I just fumbled it, I was paying attention to a lot of the things. So I put that into the projection. So $500 a month comes out and it goes to the bank. Now that’s our money, but we don’t get it every month. We won’t get it till whenever, probably two or three years down the road. The second one is $715 in insurance. Now, we pay $750 in a month in insurance for year one, but the bank is taking an additional $715 a month for escrow to pay for year two. Now that’ll come off at the end of year one, but for that first year, we have $1300 a month that comes out of our cash flow to go to escrow costs; that’s 10% of gross potential rent. It’s not painful, but it’s really annoying.

Theo Hicks: It wasn’t disclosed to you by the lender at closing?

Alexander Felice: It was probably something that would have been caught by anybody who’s done this before, and I should have caught it myself, but when you’re doing these deals your first time, and everybody who had done this on this team was a first-timer, it’s one of those things that just slipped by us, and I wish I would have better accounted for it. It’s not the end of the world, but it is very frustrating, because it messes up my year one cash on cash returns for investors.

Theo Hicks: 100%, yeah. Okay, any other challenges with the deal?

Alexander Felice: Yeah, it’s too small. I’ll never do 24 again; that’s ridiculous. It’s way too small. Most of our problems were scale problems. I’m trying to think of some good examples, but my first thought was to go to multifamily for economies of scale, but I don’t think you’d get economies of scale until you get to probably– now that I look back, probably 100 units is what you really need. Maybe a little less than that, but 24 is not enough, at least not for us. The rents are $600 to $625. I’ll never do that again. I don’t want anything less than mid-market rents, and that’s in my market $1,100 to $1,200. Maybe some of that is personal reasons, personal approach, but these are the things that I learned. Went too small, we were too timid with the money, we should have gone bigger, we should have been bolder, and I think it would have actually made us more.

Theo Hicks: Are you managing the deal yourself or is there a third-party management company?

Alexander Felice: We have a third-party management company.

Theo Hicks: Okay. Do they have someone on-site?

Alexander Felice: No, it’s not big enough to do on-site management, in-house, to do it full time with them. So we have a third-party management company. I love them; they’re working out fantastic, they’re taking great care of the place. Actually, our expense ratio is less than the previous owners who were self-managing. So I don’t have a problem on the expense side. What I have a problem really is– so we bought it in mid-2019 at, now we know, at the top of the market. I knew it then, but mania gets, I think, everybody in the beginning at least, “I should just pay less.” But the property is being run as well as it possibly can be, in my opinion. We just have the deal up a little bit shaky. And we’re going to end up making good money in this property, I just look back and think of all the things I could have done better.

Theo Hicks: Yeah, totally. So you’ve got four other people. What is everyone’s role in the joint venture?

Alexander Felice: So my main partner – we have somebody who does the financial side, so they’ll do my books, and then another guy just helped us get it and he’s helping us get the next deals, and then some people play less of a role than I would have liked, but I’m okay with that. So I just do– I manage the property manager and I manage monthly reports. My other main partner does the accounting books, and then another guy’s doing acquisition side.

Theo Hicks: Did everyone involved invest money in the deal?

Alexander Felice: Yes, I did this so everybody went in equal, or very close to equal. Me and my main partner have a slightly larger share, so that we can take the guarantee, and then the other partners didn’t have to take the guarantee, and they took a small share for it. I spread it out equally so that I could– how do I say it? People are taking a chance on me because it’s my first one, so I just said, “Hey, look, just believe in me. I’ll give a return and I don’t care what the work costs me, I just want to make sure that I can show that I can get this done, I can show a profit, and then I’ll take a bit of cut in the next one.”

Theo Hicks: Yeah, exactly. So since everyone’s in the deal for equal amounts, are the profit split done equally as well?

Alexander Felice: Yep. You’re split with the amount that you put in, both equity and cash flow.

Theo Hicks: Okay, perfect. Any challenges with doing a JV as opposed to doing the syndication route? Any challenges with control, or everyone having a say, anything like that?

Alexander Felice: No, but people is my specialty. So I didn’t expect any of those challenges from the start. Everybody knew that I was gonna lead the deal for the most part, and that’s worked out well. I didn’t take in anybody that I thought it was going to be more of a hassle than I was willing to take on. So I haven’t had any problems with that. The syndication route, I’m up for it in the future. I underestimated the challenge of the cost to price balance of doing syndication. With the syndication, thhe attorney costs you 15 grand, it’s like, “Dude, don’t do it on a million-dollar deal. It doesn’t make sense.” But the problem is not that we should have syndicated, the problem is that do a bigger deal. That’s the correct solution, in my experience.

Theo Hicks: So with all the lessons you learned, what would be your ideal next deal?

Alexander Felice: I would like an A or B Class property in a bigger area, in a growing area with higher rents and more investors. I would go bigger even if it means less returns. I think the stability is worth the premium by a longshot. The C Class properties, the numbers look good, but it’s just not what I would do again. I’d go with an A Class property in Raleigh or Charlotte, that’s what I’d prefer.

Theo Hicks: And then do you have a network of people that if that ideal deal were to fall into your lap tomorrow, you could raise the capital?

Alexander Felice: I think so. Funny, in this business everybody who’s done no deals – that uphill battle is really hard, but once you do one, it’s like the doors really open up. So obviously that gets bigger as you do more. I think I have– a lot of people didn’t want to do the first one with me, even though I’ve been doing single-families for a long time, and I have a big social media presence, a lot of people were interested… But I’ve had literally people tell me, “Yeah, I’ll do the second one with you. I don’t want to do the first one with you.”

And also, the first one, you don’t have a problem with — it’s hard for me to explain. I have a problem selling the first deal to people, because you don’t really know if it’s going to close when you get a hold of it, because I was new… And so you go to somebody, it’s like, I really can’t sell them as confidently as I’d like, because I’m not sure how to do this. So they can feel that, and that hinders me. So it’s like a cyclical thing; I’m not as confident so they aren’t as confident, so then I’m not as confident. When we go to do this next one, I think that will be mostly entirely removed, and so I’ll be able to much more confidently go out and get funding, and I’ll have learned a lesson from this first one, and I perceive that to be a much lesser problem.

Theo Hicks: Alright, Alex, is there anything else that you want to mention before we close out the interview?

Alexander Felice: Buy something that makes money. You can grow, you don’t have to do everything on your first one. Ego, I’m prone to ego, and it got me in a little bit of trouble on this one, and I know that problem for other people, but I play the long game. This multifamily thing, it works, but you don’t have to do it on the first deal.

Theo Hicks: Alright, thanks for sharing that. Alright, Alex, well, I enjoyed this conversation. I look forward to checking out your Broke is a Choice website and some of your comments on social media, but in the meantime, some of the biggest takeaways that I got from the episode was – number one, how you were able to put together a joint venture deal with four people you’d met on the internet.

I really liked your strategy of having a “Do you want to video chat with me?” on your contact page, and that’s how you were able to meet the individuals you did this deal with. You also mentioned how the roles and responsibilities were allocated, but your biggest lessons on this deal was number one, not anticipating the reserves that need to go to the bank every month, as well as having to pay a monthly insurance rate that was covering year one and year two during, year one. So another is understanding what the lenders’ criteria is for reserves and insurance and taxes. I know taxes is another thing that people talk about as well, that might be a little bit different in year one.

The second thing you said is that 24 units is too small, because most of the issues that you’ve come across have been economies of scale issues, and so you prefer to focus on 100 units or more, because that’s where economies of scale come into play. You also mentioned that you wouldn’t do $600 to $625 rent ranges anymore, and that you want to go a little higher than that. You also mentioned that you probably should have paid a lot less for the deal, but were really excited.

Alexander Felice: A little less, Theo. Not that much, a little less.

Theo Hicks: And then the last thing we talked about having a little bit of trouble selling the deal confidently – because you hadn’t done it before, so you weren’t exactly sure how things were gonna play out, so you didn’t feel comfortable saying something you didn’t really feel confident and comfortable with, and then in turn, they could feel that, so they were less confident and it’s a negative feedback loop.

So again, Alex, I appreciate you coming on the show. Make sure you guys check out his previous episode; again, that’s 1614. Go to the website Broke is a Choice, take advantage of the free video chat. It’s not every day that guests offer that to listeners. 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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JF2166: House Hacking Together With Sam & Nick Riccio

Sam & Nick Riccio have been in real estate for 3 years and currently own 6 doors consisting of a condo, triplex, and duplex. They are solely focused on house hacking, and they share how they went about house hacking their way to 6 doors and share why they decided to take this route instead of buying and renting out properties. 

 

Samantha & Nick Riccio Real Estate Background: 

  • 3 years of real estate experience
  • Currently own 6 doors, consisting of a condo, 3-family, & 2-family home
  • From Boston, Massachusetts 
  • Say hi to them at: www.eaglehill-properties.com 
  • Best Ever Book: The one thing

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Network and focus on your plan, don’t get caught trying to compare yourself to others.” – Sam & Nick Riccio


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. My name is Theo Hicks and today I’m speaking with Sam and Nick Riccio. Sam and Nick, how are you guys doing today?

Nick Riccio: Good. How are you? Thanks for having us.

Samantha Riccio: Happy to be here.

Theo Hicks: Absolutely, I’m doing great. Thank you for being here. I look forward to our conversation. Before we get into that, a little bit about their background. So they have three years of real estate experience, they currently own a six-door consisting of a condo, a three-unit and a two-unit, they’re from Boston, Massachusetts, and you can say hi to them at eaglehill-properties.com. So Sam and Nick, do you guys mind telling us a little bit more about your background and what you’re focused on today?

Nick Riccio: Absolutely. So as you said, we started investing back in 2017, we’ve been house hacking small multifamilies in Boston, and we’ve primarily been focusing on that, like I said, for the last three years, and now we are just renovating our duplex that we will be owner-occupying once we stabilize the property.

Theo Hicks: So you’ve got the condo, the three family and then the duplex you’re working on now. So all three of those were house hacks?

Nick Riccio: Yeah.

Theo Hicks: Perfect. So which one was first, the condo or the three-family?

Samantha Riccio: The condo was first and then the three-family came after. It actually started as a duplex and we converted it to the triplex while living in it.

Theo Hicks: Perfect. Let’s talk about the condo first. So I guess, maybe taking a step back first, why did you decide to do the house hack as opposed to just buying it and renting it out?

Nick Riccio: We wanted to get started in Boston. We really like the market, we’re here locally, so we thought it was a good way for us to get our feet wet and be close to our properties. Really expensive market. So for us, that was the way for us to enter the market, being able to get in at low down payment and get started that way.

Theo Hicks: Perfect, and then what did you buy the property for and then which house hack loan did you use?

Nick Riccio: We bought the condo at a conventional low down payment loan, I think we put 5% down, and then on the duplex/triplex conversion, we did an FHA loan and put 5% down.

Theo Hicks: What was the purchase price of the condo?

Nick Riccio: It was $325,000.

Theo Hicks: How long did you guys live in that property for? Was it turnkey or did you invest any more money into it?

Samantha Riccio: Yeah, so the condo is turnkey, and we lived there for about seven months, and that’s actually how we ended up acquiring that duplex. It was an attached property and our neighbor on the other side who was actually living in that duplex and the landlord’s currently living above her had reached out to me after we had been living there for, like I said, about seven months, and we had become friendly, and she was like, “Hey, my landlord’s selling. I’m gonna have to move. I love the area.” She was all bummed out, and I had asked, “Hey, can I have your landlord’s info? I’m actually really interested in the property.” So we bought it off-market that way and that’s how that came about.

Theo Hicks: You said that was your neighbor, that was in the same building?

Samantha Riccio: Yeah. Yes, it was three condos on one side, and then on the other side, like I said, it was a one-unit at the bottom and then the landlord, that current owner had lived [unintelligible [00:05:44].09] level unit upstairs. But from the outside, it looks like it would be a six-unit building. So we shared a back porch and became friendly that way.

Theo Hicks: Nice. So you bought the duplex after living in the condo for nine months, and then that’s the duplex you converted into a triplex, right?

Samantha Riccio: Yeah.

Theo Hicks: So maybe walk us through that. So did you know beforehand that it can be converted to a triplex, what made you decide to convert it into a triplex, and then walk us through the numbers on that deal.

Nick Riccio: Yeah. So because it was an attached building, like Sam said, it looks like a six-family home. So we knew that since our side of the property was put in three condos and it was an identical layout, we had a really good understanding that it would work, and then on top of that, we were able to do some research with the city, and see that at one point it was used as a three-family. We were actually able to find the original blueprints from a million years ago. So we were able to do some of that due diligence, which led us to feel pretty confident about it.

Theo Hicks: Did you know you were gonna convert it to a triplex before you bought it or was it after you had already acquired it?

Nick Riccio: It was part of our due diligence. We ran it both ways, we were trying to see– we had a larger unit and it was just two units if we’d be better off, but we decided it would be more advantageous to have it as a three-family.

Theo Hicks: Perfect. So what was the purchase price and what was the cost to convert it to a triplex?

Nick Riccio: I purchased it for $630,000, and we did the rehabs in two stages. We allowed that tenant that brought us into the loop on the house, we allowed her to stay. So we didn’t renovate her unit, but we converted the second and third floor and we separated them and did that work, and then later we did the first-floor unit once that tenant moved out… But all-in it took us about $80,000 to do the renovations.

Theo Hicks: So you moved out of the condo and into this triplex now. What did you rent the condo out for once you left?

Samantha Riccio: Yeah, so we rented the condo out at that point for just covering our mortgage. We made 20 bucks on a good day, but it’s been a few years so now we’re able to profit a little bit from that. So it was $1,900 dollars for the one bed/one bath condo.

Theo Hicks: That’s what it is now is or that’s what it was in the beginning?

Samantha Riccio: That’s what it was in the beginning. Now we’re at $1,950, I believe.

Theo Hicks: So you moved into the triplex after the renovations were done, and then once the tenant moved out downstairs, you renovated that unit. So purchase price, $630,000, investment was 80k. What were the two rents you got from the two units that you did not live in?

Nick Riccio: Before we renovated the first unit, we were collecting $2,900 between the two units. So it was $1,950 in one unit and then that first-floor tenant was only $1,000 a month. After we renovated it, that $1,000 rent became $1,950 per month.

Theo Hicks: Nice. And then do you guys still live in that three-unit now while you’re doing this second duplex?

Nick Riccio: No, we actually moved out, because we wanted to fully stabilize it. We moved out and we’re actually back living with Sam’s folks here while we’re renovating that property.

Theo Hicks: Is that unit you moved out of also rent at $1,900?

Samantha Riccio: No, we’re actually getting $2,200 for that unit. It was our owner unit, so we put in a little bit more; we had a washer dryer in the unit, it also came with a parking spot, and we do also have additional parking out back that we rent out for additional income as well, to increase the rental of the property.

Theo Hicks: So you’ve got the duplex now. Do you wanna walk us through how you found that one? Was it off-market or was it MLS deal? How did you find it?

Nick Riccio: We found that on the MLS.

Theo Hicks: What did you buy it for and then what’s the rehab cost right now?

Nick Riccio: This one’s a pretty big project for us right now. We purchased it for $840,000 and we’re gonna put about $130,000 into it in renovations. We’re finishing the basement to make a bi-level unit which will turn into a five-bed, two-bath. So quite a bit of work there.

Theo Hicks: Duplex, you’re finishing the basement to add additional space to one of the units or is that single unit right now and you’re making it into a duplex?

Samantha Riccio: Yeah, so adding additional space to one of the units. So the first-floor unit was a two-bed, one-bath and then when we walked the property, it had crazy ceiling heights in the basement, like over 8ft, which is obviously tough to find, especially in the Boston area. So we decided to add down to the basement adding three beds and one bath. So altogether, it’s a five-bed, two bath unit, and then we’ll live in the upstairs which we’ll  have renovated as a two-bed, two-bath.

Theo Hicks: That’s what I was gonna ask you next – which unit you guys gonna pick, but it was a 100% smart move. So how much do you think you’re gonna rent that big unit out for?

Samantha Riccio: We actually already have a signed lease and they signed the lease when it was fully framed, just completely under construction, for September 1st; that’s a pretty common rent cycle here in Boston, and they signed for $6,000.

Theo Hicks: For how much?

Samantha Riccio: $6,000.

Theo Hicks: Oh, wow. Are all the properties in the same market or are they different neighborhoods in Boston? Obviously, it’s a big city, so one street over might be a little bit nicer than the next street. So I’m just curious, because $6,000, as opposed to $2,000, is a pretty big difference.

Nick Riccio: Yeah, they’re really close. But yeah, one of the neighborhoods– the condo and the triplex are in a neighborhood called East Boston, which is now a really up and coming area, which is why we chose it, but it hasn’t matured yet. The duplex is in a neighborhood called South Boston, which is your young professionals, lots of buyers, lots of restaurants, beaches, really close to downtown. So it’s a hotspot for the young professionals.

Theo Hicks: So you guys are moving around a lot. Do you guys plan on continuing to house-hack, or at some point you will you stop doing that and rent or buy your own home and then start buying this straight up regular traditional loans? Just curious.

Samantha Riccio: Yeah, we’ve definitely moved quite a bit, especially now jumping back to my parents’ house. We lived with Nick’s parents for a little bit during our last renovation, so we’ve moved a lot. We’re planning on staying in the duplex for a little while, and maybe exploring some different financing with commercial loans and trying to maybe dip into the condo conversions here. It’s pretty big in the Boston area, and then be able to use that profit to roll into more rental properties, and then as far as us, we talk all the time – who knows where we’ll land; but we’re definitely open to continuing to house hack as we find the properties.

Theo Hicks: How are you affording the down payment? So you said you got $325,000, 5% down, you’ve got a $630,000 plus the 80k renovations, and I think you said that was FHA, so I’m assuming that’s 3.5% down, and then you’ve got the $840,000 purchase price with 130k in renovations with 3.5% down. So how are you covering the down payment and how are you covering the renovation costs?

Nick Riccio: That’s a good question. So they’ve all actually been 5% down. So the FHA allows 3.5%, but with the competition here, most sellers, we’ve found they’re not happy with the 3.5%, so we’ve been forced to go to 5%. But most of the down payment and the funds have come from us just personally saving, and then credit cards and things like that, and then now we’ve recently started to use a home equity line of credit. So we’ve been able to use that for some renovations, then we were able to use that actually for a portion of the down payment for our most recent acquisition.

Theo Hicks: Are the renovation costs? Because I know the first one was turnkey, but with that second one and the third one, the 80k renovation and the 130k renovations – are those included in your FHA loan, or are those on top of the FHA loan, and you paid out of pocket?

Nick Riccio: Those are out of pocket. So the numbers I gave was just acquisition.

Theo Hicks: Alright, Sam and Nick, I want you guys both to answer this question – what is your best real estate investing advice ever?

Samantha Riccio: Alright. So mine’s definitely going to be network.

Nick Riccio: And I would say mine is focus on your plan, don’t get caught trying to compare yourself to others with it being so easy now with social media. Just stick to your plan.

Theo Hicks: Any tips that you have for creating a real estate business with– I’m assuming you guys are married, right?

Samantha Riccio: Yes.

Theo Hicks: Any tips on how to successfully navigate creating a business with your husband and wife?

Samantha Riccio: There’s a laundry list, but I definitely think communication is key. We over-communicate to a fault even sometimes, but there’s a lot of moving parts every single day, especially with all these projects going on. I think keeping each other in the loop, keeping a to-do list that we can both have eyes on, cc-ing each other on emails. We start the day talking about what we want to get done and we need to get accomplished and we end the day doing the same things, and in middle of that day [unintelligible [00:14:18].13] we both feel like we’re on the same page.

Theo Hicks: Anything else to add to that?

Nick Riccio: I’d say that’s really it, and the biggest thing is the communication. We’re moving towards trying to just use the same inbox, because it’s hard just constantly relaying messages to each other when you’re getting a ton of them a day. So I think just being able to always have each other in the loop is probably the biggest thing.

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

Samantha Riccio: Yeah.

Nick Riccio: Let’s do it.

Break [00:14:47]:09] to [00:15:55]:03]

Theo Hicks: Okay. So I’d like both of you guys to answer each of these questions. First one is what is the best ever book you’ve recently read?

Samantha Riccio: Rich Dad, Poor Dad.

Nick Riccio: The One Thing.

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

Samantha Riccio: Start it back up tomorrow,

Nick Riccio: Start networking as soon as possible.

Theo Hicks: Out of all of these deals you’ve done so far, which one did you make the most money on? Let me take that back. What was the best deal out of these three deals, and it could be money or something else? Why was it the best?

Samantha Riccio: I’m going to go with the duplex, because we’re getting a great living space out of it, definitely the best we’ve had, and money-wise, we’re thinking we’re going to have hopefully $500,000 of equity in it. So we’re feeling like that’s a pretty good deal.

Nick Riccio: Yeah, and I’d say the triplex, just because it’s shown us how powerful the cash flow piece is and it’s allowed us to take more risks moving forward.

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

Samantha Riccio: Definitely connecting with our audience on Instagram. We started our Instagram account not too long ago and have really connected with a bunch of people on there and talking to new investors and current investors. So I just think that free knowledge and networking is a big part of it.

Nick Riccio: For us, now that we’re seeing the power in real estate, we’re actually trying to bring our parents into the fold so we can help get them prepared for their soon to be retirement.

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

Samantha Riccio: Probably Instagram. Like you mentioned, we do have our website but Instagram is @renosandrealestate. We’re on that every day checking our direct messages and love connecting with people there.

Theo Hicks: Perfect. Alright, Sam and Nick, I appreciate you guys coming on this show and sharing the details on all of your house hacks. So we talked about your first condo that you bought for 5% down, $325,000 turnkey property, lived there for seven months and then ended up buying the duplex/triplex that was on the other side of the same building as you, and you spoke to the neighbor and they said that the landlord was selling and you contacted the landlord and ended buying that one for 630k, and then did a two-stage rehab where you first converted the larger upstairs unit into two units, and then once the bottom tenant moved out, rehabbed their unit, and you mentioned that you were able to get $1,900 dollars for two of those units and $2,200 for your unit once you moved out, and then when you moved out of that condo, you were able to get $1,900 at first and now you’re getting about $1,950 in rent. And then next the duplex you’re working on now which you found on the MLS – a larger project, 840k purchase price, 130k renovations, you are converting the basement into an additional three bedrooms and one bathroom, I believe, and then you already have a lease signed for $6,000; it’s great to hear. And then you plan on staying here as [unintelligible [00:18:39].00] for a little bit longer and then are potentially exploring some condo conversions. How you’re funding all these is all 5% down and it’s just personal savings, credit cards and then you did mention that on this most recent deal, you’ve been able to use a HELOC loan for the down payment.

We talked about your best ever advice. Sam said networking, Nick said to focus on your plan and don’t get caught up comparing yourself to other people, and then your main tip for creating a business with your significant other, husband and wife, is to make sure you have very good communication, which I’m sure is good for relationships in general, but especially when you’re doing business together.

Sam and Nick, I really appreciate you coming on the show and sharing your journey with us. I wish you the best of luck with this current duplex and on any other future house hacks that you do, as well as teaching your parents how to do the same. Best Ever listeners, as always, thank you for listening. Have a best ever day and I’ll talk to you tomorrow.

Samantha Riccio: Thanks so much.

Website disclaimer

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

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

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

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

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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JF2163: Anesthesiologist To Real Estate With Leslie Awasom

Leslie is the Co-Founder and Director of Operations of Xsite Capital Investment LLC. He is originally from Africa and in 2008 started as a healthcare provider and eventually found his passion for real estate. Leslie shares the lessons he has learned through some of the mistakes he has made during his journey.

Leslie Awasom Real Estate Background:

  • Co-Founder and Director of Operations of Xsite Capital Investment LLC
  • 3 years of real estate investing experience
  • Bought first property in 2017 and in 2019 invested in a 192-unit apartment
  • Based in Hanover, Maryland
  • Say hi to him at: https://www.xsitecapital.com/ 

Click here for more info on PropStream

 

 

Best Ever Tweet:

“Always be ready for changes because things don’t always go as planned” – Leslie Awasom


TRANSCRIPTION

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

Leslie Awasom: I’m good, Joe. How are you doing?

Joe Fairless:  Oh, I’m doing well and I’m grateful to have you on the show. A little bit about Leslie – he’s the co-founder and director of operations at Xsite Capital Investment, he’s got three years of real estate investing experience, bought his first property in 2017, and in 2019 invested in a 192-unit apartment community, he’s based in Hanover, Maryland. With that being said, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Leslie Awasom: Sure. Joe, by the way, thanks for having me here. So a little bit about me. I’ve been in the US for the last 20 years, came here from Africa 20 years ago, and in 2008, I started my career as a healthcare provider. I was there and I witnessed what was happening with the economy. I got to see some older nurses that I was working with lose a significant portion of their retirement as a result of the economic crisis of 2008, and that scared me and left a little bit of an impact on me. I wasn’t quite sure where to go or what to do, but at that point in time, I had made up my mind that I wasn’t going to find myself in the similar positions as those nurses.

So fast-forward a few years later after getting my masters and working as an anesthesia provider, I wasn’t really feeling like this is where I wanted my life to end. I loved the role that I was providing at that point in time, but I needed more. So I started just looking up and trying to read some articles about investing and other stuff, and I came across a book by Robert Kiyosaki called Second Chance at Your Life and Your Money; read the book and it really connected with me, my situation that I was in at that point in time, opened up my mind to the financial world and investing, in general. So from that book, I decided to take a plunge to educate myself more and then start investing in real estate.

So in 2017 I finally got the courage to purchase my first investment property. It was a rental, did the VRR model. It worked okay, made some errors right there with the first deal, but it worked great and it was a proof of concept for me. It showed me that I could do this, and I really, really enjoyed myself while managing the property and going through the renovation process. So that was the jolt I needed to dig in more into the real estate and keep pushing forward. So later on down the line I met my partner, Tenny Tolofari, and we connected on the real estate side and on finances and personal development, decided to partner up together and focus on multi-family investing.

So we started Xsite Capital in 2019, we started our meetup as well, started going out there, meeting people, connecting with other investors and other industry leaders like yourself, and in 2019, we were invited onto a 192-doors apartment community in Atlanta, which was our first investment; it went out great and this year we’re pushing forward. We now have another 49-unit on the contract that we’re currently in the raise portion for and hoping to close next month.

Joe Fairless:  So the 192-unit, are you two the only general partners on that?

Leslie Awasom: No, we have senior general partners in the deal. We got invited on the deal as general partners, but we were unable to meet the requirements as far as the ways were concerned. A couple of our investors backed out at the last minute, so we ended up as limited partners on the deal.

Joe Fairless:  In 2019 you had a meetup and also you started your company; that was after you did the BRRRR. Let’s just talk a little bit about the BRRRR, and then we’ll talk about some other things related to apartment investing… But with the BRRRR approach, you said it went well but you had some errors on it.

Leslie Awasom: Correct.

Joe Fairless:  What were some things that you learned?

Leslie Awasom: I learned that you’ve got to do estimates the right way. You cannot be over-optimistic when it comes to doing renovations. When I got the apartment, the realtor was– he’s a nice guy, but just [unintelligible [00:06:45].18] and he was the one that really encouraged me to get the property, which I’m grateful for… But he was just throwing out numbers, which I went by and which were not accurate, and I ended up spending double the numbers that he was throwing out. He just looked at the condo and said– he doesn’t think we’re going to spend more than $7,000 for the renovations. I ended up spending about $14,000. Tried hiring one contractor, that didn’t work out, ended up firing the contractor, ended up having to take some time off of work to be the project manager myself, which worked out great and I really learned a lot with that process as well.

Joe Fairless:  $7,000 to $14,000 budget to actuals, what was the difference?

Leslie Awasom: It wasn’t really an accurate estimate. It was just a guess, and that was one of the valuable lessons that I learned, that we have to treat this as a professional business and not just as a hobby. So we didn’t get a professional estimate right upfront. So we just went along with what needed to get done and brought a specialist to come in and look at that and give us an estimate.

Well, at least after the first experience with the contractor that got fired — because he came in and said he was going to do everything for $10,000, but then the first two, three days I was at the job site and he never showed up. So I ended up getting rid of him and then started doing it all on my own. I made some mistakes because there are certain things that I did twice that I could have done once, like doing the total breakdown and garbage disposal. I ended up doing one section first, then got to get rid of the garbage, then have to pay someone again to come and get more garbage from the other side. So just rookie mistakes, but I did enjoy the process; I like doing that.

Joe Fairless:  As far as the contractor goes, knowing what you know now, how do you approach the contractor conversations when you’re vetting them out?

Leslie Awasom: Now, off the bat, I don’t do single families anymore; we now focus on multi-family, and for this, we piggyback off our property managers and let them do a lot of the bidding. But if I were to do it on my own, I would get professional contracting companies and get bids from at least three different contractors and sign a contract with expectations of what I need from my own end and have the contractor give me an expectation of what to expect through the contract. But in the back of my mind, always be ready for any changes, because things don’t always go as planned.

Joe Fairless:  With apartment investing now, transitioning over to what you’re doing now – you’re a limited partner on a deal, so you personally invested in it. How did you qualify that deal? Because it sounds like that was your first limited partnership investment, correct?

Leslie Awasom: Yes.

Joe Fairless:  Okay.

Leslie Awasom: So like I explained, we initially got invited to have a general partnership position, so I got to underwrite the deal myself; I looked at the numbers of the deal, I had studied– credit to you, Joe, because I learned a lot from reading your book on how to classify markets and find the right neighborhoods to invest in, and that is the same format we use as we move forward and select the market, to select the neighborhoods to invest in. So this deal is in Atlanta; very strong market. The numbers on the deal were solid. It’s a B Class asset, which is what we were looking at that point in time in 2019, with everything that was going on, with the call for recession coming and everything coming. So we were focused on trying to invest in a primary market, in a B and above asset, and we had that opportunity to. So I did underwrite the deal, the numbers made sense from a general partner perspective and a limited partner perspective, that we were comfortable putting in our own money in the deal as well. And we try not to offer anything to investors that we’re not comfortable with investing in ourselves.

Joe Fairless:  Just looking at your experience over the last three years, what have been some eye-opening events that have taken place, one or two? Something like, “Oh, well, three years later, knowing what I know now, that’s surprising”?

Leslie Awasom: The first one was regarding that deal, we got caught up into the trap of focusing on finding a deal and thinking that once you have a deal, investors would show up. That is one, and the second one is just related to being afraid of certain things, having fear. A lot of growth has happened since I started this business as a person, and that is the one of the most important things I like about being part of the multi-family business. It’s not just about going out there and growing wealth, it’s about growing as a person. And a lot of that growth has happened from challenging myself to do certain things that I thought were scary at that point in time, and one of those things was sitting and talking to investors or putting myself out there to let people know what I’m doing, which is one of the reasons why we face challenges with raising money for that deal at first.

When we started, we initially spoke to a couple of investors and one of them said they were happy with the deal, they were going to put in some money; the others said the same thing. So we had promises of more than the amount of money that we thought we needed and we stopped raising, and now we’ve learned that you have to raise more than the amount that is required, just so if somebody backs out at the last minute, you have the capital to close as well. The other thing I’ve learned is in order to keep growing in life, I have to keep challenging myself to face uncomfortable situations, and that growth happens on a daily basis and I’m enjoying the process.

Joe Fairless:  What are some ways that you educate yourself from a personal growth standpoint?

Leslie Awasom: I read a lot of books. I listen to podcasts as well.

Joe Fairless:  We’ll get into some of your recommendations in the lightning round, I guess. So taking a step back, what is your best real estate investing advice ever?

Leslie Awasom: Get started. You’re going to have challenges along the way and you’re going to make some mistakes along the way; just learn from them. Don’t just jump into real estate because you think it’s a quick way to make a walk. It’s a long term business. If you’re really dedicated to real estate, get started, network with people, keep pushing forward and it’s all going to be worth it.

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

Leslie Awasom: Yes sir.

Break [00:13:03]:04] to [00:14:12]:09]

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

Leslie Awasom: Best book recently read, I’ll have to say it’s The Compound Effect by Darren Hardy.

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

Leslie Awasom: By educating others about what real estate investing is all about and showing them possibilities of what they could do for themselves if they truly believe in themselves.

Joe Fairless:  What’s a mistake that we haven’t talked about already that you’ve made on a transaction?

Leslie Awasom: I’ll have to go back to the same BRRRR model that we did. Again, it goes back to working, trying to find contractors for ourselves. I had somebody come and do the job, and didn’t do it right the first time because I went for the cheaper option. I ended up going back to the person that gave a higher bid, and no doubt, did a better job. So sometimes cheap is not always better.

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

Leslie Awasom: They can learn on our website, www.xsitecapital.com.

Joe Fairless:  Leslie, thanks so much for being on the show talking about how you have focused on real estate investing for three years now, and the couple of deals that you’ve participated in. Hope you have a best ever day. Talk to you again soon.

Leslie Awasom: Thanks.

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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